The relationship between local government and suppliers is set to change as councils work out how to squeeze more value from future and existing contracts. But while focus has hitherto focused on the impact on the handful of suppliers that dominate, the future could mean more opportunity for smaller companies.
New research carried out for Guardian Public by procurement company Spikes Cavell showed that that while large companies (those with over 250 employees) accounted for 49.9% of all local council contracts, the remaining half was split between small (26%) and medium-size companies (24%).
"The relationship with small, medium and large suppliers will change," says Andrew Smith, chief executive of Hampshire council, one of the largest shire authorities in England and which spends around £250m each year with some 30 suppliers.
"Large suppliers will probably still have the ability to able to offer reduced costs and multi-year contracts but there are as much opportunities for small contractors as large ones," says Smith. "There might be more local, smaller contacts who can do more things, for example with schools and parish councils. As greater devolution takes hold, where communities takes more responsibilites for more services, they may look more locally at smaller contractors."
Smith says that the council, which is looking at building new capacity, reducing its asset base and negotiating its long-term (five to 10-year contracts), is changing strategically and that suppliers have a role in shaping a better way of doing business.
"We're also asking suppliers 'what you can you do to help the council keep down costs'," he says.
But as local and central government attempt to hammer out savings from big suppliers – cabinet ministers met with 19 of the biggest government suppliers, including Logica, Capita and Serco, all of which draw half or more of their UK revenue from the public sector – some local authorities believe maintaining the relationship with smaller suppliers requires a different approach to just squeezing down costs.
"About 80% of our annual £300m spend is with around 600 national or international suppliers," says Carlton Brand, corporate director for resources at Wiltshire council, which spends around two thirds of its budget on procurement. "They're used to the commercial world where buyers are negotiation deals to save 10-30% on contract value. This is where the big bucks will come from.
"The remaining 20% of our spend is with over 10,000 smaller suppliers, many local to Wiltshire. We will have to treat them differently. We want to promote local business and we'll do that by buying locally and working with them to reduce the cost of doing business with them rather than trying to screw down their final pricing."
Brand said it wasn't always the case that outsourcing to big private sector companies would always deliver. "Sometimes it costs more and service performance is worse. I don't subscribe fully to the economies of scale argument."
In Wales, the Welsh Assembly government said it was looking to "transform" public sector procurement by investing £11m in a five-year project to raise skills in procurement managers and develop systems such as e-procurement, which can also cuts down the costs of competing for smaller companies. The Welsh government has already developed an SME-friendly charter, Opening Doors, which aims to encourage more local companies to engage with the public sector.
"The target is to achieve a £200m saving over five years by taking a more radical approach such as national sourcing and all-Wales contracts and maximising use of the award winning xchangewales e-procurement systems," says a spokesman for the Welsh government.
He said the charter adopted an approach that allows procurement to be open and transparent and encourages competition.
"What we aim to do is to encourage as many suppliers as possible to compete for business on a level playing field. Who ultimately wins our business will of course depend on their ability to meet the tenders criteria and offer value for money."
From Bubb's Blog
From Whitehall Watch
