Warning over public sector contracts cuts

4 June 2010

7 June 2010 | Lindsay Clark

UK government efforts to cut large-scale public sector contracts could result in higher costs and create poor supplier relationships in the long term, an expert on public spending told SM.

Speaking ahead of the Public Procurement Show in London, David Halpern, research director at the Institute for Government, an independent charity helping to improve government effectiveness, said cancellation clauses meant cuts to existing contracts could end up increasing costs.

The government has promised to reduce a range of large-scale procurement deals, which could potentially include a number of Ministry of Defence (MoD) projects, such as the Rivet Joint jets that are to replace the Nimrod fighter jets, reconnaissance vehicles and the civil search and rescue service.

Looking longer term was, however, likely to offer greater savings said Halpern, who worked as chief analyst in the Prime Minister’s Strategy Unit under the Labour government.

“If you sit in the MoD and you’re looking at what contracts are coming up in the next five years, you can be more dramatic. You can make choices about what cash to give what projects and that gives you gains over time - but it is still difficult to do.”

Cuts to current projects could also expose a flawed understanding of the supplier market in big-ticket government procurement, he said.

“The public sector, because of the mobility of ministers and civil servants, does not have the mature understanding that exists in the private sector.”

For example, he said, a number of transport infrastructure projects have been put out to tender for which there were only a small number of suppliers capable of doing the work. Halpern believes, however, that government in general is not aware the pool of competition is so limited.  

A number of IT contracts also look set to get slashed. Before the election the Conservatives promised to cut the multi-billion NHS IT project, for example.

Here too, cutting existing work was not the always the best way to save money, Halpern said. “If you keep changing contracts, you can be adding costs. There is not enough understanding between providers and commissioners, often resulting, not in savings, but increased dispensation. It will be a tough time for a lot of people.”

Meanwhile, Peter Howarth, chief executive of the Society of Procurement Officers in Local Government, said: “If a deal has just been struck and you try to renegotiate it you could fall foul of some of the contract regulations. It could be deemed that this is an unfair advantage to the incumbent supplier.”

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