Government buyers should create more competition

16 March 2011
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16 March 2011 | Lindsay Clark

Procurement teams in the public sector need to do more to foster competition in supplier markets, a report from the Office of Fair Trading (OFT) found.

The OFT said having a transparent and competitive tender process was not enough to ensure public services markets are open and contestable. Buyers should also try to reduce barriers to entry and exit from the market (which helps turnover), encourage a diverse supplier base and ensure vendors have the right incentives to make efficiency savings, raise quality and innovate, the Commissioning and competition in the public sector report said.

The UK government has already moved to broaden its supply base, by setting a target of contracting SMEs for around a quarter of deals available.

However, OFT senior director Sonya Branch said it needed to do more. “Recent and ongoing government initiatives will clearly have a major impact on how public services are commissioned and procured but [it] will need to become a more competent and strategic procurer to maximise the benefits of effective competition in public services.”

The OFT has offered guidance for procurement policies including:

• Reducing barriers to entry by ensuring processes do not discriminate against certain types of business models or suppliers, particularly smaller suppliers, and encourage the widest possible participation.

• Reducing barriers to exit by ensuring requirements to maintain continuity of service do not favour the largest supplier or the public sector. It also said the government should be able to switch from a poorly performing supplier to a more efficient one.

• Ensuring the right incentives to drive purchasers and suppliers to look for long-term value for money and not just focus on the short-term.

The OFT is currently working with government departments, undertaking reviews of, and helping to reform, commissioning and procurement processes.

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