Today, Rachel Reeves delivered her second budget, setting out Labour’s plan to encourage economic growth and maintain fiscal credibility whilst also cutting NHS waiting lists, national debt and the cost of living.
Discussions about government spending and economic growth frequently return to a few topics. How can we manage health and social care costs? How do we balance revenue-raising tax measures and encourage investment to stimulate growth? What is the impact of AI going to be? Why is it so difficult to build houses and infrastructure?
Rarely discussed is public procurement, even though clocking in at ~£400 billion a year it accounts for roughly a third of all government spending and a sixth of the UK’s total economy.
With public finances strained, it is more important than ever that this spending delivers good value for money. Used effectively, it has the potential to deliver public service improvements, support innovation and have knock-on benefits for the entire economy.
However, as Re:State’s recent report Procure and Simple argues, the current procurement system regularly fails to secure value for money for the taxpayer. Many projects are late, overbudget or underdeliver. Others are outsourced when they should not be. And others are never started because complex and costly processes prevent them from being tendered.
Civil servants themselves recognise the scale of the problem. Of the 1,265 civil servants who responded to Re:State’s Alternative People Survey, in partnership with Civil Service World, only 12% agreed with the statement “the civil service procures goods and services effectively from the private sector”.
It is tempting to blame legislation for this but that is not the biggest problem. The new Procurement Act 2023 is a step in the right direction, consolidating several pieces of legislation, enhancing transparency and emphasising SME participation.
The big problem – and the simple fix
The rules that people believe exist matter much more than the rules that actually exist, and there is a big gap between the two. We call this the ‘practice-legislation gap’. Civil servants follow a range of practices and processes which are not required in their core legislative duties, and which go above and beyond for no clear benefit. As one interviewee remarked, “half the things people are trying to comply with are fantasy, they’re not real”. To show they have done their due diligence, contracting authorities have every incentive to keep adding different stages, forms and questions to their list. They have limited incentives to remove requirements. Eventually, the system collapses under the weight of complex requirements and byzantine processes.
A great example is direct awards. Because of competition rules, the public sector has a huge aversion to awarding contracts directly to suppliers. But there are plenty of avenues which legally allow direct awards to be made. They are just under-used, for fear of challenge.
Measures the government are pursuing will make this easier. The Procurement Act 2023 introduces a new ‘competitive flexible procedure’, which allows departments and other public sector bodies to design more flexible procurement processes, provided they catalogue their rationale for doing each step as they go. We recommend numerous further ways in which the procurement system could be improved, for example directing more spending towards startups and scaleups rather than SMEs, utilising a new kind of direct award contract called ‘smart awards’.
But more important than any structural reform is cultural reform: civil servants changing how they work day-to-day.
The key step is early market engagement. We know that officials are often reluctant to engage informally with companies in case they are seen as privileging certain suppliers or allowing them undue influence over the policymaking process. But it is a balancing act. If government does not speak to suppliers about what it needs, it runs the risk of asking for and getting the wrong goods and services.
Equally important is ensuring that contracts are appropriately sized. Because of the time it takes to go out to market, civil servants are often incentivised to bundle multiple smaller contracts together into one big one. This shrinks the pool of potential bidders and increases the impact of failure if it occurs. Legislation places no restrictions on the size of contracts for different opportunities. It is just the bureaucratic process which incentivises pursuing a smaller number of bigger contracts. Devising multiple smaller contracts may entail additional work, but it can increase competition and ultimately improve outcomes.
Procurement is complex and good procurement looks different depending on the sector. Vaccines are different to military vehicles, and hospitals are different to HR shared services. Many of the reforms necessary to improve it are fundamentally challenging across all areas. But closing the ‘practice-legislation gap’ is not among them. It just demands Whitehall embrace cultural change, becoming more outcomes-focused and pushing back against “that’s the way we’ve always done it” as justification for requirements not rooted in legislation or best practice.
Sean Eke is a researcher at the Re:state think tank and the co-author of Procure and Simple