Conclusions and Recommendations
1. We recommend that the Local Government
Association and other bodies working with councils, as well as
local authorities themselves, prioritise implementation of our
recommendations in order to accelerate reform of local authority
procurement across England. It is also important to have in place
government policies that empower communities and local government
to maximise efficiency and effectiveness in procurement. Hence
we make a number of recommendations for the Department for Communities
and Local Government to implement as a matter of urgency in conjunction
with other relevant government departments. (Paragraph6)
Improving local government procurement
2. We recognise that
local government is aware of the need to improve procurement practice
across the sector and that some councils are adopting effective
procurement approaches which deliver savings to local communities.
We are, however, concerned that more needs to be done and that
not all are procuring so as to achieve maximum value for money.
Councils must ensure that they have appropriate mechanisms in
place to enable them to measure the costs and savings of their
procurement exercises so that they can evaluate the extent to
which they are using optimum approaches. We conclude that the
Local Government Association should provide a forum for sharing
data on successful approaches and the information should also
be used to inform its programme of support for councils.(Paragraph
11)
3. We conclude that
local authorities' focus on meeting the needs of local communities
requires councils to retain control over their procurement operations.
Local freedom and flexibility would be lost if they were compelled
to adopt a centralised model of procurement such as that adopted
by central government in its Crown Commercial Service.(Paragraph
25)
4. We recognise that
there are potential savings to be gained by increased aggregation
and even national arrangements—for example, for purchasing
energy—but it has to be for local authorities to decide
what provides the best value for money when weighted against their
local needs and to enter such arrangements voluntarily. To assist
local authorities, we consider that the Local Government Association
should review current procurement spend on key categories to identify
potential routes to increase the use of aggregated spend for these
products and services.(Paragraph 26)
5. It is clear that
many local authorities are already conducting procurement in collaboration
effectively with other councils, either through initiatives established
between individual authorities or groups of authorities, or via
procurement organisations on a regional basis. Enhancing such
approaches is a sensible way forward. We can understand the Government's
frustration that authorities' responses to its funded collaborative
initiatives have not been as expected. But the answer is not compulsion.
As we have already stated, councils are answerable to local people
and have to retain control over the delivery of local services.
Nevertheless, we consider that there is scope for much greater
work to join up approaches and deliver economies of scale without
compromising local authorities' ability to deliver locally appropriate
services, accountable to their communities. We conclude that the
Local Government Association should conduct a review of collaborative
approaches and produce best practice guidance for authorities
on the most effective means of joining up procurement to deliver
savings which reflect local priorities.(Paragraph 33)
6. There is scope
for greater joining-up of approaches to deliver economies of scale
by linking the procurement approaches of public sector bodies
within local communities. The Local Government Association should
conduct a review of collaborative public sector approaches at
a local level and produce best practice guidance for authorities
on the most effective means of joining-up procurement budgets
across a range of local public sector bodies to help deliver joint
local priorities.(Paragraph 35)
7. We recognise that
framework contracts can deliver cost savings in certain circumstances
but have concerns about the impact on smaller firms. When using
framework contracts, councils should consider the potential for
sub-dividing at least part of the contract to enable smaller organisations
to bid for smaller parcels of work. The Local Government Association
should produce guidance on how the measures in the new EU Directive
on public procurement could be used to encourage smaller companies
to engage in procurement opportunities with local authorities.
(Paragraph 39)
Delivering strategic objectives through procurement
8. There is a judgment
to be made by each council, and for each contract, as to the correct
balance for their community between letting a contract at the
lowest price and requiring contractors to deliver additional economic
and social value, sometimes at an additional cost. We are clear,
however, that councils can and should adopt policies which enable
them to maximise their procurement spend to deliver local priorities
by requiring contracts to be let on the basis of wider best value,
not simply lowest price. Such approaches will best ensure procurement
is conducted so as to support and improve communities' long-term
economic, social and environmental well-being. Many local authorities
are already successfully linking their procurement approaches
to delivering such objectives but all councils should assess the
potential of each procurement exercise, and of their overall procurement
policies, to assist delivery of the council's corporate objectives.
Furthermore, they should raise awareness of the value of this
linkage through more explicit demonstration of successful approaches.
All councils should present an annual report to a full Council
meeting setting out the authority's strategy for incorporating
economic, social and environmental value in its procurement, including
employment terms and conditions, impact on local economies and
small businesses, relationships between contractors and customers,
and the role of councillors.(Paragraph 44)
9. We conclude that
the Local Government Association should work with local authorities
to disseminate best practice case studies on how to maximise the
impact of procurement approaches to deliver local social, economic
and environmental objectives, whilst balancing the need to secure
value for money in the procurement of goods and services. A particular
focus for the LGA should be the promotion of examples of best
practice in using procurement to support the increase in local
apprenticeships and trainee opportunities. Furthermore, the LGA
should update guidance on the potential of new EU public procurement
measures to allow procurement to be used to promote social value,
and advise councils on what they must do to meet new obligations.
(Paragraph 45)
10. We acknowledge
Ministers' wish to ensure that the Public Services (Social Value)
Act 2012 is given sufficient time to bed in and become fully effective.
Nonetheless, it is clear that there are concerns that the limited
range of contracts to which its provisions apply might be undermining
the Act's impact. We recommend that DCLG undertakes comprehensive
post-legislative analysis of the Act to ensure assessment of its
effectiveness before the end of 2015. This assessment should consider
whether provisions should be extended such that local authorities
must consider the potential for a contract of any value to deliver
social benefits. Such assessment must take into account the views
of all interested parties, including local government and business.(Paragraph
48)
11. Government
policies to encourage communities to engage in service delivery
through mechanisms such as the Community Right to Challenge do
not appear to be being used to any great extent. We recommend
that the Government undertake within six months a review of the
barriers to its uptake, including costs to councils and would-be
suppliers of entering into a full-scale procurement exercise and
how these might disadvantage some sectors, in particular the voluntary
and community sector.(Paragraph 50)
12. We recognise that
council policies which disproportionately favour local or smaller
firms are not in communities' longer-term interests since these
approaches could exclude cost-effective options offered by non-local
or larger businesses, as well as ultimately weakening rather than
strengthening local economies or regional economies as a whole.
However, carefully framed policies that give local and smaller
firms the same opportunities as larger firms to compete for contracts
have had benefits for local economies. We support targeted council
approaches which effectively balance support for local businesses
whilst not precluding value for money or undermining the effective
operation of markets. We conclude that the Local Government Association
should work with local authorities to disseminate best practice
case studies on how to integrate procurement and support for smaller
businesses. The Cabinet Office, working with the LGA, should
produce guidance on how councils can apply the provisions of the
new EU Directive on public procurement to better support smaller
businesses and local economies.(Paragraph 55)
Procurement processes
13. 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.(Paragraph 59)
14. 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 for use 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.(Paragraph 64)
15. 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.
(Paragraph 66)
Managing risk
16. It is self-evident
that outsourcing of a contract does not mean outsourcing responsibility
for ensuring the quality and consistency of service to residents.
However, we question whether current approaches are sufficient
to ensure effective control by local authorities of outsourced
contracts in many councils. There are regrettable examples across
the public sector, not only in local government, of complex outsourcing
arrangements failing to safeguard service delivery and quality.
It is vital that councils are fully equipped to manage complex
contracts, particularly in their implementation phase. Councils
must future-proof contracts so that contractors bear their share
of the effect of any further budget cuts. With the proportion
of services delivered in-house reducing in many councils, financial
constraints will impact disproportionately harder on these services
if flexibility is not built into contracts to allow changes to
reflect tightened budgets. Furthermore, local authorities need
to ensure that there is clarity within contracting organisations
and the council itself on the point of responsibility for contract
delivery and on the provision of a seamless customer service to
residents. (Paragraph 73)
17. In the worst cases
local authorities not only fail to monitor quality but also end
up carrying excessive risk when a contractor fails to deliver.
Councils must develop and support a culture which embeds appropriate
risk management across the council, not simply in procurement
teams. The Local Government Association should undertake, with
relevant professional bodies, a detailed assessment of the level
of contract and risk management skills and resources available
across the local authority sector. It should work with those councils
that have a proven record of effectiveness to disseminate best
practice and to put in place arrangements to share and provide
additional resources on an ad-hoc basis to councils as required.(Paragraph
74)
Outsourcing service delivery: employment issues
18. The increase in
outsourcing of service delivery by a wide range of councils across
a variety of services means that a large number of people once
employed by the public sector are now working for private sector
organisations. Whilst there are statutory measures which safeguard
the terms and conditions of staff transferring from a public body
to a private company, it is imperative that councils recognise
the need to engage actively with private companies to ensure standards
are maintained. Councils should consider when letting contracts
whether they wish to take into account a bidder's policies on
employment issues such as zero hours contracts. The Local Government
Association should produce guidance for councils on how the provisions
in the draft new EU Directive on public procurement may affect
councils' ability to insist that larger contractors apply minimum
standards and remuneration for employees working on their contracts.
(Paragraph 78)
19. Whilst councils
must be free to develop locally appropriate employment approaches,
with the flexibility to adapt to changing circumstances, we commend
those councils which adopt fair working conditions and terms of
employment, including pay. We recognise that the rising demand
for social care services at a time of financial constraints on
council budgets represents a challenge for councils wishing to
adopt optimum pay and conditions for staff working in the sector.
We have not had the opportunity in this inquiry to take a detailed
look at the specific issues affecting procurement of social care,
but we wish to highlight the need for employment challenges to
be taken into consideration in development of Government policy
on the sector. In its response to this report, we recommend
that DCLG explain how it will monitor the ability of the social
care sector to maintain effective pay and conditions for employees
against a background of rising demand for services and constrained
council budgets.(Paragraph 80)
Probity and governance
20. Councils need
to be one step ahead of the fraudster. Councils must tackle fraud
pro-actively. This is essential during not only the tender process,
but also during the implementation of contracts. It is not sufficient
for councils to 'let and forget' contracts: rather close monitoring
of their delivery is essential to detect potential fraud. We
recommend that the Government provides support and guidance to
councils on the best ways to identify and tackle fraud. The LGA
should work with councils to provide information on potential
abuses of tendering processes and contract implementation and
disseminate best practice examples of effective approaches.(Paragraph
89)
21. We are concerned
that some councils have yet to develop sufficient commercial focus
and the acumen to combat fraud, including operations by cartels.
It is vital that those responsible for managing contracts are
alert to the potential for abuse of market power and collusion
amongst potential suppliers and that they share information effectively.
(Paragraph 90)
22. Contracts let
by public bodies must be transparent and performance against them
auditable. The Local Government Association should consider how
greater transparency in private sector contracts can be achieved,
without compromising councils' ability to attract a wide range
of bidders. For example consideration should be given to extending
the publication of information requirements on contractors relating
to performance delivery and contract costs and greater use should
be made by local authorities of open book accounting. Councils
should consider when seeking tenders establishing a level playing-field
for all potential bidders, both private and public, by mirroring
in contract terms the regulatory requirements on public bodies
to provide information. This may be particularly applicable to
long-term or larger contracts. Furthermore, contracts should include
terms which require contractors to notify the commissioning council
of any identified impropriety relating to the contractor or its
sub-contractors. Any such notifications should be published. We
recommend that the Government provide guidance on how central
government experience of such approaches as open book accounting
can be further utilised by the local government sector in order
to improve procurement transparency.(Paragraph 95)
23. Whistleblowing
has a vital role to play in detecting fraud and impropriety since
those working on, or close to, procurement exercises and contract
management will frequently have the best perspective on whether
regulations are being adhered to or if suspicious practices have
been adopted. We recommend that the Government publicise arrangements,
including the role of the National Audit Office, for the provision
of an anonymous channel for reports by potential whistleblowers
concerned at local authority procurement operations. Furthermore,
as part of contractual requirements all contractors should have
a robust internal process for whistleblowers to report concerns.
Any notification to a contractor by a whistleblower of impropriety
relating to a local authority contract should be required under
the terms of that contract to be notified to the council client
by the contractor. Contract terms should also specify employee
rights to report concerns over a contractor's actions without
reprisal. (Paragraph 97)
Achieving change
24. Procurement should
not be viewed as a niche activity for specialists, rather as the
essential underpinning of a joined-up process from initial service
design and commissioning, through purchasing of goods and letting
of contracts, to contract implementation and review. All those
involved in commissioning, procuring and delivering services should
recognise the need to embed excellence in procurement practices
at the heart of these activities. We welcome the work by the Local
Government Association to put procurement at the 'top table' within
councils. There is a need for the political leadership in all
councils to focus on commercial approaches, with the embedding
of a culture of commercial awareness when designing and delivering
services. We therefore see considerable advantage in councils
identifying a lead cabinet member and a senior officer who will
take overall responsibility for ensuring that procurement is as
efficient as possible, and that fraud is pro-actively combated.
Councils should also ensure that frontline councillors have a
clearly identified role in reviewing and scrutinising procurement,
including outsourced contracts and their impact on services for
residents. (Paragraph 102)
25. If all councils
are to procure at the optimum level, including procuring in the
most effective manner for delivering social, economic and environmental
objectives, most need to improve their procurement skills. This
will require investment but more cost-effective ways of sharing
capabilities need to be found if councils are to address their
skills shortages at a time of financial constraint. The Local
Government Association should consider supporting the establishment
of a peripatetic procurement team—a 'flying squad' whose
purpose would be to train regionally based teams of trainers.
These would be available to augment council capacity for complex
procurement exercises where there is a current lack of in-house
capacity or to plug short-term skills deficits. We recognise that
such approaches are only a stop-gap and that a more comprehensive,
long-term programme is needed to train enough staff to high enough
standards to meet the challenges of managing the sector's multi-billion
pound investment. Much greater use must be made of toolkits, such
as that developed by Sheffield City Council, and the LGA must
ensure that these are disseminated across the sector. Councils
should also make fuller use of initiatives such as the Commissioning
Academy. We recommend that the Cabinet Office offers Commissioning
Academy programmes to council participants in order to raise the
procurement skill levels and status of far greater numbers of
local authority staff.(Paragraph 107)
26. We commend the
work undertaken to date by many councils and by the Local Government
Association to improve approaches for procuring goods and services
for local communities. We endorse this sector-led approach to
supporting council action since it is an effective means of tailoring
procurement to local needs. Nevertheless, a change in effort is
now required in order for successes to be fully replicated across
the country and for detailed support to be provided to tackle
all the complex aspects of procurement, particularly given the
reduction in some support such as that provided by the Audit Commission.
This will require renewed commitment across local and central
government. We therefore conclude that the LGA, with the support
of DCLG, should establish a task-force with representatives of
the private and third sectors to develop an action plan for improving
council capacity to conduct effective procurement. We recommend
that the Cabinet Office dedicate resources for building procurement
capacity in local government and for ensuring that lessons learnt
in central government are translated into effective council action
where appropriate. The Government should also ensure that full
guidance on the implications of new EU public procurement measures
is provided during the transposition of the Directive into UK
law. (Paragraph 111)
Conclusion
27. This report makes
a wide range of recommendations for improving local authority
culture and processes in recognition that procurement should not
be seen as a niche function conducted in silos, rather as an activity
central to delivering high value, cost-effective services to communities.
Evidence to this inquiry demonstrates a drive by local government
to improve its procurement practices. However, this is a work
in progress and requires sustained commitment to partnership working
from local authorities, central government and from the third
and private sectors in order to raise standards. Devoting resources
to bringing the performance of all local authorities up to the
levels of the best is more than a worthwhile investment. At a
time of financial constraint, spend now will enable savings both
now and in years to come which should pay back initial costs many
times over. Embedding effective approaches across all council
functions will require leadership from the top and a focus on
new commercial skills to manage the challenges of procuring in
new ways and for different purposes. In keeping with our support
for a localist approach, most of the action recommended in this
report is for the sector itself to deliver, but we recognise that
this requires leadership and co-ordination, not least from the
Local Government Association. Key areas for the sector to focus
on are:
· improving collaboration across councils;
· spreading best practice on how to maximise
the social, economic and environmental impact of procurement;
· developing streamlined processes to minimise
costs to councils and suppliers and potential suppliers;
· managing complex contracts to secure better
value, and to reduce risks to service delivery and the likelihood
of fraud; and
· skills development, particularly of new
commercial skills for an increasingly complex procurement landscape.
Local government has a responsibility to show that
it can put its own house in order. If it does not, we fear DCLG
will opt for compulsion.(Paragraph 112)
28. Nonetheless, local
government can learn from central government and vice-versa. We
have emphasised in this report the need for effective partnership
with, as well as support from, DCLG and other central government
departments. Key areas for central government to focus on are:
· providing councils with guidance, for
example on how new EU public procurement measures enable and require
new council approaches to procurement;
· supporting councils in capacity building
to ensure all councils have access to adequate skills, including
through access to the Commissioning Academy;
· maximising the effectiveness of current
statutory measures, for example in enabling procurement to deliver
strategic public sector objectives and reviewing the effectiveness
of the Community Right to Challenge;
· monitoring national patterns such as social
care sector pay and conditions;
· with local government sector organisations,
disseminating advice to councils, for example on tackling fraud.
(Paragraph 113)
29. We make a number
of recommendations for the Government to provide the right support
and policy framework to enable councils to reform their procurement
approaches and we commend them for urgent action.
(Paragraph 114)
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