27 April 2010 | Lindsay Clark
A week before the UK goes to the polls, buyers tell Lindsay Clark making further public sector savings won’t be as easy as all three main parties have suggested.
During his star turn in the first televised leadership debate this month, Liberal Democrat leader Nick Clegg scoffed at the battle between Labour and the Tories over potential savings in public purchasing.
Despite the Conservatives’ assertion that they could produce £6 billion in efficiency savings, including reducing procurement spend, Clegg won ground by saying his two rivals should not pretend huge sums could be saved just by scrapping “paper clips and pot plants” in Whitehall.
As well as being a hit with the public, Clegg’s scepticism reflects the views of procurement experts.
David Pointon, former chairman of the Society of Procurement Officers in Local Government and head of purchasing at Portsmouth City Council, says claims by business leaders used by the Conservatives in election campaign material that the public sector could simply negotiate down costs on contracts – as is done in the commercial world – are not as straightforward as they make it sound.
This is because it already happens in public sector procurement. “We do get involved in hard-nosed contract negotiations,” Pointon says. “Contracts should be built on partnership principles [for the times when you] need to go back and renegotiate and reduce the spec and so on.”
The Tories have made the most noise about procurement efficiency, saying they will save £6 billion this year. Then there is Labour’s promise to save £11 billion each year for the next three years. Even Clegg’s party has also pledged to find a way to save £15 billion in the 2012-13 budget (see box).
Pointon says these promises don’t acknowledge how far public sector procurement has already come. “There has been a series of efficiency reviews year-on-year for the past 10 years. A lot of good work is taking place, but there is still scope for additional savings.”
Paul Neill, partner at the Bidding Consultancy, which helps businesses secure public sector work, agrees there’s scope for improvement. “In some areas, such as IT and marketing, procurement can have too little influence. It has to be involved in all areas of spending and there has to be greater collaboration between procurement people.”
One of the experts backing the Conservatives, Martin Read, former chief executive of outsourcing company Logica, says urgent talks should be held with suppliers to work out how spending can be reduced. But Michael Hawdon, public procurement partner at professional services firm PricewaterhouseCoopers (PwC), is among several purchasing experts to point out that EU law could present a problem with this approach. “If substantial changes are renegotiated, it risks a challenge because it does not reflect the process by which they got that contract,” he says.
While EU rules make tendering more complex, Hawdon says this does not always account for lengthy public sector procurement processes. “The reason it takes so long is governance and capability,” he says.
He adds that the £12 billion NHS IT programme, which has recently been scaled back, shows that a tough stance on suppliers does not always work. In 2003, the government started a £6 billion procurement process for NHS IT to provide electronic health records for everyone in England. The NHS hailed the procurement process a success because suppliers would not be paid unless systems were tested and working in hospitals.
Hawdon says the problem with this is that if the project starts to go sour, the private contractor is unlikely to put its best people on it. “The public sector has got to get smarter and get [private sector] organisations to bring talent to these contracts and keep them there.”
The Tories say NHS IT deals are examples of the kind of large-scale agreements they would cut back if elected, and the Lib Dems would also target IT procurement projects in a bid to reduce spending.
But, as Hawdon points out, “if you are going to renegotiate a contract post-award then you are going to need skilled people”.
Attracting procurement talent could be tricky for the Tories, however, since they also promise to curb numbers of back-office staff, including buyers.
No matter which party wins, procurement experts agree buyers will be under yet more pressure following the election.
What’s in store for government procurement
A pledge that public procurement will in future “give priority to local people” was one of the Labour party’s manifesto headlines as it moved to tackle immigration.
The manifesto did not give details of how the procurement process would change. It simply said: “There will be no unskilled migration from outside the EU. Skilled jobs are now advertised here first for four weeks with more vacancies going to local workers, and public procurement will in future give priority to local people.”
The party also pledged that Labour would rebuild the economy and more than halve the deficit by 2014 through “economic growth, fair taxes and cuts to lower-priority spending”.
“We will overhaul how government works: cutting back-office and property running costs; abolishing unnecessary arms-length bodies; sharply reducing spending on consultancy and marketing; and cutting lower-priority spend,” the manifesto stated.
“We have already shown in budget 2010 how these steps will help us to achieve savings of £20 billion a year by 2012-13, on top of the £15 billion savings that are being delivered this year.”
Elsewhere, acute cost pressures in long-term defence projects would be addressed by “reforming defence procurement”. The police service would maintain current numbers of police and community support officers, but cut numbers in the back office.
All major government defence procurement projects will be reviewed if the Lib Dems come to power, said the party as it laid out its plan to save £15 billion year-on-year.
Leader Nick Clegg said the Lib Dems would revisit all major spending projects through the Strategic Spending Defence Review announced by the Labour government in 2009, which is scheduled to take place after the election.
The party also committed to abandoning a tranche of the Eurofighter project and ruled out the like-for-like replacement of the Trident nuclear weapons system. Franco-British and wider European defence co-operation would ensure procurement costs were kept low, the manifesto pledged.
IT procurement projects across government departments would be targeted in a bid to reduce the deficit, while new approaches such as cloud computing and open-source software would be investigated as alternatives to expensive technology rollouts.
Clegg also vowed to use the government’s purchasing power to expand the markets for green technologies and to use government procurement policy to encourage development of sustainable and fairly traded products.
“We will invest in green energy, public transport and homes, so that the new economy we build from the wreckage of the old is environmentally sustainable and one where Britain learns once again to build things,” he said.
Tory leader David Cameron pledged to help small businesses and set out plans to allocate 25 per cent of government research and procurement contracts to SMEs by cutting the administrative costs of bidding.
These were a few of several measures to overhaul the £200 billion-a-year government purchasing market, which he said Labour had a “dreadful record of managing”.
Other promises included opening up government procurement to small businesses by publishing online all government tender documents for contracts worth more than £10,000 on the Supply2Gov website.
The Conservatives also declared they would create a level playing field for information and communication technologies (ICT) and promised to open up contracts to SMEs by breaking up large ICT projects into smaller components.
They would tackle “wasteful” government projects by strengthening the role of the chief information officer, appointing senior private sector non-executives to departmental boards and publishing government contracts for goods and services worth over £25,000.
The party also pledged to review the structure of the Ministry of Defence to reduce running costs by 25 per cent. The manifesto said: “We will release spending on unnecessary and bureaucratic EU defence initiatives and spend the money on our armed forces.”