Public Sector Procurement: A Comparative Look at the UK and the US (Part 3)

Spend Matters welcomes commentary from Peter Smith, the editor of Spend Matters UK/Europe. See previous posts from this series here: Part 1 and Part 2.

What gets measured gets done. If you can't measure it, it doesn't count.

It is a truism to talk about the importance of measurement to business performance. And it is one of the hardest things for procurement to crack, in any organisation. Getting a process that captures the contribution that the function makes in a credible and meaningful manner is very difficult, and that has certainly been true in the public sector in the UK.

After the Gershon review of 2004 put procurement in the spotlight, most public bodies had to show that they were achieving 'efficiency savings' of 2.5% a year on their cost base. Unfortunately, two elements conspired to make the measurement of this very dubious. And that's not my analysis; the National Audit Office, in various reports, found that around 25% of the declared savings were genuine, 50% had some doubt around them, and 25% were false.

The first problem was the savings methodology originally introduced, which just had too many holes in it. For instance, it allowed very flexible 'demand management' parameters; and it allowed procurement to claim the difference between the first price quoted by a supplier ("that'll be about £1 million mate") and the price post-formal tender. It also allowed customers of central buying organisations to claim savings against some market price benchmarked by the central buying group themselves! (This led to a situation where an organisation could claim savings in some cases where the price they paid for a specific item actually increased.) In fact, I wrote a paper entitled "12 ways to cheat on your procurement savings" in order to point out the flaws in the system!

The second issue was that, in general, budgets were rising for public bodies. So the 'savings' did not have to be returned to a central pot; they could be 're-invested' by the organisation. It was very easy for an organisation to claim some pretty spurious savings in terms of their report, but they didn't have to actually demonstrate the dollar bills they'd saved; they could just say the proceeds had been 're-invested' in services.

Now, around 2007 the savings methodology was tightened up, which has helped (although NAO are still doubtful about much of what is reported). The lack of any systematic or systemised approach to benefits capture, measurement and realisation in the vast majority of organisations is still a real issue.

But now that organisations in the UK (with the exception of the health sector) are seeing real cash cuts in their budget -- up to 30% in some cases -- then procurement savings must be real, otherwise more employees will have to go to balance the budget. That is focusing minds more than anything else -- it will be obvious where organisations are declaring savings that aren't real. And the transparency agenda (take a look at Spikes Cavell's 'Spotlight on Spend' service as an example) is enabling citizens to at least get some view of where local councils are spending their money -- and other bodies will follow.

We'll look at some overall conclusions for the US tomorrow, but the message here is that appropriate mechanisms for capturing and recording government procurement savings are key -- but they aren't easy to derive or implement.

- Peter Smith

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