22. Good procurement is vitally important to public, private and Third Sector alike. Public sector spending on goods and services across Scotland, in areas such as health and education services, amounts to over £9 billion per year. In 2010-11 procurement spending was in excess of £9.2 billion, almost half of which lay within the local government sector. As this figure does not include significant spending on social housing and other investment in infrastructure funded by the Scottish Government, the true scale of public procurement spending in Scotland may be nearer £11 billion per year.
Breakdown of Procurement Spending 2010-11
23. The size of the public procurement spending as a proportion of Scotland's GDP (£145bn) means that improving the way the public procurement market operates should have important consequences for economic efficiency and growth. Put simply, public bodies need to make the best use of the public money they are entrusted with, if they are to deliver best value and meet the needs of citizens.
24. The Christie Commission on public service reform, Commission on the future delivery of public services, published in June 2011, stressed the importance of public services being outcomes based and person centred. Those principles apply to procurement as much as any other aspect of public service. Indeed, procurement is one of those areas of public policy where process directly affects outcome.
25. The actions of the public sector have a huge impact on society, the economy and the environment and in no area is this more obvious than how we spend public funds. Procurement is a key means of delivering the Scottish Government's priorities and underpins the achievement of the social, economic and environmental benefits that sustainable economic growth demands.
26. As a major consumer in the economy the public sector can, through its procurement policy, exert a significant influence on economic development. The Government Economic Strategy, published in September 2011, gives a clear priority to accelerating economic recovery. It focuses on actions which will drive sustainable economic growth and develop a more resilient and adaptable economy, including through efficient use of energy and material resources.
27. Procurement has a key role to play by increasing the public sector's direct contribution to the economy through smart use of public procurement, in order to promote jobs and growth; encourage innovation; boost training and apprenticeship opportunities; support our most disadvantaged communities to become sustainable and promote well-being; and help Scottish firms, particularly SMEs and the Third Sector organisations, compete effectively for contracts. Procurement is also key to making sure we use energy and materials as efficiently as possible - both for financial savings and to help meet our climate change targets.
28. Procurement policy can shape our future resource use and needs by, for example, triggering demand for refurbished and recycled materials. Another easily understood area of public expenditure which demonstrates the potential of public procurement is sustainable food procurement. Public expenditure on food has the potential to unlock benefits for community health, well being and social justice through access to good nutrition, and in this key industry sector there are a high number of SMEs able to produce economic stimulus, innovation in the supply chain, employment and training.
29. Public procurement can be a powerful tool for Scotland to act as a responsible nation and global leader by using its buying power to support ethical and best standards. Procurement operates in a global context and sustainability for society, the economy and the environment has to be understood in this context.
30. The good news is that a great deal has been done already to improve public sector procurement in Scotland. Procurement reform has greatly improved the way procurement processes and systems operate and has delivered substantial savings over the last five years. This frees up resources, which can then be redistributed to other areas of government expenditure. The improvements have been achieved as a result of the whole of the public sector in Scotland and business working together.
31. There is an opportunity to do much more, however. To do more so that public sector spend is used to best effect by generating benefits not only to the organisation, but also to the economy and society as a whole. And to ensure that improvements are applied consistently and transparently across the public sector; to ensure competitive neutrality between suppliers of public services; and so that doing business with the public sector becomes as easy as it can be.
Defining sustainable procurement
32. In the Scottish public sector, Sustainable Procurement is defined as:
"A process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis and generates benefits not only to the organisation, but also to society, the economy and the environment."
Scottish Sustainable Procurement Action Plan, 2009
Public procurement legal framework
33. Public procurement is governed by a legal framework which includes principles deriving from the Treaty on the Functioning of the European Union, European Procurement Directives (as implemented in national legislation), Court of Justice of the European Union and national case law. The legal framework establishes procedures which must be followed by public bodies whenever they purchase goods, services or works from suppliers.
34. The European Commission is undertaking a comprehensive review of the EU Procurement Directives, with the intention of radically simplifying and updating the rules to make the award of contracts more flexible and to enable public contracts to be put to better use in support of other policies.
35. Following a public consultation exercise in January 2011, the European Commission published proposals for revised Directives on public procurement and procurement in the utilities sectors and a new Directive on the award of concession contracts in December 2011. A summary of changes to the rules in the European Commission's legislative proposals can be found at Annex B.
36. These legislative proposals are now subject to negotiation by Member States in Council Working Groups, and the Commission is pressing for the Directives to be adopted by December 2012 and transposed into national legislation by June 2014.
37. The implementation of EU Procurement law falls within the legislative competence of the Scottish Parliament - currently implemented by the Public Contracts (Scotland) Regulations 2012 and the Utilities Contracts (Scotland) Regulations 2012, as amended. The Scottish Parliament has also included procurement within the Equality Act 2010 (Specific Duties) (Scotland) Regulations 2012. These include a duty on contracting authorities to have due regard to whether award criteria and contract conditions should include considerations to enable the better performance of the public sector equality duty.
38. Transposition of the new Directives will require a comprehensive review of the Scottish Procurement Regulations by 2014.
39. Whilst the process of transposition should not have an impact on the timetable for the Procurement Reform Bill, it will be important to ensure that the content of the Bill will be consistent with the outcome of the negotiations that will take place in Brussels throughout 2012.
Public procurement reform in Scotland
40. It would be simple to focus solely on the Bill when thinking about the ways we can improve accessibility to public sector contracts. However it is important not to view the Bill in isolation but as part of the broader public procurement reform agenda, which has achieved much over the last five years.
41. The Public Procurement Reform Programme in Scotland began in 2006, following the publication of a review by John McClelland CBE into public sector procurement in Scotland. A far-reaching and ambitious undertaking, the Programme was established to improve procurement across the Scottish Public Sector.
42. Its vision was the implementation of structures, processes and capability to provide continuous improvement in procurement across the Scottish Public Sector in order to deliver Value for Money improvements and support increased efficiency.
43. Audit Scotland's report, Improving Public Sector Purchasing, published in 2009, recognised the significant progress that had been made over the first three years of the reform programme. It also noted variable levels of engagement by public bodies and underlined the need for the Programme to review its strategy for procurement reform.
44. In January 2010, the Public Procurement Reform Board endorsed the second phase of the reform programme. The revised strategy - Transforming Procurement: Accelerating Delivery - set four key priorities:
- Maximising efficiency and collaboration;
- Delivering and demonstrating real cash savings across the public sector;
- Improving access to public sector contracts, particularly for SMEs and the Third Sector;
- Embedding sustainable procurement - which is a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis and generates benefits not only to the organisation, but also to society, the economy and the environment - at the heart of the reform agenda.
45. These four priorities remain at the heart of procurement reform in Scotland today and feature significantly in the ongoing reform of public procurement in Scotland, which continues to make a real impact on public sector purchasing through its contribution towards unlocking economic opportunity for Scotland. That includes encouraging creation of new jobs and new businesses in Scotland and supporting efforts to reduce our carbon footprint as well as making more efficient use of resources through a balance of cost, quality and sustainability. The reform agenda now has a well-established impetus, underpinned by real progress on joined-up working across a wide range of procurement activity and practice. For example:
- We are saving money from better procurement - Almost £1.2bn savings achieved across the public sector in the first five years of the Public Procurement Reform Programme in Scotland, along with the successful delivery of national and sectoral shared services through Scottish Procurement and the Procurement Centres of Expertise.
- We are making it easier to bid for public sector work - Public Contracts Scotland portal was launched in 2008 to provide easy online access to contracts. Over 62,500 suppliers have registered (82% are SMEs); over 465 public bodies are using the portal; and over 25,000 business opportunities have been published since its launch.
- Providing a framework for including training and recruitment opportunities in a range of public contracts through the use of Community Benefit clauses. We are encouraging the creation of new jobs and new businesses through delivery of apprenticeships and training opportunities as well as through our SME-friendly procurement policies. Since initiating work in this area, a commitment to over 3,500 targeted recruitment and training opportunities has been achieved in contracts.
- Driving innovation by encouraging better use of resources in line with the waste hierarchy through increased resource efficiency and encouraging investment in renewable technologies.
- SMEs are winning public sector work - SMEs account for just over three quarters of all suppliers winning contracts advertised on Public Contracts Scotland. The level of total Scottish public sector spend (by value) that goes directly to SMEs has been over 45% over the past four years (this does not include sub-contract activity), despite SMEs accounting for only 37% of Scotland's turnover. This puts Scotland in the company of only four EU member States (Luxembourg, Slovakia, Germany and Ireland) in which, between 2006 and 2008, SMEs had greater access to public procurement above the EU-thresholds than their significance in the wider economy would suggest. The situation is very different for the UK as a whole (the Commission's analysis puts UK 20th on the list of 27 Member States).
- We are improving and standardising procurement processes - The continued central provision of e-commerce applications, which are used across Scotland, underpin the reform programme. The Procurement Journey (for buyers and suppliers) outlines a consistent approach and includes standard templates for key parts of the procurement process. A Standard Pre-qualification Questionnaire to be used by the entire public sector was published for consultation in December 2011. The Procurement Capability Assessment (PCA) programme has now been in place for over three years. The programme is designed to assist public bodies in improving their capability through assessment. It also allows public bodies, locally, at sector level and nationally, to identify where best practice already exists, where there are gaps and where continuous improvements and efficiencies can be implemented.
46. There is no room for complacency, of course, and it is clear there is more to be done to build on our achievements to date.
47. That is why a key focus for the next few years will be a concerted effort to streamline the public sector's dealings with business, adopt more efficient and proportionate procurement processes and systems, and improve consistency of access to public contracts that encourage healthy competition and secure best value.
48. The Procurement Reform Bill is intended to play a significant role in supporting this work as part of the broader public procurement reform programme.
Proposed aim and content of the Bill
49. The Scottish Government remains focused on using procurement as a lever for economic growth, streamlining the public sector's dealings with business, and adopting more efficient procurement practices that encourage competition and secure best value.
50. The proposed aim of the Procurement Reform Bill is to establish a national legislative framework for sustainable public procurement that supports Scotland's economic growth by delivering social and environmental benefits including community benefits, supporting innovation and promoting public procurement processes and systems which are transparent, streamlined, standardised, proportionate, fair and business-friendly. All of which supports our continued focus on minimising bureaucracy, making it easier to do business with the public sector, encouraging more companies to compete and simplifying the reform agenda to accelerate delivery.
51. We would welcome your views on this proposed aim.
Q1 Do you agree with the proposed aim of the Bill given above?
- If you do not agree with the proposed aim, why not?
52. We have separated our proposals for this Bill into six sections. These sections outline specific proposals which may, subject to the response to this consultation, feature in a Procurement Reform Bill, expected to be laid in the Scottish Parliament in 2013:
- Public procurement processes are transparent, streamlined, proportionate, standardised and business-friendly
- Making it easier for business, particularly newer businesses, SMEs and Third Sector organisations, to access public contract opportunities and sub-contracting requirements
- Smarter use of public procurement to encourage innovation
- Taking account of social and environmental sustainability issues through public procurement, which in turn are expected to have a positive impact on Scottish industry and employment. This includes promoting employment opportunities for under-represented groups; promoting compliance with social and labour rights, e.g. fair and ethical trading; supporting social inclusion and promoting social economy organisations; stimulating socially conscious markets; stimulating demand for environmentally-friendly goods, services and works and contributing to climate change mitigation targets
- Dealing with inappropriate conduct and poor performing suppliers
- Application and compliance
53. Now is the right time to drive the public procurement reform programme further forward by embedding good policy, process, systems and practice in legislation through the implementation of a Procurement Reform Bill.
Purpose of this consultation
54. This consultation is your opportunity to shape the Procurement Reform Bill. The Scottish Government would like to hear your views on the suggested proposals that we believe could help us deliver the aim of this Bill. The Procurement Reform Bill covers a wide range of issues and we appreciate there is a lot to consider. That is why we wanted to set out these proposals at an early stage, to ensure we are having the right debates to create good and meaningful legislation.
55. We would be grateful if you would use the consultation questionnaire provided at the end of this document or, if not using the questionnaire, if you would clearly indicate in your response which questions or parts of the consultation paper you are commenting on as this will aid our analysis of the responses received.
56. We are using the consultation on the Bill as an opportunity to consult also on matters concerning the living wage through procurement. The text and questions concerning living wage through procurement can be found at Annex A.
57. We would encourage you to respond to any or all of those parts where you feel you have a contribution to make. We will publish the contributions we receive (except where respondents request anonymity) and use them to develop the draft Bill.
Assessing the impact of our proposals
58. Throughout the development process we have been considering the potential impacts the Procurement Reform Bill may have. We will carry out a Business and Regulatory Impact Assessment on the proposals that will be contained in the draft Procurement Reform Bill.
59. We will also consider the potential equalities and environmental impacts of any proposals and if an Equalities Impact Assessment, Privacy Impact Assessment and/or a Strategic Environmental Assessment will be required.
60. Completed assessments will be rigorously discussed with stakeholders and will be published online.
61. We welcome your thoughts on the potential impacts, both positive and potentially negative, of any of the proposals and questions have been included at the end of each section in the consultation paper for this purpose.