PAC Archives - Bad Buying

The UK House of Commons Public Accounts Committee (PAC) published a report last week titled “Competition in Public Procurement”. It’s a shame that the report came out so close to Christmas and in the middle of Gaza, the Covid inquiry, Conservative Party meltdown and general office party debauchery. That meant it got less publicity than it should have, because it contains some important analysis and recommendations. It is also very relevant because 2024 is going to be the most important year for public procurement in ages, with new regulations and (probably) a new government too.

The PAC usually takes reports from the National Audit Office as their starting point and this is no exception. NAO published “Competition in public procurement – lessons learned” in August and we covered it here. But this PAC report does pick up on some other issues, such as the need to transition to the new procurement regulations in October 2024.

“We are concerned that the government may not have sufficiently considered the time, money, and resources required to provide the commercial capabilities to successfully implement the Procurement Act 2023”, says the PAC.

But the heart of the report questions (as NAO did) whether the UK government is getting value for money (VFM) from procurement spend, in particular by using competition effectively. One of the core issues here is the lack of good data around public procurement which means “government is unable to evaluate competitive trends, understand how effectively markets are open to small and medium enterprises (SMEs) and other companies outside government’s strategic suppliers, or set out clear directions and guidance for contracting authorities”.

That is a fair comment, and it appears that there is less competition in public procurement than there was a few years ago, which is a worry. But I do struggle a bit with the concept that better data will allow you to judge VFM. All of us who have worked in procurement know how difficult it is to absolutely KNOW that the contract or deal we have done is the best we could have achieved or even that it is genuinely good VFM. More data in itself does not necessarily help in that.

What you can do is look at the inputs into procurement activity as a proxy for getting the right outputs. That is why aspects such as having the right processes, policies, systems, trained and capable people, strong competition and so on are so important. We can make some assumptions that if you get all that right, you probably will get good value out of the other end.

On that note, the report picks up on the growth in use of frameworks in recent years. Now frameworks do have a valid role to play, but as the PAC says, “the Government Commercial Function has not provided sufficient guidance to address the potential risks to competitive benefits”. Used wrongly, frameworks can contribute to closed or competitive markets, and provide a route for buyers to simply choose their favoured suppliers without real competition. That may be done for different reasons.

“Reasonably good” reasons – “we’re in a real hurry and I know this firm can meet our needs”
“Poor reasons – “We’re short-staffed, I just don’t have the resource to run a proper competition”
Or REALLY bad reasons “I’ve been unofficially promised a job with this software firm / consultancy when I leave the civil service so it’s worth my while keeping them happy now”.

The PAC does make the fundamental mistake of bleating on about SMEs (small firms). It really is about time we had a proper, rigorous review of the idea that supporting SMEs is the right policy. Why not minority owned firms, or social enterprises and charities, or innovative start-ups, or local firms? The supporting SME policy has in any case failed to deliver against its objectives for a decade now, so for goodness sake, let’s take a proper look at it.

If Labour does win the election next year, there are radical steps it could take and a review of the SME policy would be one. But abolishing Crown Commercial Services would be another. CCS has many successes and positives, but it does inevitably support the idea of central contracts and frameworks, many of which are fundamentally anti-competitive. Then all the little buyers around the country are encouraged to use them, because they don’t have the skills or time to do procurement properly themselves.

The PAC report says this. “While we acknowledge that government has made progress to professionalise the commercial function at the centre, we are concerned that it has not sufficiently prioritised the need to develop that expertise across government, to ensure the successful implementation of the Procurement Act”.

I think that is a fair point. If Labour is serious about devolution, then it will be interesting to see if that strategic thrust is applied to procurement as well as to other policies and approaches. If so, Labour will need to spread the expertise that has been increasingly concentrated in Cabinet Office, break up large national frameworks, drive more competition, encourage a wider range of firms into the public sector supply base, and get more procurement expertise to the front line. Will that happen? I have my doubts, but we’ll see.

Anyway, the PAC report is worth 20 minutes of your time over the festive period. Enjoy… and happy Christmas!

The UK government’s Public Accounts Committee (PAC) which keeps a beady eye on government spend trained its attention on the Ministry of Defence last week. And PAC, made up of members of parliament from different political parties, was not impressed with what it saw. The PAC gets most of its ammunition from National Audit Office reports and investigations. It can then call “witnesses” to question in person. Sir Geoffrey Clifton-Brown, Deputy Chair of the Public Accounts Committee said this as the committee’s report was published.

“If the MoD does not act swiftly to address the fragility of its supply chain, replenish its stocks, and modernise its capabilities, the UK may struggle to maintain its essential contribution to NATO. The 2022-2032 Equipment Plan is already somewhat out of date. It doesn’t reflect the lessons emerging from Ukraine, more than a year in. And every year it’s the same problems – multi-billion-pound procurement problems. Equipment arrives in service many years late and significantly over-budget, and some of it just isn’t arriving at all. The MoD still does not have or seem to be able to attract the skills it needs to deliver the Plan”.

The MOD does not have a great track record when it comes to major capital spend for equipment in particular. The latest disaster (which we’ve covered here previously) is the £5 billion Ajax armoured car programme. Delivery of vehicles from the supplier, US manufacturer General Dynamics, is years late, there have been problems with soldiers suffering from hearing problems after using the test vehicles, and the MOD is in a commercial dispute with the supplier.

As usual, many people are keen to offer simple-sounding solutions. Clifton-Brown speaking on Sky News said that MOD should bring in more private sector procurement people. But many of the (huge) current procurement team in MOD do have private sector backgrounds, and frankly buying MOD kit is not really very similar to anything the private sector does. Indeed, high profile and extremely smart private sector folk such as Bernard Gray have tried to fix defence acquisition and largely failed. The problems are far deeper and more intractable than a bit of a capability shortfall.

To be clear, a lack of skills in procurement is an issue (but probably even more true for contract management and project management capability), but there are other harder-to-fix problems in terms of MOD acquisition, such as these.

A conspiracy between MOD, Treasury and the supply side to consistently under-estimate the cost of new equipment at business case stage in order to get it approved.
Competition between the services (Army, Air Force, Navy) which means bidding for new investment is competitive rather than collaborative – this plays into the previous point about misleading plans and budgets.
Cosy relationships between industry and MOD staff, bordering on the corrupt at times, with a “revolving door” which often makes MOD people cautious about “upsetting” firms that might one day be their own employer.
The desire to keep changing specifications post contracts – driven by the rapidity of technological advances and also the desire of MOD senior leaders to have “the latest kit”.
Perpetual uncertainty about the highest level strategies around maintaining the UK’s manufacturing and maintenance capability, and setting that against the concept of buying the best value for money kit off the shelf from whoever makes it.
Unwillingness of the best staff to go and work on what are perceived to be failing programmes.

These issues should be addressed, but its not all going to be sorted out by recruiting a few more decent procurement professionals from Unilever or Toyota.

Then we also saw stories last week about another MOD dispute with a supplier. Babcock is building a new low-cost (in theory) frigate, which will not only be used by the British navy but will be sold to other countries. However, MOD and Babcock are now arguing about the commercial details of the contract for 5 Type 31 general purpose vessels. Babcock has warned investors it could lose up to £100 million on the contract and there is an argument as to who picks up the bill for the escalating costs. It appears to be related to inflation increasing far more than expected, putting pressure on the supplier as the cost of steel and other items rises.

So the question seems to be this. Who in the contract agreed to take “inflation risk”? Now I would have expected this to be laid out very clearly – if it was not, then that was both Bad Buying and Bad Selling! Or just bad contracting. Then the problem may have arisen if Babcock foolishly agreed to take that risk, not thinking that we might see inflation at 10%+. MOD would be perfectly within their rights to tell the firm to just get on with it, but perhaps there is something more nuanced in the contract, as the parties are now apparently going to a dispute resolution process. We’ll watch with interest to see what comes out of that.

Tag Archive for: PAC

Competition in Public Procurement – Thoughts on the PAC Report

Committee Takes Aim at MOD Procurement