Government Contracts (SMEs)

Iain McKenzie Excerpts

Wednesday 28th January 2015 Westminster Hall

[Mr Iain McKenzie (Inverclyde) (Lab)]

I congratulate the hon. Gentleman on securing the debate. He touched on the need for broadband in small businesses. Especially in rural communities, we are seeing the difficulties of getting that high broadband speed. Does he feel, as I do, that that excludes a lot of small firms from bidding for contracts, especially e-procurement ones?

[Dr McCrea]

I wholeheartedly agree with the hon. Gentleman. The lack of an up-to-date and modern broadband connection makes it very difficult to get into Government contracts.

To promote the further growth of SMEs, following on from the recommendation in Lord Young’s report, a new scheme was designed to make it simpler for small firms to win public sector contracts, which are estimated to be worth £230 billion a year. In addition, there was a commitment to tackle the late payment of small firms to ensure that those small businesses supplying the public sector and its supply chain were paid at the same time as the large contractors.

In May 2013, Lord Young published “Growing Your Business”, a report on growing micro-businesses following on from his report on entrepreneurship and start-ups published in May 2012. The 2013 report makes a number of policy recommendations for businesses employing fewer than 25 people, including the establishment of a small business charter and, crucially, a

“new ‘single market’ commitment to ensure a simple and consistent approach is taken across public sector procurement.”

In 2012-13, the public sector spent £230 billion on procurement of goods and services, including capital assets, accounting for 34% of total managed expenditure. Of that £230 billion, approximately £38 billion was capital procurement, the rest being current. Of the current procurement, approximately £40 billion is by central Government, £84 billion by local government, £50 billion by the national health service and £13 billion by the devolved Administrations.

Hon. Members will note the public interest in several recent awards of major procurement contracts, which have attracted scrutiny and even criticism from some hon. Members. In the light of the recent difficulties, the Government set themselves a target of procuring 25% of goods and services by value from SMEs by 2015, with the flattering words that such businesses are

“a crucial engine for growth”

as they account for 99.9% of UK businesses.

Research by the FSB reveals that every £1 a public body spends with a small business generates 63p of additional benefit to the economy, compared with 40p of additional benefit when spent with a large business. Although there is much ongoing debate about the advantages and disadvantages of EU membership and whether the UK should remain within its bureaucratic quagmire, the position remains that the Government not only can but should do more to support SMEs in accessing public procurement in compliance with EU diktat.

[Dr McCrea]

I thank my hon. Friend for making that point. However, to give an illustration from my own constituency experience, I often find that a small business not only finds it difficult with all the filling in of forms, but is blocked from getting into contracts. That is the issue that I want to get to the heart of, but I must first lay the foundations.

A core principle of the EU is to establish a single market that encourages trade and maximises value for the taxpayer in public procurement, obtaining the latter through increased competition by allowing companies from other EU nations to bid for contracts. As SMEs are crucial to the UK’s economic recovery, what have the Government done to encourage and assist them in accessing EU markets and public procurement in other EU member states?

EU procurement rules include transparency, fairness and non-discrimination. They apply to SMEs accessing public procurement in other EU member states, but do nothing to tackle those issues within the United Kingdom, as such rules do not apply. It remains an anomaly of the single market rules that, although under EU law one member state is not allowed to discriminate against an SME from another member state as part of public procurement of goods and services, subject to certain criteria, member states are entitled to act in a discriminatory fashion towards their own nationals.

It is admirable that the coalition Government have engaged with SMEs as one of their two main priorities concerning public procurement and that they intend to achieve that aim by making the procurement process

“much simpler, more open and less bureaucratic—so all businesses, no matter what their size, have a chance of success”.

However, the realisation of that priority, by opening doors for SMEs and providing them with the tools to apply, will make the real difference to our businesses and propel this country’s economic recovery forward.

[Mr McKenzie]

The hon. Gentleman mentioned Europe and the European strategy to exclude others and source products and services more locally. How does he feel about the playing of the green procurement card, which seems to be natural across Europe? Should we adopt that strategy and say that, in the spirit of green procurement, we will source as locally as possible?

[Dr McCrea]

I would not like to make policy on the hoof. An array of party colleagues are listening carefully and we are coming up to an election, so I would rather that my party make any policy decision.

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[Mr Iain McKenzie (Inverclyde) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Davies, for what I believe is the first time. I again congratulate the hon. Member for South Antrim (Dr McCrea) on securing this very interesting debate on public procurement—having heard myself say that, I may need to get out more if I find public procurement an interesting subject to debate.

I have witnessed procurement in the public and the private sectors. Indeed, in my time in local government, I was glad that our procurement was brought into line with some of the private sector practices and brought up to date. In my local environment, we had to bring in many of the SME businesses to spread the money around and create as much opportunity as we could.

We are all aware that small and medium-sized businesses are the backbone of the British economy and we need to ensure that central Government and local government do everything they can to help them through procurement procedures. The hon. Member for South Antrim gave a lot more statistics than I ever have to hand, but I can say that SMEs account for a large part of the private sector business in the UK and, I believe, 58% of private sector employment. That equates to 14 million people up and down the country being employed in SMEs.

This is about keeping things as local as possible. We know that 83p in every pound spent by local government procurers with local businesses will go back into the local economy. That in turn will stimulate the local economy and provide real employment opportunities there. It is a question of people stretching procurement as far as they can to get the biggest payback on what they are putting out there for goods and services.

SMEs are a major driving force of our economy and deserve their fair share of public sector procurement. Public sector bodies, including central Government, spend about £220 billion a year on goods and services. That indicates the complexity of the procurement. They procure everything from paperclips to chemicals—you name it. Government procurement is extremely complex.

Progress has been made in public sector procurement, and I will go on to highlight some of the advances made by the Government. I accept that steps have been taken and advances made. We have gone from almost a “catalogue” procurement process to what we see today—an approach that is more embracing of best practice and best value. I referred to a “catalogue” approach to procurement, which was simply taking something off the shelf and saying, “We have purchased from them for the last 10 years, so we’ll continue to purchase from them for the next 10.” That was not the best way to enable SMEs to get in on procurement by public bodies.

However, more could be done to improve the best-value approach. Not least is the fact that best value does not always mean the cheapest price, and what about people doing contract monitoring over the length of a contract to prove that they have a valued and performing supplier? We need to evidence contract monitoring if we are to make progress on procuring more locally and putting more into SMEs.

Public procurement is an underused tool when it comes to keeping trade as local as possible to local government and central Government spreading contracts around the country. It is essential that the Government take that on and spread the contracts as far and as wide as possible around the country. They should not simply look at a certain area where most of the spend takes place. If we are to regenerate areas, we can do so through Government procurement.

We also need to enhance contracts that we put out there by writing into the terms and conditions employment opportunities such as apprenticeships and therefore get more for the money we spend. More than half of SMEs believe that the process of tendering for Government contracts requires, as we have heard, more time and resources than their business can allow, making the tendering process too costly and time consuming.

We can take as an example what I have already highlighted—e-procurement. This is about going out and educating SMEs on what they need for e-procurement, and a common mistake is for them to fall into the same practice they used for tendering processes. As we have highlighted, broadband issues lead to difficulties when people are trying to download a tendering document, which takes a bit of time. It will bomb out at the last minute and, hey presto, they have missed out on the contract.

[Sammy Wilson]

The hon. Gentleman is making some thoughtful and worthwhile points, but does he not accept that the more we build into the contract and the procurement process not only price, but the qualitative issues he has talked about, as well as ongoing issues such as apprenticeships and employing the long-term unemployed, the more that adds to the complexity and the paperwork involved in the procurement process and to the monitoring of the contract? There is a balance to be struck between, on the one hand, taking the simple approach of looking at price only and, on the other, looking at quality, employment opportunities and all the other qualitative elements of a procurement exercise.

[Mr McKenzie]

I accept the hon. Gentleman’s point, but if procurement does one thing, it should be to get the most for what is spent. Monitoring whether we get jobs, especially apprenticeships, out of procurement would not be too difficult. The local council in my area has done that for many contracts. Those contracts have been gratefully received, and we have been really successful in keeping our youth unemployment down to a low level using those contracts.

[Mr Nigel Dodds (Belfast North) (DUP)]

Further to the point raised by my hon. Friend the Member for East Antrim (Sammy Wilson), there is a question of balance in those contracts. However, if contracts awarded by Belfast city council and others over the years have a clause about local employment, local people see that the council and other agencies are delivering something in their locality that is about not just a building or a project, but jobs. My hon. Friend is right to talk about balance, but it is important for local people to see a definite benefit from the public money being spent in their area.

[Mr McKenzie]

The right hon. Gentleman makes a good point: this is about local people seeing real value for money and getting opportunities.

Many small businesses do not bid, because they feel unable to compete with the larger suppliers and to offer lower costs. There is also the issue of understanding contracts and not making them too complex. We should go out to small businesses to help them understand contracts and what is being looked for in the terms and conditions. The issue may not be solely the cost; it may be things such as the quality of the product, the lead team or the hubbing aspects of getting the product to someone at specific times. This is not entirely about the cost factor, and a range of terms and conditions might put smaller businesses off attempting to compete with larger organisations.

I want to mention three areas where I have seen improvement in the procurement process. In 2010, the Cabinet Office set up the efficiency and reform group to make sure that Departments work together. That consortium approach to procurement is wholly sensible. It is hard to believe that each service would have been going out to procure the same commodities on differing contracts, but that could have been taking place. The Government also set a goal of ensuring that 25% of spend went to SMEs, either directly or through the supply chain, although that was downgraded to an aspiration.

Secondly, in 2011, the Government appointed a Crown representative for SMEs, with the intention of helping to redesign and improve public procurement policy and processes to bridge the gap between the Government and small suppliers. The main aims were to understand the concerns of SME suppliers, which is essential, and to open up the Government procurement process more to them. Another aim was to put together a list of tips for SMEs bidding for Government contracts, although I am never too sure that the word “tips” sits well with a procurement process.

Finally, in 2012, the Government ran a pilot of the Solutions Exchange—an online tool to enable a two-way conversation between Government and SMEs, in the hope of creating better dialogue between them.

The hon. Member for South Antrim touched on the directives coming from the EU. A set of new procurement directives, including reforms that should help SMEs, was agreed in Europe last year. There is now a need to transpose them into UK law.

Let me refer to what the FSB says about the problems facing SMEs on procurement. It says that there are four main difficulties. Access to finance—getting those loans—is still a problem. Another problem is tax simplification; tax can be difficult and confusing for SMEs. A further difficulty, which we have heard about many times, is fuel duty; the cost of fuel is crippling many small businesses. The final problem is late payments. If a payment is not made on time, that can end a small business, especially a micro-business. We have recently heard in the news about the horrendous time scales for meeting payment terms, and those are having a detrimental effect on small businesses up and down the country.

I have a couple of questions for the Minister. What is the Government’s position on the recent EU procurement directives? Will the terms and conditions in contracts be looked at with a view to including employment opportunities for young people—for example, by writing in apprenticeships? Will any person or business that has been engaged in blacklisting or in compiling blacklists of workers be excluded from bidding for Government contracts? Finally, when will the Government truly embrace e-procurement, get out there and assist SMEs as much as possible to understand and navigate the process?

[Several hon. Members]

rose—

Food Banks

Iain McKenzie Excerpts

Wednesday 17th December 2014 Commons Chamber

[Mrs Emma Lewell-Buck (South Shields) (Lab)]

I am absolutely outraged that people are going hungry in one of the richest countries in the world. We have nearly 1 million people attending food banks and over 13 million, including children, the disabled and elderly, living in poverty. Worse still, a high percentage of those 13 million people are in work, working day-in and day-out, with low pay and rising living costs.

Members will know that I was part of the all-party parliamentary group inquiry team that spent most of this year touring the country taking evidence from charities and food bank users, and also know that I sit on the Environment, Food and Rural Affairs Committee, which is holding an inquiry into food security. While this does not make me an expert, it does mean I have a broad knowledge of the growing hunger problem this country faces and the causes of it.

[Mr Iain McKenzie (Inverclyde) (Lab)]

Has my hon. Friend seen in her constituency as much as I have seen in my Inverclyde constituency, the distribution not only of food, but of power cards to enable people to cook the food that has been distributed to them?

[Mrs Lewell-Buck]

What I have seen is an increase in the number of soup kitchens in my constituency, because people do not have the equipment in their homes to cook any food.

No matter where in the country we took evidence, we heard the same stories time and again. People were using food banks because of poverty pay, welfare and benefit changes, unfair sanctions and benefit delays.

Oral Answers to Questions

Iain McKenzie Excerpts

Wednesday 10th December 2014 Commons Chamber

[Dr Murrison]

That very much depends on whether the powers are taken up by the Executive and the extent to which they are taken up. The hon. Lady will be aware that corporation tax in the last financial year raised in excess of £400 million. Were corporation tax to be devolved, and reduced as far as it possibly could be, then we are talking about that sort of figure.

[Mr Iain McKenzie (Inverclyde) (Lab)]

13. Is the Minister aware that the Nevin Economic Research Institute warns that £400 million will have to be cut from public spending in Northern Ireland should corporation tax be moved there?

[Dr Murrison]

That is a matter for the Executive. They need to make a judgment on whether it will produce a net improvement to the economy in Northern Ireland. They have decided that it will create up to 40,000 extra jobs, so they clearly believe that corporation tax will have a net benefit to the economy of Northern Ireland, but they will have to find the money from the block grant.

Oral Answers to Questions

Iain McKenzie Excerpts

Tuesday 18th November 2014 Commons Chamber

[The Deputy Prime Minister]

I think a fair amount is being done. The hon. Gentleman will be familiar with the time limits that operate with respect to people exercising their right to vote here if they live abroad, but British citizens who live abroad will be very mindful of their rights and can take them up very easily. Many British citizens living abroad do take them up on a regular basis.

[Mr Iain McKenzie (Inverclyde) (Lab)]

Would the Deputy Prime Minister consider replicating the Scottish Government’s unique approach to attracting and retaining people on the electoral register by admonishing them for all their historic council tax debts?

[The Deputy Prime Minister]

I am not aware that we are planning to do that. As the hon. Gentleman knows, we have progressed with individual voter registration—first advocated by Labour when in government—and we have transferred data from other databases on to the individual voter registration database to ensure that the vast majority of voters are transferred on to individual voter registration without having to do anything themselves.

Youth Employment

Iain McKenzie Excerpts

Tuesday 15th July 2014 Westminster Hall

[Mr Iain McKenzie (Inverclyde) (Lab)]

It is indeed a pleasure to serve under your chairmanship this morning, Mr Crausby.

I congratulate the hon. Member for Norwich North (Chloe Smith) on securing this important debate on youth employment, but it would be remiss of me if I did not commence my speech by highlighting the unemployment figure for young people in this country. Starting their adult life unemployed is not what we want for our young people, but more than 800,000 young people across the UK aged between 16 and 24 were unemployed in the first quarter of this year. That is a worrying statistic, not only because it reads badly, but because it is worrying for the young people themselves and their parents. For the first time in generations, parents from all types of background fear that their children will do worse than them.

We know what we need to do. If we truly want to get our young people into work, we need a highly skilled work force that will enable us to compete with the emerging nations of China and India, as well as advanced industrial nations such as the United States and Germany. What we need is a long-term plan for jobs. We also need to focus on the skills agenda and do more to help the 50% of young people who do not go to university. I never went to university. It could be said I was lucky, going straight into the world of employment on leaving school, but when I left school, finding work was not about luck; there was a plan in place for jobs. In my area of the country, when the school gates opened on the last day of the summer term, other gates in the various sectors involved with the shipyard industries also opened and a transfer took place. Skills were gained and young people had a choice about what they wanted to be in their future career. That that does not happen today.

We know that in the past in my area of the country, we tended to put all our eggs in the one basket—heavy industries. We did the same in the 1980s, replicating the process with the electronics industries. We filled the gap created by the decline of the heavy industries with these “sunrise” industries. Throughout the history of both the heavy industries and the electronics industry, we innovated, pushed the design boundaries and found new markets. With ships, we redesigned them and took them to a new level, replacing many items on the ships with new, cutting-edge design. We did the same in the electronics industry. Without the work done in my area of the country, people would not have the phone in their pocket—if we had not pushed processors and improved them, including pioneering the use of surface-mounted multi-layer technology—but somehow that innovative desire to create new markets and so create new employment evaded us in the following years.

I will focus on Scotland for a moment, because we outperform the UK on youth employment and youth activity rates. Scotland has a higher youth employment rate and a lower youth inactivity rate than the UK as a whole, but we are never complacent. This process is about focusing on what matters, which is employment for our young people.

The best possible start to someone’s adult life is employment, whether that comes after leaving school at 16 or after leaving university. The hopes and aspirations of our young lie in finding work.

[Mr Brooks Newmark (Braintree) (Con)]

Will the hon. Gentleman at least recognise that youth unemployment in his constituency has come down by 37.8% since the last election?

[Mr McKenzie]

Indeed, and I thank the hon. Gentleman for highlighting that fall. I will tell him exactly how we achieved it. Inverclyde outperforms most areas in Scotland because we punch above our weight. We have done that by pulling together resources from many organisations and put in place an Inverclyde Alliance focused on what matters—employment—with a youth employment action plan at the heart of its work. We are pleased to point to the fact that 94% of our school leavers reach a positive destination, so only a single-figure percentage do not reach one. With additional services, the programme provides an end-to-end employability service that is not just about placing a young person with an employer and hoping for the best; it is about continuous engagement with the employer and the young person. What does the young person need to enhance their skills? What do they need to keep them in employment, or to help them to look for other employment at the end of their term of placement? We ask the business, “Where are you going with your business? Where will you take it to in the next year or so? Can this young person come with you, if they have the required skills, and what skills do you identify that the young person needs to retain the position within your company?”

Of course, in Inverclyde we have continued with the future jobs fund. Obviously, the British Government felt that they did not want to retain the fund across the country, but it works and it has been working for us. In addition, we have made a successful bid to the Scottish Government for additional European funding, allowing 170 additional wage incentive packages that have enabled local companies to recruit even more young people. A total of 52 employers have been engaged, creating a total of 58 posts for our young people during the last year.

This year in Inverclyde, my Labour council allocated substantial additional funding for employability measures for young people. That has resulted in an additional 50 placements with employers across Inverclyde, because Labour in Inverclyde has been focused on what matters—employment, not separation. Our young people believe in having more choices and more chances. I hope you will forgive me, Mr Crausby, for briefly saying that that is why I believe they will vote in September to stay with the UK.

I will also touch on an entrepreneurial programme that we have put in place. The Recruit programme is based upon “The Apprentice”, with young people looking to be hired rather than fired. Many tasks are set up and the young people step up to the mark, proving to many employers that they have the entrepreneurial spark and can be innovative in what they have been tasked to do. However, as I said before, we are never complacent and there are still 72,000 unemployed young people in Scotland, which is unacceptable. We need to get on and reduce that figure.

We desperately need to get our young people into training and apprenticeships. Young people need every chance to improve their skills if they are to get good jobs. Speaking as a former apprentice, I know the value of apprenticeship training. My apprenticeship took four years, but I suspect the period required to learn skills can be reduced in the modern era. However, it should not be reduced to the period or level of work experience, which some people would like to see apprenticeships reduced to. In Inverclyde, we now have around 600 modern apprenticeships, which can offer so much, and there is no reason why apprenticeships should not be expanded to cover a wide variety of jobs and professions. Employment is an essential part of life and without it, especially for our young people, the future will be bleak, because our young people must be our future. We need to plan for jobs and industry, looking to the future business markets and, yes, manufacturing can again prosper across this country. As I said in my maiden speech, everyone has the right to work.

Oral Answers to Questions

Iain McKenzie Excerpts

Wednesday 14th May 2014 Commons Chamber

[The Prime Minister]

I am very happy to go on discussing that with Cornish MPs and indeed the Cornish unitary council to make sure we do everything we can to help Cornwall get back on to its feet after the storms. What I have said very clearly is that there is money under the Bellwin scheme, so all the emergency funding that Cornwall had to spend it can claim back, and it still has time to work on that claim. We have also increased the amount of money going through the Environment Agency to repair storm damage, and there is an opportunity for Cornwall to have a real benefit from that money as well. The sun is shining. I am sure that people are preparing to go to Cornwall and I know, when they get there, they will have a very good time.

[Mr Iain McKenzie (Inverclyde) (Lab)]

Q2. This week, the Public Accounts Committee criticised the Ministry of Defence for failing to account for a £1.2 billion underspend, and it went on to say that this might result in even higher spending in future years. Does the Prime Minister still think that he was right to say that he has balanced the books at the MOD?

Oral Answers to Questions

Iain McKenzie Excerpts

Wednesday 2nd April 2014 Commons Chamber

[Mr Robathan]

I do not think that I blamed the last Government for the international banking crisis; I blamed them for the dire state of the UK economy that we inherited in 2010—quite reasonably, if I might say so.

We are working very hard with the Executive to bring about a better economic situation in Northern Ireland. We want to see the Welfare Reform Bill passed in the Assembly, as indeed do many parties in the Executive. Unfortunately, it is currently bogged down in the Assembly because two parties are unwilling to support it.

[Mr Iain McKenzie (Inverclyde) (Lab)]

3. What steps she is taking to promote a positive outcome for the Haass talks.

[Dr Alasdair McDonnell (Belfast South) (SDLP)]

8. What recent assessment she has made of the Haass process.

[The Secretary of State for Northern Ireland (Mrs Theresa Villiers)]

I have been working with Northern Ireland’s political leadership to support and encourage progress on flags, parades and the past. It is important to find an agreed way forward on these issues in order to underpin political stability, support economic renewal and overcome community division.

[Mr McKenzie]

Can the Secretary of State reassure the House that she still believes a positive outcome from the ongoing all-party talks will be reached, and is she fully engaged in trying to make that happen?

[Mrs Villiers]

I am fully engaged in trying to make that happen, and I remain optimistic that an agreed way forward can be found. The party leaders continue to meet. The speeches made by the Deputy First Minister and First Minister in Washington on these matters were very clear that both Sinn Fein and the Democratic Unionist party were determined to find a way forward. The on-the-runs crisis has set things back, but I know that the party leaders continue to work. It is a pity that the Ulster Unionist party has pulled out, and I urge it to come back to the table.

Oral Answers to Questions

Iain McKenzie Excerpts

Tuesday 11th February 2014 Commons Chamber

[The Deputy Prime Minister]

I think that awareness of the integrity of the register has increased significantly. The work that I have already alluded to, and indeed the introduction of individual voter registration, is all about improving the integrity of the register to ensure that those who should not be on it are not on it. Ultimately, that is what individual voter registration is all about—bearing down on fraud and improving the integrity of the register.

[Mr Iain McKenzie (Inverclyde) (Lab)]

In Scotland, 16 and 17-year-olds are about to vote for the first time this year. Does the Deputy Prime Minister agree that there is inconsistency in the voting age across the UK and, if so, what does he intend to do to address it?

[The Deputy Prime Minister]

As the hon. Gentleman knows, I am an advocate of votes at 16. People can do all sorts of things at age 16 or 17, such as paying taxes and serving in the armed forces, but they cannot vote. That is why my party will remain a staunch advocate of votes at 16. As my hon. Friend said earlier, we have not agreed that across the coalition, but I hope that it will happen eventually.

Government Contracts

Iain McKenzie Excerpts

Tuesday 3rd December 2013 Westminster Hall

[Mr Iain McKenzie (Inverclyde) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Streeter. I congratulate my hon. Friend on securing this important debate. She touches on a number of issues. The one that I will ask her to comment on is not contract management, but contract monitoring. Does she believe that frequent contract monitoring is necessary to prove, first and foremost, best value for the Government?

[Meg Hillier]

My hon. Friend raises an important point. Contract monitoring is often more of a box-ticking exercise. When there are 150 key performance indicators, it is difficult to know whether someone is watching the overall performance of the contract, and sometimes the contracts are drawn up in such a complicated way that it is very difficult to shift meaningfully. In the building world, for example, there are attempts by housing associations and contractors to partner, so that they work together to acknowledge where there might need to be a change for more improvement. I hope that the Minister would acknowledge that there needs to be great improvement. The Major Projects Authority is doing some good work in that area, but it deals with the major projects. Many Government contracts are much smaller than that, which is one of the big challenges. Building a warship is one thing; letting a small IT contract is another.

Crucially, all of this—what my hon. Friend talked about and what I have talked about—cannot just be left to Departments. We know that procurement managers come in various forms. Some are not very expert. I remember as a Minister saying to one official who had led two projects that came in ahead of time and under budget and that delivered very successfully, “What’s your next one?” The reply was, “Well, I have to move in order to get my next promotion.” I know that there have been some attempts to put project managers in place in Departments, but I would be interested to hear whether the Minister has an update on that.

Procurement managers can often prefer the simplicity of a single supplier, as it can be more complicated to manage several contracts. The Cabinet Office recently—yesterday, I think—advertised its event management contract, welcoming multiple small bidders. I hope that that will be better than other Government bids and that the Cabinet Office will live up to its promise. I am quoting from the Minister’s own website, which says:

“We are committed to ensuring that small organisations and businesses can compete fairly with bigger companies for our contracts.”

I see him nodding. I hope that businesses in Shoreditch take that seriously and that he delivers.

When contracts are broken up, smaller IT companies are often required to partner with bigger players to meet the risk threshold. That can be a big issue for a supplier’s IP and it adds complexity. For businesses in Shoreditch and particularly the tech businesses, it is a deal-breaker.

I want to raise one specific issue in relation to local government procurement; I am not sure how this applies to national Government. Now that councils often join forces to procure for longer contracts—perhaps across more than one local authority area—those now count as large contracts, and it is often the case that small businesses do not meet the requirement that the value of the contract be not more than 25% of their annual income. That is an example of a hidden barrier that could be avoided if the threshold were for the annual value of the contract, rather than the whole contract over the longer period. I am not sure whether the Cabinet Office is aware of that. I hope that the Minister is. Does it apply to central Government too, and can the Cabinet Office do anything to tackle it?

It is fair to say that there has been some progress by both recent Governments in paying contractors much faster, but late payment can be a big issue for smaller companies if they are a subcontractor down the line. Has the Minister any plans to make it mandatory for large contractors to pay their subcontractors within 30 days of receipt of payment from Government? If the Government are paying on time, there should be no excuse for that payment not being sent down the line to the smaller contractors on time as well. I hope that the Minister can answer that point.

During the Olympics, there were some very interesting issues going on with contracts from the public sector. There were scams whereby bidders included local businesses in a bid and then stood them down once they had won. I do not know whether the Government are aware of that and what they are planning to do to ensure that it does not happen in future. It had a big impact on local supply chains and, crucially, on small and medium-sized businesses’ confidence. There is such cynicism out there. If the Minister were able to come to Shoreditch, he would hear this. There is a desire to take these contracts on. People realise the prize that they bring, but there is cynicism about whether they will ever have the chance to compete on a level playing field.

That happened during the Olympics. We picked up on it too late, because clearly there was a very tight deadline for delivery of the Olympics, but I believe that contracts need to be better audited after they are awarded. We must ensure that promises of local employment and contracting with certain subcontractors and promises on pay rates, training provision and so on are delivered on. Only a post-audit will deliver that.

I have touched on financial hurdles, but there are others that I have heard about repeatedly from solvent and successful businesses. When smaller businesses join forces to bid for a contract—often in a creative partnership and sometimes delivering very good solutions or potentially doing so—they require three years of audited accounts, which they cannot provide because they have never worked together before. Even when they are able to get around that by providing projected accounts, they need to spend up to £6,000 on accountancy fees to do that. It is right that due diligence takes place, but could that hurdle be introduced later in the bidding, when a consortium knows that it is in the running? The up-front costs can easily put off SMEs, whereas big companies can afford them much more easily.

One company, which had won a health contract, told me:

“Financial guarantees were required which were impossible for SMEs to reach. For one application we were required to put up a bond of £10m which removed small companies immediately from competition, as for a company with a £3m market cap nobody will be willing to put up the risk for such a bond. This means that small companies are effectively denied the chance of competing in the bid, and stops them…making the jump from small to medium sized companies.”

--- Later in debate ---

[Mr McKenzie]

I thank my hon. Friend for giving way once more and for making very powerful points on the procurement aspect. Has she, like me, experienced the reluctance of small and medium-sized businesses in relation to eProcurement—their fear of using that tool to submit tenders online?

[Meg Hillier]

Earlier, I mentioned G-Cloud. That is an important innovation, but there needs to be greater confidence building and greater awareness.

I am not sure whether the Minister has come across this, but there were times when I was a Minister when I would ask whether anyone had spoken to someone and I would gather that there had been a big consultation, but later on, when I met some of the people who had been at that, whether from the business sector or elsewhere—I dealt with procurement in the Home Office for three years—I discovered that being in a meeting was all that happened. Someone sat in a meeting; they did not actually engage. I think there needs to be really good, positive engagement with businesses, which are keen and willing and have a lot to offer.

I extend an invitation to the Minister or his senior officials to come to meet Shoreditch businesses and hear from them directly about the barriers that they face. If he does so, he will also learn about a number of innovative, user-friendly and cost-effective ways for the Government to deliver smarter services. I hope that he will take that opportunity and spend a thrilling morning meeting some of the best brains in the country.

We know that civil servants’ careers are not enhanced by taking risks, so the safe, risk-averse approach is well embedded in Whitehall. The Cabinet Office is charged with changing that landscape and opening up Government to the small business sector. It is certainly talking the talk, but whether the large-spending Departments will deliver is another matter. I look forward very much to the Minister’s response. Shoreditch is listening, and I will be holding him to his words and his Government’s promise of more business for the small business.

[The Minister of State, Cabinet Office (Mr Nick Hurd)]

It is a great pleasure to serve under your chairmanship, Mr Streeter—I think for the first time—and to respond to an important debate. I congratulate the hon. Member for Hackney South and Shoreditch (Meg Hillier) on securing the debate, and on presenting it in such a clear and compelling way, rooted in her experience as a former Minister responsible for procurement in the Home Office and a member of the Public Accounts Committee. I am reassured by her telling me that my reading of the upcoming report will be a pleasure. That will be a first, and I await it with bated breath.

The issue that the hon. Lady has raised is enormously important, and I want to persuade her that the Government, and the Cabinet Office in particular, are absolutely committed to trying to open up more space for small and medium-sized enterprises to come in and offer the value and the innovation that she has talked about. I do not want to appear at all complacent, because although we think we have made some good progress, we know that we are nowhere near where we want to be, considering the scale of the opportunity.

The matter is extremely important, not least given the state of the public finances and the situation that we inherited. It is important to recognise where we started. As I think the hon. Lady recognised, what we might call the outsourced public service market was entirely dominated by large private sector organisations, and small companies had little room to come in and improve the situation. I recognise a lot of her analysis about how off-putting and complex the whole concept of bidding for Government contracts is for those running a small business, which I have done myself. It is hard enough work as it is without having to wander through a swamp of bureaucracy and difficulties.

We inherited that situation, which was compounded by the fact that Government did not know how much they spent with major suppliers. I am glad that the hon. Lady referred to the fact that the Minister for the Cabinet Office and Paymaster General has been in post since the start of the process, because that has made a great deal of difference. We are trying to drive a culture change across the system, and he has been extraordinarily persistent in trying to achieve that. The results of the work of the Efficiency and Reform Group, which we created, have been dramatic. We saved the taxpayer £10 billion last year alone compared with 2010, of which £3.8 billion came from commercial areas and £800 million from better engaging with strategic suppliers. There was no rocket science involved; the Government simply woke up to the fact that we sit on top of a powerful buying machine, which makes it possible to secure much better terms. We can leverage our scale to get better value and resolve performance disputes more quickly.

[Mr McKenzie]

The Minister speaks of the culture change that he is trying to establish. Will he comment on the McClelland report and how it has been embraced by other parts of the country?

[Mr Hurd]

We are trying to embrace a culture change. There was a culture of buying big and buying badly in a very risk-averse way, and we are trying to improve that—to touch on a point alluded to by the hon. Member for Hackney South and Shoreditch—not least by instilling much greater commercial capability and confidence in the system. A saving of £10 billion in one year is an important improvement, which is equivalent to about £600 per UK household. That is real money, which has real-world impact. Within that, we have been working hard to improve the procurement processes that the hon. Lady quite rightly criticised. We need to make it easier and cheaper for firms, particularly smaller ones, to bid for work.

In the context of my main responsibilities as Minister for Civil Society, I might add that we are particularly keen that charities and social enterprises feel they have more space and a level playing field on which to compete. The hon. Lady mentioned the length of procurement times, and we have cut the length of the average procurement by 40%, which makes the UK faster, we think, than any of our European neighbours. I am always delighted to hear about specific cases where the procurement process has been too long and too clunky, but we have taken a big step in the right direction.

Part of the process is improving our commercial capability and confidence at the heart of the civil service, so 1,800 officials have already been trained in procurement and 150 leaders have been through the Major Projects Leadership Academy in Oxford. We need to go much further, as I have said, and get smarter at managing performance. For the first time, the Government have allowed past performance to be taken into account when bids for new work are evaluated. It is astonishing that that has not happened before. Suppliers can now be rated high risk when there are material performance concerns, and we have introduced a new approach for managing gross misconduct. Our long-term goal remains the creation of a vibrant, competitive marketplace. Where bad practice is uncovered, we will crack down on it robustly. We intend to continue to build on the progress of the past three years, focusing on commercial capability and promoting transparency.

I turn to the meat of the hon. Lady’s contribution on behalf of businesses in her constituency. We are absolutely determined to wrestle with some of the challenges, problems and barriers to which she alluded, to make it easier for small businesses to come in, compete and give those spending taxpayers’ money more choice and more access to the innovation that we desperately need. She talked about procurement time, and, as I have said, we have reduced the average turnaround time from advert to contract award by more than 40% to 100 working days. That is better than France and better than Germany. Within that, small procurements can be much quicker, and we are keen to continue to improve. Some progress has, therefore, been made in that area.

The hon. Lady talked about contract complexity, which I definitely recognise as a problem; the contract with some 150 key performance indicators that she mentioned is simply extraordinary. Our next step to try to simplify the system and introduce more consistency is to release a model contract for services, which sets out best-practice contracting approaches and includes a streamlined performance management regime.

The hon. Lady asked about intellectual property, which is of particular interest to technology companies in her constituency, and whether the Government still demanded that intellectual property be handed over to them. Our approach is to make that decision on a case-by-case basis. In the new model service contract, ownership of previously existing intellectual property rights will stay with the author. If the Government pay for new IPR to be created, however, in some circumstances it will be appropriate to retain ownership.

Oral Answers to Questions

Iain McKenzie Excerpts

Wednesday 19th June 2013 Commons Chamber

[Mr Maude]

I am sure that my right hon. Friend the Secretary of State for Communities and Local Government will have taken note of the concern that my hon. Friend raises, but I have always thought that town councils were meant to be accountable to the residents of the town.

[Mr Iain McKenzie (Inverclyde) (Lab)]

T9. Given recent criticism by various organisations of the accuracy of Government statistics, will the Minister advise the House on what steps he is taking to promote trust in Government statistics in future?

[Mr Maude]

We have appointed as chair of the UK Statistics Authority a very distinguished figure, now Sir Andrew Dilnot, who exercises his task with great rigour, which we welcome.