Local Government Procurement

Roberta Blackman-Woods Excerpts

Thursday 3rd July 2014 Westminster Hall

[Roberta Blackman-Woods (City of Durham) (Lab)]

May I say what a pleasure it is to serve under your chairmanship again, Mr Bayley?

I find myself here again on a Thursday afternoon congratulating my hon. Friend the Member for Sheffield South East (Mr Betts) and his Select Committee on an excellent report. I want to take a few moments to explain why it is an excellent report, before going on to look at some of the issues it raised. As we can see from looking around the Chamber, few of our parliamentary colleagues think local government procurement is a really exciting issue or one they want to spend their Thursday debating, so I might be one of the few who are interested in it.

Given the cuts facing local councils, particularly those serving poor areas, and given the jobs that will be lost as a result, I decided, as the shadow Minister with responsibility for the issue, to see whether councils were using procurement to support local employment where possible. I sent out two rounds of freedom of information requests to 400 councils and got 367 responses, which is pretty good. The responses highlighted a number of the issues raised in the Committee’s report.

The responses to my first request demonstrated that a significant number of councils want to take on a more proactive role in deciding who to award contracts to. Everything else being equal, they want, where possible, to prioritise local service delivery, but many felt unable to do so because of EU legislation, and the issue was raised again and again. Some 67% of the responding councils said they did not prioritise local goods and services and that the main reason for that was the perceived restrictions in European legislation. I should say that that was before we saw the new directive on procurement.

Armed with that information, I did a second round of freedom of information requests, seeking more detail on what councils were doing locally, and it showed that there were differences, depending on the councils’ political make-up. On average, a Labour council will procure about 40% of its goods and services from the local authority area, while the average Conservative council procures about 31%, although that might have improved. What was striking, however, was the range of local procurement. The highest proportion of goods procured locally was 80%, while the lowest was 2.5%, so there is great variation in practice.

The second set of questions also asked about the use of social value clauses in contracts, and I discovered that about 56% of councils used them in their procurement strategy. Indeed, most councils—about 90%—had a written procurement strategy, which was also pretty good. I also asked councils whether they took into account whether suppliers gave employees non-statutory benefits such as the living wage, and about 40% said they did.

That was all very interesting, and as we have a few moments, I thought I would outline some of the good practice I discovered, because it reflects some of the issues in the report.

Newcastle city council supports a living wage and promotes it not only in the direct delivery of council services, but in its supply chain. The council also said that 53% of its spend was with local—north-east—suppliers, compared with a national average of 35.8%. In addition, the corporate procurement team seeks to obtain at least one north-east quote for all contracts not requiring a formal tender process.

The council also ensures that the lots within larger contracts are a proper size to encourage bids and competition, and it works with north-east procurement organisations to streamline procurement documentation, making procurement processes consistent across the region and easier to understand.

The council has participated in a regional supplier development pilot to educate, and improve competitiveness of, the region’s small and medium-sized enterprises. It has also ensured that SMEs have received training on procurement. The council’s “Quick Quotes” initiative was launched to streamline and speed up the process for small bids. The council is also committed to e-procurement and to making communication on all aspects of procurement much easier to understand.

Finally, through its targeted recruitment and training programme, the council focuses on job creation by including clauses on it in the procurement process, bringing new jobs to the area. Through their procurement strategies, a number of other councils have also tried to deliver jobs where possible.

There were equally good examples at Sheffield city council, which has adopted the national procurement concordat for SMEs to encourage trade between SMEs and the council. It looks at how to get more local businesses, particularly small businesses, competing for council contracts. It also monitors closely the proportion of the council spend that goes to local businesses, which is about 72%. There were similar processes in Birmingham, although there was much stronger focus there on delivering local jobs and local training opportunities.

That is all by way of preamble. Like my hon. Friend and his Committee, I thought there was really good practice out there in opening up procurement processes and ensuring, where possible, that SMEs got a chance to bid for contracts and that procurement could deliver for the local community. There were issues, but it was comforting—this is why I wanted to go through the preamble—to know that the Committee and I had discovered similar issues and concerns. Indeed, I was reflecting this morning on the fact that I could probably have sat back and let my hon. Friend’s Committee do the work I did through my freedom of information requests.

We need to ask a fundamental question: why are we here discussing procurement? The public sector spends about £220 billion a year on procurement, of which about £50 billion a year is for local government procurement. That is a huge amount of money, and we are asking whether it is being spent wisely. About 47% of what local government spends on procurement goes to small and medium-sized enterprises. The Federation of Small Businesses has shown that for every £1 spent in the local economy 83p goes back into it. Obviously, it makes a lot of sense for local governments that want to build their local economies to try to get as much local procurement as possible.

The way local authorities choose to spend their money can have significant impact on businesses and jobs, and on wider social value. What they do could include using more SMEs; ensuring that suppliers give staff non-statutory benefits, such as the living wage or extra training; and asking suppliers to provide apprenticeships or jobs for those who struggle to find work and to use local businesses if possible. There is growing evidence to suggest that SMEs provide better quality and more flexible services, and that they are more responsive when the procurer’s demands change, or there is a need to change a contract.

I was therefore interested in the excellent report that has been produced, and in the evidence that the Select Committee took on the need for local authorities to get better at procurement. Interestingly, the report reached the same conclusion as the shadow team. It is always tempting for people involved in central Government to think that centralising everything will get things done better, because of economies of scale and because there can be, for example, one pre-application questionnaire, simplifying the whole process, but I wonder about that. Many councils told us they could not do certain things because of EU legislation, which we were not sure was really the case. Some local authorities seemed to manage to do what others could not. However, I agree with my hon. Friend’s conclusion that it would be wrong to centralise the procurement system for local government, because that could mean services being unresponsive or inappropriate, which would be a major disbenefit. It could, indeed, lead ultimately to higher service delivery costs in the long term, particularly if contracts broke down and had to be retendered.

We thought that there was much good practice in local government. We saw that local authorities would come together voluntarily in an area that made sense to them, to deal with procurement. Often they would procure back office functions between several authorities, or they would look at working more effectively to improve value for money. Large contracts were another reason for them to come together. We hope that the Government will support local authorities in working together voluntarily, and perhaps in setting up, at regional, sub-regional or combined authority level, ways to make procurement easier, more consistent and easier to understand.

I also agree with the Select Committee’s conclusion that the difficult balancing act for local authorities is to get best value while supporting local businesses. In many cases, simply going by cost may not necessarily mean the best service, or the one that local people want, and it can mean employees from another area providing the service: local authorities thus cannot use procurement to benefit the people they represent. That is a difficult balancing act, but the people who are best able to chart a course through the difficulty are the local authorities, either alone or in co-operation.

I was pleased that the report showed that smart procurement can bring other benefits, such as a living wage, training and upskilling opportunities, and apprenticeships. It is right to suggest that the Local Government Association could and should do more to promote sharing good practice of that kind. We came across good examples, and felt that all local authorities need to understand how to use procurement more effectively.

In the responses we received, European rules that were never really outlined in detail were often used to justify a lack of imagination in the way councils procure services. Things were often very bureaucratic, and the reason we were given was, “We have to do this because of Europe.” However, some councils managed to avoid that. I was therefore pleased that the Select Committee paid attention to the issue, informing us that procurement takes longer and is more expensive in the UK than in other EU countries. I hope that that worries the Minister; it worries me. I thought that it showed that the Select Committee report is timely, and that its recommendations should be acted on.

The report states:

“Some 75% of all contracts tendered in the UK have a value below the thresholds at which the full EU requirements apply, but witnesses contended that councils applied the full rules to many of these lower value contracts”.

We came across that, and clearly it must cease. It is imperative that the Department for Communities and Local Government and the Local Government Association act on the relevant recommendation, at paragraph 59 of the report. Local authorities need to become more competent in applying EU rules. The first step is surely for the Government and sector leaders, including the LGA, to spell out what constitutes a sensible approach that complies with the regulations proportionately. The LGA should produce guidance on that aspect of the new EU directive on public procurement, and work with local authorities to disseminate best practice.

The report is right to highlight the need for a consistent, measured approach to the management of the procurement process. We, like the Select Committee, found huge variation in practice for pre-qualification questionnaires. We interviewed small businesses, and for some of them—with some councils—the PQQ experience was truly frightening. Often there is a lack of consistency between councils in dealing with PQQs, but sometimes the lack of consistency is between departments within a council. Our plea would be that if there is to be support to enable councils to get more streamlined systems, attention should be paid to PQQs. Indeed, there should be assistance from central Government or the LGA in developing a better system.

There was much good practice. We found, as did the Select Committee, good examples of streamlining to make the procurement and tendering process more straightforward, but there is a big role for the LGA to play in ensuring that all local authorities follow best practice. That is what the Select Committee report says, I think.

I was pleased that the Select Committee considered the quality of employment that is provided, through outsourcing in particular, and that it pressed the Government to monitor the quality of employment. As my hon. Friend said, that is particularly an issue for the care sector. I note that his Committee was not able to pay a huge amount of attention to that, but I hope that it will examine it in more detail later, because, again, we found real issues there.

The Minister can tell us later whether he is in favour of zero-hours contracts. We are not against them, but we want to see them only where they are appropriate and welcomed by staff. I feel strongly that they should not be imposed on people, as they often are, but there is a wider issue of outsourcing that can happen as a result of the local authority procurement process. We also want to reflect on the issues of accountability that the report produced by my hon. Friend’s Committee went into in some detail. It is all too easy for councils, once they have outsourced a particular service, to think that they no longer have any responsibility for the quality or delivery of that service, which would be quite wrong.

Elsewhere, the report talks about the need for councils to demonstrate probity, have good monitoring and complaints systems in place, and, critically, have a whistleblowing system, so that if there is fraud or bad practice, it is easy for people to highlight that, bring it into the open and make it transparent. We thought that there was some very good practice, which the report highlighted, but again, this is about the LGA and the Department encouraging the sharing of good practice.

The report was excellent, so I looked forward to reading the Government’s response, which I thought started well. It is good that, over the coming year, the Government will take a range of further actions to promote the Public Services (Social Value) Act 2012, and that they will review progress throughout the year and consider what actions to take as a result of that review. There is also a commitment to continue reviewing the impact of the community right to challenge. Will the Minister tell us when those reviews are likely to be completed and how they will be published and put into the public domain?

[Mr Betts]

My hon. Friend might like to know that the Committee will do an inquiry into the community right to challenge and how it is functioning. That is one of the inquiries we will do in the autumn.

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[Roberta Blackman-Woods]

That is wonderful. I am interested and pleased to hear that, and look forward to seeing the report.

I am not exactly sure what action the Government will take to enable local authorities to understand better the new EU procurement framework, which is a result of the new directive published on 28 March. I would like to hear what the Minister’s Department is doing to communicate that to councils. If the Minister and the Department intend that the LGA should take that role on board, he should make that clear today and assure us that the LGA has the resources to undertake the task, because it is critical in improving procurement. Local authorities have to get away from the belief that the EU directive stops them doing all sorts of interesting things locally. I also look forward to seeing the Government’s response to the consultation on zero-hours contracts and the implications for the care sector in particular.

I was perhaps a bit disappointed that the Government’s response did not seem to show any real determination, or vigour, to assist local government in transforming procurement, so that it would not only deliver value for money, but take on all the social value issues and deliver jobs and improvements for their local communities, although perhaps I am being unduly unfair to the Minister, and perhaps he will convince me that he finds this a really interesting area, and that the Government need to put their weight behind it to get real changes in local government procurement. I look forward to hearing what he has to say.