A report recently published by the Centre for Economic and Business Research (CEBR), which was commissioned by Gatewit (an e-procurement provider) has highlighted reasons why the UK public procurement sector has much to do to improve its efficiency.
While, the report mainly focuses on e-procurement adoption, it also has some interesting findings for the UK public procurement market generally, particularly how its procedures compare with the rest of the EU.
Background: e-procurement
In April 2012, the European Commission published a Communication setting out its strategy for e-procurement. The strategy proposed to mandate the full use of e-procurement within two years of the transposition of the proposed revised procurement directives (see our note on the reforms). The intention behind the e-procurement regime is to make the market more efficient and more transparent, opening it up to SMEs and leading to greater savings for public bodies.
UK Procurement Trends: the report’s general findings
The report was published on 11 July 2013 and concluded that the UK public sector’s procurement process is the most expensive in the EU.
Size of the procurement market and procurement fraud
Two key findings of the report are that:
- A total of £230 billion was spent across central and local government procurement by the UK in 2011 (this figure was based on the COINS database of UK government expenditure): equating to approximately 20% of the UK GDP. The difference in procurement between local and central government was also highlighted with some £140 billion being spent by central government alone and £89 billion by local government.
- Fraud relating to procurement is worth in the region of £2.3 billion. Clearly with the scale of public procurement taking place in the UK it is perhaps inevitable that some fraudulent dealing will be taking place, however, what is surprising is that 40.8% of members of the Chartered Institute of Purchasing Managers think that procurement fraud poses a significant threat to their organisations, particularly in the construction sector. This statistic is borne out by the findings of the National Fraud Authority in 2012 that procurement fraud is the largest contributor to public sector fraud occurring both at the purchasing and tendering organisations. Interesting, the report was published on the same day as it was reported that the Chris Grayling, the Minister for Justice, has asked the Serious Fraud Office to consider investigating G4S in respect of overcharging for tagging criminals.
Key findings
The key findings identified by the report highlighting that improvements need to be made to UK public procurement processes are:
- The length of the procurement process in the UK. According to the report the average length of a procurement process in the UK is 53 days longer than the EU average and particularly in relation to the time spent per competition, four days more than the EU average.
- The overall number of bids taking place in the UK. Although the UK government has pledged to make it easier for SMEs to bid for contracts in line with the Commission’s strategy on e-procurement, it appears that it has some way to go before this actually happens as a matter of course. The report identifies that there were approximately 11,600 contracts awarded in the UK in 2010, totalling £86.4 billion with an average contract value of £7.4 million. This contrasts with the French procurement regime in which a far higher number of lower value contracts were issued to a wider supply base.
- The cost of process to both bidders and authorities. The report highlights the average costs to both bidders and authorities with the average cost to an authority equating to £1,260 compared to around £800 in the EU and the average cost to a bidder of £5,800 (the average cost of EU bidding is £3,200). Although some of this extra cost can be attributed to the cost of living and labour costs, the reports states thatthe “overriding factor” in the increased UK cost is “the complexity and length of procurement processes in the UK”.
- The overall cost of the procurement process. The report states that the cost of running a competitive public sector bidding process in the UK is considerably higher than the EU average (90% higher), however, the cost of attracting bids is around 60% above the EU average. The average cost of a competition equates to £45,200 with around £8,000 of costs for an authority.
Conclusion
The findings of this report seem to suggest that the government is correct to be focusing on more centralised procurement and lean procurement methodologies in a bid to tackle the rising costs associated with procurement generally. However, what is apparent is that the UK has a long way to go before it becomes truly agile and is able to provide best value for money for both bidders and authorities. Despite all of this, the report finds the UK is still a fairly competitive market with approximately 6.4 bids being made per competition compared to the EU average of 5.9, suggesting that the costs and length of procurement processes are not putting bidders off tendering for contracts.
What the figures suggest to me is the UK uses more complex tendering process – which take longer and are more expensive – to be able to conclude anything beyond this the report, aimed at pushing the use of ”simple” e procurement systems, would have need to look at the position of value obtained – that would have been a more useful exercise and might even have dented the myths on PFI type process delivering the value they purport to offer.
I agree with Dave Starling’s comment. What would be useful would be an examination of the value obtained by the public sectors from the different interpretations of the same Directive. Also, a comparison of the challenges arising from the processes adopted in the UK and other parts of Europe would balance the report.
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