Procurement eh? Sexy stuff. For some reason, TV execs have overlooked the potential for a hit series on this aspect of government. Sheer tedious boredom aside however, it’s a hugely important aspect of getting decent services from taxation, and whilst public services did improve significantly under Labour, few seriously believe that the oceans of extra money was well spent, as anyone who’s read David Craig's 'Plundering the Public Sector' and 'Squandered' can testify. Nor is this a right-wing argument. Getting value for money is central to having public services; if every critique of public sector waste is dismissed as Thatcherite propaganda, the public will eventually, and inevitably, turn their back on them.
Which is why Francis Maude’s decision to centralise procurement is important. He’s found that prices paid for the same items ranging from £350 to £2000, and his solution – in quite a socialist way – is to centralise the buying process.
This centralisation is good news, though it could be made even more efficient. One of the problems of public sector buying (as in most purchases really), is that the sellers know the true price better than the buyers, because of their superior knowledge of the product. In a market with comparatively few suppliers (at least of sufficient size), competition is ‘oligopolistic’ – or in other words, close to monopoly, as all the suppliers know that by competing against each other, they’re only reducing their eventual price.
Injecting competition into the process is key to getting the best deal. A good way of doing that is by having an auction. Britain actually did this when we were selling our 3G network, and we’ll do it again with 4G network. It raised far more money than expected and it’s a model we should replicate.
The way it would work is by deciding what we want to buy centrally, and then get the suppliers to pay a nominal fee to be in the auction. Start by having a price which they all will sign up to provide the goods, and then gradually reduce it round-by-round where one-by-one, each supplier drop out. The last remaining supplier in the auction is then legally bound to provide precisely what was ordered to that price. It could be done the opposite way – with price starting low, and then rising, but behavioural psychology suggests that people (including businesses) are more reluctant to lose what they think they already have (in this case, a massive order) than gain what they do not. The nominal fee for being part of the auction will also cement their commitment to keeping in the auction for as long as possible, as no one likes spending money with nothing to show for it.
It might not be sexy, but its definitely worth a shot.
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