Government commerce

The Office of Government Commerce – an office of the Treasury group – will be familiar to those businesses which supply to Government for its work on helping Government achieve best value in its commercial activities. It is also well known for products such as PRINCE 2 and ITIL — both globally recognised brands in use across the public and private sectors. By Peter Fanning of the Office of Government Commerce.

Under its previous two CEOs, Peter Gershon and John Oughton, the OGC instituted the Government’s plan to save £21.5 billion annually in the civil service, the Efficiency Programme. The same rigour is now being applied to procurement. Under a new agenda, OGC is introducing a series of measures that will transform government procurement, and, says OGC, make government a better client for business.

The change was formally announced in January, when HM Treasury published Transforming Government Procurement. The changes are designed to have all-around benefits. The first line of TPG says that ‘good procurement is essential to deliver good public services’, which is the driving force for change. Doing this by making government a better client, this will be good for business as well. OGC be able to define needs more clearly and create a more straightforward process.

The OGC will be working with central Government Departments to transform the way procurement is conducted. It has been successful thus far, having delivered the foundations needed for the full implementation of TGP.

Government is a massive customer, worth £125 billion. But engagement has not always been easy for the private sector; the new agenda should improve things for businesses working with Government. There’s an active workstream of supplier engagement. We are working with the CIO council. This acts as a focus for partnership between IT professionals across Government and is charged with creating and delivering a Government-wide agenda to build capacity and capability in IT-enabled business change.

OGC has convened a series of Supplier Forums where suppliers of strategic importance engage directly with all of their customer departments. Based on thorough analysis of customer and supplier performance in a number of key areas, these forums commission performance improvement programmes in critical areas. The initial programme focuses on the areas of Information, Communications Technology (Services and Software) and Consultancy.

OGC acknowledges that some businesses have found working with Government difficult. It is working hard to ensure that the Government procurement function has a better understanding of the markets and suppliers with which it engages and what they can offer, and is better equipped to collaborate with them. In addition, however, businesses need a clearer understanding of what makes Government different.

There aren’t many multinationals whose procurement budget is £125 billion, and whose acquisitions cover everything from pens and paper to hospitals and attack helicopters. The scale and complexity involved in Government projects presents a huge challenge – as does the complex set of accountabilities, which can make decision-making seem cumbersome and restrict cross-departmental collaboration. But the scale, and the credit-worthiness, of Government means that there are real benefits for business. And through better dialogue and active engagement between Government and suppliers, OGC is aiming for better results all round.

One way to ensure that Government is prepared to be a top-notch client is for OGC to set and monitor standards. The new approach is strongly grounded in the meticulous gathering of robust data on procurement performance. Based on this information, OGC can give departments solid advice on how they are matching up to standards, how their performance compares against other departments, and what they need to do differently.

Increasingly, suppliers are contributing to this data so that OGC’s view is based on independent assessment by suppliers as well as the departments’ own account of their performance.

New Procurement Capability Reviews have also been introduced to assess the capacity and capability within each Department. The first review has been completed, with the Department for Education and Skills (DfES) and the next two will be carried out in the Departments of Work and Pensions and Communities and Local Government.

A full cycle is being established that will cover all spending Departments on a continuing basis. Why is procurement capability so important? Because it means a more direct and less wasteful tendering process, it makes better use of all taxes - both corporate and personal - and creates better contract management where Government and business work in partnership.

Effective programme and project management remains a key area of focus for OGC, recognising that the lion’s share of Government projects includes complex procurement as a key component. Gateway Reviews have been used to assess Government projects since 2003 and have proved effective both as a source of guidance to project SROs (Senior Responsible Owners) and a source of savings: £2.5 billion in central and civil government since implementation.

These reviews, applied to delivery programmes and procurement projects, are carried out at key decision points in the procurement life cycle. Independent teams’ assessments help projects to move successfully to the next stage. OGC has had tremendous success with Gateways and they will continue to play an important role in its work. But there’s also a need to hold SROs to account, and to give Ministers and HM Treasury the means to intervene when necessary.

As a result, a new Major Projects Review Board (MPRG) will be chaired by the Treasury, building on OGC’s previous systems and successes. Like Gateway, the MPRG will examine projects at the key stages of their development. However, MPRG will check projects earlier in the life cycle, when the original business case is being developed. Importantly, the MPRG will have the power to stop projects from progressing to the next stage where it feels that there are issues that need urgent correction; but in most cases it will identify specific issues that need to be resolved.

Government projects will need to ensure that all aspects of value for money are being addressed, including sustainability, innovation and deliverability. This is going to provide much clearer specifications, and the robust system of scrutiny will give more assurance to buyers and sellers alike that a project can deliver.

Companies doing property business with government will reap some of the same benefits. The Civil Office Estate is worth £30 billion and costs £6 billion per year to run. It comprises 9,000 different holdings covering 37 million square metres – enough for 2000 World Cup pitches. There’s significant scope to realise savings here — an estimated £1bn-£1.5 bn. The money saved can be re-directed to our public services, deployed right to the front lines. Moreover, there’s a sustainability agenda that can be furthered: most carbon emissions come from buildings.

OGC and HM Treasury worked to launch High Performing Property in the spring – a five-year strategy and implementation plan for improving management and use of the Government estate, to be overseen by OGC. For businesses working with Government on estates contracts, the increased clarity and the more efficient processes will make their dealings with government much better. OGC wants to be sure that Government works with its partners in the private sector in a way that’s mutually beneficial – ‘Supplier gets better client; client gets better product.’

This emphasis on collaboration can also be found in some new approaches to procurement within government. Government is huge, with massive purchasing power, but it can also be incredibly unwieldy, which is part of the challenge. But it affords a unique opportunity to leverage those economies of scale when the two sides work together. Transforming Government Procurement set out some tough rules that OGC will enforce; namely that if it shows Departments there’s a better deal, they’re going to sign up. Full stop.

This is a new step forward, but an approach which OGC has been promoting for some time. The post deal we brokered in spring of 2006 has already delivered £55 million in savings; and the fleet deal signed last December is expected to deliver a total of £100 million – and we bought cleaner, greener vehicles. But OGC now has new powers to enforce this agenda, and it is beginning to apply these.

I have already written to my Permanent Secretary colleagues about their role in implementing change, requiring them to collaborate on the procurement of commodity goods and services: Government’s going to hold up its end of the bargain. There’s a great emphasis on collaboration, because it helps achieve everything we’re trying to do: save money, save working hours, and deliver a better product. We estimate there’s a potential £4 billion to be recouped through collaborative deals.

It may seem counter-intuitive that our saving money is good for our suppliers, but it’s true. More predictable demand in larger amounts is good value for business. And the collaborative approach across Departments should mean less time and money spent by business in tendering; better-defined contracts should be more profitable and efficient to run; and less money spent on duplicative procurement processes should mean more resources can be spent on the public services themselves.

OGC is also representing suppliers’ interests when it comes to making the procurement process easier under national and international rules. OGC does the UK’s negotiating in the EU, and has won some high-level results for British business. For instance, we successfully negotiated against a proposed mandatory 10-day standstill period between contract award decision and contract completion.

Domestically, OGC has made it easier for suppliers to voice any concerns they might have about best practice not being followed by introducing a complaints procedure. Since the procedure is an informal one, it means we can tackle a range of problems quickly, keeping many from taking the next, formal, step, which eats up a company’s time and money.

OGC knows that it can’t deliver change from issuing instructions alone. We’re also engaged in the development of a cadre of highly skilled procurement professionals. Any good manager or Chief Executive knows that you can have the best systems in the world in place, but if you don’t have good people executing them, they won’t be as effective as they should be. The Government Procurement Service, the professional group providing procurement support across Government, is being reformed.

One component of this reform is the Government Procurement Graduate Scheme, launched in May to bring in the best and brightestfrom the start of their careers. We’ve attracted almost 200 qualified applicants for the pilot scheme; successful candidates will start a comprehensive programme of training and experience in the autumn. We intend to develop other routes into the profession, to all levels in the function.

There are still some roadblocks, but they can be overcome. The job now is to work around some of the institutional barriers. There are three things that make this kind of work difficult that can’t always be seen from outside. One is that there’s not historically been a culture of collaboration in the civil service. Sir Peter Gershon once said that collaboration isn’t in the civil servant’s DNA.

This stems from the second issue, which is the way the civil service is structured. Money flows down in silos, from parliament through Ministers to individual Departments — any one Procurement Director isn’t looking at Government’s needs or budget; they’re not always even looking at one Department’s needs or budget. That can make it difficult to collaborate, especially considering the size of Government.

Third, everything we do is carried out under the constant glare of a 24-hour news cycle. That’s a lot of pressure. The saving grace is that we’ve got very good people working in Government, and there’s a real responsiveness to change. That is good for OGC, because ultimately its role is to help Departments work together — but the work itself needs to be carried out by the Departments.

All these developments have been achieved within a context where OGC itself is changing. To deliver a different agenda, a different organisation is needed. The new OGC is smaller and more focused. This is indicative of an evolutionary approach, building on prior successes and lessons learned.

I will be stepping down from the OGC in September, when a new Chief Executive, Nigel Smith of Invensys, takes up the reins. I decided to step aside from the competition for this role, recognising that my main commercial experience has been in delivering financial or professional services rather than in buying and procurement. For that reason, I felt I would not be the ideal long-term Chief Executive for OGC.

I am, however, leaving a high-calibre management team in place which works together and is doing a tremendous job of implementing change, and is in great shape to take the TGP agenda forward. The team’s vast experience is drawn from both the public and private sectors, so we know where both sides are coming from. The approach OGC is taking will be familiar to any Chief Executive. It’s about working out what the biggest challenges are early, then tackling them head-on.

Peter Fanning is the acting Chief Executive of the Office of Government Commerce. He joined the OGC as Deputy Chief Executive in September 2004, after a career in both the public and private sectors, including Chief Executive of 4ps, a body established to support Local Authorities’ use of PFI and other public private partnerships in procurement. Peter previously spent over 12 years with the NatWest Group, leaving as a Director of NatWest Capital Markets in 1994.

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