23 January 2007

Speech by the Financial Secretary to the Treasury, John Healey, to the Best Value in Public Sector Procurement conference at QEII centre, London

Good morning.

One of the wonders of the old writing technology - not to mention parliamentary procedure - is that, at this very moment, I am also making a written statement to the House of Commons and laying a copy of our report Transforming Government Procurement in the Commons library.

That constitutes its formal release to Parliament; and it is also available here at the conference and on the Treasury website this morning.

This is the reason that I wanted to join you now. Though I regret that I can't stay longer, as I have to lead 5 hours in legislation committee on the new statistics bill today, starting in less than an hour.

The report speaks for itself. It is a powerful plan. But to understand the transformation we plan, it is important to know the view we take in government of procurement.

Contrary to the way it has been seen by many in the public sector in the past, procurement:

is not only buying
is not simply securing the cheapest deal
is not just a job.

You as procurement specialists will grasp this immediately and grasp it better than many of your public sector colleagues.

The importance of good procurement

The fact is: good procurement is essential to good public services and good government...and to greener government and services too.

It is a profession. And those involved in procurement in the public sector are responsible for the means to help secure more important ends - to cure more people, to provide better education, to make our streets safer, to make our public sector buildings or vehicles cleaner ... that is bringing about the reforms necessary to deliver world-class public services and to do so at the best value to the taxpayer.

The public sector spends around £125 billion a year on procurement. Put another way, this is around 60% of departmental spending allocations, which bluntly makes the point about the central role that you play. We need to harness better the benefits that businesses can offer through their commercial expertise and ability to innovate, through a procurement function that is increasingly adaptable, flexible and knowledgeable about the commercial world.

And the £9 billion of sustainable efficiency gains that need to be achieved by departments through procurement by next year as part of this spending review period demonstrates the potential that exists to deliver these services more effectively.

To put it in perspective achieving these savings - for which we are on course - means resources sufficient, for example, to buy over 530 new schools or resources sufficient to cover the combined budgets of DfID and DEFRA.

That is why every purchase, every contract, and every gain counts.

And one fact of life for us all, is that the pressure to deliver improvements in efficiency will not be confined to this target, this year, or this spending period.

So as we prepare for the Comprehensive Spending Review (CSR) later this year, expectations of what government can achieve through procurement on efficiency savings, on improved services and on environmental gains will be greater than before.

The Government has declared its determination to be at the forefront of sustainable procurement, when the Prime Minister announced in June a range of targets for the sustainable management and operation of government - cutting emissions, waste, use of water and making the government estate carbon neutral by 2012. The OGC will help to deliver this commitment, and help departments develop the expertise to value whole life costs and benefits.

This is what we mean by "good procurement" in the Treasury and Office of Government Commerce. Good procurement is sustainable procurement.

Procurement and the CSR

The pursuit of value for money for the taxpayer must remain uncompromising. We must make sure the Government's procurement billions are better spent.

So the CSR will put further priority on departments and procurers to exploit the opportunities that are increasingly available through innovative procurement methods and from the latest products and services, to ensure that procurement is built on the principles of value for money and sustainability.

However, while procurement is increasingly recognised as playing a more strategic and central role in public service delivery, I think it is fair to say that the change of approach required within government to deliver this is not yet universally in place.

Through the CSR and through the reforms set out in this report, I expect accounting officers and ministers to take a much closer interest in their departmental procurement, as we raise the general standard of government procurement to the level of the best.

Today's report Transforming Government Procurement sets out the steps we will take to meet these goals.

It is the first major reshaping of government procurement since the OGC was established in 2000 under Sir Peter Gershon.

Procurement expertise in government

First, we need to raise the level of skills by transforming the Government Procurement Service itself:

The OGC Chief Executive will head a reinvigorated service across Government, modelled in line with the established Government Economic Service and the Government Statistical Service;
His professional links with the commercial directors and heads of procurement in departments will be strengthened;
The GPS will be more flexible, with resources concentrated where they can best be deployed by facilitating secondments within the public sector and between the public and private sectors;
There will be common standards and skills sets across government procurers, through more systematic training and development; and
There will be a new graduate entry route into the civil service.

Procurement priority for departments

Government departments are accountable for buying the goods and services they need to deliver public services efficiently and effectively - everything from the purchase of pens and paper to commissioning new hospital or technology projects.

So secondly, as well as recruiting and developing the right quality of procurement professionals, departments will:

Give a clear direction from the top of the central importance of procurement in delivering their objectives;
Set out a clear procurement framework of standards and processes, that are consistent with OGC best practice and that they will follow in their procurement operations; and
Collaborate with cross-government procurement initiatives, such as single source purchasing, minimum standards, supplier performance assessment and data collection.

Thirdly, the OGC's Gateway Reviews are now well established, with more than 1350 having been completed to provide advice and assurance from independent experts to assist in the successful delivery of programmes and projects across government.

However, still more is required to improve the performance of the most complex policy programmes. Today's report therefore sets out plans to establish a Major Projects Review Group in the Treasury, composed of commercial experts from within government, which will, aligned with the Gateway process:

Examine projects at the early stage of development, to identify issues that are likely to be critical to their subsequent deliverability and affordability;
Review projects before tender, to test that the specification is clear, all procurement options have been explored, and prospects of success are realistic; and
Check contract decisions before contract signature are likely to deliver what is needed on time, within budget and with value for money.

Procurement and the market

Where appropriate, the Government will look to use much more actively its collective buying power to drive out better value for money, developing coherent strategies for categories of procurement and working with suppliers to develop market capacity to meet government needs where required.

Many of the steps set out in Transforming government procurement have been recommended by specialist reports or business organisations like the CBI who have called for Government to become a more intelligent client for suppliers and advisers to deal with.

To underwrite these promises to suppliers, the OGC will be an avenue of recourse should the higher standards of procurement in Government not be upheld. Suppliers will be able to report any concerns to the OGC and, where complaints have merit, the OGC will pursue them with the relevant departments on their behalf to see that corrective action is taken.

Procurement and OGC reform

To meet these challenges and opportunities the OGC will have stronger powers to:

Set out the procurement standards departments should meet;
Monitor departments performance through procurement capability reviews, and ensure remedial action is taken where required; and
Demand departmental collaboration when buying common goods and services, including via OGC buying solutions, the Government Procurement card and other single source purchasing.

To achieve these changes the OGC itself requires reform. It will become a smaller, more focused, higher calibre organisation, with the skills and authority needed to drive through the necessary transformation in central government, where its levers are greatest.

Over the past three years the OGC has also worked with local government to improve procurement in the wider public sector. Many of the best examples in public procurement come from local authorities, who are generally closer to the needs of users and their public services.

Regional Centres of Excellence and local buying consortia - often known as professional buying organisations - are now in place, providing tailored guidance and services to their local authority customers, as is a National Procurement Programme, co-funded by the Regional Centres and the DCLG.

This programme aims to unlock millions of pounds from local government procurement, and the recent link-up of five leading professional buying organisations with the National Procurement Programme to make deals available across local government should assist further.

Finally, of course, the OGC will continue to lead on procurement discussions and negotiations at World Trade Organisation and the EU level, and to provide general expertise on Directives and procurement law.

So in conclusion the reforms I have announced today, set out in more detail in Transforming Government Procurement, demonstrate our determination to ensure that procurement drives further improvement in our public services to match the public's rightly held high expectations of Government.

This is a major challenge over the next few years, which will depend on the combined dedication of procurement professionals and changes in government more broadly to bring about.

I look forward to working with you to do so.

Thank you.