Section 23 Report
“Improving public sector purchasing”
Item 3 is consideration of a section 23 report, "Improving public sector purchasing". I invite the Auditor General to brief us on the report.
Mr Robert Black (Auditor General for Scotland):
Good morning and thank you, convener. The report, which was published over the summer, is one of the joint reports that are prepared by Audit Scotland on behalf of the Accounts Commission and me. It attempts to provide a high-level assessment of the effect of the various efforts that have been made to improve purchasing across the public sector in Scotland.
In the report we say that, since 2006, the Scottish public sector has reported substantial savings from the better purchasing of goods and services, although there is the potential to do more. That means that there is the potential to deliver more savings while, at the same time, maintaining the level and quality of services.
As we all know, Scotland's economy has been in recession since the middle of last year. Although the full effects of the recession are not yet known, we expect that there will be constraints on public resources in the future. That makes the scale of the challenge in terms of good procurement all the greater.
With the committee's agreement, I invite Barbara Hurst to say a few things about the report.
Barbara Hurst (Audit Scotland):
I will cover briefly what we looked at; what benefits have been achieved from better purchasing; where we think there is scope for improvement; and what we are doing to follow up the report.
As you will see in the report, public sector spending on goods and services in Scotland is around £8 billion a year—a quarter of the Scottish budget. Exhibits 2 and 3 on pages 8 and 9 of the main report show that local government and the national health service spent around three quarters of that total. Spending covers everything from specialist advice to information technology equipment and furniture. The level of spending varies significantly between individual public bodies, as those exhibits demonstrate.
We looked specifically at the public procurement reform programme, which was introduced in 2006 to improve purchasing practice and to achieve savings across the whole of the public sector. By April, good progress had been made in introducing changes to improve purchasing. That included, for example, clearer purchasing guidance; the establishment of new purchasing centres of expertise to support collaboration in purchasing; and the greater use of IT to increase efficiency. We hope that exhibit 15 on page 24 is useful in providing a traffic-light summary of progress against the areas for improvement that were identified at the very beginning of the programme.
We found that around £327 million in savings may be attributed to the programme for the two years to 2008. Against those savings, the programme has cost £61 million to implement so far. However, as you will see from exhibit 15, some parts of the programme were delivered later than planned, and it has not yet fully achieved the level of improvements to purchasing and the impact that were envisaged at the start.
It was not straightforward to identify the savings that were attributable to the programme. Only 41 of the 177 public bodies have used the best-practice indicators that were originally intended to measure savings and other aspects of purchasing performance. Because of that gap, we had to use data from the Government's separate efficiency programme to identify the £327 million of savings. Those savings were in line with the programme's target for its first two years but, because of changes and delays in reporting, it is not clear how progress towards the programme's third-year savings target will be monitored. Nor is it yet clear what future savings targets will be set.
As the Auditor General said, we think that the potential exists for more savings by reducing demand through better control and planning and for collaborative purchasing of commonly used goods and services. Collaborative purchasing can be challenging and is proving to be so. However, there are real benefits to be gained both in lower prices and, potentially, in better-quality goods. The health service has been relatively good in that area. Between 2006 and 2008, it introduced 150 new collaborative contracts for commonly used items such as rubber gloves—I am not sure why those always feature in our reports. Savings from those contracts amounted to some £54 million. By comparison, the rest of the public sector has introduced just 45 new collaborative contracts during the same period and no savings have yet been reported, although that is not to say that they have not been made. We think that there are lessons to be learned from the health service's approach.
The report makes a number of recommendations for the Scottish Government and the wider public sector. It recommends better public reporting, the revision of potential savings targets and improving the use of or, in some cases, starting to use the best-practice indicators to support decision making and benchmarking.
Our aim in the report was to provide a good baseline position against which future performance could be evaluated. We have actively promoted the findings and provided all auditors with information packs to help them to follow up local progress in their audited bodies. In addition, we intend to carry out best-value reviews of the centres of expertise. We will revisit public sector purchasing in a future national study because it is important.
As ever, we are happy to answer members' questions.
Thank you.
I want to ask about two issues. First, are different parts of the public sector sufficiently integrated for procurement? You used the example of health organisations coming together to purchase, but are there opportunities in places such as Glasgow, Renfrewshire and Ayrshire for health boards, councils and other public organisations to come together to purchase gas and electricity and perhaps even computers, for example? Is there any evidence that that is happening? Does such an approach have any value?
Secondly, is sufficient attention being paid to the inefficiencies that are sometimes reported in the procurement process? Small businesses in my area have complained bitterly to me that the laudable intention of centralising procurement to make greater savings often results in more money being spent on some contracts and documents such as in-house magazines; the purchase of computer equipment is another good example. Is any attention being paid to reported inefficiencies? How are they being dealt with?
I will pick up on those questions first and then pass them to the team for detailed responses.
The issues that you raise came up all the time during our work. The further education sector made quite strong representations that it would sometimes be more efficient if FE colleges collaboratively purchased with local councils rather than with other FE colleges.
We will look again at the centres of expertise. Members will notice that those centres are sectoral. A key question that we need to ask, particularly in the current economic climate, is about the potential for efficiencies in local areas rather than in sectors. We need a vertical and a horizontal approach to purchasing.
Dick Gill or Irene Coll may want to add to that.
Dick Gill (Audit Scotland):
The whole point of the public procurement reform programme is, of course, to introduce better integration. That was a theme of the McClelland report, which instituted the programme. As ever, it is a question of whether the cup is half full or half empty—members should forgive the cliché. The job of the centres of expertise is to promote better integration. The model in exhibit 5 on page 11 of the report is based on sectoral integration. The aim was that councils would come together, parts of the health service would come together, and further education colleges, universities and so on would come together. The centres of expertise have been established. They are operating, starting to have an impact, and starting to report savings, but they are learning.
An issue is whether there are still too many silos in Scotland and whether we need to look across the piece. Barbara Hurst alluded to that. That will certainly be a theme for the Scottish Government and the public sector bodies as the programme moves forward.
I do not know about small businesses and efficiencies. Irene Coll may want to say something about that.
Irene Coll (Audit Scotland):
The convener asked about the scope to join up gas, electricity and computer purchasing. One centre of expertise—procurement Scotland—has focused on those precise areas. A significant development that procurement Scotland has taken forward is the electricity contract for the whole of the public sector, which any public body can buy into. The Scottish Government reckons that the contract will save at least £10 million each year.
The convener asked whether existing arrangements to buy goods and services are more expensive than other arrangements would be. The philosophy of Scotland Excel, which is the centre of expertise for local government, is to say to local government colleagues, "If you can demonstrate that you can buy things more cheaply, we will learn from you and consider the good practice that we can pick up from your existing contracts."
However, Scotland Excel is feeding back that some councils intuitively think that they can get things cheaper but do not have the information that would enable them to demonstrate that they are managing better than Scotland Excel would do. That puts Scotland Excel in a difficult position. It is trying to get the best deal for councils, and some councils say that they are not getting the best deal but cannot provide evidence that that is the case. Work is going on to improve the evidence base. In principle, a council can make the case that it can buy something cheaper and get a better deal.
To be fair, the issue does not arise just in the council sector; I have heard similar complaints in other sectors. Part of the problem seems to lie with middle managers who think that they must follow a formula. People think that the rules require them to combine contracts and tender in a certain way, and they fail to consider whether a range of smaller contracts would be cheaper. If people are not sufficiently imaginative, broad minded or skilled, there is a danger that they will do the public purse a disservice by following a set formula.
That is an excellent point, which the programme acknowledges. Exhibit 16 on page 27 shows how the Scottish Government, in consultation with partners, has developed a purchasing capability assessment tool, which tries to address exactly that issue by enabling local organisations to assess their procurement capability, prioritise areas for improvement and work together to improve practice. Your point was spot on.
Like the convener, I have received much representation over the years from private sector businesses about the difficulties that they encounter as they try to pick their way through the web of the public sector procurement system. The public sector's desire to be as efficient as possible by packaging together contracts in ever-larger bundles sometimes conflicts with the desire to award contracts to local companies. We often get complaints from companies who cannot understand why the local council or health board is going to a supplier elsewhere in the country or, worse, outwith the United Kingdom. Such companies feel short changed. There will always be a tension in that regard and I am not sure how we can resolve it.
I note from exhibit 15 on page 24 that as part of work to address relations between the public sector and suppliers a "single point of enquiry" has been set up—on time. That will be welcome. However, I was concerned to learn that work to
"introduce standard terms and conditions for suppliers working with the public sector"
has not yet started. That will be of concern to many private sector companies who seek to win public sector contracts. When is the work expected to start? More relevant, when is it expected to be completed?
That is a concern of John McClelland, who wrote the initial report, "Review of Public Procurement in Scotland; Report and Recommendations". It is also very much a concern of the Confederation of British Industry Scotland and the Federation of Small Businesses Scotland.
It is not really my place to put on a Scottish Government hat, but the Government would say that there are all sorts of legal issues and that it needs to involve its lawyers. It is looking at the matter, but it has not arrived at agreed terms of reference because of legal complications. However, it is outwith my remit to provide a straight answer on the Government's behalf.
We can put the question to the Government in writing.
I pay tribute to John McClelland and the team that has spent so much time focusing on this huge issue, which deserves attention. A vast amount can be done to improve purchasing; I value this Audit Scotland report for keeping the spotlight on the issue.
The convener referred to the concern that has been expressed by small and medium-sized businesses, in particular. Some of those medium-sized businesses are quite substantial Scottish businesses, but often they see public sector officials taking a safety-first approach. Officials are rarely criticised for awarding a contract to a major multinational company, so there is a trend towards centralisation, size and scale. Awarding a contract to a major multinational company is often seen as a secure way forward, but it is not necessarily best value for the public body concerned or for the public purse. That is a real issue, and striking a balance will be constantly challenging.
One way of achieving such a balance is to have real expertise within the public purchasing community, among the officials who are responsible for public purchasing. That was a concern for John McClelland. Did the Audit Scotland team analyse whether we are improving the quality of training for and expertise in public purchase procurement in Scotland and whether there are still significant gaps? It comes back to an issue that the committee has discussed many times—the fact that many public sector officials are generalists who can be moved from job to job and suddenly find themselves responsible for a major, multimillion-pound contract or series of contracts, with little background in the best, most professional way of delivering that. I would welcome feedback from the Audit Scotland team on that issue.
My final question is about a related but different point—the issue of innovation and support for small and often younger companies in Scotland that are producing world-beating technologies in areas such as life sciences. The feedback that we get from the life sciences community in Scotland is that often Scotland is among the last places where new technologies, drugs and equipment are used in hospitals or the health service, because there is reticence about adopting new, more effective and often more efficient and cost-effective drugs and services; there is an in-built inertia. Did the Audit Scotland team examine that issue, or is it a separate area of study? The life sciences community and, I am sure, other entrepreneurs and innovators in Scotland would welcome high-level support for changing the in-built conservatism of the public sector in Scotland.
Both of your questions raise critical issues, the first of which is expertise; when we did the study, we recognised that that issue was extremely important. There is a description of our findings on page 27 of the report, and I guess that what we found very much bears out your points. At the time of our audit earlier this year, we found indications that there was indeed a shortage of skilled purchasing staff. The report gives the example of a centre that was almost 17 per cent below staff complement. There seems to be a problem with fairly high turnover and a limited supply of people with the right skills and expertise in the area. I guess that their services are quite marketable—it is as simple as that.
If it is difficult for the centres of expertise to recruit and retain such skills, it is that much more difficult for 32 councils and 14 health boards to do it. That points to the value of doing a major, Scotland-wide exercise on the back of the McClelland report. On the basis of the audit, we think that there are issues about the number of skilled procurement experts in Scotland.
The question of innovation is an interesting one that is very much linked to the tension between using local suppliers and going for the safe, big contracts, which Nicol Stephen mentioned. That is a genuine problem. The report quotes Fife Council, which sees supporting local suppliers as part of its economic regeneration and development strategy. I well recall from my local government background that councils are always trying to find ways to support local businesses. There is a tension between that and seeking value for money.
The example of life sciences, drugs and equipment is interesting. As I am sure that the committee recalls, we have looked at prescribing practice a couple of times, in hospitals and in general practice. In our first study on general practice we concluded that there would be substantial savings if GP surgeries made more use of generic drugs, which are as effective as specialist drugs. It is difficult to see how people in procurement centres could have the knowledge and skill to make such differentiation in all cases. The answer must be to pursue the approach that each centre of expertise is taking, which is to try to get strong user groups to advise them and from which they can feed. However, there is no doubt that that will be a challenge.
Nicol Stephen mentioned the view of the life sciences community on new drugs. That information is new, and it is interesting because the Scottish Medicines Consortium is a bit fleeter of foot with newer drugs than the National Institute for Clinical Excellence in England. We will think about that.
The report says that purchasing information needs to be improved, at local level in particular; that is made more difficult because we do not yet have the best-practice indicators in black and white. The procurement delivery group in the Scottish procurement directorate is developing a plan. When will that information be available?
It was frustrating for us that that information was not available when we did the report. We were going to do quite a different study because we thought that the information was sitting there and that we would be able to do the analysis. We are keen to go back when the information is available, because we will then be able to see what the variation is in practice.
The question relates to the point that Mr Stephen raised. One of the BPIs concerns the number of staff with professional procurement qualifications and who have done training and so forth. We do not have that information; as Barbara Hurst indicated, only about a quarter of public bodies supplied that information and even the information that was supplied is now quite old.
I cannot answer the bigger question, on when the Scottish Government will introduce a new plan in that area. That is a matter for the Scottish Government, but we are talking to it, and the matter is under active consideration in the Scottish procurement directorate.
Looking ahead, there is a national procurement conference at the end of October. Mr Swinney will be speaking at that, so I dare say that an announcement might be made. However, I cannot say any more than that at this stage.
Exhibit 2 is about the estimated annual public spend on goods and services in 2006-07, broken down into estates, professional services, supplies and so on. The figures under "Other expenditure" strike me as strange. Presumably, when you want to audit a service, you can dig down into whether it is estates and buildings, utilities and so on. However, for local government in particular, "Other expenditure"—miscellaneous, in other words—seems a large amount of money. It is £1.5 billion for local government alone. How would you dig down into that?
We can dig down, but there is a limit to how many coloured bars we can use in our reports. Exhibit 1 on page 7 does not give the breakdown by sector, but you can see that it goes down to a considerable level of detail. The bottom line of that table is £0.5 billion, which represents:
"Other, including expenditure which has not been classified".
One of the successes of the programme has been the Scottish Government's introduction of the procurement information hub, to use the jargon, which gives much stronger management information about spending at national and sectoral level than Scotland has had previously. It is fair to say that although it is high-level information—it does not give you everything you need—it is seen with envy by other organisations in the UK. The hub is being rolled out more widely, in slightly different ways, in other parts of the public sector in the UK. We are getting there, but we are not completely there yet.
In exhibit 1, line 7 downwards is actually the other expenditure.
Is the Parliament one of the public bodies involved in the study?
Did we do the Parliament?
I do not know.
Our audit was a high-level review and we focused on the work of the Scottish Government and the centres of expertise.
I apologise to the committee but I do not know the answer to that question. We can easily check. I think that the Parliament probably was included, but I would need to confirm that—
I hope that if it was not included, it is now. My experience—albeit over two years—is that the body running this building is one of the least efficient at procurement. It would be useful to get it involved in common procurement or some other kind of working together, and to examine the way in which it deals with procurement. An unbelievable amount of money is spent in and around this building.
Thank you. We will come back to this agenda item later.