I am writing to provide the Committee with the information it requested when it took evidence from my predecessor, Peter Fanning, and David Evans of the Departments for Innovation, Universities and Skills (DIUS) and Business, Enterprise and Regulatory Reform (BERR) on 24 July 2007.

1.  SOCIAL ISSUES IN PUBLIC PROCUREMENT

  The Committee asked for clarification on what can be done in the procurement process to promote social issues, with particular reference to equality.

  All public procurement work within the legal and policy framework as laid down by EU law and the Government's procurement policy. It is the responsibility of Departments and other public bodies to ensure compliance with this framework. The EU rules consist of the EU Treaty, that is, the Consolidated Treaties of the European Union, including the Treaty on which the public procurement rules are based, know as the "Treaty establishing the European Community" (with broad principles of equal treatment, non-discrimination and transparency) and the EU Procurement Directives (which reinforce the Treaty provisions and set out detailed requirements for contracts above certain thresholds). In conjunction with these EU requirements, the Government's procurement policy is that the purchase of all goods and services should be based on value for money, defined as: "the optimum combination of whole life cost and quality to meet the user's requirement".

  Within this legal and policy framework, there is scope to consider social issues—including equality—where they are relevant to the subject of the contract and in line with value for money policy. There is most scope at the beginning of the procurement process, when defining the requirement and setting the business case. At this stage, contracting authorities should consider which social agendas or obligations—including equality legislation—are most relevant to their procurement, and where appropriate, they should also consult interested parties eg users of the goods or services, small businesses (including ethnically-owned businesses) and interest groups, who may be able to help shape the requirement more effectively. This should ensure that all relevant social issues, including equality considerations, are reflected as appropriate in the specification. Contracting authorities may also consider whether the contract is appropriate to reserve for supported factories and businesses (organisations with over 50% disabled employees).

  There is also scope to take account of social and equality issues at the selection stage (where contracting authorities select candidates that they intend to invite to tender). Candidates can be asked for relevant evidence of technical capability eg language skills or cultural awareness, and contracting authorities can consider suppliers' track record on delivering the social aspects of other, similar contracts. This is also the stage at which candidates can be rejected if they have been convicted of an offence concerning professional conduct or grave professional misconduct that could include a breach of the equality laws.

  At the award stage, the contract should be awarded to the tenderer offering the best value for money goods or service. Social issues can be taken into account where they are relevant to the subject of the contract, but award criteria must be relevant from the point of view of the contracting authority in that they must determine the best value for money bid for the contracting authority itself—wider benefits must be considered earlier in the procurement process. They also have to be consistent with the EU Treaty principles outlined above. In addition, where there are two or more bids precisely equal on value for money grounds, it is possible to use "additional social award criteria" to determine between the equal bids, although legal advice should be sought first.

  Social and equality considerations can be included as contract conditions provided they are relevant to the subject of the contract and do not undermine the performance of the contract or the achievement of value for money for the taxpayer.

  I should point out that there are wider issues around the use of social contract conditions which should also be taken into account when considering their relatives merits. Public sector contracts are sometimes criticised for their length and complexity, and including numerous contract conditions related to social issues can add to this, undermining efforts to make public procurement more accessible to certain groups such as SMEs and black and minority ethnic and women owned enterprises. Contract conditions should therefore not impose requirements that do not bring a proportionate benefit and care must be taken to ensure that they are non-discriminatory, and that value for money is being maintained.

  Generally, laws relating to social, environmental and employment obligations are not highlighted in contract conditions, because contractors should be acting legally regardless of a contract term specifying this. However, at ministers' behest, an exception was made when the Race Relations Act was introduced, to include a reference to the law on racial equality. This concept has more recently been extended, in the model terms & conditions that we encourage departments to use, to cover other areas of equality—gender and disability—as well as health & safety.

  There are also specific equality duties in place—the Disability Equality Duty, Gender Equality and Race Equality Duty—which require public authorities to have due regard to the need to eliminate unlawful discrimination on these grounds and to promote equality of opportunity. In public procurement, these Duties require public authorities to consider whether any of these equality issues are relevant to their requirements and where they are relevant, to reflect them within their specifications in a non-discriminatory manner.

  Where these duties exist, they do not apply directly to the private sector. However, where a contracting authority is contracting out a public service, and an equality duty applies to parts of that service, relevant obligations may need to be passed to the contractor. These obligations, because they relate to the performance of the contract, should be included in the contract conditions.

  I believe Peter gave you a copy of our guidance to departments "Social Issues in Purchasing", which has further details. OGC produced it in consultation with the European Commission and colleagues across Government. Here is the link. http://www.ogc.gov.uk/documents/Social_Issues_in_Purchasing.pdf .

  I would also like to draw your attention to Annex A of this letter which includes a practical example of where equality has been considered in public procurement, which is largely in accordance with the best practice framework described above.

2.  PROCUREMENT CAPABILITY REVIEWS

  In regard to the assessment and monitoring public procurement, OGC sets the standards against which Departments are judged. Our Procurement Capability Reviews (PCRs) identify capability gaps and examples of excellence, helping Departments to build procurement capability. PCRs look in detail at three main elements of a Department's procurement activities: leadership; skills development and deployment; and systems and processes. The PCRs represent an independent strategic view of procurement in its widest definition across the department and its wider network. The reviews are conducted by a team of high calibre independent experts. The review team produces a report of findings and prioritised recommendations for each department. To address the issues raised, Departments are required to formulate an Improvement Plan, with OGC engaged in continuous and robust follow-up, to ensure that improvement is achieved.

  Three departments (Department for Education and Skills, Communities and Local Government and Department for Work and Pension) have so far had PCRs. Feedback on all three has been delivered to Permanent Secretaries. The Departments are at varying stages of preparing Improvement Plans. The reports and Improvement Plans are scheduled to be published by end-2007. We are currently preparing for the next two reviews (Department for Transport and Department for Environment, Food and Rural Affairs), with all major departments scheduled to undergo reviews before December 2008.

3.  PURCHASE OF TOYOTA PRIUS

  We agreed to provide you with clarification on the decision to purchase Toyota Prius. The Government Car Dispatch Agency (GCDA) in October 2005 carried out a full review of cars appropriate for Government Ministers. The objective was to provide a reasonable choice of vehicle for Ministers within the guiding principles laid down in the Prime Minister's Guidance, "Travel by Ministers". The review took into consideration fitness for purpose, whole life operating cost, compliance with EU emission requirements, country of build and conformity with end of life regulations.

  The Toyota Prius was approved by the Cabinet Office as a suitable vehicle and included on the official list of cars. The whole life operating cost made the Toyota Prius very competitive with the exemption from the congestion charge, the low maintenance cost, the low fuel consumption and the high residual value. The very low exhaust CO2 emissions made the Toyota Prius a very attractive vehicle for a high profile government fleet. In addition, the Toyota service levels were comparable to those of other major manufacturers. The Toyota Prius therefore fulfilled the requirements of fitness for purpose in the GCDA review.

  I understand that the Committee were concerned about the impact on UK car manufacturing. The Government is working on a number of initiatives to help enhance the UK automotive industry. Cenex is a Public Private Partnership set up by the Department for Trade and Industry (now the Department for Business, Enterprise and Regulatory Reform) in 2005, with a mission to build a competitive advantage for automotive industries in the UK through a shift to a low carbon economy. It is working on the creation of fleet-scale demonstrators in the passenger car, public transport and commercial vehicle market sectors and on providing more certainty on future demand (Forward Commitment public procurement model) to encourage market transformation.

  I hope this clarifies the issues raised during the discussion on 24 July and that this provides the Committee with the information they require.

  2.5  The overall vision for the Games, agreed by the Olympic Board[1] is "to host an inspirational, safe and inclusive Olympic and Paralympic Games and leave a sustainable legacy for London and the UK". The four strategic objectives that underpin that vision are:

—  To stage an inspirational Olympic Games and Paralympic Games for the athletes, the Olympic Family and the viewing public.

—  To deliver the Olympic Park and all venues on time, within agreed budgets and to specification, minimising the call on public funds and providing for a sustainable legacy.

—  To maximise the economic, social, health and environmental benefits of the Games for the UK, particularly through regeneration and sustainable development in East London.

—  To achieve a sustained improvement in UK sport before, during and after the Games, in both elite performance—particularly in Olympic and Paralympic sports—and grassroots participation.

  2.6  The ODA's mission is "to deliver venues, facilities, infrastructure and transport for the London 2012 Olympic and Paralympic Games on time, to budget and to leave a lasting legacy".

  2.7  There are three overarching themes that drive and define the success of the ODA:

—  Time

—  Cost

—  Fit for purpose

  2.8  Five further priority themes underpin the ODA's mission, existing within the constraints of the three overarching themes:

—  Health, Safety & Security

—  Sustainability

—  Equality and Diversity

—  Legacy

—  Design and Accessibility

  2.9  Figure 1 summarises the ODA's mission and the themes emphasised in delivering its objectives.

  2.10  The ODA has identified five pillars of legacy, which it is working with partners to achieve:

—  Sporting legacy, through delivery of new sporting facilities, increased participation, health and awareness of personal responsibility for well-being in the UK.

—  Physical legacy, through the regeneration of the Olympic Site, including the provision of new homes, employment space and landscaped parks and waterways.

—  Economic legacy, through the creation of new jobs, a better skilled workforce and local business growth.

—  Legacy for the UK, through increased tourism, enhanced image and cultural developments arising from the Games.

—  Social legacy, through having a positive impact on the people in the communities affected.

3.  IMPACT ON EQUALITY OF THE PROCUREMENT PROCESS

  3.1  The promotion of equality is highly relevant to the economic and social legacy of the Games. The communities in the five London Boroughs surrounding the Olympic park are among the most diverse in the UK. In the UK nearly 8% of the population is from non-white ethnic groups, compared to nearly a third (29%) of London's population, and four out of 10 (42%) of the population in the five Host Boroughs. Table 1 below shows the representation of each ethnic group in the five boroughs, London and the UK.

  (Source:  ONS Census 2001)

  *The sub-categories of white which were offered to people in England & Wales during the 2001 census differed from the sub-categories offered to people in Scotland. People in Northern Ireland were not offered any sub-categories of white.

  3.2  Black, Asian and minority ethnic people are significantly under-represented in the construction workforce. They are only three per cent of UK construction workers, compared to 7.9% of the UK's population. The same patterns occurs in London, where BAME people are just 14% of those employed in construction (compared to 29% of the population) and in the five Host Boroughs where BAME people are just 24% of those employed in construction (compared to 42% of the overall population)[2].

  3.3  Women are also severely under-represented in the construction workforce, constituting only 10.4% of the UK construction workforce as a whole, and only 1.2% of the manual workforce in construction[3].

  3.4  In accordance with its statutory duties to promote equality, the ODA assessed its potential impact on race, gender and disability equality, and found that its direct impact will be felt in four ways:

—  Through what it builds, provides and leaves behind; that is, the extent to which the design of the park and venues, and the transport network provided, are truly inclusive and accessible.

—  Through how it goes about building and providing; that is, the extent to which the processes used to let contracts and employ people are demonstrably transparent, open and fair.

—  Through who does the work of building and providing; that is the diversity of people and businesses taking up business and employment opportunities on Games projects.

—  Through whom the ODA involves; that is, the diversity of people the ODA listens to in deciding what it does, how it does it and determining the design of what it creates.

  3.5  The ODA also identified two indirect impacts it can have on equality, by demonstrating to others:

—  Effective practical steps which can be taken to promote equality and diversity in construction.

—  The level of excellence which can be achieved through inclusive design.

  3.6  The ODA believes that the delivery of these positive impacts on equality can contribute greatly to the achievement of its duty to maximise the benefits that may be derived after the Games.

  3.7  The ODA's procurement process has a critical role to play in relation to ensuring equality of opportunity in access to employment opportunities and business opportunities.

4.  BALANCED PROCUREMENT

  4.1  The delivery of the 2012 Games is a major undertaking, necessitating the procurement of a wide range of goods, services and works. In total the ODA will procure several billion pounds of expenditure. The ODA's procurement strategy is based upon a "Balanced Procurement" approach (see Figure 2 below) which establishes clear linkages from the Corporate Plan and Objectives down to the sub-contractor working on a site. This gives the ODA the basis for balancing differing priorities such as cost, time, safety, sustainability, equality and diversity, security, legacy etc.

  4.2  The balanced scorecard (Figure 3) is used as the framework through the procurement exercise, included in the Memorandum of Information, Pre-Qualification Questionnaires and tender documents. Contractual obligations are cascaded down the supply chain, whilst actual performance data is collated and clustered going up the chain.

5.  EVALUATION OF EQUALITY AND DIVERSITY AS PART OF SELECTION PROCESS

  5.1  Equality and diversity forms one part of the technical evaluation at both PQQ and ITT stages, as part of the evaluation of governance capability of all companies bidding for contracts with the ODA.

  5.2  The pre-qualification process involves openly advertising for bidders and then short-listing the applicants using a pre-determined set of criteria. These criteria are: legal compliance and governance matters, economic and financial standing, and technical or professional ability (see Figure 4) below:

  Note:  Yellow boxes are included at PQQ evaluation stage

  5.3  At PQQ stage the equality and diversity evaluation focuses solely on the existing policies and procedures of the company, to ensure compliance with the statutory requirements. The evaluation looks at six areas of equality-related policy, all taken from the relevant statutory codes of practice on employment published by the Commission for Racial Equality, the Equal Opportunities Commission and the Disability Rights Commission. Companies are asked to answer simple Yes/No questions on whether they have in place policies/procedures in the following areas:

—  Equal opportunities, or equality and diversity

—  Recruitment

—  Workplace harassment

—  Reasonable adjustments

—  Flexible working

—  Equality monitoring

  5.4  Companies are asked to submit their existing policies and procedures (or, in the case of equality monitoring, a copy of the monitoring form in use) as evidence, where they answer yes to any of the above questions.

  5.5  In order to ensure that these questions do not have an adverse impact upon small companies, companies employing less than 50 people are simply asked to state if they have arrangements in place to ensure equal opportunities in relation to employment within their company, and to summarise these arrangements.

  5.6  The tender evaluation process follows a similar approach. The tender documents set out the ODA's contract requirements. Included within the Governance area are those requirements related to equality and diversity in respect of successful delivery of the contract. A scoring matrix, based upon the most economically advantageous tender (MEAT) is used, and scoring is carried out by a panel. Figure 5 sets out the framework.

  Note:  Blue boxes are tested with either new or in the cases of Experience & Capability and Governance more specific contract information.

  5.7  In respect of equality and diversity, at tender stage companies are asked to describe their previous experience of promoting equality in the areas of retention and recruitment of staff, and how they might do so if successful in gaining the ODA contract. Their answers are then evaluated against a pre-determined scoring matrix.

6.  OPENING OPPORTUNITIES FOR MINORITY-OWNED BUSINESSES

  6.1  Early in 2007 the ODA examined all available evidence on the characteristics of businesses owned by Black, Asian and minority ethnic people, women and disabled people. This showed that businesses owned by Black, Asian and minority ethnic people and women were more likely to be micro businesses or small enterprises. The ODA has, therefore, undertaken a review of all criteria used at pre-qualification stage, with a view to reducing any unjustifiable use of criteria which would be harder for smaller businesses to fulfil.

  6.2  The ODA advertises all its direct contracting opportunities on the London 2012 website. The ODA is aware that its reliance on e-procurement, and on the website for advertising may create barriers of access for some disabled people, and will be undertaking a review of accessibility of its e-procurement and e-alert systems.

  6.3  In order to maximise the diversity of its supply chain the ODA is also engaging with minority-owned businesses to communicate contracting opportunities and facilitate networking opportunities between main contractors and small and medium-sized enterprises. The ODA is also working with partners to develop an electronic brokerage system which will allow tailored information to go to potential suppliers and buyers.

27 September 2007

2   Source: Labour Force Survey, Spring 2004 Back

3   Source: Labour Force Survey, four quarter average, Summer 2005 to Spring 2006 inclusive Back