Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 46-59)

MR ELLIOT MORLEY, MR DAVID RABEY AND MS JILL RUTTER

30 NOVEMBER 2005

  Chairman: Thank you very much, Minister, and to all three of you for coming here.

  Q46 Mr Hurd: Do you think that as far as most Government departments are concerned Gershon is now more relevant to procurement than the Sustainable Development Strategy?

  Mr Morley: There should be no contradiction between the Gershon objectives and sustainable development and sustainable procurement. In fact, in many cases, there are examples—and the Environment Agency has some good examples—of applying whole-life costing. The Environment Agency responsible for pumping out the Wheal Jane mine in Cornwall purchased the most expensive pumps on the market for that job. In the lifetime of the pumps they have had lower running costs and they have lasted longer than some of the cheaper pumps that they could have gone for. On a whole-life assessment they have applied costs in a more sustainable approach than going for the cheapest option. Gershon is an important agenda; it is important to us in Defra. We are well on target for achieving our requirements under Gershon, but we can demonstrate that we take the issue of sustainable procurement very seriously in our own department; so there should not be a contradiction on this.

  Q47 Mr Hurd: Is not the whole culture of the Gershon report about short-term cash savings, reducing the cash cost—

  Mr Morley: Not necessarily. Gershon is about saving money. You can save money with a whole-life assessment just as easily, and perhaps more sustainably, than you can by going for the cheapest option.

  Q48 Mr Hurd: Can I bring you to what appears to be the traditional Treasury rule of not using procurement to achieve other policy objectives, for example environmental objectives, which is what we heard in the sustainable timber review. Is this not exactly what is happening in terms of sustainable timber procurement?

  Mr Morley: Not achieving these objectives or achieving them?

  Q49 Mr Hurd: We heard in evidence that it was Treasury policy that procurement should not be used to achieve other policy objectives, but the sustainable timber policy appears to fly in the face of that.

  Mr Morley: I can understand the point you are making, although there are some aspects of our timber purchasing policy that are quite legally complicated, for example taking into account the rights of indigenous people. There are arguments in terms of the legal advice we have received from the EU procurement rules that we cannot do that. However, there are some counter arguments, which I am sure will not be unique to you, Chairman, that sometimes lawyers will give you completely conflicting advice on issues. We are in the process of trying to clarify this issue in relation to the legal advice. In terms of objectives, our key objective with issues like sustainable timber is that, first of all, we want it to be legal. That is a legitimate and completely defensible policy. The second issue is that we want it to be sustainable, which means we want it to come from sustainably managed forests. I know that that is not strictly speaking a financial objective, but it is part of our commitment, as laid out in our Government strategy, Securing the Future, for sustainable development, for sustainable procurement. I would strongly argue that policies such as our timber strategy are entirely defensible and consistent with our overall sustainable development policy.

  Q50 Chairman: Can we come back to the principle about whole-life costings. As I understand it, the whole-life cost exercise only starts at the point of purchase; it does not take into account environmental considerations, for example that may have occurred before the point of purchase.

  Mr Morley: There is no reason why it should not, and there is no reason why we should not work that into the supply chain. It is fair to say, Chairman, that in terms of developing our strategies these are new approaches and they do need some work on these areas. It is why we have the Sustainable Procurement Task Force, chaired by Sir Neville Simms, because he has a number of working groups looking at a whole range of issues including the supply chain issue.

  Q51 Mr Hurd: Most people around this table would agree with you about the sustainable timber strategy, but the point I was trying to clarify is whether there is a Treasury rule that procurement should not be used to achieve other environmental objectives, and ask whether you agree with that in the context of the fact that the public sector spends £125 billion a year. There is a huge opportunity cost in terms of driving forward the sustainability agenda.

  Mr Morley: I am not aware of a rule quite as hard and fast as that. We clearly have to have our overall Government objectives, which is why we work within the broad framework of our sustainable development strategy, which is agreed by all parts of Government, including the Treasury, which signed up to that. I should say, Chairman, that I am accompanied by David Rabey and Jill Rutter from my Department. I do not know whether they would like to comment on the Treasury position—or it is dangerous for me anyway!

  Ms Rutter: I hope it is not too dangerous. The Sustainable Procurement Task Force is jointly sponsored by Defra and the Treasury. I would have thought that if the Treasury were going to take the line that it did not accept that there was something to be done around sustainable procurement, it could have quite easily said it did not want to jointly sponsor the Sustainable Procurement Task Force. They are participating in the Task Force. Mary Keagan, one of their MDs, sits on the Task Force; they are active in working groups, etcetera.

  Q52 Mr Hurd: Can we expect, for example, a sustainable aggregates task force, or a sustainable food procurement task force? Is the principle now open?

  Mr Morley: The principle of a sustainable approach applies to all our dealings, which includes with aggregates in relation to environmental impact assessments and the aggregates levy. These policies are already influenced by our commitment to sustainable development.

  Q53 Chairman: I have been trying to refresh my memory as to who it was who told us during our timber inquiry that "there is an underlying principle that public procurement should not be used to pursue secondary policy aims"—and I am reliably advised that it was you! Maybe we should be hunting around the Treasury to find the answer to this question.

  Mr Morley: I can explain that, Chairman. I am just trying to think of an adequate one! It is back to the legal ruling that we have had some argument with. To be honest, it is not so much Treasury; in the case of timber it was more to do with the EU procurement rules.

  Q54 Joan Walley: You mean in respect of contracts over a certain limit, so it could apply to those under that limit that is required by the EU procedure?

  Mr Morley: Yes, it is contracts that fall within the level that you have to open up the tender within the EU.

  Q55 Chairman: Can you kindly send us a note on this?

  Mr Morley: I would be very happy to do that, Chairman.

  Mr Rabey: Government accounting requires that the over-arching procurement policy is value for money. Value for money equals whole-life costs. The current procurement rules allow a considerable degree of latitude to departments to consider environmental and social issues. The issue of indigenous peoples in timber is particularly difficult because it runs into issues concerned with labour clauses in public sector contracts and the International Labour Organisation Convention. That is the reason why legal advice is being sought.

  Q56 Joan Walley: In terms of the evidence to the Committee it has been put to us that there are always premium extra costs involved with sustainable and legal timber. The difficulty is that that cannot then be reflected in the procurement policy, that those proper costs that are connected with taking that better job to get the legal sustainable timber cannot be reflected in the procurement policy; then it is unaffordable. That is the issue.

  Mr Morley: It can be reflected in a sense because the number one priority with our timber purchases is that it should be legal. It is an undeniable requirement, and so a strategy which is developed around the concept of buying legal timber I do not think transgresses any rules. It is certainly supported by the Treasury in that approach.

  Q57 David Howarth: Can you write to us about the legal position because I do not think it is clear, because the EU re-interpreted its own rules a couple of years ago, with its Buying Green Handbook; so I am not sure whether the EU is the barrier. The ILO might be a barrier but I am not too sure how because its rules are usually protective of labour rather than getting in the way of trade. There might also be the WTO in here somewhere.

  Mr Morley: There is a WTO implication on this, so we are very happy to do that.

  Mr Rabey: We are awaiting a note from the Treasury on social issues in procurement, and it is a sensitive issue. As a Government Department, we know there are 49 countries in the world that are not classified as free under various international labour conventions[5]. We are hoping for some guidance from the centre as to how we might interpret that in public procurement in the future.

  Q58 Lynne Featherstone: At the moment in any procurement decision in Government it is probably difficult enough already to get whole-life costs considered as opposed to capital costs; so is it realistic to think that in the current short-term cost-driven, context of Government we can ever actually move on to a better way of real costs, taking properly into consideration viability or sustainability? Is it realistic, or is it pie-in-the-sky?

  Mr Morley: It is not just realistic, it is happening now. The question is on the assumption that the whole Government procurement strategy is always based on the cheapest cost option; but that is not the case. The Treasury itself acknowledged the concept of whole-life costing. They acknowledge that and accept that that is a perfectly legitimate concept to apply in relation to procurement policy and procurement strategy; and the logic of that is that you may not be buying the cheapest goods or acquiring the cheapest services in the short term, but in the longer term they are more sustainable and you get some cost advantages. I did mention the last time I was here that we have just completed our refurbishment of Defra, where we have paid a premium in relation to the quality of the refurbishment, the insulation, the materials and the wood, but we can quite confidently demonstrate that over the life of the costing you get a good return. We have just done that. The rules do not preclude it. I think it is fair to say that if you look at the whole structure of government and if you include local government, when you have a system that is rooted in the past ongoing for the cheapest of costs, then it takes time to change that mindset. That is why the OGC have been running capacity-building on this; it is why we have had training sessions. We have to make sure that everyone in the buying system within government is aware that whole life costing is a perfectly legitimate method to apply.

  Q59 Lynne Featherstone: That message seems to be really slow in getting through. I wondered if you had any ideas to help government break out of the traditional pattern of short termism in terms of costs so that whole life cycles could be better incorporated into the system. At the moment, and having sat here today in particular listening to the first hour, it does seem that it is not happening at a pace one might recognise, even if you were a shining example.

  Ms Rutter: One of the working groups in the Sustainable Procurement Task Force is looking at the issue of the whole life costing guidance. The guidance says you should do whole life costing. It is looking at the issue of how you make this easy for people to do. That is being addressed through the task force. We hope that is going to be very productive. Could I point the committee to two other initiatives that I think should help change perhaps some of the biases in the existing system? First, under the Framework for Sustainable Development on the Government Estate, every government department is being required to produce its own sustainable procurement strategy. Those are being published imminently, in December or January. Secondly, every government department, and even the OGC as well as an independent office of the Treasury, is producing its own sustainable development action plan. You will recall that in Securing the Future (of the UK) as a strategy, we have said that we, Defra, will stop reporting government progress. We are giving that to the Sustainable Development Commission under Jonathan Porritt to report—I think the committee will find those reports very interesting—on how Government is getting on. The first way in which we are doing this is, rather than have a Defra commentary on the sustainable development in government questionnaire on what progress we have made over the last year on the framework targets, to publish that with a commentary by the Sustainable Development Commission in mid-December. We think that these will change the incentives. Increasingly, individual departments will be held to account for the extent to which they are genuinely applying the principles in the Sustainable Development Strategy. We are very keen that we make clear that it is for every department to take on board those principles and show how they apply them through both the operations and policies of those departments.

  Mr Morley: We have been applying the whole life costing. We do have a very strong sustainable agenda in relation to our own procurement within Defra. We have our own toolkits for our divisions and our own purchases on whole life costing, which are available within the department. We are developing our toolkits for use across Government. We will make the toolkits available and provide guidance on their use.


5   Clarification added by witness 08.12.05: the UN Declaration of Universal Human Rights. Back


 
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