15 October 2004
Public sector procurement is facing radical reform as regulators this week moved to break up anti-competitive markets and MPs demanded greater professionalism from civil servants responsible for negotiating contracts.
The Office of Fair Trading is considering whether to launch full investigations into nine public sector procurement markets because initial research, conducted by external consultants, has found evidence of over-reliance on a few large suppliers.
At the same time, senior backbench MPs on the Public Accounts Committee have criticised the 'short supply' of procurement skills among government staff. They say just 23% of designated procurement staff have a relevant professional qualification.
MPs are calling on all Whitehall departments to appoint a commercial director, appropriately qualified and with a seat on the management board, to take responsibility for private sector relationships.
The committee is also urging the Office of Government Commerce, under new director John Oughton, to exploit its clout with the Treasury to adopt a more aggressive stance towards departments that fail to manage procurement projects properly.
'The OGC should consider engaging the Treasury's authority to control expenditure as a lever against departments that choose to proceed in the face of successive red or amber warnings.'
MPs published their report on October 14, two days after OFT investigators revealed their preliminary conclusions.
These suggested that in areas such as health services, construction and civil engineering, and office machinery and computers, smaller suppliers are being shut out from lucrative public contracts.
The concern is that risk-averse government departments award contracts to established firms in preference to smaller, unknown suppliers.
The fear is that they are failing to use their buyer power to achieve greater value for money. The £21.5bn efficiency drive headed by Sir Peter Gershon is relying on £7.15bn in savings on procurement to meet the target.
'Any failure of procurement that jeopardises the ability of the public sector to provide services is highly visible,' the consultants' report says. 'This may lead to an overly strong incentive to limit participation in public tenders to large and reputable firms.'
The OFT intends to carry out further 'empirical analysis' before deciding which markets to investigate fully.
But Norman Rose, director general of the Business Services Association, told Public Finance that the OFT's investigation is a 'distraction' from the real business of reforming public services.
He said: 'Contracts have to be large and the penalties onerous, so that companies deliver. If a small company takes one on, it could break them if it goes wrong.'
John Williams, director of public services at the CBI, said: 'There is a danger of taking competition policy principles that are used in the rest of the economy and applying them wholesale to the public sector.'