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

Lord Warner Excerpts

Tuesday 13th September 2011 Grand Committee

[Lord Warner]

My Lords, as a member of the committee, I endorse the remarks of the noble Lord, Lord Krebs, about the support we were given by our adviser and the secretariat. I also pay tribute to the noble Lord for his leadership of our inquiry.

On my way to the Committee this afternoon, I had an experience of public procurement using innovation in action. The House authorities have put a Dyson hand-dryer in the men’s loo at the other end of the Corridor. However, they have demonstrated the tried and tested approach of the public sector by retaining not one but two of the existing systems for drying your hands. We have a living example here of some of the dilemmas caused by public procurement and the use of innovation.

The Government are the largest purchaser in the UK. In spending more than £236 billion a year, they are spending on procurement more than the combined budgets of health, defence and education, so making some modest gains here could have major effects on public spending programmes.

I had some experience of dealing with the frustration of the commercial sector over public procurement when I was a Health Minister. In order to respond to the frustrations of that sector, I spent a year co-chairing with the chief executive of Smith & Nephew, a healthcare industries task force, which in the end led to the establishment of the NHS national innovation centre, which is featured in the report. That experience showed me that industry looks very strongly to public procurement as a means of developing products. It is a way to expand their products and market them overseas. The brand of the NHS is very strong overseas, so if you have a product that you can develop within the NHS, prove that it is safe and use it in the NHS, you have a strong marketing aid to sell your product.

We found in that exercise, as was borne out in the committee's inquiry, that public purchasing for quite big sums of public money is undertaken, for the most part, quite a long way down the managerial food chain. The boards and chief executives of those public bodies have only a marginal interest in many of those purchasing and procurement decisions. So we have a system in which quite senior people in the private sector are concerned about the issue but the responses are being undertaken by people quite low down in the organisation. Not surprisingly, those people are cautious about change. Why should they not be? Most of us would be if we were that far down the food chain.

You see the same thing in the Civil Service if you are a Minister. I am old enough to have joined the Civil Service under the old class structure of administrative, executive and clerical staff. The executive staff did money and procurement. They did not do policy. The Civil Service still likes to give policy to the fast-streamers, and the less fast-streamers do sordid things with money, such as buying things. We have a problem at central government level and at local level. We do not like to talk about it very much, but that culture is what the inquiry exposed.

Every so often—about every 18 months to two years—Ministers change, so unless the Minister really wants to get a grip on some of this, nothing much will change in the culture of the public service about these issues because there is no longevity in the ministerial cadre for the most part. There have, however, been Ministers in both parties—I cite Michael Heseltine and Denis Healey—who stayed in their jobs long enough to take these management issues seriously. However, they are the exceptions, rather than the rule.

In the course of this inquiry, we found some good things and some bad things. The Government’s launching of an open public services White Paper has much to commend it, building as it does on the previous Government’s policies. However, a large chunk of public procurement is decided locally and cannot simply be drawn into the centre. Therefore, a large amount of that £236 billion is spent way outside the vision and influence of Ministers. No matter what Francis Maude does in the Cabinet Office, his impact at the moment on many of these local agencies, which spend large sums of that public money, is minimal.

I understand the importance of localism to this Government, and the importance of delegating responsibilities down to local level as far as possible. Certainly, as an ex-public-sector manager, I understand that. However, the Government have some responsibility for finding out and explaining to Parliament and the public what is happening to public money at that level. It is no good saying that there are directly elected bodies in local government. A large chunk of their budget comes from centrally directed grants that are paid for by the taxpayer and sent down in the post, so to speak, from Whitehall. There is an accountability issue, but what do we find? The Government are to abolish the Audit Commission, which is one of the bodies that looked at the value for money of local government activities, and have stopped its value-for- money inquiries. Therefore, despite the protestations of the Government in their response to this inquiry, there is no mechanism for monitoring and finding out what is happening to that public money and how procurement is being used away from central government to drive innovation and best value.

There is something of a conundrum for the Government when they genuinely want to do a good job in securing the best value for taxpayers’ money. They want to drive efficiency but seem to be slightly stuck in a mindset that separates innovation from efficiency and best value. They are not contradictions; they are part of the same way of achieving improved public services. You need innovation, efficiency and best value. In my experience you are likely to get best value—certainly in the health service—if you are also driving innovation. I cannot see from the Government’s response to the committee’s inquiry how they can be sure about what is going on in procurement and innovation away from the central departments. Nor can I see how they can have any confidence whatever that a major chunk of the £236 billion of procurement includes a satisfactory element of innovation.

Not all procurement requires innovative solutions. As the Government rightly say, in many areas innovative solutions may not be needed. It may be sufficient just to get the best price for the quality of goods or services required, as Francis Maude told the committee. There may well be risks attached to innovative solutions. I would be the first to acknowledge that. That is why a degree of testing innovative solutions, often on a smaller scale before you go national in a big way, is a sensible way to proceed.

However, too often the committee was left with the impression that “tried and tested” was the default position for public procurement. There was a conspicuous absence of challenge mechanisms to that default position. We did not hear much evidence of what were the challenge mechanisms to that approach to public procurement. As I said earlier, innovation was somehow seen as being in conflict with efficiency and saving money. It is striking that in their response to the committee’s report the Government have decided to scrap the departmental innovation procurement plans, as the noble Lord, Lord Willis, said, established following the previous Government’s Innovation Nation White Paper in 2008. I found the current Government’s reasons for scrapping these plans extraordinarily curious, as I think the noble Lord did. As he said, clearly some departments produced rather good plans, and most of us who have managed things would have thought that that was a good excuse to say to the other departments that were rather less good, “Why don’t you emulate the good plans in, say, the Ministry of Defence or the Department of Health?”. But no—because some were less than good, they scrapped the whole system. What are the Government going to do to put in its place a mechanism for strengthening the weaker brethren whose plans were inadequate in their approach to innovation? Are they just going to be left to slumber contentedly with their mediocre performance or is something going to be done to drive it up?

As public expenditure gets tighter, the need for new ideas and thinking in public procurement becomes more critical. As President Obama’s former adviser, Rahm Emanuel, so graphically said:

“Never let a serious crisis go to waste”.

If we want our business sector to grow, we should be using this procurement programme to stimulate UK enterprise and innovation. That is, for example, why the previous Government brought in David Cooksey, a venture capitalist, to look at the way we try to exploit clinical research in this country. A lot of very good work was done in that area, but it took someone of eminence to drive, with Ministers, that kind of change. In my experience in the public service, the gnomes do not come in the night and just drive change. Ministers and senior civil servants have to get their hands dirty, and they have to drive that change by providing what needs to change as an example to people outside the Civil Service and the departments—and within the departments.

That is why it is disappointing that the Government have not seen a stronger role for chief scientific advisers, as we have recommended. They are a bit of grit in the oyster. They could be some of the people who would build the bridges between industry and public procurement systems. They could be the people who could innovate, and have the authority to innovate if they were given it. I hope that the Government will look again at this issue and try to come up with some ideas about who in these departments will drive change—and not just in the departments but at local level. They are the bodies which come within the general rubric of those departments and whose budgets are usually shown on the departmental public accounts. They should bring about a step change in the way that public procurement is used to drive innovation.

In conclusion, I say to the Minister in a very friendly way, as a former Minister, that these things do not change in areas such as procurement unless Ministers really want to make them change. It simply does not happen. Ministers have to be prepared. I am less concerned about the committee’s recommendation for a single Minister for innovation and procurement, although I would like that. However, if the Government are not going to pursue that course, they really must take seriously the issue of finding a Minister in each department who will drive this change, because if it is not going to be driven from the centre of Whitehall, it will need to be driven across the departments and will need political leadership to make this change happen. It will also need continuity of political leadership as Ministers come and go within different departments.

I offer that in the most friendly and constructive way to the Minister. This issue is too important to simply bat back with fairly standardised Civil Service responses—I have seen those responses to Select Committee reports. As a civil servant, I have drafted a few in my time and I recognise a fairly standardised report when I see one. There is too much money at stake at a time when this country needs to grow its industries and private sector and get best value for its public service. We need a bit more energy in political leadership on this issue.