Government Procurement Policy

Earl of Erroll Excerpts

Thursday 24th November 2011 Lords Chamber

[The Earl of Erroll]

My Lords, as a taxpayer I have an interest in not seeing billions of pounds of our hard-earned money being siphoned off, primarily to the USA, in excess profit by prime contractors. I probably ought to declare an interest because I help one or two small companies, but none of them is bidding for large government contracts and I will not talk about any of them today. Flexeye, the risk intelligence company, may have some government contracts, but I shall not use any of its experiences when I mention some of the pitfalls a little later. I want to make that quite clear.

This is a time of great hope. As my noble friend Lord St John of Bletso said, Francis Maude made all the right noises and was full of good intentions in his speech last Monday across the road. The problem is that it is easy for things to die a death in the implementation. I am trying to think about how we get innovation into government contracts. Innovation tends to come from the less large companies. Unfortunately, SME has connotations of tiny companies, although at the top end and middle of the “M” they are quite capable of dealing with very large government contracts quite happily. However, they are being tarred with that brush as micro-businesses at the bottom.

How can we get such companies into government contracts? We might try to learn some lessons from the past. I found the PASC report from another place, which was issued on 28 July 2011, very interesting. I have not read the whole thing; it is enormous. However, I read some of the oral evidence from 15 June in volume 2, including that of Martin Rice from Erudine, which has since disappeared, very sadly. However, that is a typical example of a medium-sized company with some innovation.

There is also an interesting comment in the report, which I shall deal with quickly. The PASC noticed that most of the top procurement people in the Cabinet Office, who were running things such as the Office of Government Commerce—which became Buying Solutions and is now called the Government Procurement Service—came from Accenture. I thought about whether this was sinister and decided that it probably was not. The top consultancies attract the brightest people, who know what they are doing. Because the Government lacked the internal expertise to deal with these complicated, new and fast-moving things, they hired the best. However, the trouble is that these people come in inculcated with the belief that only larger organisations are capable of delivering government contracts. Unfortunately, in reality, high performance is not being delivered, which is a great shame.

How do we do something about it? I am told that Vince Cable called the usual suspects—all the prime contractors—into a room and told them to reduce their bills by X per cent. I do not know how much it was. They all went away feeling duly chastened, but do we really believe that they will not claw that money back over the next few years? It is bound to happen.

I look at some of the ways in which the rules make it impossible for the smaller company. A company that I know very well supplies interim managers at a strategic level—heads of HR, CIOs and so on—at around 35 per cent of the cost of the big companies. To do that you must be qualified under a particular framework agreement and the only one open to SMEs was in general management. Suddenly, at the end of 2010, it was cancelled and the company was told that it had to go through one of the prime contractors. Therefore, it went through the DWP’s CIPHER framework, which is run by Capita. The company was then advised that it had either to hand its people over to the incumbent prime contractor or to fire them. For it to be okay for its people, the company handed them over. That is not very good business.

When the DWP was looking at putting contracts out to tender in 2010, it broke its large contract for the rewrite of the system into four or five lots to make it smaller. Some innovative pilots were carried out by various people but these were ignored and, at the end of the day, the DWP handed the contract back to the main incumbent, with the little sop that one other company should handle the legacy system so that there were not too many complaints. Many smaller companies waste a lot of money—six-figure sums in some cases—on tendering. They came to me to talk about it. It is a terrible waste of time and money. This is the challenge. The average OJEU tender takes about 18 months, I am told.

However, there is hope for the future, which is what I prefer to think about. I disagree with the noble Lord, Lord Sugar, who introduced this excellent debate, in one area. I think we must have some local spending. Where you have a regeneration project in certain local authority areas, in some cases it is only local businesses that can supply stationery, services and all sorts of things like that. Years ago I tried to help local authorities with their procurement policies in relation to one company. I noticed that we could easily achieve huge savings through the central buying people. They had got lazy and were charging probably an extra 20 per cent in profit because they had to fund themselves. It was another layer of the procurement process and introduced greater inefficiency, so sometimes central buying does not work. We seem to alternate between central buying, which gets lazy, and repatriating procurement locally. When that becomes inefficient, procurement goes back to being done centrally. Government and everything else is a bit like that, I am afraid; we keep going through these big cycles.

Under this new scheme, 25 per cent of the contract value is supposed to go to SMEs. However, we will have to wait until next spring at the earliest to learn what the new frameworks will say. Knowing government slippage, I bet it will be the summer. How many companies will go bust between now and then while we churn away? What will these frameworks say? The devil is always in the detail. People could very easily be written out of the system. We must make sure that this new proposed dynamic e-marketplace for contracts worth less than £100,000 is open to anyone. We should not suddenly put in subtle things that somehow prevent SMEs qualifying.

I must finish in a second but there is another major point. Because government procurement always wants to compare like with like, it is not open to innovative ideas. It wants to have the tender absolutely locked down for comparison. If you propose an alternative, cleverer, innovative solution, which might be cheaper, you immediately disqualify yourself from the procurement and from the tender. That does not help. It was also commented that, in many cases, 20 per cent of the programme is used to deliver most of the project. It is all these “nice to haves” that cost the money and really inflate the cost. If we drop those, focus on what is really required and handle the exceptions manually, we will probably save huge amounts in some government systems. We must move to agile development methods in which we get feedback from the real world as things develop. We have to stop just developing up front. Flexibility and an ability to change are absolutely essential in this fast-paced modern world. However, it will be very difficult for the Government, who like to deliver certainty and predictability, to handle that.