Small Business, Enterprise and Employment Bill
Lord McKenzie of Luton Excerpts(9 years, 3 months ago)
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“( ) The Minister for the Cabinet Office or the Secretary of State may by regulations ensure that the provisions detailed in this section will not undermine the impact of the Localism Act 2011 and the Public Services (Social Value) Act 2012 and shall have due regard to—
(a) local authorities’ duty to promote economic growth in their relevant area;(b) local authorities’ duty to promote skills development in their relevant area;(c) advertising and procurement tender period appropriate to the size of the business to ensure a secure procurement process;(d) the potential harm caused to local companies and businesses by the relevant contracting authority’s choice of supplier through the procurement process.”
Lord McKenzie of Luton (Lab)
My Lords, I shall speak also to Amendments 35K and 35S. These amend Clause 38, 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 would have the power to issue guidance, to which contracting authorities must have regard. Contracting authorities for this purpose include Ministers, government departments, devolved Assemblies, fire and rescue authorities, and local authorities of all varieties but do not include an authority whose purpose is mainly devolved functions. Such definitions derive from the 2006 regulations, which implement the previous public sector procurement directive.
The power can be used in a variety of ways to impose obligations relating to supposedly efficient and timely procurement, duties relating to the process by which contracts are entered into, information flows and documentation, as well as the accepting of electronic invoices, the latter in advance of the anticipated e-invoicing standard to be adopted at EU level.
Concern about these provisions has been highlighted by the LGA in particular. The fear is that the powers might be used to centralise procurement and introduce a one-size-fits-all approach, impairing councils’ ability to procure strategically and according to local circumstances.
Local government can already claim to be the best-performing part of the public sector when it comes to procurement. It primes suppliers on time, places almost half its business with local SMEs and uses procurement to consider how it can improve the economic, social and environmental well-being of communities. Amendment 35D seeks to ensure that the exercise of the powers in Clause 38 do not undermine, and have due regard to, local authorities’ duty to promote economic growth and skills development in their areas, that advertising and procurement tender periods are appropriate, and that the potential for the harmful local impact of central procurement processes is avoided.
The Government’s approach, I understand, stems from the second report of the noble Lord, Lord Young of Graffham, who I am delighted is with us today. The report, entitled Growing Your Business, was expressed to be a report on growing micro-businesses in particular. It instanced the £230 billion spent on goods and services across the whole public sector and the potential transformational effect that could be had on SMEs and micro-businesses if they could win a share of the market.
The noble Lord recommended that all parts of the public sector agree a set of single-market principles. He seemed to have in his sights pre-qualification questionnaires and what he termed the gold-plating of training and health and safety policies. His common principles included the removal of all PQQ requirements for contracts below the EU threshold, with a single standard PQQ above the threshold, locating all contract opportunities in a single place and standardising all the payment terms. I understand that these changes are being implemented through the 2015 regulations, which are the UK’s transposition of new EU procurement directives and are seemingly not dependent on the provisions in this Bill. Can the Minister clarify whether the transposition regulations can be subject to an imposition under Clause 38?
The Government consulted beyond this in October 2014 and we are blessed with a Cabinet Office policy statement dated 12 January and draft illustrative regulations on similar policy measures, a pre-procurement engagement with suppliers and applying lean sourcing principles. The paper also sets out the government view on a range of other procurement issues to which Clause 38 might apply.
I draw the Minister’s attention to a briefing we had from the LGA about the use of pre-qualification questionnaires. It says that councils sometimes need to use pre-qualification questionnaires in lower-value procurements to deselect suppliers, particularly where a large supply chain exists; for example, in construction or ICT sectors, or where there may be issues of safe- guarding and tendering. A smaller number of suppliers reduces the potential risks for vulnerable people. How does the Minister respond to that concern?
We are wholly supportive of harnessing public sector procurement to create significant business growth opportunities through increase participation for small and medium-sized businesses, but local government already has an environment and a procurement framework in place and it is very important that Clause 38 and its potential use does not undermine this. The Local Government Act 1999 places a best value duty on local authorities. In addition, a duty to consider how the services they commission and procure might improve the economic, social and environmental well-being of an area is placed on a range of public bodies by the Public Services (Social Value) Act 2012. Moreover, the LGA has developed a national procurement strategy for local government in England which not only encourages the making of savings but supports local economies.
I refer the Minister to the executive summary of this document and, in particular, references to the importance of including economic, environmental and social value criteria in all contracts. On improving access for SMEs and voluntary, community and social enterprises it says:
“Councils should ensure a wide range of suppliers are encouraged to do business with them through use of portals to advertise tender opportunities. Barriers to doing business with the council removed without compromising due process. SME’s and VCSE’s are encouraged to identify potential ‘partners’ with whom to form consortia to bid for council contracts”.
To what extent is it considered that the existence and operation of Clause 38 will remain entirely consistent with the national framework that the LGA and local councils have developed?
We should be mindful of the current appetite, in different ways across the political parties, for devolution of powers and fiscal responsibility to local authorities. This is supported by provisions in the Localism Act 2011, but I caution that the term “localism” could not reasonably be applied to all its provisions. Some of the provisions in the so-called Localism Act are quite the reverse. This devolution is currently proceeding partly by way of city deals, which we support, and gives increased local control to enable more flexibility to respond to local priorities, particularly skill shortages. As a party, we have proposed more extensive devolution, at the level of £6 billion a year, to cover skills, housing, transport and business support.
Our Amendment 35S provides that nothing in Part 3 should affect the principle of localism and the duty of best value placed on local authorities. As the LGA points out, all the evidence shows—and there is compelling evidence across a wide range of issues—that taking decisions closer to the people affected achieves better results and saves money. The economic benefits of devolving powers to local areas are too big to ignore.
Our amendments seek to ensure that these benefits are not undermined by a centralised procurement policy. Figures supplied by the LGA point out that there is little evidence that measures undertaken by central government—for example, lean procurement processes—have significantly increased spend on SMEs, which is less than 14%, compared with council spend at 49%, unless the Minister can produce some evidence for us. As for reviewing the manner in which pre-procurement market engagement has taken place, can the Minister explain how this proposal is consistent with a localist agenda?
We would not seek to deny this clause, but we need to be assured that it will not impede the substantial progress that has been made in devolving powers and resources to local authorities and the benefits that flow from this. I beg to move.
Lord Whitty (Lab)
My Lords, I have two amendments in this group. I completely endorse what my noble friend has said and will not repeat it at length. However, I think that the Government need to rethink this area.
Clauses 38 and 39 give the Secretary of State substantial new powers to impose new, ill defined duties on how local authorities do their central business. In my view, and as my noble friend has said, this is contrary to the spirit of localism in which this Government came into office; to the successes, such as they are, that have been achieved under the better value regime; and to getting local authorities to take responsibility for their own procurement and ensure that their procurement practices benefit firms within or close to their local authority area, particularly small firms. On local authority procurement, local authorities are much better at ensuring that small companies have a share of the cake, compared with central government, its agencies or large private firms.
My Amendments 35E and 35T exempt authorities that are already under a better value regime from the effect of both clauses. In some ways, it might be tidier to delete these two clauses entirely. They certainly do not seem to enhance local government or play to the localism agenda. When the Government first came in, not only did they bring in the Localism Act, they took some of the more directional requirements out of the previous best value regime, which had been there under the previous Government—quite rightly, in most cases. We need to recognise that there is a demand for decisions to be taken much closer to where they will have an impact, for local authorities to have a wider responsibility for their local economies and, therefore, for the procurement practices and outcomes under local authorities to reflect the needs and the economic structure of their areas.
Some of the provisions in these clauses suggest a uniformity under the regulations, as in Clause 38(5), for example, which would lay down very precisely how local authorities went about their business. The alternative must be for central government, perhaps, to offer within the best value regime or equivalent more substantial guidance to local authorities. The LGA is already providing substantial guidance to local authorities. However, these new clauses suggest a degree of centralisation that local authorities will resent, which will increase the bureaucracy and red tape on local authorities in an already centralised England—the most centralised country in Europe. We are proposing to ensure that one of the main duties of local authorities would, in effect, be run on what, in the olden days, we might have called the Napoleonic method of laying down centrally the way that local and regional government operate.
This is unnecessary. It may well be that a little more guidance from the centre may be helpful, but to lay that down in law and then, in Clause 39, to provide for a new and draconian inspection of how local authorities are carrying out their duties, is well over the top. It is also contrary to the way in which the Government came in and to the localism agenda, to which we are all supposed to be committed.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, I am grateful to the noble Lord, Lord McKenzie, and to the noble Lords, Lord Mendelsohn and Lord Stevenson, for tabling these amendments and giving us the opportunity to debate how these clauses interact with other legislative duties on contracting authorities, which is the nub of this amendment. I also share the noble Lord’s appreciation of the fact that my noble friend Lord Young of Graffham has joined us. I take this opportunity to thank him for all he has done for small firms and for public procurement throughout his distinguished career, and latterly as the Prime Minister’s adviser. My noble friend explained the background but, given the concern expressed by the noble Lord, Lord McKenzie of Luton, perhaps I could add, on the subject of the changes to pre-qualification questionnaires, that these could disadvantage procurements where there are important special requirements. As my noble friend Lord Young explained, we want to remove burdensome PQQs. However, I understand that special requirements can still be built into contract advertisements or the invitation to tender.
For the benefit of the Committee, perhaps I could stand back and try briefly to answer my noble friend Lord Hodgson’s exam question about what we are trying to achieve. I reassure noble Lords that our intentions are focused and more specific than the amendments tabled and the comments made would suggest. While regulations we may make under the Bill should improve standards across the public sector, they will not remove the autonomy of local authorities to run their own processes and take responsibility for procurement decisions. I associate myself with some of the warm words used by the noble Lord, Lord McKenzie, about local authorities. I was glad to hear about the LGA’s work on procurement strategy because I know, from my many dealings with it over the years, that it comes to issues with an innovative and refreshing approach.
The clauses before us will allow the Government to place some additional obligations on contracting authorities about how they undertake their procurement processes. However, I assure noble Lords that this is not about taking control away from local government procurers, who will remain responsible for securing value for money. Moreover, when making regulations under Clause 38, the Government will ensure that the provisions of other legislation are properly considered and that the regulations do not conflict with them. Frankly, the last thing we would want is to be over- bureaucratic or Napoleonic, in the words of the noble Lord, Lord Whitty. Like my noble friend Lord Hodgson, we would like to see better, simpler documentation that makes contracts more accessible to small business and voluntary organisations. As my noble friend says, we need to bring in standards and yardsticks of good practice, although I am not sure that “comply and explain” would necessarily quite work here.
Turning to Amendment 35D, the Government are committed to both the Localism Act and the Public Services (Social Value) Act. We stand by the principles in those Acts. It is of course important for local authorities to be able to pursue legitimate policies that help suppliers win more business through procurement in support of their local economies. There is, however, a balance to be struck and EU procurement law, which we have implemented in our domestic legislation, places a duty on contracting authorities to ensure that procurements that are above the EU thresholds—essentially, £111,000 in central government and £172,000 outside it—or of cross-border interest, are awarded in a fair, transparent and non-discriminatory way.
To respond to a question that was asked, Clause 38 is not necessary to implement the directive. This is in fact being done under powers in the European Communities Act 1972—I can see that the noble Lord understands that—and we will be bringing forward regulations very shortly. The new Public Contracts Regulations 2015, implementing the EU procurement directive, will make it clear how contracting authorities can achieve policy through procurement in a legitimate way. The regulations will require that the policy to be delivered through procurement is linked to the subject matter of the contract, as well as satisfying the EU principles of fairness, transparency and non-discrimination.
Furthermore, having consulted on the use of the power in Clause 38, we have identified a number of examples on how we might use its regulation-making power. It may help if I mention one or two of those because they might help to meet some of the concerns expressed by the noble Lord, Lord Whitty. One example is of requiring awareness-raising as part of pre-procurement market engagement, which can of course help small businesses; another would be requiring procurement authorities to have due regard to lean procurement principles. This will increase efficiency and reduce timescales. Some of your Lordships will be familiar with these principles, particularly those who have worked in business. I have direct experience of using them on a clothing supply chain exercise to good effect. Of course, it was Dan Jones who did the original pioneering work on lean thinking in the automotive supply chain, which helped our industry to fight back.
We undertook an open consultation on these proposals and there was support from local government and the Local Government Association. The outcome of the consultation is published on the Cabinet Office website and this includes draft regulations to illustrate how we might use the power. The planned uses are complementary to the forthcoming Public Contracts Regulations that I mentioned. They also complement the existing best value duty created by the Local Government Act 1999, as well as the duties created by the Localism Act 2011 and Public Services (Social Value) Act 2012. We have placed the draft regulations illustrating the use of the power in the Library of the House. The noble Lord has obviously already seen them, but others may not have done.
This is not about centralising procurement. It is about ensuring that high-quality procurement processes are in place across the public sector. We are also looking to establish common standards of good practice, as the noble Lord, Lord Hodgson, was encouraging us to do. The noble Lord, Lord Whitty, suggested that we might be able to deal with this through guidance, but I am afraid that in this area guidance will not be sufficient on its own. The power that we are taking will allow the Government to make targeted changes over time and to place legal obligations on contracting authorities in relation to the procurement functions. I hope that that provides some reassurance and an understanding that this clause will not undermine the localism agenda.
On Amendments 35E and 35T, while we strongly support the aims of best value to make sure that contracting authorities consider overall value, including economic, environmental and social value, when reviewing service provision, we consider that there is scope to improve procurement processes and open up opportunities to smaller businesses. The need to improve procurement processes is supported by findings made by our mystery shopper service, which investigates concerns about procurement throughout the public sector. This service has found that over a third of all its new cases relate to concerns with poor procurement practices by local authorities. Therefore, excluding all local authorities from the scope of the regulation-making power and from the scope of the mystery shopper service would mean that we were not able to help local authorities to improve their procurement practices and investigate mistakes. Nor would we be able to help small business to achieve the share in procurement that we all want them to have.
The additional obligations placed on contracting authorities will be proportionate. We are also clear that they are not intended to take control away from local government procurers, who will remain responsible for securing value for money. Retaining the scope of Clause 39 to include local authorities is necessary to help us to continue to improve procurement practices.
To turn to Amendments 35S and 35X, the Government are, as I said, wholly committed to principles that support development of economic and social issues and which are designed to allow contracting authorities to take account of how their decisions affect local business, the local area, the environment and social value considerations. The amendments are not necessary, as Clauses 38 and 39 do not amend or undermine the Localism Act, the Local Government Act or the Public Services (Social Value) Act. The power in Clause 38 cannot be used to amend these Acts or any other primary legislation. While I do not believe that the amendments are required, I am pleased to reassure noble Lords that, when making regulations under Clause 38, the Government will ensure that the provisions of legislation, including these Acts, are properly considered.
Finally, turning to Amendment 35K, I understand the noble Lord’s wish to see contracting authorities report on how they have met their duties under the Public Services (Social Value) Act. However, we do not wish to pre-empt the review of the Act launched in September 2014 and carried out by a panel led by my noble friend Lord Young, which is due to report in the coming weeks. The review is giving detailed scrutiny to the 2012 Act and is considering whether it should be extended and how it might be extended in a way that continues to help small business. The review may make a number of findings and recommendations and obviously it would not be right to second-guess those findings.
I hope that, in the light of these various reassurances, noble Lords will agree not to press their amendments.
Lord McKenzie of Luton
My Lords, I start by thanking the noble Baroness, Lady Neville-Rolfe, for her detailed response. Listening carefully to what she said, I am a bit bemused as to why she feels unable to accept the amendments. There is nothing in them that conflicts with what she has said is the Government’s position. On Amendment 35K, I take the point that if the noble Lord, Lord Young, is in the process of undertaking a review, the wording might pre-empt that. From what the Minister said on timing, I hope that we will have the opportunity to revisit that on Report, as we will have the noble Lord’s report by then.
Can the Minister be more specific on what the problem is with Amendment 35D? If the Government support localism and the Public Services (Social Value) Act 2012, the amendment would simply ensure that due regard is given to the new powers in Clause 38, which are extensive, as my noble friend Lord Whitty said. On the reference to lean principles on procurement, what evidence can the Minister provide that that process has been successful in enhancing SMEs’ share of the public procurement process? That is important and it would be interesting to hear the Minister’s response.
The noble Lord, Lord Young of Graffham, gave us a first-hand exposition of why we have ended up here. My noble friend has further amendments on PQQs, which might be the opportunity to explore that.
Baroness Neville-Rolfe
Perhaps I may say a few things. First, the noble Lord asked why we could not accept the amendments. The difficulty is that we cannot accept amendments without legal effect. I shall think about what he is saying but that seems to be a problem. Secondly, he rightly reminds me that he asked about lean thinking in relation to local government. I do not know the answer today but it is a fair question and we will come back to him.
Lord McKenzie of Luton
I am grateful for that. In closing, perhaps I should thank my noble friend Lord Whitty for his contribution. We made the same analysis, despite the somewhat different solutions to the problem. There was a very insightful, detailed presentation from the noble Lord, Lord Hodgson, who has the experience of chairing that task force and seeing what is happening in practice. The point is about getting the right balance; it is about making sure that the legislation properly reflects that. Having said that, I beg leave to withdraw the amendment.