LORD SUGAR TALKS “VALUE FOR MONEY”

My Lords,

I’m delighted to see so many of your Lordships joining this debate. Government procurement is an important issue. After all, it is we the taxpayers’ money that is being spent every day, and I think we have the right to ensure we are getting good value.

Before I move on, I would like to state that pursuant to the code of conduct, I have registered with the Table Office any relevant interests that may arise from those listed in my name in the House register of interest.

Government expenditure was in the region of £238bn on procurement. I believe this was spent on a whole range of items and services from, say, paperclips to guided missiles.

By referring to getting ‘good value for money’, I would like to break this down into three categories, the first and most obvious being that best prices should be obtained for any product or service required by government; the second is value for the country, and the third is value for SMEs.

Starting with real value for money, your Lordships will agree with me that the world has moved on a lot as far as internet connectivity is concerned, and for that reason I believe there is simply no longer the need for local purchasing, and centralised purchasing should be implemented immediately.

I regret to say, from my experience in running so many businesses, that when you place the task of procurement in the hands of unqualified people, it’s similar in some cases to letting kids run riot in a sweet shop. The main issue is, of course, it that it’s not theirmoney, and it’s amazing how irresponsible some people can be when spending other people’s money as opposed to their own.

In August 2010, Sir Philip Green was asked by the Prime Minister to carry out an efficiency review and he published his findings in October 2010. The report spoke of the inefficiency and waste in Government spending.

One of the observations was that it was impossible for the civil service to operate efficiently with the current processes in place. It highlighted that basic commodities were bought at significantly different prices across government departments. Multiple contracts were signed with some major suppliers by different departments at different prices!

Expensive IT contracts are contracted for too long with no flexibility. There was no motivation to save money or to treat cash as your own. There was no process for setting and challenging detailed departmental budgets, and, most importantly, there are inconsistent commercial skills across departments.

The report went on to give some factual examples where there were variations of up to 80% across central departments on prices paid for the same product.

For a commercial person like me, these issues are very easy to resolve. What I am about to suggest will be controversial, but very commercial. My assumption is based on the fact that a centralised group of real procurement professionals purchasing the same goods and services (obtained in the past for £238bn) would have been able to procure the exact same amount of goods for say £200bn.

I am, of course, putting to one side the fact that maybe a lot of the stuff should never have been ordered in the first place, but that’s another story.

It is here that a controversial issue arises, I say there is a need to recruit professionals from private industry and not only offer them an exciting challenge, but most importantly, pay them what they could earn in the commercial world, as well as bonus targets. These people in turn would have to employ others who would also earn private-industry salaries and bonuses. This new group should then be responsible for training existing public-sector staff to deal with business effectively to get the best possible value for money for the public purse. Hypothetically, if this group of procurement experts I refer to costs, say, £50m per annum, that would pale into insignificance against a saving of around £38bn, as given in my example.

The reason I say it’s controversial is down to the question: would the government have the guts to do this or would they be frightened off by headlines about the head-honcho in charge of procurement earning £Xm a year?

One can see the Daily Mail article now: ‘Fred Smith earns £Xm per year of taxpayers’ money while Joe Bloggs in the northeast ofEngland struggles’. Of course, in my example, the Daily Mail would not be interested in the £38bn saving as this is not a good headline. So I ask government to consider the implementation of this idea, rise above the inevitable external criticism and do the sensible commercial thing.

Moving on to my second point about value for the country, so many government contracts are awarded to foreign companies or companies that pay little or no tax in this country. Now I know we are all fully aware of the requirements under EU rules and regulations on procurement, but I am sure your Lordships won’t be surprised when I cite our cousins in France who seem to magically manage to be very patriotic when it comes to dishing out orders from the government.

There are examples of ECJ rulings which have allowed for European countries to widen the criteria for what they see as the ‘Most Economically Advantageous Tender’ (or MEAT) to be more than just about price. Both France and the Netherlands have used it to include environmental and social benefits. In 2000, the French republic was taken to court by the European Commission for failing to comply with European procurement legislation (the case referred to the construction and maintenance of school buildings). The European Commission’s main objection was the use of an award criterion which required contractors to recruit local workers from a project to specifically combat unemployment. The ECJ defended the French practice and ruled that a contracting authority can use the fight against unemployment as award criterion. Perhaps this could have been used in the Bombardier case – and saved 1400 jobs in Derby. Instead, the decision was made to build train carriages in Germany rather than at home.

This is where I think this government could learn some serious lessons from our European counterparts. Sorry, but if I were in charge of procurement, I would have fought tooth and nail to keep that Bombardier deal in the UK.

I declared a conflict of interests at the start of this debate – simply because it is much easier for me to convey my frustration by using an example of which I’ve had first-hand experience. When it comes to government procurement of information-technology products, many of us will have noticed – in the government offices, hospitals and other government-run establishments – that the desks are littered, in many cases, with computer equipment made by a Japanese and German partnership.

There is a funny story here, which is, as some of your Lordships may recall, that a British computer company we all remember – ICL (which was Britain’s equivalent of IBM at the time) – eventually got sold to a Japanese company, who in turn associated themselves with a German company. The government, many years before, had quite rightly awarded a lot of its IT business to the British company ICL – however, your Lordships may be interested to hear that the government is still entrenched in contracts dating back years originating with ICL but enjoyed now by the foreign entity. It’s what I call ‘grandfathered-in’ contracts. There has been a total lack of flexibility in using and assessing other supply chains.

I apologise for raising the conflict of interest issue again, but I do so merely to demonstrate what is going on. I personally have one of the few companies that still produces computers in this country, and we do supply certain government-run organisations: schools and councils, and we employ about 200 people.

I am not touting for business here, but to show the scale of what I am talking about: if we were awarded a tenth of the computer and IT systems and services that are purchased by government throughout the course of a year, I would have to employ another 350 ‑ 400 people to provide them. I have made this point clear to those involved in procurement but it seems the penny still has not dropped. My example is most probably not unique, I am sure the same could be expressed by people in other industries.

I am certainly not advocating that the government should pay more for British-assembled products and services. The process of winning government contracts still has very strict criteria on price, quality and delivery – but the priorities are wrong.

If you took my example of employing another 350 ‑ 400 people – and thus removing the government burden of having to look after some of these people in the unemployment benefits system – it would outweigh some of the minor additional costs that may have to be paid to smaller companies trying to compete with the giant foreign organisations who simply dump products in Britain.

Let me share with your Lordships the fact that my IT company is inundated with enquiries from young school leavers requesting work experience wanting to get into the IT field. We simply can’t take them on; we have no work for them. Even if there areApprenticeship schemes and/or allowances, there simply comes a point where the company has to face harsh commercial reality.

The government must support British companies and find a way to make the procurement process work for the country like the French and other European countries do. The most economically advantageous deal may not always be about the cheapest price; there are wider social impacts to consider. This is about what government should be doing to support jobs and our UK-based businesses.

The third element of value for money really relates to SMEs, the small-to-medium-sized enterprises of whom I heard the government say, when they were elected, ‘We are going to ensure that at least 25% of contracts are awarded to SMEs.’

To date, I understand that figure is about 7%, but there seems to be another 25% rule and that is: an SME can’t bid for a contract if its value is more than 25% of its turnover. This seems crazy to me as the SME maybe the market leader, yet the contract has to be placed with larger company that does not have the same expertise.

The government says that it is angry with the banks for not lending to small-to-medium-sized enterprises. Well, they can encourage such lending by making sure that orders are given to small-to-medium-sized enterprises so as to impress the banks into lending them money. When government contracts are handed out to large organisations, there should be clauses in that contract which clearly state that they must give a certain percentage of the contract out to British SME subcontractors.

I am sure the minister will advise your Lordships’ House that many of my points are already under control and that I should not despair. Indeed I am aware that quite coincidently, to the date of this debate, the Right Honourable Minister for the Cabinet Office held an event on 21 November titled ‘A new way forward’. The agenda showed that the government had acknowledged many of the things I have raised today, particularly in respect to IT.

As an example, it says, ‘For businesses to understand the government’s intention to move away from large projects that are slow to implement or pose a greater risk of failure and to end the oligopoly of large suppliers that monopolise its service provision.’

Well, that is fighting talk and exactly what we want to hear. I have had the good fortune to meet some senior civil servants from the Cabinet Office who have politely debated these issues with me, and I will say that I am impressed with the approach they have taken to date, but they may also be the first to acknowledge that, with the greatest of respect, these plans will not be achieved with those currently in place who are responsible for procurement.

This government needs to engage serious professionals, centralise its procurement processes and get a genuinely better deal for SMEs in the UK.

My Lords, I have opened up a whole host of topics upon which I’m sure your Lordships participating in this debate will add to, and I await with interest the comments of the speakers following. I beg to move.

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About appsam

Jack of all trades! Hoping to be MASTER of ALL
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