DIUS, OGC

24 JULY 2007

  Q680 Chairman: Mr Evans, Mr Fanning, welcome. Mr Evans, it is nice to see you again; Mr Fanning we are seeing you for the first time. Can I, as I always do, ask you, for the record, to begin by introducing yourselves?

  Mr Evans: David Evans, I am Director of Technology and Innovation in the Department for Innovation, Universities and Skills, which, as you will know, is the descendant, the successor to DTI. I am actually speaking on behalf of that department but also on behalf of the Department for Business Enterprise and Regulatory Reform because today we felt it was more efficient if you had one spokesperson rather than two.

  Q681  Chairman: Excellent. A wise decision.

  Mr Fanning: I am Peter Fanning, the Acting Chief Executive of the Office of Government Commerce. We are part of the Treasury, and the OGC was set up to promote good procurement across government and to deliver value for money and, thereby, to improve quality of public services.

  Q682  Chairman: Thank you very much. You know this is the last evidence session on this inquiry into public procurement, and one of the things I am still puzzling a bit about is where the ministerial buck stops. Who is ultimately responsible politically for ensuring that we get good value for money for our public procurement and effective public procurement which delivers all the other objectives of government policy we will be exploring during this session.

  Mr Fanning: I shall answer that, if I may. The responsibility of the policy lies clearly with the Treasury and, therefore, with the Chancellor, but the implementation of value for money policy lies with the departments who are actually deploying the public funds. So, like many things in the public sector, there is a joint responsibility.

  Q683  Chairman: The DTI used to have a very modest department that looked at these issues and the impact on business.

  Mr Evans: I think our responsibility, plainly, as the Department of Trade and Industry, was government policy in relation to business, to industry and business. In that respect it is another example of this shared responsibility. Where public procurement issues are related to competitiveness or productivity in business, DTI took an interest and, perhaps in some further questioning which you will give us this morning, I think we will be able to give you some examples of where we have been working with the Office of Government Commerce, either on the framework or on specific examples, to achieve joint objectives, both effective procurement, effective use of public money, delivering whatever the goals of the public money were and trying to support the purposes of better business and industry in the UK.

  Q684  Chairman: I appreciate you are officials. I think it is a question we may well return to with the Secretary of State for the new department in due course, because we heard a lot of evidence. The industry and the trades unions all said that this was one of the most important issues for them in the future of British manufacturing, and we found it rather difficult to pin down within the old DTI exactly what was being done to ensure it was being done effectively. I think we had some concerns.

  Mr Evans: I suspect that is more the responsibility of the Secretary of State for Business Enterprise and Regulatory Reform than my Secretary of State, but I am sure that John Hutton will respond positively to any request to give you more information.

  Q685  Chairman: Thank you. Can I return to some of the details and begin with one of the most often heard criticisms of public procurement in the UK, which is that we interpret EU legislation more rigorously than other Member States and do not make use of the exemptions and provisions as intelligently as other countries. You have heard that said very often. What is your answer to that point?

  Mr Fanning: I can reply on that. There are lots of assertions but the only piece of well-established and auditable research that we are aware of is the Wood Report, which I commend to you, which was published by the Office of Government Commerce and the Treasury in November 2004. It was undertaken by Alan Wood, the Chief Executive of Siemens and a leading businessman in his own right, and that reached the conclusion, which I think is very eloquently summarised in one of the quotes in the foreword of the document, in the summary of the document, which says that it is not about the rules, it is behavioural issues. So, there was a conclusion that maybe at the margin there is some difference across the European Community in the way in which the rules are applied, but there is no systematic abuse, there is no systematic under-use of the rules, and by and large the single market does work consistently across the whole of the EU.

  Chairman: Most unusually, Mr Bone wants to ask something about the European Union.

  Q686  Mr Bone: I was not really coming in on this one, but that response is incredible. I sit on the Joint Committee on Statutory Instruments and each week we have a pile of EU Directives that have come through that have been gold-plated. There is no question that the Government adds, rightly or wrongly, new regulations to EU Directives. Is that not the case?

  Mr Fanning: We believe it is not the case, no.

  Q687  Chairman: Specifically in procurement.

  Mr Fanning: Specifically in procurement.

  Q688  Chairman: More generally, I think it is unarguable.

  Mr Fanning: Specifically in procurement, we translated, or transposed the EU Procurement Directive, the Articles in the Directive which constitute the legally enforced provisions, into UK law in a very flexible and permissive way, in a way that we understand and certainly were advised by Cabinet Office colleagues does not impose a burden, or imposes the least possible burden on industry and those who have to work within the rules. We took a choice, and I am sure you are aware of some of the discussions that have been had with stakeholders around the market, about whether the recitals, which are the non-legally enforceable parts of the EU Directive, should be included in UK regulation and therefore have the force of law; and not entirely but almost entirely, for the reasons of reducing the burden on both buyers and sellers, the recitals have not been included in the legally enforceable regulations but are interpreted through policy and guidance which enables us to respond flexibly as the world changes, as new information comes along, as technology changes and so on. We believe that we have a track record in interpreting the Procurement Directive in a way that puts the least burden on those people who have to use it.

  Chairman: We could pursue this for a very long time, but I think we probably had better move on. I think some of our witnesses would be surprised by some of that. Lindsay Hoyle.

  Q689  Mr Hoyle: I am also shocked, Chairman, like your good self. One cannot believe it. If you go round any European country, all ministerial cars will be a car that is produced in their own country. You want to try here. They are shipped round the world from Japan; so the procurement hardly applies in those rules. I think we can drive a coach and horses through what you have said, whether it is police cars, ambulances, you name it, I could go on forever, but let us get on. Somehow, as we have said, the playing field that we play on is completely different to everybody else in Europe, so we all have an opinion and we will have to be in some disagreement on that. Allowing for that, what are the main barriers for the Government using public procurement to promote innovation?

  Mr Fanning: Perhaps I can pass that to my policy colleague here.

  Mr Evans: Let me start by picking up the question of the regulatory framework, the framework of EU law. We do not believe that that is one of the barriers, we believe there is lots of scope within the legal framework for the intelligent use of the requirement for best value for competitions to promote innovation; but I would have to say also that we do not believe that there is enough innovative procurement going on, that innovation is supported enough within government procurement, but that is not the fault of the rules. For that reason what we have been trying to do is improve the guidance, improve the information that is available to procurers to allow procurers to help them approach their procurement exercise, the task of specifying goods and services, in a way which will help bring forward more innovative solutions, and we have been working closely with OGC on some guidance which is at an advanced stage but is not yet public—we expect to be able to publish it in the autumn—which will set out the ways in which we think that can be done.

  Q690  Mr Hoyle: So the reality is there are no real barriers, it is just that the Government is not using or asking or requiring innovation?

  Mr Evans: There are no legal barriers, the legal framework is not the key barrier. There are some barriers, I think, but they go back to some of the core barriers about improving practice in procurement, which I think comes back to the core functions of OGC—things like improving the capability of procurers, enabling a more risk-oriented approach to procurement, a willingness to take more risk. I have to say, there is an element in our political discourse which might be regarded as a barrier, in the sense that when things go wrong political inquiries often point fingers at individual officials or ministers. The political environment is not one which, I would have to say, speaking as an official, encourages risk-taking in procurement for fear that you might be pilloried for something that went wrong rather than saying that a corollary of a more innovative approach to procurement is that a proportion of your projects will not deliver fully on all their projects but the totality of the outcome will produce a better result for business overall. I do not have any answer to that and I do not point the finger, I just say that as a working official I have to recognise that is part of the world which I inhabit.

  Q691  Mr Hoyle: Is it the officials that put the ministers in the deep freeze so they do not think anything other than what they are advised? Is it the ministers that we have got to take out of the deep freeze or is it the officials who are just too nervous about their own careers?

  Mr Evans: I do not want to personalise this between ministers and officials, because both have interests in successful careers and look to their futures. I think some of the guidance material, some of the work OGC has done on professionalising procurement helps officials get out of that and I hope, in providing better guidance to officials about whole lifetime costing, all of that kind of thing, this will then help ministers because if officials have got a soundly based case to present before a minister, a minister will feel comfortable accepting that case.

  Mr Fanning: Perhaps I may add to that reply. The bulk of my career so far has been in the commercial world and it does feel very different if you are making a decision. In the commercial world you balance the upside and the downside. In the public world there is no upside, there is only downside—that is the way it feels—and, therefore, there is a predisposition to take, if you like, the least risk option as opposed to the option that gives you the greatest upside but actually, correspondingly, has a significant downside. This is particularly the case when you are making investment in new technologies or new processes and so on. Certainly talking to my Permanent Secretary colleagues, one of the observations that they make is that if they are presented with two options, one that is very attractive but risky against one that is tried and tested but may be less attractive, the tried and tested is the one that they would personally tend to prefer.

  Q692  Mr Hoyle: No risk departments. That is what you are saying.

  Mr Fanning: Pardon.

  Q693  Mr Hoyle: They are called no-risk departments?

  Mr Fanning: Well, life is full of risk. I am merely making the observation that if you are given two options, the tendency will be to go for the lower-risk option, simply because of the consequences to you as a department, and so on, whereas in the commercial environment, I believe in my experience it feels as if you can take a much more, dare I say, calculated risk, in the sense if there is a potential for upside you will be rewarded for delivering that.

  Mr Evans: Might I add, I certainly do not think there is any difference between the character of people who work in the Civil Service or in the public sector and the people who work in business, because we have examples of people who move both ways; neither do I think it is in any way a positive intention of the political process to create that; but I think it may be simply a consequence of public life. If you are doing things in the public service, you are rightly subject to more scrutiny than if you are operating within a company because you are using tax-payers money to spend on these things. So, in some ways it is a corollary, it is one of the crosses in some sense we have to bear, but it is right that we should be subject to more scrutiny than private business.

  Q694  Mr Hoyle: My worry is that people coming in from the commercial world get sucked into the system and do not change it, because nothing changes?

  Mr Fanning: We try to.

  Mr Hoyle: But, obviously, it is not happening. I leave it there.

  Chairman: It reminds me of those terrifying words from Yes Minister, "That would be a courageous decision." The ultimate warning!

  Q695  Roger Berry: One area where there is less uncertainty in relation to outcomes is that of energy efficiency and sustainability, where Government has clear policy objectives and yet many organisations, not least the National Audit Office, have pointed out that Government is failing to use the public sector to make progress in those areas. How does Government use public procurement to promote energy efficiency and sustainability?

  Mr Fanning: Perhaps I can make a stab at that one. I am trying to find the appropriate word, but you can perhaps help me. I was a witness at the PAC recently on sustainable buildings and I had the opportunity at that hearing to say on this very day we made an announcement of an extremely large—I cannot remember the exact figure—energy deal that gave government departments an opportunity to buy green energy at no premium, and it was an example of collaborative procurement at its best. That is an example of the sort of transaction that OGC is increasingly leading and sponsoring. Perhaps I can use this opportunity to remind you that Transforming Government Procurement was published in January of this year, and that marks a watershed in the Government's approach to managing public procurement. 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. One of the first areas of work where we are investigating where that might be possible is in the area of energy, looking to how we can marshal the Government's energy demand in a way that generates good value in a sustainable way.

  Q696  Roger Berry: You mentioned buildings but, as you know, the National Audit Office recently produced the report Building for the Future. They said the Government has set sustainability standards for construction, refurbishment of buildings on the Government Estate, and they looked at some of the projects and found that in 80% of the cases the Government was not meeting its own standards.

  Mr Fanning: Yes. Partly in response to that, using the new powers available to me under this document, this policy statement, I wrote to all departmental heads, all Permanent Secretaries and Accounting Officers, requiring them to participate in the OGC's property benchmarking scheme, which will enable us to measure the performance of all 9,000 holdings on the Government's Estate, and one of the dimensions we will be measuring is the building's sustainability, its performance against sustainability measures, water recycling, energy efficiency, waste recycling, and so on. So we will have the information to enable us, firstly, to work out where we are and then to map a journey from where we are to a better place, and you will have the opportunity to use that information in holding departments to account because the information will be made available to the Sustainable Development Commission.

  Mr Evans: Might I add something about the slightly more forward-looking take on exactly the same question? The same document about public procurement policy talked about the role of the Technology Strategy Board, working with the OGC in looking at developing new technologies which will be able to meet the challenges of the future so as to allow business to supply into more demanding targets, and energy efficiency is one of those areas where the Government has set, as you will know, very challenging targets for housing for 2016, zero-energy housing. As part of the work of my department, we have actually been developing a research and development programme on low environmental impact buildings with the Department for Communities, which will help underpin the creation and delivery of technologies both in the public sector and the private sector (because these issues span both) over the coming ten years where we are working with the procurers as well to make sure that the way we specify an R&D programme—this is R&D activity so it is looking to the creation of new technologies—feeds more easily into the procurement activity, whether it is public procurement or private procurement for the future. So, that is in some sense a different dimension to the way in which we can tackle the problem, because we can help create new technologies which, over the next ten years, will provide the answers.

  Q697  Roger Berry: Would it be fair to summarise Mr Fanning's view as being, "Well, it has been a bit chaotic in the past, but we now have a framework that will hopefully address this so that the NAO will not produce any more reports like that", or am I putting words in your mouth?

  Mr Fanning: You are not putting words into my mouth. It is a way, I think, of summarising eloquently what I was trying to get across. I think it is right that people are held to account, that is what I am used to in a commercial environment. Indeed, in response to the question earlier on, people who move from the commercial environment into public service do bring techniques, ideas and principles with them, and the idea of working out where you are, working out where you want to be and charting a route from A to B and measuring movement along that route is something that you do in business every day.

  Q698  Roger Berry: It is the sort of issue we do in the public sector as well, but—

  Mr Fanning: Well, we have not done it in procurement hitherto.

  Q699  Judy Mallaber: I have got two DTI memoranda to this Committee for our inquiry on the future of the manufacturing industry, one on public procurement, one on skills shortages. I may have missed it, but I cannot see any reference at all within those to the issue of equalities, even though a huge area of the potential skills that we are not using relate to the fact that women do not get the place that they should do in relation to industry, in relation to the occupations they are in, and similarly other disadvantaged groups. Does the Government use public procurement at all to promote its equality agenda?

  Mr Evans: Do you want to talk about the social clauses first of all and I will see if there is anything to be said about—

  Mr Fanning: Yes, the first thing is that there is no prohibition to using public procurement equality provided it is consistent with value for money and other components of policy. Indeed, again, if you will forgive me, in answer to that question OGC, working with colleagues across government, produced this Social Issues in Purchasing, which I do believe covers how you can use—