This month, our Director of Procurement, Alan Heron spoke at the Procurement Reform conference in London and Manchester. Alan spoke about a range of topics including the upcoming Procurement Bill and changes such as new terminology, procedures, timescales, administration, training, and transparency.
In case you missed it, you can read his speech below.
I was thinking today about why it is important that we get ourselves as prepared as possible for the new legislation with the changes that are coming. And I would like to tell you a story just before I start for a bit of context.
In a previous role, I was the procurement manager for NHS (National Health Service) Scotland, and I was invited into all sorts of open heart surgeries and some other procedures, which was fascinating. One day, I was invited into an operation where a 70 year old man was having cataracts removed and he had been 90% blind for ten years. The operation itself, which sounds horrid, was only fifteen minutes long, and you do not see a speck of blood. The patient is awake through the entire thing. It is one of the cleanest and quickest operations I have seen, but the transformation is instantaneous. The results are instantaneous.
This man, at the end of 15 minutes could see properly for the first time in 10 years. And he just instantly started sobbing, saying that he could go home tonight and see his grandchildren for the first time. He had not seen their faces in five years.
As he was wheeled out of the operating theatre, he insisted on shaking the hand of every person that was in the room to thank them for what they had done to him. I can remember he reached for my hand, I hesitated and said, “I’m just here to observe, I haven’t done anything”. But he insisted on shaking my hand.
Six months later I signed a contract for the ophthalmic surgery machines that were used in that operation, and I managed to save the NHS enough money to deliver another 450 of those operations a year. As I was signing the contract, the overwhelming thought that entered my head was ‘now I have earned that man’s handshake.’
We need to remember that procurement has to have a purpose, procurement without a purpose is hollow. I think it is fundamentally important to remind ourselves of why we are doing this in the first place. Public Sector procurement is not all about contracts, supplier management, or negotiations. They are simply the tools of the trade. Procurement is about people.
Other speakers covered lots of aspects earlier today in terms of change in the previous sessions. But fundamentally, it is a tsunami of change in every aspect of what we do in terms of the administration, the operational activities, the strategies that we have put in place, and the supply chain engagement. This is quite simply the single biggest change to public procurement legislation in a generation.
There are many examples of terminology changes in the new legislation. A lot of terminology from my perspective has been changed just to distance itself from the previous EU legislation. But nonetheless, it is there and we must adapt and we must learn.
The new competitive flexible procedure is a fantastic opportunity and one we should really explore as much as we can.
Rebecca Rees, Head of Public Procurement for Trowers & Hamlins during her session touched on the timescales that are changing and whether we will we make use of them. That is yet to be seen. I suppose, the brave might rush straight into it and use reduced timescales, but there might be a consequence to that.
MAT (Most Advantageous Tender) vs MEAT (Most Economically Advantageous Tender) is an interesting topic and I think Rebecca was quite shrewd in terms of when she said that nothing fundamentally has changed. We can achieve the same thing that was available before. It is just that we are positioning it in a different light, which makes it a lot more engaging and clearer for people to understand.
One of the biggest changes for me is the accountability that comes in the new procurement legislation. And that is going to have quite a consequential change to our organisations in terms of capability and capacity.
We have talked about the number of notices that are now in the bill. Most tender opportunities will involve two notices; the contract notice and the award notice. Now, we are talking about up to five or six notices depending on which procedure is taken and which route is taken to market.
There are also significant implications for contracts over £5 million in value and contract valuations should now include VAT (Value Added Tax).
In terms of publishing redacted versions of the contracts, we need to understand as organisations, do we have the capability and understanding to redact a contract in the first place, are we going to have to upskill ourselves and engage with the lawyers to help us do that. Who has the capability and the capacity to do that from day one? Probably not very many of us initially.
KPIs (Key Performance Indicators) need to be published for contracts over £5 million as well. That may be quite an interesting one to achieve because a lot of the KPIs in larger organisations might be monitored and maintained by stakeholders, rather than the procurement team. This means procurement staff are going to require a lot more engagement on a regular basis with stakeholders on the front line to make sure that we get that data back.
There will be new obligations to publish information on both payment timescales and discrete payments over £30,000. This will mean, close engagement with finance departments on a regular basis to ensure that they are giving us the data to be able to publish these reports in line with the new obligations that we will have.
All this administration is not only in terms of capacity, but also the number of relationships and the strength of the relationships that we have internally within our own organisations. We are going to have to make sure that these other departments and the teams are aware of what the new obligations will mean.
Much of the aforementioned administration is a consequence of the drive towards greater transparency. There is a lot of transparency in the bill, and I think the delivery of it is going to be challenging.
Private Framework Providers
The principle of transparency is fine, I do not have an issue with it. But for me, I think what it does do is leave us with quite a significant imbalance when you consider that as contracting authorities there is a lot of transparency that we are obligated to deliver, which is fine. But when we think about some of the routes to market that we use in terms of procurement consortia or PBOs (Public Buying Organisations), framework providers, or whatever terminology you want to use. There is a distinct lack of transparency in terms of what those organisations are obligated to disclose to us as buyers.
For example, the proportionality of the fees that they charge to their supply chain. Some of these organisations are charging fees of 10% plus in terms of the contract value. Is that proportionate? I do not think so. In the Government’s green paper, there was an initial requirement for proportionality, public good and transparency of those fees. That has since been dropped from the legislation – which I think is one of the biggest disappointments in the new legislation. However, there is no reason not to challenge those framework providers or PBOs about what their transparency objectives are, where are they publishing their fees, what are they used for, whether they are being used for the public good, or are they buying timeshares and holiday homes in the Algarve.
This is important for us to understand. This is public sector money. These are funds that we could use to change people’s lives, and it is important that we understand what is happening with that money.
Private sector organisations are not legally allowed to let or create public sector contracts. However, there is an increasing number of private sector organisations that are now piggybacking on the contracting authority status of tame housing associations, healthcare trusts or local authorities to effectively own operate and manage frameworks on their behalf, often without recognition or oversight from the contracting authority.
They then charge high fees (which they do not advertise, publicise, or disclose to buyers) to the supply chain, disproportionately inflating the prices the public sector pays for goods and services. They are effectively using the public sector as a cash cow to generate more than healthy revenue streams. This is quite simply a parasitic relationship, unhealthy for the public sector and must be stopped.
Let’s put this into context. Imagine you were considering building an extension onto your home and decided to have a look on the Trust a Trader website for a reputable builder to carry out the work. You see an advert from a builder that looks reputable, and you arrange for them to visit our property.
The next evening, they come to your door, but you immediately notice that the logo on the man’s jacket is different from the organisation in the advert you saw. “Ah yes” he explains, “Because I’m not legally allowed to place an advert in Trust a Trader, I give my friend some money, and he puts the advert in his company’s name on my behalf. He then puts an advert in there for whatever I ask him to, and he gets some money on the side for doing it.”
He goes on to explain that he will not be building the extension himself either, but that you should not worry – he has some sub-contractors ready to do the job. He will charge them a fee for the pleasure of building your extension (the fee is very high, and you won’t find it in any of the glossy literature or websites he has), but you do not need to worry yourself about that, it is all bundled into the price for you, so you can’t see the fees he earns.
Now, if that was your own home, your own money, does that sound like a good deal? Would you hand him your hard earned money? Of course, you wouldn’t. It is not acceptable. And yet, why is it acceptable in the public sector? It is abhorrent, and it must be stopped.
Some of these organisations are also using pay to play fees. I don’t know if you have heard of this, but there was one private sector payment provider in the Northwest that has recently set up a framework and they have created so many lots, and so many awarded suppliers, each of which must pay a fee just to participate regardless of whether they win any business or not.
When I and others looked at this framework, we calculated this organisation stand to earn a minimum of £4 million before the framework hits day one and we are paying for that directly or indirectly. We will pay as the public sector for that £4 million to go into that private sector's pocket. The open wound of greed in the public sector cannot go unattended any longer.
Some of the work that Lucy Sydney, Head of Strategic Relationships for Procurement Reform at the Cabinet Office, and the team have done in training is fantastic.
The awareness in terms of the challenges we will face and how we are going to tackle them is paramount to all of us. It is critically important that we consume as much of that training as we can.
There will be a six month phase of training prior to the new Bill being codified into UK legislation, and it is paramount that we make the most of it.
To conclude, procurement in the public sector, is not about contracts. It is not about supply engagement. It is not about contract management. It is about beds in hospitals. It is about homes for people in desperate need of help. It is about desks in our children’s schools.
We should not lose sight of the impact procurement can have on people’s lives. Collectively in this room, we have the potential to change hundreds of thousands, if not millions of people’s lives for the better. Let’s do that.
To find out more about the events we are attending this year, click here>.