Examination of Witnesses (Questions 60
WEDNESDAY 7 NOVEMBER 2001
60. This is all about results in the longer
(Mr Gershon) I am sorry; it is not. We have already
illustrated the Vodafone deal which has generated significant
61. When colleagues have asked you questions
about how do we measure the results and can we measure them in
numerical terms, you have discouraged us from thinking in those
terms and have said, "Wait until the projects have come to
fruition in two or three years"; yet, my understanding is
that you have been given a target. It is £1 billion pounds
by the end of 2002-03. Is that right?
(Mr Gershon) Yes.
62. How are you doing against that target?
(Mr Avery) One of the early things we did was to devise
a piece of methodology in order to assess how departments are
progressing against the billion pounds. It is important to understand
that the billion pound target is one which is delivered by departments'
improvement in procurement, not by OGC spending that procurement
money. OGCs role is to help improve the way that those projects
and procurements are undertaken in departments. Our first task
was to devise a methodology, which we did in close consultation
with the NAO, and we published that guidance in November of last
year. In the spring of this year, we undertook the first assessment
of how we were progressing across government against that methodology
and gathered the results in. They indicate that now we are firmly
on track to meet the three year target of the billion pound value
for money gain across central, civil government.
63. How could you possibly know that on the
basis of what Mr Gershon has just told us?
(Mr Gershon) Because there are other things that we
are doing that contribute to value for money gains. You asked
a very specific question about the Gateway review. There is a
whole raft of other things that we are doing that contribute to
improved value for money.
(Mr Avery) The Gateway review process was launched
in February of this year and therefore, in terms of progress during
the last fiscal year, it does not really play a role. The pilots
were undertaken in the period up to February but the Gateway review
process was launched in February this year. In terms of looking
at the progress made in the 2000-01 financial year, Gateways do
not really feature at all.
64. I think you are telling the Committee you
are confident that, by the end of 2002/3, the department will
achieve the billion target in value for money savings.
(Mr Gershon) Yes.
65. Are you saying, Mr Gershon, that on top
of that, further out, you anticipate further benefits as a result
of Gateway projects coming through and the like to build on top
(Mr Gershon) Yes. Some of our activities which have
medium term return will also be kicking into their full effect
in that period. You are going to come on to e-procurement and
much of what we are doing on e-procurement at the moment is about
gaining knowledge and expertise and the real benefits of that
will occur after March 2003 and should generate substantial value
for money improvements in what I would describe as the second
period of OGCs existence. We are starting to see a real benefit
from things like the Gateway review.
66. Can you quantify therefore what sort of
savings you think we can be looking for from the departments three
or four years further out, once we have got beyond the first billion?
Have you an idea in your head of how much more there is to be
saved as a result of smarter procurement?
(Mr Avery) In terms of Gateway, we have already said
that, three or four years out when we begin to see the results
that Peter has been describing, we would expect to be seeing gains
from Gateway project improvements of the order of £500 million
in a year, when the Gateway is fully developed, fully on-stream
and projects that are at an early stage today going through their
gates come on stream and start to deliver better benefits at lower
cost. That is one indicator.
67. I am looking first at the UK on-line action
plan which you are running in cooperation with the Office of the
e-Envoy. The situation is that this project is now well behind.
Why has that happened?
(Mr Gershon) Let me tell you what our approach to
e-procurement is. When I arrived at the Office of Government Commerce,
I felt that there was in overall terms a love affair going on
with the technology. Government was rushing too fast to embrace
the technology and I was concerned that there was a real risk
that we were about to write the next chapter in a book called
"Government IT Disasters" because the issues around
the successful adoption of e-procurement are not really about
the technology; they are about how this very modern technology
can be successfully integrated, sometimes with what are quite
old, antiquated back office systems. There are issues again around
culture and behaviour within departments. I could see no evidence
that those issues were being addressed in the round, together
with other issues like security and integrity of systems. There
was a lot of hype in the supply side about what the technology
could do. If you look at the track record of what has happened,
the approach that we have taken is the right one because what
we decided to do was to run some controlled pilots and not to
have a headlong rush, not just to get experience of the technology
but to understand what happens when you start to introduce that
technology and try to use it successfully in a departmental environment.
That will make government collectively a better informed customer,
a more intelligent customer, better able to utilise these technologies
successfully in the future. That is basically why we are going
slower than the original plan.
68. The original plan was only for pilots and
those pilots were due to be completed in August 2001.
(Mr Gershon) Yes, but if you take for example e-tendering
it has taken us significantly longer than we anticipated to come
up with a web based electronic tendering system that has the necessary
levels of security and integrity that will satisfy the accreditation
authorities. Despite all the claims of the industry about the
systems, when we ran a competition for a pilot and worked our
way through all the issues in conjunction with the relevant authorities,
it has taken us significantly longer than originally anticipated
to get to a point where we were confident we could even run a
pilot. It is not difficult to issue an invitation to tender electronically
but if you think about the issues for submitting tenders electronically
into a highly secure environment that has presented much greater
challenges than were originally anticipated. I am pleased to say
we are now running the web based electronic tendering pilot. Yes,
it is a lot later than we thought, but we have a system which
we have some confidence in. We have to test that out with the
pilots, with different forms of tendering, different types of
suppliers, to gain knowledge and experience in order that we can
then make a decision either to roll the pilot out or do we have
to go back to the drawing board again and come up with a modified
requirement in light of the pilot experience. There is a lot of
talk these days about the use of auctions in the e-procurement
environment. We, for example, have to test out in practical terms
the extent to which the European Directives that govern the framework
of public procurement are amenable and supportive of using these
sorts of electronic techniques, although we will need to engage
in due course, in the light of practical experience on the pilots,
with the Commission and other countries in Europe about possible
amendment to the Directives to make them more supportive of these
69. Perhaps the Committee might welcome a little
explanation of that point because it sounds interesting. Expenditure
on the government procurement card, you have told us, is over
100 million so far and will reach 300 million by the end of 2002.
Those figures are right, are they? Will they enable you to deliver
the government electronic procurement process that is implied?
(Mr Gershon) The card helps towards the government's
objective about the percentage of low value transactions that
should be handled by electronic means, but it is not the only
way of dealing with that. It is an important contributor to that
objective, but not the sole contributor.
70. You have told us in your memorandum, which
set out that the expenditure on this card was of the order I have
just mentioned, that you have not achieved the throughput that
you were expecting. You were expecting 90 per cent of low value
transactions to be conducted and in fact it is just over half.
(Mr Gershon) The card is only one contributor. In
some departments, until they have modernised their financial and
accounting systems, which some are doing now; others have plans
to do itthat cannot be solely driven by the needs of low
value, electronic procurementthey could never get anywhere
near that 90 per cent number. Yes, they could use cards to cover
certain types of transaction but they could not interface electronically,
for example, with some of the other e-procurement systems that
are in existence today. You referred to the Buying Agency which
is now OGCbuying.solutions. The old Buying Agency call-off catalogue
can be accessed electronically. You can order from it electronically
and you can use the card, but unless they have the right systems
in place, they cannot do that interface and use that electronic
capability successfully. One of the things we have learned by
the focus on the 90 per cent target is that it has flushed out
some bottlenecks within departments that have to be addressed
and are being addressed. Yes, the consequence of that has been
the 90 per cent target was not achieved. It was only 50 per cent,
but the good news is there is a much clearer understanding of
what has to be done to get to 90 per cent. In some cases, it is
quite fundamental in some departments and depends on the introduction
of more modern back office systems to support e-procurement.
71. How much would be saved when the 90 per
cent target is achieved?
(Mr Gershon) Getting to 50 per cent, we estimated,
had saved about 100 million overall. If you worked on a pro rata
basis, that would get you into the right sort of order.
72. About 200 million?
(Mr Gershon) Yes. I am trying to give you a ball park
figure. I am not saying it has an accountant's accuracy about
it, but there is no reason why what comes when you go from 50
to 90 per cent should not be of a similar order of magnitude that
we had getting to 50 per cent.
73. It took roughly a year from the Cabinet
Office publishing the report reviewing IT procurement to the Prime
Minister giving OGC responsibility for this on 24 April 2001.
Who is now involved with this process? We have the Cabinet office,
the Office of the e-Envoy and OGC. Who is really driving it?
(Mr Gershon) Can I be clear? What you are referring
to is responsibility for an improvement initiative called SPRITE
which is to do with assessment of projects, which is the programme
that was put in place to drive through the implementation of the
recommendations which came out of the so-called McCartney review.
Originally the owner of that overall programme was my colleague
Andrew Pinder, the e-Envoy, who is part of the Cabinet Office.
Andrew and I agreed, and then ministers and ultimately the Prime
Minister agreed, that given the emphasis of the programme and
the nature of the recommendations, it was more appropriate that
overall ownership should transfer from him to me, because a lot
of further recommendations had good synergy with some of the other
things that we are doing in the Office of Government Commerce,
like Gateway Reviews, something that we are trying to do on the
skills agenda, management of key suppliers. There was more synergy
on a going-forward basis with what we were trying to do in the
OGC than there was with the e-Envoy who is trying to look at the
big picture, he starts with the big picture and I start at the
other end of the spectrum. The situation was such that, as I say,
we agreed that overall I should have it, and ministers and the
Prime Ministers agreed to the transfer. It does not mean that
nothing happened in the period between the issuing of the McCartney
review and the transfer to me.
74. So what did happen?
(Mr Gershon) The process began of implementing the
recommendations that were in the review, which we have picked
up, sustained and built momentum on.
75. How do you report on all of this?
(Mr Gershon) In terms of the overall performance on
SPRITE, I report back to the e-Envoy and can answer as well to
my own minister, and periodically my supervisory body now also
receives updates on progress with SPRITE and other important improvement
76. So the line of political accountability
is still through to the Cabinet Office?
(Mr Gershon) Because it is part of the overall e-government
77. Can I turn to small and medium size enterprises
and their relationship with government procurement in particular.
I am trying to wrap up a few questions into one, given the time.
How does your responsibility in this area, if you have one, link
with the DTI's responsibilities for small and medium size enterprises?
Do you think there is more that we could be doing to aid SMEs
build a relationship with Government and fit into the procurement
(Mr Gershon) The simple answer to your last question
is yes. In terms of everything we have done to date regarding
SMEs, there is, for example, the guide we issued about tendering
for government contracts. That was done jointly between the DTI
Small Business Service and the OGC. Supported by the Small Business
Service, we set about changing the guidance about evaluating suppliers'
financial capability, so that young SMEs have a much better chance
of being able to bid for government business. We changed the guidance
about the limit of responsibility in contracts, again so that
SMEs are not faced with trying to deal with default guidance which
basically said there should be unlimited responsibility in contracts,
since to my mind any responsible SME could not accept unlimited
responsibility. We have done those things, so that is a start.
What we are also doing is, jointly with the DTI Small Business
Service, we have commissioned research to understand what are
the sort of perceptions that the SMEs have of the barriers to
doing business with Government. When we have got the results of
that, which will be by the end of this calendar year, we can then,
with the Small Business Service, identify which of those perceptions
have to be addressed, because they are not actually real barriers,
they are perceived barriers and, in conjunction with the SBS,
we have got to do a much better job about communication to change
the perception or to look at which of them are real barriers,
and we have to identify what corrective action we need to take.
In that, I think the linkage with the Small Business Service is
a strong one. What we are doing is joint work on trying to address
an important issue which is about how do we make the government
market more accessible to the SME community. We have made a start,
but we clearly have more to do.
78. As it is a work in progress, can we see
your findings when you have completed the work?
(Mr Gershon) I think that is a matter for ministers.
Kali Mountford: It is always worth a try.
Chairman: Mr Gershon, Mr Avery, thank you very
much. This is the first stage of our inquiry. You will understand
that we may want to return to some of these issues. We are taking
evidence from other bodies, including some of your customer departments,
so we have to put you on notice that we may well want to see you
again or write to you again on some of these points. Thank you
very much for coming today.