Importance of procurement to taxpayer and economy
Thank you for inviting me here.
It’s a real pleasure to be in Manchester for Procurex North.
Though of course for a Geordie this is really coming down South.
Thanks to the rail network – and I am missing the HS2 debate to be here – it’s still easier and faster to get to London than Manchester.
But as great Northern cities Manchester and Newcastle have much in common, a shared industrial heritage, dry humour and strong culture.
And I’m not even going to mention football.
Instead I shall turn to a subject which is almost as painful.
The nation’s finances.
They have come under intense scrutiny in recent years.
And rightly so.
Over this Parliament borrowing is forecast to be £190bn more than planned at the time of George Osborne’s first spending review.
This government’s failure on the deficit means will need tough action to strengthen the recovery and our economy for the long-term; alongside a tough deficit reduction plan.
That will require us to govern in a very different way with much less money around. We will need an iron discipline and a relentless focus on our priorities.
But the fact is that too often the debate has been focussed on one spending cut or another, or the level of cuts and taxation needed.
Too rarely do we talk seriously about how and where we spend taxpayer’s money.
In 2012/13, the public sector spent a total of £230 billion on procurement of goods and services.
That’s a third of total managed expenditure.
George Osborne, has made four budget speeches so far.
For all of the initiatives he introduces – £100m here, £50m there – some worthy, others less so, rarely do we hear how he is going to better use the one third of taxpayers’ money that is spent on procurement.
But I think we all here recognise that change is needed. West Coast Rail anyone? I shall return to it.
Done properly, public procurement can have enormous social and economic benefits.
On a national scale, the Olympics were a huge success story and if the legacy is managed correctly, will support communities for generations.
And at a local level, where most public money is spent, there are some great examples of procurement driving policy.
Right here, in Manchester, Manchester City Council has been doing some excellent work with the Centre for Local Economic Strategies on better procurement.
They recognise that buying smart and using a local supplier to provide specific goods and services can have benefits for the wider supply chain, potentially supporting the creation of new businesses within communities leading to employment opportunities and job creation, as well as sustain existing jobs
This in turn can drive wider positive changes in communities.
Lambeth Council, in south London, are proud to call themselves the country’s first co-operative council.
They have been supporting social enterprise through procurement, recognising the benefits that such organisations can bring to communities.
Their social and environmental objectives, combined with their entrepreneurial flair, can provide an excellent basis for the delivery of public services to their local community.
As the shadow Minister for social enterprise I welcome this and am keen to support public sector organisations and social enterprise in the delivery of services.
In the north east, the Federation of Small Business has been working with local authorities across the region help small businesses and social enterprises win more contracts using the Social Value Act.
The social value act is an idea first conceived by Labour and requires public bodies to consider how the services they commission and procure might improve the economic, social and environmental well-being of their area.
Councils can use the Act to support local suppliers and businesses.
In my city of Newcastle, the council is supporting local businesses and SMEs using a system that awards contracts below tender threshold to local businesses.
And they have set up a partnership group of businesses and voluntary organisations to work with a Social Value task force on new ideas for promoting social value.
Nearby in Sunderland, the Council have a similar system and as a result north east businesses account for 68% of the overall third party spend.
This Government’s Record
The public sector’s overall priority for public procurement, is set out in the Treasury’s Managing Public Money document – I am sure you are all familiar with it! Anyone want to guess what it is? Achieving value-for-money.
But I was surprised that the Treasury’s procurement rules do not mention promoting economic or social objectives in any meaningful way whatsoever. That’s what delivers long term value for money.
Labour’s small business taskforce has recommended that we update Treasury rules to encourage the consideration of wider economic benefit to a community (whether national or local) when evaluating tenders, as is the case in Wales. We are looking closely at this.
Procurement is one of the main levers Ministers have at their disposal for driving economic growth.
The public sector’s spending power rivals its legislative power, and it should be using every means at its disposal in pursuit of its goals.
We’ve had more than enough reminders of the weaknesses in the current system in the last few years:
- G4S Olympic security guards
- The West Coast mainline
The Government has never had a clear strategy for outsourcing and procurement which has led to large-scale failures such as these.
These high profile failures reveal a much wider systematic failure of public procurement.
As the National Audit Office put it:
“There have been problems in implementing the [government] reforms, including ineffective governance structures, unrealistic targets, incomplete data and weaknesses in contract management. Government is not maximising the potential for savings through centralised procurement.”
Put simply, Government procurement practices need urgent review.
Ministers have also failed to ensure that public procurement is being used effectively to support SMEs across the country.
Their promise on SMEs being awarded 25% of contracts was very quickly downgraded to an “aspiration”.
SMEs are key innovators and vital for economic growth. They make up 98 per cent of the total number of organisations in the UK economy, providing 59 per cent of all private sector jobs, 45 per cent of all employment, and generating 46 per cent of the UK’s income from the private sector.
Small businesses are the lifeblood of the economy, accounting for almost half of private sector turnover. And their success is fundamental to achieving the jobs and growth we all desperately need to see back in our economy.
SMEs create around £33 of gross added value to the UK economy for every £100 of turnover, compared to £26 for large companies.
Yet we still have too many framework agreements, pre-qualification questionnaires, frequent late payments and inadequate engagement with SMEs from government.
As the organisation representing Social Enterprise’s, who are overwhelming small organisations and keen to compete in the public sector procurement and outsourcing market, put it, the current situation:
“has left the Government buying services in a market and using contracts that are far too heavily weighted in favour of the companies they are buying from, and their shareholders.”
Labour Party Review and policy
Let’s be clear. A Labour Prime Minister entering Downing Street in just over a year’s time will not have any more money to spend.
Three years of stagnating growth has robbed us of any chance of being able to increase expenditure.
But we will have to do more, because quite frankly this Government is wasting the talents and capabilities of far too many of our citizens, and businesses.
And we will use procurement to help achieve that golden goal of more for less.
We want to see Government spending with a wide range of companies, small, medium and large.
A number of large companies have come to see me with their own proposals for working more effectively with small businesses.
And small businesses have also spoken to me of their many concerns,
Just yesterday I held a procurement ‘deepdive’ with small ICT businesses in TechUK – some of the stories and concerns were really frightening, including that large companies are trying to put them up as primary contractor to help skew Government figures.
We must ensure that targets for small business are not gamed.
We want to help establish an ecosystem where small, medium and large companies can thrive, providing they offer value for money.
In Government we introduced the Small Business Research Initiative – which this Government has expanded. We need to make it more relevant.
There are often real services that large companies can provide for small companies. Like helping meet apprentice requirements. Or taking on financial risk.
And we also need to help procurement people have the skills to assess the true long term value for money that contracts can deliver.
We know that there are challenges in Government recruiting, retaining and upskilling the right kind of procurement skills.
Sometimes it seems Government department are outsourcing the procurement process without realising they cannot outsource the risk.
So we need to work to strengthen those skills, through recruitment but also through continuous professional development, so that the public sector can be better partners with the private sector in procurement.
That’s why we are considering proposals from Labour’s small business taskforce to professionalise procurement across the public sector.
We must create a professional career path for procurement, if necessary creating shared service capabilities and using the private sector. Having generalist colleagues executing procurements worth billions of pounds does not deliver value and will never harness small business talent for the good of the public sector and the wider economy.
A key part of that skill set will be recognising the overall value of a particular tender.
Now I am often told – we can’t change anything about procurement because it’s run by Europe.
So I went to Brussels to tell them what I thought of that.
And in my meeting with the Commission I was told that anyone who cites Europe to me as a reason for not being able to procure what is best for the public sector should be asked to explain why that was directly to the Commissioner.
So I have said that on a number of occasions so far and it’s very effective. I haven’t had to pass on one name so far.
As my colleague Chuka Umunna, the shadow business secretary has said:
“On procurement more generally, we will take account of the impact on jobs in contract criteria when making procurement decisions and deciding to whom we award contracts. The French, Dutch and the German governments do this within EU law; so will we.”
And we need to change procurement not only to deliver better value for money but also to deliver co-production.
I know that is a trendy term which some people use to mean not very much. But it means something quite specific – making sure that those who use the service have a hand in designing and creating it.
And as I’ve indicated, particularly where it comes to local government, this is a growing movement.
We want to procure services based on the assets in our communities as well as their needs.
And we want procurement to drive positive change in other areas, too.
Labour has called on the government to require suppliers to offer apprenticeship opportunities on public contracts worth over £1 million alongside changes to ensure that the apprenticeship brand remains a high quality symbol of achievement.
And we are consulting on how a culture of rapid payment among large businesses and across government can be made a reality.
Procurement and Labour’s Digital Government Review
And we are also looking in detail at digital procurement, as part of the Review of Digital Government that will report to me this year.
Procurement for government digital services needs to change to support value for money and innovation.
We need a healthy competitive market that enables new suppliers to enter the public sector market whilst reducing costs and aligning with wider procurement policies, some of which I have talked about.
We recently published a call for evidence and I would encourage you all to submit your evidence and opinions to the review board.
We want to know what you think. What are the characteristics of a good supplier market? Do we have one now? And what can we do to achieve one?
Ed Miliband spoke recently of public sector reform – people powered services co-produced by citizens using the assets of our communities to provide better services for less.
Procurement needs to change to support that. And it needs to change to support the vibrant, digital economy working for the many, not the few, which we intend to build in Government.
I welcome your input and look forward to working with you to achieve it!
And as part of that we are holding a roundtable event today at 1.15, in knowledge transfer zone 2 – Procuring ICT for People Powered Services.