So UK public sector buyers now know what’s in the Coalition Government’s Comprehensive Spending Review, but there are still many questions to be answered.
We know that central civil government will be purchasing certain common commodities, such as office supplies and IT, through mandatory contracts aimed at saving £400m a year. But what impact will this approach have on the market in the longer term?
There is a commonly held view that aggregated demand and committed volumes for goods and services will result in better deals for buyers. I wouldn’t argue with that. But it has also become de rigeur
to knock the voluntary framework agreements that have been the mainstay of public commodity procurement and, in particular, of its professional buying organisation, Buying Solutions. For me, there remains an important role for framework agreements to play.
Intuitively, vendors should be able to offer significantly improved terms and lower margins for guaranteed business, something that framework agreements could never match. In less well-managed cases, where a large number of suppliers are appointed to framework agreements following a protracted procurement process, vendors’ initial euphoria soon turns sour once it becomes clear that, at best, they stand a small chance of winning a decent share of the business and, in many cases, will win nothing at all, despite incurring significant bid costs.
But taking this logic to the extreme, government could single-source a number of key commodities and services to deliver the best saving in the short term. A single, central contract for a commodity would be a very attractive piece of business for someone, and ministers will no doubt happily bank a sizeable saving. But how will that impact on competition next time around? The market may well remain large and competitive enough to offer up plenty of suppliers for the next round of bidding. But does that hold true for all commodities? What about categories such as agency staff or business travel services?
The USP for framework agreements is that, when set up and run properly, they provide choice to buyers throughout their term, maintaining competitive tension and encouraging innovation as vendors jostle for market share. Having fewer suppliers on the framework ensures competition during the set-up phase while still giving suppliers an even chance of a decent chunk of business over the full term.
In a single-source situation, a supplier might just succumb to complacency in mid-term. I can see buyers saddled with a poorly performing supplier facing Hobson’s Choice. With no government-approved alternative, frustrated buyers will turn to maverick behaviour. After all, a supplier performance issue for a buyer in, say, the Royal Parks, might well appear trifling for the colossus that is the central government supplier.
A well-managed framework agreement at least grants buyers the power to switch, protecting them from those mid-term blues.
Andy Davies is director of London Universities Purchasing Consortium