Public Procurement as a Tool to Stimulate Innovation: Science and Technology Report

Lord Krebs Excerpts

Tuesday 13th September 2011 Grand Committee

Moved by

[Lord Krebs]

That the Grand Committee do consider the first report of the Science and Technology Committee, Public Procurement as a Tool to Stimulate Innovation.

Relevant Document: Public Procurement as a Tool to Stimulate Innovation (1st Report, HL Paper 148).

[Lord Krebs]

My Lords, I thank the members of the Science and Technology Select Committee for their excellent contributions to this inquiry and to the report. I also thank our specialist adviser, Dr Paul Nightingale, for his valuable expert advice. My aim in introducing the debate is to give noble Lords an overview of the nature of the inquiry and some of our principal findings. I am sure that others will consider particular aspects of the topic in more detail.

I thank the Minister for the Government’s response to our report, and later I will refer to some of the key points in this response. First, let me be clear about definitions. According to the Merriam-Webster dictionary, “to procure” has two definitions: first, to obtain by particular care and effort; secondly, to get and make available for promiscuous sexual intercourse. To avoid doubt, our inquiry concerns itself with the former definition.

By the word “innovation” in our inquiry, we mean the stimulation and exploitation of new ideas. This could encompass a novel application of an existing idea; a novel product, process or system; or the successful translation of an idea from elsewhere. An example of that last form of innovation is the Oyster card, which was successfully introduced into London’s transport system in 2003, but was based on the concept developed in Hong Kong with the Octopus card and in Singapore with its EZ-Link card.

In 2009-10, the UK public sector spent £236 billion, approximately one-seventh of GDP, on buying goods and services. It is the largest single customer in the country. The focus of our inquiry was simply this: do the Government and other public sector bodies use this massive purchasing muscle to drive innovation? Why should they? We saw two potential benefits of seeking innovative solutions in public procurement. First, it could lead to better solutions and better value for money for the public. Secondly, and not incompatibly with the first, it could stimulate innovation among UK businesses. This latter point is echoed in a very recent survey of 368 companies by Logica, which recommends,

“the introduction of a policy under which public sector contracts are awarded only to companies that demonstrate a commitment to the principles of open innovation and foster a collaborative approach with small businesses and academia”.

While we recognise that much procurement is routine and simply involves reordering the same product or service as last time, there are situations, perhaps many, in which an innovative solution to a problem is better. However, from the evidence we heard we concluded that all too often those responsible for public procurement take the tried and tested route as the default. We are by no means the first to look into this question. For example, in 2009 the Business and Enterprise Select Committee in another place and the National Audit Office both concluded that the Government could do better. The NAO said:

“Only a few departments have strategies which show that they understand where they need innovation or how to encourage and support it”.

It is not that there is a shortage of government reports relating to the question of procurement and innovation—in fact, plenty of trees have been chopped down to write about it—but the evidence we received showed that the writing has not led to action. I shall mention just a few of these reports. One is Transforming Government Procurement, published in 2007. Another is The Race to the Top, the excellent report by the noble Lord, Lord Sainsbury, also published in 2007. I quote his conclusion:

“Government departments can play an important role in stimulating innovation in the companies with which they interact, but in the absence of a clear directive and adequate resources, they are failing to meet the challenge”.

Innovation Nation, a report published in 2008, said:

“In some specific areas, government can provide more direct support using regulation, public procurement and public services to shape the market for innovative solutions”.

These reports and others have led to the establishment of specific initiatives to help to stimulate innovation, including notably the Technology Strategy Board and the Small Business Research Initiative. However, we noted that these initiatives account for only a tiny fraction—around 0.1 per cent—of the public procurement budget. We are urging that, where appropriate, innovative solutions should be embedded into the mainstream of public procurement and not sidelined into specific initiatives. We found no convincing evidence that the various reports, a small selection of which I have referred to, have led to a systematic and coherent change of culture among civil servants and others responsible for public procurement. In fact, as so often seems to happen in this country, excellent reports are placed in the filing cabinet with the “Job done” box ticked.

From our inquiry, we concluded that three important changes are needed. First, there needs to be stronger overall leadership from Ministers. We recommended that one Minister should have overall accountability across government for innovation in procurement, rather than the present split between BIS and the Cabinet Office. BIS has responsibility for innovation policy, while the Cabinet Office—particularly the Efficiency and Reform Group—deals with procurement policy, with an emphasis on streamlining processes and securing value for money. Although we were told that the Cabinet Office recognises that innovation is not an alternative to value for money, we would like to be convinced that this is properly understood by decision-makers and those responsible at all levels. We also recommended that within departments there should be a lead Minister with responsibility for innovation and procurement. That is the first thing that we felt needed to change.

Secondly, there needs to be a better link within departments between the research base—both in academia and industry—and civil servants, so that those responsible for procurement know about the whole range of potential technologies and solutions and are able to act as intelligent customers. We recommend that departmental chief scientific advisers should play a role in improving these linkages with the research base in academia and industry. We also recommend that chief scientific advisers, in improving the “intelligent customer” capability of departments, should help in horizon-scanning to anticipate long-term implications of procurement.

The Foresight programme in the Government Office for Science could play a role here in highlighting longer-term issues. To give an example, the director of group procurement at Transport for London told us that TfL’s long-term time horizon was about 20 years, which implied that procurement decisions that it made would not take into account the effects of, for example, climate change. This is an extraordinary situation, if true, for a procurer of infrastructure that may last for a century or more. Although TfL told us later that the evidence it had originally given us was incorrect, the mere fact that there was a lack of clarity within the organisation does not inspire confidence that long-term thinking is a priority in its procurement decisions. That is our second point.

Our third general point is to do with the culture of risk aversion. It is a long-standing fact, recognised in many commentaries and reports, that those responsible for public procurement are risk averse. You can see why; when a major procurement project goes wrong, people are blamed. This reinforces the view that taking risks is a bad thing. However, properly managed risk-taking, with proper intelligence to back it up, is not necessarily bad; it could be good.

The changes to which I have referred—the three points—refer primarily to central government departments. However, we must bear in mind that, as the report makes clear, most public procurement is carried out by other public bodies. There is a further crucial challenge of how to embed the changes to which I have referred in other organisations that procure goods and services.

Although the report is concerned with procurement across the public sector, we looked in more detail at the Department for Transport. Here there was bad news and good news. The bad news was that the divisional manager of procurement policy and contracts in the Department for Transport told us that the department lacked an overarching strategy for innovation in procurement. This was a view echoed by Happold Consulting. I very much hope that by now this has been rectified.

However, we also heard good news from the Department for Transport—good examples of innovation in procurement. For example, Professor Brian Collins, who was then the departmental chief scientific adviser, told us how he had facilitated the translation of new research funded by the EPSRC into the procurement for the Thameslink project, and that this new technology and innovation would improve the flow of passengers on and off trains. This example underscores our point that the departmental chief scientific advisers could play an important role. Professor Collins, because of his connections to the research world, knew who was doing relevant work and saw how it could be applied. Knowing who and what to ask is a key element of being an intelligent customer.

The Highways Agency also gave us some good examples of its incorporation of innovative solutions, including the variable speed limit system to manage congestion. It is now not only implemented in 35 schemes in the United Kingdom but implemented and sold abroad. I hope that the Minister will explain how good examples such as these are now being taken as a lead for others to follow, and what is being done to embed this kind of thinking throughout government departments and the wider public sector.

We also heard that one important obstacle to potential suppliers of innovative solutions are the cumbersome and bureaucratic processes for public procurement. Therefore, we were pleased to hear from the Minister for the Cabinet Office that the Efficiency and Reform Group is determined to simplify the procedures. However, that group is concerned with central government spend, which, as I have mentioned, accounts for only a fraction of total public sector procurement. It was not clear to us how the benefits of its reforms will be cascaded out to other public bodies. Nor was this clarified in the Government’s response to our reports. I hope the Minister will develop this a little further.

The Government’s response to the report welcomed many of the report’s recommendations and pointed to certain changes that have already been implemented—for example, the appointment of Crown representatives to lead strategic discussions with potential suppliers and thereby, we hope, foster innovative solutions in public procurement. I do not intend to go through the Government’s response in detail, but I shall mention a few key points. The potentially positive changes highlighted in the response include improved training for those involved in procurement and the use of outcome-based specifications. We welcome these changes. However, there are also disappointing aspects to the Government’s response, including their rejection of our recommendation of a single Minister in overall charge of innovation and procurement across departments.

The response also places a great deal of emphasis on the small-scale initiatives to which I referred, rather than on mainstreaming innovation thinking throughout the public sector. I would like the Minister to assure us that the Government intend to mainstream innovation thinking in procurement, not to rely solely on small and as yet unproven initiatives such as the small business research initiative. The response is also somewhat evasive on the question of how local authorities and other arm's-length bodies in general, often short of the relevant expertise, can become more expert in procuring innovative solutions. In fact, the government response deals almost entirely with central government procurement. I ask the Minister for more detail on how she feels that innovation in other parts of the public sector will be fostered. There was also, in my view, not enough to reassure the committee that departmental chief scientific advisers will, as we recommend, play a more central role in building an “intelligent customer” capability in departments. Finally, I felt that the response focused very much on value for money and did not state clearly how innovation can contribute to the objective of achieving value for money for the public sector.

The Science and Technology Committee has said that it will return to this topic in the next 12 to 18 months to find out whether anything has changed. Among other things, we will be looking for measurable indicators that the Government have indeed embedded the culture of innovation into public procurement not only in central departments but elsewhere in the public sector. It would be interesting to hear from the Minister whether the Government have ideas about indicators that they may use to assess their own progress.

It would also be good, when we return to this topic, to hear of success stories. We found it difficult to dig out good success stories of innovation in public procurement. One that was highlighted to us in the Government’s submission was the recyclable mattress in the HM Prison Service, saving £5 million over the life of the contract. I am sure your Lordships will be most relieved that those serving custodial sentences are benefiting in that way from innovative public procurement, but I hope that when we next examine the topic there will be even more inspiring examples of innovation in public procurement. I beg to move.

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[Lord Krebs]

My Lords, I thank all noble Lords who have taken part in the debate this afternoon. It has been of extremely high quality. For me, particularly important is the different perspectives that have come in the debate from academia, the private sector and government organisations. I do not intend to try to summarise any points; it has all been clear. In general, the contributions in the debate have supported the conclusions and recommendations of the Select Committee. I believe that I understood that the Minister indicated her support for our recommendations although, on the face of it, the Government have not accepted all of them. I very much hope that when we come back to this in 18 months’ time we will see significant progress and understand how the Government are measuring it. We will try to establish how we might measure progress on the hugely important topic of promoting innovation in public procurement. With that, I commend the Motion.

Motion agreed.