Government Contracts

Debate between Meg Hillier and Iain McKenzie

Tuesday 3rd December 2013 Westminster Hall

[Mr Iain McKenzie (Inverclyde) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Streeter. I congratulate my hon. Friend on securing this important debate. She touches on a number of issues. The one that I will ask her to comment on is not contract management, but contract monitoring. Does she believe that frequent contract monitoring is necessary to prove, first and foremost, best value for the Government?

[Meg Hillier]

My hon. Friend raises an important point. Contract monitoring is often more of a box-ticking exercise. When there are 150 key performance indicators, it is difficult to know whether someone is watching the overall performance of the contract, and sometimes the contracts are drawn up in such a complicated way that it is very difficult to shift meaningfully. In the building world, for example, there are attempts by housing associations and contractors to partner, so that they work together to acknowledge where there might need to be a change for more improvement. I hope that the Minister would acknowledge that there needs to be great improvement. The Major Projects Authority is doing some good work in that area, but it deals with the major projects. Many Government contracts are much smaller than that, which is one of the big challenges. Building a warship is one thing; letting a small IT contract is another.

Crucially, all of this—what my hon. Friend talked about and what I have talked about—cannot just be left to Departments. We know that procurement managers come in various forms. Some are not very expert. I remember as a Minister saying to one official who had led two projects that came in ahead of time and under budget and that delivered very successfully, “What’s your next one?” The reply was, “Well, I have to move in order to get my next promotion.” I know that there have been some attempts to put project managers in place in Departments, but I would be interested to hear whether the Minister has an update on that.

Procurement managers can often prefer the simplicity of a single supplier, as it can be more complicated to manage several contracts. The Cabinet Office recently—yesterday, I think—advertised its event management contract, welcoming multiple small bidders. I hope that that will be better than other Government bids and that the Cabinet Office will live up to its promise. I am quoting from the Minister’s own website, which says:

“We are committed to ensuring that small organisations and businesses can compete fairly with bigger companies for our contracts.”

I see him nodding. I hope that businesses in Shoreditch take that seriously and that he delivers.

When contracts are broken up, smaller IT companies are often required to partner with bigger players to meet the risk threshold. That can be a big issue for a supplier’s IP and it adds complexity. For businesses in Shoreditch and particularly the tech businesses, it is a deal-breaker.

I want to raise one specific issue in relation to local government procurement; I am not sure how this applies to national Government. Now that councils often join forces to procure for longer contracts—perhaps across more than one local authority area—those now count as large contracts, and it is often the case that small businesses do not meet the requirement that the value of the contract be not more than 25% of their annual income. That is an example of a hidden barrier that could be avoided if the threshold were for the annual value of the contract, rather than the whole contract over the longer period. I am not sure whether the Cabinet Office is aware of that. I hope that the Minister is. Does it apply to central Government too, and can the Cabinet Office do anything to tackle it?

It is fair to say that there has been some progress by both recent Governments in paying contractors much faster, but late payment can be a big issue for smaller companies if they are a subcontractor down the line. Has the Minister any plans to make it mandatory for large contractors to pay their subcontractors within 30 days of receipt of payment from Government? If the Government are paying on time, there should be no excuse for that payment not being sent down the line to the smaller contractors on time as well. I hope that the Minister can answer that point.

During the Olympics, there were some very interesting issues going on with contracts from the public sector. There were scams whereby bidders included local businesses in a bid and then stood them down once they had won. I do not know whether the Government are aware of that and what they are planning to do to ensure that it does not happen in future. It had a big impact on local supply chains and, crucially, on small and medium-sized businesses’ confidence. There is such cynicism out there. If the Minister were able to come to Shoreditch, he would hear this. There is a desire to take these contracts on. People realise the prize that they bring, but there is cynicism about whether they will ever have the chance to compete on a level playing field.

That happened during the Olympics. We picked up on it too late, because clearly there was a very tight deadline for delivery of the Olympics, but I believe that contracts need to be better audited after they are awarded. We must ensure that promises of local employment and contracting with certain subcontractors and promises on pay rates, training provision and so on are delivered on. Only a post-audit will deliver that.

I have touched on financial hurdles, but there are others that I have heard about repeatedly from solvent and successful businesses. When smaller businesses join forces to bid for a contract—often in a creative partnership and sometimes delivering very good solutions or potentially doing so—they require three years of audited accounts, which they cannot provide because they have never worked together before. Even when they are able to get around that by providing projected accounts, they need to spend up to £6,000 on accountancy fees to do that. It is right that due diligence takes place, but could that hurdle be introduced later in the bidding, when a consortium knows that it is in the running? The up-front costs can easily put off SMEs, whereas big companies can afford them much more easily.

One company, which had won a health contract, told me:

“Financial guarantees were required which were impossible for SMEs to reach. For one application we were required to put up a bond of £10m which removed small companies immediately from competition, as for a company with a £3m market cap nobody will be willing to put up the risk for such a bond. This means that small companies are effectively denied the chance of competing in the bid, and stops them…making the jump from small to medium sized companies.”

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[Mr McKenzie]

I thank my hon. Friend for giving way once more and for making very powerful points on the procurement aspect. Has she, like me, experienced the reluctance of small and medium-sized businesses in relation to eProcurement—their fear of using that tool to submit tenders online?

[Meg Hillier]

Earlier, I mentioned G-Cloud. That is an important innovation, but there needs to be greater confidence building and greater awareness.

I am not sure whether the Minister has come across this, but there were times when I was a Minister when I would ask whether anyone had spoken to someone and I would gather that there had been a big consultation, but later on, when I met some of the people who had been at that, whether from the business sector or elsewhere—I dealt with procurement in the Home Office for three years—I discovered that being in a meeting was all that happened. Someone sat in a meeting; they did not actually engage. I think there needs to be really good, positive engagement with businesses, which are keen and willing and have a lot to offer.

I extend an invitation to the Minister or his senior officials to come to meet Shoreditch businesses and hear from them directly about the barriers that they face. If he does so, he will also learn about a number of innovative, user-friendly and cost-effective ways for the Government to deliver smarter services. I hope that he will take that opportunity and spend a thrilling morning meeting some of the best brains in the country.

We know that civil servants’ careers are not enhanced by taking risks, so the safe, risk-averse approach is well embedded in Whitehall. The Cabinet Office is charged with changing that landscape and opening up Government to the small business sector. It is certainly talking the talk, but whether the large-spending Departments will deliver is another matter. I look forward very much to the Minister’s response. Shoreditch is listening, and I will be holding him to his words and his Government’s promise of more business for the small business.