Procurement

Supplementary written evidence submitted by Colin Cram (PROC 27)

RE-STRUCTURING PUBLIC SECTOR PROCUREMENT: Creating the ‘Crown Procurement’ Service

CONTENTS:

Organisational Chart for ‘Crown Procurement’ Service

Executive Summary

Main Report

Paragraph 1: Why Re-structure?

Paragraph 2: Benefit

Paragraph 4: Structure

Paragraph 10: Implementation

Paragraph 15: Funding

Paragraph 16: Customer Service

Paragraph 20: Monitoring Performance

Paragraph 21: Conclusion

Appendix: Evaluating the Benefits of Various Organisational Models for Public Sector Procurement

Author: Colin M Cram FCIPS, Managing Director Marc1 Ltd, 27 January 2013

‘CROWN PROCUREMENT’ ORGANISATION: Executive Summary

1. Purpose of Proposed Structure. The proposed structure is designed to provide an exceptional procurement service to government and the wider public sector. It

· Maximises value from the huge commonalities, between sectors, of procurement spends and the procurement expertise and techniques required.

· Addresses serious weaknesses in the management of procurement and those identified in recent select committee reports.

· Provides a means to implement government procurement policies.

· Provides much improved access to essential procurement services.

· Helps break down operational silos between public bodies and sectors.

· Addresses 95% of public sector procurement spend.

· Builds on existing cross-sector collaborations and centres of expertise.

2. Explanation of Proposed Structure. The basic structure is that of 6 specialist teams – Directorates. Each would be big enough to have and retain exceptional expertise. These teams, from left to right on the organisation chart, would:

1) Handle the most complex, critical and largest contracts, including PFIs.

2) Create and manage public sector wide purchasing agreements and contracts.

3) Create and manage purchasing agreements and contracts for specialist product categories.

4) Determine public sector policy, handle international negotiations, identify and propose remedies to any potential supply security issues and analyse public sector procurement spend.

5) Customer relationship management for central government departments, customer organisations, sectors (e.g. local government) and sector consortia.

6) Through regional procurement hubs, provide regional and local contracting expertise and services for contracts not covered by the first 4 directorates.

The main report describes the responsibilities of the teams in greater detail.

2. Contracts for, say, less than £25,000 and small framework agreements would be handled by customer organisations. This would sit outside the proposed public sector purchasing structure. Some defence functions would also remain outside the structure. The main government departments would need to retain their commercial directors, whose responsibilities would include being the department’s ‘intelligent customer’.

3. The attached paper describes in more detail the proposed structure, how it could be implemented without additional funding and the exceptional benefits.

©Colin M Cram FCIPS

26 January 2013

‘CROWN’ PROCUREMENT ORGANISATION

MAIN REPORT

Why Restructure?

1. The proposed structure for public sector procurement builds on existing structures, centres of procurement expertise and the cross-sector/cross-departmental working that is happening. Implementing it would harness the power of 95% of the £200bn per annum public sector procurement spend to support economic growth and value for money. This is the by far the biggest resource the government has to influence economic growth. This paper describes:

· the proposed structure,

· the potential benefits,

· how the structure could be implemented,

· how its implementation could be funded,

· how the organisation would operate and be funded.

Benefits

2. The proposed structure would deliver the following benefits:

i. Authority, accountability and a means to deliver government and sectoral policies, including supporting economic growth and value for money.

ii. Accountability for delivering agreed service levels to all sectors.

iii. Transparency: Costs of public procurement and benefits would be known.

iv. Take maximum advantage of the great commonality of procurement expenditure and the skills, knowledge and expertise required between all parts of the public sector including central government, local government, the NHS, emergency services and education.

v. Address serious weaknesses in the management of procurement, including those identified in select committee reports in the past 2 years and the ‘Laidlaw’ report.

vi. Much improved access for many public sector organisations to essential procurement services to which they previously may not have had access.

vii. Build on existing cross-sector collaborations and centres of expertise and the

increasing cross-sector working being driven by the Government Procurement Service (accountable to the Efficiency and Reform Group).

viii. Help break down operational silos between public bodies and sectors.

ix. Support the increasing cross-silo working between various parts of the public sector, such as DWP and local government, local government and the NHS.

x. Provide flexibility to handle changes in departmental responsibilities and changing operational boundaries between wider public sector organisations.

xi. Support the shared back office service initiative by the Efficiency and Reform Group.

xii. Provide expert, independent commercial input into policy making.

xiii. Independence of the proposed organisation from departments and other public sector bodies would ensure impartial advice on contracts and projects. Risks of more ’West Coast Main Line’ fiascos would be much reduced.

xiv. Tackle global markets, suppliers and supply chains effectively, using leading edge procurement techniques

xv. Ensure that no suppliers could again ‘divide and rule’ in the UK public sector and eliminate risk of cartels.

xvi. Provide exceptional expertise available to deliver the above, which could be continually refreshed and developed.

3. The potential benefits would be enormous. The Appendix provides a list of 60 (not exhaustive) and compares how far various procurement models are able to deliver the benefits. All other procurement models fall well short of the ‘Crown Procurement’ model. The benefits are in 8 categories:

1) Savings and Efficiency

2) Improved overall management of major contracts, projects and PFIs

3) Delivery of government policies and programmes

4) Customer service

5) Long term world class capability

6) Assurance and accountability

7) National security of supplies

8) Effective Parliamentary oversight and scrutiny.

Structure

4. ‘Crown Procurement’ would be overseen by a management board of key stakeholders, rather as the Government Procurement Service is at the moment. It would be subject to strong oversight by the National Audit Office. It should have independence in order to be objective. However, it will need to be accountable to a government minister – probably a Treasury one.

5. It would be led by a managing director. Below that level 6 main functional groups are proposed, each headed by a Director. These are from left to right on the organisation chart:

1) The largest and most complex public sector procurements such as PFIs, the largest and most complex contracts, support for major projects and outsourcings/insourcings. The team would also be the first port of call for providing commercial advice and support for government policy making.

2) Management of all cross sector procurement categories which, broadly defined, probably account for annual expenditure of £60 - £80bn a year. This team would undertake the contracting, letting of purchasing agreements and contracts management. It would be responsible for the management of major public sector suppliers and management of supply markets. It would determine the best procurement strategies for each category. This would build on the Government Procurement Service.

3) Provision of specialist contracting service to government departments and other key public sector bodies for major contracts not covered by the previous two categories, nor by the proposed regional hubs (see below). Each sector, such as higher education, has its own specialist requirements, as do certain government departments. Examples include roads construction and maintenance, medical equipment (though that is arguably cross sectoral as it is bought by the NHS, higher education, research councils and some other R and D establishments), adult social care accommodation, schools construction (where not covered by Group 1) and prison services.

4) Procurement policy and procedures, including negotiating international procurement agreements, identifying supply security issues (to which the UK looks increasingly vulnerable) and what to do about them, research into the latest procurement developments and how the public sector could use them and responsibility for regular and complete analyses of public sector procurement expenditure.

5) Managing relationships with all major customers, sectors and sector purchasing consortia, ensuring service level agreements are robust and adhered to. This group would be the first port of call for customers.

6) The regional directorate would undertake the contracting and letting of purchasing agreements that are best done regionally or locally rather than nationally. The regional and ‘conurbation’ procurement hubs would have specialist category teams undertaking on behalf of their regional client base:

i. Medium to large contracts

ii. Support for projects not handled by the national teams

iii. Regional purchasing agreements/framework agreements

iv. Management of regional suppliers

v. Regional category management

vi. Delivery of government, regional and local policies

vii. Engagement with regional businesses

viii. Customer relationship management and engagement

ix. Advice, guidance and support to local procurement teams

Each regional directorate would work closely with local organisations (operational units) and sector consortia.

6. Operational units based, for example, in local authorities, hospitals, universities, schools, police forces, would continue to do some local procurement. Their procurement personnel would not formally be part of ‘Crown Procurement’, but would have defined responsibilities, for example:

i. Placing contracts under, say, £25000

ii. Using standard terms and conditions prescribed by ‘Crown Procurement’.

iii. Placing purchase orders

iv. Engaging with local suppliers

v. Supplier management for their suppliers

vi. Local elements of contracts management

vii. Ensuring the use of national and regional frameworks and contracts

viii. Feeding back, to national and regional teams, supplier performance on contracts and frameworks let by them

7. Sector consortia, e.g. Crescent Purchasing Consortium, would continue to exist, forming a useful link between the ‘Crown Procurement’ and sector customers. It would also be able to fill any gaps. As now, such consortia would be funded through rebates and would not need to be part of the ‘Crown Procurement’.

8. The ‘big picture’ vision recommended in this paper might be easier to sell – perhaps more difficult to oppose - than a sectoral one. The internal politics within some sectors are renowned and inhibit joint working on anything. Hence, despite some excellent initiatives, there has been disappointing progress in joint working in local government procurement. The police and fire services are making only limited progress in this and the education sector perhaps even less. As local government accounts for £50bn procurement spend each year and education (schools, higher and further education) around £20bn a year, this is serious. The NHS, with its hospital spend of £20bn a year has also made only limited progress, though this may change with the publication of the Carruthers review.

9. The arguments that can be made against joint working in central government will sometimes carry more substance as the biggest departments have built substantial procurement organisations. For a variety of reasons, they will have least to gain from joint working. The ‘big picture’ solution, proposed in this paper for the public sector as a whole, will be more difficult to oppose than a sectoral one for central government.

Implementation

10. Implementation must be done at a manageable rate and might take 5 years to complete because of the sheer scale of public sector procurement in terms of its value, diversity and number of procurement units. It should be achievable through a ‘push-pull’ approach. The ‘pull’ would be providing an irresistible offering that organisations would wish to use. The ‘push’ would need to be from ministers to put pressure on departments, organisations and sectors that unreasonably refused to join and support the proposed ’Crown Procurement’. It would build on existing expertise of the main central government procurement operations, for example those situated in London, Leeds, Salford, Bristol, Liverpool and Norwich, and the best in the wider public sector in order to provide an adequate national distribution. These operations would be well positioned to serve the wider public sector in their regions as well as providing the main procurement functions, so could act as regional hubs in addition to being part of the other Directorates.

12. Retaining these hubs and building on them would make implementation much easier and more difficult to oppose.

13. In order to provide an ‘irresistible offering’, the infrastructure has to exist to deliver it. Retaining these ‘hubs’, including those of the Government Procurement Service, should ensure that current service levels are maintained and even enhanced during the transition period. The Government Procurement Service is rapidly building business with the wider public sector and would therefore be ideally positioned to take a lead role in building on its engagement with the wider public sector.

14. In order to make things happen, a Managing Director would need to be appointed without delay. Experience suggests that in order to re-configure activities and functions, they would need quickly to take over line management responsibility for the main departmental hubs mentioned above (within, say, 2 months of appointment). They should then be given a realistic, but ambitious target time to re-configure, say 1 year. This would create an immensely powerful procurement organisation. By taking on the procurement responsibilities of other organisations at a measured pace, they will gradually build its power still further. Any delays to their taking over line management responsibility will allow opposition to build.

15. Funding. The funding for implementation should come from the income generated by the Government Procurement Service and by being provided with the budgets for the departmental procurement operations. At some stage it would need to move from being funded by departments to charging for its activities and through rebates from suppliers. It should not receive any extra funding from HM Treasury. Nor should there be any extra funding to support IT. Any spend on IT or other investment should be from income generated by its own activities.

16. Customer Service. This should be defined through service level agreements. The proposed ‘Crown Procurement’ would need good service monitoring systems. Regular meetings would need to be held between representatives of the Customer Relationship Managers Directorate and ‘intelligent customers’ within the customer organisations and, at a regional level, between members of the regional teams and customer representatives. For major departments and organisations the ‘intelligent customer would be the commercial director.

17. Ensuring that the right framework agreements were let, which met customer needs, the 2nd and 3rd Directorates, with the help of the 5th (Customer Relationships) would need to set up user groups to advise and be involved in the contracting. This would need to be mirrored at regional level.

18. A clear process would need to be established for contracting requests to be processed. These should all go through the ‘Customer Relationships’ Directorate, that would ensure that the requester was authorised to do so and had the budget. The progress of the request would be monitored by this Directorate. The approach in regional hubs would need to mirror this.

19. The work of ‘Crown Procurement’ would be made much easier if all organisations planned and provided details of their procurement pipelines.

20. Monitoring Performance. ‘Crown Procurement, in order to drive up its performance, but also retain credibility with customers, would need to build in excellent performance monitoring. The Government Procurement Service approach is ideal for this.

Conclusion

21. There is an excellent opportunity for the whole of public sector procurement to operate as one function and generate huge benefits in terms of supporting economic growth and delivering savings. This will not impact on the operating independence of public sector organisations, e.g. central government departments or local authorities. Whilst organisations would not benefit equally from the implementation of what is proposed, the overall benefit would be such that arguments against participating in what is proposed in this paper would be difficult to sustain. Pursued with some determination and capability, public sector procurement should be largely transformed within 5 years.

©Colin M Cram FCIPS, Managing Director Marc1 Ltd

27 January 2013

Prepared 12th February 2013