Public AdministrationWritten evidence submitted by CBI (PROC 28)

1. The CBI is the UK’s leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. With offices across the UK as well as representation in Brussels, Washington, Beijing and Delhi the CBI communicates the British business voice around the world.

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

2. The public sector in the UK spends around £230 billion every year on buying goods and services from external suppliers. To ensure that this money is well spent, public sector bodies need procurement processes that reliably select the best product, at the best price and encourage suppliers to invest in developing products that meet current and future needs.

3. While the direction of travel is positive, the government’s procurement reforms have delivered mixed results to date. We are yet to see significant improvements to procurement practice. Much remains to be done and the government needs to work with suppliers to ensure that policy reforms do not have unintended negative consequences.

4. The Cabinet Office needs to ensure that key policies are adopted more widely across central government in order to speed up the pace of reform. In particular, we welcome the LEAN training programme for procurement staff, the pilot of the Commissioning Academy and the Mystery Shopper scheme. The pipelines of future opportunities, focus on SME access and encouragement of early engagement were also highlighted by our members as positive developments. However, business is keen for these policies to start delivering greater impact on procurement practices.

5. The current strategy is not sufficiently ambitious to realise the government’s aims of achieving significant savings and service transformation through procurement reforms. The need for increased commercial skills in the public sector has been recognised by the government and progress is being made in some areas. However, to promote the implementation of procurement reforms, the government needs to set out wider reforms to the civil service. These reforms must address the way in which services are delivered and the integration of diverse parts of the public sector into joined-up structures that focus on delivering the best possible outcomes.

6. While our members are generally pleased with the reform agenda, some of the policies announced in recent months will have negative implications for procurement reform. Of particular concern is the lack of consideration of the implications for bidders of recent policy developments, most notably the Procurement Policy Note (PPN) ‘Taking Account of Bidders’ Past Performance’ issued on 8 November 2012. The requirements outlined in the documents would lead to a deterioration in the diversity of public sector markets because of the significant bureaucratic burdens and the barriers to entry the proposals entail.

7. While the CBI welcomes clarification on how the government intends to evaluate and apply minimum standards for reliability based on past performance in assessing future contracts, the proposals are subjective, burdensome and represent a barrier to entry for small and medium-sized businesses.

8. We have a number concerns about the nature of the proposals and the resulting reduction in the fairness and transparency of the new process. Assessing responsibility for past performance is highly complex and in the absence of judicial findings of fault we are concerned that the process would be highly subjective. This would have significant implications for the wider transparency of procurement processes.

9. There is significant additional burden on potential suppliers created by the requirement for the submission of supplier ‘performance certificates’ from bidders to demonstrate past performance. Our members are concerned that it will generate extra complexity and expense for both the public and private sector.

10. Large companies and established suppliers might be required to obtain and submit thousands of certificates, while companies who have previously not supplied the public sector directly may find themselves excluded from competitions because of a lack of performance certificates. This part of the proposal in particular runs counter to the government’s focus on improving the quality of regulation and should be dropped.

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

11. The government is right to have focussed on delivering better value for money from public procurement spend. They have made a positive move towards procurement policies which prioritise the most cost effective outcomes rather than just focussing on inputs. But there remains much to be done to ensure that the governments aims align with the wider growth agenda.

12. Government departments can do more to harness the growth potential of public procurement expenditure by engaging more effectively with the market to promote the development of new products. This is particularly beneficial in sectors where government is a major customer as it has the ability to stimulate industrial activity from the demand side through more strategic policy making. A focus on innovation can also help ensure that the focus on value for money does not revert to lowest cost as the default award criteria.

13. While the government have recognised the link between procurement and growth, implementation of policies is still being hampered by complex and bureaucratic procurement processes which discourage companies from investing. 69% of the companies that responded to our procurement survey in autumn 2012 said better procurement practices would encourage them to consider investing more in the UK. 90% of respondents felt that procurement reforms to date had not done enough to promote the potential for public procurement to promote economic growth.

Question 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?

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

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

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

14. The lack of commercial and procurement skills in the public sector is repeatedly highlighted by government and suppliers as the biggest single barrier to improving procurement processes. The government have introduced a number of initiatives to improve practices including training programmes and secondment opportunities and overall, progress is being made. However, the scale of the challenge remains significant with widely varying procurement outcomes at local and national levels.

15. We remain concerned that procurement is seen as a distinct process from the creation of policy. In too many public sector bodies, procurement is seen as the step after policies have been designed and outcomes determined rather than as a key part of policy formulation. This means that the skills needed to procure effectively are often not available to policy teams in central and local government as they develop new policy, leading to delays and duplication, hampering the purchasing of goods and services. One of the keys to successful projects is timely input from suppliers to inform decisions throughout the commissioning and procurement process.

16. Government departments also need to improve how they assess their need for internal and external procurement support. The pressure to cut the costs of procurement, including relying on (often reduced) in-house resources, has caused problems, especially on more complex projects, some of which may only become apparent as they become operational.

17. Progress on procurement reform in local government is very mixed. Progress has been made in many areas with collaborative procurement and shared services arrangements put in place. Progress has been much more limited in other areas and consistency, even within those councils who have adopted many innovative new approaches is lacking.

18. We welcome the work of the Department for Business, Innovation and Skills in addressing the need for better communication of future procurement needs. The pipelines of potential opportunities produced to date are good step towards a more long-term dialogue with suppliers.

19. To further develop this engagement, government needs to move from a policy of simply communicating needs to suppliers to one where it works with suppliers to assess the market of potential products that could help improve outcomes across government departments and services. Pipeline notices should evolve as they are shaped by engagement. Early notices should be conceptual—based on specific outcomes that are being sought. Greater detail should be added to the pipelines as dialogue progresses towards formal procurement with pipelines becoming broader (covering more areas of spend), deeper (including content from more public sector bodies) and longer (going further into the future to match investment timescales).

Question 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?

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

20. In order to ensure it recruits and retains the right staff to procure and manage contracts, the Civil Service will need to make significant changes in how it assesses performance of procurement staff and the products that they are responsible for purchasing.

21. At present, we see little evidence of a culture of rigorous analysis of the results of procurement across the public sector. This makes it hard for public bodies to determine best practice and achievements against policy objectives.

22. Increased analysis of departmental performance needs to be accompanied by better information for managers and ministers about the performance of staff with procurement and contract management responsibilities and the effectiveness of their decisions. The lack of understanding of procurement within senior levels of organisations means that there is a significant level of risk aversion that leads to delays and increased costs for companies and procurement teams.

23. While more data on procurement is being requested from suppliers by government bodies—notably the Cabinet Office—providers are concerned about the way in which sensitive information is being handled and the lack of consistency in the data which is being requested.

24. To improve performance, there is a need for an increased focus on internal performance assessment. In particular, the lack of information on internal costs of service provision within departments is a serious barrier to delivering efficiency savings through procurement and benchmarking price and performance.

25. We note that that in many cases public sector procurement staff are significantly less experienced than their private sector counterparts. We recognise the efforts being undertaken by the Chartered Institute of Purchasing and Supply to support the recruitment and retention of staff but believe that further work is needed to boost the commercial strength and experience of public sector teams by embedding best practice, developing better relationships with potential suppliers and ensure that procurement and policy staff are more accountable for the success or failure of their decisions.

Question 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?)

26. The government’s reforms have had a major impact on procurement structures across the UK.

The prominent central role played by the Cabinet Office in driving improved procurement policy has in the main been a positive force in improving UK government commercial policies. The increase in central purchasing and use of frameworks has bought sizeable efficiency gains across the public sector. However, we are concerned about the lack of progress in implementing reforms in individual departments and the lack of a strategic approach to procurement which ensures that suppliers have the opportunity to help shape policy decisions where appropriate.

27. We welcome moves to consolidate purchasing in key bulk spend areas. In moving towards further consolidation, care needs to be taken to ensure that greater centralisation does not lead to the commoditisation of more complex products and a loss of the connection between the organisation buying a product and the eventual users. There is much that central government departments can learn from local government and the way that officials have a clearer connection with the products and services they are buying.

28. This link is particularly important where more specialised services are being purchased through frameworks. In these cases it is important that training for procurement staff is available.

29. Overall, members are pleased with the move to frameworks if the frameworks are well thought out and widely used. Some frameworks are currently failing to deliver the hoped for spend and the welcome drive to increase the number of small and medium sized suppliers on frameworks has led to considerable expense for companies to get on frameworks without a flow of opportunities..

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

30. The feedback we receive from members is that the European directives on public procurement are not a significant cause of poor procurement practices in the UK. They are often used to divert attention from poor practice in departments. We therefore welcome the action that the UK government have taken to challenge myths about the directives.

31. In most of the cases highlighted by members relating to procedural issues, the problem lies in the way the UK implements the directives. Members find practices to be inconsistent even within individual departments and the level of gold-plating remains unacceptably high.

32. CBI members operating in other EU countries have contrasted the UK’s highly bureaucratic approach with the more flexible processes adopted in other countries. There is significant scope for improvements if procurement staff are able to apply the current rules with a better level of commercial understanding to underpin how their work. This would substantially aid the reduction of gold plating.

33. We welcome the work that the UK government is undertaking in Brussels to improve the directives at an EU level and are particularly pleased at the efforts being made by the Cabinet Office to clarify what EU directives do and do not permit.

Question 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?)

The CBI is increasingly concerned by the government’s aggressive approach to risk transfer and the unforeseen implications that this has for suppliers and potential suppliers. As a basic principle, risk in contracts should be borne by the party best placed to manage and mitigate that risk. This needs to be done in a way which contributes to minimising overall costs to the taxpayer.

34. In recent months, we have become concerned by the increasing number of requests from government departments for suppliers to assume unlimited and contingent liabilities on the products and services that they supply. This leads increases in the price of goods and services (and a concomitant increase in the cost of public procurement), as suppliers need to cover the significant cost of insuring such liabilities. Where insurance is unavailable, or is prohibitively expensive, suppliers are in some cases refusing the offer of government contracts that request unlimited and/or contingent liability.

35. At present risk registers are usually prepared for major procurements but the level of granularity is often weak. The quality of these documents is hampered by a poor understanding of what financial risk the private sector can bear.

Question 9—What is the best role for ‘prime contractors’ and what are the advantages and disadvantages of relying on ‘prime contractors’?

36. The decision as to whether to adopt a prime contractor or a divided contract based model needs to be informed by the circumstances of each project and whether the public sector or an individual integrator offers the best approach to delivering a contract.

37. Experience in the UK and abroad has shown the vital importance of commercial skills and engagement with the market to determine the relative advantages and disadvantages of each possible approach followed by swift, effective and outcomes based procurement processes which encourage as broad a range of bidders as possible.

38. In order to ensure that the prime contractor model is more accessible to small and medium sized businesses, more should be done to enable combined bids from groups of small and medium sized companies and charities. Bids of this sort will be very negatively impacted by proposals for enhanced consideration of past performance.

Question 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?

40. Experience in the UK and other countries has demonstrated any of the major issues in the procurement, delivery and operation of major projects stem from poor initial planning on the part of the public sector and the need to divert substantial resources to deal with complex planning and regulatory systems.

41. The lack of recognition of the importance of good procurement and contract management on major projects has led to problems. Too often, procurement is seen as something that happens after a decision has been made about what to buy, rather than one stage of the longer commissioning process with little attention paid to the development of effective management processes to ensure delivery.

42. Many of the policy reforms currently being implemented are working well to address this situation, however more needs to be done to ensure that procurement of major projects is effectively resourced and the issue of performance is adequately considered. We welcome many of the announcements on procurement in the Treasury’s PF2 model.

43. To ensure delivery, contracts and funding agreements should also be explicitly clear about the KPIs against which success and failure will be judged and where relevant drafted with failure and continuity in mind. They should set out details about how it will managed and provider responsibilities. This also applies to contract terms and conditions to ensure they support continuity. In many situations, providers who are capable of stepping in to take over from a failed organisation end up being bound by the same commercial terms and conditions making the prospect unattractive.

44. But as the Public Accounts Committee found in 2009, 56% of public service contracts do not contain details on contingency planning for failure.[i] There is therefore potentially scope for more to be done, but yet again it is also important to consider whether any conditions set out in a contract might prove so stringent that they act as a barrier to entry for smaller organisations for whom these pose too great a risk if things go wrong.[ii]


[i] Quoted in OFT (2012) Orderly Exit: Designing continuity regimes in public markets

[ii] OFT (2012) Orderly Exit: Designing continuity regimes in public markets

Competitive Markets Directorate

January 2013

Prepared 18th July 2013