Select Committee on Public Accounts Thirty-Third Report


1   Creating a 'fit for purpose' OGCbuying.solutions

1. OGCbuying.solutions is an executive agency of the Office of Government Commerce and is also a trading fund. It has four annual performance targets (Figure 1).
Figure 1: OGCbuying.solutions' performance targets
Target area 2005-06 target 2006-07 target
Value for money savings To facilitate at least £400 million value for money improvements for the wider public sector To facilitate at least £500 million value for money improvements for the wider public sector
Customer satisfaction To achieve levels of customer satisfaction above 90% To achieve levels of customer satisfaction above 90%
Return on capital employed To make a return on capital employed of 6.5% To make a return on capital employed of 6.5%
Internal efficiency To reduce by 5% the ratio of internal costs over the value for money improvements compared with the outturn for the same ratio in the previous year To reduce by 5% the ratio of internal costs over the value for money improvements compared with the outturn for the same ratio in the previous year

Source: OGCbuying.solutions annual report and accounts 2005-06

2. In the last three years OGCbuying.solutions has exceeded its value for money savings target by £32 million in 2003-04, £21 million in 2004-05 and £12 million in 2005-06.[2] It has, however, potential to increase significantly its annual savings by between £520 million and £660 million over a three to five year period.[3] Doubling market penetration would increase annual savings by £400 million, while reducing prices on high volume framework agreements to below the lowest 25% of public sector prices would increase savings by a further £120 million to £260 million a year.

3. OGCbuying.solutions operates a set of products (the Government Procurement Card and Memoranda of Understanding) that do not raise revenue and, therefore, fall outside its target to make a return on capital employed, meaning that there is a conflict with maximising take up of the products and the value for money savings across the public sector.[4] The Government Procurement Card, in a similar way to a credit/debit card, provides a streamlined process for low value, ad hoc purchases.[5] OGCbuying.solutions manages several Memoranda of Understanding with major suppliers for software and telecommunication services which provide public sector organisations with specific price guarantees.[6]

4. Sales through the Government Procurement Card and Memoranda of Understanding have grown significantly in recent years,[7] but there is potential to significantly increase sales. For example, 47% of central government organisations surveyed did not use the Microsoft memorandum of understanding and 25% of these organisations were unaware of it.[8]

5. The Government Procurement Card and Memoranda of Understanding provide significant value for money savings for the public sector. Whilst these products contribute to OGCbuying.solutions' value for money savings target they do not raise revenue for OGCbuying.solutions and therefore resourcing the marketing of these products works against the return on capital employed target.[9]

6. Zanzibar does raise revenue for OGCbuying.solutions, but the prices charged for the service are affecting the take up of the product, particularly in executive agencies and non-departmental public bodies. 94% of central government organisations surveyed did not use Zanzibar. Of the organisations not currently using Zanzibar, 15% of executive agencies and 21% of non-departmental public bodies cited cost as the reason.[10] In addition, Zanzibar has had a series of red Gateway Reviews related to the resourcing of the project.[11] The new Chief Executive of OGCbuying.solutions, appointed in October 2006, has instigated a review of Zanzibar, which is due to report in Spring 2007.[12]

7. On 23 January 2007 the Treasury unveiled a range of public procurement reforms which included the Office of Government Commerce's 'single approach to sourcing'. The Office of Government Commerce will identify either OGCbuying.solutions or a relevant department—generally the one that has the largest spending for the category—to lead on behalf of the rest of government in buying a range of commonly procured goods and services.[13] OGCbuying.solutions will lead on certain product category areas,[14] but will need to demonstrate that it offers the best deals in these areas.[15]

8. OGCbuying.solutions operates 180 framework agreements.[16] 91% of customer sales through framework agreements are undertaken through only 25% of framework agreements[17] with 40% of framework agreements not covering running costs.[18] There is an opportunity cost of continuing to operate this large number of low volume framework agreements with resources directed away from letting and managing and promoting the top 25% of framework agreements effectively.[19] Customers on framework agreements that OGCbuying.solutions decides to dis-continue will need to be provided with alternatives so they do not unilaterally set up their own contracts resulting in an increase in process costs.[20] The other 75% of framework agreements still account for £200 million in sales.[21]

9. 25% of OGCbuying.solutions' staff have Chartered Institute of Purchasing and Supply (CIPS) qualifications.[22] OGCbuying.solutions' senior management acknowledge, however, that there are gaps in areas such as leadership and influencing when dealing with customers.[23] OGCbuying.solutions' suppliers also identified gaps in areas such as commercial experience and communication skills.[24] A rationalisation of framework agreements would change the profile of capabilities required by OGCbuying.solutions moving away from administrative procurement tasks to the management of a smaller number of strategically important framework agreements.[25]

10. OGCbuying.solutions is operating in a commercial environment and many of its staff perform roles identical to staff in commercial organisations, but its staff are employed as civil servants and do not work under the same performance regime as those in commercial organisations.[26] Some senior staff are on a bonus scheme which is linked to their individual performance, but the bonus is a small percentage of their overall salary.[27]


2   OGCbuying.solutions, Annual Report and Accounts 2005-06 Back

3   Qq 7-9 Back

4   C&AG's Report, HC (2006-07) 103, para 3.13 Back

5   C&AG's Report, Improving Procurement, HC (2003-04) 361-I, figure 24, page 38 Back

6   C&AG's Report, Figure 1, page 9 Back

7   C&AG's Report, Figure 4, page 11 Back

8   Ibid. Back

9   C&AG's Report, para 3.13 Back

10   National Audit Office central government survey results - http://www.nao.org.uk/publications/nao_reports/06-07/0607103_gov_survey.pdf Back

11   Qq 4-6 Back

12   Q 4 Back

13   HM Treasury (2007) Transforming Government Procurement, London: The Stationery Office, para 2.15 Back

14   Q 112 Back

15   HM Treasury (2007) Transforming Government Procurement, London: The Stationery Office, para 2.20 Back

16   C&AG's Report, para 1.7 Back

17   Q 3 Back

18   C&AG's Report, para 2.49 Back

19   C&AG's Report, para 2.49 Back

20   C&AG's Report, para 3.10 Back

21   Q 3 Back

22   Q 47 Back

23   C&AG's Report, para 2.53; Q 48 Back

24   Qq 62-64, 130; C&AG's Report, para 2.53 Back

25   C&AG's Report, para 2.54 Back

26   Qq 35-37, 116 Back

27   Qq 92-98 Back


 
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Prepared 26 June 2007