Centralized procurement and the costs of savings

Centralized procurement and the costs of savings

Posted by Ian Burdon in Public Sector Procurement 01 Mar 2013

UK Government procurement reform is being “stifled by departments” being tardy in moving to new central contracts based on large-scale aggregation of demand. Because of a lack of enforcement of the use of centralized purchasing of goods and services maximum savings are not being achieved.

No doubt a disbelieving nation will swoon in horror at this dispatch from no man’s land, brought to us by the UK’s National Audit Office in a new report.

The conclusions of the report beg a sackful of questions, the most pressing being whether centralized purchasing and contracting actually represents best procurement practice in government. Also, is the large scale aggregation of demand really compatible with one of the strategic targets of the reform programme – ensuring that SMEs receive around 25% of government business, albeit that target is somewhat cynically wrapped around with the proviso that it includes the use of SMEs as subcontractors.

Purchasing Insight logoAnd one reads with a weary sigh the prominent focus on notional “savings” as, by implication, the principle marker of the benefits to be had from public procurement reform.

These questions are linked by the potential factors which influence a procurement decision, for example

  • Diseconomies of scale from inappropriate aggregation
  • Creation of dominant “super-suppliers” thereby reducing competition
  • Relegation of SMEs to subcontractors and the economic impact of the policy on suppliers with a strong regional or local capability who can’t win business.
  • Tacitly suppressing the potential for innovative solutions.

There are other factors relating more particularly to the effective delivery of subjects of the procurement of course: not for nothing do the EU public procurement regulations distinguish clearly between “best price” and “most economically advantageous tender” thereby dropping a large hint and perhaps explaining why departments are rather keener to hold onto procurement staff than the centre would like.

I am reacting again to the persistent idea that procurement is simply about buying things at the cheapest price and that it is an activity which can be neatly bundled up and outsourced, in this instance to a central purchasing agency.

The NAO report is more complex than the headlines suggest and it comments on a range of other issues such as dodgy target setting, inadequate consultation with departments by Cabinet Office and the absence of sensible and comprehensive data on who is spending what with whom, what on and how often, let alone at what price. There is an element of circularity about the latter because you need a strategy to get the data which is required to create the strategy, but my impression on reading the report is that these issues are much more important than the noble quest for savings which like Platonic Forms dangle in the ether, eternally sought but rarely made manifest.

Of course some of those savings may well be achieved by outsourcing to the centre – but at what cost?

Ian Burdon can be found on twitter @IanBurdon

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