Hussein Hiyassat
December 2007
INTRODUCTION
1. this review for the civil procurement in Central Government is done in the light of the Government's objectives on efficiency, modernisation and competitiveness in the short and medium term.
2. This Review was initiated following the minister of finance interest.
3. The term 'procurement' has many different interpretations. Throughout this Review 'procurement' means the whole process of acquisition from third parties (including the logistical aspects) and covers goods, services and construction projects. This process spans the whole life cycle from initial concept and definition of business needs through to the end of the useful life of an asset or end of a services contract. This definition is consistent with modern supply chain management practices and that used in the 1995 White Paper (CM 2840) Setting New Standards.
The process is not limited to the purchasing function in departments and is inherently multi-functional especially in large, complex and / or novel procurements.
4. Total annual procurement spend in the civil Departments, their Agencies is estimated to be in excess of JOD 2.5 billion at current prices. The scale and breadth of this level of expenditure demands the highest levels of efficiency to achieve the best possible value for money. In addition the composition of this expenditure has been changing and will continue to change significantly through:
a) the Prime Minister's modernisation agenda including the focus on outcomes and joined-up Government initiatives
b) the need to achieve value for money savings through better procurement in order to release resources to support the key policy objectives of the Government
c) the increasing use by Government of purchased services, e.g. outsourced facilities management, provision of turn-key systems and the use of third parties to deliver public services
II. STRUCTURE & CONDUCT OF THE REVIEW
1. In order to address the very broad remit of this Review, I sought inputs from a number of Government Departments, the Budget Department, the General supplies Department, the Government Tender Department, the Joint procurement department the Cabinet Office, the Audit Bureau and a cross-section of suppliers to Government through a combination of meetings and written submissions.
2. These inputs were structured around invited responses to 6 questions:
a) How important is procurement as an activity in civil government?
b) Is the structure and organization of civil procurement activities (e.g. Departmental, General supplies Department (GSD),Government Tenders Department ) efficient and effective?
c) Does the procurement function have the right level of skills and capability to help achieve the Government's objectives on efficiency, modernisation and competitiveness?
d) Can the Government make better use of its purchasing power and collective expertise with suppliers e.g. through appropriate aggregation of departmental requirements, to secure procurement savings?
e) Are departments making full use of the flexibility, announced in the Comprehensive Spending Review, to reinvest savings arising from improving the efficiency of procurement?
f) What levels of savings are achievable through more efficient and effective civil procurement?
3. Twenty meetings were held with Government officials, (including nine involving Permanent Secretaries), nine meetings with senior executives of suppliers to Government and one meeting with the CBI Industrial Policy Group. Forty written submissions were received from various Government Departments, Agencies and NDPBs. Twenty written submissions came from industry.
4. In addition, a survey questionnaire was sent to 100 other suppliers to Government and 28 replies were received.
5. The Review also took account of the three previous studies of Government procurement that have been undertaken in this decade, namely:
Efficiency in Civil Government Procurement (the PX Report) - July 1998
Setting New Standards: A Strategy for Government Procurement
(White Paper - CM 2840) - May 1995
Organisation of Procurement in Government Departments and their Agencies March 1993
6. In order to determine the efficiency and effectiveness of the current procurement arrangements, I considered the following seven aspects:
Policy
Organisation and Structure
Process
Measurement
People
Supply Base
Implementation
to provide a comprehensive structure within which to analyse the above inputs, identify the key findings and propose my recommendations.
III. FINDINGS AND RECOMMENDATIONS
A. POLICY
Findings
1. Decisions by previous Governments to decentralise and delegate authority for procurement to Departments have been implemented without establishing a common framework within which Departments must operate to ensure coherence in how public money is spent.
2. Inputs from the supply base highlighted a lack of consistency and common process, as well as a very wide spectrum between best and worst practice in Government procurement. Two interviews with industry illustrated that this spectrum exists even within the same Agency of a Government Department.
3. The Review undertook a study of the electricity and gas prices paid by Departments and benchmarked these against those paid by a number of large private sector companies. This showed that the lowest prices obtained by Departments were comparable to those secured by best in class private sector organisations, but the highest prices exceeded the lowest prices by 66% in the case of electricity and 140% in the case of gas.
This results from insufficient aggregation of requirements and the consequent limitations on being able to take full advantage of a competitive energy supply market.
4. 62% of the survey responses confirmed that different Departments were applying different rules, policies and practices to the procurement of essentially similar requirements.
5. Delegation to the maximum extent possible of what is bought, is a management principle that brings great benefits. It is also the case that organisations with best in class procurement performance have recognised the need to mandate some level of commonality of approach to procurement (not centralisation) in order to secure such benefits as leverage with key suppliers, maximum value for money from the aggregation of appropriate requirements and facilitating the widespread use of best practice.
Recommendations
6. A common strategic framework should be established within which all Departments will conduct their procurement activities in future. This framework will include:
a standard procurement process (see C below)
common performance measures
key standards (e.g. for e-commerce)
common systems (e.g. for information about suppliers)
key values (e.g. a code of good customer practice, working together across Departmental boundaries)
7. If a Department considers any part of this framework to be inappropriate to its needs, then in order to act outside of the framework, up-front agreement must be obtained from the proposed new central organisation (see B below)
8. I recommend that this framework be approved by Cabinet or the Public Services Expenditure Committee (PSX) so that it is seen to have the necessary top level cross Departmental support.
B. ORGANISATION AND STRUCTURE
Findings
1. The issue of organisation and structure of the various activities in the Cabinet Office and Treasury ('the Centre') was the one raised most frequently in the submissions the Review received.
2. Central activities involved wholly, or having a significant involvement, with procurement include:
The Buying Agency (TBA) -Cabinet Office Executive Agency
CCTA - Cabinet Office Executive Agency
PACE - Cabinet Office Executive Agency
COI - Cabinet Office Executive Agency
PFI Taskforce - HM Treasury
Procurement Group - HM Treasury
Wider Markets Team - HM Treasury
3. The fragmentation and lack of co-ordination of these activities results in the Centre lacking the 'clout' necessary to lead Government procurement into the 21st Century.
4. It was clear from many submissions that there is a widespread recognition of the need for, and benefit of, a central body which ensures consistency of policy, avoids re-invention of wheels, catalyses appropriate aggregation and promotes best practice.
5. In general the input regarding these central activities, when considered on an individual basis, ranged from neutral to positive, with the concern being focussed on the overall lack of integration and co-ordination.
6. However, TBA attracted a much broader spread of comments ranging from strongly negative to very complimentary, and a number of inputs queried the clarity and relevance of the role and mission of this Agency.
7. There is no single person or body accountable for the deployment of resources involved in central procurement activities and I consider that these resources are being utilised in a sub-optimal manner in terms of ensuring the best overall procurement performance by Government.
8. This fragmentation and lack of co-ordination results in the Centre having an unnecessarily limited 'value add' and not being able to act as a strong catalyst in improving overall Government procurement.
Recommendations
9. A single 'one-stop shop' procurement central organisation should be created by combining as many of the resources of the above central activities as is possible. As a minimum I recommend the activities of:
Procurement Group
PFI Task force
TBA
PACE
CCTA
are included in this new central organisation, which I have called Office of Government Commerce (OGC) throughout the remainder of this report.
The key role and responsibilities of this new organisation are set out in Annex 1.
10. Although the OGC will begin its life with a set of inherited resources and activities, its role is not to maintain the status quo. As the new organisation begins to focus on the real high value added activities, I envisage that its inherited profile of activities will change rapidly and this will require both the re-allocation of existing resources and re-profiling of the OGC's skill base. An initial injection of a small number of high calibre staff in order to kick start the organisation will also be required.
11. At the same time as strengthening the effectiveness of the Centre, I recommend an OGC Supervisory Board is established to help ensure a coherent cross Departmental approach to procurement, and to provide on-going top-level support and strategic direction to the OGC.
The Supervisory Board would be chaired by the Chief Secretary to the Treasury (who would then be responsible for reporting to the Cabinet and the Public Services Expenditure Committee on overall civil Government procurement policy and performance).
I suggest membership of this Board includes:
a senior Cabinet Office representative (recognising this department's continuing strategic interest in procurement)
senior level official representation from the Treasury Public Services Directorate
senior level official representation from a cross-section of large and small departments
the Heads of Procurement from N. Ireland, Scotland and Wales (to ensure that the benefits of a more coherent approach to procurement are not lost as devolution occurs)
one or two senior representatives from the private sector
an observer from the National Audit Office
the Chief Executive of the OGC
The proposed terms of reference of the Board are to:
approve and monitor the business plan of the OGC
direct matters of public procurement policy and strategy, and where appropriate, make recommendations to the Cabinet (or the Public Services Expenditure Committee) in order to achieve consistent cross Government procurement performance at best in class levels
take responsibility for approving targets and monitoring the performance against these targets arising from improved procurement across Government
act as a 'check and balance' between the OGC and individual Departments
C. PROCESS
Findings
1. There is no well defined, common 'cradle to grave' process for managing procurements which are large, complex, novel, or some combination of these criteria. This puts important acquisitions of goods, services, or construction projects - funded either conventionally or by other means such as PFI - within, or across, Departments at unnecessary risk as there is no common mechanism for strategically controlling such procurements throughout their life cycle.
2. No common cross Departmental process exists for the management of the supplier base.
3. Departments and some of the central functions are concerned that some suppliers are currently enjoying differential pricing because of the failure to co-ordinate the management of these suppliers.
4. A number of Government submissions recognised the advantages to be gained from a common database of information about suppliers, better understanding of the supply base's cost drivers and genuine partnership relationships with industry.
5. Many industry submissions identified the benefits Government would obtain from adopting a more 'private sector' approach to procurement (allowing for the need to comply with European Community procurement regime) especially in the area of customer - supplier relationships based on a partnership approach.
6. A significant number of senior level Government inputs identified concern about the potential level of dependence on a small number of key suppliers in areas of strategic importance and the inability to collectively identify this level of dependence without asking the suppliers for the data.
Recommendations
7. A well defined, common process for the strategic management of large, complex or novel (or some combination of these criteria) procurements should be implemented based on the following principles:
projects have distinct phases in their life-cycle
the 'gates' between these phases can be characterised by sets of deliverables (e.g. requirements specification, procurement plan, project management plan, risk management plan)
deliverables should be assessed by people with relevant expertise who are independent of the project
important 'gates' (typically 3 in the life cycle) can only be passed as a result of successful reviews chaired by senior people who have no vested interest in the outcome of the review.
An example of the main elements of a generic procurement process is illustrated in Annex 2.
When a review is not successful the review chairman should bring the matter to the attention of the relevant Departmental Permanent Secretary and the Chief Executive of the OGC who will need to agree the action to be taken.
8. The detailed definition of this process, including the required deliverables at each gate, should be led by the OGC who will take into account external best practice and the experience gained from both recent successes and failures in Government procurement of large, complex, or novel projects.
9. Such a process will:
help to ensure a more consistent and enhanced level of performance on project orientated procurements, thereby saving money and boosting efficiency
catalyse widespread use of best practice, as this will increasingly be documented in the definition of the deliverables
provide a foundation for procure
