The Government spends £150bn on goods and services every year but must get better value for the public money it spends, and should use its purchasing power as a driving force for innovation, CBI Director-General Richard Lambert said today (Tuesday).
Publishing two new CBI reports on his 100th day as Director-General, Mr Lambert called for smarter purchasing within the public sector and for the creation of a new strategic body to ensure the Government fosters innovation through its suppliers.
The CBI strongly advocates further private sector involvement in delivering public services to improve quality and value for money. But it says public procurement is not yet sufficiently professionalised and is excessively risk averse. Too often, civil servants with insufficient skills or experience are unclear about what they want to buy at the outset, resulting in shifting sands during contract negotiations, delayed projects and extra costs for both taxpayers and suppliers.
Apart from these direct impacts, a further consequence has been increasingly risk averse purchasing by public sector bodies. Yet taking bold but calculated risks and being more innovative would actually lead to better public services, big cost savings, and knock-on innovation benefits to the whole economy.
As well as changing the Government approach, the CBI says that better use needs to be made of the existing Technology Strategy Board, which should be remodelled into a body similar to the US defence agency DARPA. This would drive strategic thinking about future needs across all public services, and sponsor promising research by universities and businesses to meet them - helping convert good ideas into commercial success.
Richard Lambert said:
"In the face of globalisation, developing and then delivering innovative new products and services is the key to a successful UK economy. Yet there is very little public investment in technology development. Despite the DTI's substantial science budget, a major gap exists in public support between early stage research funding and final purchasing by the public sector.
"The Government's annual procurement budget, a massive £150bn, is almost nine times more than UK companies currently spend on research and development. If just a portion of this was targeted at nurturing and acquiring innovative products and services it could deliver dramatic returns.
"There is a real opportunity here. By taking on the key role of first customer for innovative products and services, the Government could help to create viable markets for emerging technologies in which the UK has the potential to become a world leader.
"Cutting-edge Formula One technology eventually finds its way into family cars. In the same way, more Government-sponsored innovation could lead to massive breakthroughs for public services, in anything from healthcare to waste recycling. This would feed through into the wider economy to the benefit of everyone."
A UK 'Advanced Research and Projects Agency', as advocated in today's CBI/QinetiQ report, would work with major Government procurers and ensure they engaged actively in innovation. Backed by significant funding, on a par with the UK's largest Research Councils, the new body would take a leadership role in accelerating the development and intelligent adoption of new technologies and services across the public sector.
Operating at arms length from the Government, UK-ARPA would link together Departments, Research Councils and other public bodies to tackle common needs. As the coordinator of the Government's 'Foresight' activities, it would identify and then sponsor challenging areas of research and technology development that could address these needs and 'pull through' successful projects into public procurement.
UK-ARPA would promote the kind of 'pre-commercial procurement' - sharing the benefits and risks with industry in order to exploit the results of research as fast as possible - in which the EU currently lags the US and Asia.
Sir John Chisholm, Chairman of QinetiQ which co-authored today's report on innovation through procurement, said:
“The time for hand-wringing over science and industry in Britain is over. The UK has a world-class science base and a growing entrepreneurial culture. We now need to use some of Britain’s other assets, such as the significant public procurement programme, to help fill the yawning gap in early adopter customers who play such a vital role in pulling through innovation. This is something that is under our control, can be done now, and will have immediate impact.”
The CBI also wants other changes made to Government procurement to foster more innovation. Creating more flexibility between the Government's capital and operational budgets would mean better 'whole life' value could be achieved for the taxpayer, even if up-front costs were higher.
It says targets for innovation must be set across the public sector, with incentives for individuals and groups to look beyond annual assessments and seek solutions that deliver better long-term value. Dialogue with potential suppliers should be improved, meaning that alternative solutions to public needs could be considered from the start of the procurement process rather than being spotted when it is too late.
To address shortcomings in how the public sector secures best value from its procurement more generally, a second CBI report calls for every major Government Department to establish commercial directorates, staffed by procurement professionals able to make and close deals, as the Department of Health has done. The CBI also wants procurement 'academies' to be established so that other public bodies less frequently involved in big purchasing decisions can draw upon skills and support they lack.
The report says that all projects above a certain value subject to robust periodic reviews, with earlier intervention where projects are found to be in difficulty. All significant projects should be overseen by a named 'sponsor' at a senior level in the procuring organisation, to ensure clear leadership and accountability.
There also needs to be better dialogue with potential bidders earlier in the procurement process, so that authorities understand what they can afford and decide what they are prepared to pay for. There should also be detailed procurement timetables, set out up-front with clear consequences for failing to stick to them.
Kevin Beeston, Chairman of the CBI's Public Services Strategy Board, said:
"Public sector partnerships with private industry have brought about huge improvements in service quality and efficiency. As an industry, we support the moves made by the Government to increase efficiency and improve procurement capability and process. But more needs to be done to ensure value for money for the taxpayer.
"At its best, effective procurement can deliver excellent value for money for Government and improved services for the public. Yet taxpayers pay dearly when procurement is risk-averse, bureaucratic and categorised by delays and changing specifications. The public can actually receive poorer services as a result.
"Under-developed procurement skills mean the public and the taxpayer are only securing part of the potential improvement. To meet many of the Gershon efficiency targets, Government procurement should take account of the desired outcomes and embrace opportunities afforded by innovation and technological developments."