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.