DIUS, OGC

24 JULY 2007

  Q720  Judy Mallaber: Mr Fanning, you said earlier that Government did not just want to go for the lowest price, but obviously that is still the very widespread criticism we receive, that they do just go for the lowest price rather than broad value for money considerations. How are you addressing this problem, particularly in light of constraints on public spending?

  Mr Fanning: The first thing is, it is a myth, and I will repeat that, 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 do need more experienced, capable, sophisticated people who are willing to make more balanced judgments. What we are doing is trying to drive up standards across government in procurement, firstly through reinvigorating the Government Procurement Service, for example, which has been re-launched recently, and we have got graduate recruitment going on with about 200 people passing through the system at the moment. Secondly, we are also holding departments to account for the quality of their procurement activity. As I said, we have had two completed reviews of government departments' capability in procurement and we will be publishing the first three of those reviews in the autumn. Finally, we have a complaints function which is something that, again, may be unknown to you because it is fairly new and we had a soft launch, but OGC has now launched an informal independent complaints function, so should aggrieved suppliers believe they have an issue they want to take up with Government but they are uncomfortable about going directly to the purchasing department, they can come to us and we will deal with it.

  Q721  Judy Mallaber: When you say you can deal with it, what authority have you got with the purchasing departments? Can you go in and do a sample of the contracts they are putting out and say, "That's not good enough, you've got to change it"? What are your powers?

  Mr Fanning: Our powers are quite considerable inside Transforming Government Procurement. I think we would have to see what was appropriate in the circumstances of the individual complaint but, in principle, if it did require us to undertake an investigation, if the evidence merited it, then I am sure we would consider that.

  Q722  Judy Mallaber: Do you just respond to complaints or do you go and look periodically at how they are doing their contracts and say, "Look, you're not doing the specifications right" or "You're not taking account of all the factors"?

  Mr Fanning: That will be the subject, yes. The short answer is, yes, the Procurement Capability Reviews will do that. However, I would make the point that in the Procurement Capability Reviews we have to have regard to the scale of some of these. For example, the Department for Education and Skills, which was the subject of the first pilot, spends £20 billion a year. I do not think we will be reviewing all of the contracts they do, not least because many of them are executed inside the educational sector and, therefore, there is a very large number of them. What we will be looking at is the quality of the overall procurement activity within the Department.

  Q723  Judy Mallaber: If, for example, the MoD comes back to you and says, "It's soldiers on the frontline and more equipment or getting this cheaper, but maybe cutting some of the corners on specifications, you might want to look at", how do you respond to that?

  Mr Fanning: I do not want to be drawn into hypothesis but we do expect to undertake a capability review of the MoD's procurement capability next year where that issue may arise.

  Q724  Roger Berry: To pick up on what Judy was saying, we have been told that some government departments are frankly better at procurement than others. The Ministry of Defence is usually held up as one department which is good at procurement, which begs the obvious question, what are you doing to ensure that the public sector is more consistently good at procurement? In fairness, to some extent you have been talking about that, but how big a problem is this diversity of practice? Apart from reviews, what can you do? What are you doing to try to have uniform best practice?

  Mr Fanning: Again, drawing on my experience from the commercial world, you have to start measuring things. You have to work out where you are, work out where you want to be and chart a course from A to B and we are doing that in a way which we have never done before. I gave examples of what we now know about common spend, that we propose to collect that information periodically and systematically so that we can build up a picture of how things are changing. This is the first time these Procurement Capability Reviews undertaken by departments have been done and over time they will drive up performance. One thing I can give you an assurance on is the Permanent Secretary community are, in the argot, up for it. They look to OGC to help them improve the performance of their own departments. We have not had the tools, the instruments before. We are building those instruments and we intend to use them.

  Q725  Roger Berry: When did that process start?

  Mr Fanning: I think it started initially with Sir Peter Gershon's report in 1999; he created OGC. In its early years, OGC was focused on leadership and advice and a lot of changes were made. Sir Peter Gershon, to pay him credit, generated a fantastic brand. What we have learned through the Efficiency Programme is you can drive change right across the public sector but it does require the hard grind of setting targets, agreeing plans, monitoring performance against those plans and intervening where you get an adverse variance and we are doing that now.

  Q726  Mr Hoyle: Quickly on procurement. You obviously said you did not want to get into hypothetical defence issues, but there is a good case of army uniforms which were made in the UK and were put out to China to a Chinese factory, state owned, unfair competition, how do you end up in a position like that? That is not hypothetical, that is fact.

  Mr Fanning: I am sure it is fact, but my job is to deliver value for money for the British taxpayer and I have no reason to believe that the MoD did anything other than seek to get value for money when they made that procurement decision. If there is any other evidence to the contrary, I would be delighted to have a look at it.

  Q727  Mr Hoyle: Obviously we gave away our technology advantage on camouflage because it did have special infrared to ensure that you could pick out the camouflage of our troops and we actually gave that information away, so there is a whole issue to be taken into account. I will give you another one then. How do you end up with ministerial cars, Toyota Prius, driving around which have been shipped all the way around the world from Japan?

  Mr Fanning: Firstly, I do not know that they are shipped.

  Q728  Mr Hoyle: They are, they do not make them here in this country.

  Mr Fanning: Is that right?

  Q729  Mr Hoyle: Absolutely, so I cannot understand how procurement rules work and do not work.

  Mr Fanning: The first point is the Prius cars were procured through a deal which OGC helped to broker. For the first time we have managed to require the whole of the government fleet is now sustainable, so what we are doing is creating demand in the UK for sustainable cars.

  Q730  Mr Hoyle: Sustainable, what do you mean by sustainable?

  Mr Fanning: I am not an expert on fleet, so I am advised by—

  Q731  Chairman: I do not think we should get into the details of this, but I think many of us would regard the Toyota Prius as being unsustainable rather than sustainable.

  Mr Evans: Can I intervene a little bit to remind you that Toyota does, indeed, have a very significant manufacturing capability in the UK in the North East albeit, you are quite right, they do not produce that particular vehicle in the UK. They have made a major investment in the UK and, therefore, like many multinational companies, they do different things in different countries.

  Q732  Mr Hoyle: That is nonsense, is it not?

  Mr Evans: I have to put my wider DTI hat on here and say, yes, of course we want to sustain UK technology, yes, of course we do want to support companies which manufacture in the UK and, yes, of course we do want to advance our own industries' capability, but it is not true that the only way to do that is to buy British. There are varieties of different ways in which we can sustain it. The work we will be doing, which I described in relation to the sustainable buildings, the low environmental impact buildings, we have got a similar activity which we will be launching with the Department for Transport on low emission vehicles where I am sure we will be engaging with Toyota and other car manufacturers. The programme has not been launched yet, so we have not got the specifics in place to make sure that all of those manufacturers in the UK, whether they are Toyota, Ford, GM, whoever it is, produce vehicles which will be more able to meet the demands on the world market.

  Chairman: We only have another 14 minutes and we have six or seven questions to go.

  Q733  Mr Hoyle: Chairman, I must say, that is absolute utter nonsense. If you had not been shipping cars from Japan all the way around making the biggest carbon footprint with ships where one pollutes more than any aircraft, the fact is they might have been now producing in the UK. It is because you are willing to accept the mean ship that they have got away with it. It is absolute nonsense, and this is at the expense of British jobs and British technology. Everything you said at the beginning has been thrown out with the baby and the bath water. To move you on to something else, R&D. Why have previous efforts to enable smaller companies to gain access to publicly funded R&D contracts failed?

  Mr Evans: I think you are talking about the Small Business Research Initiative, SBRI. The original proposal was to ensure that of the totality of government procurement for R&D—this is very specific, this is procurement of R&D—a significant proportion would be done with small businesses. The figures which I have got for 2005-06 say that the total quantity of extramural R&D by central departments—this is very much Whitehall central department focused—was £2.6 billion and, of that, £225 million, that is 9%, was spent with small businesses. I have to say, that does not seem to me to be an absolute failure, notwithstanding the fact that I would like to see that small business proportion go higher. I think there is also a good case to say that not enough of that £225 million spent with small businesses is at the kind of leading edge products and leading edge services which will generate value going forward in the wider markets. That is not just my view, it is also David Sainsbury's view. Lord Sainsbury was asked last November by the Chancellor to do a review about innovation policies and he is well advanced with that review, although the report has not been published yet, it will not be published until the autumn. I know that he is very keen that we take further action to push the SBRI harder to use central Government R&D budgets to procure more of the kind of leading edge R&D which will get new products and services on the market. I am afraid, because his report has not been delivered to me or anyone else, I cannot tell you when we will get to that.

  Q734  Mr Hoyle: Why has the US been more successful?

  Mr Evans: The interesting thing is the US analogue of this talks about 2.5% of central Government. The figure we have got in the UK is already 9%, so there is a question about whether or not it is more or less successful. The more subtle and more difficult question is whether the right kind of small business R&D is being done under our 9%. That is the point David Sainsbury is referring to, but, I am afraid, you will have to wait a little bit before I can give you further answers to that. There is the issue of exactly what we do about it, I think we will have to wait and see and, indeed, we will have to find out exactly what David Sainsbury says.

  Q735  Chairman: We will have to move on, but did you give us a date for when Lord Sainsbury is likely to report?

  Mr Evans: I am speaking on behalf of another department, the Treasury, but I understand it is likely to be in the autumn, after the holiday break. You will not have to wait very long.

  Q736  Mr Bone: I want to ask you a couple of questions about bureaucracy but, first, I must go back to something Mr Hoyle said. Is it not the truth that these Toyota cars, or whatever they are, are a pure government gimmick and a stunt? Procurement had nothing to do with it and it is all to do with political stunting? As officials, should you not have been telling the Minister, "Don't do this, this is bad procurement"?

  Mr Evans: I am not going to comment, Peter can comment on that last point if he wants to, but he may well wish not to. If you go to the US and you ask the US car companies whether or not Toyota did a good thing by getting out in front with a whole new technology, the hybrid engine technology, and producing a vehicle five years ahead of GM, they will say, "Toyota did a brilliant piece of marketing because they got to a technology which will dominate cars".

  Chairman: I am sorry, we are moving on from Toyota because we have not got the facts, but I think the Committee disagrees with you.

  Mr Hoyle: What is not being pointed out is that those cars are being built in America.

  Mr Bone: Could we have a note on how that decision was made?

  Q737  Chairman: I am very happy that we should ask for a note on the Toyota Prius decision.

  Mr Fanning: I would be delighted to produce that.

  Q738  Mr Bone: Manufacturing companies, and I used to run a manufacturing company, certainly the vast majority believe that government procurement principles and procedures are a hindrance rather than a help. Am I right in that?

  Mr Fanning: That may be their view but we do not think they are.

  Q739  Mr Bone: What are you doing to remove bureaucracy from those procedures? One example will do.

  Mr Fanning: Firstly, we are training our people so they can apply the rules in the most effective way possible.