Public procurement back to top of the political agenda

Announcements today from George Osborne and Philip Hammond put public procurement and efficiency savings back on the front pages.

Osborne said the Tories had identified £12bn of savings that could be made by government departments.  Some £6bn could be used in 2010-11 to make a start in reducing government borrowing.  The other £6 billion largely in Health and MOD would be re-invested.  Labour last week said that £11 billion of such savings could be made but not till 2012/13.

The clever thing the Tories have done is turn Labour's own figures on efficiency back on them, using the fact that Labour's numbers lacked detail.  Enlisting the aid of Sir Peter Gershon and Martin Read who were of course first of all involved in Labour efficiency drives gives more credibility.   "If there are savings to be had, why not start getting them now" is a line that has popular appeal and indeed apparent logic.  But the Gershon / Read numbers are not the result of a careful study.  According to the Telegraph, who asked the question to Osborne's office;

......there’s no secret blueprint. What there is, Mr Osborne’s people say, is the “wealth of experience and expertise” held by Sir Peter and Dr Read. That’s not something to be sniffed at, they say. So if they say it’s £12 billion, we should accept that.

Of course, using 'savings' for deficit reduction (rather than re-investing them, which has historically been the line with government efficiency savings) means they have to be real - what will happen in practice I assume is that Departments' budgets will be cut, and if they can't find real efficiency savings to meet those budget reductions, then jobs or programmes will have to go.

Hammond talks about 5 ways to save money quickly;

  1. Halt spending on major new IT projects and cancel any existing ones that were not worth completing
  2. Negotiate significant cost reductions in the contracts held by government departments with major suppliers
  3. Control recruitment by closing some back office and support roles when they become empty
  4. Cut back on discretionary spending such as expenses, travel, consultancy and office consumables
  5. Reduce public sector property costs by vacating space and cutting the running costs of buildings

1, 3 and 4 seem very sensible.  5 is fine but I have my doubts about how much can be done in the next 12 months.  Vacating offices is not an overnight job.

No. 2 is the really interesting idea; as a procurement consultant, that is just the sort  of thing I might be able to help with; but of course given no.4, there'll be no budget for consultants!  And that highlights one of the challenges in this.  Like most of these ideas, it depends on the ability to execute successfully.  Now I think we can be sure that suppliers are not going to just roll over and volunteer 'significant cost reductions'.  So does the public sector have the capability - and capacity - to drive such challenging negotiations? Particularly  given EU regulations mean that the sort of negotiating style sometimes used by dominant buyers in the private sector ('give me 10% off or we'll cancel the contract') just won't work here.

I can see EDS, Capita, IBM (et al) sitting and listening and then saying, "of course, we have a duty to our shareholders, who include many pension funds and small I'm afraid, given that responsibility we can't reduce our prices.  Very sorry Minister.  Now, what exactly are you going to do about it?"

Interesting times!

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