The Slow Death of UK Public Sector Procurement (part 1)

We’ve had a couple of pieces in recent weeks around the state of UK public sector procurement, two years into this government. There have been some positive achievements, as we said, but this week we’ll explain an emerging trend that we believe is fundamentally changing the nature of public procurement in the UK – and we have our suspicions that some of this may emerge in other countries as well over time.

You’re right – we have used a bit of an obvious attention grabbing headline. “Decline” would really be a more appropriate word, but it doesn’t have quite the power of “death”.  And maybe, to be honest, we're talking about a huge change rather than death or decline, looking at it from certain angles.  But it may feel pretty negative for a lot of people.

Anyway, today and tomorrow we’ll explain the phenomenon, then look at why it is happening, and finally discuss the implications for various stakeholder groups.

So, what is going on? We featured an excellent and important article from Dave Orr recently, where he discussed the accountability issues around the outsourcing of major activity and services from councils and other public bodies. We’ll come back to accountability later, but the primary cause of the decline we’re talking about is indeed outsourcing.

Our thesis is that “outsourcing” in its broadest sense is now gathering pace in the public sector, and it is leading to some fundamental changes in how public services and tasks are delivered. In summary, rather than the public sector buying a lot of different products and services, requiring a large number of contracts, tenders and therefore procurement staff, that expenditure is being rolled up into much larger contracts, that fall into various types of “outsourcing” as we’ll explain tomorrow.

So, for instance, we might now have a team of procurement managers spending £100 million a year working for a hospital, placing hundreds of different contracts and running dozens of formal procurement exercises.  But in the future, we might see the public procurement task being a contracting process which only happens once every ten years to procure (or commission) a private sector firm to provide the same services, or indeed run the hospital. The multiple procurement tasks will then be run by private sector buyers working for the private provider.

This changes the nature of public procurement – and may even threaten the survival of “procurement” as the key terminology if “commissioning” continues to be flavour of the month. The day to day buying (the £100m) will be carried out by private sector staff, as we say, and it may not be the traditional procurement professional who executes much of the high-level “commissioning” work that remains in the public sector. So without a doubt, the volume of procurement events will continue to decline in the public sector.

This means that the number of traditional public sector procurement staff in the UK will also reduce; in fact it is already in decline, and will almost certainly never again hit its peak of 2010. We’d also suggest that the rate of decline will accelerate over the next few years.

So, much of the procurement work currently in the public sector will move to procurement people who will sit in the private sector, helping to deliver services on behalf of government. That's not necessarily a bad thing, but it will lead to some significant issues and changes. Are we as a profession, and indeed as taxpayers,  prepared for this? We’ll look at the implications later in this series, but tomorrow we’ll examine the nature of this increase in outsourcing, and the different forms it takes.

Voices (2)

  1. Ramiro:

    That’s unlikely to become a problem as long as enough competition is guaranteed in public procurement processes, specially above threshold. Even in that case, new provisions tackle this problem fostering lots in call of tenders.
    Globalization and ecommerce are the real force behind enterprise cluster consolidation, and there’s no way back, but at the same time new public procurement provisions are targeting SMEs as the emerging main purchaser.

  2. Final Furlong:

    Interesting notion. Let’s take Health…

    The DH are outsourcing Commissioning to ‘Clinical Commissioning Groups’ (CCGs) which are owned/run by GPs (doctors). Notably, 80%+ of all GPs are ‘private’, operating through under contract.

    The GPs quickly recognised that they weren’t good at commisioning, so they outsourced ‘commissioning support’ (the role of actually delivering it…) to the private sector. At least 40% of the 86 CCGs have already done this – more will follow once they burn their fingers for the first time…

    They will ‘purchase’ contracts from a range of providers, but mostly NHS acute hospitals (FTs and non-FTs…) because of the capacity in the current market.

    Many NHS acute hospitals outsource significant procurement activities to a range of private (part-owned or wholly owned) companies, which include HTE (owned by US firm HCA), SBS (owned by Steria), DHL (who dominate both buy and supply side supply chain delivery…) etc, and even Circle Health (the ‘social enterprise’, erm, owned by venture capitalists…), which is a competitor to NHS trusts but currently runs an entire NHS acute!.

    Inside NHS trusts, there are many individual clinicians who are paid by the private sector (private healthcare providers, med tech manufacturers etc) to undertake private work alongside their NHS work.

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