PROCUREMENT
Sensible procurement policy is about far more than just setting up a tender process and picking the cheapest offer. Sonya Branch, of the Office of Fair Trading, explains the importance of the level playing field.
T
he Office of Fair Trading (OFT), which has long had a role in making markets work well and effectively for consumers, is turning more and more of its attention onto public service markets.
Sonya Branch, senior director for services, infrastructure and public markets at the OFT, told NHE that the restrictions on fair competition often found in public markets can be “more intractable, and have a wider and more damaging impact over time on the UK economy”, than the anti-competitive agreements and cartels sometimes found in the private sector.
She explained: “If Government is involved in a market, there’s got to be a level playing field. It may be more difficult if there is an incumbent, Government-backed provider, and it might be more difficult for smaller but more innovative new entrants. It may be that regulation, created with the best inten- tions in the world, creates barriers to entry for other players.”
The OFT’s new approach, set out before the Coalition Government came to power, still tallied well with the reform agenda set out by ministers, such as introducing more competition from the private and third sectors into public markets and a greater emphasis on choice, public information and transparency.
Branch told us: “There’s far greater demand in some ways for the OFT’s skills in relation to some of that reform agenda. We look at it from two angles; we’ve always looked at markets from the ‘supply side’, that is, what’s Government’s role in regulating pub- lic market providers? We’d look at what bar- riers to entry there may be for new entrants, for example. But, the angle we have started to investigate, which has become particu- larly relevant recently, is the ‘demand side’ – how you get ‘activated’ consumers.
“This applies across most of the reform agenda but especially in health. Achieving patient choice is particularly important.
“We’re particularly concerned to ensure competition is fully understood within pub- lic markets; it’s very hard to capture the long-term impact of short-term decisions that may have an impact on competition.
58 | national health executive May/Jun 11
“Over a number of years, we’ve done work around how consumers make decisions, starting in private markets, then moving more generally to public markets, and in behavioural markets. We’ve done a lot of analysis that tells you that effectively there is no ‘standard consumer’, and they are not as rational as you may think they are or should be.
“We took that information into public mar- kets. We did a lot work in relation to the Health and Social Care Bill advising the De- partment of Health around some of the dif- ficulties you have in bringing genuine choice to the health agenda because of the nature of the choices being made and the involve- ment of patients.”
The OFT has also been working with the Cabinet Office and Department of Business, Innovation & Skills, around choice tools – for example, price comparison websites and consumer feedback.
Its most recent report, ‘Assessing the im- pact of public sector procurement on com- petition’, part of its wider investigation into commissioning and competition in the pub- lic sector, has some clear messages on pro- curement policy for the health sector and public services more widely.
But there remains an inherent tension be- tween the urge of some in public markets to seek ever more aggregated, large-scale, long-term contracts – and the potential sav- ings these appear to offer – and the kinds of contracts recommended by the OFT, with a greater emphasis on flexibility, smaller and more innovative suppliers, contractors with the abilities even if not the experience, and a more open-minded attitude to potential suppliers.
Branch explained: “There needs to be more of a balance. We came into this debate being conscious that a lot of the public sector pro- viders, when they were going out to procure, would understand competition to in effect be having a tender where there’s more than one applicant and, there, you’ve achieved competition.
“But this is an example of why the OFT started to place a greater focus on public markets in the first place. It’s because
of exactly those difficulties, where the short-term benefits will often crowd out the longer-term advantages, and what we would describe as ‘dynamic efficiencies’ – that is, how do you quantify the benefits, in the future, of not going for the cheapest option now but a more nuanced option, or a disaggregated contract allowing a greater amount of competition up front. How do you quantify the benefits of that in the long term and compare the two?”
The OFT, in its report, produced a number of case studies to show real-life examples of its recommendations on sensible procurement.
“Ultimately,” Branch stated, “the OFT can produce a number of theoretical pieces, but particularly in something like procurement, the important thing is having a practical message.
“For example, we were able to show by the work done by the pensions delivery author- ity how you can dis-aggregate and unbun- dle larger contracts to end up getting what would be recognised as a very good, com- petitive outcome, in the sense that you can bring in new providers, achieve greater ef- ficiencies and greater innovation sooner in the life of the contract, and also avoid some of the pitfalls.”
A key theme of the report is the problem of barriers to entry to public markets to pro- viders who may have effective and innova- tive solutions to offer.
NHE asked Branch whether this tended to be because of a risk-averse, over-sensitive reading of guidance on procurement prac- tice, or because of a conscious effort by some to keep the same people doing the same jobs, whether from within that public sector organisation or a tried and tested ex- ternal company.
She said: “We didn’t get the idea that there was anything other than at times a procure- ment ‘skills gap’; that would be more along the lines of people not really recognising or being fully educated on the impact of competition, as perhaps the OFT would be! Many just had a real concern to comply with what were understood to be the relevant procurement regulations.
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