My Lords, I shall also speak to Amendment 31. Amendment 27 ensures that the principles of localism and social value are upheld, and that local authorities have a duty to promote economic growth in their relevant areas. It ensures the duty to promote skills development; that the advertising and procurement period is appropriate to the size of the business; and
there is due regard to potential harm caused to local businesses by the contracting authority’s choice of supplier.
Amendment 31 proposes that the Secretary of State must publish a report detailing the procedures of the procurement process, which must include: an assessment of the current systems of redress available to small businesses engaged in the procurement process; an assessment of the viability of the small business procurement adjudicator; and guidance on suitability to estimate which companies are best suited for the contracts on offer.
We are proposing amendments that we hope will help round out the Government’s proposals, which we welcome. These amendments seek to add to Clause 39, which currently provides for the Secretary of State or the Minister for the Cabinet Office to make regulations imposing duties on contracting authorities in relation to procurement functions. Ministers can issue guidance to which authorities must have regard. This power can be used in a variety of ways and is extensive in scope.
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Concerns have been widespread that these powers could centralise, cause approaches that may well not be suitable for a particular scenario—sometimes considered a “one size fits all” approach—and limit the capacity, particularly of local authorities, to procure strategically and adjust to local circumstance. Local government is already the best-performing part of the public sector in encouraging and obtaining services and working with small businesses, and is a successful local agent. In many ways, it seems incongruous that the Government, who have devolved so much to, for example, Manchester—appreciating its local capacity to do so much and to be such a strategically significant player—do not provide this for others and still do not allow for that sense in which a local authority can act effectively as a strategic agent.
Ninety-nine per cent of UK businesses are small but they account for 10.5% of central government expenditure on procurement. Local authorities have a much better record and just over 50% of such expenditure is with small businesses. Local authorities are also able to create skills, clusters, partnerships and arrangements with a variety of local participants, from the smallest micro-businesses to universities, and make a big difference to the profile and capacity of small businesses in their areas.
As with many other things, there is an issue here about ambition, forward direction and the sense of what we are trying to achieve in opening up public procurement to small businesses. Part of our issue, and the reason we have made our suggestions, is that we would wish small businesses to be able to be even more ambitious than the measures that the Government have already introduced. There can be circumstances where, in procurement, collaborations with small businesses could be better placed to deliver an outcome that would traditionally have gone to a larger business. In our discussions in Committee and beyond—we are grateful for the way in which the Government have been open to the considerations that we have raised—we
have even raised examples in which contracts identified as being worth just under £10 million could be procured to a small business, which could deliver tremendous capacity and benefits, and even cut prices significantly.
It is therefore important that we do not consider this issue only in regard to the smallest contracts and we should have a much bigger view about what small businesses can achieve for the public sector and in public procurement. Therefore, that is why we are concerned about requirements placed on turnover or levels of insurance. These are important areas in which government needs to find other ways to increase its skills in procuring these services to make sure that we are delivering the right opportunities for small businesses and encouraging them. Additionally, we are conscious that small business representatives are very concerned to make sure that small local firms’ benefits to local communities are protected. Where they can be, they should be enhanced.
Essentially, we are looking for an environment with more effective commissioning. We would like the Government to see these amendments in the context of how we can upgrade our expectations of what small business can achieve, address one of the bigger obstacles in public sector procurement—the procuring skills of the public sector institutions themselves—and deal with the issue of which many people have direct experience: the great caution and risk-averse culture that exists when procuring these tenders.
As part of these amendments, we would be very keen for the Government to consider the requirement to demonstrate how their commissioning for these contracts would promote economic growth and provide skills development in the relevant areas, take account of the local economic impact and make sure that small businesses are not excluded by dint of a contract’s size or documentation requirements. It is important to point out that we are not saying that procurement processes should be designed in favour of small businesses or local suppliers. We are saying that we need to understand what local suppliers can offer in innovation or support of outcome delivery before commissioning plans or procurement processes are signed off.
Too often, the complaint from local and small suppliers is that they have no opportunity to provide input at the pre-procurement stage. This input is often critical to driving innovation and can lead to improved outcomes and often dramatically reduce costs. If this pre-procurement process is not executed, central government, local authorities and agencies will follow the path of least resistance. The larger suppliers, with the resources to invest in marketing heavily to their customers and prospective customers, will have an in-built bias towards large enterprises. In this context, the suggestion of an adjudicator underpins this capacity to create a much more dynamic capacity for government to interact with these procurement processes. It allows for a much more open discussion, in many ways building on some of the work the Government have done with their mystery shopper scheme, but giving a lot more scope to intervene.
The Minister said that she would like to see better, simpler documentation that makes contracts more accessible to small businesses and voluntary organisations.
We agree. However, while the structure and form of documentation is critical, it is not inherently the most important part of the procurement process. In fact, before that process commences, much can be done and much benefit derived. There is sometimes too much focus on simplified documentation, which may well trigger the unintended consequence of an obsession with process and the efficiency of that process at the exclusion of the outcome. If organisations have not properly specified and thought carefully about how to include small businesses in the process, we may well be creating a more efficient machinery for excluding small businesses. It is in the design of the procurement process, and the clarity of the definition of the outcomes that we are looking to deliver, that small businesses will be best advantaged.
We agree that small businesses can be and often are excluded at the commissioning stage. That relates to the notion that due and proper consideration should be given to the role that small businesses and third-sector organisations can play in support of the delivery of whatever outcome is required. It is at this stage that the public sector should be engaging with the market in a structured manner, with early market engagement, telling the market what the issues are, being clear and structured about the outcomes it is looking to deliver, and calling on its local supply chain, including small businesses and third-sector organisations, for their input at this pre-procurement stage. Too often, the public sector bypasses this commissioning process, dusts off the tender document from the previous procurement process, makes a few superficial changes and presses the button. If we get that process right and engage the market in a structured manner, we will specify correctly and ask the appropriate questions at all stages of the procurement process to elicit the right outcome and be able to design the contract that will benefit that. This is not loading the dice in favour of small businesses; it is allowing their voices to be heard in a structured manner to enable local authorities to understand what they have to offer and what innovation they can deliver in support of the required outcomes.
Our amendments in effect build on what the Government are suggesting to create an outcome-based culture and a win-win situation, where central government, local government and their agencies can accelerate the shift away from an input-driven approach and be much better able to design processes that work.
We have been very supportive of a number of things. I mentioned the mystery shopper, the website and the portal. We are also very supportive of the Government’s intentions. We have some issues about the withdrawal of the pre-qualification questionnaires. We do not believe that they are great panacea. As it is, they have been withdrawn only for a particular financial limit and that limit seems quite arbitrary. We could, in fact, have the PQQs. They could be standard, but if they are withdrawn that is fine. It is not, in a sense, material for us. What is more material is the thrust, which we hope the Government share, of local authorities being good at procuring from small businesses and focusing on the outcomes and strategies that will benefit small businesses. That should be protected. We should widen the scope for promoting small businesses, building better procurement skills and strategies inside
the public sector, and providing an adjudicator to intervene more clearly. These two amendments will help to build the place of small business in public procurement. As I said, we acknowledge the work that is done but we believe that these amendments add to the Government’s initiatives in a very constructive way. I beg to move.