22 May 2014 | Alastair McKie
The UK smart meter programme is a good example of a situation where collaborative procurement would be highly beneficial to the private sector.
As UK energy companies are required to deploy meters to every UK household, the companies could achieve substantial savings by aggregating their purchasing of meters and other services. Similarly, in motor manufacturing, combining purchasing of common parts helps manufacturers save money through economies of scale.
Recognising that aggregation can distort markets and create anti-competitive behaviour, competition law and other regulations prevent both the supply and demand side from acting as monopolies. The high fines for breaching competition law, along with concerns about giving away competitive information to a rival, can make organisations wary of collaborating on common purchasing.
The public sector operates within a similar legal framework in the form of the EU procurement regulations. It has, however, managed to implement many collaborative procurements, which the private sector can learn from. Indeed, the UK government is currently moving to a more centralised purchasing model, with the introduction of the Crown Commercial Service to aggregate the procurement needs of government.
One of the requirements of collaborative procurement is ensuring absolute confidentiality of data – making sure parties only have access to information relevant to their aspect of the procurement. The public sector typically operates at a higher standard in its management of data through the imposition of government security policy and the concerns of infringing procurement law. This attitude is vital in a private collaborative procurement to ensure parties do not obtain market sensitive data or information that would skew competition.
There are many models the private sector can copy from the public sector for collaborative procurement, whether a joint venture of buying parties or the creation of common framework contracts. Typically, however, public bodies use a third party to procure on their behalf, such as the new Crown Commercial Service. Having a third party to act as procurer minimises the risk of leakage of confidential information and reduces competition law risk as pricing and demand information is not shared between parties.
If private sector organisations wish to secure the advantages of combined procurement then they would benefit from looking to public sector models for insight.
☛ Alastair McKie is a government sourcing consultant at PA Consulting Group.