An English view on procurement during economic downturn: Is it enough?

Dr Gordon Murray

The procurement strategic dilemma

Reduce costs to pay for council services

orAccelerate a viable economic recovery

English local government

• 355 councils• Unitary, Metropolitan and County• District

• £175bn public sector procurement spend, of which £42bn spent by local government on external contracts £12bn commodities, goods and services £13bn construction and works £6bn adult social care £3bn waste service

• ‘Wellbeing powers’• Duty to carry out economic assessments

English national procurement strategy

Procurement Policy initiatives

• The National Procurement Strategy for local government (2003)

• The Gershon Review (2004)• The Small Business Friendly

Concordat (2005)• The Roots Review (2009)• The Operational Efficiency

Programme (2009)

Small Business Friendly Concordat (2005)• The approach to individual contracts

is supported by a sound business case and options appraisal

• Keep tender process simple and minimise supplier costs

• Pay within 30 days• Sub-contractors to be paid within 30

days

Roots Review (2009)

• VfM shorthand for cost reduction• Smarter local government procurement

contribution of £2.8bn cash-releasing efficiency gains between 1 April 2008 and 31 March 2011

• Collaborative procurement only tool in the box

• Web-based advertising leads to achieve better deals

Operational Efficiency Review (2009)• Procurement savings across the public

sector of £5.7bn of annual VfM savings by 2011/12£7.7 bn of annual VfM savings by 2013/14

• 50% of local government procurement spend to be through collaborative procurement by March 2011

• SMEs disadvantaged by a disjointed approach to supply markets

• Sharing the best framework arrangements

Perceived procurement best practice• Long-term• Single-source• Consortium purchasing• Payment within 10 days• E-procurement to reduce costs• Web based advertising to extract

best deals

Cost reduction is necessary in the long-term,

but does it make short-term sense?

Biggest problem currently facing SMEs is cash flow

Specific council procurement initiatives to beat the recession

Cash flow Ease of access

Tamworth Pay within 7 days

BirminghamSlough

Pay with 10 days

Castlepoint Pay with 20 days

Derbyshire •List new opportunities•Highlight recurring contracts•Provide details of contract winners for sub-contract leads

Essex •Pay within 30 days•Financial help desk•Bank of Essex for short-term secured loans

•At least 3 quoting businesses to have local postcodes•Reviewing gearing ratios in PQQ•Reassessing minimum insurance levels for PQQ

Politicians steer, procurement managers row,

but procurement managers should also set out the

strategic options

Strategic procurement options appraisal Cost reduction orientation

Achieving community benefits orientation

Long-term contracts Short-term contracts

Single-sourcing Multi-sourcing

Consortium purchasing Local purchasing

Functional specification focus

Social clauses

E-procurement for cost reduction

Supplier Cash flow

Pay slower than you receive payments

Pay faster than suppliers pay 2nd tier suppliers

Critique of current strategy (1)

1. Single-sourcing reduces number of suppliers who gain business

2. Aggregation exacerbates the impact on suppliers

3. May be short-term cost reduction but use of ‘lots; may provide sufficient security of public sector business to weather the storm

4. Absence of public sector business may increase business failures

Critique of current strategy (2)5. Innovation less likely to flourish in absence

of a competitive diverse market6. May lead to long-term absence of

contestable markets 7. Absence of public sector business could

lead to collapse and increase in unemployment and demand for other public services

8. Single-source collaborative contracts could create oligopolies

Critique of current strategy (3)

9. Long-term contracts increase risk for both buyer & seller and

could act as barrier to entry for SMEs Councils dependent on one large supplier in

trouble could be forced to accept lower quality or ‘no service’

Reduce benefits of constructive debriefing for improvements

10. Reduces the number of those who benefit from the security of public sector and access to credit

11. Could lead to long-term switch from public sector having ‘preferred supplier status’

Critique of current strategy (4)

12. Business case for e-procurement investment fails

13. Purchase cards enable payment with 4 days.14. Is publication of contract opportunities only

a false hope if single-source multi-council contracts are pursued?

15. 2-stage tendering too slow in getting new cash into the market

16. Social clauses not sufficiently used with multi-council single source contracts

Critique of current strategy

1. Changed little to reflect the current recession

2. May actually be dysfunctional

10 short-term steps to accelerate viable economic recovery1. Democratic leadership and ownership2. Link with economic development strategy3. Proactively open opportunities, incl. new suppliers4. Short-term contracts5. Multi-source making use of ‘lots’6. Encourage innovation7. Make use of social clauses8. Pay within 4 days using p-cards or 9. Pay on delivery10. Provide security of business through forward

standing orders

Public procurement could be more help in accelerating the economic upturn

Dr Gordon Murray