These are tough times across the public sector and local government is no exception. Not only is central government funding being cut by 25 per cent but, as part of the UK government’s commitment to transparency, how they spend the rest of their money is under increased scrutiny. The Department for Communities and Local Government has already dictated all local authorities publish all expenditure over £500 and this week went further by lowering its own threshold to £250.
But what evidence is there that allowing “armchair auditors” to view spending data has any value? This is the central question that we set out to investigate.
We looked at London to see what the published data showed and how it could be used. The results were fascinating and could be applied to any group of local authorities – or indeed public sector grouping with common suppliers, for example health or ‘blue light’ services.
Over the period we analysed we found that 29 councils within the capital spent more than £8.2 billion on more than 53,000 external suppliers. The top 100 received £2.87 billion, or 35 per cent, of this total. Further analysis reveals that 15 suppliers were paid around £750 million for their work with more than 20 councils, with two companies selling to all 29 councils.
Our experience across 400 projects for 354 clients in a range of countries and sectors shows discounts of at least 15 per cent are possible through effectively managing major suppliers. Applying this formula to the £55.347 billion spent on procurement by councils across England in 2010-11 suggests that savings of £2.9 billion may be achievable.
In our view, the government’s central principle is correct. Indeed, we call on them to go further by being more prescriptive in how councils publish data. We also recommend the government pursues savings through organisational changes or the implementation of a local government procurement change programme. As a chief procurement officer seems to be effective within government for driving change, a similar post should be considered for local government. They should head up a centrally-driven change programme, with the authority, seniority and executive support required to drive changes in procurement practice.
By coming together, councils can consolidate the volume of services they use which incentivises suppliers to lower costs. It will also reduce the duplication of buying activity, and simplifies contract management, across a number of authorities. Suppliers will be able to improve the efficiency of their business models – due to increased scale and better demand planning – and enjoy more effective long-term partnerships. Any savings for the contractor can be shared between both parties.
Driving procurement change in local government is not easy but it is necessary in these straightened times. Public spending data can be used as a good starting point.
☛ Assaf Lennon is managing director UK at Lowendalmasaï