Infrastructure (South-West)

Gary Streeter Excerpts

Tuesday 24th February 2015 Westminster Hall

[Mr Gary Streeter (South West Devon) (Con)]

It is a pleasure to serve under your chairmanship, Dr McCrea. It is also a pleasure to see the Minister in his place. I recognise that he has not been carrying out his duties for very long. I also know that the issues I am about to raise are possibly cross-cutting, and therefore do not expect him to be an expert on them. There may be some issues on which he will want to come back to me after the event.

I want to raise a specific example of how public procurement of infrastructure in the south-west could, in my opinion, be greatly improved. However, before I get on to that issue, I should say how much I welcome the extra investment the Government are making in our nation’s infrastructure. I often think that Governments do far too much, but one thing the Government can do really well—perhaps only they can do it—is ensure that the country’s infrastructure, whether it be for transport, education, communications or whatever, is in the first-class condition we would expect in a first-class country. I am glad that our disciplined adherence to our long-term economic plan has released the resources to invest in our country in that way.

I should clarify that, for the purposes of the example I am giving, the south-west is the seven counties of Cornwall, Devon, Somerset, Dorset, Wiltshire, Gloucestershire and Bristol, a vast region that stretches from the Isles of Scilly and Land’s End in the south to the Forest of Dean in the north and Stonehenge in the east. It does not quite take in Northern Ireland, Dr McCrea, but it comes quite close.

I welcome the two recent announcements of major infrastructure spending and improvements in our part of the world. The first is the dualling of the A303 all the way from the M3 to the M5, with a tunnel under Stonehenge, which when complete will give the far south-west a second major arterial road to underpin our growing economy. I am also exceedingly grateful to the Prime Minister and the Secretary of State for Transport for the commitment given to working with the Peninsula Rail Task Force to work up its three-point plan into a deliverable proposal with timings and costings that will give the far south-west a rail service fit for the 21st century, including journey times of two and a quarter hours from Plymouth to Paddington. That is all very welcome.

My specific concern, and the reason for calling the debate today, is the way in which the coalition Government have recently chosen to procure the building of new schools and the refurbishment of existing schools throughout our region. Of course, some think that what school buildings and classrooms are like does not matter for education, as long as the teachers are good, but I do not agree. Modern, well-designed buildings can lift the spirit and help a child to attain his or her potential. The gradual replacement of ancient school buildings, of which we have many in the south-west, is extremely important to the academic prospects of the next generation.

The Education Funding Agency regional framework is a four-year arrangement through which the EFA, academies, local authorities and other educational establishments can arrange contracts for individual school projects, both new build and refurbishment. In July 2014, the Education Funding Agency regional framework appointed seven contractors for lot 4, which is its rather unromantic bureaucratic description of the south-west. Thereby hangs the first problem I wish to raise with the Minister. Not one of the construction companies on our regional framework is local to the south-west—not one. There are some outstanding construction companies in our region, many with an excellent track record on public sector projects, yet not one made it on to the list. I will go further than that and say that some of the companies that are on the list do not have a proven track record in our region at all.

[David Simpson (Upper Bann) (DUP)]

The hon. Gentleman may, in a way, have answered my question, but will he elaborate for me the process of procurement? In Northern Ireland, we have procurement clusters for councils that are close together and so do a lot of procurement together. Does the procurement system operate in the same way in his region?

[Mr Streeter]

That is a helpful and interesting question. I will describe the procurement process in a moment. The hon. Gentleman may be able to understand it more clearly than I do. I find it extremely complex. That is one of the things that has gone wrong. The system itself is complex and—dare I say it?—over—bureaucratic.

Not one regional company has made it on to the framework list. I believe—this is the thrust of what I am raising with the Minister today—that essential changes are needed to the framework system so that local businesses have a fair chance of winning prize public procurement contracts and projects. It sounds like the situation in Northern Ireland is similar, and I do not suppose for a moment that the south-west is unique. This is an issue to which civil servants and Ministers need to give a little more thought.

I understand the benefits of multi-user framework agreements for procurement. They give a pre-competed route to market, procuring a vehicle to centralise procurement spend. They also share procurement expertise and resources, and risk and contract management. They reduce the administrative burdens of the time and cost of running a full procurement procedure each time. Infrastructure work is also very attractive to suppliers in such large volumes, but—I use my words carefully—it is an insult to our region to exclude all our companies. It may also be counter-productive, as I hope to explain.

First, how did this come about? I will try to explain the process as I understand it. Prior to issuing the notice in the Official Journal of the European Union in 2013, the EFA was looking to engage with the market to invite ideas as to how best to encourage the markets at a local level to participate in tendering for the framework on offer in a way that would deliver the most economically advantageous commercial agreement for all parties. Although local companies, including many with a tremendous track record of delivering schools over many years, applied in the south-west, that clearly had no effect on the outcome. Of the seven construction companies chosen, not one is local.

The final seven are as follows. The first is a French company called Bouygues, which has its headquarters in Paris, France. The second is BAM, which has its headquarters in Bunnik, in the Netherlands. The third, Skanska, is perhaps better known—its headquarters are in Stockholm, Sweden. The others are UK companies: Interserve, a well-known company, ISG plc, Galliford Try and Kier Group, which, again, is well known. They are all based in the south-east.

I accept that the first three international companies have small UK offices, but they are essentially overseas companies. They have no relationship whatever with the west country and any profits made are unlikely to be spent in the UK. I recognise the nature of the world in which we live—multinational corporations get contracts in every country and work in and contribute to our country—but I firmly believe that regionally based companies are able to deliver schools successfully in a cost-effective manner, and so should not have been excluded from the EFA framework. Local companies are much more likely to understand and wish to contribute to the community in which they are working.

It is also the case that international companies tend to bring with them their own supply chain and specialist sub contractors. The Minister may be thinking of saying in his response—it may already be written in front of him—that, if a contract is won by a major national or international company, that company will sub contract parts of the work to local companies, but I urge him not to say that, because the evidence on the ground is that, more often than not, it simply does not happen, and those companies bring their own supply chains with them.

It might help the House to hear that there were plenty of alternatives to the way in which the Government chose to proceed. For example, Midas Construction, one of the outstanding and successful construction companies in our region, has developed something it calls the Midas model school solution. That concept, which is now in its fifth year, has delivered 13 cost-effective schools.

It began with the requirement to deliver a primary school pursuant to section 106 of the Town and Country Planning Act 1990. A housing development contractor thought that it could deliver a school directly in a more cost-effective manner and use surplus moneys to fund IT equipment. The school was designed on the standard template, using a framed solution with traditional construction. The concept allowed for future expansion from a one-form to a two-form school as the housing development progressed. The school was delivered successfully and benchmarked about 20% lower than the Department for Education allowance. The project was successful and, consequently, it was rolled out to a number of the contractor’s other sites and local authorities.

The evidence is that the model school is between 15% and 20% cheaper on average than the traditional public procurement route. The model has proved to be adaptable over time, but the most powerful testament is that every head teacher has been happy to accept the learning environment as fit for their school and, after years of use, they remain delighted with the product.

That model and others like it are now excluded from the south-west because of how the new framework agreement has been put together. Some excellent regional firms have also been excluded. I mentioned Exeter-based Midas Construction, but what about Henry Pollard and Sons from Bridgwater in Somerset, Ryearch Ltd, based in my constituency, Rydon Ltd in Bristol, or Devon Contractors, another Exeter-based concern? They are all capable of building and refurbishing local schools, but they are all excluded because of a needlessly bureaucratic approach to procurement.

[David Simpson]

I am sure the hon. Gentleman will agree that that flies in the face of Government policy to try to rejuvenate local economies. Certainly, in my part of the United Kingdom, many companies have fallen foul of EU legislation under which, if contracts are above a certain price, they have to go out for tender, as he has explained. However, if we get indigenous businesses operating again, surely that will benefit local economies and jobs.

[Mr Streeter]

I absolutely agree. It does fly in the face of Government policy, but I do not think Ministers are necessarily aware—I would not necessarily expect them to be—of the detail of the very technical framework agreements being put in place. I understand that clever people have brought them about for all the right reasons and with good intentions, but the upshot is that we have a product that local people are not happy with. That is why I am asking the Minister about this. I am optimistic that in a moment he will say that he will revamp the entire process—that would be good.

The Department for Environment, Food and Rural Affairs has a strategy for buying locally, so why cannot the Department for Education do the same for its contractors? All public bodies must become far better at doing local procurement. Our south-west economy and regions like it would be transformed if Departments, Government agencies, local authorities, the health service, emergency services and so on all procured locally whenever possible, especially for major projects.

The Minister may be tempted to say in his reply that it is possible for a local authority or academy to contract to build a school with a construction company that is not on the framework agreement, but I urge him not to hide behind that thought, because that will almost certainly never happen. Why would anyone or any committee wishing to build a new school voluntarily take on board that additional risk? Most decision makers when grappling with that will feel the need to play it safe and—this is the tragedy—stick with what will be perceived to be the seven Government-approved contractors. That puts everyone else on a second-class footing, which is simply not right or fair.

My less wordy second point is that the framework agreement actually increases the cost for the taxpayer. This is how I understand it to work. The contractors in the framework appear to have been selected via a contract notice published on Tenders Electronic Daily, the online version of the Supplement to the Official Journal of the European Union, dedicated to European public procurement. The notice asked potential suppliers to bid to be part of the framework—so far, so good. Bidders had to have a minimum financial turnover threshold of £25 million for the region and they are supposed to be evaluated on the basis of essential and specific criteria that together offer the most economically advantageous tender.

However, the bidding system for being part of the framework is based not on which contractor can do the job at the lowest price with the highest quality, but on which seven construction companies are closest to the mean average of the bids offered. The system penalises competitive pricing and rewards higher bids. The winners are those that, by chance, bid closest to the mean of all bids. The pricing criterion contributes to 70% of the overall score, which cannot result in the most economically advantageous tenders. For example, one local construction company outscored four of the seven chosen construction companies in quality, so those four were not the most capable of delivering the product.

The successful framework bidders following selection need to participate in a subsequent, local competition process for each project. At that point, the competition process is scored 70% on quality and 30% on price. At least four of the seven construction companies chosen have little or no experience or track record in the region, so it is highly unlikely that, in the context of the local market, a competitive price will be procured. Unlike some of the excluded local construction companies that I mentioned, those other companies certainly do not have a track record for delivering £3 million to £7 million education projects in these areas, which are typically the projects for which they will be competing.

With such limited competition and only 30% of the award criteria on price, it is close to inevitable that any public sector bodies using the framework will pay non-competitive prices. What kind of mind came up with selection criteria that did not judge on quality and price, but focused on selecting those bids that were closest to the average, rather than the cheapest? Surely if the quality threshold is crossed, the taxpayer should expect to pay the cheapest price, not the price closest to the average. If I have misunderstood the process, I am sure the Minister will correct me when he responds.

I suspect that the selection criteria were put together by intelligent, well intentioned officials in the DFE and Cabinet Office. We are so well served by our civil service in this country and I am in no way criticising them, but I suspect that there was next to zero input from Ministers on such technical decision making. I was a Minister 1,000 years ago when someone called Sir John Major was the Prime Minister. In those days, we were talking about procuring new magistrates courts using something that was quite new in those days: private finance initiative contracts. I therefore know that such technical issues are largely taken forward by civil servants. Perhaps that is right, but there needs to be political, regional input, with an understanding of how people in the region might respond to the end product. We have ended up with a process that excludes local firms and does not choose the cheapest price. That is not a good day’s work.

Finally, on the involvement of foreign contractors, the necessity of the current framework comes from Europe. However, despite of the Europe-wide requirement to treat companies equally regardless of origin, which I support, it is increasingly hard, according to several construction companies I have spoken to, for British companies to work in other European countries. One director told me he was laughed at even for suggesting that a British company might win a contract in France. Can the Minister name any major construction projects undertaken directly by British companies in France for which the French Government are paying? We have an equivalent project on our framework agreement for the west country. The four freedoms guaranteed for the internal market of the European Union are not enforced or strictly kept to in other countries, which creates an unfair system in which British businesses and small and medium-sized enterprises are limited in where they can work, so why do we bend over backwards in this country to gold plate and comply with every jot and tittle of the rules, when our European competitors do not?

I am afraid that I would have to describe the new way of procuring schools in the south-west as a lose-lose situation. It favours multinational and centralised national firms that have no vested interest in the area at the expense of regional firms. It is likely to reduce the opportunities for local contractors rather than increase them, and it has been put together in a way that does not guarantee the selection of the lowest price for the taxpayer. I urge the Minister to look into the matter very carefully, and if possible, to adapt or terminate the current framework agreement, which has another three years-plus to run. If not, the Government can expect the feelings of deep dissatisfaction and deep resentment in the south-west to continue to rumble on.

--- Later in debate ---

[Mr Wilson]

I thank the hon. Gentleman for raising that issue. If what he says is the case, we will certainly look at it. The second point my hon. Friend the Member for South West Devon raised was that there are no local companies in the framework, despite there being substantial companies in the south-west.

[Mr Streeter]

Before my hon. Friend moves on, will he deal with the issue of tenders being judged on whether they are closest to the average price, rather than the lowest price, once they have got over the quality threshold? He said that I may have misunderstood the methodology, which is very complex, and that he is prepared to share it with me. However, for the purposes of the debate, will he tell me whether I am wrong about how the tenders are judged, or whether that is part of the process?

[Mr Wilson]

If my hon. Friend will allow me, I will come to that. To return to the previous intervention, however, where there is poor practice in the system and companies are being squeezed, we have a mystery shopper system, which will investigate cases thoroughly. [Interruption.] It is indeed called a mystery shopper system, which is probably mystifying everybody. By and large, it has yielded significant results for those who have made complaints.

As a contracting authority for the purposes of the applicable legislation—the Public Contracts Regulations 2006, which were introduced by the previous Labour Government—the EFA is bound by requirements of objectivity and non-discrimination. Those extend to a duty not to extend preferential treatment purely on the grounds of a bidder’s geographic location at the time of submitting a tender. EFA officials have assured me that robust and effective selection criteria were applied in the exercise we are discussing. They have also assured me that, in line with legal requirements, the evaluation criteria to be applied were shared openly with all the bidders.

It is important to remember that the largest part of procurement spend in the construction industry is with subcontractors, the majority of whom will be local suppliers. My hon. Friend tried to block that avenue off for me, but the evidence is that subcontractors are local in most cases. If he is telling me that local subcontractors are not being used in the south-west, I will ask my officials to look at what is happening there, but this does not seem to be the case in other areas. The French company that is one of the seven companies on the EFA’s list bought out Leadbitter, a UK company active in the south-west, although I am not sure of the full details of the purchase.

[Mr Streeter]

Never heard of them.

[Mr Wilson]

Okay.

[Mr Wilson]

As I said, where there is an imbalance, and subcontractors providing a service to the main contractor are being, for want of a better word, abused, we have the mystery shopper system, which will thoroughly investigate any abuses. Where it has investigated complaints on behalf of individual organisations and it has found problems, it has taken actions that those organisations have found very useful. Most of these concerns can, therefore, be sorted out on the ground while contracts are being supplied.

The third point made by my hon. Friend the Member for South West Devon was that the seven firms include three foreign firms, including the French one I have just mentioned. Public sector procurers are required to seek value for money through fair and open competition. Through our membership of the European Union, and because we are a signatory to international agreements, our contracting authorities are required to place suppliers from Europe and various other countries on an equal footing with UK suppliers. That is a two-way street, as it gives our suppliers access to public procurement markets overseas, maximising value for money for the UK taxpayer, while ensuring that UK companies are able to compete abroad.

The Government want UK companies to be successful in public procurement. The best way to bring that about is for those companies to offer the goods and services we need at quality levels and for whole-life costs representing value for money. To that end, the Government are seeking to ensure that their large-scale purchasing power supports the task of boosting growth and enables us actively to shape the UK market for the long term. To place a value on a bid based on the geographical origin of the bidder would be contrary to the single market.

All the same, the Government understand the importance of a long-term approach to supporting UK business and aligning activity to deliver that. As part of the work, several areas where Government action can have an early impact have been identified. They are sectors, technologies, access to finance, skills and procurement. Strategies for 11 key sectors, including construction, are being developed in partnership with business. I should also point out that use of the Education Funding Agency regional framework is not mandatory. I am aware of two other construction frameworks for the south-west. Construction Framework South West, managed by Devon county council, has 11 suppliers, nine of which are British, including Midas. South West Consultancy Framework, managed by Torbay council, has seven suppliers, of which six are British.

The Government are committed to increasing opportunities for suppliers of all sizes to bid for work successfully through the procurement reforms, which also secure value for money for the British taxpayer.

[Mr Streeter]

Have the Minister’s officials been able to provide him with a list of British companies that have won contracts in France when the funding has come from the French Government?

[Mr Wilson]

Before the debate, I had not been given any such list, but during it I have been given some information; I think it has been provided from memory, and we should do some research and send that to my hon. Friend. I understand that a company based in west Cumbria just won a £1 million contract in France. We are not quite clear about whether that was Government-funded. I think the best thing would be for me to write to my hon. Friend.