09 March 2010
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Cutting down buying costs


Philipp Prince

Procurement makes up 30% of public spending – and is an area ripe for improvement, says Philipp Prince.

We all know that local government’s purse strings are going to be tightened over coming years.

And the scale of the savings needed means local authorities must look across their activities to find ways to make them.

Although procurement might not seem the most exciting opportunity, it is an area which remains ripe for improvement.

According to the Operational Efficiency Programme, the £175bn spent on procurement in 2007-8 by the public sector represents some 30% of public spending, with £103bn of that total spent by local authorities, schools and health organisations.

In [audit, accounting and business services firm] BDO’s experience, despite the scale of this spending and often-complex, strategic nature of public sector procurement, it is often given a relatively-low profile within public sector organisations.

Of course, there are notable exceptions, but it is not unusual to find a dedicated procurement officer making decisions in isolation from the strategic aims of the council, and certainly not in line with the broader aims of the council’s local partners. This means that opportunities are being missed. Sometimes, this is a question of capacity, but this should not remain a reason for inefficient procurement.

There are several ways for a council to bring in extra capacity, such as working with external partners in the public or private sector, or even inviting advisers from business to share their expertise.

Whatever way is chosen, the council should explicitly seek to build internal capacity as part of the process. Too often, advice is sought on a particular project, but without explicit knowledge transfer, the opportunity to improve internal procurement skills for the future is lost.

Smarter contract management can also help local authorities achieve more efficient procurement. Basing reward and remuneration on the delivery of phased objectives, for example, can help ensure that clients pay when they are happy with outcomes. Knowledge transfer from provider to client can also be included as an explicit aim of the contract.

As well as seeking external advice, local authorities should also examine opportunities for joint procurement across both physical and organisational boundaries.

With the Total Place agenda pushing local collaboration further than preceding initiatives by thinking about a budget for place rather than organisational funding streams, the scope for making savings through joint procurement should become clearer.

Greater Manchester’s improvement and efficiency commission, which drives efficiency by brokering collaborative and shared working, including the AGMA strategic procurement hub, could provide one model for such interaction.

None of this is easy and it may not deliver quick-wins. But, in the short to medium term, the increased purchasing power of organisations which work together, alongside the opportunity to align procurement with shared strategic aims, will give a clear route to more efficient and effective procurement.

Such possibilities point the way to real opportunities for innovation in procurement. Local authorities have a tendency to work within tried and tested methodologies, but this is beginning to change.

Buying Solutions has organised e-auctions to procure goods and services, consolidating individual organisations’ tenders so they can pool their requirements and harness increased purchasing power. One e-auction organised on behalf of North Yorkshire CC led to savings of 29% on the cost of mobile solutions.

It is also crucial that markets are operating effectively. Smaller providers can sometimes find that requirements such as pre-qualification questionnaires (PQQs) can act as barriers to entry, leading to higher long-term costs and fee levels. For example, PQQs may require firms to demonstrate attributes, such as national coverage, which are not relevant to the services being purchased.

In addition, variations in PQQs across different organisations can add complexity and, therefore, cost to the process. PQQs should act as a tool for local authorities to identify the most appropriate provider, not as a barrier to firms which may have innovative solutions.

Standardisation of PQQs among partnering organisations and ensuring that PQQs ask relevant and appropriate questions is essential.

Overall, the public sector, by virtue of its purchasing power, has the potential to shape supply markets and promote competition, and this should not be underestimated. Procurement may not be the most exciting new idea around at present, but in difficult times, it must not be forgotten.

Philipp Prince is head of public sector, BDO



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