Railways: Public Procurement

Viscount Ullswater Excerpts

Tuesday 30th November 2010 Grand Committee

[Baroness Greengross]

My Lords, it would seem that in the future more and more public services will be procured by local authorities contracting with the private or voluntary sectors actually to deliver those services. The object of this debate is not to discuss the rights or wrongs of such a policy; rather it is to try to make sure that if that is the way we are going, we should try to do this as well as we possibly can. To me that must mean not merely looking forward to what we want to achieve but, just as importantly, looking back to learn the lessons of past experience. At this point, I stress again as strongly as I can that this is not a debate about the rights and wrongs of public procurement, nor is it meant as a moment at which we revisit our views on the role of the state in our lives. Surely what we have learnt from all of this can and should guide us in future exercises.

Probably one of the biggest exercises in public procurement that we have had was the privatisation of the railways. With this in mind, a short while ago I set up a small group of experts to help me identify some of those lessons, and I would like to thank them for their enormous contribution. I also thank the International Longevity Centre-UK, which I am privileged to head, for its sponsorship of this work.

What, then, are the lessons that we draw? The first and perhaps the most overriding thing in any public procurement exercise is that the reasons and objectives of the exercise must be clearly laid out. It is essential that the Government are honest not merely with the public but with themselves. Only in this way can the delivery be monitored, success or failure assessed, and changes, if necessary, made.

Secondly, in negotiating the contract, experience has shown that it is essential that a realistic and workable alternative method of operation is in place first. A Government without a credible fallback situation are not in a strong position when negotiating the original contract or in its subsequent enforcement.

Third is the need for proper risk allocation. In any public procurement, the Government need to be absolutely clear about what risks they want to allocate to the operator and why and how they intend to do that. For example, while some risks that arise from changes in public policy relating to the contract should clearly not be taken by the contractor, if the operator wants the profits of public procurement, it must surely take the commercial risks. It does so in its dealings with the commercial world—some people would say the real world—so why not in its dealings with the Government? From rail privatisation, one will have seen too often such risk merely being transferred back to the Government.

Fourthly, the Government’s ability to enforce the contract properly is essential. All contracts should incorporate, for example, an adequately-sized bond, to be forfeited if the contractor or the franchisee walks away from the contract. That should be accompanied by pre-defined penalties, to be levied for non-delivery at the end of, or even—dare I suggest?—during, the contract.

[The Deputy Chairman of Committees]

My Lords, there is a Division in the House. Unfortunately, the Committee must adjourn for 10 minutes.