Buying better: The future of public procurement
The continued pressure on public sector budgets – especially local authority budgets – has been well-documented in recent years. In this rapidly changing political and economic environment, the continuing need to deliver cost savings while driving up service standards for customers and meeting legal and policy obligations means that those working in and with the public sector are seeking new, sustainable approaches to delivering efficiencies.
Many of the easiest to deliver savings have already been achieved, including sharing resources, curbing wasteful processes, reducing the number of managers and back office staff, and moving services online. With procured goods, services and works accounting for a substantial proportion of expenditure, and with a quarter of all construction output across the country commissioned by the public sector, Balfour Beatty believes that the best way to deliver efficiencies and service obligations, as well as transformation and growth commitments, is for the public sector to maximise its formidable purchasing power. This is of course not a new idea, indeed, local government itself has led the way on this thinking through the National Procurement Strategy1. However, while there are many examples of public bodies innovating and creating and using best practice in the use of their buying power, and while procurement as a function has undoubtedly already contributed significant savings to date, progress has not been consistent across the board: further savings remain to be unlocked if all local authorities are to achieve maximum value for money in their procurement. For example, a report by CEBR found that the UK public procurement process is over 90% more expensive than the EU average and that it also has the longest procurement process at 53 days - 20 days longer than the second longest, Italy2. There is more that can be done to drive efficiency in commissioning.
The other area where potential remains to reap rewards is in the use of procurement to drive positive social outcomes, especially in key areas such as health, education, skills, and environment. Again, this is an idea which already has traction – indeed, the Social Value Act (2012) mandates contracting authorities to consider how procurement might be used to improve such outcomes, while the use of construction and infrastructure’s economic multiplier effect sits at the heart of the Industrial Strategy3. Many collaborative frameworks exist which have these principles at their heart. However, Balfour Beatty believes that there are ways to secure greater benefits for local communities and economies than are currently being delivered.
Continuing to do things the way they have always been done is no longer an option.
This short paper considers ways to maximise the impact of public procurement.
- The type of procurement can impact the likelihood of encouraging and being able to capitalise on creative solutions. Over-specification can restrict options for exploring innovative solutions, while outcomes-based approaches can encourage innovation.
- Brexit may offer the opportunity to reform procurement processes, which are currently regulated at EU level.
- Local authorities and other public sector bodies should articulate both how existing procurement regulations work well and should be retained; and where processes could be simplified or made more flexible, reducing costs and increasing efficiency.
- The Government should support the use of effective, actively managed procurement frameworks where they are proven to deliver benefits.
- It is important to ensure that procurement frameworks being selected are those that will deliver the greatest benefits. Not all frameworks are of equal quality.
- There must be a better balance in public procurement, in some cases, between innovation and caution. Effective risk management strategies should be deployed, but not to the point where they cancel out new, beneficial solutions.
- Those working in procurement must be intelligent and informed clients, open to new ideas, or they risk missing out on opportunities which could lead to efficiencies and improved outcomes. New ways of working require new skills in those commissioning infrastructure.
- The strategic decision to seek out more creative solutions during procurement processes has to be taken at the top of the organisation.
- To reap the greatest rewards of innovation requires a long enough time frame for innovative solutions to be developed and considered, before the start of the tender process.
There are a number of different models for local authority procurement, ranging from those undertaking procurement independently to joint procurement across two or more local authorities, and procurement via a third party body.
Balfour Beatty has been delivering schemes for local authority and other public sector clients for many decades. In our experience, there are five overarching principles which should guide those wishing to maximize the benefits of public procurement.
- Set out a clear strategy with achievable goals, regular assessment points and reliable metrics to ascertain whether success has been achieved. The strategy should go beyond the build to consider the vital social value that the scheme can also help to deliver, linking in to broader community strategies and priorities.
- Look beyond tried and tested approaches. When renewing contracts or commissioning new schemes, consider new methods of procurement, such as the use of collaborative frameworks and contractors which are able to provide a long-term partnership delivering efficiencies through innovation through the whole life of the contract. In some cases, those undertaking procurement continue to do it the way they have always done it as they are wary of trying a new approach in a transaction involving large amounts of public money. While this is understandable, it also stands in the way of delivering efficiencies and improved social value.
- Select the most appropriate process to assist in the delivery of the broader aims as well as the best way to construct the asset or scheme.
- Put in place robust monitoring systems to assess whether suppliers and contracts are being effectively managed, and that collaboration is being constantly improved.
- Ensure that those working in procurement roles have the right skills and experience to deliver effective procurement. For example, having an understanding of the sector that services are being procured from can have a significant impact on the ability to procure the best deal.
Procurement frameworks: collaborative buying
In 2014, the Local Government Association (LGA) published its National Procurement Strategy4. A key focus of the Strategy is the importance of pooling resources to achieve economies of scale and share expertise and costs. As a result, the number of collaborative frameworks increased, as did the number of public sector bodies using them. Procurement frameworks are an established way of leveraging the buying power of the public sector. By pre-approving companies to provide services for a set period of time, they simplify procurement, reducing the associated time and costs by enabling relevant public sector organisations to bypass the full tender process.
These long-term collaborative arrangements are becoming increasingly popular due to the better value for money, high performance and continuous improvement they have become associated with. There are now over 7,000 national, regional and sub-regional construction-related frameworks in use by local authorities, government departments and other public bodies across the UK. Balfour Beatty currently sits on, or has worked on, several of the leading frameworks, including the Scape Civil Engineering and Infrastructure Framework. However, not all of the many frameworks which exist deliver the same level of efficiencies and other beneficial outcomes as these.
In Balfour Beatty’s experience, the best frameworks combine a number of characteristics beyond the economies of scale, lower procurement costs and greater market leverage which they all aim to deliver. Those which deliver the best outcomes for their clients go beyond simply delivering cost savings, to achieve significant all-round benefits for local people and communities. They interpret value for money more broadly in terms of the societal outcomes that are delivered in addition to the asset being built and are used to assist local authorities using them in the delivery of other key elements of their local strategies. These priorities are clearly defined and measurable. They could include a range of outcomes, from social value priorities such as jobs and training and use of local suppliers, to sustainability deliverables. The most effective frameworks are also actively managed. Contractors are held to account and benchmarking, to ensure consistency of delivery and continuous improvement, is rigorously undertaken.
For those not yet using such frameworks, or not using them widely, they represent an untapped opportunity for cost efficiencies combined with the improved delivery of local social value priorities for communities across the country. Balfour Beatty believes that the Government should support the use of effective, actively managed procurement frameworks where they are proven to deliver benefits. However, it is important to ensure that the framework being selected is one that will deliver the greatest benefits.
In Balfour Beatty’s experience, there is an increased understanding across the public sector of the importance of innovation and of the potential new techniques and processes have to deliver efficiencies. There is also a recognition in some cases that public procurement has the potential to stimulate or be a driver for innovation. However, there is also an entirely understandable risk aversion which characterizes many procurement processes, which can result in tried and tested, low-risk approaches holding sway at the expense of the public sector getting a better or more cost-effective end-result.
Balfour Beatty believes that there must be a better balance, in some cases, between innovation and caution. Effective risk management strategies should be deployed, but not to the point where they cancel out new solutions. Those working in procurement must be informed clients, open to new ideas, or they risk missing out on opportunities which could lead to efficiencies and improved outcomes.
New ways of working require new skills in those commissioning infrastructure. However it also requires leadership from senior teams. In many cases, a low-risk culture is understandably mandated where public money is at stake. The strategic decision to seek out more creative solutions has to be taken at the top of the organisation and those making the decisions supported and encouraged to opt for more creative solutions.
To reap the greatest rewards of innovation requires a long enough time frame for innovative solutions to be developed and considered. This usually means providing the market with enough information when procurement is being planned, before the start of the tender process, in order to allow the best solutions to be worked up. However, innovation should also be encouraged throughout the procurement and delivery of the scheme. All of this is possible within public procurement regulations, but it requires a solid understanding of them amongst procurement teams.
The type of procurement can also impact the likelihood of encouraging and being able to capitalize on creative solutions. When the desired outcomes are outlined, articulating the end-result required rather than a rigid specification, it can provide the flexibility for those fulfilling the contract to suggest creative ways of delivering. Over-specification, on the other hand, can restrict options for exploring innovative solutions.
Finally, the type of contract can encourage or discourage innovation: contracts which facilitate the sharing of risks and incentives are more likely to result in new, creative ideas than more punitive contract types which restrict creativity and reward low-risk, tried and tested methods.
Reforming procurement post-Brexit
Although Brexit presents a number of challenges to local authorities and other public sector bodies, it may also offer opportunities, for example, to reform procurement processes which are currently regulated at EU level. As it stands, these rules exist to ensure a level playing field between all 27 EU Member States. As such, they can be seen to stand in the way of policy aims such as buying from local British businesses. The Government has outlined that it intends to enshrine EU Public Procurement Regulations in to UK Law in order to provide certainty in the short-term. However, once UK has formally left the EU and any potential transition period has ended, public procurement rules may be reviewed and reformed.
How public procurement legislation evolves will of course depend on how “hard” or “soft” the final Brexit is. Key factors such as the future trading relationship between the UK and the EU and whether or not the UK retains access to the single market and the EU customs union will have an impact on how closely the public sector has to continue to comply with EU procurement law. However, Brexit may offer the chance to improve procurement rules to increase social value, amplifying the benefit of public expenditure to local communities and businesses. There is therefore an opportunity for local authorities and other public sector bodies to articulate now both how existing regulations work well and should be retained; and where processes could be simplified or made more flexible, reducing costs and increasing efficiency.
Effective procurement is about more than delivering value for public money and a higher quality service from the supply chain, as important as those aims are. It also underpins the future financial security of the contracting authority and drives economic growth in communities across the country. With commissioning authorities seeking to deliver further efficiency improvements alongside an agenda of improving social outcomes for local communities, it is time to for a step change in public sector procurement.
About Balfour Beatty
The UK’s largest construction contractor, Balfour Beatty, was founded in 1909 and is listed on the London Stock Exchange. With 15,000 employees and over 40 offices in the UK, Balfour Beatty finances, develops, builds and maintains the increasingly complex infrastructure that underpins the UK’s daily life.
With a legacy of projects across transportation, power and utility systems, social and commercial buildings: from Crossrail and Heathrow T2b to the M25 and M4/M5; and Sellafield; to the Olympics Aquatic Centre, we are proud to be a British company delivering iconic structures, bold engineering feats, behind-the-scenes innovation and joined-up thinking, financing and partnerships.
Our strong, long-term relationship with the public sector is based on our solutions-orientated partnership approach. We believe it is incumbent on those undertaking public contracts to operate efficiently and deliver value for money.
1 National Procurement Strategy for Local Government in England 2014, LGA, 2014
2 Centre for Economics and Business Research, July 2013
3 Industrial Strategy: building a Britain fit for the future, HMG, November 2017