(a) We note the OGC's unusual status as an "independent
Office" of the Treasury and the novel arrangement whereby
it has a Supervisory Board containing Permanent Secretaries from
the major spending Departments. This structure is designed to
ensure that OGC's activities, aimed at modernising procurement
and securing value for money improvements, command support from
Departments. We intend to return to this subject in the future
to examine whether the desired effects have been achieved (paragraph
The Government notes that the Select Committee intends
to examine the work of OGC and its Supervisory Board at a later
(b) The OGC's work designed to modernise and promote
best procurement practice is based on a collaborative approach
with Departments. Success therefore depends on Departments utilising
the OGC's guidance and expertise. We expect the OGC to monitor
and report on the extent to which this is happening in practice
The Government notes the Committee's recommendation.
The emphasis of OGC's work to-date has been on developing the
tools to allow departments to deliver their projects successfully,
through initiatives such as Best Practice publications aimed at
top management and the new Successful Delivery Toolkit, which
provides a central reference source for guidance.
Over the SR2002 period, OGC will further support
departments to embed the guidance and expertise in their procurements.
In the run-up to April 2003, OGC is in discussion with departments
about how best to measure the extent to which OGC's guidance and
expertise is used.
(c) The OGC's remit is limited to central civil
Government and it does not therefore cover very significant areas
of public spending such as Defence and the NHS. We have reviewed
the evidence we have received of the close working relationship
that the OGC has with the relevant bodies in these fields. We
welcome this and consider that such relationships are essential
to ensure best procurement practice is followed in all areas of
public expenditure. We look to the National Audit Office, the
Audit Commission and the proposed Commission for Healthcare, Audit
and Inspection to review and report on whether best practice is
followed in these areas (paragraph 14).
The Government notes the Committee's conclusion.
(d) It looks as if the OGC is on course to achieve
its top level target of delivering £1 billion of value for
money improvements by the end of 2002-03, as Departments have
reported improvements of some £433 million for the first
of the three years concerned (2000-01). However, some caution
should be attached to the initial figures, given the need for
the accounting arrangements to settle in (paragraph 19).
The Government notes the Committee's conclusion.
The OGC will continue to undertake work to assure the quality
and coverage of the value for money gains data. The Government
will report total gains annually.
(e) We note that so far Departments have been
given no indication by the OGC of the level of value for money
improvements they might be able to achieve. We recommend that,
once the system has bedded in, individual annual targets for the
major spending Departments should be introduced, and that the
OGC's top level target be re-examined in the light of performance
up to 2002-03 (paragraph 20).
The Government agrees with the Committee's recommendation
that the top-level VFM target be reviewed. In the light of performance
to-date and the potential for further improvements, OGC has now
announced a new top-level target of £3bn VFM gains across
central civil government for the period 2003/4-2005/6.
The Government notes the Committee's recommendation
that annual VFM targets which contribute to the OGC top-level
target should be set for individual departments. However, as the
Committee concludes, the measurement system for assessing gains
is immature. The Government will keep the nature of the VFM targets
under review as the technique for measuring VFM grows and matures.
(f) We note that the OGC Gateway review programme
has been welcomed by Departments and appears to be having a positive
impact. The benefits of Gateway reviews of procurement projects
will not be available for some three or four years when evidence
of the number of projects delivered to time and cost becomes available.
We wish to be informed of this when the information is available
and expect to return to this matter then (paragraph 26).
The Government notes the Committee's expectation.
(g) We are disappointed that our predecessors'
recommendation for the creation of a central system to collect
information on each PFI project to enable comparisons to be made
does not appear to have been implemented. While we accept that
Departments should be responsible for monitoring their own PFI
projects, we consider that the growth in the number and value
of PFI projects reinforces the recommendation made by our predecessors.
We therefore recommend that a central system to collect information
on project performance and provide a facility, where practicable,
to benchmark performance against comparable PFI and other projects
be maintained (paragraph 30).
As undertaken in the Government's Response
to the Fourth Report of 1999-2000 on the PFI, OGC has considered
with Partnerships UK, departments and others, including the 4Ps
(the organisation that provides help, advice and guidance to local
authorities), how lessons from on-going projects can be passed
to departments to benefit new projects.
The OGC's Private Finance Unit has now developed
a Web-based Knowledge Management system called the PFI Information
Network. This collects a wide range of information on PFI and
on specific projects. The first phase of this system will be launched
across the UK public sector in September 2002.
The PFI Information Network will provide a single
point of access on officials' desktops from which they will be
able to obtain guidance, statistics and other information to enable
them to make better-informed decisions on their own projects and
to exchange information and lessons learnt with fellow practitioners
across the public sector, including local authorities. In subsequent
phases, the PFI Information Network will develop to enable departments
and authorities to undertake comparisons between projects. OGC
is considering whether the PFI Information Network can be enhanced
cost effectively to support benchmarking and other analytical
More information and guidance is made available in
various ways to departments by OGC, PUK and the 4Ps. Relevant
recommendations of the National Audit Office and of Parliamentary
Committees are also brought to the attention of departments.
(h) We note that the target of purchasing 90 per
cent of low value goods and services electronically by March 2001
was missed by a large margin. The evidence given to us suggests
that, at least for the Departments that gave evidence, the 90
per cent target was probably unrealistic in the first place. The
OGC's e-procurement pilot projects have also slipped. Clearly
there was a degree of over-optimism about the pace at which Departments
can accommodate change and the market can deliver new technology
solutions. We consider that OGC's future plans and targets in
these areas should be based on a more realistic assessment of
what is achievable, both by Departments and the market (paragraph
The Government accepts the Committee's findings.
OGC is working with departments and suppliers on a revised e-procurement
strategy for Government that will include realistic targets and,
at the same time, be focussed on delivering at least £250
million of value for money improvements across central civil government
in the three years from April 2003.
(i) We have noted that substantial parts of MOD
and NHS procurement have been excluded from the remit of the OGC.
The reasons for this have not been fully explained to us except
to say that these procurement processes are different. We believe
that in future both MOD and NHS procurement processes should be
brought within the OGC's remit unless explicit reasons are given
for particular dimensions of procurement being treated independently
by the relevant Government Departments (paragraph 38).
The Government notes the Committee's recommendation
and considers that the specialised nature of the procurement processes
in the Ministry of Defence (MOD) justifies its use of robust procurement
processes analogous to those promoted by OGC. The status of NHS
procurement is the subject of discussion between OGC and Department
of Health and the Government will write to the Committee with
the outcome of this discussion as soon as it is known.
However, there is, where appropriate, extensive and growing cooperation
between OGC, MOD and NHS in the sharing of best practice, involvement
in OGC's collaborative opportunities programme and alignment of
strategic direction in procurement.
Both MOD and DoH are represented on OGC's Supervisory
Board and Chief Executive's Advisory Group, ensuring top-level
support for initiatives to promote close working between the organisations
and increasing alignment in approaches to procurement best practice.
For example, OGC's leadership of Government initiatives to improve
the capability of clients of the construction industry (Achieving
Excellence), includes both MOD and NHS, and the sister initiative
covering the IT Industry (SPRITE), includes MOD. The extent of
MOD/NHS commercial collaboration with OGC was demonstrated through
their participation in the deal to secure £100 million in
savings over three years across the public sector with Microsoft,
IBM/Lotus and Sun Microsystems.
The procurement of war fighting equipment also has
some unique features. Not least of these is the need to meet the
requirements of a military customer and to embrace linkages with
other projects that need to be considered in a wider defence context.
Specialist defence (and sometimes highly classified) knowledge
is therefore needed in any team reviewing an equipment project:
neither the MOD not the OGC would wish to make the process overly
bureaucratic. However, MOD's strong procurement processes mirror
OGC Best Practice. For example, strong financial control in projects
above certain thresholds is exercised through the Central Investment
Approvals Board, which subjects projects to rigorous scrutiny
at key points in their lifecycle. The degree of scrutiny is proportionate
to the size and complexity of the project. Breaches of agreed
thresholds are escalated through further review. In addition,
peer reviews are used increasingly, particularly in estates and
high risk areas such as Information Technology.
The Government will keep OGC's relationship
with MOD under review as more evidence of the success of projects
across sectors becomes available.
(j) Since its establishment in April 2000 the
OGC under its Chief Executive, Mr Peter Gershon, has made substantial
and commendable progress in modernising the Government's civil
procurement processes. Clearly there is still substantial scope
for improving the value gained from money spent by all Government
Departments as indicated in the sections of this report dealing
with particular dimensions of the procurement process. However,
after two years sufficient progress can be seen to give confidence
that savings are being made or can reasonably be expected (paragraph
The Government welcomes the Committee's conclusion.
The OGC will continue to work to modernise and improve the Government's
civil procurement processes, and to promote better delivery throughout
civil central government.
1 See Appendix 2 Back