House of Commons - Government Procurement - Public Administration Committee

Government Procurement - Public Administration Committee Contents

4 Procurement Capability

50. There are clear shortcomings in the ability of the Civil Service to run effective and efficient procurement.[80] Tim Heywood, expressed a view common to many witnesses:

[...] the Civil Service is having to adapt, and this has been true over a number of years, to a role that is more focused on commissioning and procuring the delivery of services, goods and such like, as opposed to being a delivery organisation itself. I think the skill sets have not kept pace. If there was one thing I would change, to try to bring about that cultural and other structural change, I would make commercial skills, commercial awareness and procurement skills one of the core skills for being employed in the Civil Service.[81]

Francis Maude acknowledged this view; he told us that there were "too few" civil servants with the right knowledge and skills, stating that that was "a serious deficiency which has been long recognised".[82]

51. Sir Peter Gershon's 1999 review of civil procurement indicated the need for more "strategic procurement skills" in government, for example, to run private finance initiatives, outsourcing and the management of very large complex projects.[83] Witnesses told us that the Civil Service has become more commercially skilled since then, although felt that there was still some way to go.[84] Tim Heywood noted that:

[...] there are lots of centres of excellence. There are lots of civil servants who are very, very good in terms of commercial nous, procurement skills and so on, but there are not nearly enough of them for the scale of procurement being undertaken.[85]

52. One key deficiency which witnesses highlighted was civil servants' lack of understanding of commercial risk. Discussing procurements by the Ministry of Defence, Professor Bovis of Hull University suggested that "the inability to understand risk" was a systemic problem and that a more nuanced understanding of risks in each contract was needed. Robin Southwell, Chief Executive, European Aeronautic Defence and Space UK, and president of the defence industry trade organisation, Aerospace Defence Security, reinforced this view noting that "the effort to take no risk means you end up taking huge risks".[86] The Chief Operating Officer for Government recognised this problem and accepted that when contracting, civil servants should be more aware of the genuine limits on transferring risk from the public to the private sector: "The reality is we [the public sector] carry the risk [...] the elimination of any naivety in that is fundamental to us making wise decisions".[87]

The Competition for a Carbon Capture and Storage Demonstration Project
In November 2007, the Department for Business, Enterprise and Regulatory Reform (BERR) launched a competition for industry to run a project to design, construct and operate the UK's first commercial-scale carbon capture and storage demonstration project at a coal-fired power station, by 2014, with Government funding.
Four years later, in October 2011, the Department of Energy and Climate Change, which was by then the department with responsibility for this project, withdrew from negotiations with the last remaining bidder in the competition as the Department considered it could not agree a deal that would represent value for money.
A National Audit Office report considering the lessons to be learned from this ultimately unsuccessful procurement exercise noted that: "the Department and its predecessor did not engage sufficiently early with the commercial risks involved and their consequences on cost".[88] It proposed that in future competitions: "the Department needs to understand fully its commercial proposition to industry […] To do this, the Department will need appropriate commercial skills in place from the outset of its new programme". [89]

53. Another deficiency highlighted was civil servants' unwillingness to exercise judgement. So, while commercial ability exists within the Civil Service, it is constrained by a culture of adhering to processes. With regard to defence procurement, Dr Moore of Cranfield University noted that:

[...] the system is such that you have to follow the processes. An individual cannot be wrong if they follow the processes. If they use their judgment to say, 'This is a better value-for-money item', however you define that, the system may well show them that they cannot do that, and they therefore follow the system.[90]

54. Francis Maude similarly said that existing commercial nous had been suppressed by the process-oriented culture of the Civil Service:

I have seen some, who have been lifer, mainstream civil servants, exposed to the commercial world and interacting with suppliers and potential suppliers, and they absolutely light up and discover a commercial part of their DNA that they did not know existed. [...] I have on too many occasions heard, or heard reports of procurement people in Government saying, 'Well, of course we are not allowed to make a judgment about choosing a supplier. It is all reduced to some sort of mechanistic process.' You would never do that in a commercial setting. You would be making a commercial judgment about what is the best overall value.[91]

55. Another key area for improvement is the Government's engagement with business and the way it identifies and specifies what it wanted to procure and how.[92] The International Association for Contract and Commercial Management commented that: "The world of procurement has changed dramatically in recent years" but noted that:

[...] most [government] Procurement professionals appear to have been trained to deal with commodity purchases and have little appreciation of the methods or techniques that are needed to effectively gather requirements, evaluate supplier capabilities, develop relationships and oversee contract outputs or outcomes. This is a serious deficiency in a world that has moved increasingly to services and solutions, where outcomes matter far more than inputs.[93]

56. Sally Collier, the Deputy Chief Procurement Officer, said that efforts to improve the level of pre-procurement engagement with suppliers were starting to pay off. "We have still got a long way to go [...] but I think we have got some evidence that suppliers out there do think it is changing".[94] Nonetheless, businesses in some sectors told us of recent failures by the Government to consult properly with potential suppliers. The Institute of Practitioners in Advertising wrote with regard to a recent procurement exercise run by the GPS that:

there was no consultation with the industry on the relevance to advertising of the questions asked [in the Invitation to Tender]—nor their intelligibility—prior to publication, while the resource available to explain and answer queries was limited and lacking in detailed knowledge of the industry.[95]

57. Suppliers to Government emphasised that government bodies needed to become more flexible. Instead of narrowly specifying the outputs they want they should specify outcomes, so that businesses can help to identify and provide the most effective solution.[96] Kevin Craven, Chief Executive of Balfour Beatty Services and Chairman of the procurement sub-committee of the CBI, told us that the Government has tended to find it difficult to reach an agreed position on what it wanted to procure. By specifying outcomes rather outputs, they could make the whole procurement process more efficient, passing the challenge of finding an effective solution to a particular problem to the bidder. He noted that: "it is easier to describe what you want to achieve rather than the methods by which you want to achieve it".[97]

58. Nonetheless the CBI, among others representing suppliers to Government, argued that Government should go further and give greater consideration to procurement issues as part of policy making.[98] Andrew Coulcher, Director of Business Solutions at the Chartered Institute of Purchasing and Supply, told us that: "There is an opportunity to have a much earlier and closer involvement of procurement and commercial teams in the policy-setting process, but I also think that the policy professionals need a better commercial understanding of the implications of those policies and knowing when to get the professionals engaged at the right time".[99]

59. Peter Smith argued that part of the problem is the lack of senior leaders within the Civil Service with experience of procurement:

[...] there is no Permanent Secretary that I am aware of who has come through the procurement route, in any sense. There might be the odd one who has done a bit of programme management, but we do not have anyone who has come all the way through procurement.[100]

60. The Civil Service shows a persistent lack of understanding about how to gather requirements, evaluate supplier capabilities, develop relationships or specify outcomes. The effort to reduce risk tends to increase risk in the form of delay and increased costs. Policy making remains divorced from the practicalities of procurement, while few policy makers or senior leaders in the Civil Service have relevant procurement experience or training. The Cabinet Office has responsibility for leading procurement training across Government. It should publish a procurement training plan demonstrating how it will increase the understanding of procurement issues among civil servants engaged in policy development.

Improving Commercial Capability

61. The Cabinet Office has already launched a number of initiatives to improve civil servants' commercial skills, not least in relation to the management of major projects—many of which involve a significant procurement. In 2012, the Cabinet Office announced plans to develop and run the Major Projects Leadership Academy in partnership with the Sad Oxford Business School and Deloitte, to train 150 Project Leaders over four years from October 2012. In January 2013, the Government also announced the creation of a virtual Commissioning Academy: an online development programme for senior commissioners from all parts of the public sector to improve skills in commissioning others to deliver services.

62. The Chief Procurement Officer, Bill Crothers, argued that existing training and development initiatives, such as the Commissioning Academy and Major Projects Leadership Academy, have "made a big difference" but said that more needed to be done, in particular to improve commercial and contract management skills.[101] The Cabinet Office has stated that "further work to strengthen commercial capability within the Civil Service remains an important priority" going on to remark that "the Civil Service Reform Plan [...] committed to the development of a five year plan on how the Civil Service as a whole would develop the necessary capabilities in this (and other priority areas)".[102] We understand this is still being developed.

63. As part of its Civil Service reform capabilities plan, the Cabinet Office has committed to a number of further actions by summer 2013, which should help to develop commercial and procurement capability. These include the creation of a new unit within the Cabinet Office of commercial specialists to assist departments in buying and managing the commercial delivery of complex ICT services, and mechanisms to allow greater interchange of personnel between the Civil Service and private sector organisations.[103]

64. Alongside the Chief Operating Officer, Stephen Kelly, and the Chief Procurement Officer who have considerable private sector expertise between them, the Cabinet Office also named five other senior civil servants "with a broad range of commercial experience" recently recruited to drive the efficiency and reform agenda. It also pointed out that it has now recruited "a number of highly experienced commercial negotiators from the private sector". They are the Crown Representatives" who "lead the strategic relationship with a number of suppliers to secure better value for taxpayers and improve the way services are delivered".[104]

65. Tim Cummins, Chief Executive of the International Association for Contract and Commercial Management, sounded a note of caution and suggested that a more fundamental reform of Civil Service culture would be needed:

There is a real risk that skills development can be, in a sense, a sticking plaster as opposed to a real remedy or cure [...] It may be creating a group of people who will, in a sense, be frustrated by their inability to shift the organisation.[105]

66. A range of valuable initiatives to improve capability and skills have already been launched, such as the Major Projects Leadership Academy, which should improve the commercial and procurement skills within the Civil Service. The Civil Service Reform Capabilities Plan has also proposed a number of further initiatives to build commercial and procurement skills and the Cabinet Office has successfully recruited a small number of experienced procurement and commercial personnel to senior roles. We commend the Cabinet Office for its efforts to develop commercial skills. We are concerned however that a more fundamental culture shift is required within the Civil Service if those with commercial skills are to be allowed to operate effectively to feel appreciated and rewarded accordingly by the Civil Service, so they wish to remain.

67. The Government has only limited information on the state of skills and capability within the Civil Service. The International Association for Contract and Commercial Management noted that: "there seems to be an innate resistance to skills analysis and benchmarking, so while work to identify required skills has been undertaken, it is not evident how gaps will be addressed".[106] Francis Maude acknowledged that "we do not absolutely know how many procurement professionals there are across Government".[107] In response to our request, the Cabinet Office has collected information from sources in the public domain and by individual "follow up" on the number, skills and experience of Senior Civil Servants in procurement leadership roles within central government. The Cabinet Office provided us with the table below.

Table 2: Commercial expertise of senior civil servants within departmental procurement teams.

Number of SCS Sector Experience Nature of experience/ typical commercial roles Typical length of private sector experience

32 have private sector experience Banking Services
Utilities
Consultancy
Retail
Manufacturing
Insurance Services
Telecomms/ICT
Senior Purchasing Manager
Senior Logistics Director
European/ Global Supply Chain Director
Company Director
Operational Manager
Senior consultant
49% >10 years
45% > 5-10 years
6% < 5 years

12 have public sector experience only - - -

17 not known - - -

Source: Cabinet Office[108]

68. Even though there are only 61 senior civil servants in procurement leadership roles within central government, there is little known about them, their skills and experience, or lack of them, across Whitehall. There is no departmental breakdown and the fact that the Cabinet Office does not know the experience of 17 of the 61 senior procurement cadre indicates a serious lack of coordination of this vital resource. These officials will be thrown into the public spotlight, now that the Government is to make Senior Responsible Owners of major projects directly accountable to select committees.

69. In its Capabilities Plan for the Civil Service, published in April 2013, the Cabinet Office has committed to establishing "a central database of commercial specialists, starting with procurement professionals by summer 2013, recording each person's experience and skills".[109] It notes further that "Departments will need to populate this database and ensure that records are kept up to date".[110]

70. We welcome the Government's proposals to establish a central database of commercial specialists, starting with procurement professionals by summer 2013 as a first step, but not much has been achieved. The Cabinet Office database should include all key procurement positions and functions in the Civil Service. The database should be updated each quarter so that progress in improving commercial capability can be monitored effectively. Departments should be required to provide this information. This information should also be provided as part of the response to this recommendation. This should include a list of Senior Responsible Owners of procurement projects, who the Government now propose should be accountable to select committees of Parliament.

71. Consideration should be given to regenerating the professional Civil Service, so that highly qualified professionals—scientists, engineers, manufacturers, retailers—can be deployed to deal with purchasing, and with projects, managed by the Permanent Secretary, but with a symbiotic relationship to the head of those professions, of which procurement should be one.

Accessing private sector expertise

72. The Chief Operating Officer told us that:

If we look at most of the Senior Civil Service today, it is probably dominated by policy people. Some of the skills [...] can be done through training, but also you can need a lot of 'university of life' experience, having dealt on one side of the table managing large, complicated commercial constructs.[111]

73. A number of witnesses pointed out the difficulty of recruiting and retaining staff with the necessary skills and the importance of the public sector offering salaries which can compete with the private sector.[112] For example, Tim Cummins said that:

The challenges, probably around procurement, are in part to do with relative status. They are partly to do with confidence over career path and career potential. Of course, they are somewhat related to perceptions around salary, particularly the correlation between salary and contribution. There is often a feeling by more talented people that they will just operate within an environment where their particular contribution is not necessarily acknowledged or rewarded.[113]

74. As an alternative to direct recruitment or employing consultants on an ad-hoc basis, the Government has considered whether it can outsource procurement and commercial functions to the private sector.

75. We highlighted the risks of outsourcing in IT in our report Government and IT — a recipe for rip-offs: time for a new approach. We found in particular that the outsourcing of the government's IT service means that many Civil Service staff, along with their knowledge, skills, networks and infrastructure had been transferred to suppliers.[114] Witnesses confirmed our findings in that report that for outsourcing to be effective, the Government still must have its own commercial and contract management skills to manage the relationship with the chosen provider. Jon Hughes, a procurement consultant, commented:

[...] if [outsourcing] then loses transparency, scrutiny and proper examinations of all the financials and service outcomes, I am sorry but the public sector is going to get ripped off. So you have to have internal capability of a very high quality to manage those outsourcing deals.[115]

76. A number of witnesses discussed the risks of the Ministry of Defence proposals to contract out their management of procurement, through a "Government Owned Contractor Operated" (GOCO) model.[116] This was first proposed in a review by Bernard Gray published in 2009, before his appointment as Chief of Defence Materiel, as a solution to improving defence procurement.[117] In this model, a private company would be contracted to act as a parent body for the section within the Ministry of Defence responsible for procurement and logistics (Defence Equipment and Support (DE&S)), while the Government retained overall ownership. Lord Levene told us that the intention behind the GOCO model was:

[...] to give that [procurement] process to a commercial company which will not be constrained by Civil Service limits on pay and conditions which can then recruit the best possible people and pay them well, on the basis that they will produce a better result.[118]

77. This was recently confirmed by Bernard Gray in an interview with Civil Service World: "If industry wants to go out and hire the best lawyers, the best programme managers, they can; and all the choices they make create costs that we bear. So we're paying them to upgrade their side of the equation, but we don't pay to have those skills available to our own side".[119] With regard to the GOCO, Francis Maude told us that: "it is definitely easier in that kind of arrangement to hire people at competitive private market rates; that is undoubtedly the case. It is certainly not impossible, but it is more difficult, to do it within Civil Service constraints".[120]

78. Lord Levene warned however that outsourcing defence procurement "could well result in the GOCO employing the same civilian and service individuals, but paying them considerably more, which with a further mark-up would then be added to the bill that MOD would have to pay".[121] He added that he had some fairly fundamental concerns about the whole concept:

even if it is true that a small number of people need to be brought in on a higher rate, [...] it seems to me to be an extraordinary price to pay necessitating the change of the whole system of Government procurement, by transferring it to a private company, in a move which has not been carried out in any other country in the world, simply in order to be able to pay a handful of people more money. The figures that I have seen showing how much can be saved by handing over to a commercial company are, I believe, fanciful, particularly when set against the real cost of introducing a GOCO.[122]

79. Sir Jeremy Blackham, former Deputy Chief of the Defence Staff at the Ministry of Defence, told us that he was not convinced the GOCO model for DE&S was "a good thing", but said that it was necessary to await the final details of the proposals before reaching a judgement.[123] Nonetheless he echoed Lord Levene's comments stating that the GOCO operating model:

appears to be trying to repair deficiencies that could be repaired by other means, notably the balance and level of skills [...] There is a feeling that a commercial operator can buy them and reward them more appropriately, and attract the right people. It would be possible to do this in another way, I would have thought.[124]

80. A decision on whether the GOCO model will be adopted was initially expected at the end of 2012. However in April 2013, the Rt Hon Philip Hammond MP, the Secretary of State for Defence, announced the start of a 12 month assessment phase. During this phase, the Ministry of Defence proposed to work with HM Treasury and the Cabinet Office "to explore the extent of change that could be delivered whilst keeping the organisation fully within the boundaries of the public sector".[125] Mr Hammond also announced that in parallel "a commercial competition will be launched that will enable us to determine with potential private partners how a GOCO would work in practice, and what the costs and benefits would be".[126] By the end of the assessment phase in 2014, Mr Hammond expects to have a comprehensive set of qualitative and quantitative data with which to evaluate the options and make a final decision about the future of DE&S.[127]

81. Civil Service reform should aim to deliver an organisation that can recruit, train and retain people with the necessary procurement and commercial skills. Reforms such as the Ministry of Defence's "GOCO", designed to get around outdated restrictions on Civil Service salaries and conditions in order to improve Government access to commercial and procurement capability should not be necessary. A decision has yet to be taken on whether to contract out the management of the Ministry of Defence's procurement and logistics arm to a GOCO. There are risks with this model, not least the complexity of another relationship which the Ministry of Defence will have to be able to control. We are not convinced that this concept is sound or that cost-benefit analysis will prove its viability.

82. The very fact the Ministry of Defence is seeking to contract out the procurement function, which is a fundamental reason for the Ministry of Defence's existence, underlines how counterproductive it is to maintain the existing restrictions on salaries and conditions for leading professionals in a modern Civil Service. No other Civil Service in a comparable country operates on the basis that the Prime Minister's salary should be a maximum. Such a myopic policy makes the UK Civil Service internationally uncompetitive. In the meantime, Government should make an assessment of what salaries must be offered to recruit and retain the senior and experienced procurement professionals it needs.

80 Q 278, Ev w17, Ev w20, Ev w87 Back

81 Q 324 Back

82 Q 585 Back

83 Sir Peter Gershon, Review of Civil Procurement in Central Government, April 1999 Back

84 Q 278-9 Back

85 Q 278 Back

86 Q 168 Back

87 Q 510 Back

88 National Audit Office, Carbon capture and storage: lessons from the competition for the first UK demonstration, HC 1829 Session 2010-2012, 16 March 2012, p 8 Back

89 National Audit Office, Carbon capture and storage: lessons from the competition for the first UK demonstration, HC 1829 Session 2010-2012, 16 March 2012, p 11 Back

90 Q 186 Back

91 Q 592, Q 585 Back