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Newsroom & speeches
11 February 2010
Thank you for the invitation to speak here today.
I’m glad to be addressing this conference at what I think is a very important time in the economy and, as you might expect, I’d like to say something today about the climate we face and the challenges it presents.
And, importantly, for today’s conference I want to cover how through a collaborative approach to procurement we can help to deliver huge benefits to the UK; through helping UK companies, especially small and medium sized enterprises, and supporting jobs and, in turn, growth in the UK economy.
When we look back on the momentous events of the last few years, I think that we will remember it as one of the most significant periods in history for the economic and financial system.
At the start of the crisis, financial markets went in to freefall and the effect on the real economy has been just as significant; in 2009 the global economy is forecast to have had the longest period of sustained negative growth in 60 years.
However, coordinated action has ensured that the financial system has stabilised and we prevented a financial crisis from turning into global depression.
Indeed, here in the UK, the latest figures show that growth returned at the end of last year, as the Chancellor had always maintained it would.
But with uncertainty remaining around the globe, we need to maintain support for our economy until the recovery is firmly locked in.
We have said it many times now, but cutting support now would be dangerous; it could risk the recovery and damage the economy to a greater extent in the long run.
So securing the recovery is one of the challenges we face, but it is clear that there will be others we will need to confront.
And the most important of these will be promoting long term growth in the economy and maintaining public finances.
The public finances, as all of you here will appreciate, have experienced a profound impact as a result of the crisis; there has been a significant increase in Government borrowing and, as a result, increasing public sector net debt.
But it is clear that, as our actions have been shown to work, it was entirely necessary.
If we hadn’t allowed borrowing and the deficit to rise, helped people and businesses, we would have incurred greater costs in the long run.
And we have been unambiguous that support must go hand in hand with actions to rebuild our fiscal strength, once recovery is firmly established.
This is why we have set out a clear plan to halve public sector net borrowing as a share of GDP over four years.
However, in order to maintain the frontline services that people rely on – schools, healthcare and police - we will have to make tough choices elsewhere.
This is why at Pre Budget Report last year, together with our report on Putting the Frontline First, we announced £20bn of cuts and efficiencies.
And while we have not set out Departmental budgets beyond 2010-11 yet, the direction of change is very clear over the next few years.
We need to ensure that we get maximum value for every pound we spend.
Putting public finances on a sustainable long-term footing is vital for growth, but alongside this we need to have a clear strategy for securing and entrenching growth in the long run.
For growth, we need to invest in the new jobs, new industries and new infrastructure that are vital to balance our economy in future.
And we are doing so by building on the strengths we have here in the UK. We are:
And this brings me on to the main detail of what I would like to concentrate on today – how we must get more for less with procurement and the role that collaborative procurement will have in helping us to drive other government objectives, such as growth, during a period of consolidation.
I’d like to first give you two statistics that demonstrate how essential procurement is in the delivery of public services.
The first of these is that £220 billion is spent by the public sector on third party goods and services each year.
Second, to give it some relative context – this represents around 15% of GDP.
As we make tough choices elsewhere, there is now even greater need to get best value for money in procurement.
And when we procure goods and services it is important that they are done so to deliver policy priorities.
Essentially, this is about doing more for less. This will be nothing new to most of us, but we are going to have to increase our efforts.
To send a clear message to the market about what we expect from buyers and suppliers when looking for the best value for money deals, and on our priority areas on which to focus spending, we recently launched ‘Policy through Procurement’.
And the Action Plan to implement this sets out how procurement can also support growth and economic recovery.
A key component of this is that it lowers barriers to participation for small and medium sized enterprise and third sector organisations.
This is essential, because small and medium sized enterprises are crucial to driving growth in the UK. There is no substitute for the drive and ambition that enterprise brings in the UK and we want to support it in every way we can.
In Britain we have one of the best environments in the world for starting and growing a new business, and we want this to continue.
And there are two other statistics that I would like to give you here; first, to show how important enterprise is for the UK, and second, how important procurement is for British industry. These are that:
I would also like to highlight here the full implementation of the recommendations of the Glover Review that the Office of Government Commerce and the Department for Business, Innovation and Skills are taking forward.
This looks to promote the growth of small and medium enterprises, through helping them, among other things, to gain the necessary skills required to bid for public sector contracts and through showing how the public sector can make it easier for small and medium enterprises to identify opportunities to access government contracts.
The most significant element of this work is the introduction of a single, free online portal, advertising all public sector contract opportunities worth over £20,000. The contract to provide this will be awarded shortly and the portal will be up and running by the end of this year. This will be crucial to ensuring that SMEs are fully able to access all the opportunities available in Government contracts.
But we also want to make sure that public sector procurers understand what they can gain through engaging with small and medium enterprises, who can deliver both innovative and value for money solutions for the public.
The Office of Government Commerce recently launched an awareness campaign to promote SME involvement in Government supply chains, which included publishing the Small Supplier, Big Opportunity guidance. This shows how the public sector can make it easier for small and medium sized enterprises to identify appropriate contract opportunities.
Procurement can also promote growth through other channels, such as bringing benefits through skills training, providing apprenticeship opportunities and tackling youth unemployment.
Here, procurement is likely to create 20,000 apprenticeships over the next three years.
The Building Schools for the Future programme is expected to create up to 250 new apprenticeships a year and the Homes and Communities Agency is promoting skills and employment opportunities to create an additional 3,000 apprenticeships and job opportunities.
The creation of these job opportunities and skills training are hugely important.
We need to ensure our workforce has the skills necessary for both the economic recovery and to meet our future needs, as we invest in new industries.
Furthermore, the low-carbon sector is one of the key strands of our growth strategy, and procurement can efficiently focus resources on carbon reduction.
We have made significant improvements in all five areas of sustainable operations on the Government estate, but improving the use of sustainable procurement in Government can also enable industry to capitalise on the green revolution.
And a good instance of the innovative use of technology, which will help save money, is the new IT power management software that Department for Work and Pensions have implemented. It powers IT on and off at pre-determined times, avoiding systems being left on longer than required.
So, public procurement can help with growth, regeneration and inclusion through its effect on business, employment, citizens and the environment.
Now, I want to highlight how essential the relationship is between Government and the supplier in delivering these priorities.
And to give you an idea of the size of the prize - Government currently spends about £220 billion on goods and services – that’s £1 in every £4 spent in total by the Exchequer.
We have seen great improvements in the relationship between the public sector and industry in recent years.
The Senior Responsible Owner initiative was designed to ensure better top-level contact between civil servants and industry executives on major programmes, after award of contract.
And OGC supplier engagement plans help to manage suppliers strategically.
This gives crucial information for identifying innovative ideas and understanding what solutions are working, which helps us to drive more efficiencies and share proven solutions.
Through Buying Solutions, we also have seen the benefits of a collaborative approach.
The merger of NHS Purchasing and Supply Agency and Buying Solutions last year aggregated buying power, made for more effective and efficient purchasing of goods and services, and accelerated the pace of change towards fewer public sector professional buying organisations in the landscape. I expect to see this process continue.
Elsewhere, the first set of results through the Operational Efficiency Programme, which aims to streamline Government processes and deliver more for less, documented that we have made £1.4bn savings across Government through collaborative procurement.
To illustrate what this figure means: £140m of the total saved was done so through the collaborative purchasing of the energy that Government buys, and £460m of that saved was from what we spend on construction.
But while this is important, we are not stopping there. Overall, the Operational Efficiency Programme is expected to deliver £7.7 billion savings in total by the end of 2011/12. To illustrate this using the same examples as before: we estimate that the savings made in spending on energy will be £320m and on construction it will be £1.4bn.
These are substantial savings and we can achieve them by buying smarter, better, together.
There are clear opportunities for public sector organisations to leverage their collective purchasing power.
Here model contracts, such as the OGC ICT model contract are vital for increasing efficiencies, by standardising parts of the procurement process.
This currently has 6000 registered users and is proposed to become a mandated standard during 2010.
This will help further realise the significant benefits and efficiencies of a consistent approach to Government contracting and I would like to see more of this in future.
To conclude, I’d like to say that there will be tough times ahead in the economy and for the public sector.
And with tighter spending constraints, we will need to do more for less. It is also clear here that the more savings we make through innovative ideas and collaborative procurement, the greater resource we will have available to protect frontline services.
So it is essential that we use procurement to its maximum potential – to get the greatest value for money and also to contribute to our priorities that will help drive our future growth.
This will require Public and Private Sectors working together for mutual benefit.
And I look forward to seeing the results soon.
