UK Prime Minister David Cameron made his pro-growth speech this morning.  Alongside a lot of good stuff around large-scale investment projects, I thought there might be some mention of how public procurement might help smaller businesses – and there was.  But only just… a blink and you miss it moment.

That means opening up access to finance, creating an attractive environment for venture capital funding, getting banks lending to small businesses again and insisting that a far greater proportion of government procurement budgets are spent with small and medium-sized firms.

So how’s that going to work then?

And in the days and months ahead we will be setting out our plans in all these areas.

Right.  So nothing concrete yet, not even a confirmation of the single portal to advertise all government contract opportunities that has been planned since way back during the last Government’s reign?

And let’s just put down one marker here.  There has been talk about “25% of contracts will be awarded to SMEs” as a Coalition commitment.

Here’s the point to look out for.  Are we talking about 25 % of contracts by volume to be awarded to SMEs or 25% of Government spend to go to SMEs (i.e. by value)?  Because they are very different.  Like most organisations, the profile of spend for every public sector body I’ve worked with shows a very long tail.  There are many small suppliers that account for a large number of contracts, orders and invoices, but often make up a relatively small percentage of total spend.

So I will bet my mortgage on this fact: pretty much every public sector organisation already awards 25% of their contracts by volume (at least) to SMEs.  Many fewer place 25% of their total spend with SMEs, although I know some local authorities do; it is harder for large organisations with a need for national suppliers, such as DWP or MOD, to achieve that.

A commitment to 25% of contracts by volume is therefore meaningless; it happens already, it probably has since the day the public sector was invented.  A commitment to 25% by value would mean something; although there is another whole discussion to be had around how the public sector could make this happen legally within EU procurement regulations.

Anyway, don’t be fooled by the rhetoric, and look out for that distinction when any announcement is made on this topic.

And if I were running the Federation of Small Businesses I would be jumping up and down about this now to get the point across.

The Times from behind their paywall reports that the reason the second UK aircraft carrier is going ahead is that the contract was ‘unbreakable’ – it guaranteed the shipyards 15 years work.  Therefore cancelling the second carrier would have cost more than completing it!  That is a pretty unusual thing to do in contracting and procurement terms to say the least; reserving capacity I suppose, but over a very long period.

The Times says,

BAE signed a draft terms of business agreement three years ago with the Labour Government that would cover 15 years of unspecified shipbuilding work.  The contract was signed officially last year.

I would love to know how MOD procurement people felt about this.  Was it a case of (in their eyes) a solid and sensible commercial deal, locking in a supplier long-term in a market with limited supply options?  Or did they sign though gritted teeth, having made sure they covered themselves by getting ministers to tell them formally to contract in this unusual manner?  If I could employ a few investigative journalists I’d be onto that one….

Perhaps in future, if Government contracts are published (although the Coalition is backing off from this promise, as we reported here), we may at least know sooner when this sort of thing is going on, although I guess this may have come under national security constraints anyway.

And on a different but related note, my late Father in Law will be turning in his grave as our nuclear submarine runs aground – he was the UK’s top submarine designer / engineer for many years and wrote the standard textbook on the topic.  I thought it was particularly amusing that the method of getting the sub free eventually was basically ‘tie a rope around her and pull’ – very high tech!

In truth, there weren’t many big surprises in the Review, although you might consider squeezing another £7 billion out of a range of seemingly obscure welfare measures either impressive or harsh.

But there is still no real clarity on what it means for Government procurement, including OGC / ERG, although the additional £3 billion admin savings in Whitehall doesn’t bode well for procurement jobs in central government.  There was no overarching indication of a strategic view on how procurement actions might help the situation, so we will have to wait for individual organisations to start announcing their own more detailed plans.  But I thought we would look instead in this post at what this all means for private sector suppliers to the public sector.  I don’t pretend this is all-encompassing, but rather a few immediate thoughts on winners and losers.

Losers

Private landlords letting to housing benefit claimants; whilst the new restrictions will be tough on some claimants, there have been market distortions and super-profits available to some landlords so reform was needed.

Legal Aid lawyers; the Ministry of Justice budget settlement is pretty tough and Legal Aid is a major part of that, so I expect big cuts here. (The effect of the cuts on the whole justice system – prisons, courts, Legal Aid – is in my opinion where the Coalition is most politically vulnerable to future ‘events’).

Small business generally; however it is positioned, more Philip Green type ‘centralised procurement’ is unlikely to be good news for SMEs.  Even at more local level, Police or local authorities collaborating more in procurement terms may make sense, but is rarely good for small, local suppliers.

Consultants in general, particularly those with major central or local government business; Health may be a better prospect given both the slightly healthier budget position and the magnitude of structural change there.  Expect announcements of redundancies and consulting firms going under soon (OK, don’t all cheer at once….).

Winners

Some major capital project suppliers; Crossrail, major road projects and wind have all come out of this reasonably well.  My shares in Balfour Beatty are probably OK, although the schools capital budget is way down on what ws going to be spent under Building Schools for the Future.

‘Social care’ providers of goods and services who can take advantage of the growing ‘personalisation’ agenda in this sort of care provision (giving individuals their own budgets rather than goods and services being provided centrally).  This may be an area where innovative and smaller firms can compete.

Procurement lawyers; with work more scarce, and more centralisation, suppliers are going to be less reticent about challenging procurement decisions.  If you don’t win the central contract, you are out in the cold, so why not challenge?  And if procurement teams are stretched, and corners are cut….

Consultants and software providers who can link their work directly to savings and ideally take on some risk in the process; and the procurement area must be a key target for this sort of proposition.  One would expect there should be opportunities in areas such as Spend Analysis, eSouring, electronic auctions; and in cost-reduction delivery services (don’t use the consulting word, whatever you do) that might work alngside smart technology.  There should be some mutual advantage to the public sector and solution providers who can take some risk, deliver a service with real outcomes and value, and help make the savings needed.

But we’ll see…

Live comments – with a procurement angle – from the Spending Review.  My commentary in italics

Savings from central Government ‘Whitehall Admin’ to be greater than thought.  Admin in all Departments cut by a third at least.  £6 billion a year saving.  How much of that will come from staff versus suppliers? Redundancies inevitable – but much will come from natural wastage. 

Cabinet Office (or some of them) to move into Treasury building.  HMT budget cut by 33%.  CO budget cut by £55m (what % is that? Sounds a lot.)

More us of personal budgets in various areas and encouragement for new suppliers in a number of areas including adult social care and roads maintenance (strange category to mention – thought there were plenty of suppliers in that category?)

MOD – as announced yesterday.

Update  1.00 pm Police; review of terms and conditions.  Spending to fall by 4% a year – should be able to do it without ‘cutting visibility on the streets’.

Home Office and Ministry of Justice  – savings of 6% a year.

HMRC will make savings through a number of areas including ‘better IT contracts’.  But more investment in chasing tax. Also in reducing Benefit fraud.

£7 billion savings to come out of welfare.

Big cuts in council spending – 25% + over four years.

Update 1.20pm

DCMS reducing admin by 41%.  Well done DCMS!  Keeping free entry to museums and galleries.  As a regular user of the National Portrait Gallery coffee shop (known as ‘my London office’ ) I’m pleased…

University funding cut by 7% a year.. pressure on procurement there (as in lots of other places of course)

Total cash to schools goes up in real terms (Osborne has a very irritating little cough…)

That seems to be about it.  Nothing unexpected I can see…

“Average savings in unprotected Departments’ lower than the previous Government proposed; 19.8% against Labour’s 20%.”

That’s a killer political line to end on!

A lot of what we have heard about the Spending Review has been around things that aren’t being cut – schools, defence not as much as expected, Crossrail, Social care etc.  So far, the numbers don’t seem to add up.  So I predict a couple of big surprises today – stuff that hasn’t been written about in the papers that will have a big impact on spend.  Public sector salaries or pensions?  I don’t know, but there must be something big I suspect.

Anyway…there is every chance you get quite enough of me writing about public sector procurement here, but if you would like something longer than usual, I’ve written a piece for the CPO Agenda magazine that has recently been published. It is on the website as well here.

I look at how difficult the challenge of reducing spending in the procurement area is going to be for the UK public sector, and compare how the private sector would go about it compared to the public (where there are more constraints.) I also talk about the Canadian government experience of cost reduction.

Then I get into the major procurement initiatives underway here; centralised procurement, transparency and so on.  I finish with a plea for the government to retain someone with an overarching aim of improving public sector procurmeent (now Nigel Smith has gone); here’s my final paragraph.

At a time when procurement performance is critical for the public sector, the danger is that central government will become inwardly focused on its own “commodity” purchasing, while the wider public sector fragments with less focus and a lack of ownership of the goal of improving public procurement. It is early days for the new government, but much is riding on Watmore and his team at the ERG as it considers where public procurement needs to go next.

Less Re:source for the NHS

The East Midlands NHS Procurement Hub is to be abolished, Procurement Leaders reports (an ‘exclusive’ for them – haven’t seen this elsewhere). They report:

“Following a rigorous appraisal of collaborative procurement in the National Health Service (NHS) across the UK’s East Midlands the decision has been made to disband the provider support function of NHS Re:source Collaborative Procurement Hub. The chief executives of NHS Trusts in the East Midlands decided not to accept the recommendations from an independent appraisal carried out on their behalf that recommended the continuance of a ’streamlined hub’.”

Interesting that an independent appraisal was ignored – that doesn’t happen very often in the public sector. Any further analysis of the Byzantine complexity of the procurement landscape in the NHS will have to wait until I have a week or two to spare.

NAO report that government still not managing consultants well

NAO are producing so much interesting material at the moment it is hard to keep up.  Here’s their update on use of consultants in Government, which says spend last year didn’t change much, and previous recommendations still haven’t been implemented properly.  NAO make some very good points that are actually highly applicable to private sector buyers of consultancy as well; for instance, the importance of monitoring and measuring consultant performance, and the need to educate users of consultancy as well as procurement people in order to get the best results.  Well worth a read if you’re involved with that spend category in may way.

Stop Press! Procurement doesn’t feature in new National Security Strategy

Following my detailed analysis (i.e. use of the ’search’ facility) of the new National Security Strategy document I can confirm that the only mention of procurement is in the Foreword, where Cameron and Clegg have a bit of a dig:

“We have been left a litany of scandalous defence procurement decisions, which have racked up vast and unfunded liabilities, without delivering the type of equipment that our forces actually need…”

Whether or not this is true, there is no mention in the main report about what is going to be done to put right this procurement ‘failure’.   I have to say this is a pretty unreadable document (perhaps designed that way to fool the enemy?)  unless you enjoy this sort of thing:

“A strategy must reflex the context in which it is developed, the particular strengths and skills that we can bring to bear ( our areas of comparative advantage) ; be clear, but also flexible to take account of uncertainty and change. It must also take account of the activities of others: the positive contributions of allies and partners and of the private sector : and the negative effect of adversaries seeking to thwart our objectives. Therefore a strategy must also be based on creative insight into how best to achieve our own objectives and prevent adversaries from achieving theirs. It must balance the ends, ways and means. The ways and means by which we seek to achieve our objectives must be appropriate and sufficient and the objectives must also be realistic in light of the means available”.

The Cabinet Office has published organagrams for UK Government Departments including salaries, number of positions at different levels and so on. All very interesting, if somewhat opaque in places.

The Cabinet Office itself, and the Efficiency and Reform Group within it,  was obviously the first one I looked at, as the current ‘home’ of Government procurement.

And Nigel Smith is still there on the chart as Chief Exec of OGC despite the fact he left almost 2 months ago!  Why?  They obviously know he has gone?  And John Collington is on the chart as ‘Director, Commodity Procurement’ reporting to Ian Watmore; but doesn’t appear to have anyone reporting to him.  David Pitchford – the OGC Projects and Programme lead – now reports to Watmore, but its not clear to whom the other 3 or 4 OGC Board members report now Nigel has gone.  So what’s going on? Let’s hope it becomes clearer this week.

Watmore therefore has at least 11 and quite possibly 15 people (if we include Nigel’s old reports) working into him according to the chart. Now I know he is well regarded, talented and experienced, but that seems like a very challenging span of control given not just the number of reports but the range of his responsibilities.  In terms of procurement reports, John Collington is very focused on the procurement centralisation agenda; while Adrian Kamellard (’Director, Commercial Portfolio’) leads the ‘negotiating savings from top suppliers’ initiative.   But then Watmore also has reports covering Government Communications, IT (including John Suffolk, the Government CIO) , HR issues across Government, governance, and various other areas.

So as we’ve said before, having lost Government procurement’s professional, Permanent Secretary-level leader (Nigel Smith), that doesn’t bode well for the amount of time and focus Watmore can personally supply to drive change and improvement we need to see in public procurement.

It’s getting hard to keep up with them; another bunch of providers have agreed MOUs with Government as part of the “negotiating immediate cost savings with major suppliers” initiative.

In our latest post where we take three seemingly unconnected items and weave a rich strand of comment between them… we start with retired high court Judge, Honourable Justice Thomas Mihayo, of Tanzania.   We reported his comment here, at the East Africa Procurement Forum, when he said “Salaries are paid after a payee renders a service to a client, and therefore to me that is procurement”; therefore he considers staff costs to be part of procurement.

We’ve also written a fair bit recently about temporary (contingent) labour; a growth area in most parts of the world.  And that in a sense demonstrates the merits of the Judge’s point.  We engage an interim, particularly if it is in a management role, through either an agency or in many cases through the individual’s own firm.  So is that procurement or employment?  The boundaries are certainly blurred here between ‘procurement’ and ’staff’ expenditure.

Supplier risk management then must come into play.  But the risk is often not around the agency; it is around the specific individual.  What if our interim Finance Director suddenly decides she’s off, 3 months before we expected?  What about that group of programmers on a short term contract who are developing our key new sales order system?  What if they get fed up or are offered 30% more by our competitor?  So supplier risk management in these cases becomes very closely aligned with what we would term succession planning in the internal world of Human Resources.  How would we cover the CFO role? Can we lock in the programmers, or build resilience through other means.

Now this is what, it appears, HMRC did NOT do in 2009, when their CIO, who had been on a fixed term contract, failed to get the job on a permanent basis.  OK he said, I’m off.  No, don’t do that – how will we manage without you before the new person starts?

OK, he said, £149,500 for three months.  And that is what they paid him, through his service company.  Incredible.

So why was there no succession planning?  As a ‘contractor’ of sorts, did he fall between HR and Procurement’s stools in terms of risk management?  (HMRC have a good procurement function, but I can’t speak for their HR.)

Anyway, here’s an area where HR and Procurement need to be working together in any organisation to identify key non-employed staff and look at the risk implications.  Too late for HMRC though in this particular case; and Judge Mihayo’s comments are looking more and more perceptive to me.

The bonfire of the quangos has turned out to be more of a slight toasting of the quangos.  No definite savings identified for a start; not to my surprise, and I’m not criticising.  We’ve said it before: most ‘quangos’ do pretty essential stuff that someone has to do – the Legal Services Commission (LSC) being a great example that we discussed here.

So looking at the Cabinet Office list that came out today (and caused a huge crash of their website), many of the bodies that are genuinely ‘abolished’ are pretty small organisations; advisory councils and the like.  There are exceptions such as the Audit Commission, but many significant organisations survive, or are still under review, or the comment is along the lines of  “functions will be transferred into the parent Department” or “reconstituted as a committee of experts”.

In terms of bodies that have particular procurement interest or relevance, with my comments in italics:

Regional Development Agencies; “RDAs will be abolished and functions which are to be retained will be transferred to central or local government and others” (what does this mean for RIEPS?)

LSC - to be turned into an Agency (which Sir Ian Magee suggested before the election).

Central Office of Information:  Under consideration – Pending a review of Government advertising to be finalised by the end of November (they set up central government contracts in areas such as advertising).

Firebuy - Abolish body and transfer procurement functions to alternative suppliers, and residual functions to department (I hope their capable staff survive somewhere)

National Policing Improvement Agency – Currently considering which functions must be delivered nationally and where they should sit in a rationalised national policing landscape, as previously announced (well, glad that’s clear then…)

Partnerships for Schools- Under Consideration – Subject to the overarching review of Department for Education’s capital expenditure, to be completed in December 2010 (surprised it has survived – the body behind Building Schools for the Future)

So all of this isn’t contributing much to the budget deficit reduction; and it is not just the closure cost for those bodies that are going, it is the costs where quangos are being turned into something else.  Significant in some cases.  I’m beginning to think Michael Portillo may just be right.…