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Local Authorities (Procurement)

Volume 543: debated on Tuesday 24 April 2012

It is a pleasure to serve under your chairmanship today, Ms Clark.

The Government, I am delighted to say, are committed to a localism agenda, which I fully support and welcome. A key element of the agenda involves freeing up local government so that more decisions are made locally, ensuring that central Government funding is less prescriptive. Even now, we remain a highly centralised country and more needs to be done to give greater freedom and more power to local authorities, giving them the ability to make decisions on local matters. With greater powers comes increased responsibility, and local authorities will have to rise to the challenge that the Government are offering them, which I believe they can do. Whether or not we think that they can rise to the occasion, we must realise the important role of local government in our country. We national politicians and national Government often underestimate the influence and importance of local government.

As well as acknowledging that power needs to be decentralised, the Government have recognised that the regions and large cities of the country can and should be economic drivers. They can boost economic activity and bring prosperity and jobs to their own city or locality. That concept not only applies to the large urban centres, but can be of equal significance to the smaller cities such as Carlisle and the smaller towns such as Stevenage. Even smaller towns and regions throughout Britain can also play a role. It is therefore clear, certainly to me, that local government has an extremely important role in ensuring the economic success of our country, and not only in the success of its own local economy.

Part of that role is the recognition by councils that they are significant purchasers of goods and services. To some extent, they can influence the success or otherwise of local businesses. In the UK, government spends in the region of £220 billion each year procuring goods and services; £42 billion of that is spent by local authorities alone—almost 20% of the national procurement spend. It is therefore abundantly clear that such procurement is of significant importance to local communities as well as to local economies. When a local authority purchases goods and services from local businesses, it is spending money in its own community, which benefits the local economy and local people.

Take the example of a local business providing a service or a variety of goods to an authority. The business will employ local people to deliver the service or to provide the goods to the authority; those local people employed by the business will, in turn, spend their wages in the same local economy, feeding directly into the general economic activity of the area. Such a virtuous cycle can have enormous benefits to a particular town or city, especially the smaller ones. Again, good examples are my own city of Carlisle and somewhere such as Stevenage. By the same token, procurement of services outside an area might save the council some money in the short term, but could easily have a detrimental effect on the local economy in the long term.

Before raising a number of issues with the Minister, I accept that proper procedures have to be in place and that appropriate rules need to be applied to any procurement policy. I also acknowledge and accept that any procurement policy of an authority has to take into account European law and other international agreements, as well as our own domestic law and, in particular, competition policy. The size and value of the procurement is also a key issue.

Does my hon. Friend accept that European Union directives on public procurement are often gold-plated by local authorities and act as a barrier to the ability of local companies to provide services for those authorities?

Yes, I do accept that. It probably happens at the national level as well. National Government should look at the issue and encourage local government to follow what could be their example if they watered down some of the policies coming out of Europe.

Clearly and rightly, an authority that wants to make a substantial purchase of goods or services must follow strict procedures, but there can and should be flexibility, particularly for smaller purchases of goods and services by local authorities. I accept that there must be clear procedures in place for smaller procurement contracts, that there must be openness and transparency, and that there must be no opportunity for inappropriate contracts. However, there are opportunities for local authorities through their procurement policies to help to support and to develop their local economy by procuring from local businesses and thereby benefiting the wider local community.

On procurement, surely we will cut off our nose to spite our face in many cases. The whole idea is to drive the economy locally for local companies, but many of those companies miss out because of the very point that the hon. Gentleman has raised about European legislation.

I take the hon. Gentleman’s point. Local economies and local businesses are the way to drive our economy. They are a key player, and we underestimate their importance. We must take into account the European dimension, and if that frustrates local businesses, we must try to do something about it.

I have taken the opportunity to look at Government advice on procurement policy, and the key point is that procurement must be value for money, normally through competition. I accept that that is generally the correct approach, and will often be the one that authorities will follow, but how we interpret the definition of “value for money” is a much wider issue. My hon. Friend the Member for Warwick and Leamington (Chris White) successfully navigated through Parliament the Public Services (Social Value) Act 2012. It requires local authorities, when they enter into procurement contracts, to give greater consideration to economic, social and/or environmental well-being during the pre-procurement stage. That is hugely welcome, and it is extremely important that councils are made fully aware of the Act’s provisions, and the potential benefits for their areas.

I firmly believe that it is incumbent on councils to take into consideration the impact that their procurement can have on their local economy, and the success or otherwise of local businesses, especially small ones. Local government procurement can be beneficial in giving local businesses the ability to grow and expand. That creates jobs, skills and investment in areas throughout the country, particularly those that are badly in need of investment. However, a negative effect can be created as easily, and can go beyond having a direct impact on a local business. It can spread into the wider community, lowering employment, and preventing money from being recycled through the local economy, leading to less money being invested in businesses in that area. It is clear how local government procurement has the ability to create a much less vibrant and successful local economy very quickly.

I want to be parochial for a moment. In 2010, the university of Cumbria produced a paper entitled “The Impact of Local Authority Procurement on Local Economies, The Case of Cumbria”. It found that increasing pressures on local authorities to be efficient and effective in their use of public resources may contradict the need to support local communities, particularly during a period of economic downturn. The findings suggested that many small and medium-sized enterprises throughout Cumbria relied on local authority contracts for business stability. Those interviewed throughout the county confirmed that when a more formal approach to public procurement is taken, coupled with a more defined definition of “value for money”, SMEs become more vulnerable.

To its credit, Cumbria county council's procurement strategy aims to increase the proportion of suppliers based in the county from 60% in 2010 to 65% in 2012. Collectively, the Cumbrian authorities have an annual procurement spend in excess of £300 million, more than half of which is spent locally. That sort of money can have a profound effect on any local economy, so I want to ensure that local authorities have the appropriate power and tools to ensure that they can promote and support local business through their individual procurement policies. I therefore ask the Minister to consider three key issues.

First, does he believe that the power of general competence for local authorities, which was granted by the Government in recent legislation, gives them sufficient additional powers to introduce or pursue a procurement policy that can examine the wider effects of their current policy beyond best practice? Secondly, to what extent does the Minister feel that the Public Services (Social Value) Act 2012, which was promoted by my hon. Friend the Member for Warwick and Leamington, is on the radar of local authorities; and how widely is it being used across the country? Finally, what measures does the Minister intend to pursue to help with the issue and to ensure that local authorities have policies that truly benefit their own locality?

I want Carlisle to have a vibrant, local economy, creating jobs and prosperity for local people.

My hon. Friend makes a powerful case, and the circumstances that he outlines as affecting his part of Cumbria are replicated in my constituency, in northern Lincolnshire. Does he agree that the important thing about encouraging and supporting local businesses is that they transmit skills to the younger generation and help with youth unemployment? Only last week I was at a business that had taken on apprentices, and that must surely be an important part of any local economy.

I completely agree. If the contracts from the local authority are with local businesses, those businesses clearly have an incentive to invest and create jobs, apprenticeships and opportunities for future generations.

I believe that local decisions that affect local communities should be made by local people, away from central Government. If local authorities were to adopt a more flexible but robust procurement policy, local economies throughout the country would reap enormous benefits. It would also be beneficial to the national economy.

It is a pleasure to serve under your chairmanship, Ms Clark. I thank my hon. Friend the Member for Carlisle (John Stevenson) for securing such an important debate.

The Minister is aware that more than £70 billion a year is spent by local government on the procurement of local goods and services, and even a small saving would make a huge financial difference. The Local Government Association is promoting the use of procurement hubs, which can save councils millions of pounds, and it should be congratulated on trying to develop tools to help councils come together to form those groups and deliver better value for money. It also promotes greater innovation: a subject close to my heart is that of using technology to promote jobs and growth. I commend the development of e-auctions in particular. Those are electronic reverse tenders, in which potential suppliers compete online in real time to win a contract. Case studies show a 15% to 30% saving.

My constituency of Stevenage is in the county of Hertfordshire and the 10 district councils have joined up with the county council to create Supply Hertfordshire, our own procurement hub. That has expanded to include the local NHS, the probation trust, Hertfordshire police, some housing associations and a range of other organisations.

My hon. Friend raises an interesting point. I have been talking about local authorities, but he seems to be pursuing the line not only that local authorities have a role to play, but that other public bodies, such as the NHS and police, can be equally significant in their procurement policies and in effective local economies.

I completely agree with my hon. Friend. In a county such as Hertfordshire, when the police, probation service and NHS are brought in, the amount of money that the Government are handing over to be delivered locally runs into billions of pounds.

Supply Hertfordshire’s ambition is to become the focal point for supplying to the public sector in Hertfordshire. That is an inspiring ambition and it has my full support. However, I am keen to ask the Minister what support the Government can give to help turn that ambition into reality and provide jobs and growth for my local economy. I am patron of an organisation called biz4Biz, which is a collection of local businesses. In Stevenage it is considered to be the voice of the small business community. It is involved in a range of projects, but we are all keen to understand why it is difficult for small companies, including many with multi-million pound turnovers, to get access to public sector contracts locally. I have been approached by businesses from all over the country that are concerned they are missing out on huge opportunities locally that would boost jobs and local economic growth because they cannot navigate the labyrinth of public sector procurement locally. Some companies have informed me that they have missed out on tenders a number of times, with very little feedback. As a result they can no longer afford the time and cost to their company of attempting another tender.

Other companies have been told that EU public procurement rules prevent them from even applying in the first place. I know that those EU rules are gold-plated locally at the expense of local companies, but that leads to a loss of opportunity, particularly for the younger members of our community trying to get their first job and first step on the road to a career. We can change that and we can make a difference. The Government are giving local people more powers under the Localism Act 2011, but we must go further.

Will the Minister consider asking local authorities to sign up to the principle that they, like the Government, should aspire to give 25% of their contracts to small businesses? In the case of local government, it would have to aspire to give 25% of its contracts to small businesses in the locality. Will he go further and urge local authorities to publish all successful tenders on their website, so that companies that do not succeed can benchmark their own bid against that of the successful bidder? They could then learn from their mistakes or possibly even challenge the local authority to have another look into it under the powers contained in the Localism Act.

It is a pleasure to serve under your chairmanship today, Ms Clark. My congratulations to my hon. Friends the Members for Carlisle (John Stevenson) and for Stevenage (Stephen McPartland) for their contributions. I particularly congratulate my hon. Friend the Member for Carlisle on securing the debate.

I am sure that hon. Members will be pleased, but not surprised, to hear that the Government are as keen as my hon. Friends to ensure that local government spends its money as effectively as possible. It is interesting that several different figures for that have been mentioned: my brief says that the figure is £62 billion a year. Whatever the amount is, it is certainly an awful lot of money and, clearly, there is significant scope for it to be spent better. That can help to save taxpayers’ money, reduce the overall deficit we face and, in many cases, lead to local authorities commissioning better and more appropriate front-line services.

I agree with my hon. Friends that local government has a good record. Indeed, if one were to speak to local government representatives, they would be quick to point to various studies that suggest that their value for money is, on the whole, better than central Government’s value for money. I do not want to convey the wrong impression in my contribution by suggesting anything different.

I want to use the available time to set out what the Government are doing to help the sector build on its procurement practices and to refer hon. Members to the parliamentary answer that the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Bromley and Chislehurst (Robert Neill), made, in which he set out a table showing the procurement expenditure in the last financial year for each local authority in England. He also set out the steps that the Government and the Department are taking. However, we are very much talking about a project led by the Local Government Association in England to develop a package of work to take forward the agenda.

Overall, as my hon. Friends have pointed out, the Government are aiming to put councils and communities back in control of their own destinies through the devolution of power and control over budgets to councils. Local authorities are therefore increasingly responsible for taking their own procurement decisions, subject to the requirements of best value legislation and the EU and UK regulatory framework.

There is no doubt that difficulties are faced by local contractors seeking to win contracts. In particular, smaller contractors may find that they are squeezed out, as has been mentioned. In fact, the EU procurement rules are not nearly as severe or draconian as is often suggested. Nevertheless, they are a constraint.

Value-for-money pressures can be balanced legitimately and legally by social value and environmental value. It is entirely right, legitimate and proper for those seeking tenders to set out such requirements in the tender process. Local authorities can therefore use the procurement rules to promote local enterprise, and the Local Government Association’s guidance “Buying into communities” is designed to help local authorities do that within the EU procurement rules. It helps councillors and officers in authorities to see how other authorities have utilised the rules to get the outcomes they want from their public spending. I therefore commend it to hon. Members, and I invite them to make sure that their local authorities are fully aware of the advice and support it offers.

Good procurement practice by authorities can help to promote opportunities for local small and medium-sized enterprises, helping them to bid for all or a part of a contract and to develop local skills. We heard from my hon. Friend the Member for Stevenage about the work Hertfordshire is doing, and we heard about Cumbria from my hon. Friend the Member for Carlisle.

Essex county council has recently done work highlighting how its golden triangle of procurement has utilised savings of £120 million per year and created about 200 apprenticeships. The Federation of Small Businesses has acknowledged that that has improved access to council contracts. It is clear that SMEs are a key ingredient in strong local economic growth, and public procurement is just one way in which an authority can help those in their area to grow. That said, it is a surprise and a disappointment that local firms still regularly mention obstacles such as pre-qualification questionnaires and duplicate tenders, as well as the difficulty of discussing forward work with local authorities and, therefore, of planning a sensible work stream and a sensible bidding strategy.

Recently, therefore, the Cabinet Office has announced a series of actions it will take to help SMEs get a greater percentage of contracts. One pledge involves reducing or removing the necessity for pre-qualification questionnaires, particularly where they are for work below £100,000. There is no sensible reason why an SME bidder would have to fill out multiple questionnaires several times over to compete for procurements, and such things do not give the impression that councils welcome SMEs’ business and trade. Aside from pointing out that such PQQs are unnecessary below £100,000, the Cabinet Office has produced its own model, four-page PQQ, which can be used instead of the often far too elaborate examples used by tenderers.

My hon. Friend the Member for Stevenage drew attention to the electronic tendering that takes place in Hertfordshire. He also mentioned the biz4Biz scheme. That is another area where local authorities can play a helpful part in supporting local small businesses. My local authority, Stockport, organises business-to-business fairs in the town hall, where large local enterprises are put in touch with small ones, and trade links are established. That is not about spending public money; it is about the council accepting that it has a role and some responsibility for ensuring that large companies in the area—or small companies for that matter—look first to the local providers of services before they look further afield.

The Local Government Association is working with the Federation of Small Businesses and with individual authorities to highlight exactly how procurement can be simplified and access broadened. There is, therefore, a lot of good practice and quite a lot of good understanding. Sometimes, procurement officers and councillors say that they cannot do such things because of EU rules or this or that piece of legislation, but quite a lot of what is said in those circumstances is purely and simply mythology.

That brings me to the questions that my hon. Friend the Member for Carlisle raised about whether the new provision in the Localism Act to give every local authority a general power of competence allows them to deliver a better performance on procurement. The answer to that is a straightforward yes. The general power of competence allows any local authority to do anything that an individual can do, which gives them a great deal of flexibility. Of course, they must obey the law and have regard to reasonableness. As my hon. Friend rightly pointed out, we could not have a wild west contracting situation. It is absolutely right and proper that due process should be followed, but within that councils have a great deal of discretion about how they proceed.

My hon. Friend asked whether local authorities were sufficiently aware of the legislation of my hon. Friend the Member for Warwick and Leamington (Chris White). Perhaps the fact that he has had to bring the matter to this Chamber today suggests that they are not. I am sure that he and I will want to contribute to a process of increasing awareness. Moreover, let me draw his attention to the work of my right hon. Friend the Secretary of State for Communities and Local Government in notifying councils about some of the opportunities that exist in their partnerships with the voluntary and community sector. Again, that underlines the point that they should be taking into account not just short-term, straightforward cost savings but the wider social and environmental impact of their decisions.

Beyond Cumbria, the north-west procurement portal is a good example of how the region is helping businesses to identify contracts more easily. At a quick look, there are numerous opportunities there, broken down by council areas and sub-regions, and the portal links to other portals around the country. Of course that is producing results in many places.

Through the efforts that have been made with the north-west portal, it has been possible for the 10 authorities in the Association of Greater Manchester Authorities, including mine, Stockport, to establish that they spend jointly £2.5 billion a year, that £300 million of that spend is different authorities spending with common suppliers, and that they are redirecting what they do such that 56% of their spend is now with providers based within the 10 local authorities and 69% of what they spend is spent with companies within the north-west. I am sure that there is further to go for many local authorities, but that gives an indication of what can be achieved when local authorities put their heads together and work at it hard.

My hon. Friend’s third question was whether I would be forcing local authorities to do things—

Sitting adjourned without Question put (Standing Order No. 10(11)).