Local government and NHS procurement is getting competitive, and it’s not just between suppliers, but between public sector procurement agencies.
The management of about £160bn of wider public sector procurement, which includes local government and the NHS – but not central government – is going through a transformation, with increasing provision by the private sector.
In five years time, it seems likely that the management of this vast resource – representing more than 25% of all taxes collected in the UK and key to the delivery of most of our public services – will look very different from now.
It’s a confusing picture. It could be argued that the outsourcing of procurement by government organisations – which has been a contentious issue in the past – started with the NHS, which has had frequent changes to its procurement strategy.
A decade ago, the solution for procurement was to build on an existing organisation and create the NHS Purchasing and Supply Agency (PASA). The agency would create procurement agreements for a range of commonly used goods and services but NHS trusts and hospitals were not required to use its services, leaving little incentive to offer the lowest prices.
In 2008, the agency was replaced by regional procurement hubs, which were deemed to be more responsive and offer better value. Part of its procurement was also taken over by what is now the Government Procurement Service (GPS). The organisation reports to John Collington, chief procurement officer in the Cabinet Office’s efficiency and reform group, and its main focus is addressing the £13bn of common category central government spend (although it makes its purchasing agreements available to other parts of the public sector).
Pasa’s medical equipment and consumables arm was taken up by the DHL-owned Supply Chain, which now procures some £2bn of products for the NHS.
However, the complexity doesn’t end there. Just over two years after the NHS regional hubs were set up, the decision was taken to replace them. But one in Birmingham and another in Salford sought private sector funding in order to continue. The Salford hub, now called NHS Shared Business Services (SBS) is now jointly owned by the Department of Health and Steria. A West Midlands hub has been taken over by an American company and now called Health Trust Europe (HTE).
All four organisations will no doubt pursue business aggressively, which is what the Department of Health would wish to see in order to aggregate expenditure and hopefully secure more cash savings. However, SBS and HTE are unlikely to confine their activities to the NHS, but could attempt to enter the local government market or indeed education, where there is a significant commonality of spend.
Entering the local government market would allow them to increase profits and, through greater aggregation, deliver better value for money for the taxpayer. For the same reasons, they may look to provide a national service in the longer term.
Local government already has several public sector-owned purchasing consortia, which are all owned by local authorities. Eastern Shires Purchasing Organisation (ESPO) – which turns over some £500m and is on the lookout for a new director – and the Yorkshire Purchasing Organisation (YPO) – have considerable business with schools. One private sector company, Dukefield, also operates. .
The Crescent Purchasing Consortium is a further ingredient in the mix. It was founded about 15 years ago by Peter Brewer at Salford University to provide a procurement service to a few further education colleges around Manchester. In recent years it has grown massively, works nationwide and, by serving academies as well, has over 1,000 members, which poses a threat to the business of ESPO and YPO.
Other private sector organisations, such as BT and IBM are also dipping more than their toes in the water.
The growth of joint procurement hubs, such as the one between Westminster, Kensington & Chelsea and Hammersmith & Fulham, will, if they are successful, be emulated elsewhere but it is likely that far fewer councils in England will have their own procurement teams.
One hub that may be secure amid all the changes, and could actually benefit, is the new Improvement and Efficiency South East (IESE), which focuses on big spend areas such as construction, waste management and social care.
All this looks as if it could become something of a dog fight for a chunk of that £160bn of public sector business. And if private sector procurement organisations can demonstrate that they can offer first class value to the public sector, outsourcing of procurement could become the norm, and it might not be surprising to see the GPS sold to one of the private sector organisations already operating in this market.
This article is published by Guardian Professional.
