The Government Commercial Function is under huge pressure – increasing workloads, fewer people and cost-saving drives bring challenges that can lead to poor outcomes for every stakeholder. Add in inflationary pressures, regulatory reform and sustainability targets, and it’s no wonder that some Commercial Directors have a reputation as the people who say ‘No’ more than ‘Yes’.
Of course, a rigorous Commercial function underpins the success of every public sector project, driving value for money, delivering operational efficiencies and managing substantial risk. In this context, saying ‘No’ can become the norm when doing these things consistently well requires diligence, restraint and challenge on the part of commercial leaders.
Success lies in seeking out opportunities, embracing novel commercial models, empowering expert teams and working closely with operational colleagues. The very best commercial teams are constantly identifying where and how to add most value. Saying ‘Yes’ to projects, when they are well-planned and tightly managed, pays dividends. We believe that there are at least three areas with the potential to deliver significant returns:
1. Energy buying
Energy is no longer a commodity purchase, given the wholesale market and Government’s Net Zero ambitions. Commercial teams without a thorough energy strategy are missing substantial savings. We estimate that Power Purchase Agreements (PPAs) can deliver savings in the region of £250m - £350m over a typical 15-year contract for departments and bodies using 1 TWh.
By entering into a PPA under current market conditions, electricity costs over the next three years could fall by around 75%. Via PPAs, power can be sourced directly from new-build renewable generators, saving 50 to 100 ktCO2e each year compared to average grid electricity to help achieve Net Zero goals
The long shadow of legacy IT and commercial constructs looms large over government. Commercial teams can unlock significant value by focusing on innovation, disaggregation, modernisation and migration to the cloud. And it’s easier than ever before. Through our work across government, and recently with HMRC’s Technology Sourcing Programme, we know that commercial teams can drive value for money by:
- Embracing an array of procurement routes, commercial models, and even establishing new bespoke Frameworks to meet today’s needs. For example, our support to HMRC and CCS in developing both the Big Data and Analytics and Digital and Legacy Applications Frameworks will enable significant technology innovation across government.
- Engaging early and frequently with the new DDaT supplier base – more disaggregated and specialist than ever before – to explain your business needs, existing technology estate and commercial constraints. Suppliers with greater insight can offer better-tailored solutions, partner with others to meet your needs, and bring savings through BAFO.
3. Procurement processes and teams
The planned changes to legislation will arrive in 2023-24, bringing opportunity for commercial teams to innovate and collaborate with the market differently. In preparation, commercial leaders should:
- Use all avenues available for procurements and wean colleagues off the direct awards that accelerated during Covid. The simple act of competition can save 20-25%.
- Build the capacity and capability of in-house commercial teams to meet the new legislation requirements alongside today’s challenges of increasing complexity of business requirements, commercial priorities and supplier diversity. Interventions including coaching, automation of routine tasks, upskilling on commercial platforms (e.g. SAP Ariba) and Baringa’s Digital Commercial Academy all enable the Government Commercial Function to work smarter.
Change can bring great opportunity
With a renewed focus on cost savings across Government, Commercial Directors and their teams have a more vital role than ever to play in delivering value for money for everyone on essential projects. Changing the way things are done can feel daunting, especially at scale. But by challenging established processes and embracing new ways of working, significant savings and enhanced efficiencies are achievable.
Talk to Baringa to discover how our experience and collaborative approach can help unlock potential and address opportunities in your department.
About the authors
Sarah Ashley and John Thompson work in Baringa’s Government and Public Sector team. They have recently advised on large and complex outsourcing projects for the Home Office and NHS England.
For support on how to get your Commercial function functioning more efficiently, contact Sarah on email@example.com
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