My company specializes in procurement consultancy for both public and private sector and delivers very substantial cost savings for our clients through the use of commercial expertise and fully-compliant reverse auction processes. Since 2002 we have been the sole holder of contracts for these services with the Ministry of Defence and through their framework contract with us to the wider public sector. We carried out the first reverse auction ever commissioned by OGC (saving 66%) and recently were instrumental in delivering £100 million savings (43%) for our client, the Ministry of Defence, on the pan Government Office Solutions tender.

FACTUAL INFORMATION THE COMMITTEE SHOULD BE MADE AWARE OF

1)   OGC put pressure on departments to use old contracts when better value arrangements have already been set up for pan-government use

  The OGC's website at today's date (01.10.07) has a high-profile link from its home page labelled "Implementing Transforming Government Procurement—New government procurement requirement letters". This link takes visitors to a dedicated page containing "Requirement Letters—The Office of Government Commerce periodically publishes letters setting out the new standards and requirements that central government is expected to meet, as part of the implementation of the policy set out in Transforming Government Procurement."

  One of these is a letter from Peter Fanning, Acting CE of OGC dated 1 June 07 to Sir Richard Mottram KCB, the Cabinet Office PS entitled "Collaborative Procurement". It attaches details of 12 "deals" which it says should be used to channel procurement spend and requires his and other departments to seek approval in writing from OGC before setting up new arrangements elsewhere.

  Two of the "deals" are for office solutions framework contracts terminating in May and June 2008 when OGC is already aware of (and has pubicised in "News 28.06.07 ref 12/07" on their website a new framework commencing 1 October 2007 which has saved Government £100 million.

  It makes no sense for OGC to force departments to take up contracts nearing their expiry when better value arrangements have already been established. The news article states that the new framework procurement "... was the final part of a nine month long procurement process led by MoD, with assistance from the Office of Government Commerce". So they know all about it, claim credit for it, but do not promote it.

  OGC compound this further in their corporate document "Transforming Government Procurement—First one hundred days" in which they state that having recommended the "12 deals" across Whitehall they are going to monitor and report their use and implementation to the Procurement Council.

2)   OGC put pressure on departments not to run competitions when an existing arrangement is in place, thereby missing substantial savings opportunities and stifling competition

  Referring to the "12 deals" the letter to Sir Richard Mottram KCB referenced in (1) above states "... the time has come for all colleagues to ensure that their procurement spend is channelled through suchcollaborative deals." and "If, however you think you can get better value for money by setting up new arrangements, you will now need to demonstrate that this is the case and seek OGC's approval in writing".

  Departments are thus in an impossible position—they cannot demonstrate that there is better value without running a competition and they cannot run a competition without prior demonstration of better value. Thus OGC's claim (see "Transforming Government Procurement—First one hundred days in (1))" that their collaborative deals offer value for money become self fulfilling prophesies as there is nothing with which to compare.

  Anyone with a modicum of commercial acumen knows that one of the main drivers of best value is competition and this OGC policy stifles competition and is therefore in breach of Regulation 19(12) of the Pubic Contracts Regulations 2006 (SI 2006 No 5) which states "The Contracting Authority shall not use a framework agreement improperly or in such a way as to prevent, restrict or distort competition".

  OGC also discourage the use of independent procurement exercises with bizarre cost estimates. (See point 4).

3)   OGC's targets are not sufficiently stretching

  Government procurement comprises over £125 billion of annual spend of which £5.5 billion of procurement attributable savings have been achieved by OGC. (Ref "Transforming Government Procurement"). This represents a meagre 4.4%. A step change is needed if this is to even begin to approach the potential that exists.

  OGC's executive agency, OGCbuying.solutions, is "focused on realisable savings of at least £1 billion for the taxpayer each year from 2010-11" (see "Transforming Government Procurement—First one hundred days in (1)). Bearing in mind that this target is three years away the target savings represent a mere 0.8%. This compares with the "... small commission (averaging less than 0.7%) [which] is collected from the suppliers for each sale they make under these frameworks". (Ref HM Treasury Annual Report and Accounts 2006-07 para 5.29 referring to Catalist).

  In other words, the kick-backs which OGCb.s receives from its framework suppliers out of their charges to public sector clients is comparable with their own savings targets!

  "Transforming Government Procurement—First one hundred days—Key Achievements". Example: OGC has delivered "Five collaborative deals, each involving between 15 and 80 different government organisations, to a combined value of £1.5 billion over the next four years and saving an estimated £50 million." I calculate this to be a saving of 3.3%. Not exactly a triumph considering OGC fanfare it as a "key achievement".

4)   OGC's procurement exercises are inherently inefficient and do not represent value for money

  The NAO tell me that one of the benefits of OGC's frameworks is that they are instrumental in "reducing the cost and delays associated with independent procurement exercises" (OGCbuying.solutions estimate that the cost of letting a contract under European procurement rules is in the region of £65,000. Separate analysis by the Office of Government Commerce estimates the cost at between £30,000 and £165,000 depending on the size and complexity of the project). (Ref: Mark Davis, Director, Cross-Government Studies, National Audit Office 21 September 2007, private communication).

  This is staggering, considering that the minimum contract value for a central government OJEU competition is approximately £100,000. Taking the lowest estimate, OGC are saying that there is a 30% minimum on cost for operating the simplest compliant tender. If OGC and their executive agency cannot operate more efficiently than this then they have no right to be "solely responsible for the Government's procurement policy" (see "Transforming Government Procurement—First one hundred days in (1)")

  For comparison purposes, my company carries out end-to-end complex procurement processes for public sector clients under a Government framework contract where we can do all the work, (other than the actual placing of the contract notice in the European Journal and signing the final contract), on a gain share percentage basis (no saving no fee) basis capped at under £30,000.

5)   OGC and their executive agency OGCbuying.solutions have a commercial interest in ensuring that their frameworks and managed services are utilised in preference to others irrespective of best value

"OGCbuying.solutions' operations break down into two major areas of activity, 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. A small commission (averaging less than 0.7%) is collected from the suppliers for each sale they make under these frameworks; and

—  managed Services are ongoing services with OGCbuying.solutions acting as the `intelligent customer' to a range of strategic partners, on behalf of public sector customers. The economic model here varies depending on the business area, ranging from commission to traditional purchase and sale at a small margin to cover the cost of managing the service."

(Ref HM Treasury Annual Report and Accounts 2006-07 para 5.29)

  For every £1 billion of public sector spend diverted each year to these frameworks and managed services, OGC and their executive agency earn themselves a tidy £6-7 million and at the same time avoid having to compare their contracts with others.

6)   OGC and their executive agency do not follow guidance in the placing of contracts

  This is best illustrated by an example from the OGC's website. Recommendation 9 from the BRTF/SBC report concerning SMEs and access to the Government Marketplace states: "Where public sector procurers opt for prime contractors, they should ensure that their business case for doing so in those particular markets brings value for money. Public sector procurers should ask prime contractors during the procurement process to demonstrate their track record in achieving value for money through effective use of their supply chain—including use of small and medium-sized enterprises."

  OGC's executive agency are currently running a tender for e-auction services for the public sector. In response, a company of standing, Intenda, submitted a PQQ response as prime contractor stating their intention to sub-contract part of the work to my company, an SME. In accordance with the above guidance on the OGC website, they provided details to demonstrate my company's track record in achieving value for money. After this response had been evaluated by OGC's executive agency, Intenda were told that they had failed to qualify as they had scored zero on five questions. These five questions had been fully addressed, and covered the track record of my company in providing these services. OGC's executive agency stated to Intenda that the questions were regarded by them as "not answered" because the information related to their sub-contractor, not themselves.

  It is commercially naive and against the Government's stated policy of supporting SMEs for OGC and their executive agency to exclude a company from the opportunity of competing for public sector business in this way simply because they wish to utilize the services of an SME to deliver best value.

7)   OGC and their executive agency use framework agreements improperly or in such a way as to prevent, restrict or distort competition

  This is best illustrated by today's headline example from the OGC's website (01.10.07):

"Specialist Solutions Suppliers sign up to contract extension"

"Suppliers under the Specialist Solutions framework agreement are signing up to an improvement in the Terms and Conditions to allow for a seven year contract term. The extension will allow orders to be placed in the remaining year of the framework agreement for up to seven years."

  These arrangements were already in place until 1 October 2009. They already allowed the placing of five-year contracts on the last day of the framework agreement. The Terms of this framework have now been extended to allow seven-year contracts to be placed on the last day of the framework agreement, thereby restricting competition through to October 2016. This is stated to be an "improvement".

  Alistair Price of OGCbuyingsolutions, commented: "This is excellent news for customers and suppliers of the Specialist Solutions framework agreement presenting a win win situation. Use of the framework agreement is increasing and now we have removed the contract term limitation we are delighted to be offering value for money solutions into 2016".

  How is this value for money to be ensured to protect the public purse? The answer lies in the guidance which accompanies the details of this arrangement, which is on OGC's website.

10.  PRICING AND CHARGING ARRANGEMENTS

Pricing and Benchmarking

10.1  The catalogue contains pricing information from each Service Provider for each Lot. At present, the only information provided are consultancy fee rates which will give an indication of the support costs associated with any physical infrastructure required. However, because of the nature of solutions being quite specific to a particular Customer, it is very difficult to have realistic prices published. That said, at the time of writing (Feb 2007), Service Providers are being requested to provide indicative tariffs for certain elements of a solution give some idea of the pricing strategies between the different Service Providers and allow some very basic comparisons to take place. This will be supported by a series of in-depth benchmarking exercises and mystery shopping exercises that will be used by the Buying Solutions Telecoms team to ensure that trusted competitive pricing becomes the norm through this part of Catalist.

  This has been reproduced in full as it is so commercially naive as to be staggering. These arrangements appear to offer no more than open-ended "time and materials" contracts with only capped hourly rates for protection—the number of hours is whatever the supplier wishes to charge for with no requirement for competition. This is in breach of Regulation 19(12) of the Public Contracts Regulations 2006 (SI 2006 No.5) which states "The Contracting Authority shall not use a framework agreement improperly or in such a way as to prevent, restrict or distort competition".

CONCLUSIONS

  Re (1) OGC should keep more up to date with market movements and new contract availability.

  Re (2) OGC should not assume that any arrangement or contract they or their executive agency place must by its mere existence represent best value but be prepared to regularly challenge the arrangement or contract against changing market conditions.

  Re (3) OGC's targets must be made more challenging and they must become the fiercest critics of their own efforts in a genuine striving for excellence.

  Re (4) OGC should consider the marginal cost of running a competition rather than accounting fictions representing average cost of competitions. It is after all the job of public sector bodies to protect the public purse by running competitive tenders for their needs. If public sector clients lack the resources to run competitions there are countless skilled practitioners in the private sector who will do the job and fixed price quotations or gain shares are available. Competition is essential to maintaining best value against market trends and the cost would be funded many times over by the savings.

  Re (5) OGC and their executive agency OGCbuying.solutions must cease to derive income from their frameworks and managed services or they will never be able to view them with true objectivity.

  Re (6) OGC and their executive agency should have proper regard to Government policy and best practice, and be able to demonstrate compliance within their own activities.

  Re (7) OGC and their executive agency should seriously review their need for high level commercial expertise in assessing value for money and for better legal controls to ensure compliance with public procurement regulations. These regulations are not an inconvenience—they are there to promote proper competition and protect the public purse.

October 2007