Procurement Bill [HL]

Lord Maude of Horsham Excerpts

2nd reading
Wednesday 25th May 2022 Lords Chamber

[Lord Maude of Horsham (Con)]

My Lords, it is a pleasure to follow the noble Lord, Lord Alton. I start by drawing attention to my entry in the register of interests, particularly my majority shareholding in FMA, a company that supports the implementation of reforms for Governments outside—I stress “outside”—the United Kingdom; this includes supporting them on the reform and operation of their procurement systems. I should also draw attention to the 2020 review that I conducted pro bono for the Government, the Cabinet Office and the Treasury on cross-cutting functions across the British Government, including the commercial and procurement functions.

There are not many people for whom public procurement is a subject that sets the pulse racing, but they are all here in the Chamber. For those of us who have lived and breathed this subject, it is a pleasure to speak on it and welcome the Bill that my noble friend the Minister has introduced.

A number of contributions so far have pointed to things that noble Lords would like to see in the Bill but are not in the Bill. My concern is slightly in the other direction. I would prefer the Bill not to be too constraining and restrictive because I have observed that it is possible to have perfect procurement law and terrible procurement outcomes, and really bad procurement law and much better procurement outcomes.

The legacy regime includes the EU’s public procurement directives, the first iteration of which I was involved in negotiating way back in the 1980s. They became somewhat more convoluted subsequently, it is fair to say, but they were not terrible. Yet, in 2010, when the coalition Government were formed—the noble Lord, Lord Wallace of Saltaire, will remember this—we discovered a horrendous legacy of dreadful contracts that the Government had entered into right across the piece. Our task, which was to drive out cost from the overhead running costs of government, involved us renegotiating many of those contracts and making substantial savings very quickly. However, it was not the fault of the law, which was not bad at all; it was all about the way in which the laws were being operated. Through the efficiency drive we led at that time, with enormous support from our coalition partners in the Liberal Democrat party—particularly Danny Alexander, the then Chief Secretary, and the noble Lord, Lord Wallace—we made savings, cumulatively over five years, of some £52 billion, essentially from the running costs of government.

So the law is not the most important part of government procurement. I urge your Lordships, as this Bill goes through its time, to resist the temptation that there will certainly be—we have heard some of this so far—to add things to it. At the end of it, procurement is primarily, although not exclusively, about buying goods and services that are needed to serve our security and citizens in the most effective way. That is about quality and cost and requires good practices; the practices have not always been good.

When we came into government in 2010, I discovered that the time taken for formal tender processes to be completed was double what it was in Germany. The rules were followed properly yet the time taken was, on average, twice as long. We made changes and cut the time for British procurements to half of Germany’s average time, all without making any changes to the law—that is, just by reforming practices. Suppliers would tell me that it cost them four times as much to bid for public sector contracts as it did for private sector contracts.

There are two malign effects of that. One is that the extra costs involved in bidding for such contracts get put on to the price bid, and the taxpayer picks up the tab for that. The second, of course, is that the extra costs and the restrictive practices which are completely unnecessarily incorporated into so many procurements mean that smaller and younger vendors are often—generally, actually—frozen out. Just in the field of IT and digital, we found that 87% of the Government’s spend on IT was with seven vendors, all multinationals.

One of the problems with building a really successful tech sector or ecosystem in the UK was that vendors had no, or very little, opportunity to bid for and win public sector contracts due to a combination of turnover thresholds, the routine requirement for companies to show three years of audited accounts, the requirement to show that you had insurance in place to cover the cost of the bid at the time of bidding, often huge performance bonds, and excessively complicated pre-procurement questionnaires—none of which was necessary under the law. All were avoidable but they had the effect of freezing out smaller, newer, and often more dynamic and innovative, suppliers. My noble friend Lord Lansley is quite right to say that supporting innovation is not the purpose of procurement, but innovation can be incredibly important in making procurement more effective and enabling newer ideas to come to the service of the country. It is really important that that should happen.

Within the constraints of the EU procurement regulations and directives, we exceeded our aim of 25% of government procurement by value going to SMEs. Understandably, we were not allowed to discriminate in favour of UK suppliers but, of course, SMEs are much more likely to be local and UK-based, and that was a big part of supporting the supply side of the economy. There was a tendency for too many contracts to be large—huge—multi-year contracts which smaller businesses were unable to bid for.

On central procurement, I found that there were 800 people employed at the centre of government—at that stage, under the aegis of the Treasury—yet they could not tell me who the 20 biggest suppliers to government were. We had to guess at that, write to the chief executives of the companies we guessed were the biggest suppliers, and invite them to give us full transparency, or full visibility, over it. Of course, there are huge savings to be made by central procurement, for the whole of government, of commodities, goods and services. However, as the noble Lord, Lord Fox, rightly said, when you try to do that—we succeeded in making some limited progress down that path—it is amazing, with the rich vein of creativity you tap into, to hear the reasons why it cannot possibly be done. People say, “We totally agree with it in principle. It makes very good sense, but our needs are completely unique and distinctive”, and exceptionalism becomes a religion. Again, the law does not operate on that area—these are operational decisions to be made by the Government when it comes to implementing and executing this law.

This brings me to the most important part—the people who operate procurement. There are three parts in any procurement: pre-tender market engagement, the formal tender process and post-award contract management. However, in most Governments, it is the middle part of that—the formal tender process—which attracts all the attention. Just as in the world of defence and security there is a class of public servants we affectionately know as “securocrats”, I came to know the people—often many people—who work in procurement, and I fondly refer to them as “procurocrats”. They are people for whom process is king, and for whom process will always trump the outcome. They thought that if they could say that they followed the process, even if it arrived at a stupid outcome with poor value for money, no one could criticise them.

You need to have commercial DNA injected into public procurement so that the pre-tender market engagement can be done in a confident and knowledgeable way, and therefore to frame the procurement tender in much more effectively. The process of tenders is often embarked on too early, without real knowledge of what you are trying to achieve or what it is possible to achieve, and then of course you get into endless alterations and changes to the procurement, which is where the suppliers make their money. Some suppliers told me that changes in the operation of a contract could deliver them a rate of return of 40%. Then there is post-award contract management, which we discovered was weak across the Government. Again, that is where the suppliers were too often making too much money.

It is that lack of experienced, confident, commercial operators inside government that often leads to these problems. I would sometimes hear procurement people in government saying, “But, Minister, we’re not allowed to exercise judgment”. What? Surely that is what we pay them for. The danger of excessively prescriptive procurement processes is that the focus is all on just buying what looks like it is cheapest so that no one can criticise you; it is just about the maths. If you have not allowed innovative vendors to look at new and different ways of delivering the goods or services, it just boils down to whatever is cheapest—and that is a bad outcome for the Government and the taxpayer.

The National Audit Office and the Public Accounts Committee fulfil an important function but cast a long shadow, and officials can become nervous of exercising judgment and not going for what looks like the cheapest option, for fear that they will subsequently be taken to task. That is one reason why the role of departmental boards can be so important. Strong and experienced commercial non-execs on those boards can support officials in exercising judgments effectively.

I submit that the professionalisation of the procurement function is more important than the precise letter of the law that we are debating today. I believe that a full assessment of the commercial function is now nearly complete, with accreditation of those professionals and support for those who fail to meet the standards to meet them subsequently.

On the Bill itself, I urge the House not to make the mistake of thinking that the law is the only thing that matters. Of course, it is important and necessary to replace the EU regime, but I urge us not to import into it more and more changes that make the Government a prisoner of the process. Some changes were made under the law to require pre-procurement questionnaires to be much more standardised and unified, supporting smaller companies to be able to bid for and win these contracts. I support the single digital platform, which builds on the Contracts Finder website that was created, and the transparency.

The noble Baroness from the Opposition Front Bench talked about the absence of references to social value in the Bill. Unless I am mistaken—perhaps the Minister can deal with this when he closes the debate—the social value Act of 2012 has not been repealed and is still in existence. It allows social value to be incorporated in procurements on a permissive basis.

The debarment register is welcome. It is important for procurement-contracting authorities to be able to look across the piece at the track record of suppliers, not just at what has been done with that particular contracting authority. We sometimes found ourselves obliged to give contracts to companies that were suing the Government, and I know of no other commercial organisation where that would be regarded as remotely accessible.

So I commend the Minister for the elegant way in which he has recommended this Bill and I look forward to discussing it in the course of its passage through the House.

Procurement Bill [HL]

Lord Maude of Horsham Excerpts

Report stage
Monday 28th November 2022 Lords Chamber

[Lord Maude of Horsham (Con)]

My Lords, I have a very specific point to raise by way of reassurance. It is clear from the debate so far that these are complex areas that are particularly complicated because of the interaction between this Bill and the previous Health and Social Care Act; I wish my noble friend the Minister well in disentangling that and making it all clear to your Lordships.

My concern is around the provisions as they affect public service mutuals. This programme has always had cross-party support. It began under the Labour Government in the Tony Blair years, specifically in the NHS. It was then taken up enthusiastically by the coalition Government. I led the programme with the support of Liberal Democrat colleagues, in particular the noble Lord, Lord Wallace of Saltaire. This was a programme where, in particular services right across the public sector, groups of public sector workers were able to spin themselves out of the public sector and form themselves into employee-owned and employee-led entities. They then provided that service, whatever it was, to what was in effect the contracting authority under a negotiated contract.

Technically, this is procurement and, in good practice, should be subjected to a competitive tender. Indeed, we had some difficulty with the then EU public procurement regime that made it legally impossible to do this. I was able to negotiate with Commissioner Barnier a change to the EU procurement directives, which enabled a mutual to spin itself out without a competitive process for a relatively limited period before being subjected to a retendering process.

This was a very benign programme. Mutuals that spun themselves out demonstrated almost overnight a dramatic improvement in productivity—something close to 4% annually. More than 100 of them spun out. The largest number came from the health and social care sector. They did not have to do this but nearly all of them—certainly all the ones from the health and social care sector—chose to be a not-for-profit, social enterprise.

They brought together four powerful elements. The first was entrepreneurial leadership. The second was an empowered and liberated workforce. The third was commercial discipline, in the sense that they would all talk about themselves as a business even if they were a not-for-profit; that commercial discipline was crucial. The fourth element was the public service ethos. Bringing all that together created a powerful alchemy that delivered improvements in efficiency. Costs were able to be reduced, there was a reduced fee basis through the life of a contract and quality improved.

Staff satisfaction also improved enormously. Whenever I visited these mutuals, I always asked people whether they would go back and work for the NHS, the council, the Government or wherever they had come from. I never heard anyone say anything other than an immediate “No”. When asked why, they would all say something like, “Because now we can do things. We’re freed from bureaucracy. We’re freed from constraints. We can make things happen quickly”.

So my question for my noble friend the Minister, to be answered whenever she is able to do so, is whether she can provide some reassurance that the arrangements in the complex interaction between this excellent Procurement Bill and the Health and Social Care Act will, if the Government wish to accelerate this programme again, allow such arrangements to be negotiated directly between the contracting authority and the emerging spun-out entity without the need to go through a competitive process.

[Lord Wallace of Saltaire (LD)]

My Lords, we will return to the question of not-for-profits, mutuals and social enterprises in group 6, when we have Amendments 41 and 123 in my name and the name of my noble friend Lord Fox. I very much hope that we will have the support of the noble Lord, Lord Maude, on that. There was, in the Green Paper where we started this process, a very strong emphasis on the useful role that non-profits and social enterprises would have. That has disappeared from the face of the Bill. We wish to make sure that it reappears.

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I hope that my noble friend can respond positively to the strategic priorities in Amendment 47. I look forward to hearing what she has to say. However, if it is not sufficiently positive, I may need to test the opinion of the House on Amendment 47.

[Lord Maude of Horsham (Con)]

My Lords, I draw attention to my interests as set out in the register. I am co-owner of a company that provides advice to Governments outside the UK on issues of public sector reform, including procurement—a subject that is not dear to very many people’s hearts but is to mine. I am delighted to have the chance to speak on this important group of amendments.

I assume that it is accepted everywhere that the primary purpose of good procurement law and practice is to ensure that the goods and services being procured provide excellent value and the best quality for the money. That trade-off between the two should always be primary. The various objectives and principles that are adumbrated in the amendments tabled by my noble friend Lord Lansley, and the noble Baronesses, Lady Hayman and Lady Worthington, are all excellent. I mean no offence when I say that they are motherhood and apple pie. No one would be against any of them, they are good things. The question is the extent to wish you should build into law the obligation for these to be taken into account in the ways laid out in the various amendments.

My noble friend Lord Lansley referred to the Public Services (Social Value) Act 2012, which I was very glad about as I was the Minister responsible for it. It was a Private Member’s Bill in the other place, but I was very happy that the Government supported it and saw it into law. It was very much a permissive Act. The objective was to make it clear that procurements were not to be just an arithmetic exercise looking at the pure financial value of bids but that you could look at wider social value.

However, when the coalition Government was formed in 2010 and we started to look at how procurement was being done, procurement policy was being used as a sort of Christmas tree on which many different policies were being hung. My recollection is that there were something like 11 different policies. All of them were very good. None of them was something we did not want to take seriously or thought did not matter. There were environmental and social policies, and others concerning training and apprenticeships; a whole range of interesting and good objectives. I have to say that we fairly ruthlessly stripped them out because, like now, the Government had a significant budget deficit and it is essential that primacy must be given to value for money. So we stripped them out, but that was not in any way to suggest that those factors could not be put into a request for proposal—RFP—or tender document, in the way that a number of your Lordships want to see happen on a routine basis.

The key to this is bespoking. There will be many cases where the inclusion of wider requirements makes sense and will not skew or bias a particular procurement in a way that damages its value for money—but there will be some where this is damaging, and this must be addressed close to the chalkface by those who are doing the procurement. As I said at Second Reading, the key is practices, and getting experts in procurement involved at an early stage so that the procurements can be devised in a way that supports the policy objective. Too often that does not happen. The problem with introducing broad, overarching requirements or even policy statements into the approach is that these get baked in at the policy development stage of a project, and that can then jeopardise and get in the way of the project’s effective implementation.

This leads to a broader point. It is essential that those charged with implementation of projects, programmes and policies—implementation professionals with the necessary expertise in procurement, project management, IT and digital, financial management and HR—are involved at the policy development stage. Far too often, that does not happen. That is the stage when advice can be taken and a procurement devised and formulated in such a way that these desirable other policy objectives can be addressed, but in a way that is proportionate and appropriate in the circumstances.

It seems to me that that is the reason for having that flexibility. The noble Baroness, Lady Hayman, said that the words of Ministers can be warm, encouraging and good, but there is nothing like having good, strong law to bake it in. The problem is that this can be counterproductive. We all know the reality, and it is clear from this debate that procurement is difficult, complex and technical. If it is so for those of us who are here making the law, then it is pretty difficult, complex and technical for those trying to bid for contracts from the public sector. The more complexity and legal rigidity we build in at this stage, the greater the ability of the established universe of vendors and suppliers to freeze out newer, smaller ventures from effectively bidding for and winning these important contracts.

When procurement law becomes too rigid and prescriptive, frankly, it can enable established vendors to present some of the characteristics of an oligopoly. We saw this 15 years ago, particularly in the world of public sector IT contracts. It is really important that we bear this in mind.

A little later, in group 6, we will debate the government amendment that rightly requires contracting authorities to take account of the needs of SMEs, which I wholly welcome. In an earlier debate, the noble Lord, Lord Wallace of Saltaire, mentioned the desirability of including the needs of social enterprise, to which I am very sympathetic, for all the reasons we discussed earlier.

However, the fact is that, the more prescription and rigidity in the law, the greater the scope for the big beasts in the supplier market to use their financial muscle and heft to squeeze out the smaller vendors through judicial review in the courts. Some of them are very trigger-happy in this respect. It is often the smaller, newer vendors who bring the most dynamism and innovation and are most able to bring quality and good value to the needs of delivering services and providing goods for citizens.

While recognising the good values and intentions that lie behind this desire to load all these additional factors on to procurement law and make them explicit, my counsel is that we should tread with very great caution. I do not find myself able to support these amendments.

[Baroness Noakes (Con)]

My Lords, I will offer a few general observations. I do not have any amendments in this group, and I will echo some of what my noble friend Lord Maude has just said.

I will make four points. First, I see little point in duplicating in this Bill what is already on the statute book. We have already referred to the Public Services (Social Value) Act 2012. This deals with social value and does not need to be repeated in the Bill. That applies to other matters as well.

Secondly, lists of noble Lords’ favourite topics, such as climate change and innovation, run the risk of accelerating the Bill’s obsolescence. This is the case even if lists are drafted in a non-exhaustive form. The list itself provides context for interpreting the statute at a later stage. Those interpreting the legislation will look at what Parliament’s intention was when we passed it. The sorts of things we put in now will help determine the framework within which that judgment is made.

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[Baroness Parminter (LD)]

My Lords, I add my support to the noble Baroness, Lady Worthington. There is disunity in Horsham tonight: I disagree strongly with the noble Lord, Lord Maude of Horsham. I went to school in Horsham and was on the council there. However, I take a different view from the noble Lord about the role of procurement.

He talks about procurement’s sole purpose being good value. He went on to say that it is “motherhood and apple pie” to have value-driven public procurement policy, but I argue that it is not. That is the point of procurement: to marry good value with being value-led. Why be in government if you are not using all the levers at your disposal—regulation, fiscal incentives and disincentives, and procurement, with its massive spend—to deliver the values your Government want to deliver?

[Lord Maude of Horsham (Con)]

My Lords—

[Baroness Bloomfield of Hinton Waldrist (Con)]

I remind the House that noble Lords may speak only once on Report.

--- Later in debate ---

[Lord Maude of Horsham (Con)]

My Lords, I support government Amendment 40. This is very worthwhile. I am also very sympathetic to Amendment 41, tabled by the noble Lord, Lord Wallace of Saltaire. The reality is that not-for-profits, social enterprises and mutuals, when they come to retender or bid for different contracts, because a number of mutuals we supported have grown, both by expanding into different areas for the same group of clients but also by expanding into different geographical areas for different public authorities—and this is very worthwhile—but they are subject to very much the same kinds of constraints that the conventional procurement we inherited in 2010 imposed on SMEs.

I take slight issue with the noble Lord, Lord Wallace. I do not actually believe that there is a conflict between this approach—working to remove barriers to SMEs, social enterprises and so on participating in, bidding for and winning government and public sector contracts—and achieving better value and supporting the aims of the free market. When we went down the path, in the coalition Government, of setting an aspiration of 25% by value, at that stage, of public procurement going to SMEs, the immediate response from the conventional wisdom was, “Oh, that means you’re going to abandon best value; you’re going to have to effectively subsidise SMEs”. Precisely the reverse was the case. Opening up procurement got rid of some ridiculous requirements that were not necessary at all but were imposed by safety-first procurers: for example, that bidders should have to show three years’ audited accounts and that there should be turnover thresholds, performance bonds and requirements to show that they had in place the insurance to cover the contract value before they even bid.

The combination of all these things meant that many SMEs and start-ups and some of the most innovative, competitive and dynamic potential suppliers were simply not able to get into the marketplace at all. So there is no conflict between value for money and opening up to smaller businesses: the two objectives go absolutely hand in hand. So I strongly support the amendment the Minister has brought forward, but I urge her to look sympathetically at Amendment 41, because social enterprises, not-for-profits, mutuals and so on suffer from exactly the same disadvantages and obstacles as there were in old-fashioned procurement and it is important, I believe, that they should be included in the same bracket.

[Baroness Noakes (Con)]

My Lords, I have Amendment 164 in this group, to which my noble friend Lord Moylan has added his name. Before turning to that, I echo what other noble Lords have said in thanking my noble friend the Minister for her amendments on SMEs. I am very glad that she has taken into the Cabinet Office the evident passion she demonstrated for the cause of SMEs when she took part in Committee on the Bill. Of course, there is no one silver bullet that is going to solve all the problems of SMEs engaging in public procurement, but I believe that most of the amendments before us here will contribute to an important advance in that area.

I have a concern about Amendment 134, which is one of my noble friend’s amendments. It keeps the new Clause 11 duty out of the enforcement clause, Clause 92. That is a pity, because it means that SMEs, which think that that duty is not being complied with, will have to fall back on judicial review—and, as we know, judicial review is not a practical remedy available to SMEs. I regret that. I similarly regret Amendment 140 in relation to procurement oversight recommendations, and I hope that the Government will have an opportunity to think again about both those areas when the Bill moves to the other place.

My Amendment 164 is aimed at the same target as Amendment 163 in the name of the noble Baroness, Lady Bennett of Manor Castle, who was not in her place when the debate started earlier this evening. I was expecting the noble Baroness, Lady Bennett of Manor Castle, to explain the amendment, and then I was going to come in behind it. They are both sourced from an amendment suggested by the Local Government Association. It concerns Section 17 of the Local Government Act 1988 and the exclusion of non-commercial interests that is required by that section. Clause 107 allows regulations under this Bill to disapply that duty for below-threshold contracts. The issue raised by the Local Government Association was that that should not be just permissive but should be an absolute requirement.

The noble Baroness, Lady Bennett of Manor Castle, tabled an amendment in the form originally suggested by the Local Government Association. I have been around a little longer than the noble Baroness, Lady Bennett of Manor Castle, and have debated may/must amendments in relation to whether regulations should be obligatory or permissive. It is a good technique for discussing issues in Committee, but when we get to the sharp end of the business of legislation, the Government always resist a regulation-making power being obligatory—and for good reason, because it ties the hands of today’s Government and any future Governments. I accept that, and I am sure that the Opposition Benches who may want one day to be making legislation of their own would accept that as well. So I retabled the concept of the amendment by inserting below-threshold contracts into the list of things that could be done with this power, in the hope not that my noble friend would accept the amendment but that she would give a clear commitment at the Dispatch Box today to use the regulation-making power at the appropriate time to ensure that below-threshold contracts are excluded from the ambit of Section 17, as I mentioned. I look forward to hearing what the Minister has to say.