Ten ways to take public procurement forward
PART TWO
In yesterday’s blog we outlined the concerns that public procurement must tackle. So what can be done? Here are 10 ideas:
1. From “procurement” to “spend management”
The only way in which the required savings can be delivered will be through relentless attention to the whole spend management process. The strategy for public procurement should refocus on this wider picture, and rebrand public “procurement” as “spend management”. That will require effort in promoting proactive demand management to cut off spend at source; in rationalisation of specifications; in aggressive and commercial contracting; and in skilful and value-driven contract and supplier management. Public organisations should ensure they have a board level sponsor for spend management, and should report annually on results.
2. The Stopping Gate
We recommend renaming the OGC’s Starting Gate review process the Stopping Gate, with a presumption that projects will NOT be allowed to begin. Only schemes with a high probability of success, a strong financial or economic payback, and top level support should proceed. The same process can also be applied to existing projects to establish which should be closed down immediately after the election. The top 100 projects and programmes should be reviewed in the first six months.
3. Stop buying the best
The time has come for the public sector to focus on buying adequate but not over-specified goods and services. We recommend all procurement exercises should weight total lifetime cost as at least 60 per cent of the overall weighting in the evaluation. This would send a strong message to supply markets and lead to lower priced goods and services being chosen.
4. Clear decisions on collaboration
There should be greater clarity and explanation of strategies for specific spend areas across government. Much collaboration should be based at regional level, which maintains greater market dynamism and flexibility, and should include a presumption against single “mega contracts” (or frameworks) except in a few carefully justified spend areas. Where collaboration is sensible, it must be based on organisations committing spend to the contract in advance of the approach to market.
5. Merge procurement units
While collaboration is not a panacea, many procurement departments in public organisations are of sub-optimal size. Smaller procurement organisations – in smaller local authorities, health trusts and PCTs, police forces, colleges and others – should be encouraged to merge, form or use shared services or consider outsourcing. We do not believe this should be mandated but a clear sense of direction can be promoted, and tools and models developed to support such moves.
6. Focus on value post-contract award
Organisations should identify the skills they have to address management of contracts post contract award, develop plans for addressing their most significant contracts and target savings through the identified routes. Continuous value improvement throughout the contract period must become second nature for purchasing and supplying organisations. Organisations may have to put some of their best people on to these activities to have any chance of achieving the required benefits.
7. Hit the fat cats, squash corruption
To start addressing the “fat cat” dangers identified yesterday, we recommend introducing a cap on day rates for professional service providers to public sector organisations, linked to the prime minister’s salary. We believe this will equate to around £1,250 per day. This will also have the benefit of encouraging work on a payment by results or risk/reward basis. The options around including “anti-fat-cat” evaluation questions or criteria in tender evaluation should also be investigated. Corruption of any sort must be addressed harshly, and tighter rules introduced in areas such as lobbying, and ex-politicians or officials taking jobs with suppliers to government.
8. Slash the cost of procurement
We must reduce the cost and elapsed time of procurement activities. There should be more use of templates and standard procurement processes. A system for suppliers to log their standard pre-qualification information only once could be put in place at low cost by putting the onus on firms to maintain their own information using something along the lines of Google Documents. Procurement processes must remain compliant to legislation, but within that clear guidelines should be issued around the time needed to run procurement exercises. And no major procurement should be launched until it has passed the Stopping Gate view (see point 2).
9. Measure this properly
Savings must be defined as actions that actually hit the bottom line. That means lower spend, category by category. Treasury, the NAO and Audit Commission should jointly issue a revised efficiency savings methodology which all public organisations will be required to follow. That should focus on real bottom-line reductions in spend and budgets. Spend and savings data from public organisations should then be published.
10. Honesty and openness
We need openness on spend, processes, and supplier performance – all of which should be better shared around the procurement network and more widely. Open discussion about the optimum levels and type of collaboration; credible, transparent processes for measuring savings; different funding methods (a public debate around PFI for instance); about the likely timescales for procurement processes and subsequent projects; avoiding the craziness of MOD actively planning to delay projects; about the skills that exist in procurement and where external support will be needed and about assessing organisations’ procurement capability with rigour and honesty.
And lastly…
Life may get so difficult for purchasers and organisations that public sector organisations may be tempted to outsource the whole problem. An outsourced “procurement partner” may be able to take away much of the burden of EU regulations or other onerous constraints, and perhaps pursue savings on a more ruthless basis. If that does happen it may in time prove to be a positive development; in the short term though it will be a sign that the “perfect storm” has hit public procurement.
![[Bloglines]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/bloglines.png)
![[del.icio.us]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/delicious.png)
![[Digg]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/digg.png)
![[Facebook]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/facebook.png)
![[Google]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/google.png)
![[LinkedIn]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/linkedin.png)
![[Twitter]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/twitter.png)
On recommendation No. 3 our experience is not so much that the public sector buys the best, but it frequently demands custom built products and services, rather than using something off the shelf. This massively increases the cost both for the initial purchase and ongoing support or maintenance.
Most of the suggestions sound right and ‘spend and demand’ management is a true pearl of Procurement, however point 5 is very ill judged. Only in some cases shared services work well and even collaboration requires outstanding communication skills in order to bring the right results. I am inspired to right an article of why it is the case.
Tim
That’s a great point and I wish I’d included it!
Renata,
Look forward to your article! I do agree that there is a fine balance between the benefits of collaboration / shared services and the benefits from keeping local service provision to aid stakeholder management and understanding of local needs. But I still think that procurement functions with 2, 3, 4 people can’t really do a great job even for their local stakeholders.
Peter
I agree that the suggestions are generally a sound basis to take public procurement forward, starting with number 1. Standardisation of the most basic items is difficult to achieve at present, so we need a culture change at all levels in the Public Sector. As Renata says, shared services can work well for some categories, but often result in a remote, out of touch procurement organisation.
And yes, please have standard pre-qualification information, and standard basic conditions of contract? This would save time, effort and cost for all parties.
I can only but agree with the the points listed and indeed the feedback comments which seem eminently sensible. However, and with personal local authority(and private sector) experience, I perceive that a primary challenge remains around changing the hearts and minds of internal stakeholders from what I believe has traditionally been a very lazy attitude to achieving “value for money.” One of the key tasks remains convincing staff at all levels, from CEO downwards, that effective spend management is now going to be critical to survival. This will not be achieved by Procurement acting alone and I believe that it requires strong Central Government intervention. I wonder how this might manifest itself?
Interesting points. When we looked at Shared Services up here in Scotland it foundered on the notion that a Shared Services Centre would need to charge its “customers” VAT. Last I recall the Treasury were looking at it. But why stop at Procurement for Shared Services, surely Payroll processing, invoice payment etc are all worthy candidates. Also big waste of money in public sector is year end spends because “otherwise we lose the money”
[...] pursue better value from major suppliers. It must be done, and our white paper (summarised here and here) laid out a number of routes that need to be followed – and of course there are more. But [...]