Government suppliers should disclose profit margins

10 September 2013

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11 September 2013 | Andrew Pring

The CBI has called for a new era of transparency in the provision of public services to restore trust in government procurement.

The employers’ organisation has published a new statement of transparency principles for public service markets, Licence to operate, which sets out performance information every contractor should provide. Included in the data that should be accessible to the general public is contractors' profit margins from their contracts.

Speaking at the Procurement 2013 Conference in London yesterday, the CBI’s chief policy director Katja Hall, said the government’s current reforms of public sector procurement were encouraging but more needed to be done to enlist the help of free markets. For the public to feel comfortable with transferring more public services to private providers, greater transparency was essential, she said.

Better long-term planning was also needed to improve public sector purchasing, said Hall. “Too often, the public sector rushes into procurement without first deciding what it wants to achieve. ‘Leaping before you look’ makes it harder to transform service delivery and complicates Competitive Dialogue, for example, escalating costs for all involved. 

“In construction, many local authorities are still wedded to single-stage procurements which give little scope for engaging first with the market on the goals for the project and scope for improving value.

“And too often, poor procurement is getting in the way of making the best use of markets to drive innovation and performance and stimulate SMEs and other types of provider to challenge.” 

Hall said leadership is the key to improved procurement. “Public sector leaders in future will need to become, in effect, ‘chief commissioning officers’ and take a much more active role in communicating priorities to the market.

“They need to be able to tell suppliers what capabilities they need in five, ten, fifteen years, so they can develop them! Procurement pipelines are helpful in this regard, but providers tell us they need to have crunchier information if they’re going to have any impact on investment decisions.”

Hall said her members remain frustrated by how public procurement currently works. “They don’t encounter the right incentives to innovate and work together. Over two-thirds of companies think that procurement is now all about ‘lowest cost’ and not value or whole life costing; and three quarters of companies support the principle of framework contracts; but two thirds think they’re not well managed.” 

Also speaking at the conference, Chloe Smith, minister for political and constitutional reform, said  “Changing the way that we approach procurement and commercial activity is at the heart of our reform programme.”

She added: “Our reforms last year saved the taxpayer £3.8 billion. We’ve introduced crown representatives to help government act as a single customer whilst also removing barriers to SMEs - saving over £2 billion since 2010. Our direct spend with SMEs has increased from 6.5 per cent in 2009-10 to 10.5 per cent in 2012-13. And internally, since April 2012 over 1,800 procurement practitioners have been trained in lean sourcing, with standard operating procedures implemented across Whitehall, making public procurement in the UK faster than ever before – average procurement timescales have more than halved from 208 to 102 working days.”

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