How public procurement can weather the "perfect storm"

4 May 2010
Peter Smith PART ONE Over the past two weeks on my blog we have published a white paper on the future of public procurement post-election. This is a summary. The paper is titled The Perfect Storm. Why? Because public expenditure in the UK will shortly be under more pressure than it has been for many decades, whoever wins the election. And public procurement is going to face several huge challenges, potentially coinciding - a “perfect storm”. Public procurement will either come through this stronger than ever, having made a major contribution, or it will have lost credibility and risk being sidelined for many years to come. And virtually all commentators underestimate the difficulty of making the necessary savings from the £220 billion third-party spend. Other reports on this topic have taken a simplistic approach, assuming reorganising procurement or the act of “collaboration” will magically drive savings, without unpacking how collaboration can really drive benefits. Similarly, we believe it is most unlikely suppliers will just offer public sector customers price reductions out of the goodness of their hearts. We also took for granted the OGC’s work to improve spend data, commercial skills and better use of technology as necessary for procurement to have any chance of success. We do believe public procurement can achieve major savings; it needs to contribute at least £30 billion of real annual savings (and preferably more) just to achieve its “fair share” of the total cost savings needed. But first it is useful to temper our optimism with some concerns. There is a real chance public procurement may face a ‘perfect storm’ over the next two years that could sink it for a long time to come. Here are six concerns... 1. Efficiency savings prove elusive Savings measurement must be meaningful. With declining budgets, organisations not making “real” savings will have to make cuts in jobs and services to balance the books. “Savings” will be exposed as bogus when jobs and services go; not good for the credibility of procurement. 2. The “stickiness” of public procurement expenditure Few appreciate how large a proportion of public procurement spend is not variable in the short or even the medium term. PFI contracts, long-term outsourcing deals or committed contracts in areas as varied as legal aid or military equipment. All are difficult or impossible to cut in the short term, or at least not without huge penalties or other consequences. 3. Procurement in the public eye We have mixed feelings about proposed Conservative policy to publish all public sector contract details. Freedom of Information requests are already occupying significant amounts of time for procurement teams; this will only increase. EU regulations such as the introduction of the Remedies Directive are increasing the risk to public organisations, with greater penalties if they get procurement wrong. This adds to the pressure and workload on public buyers and may focus attention on process rather than driving for value. 4. Fat cats and public sector cream As we enter a time of public spending cuts, redundancies and head count reductions, there will be anger directed at those suppliers who are perceived to be doing well out of public expenditure. Focus may move away from bankers to those who gain from the public sector either directly (consultants or lawyers) or indirectly (overpaid boards of firms whose main customer base is the public sector). 5. Localism versus centralism Community groups and self-governed schools will lose force if they are expected to purchase most of their requirements from a huge national purchasing deal, or have national specifications for goods and services imposed on them at every turn. Equally, losing all the hard-won benefits from public sector collaborative procurement work to date would have genuine financial implications for public organisations. Balancing these two factors successfully is vital if tension between local and central government is to be avoided. 6. Pressure on resources We would be naïve to think procurement staffing and resource levels will be exempt from the general pain to come. Procurement will have to try to deliver the savings required and face all of these issues with fewer staff. That all makes it even more important public procurement focuses on the key priorities, and continues to build on current good work in terms of capabilities, data, better processes and technology, and establishing a voice at the most senior level. Public procurement will have to do more with less, which will need some dramatically different ways of doing things. In part two, published tomorrow, Peter Smith outlines the report’s recommendations
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