We need a wider vision to achieve the best value

Monday, May 18, 2009

Good procurement is not about buying cheap, it's about getting best value, delegates at the Strategic Procurement 09 conference heard. So, is the message finally getting through? David Allaby reports

There were still large areas of disaggregated spending that had to be pulled together to create real efficiencies and value from the public sector spend, David Shields, Office of Government Commerce (OGC) programme director for markets and collaborative procurement, told Public Service Events' Strategic Procurement 09 conference at the Barbican.

He said they had worked hard within the OGC to open central government's eyes. Government needed to focus on big spending areas in the wider public sector, that included local government, if more strategic efficiencies were to be achieved. The top 33 local authorities were eight times bigger in terms of spend than any single central department.

The recent procurement review from former Westminster Council chief Bill Roots was "connecting central government and the wider public sector for the first time" and acknowledging that they should be working together. Shields said: "To drive value we have to look outside our organisational boundaries. We cannot do that just by finding efficiencies within a single department, school or council." He felt sure that would be the message from the operational efficiency programme as well.

Buying Solutions had more than 300 initiatives – there was a lot of information pushed out from the centre – and it was not always easy to grasp, and he outlined some of the approaches towards a transformed procurement strategy. The operational efficiency programme was expanding its business intelligence work to learn more about key markets, supply chains and suppliers. There was a need to work more coherently within this spending review period and the next.

"In terms of category management," he said, "our approach is to look at total spend. So we can see, for instance, that currently £29bn is spent on professional services. Our task is to know how we manage that effectively across organisational boundaries." Spend management was a challenge with 40,000 separate bodies involved from GP surgeries to the MoD, but knowledge was growing to help make better decisions.

The buying landscape, with well-resourced buying groups such as ASPO, was another means of change. "We believe we can utilise that infrastructure, working with those guys to increase change and volume and to free up space and time," he said. "For instance, the MoD should concentrate on core activity, such as tanks and guns, but perhaps they shouldn't be buying energy, office solutions and so on."

On energy, he said there was a passion around how it was acquired, lots of buying in slightly different ways. He asked: "Can we have one set of conversations with international suppliers? Can we understand the trends of what is working and what's not?

"One of our first objectives was to improve the standards of energy buying across the public sector. How do you drive value across a customer base with £4bn worth of business? We are 20 times greater than Tesco. We now have 70 per cent of public sector demand feeding into this process, helping to shape the strategy. This is not OGC having four people in a room. We can start to look at 10- and 15- year agreements but we will only unlock the maximum value if we work together, and that includes the market for green energy and demand reduction."

There were several important issues to be confronted: What does government do to create inefficiencies within the supply chain? What do we need to do to change behaviour? Those conversations were already taking place for ICT and would eventually be moving across all categories. The common assessment framework was feeding into this process, looking at performance management on a continuous basis.

"To move to world-class procurement we have to do things very differently. The efficiency that comes out of it is a measure of the success of the change programme," Shields added.

As OGC chief executive, Nigel Smith has the opportunity to address Cabinet, and he told Public Service Events' Strategic Procurement 09 conference he would keep on calling for priorities in procurement.

"We have to know the priorities otherwise the procurers cannot understand the job they have to do," he said. "Procurement is at the heart of finance, at the heart of delivery and at the heart of policy. It is no longer a Cinderella profession or process. It is at the top table of government and bears a tremendous responsibility."

When, as boss of Invensys Rail Systems, he had been interviewed for the OGC job about two years ago, he appeared before "a procurement panel that included one person who knew what it was about – Peter Gershon" – the man who set the efficiency agenda in motion.

He acknowledged the changes that were taking place in government. "There were two problems I saw when I came in," he told delegates in discussion. "The Treasury spending teams – in the old days, the rottweilers of government – their attitude was about buying cheap. That attitude has changed out of all recognition.

"Politicians still think that buying cheap is efficiency and we still have some education to do on that. In our collaborative procurement agenda they are looking for a silver bullet – pile it high, get the biggest con tract, take it to market and go out and beat up the supplier. That's what they think collaboration is about. "If you do that in most market sectors you will end up with poorer value for money. It is as much about disaggregation, not about aggregation, and it is absolutely about value, not about price."

He said it was vital to free up the obstacles to effective procurement in the wider public sector. Strategic procurement, he said, was about the big outcomes and objectives: "This is not about buying. This is something much more important to the delivery of organisational objectives. That is where I think procurement has its major challenge."

Procurement was about efficiency and delivery of the big agendas and, with the economic climate as it is, he told procurement professionals: "Our time has come. We are at the centre of the efficiency and delivery agenda. Frontline services will only be delivered and protected if we do our job well. I don't think that has always been recognised."

The public sector spent a staggering £175bn on third party goods and services, a third of government expenditure, and that expenditure had the power to affect complete markets in the UK. Public sector energy procurers were eight times larger than the largest private sector procurers.

There were, he conceded, constraints about how the public sector could incorporate policy objectives in that £175bn spend.

"We have EU procurement laws," he said. "Sometimes I think they are a blooming great dumbbell, a shackle – there is nobody in this room who will think it is an efficient process – but its principles are absolutely correct. If we are in an economic community we cannot have procurement processes that do not allow free movement of goods and services. It is about making sure there are no barriers."

The average public procurement process took 16 months. "When I spoke to some small and medium businesses and suppliers before I joined," Smith said, "I asked them what they thought about government as a buyer. They said to me the biggest problem is the timescale and the cost of buying. Part of that comes from EU regulation."

He had read five reports that set out much the same recommendations on government business with SMEs. From the Glover report, government was now required to have a free-to-use portal by the end of next year for every wider public sector contract above £20,000.

"Are we going to achieve that? I'm pretty sure we're not. Will we make a massive difference between now and December 2010? I'm sure we will," he said.

He believed there were many opportunities to pursue policy objectives without compromising value. There was a conundrum of pursuing every policy through a single contract. If you did, some perverse things happened – more time taken, higher costs, and conflicting priorities in procurement. The OGC would continue to try to put some sense into this.

On sustainable procurement policy he said the Sustainable Development Commission had been damning about government performance to meet its own targets.

"It signed up to these targets and then did virtually nothing to achieve them or manage performance towards them," Smith said. "That is not to say there wasn't some fantastic work going on in these areas across government, but there was no framework, no testing of whether we had any chance of meeting these targets. Government partners are now working together to do this, as are the equivalent in local government."