Central Purchasing Bodies and potential market distortion

The idea that legislation might be used to force UK public sector bodies into using central purchasing organisations (following the Cabinet Office discussion paper) drew some interesting comments from readers. (And you can download the paper from the SOPO website here).

I was very struck by the level of insight that our reader ‘Phoenix’ showed into how central bodies work and the potential market implications of consolidating contracts further.  Maybe (s)he has personal experience in the field of central purchasing organisations? But anyway, I thought the points made were excellent and worthy of featuring again here.

One thing I would add and that we can guarantee, is that GPS, CCS or whatever body is put into this compulsory position will have to work very, very hard if it is not to be thoroughly detested by its users. And if you doubt that, tell me any procurement person who has relished being at the receiving end of a 100%, no alternative, no way out, monopoly supply situation? Because that’s what we will have here if legislation is used.  So here is Phoenix with his / her views.

“I can see a few problems with this.

In my experience, framework agreements work best when there are fewer suppliers on it. They compete harder to win a place because they know they’re in with a fighting chance of securing a decent chunk of the business. And it’s much better for buyers who don’t then have to invite long lists of suppliers to tender in mini-competitions. But if framework agreements became mandatory, or the number of central purchasing bodies (CPBs) were to be limited, then the economic picture changes. We would be effectively closing down the market for public sector business to all but these few. And that might mean that some suppliers – perhaps many – wouldn’t survive the three or four years before the opportunity to bid comes around again. What effect might that have on the market? On capability? Or on long-term competitiveness?

Outside central government, other public sector CPBs exist only because their customers want to use them, not because they have to. Hospital trusts, local authorities and universities have a choice whether to use their respective CPBs, or walk away. CPBs therefore have to stay on their toes and provide a quality, competitive service themselves to remain relevant. If they were to become mandatory, what then? It wouldn’t matter a jot how good (or bad) a job they do anymore, because the punters would have no choice but to use them. Result (in time): a widespread loss of professionalism, quality, competitiveness and value for money.

I’m a firm believer that in MOST cases, scale economies do get you a better deal – up to a point. But there is the Law of Diminishing Returns and there is that point where just super-sizing procurement starts to bring cost back into the equation, because of the negative impact on efficiency, service, quality and competition in the longer term.

Limiting the number of CPBs may be laying far more at the altar of buying power than the God of Scale Economies can handle”.

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