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Select Committee on Treasury Seventh Report

4 The work of the Office of Government Commerce

History of the Office

62. The Office of Government Commerce (OGC) is an office of HM Treasury, responsible for improving value for money by driving up standards and capability in procurement, from commodities buying to the delivery of major capital projects, in order to maximise the use of 60% of Government spending and a £30 billion property estate. The OGC was created in 1999 following the completion of a review of civil procurement in central Government by Sir Peter Gershon, the then Managing Director of Marconi Electronic Systems and a member of the Board of GEC plc. The review concluded that different Departments applied different approaches and practices to the procurement of essentially similar requirements. The lack of consistency meant that there was a wide gap between best and worst practice in Government.[174] That review identified a number of weaknesses in Government procurement, concerning organisation, process, people and skills, measurement, and the contribution of the "centre" of Government. To deal with these weaknesses, the Gershon Report recommended that a common strategic framework should be established within which all central government departments would conduct their procurement activities.[175] The Government accepted the recommendations and the OGC was set up in 2000 with Sir Peter as its first Chief Executive.

63. The OGC has introduced a number of initiatives:

Gateway Reviews—independent review of IT-enabled programmes and projects at critical points in their lifecycle;
the Successful Delivery Toolkit—an online guide to procurement policy, tools and good practice;
the Successful Delivery Skills Programme and the Programme and Project Management Specialism—to develop and promote professional delivery and project management skills in departments, and;
the promotion of Centres of Excellence within departments to support specific programmes and projects by providing oversight and advice, and working to enhance skills and capacities.

64. The OGC also takes on responsibility for delivery of major capital programmes and projects. The OGC is principal adviser to the Major Projects Review Group (MPRG)[176] on project deliverability and procurement, and will help departments any specific issues raised as conditions of the project gaining MPRG approval.[177]

Transforming Government Procurement

65. In January 2007, the Government published plans intended to fundamentally change the role of the OGC through "an outcome-based and whole-life value approach … to encourage more innovative solutions to problems" in a document entitled Transforming Government Procurement.[178] That document assigned to the OGC responsibility for delivering high-quality public services and best value for money through central procurement. This is the first major restructuring of the Government's procurement policy since the OGC was established. The document highlighted the central importance of procurement in delivering high-quality public services and best value for money. The OGC is expected to achieve this transformation by:

Setting procurement standards and monitoring performance and capability;
Developing a cadre of skilled procurement professionals across Government;
"Driving value for money through collaborative procurement"[179];
Playing a stronger role in the successful delivery of major projects; and
Improving management and use of the Government estate.

66. Transforming Government Procurement stated that the OGC would have new powers to assist in the implementation of the new strategy requiring departments to use OGC frameworks and collaborative deals. Mr Nigel Smith, Chief Executive of the OGC, told the Sub-Committee that he was unsure of the status of the new powers; he "could not really say whether they are legal powers, but certainly the powers relate to ... collaborative procurement".[180] Mr Smith was clear, however, "that powers are really not the issue. I believe what is the issue is getting a common grip of what needs to be done across government, and that will be through engaging the spending departments in getting those targets achieved."[181]

67. In the OGC's document, Transforming Government Procurement-the first 100 days, the OGC explained that, using the new powers, Peter Fanning, then acting Chief Executive of OGC, had written to Permanent Secretaries requiring their compliance with the first two new pieces of policy advice: the use of 12 existing frameworks and collaborative deals which the OGC considered to offer value for money for departments; and the use of OGC's Property Benchmarking Service.[182]

68. Mr Smith told the Sub-Committee that, whilst the OGC was no longer responsible for most of the efficiency programme, it still remained responsible for relocation because "it is so crucial to engage the property and management of the property estate in the relocation discussion".[183]

The OGC's annual reporting mechanism

69. The OGC has recently departed from the accepted government practice of publishing an annual report. In 2005-06 the OGC published its own report and had a separate section within the Treasury's departmental report. We were concerned that it failed to publish an annual report for 2006-07 and only appeared in the Treasury's Annual Report in relation to reporting on one of the PSA targets. Mr William Jordan, Deputy Chief Executive of OGC, told the Sub-Committee that it was OGC's "intention to publish each year a report on the activity of OGC" and the OGC would "publish a report in January on the anniversary of Transforming Government Procurement".[184] However he conceded that "there was a year that went by without an OGC annual report."[185] We view the failure of the Office of Government Commerce to publish an annual report in 2006-07 as unacceptable. We expect the Office to report on its performance on an annual basis in future.

OGC Gateway reviews

70. The Gateway Review process has the highest profile of all the OGC initiatives and has been described the initiative with the "most promise, bringing more rigorous scrutiny and oversight to IT-enabled programmes and projects, and providing the means to highlight risks sufficiently early for senior management to take recovery action".[186] The Gateway process is now mandatory across Central Civil Government departments and Executive Agencies and others such as the Ministry of Defence, the NHS and local government have adopted the process on a voluntary basis.[187] There is evidence, however, that the Gateway Review process is still not taken seriously enough by departments, with the same issues and shortcomings repeatedly highlighted by reviews, projects still entering the process too late, and the need for intervention by the OGC to make sure that final gateway assessments of the overall success of a project are made by departments.[188]

71. The OGC Gateway Process examines a programme or project at critical stages in its lifecycle to provide assurance that it can progress successfully to the next stage; the process is based on techniques that lead to more effective delivery of benefits together with more predictable costs and outcomes. It is designed to be applied to delivery programmes and procurement projects, including those that procure services, property/construction, IT-enabled business change and procurements using framework contracts.[189] In brief, the philosophy of the Gateway process is that an independent review team should come in, conduct a quick peer review, and leave behind a short, clear and sometimes blunt report that can be put it to immediate use.

72. Some programmes are more important than others. Some are deemed "mission-critical", such as the Identity Cards programme, because they are essential to the successful delivery of a legislative requirement, a key departmental target, or a major policy initiative announced or owned by the Prime Minister or a Cabinet Minister. Also additionally "mission-critical" is used to define programmes or projects whose failure would have major implications for a delivery of a key public service or national security.

73. In June 2002, the Red, Amber, Green status (RAG Status) was introduced to prioritise review recommendations. Red means that immediate action must be taken. Amber means that action must be taken before the next review. Green means that the recommendation is considered beneficial to the project but not essential for its success. The overall RAG status of a review is derived from the RAG status given to the individual recommendations: one or more reds produces an overall RAG status of red; no reds but one or more ambers produces an overall RAG status of amber; and no reds or ambers produces an overall RAG status of green.[190]

74. Since April 2003, a project or programme given an overall red RAG status in consecutive reviews triggers what is known as a "double red" Gateway procedure. The Chief Executive of the OGC sends a letter to the Permanent Secretary of the Department concerned, with a copy (since June 2005) to the National Audit Office (NAO). Since February 2006 the NAO has passed on information about "double reds" to the Chairman of the Committee of Public Accounts. The Tribunal was provided with evidence that Gateway Reviews, of which there have been several thousand conducted since the process was introduced, have succeeded in improving the extent to which government projects are delivered on time, to quality and to budget. This has produced substantial benefits: it is claimed that Gateway Reviews saved the Exchequer some £1.5 billion between 2003 and 2005.

75. We are concerned that the current arrangements for highlighting a project assessed by a Gateway review as "double red" fail to address the wider ranging issues regarding the continued failure of the Government properly to manage such a project. In response to this Report, we expect the Government to set out how projects that receive a "Double-red" Gateway Review will formally be held to account.

76. We have previously explored the adequacy of the risk assessment undertaken by Government departments. In 2006, Mary Keegan, the then Managing Director, Government Financial Management, told the Sub-Committee that "the improvement of… risk management never stops. One is never satisfied with where one gets to".[191] Whilst we recognise that Gateway Reviews have been used as corrective instrument to realign a failing project, we would like to know what pre-emptive action the Government takes to ensure that risk management is properly utilised in the planning of projects subject to a Gateway Review. We will return to this issue in the Autumn.

77. We were aware that the OGC had refused to release documents relating to the Gateway Reviews of ID cards and the NHS IT programme. The Information Tribunal has twice upheld the ruling of the Information Commissioner that the OGC should release documents relating to Gateway Reviews on the ID Card scheme and the NHS IT programme, and in its last ruling stated that "we find it difficult to accept that the OGC is really convinced by the arguments put forward … on their behalf".[192] Mr Nigel Smith and the Exchequer Secretary both told the Sub-Committee that the decision to appeal against the Information Commissioner's ruling was the decision of government, not of the OGC.[193] The Exchequer Secretary told us that:

there are two sections of the FOI Act that we believe are engaged by the requests that have been made for Gateway Review information and information also on the NHS IT system. The first one is section 33(1)(b), which is audit functions, and the second one is 35(1)(a), which is formulation of government policy. ...These are arguments that the High Court is going to have to deal with. There is, indeed, a hearing due to take place on 4 and 5 March.[194]

78. The Sub-Committee was told that "there is a genuine worry... that the Gateway Reviews could be harmed if there was a general perception that they could be in the public domain quickly after they were done.[195] It is not appropriate for us to comment on a case before the High Court but we will look at their decision with interest.

OGCbuying.solutions

79. OGCbuying.solutions, the OGC's executive agency, was created to provide central access to more than 500,000 products and services, through a range of frameworks as well as a number of managed services, including telecommunications, e-mail and web services, energy and eCommerce. It plays an important role in OGC's delivery of the procurement target, providing procurement services to help public sector organisations, and their private sector agents and contractors, achieve value for money from procurement.[196] In the publication of Transforming Government Procurement OGCbuying.solutions was described as a key player helping both Government and the wider public sector enjoy increased efficiency savings through its approach to collaborative procurement.[197]

80. The work of OGCbuying.solutions focuses on two main areas, namely Framework Agreements, delivered under the Catalist brand, and Managed Services; "Catalist is a set of pre-tendered framework contracts with a range of suppliers, from which public sector customers can access 500,000 goods and services with ease."[198] OGCbuying.solutions receives a commission for procurement through the framework agreements; on average these commissions are 0.7%. Ms Alison Littley, Chief Executive of OGCbuying.solutions, told the Sub-Committee that buying.solutions "only get commission on frameworks that are utilised".[199]

81. The Committee of Public Accounts reported in June 2007 that OGC's procurement role needed to improve.[200] It was concerned that although OGCbuying.solutions operated 180 framework agreements, over 90% of customer sales were undertaken using only 25% of these agreements. It was also recognised that the requirement for OGCbuying.solutions to raise revenue as a trading fund acted as a disincentive for it to promote activities such as the Government Procurement Card and Memoranda of Understanding which could provide wider value to public procurement, but did not yield a direct return to the business.

82. The Committee of Public Accounts reported that it was of significant concern that "at present 47% of central government organisations were not using the Microsoft Memorandum of Understanding for purchasing software licences, and 22% are not using the Government Procurement Card".[201] OGCbuying.solutions acknowledged that it had insufficient high level commercial expertise to negotiate consistently good deals with suppliers which its customers want to use.[202] The Committee of Public Accounts also noted that 63% of central government organisations and 73% in the wider public sector consider that OGCbuying.solutions do not consult their organisations enough when letting new framework agreements and managed services. It also concluded that OGCbuying.solutions' suppliers were not given enough information to understand their performance and how to improve it. OGCbuying.solutions needed to improve its supplier performance monitoring system so that it gathered comprehensive customer feedback on supplier performance. OGCbuying.solutions met its value for money performance target in each of the last three years, but the Committee of Public Accounts noted that OGCbuying.solutions had the potential to increase its annual value for money savings by at least £500 million.[203]

174 Treasury Committee, Third Report of 2001-02, The Office of Government Commerce, HC 851, para 2 Back

175 Sir Peter Gershon, Review of Civil Procurement in Central Government, April 1999 Back

176 MPRG was established under Transforming government procurement and is tasked to scrutinise major projects at key stages in their lifecycle. HM Treasury, Transforming government procurement, January 2007, p 4. Back

177 HM Treasury, Annual Report and Accounts 2006-07, para 5.27 Back

178 HM Treasury, Transforming Government Procurement, January 2007, Box 2.1, p13 Back

179 OGC, Transforming Government Procurement-the first one hundred days, July 2007, pp 3, 6 Back

180 Q 110 Back

181 Ibid. Back

182 OGC, Transforming Government Procurement -the first one hundred days, July 2007, pp 3, 6 Back

183 Q 153 Back

184 Q 94 Back

185 Q 95 Back