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Local Government Procurement

Volume 577: debated on Thursday 13 March 2014

Before I call the Chair of the Communities and Local Government Committee, it might be helpful to the House if I explain again briefly the new procedure to which it agreed last year—[Interruption.] Order. If hon. Members are dissatisfied with the last statement, they must find another way of taking up their points and not cause a disturbance in the Chamber.

Essentially, the pattern is the same as for a ministerial statement. The hon. Member for Sheffield South East (Mr Betts) will speak for up to 10 minutes—there is no obligation to take all that time—during which no interventions may be taken. At the conclusion of his statement, I will call Members who rise to put questions to the hon. Gentleman, and call him to respond to those in turn. Members can expect to be called only once. Interventions should be questions and should be brief, and those on the Front Benches may take part in questioning. The same procedure will be followed for the statement from the Chair of the International Development Committee, which follows this statement.

I call the Chair of the Communities and Local Government Committee.

(Select Committee Statement): I am delighted to present the sixth report from the Communities and Local Government Committee on local government procurement, HC 712. I thank the Backbench Business Committee for giving us this opportunity, as well as our special adviser, Colin Cram, and the second Clerk to the Committee, Sarah Coe, who led the work in producing the report.

Local government spends about a quarter of its annual expenditure—some £45 billion—on procuring goods and services. At a time of financial constraint in local government, my Committee thought it timely to examine how successfully councils across the country are delivering value for money and meeting wider objectives. I am pleased that we found evidence of much good progress in many local authorities. Councils are cutting costs and reducing the burdens on those doing business with them, strengthening links with the delivery of community objectives, improving risk management, and taking steps to reduce fraud. We also found, however, that evidence of progress was patchy across the country. That is extremely worrying given that councils face the challenges of managing increasingly complex procurement operations, while at the same time, for obvious reasons, they need to make cost savings and preserve the quality of services for their communities.

The Committee makes a number of recommendations in the report about how the sector and its partners, including central Government, can work together to ensure that councils step-up their efforts to commit to delivering first-class procurement. As in all our reports, the Committee takes a localist approach, giving councils the freedom to tailor their approaches to meet local needs—hence we urge the sector to take the lead in this matter. The Committee makes three overarching recommendations and a number of specific points. I will refer initially to the three overarching points.

First, local government needs to lead the change in partnership with central Government and other partners. We commend the work undertaken to date by many councils and the Local Government Association. We endorse the sector-led approach to supporting council action since it is an effective means of spreading good practice while tailoring procurement to local needs. Nevertheless, a step-change is now needed for successes to be replicated across the country, and for detailed support to be provided to tackle all complex aspects of procurement. We therefore conclude that the LGA, with the support of DCLG, should establish a taskforce with representatives of the private and third sectors to develop an action plan for improving council capacity to conduct effective procurement. We recommend that the Cabinet Office dedicate resources to ensure that lessons learned in central Government are translated into effective council action where appropriate, and vice versa.

Secondly, procurement excellence needs to be embedded across councils, not seen as the preserve of a handful of specialists. A lesson we learned during the Committee’s visit to my city of Sheffield, was that procurement should not be seen as a niche activity, conducted in back offices by a narrow set of specialists, but rather as a vital cross-cutting activity that requires in-depth skills from all staff involved in designing, commissioning and particularly managing services once contracts are let. To achieve that, councils must step up training, and the sector—especially the LGA—needs to ensure that procurement skills are embedded across councils. Investment in procurement skills should be seen as a wise investment now because it saves money in the future. Councils should look at adopting the toolkit developed by Sheffield city council, and the Cabinet Office should consider how the Government’s Commissioning Academy can help develop the skills of local government officers.

The third overarching recommendation is the need for political and officer leadership. Procurement improvement must be spearheaded by council cabinet members and front-line councillors, with the close involvement of senior officers. We commend the LGA for putting procurement at the top table within councils. We can see considerable advantage to councils identifying a lead cabinet member and a senior officer who will take overall responsibility for procurement. Councils should also ensure that front-line councillors have a clearly defined role in reviewing and scrutinising procurement, including outsourced contracts, and their impact on services for residents. In the end, that is what is important: services for residents.

We would like all councils to make an annual statement to their full council meetings to set out their strategy for incorporating economic, social and environmental value in procurement, including employment terms and conditions, impact on local economies and small businesses, and relationships between contractors, customers and the relevant councils.

In total, the Committee makes 29 specific recommendations. You will probably be pleased to hear, Madam Deputy Speaker, that I do not have time to go into all of them, but I will mention some key recommendations.

On value for money, councils have shown that they can save millions of pounds through joining up with each other and other public sector bodies, directly or via procurement organisations, to buy some goods and services. However, opportunities are not being taken fully and we estimate, conservatively, additional savings of approximately £1.8 billion could be achieved with better collaborative approaches. The LGA should review collaborative approaches and produce best practice guidance. It should continue to focus on supporting councils to collaborate in key spend areas—particularly in IT, energy and construction, where it is relatively easy for collaboration to save money—while recognising the importance of local freedoms and flexibilities. Securing savings should not come at the expense of delivering wider commissioning objectives, such as supporting local economies. There can be no compulsion to collaborate or to join a centralised procurement body. Councils must retain the flexibility to deliver local priorities, but should consider examples of good practice.

On delivering economic, social and environmental objectives, the Committee was clear that councils should exploit fully the potential of their procurement spend to deliver local strategic priorities, including social, economic and environmental objectives, by letting contracts, as appropriate locally, on the basis of best value, not simply lowest price. A case in point is support for small local businesses, which all local authorities are keen to support. Some 47% of council spend is currently channelled via small and medium-sized enterprises. There is clearly much good practice, but more could be done, for example by the LGA disseminating best practice and guidance.

On reducing costs to businesses, the cost to a business of a typical council procurement exercise can be about £40,000 to £50,000. A Centre for Economics and Business Research report published in July 2013 found that UK procurement processes were the most expensive in the EU and took some 53 days longer than average. Too many councils are applying EU regulations over-zealously. The Government and the LGA should spell out what is a proportionate approach. Pre-qualification questionnaires should be standardised, so that councils do not require a new form for every contract and potential suppliers do not find themselves having to fill in different forms for every local authority and every public body. There should be standardisation to reduce costs. Councils must include requirements in contracts that contractors stick to timetables for paying their subcontractors right down the supply chain, with spot checks on implementation. It is not acceptable for firms to delay payment, which puts smaller firms, in particular, at risk of cash-flow crises.

Outsourcing a contract does not mean outsourcing responsibility for ensuring quality and consistency of service to residents. It is therefore alarming that in the worst cases councils not only fail to monitor quality but bear the costs when a contractor fails to deliver its side of the contract. It is vital that councils are equipped to manage complex contracts. Greater voluntary collaborative work between regional procurement bodies can open up access to specialist procurement skills to help to tackle this problem.

On fraud, we found little hard evidence of significant fraud, but widespread unease that, as more services are put out to tender, local authorities are at much greater risk. Councils must not “let and forget” contracts, but proactively tackle fraud throughout the lifetime of a contract, not just during the tender phase. Contracts let by public bodies must be transparent and performance against them auditable. We support the Government’s commitment to open-book accounting. Councils should consider placing similar requirements on information provision by contractors as applied to a public body under freedom of information regulations to provide a level playing field. We heard that one of the best means of identifying fraud was whistleblowing. More needs to be done to support whistleblowers and the Government must publicise arrangements for an anonymous reporting channel.

The measures set out in our report will help to achieve a vision of better procurement and commissioning from local councils. We hope that the Government, local government sector leaders and individual councils will pay heed to our recommendations.

I welcome the statement and the contribution we have all made to the report. Does the hon. Gentleman agree that we uncovered many examples of good practice, but that no authority is doing all those things? We desperately need to ensure that examples of good practice are followed by all local authorities, so that every resident benefits from the good practice of the best authorities.

Absolutely. That was the theme right the way through the inquiry. There is a lot of good work out there and the best way to persuade local authorities to change is to show them another local authority that is doing things in a better way. That is why the LGA is key to delivering improvements; with many of our reports, that is probably not the case. We are looking to the LGA and the Department for Communities and Local Government to work together to set up a taskforce to bring examples of good practice together and disseminate them to councils up and down the country.

I thank my hon. Friend for his excellent chairmanship of the Select Committee and for this inquiry in particular. If he were to read my article for the new think-tank, the Entrepreneurs Network, he would see that I suggest a kitemark scheme for local government that encourages councils to be small-business friendly, not least on procurement. Does he think that the LGA could adopt that and take it forward?

The Select Committee did not consider that particular proposal, but it is interesting. We recommend that the LGA sets up a taskforce and I am sure that that is something it can consider. Indeed, every council should consider it. One of our recommendations is that once a year there should be a report to the whole council on a local authority’s procurement practices, with specific attention given to how local authorities deal with small businesses and local businesses as part of their commissioning approach. That is something individual councils could consider, too.

I thank the hon. Gentleman for his Committee’s report. Procurement is about not just getting value for money, but ensuring that small local companies can access contracts. Did the Committee consider the procurement of local food and produce, so that we have the chance to ensure that good quality, high welfare standard food is fed to our children and used in our hospitals?

We did not look specifically at food contracts—obviously, with £45 billion of spending, there is a wide range of contracts—but we found that local government commissions and procures about 40% of its expenditure from small businesses. That is a higher percentage than for central Government, so there are many good examples. We recommended that councils should have an annual report. That would allow them to consider how to deal with small businesses and tailor commissioning to enable them to compete for contracts; that is an important element of the recommendation. That should be embedded in council policy from the beginning. Councils should not just suddenly think, “Oh dear, that contract hasn’t really given small businesses a chance” after it is let. It should be embodied in the policy of the council from the beginning.

I congratulate my hon. Friend, the Chair of the Select Committee on which I serve, on his statement. Does he agree that the £45 billion of procurement for which local government is responsible makes a considerable contribution to economic growth and sets a good example—I think he alluded to this in his response to the hon. Member for Tiverton and Honiton (Neil Parish)—that central Government would do well to follow? Procurement should benefit the British economy rather than being expended overseas, something we unfortunately see with central Government procurement, such as with the contract for the Thameslink deal that should have gone to Bombardier but went to Siemens.

Some of the councils that we studied took a robust and considered approach to benefits for their local economies, while others did not do quite so well in that regard. Again, it is necessary to learn from good practice. We asked the Government to carry out a post-legislative review of the Public Services (Social Value) Act 2012, which gives councils certain responsibilities, to consider its impact on local economies, and to extend its social value requirements to smaller contracts, which it does not currently cover.

I welcome the report, but I urge my hon. Friend and the Committee to go further. I asked a succession of ex-council officers, serving officers and members of residents’ associations in the London borough of Hillingdon to consider some of the issues raised in the report. Let me give some examples. The first is the use of part 2 of the “Cabinet Meetings” document to maintain secrecy on matters relating to contracts that should be open and transparent, including poor performance and, in particular, decision making by councillors. The second is the use of compromise agreements involving a gagging clause preventing staff from exposing what has gone on after they have left.

As for my third example, let me introduce my hon. Friend to a term that is currently being used in the London borough of Hillingdon: the term “be restructured”. It means that the department of a whistleblower, or anyone who questions or criticises any decision made by the council, particularly decisions made by the leader of the council, will suddenly “be restructured”, and the whistleblower will be without a job. That is unacceptable. I think that I was the first Member to refer to the Transparency International report in the Chamber, and I am glad that my hon. Friend has drawn on it, because it revealed the openness of local government to abuse and, indeed, corruption. I think that we must be eternally vigilant.

I urge the Committee to move on to the agenda that has been set out in my constituency, and look into the concerns that have been expressed about local government performance in our area.

My hon. Friend has raised a number of points. Let me deal first with his point about transparency. We support open-book accounting, but I accept that that means opening the books to the councils themselves rather than a wider agenda. Freedom of information is often not applied to every aspect of a contractor’s dealings. We urged councils to consider making that so, but did not direct them to do so because ultimately this is a local matter and they should be free to make that decision. As for whistleblowing, we concluded that a clear system that contractors would be required to adopt should be written into the contracts. There should be no effect on a whistleblower. They should be protected as part of the contract. If any whistleblower raises concerns with a contractor, the information must be passed on to the council. We also considered ways of enabling whistleblowers to draw attention to problems anonymously, which would probably involve a role for the National Audit Office.

I congratulate my hon. Friend on his statement. He rightly referred to a move from lowest cost to best value. He will, of course, be aware of legislation passed by the last Labour Government, which stipulated that all public bodies should procure only legal and sustainable timber. Did the Committee carry out any investigations of the progress that local authorities are making in that respect?

I am afraid that I cannot provide a great deal of further enlightenment. We did not receive much evidence relating to the environmental elements of local government commissioning. What was clear to us, however, was that, although cost is obviously very important to councils at this time, other important issues, such as the quality of service, economic and social added value, and indeed environmental impacts and implications, should be considered by councils as part of their procurement strategies.

I welcome my hon. Friend’s statement. As the report makes clear, procurement is inextricably linked with local government aspirations relating to the pursuit of social value and community benefit, collaboration to obtain best value for money, greater transparency and a better understanding of risk. I particularly welcome the suggestion that there should be more guidance on best practice in procurement to increase the number of local apprenticeships and trainee opportunities. Does he agree that central Government should support that work, so that much more can be done locally to strengthen our economy and deliver good outcomes for local people?

Absolutely. We believe that that is now a matter for central Government—the Department for Communities and Local Government and the Cabinet Office, whose commissioning academy could be used to increase skills in local authorities—and for the Local Government Association. Many examples of good practice will be sector-led. A number of councils are doing excellent work across the political spectrum in encouraging contractors to take on apprentices as part of an overall council policy, but the practice would be a great deal more effective and beneficial if it were adopted by other councils. That aim is at the heart of our report.

I thank all members of the Committee for their work. I believe that the report makes many good recommendations that will enable us to make progress. It was approved by the whole Committee, and that is the basis on which we always try to work.

On a point of order, Madam Deputy Speaker. Before the statement, you were good enough to explain the procedures—which are rather novel for the House—that would govern its delivery and the subsequent questions. Can you tell me whether it is in order, when such a statement is made by the Chair of a Select Committee, for no Minister from the relevant Department to be present?

Further to that point of order, Madam Deputy Speaker. A local government Minister—the Under-Secretary of State for Communities and Local Government, the hon. Member for Bristol West (Stephen Williams)—was asked to attend, but he thought that the statement would be made earlier, and he had a ministerial commitment outside the House. He rang my office to apologise and I accepted his apology. The Deputy Chief Whip is representing him on the Front Bench, but obviously the Deputy Chief Whip could not speak.

I thank the Chairman of the Select Committee for explaining the background.

It is so refreshing to hear a point of order that is a point of order! I can respond to the genuine point of order raised by the hon. Member for Brent North (Barry Gardiner) by saying that a Minister—albeit a Whip—was present throughout the proceedings. It is not necessary for Front Benchers to take part in statements of that kind. It is of course desirable for the relevant Minister to pay attention to what is happening in the Chamber as a result of a Select Committee’s deliberations, but the Select Committee Chairman has explained very well what happened this morning. I am glad to have had an opportunity to explain further how the new procedure will work, and I therefore thank the hon. Gentleman for his point of order.