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A Green view of government procurement

11 October 2010 |

Peter Smith, director of Procurement ExcellenceAt last – the Green report has appeared. Interesting that there was lots of coverage, interviews and so on from first thing this morning, but it wasn’t published till 3.30pm…I wonder why? Last-minute rewrites? And how come Robert Peston at the BBC got it hours before Supply Management did?

Anyway, it is a mixed bag. His six “clear reasons why government conducts its business so inefficiently” are excellent: accurate and inarguable. But at the risk of sounding jaded and/or arrogant (or maybe just very old), I can honestly say there is not a single procurement idea here that I have not read about in a previous report (Gershon, OEP etc); is already being implemented to my knowledge; or has been tried and failed. But there is no harm I suppose in getting these things out into the open again.

The property elements are more interesting, although I would need to ask someone more informed than I am whether there is much that is new. But the potential for savings seems genuine in that area (and, of course, the OGC group that has now moved to BIS have done good work already over the past few years in this field).

In some areas, I would argue Green is simply wrong in his assumptions. There is no recognition that different spend categories have different economy of scale characteristics. In his world, bigger is always better.

For instance, hotel rooms form an interesting example of a market where the biggest buyers often don’t get the best deal. I can buy a single room at the last minute (if the hotel has availability) on a marginal pricing basis, cheaper than you can book 50 rooms at the same hotel. Actually, the quoted figures of £77 to £117 per room for London hotels look very impressive to me. (Has Sir Philip ever stayed in a £77 a night room in London? Not a great experience.)

And I can’t for the life of me see what the “scandal” is around coffee costing 95p in one government office and £1.40 in another. Perhaps the size/quality/subsidy varies? Is that a bad thing? Should we have the “approved government coffee standard” at the “centrally negotiated government coffee price”?  Very Stalinist….

He’s also either misunderstood some processes or just gone for statements that will make good headlines. Please don’t have a go at procurement cards (which have saved the public sector millions) without understanding how they work and the pros and cons of various P2P transactional processes.  And it is simply not true that their use in government “is not monitored”. I would also need to see the detailed evidence to be persuaded that some of the quoted price comparisons (£8 to £73 a box for paper) are truly like for like.

The detail isn’t really there in the report to have full confidence in the examples given. The IT contract examples sound like very poor practice, but the detail isn’t given so you are left feeling “yes, but what about…”. And the common theme of control and standardisation comes through; but an air traffic control system, benefits or passport platform, and an office desktop network all need very different IT services and service levels. I do agree that there can and should be more standardisation, but I’m not sure that simplifying the issues to this bullet point level really helps the debate.

There is also no recognition of the potential practical difficulties of setting up and running large central functions (including procurement) without getting into all the negatives of centralisation – bureaucracy, distance from the users, lack of flexibility and pace of action. The history of centralised government organisations is – let us say – mixed. Anyone remember Crown Suppliers? HMSO?

I can just imagine the headlines in a few years’ time: “New Labour government to abolish hotel booking quango – 500 people to lose jobs but minister says staff can get better prices themselves on Expedia.”

In other cases, the law of unintended consequences has come home to roost. Going back to travel, why do so many civil servants stay in London hotels? Because government staff were moved out to Newcastle, Leeds, Merseyside as part of cost saving relocation exercises under previous initiatives such as the Lyons review. But the head office, and ministers, stayed in London. So people are constantly shuttling up and down the motorways and railway lines.

Even relatively small organisations such as OGC, centre of excellence for procurement, has offices in Norwich and Liverpool as well as London, and a large travel bill. Videoconferencing – yes of course, but you need to make such a culture change work by first putting it into ministers’ and permanent secretaries’ offices. In my experience, those are the very people who want “Bill and Sara in my office – now please!” So Bill and Sara book the hotel rooms, and sit on a train for hours, just in case the cry goes out from the minister’s office once she’s read their report.

A final interesting point – in his interview with Robert Peston on the BBC, Green made a big thing of the government leveraging its credit rating and increasing payment terms for suppliers from as little as five days to 30 days or more – as I’m sure he’s done with his suppliers.

I happen to agree with him on this; better payment terms were implemented for suppliers during the recession without any negotiation of reduced prices. If the public sector pushed out payment terms by 30 days, then that would (almost unbelievably) reduce the public sector borrowing requirement by around £15 billion over the first full year. But there is no mention of his ideas on this in the report – maybe that was seen as too controversial and upsetting to the CBI, FSB and so on?

I’ll no doubt go into some of these issues in more detail on my blog over the next few days; this are just initial impressions. And at least there are no spurious savings estimates; but I wonder whether the coalition has created a rod for its own back. Will all this have been ‘sorted out’ by 2015? We’ll see.

10 Responses to “A Green view of government procurement”

  1. [...] wrote a rapid blog for Supply Management yesterday on the publication of the Green report; and that wasn’t the end of the [...]

  2. Both an interesting report and an equally interesting set of “first thoughts from yourself Peter”. I agree that the report lacks detail and could be seen as overly simplistic in its analysis however the over all thrust and theme is right; the Public Sector wastes too much and fails to act in a manner to deliver the very best value. Without getting bogged down into the detail, those of us who have been around for a number of years do remember HMSO & Crown Agents and whilst their time came to an end there is no reason why a properly constituted, constrlled and empowered central body could not have a new dawn. Sure there are huge control and delivery issues but there has to be a need for a well thought through centrally led procurement function but one that has both capability and has teeth. Without either of these the blockers and empire builders will win through.
    His central theme around aggregation is well made if a little naieve however across the public sector there are significant numbers of intermediary procurement bodies each with considerable capital and operational costs and each who have a “trading” function to sell to other public sector bodies and in effect make a profit from other public entities. Sure some will argue that having to live or die by their performance could be seen as good however there must always be the balance of their “customers” having to pay more. I would estimate that just removing the capital/operational costs of the intermediaries and disposing of their assets would save the Government over £100m. Whilst others would have to caryout the work, this could be either provided from the private sector or by a newly created, high performing, highly capable and agile national body.
    I am sure that this is the first step in what will be a rocky path. I hope though that the blockers don’t impact adversely on the changes as these are changes desperately needed to ensure that we have a publci sector that is both efficienct and affordable. Failure to deliver change will affect both society generally and our supply base.

  3. I mentioned ‘Crown Agents’ – I did of course mean ‘Crown Suppliers’. That’s the problem with this fast-response blogging! Crown Agents continue to thrive and do a great job

  4. Good thoughts Steve – but the issues with the “significant numbers of intermediary procurement bodies” you idenitfy are significant. Francis Maude can decide whether Buying Solutions survives; but he has no remit over the Yorkshire Purchasing Organisation for instance. And if that delivers welcome profit to its mainly Labour local council owners, why should they change their approach in order to fit in with some great national procurement strategy? I think focus on some do-able categories in central Government, (and perhaps sectors such as the POlice, where there are obvious big wins) where the savings are most likely to justify the cost and effort, and let’s try the centralising / mandating route in those cases and see how it works.

  5. The Green report is overly simplistic – the public sector is not simply a ‘big organisation’, as Green puts it; it’s a bit like saying that all clothes retailers could save money by centralising their joint procurement of clothes hangers because, after all, they all buy them and they probably all pay different prices – but I bet they don’t because the retail sector isn’t one big organisation. There’s also the issue of what public procurement is for – is it purely about lowest price wins – as it may be in the rag trade – but what about public procurement as a policy tool to stimulate business growth, particularly SMEs? I’d much rather buy our stationery from our local provider in Derby (which we procured collaboratively with another public body) than via a national contract with the likes of Rymans or Staples. If I can get a better deal locally than nationally, why shouldn’t I use it?

  6. Peter
    This is not about any specific intermediary but about the concept, now we are at the point where there is the need for radcial change or transformation as incremental change is unlikely to yield the benefits required. I accept that one approach would indeed be to focus on “do-able” categories, but then are we missing an opportunity to do things differently and more innovatively, tackling some of the “sacred cows” out there. I totally agree that in all areas, bodies, entities the issues will be significant but we have an opportunity to really address many core challenges that have only ever been tinkered with over the past decade or so.
    I am suggesting that the time is right now for a more forward looking, controlled risk taking, highly agile procurement profession which doesn’t just take small steps but for once takes big strides forward.
    Yes that comes with huge challenges and equally large risks but we are at a cross roads in our society where we can reshape the future for our children and produce a fit for purpose public sector.

  7. Philip Green’s report shows that there is a huge amount of waste on external supplier spend in the UK public sector.We know this and we know there have been lots of attempts to reduce this waste.

    This is at a time when the Government is squeezing much of the needed £65bn of annual public sector savings through job losses. The problem with job losses is that the net saving to the UK economy is limited after the employee stops paying taxes and is paid unemployment benefit.

    We therefore need a new way to help the government to take out cost from external supplier spend. It is time for a new model.

    We need to advance the concept of public sector procurement supported by world class private sector organisations, such as Capgemini. These companies have the outsourcing capability to run world class procurement services on behalf of public sector bodies in such a way that between them the outsourcer and the government can guarantee bottom line savings, and as a result can save public sector jobs.

    This is a change in paradigm for outsourcing; we are moving to a model where a service can be outsourced from the public sector to the private sector and as a result a significant proportion of public sector jobs can be saved, by channelling savings into external supplier spend not into employee job cuts.

  8. [...] wrote a rapid blog for Supply Management yesterday on the publication of the Green report; and that wasn’t the end of the [...]

  9. Good to see that Bob Booth has saving public sector jobs at heart and not just the desire to make greater profits for “world class” companies like his own, CapGemini. Perhaps he can share what experience he has that leads him to take at face value Philip Green’s assertion that there is a “huge amount of waste on external supplier spend in the UK public sector”. Perhaps he bases it on the clearly intensive and thorough research that led to Green’s report?

  10. [...] Coalition asked Philip Green in to produce a report on public sector procurement which contained no new findings and said nothing that other people hadn’t been saying for years. And, of course, it [...]

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