Success or failure – a fine dividing line for the Efficiency and Reform Group

14 June 2010
I’m back to public procurement this week - but it is so interesting at the moment it is an obvious area for focus. We have heard a little more about the new Efficiency and Reform Group in the past two weeks, and I expect there will be more out this week, so I wanted to focus on three areas where it appears to be active.
 1. It is acting as a “gatekeeper” for all new central government IT contracts over £1 million, new leases on property, and some consulting and advertising spend. As far as I can establish, this has been so far a pure “spend blocking” approach, which is fine and I applaud it as a short-term measure. I’m not aware that the group has any real resource behind it yet, so is anyone analysing these proposed contracts or expenditure yet? This is a good short-term cost reduction move, but obviously can’t go on forever (or government really will grind to a halt). The test will be how the approval process works and who will assess all these putative contracts once the pure blocking role is not enough. 2. The group is driving the aggregation layer and the idea of centrally negotiated contracts for common commodities. I have no problem with this but we should acknowledge it is not as simple as it sounds. How many private sector corporations get 100 per cent (or anywhere close to it) compliance on indirect spend across a large complex organisation? I understand there is still much debate about the “how” of doing this. How will requirements be established? Who will let the contracts (because this will need new contracts if it is to be successful; volume commitment is the only way to get savings so that means a new contracting round)? Might that role be outsourced? How will the contracts be managed? The business case will need close scrutiny here given the potential cost. And there is also the danger a new mega-contract for, let’s say, copier paper will be uncompetitive within weeks if the market moves. I suppose my other slight fear is this might put an awful lot of focus on the proverbial “copier paper contract”. While it is good for the headlines, it is frankly not where the public sector spends big money, or an area that you would want strategic procurement professionals to allocate too much of their precious resource. We’ve fought for 20 years against being seen as the profession who buys the stationery! 3.  The group plans to lead on renegotiating contracts with major suppliers across government to reduce costs. I will stick my neck out here and say this has the makings of a major disappointment. I hear rumblings of dismay from both suppliers and people in government about this, and even Sir Peter Gershon has changed his tune and now says that this may take longer than he thought. “Renewing contracts will clearly take some time. We will get some savings this year and some in the next year,” he told the Daily Telegraph. As a taxpayer, I would love this to work. But after some considerable reflection, I just don’t see how anyone can negotiate across multiple departments and contracts, each of which is horribly complex and specific. It is simply unmanageable. And as I said last time, why on earth would a supplier just roll over? What is the government’s Best alternative to a negotiated agreement? The big danger is this. The switched-on departments were already planning their own negotiations to drive cost reduction with key suppliers based on areas I’ve highlighted before – demand management, trading obligations for price reduction, or review of specifications for instance. Now I suspect all that is on hold, while this “top level” initiative takes centre stage. If I was a supplier, I would stall my departmental level negotiations by saying: “Well of course Peter, we can’t talk to you about the potential price reductions in your department until we’ve seen Mr Maude and Mr Alexander and fully explored these cross-government issues.” That should be good for six months of inactivity and running with current contract terms! Trying to do this across government is incredibly complex and not a potential “quick win”, as Sir Peter points out (if it is doable at all). Far better for the group – or OGC – to lead on co-ordinating departmental negotiations, sharing best practice, and pushing any recalcitrant departments into starting their own negotiations with key suppliers. But, I’m sorry, you can’t do this centrally. Negotiations must be led by people who understand the detail in their organisation and in their contracts.
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