Fuelling the public sector procurement engine

2 August 2012
The poor performance of the UK economy means that the public sector procurement expenditure of around £230 billion a year will increasingly be seen as a possible route to salvation. So it would not be surprising if the following phrases and policies become increasingly familiar.
  • “Purchasers should, as a matter of enlightened self interest, use their commercial influence to help improve the competitiveness of their suppliers. This should… contribute to the creation and retention of a sound industrial and commercial base.”
  • “Early dialogues about possible requirements with potential suppliers are particularly important for large or important contracts... They can be equally important to small or medium sized companies seeking lower value contracts.”
  • Purchasers should encourage “both product and process innovation”.
  • Purchasers should specify “requirements in performance terms rather than specifying detailed designs which may stifle innovative solutions”.
  • “Value for money should be judged on whole life costs”.
  • “Additional cost or technological risk can be justified… to gain improved value for money over the longer term… for a firm’s development of an innovatory product or process”.
The phrases above do not originate from Francis Maude, the current minister charged with securing better value for public sector procurement, but from the 1989 edition of Government Accounting, when Margaret Thatcher was in power. This was HM Treasury’s guide to accounting officers in government departments and, by implication, applicable to the rest of the public sector. An additional government policy of that time, though not specifically in Government Accounting, was to support small to medium sized enterprises through public sector procurement It all sounds very familiar and is reasonable to argue had these policies to support the UK economy been implemented for the past 20 years, our industrial and service base would be much stronger. While a recession may be unavoidable, it would be from a much higher baseline. Most of these policies will have existed well before 1989. So why have they had only limited implementation? There are probably two main reasons. First, the lack of motivation – the ‘fuel’ for implementation - caused by the fragmented way Whitehall operates and the way government departments are funded. There are few prizes for departments that procure in a way that helps economic growth, rather than solely for the immediate needs of the department. Traditionally, departments have known their funding for just one year ahead, so there was little point in thinking other than on a short-term basis. Thinking is now more long-term, but the Treasury needs to find a way to encourage departments to think outside their own immediate interests. Similar issues apply in other government organisations, for example many local authorities, NHS trusts and educational institutions. The second reason is the failure to have a coherent structure to public sector procurement – a decent ‘engine’. In other words, the capability to deliver even the most basic of these policies has been lacking. Most of the above policies were pious aspirations, implemented in only a few of the most advanced public sector operations. The government is reforming public sector procurement, notably in central government. But even there, apart from spends classed as common categories – about 20 per cent of its procurement spend (£13 billion, 5 per cent of total public sector spend) – it looks as though the focus of departmental procurement functions remains the needs of the departments that they serve rather than the greater public good. Some very good and well-led procurement organisations have developed. But the economic situation requires the government to take firmer action over both the motivation (the fuel) and procurement structure (the engine) if the aspirations of more than 20 years ago are to be turned into reality. Time to revisit my report for the Institute of Directors from 2010?
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