Are Suppliers Ripping Off the Government? More Arguments from Our Procurement Pub Debate

We promised to look in more detail at the arguments for and against at our recent pub debate with procurement software firm Basware – the motion being that “this house believes major suppliers are still ripping off the government and taxpayers”. (Result and overview here!)  So let’s take the arguments "against” today  (we featured the “for” last week) - that suppliers are not in fact ripping off the government.

Paul Clayton of Basware – he was one of the founders of Procserve actually - said that if suppliers were in fact ripping off the government, we would see them making huge profits. But this is not the case if we look at the facts. So let’s look at some facts. In 2015/16 Capita had a profit margin of 14%, G4S 6%, BAE Systems 9%.  Ford made 5% globally, Siemens 10%, HSBC 15%. Margins are higher in some of the new technology firms – Apple made 28% and Facebook 33%. The point is that in the greater scheme of things, major public sector suppliers are not making  excess profits.

It is true that sometimes suppliers misrepresent themselves. Clayton mentioned the famous case with  Sky and EDS, where the EDS witness lost credibility when the barrister bought a degree for his dog from the “university” that was on the cv of a senior EDS sales exec! But suppliers often get caught if they do this – and customers can misrepresent too. Problems often come from the buy-side, as we saw recently in the NDA case.

More hard evidence comes from the analysis Procserve / Basware has done for ten years looking at the prices paid on their marketplace – and actually the private sector pays 15% less than the public for items like laptops. Equally, the cost of doing business with the public sector is often high, and interventions from politicians are often not helpful!

The key point is that you need to develop positive relationships if you want to have good suppliers and successful contracts.  Government is trying to change the way it contracts e.g. with G-Cloud and there are examples of successful large-scale contracts too. But a confrontational attitude is what often leads to failure, not suppliers “ripping off” government.

Martin Webb, ex CPO and now a trainer and adviser in the public and private sectors, supported the argument against the motion. He wanted to focus on outcomes and look at root causes. A builder said to him once that “you only ever hear about the dodgy builders – not the dodgy clients”. And, as he learnt on a course, “if you point one finger at someone – three are pointing back at you”. In other words, when you blame others, make sure the culprit is not really you.

But in terms of the “ripping off” issue, the problems G4S faced cost them huge amounts of money directly and through their share price falling. Indeed, some firms are now less keen to go for government work because it is not seen as attractive as private sector business.

Many problems arise because we don’t make business needs clear before we contract. We should be looking for outcomes – but because contracts are huge and complex, we end up with a “narrowed down” specification, and process overtakes issues of dynamics and value. There should be more conversations and dialogue during the procurement process.

The government needs to build commercial capability – which it is trying to do. Public sector procurement needs to understand the realities of the market; indeed, government can help to shape the supply market. But this is not about suppliers ripping off the public sector; this is about both “sides” needing to change and find ways of working together better.

And those, ladies and gentlemen, are the arguments that won the day for the “against” team.

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Voices (2)

  1. Trevor Black:

    We were having this debate over 10 years ago. I recall several public sector organisations developing a partnership approach with IT suppliers where the benefits included sharing strategic product developments,effective management of the supply chains and technical support. Many of these benefits were difficult to measure but certainly prevented in many cases IT departments heading up cul-de-sacs particularly with regards software development. But then came along the proverbial spanner in the works called reverse auctions where the accountants driven idealism saw lowest cost as a success but overlooked the increase in support and maintenance costs as a consequence of maintaining a diverse inventory of varying qualities. It was similar to be married but then taking a mistress just to check if you were getting good value.You never get over this breach of trust.

    1. RJ:

      Great analogy, Trevor!
      As someone who has only recently started work supporting the public sector, though, much of the challenge we face is from external parties and regulations that seem to almost oblige us to try out the mistress. The challenge is constantly to “prove” we are getting best value and the “trust”, “relationship” and long term value arguments are frequently lost in the process. We really need to build mechanisms that go beyond CCS frameworks and other call off structures in order to leverage the supply market’s expertise rather than just continually expecting the initial competition to be on a framework and the subsequent “mini-competitions” to drive innovation and best value. I do know that there are many in the public sector pursuing such agendas but there are also many instances where it seems too difficult for either the buyers, or indeed, the suppliers to adapt.

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