Department of Finance and Personnel – Collaborative Procurement and Aggregated Demand

25 September 2012

Department of Finance and Personnel – Collaborative Procurement and Aggregated Demand

Mr Kieran Donnelly, Comptroller and Auditor General, today issued a report to the Assembly on Collaborative Procurement and Aggregated Demand of common goods and services across the public sector. Mr Donnelly said: ‘There is scope to increase aggregated demand and collaboration for common goods and services. For the purposes of this report, common goods and services include energy, telecoms, professional services, fleet, office supplies, ICT, print, advertising, travel and facilities management. If used properly, this can lever significant savings for the public sector.’

Public procurement (excluding local government) accounted for £2.7 billion in 2010/11 and represents a significant area of public sector expenditure where savings could be made in these stringent economic times. Savings can be achieved by procurement organisations working together and aggregating demand to create more buying power over suppliers. Almost £900 million is spent each year on common goods and services.

Main Findings

Little progress has been made in collaboration policies

Despite a Northern Ireland Procurement Policy being agreed in 2002 by the Procurement Board, little progress has been made in agreeing collaboration policies. To date, there has been little evidence of a strategic, public sector-wide approach to aggregating demand.  There has been no formal strategy, no detailed action plans and no specific targets to generate savings from this approach

CPD was unaware of spend on common goods and services

Effective aggregation of demand and collaboration relies on accurate, up to date and transparent management information on all aspects of procurement. However we found little basic management information in CPD. Prior to our study, there had been no attempt to measure or categorise spending on common goods and services.  

The Northern Ireland target for savings from aggregation appears to be lower than the rest of the United Kingdom

The Procurement Board Strategic Plan (2012-2015) has set a savings target of £30 million from aggregation of demand of common goods and services over this period (1.1 per cent of expenditure). Other UK jurisdictions have set more challenging savings targets and appear to be achieving them. If Northern Ireland applied equivalent savings targets, potential savings would be substantially more.

There is scope to increase aggregated demand and collaboration of common goods and services

The procurement of common goods and services is fragmented across the CoPEs with relatively little collaboration. In 2010-11, spend on collaborative arrangements established by CPD was approximately £38 million.  This accounts for less than a tenth of CPD’s clients annual spend and only 4.3 per cent of the total Northern Ireland  public sector spend (excluding local government) on common goods and services.

Category Management should be embedded in procurement organisations along with adequately skilled staff

Category Management involves organising staff to focus on supply markets rather than the more traditional focus on the client. However it has only been partially implemented in a number of procurement organisations and several CoPEs do not have enough experienced, professionally qualified procurement staff required to fully implement category management

There are indications of price and specification variations in many categories of common goods and services and little price benchmarking

We found that there were material price and specification variations in samples of common goods and services we examined and only very limited price benchmarking was taking place. It also appears that a number of Arms Length Bodies (ALBs) are paying more for common goods and services, because they are not part of aggregated demand contracts which can reduce prices.

There is a need to balance the achievement of efficiency savings from aggregation and collaboration with the development of Small and Medium sized Enterprises (SMEs)

There is a risk that increased aggregation of demand and collaboration could be to the detriment of SMEs in Northern Ireland. It is important to strike a balance between aggregating demand and supporting SMEs through procurement. In seeking to aggregate demand, COPEs therefore need to adopt best practice approaches to encourage the continued participation of SMEs in public sector contracts.