What’s going wrong with government procurement?

It has not been a good week for the Crown Commercial Service (CCS), the Cabinet Office agency responsible for government purchasing

It has not been a good week for the Crown Commercial Service (CCS), the Cabinet Office agency responsible for government purchasing.

Anybody with experience of large-scale corporate procurement would surely have some sympathy for a team tasked with making sense and consistency out of the vast complexity and legacy of government purchasing.

CCS was set up after the government brought in TopShop owner Philip Green in 2010 to write a review of Whitehall buying practices. Green discovered “shocking” inefficiencies – particularly in IT purchasing – with departments locked into contracts that were no longer relevant, and different parts of government paying wildly different prices for identical products and services.

CCS was subsequently set up to centralise all purchasing, eliminate duplication and act as a single entity for all central government procurement – with all the negotiating strength that implies. It can claim successes such as new deals with Microsoft and Oracle to reduce software licensing fees across the public sector.

But in the past week, CCS has been labelled “dysfunctional”, accused of undermining government policy to increase the use of SME suppliers and fallen out with the Government Digital Service (GDS)

What has gone wrong?

They are perhaps the last and least forward-thinking people in government

A critic, of CCS

Changing times

CCS critics say it has failed to move with the changing times. They say it is persisting with old-fashioned, commodity-oriented practices no longer appropriate in a world of agile and digital. “They are perhaps the last and least-forward thinking people in government,” said one source.

Tom Hadley, director of policy and professional services at the Recruitment and Employment Confederation (REC) – which has met with CCS to discuss the concerns of its recruitment agency members – highlighted a particular problem of using the same approach for both low-value clerical workers and highly skilled staff, such as developers. “The biggest single learning for us is the difficulty of having one contractual platform to cater for high-volume roles and highly specialised services like IT management,” he said.

The Digital Service Framework (DSF) – a comparatively small but strategically important agreement for obtaining software developers to support agile projects – has seen a revolt by suppliers who say DSF restricts their ability to bid for work, and is inappropriate for the iterative, interactive nature of agile development. As a result, only £6.7m has been spent through DSF so far, compared to the £40m spend expected.

CCS has been particularly criticised for forcing buyers and suppliers to use DSF by banning purchases of digital services previously available through other frameworks, such as G-Cloud and Consultancy One. CCS was forced into an embarrassing climb-down, with G-Cloud chief Tony Singleton confirming yesterday that agile development services will now remain available under G-Cloud 5, despite the recent conclusion of a process to set up a second version of DSF.

Favouring large suppliers

More controversially, CCS has been accused of favouring large suppliers, in spite of a government policy to increase the amount of spend put through SMEs – across Whitehall, the target is 25% of spending to go through SMEs; for IT purchasing the aim is 50%.

G-Cloud has shown it is possible – in January 2015, more than half of the £467m spent through the cloud services framework went to SMEs. But more widely, large companies still dominate – giants such as Serco and Capita have increased their share of government outsourcing, from 40% from 2002-2005 to 61% since 2010. Just six suppliers still take the lion’s share of IT spending - £4.2bn between them in 2013, thanks to long-term outsourcing deals that have yet to expire.

The Cabinet Office says it is on track to hit the 25% target – its latest figures showed direct SME spend across all categories increased from £3bn in 2009/10 to £4.5bn in 2012/13, representing 10.5% of spend. So-called “indirect spend” – SMEs working as sub-contractors to large suppliers – made up a further 9.4%. The latest figures charting progress to the SME spending goal are expected to be released next week.

In particular, CCS has been accused of having too close a relationship with outsourcing giant Capita. Yesterday, Computer Weekly revealed that SME IT services suppliers have lost tens of millions of pounds in business after refusing to sign up to the £2.45bn Contingent Labour One (CL1) agreement managed by Capita for providing temporary staff. The SMEs cite contractual clauses they say allow Capita to poach staff by banning restrictive covenants; prevent them from competing for business through potentially illegal non-compete terms; and could eliminate them from the market for government temporary staff altogether.

That story followed revelations last week that CCS and Capita had been accused of similar behaviour – over a smaller, £250m contract for civil service training – that led to some SMEs being forced out of business.

Not acceptable

Cabinet Office minister France Maude told the House of Commons that such a situation was “not acceptable”, and has promised an investigation. Both CCS and Capita say they fully support the SME strategy, with the supplier pointing to 60% of business on CL1 that has gone to SMEs.

The SMEs that complained to the Cabinet Office about CL1 are particularly aggrieved about the contentious clauses in the contracts they are forced to sign with Capita – but Capita said those clauses were approved by CCS.

The Cabinet Office said it has listened to the concerns raised by SMEs and intends to improve contracts concerning the supply of digital skills. It also said CCS is working with its legal team to ease SMEs' concerns, particularly with issues around restrictive covenants and contract indemnities.

But there remain some very angry and frustrated SME suppliers who believe CCS’s actions are at odds with its stated intentions. They are worried enough about the attitude of some CCS executives to insist on anonymity, for fear of repercussions when bidding for contracts in the future.

Some sources believe there is a deliberate plan to eliminate middlemen such as IT services suppliers and recruitment agencies from the CL1 supply chain, cutting costs by directly engaging with temporary workers. There is nothing to suggest Capita is deliberately engaged in such behaviour; but some SMEs point to an old framework, called Cipher – where they were forced to transfer staff to Capita without compensation – as setting a precedent.

Supplier backlash

The Cabinet Office has declined Computer Weekly’s requests to interview key CCS staff, saying only that it is “looking into” the issue and has nothing further to add. The department highlights rules coming into force on 26 February 2015, under the Public Contracts Regulations 2015, which aim to make public procurement “more accessible to small businesses and demonstrate government’s commitment to helping SMEs”.

With government support for SMEs under scrutiny in the run-up to the general election in May2015, there is much sensitivity around the subject. A supplier backlash has already forced CCS procurement chiefs to review the agreements and processes they put in place: “We are more upbeat about the situation than we were a few months ago. Discussions have been more progressive recently and the concerns of suppliers have been taken on board,” said REC’s Hadley.

With billions of pounds of large IT outsourcing deals concluding in the next few years - Francis Maude has pledged to eliminate them all by 2020 - the opportunities for SMEs and the benefits of more agile, digital approaches to purchasing are clear. CCS will be tested like never before.

But it seems increasingly likely that, once the election is out of the way, significant changes in the government’s procurement strategy are inevitable.

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