The Slow Death of UK Public Sector Procurement (part 2)

We explained yesterday how procurement work is inexorably moving from the public sector to the private as outsourcing of various types begins to take off in the UK public sector.

Broadly, there are five types of “outsourcing” that are impacting on procurement in the public sector. In most of these, the money does still start with government, so total spend may not decline very much – but the picture becomes one of a smaller number of large outsourcing type contracts will be let by the public sector, with a resulting and significant drop in procurement workload.

1 . Outright outsourcing or privatisation of entire organisations. Circle Health has become the first private firm to take over the entire running of a hospital- Hinchingbrooke in Cambridgeshire.  The Audit Commission is being broken up / privatised; and there are other examples. Now someone has to let the contract that was awarded to Circle; but that probably wasn’t a traditional procurement function.  So the procurement team within Hinchingbrooke, who were public sector, are now private.  The public sector element will be one contracting exercise every ten years as opposed to all the contracts that the hospital would have let as a pubic body.

2.  “Macro level” business outsource or partnering programmes, usually with a range of business processes, services or activities bundled up and offered to the private sector. Recent cases have included the ill-fated Somerset SouthWest One initiative; the recent Lincolnshire Police deal with G4S; and the proposed Surrey and West Midlands Police partnership. In all these cases, procurement has been or is likely to be affected; again, spend and activity that was in the public sector becomes private.

3. Outsourcing of major single business processes or functions. We’re seeing local authorities in particular outsourcing areas that would once have seemed very “core” – Devon council / NHS outsourcing children’s health services for instance. Other councils have outsourced IT, or property management; but there is almost always an element of third party procurement spend wrapped up in this, often very significant. That spend is now being managed by private sector procurement folk, not public.

4. Outsourcing of the procurement function – It’s not clear exactly how it will work but Staffordshire’s deal with Capita might be an example; we wrote about the same firm acting for Southampton council here. BT, Serco, Capita, Balfour Beatty, Mouchel, Babcock, are all running large swathes of local authority procurement now around the country. And in central government, the Ministry of Defence may be making an even more significant move, depending on exactly how involvement of the private sector pans out in terms of the Defence Equipment and Support organisation.

5. Category-level outsourcing, usually to a Prime Contractor. This is less obvious and may appear to be merely a type of procurement strategy – but the effect is that work that could have been done by the public sector buyers is now been passed on to the Prime, and less effort /staff will be needed. The recent training services contract let by GPS to Capita; the use of managed services providers for contingent labour in Whitehall and local authorities; and the growing use of Prime Contractor approaches in areas from defence to IT, from the Work Programme to consulting services. I’d stress this is not necessarily a bad thing, and the net effect may not be an apparent reduction in public procurement spend – but it’s reducing the public procurement workload and staffing levels again.

We could also include what we might call tactical procurement outsourcing (including  collaboration); for example more use of the Government Procurement Service or local authority collaborative bodies, or health collaborative bodies. Even there, the private sector is beginning to play a larger role in the health arena, with a couple of the more successful health collaborative bodies now part-privatised. How long before a PRO5 member goes that way?

So, Tomorrow we’ll ask why this is happening, and why the pace of change appears to be accelerating.

Voices (6)

  1. andrew:

    In the North west of England we are seeing a down sizing of Procurement teams with Heads of Procurement not replaced as they reach retirement or move back to the Private sector. The Procurement service in many organisations has never completely sold itself as value added outside of the tendering process and anyone can buy stuff. Therefore we are a casualty in the search for shortterm headcount cost cutting.

    It remains to be seen if this reduction in Procurement resource in the short term will result in a increase in demand for Procurement expertise in the longer term .

    Remember someone has to manage the outsourced serivces and control demand with the Public Sector ,there is a role for Procurement as Supplier Managers , Demand Managers and Contract managers.

  2. David Orr:

    http://www.independent.co.uk/opinion/commentators/laurie-penny-dont-listen-to-what-g4s-say-look-at-what-they-do-7831790.html#

    Nor does there seem to be any great anxiety to put those laws in place. In Britain, private security agents might be hired to do the same jobs as police officers and prison guards, but they’re not accountable to the public in the same way – at least, not yet. The Independent Police Complaints Commission still has no power to investigate private security staff, and the Government is prevaricating over the watchdog’s request to extend its remit – which was supported by G4S – while extending the outsourcing of policing to for-profit companies. G4S was recently awarded a £200m contract to take over half of the civilian duties of Lincolnshire police force. Policing employees helping protect the public in Grimsby and Scunthorpe will now wear G4S’s company logo – that discreet sharp slash of red and black.

    What difference does it make if the men and women in uniform patrolling the world’s streets and prison corridors are employed by nation states or private firms? It makes every difference. A for-profit company is not subject to the same processes of accountability and investigation as an army or police force which is meant, at least in theory, to serve the public. Impartial legality is still worth something as an assumed role of the state – and the notion of a private, for-profit police and security force poisons the very idea.

    1. Dan:

      Good post. Public bodies are accountable to the public. Private companies are accountable only to shareholders. In fact, if they prioritise something over shareholders interests, then they could be on the receiving end of a lawsuit.

  3. David Orr:

    If this pace of change in how our taxes are spent on public services is “slow death”, then I would hate to see “fast death”.

    There will always be a tension in any contract where the public contracting party wants “the most services at least cost” and the private contractor legitimately seeks “the most company operating margin for the least service delivery cost”.

    It is ironic that a massive market failure in banking has been used as the trigger to the biggest wave of marketisation of public services since the 1980s.

    Some would argue that the deregulation of financial services in the 1980s laid the seeds for the banking crisis in 2008.

    This is in fact one big experiment (along the lines of USA-style public service delivery) and the consequences will not be apparent for some years and are designed by policy to be be irreversible.

    For those who lobby fund & believe that there is nothing of value in a public service ethos and that profit-driven markets always know best, then this is indeed “smart sourcing”.

    A challenge to SM bloggers: Name one large ERP implementation (like SAP) in any Police Service or Council that has released large cashable savings (audited figures only please) that were greater than the lifetime total of:

    a) Contract bid/procurement and legal costs;
    b) ERP costs including annual support/license charges etc;
    ) Contract management costs for the client

  4. TimBya:

    I found some of the lesser forms of outsourcing you mention above don’t necessarily mean the decline of procurement but an opportunity to reinvent itself. Bundling up a business activity and letting one large contract where there used to be 100s, can leave space for procurement to move away from transactional buying into the more strategic area of contract management and supplier relationship management – working with the business stakeholders to ensure the value continues to be delivered and hopefully enhanced through the life of the contract. Different skills and perhaps less staff but ultimately a more rewarding profession.

  5. Clive Sparrow:

    Public accountability is put at risk by the ‘slow death of UK public sector procurement’. This is an extremely serious issue, which the NAO and PAC should investigate urgently.

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