Procurement in the public sector is going through a major cultural revolution. The Government as a client has stated that it is now firmly committed to making procurement decisions on a value for money basis. This new agenda has been set following a series of reports, in particular the Egan and Levene reports, which identified in government procurement a prevailing culture of over pre-occupation with lowest price and a fear of criticism if any other criteria were used. The emphasis now when procuring public services will be on achieving the best value outcome rather than securing the lowest price bid.
As part of this commitment to best value, the Treasury and the office of Government Commerce have issued a joint directive stating that from 1 June 2000, all central Government clients should limit their procurement strategies for the delivery of public services to PFI, Prime Contracting, and design & build contracts as it is believed that these strategies, where members of the supply chain work as a team to provide the best solution for the client, provide better value for money. From 1 June 2002 it is intended that these procurement strategies are applied to all refurbishment and maintenance contracts. Traditional non-integrated strategies will only be used where it can clearly be shown that they offer the best value for money. In practice, this means they will rarely be used.
Local Authorities are also being pulled into a new era of best value procurement under this recent Government initiative. Unlike other public sector clients however, Local Authorities are under a statutory obligation to secure best value in the procurement of goods and services by virtue of the Local Government Act 1999 ("the Act"). Compulsory Competitive Tendering ("CCT") which required Local Authorities to take responsibility for the standard and cost of services and for ensuring that such services were obtained at the cheapest price has now been replaced by the Act. This Act came into force on 1 April 2000 and provides that from this date all Local Authorities must obtain best value when procuring goods and services and must comply with a rigorous regime of performance indicators and efficiency measures. Unlike the CCT regime which created a highly regulated form of procurement this new Act promotes a more strategic form of procurement where the emphasis is much more on the outcome rather than the process.
All Local Authorities and other Authorities such as the Police Authority, the Waste Disposal Authority the London Fire and Emergency Planning Authority and Transport for London are subject to the Act.
The regime under the Act is quite tough – a best value Authority must make arrangements to secure continuous improvement on the way in which its functions are exercised having regard to a combination of economy, efficiency and effectiveness. This provides such Authorities with a considerable challenge but also recognises that Local Government has a major part to play in the drive to modernise the way public services are provided. So what will the introduction of this new Act mean in practice? Local Authority selection criteria will no longer be based on the cheapest price but on the principle that services must be bought on a best value basis and provided in an economic, efficient and effective manner.
Best value Authorities will need to re-educate their procurement managers to adopt best value. Correct project definition at the outset will be essential. These Authorities will also need to determine whether a particular service is required and consider how such a service should be provided, taking into account whole life costing of the service. Performances between Authorities will have to be compared and the views of the end users of a service sought in setting performance and efficiency targets. Mechanisms to achieve efficiencies such as team working and partnering arrangements should be considered.
Contractors must be prepared for rigorous benchmarking of their services and demonstrate year-on-year improvements. They must also operate a collaborative and supportive style of leadership coupled with non-confrontational management in order to impress a Best value Authority and persuade them that they are suitable to provide services to such an Authority. Both central and local government procurement is thus undergoing a two pronged change. Similar strategic changes are taking place in private sector procurement. First, the purchase decision is moving away from lowest tendered cost. Secondly and more significantly, clients are focusing on supply chain delivery. Such an approach requires contractors to demonstrate their ability to integrate and harness the outputs of the supply chain.
The information and opinions contained in this publication are provided by national law firm Hammond Suddards Edge. They should not be applied to any particular set of facts without seeking appropriate legal or other professional advice.
