Cabinet Office: Improving government procurement and the impact of government's ICT savings initiatives

Written evidence from the Cabinet Office

SMES

The Government has an aspiration that 25% of spend (directly or in supply chains) should be with SMEs by the end of the Parliament. The latest figures show that in 2011–12 10% of direct spend went to SMEs-an increase from 6.5% in 2009–10. In addition, a survey of Government’s top suppliers showed that 6% went to SMEs in supply chains.

Departments did not historically collect high quality data on their spend with SMEs and it has been challenging for departments to provide accurate information. However, we have been able to verify our most recently published figures on SME spend with departments.

In order to further improve the data on direct spend, Cabinet Office and the Government Procurement Service are assisting departments by using external verification to validate whether or not their suppliers are SMEs. On indirect spend, Cabinet Office manages the collection of data from strategic suppliers on behalf of the departments concerned. However, in light of the NAO report, we are also considering what more we can do to provide assurance to the NAO and PAC.

However, data with SME spend data should not detract from the reforms that Government has introduced to improve access to procurement opportunities for SMEs. We are serious about removing the barriers that have historically prevented SMEs from supplying to Government, and have already made real progress:

¾ Central Government opportunities over £10,000 must now be advertised on Contracts Finder. As at the end of February 2013, 14,339 contracts had been published online of which 4398 were flagged as awarded to an SME (32%).

¾ To assist UK industry, we have published pipelines of upcoming procurement opportunities worth £84 billion so that UK firms can gear up to deliver Government’s needs, and placed an emphasis on pre-market engagement so that business can be involved in shaping specifications.

¾ We have eliminated bureaucratic Pre-Qualification Questionnaires for central Government procurements below £100,000 in 15 out of 17 departments

¾ We have given SMEs a voice at the top table by appointing Stephen Allott as the Crown Representative for SMEs, and putting in place an SME Panel attended by Cabinet Office Ministers which provides an additional degree of challenge to our SME Programme.

¾ We have made government truly accountable through the Mystery Shopper Service, which enables suppliers and other interested parties to report instances of poor procurements, including overly bureaucratic processes and the late payment of invoices for Cabinet Office to Investigate. Out of the 287 cases closed to date, 80% have resulted in a positive outcome. .

The role that SMEs can play in delivering Government contracts will vary depending on the market and contracting approach. While we are seeking to aggregate demand through the centralization of common goods and services, this does not mean that we have to aggregate supply to a single large supplier. In those markets where SMEs can compete directly and offer value for money, procurements should be designed so that they can compete. The example of Government’s travel contract being awarded to Redfern travel in 2012 is an example of a procurement being designed so that SMEs could compete to supply Government directly.

However, in some instances, it will be more appropriate for SMEs to play a role in supply chains under a prime contractor. In such situations, Government is taking steps to ensure that SMEs are not detrimentally affected by being sub-contractors. The Committee specifically asked how perceived problems with the Work Programme would be avoided on future contracts such as those for probation services. Work Programme providers are required to comply with the Merlin standard and compliance is independently assessed. The Merlin Standard is aimed at ensuring fairness in supply chains, and was introduced as a direct result of concerns raised by sub-contractors. Sub-contractors provide feedback on the prime as part of the Merlin Standard assessment. The Cabinet Office and the Ministry of Justice are working closely to ensure that a diverse range of suppliers can participate in the delivery of probation services and that the commercial arrangements, based on outcomes, are robust. The Mystery Shopper service extends to supply chains, meaning that sub-contractors that feel unfairly treated by  prime suppliers have a route of redress.

SMEs tell us that one of the most critical issues for them is to be paid on time so that they can manage their cash flow. Government contractually requires all sub-contractors to be paid within 30 days and encourages suppliers to refer instances of late payment to the Mystery Shopper service. Failure to pay on time thus constitutes a breach of contract, and as such can be taken into account by departments running procurements subject to the Cabinet Office’s supplier performance policy. We have also tasked the Crown Representative network with encouraging strategic suppliers to pay more quickly than the contractual requirement.

We are also taking other steps to protect SMEs in supply chains:

¾ 19 of Government’s top suppliers have signed up to advertise supply chain opportunities on Contracts Finder.

¾ We have introduced Project Bank Accounts (PBAs) on all construction contracts to ensure that all members of the supply chain are paid at the same time, with £1.4bn already having gone through this route. All future Total Facilities Management (FM) contracts will also include the use of PBAs, as set out in the Governments new FM strategy.

¾ The Government Procurement Service is improving access for SMEs. In its Contingent Labour one procurement due to be awarded on 1 April, steps include requiring prime contractors to pay sub-contractors within five5 days, regularly refreshed supply chains so as not to lock SMEs out for the duration of the procurement and standard terms and conditions flowing down supply chains.

¾ The Department of Health and National Savings and Investments are stipulating the use of SMEs in supply chain and SME inclusion as part of the criteria to select suppliers.

¾ Departments are working with existing Prime contractors-often on a voluntary basis-to increase the number of SMEs within the supply chain.

SMEs tell us that the direction of travel is right, that they see real and genuine engagement at ministerial and senior level in government but there is much more to be done. We recognise the need to go further, and all departments have now produced action plans following direction from the Prime Minister which include specific opportunities for SMEs and set targets that demonstrate how they will contribute towards the delivery of the 25% aspiration.   

SUPPLIER PAST PERFORMANCE

Strengthening commercial capability is a key priority right across Whitehall. One aspect of this involves building more strategic relationships with leading suppliers to ensure the Government leverages its buying power to secure best value and high quality services. This drive to build more strategic commercial relationships has already delivered a great deal, with £800 million saved in 2010–11 alone. The approach has been coordinated by Cabinet Office and supported by a network of Crown Representatives each of whom leads Government’s relationships with a number of strategic suppliers.

Bringing board level experience from the public or private sector the existing network of Crown Representatives has transformed the way Government engages with our larger suppliers, receiving positive feedback from industry as well as securing cost reductions and high quality services for taxpayers.

To tackle supplier poor performance, to ensure consistently good delivery of public services and value for money, it is important that bidders with the requisite standards of technical and professional ability are selected. In the past, Government has not always taken a consistent approach to the consideration of the past performance of bidders to ascertain whether they can confidently be relied on to perform the obligations under the contract to be awarded. And Government wants assurance that when suppliers are awarded contracts, they are executed properly.

This is being achieved following the launch of two key policies in November 2012:

¾ A revised approach to managing risks associated with suppliers’ poor performance or financial instability (Strategic Supplier Risk Management).

¾ Guidance on taking account of past performance in procurements. (Bidder Past Performance).

The first initiative allows government to examine the performance of its Strategic Suppliers across the contracts that they hold with Government. Where evidence of serious and/or persistent poor performance is seen, it allows for the supplier to be designated as high risk and for remedial measures to be put in place. The second initiative apples to procurements of goods and/or services in the ICT, Facilities Management and Business Process Outsourcing sectors with an anticipated total contract value of £20 million or more, and applies to central government Departments, their Executive Agencies and Non-Departmental Public Bodies.

Departments will now set and publish minimum standards (in procurement documentation) for supplier reliability based on past performance and will require bidders to obtain certificates of past performance from both their public and private sector customers for key, relevant contracts over the last three years. The role of Cabinet Office in this is twofold:

¾ To support Crown Representatives in engaging with Departments to monitor compliance with the policy; and

¾ To assist the assessments made by Departments by holding the certificates of performance stored in a shared central storage service.

The Government’s Crown Representatives play a key role in leading the application of the new risk management approach to the Government’s Strategic Suppliers. Where a Strategic Supplier has performed poorly and is designated as "high risk", they must produce a formal improvement plan and, until performance is improved, will be subject to closer monitoring.

Due to the continued success of this role, we are currently expanding this capability through running a campaign to recruit further Crown Representatives from the private sector.

TAX COMPLIANCE AND PROCUREMENT

The Cabinet Office is taking forward a new strategic approach in setting the standard for what we expect of Government’s suppliers. We have been working on the first two points and are now starting to put an increased focus on the third:

¾ Terms and Pricing that reflects our status as a major buyer;

¾ Managing commercial performance strategically to ensure better delivery; and

¾ Ensuring suppliers are clear about their responsibilities, including on tax.

We are making good progress on the first two points and tax compliance falls under the third. HMRC and Cabinet Office are working together to develop policy following an announcement by the Chief Secretary to the Treasury in September.

We have proposed a process of self-certification at selection stage to ensure this policy is not overly burdensome on suppliers who are already paying the correct amount of tax. This would require suppliers to declare their history of tax compliance, covering such issues as whether they have been involved in failed avoidance schemes and so had to correct tax returns or have had to pay penalties. Ministers are considering the proposals and will make an announcement shortly.

The overarching aim of public procurement will always be to achieve value for money. We do not want to attempt to shoehorn measures into the procurement process. However value for money questions include the amount of tax paid for by our suppliers. That ’ s why we will look at innovative ideas and pursue the feasibility of these, for example to better understand the tax paid by suppliers on new contracts or how the revenue they book offshore compares to in the UK.

In answer to the specific question raised at the PAC session on Monday 4 January, we have looked at the legal position as to whether suppliers’ bids can be assessed on the basis of how much revenue they "book" in the UK on their Government contracts. In the short time available, we can confirm that the Public Contracts Regulations 2006 do not allow this type of question to be used at either selection or award stage, for the following reasons:

¾ Selection stage-this type of question does not fall into any of the allowable Regulation 23-25 criteria, relating to supplier selection;

¾ Award Stage-this type of question is not suitable as an award criterion as it is not linked to the subject matter of the contract.

In addition, questions of this type may well have a discriminatory impact on suppliers from other member states and therefore breach EC Treaty principles. 

12 March 2013

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