Two Years On – the state of UK public sector procurement (part 1)

It is two years today since the UK Coalition Agreement between the Conservative and Liberal Democrats was signed in the wake of the indecisive 2010 election.

May 2010 - Happy Days for the Coalition Partners..

So over the next couple of weeks, we’re going to reflect on what’s happened in terms of public sector procurement during that time. But perhaps more importantly, we’ll look at where it appears to be going, and what we might see over the next three years up to the 2015 election (assuming the coalition doesn’t collapse under the weight of its own contradictions before then).

It has certainly been an interesting period. Central government procurement has received the most focus, with initiatives such as the centralisation of common category procurement, the more assertive approach to negotiations with the top suppliers to government, and some positive action in the SME (small business) field.

The government has been helped by the almost total lack of any opposition from the Labour Party in this whole area. You might think, given that procurement spend accounts for a third of all public sector spend, that Labour might have occasionally opposed and / or offered some alternatives? The abolition of the Office of Government Commerce and the National School for Government (also an important part of the public procurement eco-system); the whole centralisation strategy, which is far from being a no-brainer; the chaos in health procurement; the lack of an MOD procurement strategy while millions were squandered with £5000 a day consultants; one might think that, whatever one’s personal view, an opposition party might have expressed some opinions?

But really, nothing has emerged. Whatever criticisms we might make of the coalition in this area, we can’t say anything at all positive about the opposition. So, since May 2010, nul punkte to Labour for their contribution to the public procurement debate.

On the positive side of the coalition performance, the centralisation work showed boldness, even if we’re beginning to see two problems. Firstly, while it is conceptually possible to balance huge national contracts with a focus on small suppliers, encouraging innovation and so on, it is in practice very tough – Andrew (Lord) Adonis, one of the smartest ex Ministers around, identified this the other day in a speech. Secondly, the sheer practicality of buying across all of Whitehall is coming into question as the scale causes problems – witness the very late running of the new consultancy framework tendering process.

The work to support SMEs has generally been admirable, although much has really been a continuation of what was already happening under the last government. Whitehall was also shown up somewhat by the recent File on Four Radio 4 programme which demonstrated that Wales is ahead of England in terms of these “policy through procurement” initiatives.

Meanwhile, the top supplier initiative – looking to squeeze savings out of the largest suppliers to government – is definitely a positive step, but suffers from the fact that the results, for reasons of confidentiality, are so opaque. So we see Francis Maude (the Cabinet Office Minister) talking about huge savings, while the suppliers in question tell their investors “there’s nothing to worry about, revenues and profits aren’t affected”.

I’m as confused as anyone here, and most people I talk to are more cynical about this than I am, which suggests this may not be something that is going to convince the general voting public too much. However, we should give Cabinet Office credit for (up to now) a more considered approach to measuring savings than we’ve seen before from government.

Maude’s heart is also definitely in the right place when it comes to procurement and he has been very active and supportive. He’s had an admirable focus on reducing the time taken for procurement and in general, his support for early engagement with supplies, and less use of competitive dialogue, are sensible although in our view he sometimes misses the nuances – Competitive Dialogue can be very appropriate, and early engagement must be handled carefully. Perhaps as a politician he just favours making messages simple and clear, which is fine. But complex procurement issues don’t always reduce to a simple sound bite. And what’s happened to the Procurement Academy we were promised?

The big priority has of course been savings. Here, one could argue, the centralised approach has delivered. Through a robust “demand management” process, Cabinet Office has driven spending reductions in departments across some major categories. There’s been little attempt to measure the consequences of this however; so, for instance ,your claimed “savings on use of temporary staff in the Home Office” might become my “three hour queue at Heathrow immigration”.

That’s the challenge with the demand management approach. Might some of it unwind as competence becomes a big issue for the coalition? And what comes after you’ve done all you can in that area? That will be one of the challenges for the next couple of years.

There’s more to come in the next couple of weeks on wider public sector procurement, and on some of the other procurement-related activities that central government is addressing. And we’ll be highlighting a controversial conclusion that our recent pontifications have led us to….

 

Comments

  • Elephant in the room:

    Has anyone found the tangible evidence of procurement reform in government. Public sector spend in 2010 was £236bn, but I’ve yet to see what the number was for 2011….does anyone know what the facts of the matter are??

    I continue to worry having glanced at the recent public accounts committe report that suggested 2.3% had been delivered in central government in 10/11, with a further 19% required over next 3 years. How is that going to be delivered?? It always seemed logical to me that the easiest savings were captured first and thence it got harder….perhaps the government have figured out a new strategy for delivering savings by going after the tough things first and leaving the easier things for later…..or perhaps, like so many other initiatives (Gershon et al) the hope is that it’ll all be forgotten, the economy will have picked up, and something else will distract us from yet another example of why having 50% of the economy in the public sector is very bad news indeed.

    Great to see the decisiveness on the F35′s by the way. Maybe flipping a coin would’ve bought us a couple of hospitals.

    • life:

      Agreed. I’m not seeing any evidence – partial (in both senses) info releases, but nothing one could seriously use to assess.

      It’s all about competence, and that’s been obvious to anyone involved in Gov procurement since before it’s been fashionable to say it, as we’ve had clearest and earliest sight of both the “targets” and the context / history. You can’t achieve miracles (19%!) by not putting any resource against them, or at some point explaining the plan, and it’s getting very, very late to whip away what would have to a very, very large doily.

      Of course there will also be an expansive pump with appropriate lag before the next election, so my money is that all the heads of sheds across the piece will be proven right in keeping heads down and hoping it just might not happen in their current tenure. The IMF certainly thinks (and likely wants) so, and on balance they are probably a bit less partial than most locals!

      • life:

        And, just in time, the plan arrives:

        http://www.telegraph.co.uk/news/politics/9258573/Worst-civil-servants-to-be-sacked.html

        I’m sure this is going to work out well!!!

        • Final Furlong:

          Hilarious! I rather like the idea of culling the civil service by 90%. (Would one notice any difference?) 450,000 is a lot of buffalo to shoot without spooking the rest of the herd and causing a stampede.

          • life:

            They haven’t actually got as far as the shooting bit yet, although they might when they realise (or are advised) that “sacking” people doesn’t mean that they literally disappear… the private sector revival isn’t quite with us, so where would they stampede to? Although undoubtably a majestic sight, I’m not sure how our border controls would cope with 450,000 buffalo sweeping through Terminal 5… perhaps many would end up on the dole after all.

  • Jon Hughes:

    Very timely, Peter. There’s always a point in any government when they can no longer blame their predecessors for the mess they find themselves in. They begin to stand or fall by their own strategic cohesion, or lack of it. Despite some heroic efforts from Messrs. Maude and Collington, there is no all-encompassing vision, strategy or change model that embraces what needs to be done across public procurement. All roads lead back to leadership, and that remains sadly lacking at Cabinet level, across government departments and within the ERG.

    Public procurement reform needs to become a policy goal of government. Until that is properly addressed, even apparently large numbers of so-called savings claimed under demand management etc. are no more than incremental tinkering when compared with the totality of UK-wide public procurement as a percentage of GDP.

    When that is embraced, public procurement can become a very powerful lever for both fiscal consolidation and economic growth. My challenge to all leaders is how best to reposition procurement from the very top of government down.

    • Rob:

      Spot on Jon

  • Elephant in the room:

    I’m sorry, did I just read ‘heroic efforts and lack of strategy, plan, vision, change model that embraces what needs doing…in the same sentence’!!

    Just what part of no vision, no startegy, no change model and – one of my own – little in the way of results, equates to a heroic effort?? As you say, Jon, all roads lead back to leadership and in this case it’s a dead end. They all seem to spend far too much time explaining their dreams at conferences when they shoudl be just getting on with sorting it out.

    It’s more like a Greek tradegy than the exploits of Odysseus!

    • Dan:

      Its perfectly possible to make a heroic effort without getting results.

      Quite simply, I suspect that “an all-encompassing vision, strategy or change model that embraces what needs to be done across public procurement” is far too great a task to be accomplished, which is why they have focussed on central government spend for now.

      • life:

        That is true Dan, and I agree that over ambition is definitely a part of this, but none-the-less, as a leader of an organisation (or country), if you’ve made a “heroic effort” but have no strategy, vision, change model, or results, I would propose you are at the very least in need of a few training credits.

        We may also be making rather an (enjoyable) lot of what was I suspect a casual and rather fun turn of phrase to get an underlying and basic point across.

        And also (!), all props to Jon who is not an anonymous poster, for making the point. Ater all, those of us who work in Government can’t be too rude to all those heroes on whom we rely for work! The odd classical allusion may help us get away with it….

  • eSourcingSensei:

    “Elephant in the room” highlights one of the gravest concerns based on the limited information available to those outside (that’s me) of public procurement whilst at the same time having engaged in conversation, debate and even presentation to some within that team.

    2.3% improvement/saving against a target of 19% (or is it 21.3% and so 19% still to go – I’m not too sure). His point is absolutely correct. All business whether public or private pick the easy to access low hanging fruit that is by comparrison to other savings easy to access.

    So maybe there is more to it than the surface suggests. And given my limitations on direct access to information (no access) I know my view can be falwed but here it is.

    The UK civil service procurement teams across the major sectors, invested in eSouring technology about 2 or 3 years ago (not privvy to agreements but I think thats about correct). It is a well estalished principle (in line with what Elephant In The Room highlighted) that most businesses achieve their biggest % savings with this technology in their first few years usually through the use of the Reverse Auction technology. Companys achieving savings of between 15 and 30% is not unheard of and often there can be much more. This is particularly true when working in sectors where eSourcing has previously been unused. I won’t use this page to explain why that is the case as I think most here will know and I am sure Peter and Jason would have covered this a long time ago). From there (as I have said before in other posts) need to develop great skill in using the RFx functionality of eSourcing tools to further realise cost-out achievements.

    So here is my thoughts. I am absoultely sure that the eSourcing providers involved would have brought in consultant teams to assist the Procurement teams to use the tools. However, as good as they are I still see a gap between sound technical abiility of an providers consultant and solid working knowledge of how to exploit these tools to achieve the very best achievable results in “the real world”.

    In addition to this (without knowing everyone involved) I would question the skill base currently in place or available to the civil service in using and exploiting eSourcing technology.

    So if the civil service has relied on the providers consultant team and then the lessons it’s own internal procurement teams are picking up as they learn to develop with these tools, then maybe they are not maximising the potential that eSourcing has. They may need to look at pinching more “proven” private sector experts to assist them in achieving some of this. Someone with experience working with or alongside you is always far better than just reading the instruction manual :-)

  • life:

    eSourcingSensei (brilliant name btw), we do have at least a version of how the 2% to date has been achieved (http://www.nao.org.uk/publications/1012/government_cost_reduction.aspx).

    Saving “highlights” include:

    1) £1.5bn reduction in back office spending (consultants, temp staff, property and IT – 21,200 posts claimed);
    2) £1.6bn in capital savings (spend that was brought forward from the previous year);
    3) £4.8bn from a fall in expenditure limits, the largest being a fall in the DCLG grant to Local Authorities.

    So we’ve got 1), which is legitimate by itself, but in my experience is the most dodgy kind of budget claim which usually hides all sorts of things, not just quality / service issues but also spend elsewhere and timing shifts to conceal things. None the less, got to be some genuine savings in there somewhere. Please note though, they are claiming savings by utilising LESS IT, not more.

    2), an accounting adjustment, that perhaps doesn’t even qualify as “low hanging fruit”?, and certainly isn’t what most of us would unequivocally call a “saving”, and

    3) A shuffle out to Local Authorities. I haven’t followed the figures out to LAs but the end effect could be anything from genuine efficiency savings, reduction in services or dipping into reserves (i.e. no real sustainable savings, but a manouver to keep your head down until the storm passes). So definitely in the “mmmmmm….?” category for me.

    So that’s the 2%.

    Now, how are we going to do that 19% again?!

    • eSourcingSensei:

      Thank you “Life” for that – actually the reasoning behind the name is great fun (for me anyway) and I actually wish I could write in my own name but…………….

      Thank you for the link and the details you included/extracted from the NAO report

      I like your thoughts behind each of your 3 points.

      I actually think there was something else in that covering page which casts a “shadow” for me over what they are doing and what they are reporting. The paragraph reads:

      “However, the report warns that departments are less well-placed to make the long-term changes needed to achieve the further 19 per cent over the four years to 2014-15, as required by the spending review. This is partly because of gaps in their understanding of costs and risks, making it more difficult to identify how to deliver activities and services at a permanently lower cost. Fundamental changes will be needed to achieve sustainable reductions on the scale required”.

      The key phrase for me is “gaps in their understanding of costs and risks”. If any Procurement team do not understand how the costs of what they purchase are made up how can they effectively negotiate new or improved supply measured against the savings achieved and risks involved.

      This also leads me to wonder whether (as I have written/commented here before) the government really understand what they are spending and with who and where and on what. Spend Analysis together with Spend/Supplier Segregation is a key part of the tool suite and is the foundation on which you can build the tender process. In addition there are some other great processes available or that could be presented/taught that enable the building of a sustained procurement strategy that goes deeper than purely price saving. In fact point 9 of the Executive Summary almost makes just this point.

      So the 19% – how? Well thats the $64,000 question – or should I say the $64 billion question!!

  • life:

    Very true. I do think though that the reort was talking there to the leadership, not procurement per se. And I think that is right. Totally unscientific, and I’m lazy as the figures must be easy to find, but in my experience it would appear that 80% ish perhaps costs of Gov orgs is staff. Even if this is out by a factor, and while we must all play our part, it’s not possible to procure our way to 19% or anything like it. Yes efficiency savings but ultimately 19% must mean actual functions of Gov must cease or be taken up elsewhere, and statutory duties removed to reduce Gov footprint or scale / coverage (footprint of welfare, depth of health provision etc). Ignoring that some reductions will lead to cost elsewhere regardless, it in any case just doesn’t look politically possible at the moment, even if someone were seriously considering having a crack at it. The Canadian success is often cited, but less often that the shift to private sector there occurred during a period of much higher growth.

  • Comments on — Spend Matters UK/Europe:

    [...] Well, it’s getting better but not there yet! Anyway, thanks to everyone for great comments and debate anyway -  do have a look here. [...]

Join the Conversation

* Required fields  [email address will not be published]

*