Dated: 19 March 2010

In a report published today the Institute of Directors argues that at least £25bn of annual efficiencies can be made in the public sector within three years through a radical restructuring of public sector procurement (£15bn saving) and greater use of shared services and outsourcing (£10bn saving).

Politicians just talk about cutting waste – but we have a solution

There is much talk among politicians about the need to cut waste, but rarely any detail on how this will be achieved. Today’s report provides a much needed blueprint. If politicians have the will, and commence the restructuring immediately, it could be completed within 12 months and deliver savings within three years.

UK procurement budget is £220bn a year

• UK public sector procurement spend is a staggering £220bn a year. It equates to 0.75 per cent of global GDP. It is one third of Government expenditure. It costs each person in the UK £3,500 on average a year. This would equate to £14,000 for a typical family of 4.

The Problem – most public sector bodies are doing their own thing

• Despite some areas of excellence and good collaborative initiatives, the majority of public procurement spending is so fragmented that huge potential savings are being missed every year.
• This is because most of the public sector still organises itself on the “corner shop” model, with the majority of purchasing organised in small scale silos – e.g. local authorities, NHS trusts, small central Government departments, each doing their own thing.

The Consequences – high costs are created through massive duplication

• Many public sector organisations use identical or similar products and services (e.g. legal services, IT, Human Resources). But are these being bought or sourced out centrally? No.
• There is constant reinvention of the wheel. Instead of integrating their buying and outsourcing, hundreds of public sector organisations are each wading through a morass of contract terms and conditions, procedures, processes and interpretations of procurement law.
• This is unnecessary, and using examples of savings achieved already on specific projects, we believe at least £15bn in the procurement process and £10bn in the outsourcing process are conservative estimates of what can be saved.
• If multinational companies (e.g. the supermarkets and other big buyers) operated like the public sector, they would have gone out of business years ago.

The Solution – an integrated public sector procurement and outsourcing structure

What does this mean?

• Centralised buying organisations that handle all key supplier relationships and all national and major contracts on behalf of the whole public sector;
• Where there are regional and local requirements, we need regional procurement hubs to provide expert contracting support to all bodies in the region;
• A single leadership point (e.g. the Office of Government Commerce) for the above structure.
• Mandatory use of the above structures by all public sector bodies.

Miles Templeman, IoD Director-General, said:

“The economic situation demands immediate action to reduce public expenditure through implementing the proposals in this paper. There is a lot of talk among politicians about the need to introduce efficiencies into the public sector, but very little detail on how this will be done. The report we publish today provides a vital needed blueprint.”

Colin Cram, the report’s author and leading public procurement specialist, said:

“There has been much improvement in procurement under the leadership of the Office of Government Commerce. However, public sector procurement remains a legacy of its past and a prisoner of its structures. A step change is long overdue in the way public sector procurement is organised and managed. Its complexity does not excuse looking to the best private sector models, for example, companies like Tesco.”

To read the full report click here