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Report of the Digital Government Review


Changes: how procurement and needs have evolved

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Historically, large suppliers on large contracts have dominated public sector digital procurement. These contracts typically ran on long time periods and supplied services that were specified at the start of the contract: the classic ‘waterfall’ delivery model. This was felt to be the most appropriate way to procure digital services. A similar approach used to be seen in the private sector. Procurement approaches and frameworks supported this need [154].

In 2010 the current government decided to tackle the financial challenges through a number of contract renegotiations and cancellations. Initially hailed as a significant source of savings it is clear that the true picture is more complicated. To give just two of the examples that came to light in the summer of 2014:

  • The flawed cancellation of the e-Borders contract with Raytheon recently cost the taxpayer £223.5m [155] on top of the £259.3m that was written off by the decision to cancel and not retain any built assets
  • In a recent review of HMRC’s Aspire contract the National Audit Office [156] stated that “pressures to find cost savings in the short term led HMRC to trade away its negotiating power and hindered its ability to get strategic value from such a long-term contract”

It was noticeable that these activities primarily occurred in central government. Just as the Aspire negotiations led to a supplier using its negotiating power across the life of the contract, we would speculate that large suppliers with a presence across the public sector, and a need to retain margins to satisfy shareholders, could have flexed their pricing models across the whole of the sector. Renegotiations of long-term contracts to meet short-term objectives can lead to such unwanted outcomes.

Outside of the public sector we have seen a rapid change in procurement with the growth of agile delivery techniques, open procurement models, online marketplaces and the rise of a wide range of new technology and purchasing models such as cloud services that can be paid for by subscription.

The public sector has started to adopt many of these changes.

To enforce adoption the Cabinet Office has implemented a number of procurement ‘red lines’ [157] as part of its control over central government technology spend.

  • No IT contract over £100 million in value – unless there is an exceptional reason to do so
  • If a company has a contract for service provision, it should not also do the service integration for that service
  • No automatic contract extensions
  • New hosting contracts will not last for more than 2 years

These ‘red lines’ could usefully be expanded to cover some of the recommendations we have made elsewhere in the document: for example the release of open performance data or the use of open standards and a common architecture. These are items that should form part of contract negotiation.

The ‘red lines’ also work alongside delivery governance by Government Digital Service (GDS) to enforce best-practice delivery techniques. As part of these best-practice delivery techniques, GDS has led the drive towards agile delivery within government both using its own staff and bringing in external support where required.

The Cabinet Office does not have the mandate to enforce these rules on the many organisations outside central government: for example, local government, the NHS or police forces but many public sector organisations have been choosing to follow this path. More organisations could usefully do so although they should be careful to use the right methodology for the right task and adapt some of the red lines, for example contract value, to meet their own needs.

An agile approach has an impact on procurement. Contracts and requirements are no longer specified in fine detail upfront but instead needs are gradually understood over time.

New approaches to procurement such as G-Cloud, the Digital Services Framework and Local Authority Software Applications Framework have been trialled. Some of these approaches are showing signs of success: with others it is too early to tell.

The first two of these frameworks have taken agile, iterative techniques into procurement with regular refreshes and updates of the framework. This can have advantages and disadvantages. It allows new suppliers to regularly join the framework and allows gradual adaption to meet changing needs but it can also create uncertainty and cost for suppliers. When suppliers are small the cost of keeping up-to-date with ever changing frameworks [158] can be a high percentage of their revenues and give a disincentive to enter the public sector. We would encourage this impact to be considered.

Those that have been successful account for a small percentage of public sector spend. G-Cloud accounts for monthly sales of £20-£30m with the majority of this spend in central government. G-Cloud is part of a “cloud-first” policy encouraging the use of cloud services models over and above traditional computing services. Approximately three quarters of the monthly spend is on Lot 4, professional services [159].

GDS has also built an online marketplace for G-Cloud. Previously known as Cloudstore this is being relaunched as Digital Marketplace [160]. We received many opinions saying that Cloudstore suffered from being ‘stuffed’ with entries from some suppliers; while other entries simply used a large number of keywords. Both submissions and events during the review’s consultation process showed that suppliers mostly see Cloudstore an environment to market services and start a sales process, rather than one where a procurement decision would actually take place.

Meanwhile a vast number of other procurement frameworks exist. Following is a partial list of active frameworks. There are many, many more.

Buying Organisation

Sector

Framework Name

CCS Central Assistive Technologies – Telecare, Telehealth and Telecoaching
CCS Central Commoditised IT Hardware and Software
CCS Central Digital Services Framework
CCS Central G-Cloud III
CCS Central PSN Connectivity
CCS Central PSN Services
CCS Central Sprint ii
CCS Central Traffic Management Technology
Common Services Agency Health Technical Smartcard Consultancy
Lincolnshire County Council Local Telecom Network Goods and Services
ESPO Local IT Consumables
ESPO Local Local Authority Software Applications Framework
ESPO Local Computer Software
Procurement Scotland Regional Mobile Computing
Procurement Scotland Regional Desktop Computing
Figure 8: Procurement Frameworks (Source – Kable)

In addition to these frameworks there are cases where a purchasing activity falls under EU legislation. EU procurement rules are evolving with new EU directives being transferred into UK legislation by 2016 [161]. It will be important for the UK government to ensure that these new directives and the legislation transfer supports UK policy objectives. Some of the changes such as Innovation Partnerships and Most Economically Advantageous Tender (MEAT) rules [162] could be used to accelerate some of the UK’s desired changes. For example MEAT could be used to support procurement decisions by local authorities that wish to preferentially buy from companies in their area to grow the local economy.

Meanwhile the Open Government Partnership has also launched a procurement initiative. The UK Government has committed to implement Open Contracting [163]. We agree with the principles of Open Contracting – such levels of openness and transparency are to be welcomed – but we need to be careful of falling into the “cheaper is better” trap that a focus on price rather than performance can lead to.

It is typically the largest suppliers who benefit from such a situation as they can afford to put in a low bid to win a contract. This is similar to the public discussion about spending data: unless spend is linked to quality, performance and outcomes then procurement risks simply being a race to the bottom with public services, and hence people, suffering as a consequence.

Government has also implemented policies to improve procurement skills and to change organisational structures.

  • All central government procurement has been consolidated into a single organizational unit, Crown Commercial Services (CCS) [164]
  • A Commissioning Academy has been established to increase public sector skills [165], the academy is open to all of the public sector not just central government
  • Outside of central government procurement has typically been devolved to the lowest possible level, for example local authorities or individual grant-maintained schools [166]. Some of these organisations have chosen to form consortiums to share best-practice and create economies of scale, others have not been able to take this step

“The public sector has little data and extremely limited understanding of the performance of its software system suppliers, which is a glaring weakness in its ability to manage them” – Civil Society Organisation

“There is no overall design, no architecture, for the CCS frameworks, which is very badly needed. There are massive gaps and overlaps between the frameworks, which is terrible for both customers and for suppliers.” – Small Company

“A commitment through procurement to union recognition, equal pay audits, publication of senior salaries, paying their taxes in full – and of course making all contracts living wage would be welcome” – Trade Union

[154] A less charitable interpretation would be that rather than the delivery needs driving procurement, the procurement processes helped create the methodology and supplier market. Where possible we do like to think charitably and positively.
[155] https://www.gov.uk/government/news/home-secretary-letter-on-the-e-borders-programme-arbitration
[156] http://www.nao.org.uk/report/managing-replacing-aspire-contract/
[157] https://gds.blog.gov.uk/2014/02/26/red-lines-for-it-procurement/. NB: these ‘red lines’ are only mandatory in central government but are recommended best practice for other parts of the public sector. There is no variation in the guidelines, for example the IT contract size, based on the size of the relevant public sector organisation.
[158] Similarly security classification and security certification rules have both changed in 2014 causing costs for both the public sector and for suppliers.
[159] https://www.gov.uk/performance/g-cloud
[160] https://gds.blog.gov.uk/category/digital-marketplace/
[161] https://www.gov.uk/government/consultations/transposing-the-2014-eu-procurement-directives
[162] http://www.euractiv.com/future-eu/parliament-approves-new-rules-pu-news-532783
[163] http://www.open-contracting.org, http://www.opengovpartnership.org/country/united-kingdom/commitment/open-contracting
[164] https://ccs.cabinetoffice.gov.uk
[165] https://www.gov.uk/the-commissioning-academy-information
[166] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/303528/Advice_for_buying_ICT_for_your_school.pdf

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