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Our Lessons learned: Competition in public procurement report contains key insights for commercial teams and makes recommendations for the centre of government, designed to support government to make effective use of competition to drive efficiency in public procurement.
We reviewed 30 NAO reports about public sector procurement and talked to stakeholders and found that government cannot show how well competition is working.
Structures to encourage and support the use of competition are also not all working as intended. As government tackles the economic headwinds of supply chain disruption, inflation and higher borrowing costs, achieving the benefits of competition is essential, and requires effort throughout the commercial lifecycle from designing a requirement through to the end of a contract.
Why competition matters
Government’s accounts show that it spent £259bn procuring goods and services in 2021-22 – about a third of UK government spending.
Competition is a key principle of public procurement and enabler of value for money. It helps to secure the right price and quality and is the best way of demonstrating probity in the award of public contracts.
Legislation sets out underlying principles of competition including equal treatment of potential suppliers and fair and reasonable timetables and procedures, but does not actively define effective competition.
Government has produced illustrative scenarios that suggest possible savings of £4bn to £7.7bn per year through increased competition.
The current state of competition
Of the total contract value of more than £100bn awarded by major departments during 2021-22, around two-thirds were subject to competition in some form.
Over the four years to 2022, government awarded less than half the value of its large contracts through competitive open procedures, and an increasingly large proportion of goods and services through framework agreements (72% of large contracts in 2021-22 compared to 43% in 2018-19).
Frameworks are designed for procuring common goods and services using economies of scale, but are not always the way to achieve the best competition.
The Cabinet Office told us that it needs more structured data and more effective processes to track these procurements through the commercial lifecycle to monitor savings effectively.
Of 235 large contracts, worth £29bn, recorded on the Find a Tender Service between January 2021 and January 2023, 23% had only one bidder, with a value of £4bn. The Cabinet Office has not assessed the expected level of single bidders within government’s major markets or analysed trends in the numbers of bidders.
Securing the benefits from competition
Our insights are organised using the commercial framework set out in our publication Good practice guidance: managing the commercial lifecycle.
Improving government use of competition requires the centre of government to understand how competition is working in practice and to advise and support departments.
It also requires departments to make the most of opportunities to improve competition throughout the lifecycle of a contract.
This starts from departments designing realistic requirements for goods or services to inform their sourcing approach.
We have seen cases where poorly designed requirements and sourcing have led to few bids, or to suppliers that proved to be unsuitable.
Departments need to engage the market sufficiently, by consulting potential suppliers and providing information to the market in a way that does not favour particular suppliers.
Cabinet Office guidance encourages this, but stakeholders told us that departments often take an overly cautious approach to engagement.
Once the contract has been awarded, departments should maintain competitive pressure by using information on the contract and market, such as information on suppliers’ costs and approaches.
This will also help them to be ready for transition at the end of the contract.
