Speech

Francis Maude speech to the Procurex Conference

Draft text of a speech by Minister for the Cabinet Office, Francis Maude at the Procurex Conference in Birmingham on 14 March 2012.

Draft text of a speech by Minister for the Cabinet Office, Francis Maude at the Procurex Conference in Birmingham on 14 March 2012. Check against delivery.

Introduction

I’m the minister who gets excited about procurement - which makes me a bit of a rarity in Westminster.

Past governments seem to have heard the word procurement and tuned out - it can’t have sounded sufficiently headline-grabbing.

But I know what you do matters immensely - to the taxpayer, to businesses, to the economy.

At £238billion public sector procurement is roughly 15% of the UK economy; £1 in every £7 spent in Britain; the GDP of Austria. So quite a lot

And theoretically government should be a great client - we have the best credit rating, we can pay up quickly.

Yet when we came into office suppliers were queuing up to tell us what a nightmare it was to do business with government.

And just to clarify - unfortunately not because government drove a really tough bargain. Quite the reverse.

Government was instead notorious for procurement practises that were incredibly bureaucratic, far too time-consuming and eye-wateringly expensive.

Smaller companies were shut out at the outset - SMEs despite accounting for 50% of turnover in the UK economy were winning only around 6.5% of the value of central government’s procurement spend when we came in.

There was no engagement with potential suppliers so the market didn’t know what we wanted and we didn’t know what the market could offer.

This arms length approach to businesses clearly militated against UK interests and UK growth.

Nor was government doing much outstandingly good purchasing or making brilliantly good deals on the taxpayer’s behalf.

Unsurprisingly when you consider that many of the most innovative and cost-effective solutions - from our SMEs - never got anywhere near Whitehall.

So this was the situation we inherited - a bad deal for the taxpayer, UK growth and jobs. And it wasn’t just Westminster doing this badly - it was the whole public sector.

The good news was - there was plenty of room for improvement. And together we have started to transform the way government does business. Together we are starting to build a new reputation for the public sector - for being easy to do business with, but hard to rip off.

Efficiency agenda

There really wasn’t any time to lose on this agenda. All of us here are aware of the urgent need to reduce the deficit - making it imperative we spend scarcer resources better.

Relentlessly pursuing efficiency has allowed this government to make an initial £3.75billion in cash savings in our first short financial year - and we have just announced we are on track to save an additional £5billion this year.

Doing better at procurement is a huge part of this drive. The era of cosy gold-plated contracts held by a small oligopoly of suppliers is over and we are no longer tolerating poor supplier performance.

One of the first things this government did was open contract negotiations with our major suppliers. Or rather the second thing - the first thing was to find out who they were. No one seemed to know so we wrote and asked. I can assure you that today we have instant access to the 220,000 we directly do business with.

As a result of initial contract renegotiations we saved £800million and this year we are making a further £140million in savings.
 
And today I can announce a new deal with one of the government’s biggest suppliers, Capgemini, relating to an IT contract with HMRC that will deliver savings of £200 million by 2017.

The message is clear - government has become a tough negotiator. But at the same time a government that hunts for the best deals for the taxpayer is also good for business. Efficiency and growth go hand in hand.

Why? Because we are opening up competition - we are opening our doors to all kinds of business and business models. Any firm with innovative and competitively priced products can be assured that government is no longer a closed shop. The mindset is no longer big is beautiful.

There is now an aspiration that we will deliver 25% of our central government spend both directly and within supply chains through SMEs by the end of this Parliament - and we expect the wider public sector to follow our lead on levelling the playing field for smaller companies.

Progress to Date

The way government procures is fundamentally changing to make it much easier to do business with us. We are:

  • Being more transparent with the ContractsFinder website where firms can survey everything on offer - this site now has 97,000 viewings per week. And latest figures show that of 6,132 contracts posted to date - over a third have gone to SMEs.
  • We are eliminating pointless pre-qualification form-filling and cutting red tape that used to shut out smaller suppliers.
  • Mystery Shopper is continuing to ensure there is a route for challenge - with 150 cases of poor procurement practise investigated since its launch and results published today show 9 out of 10 cases investigated in the last three months resulted in a government department, local authority or public body changing a live procurement process or pledging to re-examine procedures in the future.
  • And we have created a centralised approach to common goods and service spend ensuring we take advantage of our bulk-buying potential and drive efficiencies. This is led by the Government Procurement Service - now one of the largest procurement services providers in Europe.

As a result central government’s overall procurement spend is forecast to reduce again to £43billion down from last year by 8%. And down 14% from the £51billion that was being spent when we came into office 

In the same period, central government’s direct spend with SMEs is on track to double since we took office from 6.5% to 13.7%. Or in pounds, a leap from £3billion to £6billion.

The savings we are making are allowing us to reinvest in the procurement profession. We have developed a new training programme to equip procurement professionals with the latest techniques and tools.

This will be crucial for Whitehall departments now using Lean sourcing principles to ensure all but the most complex procurement projects are completed within 120 days - making it up to 40% faster to do business with government. GPS are already meeting this target.

And we are investing in new and innovative ways of working - which are unlocking competition and driving value for money.

Take government’s travel contract. We split this into two lots allowing the SME Redfern to win the contract for domestic travel. They won by offering a price that is a saving of over 70% compared to current costs - saving us £20million over 4 years.

New technology is also making the system simpler. Last August Maxxim Consulting an SME with 27 employees beat larger rivals to win a Cabinet Office consultancy contract by using the e-marketplace process that provides a quick request for quotation.

It took a total of two and a half weeks from the point we issued an advert to time they’d started working.

Then there is the recently launched Cloud Store, the online appstore for ICT services, which is allowing public sector organisations to purchase off the shelf IT services on a pay as you go basis. The suppliers on the Cloud are SMEs.

And the Maritime and Coastguard Agency has just become the first public authority to make a purchase with an SME called Emergn to buy Agile educational software - it took under 24 hours.

This is the future.

But we are by no means at the end of this process - on the contrary we know there is much more that can be done.

Building relationships

The truth is some departments and public bodies are still using the procurements they know and are comfortable with. This is the moment when that changes.

There is now a presumption in Whitehall against the use of the clunky and protracted competitive dialogue process which in our view slows things up unnecessarily.

And I want to increase the use of Open Procedure - which is faster, more effective and gives SMEs a much better chance of competing.

Currently just 29% of procurements currently use the open procedure in the UK -  whereas according to the EU opportunities portal the figure rises to 93% across the rest of the EU.

In the past one of the things that has held back the greater use of open procurement was the public sector’s refusal to talk to the market first.

It’s been a case of fools rush in - with public bodies starting the formal process blind to what the market could offer - and suppliers similarly unprepped on what they were looking for.

Our European neighbours, and good private companies, talk to suppliers first.  Procurements are subsequently faster and more straightforward because bids can summarise and price what’s already been discussed.

But constrained by fears about picking winners, cosiness with incumbents and breaching theories of efficient markets - we have left business to flounder in the dark.

This has got to stop. It is not illegal for public sector procurers to talk to suppliers.  Not only is it not illegal - it’s plain common sense and good commercial practice.

In the future major procurements should only take place after we have spoken informally to our potential suppliers. So we can make swift off-the-shelf purchases where appropriate or quickly choose the right supplier for the job.

To help build better relationships we are also publishing forward looking resource pipelines giving a much clearer picture of the contracting landscape across government.

This is important for the whole economy - by giving businesses signals about what contract opportunities are coming up they will be able to gear up and make investment decisions well in advance.

Competition

We are also working on ways to level the playing field for smaller suppliers.

Last week I announced a package of measures that would give smaller companies a better chance to compete for Government work. 

One crucial element is breaking up contracts - across the public sector they don’t have to be so big and complex that smaller companies can’t get a look in.

ICT has become then the first sector to introduce specific caps to limit the size and duration of contracts to give SMEs a better chance.

It’s very simple - if you allow more businesses and more business models to compete- you find better value solutions. 

I have also asked the SME Panel to work with us to pilot approaches to make it easier for SMEs to form consortia to successfully win government business.

A 100% SME consortium Creative Choice successfully competed last year to win a government marketing and communications contract - providing us savings of 25%, £11million.

Supply Chain

It’s not just the government that can take forward these ambitions. We are working hard in all sectors to ensure the right level of supply chain participation from SMEs.

Nine suppliers - Airwave, Amey, Balflour Beatty, CapGemini, Capita, Hewlett Packard, Level 3, Logica and Serco - have just signed up to opening up their supply chains to greater competition by advertising their sub-contracting opportunities on Contracts Finder.

On top of this, SMEs can now use Mystery Shopper anonymously to escalate issues in Government supply chains - for example, poor payment.

Finally we are aware it’s not unusual for SMEs in the supply chain to have to wait for up to 100 days to receive payment for their work - this is a major problem for smaller companies who face higher cost of working capital than larger firms.

The government is committed that our subcontractors get paid within the same contractual terms that we pay our prime suppliers; we will work with our prime suppliers to ensure that this happens.

In addition, the Highways Agency has successfully piloted Project Bank Accounts in a number of their major construction projects. These electronic bank accounts pay prime suppliers at the same time as tier 1 and tier 2 subcontractors and have had a great impact in preventing cash from being held up in supply chains.

So we are extending the use of Project Bank Accounts in government procurement beyond the Construction Sector to other suitable sectors, starting with Defence and Facilities. Where Project Bank Accounts are not applicable, we will also consider the role of structured finance products, such as Supply Chain Finance, which have the potential to allow tier 2 suppliers to access payments early.

Public Sector Buy-in

Of course it can’t just be central government that takes this agenda seriously - the whole public sector has to follow our lead. We all have an interest in supporting the ability of British SMEs to compete effectively for business paid for by the British taxpayer.

I’m delighted the Secretary of State for Communities and Local Government has recently asked the LGA to work with his department to develop a scheme to streamline the PQQ process for contracts above £100,000.

The Local Government Association will also be taking steps to remind local authorities that they should be doing all they can to reduce the burdens on small business, including putting projects in the pipeline on Contract Finder.

Conclusion

This agenda already matters a very great deal.  But it’s going to matter even more in future.  For as we set out in our Open Public Services White Paper we expect ever more of our public services to be delivered not by the public sector itself but from outside, whether by mutuals, joint ventures, social or charitable enterprises or conventional commercial providers.

This is a market that is going to increase in size and scale.

Don’t get left behind. I am impressed by much of the work I am seeing on transforming public sector procurement.
But we are certainly not at the end of the process - and no one can afford to get complacent

You are delivering these reforms on the ground - I want you to push them as far as you can. A risk averse culture didn’t protect taxpayer money in the past. Don’t be afraid of trying new innovations and embracing new technology.

We’ve made a lot of progress together in one year - lets come back here in one year’s time having doubled our improvements. That’s the challenge I’m setting for myself - and that’s my challenge to you.

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