8 June 2010 | Lindsay Clark
Government is hoping joint buying will save public money, but, energy aside, most sectors have yet to make the most of this approach, writes Lindsay Clark
The UK government has reached a critical juncture in joint buying.
Driven by the will to reduce the £156 billion public sector deficit, and frustrated by limited success in harnessing its £220 billion spending power, the new coalition is taking steps to ensure more collaborative central government procurement.
But pooling government spending to get a better deal is nothing new.
In 2000, the Labour government created the Office of Government Commerce (OGC) to help improve efficiency and value for money in the public sector. In 2001, Buying Solutions, the OGC commercial arm, was formed to improve public procurement and joint buying.
So what’s been the trouble and what needs to change?
A timely report from the National Audit Office (NAO) and the Audit Commission, A view of collaborative procurement across the public sector, published last month, assesses joint UK public sector purchasing efforts.
The report found a wide discrepancy in prices paid for common commodities. For example, the highest price paid for a broad specification of paper, £14.79, was 116 per cent higher than the lowest price paid, £6.84.
Keith Davis, NAO director and one of the report’s authors, says there is a need for consistent buying data between public sector procurement departments and a strong framework to define which categories are bought at a local, regional or national level.
But it’s not all bad news. “Some good things have happened in collaborative procurement,” says Davis. “Energy has done particularly well to bring demand together.”
The OGC's Collaborative Procurement Programme, set up in 2007, manages more than £18 billion of spend under nine goods and services categories. The report says: “In energy, the programme has increased the use of best practice contracts. It is also developing a strategy to buy power directly from generators.”
Davis says, however, that where joint procurement has not done so well is being consistently effective in aggregating demand.
The OGC has sought to combine demand by overseeing “framework agreements”, negotiated by Buying Solutions, that strive to corral public buyers into using a small, pre-selected and approved set of suppliers to drive up volume, get a better price and avoid duplication of work. But the NAO says these agreements have themselves begun to proliferate.
Although 93 per cent of public bodies were using these frameworks, the NAO found that at least 14 new agreements covering stationery products alone were awarded across the UK during 2008 and 2009.
It also found existing frameworks were under-used. “There is a mentality of ‘hey, we need our own framework agreement’,” Davis says. “We found a lot of duplication. There is a big opportunity to clean up the number of frameworks that could lead to significant savings.”
But this, he says, would require a cultural change.
Separate research from procurement consultancy Ocurem found that, over a six-month period, 7.2 per cent of tenders for public sector work valued at more than £100,000 were withdrawn. Rachael Ellis, managing director of Ocurem and former buyer with Hallmark, HSBC and MFI, says private sector firms bidding for these contracts are now building in the cost of withdrawals into their price.
“If you compared tendering in like-for-like public sector and private sector work, the private sector gets the better deal,” she says.
Ellis also says poor tendering could discourage the best suppliers from even bothering to bid. “Those that are good at tendering and winning lots of work may turn away from the public sector in the longer term,” she says.
The new government has promised greater powers to mandate central government buying, but, as these latest studies show, this is not the only problem when it comes to getting the most for the public pound.