The Perfect Storm – Recommendations (part 3)

More of our recommendations, which form part of the serialisation of our public sector procurement White Paper - The Perfect Storm.

4. Clear decisions on collaboration

Collaboration between public organisations to buy better, combine demand and leverage makes perfect sense.  And yet…carried out unthinkingly it can lead to large, national contracts which are not really suitable being pushed onto small local organisations.  Local or smaller suppliers may lose out, and ultimately markets may even be distorted.  4-year contracts with no chance of new entrants being considered can make it difficult for innovative suppliers to break into markets.  The best collaboration (and the OGC is approaching this point in certain categories) leads to the ability for government to radically restructure supply markets, not just ‘do a bigger deal’.  At the other extreme, there are still areas such as health where collaboration is still confused and many suppliers still have the opportunity to divide and rule.

A further issue is that collaboration often at the moment takes the form of framework contracts which are put in place without a clear view of who might use them or how much volume will go through them. These contracts are available for public bodies to use but there is limited up front commitment from the organisations that will actually spend the money.  Such contracts rarely offer the best value; suppliers will only offer their best prices when volume is guaranteed and there is clear sight of who the customers are.

There should be greater clarity and explanation of strategies for specific spend areas across Government.  Much collaboration should be based at Regional level, which maintains greater market dynamism and flexibility, and there should include a presumption against single ‘mega contracts’ (or frameworks) except in a few carefully justified spend areas (probably including energy and ‘standard’ software for instance).  Where collaboration, at regional or national level, is sensible, it must be based on organisations committing spend to the contract in advance of the approach to market.

5. Merge procurement units

While collaboration is not a panacea, many procurement departments in public organisations are of sub-optimal size in terms of both operational effectiveness and market leverage.  Forming larger units would be sensible and beneficial, without moving to huge structures that run the risk of lack of customer focus or distance from clients.  Our experience is that organisations need a spend of over £100 million and at least 20 professional staff in order to obtain critical mass in terms of capability and leverage (and they should still use broader collaboration where appropriate).

Smaller procurement organisations – in smaller local authorities, health trusts and PCTs, police forces, colleges and others should be encouraged to merge; form or use shared services; or consider outsourcing options.  We do not believe this can or should be mandated but a clear sense of direction can be promoted, and tools and models developed to support such moves.

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