2.16 The procurement landscape in the UK comprises around 44,000 public sector buyers including approximately 20,000 schools, 355 English local authorities, 43 police forces, around 500 NHS trusts, central government departments, agencies and non-departmental public bodies (NDPBs).
2.17 The landscape is inefficient, fragmented and uncoordinated, with at least 45 professional buying organisations (PBOs) that have evolved in an unplanned manner, over time, with varying business models, no clear common vision and no clear governance. Currently, approximately £12 billion of the £89 billion spend in categories of goods and services bought commonly across government is channelled through PBOs.8 The largest PBOs are OGC Buying Solutions, NHS Purchasing and Supply Agency (NHS PASA)9 and the PRO5 (the local authority buying consortia), which, between them, account for £9.3 billion of the £12 billion spend currently channelled through PBOs. The majority of PBOs have a regional or sectoral focus, for example concentrating on health, or on a region of the United Kingdom; but the majority of supply markets in which they operate are common across sectors and not restricted to a particular region.
2.18 The fragmentation and lack of coordination in the procurement landscape presents a key barrier to driving greater value for money from collaborative procurement across the public sector. This is particularly apparent in the health, local government and education sectors where approximately £103 billion of the total £175 billion of government procurement expenditure lies.10 It is precisely where spend is most fragmented that increased collaboration has the most value to offer.
| Box 2.B: Value Wales: Channelling more spend through PBOs Across the public sector in Wales, approximately £4.5 billion is spent on goods and services each year. Value Wales frameworks have already saved the Welsh public sector £56.7 million. For example, Dwr y Felin School in Neath has 1,264 pupils and spends approximately £500,000 every year on commodities. Since 2006 the school has started outsourcing its procurement and channelling its procurement spend through Value Wales for the majority of high usage stock. Three years ago the school spent some £7,000 a year on consumable office items such as paper. This has now reduced to about £4,000 a year as a result of using Value Wales agreements. Just on this element, this makes a saving of £3,000 a year, which has been spent on improving the school. In total, the school has saved around 20-30 per cent on these and other items when compared with a few years ago. Value Wales framework deals are open to all public sector organisations based in Wales and deliver better arrangements than individual organisations can achieve on their own because of the economies of scale secured through collaboration across the entire Welsh public sector. For example: • IT equipment and services, covering PCs, laptops, printers, handheld devices and servers - average savings of 39 per cent; • stationery and paper - average savings of 30-35 per cent; and • computer consumables, including printer cartridges - average savings of 26 per cent. Source: Improving Schools Procurement in Wales: Case Studies, Value Wales, June 2008 |
2.19 This workstrand found the following key issues with the current procurement landscape which are limiting the scope for the achievement of greater value for money savings through collaborative procurement:
• there is no overall governance to coordinate activities of PBOs, resulting in duplication of effort and duplicated contracts offering varying degrees of value for money. For example, individual energy contracts with energy companies are part of the reason why there is over a 50 per cent cost variation in energy prices across the public sector. There is also a lack of cooperation; some PBOs compete with each other over similar geographies or service offerings;
• PBOs do not routinely share management information on the best deals available to the public sector and they rarely collaborate on purchasing or logistics opportunities. They do not therefore maximise on their potential value by providing shared offerings or price benchmarking to ensure they are offering the best deal available to public sector authorities;
• there are no common performance metrics or governance for PBO interactions. The review also found evidence of perverse incentives generated by commissioning where PBOs are not incentivised to collaborate and thereby drive down the prices of common goods and services for the public sector, but to simply to increase the value and volume of throughput; and
• limited exploitation of electronic procurement (eProcurement) by PBOs. eProcurement solutions such as eMarketplaces and eAuctions offer significant opportunities in sharing information on the best available deals for common goods and services and providing management information on the take-up against those deals.
| Recommendation 2.3: Government must make better use of the current PBO landscape. By June 2009, OGC should create and chair a "PBO governance group" that brings together central policy and local delivery representatives with PBOs with a view to driving greater coordination, consistency and transparency across this landscape. By December 2009, this governance group should ratify a strategy for an operating framework that will allow PBOs to cooperate across categories, regions and the procurement process. This should: • provide a framework within which PBOs can share management information on the best deals available to drive best practices. Sharing data and standards is a key enabler for effective coordination and management of the landscape. Sharing this information would be a fundamental change to the current way of working for most buying organisations; • provide buyers with a clear list of available approved and accredited buying options, so that budget holders can choose from alternative product or service offerings which offer best value. This approach will also benefit suppliers, who will consequently spend less time tendering; • provide a coordinated and efficient approach to procurement and to customer management by defining clear roles and governance models that can be shared across PBOs. This will ensure that PBOs are not competing for customers and are benefiting from the combined purchasing power of multiple PBO customer bases. It will eliminate unnecessary overlap and reduce duplication of geographies, market scope or service offerings in the procurement landscape;11 and • provide renewed reward mechanisms for PBOs so that they are incentivised to deliver the best value to their customers. |
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8 Based on figures sourced from OGC's markets and collaborative procurement efficiency team.
9 NHS PASA's non-health specific core sourcing work will be integrated with OGC Buying Solutions as part of a forthcoming restructuring of PASA.
10 Derived from Tables 2.2, 2.3 and 7.10 in Public Expenditure Statistical Analysis, HM Treasury, March 2008.
11 Further information on the OEP collaborative procurement workstrand is available online at www.hm-treasury.gov.uk