The missing middle

2 April 2012 A central procurement body could speed up the UK’s infrastructure delivery, provided it is managed carefully, writes Paul Jarvis
Speeding up the procurement of UK infrastructure has hit the top of the agenda for the public and private sectors alike. With money tight, the focus is on improving the speed of procurement to reduce bid costs and the amount clients spend on advice during the tendering process.

But stating the case and making it happen are two very different things. “PFI has been around for 20 years this autumn and inefficiency in procurement has been the overriding concern for politicians for 75% of that time,” says academic Mark Hellowell. “Despite everything that’s been done, nothing has improved the cost of it.”

There is hope, though, that this time might be different. In particular, the idea of a central procurement body at the heart of government is being seen as a potential game-changer.

According to research from KPMG, average procurement time for social infrastructure projects is 34 months. That compares poorly to similarly mature markets such as Australia (17 months) and Canada (16 months). Infrastructure UK chief executive Geoffrey Spence appears to be increasingly of the view that a central body could bring the UK into line with other countries.

“The government needs to tackle [inefficiency] and that probably means having a centre of excellence providing a pipeline and direction,” adds Hellowell.

In a narrow sense, the partnerships industry already has experience of central procurement bodies. In waste, for example, the Waste Infrastructure Delivery Programme (WIDP) body within the environment department is recognised as an organisation that invariably helped progress some of the country’s largest and most complex procurements.

“It had good and respected people from the industry and provided resource to the projects,” says Russell Dallas at consultancy Mott MacDonald. “Everyone had a ‘go-to’ person on each project.”

Fellow technical consultant Chris Wilson at LeighFisher agrees. He worked closely with WIDP while at advisory 4ps and describes the arrangement as “an enabling partnership”. Despite delivering some of the most technically challenging and complex infrastructure that the PFI model has been asked to do, those in the industry believe the WIDP model allowed the procedure to be far more straightforward than some other sectors.

Schools, in particular, spring to mind. “A central body would speed up procurement – as long as it doesn’t become another Partnerships for Schools,” warns Jim Crossman, at technical consultancy Currie and Brown. “That became a much bigger animal than it needed to be.”

Stephen Beechey, at contractor Wates, shares the concern that any new procurement body could follow a similar path. “It could be a very bureaucratic machine that just causes delays. When Partnerships for Schools (PfS) was established, they started to create a huge procurement machine that was incredibly costly and time-consuming.”

Slaves to process
Part of the problem, some suggest, is the approach taken by UK institutions to the process, rather than what bodies exist.

Liz Jenkins, at lawyers Clyde & Co, suggests the public sector’s determination to follow procedures so closely is partly to blame. “We seem to live by the letter of the law in terms of procurement rules, which some other countries don’t,” she says. “So maybe we need more clarity on that rather than [simply] a new body.”

A source on the financing side agrees. “It’s not about who controls the procurement, it is the procedures.”

Competitive dialogue often comes up in discussions here. Critics argue that reducing the frequency with which this procedure is used would have the biggest effect on procurement timetables.

“Competitive dialogue is fine in complex new cases,” says Ray Powell, at consultancy Mouchel. “But I would query whether it is working on standard PFI/PPP deals. Streetlighting deals are fairly commoditised, for example.”

But a properly staffed and adequately resourced procurement body could help to improve the procedures – although that begs the question as to who might be included. Critics have often complained of the lack of public sector expertise, meaning options might be limited for creating a wellstaffed organisation.

Jonathan Cripps, at law firm Stephenson Harwood, disagrees. “Today, a public authority will go out and buy an experienced project director. It’s regarded as a more commoditised product.”

Wilson suggests the Treasury could follow its previous route of bringing in private sector specialists on secondments. “That brings a real flow of knowledge and expertise to both sides,” he says.

Still, a core group of public sector workers may be needed, and that could cause some tensions with existing PPP units around the country. David Outram, at the Leeds unit, is wary of seeing his top staff poached by Whitehall. “There is no denying more expertise would be useful, but where is it going to come from? It would come from people already in the market, so it would be simply taking people from one place to another.”

Indeed, Outram doubts whether a central organisation can offer anything more than an extra layer of bureaucracy. “If the project is tied to London, then you need close connections to make sure it’s scoped appropriately, for example. But after that, it is often more important to be where the bidders are.

“Does it mean we in Leeds aren’t to be trusted to deliver procurement across the public sector?”

As Outram and others point out, the idea of a centralised body also cuts across the government’s localism agenda. “In five years’ time, city regions and local enterprise partnerships may be procuring all their own infrastructure,” suggests one financial adviser. “So how would that fit with a central procurement body?”

All the investment being offered by government over recent months has pointed towards this move, with grants from the Regional Growth Fund, for example, targeted at helping enterprise partnerships and similar organisations kickstart growth through investment in infrastructure.

But not everyone thinks the government is as wedded to localism as it likes to make out. “I don’t see any genuine zeal for localism in terms of more power for local authorities. The free schools movement, for example, is all about eroding local authority control in favour of central control,” says Hellowell.

“I doubt a spanner will be thrown into the works here because of a commitment to ‘localism’.”

As the government focuses more on economic infrastructure such as roads and rail, there may be a case for keeping these procurements away from the localism brief, on the basis that they are projects of national importance.

“I can see it working more readily for big pieces of infrastructure,” says Cripps. He suggests a central approach may make sense for national infrastructure schemes such as High Speed Two, which cuts across several local areas. “But anything where local choice is relevant is more difficult,” he adds.

But even on the social infrastructure side, the government has already made strides towards a more centralised approach.

In education, for example, the Priority School Building Programme (PSBP) that replaced BSF gives locals far less scope to meddle with the procurement. Designs are expected to be standardised, while batching projects together – potentially regardless of geography – will need a firm hand from the centre to coordinate delivery. And PfS is developing a survey of England’s school estate, which again hints at the desire to tackle problems from the centre.

The creation of a new property company to look after the residual primary care trust estate also points to a more centralised approach in health. The new organisation could become the delivery body for future primary care assets.

One lawyer suggests the centralised, standardised straitjacket of PFI was always accepted by local bodies because there was funding attached to it.

“If there is no central funding, then unless there are significant efficiency savings to be made, why would you go down that route? Most local bodies would say the central agency was a hindrance.”

In February, MPs at a Commons public accounts committee hearing asked Infrastructure UK’s Geoffrey Spence why other countries are faster at procuring major infrastructure than in this country.

“In many cases one of the difficulties, if you look at the PFI programme here in the UK compared to France or Canada…is that there’s been far more central involvement in the direct procurement of a major facility than here,” he responded. While he did not say this was the only reason, his reply suggested it was the one he felt had the biggest impact.

Many in the industry agree that Canada’s success, in particular, has been driven by the public sector’s strong leadership. State organisations such as Partnerships BC in British Columbia, or Infrastructure Ontario, have been good at providing guidance and extensive information on their projects, that can be accessed by other authorities but also referred back to when developing future schemes.

“It does follow that Canada has been remarkably successful by organising something at the provincial level,” points out one contractor. “You could argue the Canadian provinces are not much different to the component countries of the UK,” he continues.

“Northern Ireland and Scotland both have centralised procurement vehicles, and Wales does things through the National Assembly. So it’s only England that is left.”

“The provinces [in Canada] are the powerhouses,” adds Wilson. “I think in this country we should establish three or four procurement centres of expertise at a city region as well as national level.”

Developing central units at a regional level – like the ones that already exist in Leeds and Manchester, for example – would certainly be more in tune with the localism agenda. “If all the expertise is based centrally, you will get a remote solution and people will become disenfranchised,” adds Outram.

“Local work could be steered by wise counsel from the centre,” says Dallas. Hellowell agrees, suggesting the government could take a pragmatic approach of ‘as local as possible but centralised where necessary’.

But a regional approach will also have difficulties. “At the moment, there is still a lot to do to put in place the administrative infrastructure to ensure that local enterprise partnerships deliver on the aspirations they have,” says Wilson. If these bodies are meant to be the new procurers, the concern is they are nowhere near being resourced sufficiently to improve the process.

And even those that do have such capabilities will still need “some central coordination”, he adds.

Dave Carty, at Manchester’s PPP unit, suggests that a central procurement body and regional organisations need not be mutually exclusive. “If there was just one national centre of excellence, it would struggle with local issues,” he explains. “In regional frameworks, for example, you can make sure that local small businesses in the supply chain get a fair share of the work.”

But critics warn such a tiered approach will simply create new layers of bureaucracy, adding to the timeline instead of speeding it up. “[Ministers] are trying to reduce costs, so they don’t want duplication by doing the work at both the local and central levels,” says Jenkins.

Carty’s colleague, John Lorimer, believes finding the right balance here is achievable. He points to the retail sector, where large supermarkets can deliver standard buildings through one central procurement, but still sell some locally sourced goods. “It’s no different for a school or hospital,” adds Carty. “A school built ‘off the shelf’ has to be tempered by having enough local flavour.”

Clearly, the make-up of the central body, and where it sits in Whitehall, will be crucial. “Undoubtedly there are the skills within government, but they’re spread across departments,” says Tim Care, at lawyers Dickinson Dees. “A central body should in theory give total consistency in the process.”

In some ways, an organisation akin to Partnerships UK (PUK), which sat outside any specific department, might sound appealing. Wilson, though, warns against creating another privately funded agency.

“PUK as a public-private partnership was able to take equity stakes in projects, but we need a body that doesn’t have the perceived conflict of interest that can create.” Telling the public that the government is going to solve the problem of costly PFI programmes by creating a new private organisation would also be a hard sell for the government in the current climate.

“It should be a vehicle that is purely public sector-owned. But it has to have a broad remit across all infrastructure sectors.”

“You could have something like the Cabinet Office working with Infrastructure UK to deliver big infrastructure,” suggests Hellowell. “But that would be a hard sell to the various departments.”

The direction of travel from the government so far – whether it be the PSBP or the health property company – has tended towards giving each department some central control. “Sponsoring departments tend to know what they want and have the technical, specialist knowledge,” says Powell.

Wresting back that control now, and creating one body that cuts across them all, could be difficult.

One thing that will preclude any central body being formed, however, is the current lack of a pipeline. “If you don’t have a big raft of similar projects, it’s difficult to have a ‘one-size-fits-all’ approach,” says one financial adviser.

Beechey agrees. “If you have not got a defined pipeline, it’s not going to be effective. The pipeline is not in evidence at the moment.”

While the Treasury will point to the long list of projects set out in its 2011 National Infrastructure Plan (NIP), most experts argue that does not provide sufficient detail. “There’s still quite a bit of work to be done on what the NIP means at a granular level and to turn it into a defined pipeline,” Beechey continues. “It would be pointless to set up a central procurement body without it being focused around a defined pipeline.”

A clear stream of work would also attract the right calibre of person to staff the organisation. “We had the skills but there has been something of a cull in these skills recently,” says Outram. “There are still a lot of people with the right skills, but they need direction.

“The Olympics attracted a very talented pool, for example, but it is only there for that period and then it disappears again.”

A central procurement organisation could clearly offer some benefits to the Treasury’s record on project delivery. But officials need to do an awful lot of work beforehand to make sure such a body provides just the right level of support.

This page was last updated on:
7 June 2012.

thumb

What Would Ed Do?

A recent comment on a young people’s forum has raised further questions over how a Labour government might use private finance in infrastructure projects

thumb

The Anglophile

After a difficult start, FCC’s Rafael Foulquié is confident that the firm’s UK office will go from strength to strength. He tells Paul Jarvis why

register

Register now to get un-restricted access to all sections of the website.

Want to see more first? Try our free preview...