UK public sector reform would save £37 billion

28 September 2011

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30 September 2011 | Steve Bagshaw

Fundamental procurement reform could slash £37 billion from the UK’s budget deficit, according to the findings of a major research project.

In the report Why Public Procurement is Central to the UK’s Economic Performance…and How to Transform it researchers from Future Purchasing and Henley Business School say an overhaul would also reduce the need for public sector cuts, improve service delivery and boost UK economic growth.

And according to Jon Hughes, chairman of Future Purchasing, this can only happen if the fundamental approach to public sector reform is changed – a “reform the reform model”.
He said: “I have looked at every [public sector procurement reform] report since 1986, they are all based on the same model; ‘that individuals would work together to do good things’, but the only way to get traction is to change the reform plan.” But that must come from the top: “This requires leadership, not changes to processes and techniques,” he said, “well-intentioned, piecemeal reform is most unlikely to succeed, even at a time of considerable fiscal consolidation and austerity. The breadth and depth of reform required will simply not happen without a small number of very substantial changes.”

Henley professor Marc Day added: “No other aspect of government could release so much money, so readily, and with so little political disagreement or social detriment. Public procurement, (with a few notable exceptions), is massively misunderstood, under-valued and under-led. The transformation of procurement as a discipline is long overdue.”

While positive about the current “excellent initiative across common commoditised spend” under the Efficiency and Reform Group, the report found this “impacts less than 5 per cent of total public procurement spend”. The report estimates that “90 per cent of the total public procurement expenditure of the UK has barely been addressed”. According to its calculations, annual third party public procurement is £243 billion. Taking into account private finance initiative (PFI) liabilities (£267 billion) and “nuclear decommissioning costs of £52 billion, public procurement represents 40 per cent of all the expenditure of the public sector and 20 per cent of UK GDP”.  Hughes describes PFI as “public procurement’s Greece or Enron”.

The report makes several recommendations and stresses change will not happen overnight and is likely to require 10 years, covering two parliamentary terms. Suggested improvements include: a dedicated government minister “who will scrutinise all public sector spend”. Other actions include confirmation from the government that this is to be a policy goal and that “plans for future procurement should be scrutinised by the Public Accounts Committee”.

The report is based on analysis of all major reports relating to public sector procurement over the past decade, as well as some 110 sets of government accounts and more than 100 case studies of good – and bad – procurement practice in both the public and private sector. Included in the analysis were Sir Peter Gershon’s 2004 review of public sector efficiency, Sir Philip Green’s 2010 efficiency review and numerous reports by the National Audit Office, the Audit Commission, HM Treasury and other bodies.


Report recommendations

The report examines the distribution of procurement spend across the UK public sector in detail, identifying those most in need of reform as defence, NHS trusts, PFI, local government and central government. It makes recommendations with regard to best practice and innovation that policymakers and procurement practitioners can implement.

• Through the adoption of a very different reform model, focused on procurement transformation as a policy goal and with much higher government-wide leadership behind it, procurement-led savings across the whole public sector should deliver £37 billion in the current term of parliament, rising to £75 billion by the end of the next term.

• Total public sector procurement transformation to become a coalition government policy goal, with cabinet-level ownership.

• Reform PFI projects by extracting substantial, multi-billion pound concessions from the industry, renegotiating contracts and imposing claw-backs, thereby securing a sustainable deal for the taxpayer and reducing unaffordable and unfair financial burdens on, for example, hospitals.

• Require all key parts of the public sector to produce their own procurement reform and business plans on a rolling annual basis and introduce systematic annual review and scrutiny of them.

• Set up a network of procurement orientated non-executives and external advisers capable of championing procurement with the most senior executives in the public sector, supporting them in the creation of procurement reform plans and monitoring their successful implementation.

• Inject, as a matter of urgency, stronger and best practice procurement in order to drive procurement productivity, professionalise the function and reduce the unacceptably high failure rate of major procurement exercises. Adopt a return-on-investment model to pay for this.

• Set up a Government Procurement Academy and similarly high-quality performance-based learning initiatives, in alliance with CIPS. Initial focus to be on high added-value staff in order to build category, supplier, contract and programme management skills that can be rapidly deployed on major projects closely aligned with the policy goals of the government. 

• Commit to meaningful expenditure data analysis and publication of the UK-wide public sector spend map.

• Accelerate process and procedural simplification of EU procurement regulations and increase SME access to public procurement.

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