Public AdministrationSupplementary written evidence submitted by Cabinet Office (PROC 37)

Further to the recent PASC hearing, I undertook to provide some further information on the Procurement Investment Fund (PIF) in respect of its purpose, operation, funds invested and future plans, and also examples of wasteful spending and poor value contracts.

Procurement Investment Fund

Purpose and background

The Strategic Review of Buying Solutions and subsequent paper “Delivering Centralised Procurement (24th March 2011)”, outlined the intention to establish a process for using any Government procurement Service’s (GPS) surplus income to fund GPS and Government Procurement improvements. The recommendation was agreed by the March 2011 PEX (ER). The Procurement Investment Fund (PIF) Board was established in September 2011 as a sub-board of the Procurement Executive Board (now Procurement Delivery Board) to provide a transparent mechanism to invest in improving government procurement capability.

Operation

The fund is generated from the supplier levy charged on managed spend through GPS frameworks after allowing for GPS running costs and internal investments. The level of the fund is set as part of the GPS Business Plan process and approved by the GPS Board.

PIF Board members ensure that the funds are utilised transparently to finance Government Procurement operations and investments. Business cases are assessed against a set of core investment principles:

Ensuring pan government benefits—cases need to demonstrate that investment will deliver benefits across government.

Delivering Savings for the Nation—investment will need to show how it supports the delivery of procurement savings.

Sustainable—initiatives are ideally for pumped prime funding and not necessarily fully funded. In the example of a learning and development requirement, then resources are invested where possible in to train the trainer to ensure a lasting legacy.

Substantial—pan government lean training courses

Effective Governance—cases will need to demonstrate that effective governance in terms of managing project delivery exist with the mechanisms to track benefits post completion.

FUNDS INVESTED AND COMMITTED

The following funds have been invested/committed by the PIF Board:

DESCRIPTION	2011–12 ACTUAL £’000	2012–13 COMMITTED £’000	2013–14 COMMITTED £’000	2014–15 COMMITTED £’000
Cabinet Office staffing resource	900
Licence to Source Training	48
Lean Sourcing Training	62	479
e-Enablement Systems	1,229	2,853	2,050	2,070
Commissioning Academy			445
TOTALS	2,239	3,332	2,495	2,070

Cabinet Office staffing resource:

Short term procurement staffing resource provided by Cabinet Office to GPS to
address some key capability gaps.

License to Source and Lean Sourcing training:

Pan government training for lean sourcing

The most significant investment has been in eEnablement systems which include:

Spend analytics across the whole of Central Government and increasingly Wider Public Sector to improve expenditure intelligence and further drive aggregated deals.

eSourcing to drive efficiency across procurements.

Government eMarketplace to enable departments to efficiently transact on-line through catalogues.

Single supplier registration incorporating Dunn & Bradstreet data to improve commercial intelligence on suppliers.

Procurement portal for all public sector buyers with access to all centralised deals.

Future Plans

The Chief Procurement Officer is currently reviewing future plans for the fund including whether this is the right mechanism to support pan government capability development, what its governance structure should be and potential demand for 2013–14. This is due to be discussed at the next Procurement Delivery Board in May.

Wasteful Spending

The list below has been compiled by the Efficiency and Reform Group and provides examples of wasteful spending and poor value contracts.

Prices/Rates

1. A supplier charges us a 15% finance charge for invoices paid late.

2. Well over 350 different rates for labour on one contract with one supplier.

3. One supplier contract agreed to charge us in excess of £4,000 (including VAT) per day for their most senior personnel; over 4.5 such FTE’s assigned to the project.

4. One supplier has an average day rate variation across several departments (and including some police forces) ranging from £500 to £850.

Cost of Poor Quality

5. One supplier told us that the difference between the average margin which they price and what they receive is about 5% due to delivery/quality “problems”.

6. One supplier told us that they would be making a loss of around £20 million in a year at one department (several contracts) on total revenue that year of in excess of £100 million.

Contract growth

7. One contract will have grown from almost £5.7 billion, when signed, to £8.9 billion by time expires.

8. Another contract will have grown from £350 million (and £50 million per annum), when signed, to likely over £1.25 billion (and £100 million per annum) at expiry.

Other

9. Mid-range Xerox Mono MFD £5162.60 over the term of a 5 year lease. GPS price £2627.20.

10. Mid-range Xerox colour MFD £5336.80 over the term of a 5 year lease. GPS price £2795.60.

11. Insurance brokerage (through GPS)—opening eAuction bid £10,750, winning bid £1,715.

12. A major service integrator charged £30,000 to change a logo on a web page.

13. An existing provider offered to host a Government service for £4 million. Instead we found an SME who is providing a good service for £60,000.

14. An outsourcing firm signed a contract worth £50 million a year, yet has gained at least £100 million of revenue each year following further Contract Change Notices.

15. One supplier charged Cabinet Office £57 for a PC Power cable; when this can be purchased online for £20 and likely much cheaper (est. £8) wholesale.

May 2013