Select Committee on Public Accounts Thirty-Third Report


3   The role of OGCbuying.solutions in transforming government procurement

18. Central civil government spends an estimated £20 billion a year procuring goods, services and works. The wider public sector spends an estimated £100 billion.[42] Public sector procurement is uncoordinated.[43] The 'silo effect' remains prevalent with procurement professionals letting their own contracts rather than considering collaborative options such as using OGCbuying.solutions' framework agreements or agreements set up by other departments.[44] Central government organisations are operating 2,300 framework agreements, many of which are in areas covered by framework agreements operated by OGCbuying.solutions.[45] For example, there are 37 framework agreements covering energy which are likely to duplicate the range of energy framework agreements operated by OGCbuying.solutions.[46]

19. This lack of co-ordination is eroding value for money. Prices for standard products vary greatly across central government organisations (Figure 3).[47]
Figure 3: Prices paid by central government organisations for the same product show significant variation
Product Price range Price variations (highest price above lowest price)

%

Toner cartridge (per cartridge) £41 to £89 117
Electricity (day rate p/kWh) 4.8p to 8.3p 73
Box of 5 x 500 A4 (80g/m2) 100% recycled while paper (per box) £6.95 to £14.95 115
Post-it notes 76mm x 76mm yellow recycled pack of 12 (per pack) £4.41 to £10.55 139

Source: National Audit Office

20. In addition to price variations, the lack of co-ordination is resulting in duplication of effort resulting in increased procurement process costs. In 2005 public sector organisations spent an estimated £415 million on unnecessary process costs by tendering their own contracts rather than using framework agreements operated by OGCbuying.solutions.[48]

21. Information is a key element to enable public sector organisations to make rational decisions about when to let their own contracts and when to use collaborative options. Central government organisations consider three types of centrally available data are the most important to improve value for money across the public sector: information on price benchmarking; information on framework agreements which are open to public sector organisations; and information on where the 'best deals' are. The majority of organisations think there should be more of this information available.[49]

22. The Office of Government Commerce has established a database providing public sector organisations with information on established contracts that are open to all public sector organisations across various product categories including energy, professional services and travel.[50] There is, however, no centrally available price benchmarking information.[51] In addition, organisations need to understand the costs of letting their own contracts to be able to make an informed decision about when to let contracts and when to use collaborative options. 87% of central government organisations have not made an assessment of the cost of letting and managing contracts.[52]

23. As part of the Treasury's reform of public sector procurement, the Office of Government Commerce will be given stronger powers to set out the procurement standards departments need to meet, monitor departments' performance against them and demand inter-departmental collaboration where it improves value for money.[53] Good information on the contracts open to public bodies, price benchmarking information and information on the cost of letting and managing contracts will strengthen the Office of Government Commerce's role when it looks to organisations to 'comply or explain'. Where government departments choose to depart from the best deals they will be subject to challenge by the Office of Government Commerce. [54]

24. There are over 50 procurement organisations across central government and the wider public sector contributing to the lack of co-ordination across public sector procurement.[55] There is significant duplication across these procurement organisations with many operating framework agreements in the same product areas.[56]

25. Across central government and the NHS there are four main procurement organisations: OGCbuying.solutions; the NHS Purchasing and Supply Agency; the Defence Logistics Organisation; and the Defence Procurement Agency. There is some co-ordination amongst these organisations.[57] For example, the Defence Logistics Organisation manages the liquid fuels portfolio for OGCbuying.solutions' Energy Managed Service customers. However, other OGCbuying.solutions' products and services are in competition with similar products and services provided by other procurement organisations.[58] For example, OGCbuying.solutions and the NHS Purchasing and Supply Agency both procure electricity. At present there is no systematic co-ordination of activity across public sector procurement organisations.[59]

26. eProcurement offers the potential for significant value for money savings. For example, across the 138 eAuctions undertaken through the OGCbuying.solutions' framework agreement, average price savings are reported at 22% compared to historic prices paid for the same product.[60] Utilisation of eProcurement tools nevertheless remains low across the public sector.[61] For example, 73% of central government organisations have not used an eAuction. Of the organisations that have not used eAuctions, 31% cited 'the value for money benefits are difficult to identify' as the reason despite the strong evidence of significant savings potential.[62]


42   C&AG's Report, footnote 22, 25, page 23 Back

43   Qq 28-29 Back

44   Qq 138-140, 125-126 Back

45   C&AG's Report, para 3.4 Back

46   C&AG's Report, Figure 24, page 29 Back

47   Q 127 Back

48   Qq 46, 83-85; C&AG's Report, para 3.9 Back

49   C&AG's Report, para 3.6 Back

50   C&AG's Report, para 3.7 Back

51   Qq 90-91, 127 Back

52   C&AG's Report, para 2.37 Back

53   Qq 52-54, 153-154; HM Treasury (2007) Transforming Government Procurement. London: The Stationery Office. Foreword by the Financial Secretary to the Treasury, page 1 Back

54   HM Treasury (2007) Transforming Government Procurement. London: The Stationery Office. Foreword by the Financial Secretary to the Treasury, page 1 Back

55   Q137; C&AG's Report, para 3.3 Back

56   C&AG's Report, para 3.3 Back

57   Qq 86-87, 113, 147 Back

58   C&AG's Report, para 3.5 Back

59   C&AG's Report, para 3.3 Back

60   C&AG's Report, para 2.18 Back

61   Qq 117-120 Back

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

 Back


 
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