Buying the promises?

27 April 2010
Peter SmithNo election in my lifetime has had such focus on public spending, and therefore public procurement, as this one. Arguably, spending has been the dominant issue over the last weeks; efficiency savings versus NI increases, whether figures are meaningful, the difference between cuts and savings. And other issues have also focused on our profession; ideas such as publishing all government contracts of more than £20,000, cancelling major IT contracts or encouraging public sector teams to become co-operatives. At one stage, it seemed that everything the Tory shadow ministers announced had a procurement aspect. So now the manifestos have been published, what does it all mean? The “elephant in the room” as the Liberals described it, is the size of the deficit. The Liberals come the closest to addressing it openly in their document; with Labour and the Conservatives, you would struggle to realise that we are facing a deficit of £165 billion a year – 11 per cent of GDP. And while the optimists will say this gives public sector procurement a great opportunity to prove itself, I am not sure it is actually good news. Let’s take savings, a topic I wrote about on the SM blog last week. Up to now, most organisations have been targeted to make efficiency savings but have been allowed to re-invest them. What that means is that it hasn’t actually mattered too much to the average citizen whether the savings were real or not. If they weren’t, there was still enough money to preserve services. If they were, the re-investment provided a useful bonus for the organisation. The new, post-election world will be different. Budgets will be cut in real terms. Procurement savings will be expected to offset those cuts; if savings aren’t real it will be very obvious, because jobs or services will have to be cut instead. If jobs are going, claims of procurement savings will be hard to substantiate. So the pressure will be on procurement to deliver, quickly and on a large scale. And when the manifestos do discuss the need for savings, they give the idea that delivering real efficiency savings really isn’t going to be that hard. But I promise you it will be tough. For a start, much of the low-hanging fruit has been picked; public procurement has done good work in recent years. And in other cases, changes can be made but they will take years, not months. Other assertions in the documents do not stand up to much scrutiny. The Conservatives, in particular, make some bold statements about the achievability of big savings. They talk about re-negotiating contracts with major suppliers. Just how are they going to do that when contracts have been properly let under EU rules? And why would a major firm, responsible to its shareholders, roll over and offer price reductions? I don’t see Accenture or Balfour Beatty saying: “OK, minister. Here’s a few million pounds contribution out of the goodness of our hearts.” And Labour, given their reliance on the unions for funding, will not find efficiency savings easy to implement when many of them inevitably mean less staff, and less money for training, travel and all the other things that make jobs bearable. Moving on to the actual manifestos, the Labour document is 76 pages of pretty dense text with few graphics, tables or anything much from a design point of view. It is hard going. It talks about “tough choices for £15 billion efficiency savings in 2010/11”, but there is no detail as to how most of this will happen. They also seem to indicate a move away from the belief in a market-based economy. For instance, “continuing modernisation and investment will be needed by the Royal Mail in the public sector"; and stronger laws to control takeover bids. An “activist industrial policy” is needed so we are likely to see more pressure on public procurement to support UK business, SMEs and innovation; no bad thing, we might say, but a challenge at times to achieve within the confines of procurement regulations. There will be a pay cap of 1 per cent for 2011-12 and 12-13, which could make public sector procurement jobs less attractive. The flavour is that the deficit will be reduced through some non-specific efficiency savings and a 50 per cent tax band; non-specific that is, except for the drive for “sharply reducing spending on consultancy and marketing”. In the NHS, the internal market situation and role of the private sector is still far from clear. For instance, “where changes are needed, we will be fair to NHS services and staff and give them a chance to improve, but where they fail to do so we will look to alternative provision”. There is a strong focus on green issues, and Total Place, an initiative with positive reports. But one line that leapt out was this, “And public procurement will in future give priority to local people”. Illegal? Impractical? Uneconomic? All three? The Conservative manifesto is apparently longer, but is much more readable, with graphics, charts (one showing the relative decline in manufacturing in the UK is particularly striking), pictures, and a style that is much punchier than Labour’s rather staid prose. And the theme of giving power back to individuals does make a clear differentiation between the two main parties. In procurement terms, it replays some of the procurement issues we’ve seen over recent weeks, including the start of “immediate negotiations to achieve cost reductions from major suppliers”. This is going to be challenging to say the least. They will support SMEs by “breaking up large ICT contracts” and “cutting the administrative costs of bidding”. But just as public procurement staff might think it all sounds pretty positive, we get this: “This government has a dreadful record of managing procurement, with billions of pounds wasted on mismanaged projects”. But of course all the manifestos specialise in assertions that cannot be validated; and this, relating to MOD, is a classic; “We will reform the procurement process to ensure the delivery of equipment on time and on budget.”  Easily said, Mr Cameron, easily said. Another major theme is openness. The Conservatives will publish all contracts over £20,000. Transparency is admirable in theory and it will be very interesting to compare collaborative deals from different buying organisations against those executed by smaller individual buyers. We will really be able to test theories about economies of scale. But what will happen when hordes of lawyers, consultants and journalists get hold of contracts and come back with criticisms or even challenges? What happens when a disappointed supplier says “I could have done this for half the price but I didn’t get a chance to bid because you used a framework that I’m not on?” A very senior civil servant told me this week, “This will never happen. It’s mad. If they win, we’ll do the Yes Minister thing and tell them what a “brave decision” implementing this would be”.  We’ll see – it gets a lot of coverage in the manifesto so I’m not sure I agree with Sir Humphrey.  And, I almost forgot, a Council Tax freeze will be paid for by “reducing spending on government consultants and advertising”. The Liberals manifesto is not a bad read, and they deserve credit for trying to lay out a somewhat clearer view of how the deficit might be partially addressed. They are more openly redistributive than Labour; a real crackdown on bonuses, and a £400 cap on public sector pay rises. And they do list some projects that will be cancelled, such as Trident. The Department of Health will be cut in half (of course the trick is identifying the less important half.) They are pro-Europe (dig out those procurement impact assessments of the UK joining the Euro), and there are quite a lot of new promises that would seem to be boosting spend, although they claim they are all fully costed. We will have “better government IT procurement investigating the potential of... cloud computing and open-source software”.  And “we will use government procurement policy to expand the market for sustainable and fair-traded products”. So just run that one by me again; how will it work? And (what a surprise) cutting the use of consultants will save £180 million in 2011/12. So, we are little better informed as to how the deficit is going to be sliced, diced and digested.  We can expect a more exciting time in public procurement if the Tories win, with publication of contracts and some attempts to reengineer MOD and IT procurement, and a more immediate focus on converting efficiency savings into hard cash. But none of the parties in my opinion are levelling with us about the magnitude of the challenge we will face to cut public spending to the extent that is needed. The next couple of years will be worrying times for public procurers; but probably ‘exciting’ for those who keep their jobs. But I will be amazed if we don’t see demonstrations in Trafalgar Square by the summer of 2011 as real cuts bite. Procurement alone cannot come close to closing the deficit. And did I mention that we’re going to slash the expenditure on consultants?
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