Becoming 'Commercial': Managing public sector expenditure
Managing public sector spending is so much more than just 'procurement' or 'sourcing', Proxima writes in this article, which examines the government's approach to commercial
What’s in a name?
You knew where you stood in the 1990s with the Buying Agency. It did what it said on the tin and you bought stuff that the public sector needed. Buying Solutions took that a little further and sought to find solutions to the issues faced by civil servants who needed to spend money efficiently.
With the creation of the Crown Commercial Service and Government Commercial Organisation in recent years, the remit has become broader and to many outside of the Government Commercial Function more vague.
In the private sector, “Commercial” organisations are often synonymous with Marketing and Sales teams, while in the Financial Services sector the word equals high profile trading. This article explores how the rebranding of Civil Service procurement teams as “Commercial” affects what they are expected to deliver for their stakeholders.
Why make the change from procurement to commercial?
It’s only a few years ago that we had scathing reports from the National Audit Office on “widespread weaknesses in the government’s management of contracts.” We had significant failures in oversight in public procurement and Commons Select Committees were proclaiming a “persistent lack of skills” in procurement teams.
Merely being “buyers” who followed standard procurement processes and complied with regulations and rules could not alone drive good practice and deliver value for money in the vast range of goods and services that government needs to function effectively.
What was needed was a fundamental shift in the understanding of the role and capability of those employed to spend over £220bn of public funds each year.
'What was needed was a fundamental shift in the understanding of the role and capability of those employed to spend over £220bn of public funds each year'
What drives value for money?
For several years, Proxima has been highlighting the core challenge faced by Procurement organisations in both public and private sectors.
“Procurement”, “Buying” and “Sourcing” functions traditionally focus on the activities associated with agreeing a deal and putting contracts in place for the required goods or services.
However, the ability to influence both cost and quality of goods and services is far higher when the requirements are being developed, whilst ensuring that anticipated value is actually delivered and sustained is driven by the effective management of both contracts and supplier relationships after the contract is signed.Proxima articulates this in the simple “DNA” diagram below:
Credit: Proxima 2019
The combined focus on the involvement of Commercial teams through all phases of the supply lifecycle and the upskilling of the teams to deliver this has been critical to starting this transformation.
From theory to reality
Whilst no-one in government would claim that this journey is complete, examples of how a more “commercial” approach is driving value grow by the day.
Jin Sahota, head of NHS Supply Chain Coordination Ltd, explains how “Instead of saying, ‘we’re here and if you want to buy something, come and buy something’, we’ve got bespoke account plans for each of the trusts, we are building up pictures of what can be done, and we are helping them switch products – which we know is not easily done.” Challenging end users to consolidate specifications and suppliers is leading to multi-million savings, led by a renewed focus of the Commercial team with an overarching vision.
At DWP, the implementation of a Dynamic Purchasing System to support training at Jobcentre Plus facilities has revolutionised the ability of local leadership to deliver flexible support across a huge range of individual training needs. This award-winning programme, prompted by the Commercial team’s initiative to apply more innovative sourcing processes, has “encouraged commercial upskilling within the organisation, where individuals have learned a lot about how to buy successfully.”
At HMRC, the Commercial team has been at the forefront of the single largest facilities consolidation and transformation programme in Europe over the last few years. Andy Williamson, HMRC’s Deputy Director for Estates Commercial explains that “working in partnership with our ‘technical’ colleagues in the Estates team from day one has allowed us to customise the category strategies and sourcing approach for each element of the locations programme, from the due diligence of our property deals, through to the fit-out of the buildings and the facility management services that will be required to create and maintain great workplaces. We now have a mix of preferred partner suppliers and ongoing competitive sourcing that adapts to the needs of our clients and is delivering some truly exceptional workplaces for our teams.”
And within GCO a whole function is dedicated to driving innovation and more strategic approaches to market engagement, sourcing processes and contract management. The Complex Transactions Team, led by Victoria Filkin, delivered more than £550m of savings in 2018, even though “the majority of CTT work is not savings related, supporting more widespread initiatives such as risk mitigation and EU Exit activity.” Filkin says “CTT's role is to support Departments with their most complex strategic programmes, by providing outstanding commercial expertise. Departments call on CTT to help them formulate commercial strategies; decide whether to 'buy' or 'self deliver'; unpick a failing services or disputes; or implement effective governance for programmes & commercial relationships."
Embedding a “commercial” approach
Whilst we can always find examples of good (and bad) practices in any organisation, the real challenge is to embed this transformation in the public sector as a whole.
Becoming “commercial” (with a small “c”) cannot simply be limited to the GCF or Commercial teams themselves, but will also require leaders in all functions to recognise the value of innovation, challenging the status quo and seeking out better ways of working from across the public sector, our private sector counterparts and, of course, the expertise of our third party suppliers.
Transforming the Commercial function is clearly having a huge impact already and end users will benefit most when they work in partnership with their Commercial colleagues and engage with them at the earliest possible stages.
Victoria Filkin says, “Commercial has creativity and collaboration at its heart. You have to listen to and challenge what customers want; and do the same with suppliers. Done well, it is so much more than “'buying stuff'. The GCF is committed to developing new ways of working to ensure commercial professionals understand what they can do better and how.
Read Proxima's report 'Is workplace transformation the key to improving commercial capability?' here