EDITORIAL

Public Procurement
Andrew Erridge,
University of Ulster

This Special Edition on Public Procurement is based upon papers presented at

the 8th one day Conference of the Public Administration Specialist Group of the
Political Studies Association, hosted by CIPFA in London on Wednesday 10
May 2000. The aim of the Conference was to bring practitioners and academics
together to examine recent policy developments in public procurement. The
conference also provided the opportunity to disseminate further the findings of
an Economic and Social Research Council project (personal research grant No.
000237023) on UK Central Government procurement, in which many of the
participants or their organisations had been involved. Of the delegates
attending, there were 12 senior procurement staff of government departments
or agencies, 2 local authority procurement staff, 3 staff from the National
Audit Office and 6 academics.
The morning session of the Conference focussed on UK central government
procurement, and included presentations by Peter Gershon, Chief Executive of the
Office of Government Commerce (OGC) and Sir John Bourn, Comptroller and
Auditor General, which will be incorporated within this Editorial. In addition,
there was a presentation by Erridge and Greer. In the afternoon, Stephen Glaister,
Professor of Transport Infrastructure at Imperial College, and Jeremy Colman,
Deputy Auditor General at the National Audit Office presented contrasting
papers examining projects funded by the Private Finance Initiative (PFI).
The main purpose of this editorial is to provide a background to the
development of UK government civil procurement policy through summarising
the presentations of Peter Gershon and Sir John Bourn, together with extracts
from the significant policy documents developed under their auspices.
Role and Development of the Office of Government Commerce
Peter Gershon, Chief Executive, outlined his plans for the Office of
Government Commerce at the conference. He started by defining what he
meant by procurement:

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 Procurement is the whole process of acquisition from third parties, and covers goods,
services and turnkey projects. It spans the complete 'cradle to grave' life cycle,
includes both traditional funding and more innovative arrangements eg PFI, and is
inherently multifunctional.
In expanding on this theme, he examined the external trends driving change
in procurement, explored the main issues arising from his Review of Civil
Government Procurement carried out in 1999, and presented his agenda and
priorities for the OGC.
External trends in procurement
Gershon argued that the development of the procurement function in
government was being driven by a number of external trends:
* increasing recognition of its strategic importance.
* re-engineering of processes
* managing spend by commodity with clearly defined strategies
* maximising leverage from aggregation of volumes
* focus on relationships, with sharing of risk and rewards, and an emphasis
on supplier management and development
* development of 'intelligent customer' capabilities
* changes in skills profile
* E-commerce revolution
Whilst the significance of these trends had been recognised and reflected
in previous initiatives on government procurement, in particular Setting New
Standards (Treasury, 1995) and the PX Paper, Efficiency in Civil
Government Procurement (Treasury/ Cabinet Office, 1998), government felt
that a further review was necessary in order to ensure that improvements in
procurement practice could be implemented fully across departments and
agencies.
The Review of Civil Procurement in Central Government
In addition to the external trends outlined above, the review was carried out
against the background of a number of factors internal to government:
* action required to achieve efficiency, modernisation and competitiveness
objectives in procurement
* problems in major government projects, especially in construction and IT
* inconsistent practices across government
* the need for improved value for money
* recognition of the growing dependence on purchased goods and services
Review findings and recommendations
In this section, the main findings of the Review are presented, supported by
extracts from the report itself in order to provide a fuller exposition of the
findings.

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1. Policy
There is no coherent and consistent approach to procurement policies and
practices. There is a need therefore to bring greater focus to the role of
procurement in government:
A common strategic framework should be established within which all
Departments will conduct their procurement activities in future. This framework
will include:
* a standard procurement process
* common performance measures
* key standards (e.g. for e-commerce)
* common systems (e.g. for information about suppliers)
* key values (e.g. a code of good customer practice, working together across
Departmental boundaries) (Gershon, 1999, Section I11A)
2. Organisation and Structure
There is a need to bring greater focus to the role of procurement in
government, and to consolidate existing central expertise in a single organi-
sation. Fragmentation and lack of co-ordination of central activities result in
the centre lacking the necessary clout to lead Government procurement into
the 21st century. There is no single body accountable for the deployment of
resources involved in central procurement activities and this results in a sub-
optimal use of these resources.
It was recommended that a new central organisation be created, the
Office of Government Commerce, with a Supervisory Board to provide top-
level support and strategic direction. The Board would include the Chief
Secretary to the Treasury, as chairman, senior officials from Government
departments, the Chief Executive and an observer from the National Audit
Office. (Gershon, 1999, Summary of Section IIIB)
3. Process
There is no common process for the management of major projects:
A well defined, common process for the strategic management of large,
complex or novel (or some combination of these criteria) procurements
should be implemented based on the following principles:
* projects have distinct phases in their life-cycle
* the 'gates' between these phases can be characterised by sets of deliver-
ables (e.g. requirements specification, procurement plan, project
management plan, risk management plan)
* deliverables should be assessed by people with relevant expertise who are
independent of the project
* important 'gates' (typically 3 in the life cycle) can only be passed as a
result of successful reviews chaired by senior people who have no vested
interest in the outcome of the review.
When a review is not successful the review chairman should bring the
matter to the attention of the relevant Departmental Permanent Secretary and

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the Chief Executive of the OGC who will need to agree the action to be
taken. (Gershon, 1999, Section IIIC).
There is no common supplier management approach:
The OGC should develop a common process for the management of the supplier base,
with top priority being given to those suppliers who are involved in the provision of
goods and services which are critical to the successful operation of Government. Such
a process must be firmly based on measurable data. It should also define the role of
the OGC in the management of the overall relationship with suppliers and the role of
Departments in managing individual project based relationships with suppliers.
(Gershon, 1999, Section IIIC).

4. People
The overall levels of skill, capability and seniority in the Procurement
service need to be raised significantly. It is therefore recommended that:
In departments with large procurement expenditure, the Head of Procurement should
be a grade 3 reporting direct to the Permanent Secretary and such appointments would
require Office of Government Commerce approval...
Departmental procurement skills and capabilities will be an important feature of the
proposed periodic reviews between OGC and Departments. I would expect these to
sustain pressure on continuing to raise the level of professional knowledge, skills and
seniority of procurement staff. Over time the implementation of this and other
recommendations (e.g. the creation of a favourable environment for the widespread
adoption of e-commerce) will lead to a smaller, more skilled, better paid and
motivated procurement function across Government. (Gershon, 1999, Section IIIE)

5. Supply Base
Tendering processes can be burdensome and costly, and act as a deterrent to
suppliers. Therefore:
Within the bounds permitted by European Community procurement regime, Depart-
ments need to be more sensitive to the burdens which their procurement procedures
place on suppliers. The OGC should consult with industry to identify common causes
of these burdens and take appropriate action with Departments.
In some sectors of supply the OGC needs to determine whether the base of suppliers
is broad enough to maintain competition and innovation and take appropriate action
through Government and Departmental initiatives to stimulate the interest of potential
suppliers.
The above two recommendations may also provide a useful opportunity for a renewed
impetus to attract more SMEs to bid for Government contracts.
In major purchases covered by the proposed common procurement process, I
recommend that the procurement strategy takes into account the estimated total costs
that will be borne by industry in bidding for the contract as well as the total costs to
be borne by the Department. (Gershon, 1999, Section IIIF).

6. Implementation
Gershon argued that it was time to stop reviewing and take action, as his
report was the 4th review in a decade. There was a need therefore to

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implement a substantial change programme to reform civil procurement in
central government.
Strategic Agenda
Using the central expertise in Treasury, Cabinet and the OGC, Gershon
stated that it was possible to change and reform civil procurement in central
government through the following:
* VFM through the use of best practice techniques
* a better process of sharing and exchanging knowledge between the OGC
and departments
* improving management of large, complex and/or novel projects:
* facilitating commercial relationships with suppliers and partners that
generate improved VFM, by developing more innovative relationships.
PFI is outside the procurement function but the techniques and skills can
be used to the advantage of procurement in developing relationships with
suppliers.
* development of commercial skills to meet the needs of government in the
21st Century:
Levels of skill, capability and seniority in the Procurement service need to be raised
significantly. There is too much focus on low value procurement and insufficient
involvement in critical procurements such as outsourcing or Private Finance Initiative
contracts where qualified staff could add the greatest value. (Gershon.1999, Summary
of Section IIE, paras 1-9)
* developing the strategic management of key suppliers: in particular it was
necessary to address the problem of market concentration as a result of
each contract being dealt with separately by individual departments.
* in order to address the above, it is also necessary to reduce barriers to
market entry to new suppliers.
* there is a need to consider the optimum use of e-procurement. The
challenge is to integrate e-procurement with new IT departmental infras-
tructure. This does just not concern integrating the IT function, finance
must also be included as was demonstrated with the non-technology
aspects of implementing the procurement card. There is a need to develop
more e-commerce but the structures and processes in government need to
be set in place first, and E-commerce needs to be driven from the top
down by top management of departments.
Overall, the agenda of procurement was to support the wider public sector,
for example, PFI.
First Year Priorities
In order to address the issues outlined in the strategic agenda above, Gershon
outlined the priorities for the first year of operation of the OGC as follows:
1. Align the resources and structure of central government procurement to
the vision and strategic agenda which was launched from the formal
review of the OGC.

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2. Define and implement the major projects gateway process. This needs to
be a common generic process but is viewed by some to be a centrally
imposed burden. Independent peer reviews at various stages of a project
are a well used and valuable process in the private sector but can be
painful. There needs to be a rapid definition of the process, which is then
to be piloted on 10 projects. No OGC or departmental staff will be
involved: the process will be led by an independent person. On e-
commerce we need to develop with departments a strategic framework.
3. Develop measurement techniques and set out what we buy, how we buy
it and where?
4. Develop the skills of people within the Government Procurement
Service, including skills in project management for which there is no
functional leadership or recognition.
5. Identify our key, top 10 suppliers, and levels of spend with them: and
start strategically managing our suppliers
6. Review advice, guidance and information on best practice.
7. Consider how environmental factors can reduce whole life cost, with a
more practical emphasis rather than engaging in arcane policy debates.
8. Encourage and support existing initiatives eg Achieving Excellence in
Construction
9. Government needs to become a more intelligent client in relation to
industry.
10. Though data is inaccurate, OGC must try to find areas for potentially
quick wins but this does not necessarily mean aggregating information
about good deals.
11. Determine how to measure and realise the target of £lbillion VFM
improvements.
Finally, the OGC vision is:
Working with civil government as the catalyst to achieve the best value for money in
commercial activities: not in isolation, but with more selling and less telling. OGC
will be the catalyst to cause change to happen.

Modernising Procurement
The theme for Sir John Bourn's presentation was taken from the NAO report
Modernising Procurement (National Audit Office, 1999), which continued
the theme of developing best practice procurement within the framework of
appropriate controls and risk management. Extracts from the report will be
used to develop Sir John's presentation.
He began by arguing that there was an opportunity to learn both from
good and bad practice:
This report is not about the faults of the past but the opportunities for the future. Its
purpose is to stimulate and encourage good procurement practice. There are bound to
be risks associated with changing established practices but I am convinced that these
risks can be managed and minimised. Fear of such risks should not be allowed to
stifle innovation (National Audit Office, 1999, p. 1).

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The NAO Report distinguished between strategic, non-strategic and routine
procurement in the following terms:
Strategic items are those essential to the achievement of departments' key outputs for
example, the development of a major computer system to process and pay grants or
benefits...
Non strategic items are high volume contracts for goods and services that are easier to
specify and are not especially critical to the delivery of a department's key output.
Examples might include expenditure on travel or bulk orders of stationery.. .Routine
items refer to the ad hoc purchase of low value items, such as a book, periodical or an
item of stationery.
Measures to improve the efficiency of non-strategic and routine procurement
were outlined:
The Government Procurement Card, electronic procurement and framework
agreements can all help to reduce purchasing process costs and release procurement
staff's time to target their expertise on higher value, more strategically important
goods and services. As yet, however, despite a major promotion campaign, there is
considerable scope for departments and agencies to adopt these initiatives. The Office
of Government Commerce should promote greater take-up of the Government
Procurement Card in those agencies and non-departmental public bodies most likely
to benefit significantly from using it. (National Audit Office, 1999, paras 3.13 and
3.14).
In relation to strategic procurement, six Value for Money or best practice
principles were identified (National Audit Office, 1999, p.6)
1. Have a Procurement strategy
This should include:
an analysis of the key goods and services, and their cost, which the department or
agency needs to deliver its outputs; an assessment of the way in which these goods are
purchased; the performance of key suppliers; and the scope for price reductions and
improvements in quality of service. The strategy should also consider the performance
of the department's purchasing unit and the potential to reduce processing costs
through for example, using electronic commerce, procurement cards and framework
agreements... The strategy should consider the scope to adopt innovative approaches to
improve procurement while reliably managing associated risks. The private sector
companies we consulted told us that because procurement can have a significant
impact on profits senior managers frequently consider its performance, expect regular
reports and will consider strategically important procurement issues such as long term
relationships with key suppliers. (National Audit Office, 1999, para 2.9)
Departments were also encouraged to 'give procurement staff the authority
and management backing to influence all purchasing' (National Audit
Office, 1999, p. 12), as outlined in Gershon's definition above.
2. Early involvement ofprocurement
The report found that procurement staff are brought into the procurement
process too late after key decisions have been taken, and outlined the
importance of early planning:

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 Early planning so that contract specifications for strategically important goods and
services are clear and unambiguous is essential. Other benefits of planning early are:
* The procurement contract can more easily be tailored to customers' needs...
* Departments' and agencies' bargaining power is increased.
* Reliable risk management can be put in place.
* More time can be devoted to getting performance monitoring arrangements right.
(National Audit Office, 1999, para 2.13)

3. Actively manage contracts

The Report stated that ensuring a high level of performance for all- types of
high value and strategically important procurement requires active contract
management by departments and agencies.
This involves ensuring that reliable and comprehensive information is available to
monitor the performance of the contractor, and taking action quickly when delivery,
price and quality is at risk. Contract management also requires a clear understanding
of shared responsibilities so that when the client department has agreed to provide
facilities, support or other inputs essential f6r the supplier to meet the terms of the
contract these are provided at the right time. (National Audit Office, 1999, para 2.15)

4. Think about the supply chain

The Report recognises that suppliers will have their own suppliers, and that
non-performance, poor quality or late delivery by one supplier in the chain
can ultimately put the service provided by the main contractor to their client
at risk. In contrast to the public sector:
The private sector therefore place much emphasis for strategically important contracts
on knowing the supply chain of their key suppliers and seek assurance from them that
it is well managed and that the risk of non delivery or poor performance at any point
in the chain is minimised. Industry also consider effective supply chain management
to be key to reducing costs and improving product quality. (National Audit Office,
1999, para 2,20)
The report found that a supply chain management approach is more
likely to be useful for departments and agencies when:
* The existing supply market is organised in the form of a chain or network for
example, major equipment purchases, major service contracts such as
cleaning, and construction.
* There are significant logistics or distribution aspects to the contract for
example delivery of suppliers to dispersed users such as local offices.
* The procurement is high profile or sensitive requiring close and active over
view by contract managers for example, major equipment, IT and construction
projects. (National Audit Office, 1999, para 2.24)
Whilst the costs of adopting supply chain management may be very high and
need to be assessed in terms of the likely benefits, obtaining assurances from
key suppliers that they are actively managing their supply chains to reduce
costs and improve quality, and that this is reflected in the prices they pass on
to departments and agencies, will in many cases be sufficient.

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5. Seek continuous cost and quality improvements
Working closely with suppliers can drive costs down and improve the quality
of complex, longer-term contracts for services or products. According to the
NAO, it does not necessarily mean increasing the risk of financial
impropriety if appropriate oversight mechanisms are in place, for example
clear definition of responsibilities and proper monitoring of supplier perfor-
mance.
The Driving Standards Agency contract for the Theory Driver Test is
cited as an example of good practice in its use of contractual incentives to
encourage a high level of performance (Appendix 2). They introduced over
20 performance measures into the contract covering four main areas:
* Availability - providing a service that meets the needs of driving test
candidates
* Responsiveness - dealing with candidates in a timely and efficient manner
* Reliability - providing an accurate and reliable service
* Service - paying over test fees and providing accurate information to the
Agency on time
The final contract specified a sliding scale of liquidated damages which the
supplier would have to pay subject to a maximum of £60,000 a month. In the
37 months of operation to July 1999, the Agency had received a good quality
of service overall, but also received liquidated damages of £314,500
(National Audit Office, 1999, pp. 41-2).
6. Monitor performance
Finally, the importance of performance monitoring is highlighted:
If departments and agencies are to have assurance that they are getting the best deal
from their procurement of goods and services in terms of price, quality of service and
supplier performance they need to have reliable information and systems to assess the
performance of all stages of the procurement process...The Gershon Report identified
the lack of reliable systems to monitor performance as a fundamental weakness.
(National Audit Office, 1999, para 2.34)

Conditions of Success
However, Sir John echoed Peter Gershon in arguing that it was not sufficient
to know what best practice procurement is: he identified a number of
conditions necessary for putting it into practice.
1. Know what you are doing
Know what you want: it is important for the purchaser to think and know
what they want because this can be relayed to the supplier. Know the market:
who are the suppliers, also could there be a monopoly which impacts on the
buyer's negotiating power and control? Different strategies are required for
different goods and services

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2. Partnership
Procurement is a Partnership not a Zero-sum Game: it is not a matter of
winners and losers, nor about not winning a battle. Success depends on
partnership.
3. Professionalism
Procurement is a Profession not just an activity. Previously procurement was
regarded as 2nd division, not for the smartest civil servants. The general
attitude was 'just pick it up - anyone can do it', a very different approach
compared to accountants. Procurement needs support in terms of profession-
alism. Successful professionalism does not come on the cheap. Better results
can be achieved with a small number of highly trained staff than a large
number of untrained staff on the cheap.
Sir John cited as an example the experience of developing pan-American
contracts by a conglomeration of healthcare purchasers across Brazil,
Colombia etc. This was not an unwieldy bureaucracy but with professional
training the collaboration managed to work across national boundaries and
achieved better and lower cost public services. This is a good example of
joint procurement practices which impacted on the welfare of citizens and
shows the importance of procurement to the quality of public services.
The papers included in this Special Edition
Three of the papers presented at the Conference have been revised and
refereed in the normal way prior to being accepted for publication in this
Special Edition. The issues raised by Peter Gershon and Sir John Bourn in
relation to best practice procurement and its implementation are analysed
and developed by Erridge and Greer in relation to UK central government
procurement, and by Glaister and Colman in relation to PFI/PPP projects.
Erridge and Greer provide a policy network analysis of the three major
civil procurement policy initiatives in UK central government between 1995
and 1999. Glaister's paper presents a critical analysis of the government's
plans to use PFI to fund the London Underground following the election of
the new Lord Mayor of London. Colman identifies the 'four pillars' of issue
analysis developed and used by the NAO to test value for money in Private
Finance Initiative /Public Private Partnership (PFI/PPP) projects, and
provides a more positive examination of the outcomes of PFI projects to
date. In addition there is a paper by Tony Bovaird, Professor of Strategy and
Public Services Management at the Bristol Business School, University of
Western England, on the implications of the Best Value pilot projects. Tony
originally intended to give a presentation at the Conference, until he was
invited to the 15th Meeting of the UN Committee of Experts on Public
Administration and Finance, on the topic of 'Globalisation and the State',
which was taking place at the same time. Thus the papers included in this
Special Edition cover procurement policy and its implementation in central
government departments and agencies as well as local authorities.

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 In terms of achieving value for money (or best value) from procurement,
the principal message of the papers is the importance of relationships
between:
* procurement staff, budget holders, internal and external auditors and
senior departmental managers (Erridge and Greer in relation to UK central
government, Bovaird in relation to local government);
* contracting authorities and their suppliers, especially of strategic goods
and services (Erridge and Greer, Bovaird), PFI/PPP projects (Glaister,
Colman) etc;
* central and local government, generally in relation to best value (Bovaird),
and particularly with the new London Mayor and Authority in relation to
funding the London Underground (Glaister).
Establishing and maintaining effective relationships is critical to achieving
the improvements identified by Peter Gershon and Sir John Bourn and
recommended in the reports referred to above.
References
Gershon, P. (1999), Review of Civil Procurement in Central Government, (London:
Cabinet Office).
National Audit Office (1999), Modernising Procurement, (London: Stationery
Office).
Treasury (1995), Setting New Standards: A Strategy for Government Procurement,
Cm 2840 (London: HMSO).
Treasury / Cabinet Office (1998), Comprehensive Spending Review on Efficiency in
Civil Government Procurement Expenditure, (London: HMSO).

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