The spiralling UK budget deficit and the subsequent spending cuts have forced the government to take procurement seriously, but how will the public sector emulate the efficiency of the private sector?
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The coalition government was quick to get its main suppliers, many of which are IT companies, around the table when it came to power in May 2010.
The first place to start was to get the major IT suppliers to reduce charges. But the government has since put in longer-term plans.
It all began back in July 2010 when minister for the Cabinet Office, Francis Maude, met the government’s top suppliers, most of whom are IT suppliers, to find ways of bringing down costs.
The top 20 suppliers to government, including all types of products and services, included many IT suppliers. HP, BT, Capgemini, Fujitsu, Capita, IBM, Atos, CSC, Logica, Steria, Oracle, Microsoft and Accenture were all involved.
Maude then met the CEOs of each company individually. One attendee at the meeting said the government wanted immediate reductions in cost as well as ongoing cuts. He said no figures were mentioned, but a source told Computer Weekly at the time that the government wanted 20% cost reductions. Another source told Computer Weekly that suppliers will probably be expected to deliver 40% savings over three years.
The government used a recent procurement conference in London to give more details on its plans. Speaking at The Crown and suppliers: A new way of working conference, Maude said procurement is his passion.
“I really mean it about being passionate about procurement,” he said. “[Government has] not got it right for quite some time.”
The conference was the first of many, with others like it planned, as the government sets out to have a two-way flow of communication with its suppliers.
Other than encouraging government organisations to talk to suppliers, the conference outlined new business models, kick-started the commercialisation of public sector procurers, and explained the government’s desire to work with more suppliers, particularly small to medium-sized enterprises (SMEs).
It’s good to talk
According to Maude, government procurement has been inefficient in the past partly due to a tendency for governments not to engage with supplier communities. “The way the UK public sector has procured has kept suppliers at arm's length."
Better communication would involve suppliers sharing their technology roadmaps and the government,” he said.
The government has promised to publish the first ever forward-looking pipeline of contracts that will be on offer, which will be updated every six months.
Deputy government CIO Bill McCluggage tweeted that there are £25.9bn worth of government IT contracts in the pipeline up to 2017.
Maude went further and explained how government bodies should engage with suppliers before tenders are put out, to help them understand what they can do. He said fears of breaking EU procurement rules have, in the past, stopped communication with suppliers pre-tender.
"We need to bust a myth. It is not illegal for public sector procurement to talk to suppliers," said Maude.
Ohad Graber-Soudry, procurement lawyer at Squire Sanders Hammonds, said communication is permitted within strict rules: "You can talk to suppliers, but there are restrictions, so you have to be careful. You must not to discuss specifics that could give a supplier an advantage.
"If you know you are going to publish a contract notice and you have specific information there is a risk if you provide it before pushing the notice out that it will give the supplier an advantage.
"If you just inform the market of your intentions or do a market survey to find out what people are willing to do, it is usually allowed. You are also allowed to talk to suppliers to get ideas how to draw up technical specifications and put together complex contracts, including IT."
Removing treacle and increasing competition
If talking can speed up procurement processes, it will be a welcome development. Maude said the UK is particularly inefficient.
The public sector procurement process costs twice as much to run in the UK than in France, while it costs UK suppliers four times more to bid for public sector work than private sector contracts.
He said a procurement process should take an average of 120 working days – 40% less than it does now.
All the extra costs of this will be passed on by suppliers.
But it is not just the additional cost which is handicapping the UK. Maude said lengthy procurement practices make it “exceedingly and prohibitively [difficult] doing business with government”. This prevents SMEs from getting involved, which is a desire of the government to increase value.
The government’s chief procurement officer John Collington said that in the past, there were not enough SMEs winning business through the usual procurement channels.
He said the government is already having some success. According to the government’s latest figures, 44% of government contracts signed in September were with SMEs, compared with just 5% in January.
Technology SMEs find it particularly hard to break the grip that the massive incumbent suppliers have on government contracts. A powerful oligopoly of IT suppliers, including IBM, HP and Accenture, dominates government contracts.
New business models
These dominant players might see increased competition from SMEs and a wider pool of suppliers if government removes the hurdles to entry for suppliers, but it is new players that might offer the most competition.
Katharine Davidson, director of strategy in the Cabinet Office Efficiency and Reform Group (ERG), told the conference that the My Civil service Pension (MyCSP) mutual currently being set up will be the first example of one new way the government will work with suppliers.
MyCSP was announced earlier this year as the first example of a government body spun out into a mutual and partnered with a private sector company. MyCSP will administer 1.5 million civil servant pensions, and will be owned by three groups: the 475 staff, the government, and a private company which will run the service.
Davidson said mutual and joint ventures, which retain a government stake, will be more common in the future as the government strives for “better” service arrangements.
“Everything is up for grabs and the pie is bigger,” she told an audience of 800 supplier representatives.
She said the value in a mutual, which she says makes them a better option, is driven by the fact that the success of the organisation is in the interest of all the stakeholders. Taxpayers will get better value and post-deal services, according to Davidson. Meanwhile, employees will have an ownership stake and as a result will be more likely to innovate, and the private sector partner will be able to engage more with the public sector.
She said this will help increase public sector productivity levels, closing the gap that exists between it and the private sector.
Commercialisation of government buyers
If the government is to achieve many of its aims, a key challenge is to make government procurement professionals more commercially aware.
In the past there has been a tendency for government procurement staff to rely too heavily on expensive consultants.
“Too often in the past we have fallen into our comfort zone and hired consultants for procurement. But consultants that are paid on day rates have no desire to do procurement quickly.” Maude said. He has “forbidden” the use of consultants for central government procurement without his permission.
“Why should we pay consultants to give us our own ideas back, bound in leather?” said HMRC CIO Phil Pavitt.
It has been about 18 months since the coalition government came to power, with cutting the budget deficit its mantra. IT projects are expensive, but also unavoidable, so the government needed to get control of spending in this area.
There has been much talk about changes to how the government will buy IT, but the recent conference gave it more context.