The principles of public procurement explained in under an hour

The principles of public procurement explained in under an hour

I wrote a short e-book that explains the principles of public procurement by using the hiring of a consultant as an example. The book will take less than an hour to read and yet it includes an explanation of the key steps in the process and has links to additional resources to help with writing your specification (get this wrong and the chances of things going wrong increases dramatically) and managing suppliers.

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How to Hire a Consultant in the Public Sector — the e-book

How to Hire a Consultant in the Public Sector — the e-book

Over the last couple of weeks I’ve been working on a small e-book about procurement in the public sector as a learning exercise. This is not learning how to write a book, but how to get a manuscript formatted as an e-book, with a cover, etc and uploaded to a platform for sale. It turns out that it is fairly easy to do but, like many things, the first time you do it takes a lot longer.

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Will a strategic partnership save money for a police force

Last week I gave a short presentation to the joing national conference of the Police Authority Treasurers Society and the Directors of Finance of police forces. I have helped the police in Lincolnshire and West Midlands with the procurement of strategic partnerships but this talk was not about those projects. Instead I was commissioned to talk about the pros and cons of having a strategic partnership. I hope I achieved that. One treasurer said to me afterwards that is was "as balanced an exposition of the issues of outsourcing" as he'd heard. I guess that means I did what was asked of me.

I've posted the slide presentation on Slideshare.net and they are embedded below. They give a flavour of what I spoke about but I like to think that you get more from a presentation when I'm presenting it than from looking at the slides in isolation. So if you want to know more about this subject please feel free to get in touch with me.

 

 

Can local government save 20% on what it buys?

There has been a lot written over the years about public sector procurement, especially about the view that public bodies could get better deals than they currently have. As someone who has worked in public roles I know that the bodies seek the best value for money they can find, as far as the constraints on them will allow.

The fact that public money is involved means high standards of probity are expected. And for all but the smallest contracts (and anything involving national security) the EU’s procurement regime requires that the opportunity to bid for the contract is offered to any interested firm or person in the 25 member states. A public manager receiving tenders for some goods or service might feel that they could have negotiated a better deal but they would be reluctant to use negotiation for fear of being suspected of bribery or corruption. It’s rather like the adage that no-one got fired for buying IBM. In the public sector no-one gets fired for going out to tender and accepting the lowest bid.

The report referred to in this article by Ben Goldacre does not, in my opinion, help the situation. Making a sweeping generalisation from a small sample of data (if there is any data at all) is methodologically flawed. Perhaps the consultants have more data than they put in their summary report and it is not their fault that DCLG have broadcast in the way they have but the way to identify potential savings requires a detailed review of an organisation’s pattern of spending.

Experienced, knowledgeable procurement managers can analyse which products and services are being acquired, what the current terms of the contracts are and compare them with benchmarks. They might well identify some areas where the organisation could save 20% of its spending but I would be surprised if any organisation’s contracts were universally expensive. It is more likely that an organisation will have a poor deal on products A, B and C but have really good deals on D, E and F. This is because the price that the organisation gets depends on how the deal was procured, the timing, the extent of competition, the appetite of bidders to offer discounts, etc. What this means is that the potential for making savings through procurement is unique for each organisation.

This is also why moving to consolidated contracts might not save as much as predicted (by Sir Philip Green, for example). If a group of organisations form a consortium to procure something there is a chance that some of the organisations could have got a better deal for themselves than the consortium achieved. This used to be the case with schools when I worked in local government I presume it still is the case. A large secondary school might get a great deal on photocopiers. The smaller primary schools would like to get such a deal so they all club together with the secondary school. The consolidated contract prices might result in a lower average cost for the whole consortium but the cost to the secondary school goes up to “subsidise” the primary schools. If you were the headteacher of the secondary school and were under pressure to keep your spending down would you voluntarily offer to pay more for a service in order that your counterparts in primary schools benefit?

When local authorities controlled all their schools they could enforce this sort of deal (and adjust individual school budgets accordingly) because the authority benefited from the lower average cost. But now it is every school for itself—and every hospital, police station, fire station, library, etc—we are inevitably going to get some sub-optimal deals. Nevertheless, public managers should continue to get the best value for money deals that they can.

A partnership is not a purchase order

Whilst this article from the Harvard Business Review by Ben Gomes-Casseres is about private sector businesses it is nonetheless relevant to the public sector. Indeed with all the government talk of partnership in the last ten years or so perhaps it is more relevant to the public sector in the UK than than the private sector. I think that it is important for public managers to know the difference between partners and vendors. Having been involved in setting up strategic partnership arrangements for local authorities I know that one of the reasons for doing so is that they were looking for an arrangement that could be more flexible and dynamic than a standard contractor. 

If an organisation simply wants a certain product or service reproducing over and over again then a purchaser-vendor relationship would be fine. If the organisation wishes the product or service to adapt as the level of funding changes, or public expectations change, or politicians introduce new policies then a collaborative partnership is more appropriate. Both parties have to recognise and accept that change will happen over the term of the relationship and make a commitment to work together to adapt to the changes. Such working together requires, I think, the supplier to understand that the public sector organisation is interested in the quality and volume of outputs and outcomes; and the public sector organisation to accept that the partner is entitled to make a reasonable profit in return for its efforts. If both parties in a partnership are achieving their respective objectives then the chances of them working together to deal with unexpected events have got to be much higher than if they were not.

Look after the pennies ...

It is an old saying that if you look after the pennies the pounds will look after themselves. Maybe, but one might say that being focused on details means that one misses the big picture. It seems to me that this is the effect of the government's transparency policy: by enabling anyone to see details of payments for £500 swamps them with masses of data but they aren't really holding anyone to account. Accountability, you see, requires explanation as well as information (just as accounting requires words as well as numbers). Knowing what £500 was spent on does not tell you whether it was spent on the right thing. As Carnegie and West put it: “a hospital that is well managed in financial terms cannot be presumed to be meeting a community’s needs for health care.”

I spotted a couple of things in yesterday's news that brought this issue to mind. First I saw that Grant Shapps was criticising the Audit Commission for spending £20,000 on the failed recruitment of a chief executive last spring. The amount doesn't seem unreasonable to me and the fact that no chief executive was recruited had more to do with Shapps's boss than anything else. Shapps was also critical about the various minor payments made by Audit Commission staff on its procurement card. Now, procurement cards are usually normal-looking credit cards that are restricted only to allow purchases of certain classes of goods and services. They are promoted to public sector organizations to make the purchase of low-value goods in a cheap and efficient way by avoiding all the red tape of writing formal orders and processing invoices etc. In my experience their use is well-controlled, often the control being better than under previous systems because the credit card company can provide so much information about when and where the card was used. The fact that someone in the Audit Commission bought something from an HMV shop suggests to me that there was a business reason for buying whatever it was. I would be very surprised if it turned out that someone bought the latest Take That CD to listen to in their car on the way home from work. That sort of thing rarely happens, and it is even less rare, I believe, when it is as easily detectable as a payment made on a procurement card that will have an itemised bill sent to the finance department. All in all, the Audit Commission will probably spend more time and money providing evidence to Grant Shapps that it was a legitimate business expense than the item cost. That's not value for money in anyone's book.

The second story I saw yesterday was about the Department for Education spending £21million on consultants. A much more significant amount of money, you'll agree,  and it may well be that it is much less than Labour spent. But the figure by itself doesn't tell us what the consultants have done so that we can judge the value for money of their services. If I can only have one explanation, I'd rather know what the £21million bought us than the £20,000 spent by the Audit Commission on its procurement cards.

Reference
Carnegie, G. D., & West, B. P. (2005). Making accounting accountable in the public sector. Critical Perspectives on Accounting, 16(7), pp. 905-928. doi:10.1016/j.cpa.2004.01.002