Why central procurement for the UK public sector can’t work

After exploding the “public sector is just like Tesco” fallacy, today we’ll look at why a UK central public procurement body (let’s call it the CPA or Central Procurement Agency for short) would be an expensive,  distracting and ultimately value-destroying disaster. We’ve had some excellent comments from readers on this topic, so we’ll also feature those in a separate post next Monday.

Perhaps the most important point that makes this a terrible idea, and means it is most unlikely to ever  happen, is the accountability of individual public organisations. At a time when we’re looking to make schools, hospitals, police forces and other public bodies more accountable to their users or local citizens, are we really going to take all that accountability away from them and put it in the hands of a huge central procurement bureaucracy?

Many organisations spend 50% or more of their total cost base with third parties, and that’s highly strategic spend in many cases. How could that be transferred to another organisation without fatally weakening accountability and authority? Think of the excuses that chief executives or Permanent Secretaries would have when something goes wrong. “It wasn’t me, it was the CPA” would be the cry at every Public Accounts Committee or National Audit Office investigation.

Then we have the lack of commonality between organisations.  There is precious little in common between procurement of Aircraft Carriers, places in care homes, railway rolling stock,  police dog food, school books and pharmaceuticals. And we could add hundreds of other disparate examples. It’s hard to even imagine a single organisation could be truly expert at all of this. And while specifications might be nationally aligned in some limited areas, wouldn’t  that stifle innovation or creativity? I don’t object to the concept of the “single government pencil”, but it’s a struggle to go far beyond that in terms of what really should be common between all or even many parts of the public sector.

The challenge of gathering and agreeing requirements is another barrier to even limited collaboration, let alone the mega-CPA. Think of the time it would take to just pull together the requirements, let alone developing the strategy  and implementing whatever go to market (tendering) requirements were necessary. The entire public sector would grind to a halt while the CPA simply worked out how many laptops, taxi journeys or legal services were needed! Look at how difficult and time consuming it has been for the Government Procurement Service to put together frameworks in areas such as professional services to satisfy just central government. Multiply that problem by five or more…

And the sheer size of this CPA organisation – just how big would it have to be? I’ve done a quick estimate (working available on request) and I’m thinking something around 10,000 people. Would that be a slick and effective, dynamic powerhouse of procurement excellence? Or a huge, bloated bureaucracy? Would it attract the best and the brightest? Or people who like the idea of a safe and steady job, and a nice unthreatening environment – because of course there would be no “competition” to the CPA, by definition.

Then we can question how much there really is to gain from such a move. In many spend areas,  economies of scale don’t apply as simplistically and clearly as many people think. I can promise that a single government buyer for almost any commodity won’t get the best prices. They will be too big to exploit market flexibilities, marginal costing and so on. And if you respond by splitting up the procurement into lots of smaller contracts -then what’s the point of the single organisation?

The effect on markets is likely to be negative. Aggregating volume and contracts would naturally favour larger firms.  Winning or losing the contract would be such an important event it would make or break a company – expect lots more legal challenges! Competition would eventually be reduced as the CPA distorted the market, with cartels potentially forming and a lack of innovation. (Again, if the response is that CPA will let lots of separate smaller contracts then what’s the point of it – isn’t that what happens now?) And localism, support for smaller, innovative and local firms would be most unlikely in the nationally structured behemoth of the CPA.

I could go on. And on. But that’s probably enough for now, and actually, the accountability argument trumps the lot. You just can’t take procurement out of MOD, or DWP, or even Surrey Council, without fatally weakening the role, authority, accountability and responsibility of the people who run those organisations.

None of this means, I should stress, that there isn’t more scope for collaboration and aggregation in the public sector in certain areas and categories. And as well as the readers’ comments, I promise we will come back with some of our ideas shortly rather than just criticising others!

 

 

 

 

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Comments

  • Paul Wright:

    There is an inherent problem with Government aims – particularly I think this government, but it is not confined to them. They want to have the political benefits that arise from their spending (local accountability, supporting SMEs, supporting minority businesses, flexibility etc.) AND they want to have the economies of scale and lower prices that come with size (let’s for the moment accept that is possible, though as you point out it is far from certain). It’s a “have your cake and eat it” philosophy that is in no way grounded in reality. The current government also wants to do that with fewer people, which is going to be quite a stretch (by which I mean impossible – any major initiative requires a “surge” of resource before you get to the sunny uplands of a slimmer, more efficient organisation). It’s another example of how Public Procurement is not like Tesco – they could just look at the benefits; the government has to look at the votes as well. As you say, it is not impossible to square this circle but I think it would probably take more than a single 5 year electoral term (which in reality is nearer 3 years once it is topped and tailed)

  • colin cram:

    Surrey County Council procurement is already providing procurement services to other councils, so probably not a good example to try to illustrate the accountability point. It could be well placed to become a regional hub!

  • colin cram:

    Peter

    Having re-read your articles, I think you would agree in hindsight that it was unwise to turn what could have been a useful and constructive debate on how best to manage an unimaginable spend of £200bn into a series of wild generalisations, incorrect assertions, misrepresentations and criticisms of things that were not proposed. “The public sector is like Tesco” is your fallacy – I have never seen anyone else use the phrase and it is something I have never claimed as you will know from reading ‘Towards Tesco’ . I could spot only two references to ‘Tesco’ in the main body of the ‘Towards Tesco’ article and that was to point out that Tesco would not have remained in business if it organised its procurement along the lines of the UK public sector. https://www.iod.com/MainWebSite/Resources/Document/policy_article_towards_tesco.pdf

    Creating wild assertions and then decrying them seems a pointless thing to do. Things that you have said will not work have already been solved and proven on a smaller scale (though big by most standards). Also, perhaps because you have never worked in the wider public sector, you have ignored changes in the way services are beginning to be provided, the joint services within and across sectors – the pace of which will increase rapidly. The accountability issue has been solved many times over in procurement and also in service delivery. It is easy to decry a central organisation of 10000, which I regard as an extremely wild assertion, but to ignore that there seem to be several thousand procurement organisations in the public sector at the moment – and how many people doing procurement? We can all agree that bulk buying does not necessarily provide lowest prices – it often does, but even where it doesn’t, it often achieves better prices than people are already achieving and allows them to focus on the procurements that matter most. I could spend my time picking holes in almost every one of your assertions. However, that is a pointless task. I am pleased to see you intend to move to a more constructive approach to what is a hugely important issue. The negative approach so far has done the procurement profession in the public sector no favours.

    • Peter Smith:

      Colin
      I was going to ignore your own “wild assertions” in the interests of peace in our time. But I have to make a couple of points. If you call a Paper with public sector procurement as its topic “Towards Tesco”, have that heading at the top of every page, and stick a dirty great picture of Tesco on the cover, then you shouldn’t be surprised if many people – some of whom may not have read the full report – get the message that “the public sector should be more like Tesco”. (It was a great way of getting more publicity for the report by the way – I admired you for that!)
      Secondly, let’s both be honest: we enjoy having our public pulpits – you with the Guardian, IoD and so on, me with Spend Matters. We like using then to promote our ideas. Where we seem to differ is that I genuinely relish people disagreeing with me. You don’t seem to like it very much. I haven’t had a go at you or your personal experience,indeed I didn’t even mention you in this post, so just be careful if you’re going to start that with me (“you have never worked in the the wider public sector” etc – not even true actually). If you can’t stand the heat… anyway, more positive stuff to follow!

  • colin cram:

    Peter

    Actually, the title wasn’t mine, but it was a good snappy one. ‘Towards Tesco’ is a quick read and a tightly argued document. I would suggest people read it and make up their own minds. They will quickly realise that I have not advocated a ‘Tesco Solution’ for the public sector. There are some differences in my latest thinking with ‘Towards Tesco’, which take into account changes and trends in the public sector; those thoughts and the rationale behind them will be published.

    I enjoy rational and logical debate. However, the language you have used was not what I interpret as the language of anyone wanting a rational and logical debate: ‘Crazy’, ‘facile’, ‘borderline crazy’ ‘ “public sector is like tesco” fallacy’ (Who were you quoting? It wasn’t me, though the implication seemed to be that it was), ‘frankly mad’, ‘terrible’, ‘nonsense’ etc. I had hoped there could be a rational, balanced and logical debate and deliberately mentioned on your web-site, the day before it was published, my Public Leaders Network article in the hope that you would comment constructively (not expecting you to agree) and that there could be a reasonable and rational debate. This is a very complex topic and there is no perfect solution, but there is a logical way of tackling it.

    I am not going to rise to your final sentences. If you are interested in engaging in a constructive debate, with the intention of moving the agenda forward, I would be pleased to meet up with you over a coffee next time we are both in London, near Victoria as usual, and discuss how we might proceed.

  • Pat Barlow:

    Wasn’t the Tesco analogy used in the Philip Green report?

    I remember some years ago when a civil servant mentioned the old central buying system (Ministry of Supply?) and compared it with the devolved departmental purchasing system – their comment was that in the old days nothing could ever be bought as it was too rigid and slow moving a system.

    There is also a concern I have that economies of scale have theirupward limits – you can’t please everybody all of the time (Aesop), and the more stakeholders you have the more cumbersome the means to satisfy even the basic common demands perhaps?

  • Miranda Carruthers-Watt:

    I’m not sure that slinging mud helps on this one! There is a demand in government for procurement savings. There is a significant lack of understanding that procurement is far greater than the actual buying decisions amongst those who are making policiy decisions about centralisation and that is worrying.

    Does centralising the specification and technical expertise mean that we have to buy from single block contracts or does it mean that organisations can choose to set their policies and then use people who are technically able and well placed to put those policies in to practice?

    I’m interested in the way that some US areas are using the very accountability and buying power of large institutions to support local businesses and create new ones. I am concened that a focus on the cheapest widgets would provent that sort of approach and also create – as we;ve already seen, a climate that cuts SME’s out of government contracts as they are just not set up to work together.

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