1.  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. (Paragraph 40)

Personnel

2.  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., until there are enough high quality people spread throughout the public sector, in local as well as national government, the problems set out in this Report will persist. (Paragraphs 28 and 79)

3.  The OGC has been given a clearer role in leading policy on government procurement, auditing departments' performance and improving the calibre of the procurement service. All of these are welcome. However, the main thrust of the Transforming Government Procurement agenda is to increase centralisation and impose uniformity on government departments. As we have seen, that will not necessarily deal with the problems raised by our witnesses, many of which boiled down to the need for intelligent decisions to be made on individual contracts. Moreover, the majority of public agencies — local authorities — procuring goods and services remain peripheral to the OGC's remit and, as the OGC's description of the procurement capability review of the DfES indicated, even the reviews of the main government departments will not really touch on the expenditure devolved to organisations like schools and hospitals. Nor could the leaner and more focussed OGC cope with a wider remit. We therefore fear that Transforming Government Procurement does not represent such a leap forward as its supporters suggest. (Paragraph 78)

4.  SMEs face even greater difficulties in securing public contracts than larger businesses and, as we noted earlier, these difficulties may increase as a result of the Government's efficiency agenda — implementation of which is no longer the responsibility of the OGC. SMEs need an obvious champion within government. At present, it is not clear which department has responsibility for protecting their interests in relation to public procurement, or whether the responsible body has the necessary influence over the many central government procurement authorities to bring about a real improvement in practice. (Paragraph 72)

Working with the supply chain

5.  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. (Paragraph 32)

Encouraging innovation through procurement

6.   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. (Paragraph 41)

7.  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 (Paragraph 46)

Using procurement to promote social policies

8.  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. (Paragraph 51)

SMEs

9.  While there is no doubt considerable room for improvement in the UK's record for the award of government contracts to SMEs, evidence of how it compares with similar countries is mixed. We believe that serious efforts should be made to improve the situation in order to capture the benefits identified by the Small Business Service of greater innovation and competition. (Paragraph 55)

10.  Much that the Government has been doing — improving the availability of information about contracts, encouraging local authorities to sign up to the Concordat, training both purchasers and sellers — was considered by our witnesses to be helpful to SMEs, even though in some cases they felt the Government should do more in these respects. There was far less agreement on other avenues that the Government should pursue. In almost every case, any recommendation for changes to procurement practice made by one of our witnesses was opposed by another. Procedures designed to increase efficiency were seen as harming SMEs; attempts to make contracts more accessible to SMEs as slowing down procurement or increasing costs; social clauses and environmental aims as adding bureaucracy; attempts to promote innovation as increasing complexity for the officials who make procurement decisions, or giving 'insider' companies advantages over their competitors. There is clearly a limit to what can be achieved through across-the-board changes to procedures. The focus must be on the way individual decisions are taken. There is no shortage of OGC-sponsored advice and best practice guidance on these issues. Better performance against the Government's objective of increasing SME participation in public procurement therefore depends on two things that we strongly support: better trained and more experienced personnel in charge of procurement, and a change in the emphasis of the OGC from advice to enforcement. (Paragraph 70)

11.  Centralising procurement, bundling tenders and seeking economies of scale appear to conflict with the Government's aim of increasing SMEs' access to public procurement contracts. The findings of the National Federation of Builders about the overall decline in SME participation in construction work and the failure of frameworks to provide the sub-contracting opportunities hoped for indicate that it will be difficult to avoid disadvantaging SMEs (and therefore, in the medium term, reducing competition and innovation) as the efficiency drive in procurement goes ahead. (Paragraph 68)

12.  We doubt whether the establishment of a target in relation to general procurement would greatly assist small businesses. (Paragraph 64)

Payment practices and SMEs

13.  Government policy has long been that public authorities should set a good example by paying bills promptly — a policy underlined by actions such as the Late Payment of Commercial Debts (Interest) Act 1998. Statistics compiled by the Government show that government departments consistently fail to meet the required standard. There is no excuse for this: apart from questions of justice, such exercise of power by purchasers is likely to deter potential suppliers and diminish competition. It is not clear whether departments' poor performance is attributable to inefficiency on the part of their finance departments or the perverse incentive to retain money owed in order to make their financial position appear better than it is. Whichever is true, HM Treasury has a responsibility for implementing government policy in this area; it needs to adopt a more vigorous approach and it could start by giving a better example itself. (Paragraph 57)

14.  It suggested that there should be research to determine whether, if practices were changed so that payment could be made incrementally for work in progress, more small businesses would be able to compete for long-term contracts. (Paragraph 58)

15.  We shall return to this issue in connection with our parallel inquiry into the construction industry. (Paragraph 59)

Competing for contracts abroad

16.  Mr Fanning of the OGC thought that there was a good case for updating the Wood Review on procurement in other EU Member States. We agree. We also accept that there may be more that companies could do to fit themselves for competing for overseas public procurement tenders, such as ensuring that their agents have appropriate language skills and seeking advice from bodies such as UK Trade and Investment. The UK Government must continue to encourage the spread of best practice in procurement by public authorities throughout Europe. There is also a role for Chambers of Commerce or trade associations in helping to identify potential mentors for smaller or new-to-export companies. (Paragraph 16)