I’m pleased to have this opportunity to speak at this conference today, and talk to you about the government’s plan for the next stage of commercial reform.
When this government came into office one of our first priorities was to transform the way we did business.
We promised to end the days of cosy, gold-plated contracts with big suppliers – instead government would become a tough negotiator, determined to get the best value for taxpayer cash.
At the same time we would end the bureaucratic procurement processes that shut out smaller suppliers - and open our doors to all kinds of businesses and business models.
Our procurement reforms so far are working – they are making the way we do business more competitive, more transparent, better value and far simpler than ever before.
But there is so much more that needs to be done to get maximum value for the taxpayer, continue to support SMEs and growth, and to reform the civil service to be more commercial.
We know this, and the scrutiny and advice we get from businesses through organisations like the CBI, and from Parliament through the Public Accounts Committee (PAC) is important to keep us on the right track.
As the CBI found in their procurement survey of nearly 100 businesses last November, we are on the right path with our reforms. We get 8/10 for policy. But only half marks for delivery.
The implementation of our reforms is key.
Today I am going to outline some of the progress we’ve made so far and talk about our plans for the next stage of commercial reform.
But first I want to put these reforms in context – and explain why the commercial agenda is so important to this government.
Efficiency and growth
I’m sure I don’t need to remind you that this country is facing significant economic and financial challenges, as well as rapid social, technological and demographic change.
In the last three years we have made good progress at putting the nation’s finances on a more stable footing – taking unnecessary cost out of government and cutting the deficit by a third.
But we are determined that everything government does – and the money it spends – should boost, rather than undermine, Britain’s competitiveness.
So against this backdrop, and with the smallest civil service since the Second World War, we need to operate in a fundamentally different way.
Our reform programme has begun the challenge of delivering world class public services, more efficiently than in the past: streamlining processes, working with new technologies and using innovative solutions to reduce government spending.
Changing the way that we approach procurement and commercial activity is at the heart of this.
To understand why procurement is so important, let’s put some numbers to this:
Central Government alone spends approximately £45 billion a year on goods and services. In the wider public sector this is £230 billion – that’s roughly 15% of the UK economy and £1 for every £7 spent in Britain.
Too often in the past we haven’t got value for our money.
Businesses have consistently found bidding for public sector work excessively bureaucratic, time-consuming and expensive.
We need to continue to work with businesses and organisations like the CBI to make the public procurement process work better.
And our procurement approaches haven’t supported growth and SMEs, which are a crucial engine for growth.
99.9 % of the UK’s 4.5 million businesses are small or medium-sized. Together they are responsible for 60% of private sector jobs. Overall SMEs account for almost half of the net growth in jobs.
Data from the Office of National Statistics shows that on average, SMEs create £33 of Gross Value Added to the UK economy for every £100 of turnover, while large companies create around £26.
This has often meant the best, most cost-effective ideas were shut out from the start - particularly those coming from small, innovative firms.
We will only achieve true taxpayer value, reduce the deficit, and promote growth if we continue to transform our approach to buying – placing more emphasis on early market engagement and making the procurement process more efficient.
Progress so far
We’ve made some good progress in reforming procurement.
Looking at efficiency alone, our procurement reforms saved the taxpayer £3.8 billion last year.
We’ve introduced Crown Representatives as experienced commercial negotiators with our key suppliers to help government act as a single customer whilst also removing barriers to SMEs - saving over £2 billion since 2010.
We have also published procurement pipelines in 18 sectors, including IT, covering nearly £79 billion of public sector spend so that suppliers get a much better picture of the contracting landscape over the next five years. And there is much greater visibility of opportunities through the Contracts Finder website.
Our direct spend with SMEs has increased from 6.5% in 2009 to 2010 to 10.5% in 2012 to 2013, and figures from government’s top suppliers show that SMEs benefitted from a further 9.4% of spend in the supply chain in 2012 to 2013.
We have stripped out a raft of often competing wider policy objectives that used to add complexity to the procurement process, except where they lead to achieving better value for money. The procurement process is now faster, less bureaucratic and more open.
The pre-qualification questionnaire – so often used as an unfair short-listing tool that invariably put the bigger companies through – has been abolished for low value contracts and simplified elsewhere.
And if SMEs still encounter problems, then the highly successful Mystery Shopper Service allows them to complain about poor procurement practice. We will work with the department or local authority to put it right – and drive up our performance.
And going forward, where SMEs can compete and offer value for money, procurements will continue to be designed so that SMEs can compete and win public sector contracts.
This all puts us well on our way to our aspiration that 25% of central government procurement should be with SMEs by the end of the Parliament.
Looking internally, since April 2012 over 1800 procurement practitioners have been trained in lean sourcing, with standard operating procedures implemented across Whitehall, making public procurement in the UK faster than ever before – average procurement timescales have more than halved from 208 to 102 working days.
We launched the Commissioning Academy in January 2013, which will arm the public sector with the right commissioning skills for the future. We have a target of 1,500 graduates across the public sector over the next 3 years.
But we need to look more broadly at how government can act in a more commercial way in everything we do – and this goes wider than just procurement. This is what commercial reform is all about.
This is an ambitious programme of reform which will deliver:
- significant savings to the taxpayer
- an increase in the quality of the commercial service to government and the wider public sector
- a sustainable approach to government’s commercial and procurement activity
So how are we doing this?
We will buy common goods and services once on behalf of the whole of government, acting on behalf of the Crown. This has started already.
By creating a more integrated procurement function at the heart of government, we will harness the government’s unique buying power to deliver maximum value for the taxpayer.
We will improve the management of more complex procurements, such as large IT contracts. We have already started to build a flexible central specialist resource that will work with departments to improve the management of these procurements and reduce the reliance on external resources.
This will then allow departments and public sector bodies to focus their commercial activity on what is truly unique to them – like buying tanks, roads and social care.
We will strengthen procurement as a profession. This will allow government to better understand and organise our specialist commercial resources to steadily improve the capability of the procurement profession in government.
But this isn’t just about procurement. We want our civil service to be commercially smarter in order to clamp down on waste, encourage growth and improve services to get maximum benefit for taxpayers.
And, crucially, we need to improve our supplier and contract management.
We need to ensure that all suppliers to government deliver a commercially attractive, quality and reliable product or service.
And in turn we need to make sure that all our civil servants who manage contracts are able to monitor their suppliers’ performance, and have the relevant skills and confidence to remedy any pricing, performance or quality issues.
The Crown Commercial Service
In July we announced that we will be creating a new Crown Commercial Service to help deliver these reforms.
The Crown Commercial Service will bring together government’s central commercial capability into a single organisation, which will be established this autumn.
It will bring together the Government Procurement Service and other teams in the Cabinet Office.
It will work with departments and wider public sector organisations to ensure maximum value for the taxpayer is extracted from every commercial relationship.
And it will deliver more savings by ensuring that government acts as a true single customer.
This will represent a real step change in our commercial capability, giving government a much tighter grip on all aspects of its commercial performance, from market engagement through to contract management.
The Crown Commercial Service isn’t just about government procurement. It will work more closely than ever before with the wider public sector to ensure that the benefits of aggregation and centralisation are shared across the whole of the public sector. Only in this way can we truly maximise value for money for the taxpayer
Transforming the way government does business won’t happen overnight.
It won’t be easy.
But we’ve set out on the right course to make it happen.
At the heart of government there will be a more commercially savvy organisation with experts who really know the market and can make intelligent decisions about who is the best supplier.
And if we are smarter, more skilled and more open about how we do business, we will ensure the public sector is spending taxpayers’ money more effectively, more efficiently – and in ways that actively promote growth.
And this will help deliver the best for Britain.