Government Procurement Policy

Lord Sutherland of Houndwood Excerpts

Thursday 24th November 2011 Lords Chamber

[Lord Sutherland of Houndwood]

My Lords, I thank the noble Lord, Lord Sugar, for a vigorous and, dare I say it, characteristically incisive introduction to this important debate. At the beginning, I want to declare an interest. I work with a Malaysian conglomerate, YTL, which is currently working with a vigorous, small young British company in IT, Frog, which is based in Halifax and is doing marvellous things in the provision of IT in the area of education. The other way round, interestingly, we are seeking to procure for that company as part of a broader deal an arrangement to provide IT services for all Malaysian schools. That would be a major thing for such a bright young company, and we wait to see the outcome. There is talent in this country, and that is a good example of how it can be harnessed to international sale of services as well as to the purchase of services locally.

In this debate, I want to offer noble Lords a case study of public sector procurement in which I had to carry out an investigation, and put it in the context of current government policy, which will inevitably lead to much greater need for procurement expertise in the public sector. Those two policies to which I referred, which are mirrored elsewhere, are in health, where many of the services that we now get directly through public sector activities will be procured from other sources. Equally, in education, academies and free schools will have increasing powers of purchase and procurement. I rather approve of this policy, but on the other hand it means that there will be a need to ensure that in the process of procurement in the system we are competent and fit for purpose.

The case study, which bears on both of those—and Ministers should beware and read this—relates to something that happened in July 2008 when an American company that provided a major examination portfolio for English schools’ SATs failed to meet the terms of its contract. Increasing panic spread through the various agencies involved. The fact that at least four different agencies were involved is one of the messages to come from this. The commissioning agency was the Quality Curriculum Authority; within that was a non-statutory subsidiary, the NEA, which ran that side of the business. There was also the statutory subsidiary in Ofqual, which was meant to be an independent regulator but was none the less within the major quango—and then there was the Department for Education, then titled the Department for Children, Schools and Families. Those four all had an interest in this procurement and its correct outcome. You can imagine the panic when it became clear that the delivery of the test results was going to be significantly late. Those are the results for those aged 11 for which parents, pupils, teachers and school league tables wait, and which pupils progressing to secondary school require as a clear picture, so they can take them and be assigned a proper educational syllabus in secondary school.

The panic was great, but what was the initial reaction? Of course, it was to procure someone to carry out an inquiry—procure with a small “p”. That was me. There were some comic elements to that small “p” procurement, but I will not spell them out today. The job, as I saw it initially, was to look at what had gone wrong with the process in the examining system and to rate answers to these questions. Was it efficient? Were the results that eventually came through safe? Finally, what do we have to do to make up for the shortfalls of the process in question?

However, it quickly became apparent that I had to push further back into the process of procurement. This major American company, which had been brought in to carry out that important element of the British examining and assessment system, failed. What was wrong with the procurement? Fundamentally, there was one very considerable thing wrong: by and large, with no disrespect, those responsible for the procurement were amateurs. They were on the quango board or were officials within the quango—officials with strong education experience and a degree of oversight from within the Department for Children, Schools and Families. With no disrespect, those amateurs were recruited because they had other admirable qualities, but in this area they did not have the necessary expertise.

The lessons from this were, first, that procurement in the public sector will increasingly be for services, not just for items such as missiles, schools, new hospitals and so on. Secondly, when amateurs go through a system of procurement they are either dreadfully incompetent and amateur, in which case they get tripped at the first hurdle, or they do what these groups did: they played it by the book, the whole book and, lastly, nothing but the book. All the ticks were in the boxes. I examined very thoroughly the process. It is laid out in my report that 11 stages of the process were all gone through formally and correctly. They got good due diligence on financial matters from one of the big four companies, which investigated the company in question—again, that ticked all the boxes.

Informally, however, what did they not do? As became apparent, and as the then shadow Secretary of State Michael Gove pointed out with some delight, they did not check the web or the press reports. They did not look at what was being said in the lively American press about this company. For example: “Mismanagement by ETS”—that was the company—

“led to over 4,000 teachers being wrongly failed. This led to a shortage of teachers”,

in the USA. It had to pay $11 million in compensation. There are plenty more quotes in the report if your Lordships really want them; that is just an example. Did no one within the QCA have sufficient international contact or nous to pick up the telephone and ask a colleague in the States, “What is this company like?”? The press reports were clear, yet these informal checks had not been made. It was played by the book, as they did on the European journal and the new system whereby competitive dialogue was introduced. All that was correctly done but it was a major failure in procurement.

Another major failure, I suggested, was that because there were four different elements involved, there was not adequate clarity of where the lines of responsibility ran. Yes, they lay with the board of the QCA but in its final minute, in which it approved this contract, it noted:

“The Chairman also suggested that the process be used as a case study to share best practice amongst other divisions”.

If only—that was what went wrong. There were not sufficient lines of communication and there was a degree of amateurism, although with strict propriety. Nothing untoward happened but it was not clear where the responsibilities lay. I rest my case.