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Public sector disadvantaging UK businesses in procurement of contracts, Cabinet Office Minister says

UK Government departments and public sector organisations should discuss contract procurement opportunities with suppliers before opening up formal bidding for work, the UK's Cabinet Office Minister has said.22 Nov 2011

Francis Maude said that discussing contract opportunities before opening bidding would help the taxpayer and businesses save money. He stringently denied that discussing contracts with potential suppliers would breach EU free trade laws and said that France and Germany already benefited from the way they "nurture mutually beneficial long-term relationships with their key suppliers".

"Our European neighbours, and good private companies, talk to suppliers first," Maude said in a speech at a Cabinet Office conference on Monday. "Procurements are subsequently faster and more straightforward because bids can summarise and price what’s already been discussed."

"In France the average cost of public sector procurement is £19,000 – while in the UK it’s £46,000," he said. "But it’s not just the extra cost to the taxpayer.  Suppliers tell me that it typically costs them four times as much to bid for a public sector contract as for a similar contract in the private sector. The result?  Many suppliers – especially smaller and local providers – are forced out of the market.  And of course the inflated costs of bidding get passed one way or another on to the taxpayer."

"In future major procurements should only take place after we have spoken informally to our potential suppliers. So we can make swift off-the-shelf purchases where appropriate or quickly choose the right supplier for the job," he said.

Maude announced that the Government had published details of potential future IT and facilities management contracts, which he said would give suppliers "a much clearer picture of the contracting landscape across Government for the lifetime of this Parliament".

"This new data gives clear visibility of the significant level of contracting opportunities worth a potential £50 billion or more. This advance warning will give firms the confidence to invest in plant, machinery and people. And that will help create a stronger economy - and to create more jobs," Maude said.

In the future the Government will also publish details of potential construction, defence, prison and probation and pharmaceuticals contracts and update those lists at least every six months, Maude said. He said the lists would include "a confidence rating against each project" to inform industry about the likelihood of projects going ahead. He said he hopes it can eventually include details of potential contracts for projects planned for 10 or 20 years into the future.

"This rolling list will change over time but anecdotal evidence suggests that we may want to focus on developing skills and supplier capability in areas such as nuclear, offshore wind engineering, cyber security, onshore call centres, life sciences research and development," Maude said.

Maude described as "nonsense" the "myth" that the public sector is not allowed to discuss contracts with potential suppliers.

"It is not illegal for public sector procurers to talk to suppliers.  Not only is it not illegal it’s plain common sense and good commercial practice. It makes commercial sense to nurture our relationships with suppliers and to discuss what’s coming up on pipelines, investment plans, supply chains and pre-procurement issues," the Minister said.

Maude said UK businesses had lost out in the past when bidding for UK public sector contracts because of an "anti-UK bias". Maude said the bias had come about because public sector bodies had over-interpreted EU law and that this had driven up costs for UK businesses and stifled innovation.

"In the same 12 month period while British companies won £432m of EU contracts, French firms won £911m and German firms £3600m. The UK awards 3% of public procurement by value to foreign suppliers, compared to 1.9% in Germany and 1.5% in France," Maude said. 

"And it’s not because France and Germany break any rules. They don’t. The difference is the Governments of these countries work closely with their domestic firms so they are geared up to win contracts at home and abroad. Whereas in Britain by over-interpreting EU law and overreacting to fears of bias in favour of British suppliers – we take an almost deliberately short-sighted approach to working with business.  The result of that has been a bias against British based firms," the Cabinet Office Minister said.

"So while Germany and France nurture mutually beneficial long-term relationships with their key suppliers – the British public sector has taken a speed dating approach to ours. Because we have made it really difficult and expensive for smaller British suppliers even to bid for business, we’ve excluded some of the most innovative and competitive suppliers from doing business with us and for us," he said.

Public sector organisations often advertise contract opportunities in the Official Journal of the European Union (OJEU) in order to comply with EU free trade laws. The EU's Public Contracts Directive sets out financial thresholds for specific kinds of contracts and requires some contracts above the thresholds to be made available to tender across the EU.

Maude said that decision-making about Government contracts would not "skew procurement in favour of UK firms and jeopardise value for money". 

"We want to access the widest range of the best suppliers and award the contract after fair competition to the supplier that can best do the job. The only question we will consider when choosing suppliers is who will give us the best cost effective service. It is imperative that the £60bn-plus Whitehall spends and the £230bn the whole public sector spends on goods and services supports UK growth and gives taxpayers better value for money," Maude said.

The Cabinet Office last month issued guidance advising Government departments to use 'Contracts Finder' to prior notify UK companies about forthcoming contract opportunities. Contracts Finder is an online publishing and search tool which the Government launched in February to give suppliers, buyers and the public access to information about Government contracts.

Maude said it was particularly important for UK businesses to be given better information about UK public sector contracts since increased opportunities to deliver public services are expected to be open to suppliers in the future.

The Government saved £800m from renegotiating contracts "in the short financial year to March" and is committed to cutting out further "wasteful spending" in order to "protect front line services," Maude said.

Maude said he would attempt to negotiate "a radical simplification" of EU laws on public procurement with the European Commission in order "to reduce costs for business and for procurers". He added that the bidding process for public sector contracts would be streamlined using such measures as "breaking up large contracts or inviting explicit commitments from bidders about their supply chain". He said the Government was "committed" to ensuring that "all but the most complex procurement" was determined within 120 working days.

Maude banned central Government from hiring external consultants to handle complex contract procurement without his "express agreement" and said that the focus instead would be on prescribing less detailed instructions to suppliers based on what Government would like to see delivered at the end of projects. He said central Government staff involved in "running a significant procurement" would be trained in the skills they need to do so "swiftly and efficiently" and that he wants to establish a 'virtual Commissioning Academy' to "drive the necessary commercial skills and confidence" in the wider public sector.