Written submission from the Local Government Association (LPG 17)

Overview

1. This response is from the Local Government Association (LGA).  It is submitted on behalf of local government with contributions from councils, the National Advisory Group for local government procurement (NAG), the Society of Procurement Officers in local government (SOPO) and the Professional Buying Organisations (PBOs).

2. Councils have long recognised the importance that procurement can play in ensuring value for money. This is particularly important at a time when local authorities are facing a challenging period with a 42 per cent real terms reduction in funding across this Parliament and a widening financial black hole of £2.1 billion a year. Individually and collectively councils have prioritised efficiencies from smarter procurement.  For example:

• Staffordshire County Council saved £7.9 million in cashable procurement savings in 2012/13, of which £2.8 million was cashable savings through contract renegotiation. So far in 2013/14 financial year an extra £6.5 million of cashable savings, of which a further £1.4 million is through contract renegotiation, has been achieved. 
• Using skilled procurement professionals the County Council saved South Staffordshire District Council £1.2 million in cashable savings. This has also now led to Stafford Borough and Cannock Chase District Councils joining up with the County on procurement.
• Good practice in collaboration and using procurement to drive efficiencies can be seen by the thirty-three West Midlands councils working with Improvement and Efficiency West Midlands to deliver £106 million in innovative procurement savings over a six year period.
• The East of England LGA worked with nineteen authorities in their region, in partnership with colleagues from the Government Procurement Service, to identify savings of up to 36 per cent in the procurement of their postal services contracts. This is a cash savings opportunity of £575,000 achieved by using a mixture of ‘quick win’ ideas that could be implemented immediately and longer term contract renewal strategies. Many of these authorities are now engaged as stakeholders in the renewal of the national Postal and Courier Services contract led by GPS / PRO5.
• Improvement East, now part of the East of England LGA, worked with three large County Councils (Hertfordshire, Cambridgeshire and Northamptonshire) on a collaborative renewal of their contract for Banking Services. Despite some market resistance and a perceived issue regarding the cost of change in this market when switching to a new supplier, the Councils were able to achieve immediate savings in excess of £500,000 per annum and are on target to achieve additional efficiency benefits from the new contract in the region of £900,000.

3. The LGA’s mission is to support, promote and improve local government. This includes working with the sector to help councils maximise the benefits from their procurement spend.  The LGA has supported the following projects:

• The setting up and supporting of the National Advisory Group for local government procurement.[1]
• The development of the local government Procurement Pledge..[2]
• The funding of council led collaborative projects.
• The development of the National Procurement Strategy (NPS).
• The funding and support of a number of workstreams to deliver the NPS including strategic category management of Energy, Construction and ICT procurement; and contract management.

4. It should be noted that local government procurement is not always straightforward as there are often competing demands, drivers and pressures. These include:

• Dealing with significant reductions to finances and increasing demand, recognising their need to use their spending power wisely and strategically.
• Using procurement to drive local economic regeneration, deliver value for money and social value.
• Being legal sovereign bodies with their own standing orders, financial policy, delegating powers, procedures and safeguards.
• Holding a democratic mandate making councils answerable to their local residents and communities. They need to be able to respond to local circumstances which may not be the same in other councils or recognised as a national priority.

Value for money

5. Local government understands the important role that procurement can play in delivering value for money and seek to ensure that they:

• Procure the right services and goods at the right price.
• Make procurement decisions to support local economic growth through promoting and supporting local businesses and voluntary sector organisations.
• Make efficiency savings through streamlined procurement processes and more effective collaboration with other councils and suppliers of goods and services.

6. Councils are increasingly using procurement to consider how procurement might improve the economic, social and environmental well-being of the relevant area.  The General Power of Competence (GPC) gives councils increased confidence to do creative and innovative things to meet local people’s needs.  For example, Oxford City Council is using the GPC to develop a schools improvement support programme,[3] whilst other councils such as the Association of Greater Manchester Authorities (AGMA) and Peterborough are using the GPC to promote energy switching schemes. 

7. Local government places great importance on using its procurement activity to support local economies, in particular supporting local small businesses and voluntary sector. On average 47 per cent of council spend is with SMEs.[4] Councils have actively taken steps over the last few years to introduce a number of measures to support local SMEs and voluntary sector organisations bid more effectively for council contracts.  For example:

• Specific procurement policy to promote local suppliers for example ‘Buy for Good’ in Birmingham ‘Responsible procurement’ in Lambeth or ‘Find it in Sandwell’.
• Specific activities to help smaller organisations including:

• pre-procurement engagement such as supplier open days,
• training sessions,
• disaggregating large value contracts into smaller ‘lots’
• payment policy and targets to pay invoices to suppliers in a timely fashion: the FSB[5] report identified that, 68 per cent seek to pay suppliers in less than 28 days,
• using regional and national portals for advertising contracts such as through ‘The Chest’ and ‘NEPO Portal’.

8. The recent Department for Business Innovation and Skills ‘Best Councils to do Business With’ scheme, highlighted how councils have actively set out to promote local suppliers successfully bid for more council contracts. One example is Halton Borough Council who spend 80% of their procurement spend with local suppliers.[6] They procure a wide range of goods and services including; energy and other utilities; computers and telephone hardware and services; vehicles and transport services; social care and health services; catering services for schools and meals on wheels; and construction and maintenance services.

9. Councils seek to minimise red tape for suppliers by making use of a range of existing approved supplier’s lists, and procurement frameworks which have been put in place and are managed by councils and the PBOs. The NEPO single source Neutral Vendor framework contract for a managed service for temporary agency workers now implemented in eleven organisations in the North East saving some £5million to date.  The contract replaced traditional multi supplier framework arrangements that were historically difficult to manage; suffered high levels of off-contract spend, and were closed to new participants for the duration of the framework. The arrangement provides a level playing field for all supplying agencies signing up to supply temporary workers into the arrangement, thereby supporting local SMEs and new entrants to the market (there are 120 supplying agencies signed up of which 85 have supplied workers).

10. Local government regularly collaborates and aggregates its procurement spend with other councils and through buying partnerships and the PBOs, across a number of spend categories. For example AGMA have recently developed a contract for mobile voice and data that will save £750,000 using the GPS Framework. Cambridgeshire County Council and Northamptonshire County Council created LGSS in 2010 that is a shared service covering all back office transactional and professional support services including procurement.[7]  Since its creation LGSS has expanded to provide services to a number of other councils including Norwich City Council and Northampton Borough Council. In relation to procurement, LGSS as a shared service now provides full procurement support to a number of councils through a single procurement team ensuring:

• Value for money is achieved through committed consolidation of spend.
• Significant reductions in the cost of the procurement function to individual councils whilst increasing the capability of the team through sharing resources.
• Providing the optimal balance between addressing local economic objectives whilst sharing resources to ensure the capability and capacity exists to drive efficiencies, value of money and develop effective supplier relationships.   

11. However, aggregation is not necessarily the best solution as it does not always guarantee lower costs and can have a detrimental impact on local jobs. In situations where a few large suppliers dominate the marketplace and where global reserves and market speculators dictate the prices, then even if there was one buyer for all of government it still might not guarantee lower costs.

12. Councils regularly consult their residents and businesses to ensure that they are delivering value for money. There are a number of examples of councils involving local residents in delivering value for money including the London Borough of Camden and Holy Cross Centre Trust (HCCT) where they have designed the provision of mental health day services on an ‘outcomes based commissioning’ approach. Elsewhere Oldham Metropolitan Borough Council commissioned its children’s centres based on need and outcomes that were specific to the area by engaging with the local community. This enabled the council to develop what the future delivery model should look like whilst taking a cooperative council approach as well as delivering savings.

Relationships

13. Councils recognise the value of building good working relationships with their suppliers in all sectors and for all contract values.  They engage with suppliers both to better understand the market and develop their thinking about what and how they will procure. They also support suppliers understand the procurement process.  An example is Wiltshire Council where they have worked closely with local suppliers to reduce the costs of supporting older people. By replacing the traditional community care approach (i.e. suppliers delivering a standardised package for all users), they jointly developed an integrated system of care and support, specifically tailored to meet an individual’s need, called Help to Live at Home (H2LAH). This pays providers to deliver agreed outcomes, specifically aimed at helping the customer to live independently.

14. Relationships are further developed post procurement when the contract is in place where councils actively work with their supplier to manage the contract. This requires close working from both parties, having appropriate resources in place and a shared understanding of responsibilities and deliverables to help manage both costs and the quality of goods and services being delivered.

15. To assist with promoting the importance of contract management, the LGA will be publishing shortly ‘Making savings from Contract Management’, a document which  captures a number of examples of good practice from different councils, the benefits this has helped them achieve, and an outline of the Principles of Good Contract Management.  Local government feel this is becoming more important as resources become scarcer.

16. Examples of good contract management practice include the comprehensive corporate approaches developed and implemented in Sheffield City Council and Essex County Council to manage all high value contracts, through to the more tactical approaches applied  by the likes of Allerdale District Council to review and renegotiate existing contracts to reduce their costs.

Collaboration

17. There are a range of collaborative arrangements in place nationally, regionally and sub-regionally. Councils are very well served by the Professional Buying Organisations (PBOs) including; Pro5,[8]  Government Procurement Service (GPS) and a number of collaborative buying arrangements including those supported by AGMA, London Councils, LGSS and Procurement Lincolnshire.

18. These bodies set up and manage framework contracts with and on behalf of the public sector.  This enables councils to select from a number of suppliers who have already been through an initial pre-qualification procurement exercise and therefore the council can either run a shortened procurement exercise or make a direct award where appropriate, saving time and money.

19. Examples of buying arrangements supported by the PBOs include; the buying of energy where GPS buy on behalf of 82 councils (as well as for central government departments) and Laser buy for 72 councils (as well as for a range of other public bodies). In total, some 313 councils purchase their energy through eight consortia.

20. In addition councils collaborate with each other on specific procurement exercises. This includes situations where there is no appropriate existing framework arrangement they can use, and in designing new frameworks that other councils can  use  as well by adding ‘local authorities in England’ as participating bodies to the framework. To help maximise the benefits from collaborative procurement, the LGA together with NAG has implemented a programme to build on the findings from the NPS to support better strategic category management.

21. The LGA is funding three workstreams in the big spend categories of energy, construction and ICT procurement. These are looking at how the sector can collaborate more effectively to: understand the markets; work better with the suppliers; quantify future planned spend; map and promote existing frameworks; and identify opportunities to make savings.

22. The LGA has also facilitated the 87 councils, who received funding from the Department of Communities and Local Government under the Weekly Collection Support Scheme, to work together with the PBOs and suppliers to achieve better value for money on the procurement of refuse vehicles, bins and consumables.  The learning and best practice will be rolled out to all authorities in September 2013.

Public Finance Initiative (PFI)

23. For local government in England, the Public Finance Initiative (PFI) became a major, central government sponsored programme spanning, at its peak, the majority of council services including street lighting, schools, joint service centres, libraries, waste infrastructure, housing and social care initiatives. In more recent years, the flow of PFI funding slowed and in December 2012, the Treasury announced a new policy named PF2 which would replace the PFI.  Whether PF2, as it is described in the Treasury’s guide, becomes a more popular choice for local authorities in the future depends to a degree on whether PF2 provides access to otherwise unavailable or scarce new funding to pay for public infrastructure projects.

Skills

24. Councils have access to the Local Government Association who have provided local government peers (officers and members) to councils; private sector procurement and contracting experts; and who have coordinated the ‘one voice’ for local government procurement: the National Advisory Group (NAG).

Strategies

25. Procurement is used strategically to inform policies, processes and procedures that will deliver on their overall objectives for their residents. Their procurement objectives should have clear messages about: delivering value for money; supporting local economy growth and implementing efficient and effective processes.

26. Examples of councils that have published clear procurement strategies that ensure their buying power is maximised for the benefits of their communities include:

• ‘Buy for Good’ in Birmingham.[9]
• Hampshire County Council.[10]
• ‘Responsible procurement’ in Lambeth.[11]
• Find it in Sandwell.[12]

27. These initiatives are not new; they complement the Office of the Deputy Prime Minister/LGA National Procurement Strategy of 2003 which helped encourage a strategic approach to procurement.[13]  Most council procurement functions should have a clear strategy on their overall spending as good practice.  The impact reports on the implementation of the NPS 2003 can be provided on request.

28. The new NPS highlights the importance of getting ’procurement at the top table’ helping senior officers and elected members recognise the important role procurement has to ensure it gets the resources and scrutiny it needs to be effective.  To support this, the LGA’s Improvement and Innovation Board has identified a Councillor and a Chief Executive to lead on procurement.  Both work with LGA officers and NAG to help better engage chief officers and elected members, promoting the importance of procurement. The LGA has also recently revised and published the Councillor’s Guide to Procurement.[14]  

Expenditure and analysis

29. Councils publish spend above £500 on their websites as part of the Open Data requirement.  In the FSB report (see above), it was noted that 70 per cent of councils record the amount of spend with their own boundary and that 60 per cent of councils record the amount of spend with SMEs.

30. As part of our work to support collaborative working, the LGA funded Newcastle City Council working with NEPO to develop a Strategic Spend tool.  This is a web based tool which enables councils to analyse and compare supplier payment data at both a council and regional level. They can also analyse spend by supplier and identify if it is with an SME or a voluntary sector organisation. This tool is now live in the twelve North East councils and already providing data and analyse for 2012 - 2013 spend. The aim is to make this tool available to all councils who wish to use it. 

31. Councils use a range of different spend analytics tools and data analysis services including those provided by GPS which enables councils to capture and log their spend data, and then use this to carry out separate analyse. Spikes Cavell provide a service to councils which cleanses their spend data and presents it in a report.

32. The LGA works closely with the Society of Procurement Officers (SOPO) and with the Chartered Institute of Purchasing and Supply (CIPS), to make the Corporate Award Programme more accessible for council’s procurement officers to train and build procurement capability.

33. The LGA is working with the Cabinet Office to develop commissioning skills on a place basis across the public sector. The Commissioning Academy aims to bring together commissioners from a variety of organisations to work together on commissioning issues.[15]

Risk

34. Councils have to ensure they spend public money transparently and fairly. They analyse the most appropriate route to market to procure the required goods and services cost effectively, including whether to use an existing framework, or go out to tender. They also need to adhere to their own council’s standing orders and EU Procurement Regulations. When carrying out a procurement exercise, officers have a responsibility to consider and address a number of risks including the potential impact of supplier’s insolvency, service failure and additional costs.

35. Spending reductions have reduced opportunities leading to an increased propensity for suppliers to challenge external contract decisions, some procurement officers may therefore interpret their council’s standing orders and internal procurement guidance very strictly or require potential suppliers provide details which may seem onerous.

36. The LGA’s work to put ‘Procurement at the Top Table’ will help ensure senior officers and elected members oversee and support procurement and that they have a procurement strategy which recognises the importance of risk management.

37. The LGA and NAG are working with CIPS to look at education and training options for the sector which will also help to raise the importance risk, contract and client management.

Client and contract management

38. Contract management is high on the sector’s agenda and recognised as essential for effective client management and to enable councils review and renegotiate their existing contracts should circumstances change or savings need to be made. With the support of the LGA Productivity Expert scheme, Allerdale Borough Council recently reviewed a number of existing contracts and as a result saved £2.3 million.[16]

Regularity and propriety

39. All councils have standing orders, contract procedure rules, schemes of delegation and financial regulations in place which are regularly reviewed and policed. They also adhere to EU Procurement Regulations for procurement exercises above the EU threshold.  Examples of procurement standing orders and published contract spend are:

• Surrey County Council.[17]
• Dacorum Borough Council.[18]

• Worcestershire County Council.[19]
• Medway Council. [20]

40. Governance arrangements are also in place for procurement including scrutiny by officers and elected members and regular audit. The Centre for Public Scrutiny (CfPS) produced guidance for effective scrutiny of procurement which was used extensively with councils during LGA-led procurement peer reviews (fitness checks) between 2005 and 2009.[21] CIPS has also developed a code of ethics for procurement professionals. [22]

Fraud

41. Councils have anti-fraud and corruption processes and procedures in place which apply to their procurement and contract activities. Examples include the Royal Borough of Kensington and Chelsea. [23]

Transparency, accountability and value for money

42. Local government adheres to fully transparent procurement processes. The key areas of governance, probity, transparency are in place within councils to help prevent and identify fraudulent activity. The sector is also subject to external audit.

43. Auditors use the Audit Commission current Code of Audit Practice which was approved by Parliament on 9 March 2010.[24]  The Auditor has to be satisfied that proper arrangements have been made for securing economy, efficiency and effectiveness in the use of resources and issues an Annual Audit letter outlining their assessment. This is a public document for which the council is accountable.

44. The section that sets out how auditors fulfil their statutory function makes an explicit reference to procurement stating that: ‘It is the responsibility of the audited body to put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources and to ensure proper stewardship and governance, and regularly to review the adequacy and effectiveness of them.’ [25] Such corporate performance management and financial management arrangements form a key part of the system of internal control and comprise the arrangements for ‘commissioning and procuring quality services and supplies that are tailored to local needs and deliver sustainable outcomes and value for money.’ [26]

45. The audited body is responsible for reporting on aspects of these arrangements as part of its annual statement on internal control. Councils conduct internal audit across all their services including procurement. An example of an audit committee report from Chelmsford City Council.[27]

46. Local government has also established whistleblowing procedures in place which enable any employee or supplier to report their concerns of fraud or malpractice with confidence. An example is the Wirral Councils’ A Guide for Suppliers and Contractors. [28]

September 2013