Procurement Intelligence Unit

I agree Jonathan, the government has pressed the “magic button”. This government “discovery” is really an open secret. As per Regional Centres of Excellence, some England councils spend above £40 billion on external contracts, and 80% goes to just 8% of suppliers … and worse, the level of price inconsistency is such that some councils have paid as much as twenty times more than another for exactly the same item. 

8% is an easy target. If Government were to move away from fuzzy procurement and apply the same standards as the private sector in terms of collaboration, co-ordination and mandatory good practice, from my own experience, savings of over 20% are readily accessible.

I agree with both your comments. There is enormous inefficiencies within the public procurement process, and undoubtedly many savings to be had. But does the Government have the capability to actually deliver these savings?

Over the last 30 years the British Government procurement activities have been hap-hazard - it has signed contractual agreements that they have not thought out in regards to provision of goods & services, brought in consultants were the main bulk of the costs have been to project changes midway through delivery, not looked at the strategic operational need over a more detailed period and have slowed projects to restrain costs creating a bow wave effect that have increased costs in the long run and have been saddled with restrictive European legislation in regards to procurement. 
Public Procurement activities need to move away from European frameworks and in turn re-look at the "Public Contract Regulations" which are a mirror copy - there are a great deal of cost savings that can be delivered - but with restrictions and lack of understanding of procurement activities and getting buy-in from all departments the role will be harder.

 Jonathan, I don't think that capability is the right word. Mind- and skillset is probably more appropriate! In my experience, the establishment of arbitrary targets means that people stop working when they hit them. The trick is, getting them to exceed the target. The difference between Private and Public Sector Procurement is that in the Private Sector, the objective is to get the best win-win deal available, and involves constant benchmarking and market-testing to ensure that the deal remains the best available for the life of the contract. Public Sector procurement is constrained by process and doesn't concentrate nearly as much effort into ensuring that the deal is the best available for the life of the contract. Certainly in the case of Frameworks, all that happened was that a number of "internal" markets for government developed that quickly lost touch with the external ones - they became "fire and forget" solutions where the pricing in the internal market was inconsistent with those in the external market. Some critical factors militating against success are: 1. Silo environments. There is no pan-government oversight and control of CAPEX and major procurements. There should be a centrally-led and managed strategic body mandated to ensure compliance 2. Lack of standardisation - this should be a key objective wherever possible for all Departments and should be mandatory. 3. Fragmentation and dilution of spend 4. Lack of common procurement toolkits and measures of effectiveness 5. Decentralisation - Government Procurement is not mature enough to function effectively in a decentralised environment - recentralise it and manage as a vertically-integrated structure supplying services across Government. I could go on - this is not the fault of the people operating in the Government Procurement sector, but is basically systemic to the process.

Nigel, these are very interesting comments. Given the constraints in which procurement people are expected to operate, the public buying process may not stand as an attractive platform for top talent. Perhaps the stream of the most gifted young managers towards the relative freedom of a role in the private sector may also deny government of high performing buyers. 
Moreover, I think all of the problems that you highlight require substantial investment to put right. Arguably, we need a super-QANGO that buys all goods and services for all government agencies that will maximise the volume going to the market, as well as providing a clear and integrated process which all users can understand. However such a move, or many of the other necessary procurement reforms, will require up-front investments. But, given the cuts affecting all 'administrative' functions, it looks doubtful whether the Treasury is brave enough to dedicate these needed resources.

Jonathan, I'm not sure that the actual operational investment would need to be that great - after all, there are pre-existing laterally-integrated procurement/commercial functions in every department - the trick would be to form a new management structure to head it up, probably Treasury-led, and then just change the reporting lines from infra-department to extra-department. Until final transformation, the departments would still be funding their procurement teams. Upon Transformation, the departmental budgets for the operation of their procurement functions would be transferred to the new Commercial Centre, which would thereafter draw down its own budget, which would have (previously) been allocated to the departments anyway. The budgetary requirement would naturally reduce as duplications and inefficiencies were removed, so it would be cheaper than the existing solution. It is, after all, only moving existing funds around inside government initially, which would provide the breathing-space needed to develop the necessary strategies and structures to achieve standardisation/commoditisation and category management. In fact, the barebones structure already exists - the OGC, which unfortunately lacked the mandate and the reach in its current incarnation. It would mean, sadly, that a great many duplicated roles would of necessity have to go, but it would lead to a leaner, highly-focussed and centralised (in terms of leadership and direction) commercial function that could also encompass the forum for developing high level strategies for the procurement and contract management of standard/common goods and services across all government In terms of payments, there is an opportunity to develop a common payments branch for all departments, by selecting the best of the current bunch of finance management suites as the main platform and achieve economies in scale as well as operation. A common P2P process would provide all the management information to enable proper commercial management to be undertaken. Or something like that. If someone paid me enough I would go into greater detail!

Nigel, I think you already have pointed out several key actions to improve the Public Sector procurement. The regulatory framework has constrained mainly the purchasing business as loss prevention strategy, but the global effect has been terrible for the process efficiency. In any case, several Public Oil & Gas Co already are managing a huge procurement budged in an efficient way, and maybe in their case the “magic button” has been its real targets. For getting the people exceed their targets is necessary the people enter into the process of setting the organization target. This process can be implemented easily in a year using the existing Public Sector organization resources, by applying the Balanced Score Card method. We can not improve what we can not measure, and BSC is there for resolving this issue and moving the organization for achieving their targets. I think all your key actions can be turned over the BSC.

Nolberto, The main thrust of my argument is towards a centralisation of the procurement function - this all goes back to the evergreen discussion on centralisation versus federalisation of procurement. Centralisation works to establish, amongst other things, a commonality of direction, the removal of duplications, control of the supplier base, agree costs and to achieve economies of scale, not only through the aggregation of spend and leverage enhancement, but also the levels and quality of staff needed to carry out the function. Once the Central Procurement function has achieved each of the performance goals it has established , it may well prove beneficial to consider a limited refederalisation, under the control and direction of the centre. I've used BSC methodologies myself, not only as a performance management tool, but also as a means of measuring the impact and effectiveness of organisational change strategies. It is a powerful tool, but by no means the only one. I agree with your observation that there are a number of large organisations who have achieved a high degree of procurement maturity - perhaps government should be benchmarking itself against those in terms of structure and goalsetting? As I have said before in other discussions, why should the taxpayer settle for anything less than the highest standards of effectivene