A couple of weeks ago, Cabinet Office minister Francis Maude invited 19 of the largest government suppliers to Whitehall to talk about reducing the cost of service contracts. It’s a fast-moving agenda and one where private providers are willing to engage.
With the government spending £230bn on goods and services each year, there’s a lot at stake. Business is fully supportive of the desire to cut public spending – tackling the deficit is essential and all businesses have had difficult conversations with their employees and suppliers over the past two years. There’s been some pain – but also some gain; lower than predicted job losses and a private sector that is now returning to modest growth.
CBI members providing public services agree with the government that immediate savings have to be found – to provide the headroom for reform. Ensuring that every pound is well spent needs to be a key concern when the government looks to renegotiate existing contracts. Removing excessive governance and oversight of the independent provider could save 30% of the process cost. Another option will be to de-scope some contracts, or to deliver more appropriate outcomes at less cost.
Such negotiations can provide short-term savings – but there are other, more sustainable ways to reduce costs without compromising services. This means re-engineering how services are delivered – treating patients at home rather than in hospital, reducing welfare dependency by providing tailored support to individuals.
So while it will be possible to reduce the cost of contracts, contracts are won competitively and margins are not excessive. The bigger prize will be opening up more services to competition, and we see encouraging signs that the government accepts the biggest wins will not come from short-term contract renegotiation – although this is necessary and will happen – and that it must fundamentally re-engineer the way services are provided. Introducing fair and transparent competition will ensure cost savings of 20-30% and will help drive innovation.
The private sector has led the way in showing how innovation can reduce costs while maintaining results: we’re glad to see the government working more closely with businesses and drawing on their expertise while encouraging new partnerships with third sector and social enterprises.
Susan Anderson is the CBI’s director of public services
