Public Administration Select Committee - Minutes of EvidenceHC 123

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Oral Evidence

Taken before the Public Administration Select Committee

on Monday 25 March 2013

Members present:

Mr Bernard Jenkin (Chair)

Paul Flynn

Kelvin Hopkins

Greg Mulholland

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Witnesses: Stephen Kelly, Chief Operating Officer and Head of the Efficiency and Reform Group, Cabinet Office, Bill Crothers, Chief Procurement Officer, Cabinet Office, and Sally Collier, Deputy Chief Procurement Officer, Cabinet Office, gave evidence.

Q421 Chair: May I welcome our three witnesses to this session on crossgovernmental procurement? Could I ask each of you to identify yourselves for the record, please?

Stephen Kelly: Stephen Kelly, Chief Operating Officer, UK Government.

Bill Crothers: Bill Crothers, Chief Procurement Officer, UK Government.

Sally Collier: Sally Collier, Deputy Chief Procurement Officer, UK Government.

Q422 Chair: Thank you for being with us today. Could I just ask for a brief explanation of what each of your remits actually is, so that we are absolutely clear about that?

Stephen Kelly: I am responsible on behalf of the Cabinet Office for driving the Efficiency and Reform programme. That is a quite wide-ranging programme, from things like property consolidation, trying to reduce the cost of construction, right through to all of the areas we are talking about today in procurement. The big focus there obviously is that we are targeting, by 2015, a reduction of central Government expenditure by £20 billion, while, in parallel, improving public services. That is a significant challenge, and there are lots of things you might have read about and are very familiar with, in terms of some of the digital agenda, moving government services to a more modern, digitaluser focus.

Bill Crothers: I work for Stephen within the Efficiency and Reform Group within the Cabinet Office. I run an area that is called Efficiency, which is driving all of the efficiency savings within the context that Stephen just described. In particular, that covers all spend across central Government, so £45 billion of spend on commercial policy, monitoring the Cabinet Office controls, as well as some direct spend through an entity called the Government Procurement Service; there is £11 billion of spend there, some of which is wider public sector.

Sally Collier: I support Bill in his role, as Deputy Chief Procurement Officer, but I also have some specific responsibilities for the UK Government’s procurement policy, such as the European procurement directives and the Government’s SME programme.

Q423 Chair: So you have a policy remit, as well as a delivery function.

Sally Collier: Yes.

Q424 Chair: That is very useful; thank you. How is progress? Every Government has been constantly trying to reform procurement. What is different? Why is it going to be different this time?

Stephen Kelly: That is a good question, and it is something we exercise ourselves with. Our report card would be-and I fear in some respects it may sound like a broken record-that I think we have made some good starts, made some good progress, but we are still in the foothills, and there is a huge amount more to do. Some of the achievements across procurement, in terms of aggregation and volume, and getting better management data, and the disciplines you would expect, Mr Chairman, are well on track. We have seen significant savings reported with the National Audit Office, but we still feel there is a long way to go. Maybe we will touch on some of those areas during this Committee hearing.

Q425 Chair: Is there anything to add? You have been in government much longer than Mr Kelly. Do you notice any difference?

Bill Crothers: Yes, I do. I have been in the Civil Service for six years.

Q426 Chair: Where did you come from, before that?

Bill Crothers: Accenture; I had 22 or 23 years in Accenture, and three years before that in Peat Marwick as a chartered accountant. I have been here for six years. I have noticed quite a dramatic difference with this Government’s policies, introduced two years ago, which I can illustrate. For example, the way we now manage the commercial relationships with the very large suppliers across Government is dramatically different. What surprised me when I joined six years ago was that I was in an agency in the Home Office, we were running a big procurement, and we were not allowed, as a matter of policy and practice, to look across the rest of Government to understand the rest of the business that a supplier was doing with the Government, or where it was in dispute or where it had not performed well. Today, the approach is completely different. We look across Government, we take past performance into account and we look at the totality of the relationship across the whole of the system. It is how the private sector would do it. Previously a Department was a client. Today, we refer to the Crown-the whole of this system-as being the client, and we look at the totality of the relationship. It is a big change.

Q427 Chair: Sally Collier, do you want to add something?

Sally Collier: I have been a civil servant for 20 years now, and I can honestly say that I do not think the focus on public procurement has ever been as intense as it has been in the last two years. The economic situation has necessitated that, and I think we very much welcome that, in order to drive forward our reforms.

Q428 Chair: Could you just outline what your longterm objectives are? Can you put that in granular terms so that it means something, so that we get an idea of what you are actually going to do, rather than what you are just aspiring towards?

Stephen Kelly: If we stand back, Mr Chairman, what we are trying to do, obviously, is a lot more for less. It is easy to say. What that explicitly means is we want suppliers to offer outstanding services, and do what they need to do to delight the departmental customers. Overall what we want is to ensure that we continue to improve public services to citizens but at a much reduced cost. One of the strategies to do that-and this is where I would say it was a work in progress-is that we have a number of elements around the procurement reform strategy in plan to bring together, as Bill said, a much more consistent, consolidated, and holistic view of the supply market place; firstly, that is to get the best price. People loosely talk about value for money, but I think we want absolute best value for money, not comparative value for money, because I think Government has been paying too much in the past for some services.

We want absolute best value for money; we also want suppliers to step up in terms of providing consistent service across government. The other area, which I think is quite topical, is around suppliers-to provide good, professional engagement in the UK and with UK citizenship, and some of those other elements as well. An element you are aware of is around the SME strategy, where the procurement reform over the last couple of years has had some progress, growth and support for SME companies, and elevating that as part of the narrative, and as part of the operational execution is starting to make a difference.

Q429 Chair: I am not madly enthused by this. It lacks that granularity.

Bill Crothers: Let me try. Let us give some examples. Central Government will spend approximately £45 billion this year with suppliers.

Q430 Chair: That is purely what is going through GPS and the Cabinet Office.

Bill Crothers: No, that is central Government.

Q431 Chair: We hear a lot of things. We hear that we spend £200 billion a year.

Bill Crothers: That is including the wider public sector.

Stephen Kelly: That is devolved administration, including Health, Education and so on.

Bill Crothers: Central Government Departments-17 Departments, including agencies-will spend approximately £45 billion.

Q432 Chair: That includes Defence?

Bill Crothers: Yes. Defence is about 42% of that. Of that £45 billion, in approximate terms, are-

Q433 Chair: Forgive me, so that does not include schools or hospitals, which are off the balance sheet.

Bill Crothers: No, it does not.

Chair: That explains it.

Bill Crothers: Of the £45 billion, approximately half of that is with a very small number of suppliers, between 50 and 100. The other half is with a supply base of several hundred thousand suppliers. Of the small number of suppliers, the scale of the commercial relationships that we have is huge. We have total relationships of £500 million, £1 billion, £1.5 billion, or £2 billion a year. Previously, we did not know that; we did not know who the suppliers were, we did not know what we spent and we did not know where we spent it.

Q434 Chair: This includes all the G4S expenditure, for example, through the Home Office and the Foreign Office.

Bill Crothers: That is right.

Chair: That includes the prison service and NOMS.

Bill Crothers: Yes, all of that. Now, from my experience in the private sector, I think the scale of commercial relationship, i.e. how much business we give these suppliers, is enormous. Typically we are their largest customer globally-if not their largest, we are in the top five or 10-yet oftentimes the performance is worse than for clients who have a much smallerscale relationship. One objective we have is to spend less and get better performance, or, that which we spend, make the spend more efficient. We have examples-and this is on the agenda today; we have been actioning it and we continue to-where we have been paying higher prices than the private sector from the same suppliers for smallerscale relationships.

Q435 Chair: Can you give an example?

Bill Crothers: Yes. It is probably not appropriate to name the supplier, but I can give you an example. We engaged with a supplier in the IT industry. This was about 18 months ago. Our scale of relationship with them is such that we are material in their UK accounts. We had a conversation with them, and they told us what the gross margin was that they were enjoying, which is essentially the surrogate for the pricing. We could see by inference what the total margin was in their UK accounts-the nonUK Government part-so we could see the margin they were charging the private sector. We were paying a higher price.

Q436 Chair: How much higher?

Bill Crothers: I cannot remember, but it would have been a number of percentage points. From memory, it would have been four, five or six percentage points. In my view, and it may not be a perfect descriptor, that is supernormal profit. It was an example of there not being competition, it not being a competitive market, and we were paying supernormal profit.

Q437 Chair: This was a large supplier, supplying a large contract.

Bill Crothers: A number of contracts. The scale of business was over £500 million per annum, predominantly across four or five Departments; it was a number of contracts across different Departments.

Q438 Chair: You discovered this purely by centralising the data.

Bill Crothers: Yes, by bringing data together. And this, by the way, was a typical story. We asked Departments how much business they had done with that supplier in the previous year. We then asked the supplier how much business we had done. The supplier told us several hundred million. When we asked the question differently, which was how much is the total business they derive from Government including subcontracts, special purpose vehicles and so on, the number more than doubled.

Q439 Chair: This leads to a conversation about how consolidated the purchasing function should be, and how much should be centralised. To the outsider, it still looks a bit of a muddle. It looks as though there are people in the Cabinet Office that know what is going on, but you cannot get a grip of what is going on in the Departments because, for whatever reason, the Departments do not want to relinquish control. How is this being resolved?

Bill Crothers: Let me try, and then Stephen might add. I do think it is a work in progress. Two years ago, we had no data on who our top suppliers were or what we spent with those suppliers. We now have a system-computer interfaces to accounts payable systems across Departments-and whilst the information is not as timely as we would like, because it sometimes takes three months to get the data, we have-

Chair: Three months to get the data?

Bill Crothers: Remember, we did not have it before. We now have a spend analysis by Department, by supplier, by time period. That is something we did not have at all. That is why I say it is a work in progress; we did not have that.

Q440 Chair: When did we first ask for this?

Bill Crothers: No, this is systematic. This is us getting it from the interfaces.

Q441 Chair: When did we first ask for this data?

Stephen Kelly: Summer 2010.

Q442 Chair: Mr Crothers, you have been in government for much longer than that period. Were you asking for it before and it was just not coming?

Bill Crothers: It was not my role then.

Chair: It was not your role then.

Bill Crothers: I was in a Department. I was in the Home Office.

Q443 Chair: Oh, I see; I beg your pardon. Was nobody asking for this data then?

Bill Crothers: Before 2010? No. In my experience, it was a matter of policy and practice not to gather the data.

Q444 Chair: Because of the federal nature of Government Departments.

Bill Crothers: A Department had primacy.

Q445 Chair: Can I give you a more generic question? Where should the dividing lines be between what is centralised purchasing and what is departmental responsibility? How should that be decided, because that seems to be constantly in flux?

Stephen Kelly: To act in the best interest of the taxpayer, we have to have really good quality MI and data at the centre. The other thing that has been alluded to is that obviously then we need to have capability and really good analysis, not just of the data. Many of these companies are public companies. We have started developing, under Bill, having some analysts inhouse who are looking at their public filings-

Q446 Chair: Sitting in the Cabinet Office-sorry to interrupt you, but it is because of the pressure of time-are you champing at the data and indeed the control you want over purchasing policies in Government Departments which they will not give you? Is that a constant tension?

Stephen Kelly: In terms of where things are, it is still an issue. I will give you a real example, to your point, Mr Chairman, that brings it to life. I appreciate your point, but Bill has led discussions with suppliers within what we call the oligopoly of the large, dominant players, where we are buying PC power cables for £60, whereas we can go to PC World and Dixons and buy that for £20. We could probably buy it wholesale for less than £10. Bill has led negotiations with one supplier, and in 24 hours saved the taxpayer about £25 million. It all comes through data and intelligence, and capability and analytics.

Q447 Chair: Is this being resisted?

Bill Crothers: There is a tension. When we met previously here, before the public session, you gave a quote from an American official that talked about the importance of attitude. The truth is there has been a habit-a culture, an established norm, a practice; call it what you will-across the system where Departments have primacy, and Departments are used to having the total relationship with a supplier.

Q448 Chair: Have you got the powers, centrally, to deal with this?

Stephen Kelly: Probably it is worth noting, Mr Chairman, that in the last two months there has been an incident where our Chief Technology Officer has not had access provided to departmental data on a commercial bid, by legal advice within that Department. There are still residual issues, whether they are legal issues, which prevent us quickly moving on data and a consolidated oneCrown relationship with industry.

Q449 Chair: Is this just departmental sloth, or is there some agenda behind it?

Bill Crothers: This is legal advice.

Stephen Kelly: In this case it was legal advice given to the Department.

Q450 Chair: What, that they should not give you the information?

Bill Crothers: Yes, which we are challenging.

Q451 Chair: You are telling me that within the Government, which is a single legal personality, there is an argument between different branches of Government, fuelled by lawyers, which we are paying for, no doubt?

Bill Crothers: No, these are internal lawyers.

Chair: I appreciate that, but they are still being employed at public expense to tell different Government Departments to not share information with each other?

Bill Crothers: Yes.

Stephen Kelly: It is still an issue. Absolutely.

Chair: This is absolutely astonishing.

Stephen Kelly: We likewise find it astonishing.

Q452 Chair: Can you imagine any corporate headquarters having the same difficulty?

Stephen Kelly: No, and having worked with many corporate functions and private sector organisations, this would be a nonsense in the private sector.

Q453 Chair: Why is it not a nonsense in our own Government?

Stephen Kelly: That is a good question to ask, Mr Chairman, and we have written letters, as of today, to try to remove these roadblocks. This is to the point: there has been some good progress, but there is still a lot more to do, and a lot of it comes back to Bill’s point around attitudes, cultures and acting as one Crown, representing the best interests of the taxpayer.

Q454 Paul Flynn: You were very vague about the case you referred to, Mr Crothers: 5% to 6%, £500 million. That is a ripoff of the taxpayer of about £30 million above the profit that the company, presumably, made anyway. Is this right, and we are not allowed to know about it because of jealousies between Departments and a legal gag?

Bill Crothers: I am just uncertain about providing commercially sensitive information about different suppliers. I can provide it to you separately, and we can decide on the commercial construct. Time would not allow me to give all of it, but in the interests of balance I could give a number, because actually it is not about one particular supplier. I could give you examples across most of our, in this case, IT suppliers-there are only a few of them-where you would have similar examples. I will quickly give you one. There is a supplier who has told us in writing that the margin they enjoy is X%. That is what they book. They have similarly told me that the margin they price is 5% or 6% higher than what they enjoy. The difference is cost for poor quality, i.e. there are IT nondeliveries, performance problems. We pay for the nonperformance. The price we pay is 5% or 6% higher than what that company enjoys, and the difference is us paying for poor quality. That is another supplier.

The point is not naming the suppliers here; I could name several of them, to be fair, because it is not about one or two. It is poor performance across most of them.

Q455 Paul Flynn: We have a long story, particularly with the Ministry of Defence, of contracts always coming in way over budget, usually late, usually changed, and this has gone on under all Governments for 50 years now. Hardly any have ever delivered on time or on price. You have just given us an example of how the public purse is being ripped off, apparently with the collusion of lawyers working for Government in insisting on secrecy, which means it hides the ripoffs. Is that right? Are we understanding that right?

Stephen Kelly: It is fair to say that significant progress has been made. To put it in perspective, before this Government came in, in 10 months, £800 million cashable savings were taken out of the top suppliers.

Q456 Chair: Is that on an annual basis: £800 million a year?

Bill Crothers: No, it was £800 million from what we would have otherwise spent in a sixmonth period.

Q457 Chair: So you saved £800 million in the space of six months? It was not about a 10year contract on which £800 million has been saved?

Bill Crothers: Quite a lot of it was capital spend. However, the following year we then saved £400 million or £450 million. This year, probably in the same number, it will be £600 million or £700 million.

Q458 Chair: Can I be absolutely clear: those savings you are counting are the savings that would have been spent in the year in question? They are not accumulated savings on a contract of more than that.

Stephen Kelly: Correct. They are cash in that fiscal year.

Bill Crothers: Now we bring across Government the power-we are levelling the playing field in our favour, as we should have done for years.

Q459 Chair: I just want to get to the bottom of this. What are the grounds upon which lawyers are able to advise Government Departments to withhold information from the Cabinet Office? What is the generic term they use: commercial in confidence?

Bill Crothers: No. By the way, I do not want to give you the impression that every lawyer in every Department is resisting. That is not the case.

Chair: One will do for our inquiry, thank you very much.

Bill Crothers: There is at least one, and it is live. An argument that is made centres around what is referred to as the contracting authority; the Departments are the contracting authority. One argument that is made is that you have a privacy of contract. The contract is between the supplier-

Q460 Chair: The United Kingdom Government is a single authority.

Bill Crothers: Remember, I am not arguing this case. We argue against it; I am just telling you the argument.

Q461 Chair: May I ask a very loose and open question? This could not arise in the United States, because they do not have commercial in confidence in contracts in the United States. What would happen if we recommended in our report that the Government should abandon this system of hiding the true margins that commercial suppliers are making by saying that we are going to publish all financial information, everything that is at the moment held commercial in confidence? What would be the effect?

Bill Crothers: Perfect competition requires perfect information; I think that approach is perfect information. It would be a good thing.

Q462 Chair: It would be a good thing to abandon commercial in confidence for all Government contracts.

Bill Crothers: Yes, because perfect competition requires perfect information. In theory, this moves towards perfect information. It would help competition.

Q463 Chair: Every time a contract is let, we would see all the detail of the pricing, the margins and all the negotiations and everything.

Sally Collier: Indeed, the Government have already mandated that all contracts should be published, and so all contractual information. That happened when they came into power. We have gone some way in publishing contractual information on Contracts Finder. What happens currently is that some of that commercial in confidence information is redacted on those grounds of commercial in confidence.

Q464 Chair: In the United States it would not be redacted, would it? Mr Kelly, you have contracted to-

Stephen Kelly: I did not deal with the federal Government, I dealt with state government, so at the time-this is about eight or nine years ago-it was a statebystate decision around that.

Q465 Chair: But you have had experience in a much more transparent market. What was it like?

Stephen Kelly: I can say quite clearly that there is significant evidence of where suppliers have enjoyed supernormal profits from the Government-shame on us, from a taxpayer’s perspective. Information, transparency and openness around data and commercial terms, as well as a lot of other things we might consider around capability and stopping goldplating things to ensure that we get what we need, make a big difference positively.

Q466 Chair: Mr Crothers, in your professional opinion, it would not be damaging for all of this information to be put into the public domain.

Bill Crothers: Others may advise me that there are facts I cannot think of, but instinctively it seems a good thing.

Q467 Kelvin Hopkins: If this was happening in, shall we say, a dubious middle eastern regime, one would assume it would be corruption-5% over the top for the contract, 1% finds its way back to the person making the order. We assume that is not the case in Britain, and I find it astonishing that there is an attempt to protect these overthetop prices on behalf of suppliers, when they should actually be protecting the public purse.

Bill Crothers: Yes. Well, we agree. Remember, some of the examples we are giving you are old, and the agenda and the improvements we have made are precisely to take that out and level the playing field. We have stopped those practices. We have taken money out; however it is a continual battle. I do not think the suppliers have quite got there yet. But we know of no evidence of criminal thinking.

Q468 Paul Flynn: We are told at the moment by the national press that the strike price for nuclear power that is being negotiated with Électricité de France is £97 per megawatt hour. The going rate was £50, so they negotiated twice the rate, and EDF are asking for a guarantee over the next 35 years.

Chair: This does not fall within your remit, though, does it?

Paul Flynn: No, but this is an example that is happening now, today, but we are not allowed to talk about it. We are not allowed to discuss it in this House because it is commercially confidential. Is this not party to economic problems in the future? We know, for instance, that in America fracking has reduced the price of energy. Nobody knows what the price of energy is going to be next week, let alone in 35 years’ time. Are there similar examples that you can tell the Committee? Would anyone commit themselves to a contract for 35 years?

Bill Crothers: There are many examples. You mentioned last time attitude, and what our future agenda is. One is spending less, in the way we have described-getting the inefficiency out and getting better performance. Another objective is better competition. Competition is key; there are lots of examples of procompetition. A third is sustaining the change, and the way we will sustain this change is by getting people into our system-commercial officers-who have the right attitude to get a good deal. That is another key point.

Q469 Chair: What about a Crown procurement organisation? What do we think of this idea? You actually formalise your crossdepartmental authority. Is that necessary?

Stephen Kelly: Maybe that leads us on to the future plans, one of which is the procurement reform strategy that Bill has been lead in, which has expansion of the Crown function for these larger suppliers. We are part-way through hiring teams of people to do that, and are also very focused around the aggregation and volume purchasing acceleration, that agenda.

Q470 Chair: So the answer is that yes, you want a Crown procurement organisation.

Stephen Kelly: Yes, because I think ultimately, Mr Chairman, it would offer much better value for the taxpayer, much better transparency, better data, better negotiating power, better competition, and it would be better for Departments.

Q471 Chair: And nibbling away at different categories of expenditure is too slow.

Bill Crothers: Yes. I think you need to make an exception. There are items that Government buys that are unique to Departments, and they are probably, by the way, complex and unique.

Q472 Chair: What about the unique supply chain problems faced by the Ministry of Defence, where you have to make an exception?

Stephen Kelly: Yes, that is exactly right.

Bill Crothers: I have a little phrase that I use which is, "Guns and tanks and planes and boats", yes.

Chair: Photocopier paper to the front line?

Bill Crothers: That is not.

Q473 Chair: That is not a proper challenge. You can do that.

Bill Crothers: I would think that is common, would you not?

Q474 Chair: It is not a strategic issue.

Bill Crothers: Some would say, but, seriously, you do need to draw the line. Food is common; however once food is packaged and going to Afghanistan, it perhaps becomes less common. The answer to your question is yes, we should acknowledge that some points need to be unique and they should stay with Departments that have expertise in that.

Q475 Kelvin Hopkins: In its recent report, the National Audit Office highlighted concerns about the way in which GPS is run, particularly around the inconsistency of contract management, the quality of customer service and in meeting Departments’ operational needs. What has been going wrong at GPS, and what are you doing to put it right?

Bill Crothers: If it is the report I think you are referring to, I thought it was generally complimentary about GPS.

Stephen Kelly: There were savings of about £400 million, I think, and then £700 million projected this year. Again, I think there is work in progress, and Bill is overseeing changes to support that.

Bill Crothers: Generally, it was positive; none the less, the point you made was about customer service. GPS has been largely managed on one metric, which is a metric called SUM: spend under management. GPS has been incentivised to have more spend under its management, regardless of the savings and the service it offers Departments. We are going to reset GPS’s incentives and KPIs-key performance indicators-in the next few weeks, so that it has to be focused on giving good service, getting savings, as well as increasing the spend that it has under its management.

Q476 Kelvin Hopkins: Just to clarify the point, this is this year’s report, "Improving Government Procurement". How are Departments consulted when the Cabinet Office is developing specifications for central contracts? Could you elaborate on that a bit?

Bill Crothers: I am not sure I understand the question.

Kelvin Hopkins: How are Government Departments consulted when the Cabinet Office is developing specifications for central contracts? Presumably, Cabinet Office makes specifications.

Q477 Chair: Are these just departmental excuses for not complying with what the Cabinet Office wants?

Bill Crothers: The only kind of example I can think of is that there does exist, although it is four or five years old, a standard contract that was developed in the centre for all Departments to use for complex services. I think it is out of date. We are working to develop new contract terms, a new contracting basis, for all Departments to use. In doing that, we have consulted with the Departments. In all cases, Departments do not always agree, but we are taking what we think is best practice. An example would be to have full transparency in a contract, so even if we are not going to make it public, the Department should know what the margin target is. They should get the margin reported regularly and the margin should be within a set of allowed costs. That is not standard practice today. If you go to industry, that would be standard practice.

Sally Collier: If I can try to get underneath the point you are making, are Departments consulted when GPS draws up specifications for central deals? Yes, of course they are. Can we always meet 100% of Departments’ requirements in a standard contract? No, we probably cannot, because, as I think we have already alluded to, one person’s strategic need is another person’s common good and service, so part of the savings that we will make in some of these categories is through standardisation. That means 100% of needs will not be met. In other circumstances, can we and should we do more to meet specialist niche requirements in some categories? Undoubtedly we can, and I think that the report reflects that. I think it is horses for courses, but do we consult? Of course we do.

Q478 Chair: Mr Kelly, do you think this system that you have stepped into and inherited works? Is it sensible?

Stephen Kelly: Mr Chairman, I think it is the start, as we have said. We are very conscious of the road ahead, and the challenges and the roadblocks. There is still much better data and MI capability that we need to improve.

Q479 Chair: Is what we are talking about-this consultation with Government Departments-a constructive exercise, or is it obstructing what you need to achieve?

Stephen Kelly: Generally it is constructive, but it would be even more efficient if we had aligned incentives, and if we were all trying to deliver better outputs for less cost.

Q480 Chair: How do you align the incentives?

Stephen Kelly: Mr Chairman, that is something that has been a focus of Civil Service procurement reform probably since before my birth. Let us be very specific: in the private sector, what "good" would look like here is delivering the outputs for less money and incentivising the people touching procurement with better commissioning skills, and rewarding them, although not with the crazy money you have heard about in parallel in the private sector. But the contrary of that is performance management, so that the lesser performing, less capable people are removed from the system.

Q481 Chair: Can I just ask: what is the Procurement Investment Fund, and why are people asking what has happened to it?

Bill Crothers: GPS-so a group of 400 people that works directly for me that buys some common goods and services for Departments.

Q482 Chair: So you operate as a profit centre?

Bill Crothers: It is a trading fund, so it makes a profit, and it makes a surplus each year.

Q483 Chair: How much?

Bill Crothers: The systematic surplus is about £7 million.

Q484 Chair: What do you do with it?

Bill Crothers: My predecessor set up a mechanism, which was called the Procurement Investment Fund, whereby that surplus would be reinvested to the benefit of all. In fact, about £6 million or £7 million was committed, for example, gathering data.

Q485 Chair: What has happened to it now?

Bill Crothers: I suspended it, because I wanted us to take a pause and see the effectiveness of what had been spent, and make sure that what we were going to spend was being spent strategically. What had happened is we were taking £200,000 here, £500,000 there, so I have suspended it and taken a pause. I have a governance group, which is across Departments, which will in fact tomorrow morning be looking at this on the agenda.

Q486 Chair: When did you pause?

Bill Crothers: Probably before Christmas. Three or four months ago, or so.

Stephen Kelly: What has happened now, therefore, is that any of the surplus will be returned to the Cabinet Office, and the Finance Director would return any monies to the Exchequer.

Q487 Chair: Right. I rather wondered if that was what had happened to it. Is that a disappointment? Should we be being more creative with these savings? Is that actually reducing the incentive to make savings? Is this the right destination for the money?

Bill Crothers: You have heard us refer to the procurement reform programme, so under Civil Service reform we are looking at commercial capability across Government. Within that context, I want us to look at GPS and whether a trading fund is the right construct. Is the scope right? Should it have a £7 million systematic surplus, should we put more scope into it, or should we dismantle the trading fund? We should not look at the whole system but that area to improve it.

Stephen Kelly: The essence would be, Mr Chairman, that unless we are really sure that any investments we make have a significant return then we should return the monies to the Exchequer.

Q488 Chair: Is there a difference of opinion between you on this?

Bill Crothers: No, because we have done that.

Chair: Resolved. Good. I like friction; it is creative.

Stephen Kelly: No, we are totally in sync.

Bill Crothers: We get lots of friction, but not between us. This year, we have returned it, by and large. I say "by and large" because as a trading fund it has to have some reserves. I do not think it makes sense to systematically have a unit that is making a £7 million profit. It just feels like an odd construct, and we are looking to see whether the construct is correct. The revenue comes from suppliers. It is a levy we impose upon suppliers.

Q489 Chair: Perhaps you could send us a little note about what the plan is for the future on this, please.

Bill Crothers: Okay.

Q490 Greg Mulholland: I would like to carry on with that point, if I may, because I want to ask a few questions about the skills needed for successful procurement, which is clearly essential to good procurement. Is it not the case that the Procurement Investment Fund was largely supposed to be reinvested in skills and in capability building?

Bill Crothers: Nearly all of the money invested to date has been in software, so not in skills. A small amount we have put into something called the Commissioning Academy, which is training some people-a relatively small amount. Most of the money to date-£3 million, £4 million, £5 million, £6 million-has been largely on software.

Stephen Kelly: And MI.

Sally Collier: And also Lean sourcing and training has been funded from there.

Stephen Kelly: So there were about 700 folks gone through Lean training; you have probably seen the data about a 40% reduction in the procurement timelines. Some of the best procurements now in GPS are taking about 82 days, rather than the old world where they took nine or 12 months.

Bill Crothers: We will drop you a note on the PIF mechanism and also where it has been spent, but it is relatively small on people, a lot on software.

Greg Mulholland: Training software, is that?

Bill Crothers: No, software to gather better data.

Stephen Kelly: Data/MI.

Q491 Greg Mulholland: Was there a vision that it would be used for training capability?

Bill Crothers: It was positioned on improving capability. "Capability" is a broad term. There is no question that the money that has been spent has improved our capability. A small amount has been spent on two types of training.

Stephen Kelly: The Commissioning Academy is probably the centrepiece, in terms of improving the capability and driving better skills around commissioning and procurement.

Q492 Greg Mulholland: Now that that fund has been stopped, what is the Cabinet Office plan for further capability building and for further training?

Bill Crothers: Again, this is a key element of the Civil Service reform plan-commercial capability, or what I am calling procurement reform. I think this an important bit of context: if you look at where the procurement professionals in Government spend their time, they spend most of their time in regulated procurements, i.e. from when we issue an OJEU notice to when we award a contract. Actually, most of our opportunity for value is before we start an OJEU and when we are managing a contract. Arguably, they do not spend their time predominantly where there is most value, so before we train people on doing better Europeanregulated procurements, I think we should think about where they should be spending their time and the specialist capabilities that they should have. We do not have, for example, a lot of people who have deep experience in negotiating with big suppliers, or of being involved in a dispute. Whenever we say we have a premarket engagement-engaging with the market to really generate competition, to try to not just go to the oligopoly-our people typically are not very experienced in that. We are developing a set of capabilities that our people should have, and then we will develop the training that they need in those specialist areas.

Q493 Greg Mulholland: Obviously there has been a move towards the Lean sourcing process and training around that, presumably. You have already mentioned the Commissioning Academy and the Major Projects Leadership Academy. Are you confident that these things are delivering the skills that are needed and the skills that were identified as being the skills that were not there sufficiently before?

Bill Crothers: I think what they have done has been really good. They have made a big difference. I think they are not complete. For example, a skill and capability that not everyone but a group needs to have is to understand how to contractmanage a large, complex contract. Part of that would be, for example, managing an open-book arrangement, so if you are a commercial professional, you should understand the difference between gross margin, net margin and overhead; you should know what costs are allowable, and so on. We are moving to train people on other specialist areas as well. Those two initiatives have been very effective, but it is not the end.

Stephen Kelly: Both Mr Flynn and you have raised a point about managing projects. One of the things under my responsibility is the Major Projects Authority. Again, I think it has done a great job since it was established about 18 months ago. The data suggests that when the coalition came to power, 33% of projects were delivering on time and on budget. Now that has risen to about two thirds of all projects, so there has been significant progress there. Just to remind you of the data, the project portfolio managed by central Government is over £400 billion, so it is very material that we do an extremely good job of managing to time and to less than budget. We have made some progress there.

Bill Crothers: It is about training or education in the broader sense, so it is not just classroom training. These contracts or relationships are some of the largest any commercial professional would come across. You are having a conversation with somebody who has a commercial relationship of £1 billion a year with us, so it is not just classroom training. It is getting people working with other experienced people from outside. It is having roundtables with practitioners from outside. A point that we wanted to make here is that the system traditionally has been quite insular. "Stagnant" is probably too strong a word, but with the suppliers who have supplied to us, the people typically have only experience in the public sector. The consultants who previously consulted to us had only experience in the public sector. The officials, to a very high degree, have experience in the public sector, so it is a system which looks in to itself and does not look out.

Stephen Kelly: Whereas, to look at another example, if you have dealt in purchasing and commissioning in the retail sector, you will have some very acute, excellent skills in negotiation, as you will know, because they are on wafer-thin margins of a couple of per cent., and therefore they demand much better performance from their suppliers, at a much lower cost.

Q494 Greg Mulholland: Does the training go down far enough in the Civil Service? The CBI has suggested that procurement should be seen as part of the policymaking process; therefore are we involving people at all levels to make sure that that is part of the thinking?

Bill Crothers: Yes. An example of that is that the Minister for the Cabinet Office and I plan to go and talk to this year’s Fast Stream cohort, and essentially recruit five or 10 of them to come and work in the commercial function. What you find is, for example, that the fast streamers do not get attracted to commercial in Government because it is not seen as a dynamic place to work. Policy is dynamic. I think if we get more interchange between people in commercial and people in policy and so on, we can make the system more vibrant. I absolutely agree: we need to go deeper and wider.

Stephen Kelly: The commercial skills need to be recognised for the value they provide. If we look at most of the senior Civil Service today, it is probably dominated by policy people. Some of the skills Bill has alluded to can be done through training, but also you can need a lot of "university of life" experience, having dealt on one side of the table managing large, complicated commercial constructs.

Sally Collier: I think some of the foundations have been laid. The new Civil Service competency framework has for the first time a commercial competency, so every civil servant coming into the system will be assessed on this competency. I think that is a fundamental change too.

Stephen Kelly: It is getting recognition for the Civil Service Reform Plan, which you have profiled before, has capability, and for which Bill sits on the commercial stream as well. We are gaining momentum and recognition, but honestly, if we had a magic wand we would be a lot further ahead on this today.

Q495 Chair: We are all making these generalisations that we do not have the skills and we do not have the people we need in these jobs. Have you got a register of procurement professionals across central Government? What data are we working on here? What data have you got?

Bill Crothers: No, we do not. That is probably one of the points in front of you that one of the bloggers made. Again, it goes to the system working as a single system. We talked about dealing with suppliers as a single Crown. Under the reform agenda, we have had it approved by the Civil Service Board-that is the highest governance group in the Civil Service at official level-that we will set up a scheduling system.

Q496 Chair: That is not what I am asking. I am asking: where are these people in government who have procurement experience? Have you got a database of them? Have they been put into the right jobs?

Bill Crothers: We have had approval to put those names, and their experience and skills, into a central database.

Q497 Chair: It sounds, as usual, like central Government is making a very simple thing very complicated. You must be able to ring up each Government Department and say, "Can you just send us a list of your procurement professionals? Who are they and what jobs are they doing?" Is it very difficult? Mr Kelly?

Stephen Kelly: Where we are today, Mr Chairman, is that we have got a lot of officials who are very diligent but the reality is that we have got a lot of suppliers out there whose business model is on a collision course with us, where we want to take money out of the system and they want to, effectively, operate in a proprietary model that is pretty closed, and we need some people with a lot of selfconfidence. It is not just the competence and skills; I would broaden it, because it is probably the case that of the commercial professionals in Government, some of those have come from the private sector. My worry is that, in some cases, I would argue, the Civil Service structure in the past has actually stifled innovation and the confidence of those individuals to do the right things.

Q498 Chair: But if I asked you to produce some numbers for us on how many procurement professionals there are in each Government Department, could you produce that for me?

Bill Crothers: Not today.

Stephen Kelly: Not today. We know there are 3,500.

Q499 Chair: We know there are 3,500 people doing procurement jobs. The new DirectorGeneral Rail is in charge of a big procurement programme, but I understand he has very limited-certainly no private sector-experience of procurement or project management.

Bill Crothers: It is a she.

Chair: I do not want to malign the individual in any way; that is what I have been advised. Is that what we expect to happen in the public service now, or should the Cabinet Office be more determined to make sure that people with relevant experience finish up in the relevant jobs?

Stephen Kelly: I think, Mr Chairman, you are right. I would love to tell you that we have done that already, but that is not the case. We have the procurement reforms to ensure-

Q500 Chair: So a recommendation to that effect from us would be quite helpful.

Stephen Kelly: That would be very helpful, and that is part of the work plan Bill is working on, to have DepartmentbyDepartment skills of those 3,500, where they are broken down: what makes sense to be centralised; what makes sense to support their specialist buyers; and these large, multiyeartype complex negotiations, where Bill’s central team of really expert negotiators can do a great job for the Department delivering contracts that do what they say at the best, most favourable commercial terms.

Chair: Excellent.

Q501 Kelvin Hopkins: You have touched on my question, but I will give you a chance to elaborate further, if you like. Management information on procurement across the whole of Government has, apparently, improved, but to what extent? How far have we still got to go?

Bill Crothers: It has improved, as I said. Two years ago, it was just unbelievable that at the centre we did not know what we spent on which suppliers in total. We just did not. We have now, through this PIF, this investment fund, got a database in the centre where we know spend by supplier, by Department, by time period. It is not as timely as we would like; we would like it to be at least monthly, given that it is being fed off accounts payable, so it is a monthly cycle. It is not complete; it is at the 90% level, so it I would like it to be complete, and it has got some aspects in it that need to be normalised. Suppliers appear in several places as different types of suppliers, because they use different names. It can be improved in that way. It is also quite linear. It is not easy to visualise and use it, it is just clunky, and I think we can improve that. That is how we can go. We can make it more timely, we can make it complete and we can make it easier to use.

Stephen Kelly: The other thing linked to that, which you may have heard of, is QDS-the quarterly data report-which we would love to give you copies of. That started off probably about six months ago. That is at the Crown level, and now we are going at the departmental level, so you can compare, Department by Department, what they pay for a laptop or what they pay for their estate costs. Effectively, again, I think through transparency and shining the spotlight on how much various Departments are paying for their goods and services, it will drive the right behaviour in terms of getting more for less.

Bill Crothers: I made the point about perfect information helping perfect competition. We are in the market all the time. UK Government, central Government, is in the market all the time, essentially for the same services. If we could get that information flowing back easily throughout the system then we would be better placed. It is not just spend; it would be things like prices, margin, performance data and so on. We are working to get that sort of information moved around the system more easily and then used. You get the data, but you have to draw insights and take action, and if you are not used to having the data you do not know what to do with it. Part of it is getting the data and part of it is training people to make use of it, and also not be frightened, because people feel it is a bit unfair to use that information against a supplier. We get information from Department A to use in Department B against a supplier, and they feel that is not quite right, just because it is not the way it has been done.

Stephen Kelly: Mr Hopkins, it is the case that for the same consultant they leave one Department one day and they go on a different charge rate the next day. That is the sort of thing we need to stamp out.

Q502 Chair: Can we just register that point? You have got the same consultant charging different day rates to different Departments.

Stephen Kelly: In the past, yes.

Q503 Chair: Percentage variances?

Stephen Kelly: There is one company that probably has, what, 30 different rate cards?

Bill Crothers: I will give you an example. This is a slightly different example, not the same individual. We do have examples of individuals-I could not give you the variances, but we have the same company charging different prices to different Departments.

Q504 Chair: Order of magnitude variation?

Bill Crothers: In some cases 40% or 50%-big variances. We have one particular contract with one particular supplier in a Department, where the number of day rates in the contract is in excess of 200 or 250 separate day rates.

Q505 Chair: The problem is a culture of thinking it is indecent to ask about the price.

Bill Crothers: Yes. It is not my culture, but yes.

Chair: There is that reticence.

Bill Crothers: It is more about confidence. Remember, you have suppliers who are highly paid and highly remunerated, based on performance. If they do not perform, they will be gone, and they are on repeat. This is what they do for a living, against a midlevel official who is not earning that much and does not have the confidence, naturally, to take these guys on.

Q506 Chair: This confidence is what we mean by lack of commercial skills, is it not?

Bill Crothers: It is a work in progress, but we are redressing the balance.

Stephen Kelly: To give you some colour, these suppliers typically have complete knowledge and data about all their relationships with the 17 Departments, and in the first phase, when the Minister brought people like Bill in, I would say the suppliers’ natural reaction was that some of them got on board and are starting to understand there has got to be a new way of working with Government, but some of them are playing possum, as I would describe it-folding their arms, sitting back and hoping we will go away.

Q507 Kelvin Hopkins: It reminds me of experiences 40 years ago, when I was a councillor. On one occasion we had some contractors and some consultants from the commercial sector talking about business matters, and it dawned on me suddenly that the officers were completely out of their depth. They started saying "Councillor, what would you like to do?" At the same time, in the same period, I had information that the builders who were building our council houses were charging us 10% more than they should do. When I raised this in the council chamber, virtually slandering the local builder, I expected a writ and I expected to be challenged. There was not a dickybird-nothing. It was reported in the press; not a single word came back to me, either from the builders or from the council offices. Nobody said a word.

Anyway, on the balance of problem, obviously there is a problem with processes and systems on one side, but what you are suggesting really is that the problem is largely with civil servants, not so much the systems. Where does the balance lie between the problems?

Bill Crothers: I do not think that is right. I was getting a bit concerned that we are giving you the impression that it is all about the civil servants. I do not think that is fair. We have given you lots of examples of bad practice, a number of which we have addressed. The fact that we know the bad practice is good, knowing there is stuff you can address. Being a commercial guy in the Civil Service is quite challenging. The scale of the relationships, the complexity, and the public scrutiny are all harder than if you are in the private sector. I do really think they have a hard job, and I spent 25 years in the private sector. I also think we have, just by habit, told them to do the job in a certain way. We are now telling them to do it in a different way, and some are adapting quicker than others. Given the fact that we, as a matter of policy, said, "Treat each Department separately and do not share information", it is hard for people suddenly to act differently. I had a reasonably senior procurement chap say to me "You do not understand. We cannot apply judgment." That is what he thought.

Chair: Crazy.

Stephen Kelly: On that, we have spent a lot of time and money investing in managing the process of procurement, but as Bill said, actually, it is the specification and commissioning where you save the money, and then the contract management. We have not focused on those areas at all. You can run the best procurement, but you are buying something that is goldplated, you are paying too much for it, and then you are getting managed by the supplier downstream through change control notices.

Q508 Chair: That moves us neatly on to engagement with suppliers, and risk management and risk transfer. I think you have just said it: there is not enough constructive engagement with suppliers because of a kind of reticence, that they must not get too close. Endlessly we hear suppliers saying, "If only the customer would talk to us a bit more we could help them more." Is this just suppliers talking their own book, or do you have some sympathy?

Bill Crothers: I do not think there is much truth in that. I do not know which suppliers have been speaking to you, but if they are the large oligopoly suppliers, the suppliers with lots of business-

Q509 Chair: No, I think we are talking about the people who are not in the magic circle.

Bill Crothers: I think then that that is true.

Chair: Which is most of them, of course.

Bill Crothers: In this buying and managing stuff, you divide it into three. There is preprocurement, there is procurement, and there is contract management. Before we start a formal procurement, generally the habit has been not to talk to suppliers, because people think you have to have a level playing field. If you talk to one, you have to talk to them all in the same duration, and so engagement tends to be 80 suppliers in a room, a PowerPoint deck of 80 slides. We should do much, much more with the innovative, the small and the new entrants to make a market.

Q510 Chair: How do you do that without getting all tied up in legal knots?

Bill Crothers: There are no legal knots. It is what a private company would do. If you apply good practice, it is fine. You just need a skill in doing it.

Sally Collier: We have made progress in this area. The CBI, in their recent report, gave us a pretty good mark in terms of implementation of what they call preprocurement dialogue. The whole ethos of running a Lean procurement is you do much more premarket engagement, preprocurement dialogue, and I think the CBI has confirmed that practice is changing. We have still got a long way to go, as Bill said, but I think we have got some evidence that suppliers out there do think it is changing.

Stephen Kelly: Mr Chairman, the last bit of that is some good news. Where we have done that and done it intelligently, we have taken a contract from the oligopoly worth £4 million and got the same service and better outputs for less than £100,000.

Chair: There you are.

Stephen Kelly: It does work. The other thing I would say is that you started off your statement about risk transfer and responsibility. Candidly, I do not know what happened 15 or 20 years ago, but we seem to have passed the keys to the castle across to the other side of the table in a naive assumption that all the risk would transfer as well. The reality is we carry the risk. We will be back in front of you guys if things go wrong, and I think the elimination of any naivety in that is fundamental to us making wise decisions.

Q511 Chair: We are defeating the naive idea that all risk can be transferred.

Bill Crothers: Absolutely. The risk will always stay with us.

Stephen Kelly: Absolutely. It always stays on this side of the table. Fundamentally, I think, the other thing that is really important is that we remember who our stakeholders are: the Ministers, Secretaries of State, taxpayers and citizens.

Q512 Paul Flynn: We were told last week by Dan Ward, a serving officer in the American Air Force, that his remedy for reducing the cost of procurement was a system with the acronym FIST: fast, inexpensive, simple and timely. The system we have is complex, random, asinine and prodigious, which spells "crap", significantly. Do you think if we reached this target of 25% small and medium enterprises, we could simplify the system?

Sally Collier: The first acronym is exactly the one we are aspiring to, and exactly the one that we are trying to put in progress. We absolutely need to change from large, monolithic, complex contracts to chunking contracts up, particularly in the ICT and digital space. We are putting in place mechanisms to allow that to happen, so G-Cloud, for example, is a framework procurement, but it is a framework procurement like none we have ever seen before. It is dynamic and it is fast; suppliers come on and off. The suppliers are telling us they love it. It is a very quick accreditation process. Some of the barriers that we have removed for SMEs aim to do exactly the things that you suggest, taking out bureaucratic processes, abolishing pre-qualification questionnaires for lowvalue contracts; all of those things aim to do what you suggest. It is a fundamental opportunity; what we need for that to be more systematic throughout the entire system is this culture change that Bill and Stephen talk about. We need people to have the confidence to say, "I do not need to let that contract in the way I have always let that contract". Coming at it from a completely different perspective actually could release an order of magnitude difference in savings from that which they would have got if they had just done the same thing.

Q513 Paul Flynn: One of the appealing arguments that Dan Ward had was about someone coming along and saying, "I will explain this with my PowerPoint presentation", and the PowerPoint presentation was like a painting by Picasso, with literally hundreds of lines, drawings and connections, but utterly incomprehensible. The suggestion was that by convincing the audience of the depths of their stupidity, you encourage them to be passive and accept something that they do not understand. Does this happen particularly in IT?

Sally Collier: Absolutely, I would say, and I think that Bill illustrated that with his rate card as well. If you have got 200 rates, how do you possibly get to the bottom of what the real price is? Yes, there are many examples of where this complexity has stifled the innovation that Stephen talks about.

Stephen Kelly: When you get that complexity, you get played threehand card tricks, and you have no clue what is going on. I think it is probably the case historically that we have seen gold plating on everything, boiling the ocean, overspecifying, and then we are, candidly, victim to suppliers who are much more commercially astute running change control processes, whereas things like eauctions, the preprocurement process and early market engagement-is it moving fast enough? Probably not. Could we go faster? Probably. However, we need support to drive that attitudinal change and cultural change. Where we have used SMEs, there have been significant benefits. The other thing we have to say, Mr Flynn, is that occasionally one will go wrong, because that is the reality of managing billions of pounds of procurement. If you are actually encouraging and using SMEs, particularly across the UK, which is fantastic, it is not going to be perfect all the time. We have to be realistic and grown-up about that.

Q514 Paul Flynn: I am sure there was an inquiry in this place into the groundnuts scheme, in about 1949, where they came along and said, "It was the last lot. It wasn’t me, it was someone else, and it will be all right in the future." However, it rarely is. Can you give me an example of the Contracts Finder website? Has this had a positive impact on the ability of SMEs in the third sector to compete for Government contracts? Is it working?

Sally Collier: Yes, it has. Many, many thousands of contracts have been advertised. It is a free service; that did not exist before. Suppliers had to pay to get access to opportunities. I think something like 30% of those contracts have been flagged as being awarded to an SME. The fact is that we have it and that there are many thousands of documents. There is some really great commercial intelligence on there; what we need to get better at is mining it. Suppliers need to get better at mining it, because there is a lot in there. Is the search engine perfect? No. Can it be better? Yes. Are we working with the Government Digital Service to improve it? Yes. Contracts Finder is great; it has enabled more SMEs to have visibility of contracts. Do we need to continue to improve it? Yes, of course.

Q515 Paul Flynn: It is 30% of what?

Sally Collier: Of the contracts that were advertised on Contracts Finder, flagged as awarded to an SME.

Q516 Paul Flynn: As I understand it, the target is 25% of total contracts, is it not?

Sally Collier: The target is 25% by value.

Q517 Paul Flynn: What would your 30% of those advertised contracts be?

Sally Collier: It is two different things. The target is measured by value, and the NAO report confirmed that we are increasing the amount of business that is going to SMEs by value. What I talked about is number of contracts on Contracts Finder.

Q518 Chair: Looking at the table that DWP has furnished us with, it is 10% in 201112 of value went to SMEs. What figure are you expecting in the current year?

Sally Collier: We are currently collecting the data for the third quarter. We would expect to see that direct figure-that 10%-continue to improve. We are also getting more and more data all the time on the indirect, so the supply chain data. We cannot tell you at this point in time what the outturn would be for the end of the year, but we are of course continuing to track progress against the 25%.

Q519 Paul Flynn: Do you look forward with optimism to your returning in two years’ time and saying that it is 25%-plus?

Sally Collier: Yes.

Stephen Kelly: Yes. It is easy to sit here as Government looking at the market and saying, "Wouldn’t it be great for all these SMEs to work with us?" but before I joined the Government, I was a board director of six SMEs that created about 150 jobs in the UK in the last two years. When I talked to the chief executives of those companies, they would never for a day think about bidding for Government, because they think it is difficult, it takes years to bid and they have no chance of getting business. We need to break down attitudes out there in the marketplace that make us appear very difficult to do business with. Things like checkpoints and checks and balances like mystery shoppers are starting to help do that. I think I had 328 enquiries or complaints under that, of which over 80% have been resolved. In one case, interestingly enough, there was a company that lost a contract and was investigated. They were in the process of making people redundant and because of the mystery shopper process that was not necessary. Again, we are starting to, but it is early days on this. It has been two years. I think we have gone from 6%-£3.2 billion-to 10% now, but absolutely, Mr Flynn, if I come back here in two years and we have not seen significant uplift in those numbers then we will be hugely disappointed. We would have detailed questions from you accordingly, I am sure.

Paul Flynn: We will live for the moment when you return and report great success.

Q520 Chair: Do you think PFI special purpose vehicles should be included in the figures for SMEs? Because they are not really SMEs; they are the creatures of very big businesses, very often.

Bill Crothers: It is an error, really.

Sally Collier: The answer is that if a special purpose vehicle is owned by a larger company-

Q521 Chair: Obviously if it is not owned then it is a standalone company and you count it as a small company. I am just saying that that is rubbish, really. I mean, Tube Lines would have been an SME on that basis, even though it was owned by major companies.

Sally Collier: I think this is the process of getting better at our data all the time.

Q522 Chair: Is that a yes or a no?

Bill Crothers: It would not be appropriate to have SPVs treated as a SME.

Q523 Chair: You say "would not be appropriate"-

Bill Crothers: It is not appropriate. We gathered data, and we had a technique that included them; the technique was wrong and we are filtering it out.

Q524 Kelvin Hopkins: How do we look after the UK’s interests while staying within the boundaries of EU directives? It is suggested that on the continent they use every trick in the book to avoid EU directives bearing down on their economies, whereas we get stuffed every time.

Stephen Kelly: Let us start with some good news that Sally told me on the way. Sally said we, the UK, are second in the league of all contracted business across European Union countries, second only to Germany. However, it is a fair question, and I think we have got some views on this.

Sally Collier: I am not going to sit here and say that we are perfect at this; of course I am not. Would we like a much simpler set of rules? We would like no rules at all-potentially. I think there has to be some framework by which you judge how to award a company business, and that happens in the private sector. We have these rules. What my job and my team’s job has been over the last 12 months is to influence the Commission and the Parliament to the greatest extent to get a simpler and more flexible set of rules. I think we have been pretty successful. We are not over the line yet: we have still got parliamentarians to get over the line in the next three months. It is a constant battle to put our interests forward in Brussels, but also-as I think we have talked about earlier this afternoon-traditionally, procurement people like process. I think it gives them the kind of power of knowledge. The vacuum we talked about earlier is filled. Procurement officials in the public sector know how to run this process.

Chair: Do they?

Sally Collier: We need to switch that culture. We need to stop talking about the process, and talk about the bits outside that. The process is the process.

Q525 Chair: What you are saying is, sadly, public officials love process, when in fact they should be thinking outside the box.

Sally Collier: Outcome. We need to be thinking all of the time about outcome and money, and not the process.

Bill Crothers: It is not as much of a constraint as it is thought to be. We could make more value and more savings, and still keep within the rules.

Q526 Kelvin Hopkins: Does it need special training for civil servants, though, to do the best job they can for UK plc?

Bill Crothers: Yes.

Sally Collier: Of course.

Q527 Chair: We are all very keen to get good value. Do these rules help us get good value, or do they gum up the system and make it more complicated?

Bill Crothers: They make it more complicated. However, we could also conduct activities that are not covered by the rules that would give better value. The example I gave about pricing multiple rates is nothing to do with the rules. That is how the system is applied. Us spending time encouraging new entrants, and not just going to the oligopoly, is not about the procurement process.

Q528 Chair: How much time do you spend trying to explain to officials that they do not need to overinterpret the rules, and that actually they are much freer to use their commercial judgement than they think they are?

Bill Crothers: That is true. That is true. It is a limiting factor, probably, in their attitude because they feel constrained-not all of them, but they feel more constrained than they actually are by the rules. They can do more activity than actually they realise.

Q529 Chair: Anything else you would like to add?

Bill Crothers: It is probably just worth mentioning that we are in the process of recruiting a number of Crown representatives. These are the senior people who will take responsibility for each of the large suppliers, and we are going out to the private sector, recruiting at quite a senior level, to bring people in. It is a way of bringing in boardlevel experience, parttime, to face off to the suppliers and to help us train the people in the system, so that they learn by doing, not just classroombased. That is an important initiative in the next month or so.

Q530 Chair: Anything, Mr Kelly? The last word.

Stephen Kelly: The last word is a quick summary: work in progress, some good progress; however, some ambitious plans for the future, and a real awareness what the roadblocks are around capability, culture, confidence, and data. Any support this Committee could give us to break those roadblocks down would be greatly and warmly appreciated, most of all by the taxpayer.

Q531 Chair: I have just remembered one other thing I wanted to ask. This £4 million procurement that turned into a £100,000 contract. What was going wrong? Why was it going wrong?

Bill Crothers: We are in the land of IT.

Chair: Surprise, surprise.

Bill Crothers: The larger number was an incumbent. I would assert that at least one reason is that they had become complacent. They were comfortable with their position.

Q532 Chair: Were they just trying it on?

Bill Crothers: We went out and engaged 20 or so small, more innovative companies. They all came in with a similar price. When we awarded it, the incumbent said, "That’s not what you asked us for", and they were right. It was not exactly the same, but actually what we got was good enough. They did not think-using the jargon-outside the box and think, "How could I make it the cheapest?" They just thought, "Well, it is a few million". We achieved it by engaging with people outside the system.

Q533 Chair: This is exactly what we heard during our IT inquiry, particularly about how to convert legacy data on old ICL systems into modern systems. We had SMEs telling us, "This is quite straightforward. You do not need to spend a huge amount of money," but you have got other people telling us, "No, no, no, it is extremely dangerous and you will have to do it very, very carefully, it takes a very long time, it is very complicated and will cost you a very great deal of money." How do we crack through these problems?

Stephen Kelly: Actually, one of the things our Minister is very keen on is having almost a top 10 of examples of, "It was X and now it is a tenth of X".

Q534 Chair: If you want to send us any more examples-

Stephen Kelly: We will do.

Bill Crothers: We will send you the examples.

Stephen Kelly: We will send you the complete list.

Chair: Thank you very much indeed. It has been extremely helpful; you have been very frank with us.