How Labour could get public procurement right

One of the major and traditionally undervalued economic and social tools that government has available to it is the way that it spends public money on private business. UK public procurement expenditure accounts for about £227bn a year, of which about £45bn is by government departments (the remainder being mainly health and local authorities). It affects roughly 20 per cent of UK domestic product.

Putting aside the extent to which government money should be spent on private enterprise, let’s concentrate for the moment on how to get the fullest possible industrial and social bang for the taxpayers’ buck – while remaining consonant with Labour values and aims. Here are a series of measures that a new Labour government could implement consistent with austerity spending, but with real social gains.

Cost and efficiency

The spending of public money on private contracts is guided and constrained by the public procurement rules, which are based on EU law. Public procurements are difficult to get right. While UK procurement has a strong international profile, practise on the ground falls short. The UK Public Administration Committee (in a report delivered in July 2013) has concluded that UK procurement is risk averse and process driven, takes 50 per cent longer than in France or Germany, has no strategic leadership and is under-resourced. The result is a concentration of contracts with a few large suppliers (many of whom have a poor public reputation), a failure to achieve value for money, procurement errors which give rise to costly litigation and an inability to manage contracts once procured.

Proposals to tackle these deficiencies include:

a)      The adoption of a proper procurement strategy for government and the wider public sector. This could be through a “Crown Procurement Service” headed by a procurement minister with the authority and clout to show leadership.

b)      Investment and cultivation of a new generation of able public procurement leaders to deal with planning and execution of tenders as well as contract management. As well as the above, this cadre would be skilled in legal interpretation, the production and issue of guidance and templates and negotiation with Brussels.

c)      Provision of sectoral or regional centres of procurement excellence to provide training, templates, guides, advice, procedures as well as resources to support procuring bodies in relation to all stages of the procurement process.

d)     These initiatives would be self-funded through savings on external consultants and increased value for money in procurement. This could be by way of a modest premium per procurement/value of contract. Over an annual public sector spend of £230bn on procurement, a small increase in effectiveness could reap large financial rewards for the public sector.

Social improvements here in Britain

This government’s approach to procurement is that cheapest is first, last and best. This fails to embrace the opportunity to use public procurement as a means of bringing about positive community benefits and social change which will itself generate substantial savings in other areas of government. Best value should be redefined to include social improvements. There is little evidence that the Public Services (Social Value) Act 2012 has worked.

Real measures are required to ensure that social values and ends are reflected in government’s procurement practices. First, public contract specifications should include a contractual condition that a successful tenderer must employ an appropriate percentage/number of apprentices, conduct training and education schemes and secure employment for the disabled people or long-term unemployed. Second, a minimum living wage should be imposed on contractors wherever justifiable by reference to performance, retention or other contract related considerations. Third, award criteria should also be designed to vet tenders against their proposals to achieve these and other contract related social conditions.

More contracts to go to SMEs

SMEs (small and medium-sized enterprises) are entrepreneurial, have scope to expand, develop and export, and tend to provide work and spending locally. They are the engines of a thriving economy. The coalition government stated they aspired to 25 per cent of publicly procured contracts to be awarded to SMEs, but they are currently refusing to implement provisions in the new EU Directive which allow member states to require contracts to be divided into lots. Even including indirect contracts in the supply chain of main contractors, they are nowhere near to achieving their aspiration.

The next Labour government should:

a)   Have a fixed target, not a mere vague aspiration, of 25% of money spent on public procurement to be on SMEs.

b)   Mandate that, save where there are robust justifications for not doing so, contracts should be broken down into more accessible lots to attract SMEs.

c)   Public bodies to be encouraged to help meet the Government target by the offer of pre- tender market engagement, training days and other help and guidance to local businesses and SMEs.

d)   Greater focus in public sector procurement of mechanisms such as dynamic purchasing systems and qualification or accreditation systems where permissible (eg social care) in order to simplify procurement and make it more accessible to SMEs.

e)   Greater focus on encouraging contractors to promote fairness in their supply chain through payment terms, ethical sourcing and a commitment to SMEs.

 Keep discredited companies out of public funds

Fraudulent companies and companies that have failed to perform properly in the public’s eyes should be kept out of public contracts and out of public money:

(a)    By ending public sector bodies’ reliance on self-certification at the pre-qualification stage. The Cabinet Office to keep and update a directory which is to be consulted by all bodies commissioning public contracts of companies where the company, directors or other controlling individual has been convicted of bribery, fraud, conspiracy to defraud, cheating HMRC, theft, fraudulent trading, money laundering, drug trafficking and other offences giving rise to mandatory exclusion.

(b)   The directory should also contain information on the status of ongoing investigations against companies in relation to the above offences and other information relevant to the assessment of the discretionary grounds for exclusion, including insolvency proceedings, investigations into a failure to pay taxes, investigations and decisions relating to anti-competitive conduct, and other ‘grave misconduct’. It should also contain a register of certificates of satisfactory completion and records of deficient performance in the performance of public contracts as these can form the basis for exclusion.

(c)    Government should issue guidance on the discretionary grounds for rejecting bidders at the pre-qualification stage and on the appropriate period of exclusion.

(d)   Finally, government should require and offer guidance as to how contractor past performance is to be fully assessed by all public sector bodies at selection stage.

None of the above proposals cost the earth nor require primary legislation, but are about the better detailed management of the way the state spends the people’s money, with potentially significant social gains resulting. It isn’t sexy, nor is it likely to score tabloid or broadcast headlines. But it should be done.

Samuel Townend is vice chair of the Society of Labour Lawyers

The above proposals come from a longer foot-noted essay by Samuel Townend and Simon Taylor of Keating Chambers, in Law Reform 2015- A Manifesto for Change published by Profile Books on behalf of the Society of Labour Lawyers. See www.societyoflabourlawyers.org