Spending watchdogs slam "fragmented" approach to public sector procurement

Public sector procurement is “fragmented, with no overall governance”, a review conducted by the National Audit Office and the Audit Commission has found.

The report claimed that public bodies are incurring administration costs by duplicating procurement activity and the sector is failing to maximise its significant purchasing power.

Key findings from the review include:

• Public bodies bought goods and services worth £220 billion in 2008/09, which accounts for around one third of all public sector spending
• Central government organisations spent just under a third of this (30%) amount, while local public bodies accounted for the remainder
• There are nearly 50 professional buying organisations, as well as individual public bodies running commercial and procurement functions. Many operate framework agreements for similar goods and services such as stationery
• The public sector is paying a wide range of prices for the same commodities, even within existing collaborative arrangements. As an example, there was a 116% variation between the highest and lowest prices paid for the same broad specification of paper
• There is wide variation in the volumes and proportions of spending that individual organisations are channelling through existing framework arrangements
• The use of category management – covering the purchase of a group of goods and services that share similar properties – is limited in many public bodies, and has been hindered by problems such as a lack of good quality procurement management information and a proper understanding of end-user requirements
• 80% of public bodies surveyed did not measure the cost of letting a contract
• An existing compliant framework agreement could have covered 20% of a sample of OJEU contract notices. If applied to all notices in the UK in 2008, this means that 2,500 tendering exercises were unnecessary
• 27 of the 33 suppliers surveyed confirmed that they always or often provide lower prices for contracts involving a greater volume of goods or services.

The NAO and the Audit Commission said greater collaboration would see fewer tendering exercises, leading to lower administrative costs, and allow public bodies to concentrate on more specialised purchases that are unique to them. It praised developments such as the PR05 group, which is made up of the five largest local authority procurement consortia.

The report called for a step change in public procurement work, building on the Office of Government Commerce’s work including the Collaborative Procurement Programme it set up in 2007. This has led to “some real improvements” to the way public bodies are buying goods and services.

The OGC should – in consultation with major government departments and wider public sector stakeholders, including representatives of local government – pursue a consistent pan-government approach for all procurement spending, the report said.

This would look at: which categories of procurement should be dealt with at a national, regional or local level; which organisations should develop category strategies and run procurement activities; the governance of the structure and how organisations within it are funded and managed; the procurement information standards that all public bodies and professional buying organisations need to meet; and how the approach will deliver wider policy objectives, including how to accommodate environmental sustainability and local sourcing.

The report said all public bodies should adopt a more strategic approach to procurement, ensuring their management information meets relevant standards and focusing on those areas of strategic spend that are unique to the organisation. Better measurement of the savings made is also required.

Eugene O’Sullivan, chief executive of the Audit Commission, said: “With all public service costs under pressure, better procurement provides an opportunity to make significant savings that don’t cut into front line services. Most councils already collaborate but, even where there is collaboration, it is not delivering all the possible benefits.”