PROCUREMENT
“However, they would thereby lose the abil- ity to see the broader picture, have a bit of creativity, or be prepared to have an appe- tite for innovation or examine the need for a new, smaller provider. We saw over time that people ended up having a quasi-incum- bent provider, or a regional provider who won all the framework contracts; all the fa- cilities management contracts for example.”
A potentially controversial idea raised in the OFT report is to level the procurement play- ing fi eld between the public and private sec- tors by ‘balancing liabilities’ – that, is, tak- ing account of the true costs of things like pensions and health & safety insurance in internal public sector bids when compared with their private sector counterparts.
Branch said: “We previously started on this work well before we had the Coalition Gov- ernment and its new agenda. We did a se- ries of reports from 2009 onwards, starting out by setting out the role of governments in markets and the A-Z of how government can be active within them. We then did a piece on competitive neutrality and level playing fi elds, saying that if you are going to have a market where you’ve got private and public providers you have to achieve a level playing fi eld, because otherwise you’re not going to be able to eventually have effec- tive competition. You just effectively protect your incumbent.
“We found there are some inherent benefi ts about these public sector providers; benefi ts around tax treatment, for example, that mean no matter how effi cient and
innovative and competitive a new private sector entrant’s offering is, they’re at a disadvantage.
“Subsequently, we were very closely in- volved with BIS on its Growth Review which led into the Budget, and again we fl agged up, and it was picked up with quite a lot of political appetite, this issue around achiev- ing competition.”
Could individual procurers make this deci- sion for themselves and start using such different metrics when examining potential bids?
Branch thought not. She said: “We think it would need some sort of Government backing; it would have to be done on a far more wide-ranging policy level, rather than simply done incrementally in various places. In saying that, there are individual examples with regards to certain contracts where these liabilities have been taken into account, and these are highlighted in our report.
“The Ministry of Justice, for example, did some tenders in which it effectively levelled the playing fi eld itself through the way it went into the process and was thereby bringing in new entrants, because it had a far more nuanced way of balancing the applicants.”
Some in the health sector will be wary of the political, legal or public fallout from making procurement and competition decisions that at fi rst glance seem not to be
the cheapest or the best value for money – because the long-term benefi ts outweigh the short-term costs.
Branch said: “We understand that it’s a dif- fi cult task to be able to capture and equate and calibrate the various effi ciencies that you might be losing in the longer term from those short-term decisions. What we were trying to achieve with this report was to give some ‘easy narratives’ that local government procurers, health procurers and government departments could use to explain to their teams why they should be more broad-minded about the way they ap- proached those procurement decisions.
“There are some very clear lessons about making decisions on a contract-by-contract basis and considering much more carefully the ‘switching costs’. You might go for the cheapest option, but if you’ve got enor- mously high switching costs as a result, then you’ve tied yourself down, and that might lead to medium or longer term costs. For example, with facilities management con- tracts, because of the way they tie people in with high switching costs, it could mean paying £2,000 to move a plug socket, which could have been self-supplied for under £100.”
Sonya Branch
FOR MORE INFORMATION The full series of reports is available at
www.tinyurl.com/3o497fg
The OFT wants a level playing fi eld between the public and private sectors
national health executive May/Jun 11 | 59
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