Legal measures, civil service training and long-term capability development can all help fix public procurement

It is first important to realise that public procurement cannot be wished away. Since the 1980s, the state’s ability to handle problems directly has declined, and the issues it faces have grown more specialist in nature. Public procurement is a reasonable response to this state of affairs and taking difficult topics back in-house cannot be seen as a panacea: see, for example, the government’s eventual retreat from developing alternatives to Google’s and Apple’s software for its COVID-19 track-and-trace app. Additionally, despite high-profile failures, public procurement can also claim some clear successes, such as in domestic waste collection, or in the introduction of private cleaning services in some NHS trusts.

There have also already been attempts to improve the public procurement process, notably under the Public Contracts Regulations 2006 and additional regulations which came into force in 2015. However, these have not been sufficient to bind the government to good practice: in 2018, only 39% of public tenders were published on Contracts Finder (as stipulated by the 2015 regulations). This leads to uncompetitive tenders, which academic research strongly suggests leads to increased costs and other issues. The pandemic has encouraged poor behaviour. Of the £17.3bn in new contracts awarded by the government from the start of the pandemic to July 2020, only 1% were through competitive tenders.

Well-meant reforms can also set up perverse incentives: for example, requirements that the government prefer the most cost-effective project have frustrated attempts to address ecological damage or regional inequality, while encouraging bidders to set a nominal price as low as possible, safe in the political evaluation that cost overruns and further public expenditure will likely come penalty-free. Once the government has committed to a supplier for a large project, the political necessity of completion often makes the supplier into a monopoly-provider of its services, with the potential for abuse that can entail.

As the scale of public procurement – nearly £300bn in 2017-2018 – is so enormous, no one solution can be sufficient. However, separate measures can be introduced to improve the process of public sector procurement over the short, medium and long term. Throughout, the state should be guided by the principles that there should be meaningful alternatives wherever possible, that contracts negotiated should contain enforceable responsibilities to perform to quantifiable standards, and that civil servants negotiating contracts should be equipped and incentivised to negotiate at the same level as their commercial counterparts.

In the short term, the government should introduce legislation which would automatically append clauses containing severe and escalating penalties in tendered contracts over a certain value which went on to exceed budget, overrun their schedule or underachieve targets by a fixed proportion (e.g., 25%). Doing this at the political level is blunt but necessary, as imposing these kinds of punitive clauses is rarely in the interests of commercially-outgunned civil servants, many of whom will move on from their role before the project is completed. Introducing this principle at the legislative level would also help stimulate parliament’s role in the oversight of large public sector projects, which is important in re-addressing the balance towards a higher-spend, higher-outcome universe away from today’s pay-later-and-regret-it position.

The government could also introduce a policy where, should a project outperform targets or come in under budget, some small-but-meaningful share of the proportional benefit is awarded as bonus payments to the civil servants who negotiated and administered the contract, regardless of whether they have since moved on. This would act as a strong individual incentive to run procurement contracts well. As it is, low pay and the government’s reliance on external consultancy for strategy roles means that talented civil servant’s strongest career incentive is to take their skills private and use their knowledge to negotiate against the public purse.

In the medium term, the government should pursue many of the much-discussed avenues for civil service reform. Specialists – both in the field of the contract being commissioned, and in the art of negotiation itself – are rare. IT, commercial, project management and statistical skills are all key areas for improvement. Civil servants are also encouraged to move between roles on a regular basis by a pay structure that rewards frequent shifts over developing a specialism. Lower churn would increase personal accountability and stimulate long-term skills development.

Last, successive governments should work to rebuild the capacity of the civil service to perform some projects entirely in house. This is and should not be seen as a fundamentally statist project – only a recognition that the principal benefits of private procurement occur when competition is fierce, and so in some cases, the state may need to act as a “competitor of last resort”. This is particularly important in sectors where high start-up costs deter competition (e.g., defence) or where the outcome is so politically important as to put pressure on Whitehall to conclude contracts quickly (e.g., health).

Building up this capability is more than a question of skills-acquisition, however: governments will need to make the apparently difficult argument that the people who administer the now-more than £1 trillion of government spending deserve similar (or in some cases, superior) career prospects, pay and prestige to their private sector counterparts. Currently there is little to celebrate: Downing Street has often preferred an external corporate pedigree over relevant experience in its selection of consultants for the development of its response to the COVID-19 outbreak.

While there are numerous short-term measures that can encourage this change – such as raising senior salaries and fewer attempts by Downing Street to do-down Whitehall – this effort would likely have to take place over multiple political generations and therefore more outlandish ideas – such as the formation of a British Sciences-Po or a Crown Consultancy Service – deserve full consideration. Failure to resolve these issues may mean following an American path, where the public’s view of even electoral integrity itself can come to hinge on the reputation of a corporate provider (in this case, of voting machines) almost entirely outside the government’s control.

 

 

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