The greatest concentration of potentially world-changing spending power does not lie in the hands of the global super-rich. It lies rather in the hands of public procurement staff working in national, regional and local governments around the world. In the OECD alone, the aggregate value of what they buy, from the lowly paperclip to public hospital locksmith services, from launch services for interplanetary probes to the interplanetary probes themselves, is estimated to be €5.8 trillion per year. That’s a lot of stuff. Indeed, the public purchase of goods and services is worth 14% of GDP in the EU and 12% of GDP in the OECD. Spending power like this has the potential to elevate public procurement, still considered by some to be a simple clerical function, into a powerful force for change.
Of course, the first job of public procurement is to provide governments and state-owned enterprises with the goods, services and works needed to meet citizens’ needs. And this still has to be accomplished while ensuring the best value for money (the famous MEAT – Most Economically Advantageous Tender). But, with such huge amounts of purchase power in play, public procurers have an opportunity—some would say an obligation—to accomplish secondary policy goals. It adds a new dimension, as well as new complexity and responsibilities, to the remit of public procurement professionals.
This presents something of a conundrum. Despite huge aggregate public procurement budgets, times are tough. Throughout the OECD, the public sector continues to downsize. Programme budgets are being cut, and public services are forced to do more with less. Asking procurement budgets to multitask can help advance important policy goals without additional allocation. But, to be successful, procurement staff will need new training and skills, something not all governments are prepared to provide.
But many governments are succeeding in using the procurement function to achieve these secondary policy goals—called strategic public procurement, or SPP. These objectives might include promoting sustainable green growth, the development of small and medium-size enterprises, the promotion of innovation, standards for responsible business conduct or broader industrial policy objectives. Today, all OECD countries have implemented strategic procurement programmes supporting one or more of the above goals.
Take the example of innovation. Typically, innovation is a supply function originating with the private sector. One of the traditional policy tools to enhance innovation consists of providing subsidies for R&D efforts in private enterprises. But, public procurement can be used to shape markets by stimulating demand. In essence, governments can ask bidders to come up with new, innovative solutions to service delivery challenges while ensuring the diffusion of the new technology or service. In a sense, procurement staff and suppliers put their heads together to imagine new things. It’s not without risk. Think of the initial rollout of healthcare insurance exchanges in the US. But there are lots of successes, too, many documented in Public Procurement for Innovation, Good Practices and Strategies (OECD, 2017). Evidence suggests that strategic procurement of innovation is in fact moreeffective than simple R&D subsidies in promoting innovation, with a combination of the two being ideal.
There are caveats, however. In exchange for taking on some of the risks of R&D, participating suppliers will require a minimum of visibility and market size. When markets are too fragmented and assurances too uncertain, suppliers will back away. At the same time, procurement specialists can lack the skills to identify unmet needs and strike the right balance between the primary procurement goal and secondary policy goals. The public sector also tends to be risk averse, a desired quality when it comes to the handling of public money, but it can also be an innovation killer. The public sector needs to find ways to encourage informed risk-taking behaviour.
But the biggest risk may be that, at a time when public money is short, governments will fail to provide public procurement teams with the skills they need not just to deliver value for money but to deliver on green growth, innovation, support for SMEs and more—goals that aren’t so secondary after all.
This piece is republished with permission from OECD Insights.
Featured Image Courtesy of geralt