Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 40 - 59)

TUESDAY 12 DECEMBER 2006

EEF

  Q40  Chairman: There is a new focus in the UKTI strategy on financial services and other issues. Do you think you will get a fair shout for manufacturing?

  Mr Temple: Yes. We want both of them to be successful. We would hope there would be competition in that respect. We are fairly supportive of the current approach to manufacturing and engineering. We are involved in the engineering sector advisory group and we think there are some very good debates going on there. But right at the beginning of this we talked a lot about the new shape of manufacturing. It is very hard to be black and white about manufacturing and the service divide. I know that you have picked specifically financial services, but even in the case of the products today very often people have to find packages to help the company to buy their product in terms of finance and all that sort of stuff. There is an interrelationship there. Today, manufacturing itself is very involved in the service company either in its own right or with its partners to achieve its aims. I do not think we feel uncomfortable at all about the new emphasis.

  Q41  Chairman: Perhaps I may ask Rob Marris's question. To what extent do manufacturers need help in overseas markets in building partnerships to enable them to manufacture and produce in those markets? To what extent should we be encouraging outward investment from the UK in the long-term interests of this country, or not?

  Mr Temple: A few years ago I and a lot of my colleagues were seriously worried about investing outside the UK, moving jobs abroad and that sort of stuff. All I can say is that if most of our companies in manufacturing had not done some of that they would not be here today. Therefore, investment abroad in component supply or whatever has been a vital part of the mix that a company has to bring into play to compete in today's global market. One just cannot avoid participating in that sort of investment.

  Q42  Rob Marris: I quite understand that. Do you think it is appropriate for the UK Government to be spending taxpayers' money to assist companies in so doing?

  Mr Temple: It is hard to answer that question in such an all-embracing way other than that I think it is fundamental for many of our manufacturing companies to have good manufacturing bases abroad, not to supply products and components here but, more importantly, probably to invest next to market. You find a very large percentage of our investment today is about market proximity, not just the low cost of labour which is a popular way to define it. Therefore, one has to look at these places to take advantage of the opportunities in both cost and market.

  Mr Radley: Alongside that, what one needs to do—some RDAs working with the Manufacturing Advisory Service are doing this—is to work with companies and look at their particular business challenges and problems and see whether investing abroad is the appropriate answer to it. For some companies it will not be. It is absolutely vital that companies exhaust all the options before they make a particular decision.

  Mr Temple: I would hate that to be interpreted as our desire to promote the unnecessary exporting of jobs, but very often it has been the key to survival.

  Q43  Chairman: When in Brazil and Argentina recently I was struck by people referring to UKTI in its various old incarnations. I have also been struck when talking to UKTI people about how often they have had to change strategy to suit changing priorities. Do you agree with me that there is a need for UKTI to set up a strategy, stick to it, keep its brand identity and obviously to finesse it but not to have any more big changes?

  Mr Temple: There are today very limited funds available. One must clearly decide on what to spend one's money to get the most value for it and stick with it. It is so easy to get diverted in today's world.

  Q44  Chairman: Do you think there has been too much change?

  Mr Temple: Historically, there has been. I think that the key thing now is to see how well this strategy is delivered and backed by the money made available.

  Q45  Miss Kirkbride: In your memorandum you draw attention to a survey which suggests that twice as many companies find public procurement rules a hindrance rather than help. Can you explain to the Committee what the difficulties are with the public procurement rules?

  Mr Temple: It is a combination of factors. Very often, there is a prescriptive approach to what is being bought rather than an outcome approach. There is an incredible safety approach by many of the people who go through the purchasing process.

  Q46  Miss Kirkbride: What do you mean by "safety"?

  Mr Temple: I mean the purchase of something that is absolutely certain to do what you want it to do without any approach to innovation, so it is in that respect that I make the comment. We always want them to engage earlier with companies. This happens a lot overseas. One finds that in the early stages of the project in particular the local companies have an involvement to understand what is sought to be achieved and the basic parameters of the project. That allows them to have greater foresight as to the outcome of the project and perhaps be better placed when it comes to bidding. We tend not to have that to quite the same extent. Therefore, it comes down to the skills and confidence of the people doing the procurement on behalf of government. I believe that the Kelly report identified many of these issues which showed how we could really develop a much more professional approach to this.

  Mr Radley: There is often a lack of joined-up approach. Clearly, one of the priority areas for this and many other countries is to address climate change issues. There are big opportunities for Britain to stimulate demand in environmentally friendly and energy efficiency products and services. What companies have told us is that when they have tendered for a particular market and have been able to offer a product that is much more energy efficient than their competitors no weighting has been given to this in the tendering process. That needs to be a lot more joined up.

  Q47  Rob Marris: Would those reservations about the need for early involvement, lack of a joined-up approach and so on, also hold good for smaller companies trying to get R&D contracts?

  Mr Radley: Very much so. This is something that we have played at in this country. We have made a few attempts to do it but have not successfully dealt with it and created more opportunities for smaller firms to bid for public sector contracts. That can often be vital to these firms because it can be one of their first major orders and help get those companies to the next stage. If you look at the example of the United States where they have a small business innovation research programme, this is something that it has stuck at constantly over the past couple of decades. They have pushed it forward and developed the skills of procurers to make it work and it has produced results. That has led to a lot more contracts being won by smaller firms, but those firms have also become more innovative and larger.

  Q48  Rob Marris: Has it got any better in the United Kingdom in recent years in term of the skills of public sector procurers, addressing the difficulties that you have just outlined and so on?

  Mr Temple: I believe the defence sector would say that the new procurement strategy has been a very big improvement. Perhaps there has not been enough improvement elsewhere. Other parts of government procurement could look at the sort of things that happen in the defence area, for example.

  Q49  Mr Binley: Much of what we have been talking about and the terms we have been using today seem so heavily bureaucratic that it has no impact on many businesses in this country. A very sizeable sector of the small and medium size market finds the whole complication of training a total turnoff. The same thing applies to procurement. The whole process is so bureaucratic particularly at levels where small and medium size businesses can play a part in local government, for example in local health supplies and so on. How do you think we can make it easier and less bureaucratic for small businesses to play a part in tendering for public sector business?

  Mr Temple: We acknowledge the complexity of training to which you refer. That is why I say that the landscape needs to be tidied up. It is very similar to my earlier comment about the over-prescriptive approach to procurement. I suppose that within that is the inference that the tender documents are very often highly complex and large pieces of work. To put them together is just too expensive for a lot of companies. A good number of the approaches in Kelly were to try to rationalise the whole approach to this. Indeed, it is very often easy to point to the private sector in this area. This is an area where companies are much slicker in placing contracts and the paperwork surrounding them. People just give up on it or are too daunted by it in the first place. This is the sort of thing for which we have been pushing.

  Mr Radley: You also have to look at the fundamental causes of this. The forms are too big; they take far too long to fill in. But why is this required of companies? I do not think it is necessarily the case that people who work in these bodies like to write long forms; it is the whole issue of risk aversion. There is a culture of risk aversion within a good part of the public sector. One must get away from that and the "heads must roll" approach. One must train a lot more people who make procurement decisions in how to be able to take risk. The fundamental problem is to do with risk management skills. Any exercise to cut down the size of forms will not work unless one addresses the fundamental cause.

  Q50  Mrs Curtis-Thomas: What you say is very interesting. What would the press coverage be if we lost control of public procurement projects, as we have done? We have been blasted for it, have we not? Do you think there is a win-win situation there?

  Mr Temple: In terms of relaxing some of these things?

  Q51  Mrs Curtis-Thomas: Do you think that the taking of more risks with no heads rolling would go down well with the public?

  Mr Temple: These are always challenges to face, but that does not mean that what we are talking about here is bad procurement. If one looks at the very substantial contracts that many of the other big industries undertake—automotive, aerospace and what have you—they are very challenging and demanding, but at the end of the day they work together to deliver them. Complexity and bureaucracy do not necessarily mean that one will deliver the contract as one intended.

  Q52  Mrs Curtis-Thomas: Earlier you said "less safe and more innovative", and you also talked about intelligent procurement. You drew analogies between the public and private sectors. Is not the advantage that the private sector has over the public sector at this time intelligent procurement, and how do you suggest that organisations like yours help government departments to address that particular shortcoming?

  Mr Radley: There are a couple of issues here, one of which would be the much better use of standards; the other would be early briefing of companies of particular needs in the market so that a lot of companies are much better prepared for bidding and working with government.

  Q53  Mrs Curtis-Thomas: You talked about companies being given a better and earlier opportunity. One example is that at the moment the government is looking at preferred bidders. The criticism by preferred bidders for specific pieces of work is that in order to become preferred they have to lay out their stall and show that they can comply; they have to put in a bid in advance for a particular piece of work, and that process alone may be very expensive. They say that they would prefer the government to be far more prescriptive and reduce the amount of work they have to do which they may subsequently have to put in the bin because even though they are preferred bidders they do not win the contract. You are arguing for a greater degree of flexibility and access by smaller companies and yet it brings with it a very substantial cost across industry.

  Mr Temple: The danger is that when we talk about this in such broad terms we try to make one size fit all. One might be procuring in entirely different areas. For example, if one is building a hospital there is a difference between asking a contractor to supply to the same design as opposed to getting in a whole host of different designs. There are lots of ways in which one can approach that differently. If one is looking at a technological area one should be discussing what outcome one wants rather than a pre-specification. It depends exactly on what one is procuring.

  Q54  Mrs Curtis-Thomas: You say that one shape does not fit all?

  Mr Temple: Yes.

  Q55  Mrs Curtis-Thomas: I accept that. The approach of a more intelligent procurer is a given in all conditions, but the position to which Mr Radley referred, which is to make it easier for more, applies only in some and not in other areas.

  Mr Temple: It will apply in some areas but not necessarily all.

  Chairman: Can you give a practical example of an issue that has worried me? I believe it was the furniture industry which said that when it tendered for office chairs it had to go through the full process. Peter Bone asked the question.

  Q56  Mr Bone: When I was in manufacturing we used to bid for government contracts. We were just building electronic clocks linked to the atomic clock, which was the main purpose. But the detail and specification that the government built into those contracts was ridiculous and meant that we had to build clocks that were much more expensive than necessary. They did not talk to us at the beginning and say that they wanted a certain clock. We would have told them not to build in things that they did not need to do.

  Mr Temple: That is the point we are trying to make in certain instances.

  Mr Bone: It happens in practice and it is a real bind.

  Q57  Mrs Curtis-Thomas: Is not the counter-argument to the point put by my colleague that that would have preferred his company? If it had been allowed into the process of specifying the product it would have had a significant advantage which it could have used to disadvantage other competitors. Is not the government in a very difficult position when it comes to specifying some types of product? If it invites in a number of companies it will automatically disadvantage other companies because those companies write into the specification those attributes that best suit their businesses. Does it not disadvantage competition in its broader sense, and is it pragmatic to have a balance?

  Mr Temple: It is difficult to answer that because you end up trying to discuss that particular example. If somebody wants clocks to be supplied I think it is quite reasonable to invite people along and then make a choice based on what he thinks does the job best all things considered, not just on price. There may be other perceived benefits. We may be missing the point that you are trying to make here.

  Q58  Mrs Curtis-Thomas: In your evidence you call for an informed procurer which should have a greater relationship with contractors and suppliers.

  Mr Temple: Yes.

  Mrs Curtis-Thomas: The counter-argument is that if one lets suppliers dictate the terms of the contract does it not lead to other suppliers who have not had that opportunity of direct interaction being disadvantaged?

  Chairman: As an example, in the care homes sector government allowed the big businesses to set the kind of safety standards that should be imposed on the industry which disadvantaged the small contractors. The big boys could meet those conditions and they squeezed out the smaller suppliers by helping the government specify the level of care provided in care homes. That is the point my colleague is making, is it not?

  Q59  Mrs Curtis-Thomas: Yes. You have argued for improved public procurement intelligence, but does it not come with a disadvantage to companies that are not involved in developing that intelligence?

  Mr Temple: I think it depends on what is being bought. One has to look at what one is buying. There are some areas particularly in large-scale projects where it is valuable to get people in to discuss precisely what outcome one wants and see how best one can achieve it. There are other areas where one may well want to put out a tender with a description next to it. That is quite typical and understood in some areas. But it is very hard to generalise in this area. The examples that you give highlight the very difficulty about which we are talking.


 
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