How much should procurement cost as a % of expected spend

In my previous blog I asked for comment on reasonable values for “X”, the combined total of the cost of organising and adjudicating the procurement and the collective costs incurred by the bidders. The first answer, from a major supplier to UK local government, was:

No more than 5% for commodities (there is little or no margin).

15 – 18% for most ICT products and services.

Never more than 30%.

This helps explain why UK local government, despite massive variations, commonly pays considerably less than central government for equivalent products and services.

It also indicates why it is so important to avoid breaking up efficient procurement co-operatives like the Grids for Learning. Their low procurement overheads (to sellers as well as to buyers) are a major reason why they are able to provide broadband and ICT support to Schools at well below the rates quoted by the major telcos to central government – and even below the rates secured by some of the efficient and effective private sector buyers.

That is also the reason why so many, whose way of life depends on the inefficiencies of the current regime, wish to see the back of them – as a yardstick by which their own lack of performance can be measured.

 

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