A huge chunk of public sector spend is controlled by local authorities. Helen Gilbert looks at what can and should be done in the face of government belt-tightening

It’s finally here. The long-awaited Comprehensive Spending Review 2010 has arrived. Details were announced in Parliament a little over a week ago of overall savings in funding to councils of 7.1 per cent a year for four years. This was described by Chancellor George Osborne (pictured) as an “unavoidably challenging settlement”. But it’s not all doom and gloom.

There will be more devolved financial control and the local government procurement world has long known that councils would be expected to cut multimillions off budgets, and many have been busy preparing. Some have targeted unusual but huge spend categories such as social care and are already beginning to reap the benefits; others have begun picking over sources of expenditure with a fine-toothed comb.

Portsmouth City Council is one of the latter. Its head of procurement, David Pointon, warns the size of the task that lies ahead in terms of budget savings is dramatically bigger than procurement is capable of delivering unless a “fundamental review of the infrastructure” takes place. The process then boils down to a question of priorities, he says.

“To achieve anything like the figures that have been quoted, we’ve got to go back to first principles,” says Pointon. “If we’re talking about a grounds maintenance contract, what you would ask is ‘why are we doing this? Is maintaining the parks and gardens a priority compared with education and looking after the socially deprived?’

“You need to go back to the public and say ‘as a council, what do you want us to deliver?’ and that’s done through elected members.”

Portsmouth City Council has 700 concurrent contracts which cover the spectrum of council activities. Pointon and his team have started a “basic principles” process examining why they are operating the contract, who wants it done, whether it is a priority, what outcomes they are likely to get, what people need from the service and if they are prepared to pay for it.

“It’s digging deep and going back through all these contracts,” he adds. “From that, you might say all the contracts relate to building maintenance and can be put into one contract if we can demonstrate value for money. The whole procurement infrastructure, the whole ‘delivering services through third-party organisations’, needs to be unbolted and put back together again.

“Only by a radical review of this nature are we going to come back to delivering any of the targets. The way it stands, you don’t have a cat in hell’s chance of meeting the targets.”

TACKLING MAJOR SPEND AREAS

David Loseby, chief procurement officer at Westminster City Council, agrees no area should be left untouched. “Given the quantum of changes and savings required, we have to have strategic thinking as opposed to tinkering at the edges,” he tells SM. “We will need to get political backing behind key decisions that we’d need to push through, more radical approaches, and making sure even ‘sacred cows’ are considered – these have always been adults and children’s services.”

The spending review promised an additional £2 billion for social care by the end of the parliament, but this is expected to be more or less cancelled out by inflation and an ageing population. Within adults and children’s services, Loseby at Westminster says, there are obvious and logical areas that would not detract from the service such as transport, property assets and handling of the property assets and indirect costs associated with the providers, such as energy, ICT and so on. “It’s about reaching into their supply chain, and looking at what can we do for them, given the fact the public sector buys 8 per cent of UK energy,” he says.

One authority already tackling social care is Surrey. Its county council has an overall category spend of £650 million a year on goods and services, but social care accounts for 60 per cent of that. In 2009 the team began a three-year programme to drive down these costs by adopting a category management approach, a steer that had never before been taken on social care. The team aims to move elderly adults out of residential care homes and instead provide them with care in their own homes.

“Home-based care is much more cost-effective,” says Andrew Forzani, the council’s head of procurement. The process took time but is now making savings. “We found we couldn’t close a lot of homes just like that because there isn’t a strong enough supply market in Surrey. We’ve been working for the past two years to put out contracts to market and grow providers to ramp up that capacity. Now we’ve zoned Surrey into 11 different areas and have framework tenders for each of those areas. Total savings to date over two years are

£2 million against a budget of £24 million.”

The council, which scooped the CIPS/SM Award for “best public sector procurement project”, believes innovation is a key driver to making efficiencies. Forzani’s overall target is to deliver £17.5 million savings this year and more than £20 million next year, but he is not daunted by the prospect. The council has torn up the traditional rule-book when it comes to local authority purchasing by broaching areas of spend often considered no-go zones for purchasers. These include infrastructure and assets categories.

Forzani argues that while regional improvement and efficiency partnerships have gone some way to enable joint buying between local authorities, these partnerships are only “scratching the surface in limited areas on straightforward commodity procurement”.

“With the size of savings and efficiencies we have to make, we won’t get there by making savings in printing, IT and consultants,” he says. “We need to look at the big areas where local government spends money – social care, infrastructure and assets. That’s where all the money is. We haven’t sat back and waited to be told what to do, and to be told procurement is important. Over about three years, we’ve convinced the organisation that procurement and category management is a way that will deliver better services and be more effective.”

The council is also poised to make significant savings on the provision of high-cost care placements for the most vulnerable adults with the most complicated needs. It is working with providers to determine where the costs are so that it can understand the margins. “We’re doing all the good category management. We are trying to take out £1.8 million there. It’s not about taking away care, but working with suppliers to see where costs can be improved,” says Forzani.

Infrastructure, too, has not been overlooked. “A lot of our procurement resource has been renegotiating highways maintenance contracts and doing a lean review of all their processes. We hope to save £2.4 million this year. It’s reviewing their supply chain and how they subcontract. It’s good supply chain analysis. These are not traditional areas that procurement has been involved with in the past.”

CULTURAL CHANGE

Others argue that in terms of the scale of savings that can be achieved, the culture of an organisation might also be pivotal. Ian Simpson, head of procurement at Staffordshire County Council, says he and his team are lucky because purchasing has buy-in at the highest level – the procurement board is headed by the council leader. Other authorities might lack such support.

“The approach we are taking is centralisation,” says Simpson. “Before ICT procurement was separate, property procurement was separate. That’s all done by my team – all of whom are qualified CIPS – so that my people get control of more of the spend so we can drive out value.”

In fact, the authority plans to renegotiate all the high-risk, value contracts such as construction, property, and social care and health contracts. For the past 12 months, a member of the procurement team has been leading the social care commissioners through negotiating and renegotiating contracts. More than £1 million has been saved in a year, thanks to procurement’s involvement.

Meanwhile, Tony Morris, a procurement consultant at Unit4 Business Software, and former council category manager and expert in social care purchasing, is aware of the hurdles procurement professionals face. “I’d like to see social care functions working closely with the procurement teams. Social care is a huge spend category for local authorities, and it rarely has any spend control or contract measurement functions applied to it. Taking away money from local authorities might be unpopular, but it would focus the minds of people within the organisation and challenge their thinking.”

Yvonne Kemsley, a freelance procurement and sourcing specialist for Eden Consulting, who formerly worked for a local authority, agrees: “[The mentality is] why do you want to get involved? We’ve already done the purchasing in the past perfectly well before. Some of them do think that ‘we couldn’t possibly get procurement involved because they don’t understand what we are procuring’. But we can turn our hands to anything. It’s not [about] being a category specialist. It is being familiar with the process and procedure and able to evaluate what you’re buying.”

Then there’s the concept of collaboration and joint working with fellow authorities (see box). According to Morris, this, as a rule, is not undertaken. Out of 24 local authorities his firm surveyed, only two collaborated with another two. “There are 33 local authorities in London alone,” he says. “From work carried out in the 2009-10 period, 397 suppliers are used by six or more local authorities in the capital; 241 suppliers each received £10 million or more, and five suppliers each received £100 million or more, from London local authorities.”

He also says that few organisations have measurable service level agreements or key performance indicators in their contracts. “There are even fewer that challenge their suppliers on these SLAs and KPIs,” he warns. “Contract management is where value for money is. The data gathered is not mature enough yet, but we are seeing alarming trends. One is the lack of benchmarking undertaken, scoring only 1.3 out of five. Benchmarking is a sure way to identify where costs could be reduced.”

INVEST TO SAVE

According to Gareth Spencer, head of procurement at Merthyr Tydfil County Borough Council, investment in procurement is essential for savings to be achieved.However, in light of the current climate, he fears this will not

happen in some of the smaller authorities.

“The challenge is organisations realising they need procurement, and for the profession to move to and meet those challenges. You can make this happen only by investing properly in procurement. You need to have the drivers coming through government which pushes that [message] down to individual organisation, so they keep hearing it.”

However, at the time of writing, the Office of Government Commerce and the Department of Communities and Local Government would not comment on the Spending Review.

These recommendations will no doubt be considered by procurement functions as they digest what is required of them under the Spending Review. But purchasers are also reminded that now is the time to make the business sit up and notice their capabilities.

“We’re buyers, but we ought to be selling our services more,” says Kemsley. “We need to find champions within local authorities to help sing our praises when we have delivered on procurement and savings. I think the real value-add is to get that person praising the merits of procurement, and to blow our own trumpets in board reports and raise our profile. There’s not great representation at director level for procurement.”

Forzani agrees. “We’ve [Surrey County Council’s procurement department] got ourselves in a position where the organisation respects the procurement function and the doors are open for us to work with them. I am targeted on £17.5 million [savings for this year]. I’m being driven by my boss. Our chief executive understands that if he drives us on procurement we can take a lot of the costs out. He recognises we can do a hell of a lot.

I don’t think others [purchasing professionals] are so well positioned in their organisations. As procurement professionals, we’ve got an open door at the moment.

If we can’t sell ourselves there is no hope for us. It’s up to us to push how procurement is going to play the role.”

And if it doesn’t step up, private providers will be clamouring for the chance to step in and assist.

Despite the savage cuts that have to be made, the mood among buyers is optimistic. Change is already afoot and work now being done could ultimately alter the way the function is viewed for the better.