Procurement Bill [HL]

Written evidence submitted by Places for People Group Limited (PB31)

Submission of written evidence to the Public Bill Committee in relation to the Procurement Bill

1 Introduction: Places for People Group Limited

 

Places for People Group Limited are the UK’s leading Social Enterprise, and own or manage over 230,000 properties properties in communities across the UK that are the homes to around 500,000 customers.

In addition, we provide a vast range of services for those customers, including money and energy advice to help sustain tenancies. We build homes for people at every stage of their lives, ranging from students, first-time buyers, and young renters right through to those seeking to retire. Our focus is on creating inclusive places where people can afford to live and with facilities that help build thriving communities.

We operate 100 leisure facilities that support the health and wellbeing of our customers with an average of 1.9m visits a month. Through our expertise in this area, we bring health and wellbeing programmes to customers in all of our communities tailored to their local needs.

Using the power of partnership, we forge strategic relationships with like-minded organisations, including local authorities, public sector bodies, community groups, other housing providers, developers, and investors. By working collaboratively, we create communities that provide people with opportunities and choice in a way that few organisations can match.

2 Private Sector Frameworks

 

We would like to highlight an area of acute concern which is significantly diluting value for money for the Public Sector – that of Private Sector framework providers.

The issue, although technical, is having tangible and practical damaging effects on the sector – and is something that is not sufficiently addressed in the Procurement Bill in its current form.

2.1 Private Sector frameworks - Contracting Authority status

A framework or dynamic market cannot be created by a private company. They require a Contracting Authority (e.g., Housing Association, Local Authority etc.) to be the named party letting the framework /dynamic market.

In most cases – the private sector firm simply finds a ‘tame’ Contracting Authority to act as a ‘flag of convenience’ allowing the private sector organisation to effectively manage and operate the framework / dynamic market as a cash cow (often with a financial incentive or arrangement benefitting the Contracting Authority which is allowing them to manage/operate the framework by using their Contracting Authority status).

It is our opinion that Contracting Authority status is a privilege. With that privilege comes both a responsibility to ensure any frameworks/dynamic markets let in its name (regardless of whether operated and managed by themselves or a 3rd party) are reflective of the requirements of the Procurement Bill, and a culpability to be accountable if they do not.

In reality, the ‘tame’ Contracting Authority has little, or no awareness or control of the operational management of the framework or dynamic market let in their name by the private sector framework provider.

This could be remedied by considering the application of the principles of the Teckal exemption (vertical arrangements in the Procurement Bill) to these situations. This would ensure that the Contracting Authority would be required to exercise control and accountability for the frameworks or dynamic markets let in its name. It would also preclude private participation in the centralised purchasing body itself.

2.2 Private Sector frameworks – fees

Some of these private sector framework providers are charging hugely disproportionate fees (some in excess of 10% of the contract value) to the suppliers on their frameworks/dynamic markets, which are then passed on to the Public Sector as increased pricing – thereby diluting the value for money it receives.

Often these fees are not publicised, acknowledged, or communicated to the Public Sector customers using the frameworks or dynamic markets. This lack of proportionality and transparency is significantly impacting the value for money the Public Sector receives when using these frameworks and dynamic markets. It also denies the Public Sector of making informed choices when selecting the frameworks or dynamic markets most suited to meet their requirements.

The Procurement Bill currently states that the fees in any frameworks or dynamic markets should be a proportionate and fixed percentage of the contract value. However, the Green Paper - ‘Transforming Public Procurement’ - which the Cabinet Office published as a precursor to the Procurement Bill also mandated that the revenue generated by these fees should be used ‘solely in the public good’. This has subsequently been dropped by the Procurement Bill.

The removal of the requirement of transparency regarding fees levied to suppliers on a framework or dynamic market, together with the removal of the requirement to ensure the fees are used ‘solely in the public good’ is a glaring mistake which needs to be rectified in the Procurement Bill before it is codified into UK legislation.

The Procurement Bill (as it stands) is simply not strong enough in enforcing a level of proportionality, transparency, and ethical behaviour regarding these fees that would ensure value for money for the Public Sector by allowing them to make informed choices.

More worryingly, the market is already evolving to find ways of circumventing the (already diluted) controls already in the Procurement Bill. There is an increasingly common practice of introducing additional ‘membership fees’ to suppliers awarded positions onto frameworks managed and operated by these private sector companies.

A supplier recently told us one private sector framework provider had told them they would need to pay a £100,000 annual ‘membership fee’ in addition to any percentage fees if they wanted a position on a framework they were advertising.

This is a deliberate and conscious strategy to circumvent the Procurement Bill’s requirements on proportionality and transparency of fees. This, as we’re sure you will agree, is wrong on multiple levels. The ‘membership fee’ will simply be passed onto the Housing Sector in the form of inflated pricing. The application of a £100,000 fee regardless of the supplier winning any business from the Framework is morally bankrupt. Consequently, the SME market will simply be ‘priced out’ of competing for Public Sector contracts.

Another private sector framework provider has recently launched a new framework with similar ‘pay to play’ fees being levied on its suppliers. This private sector framework provider has structured the framework with excessive multiple lots, with multiple suppliers awarded to each lot. The structure of the framework is not for the benefit of the end user (the Public Sector), the structure of the framework is to engineer a cash-cow model, whereby as many suppliers on multiple lots are created. In doing so, this particular private sector framework provider will ensure it receives over £4,000,000 in ‘pay to play’ fees from the suppliers’ awarded onto the framework before is single penny is awarded through it.

These fees are neither published, nor communicated to customers in any manner. This is simply the enablement of greed, and the cost of this greed is ultimately levied on the Public Sector.

The misdirection, greed, and questionable ethical practices of these organisations is having a direct and tangible consequence on the levels of value for money achieved by the Public Sector.

The cost of this greed should not be counted in pounds and pence, but rather in the number of people in need that cannot be given a roof over their heads, the number of NHS operations that cannot be funded, or the lack of desks or equipment in our children’s schools.

Given the stark economic conditions we all face at the moment, the Procurement Bill’s lack of understanding or action with regards to the Private Sector framework providers’ management of fees associated to frameworks and dynamic markets cannot be left unchallenged.

Without greater rigour and clarity in the Procurement Bill which enforce the principles of transparency, proportionality, and public good the Public Sector cannot make informed decisions on which frameworks or dynamic markets to use, thereby risking the value for money it receives.

This is a real and tangible issue impacting the Public Sector, costing hundreds of millions of pounds, and unnecessarily diluting value for money. The Procurement Bill gives us a once in a generation opportunity to address this, and failure to do so would be unforgivable.

3 Transparency

 

3.1 The imbalance of transparency in the Procurement Bill

Whilst we completely support the principle of transparency within procurement, there seems to be a marked imbalance in the transparency requirements of the Procurement Bill. Whilst the procurement teams of public sector bodies will be tasked with a broad array of new requirements enforcing transparency, the central purchasing bodies who offer frameworks and dynamic markets to them do not.

In fact, as previously mentioned, the requirement in the Green Paper for the transparency of fees charged within frameworks and dynamic markets has been removed and does not currently exist within the Procurement Bill (in its current form), and we see this as a glaring omission, which is likely to have real and tangible detrimental effects to Public Sector procurement in the UK.

3.2 The administrative cost and burden of transparency

The administrative cost of the new transparency requirements of the Procurement Bill are not without consideration. We believe that most organisations (including our own) will need to employ one or two additional roles simply to support these new requirements.

We are also concerned that the broad and significant array of information required to be published may become effectively counterproductive and lead to a lack of transparency rather than an increase. The sheer volume of information available, may become confusing and difficult to navigate or digest. If this happens, the information is unlikely to be used (as intended) by public sector bodies, but instead will become the hunting ground for organisations simply looking for statistical data to grind political axes or otherwise.

4 Competitive award by reference to dynamic markets

 

4.1 Further clarity required

The ability for the Competitive Flexible Procedure to restrict participation to suppliers that are not members of an appropriate dynamic market (Clause 34) will need further clarification before use.

A definition of ‘appropriate’ will be required as a minimum.

Furthermore, is the intention that this restriction can be applied based upon a 3rd party dynamic markets or not? For example:

· Contracting Authority A restricts participation to its Competitive Flexible Procedure to only suppliers that are members of Contracting Authority B’s dynamic market.

OR

· Contracting Authority A can only restrict participation to its Competitive Flexible Procedure to suppliers that are member of its own (appropriate) dynamic market.

If Contracting Authorities are able to restrict participation of suppliers to Competitive Flexible Procedures based upon their membership of other Contracting Authorities dynamic markets, without communication or consultation with the other Contracting Authority, does this create a complex scenario of potential liabilities?

5 Contact Details

 

Please contact Alan Heron (Director of Procurement (alan.heron@placesforpeople.co.uk)) or Neil Jones (Head of Indirect and Group Procurement (neil.jones@placesforpeople.co.uk)) for further evidence, should this be required.

11th February 2023