Interview: Keith Davis

For many years, every member of the extended family of government has done its own shopping. Handed its share of the household income, every department, quango, delivery agency and council has wandered down the metaphorical high street choosing its own food, clothes and toilet paper. Indeed, according to the National Audit Office’s new review of public procurement, only £18bn of the £220bn spent by government each year has been channelled through the Office of Government Commerce’s (OGC’s) Collaborative Procurement Programme.

That’s all very well when the head of the household is earning a good wage: the family can afford to indulge its members’ desire for untrammelled shopping freedom. Unfortunately, these days dad has lost his job – and the report’s author, NAO’s director of cross-government work Keith Davis (pictured above), says government has to sharpen up its act on public procurement. “The root of the problem is the disjointed, disconnected, fragmented procurement landscape,” he says. “There isn’t a framework in place that enables public bodies to do the right thing in the interests of value for money.”
To produce its report, the NAO and Audit Commission commissioned pollsters Ipsos Mori to survey nearly 300 heads of procurement in central government, health trusts and local authorities – and the results make disturbing reading.

Attempts to foster better collaboration on procurement, says Davis, have led to a proliferation of overlapping and competing ‘framework agreements’ managed by a range of public bodies; there hasn’t been a central body powerful enough to rationalise the system and concentrate public buying power. “There’s too many frameworks, many of which just duplicate each other,” he argues. “Partly because there’s so many, the frameworks aren’t really effective at combining demand. You get good prices through a framework agreement if you can commit volume into it; then the supplier will respond. But we’re not seeing evidence that framework agreements are being effective in that – and that’s a huge issue.”

Good intentions, weak powers
The OGC, Davis says, has worked hard to improve the situation: its programme “has resulted in real improvements”, says his report. However, it continues, “the OGC has no powers to mandate change and relies on influence and persuasion”; its work “has not been designed to drive the step change required”. In short, comments Davis, the OGC has “certainly not had a clear mandate to clean up the landscape”; the office “has not really had the levers at its disposal to establish the coordinated, coherent overall approach to procurement that we think is needed.” And the result of “no-one feeling that it was their role within government to get a grip and take lead in coordinating the landscape”, he adds, is unnecessary expense. Even when public bodies buy through existing collaborative arrangements, the survey found, some pay four times more than others for envelopes and rail bookings; toner cartridges cost some buyers nine times more than the amount paid by those getting the best prices.

In part, Davis believes that framework agreements are handicapped by a widespread failure to combine public agencies’ orders in order to achieve economies of scale. “That’s not really the way that frameworks operate,” he comments. “They are let without any committed volume going into them. There’s a false assumption that if you’re buying through a framework agreement then that must be effective collaboration and combining of demand, but that’s not really the case.”

So frameworks often don’t produce savings from economies of scale, while the patchwork of overlapping schemes are of variable quality. The outcome, says Davis, is that “a larger public body with a good commercial team can sometimes go out to the market and get a better deal than it could through a framework agreement.” This chicken-and-egg problem has bedevilled public sector collaborative procurement: the frameworks will only produce savings when they can offer bulk orders – and until they can do so, potential buyers are reluctant to contribute their orders to that combined demand.

The costs of going it alone
The current system has a high cost to government in terms of higher prices – but it also leads to far higher operating costs across government procurement. The reluctance to work through framework agreements, says Davis, means that public buyers are spending vast sums on unnecessary procurement exercises: his report suggests that in 2008 public bodies undertook 2500 ‘OJEU’ pan-EU tenders that could have been run through existing frameworks, saving the public purse about £90m.

In part, he adds, buyers did their own thing because they didn’t understand the real cost of doing so: “A lot of public bodies don’t have the grip on the costs of what they’re doing that they ought to have,” he says. “If organisations don’t fully understand the costs of the decisions they’re making around procurement, they’re not very likely to be getting good value for money.”

What’s more, many procurement teams seem to be woefully ignorant of the markets in which they’re operating. “A quarter of heads of procurement stated that they held poor, very poor or no information on both the overall supply market and their current suppliers’ performance,” states the report, adding that fewer than half of respondents produced documents showing that in each major procurement they had examined the business case and the market before launching a tender. In many cases, Davis adds, buyers appear to be choosing particular brands based simply on “local preference”, rather than on the products’ specifications. “That needs to be challenged,” he says, noting that “there are wide variations in price for exactly the same specification of product; there aren’t many incentives in the system to manage brand choice actively.”

This lack of data on markets, products and operating costs, Davis suggests, reflects the patchy level of procurement skills across government. Things have certainly improved: “The procurement and commercial skills available now are much better, much stronger now than they were five years ago,” he says, accepting that it’s “likely” that this is due to increased recruitment from the private sector into commercial director-level jobs. But public bodies can be guilty of losing focus on the issue: “We looked in detail at contract management a couple of years ago,” remembers Davis. “Sometimes good procurement expertise was being brought to bear to let the contract, and then those people would go off and do something else. But there was still a contract to manage, and it wasn’t always clear that the people, the resources dedicated to contract management were as you’d expect, given the risk to value for money”.

The government will have to become much more agile, Davis believes, in deploying its procurement expertise; after all, demand for these skills rises and falls around the public sector, and maintaining a permanent capacity is likely to lead at any one moment to both waste and skills shortages in different parts of the sector. “There aren’t really strong, effective mechanisms for being able to move those commercial skills around in government,” Davis comments.

The way forward
Above all, though, Davis argues that the procurement landscape must be simplified, with buyers forced into collaborative deals at the biggest scale feasible given the nature of the product or service required. “It’s about having a more coherent structure within which all procurement activity takes place,” he says. “There are 50 professional buying organisations; if that number was reduced, there would be fewer options for somebody in public procurement and it would be clearer to them which is the best route to go down.”

For the most generic product categories, such as electricity and photocopier paper, Davis believes that all decisions over public buying should be handed to a single national organisation. “The value for money case is clear around a category like energy,” he says. “It doesn’t make sense to do it any other way.” In his report, he recommends that management of each such nationally-purchased category should be “ceded to an existing organisation that acts as the national centre of category expertise. This organisation would decide the level of aggregation required to get the best prices.” In some cases, this organisation might be the OGC; in others, a department or agency with in-depth expertise whose commercial director would be given “the power to bring in the volume from across the public sector and take it out to market”.

Where buyers need more specialised, bespoke or locally-tailored products, explains Davis, purchasing should be managed closer to the end user – either via regional collaborative frameworks, or directly at the local level. And the level at which purchasing decisions are made should be decided within a clear, universal system that considers the real needs of buyers and the requirements of each category. Given such a system, he comments, “you can understand whether local specifications are genuinely adding extra value to the local community or whether, when there’s a proper way in which they can be challenged and probed, the justification for them falls apart”.

There’s another advantage to this approach, Davis adds: it should help resolve the weighting of the many objectives that have been overlaid onto procurement activities in recent years. “I don’t think it’s well understood what the relative priorities are between value for money and sustainability and supporting SMEs,” he says. “This is an issue that causes a lot of confusion for the procurement community at the moment, and a clearer, more coherent procurement landscape provides the opportunity to provide clearer messages about how these things fit together.”

Smartening up procurement
Of course, such a system would have a dramatic impact on the procurement teams of many public bodies. Most obviously, public organisations would abandon procurement of the most generic products. “I’m not sure that it makes sense for lots of different public bodies to have their own bits of capacity in place for running tenders to buy stationery,” Davis comments. “That doesn’t seem very sensible and seems a bit of a waste.” Most departments will still need a buying department, he says, “because most will have some categories that are unique to them”; but across government, “this coordinated approach creates the opportunity to cut the cost of procurement quite significantly, through there being less tendering. That has some implications for how and where you need to deploy your procurement capability.”

Those procurement staff who remain, Davis believes, are likely to shift much of their attention from buying operations to re-examining the systems and processes by which public bodies achieve their aims. “Activity around demand management shouldn’t just be about reducing the need for paperclips by five per cent,” he explains. “You should be asking whether you need paperclips at all. What outcomes are the paperclips contributing to? Are there other ways of doing it? Above and beyond procurement issues, our general view would be that departments need to do a lot more in terms of questioning the cost-effectiveness of their chosen way of delivering services; to stand back and think: ‘Is this really the most cost-effective way of achieving the outcomes that we’re going for here?’ There is a lot of room for more fundamental thinking – and it may well be that the fiscal problems at the moment have created the burning platform that means this needs to be done.”

The time is now
Davis’s prescription for a new procurement system sounds remarkably like the ‘integrated model’ advocated in a recent Institute of Directors report written by public procurement specialist Colin Cram – and Davis acknowledges the parallels. “I know Colin well,” he says. “I think we’re generally of like mind around this.” (See Cram’s Opinion piece, p4.) Indeed, the model also lines up with the views of Chartered Institute of Purchasing and Supply chief David Noble – and the indications are that new Cabinet Office minister Francis Maude also favours greater central direction over some government activities (see interview, p1, CSW 21 April). While no details have yet emerged, the new Treasury/Cabinet Office Efficiency and Reform Group lists as its first priority “Conduct centralised procurement for commodity goods and services to drive down prices” (see news, p3).

Asked who should champion this new model and where key decisions should be taken, Davis is careful. “We’re not trying to specify any particular structure,” he says. “We’re simply trying to say that government as a whole needs to make decisions about at what level, and through what systems and structures, things should be bought.” But he does clearly believe that action is needed – and that it’s the right time to move. “I think there’s a big groundswell of opinion building up around the need for a much clearer overall procurement framework,” he says. “And I guess it’s a good time to publish the report now, while people are thinking about these things and some big decisions are being made.”

The big family of government has enjoyed many years of independent shopping, with individuals free to choose whether to buy their socks in Primark, Top Shop, M&S or Harrods. But those days seem to be drawing to a close: money is tight, and in future we may well see mum buying socks for everyone down at the market. “There are some areas where it’s clear that a stronger central mandate would be a good thing for some roles,” concludes Davis. “And it seems that it’s time for that now.”

Davis on...

Central targets

“We’ve certainly seen problems in the way that the central sponsoring departments communicate with delivery bodies. Targets are part of the communication, but they’re only one part. Sometimes a local delivery body is having to deliver a range of objectives for different central departments that don’t necessarily sit well together; in some cases, they may be in slight conflict. And certainly the local delivery body can find it quite tough to reconcile those objectives; can find that the central departments are not very joined-up in the way they interact with local delivery bodies. I think there’s a lot of potential to improve that.”

Civil service professional groups

“Professional groupings that cut across departmental silos have got to be a good thing. That provides a mechanism for more rational deployment of scarce and expensive expertise across government. In principle we’d think it probably has the potential to go further.”

Cost-effective delivery

“We’re trying to look at the delivery models used to deliver outcomes; to look at whether cost-effectiveness is adequately considered when choices are being made about the way to deliver something. Sometimes, it seems that the default position is that if we must deliver something we must, for example, establish a non-departmental public body – but have you got the evidence that it’s better than having it delivered by the third sector, or outsourcing it?

CV highlights: Keith Davis
1977 Attends Owen’s School, Potters Bar
1987 Awarded degree in politics, University of Bristol
1993 Becomes member of the Chartered Institute of Public Finance and Accountancy 
2000 Made head of the press office at National Audit Office
2003 Moves to become manager of BBC value for money studies, NAO
2005 Appointed director of cross government and efficiency, NA