Central re-negotiation of Government contracts – let’s be positive….

As we said yesterday, the 'negotiating immediate cost savings' from major suppliers initiative is now firmly underway in Government.  We expressed our doubts about likelihood of success, but today we'll look at how this might be turned into a win for public procurement, the Efficiency and Reform Group and Francis Maude.

What ERG should be asking is this; what can ERG do that individual Departments cannot?  What is their 'unique advnatage' that they can exploit which individual Departments cannot?  There are perhaps three areas they can bring some value ot this process.

1. Where requirements really are pretty common across Government, then some aggregation and use of pure negotiating muscle should be possible.  The classic case must be Enterprise software; we might expect that Microsoft, Oracle, SAP would be targets for a central negotiation.  But even here, the question of the BATNA is real; the threat to Microsoft (we'll move to open systems desktop) is more real than that to Oracle (we'll replace half the ERP systems in Government).

2. There may be some central 'power' available in terms of ability to stop projects and programmes.  This was pointed out to me by my VIP contact the other day; ERG may be able to threaten suppliers with projects being dropped if they don't offer up concessions.  (Although the point I made yesterday applies; if the scope of the proejct changes too much, then we may be into a requirement to re-tender anyway).

3. ERG can hold Departments - and indeed wider public sector bodies - to account for their actions to reduce supplier costs.  Tell CPOs that ERG expect everyone in the public sector to have a plan in place (and be executing by September) to drive significant cost reductions form their top 10 suppliers and contracts.  And monitor progress.

So if I were Mr Maude, this is what I would do.  Select the few (handful) of suppliers where I have some real leverage and focus central negotiations on them.  Delegate responsibility for other suppliers back to the people who can actually negotiate better deals in the Departments (sweetened no doubt by announcements that 'significant savings have been identified, worth many £ billions, now the Departments are just going to finalise the details'); and require every organisation to develop their own cost reduction /  negotiation strategy.   And finally,  look at where the centre can  force projects to be stopped - or made significantly more cost effective by negotiation  (and my sources tell me this is happening; I suspect that the e-Borders Raytheon contract termination was not purely Home Office driven!)

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