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Newsroom & speeches
20 June 2006
Check against delivery
I am delighted to be here. OGCBuyingSolutions and OGC have worked extremely hard on improving our whole approach to procurement. I want to put on record my thanks to Hugh Barrett and John Oughton for all that time and effort, as well as that from their teams.
Public services matter deeply. People care about them – the people on the receiving end care, and the people doing the delivering care too. As the Prime Minister said earlier this month, we all have a common desire to improve the service we offer. The issue is how to do it.
We believe in public services. We believe in their ethos of fairness, and the commitment to serving the public which underpins them. We know they need to be adequately resourced, and we have done a great deal to improve the resources for them. But being committed to public services obliges us to being committed to providing them efficiently too. We need to be able to show people that they are getting the best possible value for the tax revenues they have contributed. Because otherwise, the political debate will tilt again in favour of those who want to cut public services and to scale them back. Efficiency is a policy imperative for those making the case for well funded public services. People need to be confident that their money is being well spent.
Procurement is part of that, part of our efforts to release resources to the front line and to properly support public services. Today is an opportunity to focus on efficient procurement as one of the most important ways to increase the effective resources available to public services in the period ahead.
I welcome the emphasis on sustainability at this event. Last week, in welcoming the report of the Sustainable Procurement Task Force, chaired by Sir Neville Simms, I made the point that the coming Comprehensive Spending Review gives us the opportunity to incorporate its recommendations into our practice. That’s an opportunity we need to grasp and I hope that discussion today will help.
We are now at the beginning of the work on our second Comprehensive Spending Review – looking at priorities and challenges for the next decade. Our first started in 1997, and we want to repeat that comprehensive review after ten years in government.
The Chancellor said last week, we are faced with the challenge of value for money. The world has moved from an era of public sector surpluses to large deficits and debt, generally far higher than ours – for example in the USA, Japan and France, Germany and the euro area. This is an era of more limited fiscal resources – forcing governments to review their public sector responsibilities and to secure the greatest cost effectiveness.
With our CSR, we are shifting from a time when public spending was rising by 5% a year as we caught up and addressed the investment backlog, to one where we expect it to rise by 2% a year.
But within those constraints, we still need to recognise and address the big scale challenges which we know are ahead. Demographic changes, with dramatic increases in life expectancy, which were central to my work as Pensions Minister until last month. The emergence of India and China as economic powers, part of a flatter, globalised world. The challenge of climate change. The threat of terrorism.
Those challenges are going to have a big impact. Together with the prospect of a tighter fiscal climate, they underline the need for us to increase efficiency in a sustainable way over the long term. Not just for this year, not just for this Spending Review.
The public sector spends over £100 billion per year through procurement – that’s roughly equivalent to 500 new hospitals. We all have a keen interest in how that money is spent.
Since we established the Office of Government Commerce, it has been successful in securing greater value for money savings right across the commercial activities of government.
In the 2000 Spending Review our target was £1 billion – and OGC reported 60% more at 1.6 billion. Emboldened by that success, in the 2002 Spending Review that target was £3 billion – and we actually secured £4.3 billion.
With the 2004 Spending Review, we built in additional challenge, with a strengthened focus on efficiency following Sir Peter Gershon’s review:
In this year’s budget we were able to report good progress on the targets from the last Spending Review – with £6.4 billion in reported gains, a 33,000 net reduction in posts and 7,800 relocations completed by April.
These are ambitious targets, but they help show why procurement is so important. I mentioned the public sector spends over £100 billion on procurement – but altering the way we spend that money isn’t always easy, because big contracts, once entered into, tie both parties in for the long-term.
One aim of the efficiency programme is to co-ordinate government spending in key areas. In other words, to establish the best possible deal that delivers savings year on year, far into the future, right across government – savings that help release resources.
Since procurement is forecast to deliver over a third of the total efficiency gains, that’s over £8 billion, we must continue to work hard to get this right. Progress against this target is promising – forecasts show more this year than Sir Peter Gershon originally anticipated – but the key word is promising.
The scope for greater efficiency in public sector procurement is often promising – but our challenge is in converting that promise into reality. To ensure the promise is fulfilled.
That is why I was so pleased by what the National Audit Office had to say on Friday about the National Health Service IT programme. It is a hugely ambitious project to upgrade our health service with technology – to use IT effectively to secure a world class public service. I think it is vital to confidence in public services that we are able to deliver the promise of transformation which the programme holds out.
It is more ambitious and more complex than any other healthcare IT programme in the world. The National Audit Office called it an unprecedented opportunity to use information technology to transform the use of information in the NHS. An opportunity to improve services and the quality of patient care.
They pointed out, that, in the past, procurement and IT development in the NHS has been haphazard. It isn’t any longer. Strong central direction is being used to great effect. And by the way there has been a big contribution to transforming and upgrading Britain’s whole communications infrastructure too.
Through vigorous procurement competition alone, price reductions between initial and end bids totalled £6.8 billion – a greater than 50% reduction, down to £6.2 billion in total. That is a formidable achievement, reflecting a first rate procurement process. And we need to see achievement on that scale in procurement across the public service.
Procurement professionals in the public sector need to achieve over £8 billion of sustainable efficiency gains by 2008. We need a culture of improvement to continue long after that – something that is hard to construct, but harder still to duck out of.
It is a big challenge, but the rewards for success are big too, in releasing resources for front line services. Every contribution adds up. Every deal, every collaboration, every contract you put in place really counts. Taken together, this is immense.
Just look at innovation like eAuctions – eBay for government. I am a former Minister for eCommerce and an enthusiast for government exploitation of IT, but you don’t have to be an enthusiast like me to be impressed by the numbers associated with eAuctions, eSourcing and purchase-to-pay systems.
The average cost of an eAuction is £10,000. The average savings which an eAuction produces is £800,000. A South East Police Consortium eAuction for stationery produced a 31% saving. And an NHS eAuction for IT hardware produced £12.5 million of savings.
Since April last year, OGC funded auctions have secured over £22 million of savings for the public purse, a phenomenal sum – and the clearest possible confirmation that we can produce huge gains from being more and more smart in how we do procurement.
To deliver on the promise of better public services, to maintain public support for investing in them and improving them, we have to be efficient. Procurement matters, and getting procurement right matters. I’ve talked today about potential, about promise, about expectations. About the impact of efficient procurement, and what that means for Britain.
This is a very large public sector wide programme of change, and it is a very important one. We have made improving public services a very high priority, and we’ve committed substantial investment in increased funding. To maintain and build on public support for public services, it’s vital that we demonstrate good value from those investments. This programme helps deliver that.
Please continue to search out ways to improve value for money, to make efficiency gains by collaborating, to share best practice. Every time you do that, you are strengthening the service and helping build support for it.
Thank you all for the contribution you are making.
