2.8 This workstrand found that whilst there are some examples of good practice in respect of management information on procurement spend in the public sector, overall the private sector4 enjoys significantly more robust, assured, timely and consistent data and management information on procurement spend.
2.9 This lack of assured, comparable data for the public sector constitutes a key blocker to making progress against a number of agendas and is the single biggest factor preventing the centre from quantifying the case for increased departmental and wider public sector collaboration. If Government is to drive the maximum value from its procurement spend over this and subsequent spending review periods, it must address these issues more quickly than current plans allow.
2.10 Central and local government accounts suggest that the Government spent £175 billion on procurement in 2007-08. Since 2005, OGC has run its Public Sector Procurement Expenditure Survey (PSPES), which has, for the first time, brought together the Government spend against a common categorisation. However, to date only £110 billion of the total £175 billion government procurement spend has been categorised to a basic common standard. This current common categorisation is comparatively high-level and falls short of being a comprehensive common classification schema for government that can be embedded into departmental enterprise resource planning (ERP)5 systems. If public sector organisations cannot articulate their spending effectively, they cannot manage their spending effectively. Improving the quality of the current management information will present significant opportunities in driving supplier performance and managing uptake levels and benefits flows.
2.11 Certain government departments (such as HM Revenue and Customs (HMRC) and the Home Office) have substantially improved management information systems over the last 18 months to enhance their understanding of how much they spend on particular commodities. However, in many parts of the public sector, management information remains of insufficient quality or detail to support quality procurement decisions. Where there are devolved services, there is usually no central point of responsibility for ensuring that procurement expenditure is subject to rigorous management information standards or controls. Key barriers to improving management information on procurement spend are:
• accounting structures: A barrier to effective management information is the manner in which accounting structures and systems have developed in government which do not provide a common basis for categorising expenditure by supply market. Unlike the private sector, it is not common practice in the public sector to capture commodity codes at the point of data entry;
• data quality: It is often not possible to understand emergent trends in procurement data because departments do not maintain commercial management information in an accurate or consistent way;
• data standards: Compared to private sector organisations, and with certain exceptions, the public sector has low uptake of commercially accepted data standards, such as Dunn & Bradstreet for supplier codification, or UNSPSC6 for supply market categorisation. There are no endorsed government standards for those considering applying them; and
• technology: The public sector does not apply consistent technologies such as ERP and other back office proprietary systems in a common manner.
2.12 The above barriers combine to prevent identification at an aggregate level of what the public sector spends by category and hold back the development of evidence-based decision- making in government procurement.
2.13 Addressing these issues and improving government management information on procurement spend will be of significant benefit and will allow government, at an aggregate level, to:
• focus on suppliers and categories of spend where expenditure is significant;
• provide a baseline against which government can identify the value that has, or has not, been derived from a category spend through collaboration and other department specific routes;
• represent government's position to suppliers against an accurate view of government's leverage in spend with that supplier;
• deliver increased transparency in spend, and thereby increased accountability in how government spends its £175 billion of procurement each year; and
• corroborate its own data sources about spend with those of suppliers to judge uptake of contracts and identify off-contract spend that is not complying with the best deal.
2.14 Maintenance of these data is a basic hygiene factor for good financial management; the taxpayer should expect government to be able to explain what it spends, and with whom. This report strongly endorses the importance of quality management information. What is not measured well will not be managed well.
2.15 All public sector organisations (including central government departments, their agencies and NDPBs and wider public sector organisations) have a responsibility to maintain detailed and consistent information on how public money is spent and should be able to categorise their procurement spend to an appropriate level of detail. Where departments and public sector organisations have strong management information on procurement spend, as seen in the HMRC example in Box 2.A, the benefits they have received as a result are significant and compelling.
| Box 2.A: Improving management information in HM Revenue and Customs (HMRC) The Commercial Directorate in HMRC initiated a transformation programme in 2006 to introduce a fully integrated eProcurement system. However, it was clear that there was no existing capability in the use of standard coding and spend reports were wildly inaccurate, so the initial priority was to establish robust and flexible spend analysis capability built around the widely accepted UNSPSC coding system. HMRC implemented the spend analysis component of the eProcurement software as the first stage of the overall eProcurement programme such that the organisation is now able to extract data only a month away from real-time. From a starting position of "not knowing what we buy and not knowing who we spent our money with," HMRC now have management information for all orders placed and all invoices paid - and the ability to drill down to individual transaction level at the very core of their spend data. The introduction of spend analysis has had a positive impact which allows the Department to easily: • benchmark the data set against other organisations; • identify rationalisation opportunities by UNSPSC and HMRC organisational structures; • analyse the scale and characteristics of low value transactions; • interrogate adherence to payment terms and attribute to individuals; • measure uptake of contracts and identify methods to develop this measure and the associated controls in the future; • run reports on duplicate payment issues; • support the accurate measurement of saving targets; and • track the Department's spend over time and highlight seasonal skews. |
| Recommendation 2.2: Improve management information available on Government procurement spend With immediate effect, OGC should take the lead role in defining government's approach to management information, in respect to third-party procurement spend, in consultation with central government departments, the wider public sector, HM Treasury and the Office for National Statistics. This should include: • a mandate to agree by major government sector (e.g. central civil government, defence): a common classification schema for goods and services, such as UNSPSC; common classification schema for suppliers, such as Dunn and Bradstreet; and common information schema for supplier information/market category provided to government bodies; • representing government's interests upon the boards and steering committees of agreed data standards and extending these standards where appropriate; and • monitoring and publishing the performance of public sector bodies in classifying their data against agreed standards. OGC should agree common standards for central government departments, their agencies and NDPBs and publish these by June 2009. OGC should work with government departments to agree a similar common standard on management information for the wider public sector by April 2010. Central government departments, including their agencies and NDPBs, should implement the agreed standards within their financial systems, by April 2010, to a level of detail within the elected classification schema at least equivalent to UNSPSC level three, proportionately such that it covers 80 per cent or more of their procurement spend. OGC should expand the programme of public sector procurement expenditure analysis.7 |
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4 This workstrand observed good practice examples of the benefits of strong management information at organisations including Shell and IBM.
5 Enterprise resource planning is an organisation-wide computer software system used to manage and coordinate all the resources, information and functions of the organisation from shared data stores.
6 United Nations Standard Products and Services Code: see online at www.unspsc.org
7 Further information on the OEP collaborative procurement workstrand is available online at www.hm-treasury.gov.uk