Cloud 9: the future of public procurementRead the full report
Each year, central government spends around £40 billion procuring goods and services. This expenditure is underpinned by a very clear rationale: purchasing from third parties delivers value for money. When the Coalition Government came to power, however, there were widespread concerns this principle was not being realised in practice. A number of initiatives to improve procurement were launched, but these have delivered mixed results.
While moves to cut red tape were largely successful, whether these resulted in a faster procurement process is less clear – Cabinet Office data on procurement durations does not square with independent analysis. Equally, reconstructing central government’s purchasing function has delivered some savings, but departments and suppliers are sceptical about the newly created Crown Commercial Service (CCS) and its ability to manage relationships both in and outside government.
Greater success has been enjoyed elsewhere. The Coalition Government set a target that 25 per cent of procurement spend would go directly or indirectly to small and medium-sized businesses by 2015. This threshold was surpassed in 2014, in part because of a series of moves to digitise procurement. The introduction of G-Cloud, an online digital marketplace for cloud services, has been perhaps the most significant advancement in this direction. Fast, transparent and administratively light, digital marketplaces lower barriers to entry, allowing more firms to compete for government business. As a result, G-Cloud has delivered savings in the region of 20 – 50 per cent when compared to legacy contracts.
The question now is how to build on these successes. The Government announced in late 2015 construction of the Crown Marketplace, a new platform that will move beyond the existing e-procurement focus on IT. This presents a considerable opportunity – to make the most of it, the Cabinet Office must think big. The potential to place ‘off-theshelf’ items purchased by government onto such a platform has been demonstrated by the United States. In South Korea, more sophisticated products are procured through the assistance of online pre-market engagement.
The efficiency savings from expanding digital marketplaces would be considerable. If government achieved the proportion of e-procurement expenditure currently delivered by South Korea or Estonia – another exponent of e-procurement – the savings would be in the order of £10 billion each year. Even if e-procurement growth continued on trend, annual gains would stand at close to £500 million.
Yet such savings are unlikely to materialise unless other factors align. The somewhat fraught relationship between CCS and the Government Digital Service – who developed the G-Cloud – will prevent any acceleration of reform. More significantly, commercial staff will need to acquire new skills if they are to harness the potential benefits of digitisation and drive value for money more generally. Developing technical knowledge, through extending secondments and limiting rotation, are immediate steps that should be accompanied by a review of commercial skills and tilting towards a more performance-related model of pay, using bonus deferment and claw back to incentivise the right type of behaviour. Improving government’s tracking and publication of procurement data must also be an area of focus. Government does not have a comprehensive view of purchasing expenditure, inhibiting civil servants’ ability to make strategic commercial decisions. Publishing elements of this information could also help suppliers better understand the needs of government departments.
This programme of reform would amount to a step change in government procurement, a function which too often is viewed as little more than administrative. The digital procurement agenda, coupled with initiatives on transparency and skills, can help shift focus away from process and towards designing effective contracts and managing suppliers professionally. Ultimately, these steps will drive better outcomes for service users and value for money for the taxpayer.