03 January 2008
The latest Audit Commission report has identified a series of problems within local authority procurement, including a lack of competition. Andy Allen reports
Local authority buyers may meet claims that they fail to make the best of competition with a groan of familiarity.
But the Audit Commission's new report into local councils' buying practices goes further than just delivering another rap across their hard-pressed knuckles. As John Kirkpatrick, Audit Commission director of studies, acknowledges: "There are already reams of guidance available to local authorities."
The aim in the case of the Healthy Competition review, published last month, is partly to look at why councils so often fail to use competition and contestability effectively. Crucially, however, the emphasis is not just on advising them how to go about outsourcing, but to provide practical examples of good practice.
The report identifies a series of problems. These include:
A shortage of procurement skills and information about local service markets.
A tendency to underestimate the costs of tendering and managing the in-house service, and failure to take these into account in procurement decisions.
Resisting competition because of factors such as "the desire to be a good employer" and "to protect the public service ethos".
Failing to measure the impact of competition and contestability. None of the councils visited by the Audit Commission had undertaken a comprehensive assessment of the impacts of competition and contestability on service cost, quality or equity.
Yet the report is cautious about outsourcing. While acknowledging that "early efforts through compulsory competitive tendering yielded savings," the commission believes further savings using the same methods will be hard to achieve.
Instead, as Kirkpatrick says: "Councils ought to adopt a more subtle and sophisticated approach to the market."
The study also found that negative experience of outsourcing IT projects - often after poorly specifying requirements - had made many authorities wary of further outsourcing.
"In every case the problem was compounded by poor commissioning, not poor supply," the study said.
This may mean developing an in-house function either as an alternative to poor external suppliers or as a way of exerting leverage on them. An example is East Cambridgeshire District Council, which developed an in-house revenue and benefits service to put pressure on a sole supplier, whose performance had fallen below par.
Where a council's business is too small to be attractive to external providers it can strike up partnerships to aggregate demand.
For example, South Oxfordshire District Council joined forces with a neighbouring authority to make its outsourced revenue and benefits contract a more attractive proposition.
Meanwhile, Norfolk County Council responded to declining standards and price rises of more than 20 per cent within public transport by going into direct competition with local passenger transport providers via its trading company. This led to reduced prices and improved the quality of services, according to the report.
The study helps clear up some of the confusion around terms like "contestability", defining a contestable market as one with low entry and exit barriers to potential new providers. And the commission's "competition and contestability mindset temperature gauge" acts as a checklist for public sector buyers. It allows them to measure if they are "too hot" or "too cold", on issues such as how they see the role of the private sector in public sector delivery and what are seen as the likely benefits of competition and contestability.
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