18. The Government's Memorandum emphasises that it "is committed to British manufacturing and helping manufacturers in Britain to gear up to compete for public procurement opportunities." It goes on to give details of "an extensive programme of work" to open the public sector marketplace to all suppliers, especially SMEs. These include: development of a web-based portal to advertise smaller value contracts (ie those below the EU threshold levels); creation of a standard, simplified pre-qualification questionnaire for below-threshold contracts; training for SMEs to enable them to become 'fit to supply' the public sector; the Small Business Concordat which forms part of the National Procurement Strategy for Local Government; identification of some of the barriers to suppliers created by third-party accreditation practice in the UK; and making both contracts and tendering procedures for the London 2012 Olympics as open as possible to SMEs. The Memorandum also mentions practical measures to encourage innovation and promote sustainability through public procurement, and sectoral initiatives such as the Defence Industrial Policy launched in December 2002.[39]

19. While not disputing that the Government was trying to adapt rules and procedures to make it easier for companies to tender for and win public contracts, our witnesses in some instances felt that the changes had not gone far enough and argued that even more significant than the rules themselves was the narrow and rigid way in which they were interpreted by purchasers. Common criticisms were that:

• public sector buyers were insufficiently trained and skilled to interpret and implement the rules correctly, and that many had little or no detailed knowledge of the supply market;

• in particular, they did not understand the concept of best value, leading them either simply to award on the basis of lowest cost or to abandon criteria designed to achieve whole life value for money on the grounds that this made tenders more expensive up front;

• they did not make use of the leeway provided by EU procurement rules to pursue social, economic and environmental purposes in the letting of contracts;

• the UK's tendency to aggregate contracts excluded SMEs from competition;

• the system was still far too bureaucratic, with each of the 2000 public sector purchasers having different procedures and forms, terms and conditions for tendering; complex and repeated procedures for pre-qualification for tendering; requirements to provide irrelevant information; changes in specifications; delays in notification of whether tenders have been awarded;[40] and

• over-detailed specifications in contracts inhibited innovative, or cost effective, or environmentally sustainable solutions.

Bureaucracy and risk aversion

20. One of the main difficulties facing those wishing to supply public authorities is the number of those authorities (according to one of our witnesses, in the UK alone at least 1600 local authorities and more than 350 central government bodies) and the lack of standard procedures and forms. Some of our witnesses went so far as to suggest that each of the authorities had its own procedures and forms; and that, while the OGC had produced some best practice documents, these were not widely used.[41]

21. The EEF argued that successful procurement — achieving value for money for the purchaser and developing a good working relationship with the supplier — depended heavily on the skills and confidence of those doing the procuring. Many of our witnesses believed that current skills levels among those involved in public procurement were inadequate, especially in central government and even more so in those departments not heavily involved in major procurement initiatives.[42] Exceptions to this criticism of central government departments were the Ministry of Defence — whose improved performance was attributed to the change brought about by the Defence Industrial Strategy[43] — and, according to the contractors' organisation British Expertise, the Department for International Development.[44]

22. Most of our witnesses commented on what they saw as the timidity of many of those engaged in public procurement. They suggested that, afraid of criticism if the procurement exercise 'went wrong', civil servants took refuge in highly complex, long tendering procedures, making the whole process significantly more costly in terms of both time and money to the would-be supplier than a comparable procurement exercise in the private sector.[45] We were told that many purchasing authorities had a single set of procedures and forms for all purchases, however simple or complex, which resulted in suppliers having to provide information that was over-detailed or irrelevant to that contract.[46] So complex were the tendering processes that an industry of intermediaries had grown up to assess the tenders. They charged fees to would-be suppliers, and the OGC had concluded in December 2005 that in themselves they formed a barrier to SMEs wishing to trade with the public sector. Elaborate tendering requirements were particularly irksome when companies had to follow exactly the same process to supply the same goods to another department. SMEs found the bureaucracy an even greater deterrent than larger companies, as the contracts for which they were bidding were often for smaller sums and they were less able to absorb the extra cost of the tendering process.[47] Moreover, some smaller procuring authorities, such as universities and local councils, required suppliers to pay a fee of anything between £30 and £118 for the tender documents, either to share the costs of EU-compliant procedures or to deter unrealistic applications.[48] The British Printing Industries Federation alleged that many high quality companies did not bother to compete for public sector contracts because the sector's approach was insufficiently dynamic, tendering procedures were too time-consuming, and the financial return was too low.[49]

23. Some witnesses suggested that purchasers made their decisions solely on the basis of lowest cost.[50] It was also alleged that ultimately officials accepted whatever was seen as the 'safest' bid, for reasons of convenience, to minimise civil service time in decision-making, and because of the inability of the public sector to make provisions for risk[51] — summed up by one witness as an attitude of 'Nobody ever got sacked for hiring IBM'.[52] The net result was that potential contractors were deterred and competition was diminished. As well as costing more overall, such decisions also discouraged innovation and undermined the Government's policy of sustainable procurement.[53] The British Furniture Confederation argued that tender documents should give a clear weighting to the various criteria the purchasers would apply when judging the bids, and that the contracts should be let in accordance with these criteria.[54] The Forum of Private Business suggested that public authorities should apply a decision-management process — either through special software or through recognised procedures — to ensure that they took appropriate account of factors other than short-term cost.[55]

24. The CBI commented that in central government there was a lack of co-ordination between those commissioning and those running the procurement process for goods and services; a very high turnover of staff, which created even greater problems when the project was complex and lengthy, such as many construction and IT contracts; and a failure to identify a particular senior manager to span the commissioning/procuring roles and take responsibility for successful delivery of the project.[56] British Expertise praised the approach of the Department for International Development which had considerable experience of procurement and whose procurement staff were "very savvy". It noted with approval that considerable responsibility was devolved to the individual desk managers, who were able to procure goods and services worth less than the EU threshold levels without competition if they knew of a reliable supplier. This they contrasted with other departments which, they said, ran expensive and time-consuming competitions for everything.[57]

25. The Forum of Private Business highlighted two general tendering requirements burdensome to small businesses: the first was the standard requirement that companies should prove their financial capacity for delivering the contract by producing three years' worth of audited accounts (which — they argued — disadvantaged new, innovative companies and small private businesses exempt under company law from the requirements for audited accounts, and also was "of questionable relevance to their ability to complete the job"); the second was the need to pre-qualify for every tender, rather than being certified as meeting the standard once and for all.[58] Pre-qualification procedures irked a number of our witnesses, who argued that the differing requirements of the various public authorities left would-be suppliers at the mercy of those providing accreditation services, for which fees were charged.[59] Ms Kossoff, an Independent Executive Advisor, praised the use in the USA of certificates of competence, which (as the name implies) were intended to give confidence that the holder met certain specified criteria — which could include not only general performance but also issues like environmental compliance — and were accepted as a pre-tender qualification across the public sector.[60] We asked whether it was difficult to ensure continued compliance with the criteria, but Ms Kossoff said that successful bidders were monitored during the course of the contract anyway, so any failure to comply became apparent.[61] The FPB said that there had been attempts to introduce something along these lines in the UK, but so many different criteria were required by the various authorities that it had proved impossible to have a fully transferable guarantee of competence.[62] The British Printing Industries Federation took a different route. It developed an online print portal, which would eliminate pre-qualification processes (as suppliers would have had to pre-qualify to enter the system), minimise the cost of seeking quotations and allow purchasers to sift suppliers according to additional criteria, such as high environmental standards or a commitment to training staff. However, discussions with public sector buyers brought to light the fact that, although they were enthusiastic about the potential of the system, they were not confident that it could be developed to comply with EU procurement regulations.[63]

26. The EEF compared the situation in the public sector unfavourably with a number of business sectors such as aerospace and the automotive industry, where, it argued, large, complicated, risky procurement exercises were frequently undertaken with far less bureaucracy, based on better-established relationships between suppliers and purchasers and a greater understanding of the long-term balance between costs and benefits. The EEF thought that those undertaking public sector procurement needed specific training in risk management.[64] The British Furniture Confederation noted that most public sector purchasers held no professional purchasing qualification: in 2004 only 5% held a qualification from CIPS ( the Chartered Institute of Purchasing and Supply).[65]

27. We asked officials whether they accepted the criticism that the public sector was too risk averse, and imposed unnecessary bureaucracy on suppliers. Mr Fanning, Acting Chief Executive of the Office of Government Commerce, stated: "it is a myth that it is government policy to go for the lowest price; the main issue is people. The reason why people go for the lowest price is because it is easy. If you want a more sophisticated approach to generating value using whole life costing, for example, which is the policy, you need more experienced, capable, sophisticated people who are willing to make more balanced judgements."[66] He regarded the publication of Transforming government procurement as marking a watershed in the Government's approach, on the grounds that: "Prior to that date OGC acted as a body at the centre which led and advised. It was not a body that directed and held to account. Following the publication of Transforming government procurement we will have new powers to set standards and require departments to adhere to those standards."[67] As an example of this change, he mentioned the standard pre-qualification questionnaire that the OGC produced as a result of research into barriers to SME participation in public procurement. Until recently, the OGC had had no power to require central government departments to use this questionnaire, but now it had the power and, depending on evidence of uptake, it would consider using that power.[68] He also explained that the OGC had re-launched the Government Procurement Service through a concerted effort to recruit and train graduates (he said that 200 such recruits were 'going through the system').[69]

28. Even a quick glance at the OGC's website reveals a number of guidance and help notes for both buyers in and sellers to the public sector. We discuss some of these, and other elements of the Transforming Government Procurement process elsewhere in this Report. However, no matter how good the guidance, implementation depends on both whether the people involved are able and willing to follow it and whether the authority issuing the guidance has power to review what is happening in practice and enforce compliance where necessary. On the first of these, the sheer number and variety of people involved in public procurement poses a huge challenge, and the target proposed by one of our witnesses — and which we endorse — that the majority of public sector purchasers be professionally qualified is unlikely to be fulfilled for a very long time.[70]

29. However, as some of those giving evidence to us acknowledged, we think that there is also scope for potential suppliers to help. While expressing concern about purchasers' lack of knowledge of the supply market, KPMG suggested that UK manufacturers could do more to inform public authorities of new products and other developments.[71] The OGC reported that it was collecting information not only across government on the performance of suppliers but also from suppliers on the performance of government departments, as a basis for bringing about improvements. The first market it was examining was IT procurement.[72]

Working with the supply chain

30. Our witnesses were in agreement that one of the major difficulties in supplying the public sector was the unpredictable nature of order flows.[73] The CBI commented that some sectors that were very heavily dependent on public procurement were unable to cope with protracted periods of low demand and, while it was unrealistic to expect demand to be constant, "more strategic planning and more information provided to the sector so that it can plan and manage its capacity against these swings in demand would be helpful".[74] The TUC suggested that the Government should imitate the best major private sector companies that nurtured and worked with their supply chains.[75] Several witnesses praised the Defence Industrial Strategy for providing predictions of need that made planning by the sector easier, and the TUC argued that there should be 'healthcare' or 'transport' industrial strategies along similar lines.[76] The OGC said that it was attempting to marshall public sector demand and make likely future changes in levels of demand clearer to potential suppliers.[77] One way of doing this was through the so-called 'frameworks', which package up smaller pieces of work into larger programmes over longer periods. These are particularly common in the area of construction. Mr Fanning described frameworks as "very good for business and for government" — a view disputed by the National Federation of Builders on the grounds that they excluded SMEs[78] — and was proud that they were now enshrined in the EU's procurement legislation.[79]

31. Some of our witnesses went further, suggesting that if public authorities engaged in early discussion of potential procurement projects with industrial partners, this would increase the authorities' awareness of the variety of goods and services available and would help the authorities to draw up their requirements in the tender documents.[80] The EEF and CBI argued that this practice was more common in other countries, and it gave their local companies an advantage in competitive tendering as they had a clear understanding of what the procurement authorities wanted.[81] However, other witnesses were concerned that such close relationships between some suppliers and the purchaser could disadvantage competitors, either simply because they did not have similarly detailed knowledge of the requirements or because the 'insiders' had helped draw up specifications that favoured themselves. The EEF admitted that this was a possible danger, but said that it wanted each contract to be assessed as to what would be most efficient: some large-scale, complex contracts, for example, would be better developed through such discussion, whereas it would be easy for procurement authorities to draw up the specifications for many comparatively straightforward smaller contracts without advice or further research into the market.[82]

32. We agree that the unpredictability of order flows from the public sector creates problems for suppliers and endorse the efforts to provide more information about likely future demand. Although it is useful for purchasing authorities to deepen their understanding of the markets in which they are buying and, in some cases, to develop their contract specifications after engagement with potential suppliers, they should be aware of the danger of 'capture' by suppliers, with possible deleterious effects on competition in future.

Innovation and sustainability

33. Given competition from lower-cost countries, the Government is anxious to encourage manufacturing industry to develop higher value products, and to this end it aims to promote innovation. The Government could use its purchasing power to support innovation. However, we were told that, as well as resulting in bureaucratic tendering and procurement processes, risk-aversion in the public sector led to over-specification of requirements in contracts, meaning that more innovative, better value or more environmentally sustainable solutions were rejected. The argument put to us was, in essence, that government contracts concentrate on specifying exactly what is required at the cheapest price, even if this is not the best means of delivering the desired end; whereas if they specified what they wanted to achieve but not how to achieve it, this would stimulate innovation by the private sector which could potentially devise many different ways of delivering the requirement, some of which might provide better value for money over their lifetime. This is one example of an approach known as 'Smart' or 'Intelligent' Procurement.[83]

34. The OGC emphasised to us that its advice was that specifications should be drawn up in terms of the required end rather than the means.[84] Furthermore, the Government's Memorandum mentioned various activities designed to promote innovation and ensure sustainability in the context of public procurement: the Small Business Research Initiative, under which government departments were given the target of purchasing at least 2.5% of their R&D from SMEs; work on using public procurement to drive markets for innovative environmental goods and services;[85] the Department for Environment, Food and Rural Affairs's Public Sector Food Procurement Initiative to highlight practical ways in which the public sector could use its £1.8 billion annual food budget to promote a world-class sustainable farming and food sector; and a joint OGC/DTI project to identify and publicise best practice using as examples these schemes and the experience of other bodies such as the NHS National Innovation Centre.[86] The EEF said that, judging from research among its members, companies that had been awarded public sector contracts were significantly more likely to have increased spending on innovation than those which had not, which it argued underlined the importance of ensuring access by SMEs to publicly-funded R&D contracts.[87] We asked the OGC about progress in relation to the Small Business Research Initiative. It reported that in 2005-06, 9% of central government expenditure on procuring R&D had been spent with SMEs, exceeding both the Government's target and the proportion achieved by the federal government of the USA. However, officials conceded both that they would like to see the UK Government achieve an even higher proportion, and that there was some doubt over whether the research projects awarded to SMEs were very innovative and whether they really would generate much economic value in wider markets.[88] The officials noted that this was likely to be the conclusion of the review by Lord Sainsbury of Turville, which has since reported to this effect.[89]

35. Despite these initiatives, our witnesses considered that the Government had a poor record on promoting innovation through public procurement. The EEF cited a survey of 500 manufacturers which found that more than twice as many thought public procurement practices harmed innovation as that they promoted innovation.[90] This finding was echoed in a survey on innovation carried out jointly by the CBI and QinetiQ in 2005, in which nearly 80% of respondents thought that the Government failed to support innovation through acting as an early adopter of new ideas.[91] The CBI regretted this: "A focus within public procurement on acquiring innovative products, services and processes would be a major driver for business investment in innovation."[92] Intellect considered that in IT procurement: "there is not an overall attitude to encourage innovative solutions — procurements are based very much on the here and now more than looking five, ten years in advance" with the result that possible developments in technology and wider benefits in terms of modernising public services were overlooked.[93] Intellect suggested that at present government departments did not have long enough lead-times to explore technology under development by both large multinationals and smaller niche providers and to understand "not just the capability but also the capacity of the technology industry to deliver [alternative] solution[s]."[94] The EEF recommended that in future the Technology Strategy Board should have an enhanced role in co-ordinating the Government's research priorities and in communicating these to business.[95] This has been recommended by Lord Sainsbury.

36. Some of our witnesses provided explicit examples of purchasers failing to think creatively either when drawing up specifications or when taking decisions.[96] Others gave examples of successful procurement, such as the decision to fit to London buses an exhaust system with very good emission-reduction properties, which had enabled the company producing the system to reach a critical mass so that it could expand into a wider market.[97] The EEF believed that innovation would be encouraged if, instead of providing very detailed specifications, purchasers in the public sector made greater use of product standards (a combination of mandatory government requirements and voluntary industry standards) to describe the desired outcome.[98]

37. The DIUS agreed that there was insufficient innovative procurement, and that the main cause of this was not legal restrictions but an unwillingness by buyers to take risks.[99] It hoped that this would be rectified through improved guidance which it was compiling with the OGC, and which has since been published as Finding and Procuring Innovative Solutions — Evidence-based practical approaches.[100] One process now open to procuring authorities under the amended EU Directives was 'competitive dialogue' between buyers and sellers, under which the specifications were developed to reflect the buyer's aims as a result of discussions. This was also intended to have the effect of stimulating innovation. An early adopter of the process was the Olympic Delivery Authority.[101] The officials also referred to the role of the Technology Strategy Board in promoting innovation, giving as an example the collaboration between the DIUS and the Department for Communities and Local Government in developing an R&D programme on low environmental impact buildings, with both public and private procurement in mind.[102]

38. While accepting that the public might benefit from more innovative procurement decisions, we noted the criticism that had arisen from delays and difficulties in delivering some ambitious, innovative projects, especially in the IT field, and queried whether the public sector should really be a guineapig for some types of high risk projects. Intellect suggested that much of the criticism arose from a failure to convince the public of the need to take risk by explaining what benefits they, as individuals, would gain from such projects, and from a failure to convince public servants that such projects would improve services not just replace jobs.[103]

39. Mr Evans of the DIUS considered there was an objective reason why purchasers were unwilling to take risks by innovating: because it was taxpayers' money that was being used, it was considered unacceptable politically that a proportion of projects would fail, even if those that succeeded saved so much money that overall the result would be better.[104] Intellect accepted that if projects 'went wrong', civil servants were more likely to be criticised than their private sector counterparts, and that such criticism was more public. It also argued that it was far easier to name failed projects than successful ones, citing a report by the National Audit Office that had listed 25 projects which the NAO considered successful and were now taken for granted, but "the media coverage [the report] received was minimal. It is not a surprise, but that is the environment."[105]

40. We believe that many of those involved in public procurement are too timid, and that taxpayers may often fail to receive best value for money. This is because those buying goods and services are either insufficiently well-acquainted with the sector concerned to know or understand what options are, or could become, available, or are too afraid of failure to try anything new even if it would provide better lifetime costs or additional benefits. We were particularly struck by the evidence that, by concentrating on specifying means rather than ends, purchasers were both reducing competition among tenderers and failing to promote innovation and sustainability. We recommend the OGC to use its powers to promote best practice in this area in the course of its procurement capability reviews.

41. However, as Intellect recognised,[106] there will always be tension between encouraging innovation and risk and trying to ensure efficient use of taxpayers' money. There is not, nor should there be, as much appetite for taking risks in the public sector as in the more high-tech parts of the private sector. In the latter, it is generally accepted that a certain percentage of projects may fail, and there are usually competitors who can supply alternative goods or services if one company experiences difficulties with an innovative product. In the public sector, there is much greater emphasis on public accountability for money spent, and often there are no generally-available alternatives to the goods and services being provided by public authorities. As a result any failure has a direct effect on the public, and often a disproportionate effect on the most vulnerable sectors of society. This underlines the need for those procuring innovative goods and services to work very closely with their colleagues who will use them and to have a deep understanding of the market so that they can assess risk properly. As it is impossible for all purchasers to be knowledgeable in all procurement areas, there is a need for teams of experts who could be called in to assist with specific procurement decisions. We understand that this is being developed within the Transforming Government Procurement process.

42. The UK Government's Sustainable Development Strategy set the goal for the UK to be recognised as one of the leaders among EU Member States in sustainable procurement by 2009.[107] It is therefore disappointing that a particular area of criticism by our witnesses was the failure by some procuring authorities to take into account the environmental consequences of procurement decisions, in terms of both following the Government's policy of sustainable procurement and supporting new 'green' technologies as an early adopter. The EEF reported that its members had repeatedly lost contracts even though their products had been more energy efficient than their competitors' because there was no 'weighting' for energy efficiency in the tender specifications.[108] Intellect suggested that the Government was not achieving as much as it could in the area of sustainability, especially in terms of 'future proofing'. It saw the main barriers as being failures to disseminate best practice and of consistency across government.[109] The National Audit Office has recently criticised the Government's failure to meet its own sustainability standards for the construction and refurbishment of buildings on the government estate, which the NAO attributed to four principal causes:

• the fragmentation of policy responsibility among government bodies and the lack of a coherent approach to monitoring progress and ensuring compliance;
• the relatively small scale of many projects (especially in refurbishment) and the fact that many of the staff responsible for these projects lacked knowledge and experience of sustainable procurement;
• the "widespread perception of a conflict between sustainability and value for money", partly because the long term costs and benefits of more sustainable approaches were not taken into account; and
• the failure to conduct rigorous performance reviews after the projects were completed to inform appraisals for new projects.[110]

43. The Action Plan developed by the Sustainable Development Task Force and published in July 2006 cited examples of other national governments that had achieved environmental objectives and had supported innovation in their countries' manufacturing industries: the USA's Energy Star labelling for computers and other electronic goods; and Japan's legislation on energy efficient purchasing which has resulted in the whole of its government vehicle fleet comprising low emission vehicles.[111] The TUC considered that, compared with the German and some Scandinavian governments, the UK Government was poor at using public procurement to promote green technologies. However, other than in the case of road transport (where it felt government vehicle purchases offered an opportunity to support the Low Carbon Vehicle Partnership) the examples given by the TUC of how the UK Government could stimulate innovation and meet environmental objectives — clean coal and water treatment technologies — related to industries where the purchasing bodies are now in the private rather than the public sector.[112]

44. Several witnesses suggested responses to these problems. The TUC described one model balancing risk and value for money as follows. Public sector purchasers offer to buy in the future a product or service which delivers specific environmental benefits at a specific cost. This stimulates innovation, products are made and marketed, and subsequently normal market forces determine the price and the amount of competition.[113] Intellect argued that "once a tender is published it is too late" to explore the possibility of innovative technological solutions; what was needed was much earlier engagement between the technology industry and the procuring government department.[114] Both the CBI and the British Furniture Confederation considered public sector purchasers would be justified in paying rather higher prices for locally produced goods compared with those transported over greater distances because of the savings in transport emissions; and government officials indicated ways in which this could be achieved within EU procurement rules.[115]

45. Mr Fanning of the OGC gave two recent examples of how the Government was improving procurement practice in relation to energy efficiency and sustainability. The first was a collaborative deal, led and sponsored by the OGC, which had enabled government departments to buy 'green' energy at no cost premium. The second was the OGC's response to the NAO's report on government buildings, which was to write informing the head of every government department that they were required to take part in the OGC's property benchmarking scheme to measure the performance of all 9000 buildings on the government estate against sustainability criteria. This was intended to provide both the OGC and the Sustainable Development Commission with the information they needed to drive improvements and hold individual departments to account.[116]

46. There can be tension between achieving environmental goals and procuring goods and services at low initial cost. The OGC has produced guidance on sustainable procurement, and government departments have initiated a number of projects designed to promote innovation, environmental objectives and sustainability. Again, the problem appears to be disseminating best practice more widely. The OGC's determined response to the NAO report on the government estate is to be commended. It will take longer to engage departments fully in the task of preventing, rather than curing, such failures. However, we believe the OGC's approach of involving the heads of department to be the right strategy.

Social Objectives

47. Article 33 of the EU's Public Procurement Directive, states:

"Contract performance conditions are compatible with this Directive provided that they are not directly or indirectly discriminatory and are indicated in the contract notice or in the contract documents. They may, in particular, be intended to favour on-site vocational training, the employment of people experiencing particular difficulty in achieving integration, the fight against unemployment or the protection of the environment. For instance, mention may be made, amongst other things, of the requirements—applicable during performance of the contract—to recruit long-term job-seekers or to implement training measures for the unemployed or young persons, to comply in substance with the provisions of the basic International Labour Organisation (ILO) Conventions, assuming that such provisions have not been implemented in national law, and to recruit more handicapped persons than are required under national legislation."

48. The Government's guidance on the treatment of social issues, Social issues in purchasing, issued in February 2006, emphasises that, to avoid any danger of legal challenge on the grounds of discrimination, social requirements must be relevant to the subject of the contract.[117] It also

• recommends that any social requirements should be built into the process as early as possible ("There is most scope available early on in the process, in the business case or when defining needs and specifications, and early action is more likely to be successful"[118]);
• states that social clauses must not discriminate against providers from other Member States (for example, EU case law had established that a contracting authority could stipulate that a successful tenderer must employ a certain proportion of apprentices or unemployed people provided that it did not require the apprentices or unemployed to be from a particular region or registered with a national body, thus discriminating against companies owned or based in other Member States[119]); and
• warns that purchasers should beware of making requirements too complex and onerous for fear of disadvantaging SMEs.[120]

49. The guidance is very complicated, and it is obvious that the OGC foresees a large number of potential pitfalls for procurement bodies. Mr Fanning explained, for example, that the principle that any specifications had to be relevant to the contract and provide benefit to the purchaser normally ruled out simple clauses requiring the employment of local labour, but it was possible to achieve the same end without making it a requirement in the specification.[121] He emphasised the need to be imaginative.[122]

50. The trade unionists who gave evidence to us considered that the Government could benefit UK manufacturing businesses by making greater use of the various provisions in EU legislation for promoting environmental and social ends, as used by other EU Member States. They considered that, even when such provisions were carefully worded to ensure that they were not discriminatory against foreign companies, experience in other Member States showed that in practice local companies tended to be better able and more willing to comply with such requirements.[123] They cited the Olympic Delivery Authority as a model.[124] The TUC suggested that local authorities were better at promoting social ends through procurement than central government, by, for example, ensuring that contractors provided apprenticeships and vocational training.[125] KPMG also thought that there was scope for public procurement agencies to use social issues to support UK manufacturers, and argued that the key need was to educate those in charge of procurement in the legitimate ways of using those provisions.[126] The CBI, on the other hand, opposed the greater use of 'social clauses' in contracts on the grounds that they were surplus to requirements as companies already had to comply with anti-discrimination, health and safety and employment protection legislation; these clauses hindered the primary purpose of achieving value for money and were therefore "confusing and unhelpful"; they increased the complexity and bureaucracy of the tendering process, which ran the risk of deterring SMEs in particular; and there was little evidence of social clauses benefiting business.[127] Other witnesses were also concerned about anything that added complexity to the tendering process.[128] Amicus, on the other hand, argued that it would be wrong to assume that the use of social clauses would automatically lead to greater bureaucracy.[129]

51. There is clearly scope for greater use of public procurement to promote social policies such as vocational training and the public duty to promote equality. However, there are awkward legal requirements and the best practice guidance just highlights the complexity of the area and the difficulty of complying with the rules. We recommend that the Government look again at its best practice guidance to see if more helpful advice can be given as to how public authorities could pursue social policy and the promotion of equality through procurement.

40   See, for example, Intellect's views: Q 163 in 'Europe moves East' Back

41   Appendix 7 (British Furniture Confederation) Back

42   Qq 46 (EEF), 132 (TUC) and 176 (CBI), Appendices 22, para 25, and 23 (both EEF) and 28 (KPMG) Back

43   Q 48 (EEF) and Appendix 44 (SBAC) Back

44   Q 365 Back

45   The FPB suggested that the bureaucracy associated with completing a tender often takes one person three working days: Appendix 25 Back

46   Appendices 6 and 7 (British Furniture Confederation) Back

47   Qq 49 (EEF), 128 (TUC) and 176 (CBI); Appendices 8, paras 22-23 (British Printing Industries Federation) and 25 (FPB) Back

48   Appendix 8, Case Study 4 (British Printing Industries Federation) Back

49   Appendix 8, para 19 Back

50   Appendices 6 and 7 (British Furniture Confederation) and 22, para 25 (EEF) Back

51   Such as bad debt provisions in their accounts, hedging risky investments, and a variety of sources of finance depending on the type of investment and the assessment of risk Back

52   Appendix 25 (FPB) Back

53   On value for money see, for example, Appendix 22 (EEF) and the TUC's comments on procurement of battledress by the Ministry of Defence: Qq 121-122, 125-127 On innovation and sustainability, Qq 45-46 (EEF) We discuss the opportunities for innovation and sustainable procurement in more detail below, Paragraphs 33-46 Back

54   Appendices 6 and 7 Back

55   Appendix 25 Back

56   Q 176 Back

57   Q 365 For the counter-argument, in favour of running competitions, see Paragraph 69 below Back

58   Qq 421-3 and 425 see also Paragraphs 60-61 below Back

59   See, for example, Appendices 7 (British Furniture Confederation Public Sector Working Group) and 8, paras 26-28 (British Printing Industries Federation)  Back

60   Qq 422-423 Back

61   Q 429 Back

62   Qq 425 and 430 Back

63   Appendix 8, Case Study 3 Back

64   Qq 51 and 49 and Appendix 23 Back

65   Appendix 7 Back

66   Q 720 Back

67   Q 695 Back

68   Qq 742-744 Back

69   Q 720 Back

70   Appendix 7 (British Furniture Confederation) Back

71   Appendix 28 Back

72   Q 748 Back

73   See, for example, Appendix 22, para 25 (EEF) and Qq 713 and 740 (OGC) Back

74   Q 179 and Appendix 10, para 4.3-4.4 See also Q 52 and Appendix 23 (EEF) and Appendix 2, para 2.1 (Amicus) Back

75   Q 115 Back

76   Qq 108 (TUC) and 177 (CBI), developed further in Appendix 48, paras 5.2-5.6 (TUC)  Back

77   Q 713 Back

78   See paragraphs 65-68 below Back

79   Q 740 Back

80   Qq 165 and 171-172 (Intellect) and Appendix 10, para 4.2 (CBI) Back

81   Qq 46 (EEF) and 176-179 (CBI) and Appendix 22, para 25, and Appendix 23 (both EEF) Back

82   Qq 58-59 Back

83   Appendix 25 (FPB) and Q 52 (EEF) Back

84   Q 746 Back

85   Led by the joint DTI-DEFRA Environmental Innovations Advisory Group Back

86   Appendix 18 Back

87   Appendix 22, para 24 Back

88   Qq 733-734 Back

89   HM Treasury, The Race to the Top: A Review of Government's Science and Innovation Policies, 5 October 2007 Lord Sainsbury recommended that the Small Business Research initiative should be remodelled to resemble the US equivalent more closely. Back

90   Appendix 21, para 23 See also Qq 45-46 (EEF) Back

91   Appendix 10, para 4.7 Back

92   Appendix 10, para 4.6 Back

93   Q 163 in 'Europe moves East' [ Back

94   Q 164 in 'Europe moves East' Back

95   Appendix 21, para 25 Back

96   eg Q 180 (CBI) on the replacement for tax stamps on spirits Back

97   Q 115 (TUC) Back

98   Appendix 22, para 23, Appendix 23 and Q 52  Back

99   Qq 689-690 Back

100   OGC and DIUS, August 2007, at www.ogc.gov.uk/documents/finding_and _procuring_innovative_solutions Back

101   Q 747 (OGC) Back

102   Q 696 Back

103   Qq 166-167 in 'Europe moves East' Back

104   Q 690 See also Qq 691-3 Back

105   Q 169 in 'Europe moves East' Back

106   Qq 170 and 174 in 'Europe moves East' Back

107   Securing the Future (March 2005), Executive Summary, p2 Back

108   Q 46 and Appendix 21, para 23 Back

109   Q 173 in 'Europe moves East'  Back

110   National Audit Office, Building for the future: sustainable construction and refurbishment, HC 324 of Session 2006-07 Back

111   Appendix 48, para 7.6 (TUC) Back

112   Qq 113-114 and Appendix 48, para 7.7 Back

113   Appendix 48, para 7.9 Back

114   Q 164 in 'Europe moves East' Back

115   Appendix 10, para 4.12, Appendix 6 and Q 715, respectively  Back

116   Qq 695-696 Back

117   p1 Back

118   P9 Back

119   p32  Back

120   Passim All these points are also made in the Supplementary Memorandum given to us by the OGC: Appendix 54 Back

121   Q 704 Back

122   Qq 699-700 Back

123   Qq 109-110 and 118-120 (TUC), 224 (Amicus) Appendices 2, paras 3.2-3.3 (Amicus) and 48, paras 6.1-6.4 (TUC) Back

124   As did Mr Fanning of the OGC: Q 702 Back

125   Q 123 Back

126   Appendix 28 Back

127   Qq 183-184, Appendix 10, para 4.13 Back

128   eg Appendix 6 (British Furniture Confederation) Back

129   Q 224 Back