14 May 2004
Ambitious plans to use on-line auctions to save £200m on procurement contracts over three years have stalled, throwing into doubt the government's drive to slash billions of pounds from public sector running costs.
Figures given to Public Finance show that at the halfway point of the e-auctions project, being overseen by Whitehall procurement agency the Office of Government Commerce, savings of just £1.6m had been achieved.
The savings target covers the period from 2002 to 2005, but the latest figures show that, six months into the 2003/04 financial year, hardly any progress towards the £200m had been made.
New OGC chief executive John Oughton, whose predecessor Sir Peter Gershon has been appointed by Gordon Brown to lead the government's £20bn a year efficiency review, admitted that the results so far were 'very disappointing'.
In e-auctions, companies compete on-line and in real time for contracts by making bids that are lower than their rivals.
According to the OGC, this method of procurement can often result in contracts being 20%-25% cheaper. It believes it could be used across the public sector to procure a wide range of goods and services.
The failure of e-auctions to catch on will be of particular concern to the government, because they are seen as an important tool for cutting the billions spent on procurement in the public sector each year.
Improving the efficiency of procurement and other back-office functions is, in turn, a key strand of the Gershon review: it is due to report before July's Spending Review but interim findings have already been leaked.
Oughton, speaking at a government IT conference earlier this week, was candid about the failure of e-auctions to live up to expectations.
'Despite the outstanding results achieved each time the public sector has conducted such auctions, take-up of this procurement tool has been very disappointing,' he said.
'Our challenge is to make the use of e-auctions an integral part of the procurement professional's toolkit, as they'll be an important contribution to the government's drive for efficiency.'
E-auctions have been taken up mainly by central government departments and their agencies. Other public sector bodies, such as local authorities, have not embraced their use.
The OGC believes that reluctance stems from fears that e-auctions herald a return to the bargain basement procurement approach.
A spokesman told PF: 'We have always said that value for money is what matters, not the lowest price. Organisations can build that into contracts to reflect costs over the life of the contract.'
Nevertheless, the widespread refusal to countenance electronic auctions raises a question mark over the realism of Nick Raynsford's claim this week to a CBI conference that local authorities could save £1.1bn by moving towards e-procurement.
PFmay2004
