Public AdministrationWritten evidence submitted by CIPS (The Chartered Institute of Purchasing and Supply) (PROC 9)

1. How successful has the Cabinet Office been at improving public procurement policy and practice?

The transformation of the Government Procurement Service (GPS) has been an important part of practice improvement. GPS now play a key role in the delivery of the centralised procurement strategy via the use of centralised sourcing, category and data management.

The Procurement Centre of Excellence also moved from the Home Office to the GPS in October 2012. This important structural change will support the drive to increase spend through aggregated deals and help to streamline procurement resource across Departments, so driving efficiency. One of the organisational priorities for the GPS is to facilitate the development and retention of high quality professional staff and we welcome the Civil Service Reform Plan (CSRP) that recognises the need for staff with commissioning and contracting skills. To start to build this capability CIPS and the GPS have developed a lean sourcing programme that provides an e-learning course followed by 3 days of face to face training. eEnablement of operations is another priority for GPS and substantial progress has been made here with the move to Cloud Computing technologies that support a procurement website, e-sourcing, government market places and Contracts Finder. Automation (where applicable) should always be encouraged to support procurement efficiency.

The GPS Managed Service also provides project support for high value and/or complex projects and this support includes pre-procurement market engagement (supplier industry days) and procurement strategy. Improved supplier management is part of this project support and includes help for Departments and the wider public sector, with better access to the procurement pipeline and live tendering opportunities via the website and Contracts Finder. The focus on better management information, particularly spend analysis, will help to improve government efficiency.

The introduction of the Crown Representatives in 2011 to help Government to act as a “single customer” will encourage more efficient practice. The Crown Representatives work with the existing commercial teams across Departments to ensure a single and strategic view of the Government’s needs is communicated to the market so that cost savings can more easily be identified.

These practical steps all stem from the policy of making it easier to do business with Government and must be applauded, as must the recognition at the highest Government levels of the importance of procurement and the need for procurement reform. In the Coalition programme for Government the aspiration was set that 25% of government business should go to SME’s. The use of unnecessary procurement practices was identified as a key concern for SME’s and so Departments have eliminated the practice of using pre-qualification questionnaires for those contracts with a value of less than £100k. Also the encouragement of the use of the Open Procedure which does not require supplier selection at the initial stage will facilitate the inclusion of SME’s. These reforms in concert with the simplification of the EU Procurement Directives should greatly assist the improvement of public procurement.

2. What should be the strategic aim of the Government’s public procurement policy?

The strategic aim of the Government’s public procurement policy should be to improve the delivery of services to the citizen. The CSRP recognises the need for the Civil Service to improve the economic wellbeing, security and prosperity of the country and these objectives should be embedded into any procurement policy. Economic wellbeing does not just include fiscal measures, but must also encompass social wellbeing and public procurement policy can make a difference here by building market capability and capacity and by market shaping. The mantra of the Government is “getting more for less” but in times of austerity and economic downturn that is challenging and will need new ways of thinking; re-designing services and involving communities in their delivery are two ways of possible service improvement, but this needs leadership and vision. Government is very good at developing policies (both good and bad) but actual implementation always proves much harder because achieving the vision requires effective leadership, project/programme management, change management and people management skills and whilst these exist in pockets they are inconsistent and this results in poor or no dissemination. The changing political landscape also contributes to this ineffectiveness as policies come and go according to the political ideologies of the party(ies) in power.

The public sector has always been focussed on demonstrable process and this has been underpinned by the European Procurement Directives which have left UK procurement professionals process driven and risk averse. Strict interpretation of the directives, process focus and the use of unnecessary procedures has often strangled innovation in the public sector and this has left suppliers and procurement professionals alike frustrated and trapped by prescription. However, we welcome the modernisation of the directives and trust that the UK Government will encourage the European Commission to focus on outcomes rather than on process as this will greatly assist policy implementation.

Policy development is also responsible for an increasing range of non-prioritised outcomes and targets, eg cost reduction, more contracts awarded to SME’s, sustainable construction etc. Political leaders and Permanent Secretaries should always provide a priority list of outcomes/targets so that procurement professionals know immediately what they should achieve most, especially in cases where not all the desired outcomes/targets can actually be achieved.

3. Does the Government have the right skills and capabilities to procure effectively?

Does the civil service have the skills and capabilities required to negotiate and manage contracts effectively?

Opportunities exist to raise the overall standards of procurement skills and capability where less emphasis is placed on process compliance and attention is shifted towards higher levels of commercial skills, innovation and driving value. Raising negotiation, contract and supplier performance management skills are essential to realising the benefits of procurement involvement. Contract management is often devolved in Departments and procurement skills tend to focus on the call for competition to contract award rather than on the whole procurement cycle which includes pre-procurement and contract/supplier management. There must also be an awareness of the skills that are required to carry out these functions by top level civil servants and ministers.

What skills do procurement authorities require in-house, what skills can be bought in and what skills can be contracted out?

Procurement authorities should develop and retain the key procurement and commercial skills necessary to deliver its key strategic and policy objectives. These skills would include:-

Supply market analysis.

Developing business models to creatively fulfil strategy and policy objectives.

Developing outcome and performance based procurement specifications.

Developing, negotiating and managing contracts for complex procurements.

Senior stakeholder and supplier management.

Systems thinking with strong financial and programme management capability.

Each Procurement Authority should determine the core activity that requires in-house support and contract out non-core activity to a centre of excellence either within the public sector (ie the GPS) or to the private or third sector where the service can be delivered more effectively. Consideration should also be given to contracting with the private sector for core activity where the scarcity of skills and infrequent procurement cycles make it unrealistic to develop in-house capability.

Where a procurement authority wants skilled people to run in-house procurement then the team should be professionally qualified to the MCIPS standard. Procurement skills can be bought in or contracted out, but it is vital that if external procurement people are used, the contracts that they let and manage are carefully considered and the results/outcomes they achieve are capable of performance and benefit measurement for the public body concerned. Externally provided skilled practitioners should also be professionally qualified and experienced.

The Civil Service should identify creative ways to partner with its peer groups within the private sector to systematically examine best practice and routinely “import” this practice via knowledge transfer and/or secondments for the benefit of specific procurement authorities or the Civil Service as a whole.

What lessons can central government learn from local government on procurement?

Lessons that central government can learn from local government is the use of collaboration and framework arrangements for commonly bought goods and services. Whilst we accept that Sir Philip Green’s report highlighted the need for some centralisation, this is not always the complete answer and the use of consortia, shared services and commissioning are other procurement models that can and should be considered. Cross-Department working can be very effective where the right skills are in place and this should be considered more, as centralisation of disparate entities’ requirements generally only works best for commonly bought goods. Budget cuts in local government have also triggered the complete re-design of many local services and central government can benefit from the expertise that will build as a result of these programmes.

How successful are government departments and their agencies at communicating their needs to potential suppliers?

CIPS is not qualified to comment on this question, however databases such as Contracts Finder make it easier for suppliers to search for information on government contracts currently in the procurement pipeline.

4. How should the civil service ensure it recruits and retains staff with the right skills to run procurements, to negotiate and manage contracts and to deliver major projects effectively?

The Civil Service should always recruit MCIPS or studying members depending on the level of the appointment. Recruited staff should all be given the opportunity to refresh and keep current their skills through continuing professional development (supported by CIPS) and job development opportunities. Process management and compliance, whilst important, should not give way to broader commercial skills, leadership and stakeholder management when recruiting for key roles.

The GPS Strategic Procurement Team supports the delivery of high value and/or complex projects. This pooling of talent at the centre should enable these skilled staff to be deployed across departments so enabling the transfer of skills to the resident procurement teams.

The civil services should identify creative ways to partner with its peer groups within the private sector to systematically examine best practice and routinely “import” this practice via knowledge transfer and/or secondments for the benefit of specific procurement authorities or the Civil Service as a whole.

5. Does the Government have the organisational structures in place to enable it to procure effectively? (For example, how far should the Government centralise responsibility for public procurement? Do central government procurement “framework agreements” enable more effective public procurement?)

Also refer to answer to question 3 (first and third bullet points).

Commonly bought goods and services can be purchased effectively through central agreements providing it can be proved that the central agreements themselves provide best value for money. Whilst the volume of common goods and services spend flowing through frameworks negotiated by central organisations such as the GPS has increased significantly over the past 2 years, it is estimated they are still only managing a third of the total spend for these categories so procurement authorities continue to “opt out” resulting in duplication of effort and resources on a large scale.

Where framework agreements are used it is important to ensure that suppliers have some pre-committed volumes to work with or the framework may fail to deliver results proportionate to the opportunity presented by Government spend. All too often frameworks are used simply to speed up the procurement process so these agreements are often no more than a pre-approved supplier list with a set of indicatives terms from which each transaction can be discretely negotiated. Under such circumstances it is unlikely that all frameworks are delivering optimum value.

As regards centralisation beyond common goods and services (see also second bullet under question 3) the significant volumes of specialist procurement within departments such as the MoD and DfT may not make it possible to yield spend efficiency savings, but the notion of a centrally managed professional procurement capability could deliver other direct and indirect benefits such as:-

A common approach to professionalisation through qualifications, learning and development, talent management, apprenticeships, recruitment, objective setting and performance management.

Improved resource management with the ability to develop shared services, centres of procurement excellence and reduction in duplication of effort.

Alignment on common processes, contracting methodologies, tools and Improved data management.

6. Does the Government collect the management information it needs to understand how public procurement is working?

Quality management information, including spend data, has traditionally been poor in the public sector. This is for a number of reasons but accountability has often been implemented via hierarchy policy, process, regulation and inspection rather than the collection of good management information. Where information systems have been implemented, often they have high initial and maintenance costs that are difficult for the authority to justify. Spend within departments is recorded via systems designed for finance rather than procurement functions and so do not usually provide the management information that is needed to understand the effectiveness or efficiency of public procurement. However, as indicated in the answer to question 1, the GPS has an organisational priority of operational and financial efficiency and the technology that enables this spend analysis capability will improve the Government’s ability to understand how public procurement is working.

7. How should Government ensure that European directives on public procurement do not inhibit public bodies’ ability to procure effectively?

The European procurement directives are process orientated and a good process will not necessarily give a good outcome. The Directives must be modernised with more focus on simplified processes and better outcomes for public authorities. The guiding principles of EU public procurement are transparency, equal treatment and proportionality, but do the directives achieve that? CIPS’ members in the public sector often express that they feel inhibited by the rules and interpretation is often inconsistent not only between Member States but also between different public bodies. This needs addressing and hopefully the modernisation of the EU Procurement Directives will assist rather than inhibit public bodies in the future.

The Remedies Directive has also contributed to the inhibitions of procurement teams as the combination of the standstill period and the ability of rejected bidders to start a review procedure during this period has made procurement teams more conscious of the risk of challenge and therefore more anxious about following the process precisely. Although the directives are being modernised, there does not seem to be any mechanism for the review of the Remedies Directive and CIPS believes that this step is necessary to lessen the fear of challenge.

8. How should Government assess and manage risk when negotiating procurement contracts? (For example, how much risk should Government be prepared to accept and what are the limits on the transfer of risk to the private sector?)

Risk is a complex area and often multi-layered. Risk management is the identification, assessment, prioritisation and management of internal and external risks. Managing risks can include transferring the risk to another party, reducing the probability of the risk, insuring for the risk and accepting some or all of the consequences of the identified risk. The UK Government has always been associated with the transference of risk to the private sector but this is not necessarily the best outcome and can, in fact, produce a poor outcome if the supplier has to take all the risk (eg West Coast rail franchise). Dissemination of successful programmes, eg LOCOG and ODA can be very useful in helping procurement teams to learn about success and to translate it to their own environments.

International Standard ISO 31000:2009—Risk Management Principles and Guidelines, provides principles, framework and a process for managing risks and this can be used with ISO Guide 73:2009 to help manage risk effectively. Risk management standards and guides can be effective tools but as each procurement exercise will have many risks associated with it, it is as important to make sure that the stakeholders responsible for the procurement have the necessary skills to effectively manage risk as has been identified above.

The other area that is often sadly neglected in contract negotiations is the identification of assumptions made by the parties to the contract. Each party will have made a number of assumptions in both preparing the tender documentation and responding to it. These need to be identified at the outset of the negotiation process so that all parties are aware of all the assumptions that have been made. This will improve the overall quality of the contracting process.

An overall assessment of procurement capability against a recognised standard should be implemented to ensure each procurement authority has the required processes, procedures and levels of performance necessary to manage the end-to-end procurement cycle.

9. What is the best role for “prime contractors” and what are the advantages and disadvantages of relying on “prime contractors”?

Prime contractors often fulfil the role of project managers (eg construction contracts) although they may also complete the performance of at least a part of the contract. If they are to fulfil this role then it is important to ensure that they have the skills to manage the contract and third parties successfully. Prime contractors play an important role where projects/programs require a complex level of integration and/or multi-vendor coordination before the final product or service can be put to use. Prime contractors are often able to deliver a level of programme management and/or IT systems integration that is difficult to replicate within the Civil Service. Advantages are that you have one contract to manage, so areas of failure in terms of cost, risk and timelines are more straightforward to manage. The prime contractor may also bring innovation where they have market expertise, access to SME’s and a demonstrable track record of successful delivery.

Disadvantages may include loss of control and cost escalation unless these are dealt with clearly in the master agreement. Prime contractor fee structures can be complex and expensive so this additional cost needs to be offset by a risk analysis and business case. A badly performed contract may attract media attention and a loss of reputation so the contracting authority must have the skilled resources necessary to manage a prime contractor.

The Major Projects Authority (MPA) is a new collaboration between the Cabinet Office and HM Treasury and Departments with the aim of improving the delivery success rate of major projects across central government. The MPA has a clear and enforceable mandate that requires strong governance to be implemented for all major projects and the Authority will work with Departments to build capability in project and programme management. This is welcomed by CIPS as robust governance and skilled people are essential for the success of complex projects.

10. What are the key lessons to be learned from the experience of cost overruns, delays and project failures in central Government procurement over the past five years or so?

The key lessons to be learnt are:

One size does not fit all. Differing procurement models should be used according to the parameters of the requirements sought.

Market analysis and understanding are key elements of specifying requirements and where the contracting authority does not have expertise, or the requirement is not fully known then a feasibility study or similar must be carried out to examine market capability and capacity. The requirements specification is of vital importance also as it will be a determinant in the outcome of the whole process.

Planning and governance are key to any successful programme or project, but if you do not have the right people with the right skills then success will be limited.

Dissemination of good procurement practice is also important. The close relationship between LOCOG and the ODA is a good example of a successful relationship that worked well in delivering the London 2012 Games. Many lessons can be learned from this successful programme and Government should disseminate this success not only in terms of how a series of procurements can be successfully run under the European Procurement Directives, but also in terms of successfully managing relationships and outcomes.

Higher levels of accountability can be achieved through continuity of staff engaged on longer term programmes. Multiple handovers between SRO’s and their staff over the project lifecycle disperses corporate knowledge and often prevents effective management and delivery of outcomes.

January 2013

Prepared 18th July 2013