The Perfect Storm (public procurement white paper) – Introduction

As promised in yesterday's post, here is the Introduction to our White Paper.

It is quite lengthy; I promise that the future installments will be a bit shorter than this!

THE PERFECT STORM

Introduction

The title of this White Paper may seem peculiar, but public expenditure in the UK will be under more pressure, whoever wins the election, than for many decades.  And public sector procurement (the acquisition from external organisations of the goods and services that the public sector needs to do its job) is going to have to succeed in the face of several huge challenges, potentially coinciding; a “perfect storm”.  Public procurement will either come through this stronger than ever, having made a major contribution to economic recovery.  Or it will have lost credibility, and risk being sidelined for many years to come.

The proportion of public expenditure that is not used to pay the salaries and benefits of public employees – described here as ‘public procurement spend’ – is estimated by the Treasury’s Office of Government Commerce (OGC) to account for some £220 billion of public expenditure per year.  Spending that money well, and reducing the amount spent while minimising consequent effects on public services, will be one of the most important policy and management tasks for the new Government.

Many reports and proposals have been published already, and no doubt more will be before the election with recommendations around improving public procurement.  Very few are written by people who have direct, first hand experience of how public procurement actually works, let alone a deep appreciation of the issues across all key sectors; central and local government, defence, health, education, the emergency services.

This paper is an exception.  The author and contributors to it are procurement and project management professionals with hundreds of years combined experience who have worked and are working either directly for the public sector or as high level advisers to organisations within the sector.  That does not necessarily mean we are correct in our analysis and views, but it does mean even our errors will be grounded in some real experience.

We believe that public procurement can make the contribution that is indeed to future economic prosperity for the UK.

However, virtually all commentators we have seen under-estimate the difficulty of making the necessary savings from the £220 billion spend.

Politicians – in public at least – will tend to understate the difficulty of achieving ‘efficiency’ savings in order not to worry the voter. The media tends to work from a starting point that the public sector is inefficient and therefore savings must be easy to find.

We disagree.  Our long experience working in public and private sectors suggests there is good and bad practice in both, but that some public procurement is already top class, and most is at least competent these days. But there are reasons other than capability why ‘savings’ will prove more elusive, more painful, and require more effort to realise than most expect.

In Part 2 of this paper, we will outline our tangible proposals for public procurement.  We have avoided recommendations that are likely to be highly impractical or unachievable.  For example, a recent Institute of Directors paper proposed a total restructuring of procurement organisations, which would require local authorities and others to be forced to give up control of their own functions. While the report contained some interesting ideas, we think this is unlikely given the governance and constitutional implications.  Similarly, railing about ‘arcane procurement rules’ as 23 industrialists did in their recent letter to the Telegraph is pointless unless we really think a new Government will put a head-on argument with the EU on this topic  at the top of their priority list, as it is the EU who define the vast majority of public procurement rules.

Other reports take a simplistic approach, assuming that the act of ‘collaboration’ in itself will magically drive savings, without considering the economies of scale in specific supply markets, or unpacking how ‘collaboration’ can really drive benefits.  Similarly, we believe it is most unlikely that suppliers, out of the goodness of their hearts, will simply offer public sector customers price reductions.  This is not behaviour their shareholders are likely to support.  So any proposals must be practical and achievable.

We have also avoided talking here about the ‘enablers’ that will be needed to make the efficiency savings happen. We fully support the work already underway by OGC and others to improve spend data and information across government; to improve commercial and procurement skills; and to use systems and technology better.  These are all vitally important and we take their continuation as givens for procurement to have any chance of success.

We have also focused on generic strategies, issues and approaches rather than those for a particular sector.  There is much that needs to be done in Health, MOD and other areas; but we have not made such ‘sector-specific’ recommendations here.

It is de rigeur for reports of this nature to throw around savings targets.  It appears that eminent business leaders can merely use judgement rather than any concrete evidence, but we have avoided putting numbers against each of our ideas.  The dangers of double counting and the conditionality are just too strong.

However, if the structural deficit for the UK is running at as much as £75 billion per year, then it seems reasonable that we should be looking for third party spend (procurement) to take at least its fair share of that.  So if procurement represents around one third of all spend, we should be looking for at least £25 billion in savings; and preferably much more to minimise job cuts.  But this must be REAL savings.  We believe therefore that a target  of around £30 billion is essential as a genuine reduction (not cumulative, but a reduction in effect from £220 billion p.a. third party spend to £190 billion pa) by March 2013; achieving this 15% reduction would put the achievement in line with the more successful private sector procurement programmes we have seen.

We do believe that public procurement can achieve this.  But before we lay out our ideas, it is useful to temper our optimism with some concerns.  There is a real chance that public procurement may face a ‘perfect storm’ over the next two years that could sink it for years to come.  A number of factors could coincide and call into question both efficiency targets and public procurement performance.  Part 1 discusses these.

PART 1 TO FOLLOW

Voices (4)

  1. Kevin Burns:

    Peter
    nice appetiser… looking forward to the other courses!
    warm regards
    Kevin

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