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Monday, July 15, 2013

A penny saved is a penny earned

Benjamin Franklin is credited with the saying in the title to this post. He's also quoted in the following story, but I hadn't heard this one before. Loose lips, yes, but small leaks?

UK public procurement most expensive in EU
"Beware of little expenses. A small leak will sink a big ship." The words of Benjamin Franklin, one of the founding fathers of the United States, are as relevant today as they were in the 18th century. In fact, they are eerily true when considered in the context of government procurement.

Public sector procurement in the United Kingdom is certainly a big ship. It accounts for some £230bn of public funds each year. And as for the leaks? Fresh research released by the Centre for Economics and Business Research has found that the UK has the most expensive public procurement processes in the European Union. The cost to a public sector body to attract a bid from a potential supplier in a competitive process is £1,260.

This leads to the question of why the UK is such an expensive place to conduct procurement processes.

Combined with high labour costs, the length of a typical competitive process plays a critical role in increasing the cost of public procurement on both the buy-side and sell-side. The public sector purchasing process was found to be 53 days longer than the EU average.

Higher costs are obviously bad news for government departments that are fighting budget cuts, but the high cost of procurement also has more indirect negative effects. Expensive processes create barriers to entry and dissuade firms from taking part. The net result is that fewer firms submit tenders, reducing choice and competition, and therefore value, for public sector organisations looking to award contracts.

But all of this is about to change. In 2016 the European Commission's ruling mandating e-procurement for all European public sector organisations will come into force. The savings are predicted to be substantial: in the region of £30bn according to some estimates. These cost reductions will come in part from better management of costs and improved spend analysis enabled by e-procurement. But as well as cost savings, the widespread introduction of e-procurement will bring benefits such as greater transparency, a reduction in procurement fraud, plus faster and more cost-effective purchasing and bidding processes.

The UK public sector already has e-procurement frameworks, such as CloudStore, which private sector companies are compelled to join to ease the process of selling to public sector organisations. However, some firms feel the accreditation process for joining is still too stringent to justify the allocation of limited resources. For e-procurement to enable greater competition and lower costs for buyers and sellers, these barriers need to be removed. If the government can make best use of these new platforms, it could soon be plain sailing for public and private procurement.

Read more:
We'll see, and hope for the best.

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