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Smarter purchasing

Tuesday November 3rd, 2009

By Caroline Gardner, Deputy Auditor General for Scotland

Caroline Gardner outlines the progress that Scotland’s public sector has made in improving its purchasing of goods and services and explains why increased collaboration between public sector bodies will be needed in the future.

Since summer last year, Scotland’s economy has been in recession. We expect there will be significant financial constraints on Scotland’s public services in future years and the scale of the challenge means that all opportunities to save money, while delivering quality services, need to be actively pursued.

Public sector spending on goods and services in Scotland is £8 billion a year – around a quarter of the Scottish budget. Local government and the NHS spend around three-quarters of the total and spending covers everything from specialist advice through to IT equipment and furniture. Improving how these goods and services are purchased provides the public sector with a good opportunity to reduce costs while maintaining or improving services.

In July 2009, the Auditor General for Scotland and the Accounts Commission published a report Improving public sector purchasing. The report provides a high-level assessment of the Scottish Government’s programme, introduced in 2006, to improve purchasing and achieve savings across the whole of the public sector in Scotland.

Since 2006 there has been staedy progress in introducing changes to help improve purchasing, for example clearer purchasing guidance, the establishment of new purchasing centres of expertise to support collaboration between public bodies, and greater use of IT to increase efficiency.

The Scottish public sector has made substantial savings, including around £327 million that may be attributed to the public procurement reform programme for the two years to 2008. Against these savings, the programme has cost £61 million to implement so far. However, some parts of the programme have been delivered later than planned and it is not clear that it has yet achieved the full impact envisaged at the start. The potential remains to deliver more savings while maintaining or improving the quality of public services.

The need for greater collaboration

To deliver the best results public bodies need to work together. If they do so there is potential for more savings, by reducing demand through better control and planning and from the collaborative purchasing of commonly used goods and services.

However, collaborative working can be challenging, not least because public bodies may have similar but not identical needs and therefore combining their requirements may involve a degree of complexity. Also, public bodies need to take account of wider policy objectives. For example, they need to consider their effect on small and medium-sized enterprises if they change the way contracts are specified.

As Rob Worrall of the National School of Government in Scotland said recently: “Collaboration does not lie just off easy street. Success will depend on patience, tenacity, empathy and being able to hold difficult conversations.”

The Scottish NHS has been working on improving purchasing since at least 2003, and has performed relatively well in this area. Collaborative contracts set up by its centre of expertise, National Procurement, have achieved significant savings. Between 2006 and 2008 National Procurement introduced 150 new collaborative contracts for common requirements such as rubber gloves, providing savings of some £54 million. By comparison, the rest of the public sector has managed to introduce only 45 new collaborative contracts in the same period with full savings yet to be reported.

There is clearly scope for other sectors to learn from the success of NHSScotland. One area of likely interest is the well-established benefits planning and tracking system that National Procurement uses to help identify, deliver and report savings from collaborative contracts. This system involves a systematic annual cycle of planning and reviews in collaboration with NHS bodies (see Table 2).

The need for better information

In general public bodies have high expectations of longer-term savings and other benefits as more and improved collaborative contracts are developed. It is essential that public bodies individually experience expected benefits, in particular savings.

However, our report highlights that savings attributable to the reform programme were not straightforwardly identifiable. At the time of our report, only 41 of 177 bodies had used the Best Practice Indicators originally intended to measure savings and other aspects of purchasing performance. To improve purchasing, public bodies need to have better information and management systems in place.

Staff development

It is also essential to have people with the right skills to act and think in new ways and to introduce new systems and approaches. Shortages of skilled purchasing staff and high staff turnover have been a problem, though the Scottish Government is taking action, in consultation with public spending bodies, on staff recruitment and development. This includes introducing a staff development programme for purchasing personnel, improving training opportunities with the Chartered Institute of Purchasing and Supply and introducing competency guidelines to help public spending organisations recruit the right people and develop the skills they need.

Audit Scotland recommendations

Our Improving purchasing report makes a number of recommendations for the Scottish Government and the wider public sector in Scotland. These include improving public reporting; revising potential spending targets; coordinating work on staffing; and improving the use of – or, in some cases, starting to use – Best Practice Indicators, to support decision-making and benchmarking among public bodies.

Next steps

The aim of our report was to provide a strong baseline position against which future performance could be evaluated. We have provided all auditors of public bodies with information packs to help them follow up progress locally. In addition, we intend to carry out Best Value reviews of the centres of expertise and we will revisit this whole area in a follow-up national study to examine how public bodies have implemented our recommendations.

The Scottish Government recently launched a purchasing capability assessment tool to improve public bodies’ understanding of their purchasing strengths and those areas requiring improvement. This tool should further enable the sharing of experience and best practice.

When we revisit this area, the Auditor General and the Accounts Commission expect to find improving purchasing practice and more financial savings. The challenge will be to demonstrate that consistently high standards are being achieved across the public sector and that maximum potential benefits are being realised.

Further information

The Audit Scotland report Improving public sector purchasing is available at: www.audit-scotland.gov.uk

The Scottish Government’s purchasing assessment tool is available at:

www.scotland.gov.uk/Topics/Government/Procurement/Resources/PCA

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