We listed our six challenges for public procurement in 2015 at the beginning of the month. Here they are again.
Challenge no.1; Implementation of New Directives
Challenge no.2; Austerity continues
Challenge no.3; Social issues
Challenge no. 4; Value and Innovation
Challenge no.5; The Fight against corruption
Challenge no.6; Capability and competence
Today, let’s look at austerity – not something that’s a lot of fun to consider, but important for the context in which public procurement operates.
Whilst every country in Europe is facing somewhat different economic challenges in 2015, it is clear that “having too much money” is not a problem that any government is going to be facing! The economic problems that started emerging with the crash in 2008/9 have not gone away, and we are facing more uncertainty about the Euro with the Greek election next week. Economies remain depressed in many countries, and unemployment is a serious problem in Southern Europe in particular.
So the situation where governments, and their different elements (central and local government, health, education, security and police services etc.) basically do not have enough money to do what they want to will continue through 2015 and probably well beyond. That brings a number of challenges not just for the politicians, but also for executives in the public sector, including procurement of course. So here are our key points to note around this issue, with some suggestions for procurement professionals facing austerity in 2015.
- Governments will continue to be under pressure, finding it difficult to raise tax revenues, although we will see increased efforts to get more out of large multinationals who are experts at avoiding tax.
- But demand for services, particularly in areas such as health and social care, will naturally increase given the ageing population in most European countries.
- That will make it more important than ever that all public sector expenditure is made carefully with a real drive to achieve value for money. Election campaigns will stress how well political parties can deliver “savings” as well as their policy programmes.
- Yet simply buying what we have always bought a little bit cheaper will not solve the problem. There is a need for innovative ideas and solutions from suppliers and public buyers alike, and different ways to obtain “policy goals” from the money that is available.
- Procurement departments will see the same pressure on their own costs and numbers that every area in public organisations will face – it is likely that there will be staff cuts in many places.
Actions for procurement
– Be prepared to argue the business case for investment in procurement – we can help to manage the wider cost base, so cutting procurement jobs is counter-productive. That is our case anyway.
– At the same time, look at where procurement can be more effective and cost-efficient, and look at technology investments that can support that improvement.
– Make sure procurement exercises have the right focus on costs e.g. look at how strongly cost is weighted in evaluation processes. Of course other factors are important, but sometimes a lower cost, lower quality solution might be the right answer in this environment.
– Look at how savings can also be generated through the contract life, not just at contract award time. This needs better contract management than we often see in the sector.
– Equally, as we said above, we need innovative new approaches from suppliers to deliver the right outcomes at much lower cost. “Innovation procurement” is likely to be an increasingly important area as we look for those different ideas, so make sure you understand the processes around that.