HM Treasury

Newsroom & speeches

11 February 2009

Public Sector Procurement conference

Check against Delivery

Introduction and economic context

Good morning and thank you to our hosts, GovNet, for organising this conference and for giving me the opportunity to speak to you today.

I’d like to say a few words about public procurement in the context of the global economic downturn; about efficiency and innovation in procurement; and about using procurement as a tool for building a fairer society.

Importance of efficiency

The credit crunch has radically altered the environment in which we operate.

With increasing pressure on the public finances , we must re-double our efforts to ensure we squeeze every last drop of value from our public procurement.
Of course taxpayers always have a right to know that their money is being well spent and is delivering results. But, given the major global challenges the economy is facing, we need more than ever to keep up the momentum on achieving better value for money.

At a time when families across the country are feeling the pinch, they want be assured that the public sector too is doing its bit, and cutting out waste to free up resources that can support national priorities.

And as procurement professionals you have a massive role to play. Now more than ever before the spotlight is on your profession.

Gershon

In 2004, Sir Peter Gershon’s Review brought the concept of value-for-money to the heart of public services and asked people to be hugely ambitious about delivering efficiencies. But it also opened our eyes to how much we could achieve.  And in response to the challenges of the Gershon Review we have undertaken the most successful efficiency programme ever in the UK public sector.

We set a target of £21.5 billion of efficiency savings in 2004-07. In fact, the public sector achieved £26.5 billion of savings over that period. That means billions of extra pounds spent where it makes the most difference: improving front line services- on refurbished schools, better hospitals, affordable housing and improved transport infrastructure.

And we are on track to meet the more ambitious target of £30 billion of efficiency savings that we set ourselves for the current three-year spending period.

OEP

Last year we set up the Operational Efficiency Programme to review our work on efficiency so far and see what more could be done to secure better value whilst protecting, improving and extending our vital services.

We asked four business experts to look at particular areas of public sector operations including corporate services, procurement, asset management, and property management. They have looked at areas ranging from the way organisations draw up energy contracts or IT contracts, to the way they manage property or financial services.  Their final conclusions will be made in time for the Budget later this year, and they will feed into the plans for the next spending review.
But their interim findings produced for the Pre-Budget Report have convinced us that we can achieve higher levels of efficiency savings than originally planned.

For example our reviewers believe more could be saved across the public sector on fees for professional services such as lawyers, IT specialists and consultants.

Savings of £300 million in this area are already being planned for this year as a result of joint procurement between departments and the Office of Government Commerce. But the reviewers believe there is scope to go further.

We could make further savings – potentially worth hundreds of millions - on public sector energy bills. The multitude of existing contracts range in price by over 50 per cent for every unit of energy supplied.

And more could be saved in general computing and office support where the cost of desktop computer support currently varies by nearly 500 per cent between comparable public sector organisations.

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Collaborative procurement

As you will all know, the Office of Government Commerce (OGC) is the Government’s champion for procurement. OGC’s collaborative procurement programme is currently working across seven categories:  consultancy and professional services, energy, fleet, food, IT, office solutions and travel.

Each category is sponsored by one of Whitehall’s Commercial Directors – so this work is being carried out in close co-operation with Departments, and increasingly with the wider public sector via key buying organisations.

In each category we have established value-for-money strategies, including options for better demand management, and earlier and more effective market engagement.  Last year savings from the programme were £650 million and plans are currently being developed to increase this saving substantially over the current spending period.

Modernising public procurement

OGC is working hard to ensure that best practice is embedded across the public sector and will have completed procurement capability reviews for all central Government departments by the end of March.

The results so far have been encouraging. There is much evidence of real progress.

Today Nigel Smith, the Chief Executive of OGC, is meeting with Permanent Secretaries from across Whitehall. Nigel will highlight the strategic role that procurement can play in delivery - so you can expect greater interest in your skills from your departments’ senior management when you return to your desks.

Innovation is fundamental to effective procurement. The White Paper published by the Department for Innovation, Universities and Skills in spring last year introduced the concept of Innovation Procurement Plans for every department. DIUS and OGC are working with departments to get those plans in place and to ensure that we all maintain a relentless focus on innovation.

Relationship with suppliers

We have much to benefit by exploiting the expertise of our suppliers. I see three key areas in which we must improve when dealing with suppliers.

Firstly, we must engage earlier with them. Early engagement with the market helps to create joint understanding and clarity of purpose.

This engagement should not be left entirely to procurement professionals - clear support, including from the Senior Responsible Owner, demonstrates departmental commitment and raises supplier confidence. Early engagement also allows the widest range of options to be explored, and due consideration to be given to risks.

Secondly, we must establish absolute clarity of purpose for customer and supplier. Joint Statements of Intent (JSIs) are a good way to ensure certainty and confidence during the procurement process.

JSIs are agreements between the senior executives on both the customer and supplier sides. They are not contractual documents but act as a reference point for those involved in the contract.  The very act of drawing up a JSI can help both sides to engage with each other and to identify collectively risks to the project’s future. Projects with this kind of clear understanding between supplier and contracting authority have the greatest chance of success.

Finally, we must manage our contracts more effectively. Too often projects start to go wrong after a contract is awarded. We need to take a more active approach to monitoring and managing contracts to ensure that the value gained in the procurement is not squandered in the operational phase.

OGC and the National Audit Office launched in December a good-practice framework to support Government departments in raising service contract management capability. It is available on the OGC website and I would encourage everyone involved in public procurement to familiarise themselves with the framework.

The outward facing relationship with our suppliers is vital, but we must not forget the inward-looking relationships too.

We need to be better at exploiting the full range of commercial expertise available across the public sector. You will know that OGC launched the Government Procurement Service Reform Programme 18 months ago and we began to build a new community for everyone involved in procurement - including contract managers. We will continue to build and strengthen this new community - offering networking and knowledge sharing, access to resources, and information about career development opportunities.

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Policy through procurement

The last area I want to touch on today is using procurement to reach wider policy objectives - or, put another way, to use procurement to help build a fairer society.

Each year we procure around £175 billion of goods and services which represents around a third of all public spending. Once it was enough just to deliver value from our procurement. But today our ambitions are greater. We have a clearer understanding of the power of our public spending to achieve our wider goals, whether they are social, economic or environmental.

OGC has published a series of guides on how to achieve such objectives through our procurement activities, including “Buy and Make a Difference”, “Buy Green and Make a Difference”, and “Make Equality Count”.

But we must recognise that the problems of the world will not be solved by procurement alone. There is always a balance to be struck between the objectives of the procurement and any wider policy goals. We must never lose sight of the need to secure value for money, or the initial reason for the procurement.

Sound judgement is called for, especially given the complex legal web that surrounds public sector procurement activity.

Supported Employers

OGC has recently issued guidance on Article 19 of the Public Sector Procurement Directive, which allows “supported” factories and businesses to compete amongst each other. 

These supported businesses offer opportunities for those with disabilities who would otherwise struggle to find employment. They are often just as capable of offering value for money to the public sector as conventional businesses.

The website of the British Association for Supported Employers offers a growing database of the opportunities available to public procurers and I encourage all contracting authorities to consider the use of supported employers and to benefit from the value they could provide.

SMEs

Small and Medium-sized Enterprises can be the lifeblood of local community and the Government recognises that small firms are finding the current economic conditions particularly challenging.

In the 2008 Budget, the Chancellor asked Anne Glover to lead a committee to advise on reducing the barriers facing small and medium sized enterprises that want to work with the public sector. The committee reported back in November 2008 and made 12 main recommendations which build on previous Government initiatives to increase SME participation.

Key Government projects in this area include the development by 2010 of a single, free, easy-to-use web portal to access opportunities; the identification and publicity of contracts that are most suitable for SMEs; simplified pre-qualification and third party accreditation; and more accessible opportunities for sub-contracting.
Helping procurers to manage what sometimes appear to be competing policy objectives will also be important to making all this work.
Work is already well underway and the majority of the Glover Report’s recommendations will be implemented by the end of this year.

Conclusion

Let me finish by saying that the current conditions present enormous challenges for the whole public sector, but that this is a time when those involved in procurement can really make their mark.

I want everyone that works in public procurement to take full advantage of the guidance that is available to familiarise themselves with the latest developments. It is up to all of you to ensure that best practice is being followed in your departments. Where you think things could be improved, say so. Have a word with your boss, or your Permanent Secretary, or write to me.

I want innovation to be at the heart of public procurement. I want us to have stronger and more collaborative relationships with our suppliers. Rather than specifying products or solutions, I want to get to a point where we are so confident in our suppliers that we can routinely specify outcomes.

Finally I want us to be ambitious about using procurement to reach our policy goals. If we combine a scrupulous regard to the law with a creative approach, we can use our collective spending power to build a fairer society.

Thank you.


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