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Improving local government procurement

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08/05/2014

On 13 March 2014 the Communities and Local Government Committee of the House of Commons published its report on local government procurement. This is the result of an inquiry which the Committee launched in July 2013 to look at how effective recent procurement reforms had been in improving local government procurement approaches, and the potential for further development. The inquiry focused on procurement in its widest sense, not simply the purchase of goods but also the wider commissioning of services and the management of contracts, including outsourcing of service delivery. These are some of the findings and recommendations.

Collaboration not centralization

The inquiry looked at whether local government would benefit from using a centralised procurement system like central government’s Crown Commercial Service. The view was that local authorities needed to retain local control over procurement, in order to best meet local needs. Some national arrangements, such as for energy purchase, might be beneficial, but local authorities should be able to enter these if they choose, not to be forced to.

On the other hand, the report sees value in local authorities adopting a collaborative approach to procurement. The number of shared procurement services doubled during 2011-12 with 75 councils now in 16 formal joint purchasing arrangements. On average, collaboration is estimated to be generating savings of 10-15 per cent. There is scope for much greater collaboration and the Local Government Association (LGA) is asked to conduct a review of collaborative approaches and produce best practice guidance.

Delivering strategic objectives, including social value
Procurement is a key route for councils to deliver their strategic objectives, including social, economic and environmental aims. The report looks at whether the Public Services (Social Value) Act 2012 has helped with this. It suggests that the Act might need extending so that it applies to all procurements, not just those that are above the EU threshold, particularly as the new EU Directives will increase this threshold meaning even fewer contracts are caught by the Act.

The report acknowledges that there is a judgment to be made by each council, and for each contract, as to the correct balance between letting a contract at the lowest price and requiring contractors to deliver additional economic and social value, sometimes at an additional cost. It recommends that all councils should present an annual report to full Council setting out their strategy for incorporating economic, social and environmental value in their procurement, and that the LGA should disseminate examples of best practice case studies and updated social value guidance to reflect the new procurement directives.

Reducing costs and bureaucracy

The report quotes some alarming figures. A typical procurement exercise for an above-threshold contract costs a bidder £40-£50,000. This might be worth it for high-value contracts, but 75 per cent. of all contracts tendered in the UK are below the threshold. However, councils still tend to apply the full rules to these below-threshold contracts, to be on the safe side, when there is no need. More guidance is needed.

Another alarming figure is the example quoted by the CBI of one construction company that spent an average of £8,000 on each pre-qualification questionnaire (PQQ), which, with 200 tenders a year, added up to £1.6 million on pre-qualification alone. The report agrees with the Government’s view that there should be a single, simplified PQQ for above-threshold contracts, but does not think that PQQs should be abolished altogether for lower-value contracts, as they can be useful to limit the number of bids an authority has to evaluate.

The report also recommends that contracts should require the contractor to pay its sub-contractors promptly, right down the supply chain.

Contract management

The inquiry heard evidence of many public sector outsourcings that had failed because councils had not managed risk effectively. The report notes that “it is self-evident that outsourcing of a contract does not mean outsourcing responsibility for ensuring the quality and consistency of service to residents”, but that there were regrettable examples where complex outsourcing arrangements had failed to safeguard service delivery and quality. It recommends that councils develop and support a culture that embeds appropriate risk management across the council, not just in the procurement team, as it is often at a later stage, once the contract is operational, that standards start to slip (for example, an unreasonably low initial price that allow suppliers to drive up the price at a later date).

Governance: fraud and transparency

The report raised concerns that the level of procurement fraud risk within local government would increase as a greater proportion of services are outsourced. The Committee said “It is not sufficient for councils to ‘let and forget’ contracts: rather close monitoring of their delivery is essential to detect potential fraud”. It calls on the Government to give support and guidance on the best ways to identify and tackle fraud.

There was also evidence that the outsourcing of public services can dilute transparency and disclosure requirements on suppliers, since private sector companies delivering public services were not automatically caught by the Freedom of Information Act. The report suggests that the requirements for contractors to publish information on performance delivery and contract costs should perhaps be extended, for example by including in contracts terms that mirror the regulatory requirements on public bodies to provide information. Local authorities should make greater use of open book accounting to improve procurement transparency.

Comment

This report does not tell us anything we didn’t already know but it is clear that it sees procurement as an activity that should be at the heart of local government not on the periphery: “procurement should not be seen as a niche function conducted in silos, rather as an activity central to delivering high value, cost-effective services to communities”. It does ask a lot of both central government and the LGA in terms of supporting local authorities in procurement so we will see how they react to these demands.

One final quote to end with, which perhaps sums up the Government’s approach to ‘localism’:

“Local government has a responsibility to show that it can put its own house in order. If it does not, we fear DCLG will opt for compulsion.”