Public Sector annual procurement spend is approximately £300B which equates to over 14% of GDP.
The Public Sector, at an aggregate level, is the single largest UK buyer of goods and services that are not consumer focused. There are 10,000’s of buying organisations, from schools, district councils, GP surgeries to the major Departments such as Ministry of Defence or Department of Work and Pensions through to Arm’s Length Bodies such as museums. There are even numerous publicly owned organisations who buy on behalf of the Public Sector, the largest being Crown Commercial Services.
The Public Sector receives goods and services from 100,000’s suppliers, probably millions, there is not an exact figure. Essentially, in addition to small and medium sized enterprises (SMEs), nearly every major national and international corporation will be either supplying directly to the UK Public Sector or indirectly if they are a business-to-business organisation.
This is why historically Governments have used procurement as a mechanism to drive change whether to support SMEs and payment terms, support the living wage or ensure suppliers pay UK taxes. This approach, often referred to as ‘policy through procurement’, has been the subject of numerous attempts to support a very wide array of policy objectives with differing levels of success.
Public Sector procurement can shift markets if there is a consistency of strategy and a commitment to change.
Suppliers and markets consistently adapt to change and make large investment decisions based upon clear and consistent market trends, legal / regulatory obligations and/or areas of competitive advantage. We have seen some of these shifts over time, for example the construction and infrastructure industry making changes around areas such as social value and use of SMEs in their supply chains, investment in green technologies and increasing automation.
Both within the public and private sectors I have been part of procurement strategies that have resulted in suppliers creating new service lines, investing in warehousing and logistics capability, building new factories, developing new IT / digital systems, improving waste management practices, working collaboratively with competitors in ecosystems, jointly creating new Intellectual Property, and reshaping supply chains.
Suppliers will commit investment, resources and create business models to meet customer strategies and requirements, if they are clearly articulated, create demonstrable value, are underpinned by long-term strategic demand and the customer can provide assurance that they are equally committed to the success and the outcomes for both parties.
The Public Sector is uniquely placed to stimulate investment, it has scale, consistency, and availability of funding (certainly when compared to many other industries), its requirements tend to be enduring over time and many of the requirements are equally applicable in other countries, and it has the capability to introduce legislation to drive or stimulate demand.
It’s taxpayers’ money!
On a more basic moral and emotional level this is not the Government’s money it is taxpayers’ money. Back in the day in my first Public Sector role, in the Department that is now HMRC, it was very clear that we were custodians of public funds, we were public servants delivering public services.
Whether public funds related to budget management, collection of tax or procurement the very clear expectation was that, as a public servant we had a duty to use these funds to deliver public services, obviously following the rules and policies… but to do this in a responsible, ethical, and unimpeachable manner. Speaking to many ex-colleagues and public servants I still think this is a strong culture in most areas, it is still embedded in Accounting Officer and senior official roles, it is still part of HMT guidance and general guidance that is applicable to public servants.
Therefore it cannot be right ethically, professionally, or morally that public funds are used in any way that doesn’t seek to optimise the positive impact on the planet and support our local and regional communities whilst still delivering the core intended public service. The alternative is we use public funds whether knowingly or not in a manner which is directly contributing to climate change with all that this means. From a procurement lens, this is not fulfilling the most basic obligations of delivering Value for Money, managing whole life costs, and delivering public services in an ethical and responsible manner.
Public Sector procurement, it’s never been about savings.
This is a big area, and I am going to touch on some key points very briefly and will come back to this topic in more detail later. Let’s not confuse the public narrative about savings i.e. what is a simple message that the voter or taxpayer understands and rightly believes should be the case, i.e. wherever possible public monies should be used appropriately for the purpose intended, efficiently (in the broadest sense) and cost the market rate for the scale of the purchase. This is what has been called ‘savings’ in the past.
It was not about taking, say 10%, off the cost of the product or service, removing the budget and re-allocating that saving to another cost centre or organisation. I am not saying this never happens, but I have never seen a Public Sector organisation work in this way systemically and over time and I have seen this in numerous private sector organisations. I have seen rigorous Public Sector efficiency programmes driving clear, measurable, and evidenced efficiency (transaction, processes and cost to deliver) and Value for Money taking into account whole-life costing with baselines, benchmarks, taking the impact of public services into account etc…. This is then often codified, audited and articulated as ‘savings’ across many organisations, programmes and projects and communicated externally, there is nothing wrong with this but there is a very clear distinction between value, efficiency and savings.
Why make the point. Two reasons, spend has risen at an aggregate level. In 2013, my last year in Government it was £225B and it is now £300B (ex-Covid and any increase in military spending), budgets tend to reflect Government priorities and policies, macro economics and plethora of external factors (local, regional, national and globally). It is far to simplistic to try and draw a line between procurement savings and budgets and mostly it’s not relevant, whilst accepting efficiency and commercial value is an essential component as a matter of probity. Secondly, the Public Sector should, and all the guidance and best practice focuses upon, Value for Money and whole life costs. This is the key point, whether procurement is used to stimulate the economy, to deliver increased employment, opportunities for SMEs, to improve healthcare outcomes, protect the nation or educate our children it cannot and should not do this while negatively impacting other publicly funded services or adding unnecessary costs to the public purse.
So just how much cost has been incurred so far in fighting climate change? Directly we have had loss of life, homes and work, recurring and devastating floods throughout the UK, a heatwave which again caused disruptions across road and rail infrastructure, costal erosion, East and West coast train lines down, London Underground disruptions. Indirectly price inflation across numerous products and commodities, increasing forced migration, lack of availability of goods and commodities, increasing unstable populations and countries and increasing extreme weather events. These are costs that all of us are feeling right now, and they are set to increase rapidly, so why aren’t we considering climate change when spending? It is part of the whole life costs and one that we are now experiencing the downside of not considering appropriately.
The key message is that spending public funds in such a manner which does not consider climate change, and does not ensure those funds have a net positive impact on the environment, is not only wrong but is directly costing the country and taxpayers more money in both the short and medium term if you take a whole-life costing perspective. In simple economic terms, organisations are not paying the true price for many of the goods and services they consume, and those externalities will ultimately be borne by the country and the taxpayer and others around the world.
We need to understand and measure ‘Value’ very differently in the future.
Public Sector procurement should be setting the ethical, sustainability and social value standards for others follow.
In my view UK Public Sector procurement should be setting the global standards for the procurement and supply chain function. This should be the ambition of the Procurement Bill and the supporting policies.
UK Public Sector procurement has an incredible set of professional capability and capacity, it has very mature organisations and organisational models to utilise, in the past it has had a willingness to collaborate and cooperate at scale at local and national levels, there is considerable investment being made in terms of procurement systems and data (this should be coordinated and rationalised), if coordinated effectively could drive economic growth in a sustainable and responsible manner, while supporting the green transition, and there is a rich history of delivering local, regional and national policies through procurement.
If you want to see procurement at the forefront of these issues and ensure we are addressing climate change, please sign the petition below:
Amend the Procurement Bill to enshrine positive environmental obligations. – Petitions (parliament.uk)
For everyone and any organisation who signs the petition or ideally contributes by posting comments or communicating this through other media channels a big thank you for taking part.
