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6 May 2009 : Column 87WH—continued
What can sustainable procurement achieve? Clearly, there is a great deal of focus today on the dangers to the environment and the urgency of tackling climate change. As a result, there is a focus on environmental sustainability. That is one aspect, and it is one with which sustainable procurement clearly can help. After all, the Government
have pledged to reduce carbon emissions by 80 per cent. by 2050, and the whole of Parliament bought into that by passing the Climate Change Act 2008. Just consider the Building Schools for the Future programme, which provides schools that will be used well past 2050, yet so far it is nowhere near making the design changes and reductions in energy consumption that will make a contribution to the tough target that we have set ourselves.
If we want to be at the forefront in leading the world in low-carbon technologies—both for consumption in this country and as exports that will earn us money—and resource-efficient economies in the future, we have to be attuned to the potential of global green market opportunities and innovate now. Sustainable procurement policies would help with such innovation.
As well as the environmental sustainability argument, there is an argument for better value for money. We must take into account the medium and long-term costs as well as short-term costs. That is the crucial point of whole-life costing, which I shall come on to. It means sometimes spending marginally more at the outset of a project in order to reduce drastically the whole-life costs throughout the contract.
A project may cost more up front, but if people are mentally attuned to doing things the right way, some features may actually cost nothing extra. For example, orienting a building to be in the right position to catch the maximum amount of daylight and sunshine does not involve more money, but it does involve thinking about the whole-life cost of the procurement, not just the actual building costs.
More sustainable construction can help by drastically reducing energy prices. It would be interesting to hear whether the Minister has any forecasts for future energy costs. We clearly see that gas and electricity prices are on an upward curve. People are talking about investing in a new generation of nuclear power, which will be expensive. Even some renewable energies are expensive, because they are at the beginning of their process. Therefore, we need to attune ourselves to wanting to reduce energy consumption in new buildings and projects where we can.
The same applies to water consumption. We can all see that with an increasing population and greater demands for water, the cost of using water will be higher in the future. We must invest in ways to minimise the consumption of water. Reusing water and harvesting rainwater are ways of keeping costs down over the long term of contracts.
Also on sustainability and better value for money, we could get long-term unemployed people back to work if there were incentives to help people into work as part of procurement contracts. We would reduce social benefit costs in this country and hopefully reduce the social problems associated with long-term unemployment more generally.
That brings me to promoting social cohesion and sustainable communities as an objective of procurement. An example is the Building Schools for the Future programme. It has enormous potential to promote opportunities for small and medium-sized enterprises to bid for parts of contracts, as long as the process is welcoming and open to them. Consider the building of a new school. A traditional procurement approach might simply advocate the construction of a building in which
students can be taught. Sustainable procurement would bring an appreciation of how features such as renewable energy technologies offer the potential to minimise the environmental impact of the building. Furthermore, such procurement would be a practical demonstration—a learning tool—of environmental sustainability for the school community itself, and, being set in the wider community, for people at large to learn about new technologies.
In addition to that benefit, through the inclusion of social clauses such as requirements in respect of regeneration of the area and using apprentices in the construction process, sustainable procurement could be used to address unemployment, social mobility and social cohesion. For an extended school—is that not the ambition these days for every school?—early engagement in the procurement process with community leaders would ensure that the building is designed and constructed to meet the wider needs of the community. That one example of building one school shows that best value for money and environmental, economic and social concerns can be addressed through sustainable procurement.
Correctly made up, the contracts can encourage greater social cohesion by including provisos on using people in apprenticeships or the long-term unemployed, and they can make a difference to the whole community in which the project takes place. Therefore sustainable procurement is not an abstract, idealistic goal, but a practical, achievable objective for government. By using procurement to promote the goals of sustainability, economic efficiency, environmental sensitivity and social justice, the Government can help to foster a better society composed of sustainable communities that are more able to respond to the global economic market. Why is this not happening every time now?
The first barrier, which I learned of from the inquiry, is affordability. There is always enormous pressure to make short-term cashable savings, yet there is little or no incentive to reduce the long-term costs. Often, that is exacerbated by the split between capital and revenue budgets, meaning that procurers cannot think long term. Three-year settlements have been helpful, but when we are talking about 30-year contracts, as many of the relevant contracts would be, people need to be able to move between revenue-in-the-future costs and capital costs up front to complete a whole-life estimation and a contract built on whole-life costs.
Budget silos are another problem. Sometimes, different people make decisions in different parts of the project. Let me give a simple example from my constituency of Stafford. My local authority wanted to replace an ageing leisure centre and did a deal with a private developer, under which he would build the new leisure centre for free and, in return, would have the site on which the old leisure centre stood. So the developer’s ambition was to build a new leisure centre as small and cheaply as could be got away with, consistent with good standards of modern construction—I have no criticism of my new leisure centre in Stafford, in that sense—but he was not able to conceive of my argument about including renewable energy technologies in the design, for example, as it was not in his interest. The borough council now picks up the running costs for the next 30 years, which will be higher than they could have been. That is an example of
how people dealing with different parts of the project are not willing to work with each other. That is why leadership and guidance is so important.
Although the Treasury procurement green book says that we should not always go with the lowest cost, it does not give sufficient guidance on what sustainable procurement actually means. Despite Treasury guidance stating that projects should be whole-life costed, the public sector does not possess the tools to do that meaningfully, let alone take account of the social and environmental benefits in its calculations.
The solutions are as follows. First, the report strongly advocates whole-life costing to incentivise people’s behaviour and get them thinking about the long-term effects of the contract that they enter into, and for them to start to provide an accurate cost for sustainability and see how budgets can be adjusted between the revenue costs and the capital to get the right outcome. Secondly, a stronger theme of the report was commissioning for outcomes instead of just trying to procure outputs. Enabling people to use their own solutions to get to the outcomes that they want helps to promote innovation and allows for additional and unforeseen social and environmental benefits to be weighed in selecting the right bid for the contract. Those desirable outcomes are achievable, but there are barriers to the solutions.
It is difficult to get Ministers to take responsibility and show leadership. That is a not a criticism of my hon. Friend the Minister, but let us consider what happens when I ask the Government who is responsible for leadership. The Department for Environment, Food and Rural Affairs says, “We’re responsible for sustainable procurement”; the Cabinet Office Minister says, “I’m responsible for sustainable procurement”; the Office of Government Commerce says, “But we’re responsible for it”; and the Exchequer Secretary is our Minister, so a Treasury Minister is responsible. I keep going round the circuit of the Ministers in those Departments to get somebody to say that the detailed work needs to be done on whole-life costing and that incentives are needed to be able to do the right thing in the procurement process—and to get something done. Is the Minister the one responsible for this and is she aware, and willing, to do the things that need to be done to achieve this? I hope that we can get to the point at which somebody says, “I am the person who is going to sort this out. What needs sorting out?”
There is a need for standardisation. As we saw when we talked to the bidders for the contracts that I have mentioned, there is a great lack of benchmark data and of standards to work to in presenting a bid that shows a whole-life cost. Benchmark data help everybody to have a common understanding of what the ambition is and they show what things need to be taken, and not taken, into account. For example, the Audit Commission said to us: “If it’s a whole-life contract for a building and at the end of its life it’s finished, should the whole-life costing, as part of the contract, take into account the decommissioning costs at the end?” Some people do that, but most do not because it ramps up the costs still further. But if people are not bidding with a common understanding, it is like comparing apples and pears.
Some people are working to try to develop helpful standards. The British Standards Institution, for example, has a whole-life costing standard to try to bring uniformity to the process. I am not saying that the BSI is the one
and only organisation that can do this. If we can develop standards that everybody applies, at least we are all singing from the same hymn sheet in assessing who wins the bid.
People working in procurement need a greater level of skills to be able to work with the benchmark data and standards, and with the idea of being much more flexible about how to achieve the best contract over a longer period. To some extent, new metrics on standards are needed to standardise the methods of financially valuing things that do not always have a price on them—for example, the social and environmental benefits that I mentioned.
We found some relevant examples in our inquiry. In a project for eight schools, the bidder wanted to put in biomass boilers instead of natural gas boilers, and although the installation cost of the biomass boilers was £800,000 more, in round figures, than the natural gas ones, over 30 years the running costs would have been £8 million less. But the natural gas option went ahead because it was £800,000 cheaper. A hospital wanted to put in environmental and energy-reducing measures as part of its contract, but those were all removed because it was said that the payback in the benefits of reducing energy costs versus the extra capital costs would have happened over 47 years. When somebody looked at the probable energy costs over 30 years and included a shadow price for carbon, which the Treasury green book says should be done, they saw that there would be payback over 11 years. But by the time that somebody mentioned that, the decision had already been made to cut out all the environmental and energy-saving measures and to go with the lower cost option. So the opportunity was lost.
The message that came across strongly from the report was that everybody feared European Union procurement policy. People might say, “We want whole-life costing. Aren’t we breaking EU law on procurement?” or “We want regeneration of apprentices employed under this contract, but are we discriminating in favour of buying local, which is against EU law?” People can use the EU as their whipping boy as much as they like, but mostly the answer to those questions is no. Actually, they can do those things as long as they get the process right. Firm advice and guidance is necessary from the top to ensure that people have the confidence to procure in the right way.
We found good designs and good projects, but too few of them were making it through the process: they were dropped at planning or final-cost stages and did not make it through to become the buildings of the future. It is urgent, for all the reasons that I have mentioned in respect of the environment, social cohesion and social justice for the future. We have had to borrow a lot of money to meet the needs of coping with the greatest economic downturn since the second world war and things will be tighter in future, so it is all the more important today to stand up for good quality buildings and contracts that are going to be with us for the next 30, 40 or 50 years and will, hopefully, contribute to tackling climate change along the way. It is even more important now for us to stand by our standards.
Will the Minister be serious about addressing climate change, look for long-term cost efficiency and not just short-term gains, and help to promote more sustainable public sector procurement? To do so, whole-life costing for public sector procurement contracts must be adopted.
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The Exchequer Secretary to the Treasury (Angela Eagle): It is a pleasure to respond to the debate and the good and expert points made by my hon. Friend the Member for Stafford (Mr. Kidney). As chair of the Westminster sustainable business forum, he has a long history of involvement and great expertise in the matter. I agreed with almost everything that he said, although borrowing against future revenue streams goes slightly too far in public accounting procedures for now, although we could perhaps consider it in the future.
It is clearly important, as my hon. Friend did, to put the necessity for sustainable procurement in the appropriate context. He was right to say that, in the recent Budget, we published three carbon budgets—the first such budgets in the world—requiring substantial and stretching reductions in carbon emissions. He expanded his definition of sustainable procurement to encompass other aims—equality, social issues and innovation—in addition to green sustainability. I hope that he recognises that the Office of Government Commerce is keenly aware of the re-engineering processes in procurement that will have to feed into society’s efforts to cut carbon emissions by 80 per cent. by 2050.
At my instigation, we have published a series of pamphlets. “Buy green and make a difference” deals with waste, sustainability and environmental efficiency, but others cover social issues, equality and innovation. It is important to recognise that there has been a change in approach. I was anxious to proceed with that and to get over the default option of a narrow definition of value for money, which is clearly a bane of my hon. Friend’s life when considering the potential for reaching targets other than value for money and having a whole-life cost view of what can be achieved with capital expenditure and procurement.
My hon. Friend asked about the amount that the Government spend on procurement and he had the right figure: £175 billion. There is enormous potential to achieve more value for money from that expenditure, and I share his exasperation that that does not always happen. He gave some examples. One explanation for the situation is the diffuse nature of the procurement process throughout central Government and the whole public sector, because many of those who are responsible for procurement work in their own areas, often with a narrower view of value for money than we might want promulgated nationally, which is part of the reason behind producing the pamphlets.
In expanding the view of what value for money is and embedding a more active and innovative approach to whole-life costs, which my hon. Friend urged me to do, we must ensure that we improve the capability, confidence and professionalism of procurers throughout the whole public sector. My hon. Friend said that some people in the private sector are more confident in this area than those in the public sector.
My hon. Friend also mentioned something that crops up whenever I go out and talk to public procurers: the dead hand of EU procurement law. It is often used as an excuse for not doing things differently. There is often, but not always, a tendency for those in public procurement to be defensive about doing that and to take a narrower view of value for money, rather than taking account of the increasing need to take a wider,
whole-life cost view and to be innovative about what other value can be achieved when letting a contract. It is all too easy, for a quiet life, to say that nothing innovative can be done with apprentices or equality issues in specific areas because the EU does not allow that. The EU does allow it if the processes are right, as my hon. Friend rightly said.
I am sure that my hon. Friend has perused some of the OGC publications, which I wanted out there to get over the refrain, “The EU will not let us do it this way.” Actually, the pamphlets demonstrate precisely how the EU allows public procurement to take account of some important advantages, and I hope that my hon. Friend recognises that we have made progress in getting that fact over.
Mr. Kidney: I was greedy with my share of the debate, so I should not intervene on the Minister, but will she wave the leaflets under people’s noses at the vital times when they are making decisions so that they can overcome their fear of EU laws and apply whole-life costing properly?
Mr. Mike Hancock (in the Chair): Order. The Minister might not be able to do so personally, but I am sure that she knows someone who will.
Angela Eagle:
I am not sure that I could be in so many places at once, which comes back to the diffuse nature of the public procurement process. However, I evangelise about the pamphlets and, as the Minister with responsibility for Government procurement, I wave them around when I attend conferences for professional procurers. I point out that we want innovative procurement and that the Government should lead by example, not trail the field in innovative solutions for the best and most effective use of £175 billion of procurement every
year. I assure my hon. Friend that we do that. All the guidance is on the website, and we then evangelise about it.
I hope that my hon. Friend recognises that the procurement approach is diffuse and that it is difficult to be present when decisions are made. We must increase the capability, confidence and professionalism of public procurers to ensure that they are confident enough to know that we want them to proceed with that approach. For example, the Green Book requires, as my hon. Friend suggested, the use of a whole-life costing approach to value for money to ensure that sustainability is embedded at the centre of value-for-money decisions. He gave some worrying examples of terrible missed opportunities. Practical guidance for Departments on value for money will be released at the end of the month so that the impact of carbon, water and waste can form part of procurement decision making.
The whole area is changing rapidly—it needs to change so that we can reach our carbon targets—and procurers must be retrained and updated all the time. It is certainly my responsibility and that of the OGC to ensure that we make our public procurement function much more up to date, confident and professional than it has been, and that we expand the view of value for money from the narrow place where it has been into much wider areas. I am more than happy to tell my hon. Friend that as the Minister responsible for taking that forward, I am happy to work with him to put his ideas, as well as ours, into practice.
Mr. Mike Hancock (in the Chair): Order. I apologise to the Minister, but I will have to interrupt her. I thank Mr. Kidney and her for their courtesy to the Chair and the excellence of the debate.
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