DIUS, OGC

24 JULY 2007

  Q700  Chairman: I do not think we have seen that document.

  Mr Fanning: I can ensure you get a copy. It has been in circulation for a time, I think, but I would be delighted to circulate it to the Committee, and that deals in some detail with what can be done. Perhaps if I can just try and dispel one of the myths, and that is that the rules are constricting. In fact our judgment is that the rules are, in fact, permissive and flexible and there is a lot you can do within the rules provided you are imaginative, and one of the challenges I would offer to public bodies is to work with us and with other colleagues on individual transactions to see what can be done to promote policy, but I stress again, consistent with value for money and the other components of the regime.

  Mr Evans: I apologise for appearing a bit bureaucratic, but I am afraid I think the equality agenda is no longer a responsibility of DTI and was not a responsibility of DTI for the last six months—I think it went to the Department of Communities—and so I simply have not briefed myself on that issue. I can procure an answer for you subsequently, but I am afraid that on the specific question of what has or has not been done on the equality agenda I have not covered.

  Q701  Judy Mallaber: But there is now a duty on public authorities to promote equality in relation to gender?

  Mr Evans: Yes.

  Q702  Judy Mallaber: So although we are saying it may not be a specific DTI responsibility, that is a responsibility on all government departments. Mr Fanning, you said that there was no prohibition, which is helpful because we got rather bureaucratic answers when we were at the EU in relation to some of those issues, but are you saying that, as far as you are concerned, there are up to now no positive steps that have been taken to positively promote equalities, because, clearly, in relation to asking questions of those people that are putting bids in on what their equalities policy is and then expecting them to promote those objectives is something that we should be able to do. Does that not happen at all at the moment?

  Mr Fanning: I believe it does. I think, for example, the ODA, which is the non-departmental public body which is delivering the Olympic programme, the infrastructure—

  Mr Evans: The Olympic Development Authority.

  Mr Fanning: The Olympic Development Authority, it will be essentially using public money to buy the infrastructure that is necessary to deliver the Olympics. From memory, they have set out a statement of the principles underlying their procurement policy and I do believe that it does say that they intend to promote equality, both race and gender, as working with their suppliers, but, again, they do add a caveat inconsistent with the general value for money and compliance regime within which they have to work. So my short answer is, yes, people are buying using tax payers' money and when they buy they are having regard to these other objectives.

  Q703  Judy Mallaber: But at the moment that is not within the guidance that is given to procuring sections of departments that they should take that into account?

  Mr Fanning: I am trying to find examples in this document here, and, again, I apologise, I should have briefed myself on that particular question a bit more thoroughly, but it does say, "The main social issues covered in this note are", and I go through them, and it does say "gender equality and race equality" and, indeed, it does give an example here. It is an issue of race equality and it says, "In an ethnically diverse area, a local authority would want to ensure that information about its services was accessible to all racial groups", and to answer the authority might choose to outsource a help desk and it might specify that in that help desk people need to be able to speak the languages that are used by the community in that area, and that would be an example of how you can achieve your race equality objective through public procurement.

  Q704  Judy Mallaber: Finally, at the moment is there any prohibition to requiring the make up of the workforce?

  Mr Fanning: Yes, there is. I am sorry to interrupt you, but we are getting into fine points of rules as they apply to individual contracts and, when you are buying anything, you put in the specification, which is the device you usually use to achieve, if you like, non-value for money outcomes, by thinking through very carefully your specification and setting out what you are trying to buy, and there is great flexibility in the specification. However, it has to be relevant to the contract and providing benefit to the authority, and that is where, for example, local labour clauses are usually not relevant to the contract and do not provide a benefit to the authority. However, with imagination, and there are examples in this document, you may have the effect of being able to achieve non-value for money objectives. Most of your work force could, in fact, be locally based, but you cannot actually put that as a requirement in the specification.

  Q705  Chairman: I suspect you are pushing too hard on this. As you have frankly and honestly admitted, you have not briefed yourself thoroughly in this area. I think I am going to ask you to send us the document you are referring to; also to give us a clearer written statement of what the issues are around this. I think that would help us to make progress.

  Mr Fanning: I would be delighted to.

  Q706  Chairman: And clarify in our minds exactly what you are saying, because I am a little more confused than I was when you began.

  Mr Fanning: I do apologise.

  Q707  Roger Berry: Would it be helpful also if you could give some examples of where the equality agenda has actually made a difference?

  Mr Fanning: There are some in this document.

  Roger Berry: In passing, since last December there has, of course, been a public sector duty to promote equality for disabled people, which has applied, of course, to DTI as well as everybody else, although on the DTI website, I have to say, I would not have noticed, but it is not your fault.

  Q708  Judy Mallaber: The question of whether it is a disadvantage to the authority not to promote those duties might also be one that you could comment on in your submission.

  Mr Fanning: I would be delighted to do so, yes. Perhaps I can make a general statement, which might help navigate a way through this. Procurement is quite a difficult thing to do, and it is quite a difficult thing to do well. The easiest thing is always to be very rigid in the application of the rules and to always go for the lowest price. That is not where the Government wishes to be. It wishes to make full use of the flexibilities within the rules and to make full use of the general statement on value for money which is the whole life-cost that brings into balance the user requirement.

  Q709  Chairman: We are going to go through that in more detail. Let me finish this session by saying it may be helpful if, before you write your note, you discuss with the clerk some of the issues and evidence about this particular issue to make sure that you are addressing fully the issues that have been raised with us as a committee in the policy inquiry.

  Mr Fanning: I would be delighted to do so.

  Q710  Mr Binley: Can I touch on the whole question of procurement and SMEs?

  Mr Fanning: Yes, of course.

  Q711  Mr Binley: Because I think about 22% of contract value in 2004-05, which are the last figures we have got, went to SMEs, although that represented 58% of total numbers of contracts, and I understand that. The other point I would make is that overall the UK gave 15% fewer government contracts to SMEs. We have got a problem that the Government wishes to solve but that we are not solving very successfully at all, quite frankly. I want to touch on three areas. The first is cultural. It does seem to me that you made the statement that there was no difference in terms of the upside of risk between the private and the public sectors and that there had been change-overs that made you believe that to be the case. Can I first ask you whether the truth of the matter is that most of the people you deal with are from UK Plc, who become more and more bureaucratic by the year, and that is why you think there is no difference, when in truth there is a massive difference in the SME sector, which is the most creative sector of British industry where most of the new innovations come from and where all the job growth is coming from?

  Mr Fanning: There are a number of items in that. My first point is that OGC works very closely with the former DTI to try and increase the participation or remove barriers to participation of SMEs within public contracts. We did some research—it is a little old now, it is about four or five years old, but it is quite intensive research—in the West Midlands and also in East London, in Harringey, and based on that evidence we came to the conclusion that the barriers faced by SMEs are largely to do with the capability on the buying side and on the selling side and also on information. We responded to that. There was a training programme that was enacted in the West Midlands for training both buyers and sellers in public bodies there. In Transforming Government Procurement there is a programme of improving the performance of buyers right across government. We have relaunched the Government Procurement service. We have got Procurement Capability Reviews of all departments. We have done two, there is a third one that will be completed soon and that will drive performance on buying across government, and also we have, with our colleagues in DTI, launched a website Supply2.gov, which will enable smaller contracts to be advertised.

  Mr Evans: Shall I give you a little more information on that. The Supply2.gov website was launched in March 2006 to allow both public sector organisations (i.e. the procurers, and the people wanting to supply small businesses) to get better access to one another, and it is predominantly targeted on the lower value and the smaller procurement opportunities less than £100,000 specifically with the objective of making it easier for small businesses to do that. Since that launch over 50,000 buyers have registered—that is predominantly small businesses who are potentially trying to get business—and over 3,500 public sector contracting authorities have registered and since the overall launch nearly 50,000 opportunities have been published. We continue to want to grow this as an opportunity, but it is an example of the joint activity between OGC and DTI to try and help small businesses get access to government procurement.

  Q712  Mr Binley: Gentlemen, I have to tell you that the question I asked you has not been answered at all, and it was a question of cultural barriers. You maintained that you felt that there was no difference in cultural terms, particularly with upside of risk, between private and public sectors. I asked you whether that was because you mostly deal with UK Plc, which are quite bureaucratic organisations, and I talked specifically about SMEs which tend to be much less bureaucratic. Will you please answer that question?

  Mr Fanning: I shall. I must have been unclear. There is a difference between the culture of the public sector and the private sector in my experience. In the private sector you are certainly rewarded for upside very, very significantly.

  Chairman: I think Brian is asking about the difference between big businesses and smaller businesses.

  Q713  Mr Binley: Exactly that.

  Mr Fanning: I have worked in leadership positions in both large organisations and small organisations and my judgment is that there are many myths about smaller organisations. My main observations about small organisations is that they are small and that, therefore, it is very difficult to get anything done because the management there is very thin, the management band-width is very narrow, the experience of people at the top of the organisation is usually very constrained. They are desperately anxious about where the next deal is coming from. They have, for example, less fixed costs available to win bids as a proportion of total sales that would be the case in a larger organisation, and what they really want from government, certainly what I wanted from government when I was a managing director of a firm selling right across the public sector, both in this country and abroad, was stability of demand. We can cope with competition, but what we found very, very difficult was stop and go, and that is one of the issues that we as OGC are trying to address in marshalling public sector demand, putting greater visibility to the market so that they can deliver to the public sector in the most advantageous way possible.

  Q714  Mr Binley: Let me move on. You have talked about assessment of progress and I have heard a little of that. Clearly, much more assessment needs to be done to understand whether you are on the right track or not, because I have not really heard very much that convinces me that you do know whether you are on the right track in regard to the Government's targets to involve many more SMEs and sell much more ability to SMEs to take part in procurement than you are doing at the moment: because it does seem to me the Government does want you to go out and sell to Outreach and to get people involved. I am not sure how you are doing that. You say you have got a website. What else are you doing?

  Mr Evans: Can I take half a step back just before I answer the specifics and give some more examples of what we are doing. What the Government is completely clear about is that it wants small businesses to be able to compete better for business. So it wants to be able to improve the ability of small business to engage in public programmes to meet the needs, for exactly the reasons you have said: the fact that small businesses can be more innovative. You can find good and bad small businesses in the same way you can find good and bad big businesses, but you can find a lot of innovation, a lot of flexibility, a lot of benefit with small businesses, and if our systems of procurement are in some way biased against small businesses, we will be losing out as well as the small businesses. That is the fundamental point on which we agree with you, but I do not think we have actually said that we know that the level of participation that we have currently got in terms of the current participation of small businesses in public procurement is too small or too big, because I do not know how we would decide whether or not what in absolute terms the right level is, but what we certainly want to do is to make the market more competitive, actually help small businesses participate. What else have we done? The Regional Development Agencies have helped train more businesses; I have talked about the website; the local authorities have been encouraged to sign up to a concordat to make their own procurement more small business friendly; there has been a range of guidance improvement, process improvement activity which we have done with a range of different public authorities coming from the DTI side, working with our colleagues, to help small businesses get business off government—

  Q715  Mr Binley: Would it be very unfair if I said that the impression I am getting is that whilst you are in line with government thinking, you wish to improve, your assessment of where your systems actually are is pretty poor?

  Mr Evans: I am afraid I do not have the data. I do not know whether Peter has the data.

  Mr Fanning: I think that we are in a much better place now than we were when I first joined OGC, to be blunt about it. I now, for example, know that we spend about £75 billion a year on common goods and services. We can analyse that into 54 different categories of spend. We are going to develop plans for driving value out of those categories, category by category, in a systematic manner. The first four pilots are in energy, office supplies, travel and fleet, and we will do our best make sure that we have a level playing field for SMEs and increase to make sure that there are as few barriers to SME participation in those contracts as we possibly can. However, my job is to drive out value for the tax payer, and that is what I shall do. I will give you an example perhaps of where, using the specification, you can achieve, if you like, a social outcome by using the principles underlying the EU procurement rules, and that is, for example, in the area of food. You can specify, for example, if you are a hospital or a prison or whatever, that you want food to be of a certain freshness. It needs to be available, very, very fresh, and the effect of that is that it means that local suppliers have an advantage over those who have to take their food over longer distances, using refrigeration and chemicals to keep it fresh. That is an example where you can level the market. If a large supplier, of course, chooses to set up a big farm beside a prison, that is the way the markets operates.

  Chairman: Can I just say, we are making rather painfully slow progress, so if I can make the usual plea from the Chair of the speaker: short questions and answers as far as we can.

  Q716  Mr Binley: Can I ask you to us send us some real examples of assessment and monitoring, because I have still yet to hear what you are doing in that respect. Can I ask a final question? I have made the point about the Europeans being more successful in this respect than we are and, indeed, there are suggestions that the approach taken there is the reason why they are being more successful. That is not very difficult. The systems they use to get to SMEs and to offer them the opportunity is a more successful system. Have you looked at that and are you thinking about tweaking our own processes to improve in that way?

  Mr Fanning: I can reply on that. We have looked at it. We have produced the Wood Report.

  Q717  Mr Binley: That is five years ago?

  Mr Fanning: It is five years ago, and there are no plans, but perhaps that is something which I will suggest my successor reviews.

  Q718  Mr Binley: Are you leaving them?

  Mr Fanning: I am the Acting Chief Executive.

  Mr Binley: I understand that now. Carry on.

  Q719  Chairman: That is it, is it?

  Mr Fanning: I think there is a good case. We will have to discuss it with our ministers for the Wood Review to be revisited.

  Chairman: Thank you. We want to make slightly faster progress. Judy Mallaber.