For a long time UK governments have held UK businesses at arm’s length. Too often buying goods and services - to the tune of over £60bn - in a way that disadvantaged domestic firms.
The way in which we’ve done business has militated against UK interests and it’s militated against growth and jobs in this country.
In the same 12 month period while British companies won £432m of EU contracts, French firms won £911m and German firms £3600m. The UK awards 3% of public procurement by value to foreign suppliers, compared to 1.9% in Germany and 1.5% in France.
And it’s not because France and Germany break any rules. They don’t.
The difference is the governments of these countries work closely with their domestic firms so they are geared up to win contracts at home and abroad.
Whereas in Britain by over-interpreting EU law and overreacting to fears of bias in favour of British suppliers - we take an almost deliberately short-sighted approach to working with business. The result of that has been a bias against British based firms.
So while Germany and France nurture mutually beneficial long-term relationships with their key suppliers - the British public sector has taken a speed dating approach to ours.
It’s not even as if this approach has led to outstandingly good purchasing delivering brilliantly cheap deals. Actually the reverse. Because we have made it really difficult and expensive for smaller British suppliers even to bid for business, we’ve excluded some of the most innovative and competitive suppliers from doing business with us and for us.
This 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.
So: an approach that hurts British businesses and British jobs; delivering poor value for the taxpayer: that’s what the coalition government inherited. And it’s going to change.
We want to be the most pro-business government ever. Making the UK one of the best places in Europe to start and run a business. Already we are cutting corporation tax to the lowest rate in the G7, boosting tax relief to start ups and cutting red tape - not enough yet but there’s more to come.
And we are determined to remove the anti-UK bias in the way our public sector does its shopping. So UK based firms actually have a level playing field in which to compete.
This is not about protectionism. Our commitment to the single market is unshakeable. I myself negotiated many of the key elements of the single market in the late eighties. Britain benefits greatly from our very open economy. We will maintain that.
But we will follow the example of our EU neighbours and indeed best practice in the private sector. By making it easier for our suppliers to do business with us.
That’s what today’s event is all about.
Need for efficiency
It’s what I promised over a year ago when I sat down with some of our biggest suppliers to look at existing government contracts. I said then that the days of cosy gold-plated contracts were over. That we owed it to taxpayers to spend their cash better.
As a result we saved £800million through contract renegotiation just in the short financial year to March.
And let’s be absolutely clear: we remain totally committed to an efficiency programme which saved the taxpayer £3.75 billion in that short financial year. We will do this - and much more - to take out wasteful spending and protect front line services.
But a government that hunts for the best deals for the taxpayer is good for business. Because we will open our doors to all kinds of business and all kinds of business models and build long-term strategic relationships with suppliers.
Efficiency and growth will march hand in hand.
Already in last year we have started:
•Being more transparent with the ContractsFinder website where firms can survey everything on offer. I’m particularly glad that over 1600 contracts have been awarded to small and medium sized businesses via this route to date.
•We have also given our largest suppliers a single point of contact to engage with across Whitehall in the form of a Crown Commercial Representative.
•And we are eliminating pointless pre-qualification form-filling and cutting red tape.
This is just the start.
We will continue to strip away the bureaucracy that makes the costs of simply putting together a bid for public sector work often eye-watering and prohibitively steep.
A major charity told me recently that it had already cost them £800,000 to bid for a local government contract, before they had even got round to putting in a formal bid.
The truth is in the past public bodies and Government Departments have tended to rush into formal bidding process before they had decided what they wanted.
Before procurement should come commissioning.
Scanning the market to see what suppliers there are and what they can offer.
In contrast 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.
So in France the average cost of public sector procurement is £19,000 - while in the UK it’s £46,000. But it’s not just the extra cost to the taxpayer. Suppliers tell me that it typically costs them four times as much to bid for a public sector contract as for a similar contract in the private sector.
The result? Many suppliers - especially smaller and local providers - are forced out of the market. And of course the inflated costs of bidding get passed one way or another on to the taxpayer.
In 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.
And make sure no one gets dragged through an unnecessarily bureaucratic and costly process.
To achieve this we are:
- committed to getting all but the most complex procurement turnarounds to within 120 working days - a 40% reduction. By implementing new LEAN sourcing principles across government from January that will put outcome over process.
- setting a presumption against the use of the clunky and protracted competitive dialogue process which in our view slows things up unnecessarily.
- negotiating with the European Commission for a radical simplification of the public procurement directives to reduce costs for business and for procurers. In fact I’m going to Brussels in the next few hours to do exactly that.
And as we streamline the bidding process we will remove the barriers that stop SMEs, the voluntary and community sector and social enterprise organisations from participating in the public sector marketplace.
Such as breaking up large contracts or inviting explicit commitments from bidders about their supply chain.
And I’m sure you’ll hear more about this from our Chief Procurement Office John Collington later.
As well as simplifying the process our other overriding commitment is to help suppliers to spot opportunities at an early stage so they can compete and win work.
It sounds very obvious that the public sector should give businesses and suppliers signals about what contract opportunities are coming up so that they can gear up and make investment decisions well in advance.
But historically this is exactly what we almost deliberately haven’t done.
Constrained by fears about picking winners, cosiness with incumbents and breaching theories of efficient markets, we have left business to flounder in the dark.
So I’m delighted to announce today that we build on our commitment earlier this year to publish forward looking pipelines for public sector construction projects and the UK’s wider infrastructure investment programme.
Today we are publishing the first ever forward looking resource pipeline that gives IT and FM suppliers a much clearer picture of the contracting landscape across government for the lifetime of this Parliament.
This new data gives clear visibility of the significant level of contracting opportunities worth a potential £50billion or more.
This advance warning will give firms the confidence to invest in plant, machinery and people. And that will help create a stronger economy - and to create more jobs.
A construction pipeline will be published alongside the Autumn Statement. And by April next year all departments will be publishing rolling medium term pipelines for sectors including defence, prison and probation and pharmaceuticals.
These pipelines will be updated at least every six months and include a confidence rating against each project so industry can assess the likelihood of a project going ahead.
We’ll be urging other public sector bodies and regulated utilities to build on existing pipeline visibility in a consistent way.
In the future we will be in the position to explain our procurement needs for the next decade or twenty years. This rolling list will change over time but anecdotal evidence suggests that we may want to focus on developing skills and supplier capability in areas such as nuclear, offshore wind engineering, cyber security, onshore call centres, life sciences Research and Development.
Bill Crothers will give you some more detail about how these pipelines will work in his session.
Publishing these pipelines isn’t enough on its own. We must also change the current mindset that every transaction is a one-off.
There is a myth prevalent across the public sector that talking to suppliers informally is somehow contrary to EU law. This is nonsense - straight forward nonsense. So let me bust that myth today.
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.
It makes commercial sense to nurture our relationships with suppliers and to discuss what’s coming up on pipelines, investment plans, supply chains and pre-procurement issues.
And too often in the past we have defaulted into a comfort zone of hiring external consultants to run any kind of complex procurements. This has two effects.
It reduces the need and ability for public officials to develop the necessary skills. And it can happen that consultants being paid on day rates have no incentive to get procurements finished speedily, nor to drive simplicity.
Far too many procurements feature absurdly over-prescriptive requirements. We should be procuring on the basis of the outcomes and outputs we seek, not the detailed inputs. We should be focusing on the “what”, not the “how”.
This kind of procurement drives out innovative and competitive suppliers. So we will ensure that in future we focus on outputs and outcomes. And we now forbid the use of consultants in central government procurements without my express agreement.
Further in central government we will insist that every official running a significant procurement is trained to run it swiftly and efficiently.
I welcome the fact that Intellect are launching a series of initiatives to help government improve its commercial and technical skills. You’ll be hearing more from them later.
In the wider public sector where there are thousands of commissioners - and will in future be many more - we want to establish a virtual Commissioning Academy to drive the necessary commercial skills and confidence.
In a world where more and more public services are commissioned from providers outside the public sector we need to ensure that officials - and politicians - across central government and the wider public sector are equipped with the skills to engage knowledgeably and confidently with suppliers.
Now I stress again nothing about this is protectionist. We won’t skew procurement in favour of UK firms and jeopardise value for money. Far from it. We want to access the widest range of the best suppliers and award the contract after fair competition to the supplier that can best do the job.
The only question we will consider when choosing suppliers is who will give us the best cost effective service.
In the past people thought there was some kind of binary choice of the government providing a service or outsourcing. It didn’t get us the best services. What we’re interested in is better business models, which will include mutuals.
And other kinds of different providers - social enterprises, charities, joint ventures.
This event is the first time that the government has ever provided such an open, strategic view into its future needs.
And it’s about time.
It is imperative that the £60billion plus Whitehall spends and the £230bn the whole public sector spends on goods and services supports UK growth and gives taxpayers better value for money.
They say the key to a successful relationship is communication and this event won’t be a one off. We will keep talking with you. We will work with the bodies from across the range of suppliers - big businesses, to small, to charities, to social enterprises- to sign a concordat setting out our promise to you, on how we’re going to work with you, and what we expect in return. I’ll also invite the Local Government Association and other public sector bodies to join with us in signing this concordat.
And if you have innovative ideas no matter how radical to run a service in a cheaper way then let us know - we need to know.
I’ll be driving this agenda across government and I guarantee government will be listening to your ideas.