In its report printed on 22 July 2024, the NAO, the independent body responsible for scrutinising Parliamentary expenditure, examined the efficiency of central purchasing of common goods and services, commenting that the "decentralised" procurement procedures in the UK is "leading to missed opportunities for greater efficiency" in public procurement.
Background
Under the Public Contracts Regulations 2015, public authorities can purchase goods and services via conducting a procurement competition, or through use of framework agreements which provide a list of pre-selected suppliers from which public bodies can award work by way of further competition or via direct award. Whilst bringing in a number of changes to the procurement regime in England and Wales, the Procurement Act 2023 also permits these mechanisms for purchasing goods and services in the public sector, albeit in a slightly different manner.
NAO Report
Framework agreements have become increasingly popular over recent years, with the government procuring 72% of its large contracts via frameworks in 2021-22, compared to only 43% in 2018-19. Both the Public Contracts Regulations 2015 and the Procurement Act 2023 provide for public bodies to act as a 'central purchasing body' (CPB) or a 'centralised procurement authority' (CPA), respectively. This means that CPBs and CPAs can establish framework agreements that other buyers in the public sector can utilise to purchase a variety of goods and services.
However, in its recent report investigating the efficiency of centralised purchasing of goods and services via framework agreements, the NAO has criticised that "this fragmentation prevents the government from acting as a single buyer across numerous categories of common goods and services, resulting in duplication of effort and increasing bidding costs for suppliers."
The NAO expressed concerns that the government has insufficient oversight of existing frameworks agreements and their respective providers, which creates a risk that providers prioritise growth in spending over improving value for money, and results in a failure to seize opportunities for greater efficiency.
Private framework providers (operating framework agreements on behalf of public authorities) typically levy an operational charge on suppliers, which is as much as 6% of the value of contracts they are awarded under the frameworks. The use of private framework providers is another concern for NAO, who note in the report that such utilisation raising questions regarding how they provide value for money at a systematic level. Indeed, the Crown Commercial Service (CCS), the largest CPA and framework provider measured by volume of spend – and whose main purpose is to help achieve better value for money in public sector procurement, also generates the majority of its income through a 0.7% levy charged to suppliers. As acknowledged by the NAO, providers therefore "benefit from higher levels of public expenditure as this increases their income from levies, commissions and charges".
The NAO notably added that, by halving the CCS levy to 0.35%, instead of using it to distribute surplus via dividends and payment schemes, we could see savings in the public sector of £500 million in costs over the next five years.
Recommendations:
The NAO goes on to suggest changes to combat those inefficiencies, recommending that:
(a) the Government Commercial Function (GCF), leader of procurement policy, should urgently "publish a playbook or good practice guidance for framework agreements…the aim being to achieve fewer frameworks, lower levies and commission rates and improve the quality of frameworks and framework providers";
(b) "GCF should introduce a methodology that allows for consistency in data collection and reporting";
(c) "The Cabinet Office should develop a mechanism for monitoring and addressing non-compliance";
(d) "CCS should now focus on delivering an efficient central purchasing system for the UK public sector", through aligning its purpose of improving value for money with its strategy; and
(e) "CCS should put in place appropriate commercial capability, make better use of the data already available within the procurement system and identify opportunities for innovation and more effective competition in the wider market wherever feasible."
Conclusion
With public sector spend on procurement reaching £393 billion in 2022-23, of which the purchase of common goods and services makes up £125 billion, the NAO findings and recommendations are not to be overlooked.
Please do get in touch if you would like to discuss any of the issues raised in this article or any other matters related to public sector procurement.
Authors: Jessica Harrison, Claira Rodden, Colin Murray, Ciaran Wells.
