Government response
1. The UK is the 6th largest manufacturing country
in the world and the sector is integral to the UK economy. It
represents 14% of our GDP, and accounts for more than half of
our exports and the Government is fully committed to providing
support for the sector through the Manufacturing Strategy, working
in partnership with business and the trade unions to develop a
modern knowledge driven manufacturing sector.
2. On 22 November 2007 John Hutton, Secretary of
State for Business, Enterprise and Regulatory Reform, announced
that the Government is reviewing its Manufacturing Strategy to
ensure that it continues to meet the changing needs of the sector
and that we are well-placed to take advantage of the economic
opportunities emerging in the future. This Review will look at
all key areas necessary for a strong and successful technology
driven manufacturing sector.
3. We believe that many of those involved in public
procurement are too timid, and that taxpayers may often fail to
receive best value for money. This is because those buying goods
and services are either insufficiently well-acquainted with the
sector concerned to know or understand what options are, or could
become, available, or are too afraid of failure to try anything
new even if it would provide better lifetime costs or additional
benefits. We were particularly struck by the evidence that, by
concentrating on specifying means rather than ends, purchasers
were both reducing competition among tenderers and failing to
promote innovation and sustainability. We recommend the OGC to
use its powers to promote best practice in this area in the course
of its procurement capability reviews. (Paragraph 40, 70)
4. The Government accepts this recommendation. OGC's
Procurement Capability Review (PCR) programme is designed to help
departments drive up procurement capability and meet the standards
required to deliver the world class procurement operations as
set out in Transforming Government Procurement (TGP).[1]
Each review takes a strategic look at a department's capability
based on a robust model containing a standards framework against
which departments are assessed. The model includes a judgement
on the department's approach to both innovation and sustainability
- in particular whether the department has a robust sourcing strategy
and its approach to making and managing markets, and the alignment
between procurement and the broader policy goals of the UK Government.
5. … the sheer number and variety of people
involved in public procurement poses a huge challenge, and the
target which we endorse — that the majority of public sector
purchasers be professionally qualified is unlikely to be fulfilled
for a very long time, until there are enough high quality people
spread throughout the public sector, in local as well as national
government, the problems set out in this report will persist.
(Paragraphs 28 and 79)
6. The Government notes the concerns of the Committee.
OGC is working to improve professionalism within the procurement
community through the Government Procurement Service (GPS) reform
programme for central civil government. The GPS focuses on increasing
capacity by raising and maintaining capability and improving the
profile of the procurement profession. The GPS work plan is designed
to enable and assist departments to drive up skills and capability
in their procurement functions, but is ultimately dependent upon
implementation by departments themselves.
7. SMEs face even greater difficulties in securing
public contracts than larger businesses and these difficulties
may increase as a result of the Government's efficiency agenda—implementation
of which is no longer the responsibility of the OGC. SMEs need
an obvious champion within government. At present, it is not clear
which department has responsibility for protecting their interests
in relation to public procurement, or whether the responsible
body has the necessary influence over the many central government
procurement authorities to bring about a real improvement in practice.
(Paragraph 72)
8. The Government notes the concerns of the Committee.
The Small Business Service ceased to have Executive Agency status
in April 2007 and has subsequently become the Enterprise Directorate
within the Department for Business, Enterprise and Regulatory
Reform. The Enterprise Directorate continues to lead on small
business issues in Government. It works with OGC, and other departments
as appropriate, to protect and promote small business interests
in matters relating to public procurement.
9. The Government continues to be committed to levelling
the playing field for business seeking to bid for public contracts
and to this end has implemented a wide programme of work aimed
at reducing the barriers that SMEs face when competing for government
contracts. OGC has overall responsibility within government for
setting the procurement policy and best practice framework, standards
and performance measures against which departments will be measured.
OGC will audit those standards through its programme of capability
reviews of departments' procurement functions ensuring that departments
meet the required standards and helping to build and increase
professional procurement capacity where necessary. This ensures
that procurement practices remain competitive and open to the
advantages that small firms can offer particularly in terms of
innovation.
10. In the last six months, the Government has launched
an on line training package for small firms called "Winning
the Contract" on www.learndirect-business.co.uk. The package
uses material developed for, and knowledge gained from, the West
Midlands SME pilot training programme and seeks to provide small
firms with the skills to equip them to compete effectively for
public procurement opportunities.
11. The unpredictability of order flows from the
public sector creates problems for suppliers. We endorse the efforts
to provide more information about likely future demand. Although
it is useful for purchasing authorities to deepen their understanding
of the markets in which they are buying and, in some cases, to
develop their contract specifications after engagement with potential
suppliers, they should be aware of the danger of 'capture' by
suppliers, with possible deleterious effects on competition in
future. (Paragraph 32)
12. The Government has produced a whole suite of
guidance[2] relating to
market assessment, understanding and analysis, which highlight
a range of potential pitfalls including supplier dependency.
13. As it is impossible for all purchasers to
be knowledgeable in all procurement areas, there is a need for
teams of experts who could be called in to assist with specific
procurement decisions. We understand that this is being developed
within the Transforming Government Procurement process. (Paragraph
41)
14. The Government notes the concerns of the Committee.
New processes have been developed to harness government's purchasing
power through collaborative procurement of common goods and services.
There are two themes to this work: enabling government to speak
with a single voice to suppliers; and exploiting the benefits
of aggregation in buying common goods and services which OGC expects
to deliver major efficiency gains. On aggregation, OGC has moved
from the use of tactical initiatives to a strategic work programme,
based initially around pilots in collaborative procurement across
Whitehall and the wider public sector for the purchase of energy,
fleet, travel and office services. An example of speaking with
a single voice to suppliers is OGC's work with the CIO Council
to engage with major IT suppliers to ensure that government knows
as much about its business with suppliers as suppliers know about
their business with government.
15. The OGC is working on a new External Resources
Framework that will be able to provide experts who can go into
departments to help them develop procurement capability. However,
it is right that procurement decisions remain with the purchasing
authority.
16. There can be tension between achieving environmental
goals and procuring goods and services at low initial cost. The
OGC has produced guidance on sustainable procurement, and government
departments have initiated a number of projects designed to promote
innovation, environmental objectives and sustainability. Again,
the problem appears to be disseminating best practice more widely.
The OGC's determined response to the NAO report on the government
estate is to be commended. It will take longer to engage departments
fully in the task of preventing, rather than curing, such failures.
However, we believe the OGC's approach of involving the heads
of department to be the right strategy (Paragraph 46)
17. The Government welcomes the Committee's support
for OGC's approach.
18. There is clearly scope for greater use of
public procurement to promote social policies such as vocational
training and the public duty to promote equality. However, there
are awkward legal requirements and the best practice guidance
just highlights the complexity of the area and the difficulty
of complying with the rules. We recommend that the Government
look again at its best practice guidance to see if more helpful
advice can be given as to how public authorities could pursue
social policy and the promotion of equality through procurement.
(Paragraph 51)
19. The Government accepts the Committee's conclusion
and is examining how it can give clearer and more succinct messages
to departments on when and how social issues could be legitimately
reflected in the procurement process, while ensuring value for
money. Practical guidance on this and other policies will be included
in OGC's new Procurement Policy and Standards Framework (PPSF).
20. While there is no doubt considerable room
for improvement in the UK's record for the award of government
contracts to SMEs, evidence of how it compares with similar countries
is mixed. We believe that serious efforts should be made to improve
the situation in order to capture the benefits identified by the
Small Business Service of greater innovation and competition.
(Paragraph 55)
21. Centralising procurement, bundling tenders
and seeking economies of scale appear to conflict with the Government's
aim of increasing SMEs' access to public procurement contracts.
The findings of the National Federation of Builders about the
overall decline in SME participation in construction work and
the failure of frameworks to provide the sub-contracting opportunities
hoped for indicate that it will be difficult to avoid disadvantaging
SMEs (and therefore, in the medium term, reducing competition
and innovation) as the efficiency drive in procurement goes ahead.
(Paragraph 68)
22. As the Committee's report recognises in paragraph
60, the Government has made significant progress in helping SMEs
compete for public sector contracts through a number of initiatives.
These include taking steps to simplify procurement processes
and reduce the barriers that disproportionately affect small businesses.
Moreover, since June 2006, the Government has been improving
the visibility of potential contracts through the Supply2.gov.uk
portal through which lower value contracts (typically below £100,000)
can be accessed. The Government is actively considering ways
to achieve greater usage of the site and thereby make it easier
for SMEs to access more opportunities.
23. With regard to innovation, OGC and DIUS published
guidance for policy makers and procurers Finding and Procuring
Innovative Solutions in Summer 2007, which outlines how innovative
solutions can be sought and, where appropriate, procured to achieve
better value for money within the EU procurement rules. The guidance
uses evidence from several public sector case studies, including
from the NHS, HM Prison Service, and the London Fire and Emergency
Planning Authority.
24. The Government is aware that an improved Small
Business Research Initiative (SBRI) could provide support to early
stage companies, thereby encouraging innovation and is taking
forward the recommendations from Lord Sainsbury's Review.
25. The Government believes that SMEs can often provide
better value than large, less flexible, organisations. Aggregation
of demand does not necessarily lead to aggregation of supply.
OGC's guidance, Aggregation - is Bigger Always Better?,[3]
helps departments ensure that where public contracts are aggregated
it is done appropriately i.e. where it is likely to result in
the best value for money.
26. Better performance against the Government's
objective of increasing SME participation in public procurement
therefore depends on two things that we strongly support: better
trained and more experienced personnel in charge of procurement,
and a change in the emphasis of the OGC from advice to enforcement.
(Paragraph 70)
27. The Government notes this conclusion. The GPS
reform programme is actively addressing skills, capability, and
capacity within the central government procurement profession,
and is taking into account both the technical and non-commercial
skills required when making individual decisions. Market and supplier
management (including SMEs) is recognised by the GPS and by procurement
leaders in departments as a mainstream element of procurement
training.
28. Moving forward, the programme of PCRs will enable
OGC to monitor and report on the extent to which best practice
to be included in the PPSF is adopted by the procurement community
across Whitehall. Allied to this, OGC will be working with government
departments to increase procurement capability.
29. Government policy has long been that public
authorities should set a good example by paying bills promptly
— a policy underlined by actions such as the Late Payment
of Commercial Debts (Interest) Act 1998. Statistics compiled by
the Government show that government departments consistently fail
to meet the required standard. There is no excuse for this: apart
from questions of justice, such exercise of power by purchasers
is likely to deter potential suppliers and diminish competition.
It is not clear whether departments' poor performance is attributable
to inefficiency on the part of their finance departments or the
perverse incentive to retain money owed in order to make their
financial position appear better than it is. (Paragraph 57)
30. The Government takes seriously its responsibility
to pay correctly rendered invoices on time, in accordance with
agreed contractual terms. Managing Public Money makes clear
that public sector organisations should observe the Better Payment
Practice Code (published on payontime.co.uk), which advocates
agreeing payment terms at the outset and adhering to them. Under
the Late Payment of Commercial Debts (Interest) Act 1998 there
is a statutory right for suppliers to claim interest on late payments
of commercial debt. Payment is regarded as late if made outside
the agreed terms, or 30 days after receipt of a valid invoice
where no terms are agreed.
31. OGC, together with the Public Sector Construction
Clients' Forum, has established a fair payment guide[4]
and charter to implement substantial improvement in payment practice
within those supply chains contracted to government. This has
received cross industry support.
32. HM Treasury has a responsibility for implementing
government policy in this area; it needs to adopt a more vigorous
approach and it could start by giving a better example itself.
(Paragraph 57)
33. The Government notes the concerns of the Committee.
The target for HM Treasury is to pay all invoices, not in dispute,
within 30 days of acceptance of the relevant goods or services,
or the receipt of a legitimate invoice if that is later. For 2006-07
the Treasury group achieved 97% against this target (compared
to 96% for the previous year). Performance is monitored on a monthly
basis throughout the year and the annual performance rate published
in the Department's Resource Accounts. The overall payment performance
for Government was 96.87% in 2005-06 (the last year in which cross-government
data is available) compared to 97.09% in 2004-05.
34. The Government should commission research
to determine whether, if practices were changed so that payment
could be made incrementally for work in progress, more small businesses
would be able to compete for long-term contracts. (Paragraph 58)
35. The Government notes the Committee's conclusion.
Payment terms are a matter for negotiation and what is appropriate
is likely to vary considerably depending on the nature of the
goods or services being procured. At present the Government does
not regard this as a research priority. Managing Public Money
sets out the circumstances where advance or interim payments to
contractors are likely to be appropriate or, alternatively, inappropriate,
for example where such payments would substitute for other forms
of finance available to contractors such as loan finance.
36. There is a good case for updating the Wood
Review on procurement in other EU Member States. We also accept
that there may be more that companies could do to fit themselves
for competing for overseas public procurement tenders, such as
ensuring that their agents have appropriate language skills and
seeking advice from bodies such as UK Trade and Investment. The
UK Government must continue to encourage the spread of best practice
in procurement by public authorities throughout Europe. (Paragraph
16)
37. The Government notes the Committee's conclusion.
The Government will continue to encourage the spread of best practice
in public procurement by public authorities in Europe in line
with the recommendations in the Wood report, by using the Public
Procurement Network (PPN) as a vehicle to promote best practice.
The PPN is a network of government officials responsible for
public procurement in European countries, one of whose aims is
to exchange best practice (through the exchange of views at conferences
and by written contact). Following a Conference in Lisbon under
the Portuguese Presidency in November 2007, the PPN is looking
at ways to improve the exchange of best practice and OGC will
be actively involved in taking this work forward.
38. The Wood report also made recommendations about
best practice developments in the UK, particularly regarding relationships
with suppliers. Developments since the report have included:
- the launch of Supply2.gov.uk;
- data gathering on demand in the major government
markets of Information Technology and Construction following the
Kelly programme (and will set out in its Procurement Policy and
Standards framework best practice for stimulating and managing
markets); and
- the launch of OGC's Supplier Feedback Service
aimed at identifying and tackling serious or systemic complaints
concerning procurement practice.
39. There is also a role for Chambers of Commerce
or trade associations in helping to identify potential mentors
for smaller or new-to-export companies. (Paragraph 16)
40. The Government thinks that the Committee's suggestion
is an interesting one. The Government will consider further the
opportunities to promote peer to peer and other forms of mentoring
in the context of the refreshed enterprise strategy, which it
plans to publish in Spring 2008.
14 December 2007
1 http://www.hm-treasury.gov.uk/documents/enterprise_and_productivity/public_services_productivity/ent_services_procurement.cfm
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2
http://www.ogc.gov.uk/introduction_to_procurement.asp
http://www.ogc.gov.uk/documents/Early_Market_Engagement.pdf
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3
http://www.ogc.gov.uk/documents/CP0072_Aggregation-is_bigger_always_better.pdf
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4
http://www.ogc.gov.uk/documents/CP0159FairPaymentPractices.pdf
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