Public AdministrationWritten evidence submitted by Cabinet Office (PROC 26)

1. Since 2010 the Coalition Government has introduced significant reforms to improve public procurement. These measures have supported deficit reduction and helped unlock growth, forming a core component of the Efficiency and Reform agenda led by the Minister for the Cabinet Office and Chief Secretary to the Treasury.

2. These early reforms formed a substantial contribution to the £5.5 billion saved across the whole of the efficiency and reform agenda in 2011–12.

3. Alongside these cash releasing savings a number of wider benefits have been secured including measures to ensure smaller businesses and voluntary bodies have fair access to Government contracts and to streamline the procurement process itself.

4. Progress has been made on three broad fronts:

A. Buying Common Goods and Services

5. We have demonstrated that significant savings are possible by ensuring Government aggregates demand and standardises specifications: buying once on behalf of many to ensure that all receive the best possible price.

6. The Government Procurement Service (GPS) was reformed in July 20111 to act as the execution arm of Government procurement. With centres of expertise in Liverpool, Norwich and Newport the Government Procurement Service focuses on those goods and services that are common across Government such as energy, fleet, and consultancy, with more than £3 billion of spend flowing through GPS contracts in 2011–12 which saved Whitehall departments more than £420 million.

B. Strategically Managing Major Suppliers

7. For the first time, Government has built strategic relationships with major suppliers, ensuring that it acts as a single customer and leveraging buying power to secure the best possible price and resolve any performance concerns swiftly. Acting through a network of Crown Representatives—experienced commercial negotiators from the private or public sector—this agenda has focused on a small subset of Strategic Suppliers, saving more than £430 million in 2011–12 in addition to the £800 million saved in 2010–11.

C. Procurement Policy

8. Procurement policies set by the Cabinet Office impact on more than £45 billion of annual spend across Central Government and substantial reforms have been introduced to streamline and simplify processes to make them swifter and cheaper.

9. Negotiations with our European partners have helped the Government to minimise the burden of EU regulations, whilst in the UK the introduction of a LEAN sourcing approach aims for all but the most complex procurements to be completed in less than 120 days (target by March 2013), a significant improvement from the 199 days cross government average in 2011. The average is currently 153 days and we continue to make progress in reducing this average as more procurement professionals complete the LEAN training programme.

10. A series of measures have been introduced to ensure SMEs have fair access to government contracts: from the introduction of Contracts Finder (that makes it possible for all businesses to swiftly search for current opportunities) to the publication of forward pipelines, worth £84 billion, of expected demand (helping companies anticipate demand and target R&D spend). The appointment of a Crown Representative to the sector has ensured SMEs have a champion at the centre of Government whilst significant work has started to improve the data held on SMEs. Government’s aspiration is for 25% of spend to flow to SMEs, and early progress is encouraging with direct spend increasing from 6.5% in 2009–10 to 10% in 2011–12. More is being done to understand indirect spend and ensure these numbers are robust.

11. Together these measures have changed the way Government procures goods and services: making Government more businesslike and supporting both deficit reduction and the growth agenda. Early progress is encouraging and the Government plans to maintain the pace of change throughout the second half of the Parliament, including through the implementation of the Civil Service Reform Plan, a core component of which is the building of better commercial capabilities across the Civil Service as a whole.

Specific Questions

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

12. Since 2010 the Government has introduced a series of measures to improve public procurement policy and practice. Early progress is encouraging; with substantial changes already evident in the way Whitehall buys goods and services. Further reforms are planned for the second half of the Parliament to embed and further strengthen this new approach.

13. Examples of success to date include:

(a)Aggregation and standardisation of common goods and services to enable Government to leverage efficiencies of scale: in 2011–12 £3 billion of spend went through centrally negotiated GPS2 frameworks, saving Departments more than £420 million.

(b)Radically simplifying the procurement process itself to avoid nugatory cost and wasted effort: a new LEAN sourcing process has reduced the volume of public procurement guidance from more than 6,000 pages to a 50 page standard operating manual.

(c)Tighter control processes: as part of the wider Efficiency and Reform agenda rigorous controls have been introduced on a number of areas to enable Departments and the Cabinet Office to challenge spend robustly. In 2011–12 alone these controls led to savings of more than £1 billion on consultancy and contingent labour.

(d)Strategically managing major suppliers: for the first time, the Government is seeking to build strategic relationships with its largest suppliers, ensuring that Government acts as a single customer with all parts of government receiving the best possible price. Working through a network of Crown Representatives—experienced commercial negotiators from either the private or public sector—this approach has proved highly effective with £430 million savings in 2011–12 in addition to £800 million achieved in 2010–11.

(e)Publishing pipelines of likely future needs: providing long-term visibility to allow UK industry to target R&D decisions and be well prepared to bid for government contracts. To date, 17 pipelines have been published with a total value of £84 billion.

(f)Removing barriers facing SMEs: with unnecessary bureaucracy such as pre-qualification questionnaires removed entirely from lower value contracts, except where security is a consideration, to make it cheaper and easier to bid for Government business. The introduction of Contracts Finder has introduced unprecedented transparency to the range of opportunities available, whilst the appointment of a Crown Representative for SMEs and voluntary bodies has ensured that the voice of both is heard at the heart of Government. As a result of these measures and others, spend with SMEs has risen noticeably, with direct spend increasing from 6.5% in 2009–10 to 10% in 2011–12, one example being the pan-government travel contract recently won by an SME who competed and beat larger providers. Departments are also quoting savings on bids from incumbent and large suppliers from 30% to 90% by using the G-Cloud to open up the market to a more diverse and innovative range of suppliers.

(g)Training procurement professionals across all Departments: to ensure the swifter LEAN processes are fully implemented. By November 2012, 626 staff had completed a 1 day programme and 400 had completed a 3 day programme. Partly as a result the average observed time for all but the most complex procurements in 2012 fell from 180 to 153 working days, whilst the use of more efficient Open Procedures doubled from 18% to 37%.

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

14. Spending less money overall, via demand management, superior negotiations and subsequent contract management, actionable management information, creating scale economies and identifying opportunities for re-use or sharing.

15. Widening the supplier base, including but not limited to small suppliers, also supports the objective of increasing competition and thus improving price and quality.

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

16. Across Government the procurement profession has a wealth of talented individuals with deep experience of procurement in both the public and private sector. However, too often in the past there was an over-reliance on consultants and contractors. Skills transfer was patchy at best.

17. In addition, staff are duplicated in every organisation, resulting in excess staff levels, unhelpful generalist teams and lack of concentrated and rare specialist skills.

18. Since May 2010 there has been a sharp focus on professional development: ensuring that civil servants can develop their skills and deliver better outcomes for taxpayers. One recent example is the way in which LEAN processes were rolled out across Government, with 626 staff completing a one day training programme and 400 completing a three day programme.

19. The creation of the Major Projects Leadership Academy and the development of the Commissioning Academy provide further examples of the focus on professional development. The Commissioning Academy is a development programme aimed at more than 2,000 senior commissioners from across the public sector over a three year period. Over the last nine months, we have conducted extensive consultations to determine what an Academy should cover, and have designed, built, and delivered the first pilot programme. We are currently delivering the second pilot programme and roll out of the full programme will commence in April 2013.

20. In addition, a great deal has been done to attract and retain experienced commercial negotiators from the private sector. One example of this would be the success of the Crown Representatives, with the current set demonstrating a strong combination of private and public sector expertise.

21. Further work to strengthen commercial capability within the civil service remains an important priority. The Civil Service Reform Plan identified the need to build commercial capability as a key priority area. It 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). Ensuring that skilled professionals can be attracted, trained, retained and deployed effectively, will be critical, as will ensuring that Government as a whole gains maximum benefit from the skills and expertise that exists in some areas.

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

22. Pockets of best practice exist right across the public sector and central Government is keen to learn from this, including through regular engagement with DCLG, the LGA and a range of Local Authorities.

23. The creation of the Commissioning Academy, another commitment in the Civil Service Reform Plan, is one recent example of how central government schemes are reaching out to expertise in other areas. Created to provide a development programme for senior commissioners from all parts of the public sector, the Commissioning Academy is designed to bring key commissioners together to share ideas of what worked and what could be improved. By sharing experience right across the wider public sector the goal is to help develop a cadre of senior leaders with the confidence and technical skill to help transform public services and improve value for money. A number of Local Authorities are being invited to participate in the eight day pilot programme planned for later this year.

24. In other areas, including where scale offers particular benefits, central Government is keen to ensure that frameworks that have been centrally negotiated are easily accessible for Local Authorities and other parts of the wider public sector. No organisation wants to pay more than it needs for a unit of electricity or a box of photocopier paper and by further aggregating buying power there are additional opportunities to provide taxpayers with an even better deal. Already £5.4 billion of wider public spend flows through frameworks negotiated by the Government Procurement Service, an achievement central Government is proud of and keen to build upon. Across the wider public sector, successful Memoranda of Understanding (MOU) are now in operation with Yorkshire Purchasing Organisation (YPO), Eastern Shires Purchasing Organisation (ESPO) and Devolved Administration procurement bodies in Scotland, Wales and Northern Ireland to optimise the approach to delivering value.

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

25. Over the past two years the Government has transformed the way it engages with potential suppliers: providing unprecedented transparency about current opportunities by launching Contracts Finder and holding a series of formal and informal engagement sessions with industry, including small events for Government’s strategic suppliers, targeted sessions aimed at SMEs and VCSE bodies, and large scale conferences.

26. To help UK industry compete for these opportunities the Government committed to publish, for the first time, data on likely upcoming requirements to enable businesses to plan more confidently for the future and invest in plant, machinery and people. To date 17 medium term pipelines have been published, containing £84 billion of likely opportunities.

27. These pipelines have been welcomed by industry and the Government plans to go further and publish additional detail over the course of the next two years. Government is also keen to work collaboratively with businesses and voluntary bodies to find solutions to key challenges. One recent example of this was the successful pilot of “Solutions Exchange”, a web based platform that enables Departments to share future challenges and seek innovative suggestions from industry: just one example of the way in which Government is seeking to capture ideas and innovative solutions from industry and other outside bodies.

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?)

28. The creation of the Efficiency and Reform Group (ERG) led by the Minister for the Cabinet Office and Chief Secretary to the Treasury has transformed the Government’s ability to deliver better value for money. Extensive Ministerial interest both at the centre of Government and through PEX(ER) has considerably increased the profile of the procurement profession and the merger last year of the procurement and commercial directorates under the leadership of the Chief Procurement Officer has helped strengthen commercial capability at heart of Government.

29. The ERG controls introduced by the Cabinet Office with HM Treasury’s support in 2010 have proved particularly effective, significantly strengthening the scrutiny applied to certain areas of spend. The focus on consultants has been particularly successful. Following the introduction of the controls, which require Cabinet Office agreement to any spend over £20,000, total spend across Government has fallen by 80%, a change that saved taxpayers £1 billion in 2011–12. Other controls have been similarly important and the Cabinet Office keeps the set of controls under regular review.

30. The next phase of reform to public procurement will lead to further evolution in the structure and organisation of the procurement profession and the Government is keen to ensure that scarce resources and talent is deployed on the most critical projects. There is also scope to increase the amount of spend that is aggregated and procured once on behalf of many.

Do central government procurement “framework agreements” enable more effective public procurement?)

31. Framework agreements are one tool that, in certain circumstances, can offer a convenient contractual vehicle to allow Departments to procure goods quickly by running mini competitions. Effective framework agreements with good commercial terms and/or committed volumes can reduce costs (for both industry and Government) and enable all Departments to access best in class pricing for common goods and services.

32. Framework agreements are not suitable in all cases, and in all cases the detail of the agreement is naturally critical. Significant work is going on within the Government Procurement Service to ensure that all frameworks offer the best possible commercial terms and to streamline the total number of frameworks.

33. The Government is also determined to ensure that framework agreements do not hamper competition by locking out new entrants (including SMEs) for long periods of time. To this end the Cabinet Office has recently reviewed all ICT frameworks and made a number of recommendations to strengthen ICT procurement: (

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

34. In 2010, Government did not know how much it spent with key suppliers and the quality of most management information was poor. Since then the quality and timeliness of MI has improved dramatically. As part of the Civil Service Reform programme and under the auspices of the Efficiency and Reform Programme, recent work has addressed short comings in government data, including setting clear data standards; simplifying and strengthening the quarterly data summary reporting formats; improving quality assurance mechanisms; establishing clearer accountabilities for management information quality; and improving the management reporting of data.

35. Spend data on commodity goods and services is now captured on a monthly basis and the Government has invested in technology to process transactional information automatically and people to act on this MI. As a result Government has visibility of procurement spend by category, sub-category and supplier for the first time, ensuring performance against individually established targets and aspirations can be tracked and managed. To aid transparency Departments publish key procurement data on a regular basis including on their direct spend with SMEs, transactions and opportunities for potential suppliers

36. The progress over the past two years has been extremely encouraging and a number of European countries have looked to learn lessons from the UK’s approach. Despite this success there is a lot more that could be done and the Government plans to enrich this data over the next two years.

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

37. Too often in the past procurement professionals in central Government have felt inhibited by European directives on procurement and the Government is determined to ensure that well trained, confident professionals are able to use sound commercial judgements to ensure taxpayers receive best value.

38. To enable this, significant work has been done over the past two years to engage with European partners to amend the regulations themselves. The UK has consistently argued for simpler, more flexible EU procurement rules and the Government has succeeded in agreeing specific changes that support UK goals. As a result, the new set of procurement directives contain more flexible selection rules. They allow past performance to be taken into account when awarding future work. The procurement timescale has been reduced to make procurement processes swifter and cheaper, and the rules governing e-marketplaces and electronic purchasing systems have been simplified.

39. In addition, to support public service reform, the UK is looking to secure an exclusion for mutuals to explicitly allow innovative public service delivery agents such as employee-owned mutuals to become established before they are subject to full competition. To avoid onerous new regulations the UK has helped ensure that burdensome processes for “National Oversight Bodies” have been removed.

40. These changes and a number of others significantly improve the directives themselves. Whilst negotiating these amendments the Cabinet Office has worked in parallel to ensure that procurement professionals do not over-interpret or “gold-plate” existing requirements. The new LEAN standard operating procedure dramatically reduces the length and complexity of public procurements. To embed this approach 626 staff have already completed a one day training course with a further 400 completing a three day programme. Early results are encouraging with the average observed time for all but the most complex procurements in 2012 falling from 180 to 146 working days whilst the use of the more efficient Open Procedure doubled from 18% to 37%.

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?)

41. The appropriate balance of risk will vary contract by contract depending on the good or service being procured.

42. In some cases, when buying basic goods and services the use of unlimited liability clauses may unnecessarily increase the price paid by the public sector whilst discouraging new entrants (including SMEs) from entering. At times it can make sense for Government to tolerate slightly more risk in exchange for the upside on pricing and competition. More complex commercial negotiations—for example when outsourcing a service for the first time—consider risk in a great deal of detail and as a core part of the business case. In all cases a careful commercial judgement is required. Government’s high level guidance is provided by “Managing Public Money” and “Management of Risk” (MoR) is the recommended risk management methodology.

43. In light of the Open Public Services agenda the Cabinet Office, in consultation with HM Treasury, is keeping this area closely under review to ensure that sufficient guidance and support exists for procurement professionals across Government. The creation of the Commissioning Academy is one example of the steps being taken to do this.

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

44. Prime contractors can offer a number of benefits, though these vary considerably by the nature of the contract and the type of good or service being procured. Naturally, any of these benefits depend entirely on the rigour with which the specific contract is negotiated and then managed, and the Government is focused on strengthening this core commercial capability rather than favouring one contracting mechanism over all others.

45. In some cases the use of a prime contractor can aid accountability, ensuring that a single body is responsible for delivery and performance, making it easier to manage the contract. This can be useful where supply chains are long and complex including which if often the case with large defence procurements.

46. In addition, prime contractors may also provide valuable experience at managing sub-contractors, having developed tried and tested partnerships over a number of years and fielding experienced programme management teams to co-ordinate complex projects (eg large construction programmes). At times prime contractors are also willing to accept and manage more risk than is the case with a basket of smaller providers.

47. Areas that require focus when engaging a prime contractor include the cost overhead (balancing any premium sharply against the benefits of reduced contract management costs and the allocation of risk). There is also a risk in some circumstances that the use of prime contractors can exclude smaller firms, either because the amount of contractual risk is discouragingly high or because prime contractors turn to established partners rather than new entrants or smaller firms. Commercial tensions between the prime and their supply chain need to be considered carefully to ensure smaller sub-contractors do not face unreasonable pressures to accept less favourable terms and the Government is particularly focused on ensuring that all sub-contractors benefit from existing prompt payment practice—one example of work to support SMEs and help unlock growth.

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?

48. On coming to power, the Government recognised that major public sector projects have had a poor delivery record. There had been no cross-governmental understanding of the size and cost of the Government’s Major Project portfolio, and projects often began with no agreed budget, no business case and unrealistic delivery timetables. This Government has been determined not to allow that costly failure to continue.

49. In March 2011 this Government launched the Major Projects Authority (MPA) with an enforceable mandate from the Prime Minister to oversee and direct the effective management of all large-scale projects that are funded and delivered by central government. The MPA scrutinises projects, ensures accountability and informs the Treasury’s decisions on whether to approve projects. In the past, fewer than a third of government major projects were delivered on time and on budget, now two thirds are on track to do so. The Major Projects Authority has shown it can and will intervene in failing projects—the closure of e-Borders, the Fire Control Programmes and National Programme for IT are all examples of this.

50. The Major Projects Authority successfully launched the Major Projects Leadership Academy, in partnership with Oxford’s Said Business School and Deloitte to bring world class project leadership to Whitehall. It is on track to meet its Civil Service Reform Plan commitment that will see all senior Projects Leaders commencing the Academy programme by 2014. The Academy builds the skills of senior project leaders across government to deliver complex projects, reducing the over-reliance on expensive external consultancy further and building expertise within the Civil Service. The Academy exposes these senior leaders to world-class practitioners and academics, giving the opportunity to share lessons learned from key experts in delivering successful Major Projects. In future no one will be able to lead a major government project without completing the Academy.

51. The Olympic Delivery Authority Learning Legacy website, now hosted by the Cabinet Office, forms part of our plan to apply the lessons learnt from Olympics project successes to other projects. The Learning Legacy provides a goldmine of knowledge that we must not waste. Building and through this website we will: celebrate success; aggregate and amplify learning from and for the project delivery community; facilitate collaborative working, knowledge sharing and networking.

52. The Autumn Statement stated that “the Government will strengthen the mandate of Infrastructure UK (IUK) and increase its commercial expertise to boost the delivery of growth enhancing infrastructure projects across Government”. As part of this new role, IUK, together with an enhanced Major Projects Authority (MPA), will undertake a detailed assessment of Whitehall’s ability to deliver infrastructure, building on their existing work. This assessment will be completed by Budget 2013. To ensure the assessment is as thorough as possible, it will be led by Paul Deighton as his first duty as Commercial Secretary working closely with the Minister for the Cabinet Office. The Minister for Cabinet Office has asked Lord Browne to conduct a review to enhance the Major Projects Authority so that it is built to last.

January 2013

1 The Government Procurement Service took over much of the role previously provided by OGC Buying Solutions

2 Government Procurement Service

Prepared 18th July 2013