House of Commons - Local government procurement - Communities and Local Government Committee

Local government procurement - Communities and Local Government Committee Contents

4 Procurement processes

Costs of procurement

56. Procuring goods and services incurs costs for councils and those doing business with councils at all stages of the process, including the pre-tendering stage, during the tender process and during the implementation of the contract. A typical procurement exercise for a contract above EU thresholds costs a tendering body some £40,000-50,000.[121]These costs are higher than those incurred by firms in other European Union countries. The Centre for Economics and Business Research (CEBR) report published in July 2013 found that UK procurement processes were the most expensive in the EU and took some 53 days longer on average.[122]

APPLICATION OF EU PROCUREMENT RULES

57. There are detailed rules on how procurement exercises by public bodies must be conducted set out in the Public Contract Regulations,[123] which implement the current EU Directive on public procurement requirements.[124] Witnesses criticised the manner in which the EU rules had been transposed into UK law. ESPO considered that the UK regulations made authorities "very timid" since they gave licence to "vexatiously minded companies" to take public bodies to court for the "slightest, most technical of transgressions".[125] Dr Telles noted, however, that there was only a slim likelihood of this.[126]ESPO recommended the "wholesale rewriting" of regulations to allow councillors freedom to decide what standards they wanted suppliers to meet and to construct policies to meet local priorities.[127]

58. Some 75% of all contracts tendered in the UK have a value below the thresholds at which the full EU requirements apply, but witnesses contended that councils applied the full rules to many of these lower value contracts, adding unnecessary costs and bureaucracy. Dr Telles said that some councils used for lower value contracts approaches designed for "very expensive contracts" above the EU thresholds, noting that this disadvantaged SMEs in particular.[128] Scape considered such over-use of regulations to be due to a cultural problem whereby council procurement officers were "paralysed" by fear over breaching EU rules.[129] However, a survey by FSB in 2013 identified an increase from 74% to 83% in authorities adopting different processes for contracts below EU threshold tenders. FSB considered this to be "significant progress", but urged further rapid progress towards all authorities adopting simplified processes for contracts below EU thresholds.[130] The Federation of Master Builders recommended work across the sector with the LGA and others to ensure all those involved in public procurement were properly informed about any limitations created by the rules.[131] The new Directive on public procurement aims to make procurement faster and less costly for businesses and procurers. The Cabinet Office, with DCLG, is preparing for its early transposition so as to take advantage of the new rules "as soon as possible".[132]

59. It is imperative that councils act swiftly to cut costs for those wishing to do business with them. Too many councils apply EU regulations over-zealously, using them as a self-serving justification to retain overly bureaucratic approaches. This approach is pervasive, and a cultural change is needed. Local authorities need to become more confident in their application of EU rules. The first step is for the Government and sector leaders, including the Local Government Association, to spell out what constitutes a sensible approach which will meet regulations in a proportionate manner. The LGA should produce guidance on this aspect of the new EU Directive on public procurement and work with local authorities to disseminate best practice case studies of those councils already minimising costs to suppliers and potential suppliers.

Process improvements

60. The failure of councils to streamline procurement processes was a key concern, particularly for SMEs. Market Dojo for example told us that rigid processes had prevented it from delivering "substantial savings" for one county council, contrasting this with another council's acceptance of e-auctions which had kept costs of auctions down. Representing the company, Alun Rafique referred to a number of councils which had used a "very onerous"procedure for low-value tenders, stating that this "put off"SMEs from applying for these tenders since they took up "a lot of time and money".[133]Shortcomings in the public sector's ability to improve access by SMEs and social enterprises to government contracts have been flagged up by the Public Administration Select Committee (PASC). That Committee's 2013 Government Procurementreport concludedthat insufficient change had been introduced to stop procurement favouring large companies.[134]

61. Some councils are trialling simplified procedures to keep procurement costs down. Dr Telles cited his work with the Institute for Competition and Procurement Studies on a simplified open procedure which it was piloting with three local authorities through the 'Winning in Tendering' project. He noted that "given the right tools and processes, contracting authorities will advertise low value contracts instead of using a request for quotes". Changes to keep costs down included the full use of e-procurement from start to finish; publication of a one page executive summary with all the necessary information required for the supplier to make a decision whether to compete for a contract; refinements to the wording and style of information presentation to improve clarity especially for non-experts. This had reduced procurement process timescales from more than 100 days to around 38 days. Wider simplification of some processes is also likely to result from the Government's recent consultationon procurement reforms across the whole public sector,[135] in response to Lord Young's May 2013 report Growing Your Business.[136] The new EU Directive on public procurement will also require public bodies to simplify processes, including for example by requiring e-procurement processes to be used.

PRE-QUALIFICATION QUESTIONNAIRES

62. A specific issue addressed by the Government's consultation and by many witnesses was the cost and unnecessary burden of completing individual, and often complex, Pre-Qualification Questionnaires (PQQs).[137] The CBI cited the example of a construction company which spent on average £8,000 per PQQ which, with 200 tender exercises a year, added up to some £1.6 million spent on pre-qualification alone.[138] The Specialist Engineering Contractors' Group (SEC Group) told us that its research had found that its member firms spent over 60,000 days a year filling in questionnaires, and the duplication required to pre-qualify in Wales as well as England cost its firms £20 million a year.[139]The Sheffield Third Sector Assembly told us during our visit to Sheffield that the requirements councils placed on organisations in order to get on supplier lists were disadvantaging many third sector organisations.[140] The President of Sheffield Chamber of Commerce also considered that PQQs were too complex and many firms were therefore "put off" from entering tendering processes, but he welcomed Sheffield City Council's proposed PQQ simplification.[141] Indeed Sheffield City Council told us that it had developed a standardised PQQ for use across the whole region.[142]Standardisation of forms was recommended by a number of private sector representatives. Alasdair Reisner from CECA considered it to be "insanity" that suppliers must fill in "hundreds of bespoke forms [for different councils] to do what in essence is one job" arguing for a single, standard pre-qualification form, not solely for local authorities but for all public sector procurement.[143]The Federation of Master Builders supported the use of the standard PAS 91 form for construction contracts,[144] an approach endorsed by the Electrical Contractors Association which further recommended that a common system of PQQs should be established across the public sector.[145] This standard approach would also assist councils in joining together with other local bodies to deliver services funded by community budgets.

63. DCLG told us the Government wished to see PQQs eradicated for low value contracts, with mandation of a core, standardised PQQ for high value contracts, which would allow suppliers to provide data once only.[146] The Minister, Baroness Stowell, told us that PQQs would only be retained for contracts above the EU threshold and that there would be a standard approach for these from 2014.[147]Halton Borough Council told us that it had already removed PQQs from the council procurement process for contracts above EU threshold levels.[148]The LGA told us that 85% of councils did not use PQQs for contracts below the EU thresholds and would discuss the Government's proposed recommendations with DCLG.[149]It should be noted that we received little evidence arguing for total abolition of PQQs since some form of pre-evaluation enables councils to keep costs down by screening out unviable bids at an early stage.

64. Whilst some councils have streamlined their processes and are taking a proportionate approach to the pre-tender information they require potential suppliers to provide, the default option in too many procurement exercises appears to be to demand excessive information not commensurate with the specific contract needs. Furthermore, suppliers who wish to work with more than one council are frequently required to complete similar, complex forms. There is clear scope for more standardisation and simplification across the sector to cut the suppliers' costs and to facilitate the use of community budgets to deliver joined-up local services. We therefore support the Government's proposals to standardise on a national basis data collection from tenderers. The Local Government Association should take the lead in ensuring that all Pre-Qualification Questionnaires are as simple and straightforward as possible. This would entail potential suppliers filling in a form once only foruse by any public body. However, whilst we concede that some council data collection processes for lower-value contracts can be unduly burdensome, we do not consider the argument to be fully made for the removal of Pre-Qualification Questionnaires for such contracts. There are financial benefits to be gained from weeding out unviable tenders at an early stage, prior to more costly full evaluation of bids.

PAYMENT POLICIES

65. Whilst most councils operated policies that ensure that their suppliers were paid promptly, we were told that there was a problem with passing these terms on down the supply chain to sub-contractors. FSB noted that, although 95% of councils had policies specifying prompt payment of suppliers, with 68% adopting a 28 day or less payment period, only 38% of councils required their contractors to apply the same standard. Many contractors applied policies to pay sub-contractors only after 60, 90 or even 120 days which could be particularly problematic for small firms vulnerable to cash-flow crises.[150] FSB noted that the issue could be addressed swiftly and effectively, as Wakefield Council had done, through the use of explicit contract clauses requiring suppliers to pass the council's payment terms on through their supply chains. FSB strongly encouraged all local authorities not already requiring the passing on of payment terms to revise their terms and conditions accordingly as a matter of urgency.[151]

66. Councils should as a matter of course pay contractors promptly and include a requirement in contracts requiring contractors to ensure their sub-contractors are paid promptly right down the supply chain. Councils should publicise this policy and monitor closely the implementation of these terms through spot checks. Contracts must also require contractors to report failure to comply with these conditions. Local authorities should take into account any failure by a contractor to comply with the conditions when assessing tenders for any future work.

121 Q142 Back

122 "UK public sector procurement most expensive in EU" Supply Management, 11 July 2013 Back

123 Public Contract Regulations 2006 (SI 2006/05) Back

124 Directive 04/18/EC will be repealed following adoption of the new Directive/2014/../EU of the European Parliament and of the Council on public procurement The full formal EU procedures must be followed for any public contract relating to certain categories of procurement. Under the proposed new EU measures, the threshold will be set at £175,000, broadly equivalent to current Directive levels. The new Directive will however introduce a higher threshold equivalent to £620,000 to apply to a wide range of health and social services, above which member states are required to issue prior information notices but will then be free to determine their own procedures Back

125 Eastern Shires Purchasing Organisation (LGP 06) Back

126 Q380 Back

127 Eastern Shires Purchasing Organisation (LGP 06) Back

128 Q363 [Dr Pedro Telles] Back

129 Q128 [Mark Robinson] Back

130 Federation of Small Businesses (LGP 30) Back

131 Federation of Master Builders (LGP 70 ) See also Federation of Master Builders, Improving public procurement for construction SMEs,, June 2013 Back

132 Department for Communities and Local Government (LGP 63) Back