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Government Procurement - New Recognition, New Challenges

Central Government Procurement – New Recognition, New Challenges

Peter Smith

Peter was President of CIPS 2002-3 and has worked extensively in public sector procurement, in both senior civil service roles and as a consultant.

Not that long ago government procurement was seen as a poor relation to the more exciting private sector world. Central government bought ‘stuff’ – stationery, office equipment, print. Much was specified in great depth; even ten years ago, one major Department still specified the length of screws and the type of glue to be used in manufacture of office chairs and desks! Most services were provided by civil servants; both internal services such as technology support, and services offered externally to the public.

But increasing expectations of government, a shortage of key skills, and a desire to outsource and transfer risk, have driven Government to buy in more delivery of key services. Largely on the back of that change, procurement has become increasingly critical and high profile, to the point where some argue that policy advice to Ministers and procurement / management of key suppliers are the only absolutely ‘core businesses’ for the civil service. Everything else could be outsourced. And the vision outlined by Sir Peter Gershon and OGC, of Commercial Directors at Board level in all major public sector organisations, is no longer fantasy but growing reality.

But higher profile comes at a price. Government procurement is frequently front page news – challenges to expose Gateway reviews, questions over national preferences in MOD contracts, controversy over private involvement in the NHS, or use of ethnic monitoring in supplier evaluation. The spotlight is not always a comfortable place to be; recognition brings challenge.

So what are the key themes and trends, particularly in central government procurement? What is the current status and how might that change over the next few years?

Procurement drives critical programmes….

The Olympics, ID Cards, road-user charging; these and other critical projects have huge procurement content and dependence. Many combine procurement of goods and services, with added complexity through use of PFI and similar techniques, unheard of a generation ago. The skills and tools needed to deliver such projects – in both programme and project management (‘PPM’) and procurement – are highly valued and sought after.

But it is clear that government does not have enough skilled and experienced procurement staff in this area. Consultants and contractors play key roles in most programmes, and while this is not necessarily wrong in itself, it raises questions of vulnerability. Skills transfer is key; but there must be a base of resource to whom the consultants can transfer their skills! Often procurement roles on projects are defined at too low a level, which leads to more work for consultants, less skills transfer…and a vicious circle. Clearly, this will need to be addressed as it continues to be a key are; how many procurement people will be needed to work on the Olympics?!) This leads onto….

Procurement capability takes a step forward…..

There have been major strides forward in terms of public sector procurement capability, and organisations such as OGC, CIPS, IDeA, National School for Government and others deserve credit. But problems of recruitment, retention, and succession planning still remain. Staff can get early responsibility and challenge, with good training (including to achieve CIPS qualifications). But private sector organisations, including the large consulting firms, now target this talent pool. A smart young SEO on £30-40K can be tempted by salary increases of 50% or more.

This drain of talent means that there is still a shortage of procurement staff ready to move up to the leadership levels of the profession in government. Recent senior level recruitment exercises appear to validate this; it is perhaps significant that the new MOD Commercial Director role, one of the 2 or 3 most important procurement posts in Government, has gone to someone with neither public sector nor professional procurement background.

The ’Public Sector Faculty’ - an educational networking group for public sector procurement professionals - announced last month by CIPS and OGC is a very promising step. This has the potential to develop a stronger procurement community, with a focus on continuous professional development beyond initial qualifications. If it allows organisations to work together to identify and retain the procurement ‘stars’ of today and tomorrow, then even better….and talking of collaboration….

Procurement collaboration becomes the norm…..

Category management (‘CatMan’) has been the most significant development in procurement over the last ten years. It has gone from something only a few global companies used, to a standard process for most organisations, used for buying regularly required goods and services – from stationery to consultants, construction materials to travel services.

The change has had major implications for the public sector, and generally departments have responded positively. The MOD’s ‘procurement reform’ CatMan programme was one of the largest ever seen and has delivered many £millions of benefits. Health, DWP, the Home Office and may others have also implemented similar approaches. There are issues; some traditional procurement staff are not equipped or motivated by a more demanding, active approach, and considerable issues of capability remain in some areas.

With CatMan well established, the next step is to leverage spend volume and skills by collaborating across organisations. Now, anyone working in the private sector might assume that government departments are similar to the different divisions of a major corporation; some internal tensions, but ultimately with the same objectives. That may be a misapprehension.

Departments compete for scarce resources – money from Treasury, or even staff. Ministers, not surprisingly, look to build their own reputation and power. So building collaboration between Departments is harder than it might seem. Not only are requirements often genuinely different, but the cultural and political barriers are considerable. Given these difficulties, progress over the last couple of years has been impressive, driven by OGC and key leaders in the Home Office, DWP, MOD and other key departments. But many opportunities remain and need seizing over the next few years.

Does it follow that such common approaches can be extended beyond central government and across the entire public sector? Probably not. The sheer complexity and scale make this almost impossible. There are issues of local accountability, monopolies could be created in supply markets, and benefits of experimentation and alternative approaches could be lost. There is also a need to understand better the real economics that sit behind principles of aggregation and leverage. Experienced purchasers know that more volume does not always lead to better prices; the ability to flex suppliers and buy at the margin can be lost. So ‘bigger is better’ is over-simplistic.

But fundamentally, it cannot make sense for every local authority, police force, and hospital to waste time and resource re-inventing the wheel on stationery and other basic contracts. Collaboration is not a fad; it is here to stay and has much further to run. However, it raises some interesting issues in terms of the next major trend…..

Procurement ‘savings’ drive the efficiency agenda…

The Gershon Efficiency Review has had a positive impact in most organisations, increasing the focus on procurement and value. Procurement is now by far the biggest single element of efficiency savings, and successful work in areas such as collaboration has ensured that very impressive savings are recorded.

This efficiency drive won’t disappear, and savings will get harder to find – most of the low hanging fruit has been thoroughly picked, washed and eaten! This could actually put pressure on the collaborative agenda as organisations are tempted to look beyond simple collaboration for the next wave of savings, perhaps even by outsourcing procurement?

And the pressure may intensify after the next election. Public sector spending is already tightening, so the next efficiency round may require more focus on real cashable savings. Leading private sector firms have tightened measurement methodologies to ensure that procurement savings go ‘straight to the bottom line’. This trend will take hold in the public sector, which again will provide both opportunity and challenge.

And some major Departments have as much as half of their external spend going through a small number of PFI or strategic outsourcing deals. Managing those deals and suppliers to obtain ‘savings’ will drive more focus onto strategic relationship management, which is emerging as a major trend in both public and private sectors. There are examples of very good and even world-leading practice in government, but this remains an area of relative immaturity and opportunity.

‘Sustainable Procurement’ causes controversy…..

‘Sustainable procurement’ is increasingly used to cover all ‘exogenous issues’ – development of SMEs, minority owned businesses, environmental issues, development of local enterprise…..

Competent procurement people should look at whole life costs in any purchase decision. Therefore issues such as running costs (low energy light bulbs), end of life disposal and so on should be enshrined in everyday procurement processes. If local food supply for school lunches reduces delivery costs, storage requirements and wastage, then these factors must be considered and may well lead to local supply decisions. Similarly, understanding and evaluating employment procedures (equal opportunities, heath and safety) when taking on outsourced services providers seems sensible in terms of finding the best supplier.

Equally, more effective competition through creating a ‘level playing field’ for suppliers must be positive; breaking down barriers that suppliers face, and making it easier for SMEs to bid by reducing complexity and bidding costs. In some progressive public sector organisations, procurement people help to educate SMEs, third sector businesses and similar in how to sell to the public sector. This sort of crossover will grow and has the potential to bring benefits for supply markets and buyers.

Where ‘sustainability’ is on less sure ground is where non-value related factors creep into evaluation processes. The UK has always prided itself on the fairness of government procurement, feeling superior to countries where contracts were awarded because of who you knew or where you lived. Yet there are disturbing trends in the UK to set targets or consider factors such as location of the bidding firm in evaluation decisions, relegating the importance of objective value for money.

Vigilance will be needed from the procurement profession to ensure that value and service to the taxpayer is not corrupted. And there will inevitably be some tension in years ahead as trends to collaborate and drive efficiency run up against some of the sustainability issues – both the worthy and less worthy sort!

Procurement extends reach into the ‘commissioning’ world…

While it is easy to assume that procurement now covers every aspect of Government spend, there is still at least one more huge growth area; the commissioning of services, particularly in health and social services.

‘Commissioning’ describes the purchase of services including care home provision, fostering, home-based medical care and so on. Much is sourced from a market that may include public, private and third sector (charitable) providers. But the underlying requirements – management of standards, need for competition, definition of service levels and ‘contractual’ terms – are core procurement principles.

Given the annual spend of over £10 billion in these areas, this is a major opportunity for the application of good commercial principles. The key importance of care to the immediate client must be retained, while ensuring that the taxpayer also gets VFM. Even areas such as targeting and payment mechanisms for GPs may come under more scrutiny from procurement professionals. Certainly, the drive to make whole sectors such as Health operate more ‘commercially’ appears unlikely to reverse, and is a great opportunity for the procurement profession.

There isn’t space here to cover the shared services agenda, questions of organising procurement across central departments, agencies and wider networks, eSourcing and eProcurement. Procurement in central government has gained recognition and would still appear to have considerable challenge and opportunity ahead……

Peter Smith

August 2006