Government Procurement Policy

Lord St John of Bletso Excerpts

Thursday 24th November 2011 Lords Chamber

[Lord St John of Bletso]

My Lords, this is an opportune time for a debate on this issue. It comes just three days after the speech by the Cabinet Office Minister, Francis Maude, on proposals to radically overhaul and improve public procurement. It also comes at a time when all government departments are under pressure to cut costs and when small and medium-sized enterprises are in desperate need of better access to bid for government business, which will call for less red tape.

I am grateful to the noble Lord, Lord Sugar, for giving us the opportunity to debate this important issue. No one in your Lordships' House is better qualified, given his vast commercial experience. I also thank the House of Lords Library for the excellent briefing pack on this debate. As a member of the House of Lords Information Committee, I hope that many Members who recently joined your Lordships' House will avail themselves of the tremendous support provided for these topical debates by the Library.

My interest in the subject of this debate goes back to the Gershon review of 2004, which both set and achieved an ambitious target of efficiency gains across government departments and the wider public sector. Procurement was clearly the largest area in which gains were made. Just as important, the review focused on increasing productive time. Undoubtedly, huge savings in costs and efficiencies followed from the review; but there is a lot more to be done, which is where I will address my few comments.

Every year since then—this is my other reason for speaking in the debate—I have hosted a series of lunches and dinners with members of the purchasing departments of public and private sector organisations in order to exchange knowledge, experience and success stories, and also to learn from errors. That is why this issue is very important. The noble Lord, Lord Sugar, made the point about having effective and strong procurement managers. Clearly, in the past, procurement managers in the public sector have been severely impeded by bureaucracy and red tape emanating not just within the United Kingdom but also from Brussels.

My other interest in this debate has been my desire to promote greater access for SMEs to compete for government contracts and services—by which I mean enabling them not just to be cheaper but to act more expeditiously. With the revolution over the past 10 years in online business this process can and should be a lot more efficient in both cost and time. As the noble Lord, Lord Sugar, mentioned, procurement accounts for £238 billion, or almost 35 per cent, of public sector expenditure. With the budget deficit, efficient and better procurement is essential, not a luxury.

Sir Philip Green's efficiency review of public spending emphasised credit ratings, buying power and the need to leverage spend as well as to mandate centralised procurement for common categories. Very importantly, he also highlighted the need to produce and use accurate data and to simplify and minimise demand and specifications. Although there are clear advantages to centralised purchasing and bulk buying, which allow prices to be driven down and minimise waste and administration costs, there also are dangers which the noble Lord, Lord Sugar, did not outline. I shall raise two very small dangers. First, I believe that innovation might be stifled—by which I mean that if all decisions are made centrally there will be very little room for new initiatives and alternative plans and products. Secondly, differences in local needs might be ignored. There is always a danger that a “one size fits all” attitude could become a matter of “one size does not fit anybody”.

Many SMEs still find the whole process of public procurement too onerous and decide to opt out. My question is: what can the bigger suppliers do to encourage SMEs to get involved through innovative partnering agreements? One of the key objectives must be to procure for an outcome with some flexibility. Procuring for the outcome rather than for the particular product allows suppliers the space to come up with new methods and equipment to solve a particular problem. To enable that, the Government need to put in place financial mechanisms that can cope with payment by results.

We also need to look at cross-departmental incentives. Many outcomes can benefit more than one government department; for example, getting people back to work eases the strain on the health service and others, not just the Department for Work and Pensions. Yet how does one incentivise one department to invest money in a project that will benefit others? Time restricts me from elaborating on this proposal, but what is needed is a budget and payment system that can manage this cross-section benefit.

My time is rapidly running out. While there has been a lot of debate about the benefits of PFIs, I believe that public/private partnerships have an extremely important role to play, with the private sector carrying some of the financial risks of new projects. This is strengthened by payment-by-outcome approaches, but several problems need to be addressed.

I believe that there are huge opportunities but equally huge challenges. Better information is essential. How do you incentivise different departments? The scale and complexity of the public sector is such that there is clearly not a common solution to procurement strategies. Technologies can and should make a huge difference to procurement. I believe that more dialogue between public and private procurement managers could be part of the paradigm shift required in the public sector. A professor at Henley Business School aptly summarised the situation when he said:

“No other aspect of government could release so much money, so readily and with such little political disagreement or social detriment ... Public procurement, with a few notable exceptions, is massively under-led, misunderstood, and under-focused”.

This transformation of procurement as a discipline is long overdue.