Bureaucratic, process-obsessed and costly to take part in, public procurement exercises are often set up to fail before they even begin, says Joe Hill
The Chancellor’s Budget this month is as high as the stakes can be for the government. It’s the defining test of how they balance competing goals to boost growth, spend on their priorities and reduce the cost of living – goals which, up until now, they’ve pretended aren’t in tension.
One part of the economy, which deserves more attention than it’s likely to get, is sitting right there in the Treasury’s own back yard crying out for reform – public procurement.
The government spends £400bn a year buying goods and services from the private sector. Making up a little less than one sixth of the country’s total economy, it works very differently to other markets, and has become paralysed by bad policies and poor market design. If the Chancellor wants to boost growth and drive savings, she should start at home, and turn procurement markets on their head to make them one of the most dynamic and innovative parts of our economy.
Anyone who has ever sold anything to the public sector knows how harrowing an experience it can be. I’ve had the misfortune of seeing the process from both sides, and it isn’t any prettier from within government. Bureaucratic, process-obsessed and costly to take part in, procurement exercises are often set up to fail before they even begin. Transactions which would take the private sector days or weeks can take the public sector months or even years. At the most extreme end, major defence platforms like tanks and aircraft take an average of six years to complete – and that’s just to do the deal, not build the kit!
It doesn’t have to be this way. Our think tank has trawled through some of the biggest procurement failures to understand why they happen, and recommended a stripped-back model for procurement which is easier for businesses to participate in, and in turn will help government get the best from them.
Where should they start? How about asking the question – why are we making decisions about which company should build Small Modular Reactors, perhaps one of the most technically challenging products a government can buy and requiring some of the best engineers there are, based on which company can offer the most jobs to people who are currently unemployed? Particularly if it is also costing the taxpayer £22m. And why is the government currently contracting out research on the MoD’s nuclear deterrent based on which supplier can show it is demonstrating “effective stewardship of the environment”?
What’s the point of ‘social value’?
These are both examples of how the mandatory ‘social value’ criteria used in procurements warp the process. By awarding upwards of 10 per cent of the ‘marks’ in the assessment for criteria which are unrelated to the core project, they distract the public sector from the core task at hand, getting the best products out of companies for the best price.
Social value is particularly hard for smaller businesses to prove, when bigger organisations have whole teams on hand to measure their carbon emissions and demonstrate their compliance with increasingly complex tenders. And smaller businesses being able to participate in public procurement is vital – it’s only by new companies starting to sell to government that they might one day grow big enough to compete with the big ‘primes’ who win all the biggest contracts.
But the government’s insistence on awarding more contracts to SMEs is misguided. The UK economy is unusual for how many people work in SMEs compared to peer countries, many of which are very economically unproductive. And most SMEs aren’t the kind of high-growth start-ups with the potential to be big competitors that the government wants to encourage – they’re just small businesses, working in markets which are small.
That said, new companies who’ve never worked with the public sector before are unlikely to do so unless it becomes much easier. With procurement processes lasting months and years, few founders and investors have any incentive to enter the market – they risk burning through all their cash while waiting for a decision from a government department.
Government needs to speed up contracting, including by directly awarding more contracts to smaller companies. That means foregoing some of the long competitive processes which are designed to make procurement markets more competitive, but instead have had the opposite effect – pricing out anyone but the biggest players – a recent study showed roughly 20 per cent of government contracts had either one or zero companies bidding for them!
The government wants an economy which is more dynamic, easier for new companies to compete in, and lets people take bigger risks. Given it’s the single biggest buyer in many sectors, it should start by practising what it preaches, and break procurement markets open to much more competition by doing away with the bureaucracy and risk-aversion which has entrenched incumbents for decades.
Joe Hill is policy director at Re:State