Public AdministrationWritten evidence submitted by Callcredit (PROC 14)

Summary

Callcredit Group believes that the government drive to standardising procurement is not working well when complex, specialised considerations need to be taken into account.

The emphasis on standardisation as a means to procure effectively is being brought into conflict with the ambition for government to secure optimal value for money through becoming an “Intelligent Customer”.

Framework agreements can prove very effective, if the underlying terms and conditions are mutually appropriate. Our recent attempts to contract into the DAPA framework found that many were not.

Imposing contract terms and operational restrictions which aim to transfer the maximum possible risk to the private sector will reduce choice for government.

Innovation, both in solutions and prospective suppliers, is supported through procurement processes which focus on value for money and accept appropriate levels of risk. Excessive risk aversion works against the introduction of new suppliers and processes.

Pursuing a procurement strategy which fails to take into account specific features of a relevant marketplace will undermine the ability of many key Government initiatives to achieve their ambitions in value and savings.

The level of detail in this response is necessarily limited by confidentiality concerns, as discussed in paragraph 20. In addition, we have responded only to questions where we believe our evidence will be of assistance to the Committee’s deliberations.

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

1. Changes in public procurement over the last few years have coincided with a stage in Callcredit Group’s expansion where we have been looking to increase the work performed on behalf of central and local government.

2. Efforts made to attain a more co-ordinated approach to driving efficiency across government are clear. In addition to centralising procurement, we have noted the drive to standardised terms and conditions in an attempt to deliver savings. Yet in some cases we are concerned that this approach is being taken too far. Applying it to unique and specialised areas may result in significant unintended consequences. In Callcredit Group’s experience this appears to be already happening in some cases, as we will outline.

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

3. The strategic aim of public procurement policy should be to maximise the return on investment to the public purse. Pursuing standardisation can work very well when procuring commodity goods and services such as hardware. However different criteria are required in cases where more complex considerations need to be addressed.

4. In his speech at “The Crown and suppliers: a new way of working” event in November 2011, Francis Maude said:

“Far too many procurements feature absurdly over-prescriptive requirements. We should be procuring on the basis of the outcomes and outputs we seek, not the detailed inputs. We should be focusing on the ‘what’, not the ‘how’.

This kind of procurement drives out innovative and competitive suppliers. So we will ensure that in future we focus on outputs and outcomes.”1

5. The overly prescriptive requirements we have encountered focus on risk allocation and unnecessary operational restrictions. As a result of such criteria, Callcredit Group has been unable to offer a full range of possible services to government. The restrictions demanded do not match industry norms. Nor do they appear necessary to protect the interests of the government in real terms.

6. When purchasing has a strategic end goal of making savings to the public purse, such as the drive to reduce fraud and error, the test must be value for money and not the ability to meet onerous terms and conditions. In non standard purchasing for strategic projects, even at relatively low cost bandings, we agree the emphasis should be very much on the “what”. In our experience however it is still very much about the “how”.

7. We also note the report of the House of Lords Science and Technology Committee, “Public procurement as a tool to stimulate innovation”. Here at Callcredit, we are proud of our hard won reputation as a successful innovator. Innovation demands both commitment and resources. There is no incentive to investigate new solutions to achieve the best possible outcome if they will simply be excluded on the basis of standardised criteria. By reducing the options available to central government, this approach therefore makes it less likely that optimal value for money will be achieved.

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

8. It is not lack of capability in negotiating and managing contracts which necessarily creates issues, but technical knowledge and understanding. Improved technical skills and capabilities would greatly assist the civil service to procure in our specific commercial area. Private sector entities, such as financial services companies, have years of experience to draw on when procuring analytical services. Central government is still developing these skills. Increased collaboration with suppliers is key to narrowing the gap.

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

9. We have had a number of positive experiences contracting with local government, particularly when a more specialised approach to procurement has been taken. We would like to see this methodology extended into central government.

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?)

10. The extent to which public procurement is centralised should be defined according to the nature of the goods and services to be procured. A central team of procurement experts can concentrate effectively on straightforward requirements. However, centralisation should not dislocate the procurement function from subject matter experts who can give an authoritative view on determining quality standards in difficult and complex areas, or about the feasibility of business cases that explore new ground.

11. It is unlikely to be fair for a centralised procurement team to be held responsible for the overall value for money achieved by a departmental project. Consequently efforts to draw up appropriate performance objectives for centralised teams will tend to be based on easily measurable standards such as terms imposed and initial price—detracting from the achievement of return on investment.

12. It is vital that any team performing procurement has the necessary subject expertise. Expertise in our subject area is continually developing. To ensure this continues, procurement methodologies should be designed more flexibly, to allow a more collaborative approach. Constructive pre-procurement discussions should be held. As Francis Maude also stated:2

“It is not illegal for public sector procurers to talk to suppliers. Not only is it not illegal it’s plain common sense and good commercial practice.”

13. Research into effective models in other jurisdictions and in industry should also be conducted to reinforce a strong, joined up system with inbuilt contingency for change.

14. Framework agreements can, in our experience, be both appropriate and effective provided a balance is struck on their underlying terms and conditions. For example, Callcredit Group was involved in a successful framework agreement drawn up in 2006/7 for DWP. However our most recent experience of creation of a framework agreement—the Data Access Processing and Analytics Framework (DAPA) has proved very different and problematic.

15. We would like to see a working group formed with representatives from both relevant Government departments and the analytics and data industry to establish key terms for procurement in this area. A similar approach could equally be extended in other specialist areas. This would ensure framework agreements are created which robustly uphold the genuine needs and requirements of Government, without inadvertently blocking worthy potential suppliers from inclusion.

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?)

16. Callcredit Group has encountered substantial problems in trying to contract with central government due to presentation of unfair, inappropriate and unrealistic contract terms including transfer of risk. Confronted with this situation, suppliers face a stark choice: either they sign up but then limit their risk in the solution design to such an extent that all innovation is driven out, or conversely they may be forced to walk away. In either case, only exhaustively “tried and tested” solutions will prove acceptable to both parties. At a time when Government is attempting to harness technology to achieve its ambitions in so many key strategic areas, driving out originality and innovation—and hence return on investment—is clearly counterproductive.

17. Procuring analytical IT solutions is central to many current Government initiatives. The nature of these services involves fundamentally different issues than when procuring “commodity” items. There is a need for example to address complex considerations of risk and liability in data processing, rather than taking the “sledgehammer” approach. Prescribing unnecessarily harsh and demanding conditions around supply creates a new risk: that a non-risky, but highly sub-optimal solution will be identified and will go on to produce only limited results.

18. We are increasingly encountering similar problems with some local government contracts. Rather than drawing up appropriate terms and conditions which will best meet the actual needs of local government, there is a shift towards “copy and paste” of standard terms from other sources. This produces short term gains as it is cheap and easy to do, and may well be appropriate for buying hardware or stationery. It will not result in optimal procurement for specialised goods and services.

19. We provide specific examples below of unrealistic terms which have recently affected Callcredit Group’s ability to contract:

Liability: Demands for no cap on liability (or even liability on an indemnity basis) or for high value liability amounts in excess of value of contract.

Intellectual property: The drafting of the intellectual property provisions in the DAPA framework, even following further clarification, was not sufficiently clear. The implication of the clause was to require a transfer of intellectual property rights in Callcredit’s services.

Unseen Policies: Requirements are being made to comply with unseen policies on subjects such as security and staff vetting, and/or rights reserved to amend these policies without consent.

Termination and suspension: Many terms seek to restrict the ability of the contracting company to terminate or suspend services.

Version Control: The framework does not permit modification of services without consent.

Penetration testing: Demand for blanket consent to carry out penetration testing without further approval or notification.

Subcontractors: Terms around control over appointment of subcontractors and flow down of terms in respect of generic services.

Free trials: We increasingly see demands for extended trial periods to be made available free of charge, placing all risk with the supplier.

20. We would be happy to discuss the specific confidential detail relating to these general terms. However, we would request that take place in closed session, or with other measures in place to protect the interests of all parties.

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?

21. Further action is clearly needed. Our experience within the private sector indicates that adopting a bespoke approach to procurement based on specific industry knowledge and expertise should lead to fewer issues, delays and project failures. We therefore urge the Committee to recommend such an approach.

January 2013