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Public Procurement Reform - a rapid evidence review


Chapter 2: Policy and legislative contexts – Scotland, UK and EU

The justification for procurement reform

Inefficiencies in spend and lack of data on spend

2.1 Within the last fifteen years, reviews of procurement have identified inefficiencies in spend and lack of data on spend. Audit Scotland (2009) argued that,

"Effective purchasing can lead to the release of cash and help the delivery of high quality public services" (Audit Scotland, 2009: 3).

2.2 Amongst other issues identified including those of lack of capability and capacity within the procurement profession, data on purchasing and procurement performance were found to be very poor and often inaccurate in public procurement. Evidence from the National Audit Office (2005), McClelland (2006 & 2012), Audit Scotland (2009), Scottish Government (2009), Scottish Government (2010b) to the Sir Phillip Green Review (Cabinet Office, 2010) identified gaps in data capture, the need for monitoring and evaluation of outcomes and examining impact in order to be able to detect where savings could be made. McClelland argued the need for good consistent, reliable management information in order to assess progress and also identified the lack of cost benefit data (McClelland, 2006: 29). As McClelland pointed out - trying to measure efficiencies in internal procedures and the effectiveness of procurement in achieving desirable outcomes were hampered by the data gaps (McClelland, 2006: 30).

2.3 There are a number of areas that McClelland (2006) identified for development that relate to improving data capture. To determine whether these areas have been developed successfully would require conducting a qualitative and quantitative review and evaluation of all public sector procedures and processes and this is out with the scope of this review. These recommendations, inter alia, included: to develop formal programmes of procurement internal efficiency measurement and management; the development of a standard set of key performance indicators to be used across the public sector; and the development of National Benchmarking and Best Practices Forum to help co-ordinate a procurement benchmarking programme (McClelland, 2006). McClelland also argued that information and performance data should be exchanged and shared across the public sector.

2.4 Examining Whitehall Departments, Sir Phillip Green's review was very critical of UK Government inefficiencies in spend and in holding spend data (Cabinet Office, 2010). Sir Phillip Green's review re-emphasised that good procurement should not be fixated on lowest cost as it should achieve an appropriate balance between cost, quality and sustainability (Cabinet Office, 2010). The Scottish Government's value for money triangle reflects this concept (Scottish Government, 2010b: 1 & 6-7). Two significant issues identified by Green and relevant to the Procurement Reform agenda more broadly were the issues of lack of centralised procurement systems and inconsistent commercial skills across Whitehall Departments (Cabinet Office, 2010: 5). Green found that there were significant price differences across government for the same product and this applied to a whole range of products from paper to laptops and property management (Cabinet Office, 2010 13-14 & 28). Hence, a range of recommendations for the UK Government arising from the Green review included: the need for centralised procurement; the need to produce accurate spend and consumption data; the need to price common items at the same level for all central departments; the need to manage down demand and specifications; and the need for civil servants to focus on cash when purchasing and apply the same principles as if the money was their own (Cabinet Office, 2010: 20). Equally, Green recommended that UK Departments adapt their budgeting method as they are not incentivised to spend less than the cash budgeted (Cabinet Office, 2010: 31).

Professional skills, capacity and capability

2.5 In 2006, despite the fact that McClelland identified that there had been some significant improvements in the previous three years, he argued there were still,

"[…] in many areas, weaknesses in resources, skills, organisation structures and practices which adversely impact upon achievement of minimum standards and obviously do not provide a good foundation for pursuit of Best Value and further cost savings through enhanced performance. These weaknesses are inconsistent with good governance and the strict accountability requirements of the public sector and need to be addressed urgently. As a result an investment in skills and resources is required" (McClelland, 2006: 7).

McClelland (2006) concluded that the public structures, people and technology were not in place to ensure good purchasing and that improvements were necessary (Audit Scotland, 2009: 3 & McClelland, 2006: 7-9 & 63).

Leadership, cultural change, standardisation and centralisation of procurement functions

2.6 Reviews of procurement also concluded that good leadership mattered and that cultural change and more standardised, centralised approaches to procurement within the public sector were needed to respond seriously to all the issues regarding corporate social responsibility (McClelland, 2006: 35; Cabinet Office, 2010).

Scottish policy context - procurement reform in the context of developing sustainable, economic growth and public service reform

2.7 The key priorities and drivers for procurement reform are outlined in the Scottish Government's Sustainable Procurement Action Plan (Scottish Government, 2009), the Sustainable Procurement Delivery Plan (Scottish Government, 2010a), the Procurement Reform Bill Consultation (Scottish Government, 2012a), the Programme for Government 2012-13 (Scottish Government, 2012b), the Procurement Reform Delivery Group Delivery Plan (Scottish Government, February 2012 Re-fresh & Scottish Government 2012d) and Scottish Government Procurement Strategic Plan (2012-13) (Scottish Government, 2012e). Linked relevant documents include: the Scottish Government's Community Benefits in Public Procurement Guidance Note (2008b); the Scottish Government's Procurement Policy Handbook (2008a) and the Scottish Government's (1 April 2009) Working with Small and Medium-sized Enterprises - A Buyer's Guide.

2.8 The Sustainable Procurement Action Plan for Scotland (Scottish Government, 2009) emphasised the need to build sustainable procurement into corporate cultures and procurement activity. It recognised the need for appropriate staff training and clear governance of the action plan to monitor and measure whether the actions were being achieved (Scottish Government, 2009: 3). The Scottish Government Sustainable Procurement Delivery Plan emphasised sustainability as one of the key strategic objectives of the reform programme capturing economic, social and environmental policies and underscored the need for a whole organisation approach, which would require leadership, commitment and capability (Scottish Government, 2010a: 5).

2.9 The Programme for Government (Scottish Government, 2012b) outlined the legislative plans for the forthcoming year and noted that,

"Securing economic recovery and creating jobs, reforming our public services and promoting fairness are at the heart of this Government's plans - and these objectives are central to this year's legislative programme" (Scottish Government, 2012: 5).

Of particular relevance to procurement reform is the recognition that reforming public services is a central aspect of government policy and this will involve more local, community and third sector involvement in service delivery to meet increasing demand for services with less resources (Scottish Government, 2012b: 13). Influenced by the recommendations of the Public Services Commission (2011) report, the Scottish Government highlights that it,

"[…] is creating the conditions for local action. Effective place-based partnership is key to creating financially and environmentally sustainable, effective public services which meet local needs" (Scottish Government, 2012b: 13).

2.10 The challenge presented to the public sector as part of wider efficiency drives is to deliver efficiency savings through organisational headcount reduction, LEAN management and through procurement reform (cf Walker, 2010 for a discussion of this context in relation to sustainable procurement). In essence, there is a need for more efficient systems, improved technology, sharing best practice and collaboration. The Public Services Commission sets out clearly the economic context and the challenges for the funding and delivery of public services in a mixed economy of service provision (Public Services Commission, 2011). It highlighted the following areas for action: (i) the need for community involvement and empowerment in decision making and in the delivery of public services; (ii) ensuring efficiency savings; (iii) the need to shift towards tackling the causes of social problems and moving away from 'reactive spend' to 'preventative spend' (and to address failure demand); (iv) the need for public services to become outcomes focussed; and (v) improve data on outcomes and collaborative working and shared service provision (Public Services Commission, 2011: x, vi, 7, 18, 21-22, 30, 54 & 65-66). The Public Services Commission concluded,

"Addressing these systemic defects [within public sector delivery] will require a fundamental overhaul of the relationships within and between those institutions and agencies - public, third sector and private - responsible for designing and delivering public services" (Public Services Commission, 2011: viii).

2.11 The Public Services Commission noted that it may take until 2025-26 for the Scottish budget to return to its 2009-10 levels in real terms - an adjustment period of 16 years, meaning that a shortfall over that period is approximately £39 billion (Public Services Commission, 2011: 14). As the OECD argued,

"Effective evaluation of policies and programmes to stimulate innovation has become increasingly important for policy makers given constraints on discretionary public spending, a greater focus on accountability and transparency in policy, and the desire to minimise distortions arising from government actions, while maximising their impact" (OECD, 2011: 56).

The procurement reform process is set within this economic context and these socio-economic challenges and thus, underscores the need to continue to build momentum with the reform agenda.

Key components of the procurement reform agenda

2.12 The key components of the procurement reform agenda developed in response to critical reviews of procurement and can be categorised into two broad strands: (i) improving procurement systems and processes (especially e-procurement, e-commerce and standardising IT tools); and (ii) improving the profession (capacity, expertise and capability building) both requiring resources, training and cultural change.

2.13 Central to these aspects are the principles of sustainability, transparency, equity and fair access to public sector contracts, non-discrimination and ensuring best value (Scottish Government, 2010b). It is now a well-established part of the procurement reform agenda that public procurement should be used as a vehicle for achieving wider environmental, social and economic policies (through community benefit clauses). The Scottish Government (2008b), Cabinet Office (2012), Public Services (Social Value) Act 2012 and the Local Government Association (2011) are all supportive of trying to achieve economic growth, wider social, economic and environmental benefits through good procurement. This aspect of the reform agenda acknowledges the progressive role that procurement can play in encouraging the collaboration and integration of linked policy objectives in the current context of diverse environmental, social and economic challenges. Constrained budgets have raised the importance of encouraging flexible resourcing, shared service provision, improving opportunities for better collaboration, identifying and sharing best practice and enabling continuous improvement (Public Services Commission, 2011).

The Strategic Plans of the four Scottish Procurement Centres of Expertise

2.14 Building on reform progress to date, the Scottish Government's four main priorities in procurement reform are:

  • embedding sustainability in all we do;
  • improving suppliers' access to public contracts;
  • maximising efficiency and collaboration;
  • delivering savings and benefits (Scottish Government, 2012e, & Scottish Government, February 2012 Refresh).

2.15 The current strategic plans of the four Scottish Procurement Centres of Expertise are very similar in terms of strategic priorities with no significant departures regarding direction of travel. National Procurement, Scotland Excel and APUC are all supportive and recognise the need for continuing with the procurement reform agenda, improving access to public contracts, maximising efficiency and collaboration and delivering savings and benefits (namely the actions embedded within the Scottish Government's four key priorities). Both NHS National Procurement and APUC make reference to working within the context of the Scottish Government's seven Cs (capability, competitiveness, capturing savings and benefits, coverage, collaboration, corporate social responsibility and communications) (APUC, 2012; NHS National Procurement, 2012; Scottish Government, 2012; Scotland Excel, 2012).

2.16 All four plans underscore the need for collaboration and finding procurement solutions within the context of reduced resources, greater demand for services, the mixed economy of service provision and the drive for greater community involvement in the delivery of services (cross reference with the Public Services Commission, 2011). In particular, Scotland Excel discusses the importance of building community resilience and community involvement to help develop solutions to current social and economic challenges (in the context also of Scottish Government's Community Empowerment and Renewable Bill). Within all four plans, there is some indication of what successful outcomes would involve (in terms of systems improvements and savings) but little detail on how to measure, monitor and evaluate outcomes/effects of activities (that is, how will we know what is working and why?) (APUC, 2012; NHS National Procurement, 2012; Scottish Government, 2012; Scotland Excel, 2012).

Scottish legislation

2.17 The Public Contracts (Scotland) Regulations 2012 transpose the EU Directive into Scottish domestic law. See Zero Waste Scotland (19 April 2012) for a discussion of existing and proposed Scottish, UK and EU legislation and regulations, which might have an impact on the development of the Scottish Procurement Reform Bill.

2.18 The Scottish Government Procurement Policy Note 'Equalities - Duty to consider award criteria and conditions in relation to Public Procurement' outlines the need for Scottish public authorities "[…] to have due regard to the inclusion of award criteria and contract performance conditions which will help them to better perform the general equality duty" (Scottish Government, 2012j). The Procurement Reform Bill will need to consider this public procurement specific duty in mainstreaming equalities as the Bill develops.

2.19 The current Community Empowerment and Renewable Bill might have implications for public procurement processes within the constraints of the Public Contracts (Scotland) regulations given the focus on the role of communities to decide priorities for the delivery of services. The Public Services Commission argues that,

"Reforms must aim to empower individuals and communities receiving public services by involving them in the design and delivery of the services they use" (Public Services Commission, 2011: vi & 30-60 - see detail in report on involving communities).

2.20 A question for central and local government is - how to allow 'communities'/service users (as entities and in what form) to access public service contracts and to be involved in the delivery of services (See also Scott et al (2012) for an analysis of the responses to the Community Empowerment and Renewal Bill Consultation)? The Public Services Commission (2011) is not exactly clear on what would be involved to achieve community empowerment and what resources would be needed. It states that in terms of improving procurement and commissioning, organisations should be,

"[…] reorienting commissioning further towards outcomes and away from tight specification of service volumes (e.g. hours of activity) and costs; and improving transparency around comparing competing providers" (Public Services Commission, 2011: 65).

Audit Scotland (2013a) argues that the Community Empowerment and Renewal Bill will require greater participation by citizens including decision making about local services. Community planning partnerships might have to procure local services and this will require them to consider the ability of local communities and third sector organisations to deliver services (Audit Scotland, 2013a: 14).

EU policy context

2.21 All MS operate within the EU Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the co-ordination of the procedures for the award of public works contracts, public supply contracts and public service contracts. The EC Treaty applies to all public procurement activity irrespective of value, including contracts below the thresholds (above threshold levels requires publication in OJEU) and contracts exempt from the EC Procurement Directives (Scottish Government, 2008a: 15). The fundamental principles applying to procurement include: transparency; equal treatment and non-discrimination; proportionality and mutual recognition (Scottish Government, 2008a: 15 & cf also Aiton et al, 2012).

2.22 The EC is currently revising its Directives on public procurement and procurement in the Utilities sectors and creating a new Directive on the award of concession contracts as part of its modernisation agenda (European Commission, 2011a, b & c). The EC's key proposals are outlined in the Scottish Government Procurement Policy Note (Scottish Government, September 2012 & cf European Commission, 2011a, b & c). Some proposals (inter alia) include: shorter deadlines for submitting expressions of interest and tenders; reducing the length of the procurement process; mandatory use of electronic communication; a lighter regime for public bodies out with central Government; a new procedure to encourage innovation; division of contracts into lots; use of references to demonstrate experience; changes to the rules on excluding suppliers; changes to contract award criteria and ability to require specific labels certifying environmental, social or other characteristics. All of these proposals could potentially impact on the Scottish policy and legislative context in relation to the six themes around which the Procurement Reform Bill is constructed (Scottish Government, September 2012). As discussed later, some of these issues could present solutions or barriers/more challenges to trying to act on the six themes of the Bill.

2.23 The Scottish Government outlined that agreement on the new EU Directives would not likely be reached until early 2013 at the earliest and that the current proposals require Member States to transpose the agreed texts into national legislation within 18 months of their publication in the OJEU (Scottish Government, September 2012: 3-4). Recent EU developments suggest a later timeline, with the new EU Directives more likely to be reached by late 2013 and an additional two years for transposition into national legislation.