Competitive procurement could save government billions

Government will continue to spend unnecessarily until it clearly defines parameters for competitive procurement and makes better use of procurement data

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By Matthew Rees, NAO

11 Sep 2023

With government resources increasingly stretched, one area where Whitehall can help to retain billions is through greater competition in procurement processes.

Every year, around a third of government spending is on the procurement of goods and services, reaching a total of £259bn in 2022. Initial assessments by the government show that between £4bn and £7.7bn could be kept in its coffers or spent elsewhere each year through increased competition – that’s around 3% of annual procurement spend.

It’s a broadly agreed principle in the UK and internationally that competition can help support efficiency, innovation, and quality in public services by allowing buyers to select the bid that can provide the best value for money. The same principles apply for buyers across the business sector and in households, where people shop around for the best deal. However, the government does not actively define what it means by effective competition, and it also lacks the data needed to measure the benefits.

In anticipation of a new Procurement Act, to replace the Public Contracts Regulations 2015, we looked at the extent to which competition plays a role in recent procurements. Our recent report found that of the total contract value of more than £100bn awarded by major departments during 2021-22, two thirds was subject to competition in some form. That leaves one third that isn’t subject to competition – roughly the size of the Department for Transport’s annual budget. However, of large contracts amounting to £29bn between January 2021 and January 2023, 23% had only one bidder, with a value of £4bn (14% of the total). Much more therefore needs to be done to ensure that procurement is competitive and there is a choice of suppliers wherever possible.

The government is taking steps in the right direction – namely by purchasing more common goods and services through central purchasing frameworks. In the past three years, the value of large contracts that utilised frameworks almost doubled, from 43% to 72%. However, while frameworks – an agreement put in place with a provider to enable departments to place orders for services without the need for protracted full tendering periods – can be used to achieve value when purchasing standard items, they are not always the best way to achieve value for money for more complex requirements.

One recent example is the Cabinet Office running a competition using a framework for consultancy companies providing health and community services, rather than general consultancy services. In doing so, firms that could also have provided EU Exit services were excluded from the process by either not bidding for, or not being selected to provide, health and community services. Government could also do more to understand how the number of suppliers on frameworks affects value for money, as currently 11% of existing frameworks have just one or two suppliers, while 48% of frameworks have more than 20 suppliers.

Achieving the benefits of competition in procurement has long been a challenge for departments. In our 2017 report – The new generation electronic monitoring programme – we found overambitious requirements can reduce competition by limiting the potential supplier pool. For example, this can often mean demanding more of a potential supplier than the market is able to offer at that point in time. This was the case with the Ministry of Justice, which set out 900 requirements for suppliers to meet as part of its plans to procure bespoke monitoring tags for offenders.

In 2015 we detailed in our E-borders and successor programmes report how the Home Office’s attempts to develop a new e-borders system were beset by ill-thought-through plans which led to the contract being cancelled with the contractor, at a cost of £150m.   

The competitive process is also undermined when there is a lack of accurate analysis of costs and benefits, which authorities are dependent on to inform their decisions and provide potential suppliers enough information to price bids accurately. One such example is the Department of Health and Social Care’s decision to introduce supply chain finance into pharmacy reimbursement processes. This was based on unsubstantiated estimates that the NHS could save £100m a year, with 60%-80% of pharmacies enrolling in the scheme by end of the last financial year. In the end, just 14% of pharmacies applied.

In future, there are several steps the government should look to take when making its procurement processes more robust. This includes being clearer and more flexible with requirements demanded of suppliers, doing more to understand past procurements, and maintaining contingency plans to be agile to supplier failure.

Until the government has clearly defined the parameters for competitive procurement, and makes better use of procurement data, it will continue to spend unnecessarily at a time when departmental budgets are under pressure.  

Matthew Rees is a director at the National Audit Office

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