Public Procurement as a Tool to Stimulate Innovation: Science and Technology Report

Lord Young of Norwood Green Excerpts

Tuesday 13th September 2011 Grand Committee

[Lord Young of Norwood Green]

My Lords, I, too, congratulate the noble Lord, Lord Krebs, and the committee on their succinct report. That is an innovation in itself, isn’t it? You were not deterred by the sheer size and weight of it from reading right through it. I found the report fascinating, as I have found the debate. If the Minister goes through Hansard after this, as I am sure she will, she will find that there have been a number of interesting contributions with some worthwhile and constructive recommendations. I have heard on many occasions that the prize is enormous, given the size of the procurement contracts— £236 billion was quoted. If the Government do not get this right then we damage the country’s ability to deliver new business products and services.

We are not using procurement to unleash the potential of SMEs, which I know is an aspiration of this Government. I am not sure about their commitment to the target of giving 25 per cent of public procurement to SMEs, which seems now to have been downgraded to an aspiration.

The small business research initiative has been successful in generating value, and it ought to be significantly scaled up to produce further innovation and economic growth. Why the delay? I see that an evaluation of the small business research initiative and the forward commitment procurement process is planned for some time in 2012. The sooner that evaluation takes place, the better; it looks as if on a small scale both those processes are beginning to produce valuable uses for innovation and better value for money.

The noble Lord, Lord Krebs, cited mattresses. There was another case involving lighting and the Rotherham NHS Foundation Trust. The report says:

“Cundall, a multidisciplinary consulting engineering practice, is one of the bidders involved in the Rotherham energy efficiency project … They were enthusiastic about FCP. Through FCP, they said, ‘we were no longer bound by technical specifications that might not deliver what the customer actually wanted, but were free to suggest innovative solutions that could meet this outcome-based requirement ... we clubbed together with other members of the supply chain so that we could offer an optimal and innovative solution ... we believe FCP has been totally revolutionary. Rotherham NHS Trust has been offered a solution that delivers energy savings, carbon savings and a “step-change” in patient and staff experience’”.

Building on that kind of approach is worth while. I hope that this evaluation, which will be done by Professor Georghiou and Professor Edler, will not take too long.

It is interesting that the World Economic Forum’s latest global competitiveness report, published last week, ranked the UK 49th for government procurement of advanced technological products, despite it being ranked 13th for overall innovation. The report ranked the UK second for university/industry collaboration in R&D—referred to by my noble friend Lady Warwick—third for the quality of its research institutions and 13th for its capacity for innovation, but 49th for government procurement, one place behind France and 36 places behind Rwanda. The sort of thing I used to get on my school report, “Plenty of room for improvement”, applies here. The same report revealed that 13.5 per cent of businesses believed that inefficient government bureaucracy was one of the most problematic factors for doing business in the UK. That has been referred to in several contributions.

Many people have talked about the default position of the tried and tested route. In some cases that might be appropriate, but on every occasion innovation ought to be considered before one embarks on the tried and tested route. The noble Lord, Lord Krebs, talked about embedding innovation into the mainstream and a change of culture. In one of the few management courses I have ever been on, we looked at organisational culture. I remember being told that that is the hardest thing to change within any organisation.

The Government’s response talks about improved training, but we know that on its own that probably will not be enough, although I would welcome it. I know that the Government are still interested in the concept of employee engagement, where we listen to some of the good ideas that are around. I was surprised at how often management failed to recognise the good ideas that exist among their own employees. Many of the recommendations are top-down; we ought to be looking also at the bottom-up approach.

As soon as my internal search engine finds the word “apprentice” in a government report, I cannot help but be attracted to it, and I was attracted to the response to recommendation 10, which states:

“Pan-Government Apprenticeship Scheme—research is being undertaken into the feasibility of introducing a ‘Pan-Government Procurement Apprenticeship Scheme’ in 2011/12”.

I would welcome more information on that. The response continues:

“The aim would be to attract new talent into Government and creating a more skilled, flexible and productive workforce”.

I like the concept and I assume that these will be high-level apprenticeships, but I should welcome a bit more information. It sounds a good idea to bring bright young minds into Civil Service and public sector procurement.

The noble Lord, Lord Hodgson, talked about simplifying the tendering process. The Government say that they will go down that road. From the examples given, there is certainly a need for that. My noble friend Lord Hunt gave us the example of the Met Office. We seem unable to take advantage of the innovation that we have created and use it abroad in the way that France seems so good at doing.

The noble Lord, Lord Willis, reminded us that a number of reports have contained very good ideas, such as the report of the noble Lord, Lord Drayson. My noble friend Lady Warwick reminded us all of the report of the noble Lord, Lord Sainsbury. There has been a plethora of reports. The real innovation would be to seize the key recommendations and drive them forward.

Having a Minister in charge of innovation does not seem to appeal to the Government, but I think it was my noble friend Lord Warner who said they should give it some thought. Clearly, we need more drive and we need to ensure that best practice created in one government department, especially in relation to innovation, is spread across all government departments. I think the same argument would apply to chief scientific advisers in making their role more powerful.

I was very interested in Longitude by Dava Sobel, mentioned by the noble Lord, Lord Rees. It is a great read, and the wonderful clocks in the museum at Greenwich are an inspiration. Having prizes is a great idea, and I should be interested to hear the Minister’s response to that. Perhaps I may suggest one in relation to the NHS. One idea has been referred to but another one that has recently emerged is the use of catheters. I cannot remember how long ago the catheter was invented, but I think it goes back well over 100 years, and I do not think the design has changed substantially in that time. It is one of the biggest causes of infection in the NHS and, unfortunately, the longer we live the more likely it is that we will be inflicted with the curse of the catheter. It certainly happened to me on one occasion, although I am not sure that I should have revealed that in Hansard. I also liked the example of the Dyson dryer mentioned by my noble friend Lord Warner. The innovation involved was good but the element of risk aversion meant that it was not possible to resist leaving other methods of hand drying in place.

I should like to pose a couple of questions, although I have already raised some during my contribution. What progress have the Government made on their aspiration for 25 per cent of their resources to be supplied by SMEs? Although the comments on SMEs seemed to be that the jury is still out, no one said that we should not involve SMEs to a greater extent. I am pretty convinced that in that way we will get more innovation in public procurement.

What is being done to increase government procurement of advanced technology products? I must admit that I could not help groaning inwardly as we were treated by my noble friend Lord Hanworth to the history of the computerised system for patient records. I suppose that that is an example of how not to do things and, as he said, there are some painful lessons to be learnt from it. I should think that one lesson is obvious; before embarking on a large scheme, you make sure that it works on a small scale, but perhaps that it is too easy and obvious an answer.

What plans do the Government have for Labour’s successful and innovative SBRI procurement programme? They have said that they are going to evaluate it, and I would welcome hearing the timescale for that. In addition, what are the Government doing to promote more innovative procurement from the European Union and other EU member states that would benefit UK companies?

In conclusion, I again extend my thanks to the committee for its report. It has stimulated a fascinating debate and I look forward to the Minister’s response.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)]

My Lords, I am grateful to the noble Lord, Lord Krebs, for bringing forward this debate and for highlighting the potential of public procurement to drive innovation.

The speeches of noble Lords both on and outwith the committee gave me much food for thought. We could all be here until about 7 pm if I tried to answer all the questions put forward this afternoon. I shall try to answer some as I go along, but I shall of course write regarding the others—that is, if the civil servants are still friendly enough towards some of the people around this table today. However, I am sure that I have confidence in their ability to answer those questions.

It was lovely hear about prizes—the noble Lords, Lord Hunt and Lord Rees, talked about the historical precedents here–—to get things going for the risk-taking and the jump-starting. It made me think of the most reverend Primate the Archbishop of Canterbury, who is going to stand down next year perhaps after struggling for 10 years. He started off by launching a prize for theological writing, which at the time I thought was an excellent idea. Let us see how good these prizes are in taking things forward and away from the traditional practices that we have used.

The noble Lord, Lord Young, rather shamefacedly had to spell out the sorry state of public procurement in this country. It is the system that this Government have inherited. I can assure him that by the time we have finished being in government we shall leave it in better heart than it is in now.

All public procurement must achieve value for money for the taxpayer. This is essential to managing the fiscal deficit that we face. The Government recognise that by procuring innovative products and services they can both improve the efficiency and delivery of public services and provide opportunities for UK business to grow. Both outcomes will benefit our economy.

With this in mind, the Government are currently carrying out a reform of public procurement to increase efficiency, value for money and transparency. Doing this will enable us to better plan procurements to drive innovation. It will also enable us to use more innovative procurement mechanisms that can deliver innovative products and services. This programme of reform will help to maximise the conditions for encouraging and fostering innovation that delivers value for money. I will highlight some of the key elements of this as we go through.

The noble Lord, Lord Hodgson, gave us a masterclass from the private sector investment area, and then started talking about intellectual property. As the Minister for Intellectual Property, I would be only too delighted to talk to him in my office about the way universities are going ahead and putting down what they should do. We have already had a response to that this afternoon.

The noble Lord, Lord Kestenbaum, talked about the Government as intelligent customers. I am very taken with that description. I shall take that away and, as with many of the things I have heard today, see whether we cannot benefit from some of the marvellous speeches that we have heard.

In response to the noble Lords, Lord Willis and Lord Kestenbaum, and the noble Baroness, Lady Warwick, I should say that the procurement capability of the public sector was a key feature of the Select Committee’s report. A change in culture and direction from the top must challenge this risk aversion. The new departmental board structures as detailed in the Government’s response to the committee’s report will help to drive forward this cultural change and it is a start. I hope there will be agreement on that at least.

The noble Baroness, Lady Warwick, asked what new initiatives are in place to engage SMEs in public procurement. To quote one in response, all central government contracts over £10,000 must now be advertised in Contracts Finder, central government’s procurement portal, and this will give greater visibility of procurement opportunities to SMEs. Suppliers can flag up instances of poor procurement practices, including overtly bureaucratic tender documents that lock out SMEs. The Cabinet Office will investigate these instances through its mystery shopper scheme.

The noble Lord, Lord Warner, asked about planning in best practice. The reform of public procurement that is currently under way will mean greater focus is placed on planning, on properly identifying what is needed and on how best these needs could be met by exploring different options before the formal procurement process starts. This includes thinking about long-term value for money. We will ensure best practice from these changes is shared across the various departments.

I return to the capability improvement programme and the SBRI. The programme will help to raise the level of expertise across central government to ensure that public procurers have the right skills to deliver what is expected of them. Part of it includes a commercial interchange programme, which is currently running as a pilot and is designed to facilitate two-way commercial skills and knowledge exchange between government and industry. I am sure we will find that very helpful. There have been seven placements to date, including one at the Department for Transport.

I should like to mention the small business research initiative and the forward commitment procurement model—two procurement mechanisms covered by the committee’s report. I shall update noble Lords on the small business research initiative. Since the reformed programme was launched in April 2009, various departments and other public bodies have run more than 60 competitions. These have been in many areas, including: defence, where we have sought to improve the energy efficiency of operating bases and to reduce the weight that individual soldiers need to carry; healthcare, where we have developed technologies for detecting asthma in children and the means of reducing healthcare-acquired infections; and sustainable construction, where we have installed sustainable technologies in more than 50 social housing units and developed more efficient and easily recyclable lighting technologies. To date, more than 600 contracts have been awarded to technology-based businesses to a value of just over £41 million. Sixty-seven per cent of these contracts have been awarded to micro-businesses—those with less than 10 employees—or small businesses, which have less than 50 employees. These businesses are typically the cadre of companies with which the public sector has the greatest difficulty contracting.

I should also mention that the Technology Strategy Board, which manages the small business research initiative scheme, is constantly engaging with public sector organisations to get greater engagement in the programme. The most recently launched competitions are in the areas of food security and animal research.

The committee’s report mentioned that the forward commitment procurement model is not currently as widely used as the small business research initiative. This is true, and we are seeking to expand the programme. The Government have recently started a project with the private sector to develop private-public forward commitment procurement compacts.

In addition, following the success of the zero-waste mattresses project with Her Majesty’s Prison Service, which was mentioned earlier, a second project has led to the development of an ultra-efficient lighting solution for use in hospitals, which we will demonstrate at the Building Research Establishment. We intend to use this as an opportunity to generate wider interest in this mechanism.

I turn now to the Department for Transport, which was a particular focus of the committee’s report. Since the start of the inquiry, the Department for Transport has introduced several new measures to ensure that it is able to identify opportunities for procuring innovative solutions. For example, it has established a board-level investment and commercial committee, which provides oversight and scrutiny of major commercial and investment decisions. The chief executive of the Highways Agency is a member of the committee and is therefore able to offer the benefit of the Highways Agency’s innovative thinking to the broader department—an area that was highlighted by the committee’s report.

The Department for Transport recognises that small and medium-sized enterprises are a source of innovative ideas and is keen to encourage solutions from them. It has published an action plan with specific targets and measures designed to provide real opportunities for small and medium-sized enterprises to meet its business needs. The department held a product surgery for small and medium-sized enterprises in June. It also participated in the Government’s innovation launch pad, offering mentoring support to small businesses to develop innovative solutions for public services. The department is also considering the development of supply chain charters to encourage fair treatment of small and medium-sized enterprises by prime contractors.

The noble Lord, Lord Krebs, asked how effective central government is in encouraging the take-up of these initiatives. They are being taken up across local government, so there is some hope there.

I know that this debate and the recent government response are starting to show that the Government recognise the important role of public procurement in encouraging innovative solutions in the public sector that deliver value for money.

The noble Lord, Lord Krebs, said that he will return to this topic with his committee. I am very pleased. If I could stand here and say what I personally think about a lot of things that have been said today, I would no doubt get the sack immediately. Certain things strike such a chord with me. When I started working with the Civil Service, it took me a while to realise that in the private sector, in business, where I come from, the biggest talent—certainly in a FTSE 100 company—is always in management, and writing wonderful reports and giving you all the information you need is regarded as something that you can buy in almost by the hour. You come into the Civil Service and it is completely the reverse. People who can write public policy are top of the heap and the people who do management are not.

I am not saying that one way of doing this is better than the other, but somewhere along the line, if we are to get public procurement right, we have to bring the two sides nearer to each other. It would be rude indeed to say that people are too far down the food chain to be taking such enormous decisions that have such a long-term effect. Some of the contracts that I have seen are enormously long. Some of the payment terms that I have seen have been idiotic. I have seen one that paid the main contractor on five days sight of invoice and he was paying the small businesses that contracted to him on 30 days sight of invoice. If that had happened when I was in business, he would have been out of the door tomorrow morning, but that is not how it can be run.

I have whistled through this. I have answered very few questions. We will write to answer the questions asked and when we come back the next time that the noble Lord, Lord Krebs, brings a committee report here, I hope that noble Lords will know that the Government are aware of the problems of public procurement. We will address it better than the previous Government did. As many noble Lords have said, the prize is enormous if we can get this right. I again thank the noble Lord, Lord Krebs, and his committee for bringing this debate here today.

[Lord Young of Norwood Green]

Before the Minister sits down, I could not let go her answer that I was shamefaced; I was not shamefaced about our record. It was a difficult task and we made significant improvements. I am only too happy to wish the Government success in building on those improvements. I am certainly not shamefaced about some of the initiatives that we took.

I hope that I might get an answer—if not, no doubt she will answer in writing—about the pan-apprenticeship scheme.

[Baroness Wilcox]

Ah! One moment. That I do have, and I will be delighted to give it to the noble Lord. As he knows, because we stand opposite each other many times at many times of the day and night, I certainly did not want to appear rude. It was tongue in cheek, but the truth is that his Government did not do terribly well in 10 years, and we have to make a better fist of it.

The noble Lord requested more information on the feasibility of introducing an apprenticeship scheme to improve Civil Service procurement skills. As this is a Cabinet Office lead, I will liaise with my colleagues in the department and write to the noble Lord with more details. As he knows, apprenticeships are close to both our hearts.