Modernising procurement
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The government spends around £300 billion a year – a third of all public expenditure – on buying goods and services from external suppliers. The relationship between government and suppliers to the public sector has evolved since the outsourcing boom of the 1990s and early 2000s, but the nature of contracting continues to fundamentally shape the state’s ability to effectively deliver outcomes.
Procurement processes tend to follow the same patterns of waterfall programme management we discussed above. A set of policy rules are defined, then translated into a list of technical requirements or service-level agreements. Suppliers then bid for the right to deliver what’s on the list.
For large-scale implementation of technology or service operations, these contracts can run to nine or ten figures, and last many years. Like the traditional policymaking process, they effectively assume it is possible to predict the future, and use contractual mechanisms to protect the government and generate value for public money. The examples of where this has failed to work are many and well documented—perhaps the most catastrophic example being the £10 billion failure of the NHS National Programme for IT.
Some critics of the current orthodoxy point to a built-in asymmetry of information, because vendors cannot know the full scenario they are walking into when they take on a public sector contract. But in practice, it’s not so much information asymmetry as information deficit—most of the time, neither buyer nor supplier has a clear understanding of precisely what to contract for. Nor can they if the contract is being let over several years, to deal with a complex social challenge.
As a recent Public Accounts Committee report has explained, it doesn’t help that central functions like procurement still treat digital transformation programmes as if they were akin to ‘controlled environment’ infrastructure programmes: “departments can’t precisely define and scope (digital) requirements, and yet procurement processes expect suppliers to price proposals as if that uncertainty were not a problem.” This is not a problem specific to digital; it is an issue for any complex programme. Most government business is inherently complex.
Where uncertainty and complexity are high (as they would be for any mission-based approach), awarding a contract based on the most economically advantageous bid for a predefined solution drives up the average cost of change, making experimentation, iterative development, and delivery much harder.
Public procurement suffers from a tendency to value the illusion of control. The comfort that comes from fixing a plan upfront also applies to running an incredibly detailed multi-million or billion-pound procurement. The civil service’s enduring tendency to prize precision and control—even where none exists because of a scenario’s inherent uncertainty and complexity—is a dangerous and expensive illusion.
To unblock this, the government needs procurement systems that offer reduced barriers to entry for SMEs and more incremental contracting mechanisms. The Digital Marketplace established in 2012 made some headway in doing this for contracting digital and technology services, though its effectiveness has been steadily eroded over time.
We’re not advocating for a blanket relaxing of rules. Suspending normal governance over the Covid-19 pandemic period was a decision taken in part because the current processes were entirely unfit for the pace of decision-making required. Few alternative checks and balances were put in place, leading to poor value outcomes in several instances. We think that if the typical procurement processes had allowed for more pace and flexibility, there would have been less need for the government carrying the risks of an ‘all or nothing’ approach.
Procurement in government is frequently cumbersome because of a cautious interpretation of rules, designed to minimise the risk of getting in trouble rather than maximise the chances of supporting the delivery of an outcome. A certain view of Covid-era procurement, and the ‘Wild West’ that was consequently created, implied a trade-off between pace and probity. We do not believe this is the case. Instead, we see a huge opportunity for procurement reform, not least to underpin the development of public interest technology for the benefit of all.
We need procurement systems that support nimbler, more open marketplaces.