DIUS, OGC

24 JULY 2007

  Q740  Mr Bone: That has not removed anything yet because you are just training them. I want to know what you have actually removed? What is going to be better for my company if I was supplying clocks to government now? What have you reduced which I did not have to put up with before?

  Mr Fanning: The reason I am hesitating is because, in my judgment, again having supplied to government, so I am in the same position that you are, the rules are not the issue, it is the cost of bidding which is the problem. That is more to do with the way the rules are applied by the people who are applying them and less to do with the rules themselves. The second point is when I was running a business the thing which I cared most about was the stability of demand. One thing we are trying to do, as I said, for the first time is trying to marshal our demands in a way which gives the suppliers much visibility on where the deal flow is coming from. The other thing we are doing is we are extending the use of frameworks. I am sure you are aware that one of the achievements of the recent EU directive negotiations was that the previous and widespread use of frameworks within framework contracts, which are very good for business and for government, within British procurement is now brought formally within the EU regime. That will have the effect of effectively reducing burdens on business.

  Q741  Mr Bone: You have obviously bid for government contracts as well and you know that you get this huge tender document and you think to yourself, "I'm a small business, that is going to cost me X thousands of pounds to do against what might be a million pound contract". One part of that tendering document, perhaps at the front, is all the pre-tendering qualifications and what amazed me was if I was selling clocks to British Rail in those days as part of a nationalised industry I could get on that list but then if I wanted to sell it to somewhere else I had to get pre-approved again.

  Mr Fanning: It is crazy, is it not?

  Q742  Mr Bone: Once you are pre-approved, why are you not on one list of pre-approved government suppliers?

  Mr Fanning: A couple of things. Firstly, we have produced a standard prequalification questionnaire as part of the work we did in the West Midlands and that is on our website and is available to anybody who wants to use it. Secondly, we have got Supply2.gov which lists on it a large number of modestly sized government contracts, I think it is under £100,000, and as part of that process it should be easier for small businesses to bid for those contracts at lower bidding costs.

  Q743  Mr Bone: Yes, but that £100,000 is really, really small, I am talking about a medium-sized company which is doing £5, £10 million of business. If you go through this wretched thing once, you have got all the equity, you are competent and all that sort of thing, once you have done that, why do you have to go through it again for a different department? Why can you not have a list saying if you are approved there is your stamp mark and somebody can look you up and say you have been approved?

  Mr Fanning: It is a very good point and I would simply have to agree with you that more can be done in that. As I said, what we have done so far under the old regime is produced a standard prequalification questionnaire which is on our website and we do endorse, encourage and promote its use. What we did not have was the power to require departments to use it. I now have the power to use it and I will consider applying that power. Whether I will or not will depend on the evidence but I will consider using it.

  Q744  Chairman: Can I be clear whether that power would extend to all central Government departments, non-departmental public bodies, public corporations, whatever status they have, all of central Government departments?

  Mr Fanning: Yes, all of central Government.

  Q745 Chairman: That is helpful. That report which I skimmed and did not form a very high impression of, more pious platitudes and aspirations, you are putting a lot of faith on that, are you not?

  Mr Fanning: Yes. It is published by the Treasury but it is a government document. It was approved by a Cabinet Committee.

  Chairman: I would not want to anticipate what the Committee will recommend in this respect, but I think Mr Bone made some very powerful points during his questioning.

  Q746  Anne Moffat: My question is about developing good relationships with suppliers. We have been told that by the government being over-prescriptive in its specs that it is often failing to achieve the best solution. What is your view of this? Should we leave it to the suppliers to say what they need and government to be more specific?

  Mr Fanning: You have a point that certainly our advice is that specification should be in output form rather than input form, so, therefore, you should say what you are trying to achieve rather than what you are trying to buy.

  Mr Evans: I think that is a particular issue in relation to promoting innovation within the context of procurement, because if you specify the means by which something must be delivered, the end is going to be achieved, you are going to prevent the person who has got a different way of delivering it—a more efficient or a potentially cheaper more effective way which will achieve some wider goals as well, whatever those wider goals may be—from being eligible to bid and you will prevent innovation. This is one of the areas where we join forces and say, "If you want to promote innovative procurement, you really ought to be specifying the outcomes, or maybe some outputs, rather than the means by which it should be achieved". For that reason, OGC and DTI as was my department, have been working on some specific guidance for procurers. You may say this is yet more guidance, but unless we provide the information to procurers we cannot expect them to behave in the way we want them to, to explain to them how that objective end way of procuring is, in our view, the right way to get more innovation in the whole procurement process.

  Q747  Anne Moffat: You think that is clearly stated to the suppliers that is what the objective is?

  Mr Evans: My day job, so to speak, is to promote innovation. I do not think there is as much innovation in the UK economy, full stop, as there should be, and public procurement is one of the areas where I would like some more innovation, yes.

  Mr Fanning: Indeed, one of the innovations which was achieved in the recent EU directives was the competitive dialogue process which is designed to enable a dialogue to occur between the buyer and the seller so that you increase the opportunity for a conversation between the buyer and the seller, which hopefully will result in a more innovative response to the buyer's requirements. It is very new and we are observing its application. I am pleased to say that one of the first enthusiasts using this new facility was the ODA, the Olympic Development Authority, and we are studying how they are getting on and seeing if we can improve on it, so it will be a way of stimulating innovation.

  Q748  Anne Moffat: Thank you for that. We have heard from the manufacturers that they would like better guidance from government sooner rather than later about procurement needs and they would like to be involved in the consultation with industry. Do you believe that industry should be part of the process?

  Mr Fanning: Absolutely. Indeed, one of the developments which we have now established is much more effective dialogue between the supply community and the buying community. For example, what we now do is OGC collects information on the performance of suppliers right across government. Also, we are collecting from suppliers their views on the performance of departments. It is called the 360 Degree Comprehensive Assessment Framework. Hopefully what that will do is begin to identify where departments could be doing better or suppliers could be doing better. One of my colleagues is being targeted on ensuring that over a period of time we have a measurable improvement in the quality of the dialogue we have with our major suppliers. The first market we will be looking at is the IT market because of the very sizeable spend in that market and the importance of that market to delivery of a lot of the major government programmes.

  Q749  Chairman: It is also where you have heard a lot of particular criticism as well?

  Mr Fanning: Absolutely, yes, so we hope progress is being made on that.

  Q750  Anne Moffat: A further small point. Do you think that would discriminate against SMEs in any way because of their lack of resources?

  Mr Fanning: To a certain extent, there is always a risk in that and it is a risk we need to guard against. I would not want for you to take away any suggestion that there is any sort of complacency on that side. The reality is, particularly in the IT sector, very large organisations are needed to deliver very large projects. One thing we do have regard to, however, is the supply chain, and one of the things we will be launching very soon in another market is fair payment. The Government is to support the fair payment policy which will have the effect of hopefully improving the lot of small subcontractors to larger primary contractors in the construction market where the primary contractors make some of their profits out of aggressive cash flow management and denying the payment on time to the subcontractors for the work that they have done.

  Mr Evans: Let me say, from the ex-DTI perspective we certainly do not believe that good procurement is in any way inimical to the interest of small businesses. We think good procurement, good procurement processes, more efficient, more professional procurement processes can help SMEs get business just as much as big business.

  Q751  Chairman: We have heard quite a lot about e-auctions as a way to encourage SMEs into the market. Does that not rather go against the innovative agenda, which you were talking about, and the whole life cost, because it is always going to drive the lowest cost solution, is it not?

  Mr Fanning: Perhaps I could talk a little bit about e-auctions. Firstly, the application of e-auctions is at the end of the procurement process, not the beginning. The first stage in preparation is differentiating between bids and you refine them to a point where the only thing which differentiates the proposition is the price or, in rarer cases, something which is measurable and is easily quantifiable and that is when e-auction comes into play. What I can say is the public sector is capable of getting very, very substantial savings. For example, we have done between half a dozen and a dozen e-auctions in the IT market where savings of between 20% and up to 50% have been got on a standard lot. The other final point I am making is the public sector is a very occasional user of e-auctions compared with my colleagues in the private sector. I would not want to go on record suggesting that the private sector is supplying bad services to its customers simply because they are using e-auctions, it is simply a device and it is a device which can be used in rather narrow circumstances, but it can generate value for money for the taxpayer where those circumstances arise.

  Q752  Chairman: That is helpful. Thank you. That answers my question. We have given you a slightly tough time today probably, but I think you have also been very honest about the shortcomings of the history of public procurement. Perhaps some of that toughness from our questioning reflects our frustration with the failures in the past, on which I think you have been very frank. Thank you very much indeed and good luck in whatever your future career holds. How long have you been there?

  Mr Fanning: I am towards the end of my third year at OGC.

  Q753  Chairman: As Acting Chief Executive?

  Mr Fanning: I have been there as Deputy Chief Executive and Acting Chief Executive. I shall be handing over to Nigel Smith and I commend him to you.

  Chairman: We may well see him because we will be looking at these issues in the context of construction industry as well particularly in our next inquiry. Thank you very much indeed, gentlemen.