Outer limits

10 September 2013
David Noble, chief executive, Chartered Institute of Purchasing & SupplyThe management of complex contracts requires some very specific skills and understanding. Whether or not those skills are in place should be a key consideration when decisions are being taken to outsource major services. It’s a message we’ve been promoting for some time. It seems the Institute for Government (IfG) is thinking along the same lines. It has called on the government to rein back its programme of outsourcing public services because, in IfG’s view, the necessary capability is lacking to deliver sustained value for the taxpayer.   The evidence is mounting that, despite the efforts since 2010 to reform public sector procurement, there are still some major failures, such as the G4S and Serco contracts with the Ministry of Justice. And it’s no good blaming the problems in public procurement on the EU directives. While it’s true that the directives create an environment where 
there is so much emphasis on process 
and risk reduction that there is little incentive to focus on best outcomes, we should note that UK public procurement takes half as long again compared to Germany and France, where the same rules apply. The Public Administration Select Committee’s recent report quite rightly acknowledged the steps that the government has taken to address these problems, but also made it clear that not enough has been done. The report challenged whether the government is really addressing the capabilities deficit and has suggested further improvements that should be made, particularly a need to audit the procurement and commercial skills of its senior personnel. I would go further. Any number of process improvements can be made, but they are unlikely to be successful and deliver long-term benefits unless the government clearly identifies the standards it’s aiming for. Currently, the best of the best when it comes to managing complex contracts is to be found in the private sector and this is where government should be looking to establish its benchmark. The public sector needs to match that level of skill and also introduce a greater degree of commercial know-how to get the very best out of these high-value contracts. The public sector spends over 
£200 billion each year and an unacceptable proportion of that is 
being wasted through outsourcing failures. By radically changing its approach 
to procurement performance, the government can really start to save money and drive economic growth. A note of caution Yet more evidence of the credibility of the PMIs has 
been demonstrated, when the markets reacted to the publication of July’s Manufacturing PMI, causing a jump in the value of the pound.  Mark Carney, the Governor of the Bank of England, also referenced “CIPS data” in recent news reports on the UK economy. The increase in the PMI growth indicator from 52.9 to 54.6 was the strongest reading since March 2011. There was other good news too, with confirmation that the economy grew by 0.6 per cent in Q2 and better employment growth rates than we have seen for two years. So far the growth is largely being led by the domestic market, but there are some signs that our European export market is improving too, which will help sustain the recovery. Before we get too carried away, we aren’t out of the woods yet. The manufacturing sector 
is expanding again, but we’re 
still producing 10 per cent less than at the start of the financial crisis. A recent survey suggests that more than half of the 
adult population of the UK 
is struggling to pay the bills 
as their income shrinks in real terms, while prices are rising faster than wages. Cautious optimism is perhaps the most sensible response.
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