How can we “think rural” in public procurement?
Public procurement is the process by which public organisations buy and rent services or functions rather than provide them internally. If the over-riding requirement is that all public procurement must be based on value-for-money and achieved through competition (unless there are compelling reasons to the contrary); how can we ensure procurement has a positive impact on rural communities? Jessica Sellick investigates.
How do public bodies undertake procurement? There are three policy purchasing responsibilities placed on public bodies. Firstly, to offer value for money, defined as “the best mix of quality and effectiveness for the least outlay over the period of use of the goods or services bought”. The process normally comprises a competitive tendering process; whereby a public body says what it wants to buy and various organisations provide competing offers to supply those goods, works or services. Secondly, to ensure compliance with legal obligations under UK, EU and international agreements. There are three elements to the current legislative framework covering procurement: (a) EU Treaty principles – these set out general requirements such as advertising opportunities and opening these up to suppliers located in other Member States; (b) EU Directives and the UK regulations that implement them – these provide procedures and thresholds in line with the Treaty; and (c) UK-specific procurement legislation – including The Public Contracts Regulations 2015 which contains UK specific rules intended to make public sector procurement more accessible to small businesses. Thirdly, to follow Crown Commercial Service (CCS) policies and standards on public procurement.
For public bodies these regulations set out the money thresholds that apply and procedures to follow during the procurement process. These include: (i) the open procedure – a one stage process during which parties submit a written tender and a supplier is chosen. (ii) The restricted procedure – a two stage process comprising initial selection (using a selection questionnaire), followed by an assessment of technical capability [an Invitation to Tender] which may include an interview. (iii) Competitive procedure with a dialogue and rounds of discussion and submission of information. There is also flexibility for public bodies to use other procurement routes including competitive procedure with negotiation, competitive dialogue and/or an innovative partnership.
How much do we spend on public procurement? The UK Government spends £251.5 billion per year on outsourcing and contracting – this is equivalent to 13.7% of UK GDP or one-third of all public spending (excluding utilities). Expenditure on gross procurement increased by 5.2% in 2016-2017 compared to 2015-2016; and gross capital procurement increased by £1.3 billion (3.8%) over the same period. Since 2010 central Government has moved to a system which buys common goods and services once on behalf of the whole of Government rather than individual departments. The CCS provides documents to assist public sector buyers to think through and identify the most appropriate procurement route for their requirement as well as supplier support, including different ways to sell goods or services to the public sector.
What does ‘good’ procurement look like? HM Treasury offers guidance on how to manage public funds. Around value-for-money this includes ensuring that the organisation’s procurement, projects and processes are systematically evaluated to provide confidence about suitability, effectiveness, prudence, quality and good value (judged for the Exchequer as a whole). Where feasible, procurement through multi-purchaser arrangements, shared services and/or standard contracts to drive down prices is also encouraged. The Government Commercial Function (GCF) is a cross-government network comprising some 4,000 civil servants procuring (or supporting the procurement of) goods and services. Activities are coordinated by the Government’s Chief Commercial Officer (CCO). The GCF sets commercial standards for Government, ensuring ‘effective and consistent commercial delivery, and to drive continuous improvement of that commercial capability’. The standards cover workforce/resources, planning, identifying a senior officer to oversee the process, early analysis of options, maximising competition, contracting, contract management and supplier relationships.
In this policy context the focus of public procurement is on driving competitiveness and innovation in ways that lead to efficiency in public spending.
The National Audit Office (NAO) estimates that when Carillion collapsed it had 420 contracts with the public sector – while the Local Government Association (LGA) calculated that 20 Local Authorities and 220 schools were directly affected by the collapse. In 2017 Carillion was the sixth largest supplier to the public sector. In June 2018, the East Coast rail service was temporarily renationalised (as LNER) when Virgin and Stagecoach could no longer meet payments as part of their £3.3 billion contract with the Government. In September 2018 Grant Thornton published its audit report following the identification of a significant fraud committed by a former member of staff at Regional Enterprise Ltd, a company set up by a Local Authority and Capita.
These instances remind us that when public sector organisations let contracts or set up arm’s length companies it does not dissolve them of responsibility – they do not outsource the risk. Indeed, if the supplier is unable to deliver the contract the risk goes back to the public sector organisation responsible for ensuring the service is delivered. This means public sector bodies need systems in place to track and manage performance under the contract to avoid such situations from emerging – or to mitigate them should they arise.
These instances remind us that procurement is often a document based exercise – with those who procure services not necessarily involved in the services that are being used or sought. On the one hand, there is no formal training required for people assessing bids. On the other hand, if the process is solely overseen by people who specialise in procurement they may not understand, in practical delivery terms, what is needed? This underlines, therefore, the importance of involving different departments, teams, service areas, officers and elected members in the procurement process. This also underlines the importance of understanding supply chains (and the behaviours of large, medium and smaller suppliers up and down the chain).
The use of online procurement portals for organisations to express an interest in bidding, download documents, submit documents, ask questions and/or be notified of the outcome can also lead to the exclusion of some potential suppliers – particularly in a rural context with a higher number of small and medium sized enterprises and poor broadband coverage in some areas.
Overall, there are some trade-offs emerging here: should you disaggregate a larger contract into smaller contracts? Who should be involved in procurement within the public body and at which steps of the process? Should a public body procure on cost and how/where does quality fit?
If public bodies were to use procurement for rural good, what might this look like? The challenges of providing public services in rural areas are well-rehearsed among RSN members: rural areas receive some 49.2% (£123) per head in Settlement Funding Assessment grant less than their urban counterparts; yet rural residents pay approximately 20.17% (£91) per head more in Council Tax even though they earn less than their urban counterparts and receive fewer services. While procurement cannot overcome some of these central decisions about local government funding; for me there are four steps that could be incorporated into the process to more fully recognise rural circumstances. Firstly, choice: developing procurement mechanisms that fit the needs and desires of rural localities (sparsity) – acknowledging that there may be fewer providers wanting or able to deliver in rural areas. Secondly, design: there is a long standing tradition of rural communities taking action to provide a wide range of services that in urban areas would be provided by the market or by the state. The procurement process should seek to involve rural residents in the process (what are their perspectives and preferences)? This also means recognising market failure and identifying alternative models which fit rural circumstances. If the procurement process is often influenced by the type of service to be offered and the level of resource available (cost) in a rural context it means thinking through different and innovative options. Thirdly, delivery: this means having robust processes and monitoring in place to measure the impact and effects (including ‘rural proofing’). Fourthly, assessment: is the intervention that has been procured any good (what is working well and what is working less well in rural areas) and if the service isn’t benefitting rural communities what can be done to improve the offer?
Where next for procurement? In June 2018 the Government announced changes to extend the scope of the Public Services (Social Value) Act 2012. Designed to rebuild trust after the collapse of Carillion, the package of measures proposed are designed to reform public sector outsourcing so that central Government bodies must not only consider social value when procuring public service contracts – but that they must specifically evaluate social value. Other proposals include: challenging suppliers to publish data and action plans on equality and diversity; requiring suppliers to develop ‘living wills’ setting out contingency plans should the business fail; improving the training given to Government purchasers and implementing enhanced measures to protect suppliers from cyber-attacks.
The real debate needed now is not whether outsourcing or insourcing is good or bad, but about which services, goods and works should be kept in-house and which should be external? Above all, how can the procurement process help us deliver locally responsive services that fit rural circumstances – and in ways that balance cost, efficiency, quality and outcomes?
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Jessica is a researcher/project manager at Rose Regeneration and a senior research fellow at the National Centre for Rural Health and Care. Her current work includes helping public sector bodies to measure social value; evaluating a hospital avoidance service; and undertaking a piece of work on migration. In her spare time Jessica sits on the board of a housing association. She can be contacted by email jessica.sellick@roseregeneration.co.uk or telephone 01522 521211. Website: http://roseregeneration.co.uk/ https://www.ncrhc.org/ Blog: http://ruralwords.co.uk/ Twitter: @RoseRegen
