25 October 2010 | Steve Bagshaw

After last week’s announcement of the spending review, SM editor Steve Bagshaw spoke to John Collington, head of procurement for the Efficiency and Reform Group at the Cabinet Office. The following is a transcript of that conversation on the effects of the review on the procurement profession.

Steve Bagshaw (SB): We heard the spending review yesterday, and how the administrative budgets of every department are going to be cut by a third.  Can you give me an indication of the extent to which that will cover procurement; what kind of cuts will procurement budgets see?

John Collington (JC): Sorry, I can’t give you that because the focus is that the department partners have basically come up with their own budgets and their own plans in line with the Treasury expectations that have been set. So I can’t give you information today on what that will mean from a procurement perspective.

What I can say to you is that the minister, Francis Maude, through his actions since he took up the position has done more for the procurement profession within the public sector than I would go as far as to say any of his predecessors probably over the past 20 years has done.  I believe that this is the opportunity for those procurement professionals to support the department in generating the real and significant cost reduction that has to be generated over the next number of years; the next four years.

SB: Okay. One other thing that George Osborne said at the beginning of his speech was that redundancies are inevitable. Can you give us an indication of how many procurement people you think may be losing their jobs?

JC: I cannot, give you an indication of that, but what I can say to you over the past six weeks I have been focussed on building the strategy to centralise the commodity and procurement.  We have also been doing some pretty good work on renegotiating some of our major contracts, so I would say the procurement professionals have never been busier than we have been over the past number of months since the new government came to power.

SB: Sure, but when the Chancellor describes them as inevitable and 33 per cent cuts for administration, are you saying that there won’t be any redundancies?  Are you ruling out the redundancies?

JC: I am not saying that either. I am basically saying that if you are asking me what the numbers are, I can honestly and genuinely tell you that I don’t have any numbers in mind.

I am focussed on developing the procurement profession to ensure it can support departments as they achieve the significant cost reductions that we have been set.  As you rightly say, most cost reduction targets are considerable. In Supply Management today, you have actually highlighted what they are and the message I would give you is that any workforce reductions are for the departments to determine in line with the settlements that have been agreed with the Treasury.

SB: Right, so it is for individual departments to determine their individual requirements for staff?

JC: That’s right, Steve. That’s correct – that’s the way it works in government.

SB: When will they be submitting those details?

JC: The departments receive the settlement from the Treasury and then it basically works as a response to live within its means.

Of course, the point that you have rightly picked up already in some of your pre-reporting is that the CSR period covers the next four years, so it is quite clear that each department now knows what its budget will be and what it will reduce to over the next four years, and just like any good household we have to adjust our expenditure to fit the income that is received from Treasury to manage that particular department.

SB: You can’t speak for other departments it seems, but let me ask you about your own department. In your press release yesterday you said you are going to save £400 million from centralising procurement of commonly used goods and services. 

A couple of questions on that in the Cabinet office itself – how many procurement people do you think you will need compared to how many you have to do that, and how are you going to report and measure those savings?

JC: Well, let me tell you about the centralised agenda that we are working towards. One of the early creations from the new government is the creation of the Efficiency Reform Group which sits firmly within the Cabinet Office. Ian Watmore was appointed to manage that in his capacity as government’s first ever Chief Operating Officer, and as you probably know, but just to tell you again, Ian reports to the Minister for the Cabinet Office, Francis Maude and the Chief Secretary to the Treasury, Danny Alexander.

So Ian Watmore is currently developing his plans for managing and operating the Efficiency and Reform Group in line with the settlements that the Cabinet Office has received from Treasury. Any word as to the future shape and organisation of Procurement within the Efficiency and Reform Group will be made in due course in line with Ian’s other and wider communications with regard to the other functions that he is responsible for within the ERG.

SB: Do you know how you are going to measure the £400 million?

JC: I do. I am going to bring to the centralised categories and commodities the same practices and principles that have served me well during my career as a procurement professional in the private sector, as well as those that I have applied successfully in the Home Office just to demonstrate that it can be done.

That is basically bringing together very high quality sourcing and category management, putting together specific supply strategies for each of the categories that we have identified and targeted for centralisation, putting in place the procurement and payment fulfilment channels to ensure that we are transacting and delivering those category strategies effectively, and most importantly taking from the ERP system, the Oracles and the SAP, standard data that we will basically use to significantly improve the quality of the data that was used in the past and was highlighted by Philip Green in his recent review as well.

It is the quality of that data on a real-time basis that we will then take on a cyclical basis to the sourcing strategies to ensure that we are driving continuous improvement.

That is a very simple strategy and model. I applied it in the private sector and have successfully applied that in the public sector as well, so I know it can work, the minister believes it can work, and it is a simple case of doing that across government departments and leveraging Government’s considerable expenditure to drive significant further value.

SB: You are saying in the release £400 million per year – is that for the four years covered by the review?

JC: The minister stated just yesterday, we are setting ourselves that target of £400 million per annum. That is off of a spend baseline that we have identified of £12 billion so we have invested £12 billion of commonly used goods and services which today are predominantly bought in the departments. It makes sense to say let’s start sourcing and managing those categories on a pan-government basis, leveraging our considerable buying power, because that buying power is much more significant when applied on behalf of the Crown as it is when it is applied by a department.

SB: So next year, that £12 billion will be £11.6 billion, then £11.2 billion, £10.8 billion to £10.4 billion as the £400 million each year is shaved off?

JC: That’s what we are headed towards because it is in line, and I believe that any procurement savings should be in line with the cost reduction targets that are in place for any specific department.  I don’t think it would be fair for procurement savings to be any less than the savings that the departments themselves are being challenged to make.

SB: What would you say to some of the public sector buyers, many of whom have been around for a long time, and they are thinking, ‘Well, this is just yet another review; yet another transformation; we have been through this several times in the past – what is going to be different this time?’

JC: I can say it is really different and this is based on my experience here at the Home Office. I believe the Home Office has given me a good apprenticeship, shall I say to do this particular job.

I would say that the difference that I have witnessed is the executive buy-in from the top of the organisation, and that executive buy-in doesn’t come much higher than the Minister for the Cabinet Office. I mentioned it before, but because of the meetings I have had with the Minister, because of the direction he has set; a good example of this is that he personally led the contract re-negotiations with the top suppliers. He has taken the time over the six to eight week period to meet with all of those chief executives from government’s top suppliers to convey the messages that they are no longer dealing with individual departments as customers, but they are now dealing with Her Majesty’s Government as one sourcing management agency representing the Crown.

Now, that may have been said in the past, and to you perhaps it may have been said, or attempted to be done in the past, but the fact that a Minister for the Cabinet Office personally led that challenge and that initiative which will result in hundreds of millions of pounds being saved.

We are not in a position to announce the actual figure at this point. We will go through the necessary protocol to communicate that figure, but when that figure is launched, people are going to see that that was done as a consequence of the Minister taking personal leadership.

And equally so, the Minister has said that centralisation of category procurement is going to happen, and we are not going to make that happen through collaboration and in the hope that people will come along and participate and collaborate. It will be done through mandatory policies. It will all be done by saying that there is a better way to buy telecoms, and it is not through the IT services providers that currently each department employ, but it is best done by government buying telephones on behalf of the government.

The same is the case for our commoditised IT; the same is the case for those office supplies and solutions; that there is a more effective and efficient way to supply. We will apply that supply strategy specific to the category and be held accountable for delivering the results that we believe are achievable.

The Efficiency and Reform Group have already made good progress, their contract renegotiations are expected to deliver £800 million of savings this year.

SB: And what is going to be your mechanism for reporting the savings that have been made, and of course we are very interested, the readership of Supply Management is very interested in this. Will there be a quarterly briefing or how do you plan to actually do it?

JC: We have got a benefits tracking tool in place. Some of the things I have discovered that have pleased me in the first six weeks is that there is a number of great tools currently in place. One of the tools is a proprietary system that they use called Primeline, and I have decided that Primeline will become a benefits tracking system that we will then use to track the information in accordance with the new NAO guidelines for tracking and recording savings, and I will be held accountable for reporting that information to the Minister. So a monthly heads of profession meeting.

SB: Since the development of the ERG, and the OGC being subsumed into it, what is the future for the OGC and indeed for Buying Solutions? It seems that a lot of its work has been subsumed.

JC: A lot of the work that the OGC and Buying Solutions have done in the past is still going on. We haven’t actually stopped any of that work, but it will be done on the basis that we here at ERG is to identify what is working well. For example the benefits tracking tool that I have just referred to or probably the best example that I uncovered as a consequence of getting in here and just looking round and supporting the Green Review was the fantastic work that is happening with regards to energy. One of the things that perhaps the government has not been as good at in the past is communicating what it does well as instances around best practice. I think we have to do that much more.

I see it as a primary purpose of my job to identify that best practice, but leveraging more effectively across central government, and then to make that available to the wider public sector. A good example of that is that buying solutions and the OGC that was supporting them, a company managing 75 per cent of the UK public sector energy expenditure. The issue is that it has taken us four years to get to that point of 75 per cent employment to essentially negotiate strategy and build.

As Philip Green correctly pointed out the issue there is, it shouldn’t have taken you four years to get there, but it took four years to get there because the only tool we had to get there was the collaborative procurement agenda. Any organisation knows that the first thing that they have to negotiate a better deal with suppliers is the ability to standardise specifications, and aggregate more effectively. It is that very simple premise I am taking forward with this particular agenda.

SB: For instance, the Buying Solutions framework agreements, are they not just now redundant because of the approach you are taking, renegotiation of the contracts with the suppliers on behalf of the government as one entity?

JC: The best way to answer that question is, if we said that the majority of buying solutions contracts today are framework, for all of which the departments subsequently run further mini-competitions, I believe that with that being the primary source of contracting in government, we would have built into that inherent inefficiencies, because essentially you are talking about two full processes for suppliers, at least two processes for suppliers, and two processes applied by government to get to a formula-weighted contract. I believe that the new model moving forward will see those volume-related contracts where government for the first stage is able to commit the expenditure for different services within these areas to leverage expenditure on a volume-related basis.  Or, what I would call the ability for us to spot-buy more effectively if the category lends itself to spot-buying.

An example of the former would be to modify IT. If we can establish and extract our IT expenditure from some of the IT services contracts and start buying directly with the manufacturers, there is an opportunity to reduce the prices accordingly by using an applied standard specification.

SB: And that will deal with the inherent efficiency as you described it?

JC: I said before that the current framework model that results in two forms of procurement process, before you end up with a volume-related contract, is inefficient.  The reason for that is that Buying Solutions, for example, have never had the ability to go to market with volume-related expenditure. This demonstrates the point again, that if you are able to go to the marketplace with volume, and if the category lends itself to negotiate volume-related contracts, then you do it once as opposed to multiple times. That obviously eliminates inefficiencies.

SB: So the new approach will eliminate that inefficiency as you say by going to them once, and that will remove the inherent inefficiency that the buying solutions suffered from?

JC: Just to conclude my point here, predominantly team work and further competition was the way government contracted. That supposes a new strategy that says that the supply strategies will be based on the specific category that is being managed, and that will be a combination of volume-related contracts, or it could be in the case of spot-buy for professional services, and in some cases it may well be that we still retain some form of framework, because that would lend itself to that particular category, if that was in relation, say, to print services or print management.

SB: Where does that leave the existing deals that are already set up? They would carry on?

JC: Where a contractor is currently in place, in that sense to keep that contract in place as we then develop the new model, then we will make that decision. If there is an opportunity, particularly if that framework was not based on any form of volume, and we can replace that quicker with a much more effective and efficient model, then we shall do so.

SB: I want to return to an Accenture report which pointed out recently that the average public sector buyer is responsible for £5 million of spend [annually], the average private sector buyer, £31 million of spend, in the Best of Breed, £50 million. How close to that £31 million private sector average can you bring the public sector buyers?

JC: I was at the presentation where the information was shared, and I was interested and fascinated where Accenture got that information from. The £5 million doesn’t resonate with information that I have, since I have basically been in the public sector.

SB: What information do you have? How much do you think it is?

JC: We have done some recent analysis as part of my information-gathering process, which indicated that the figure was £14 million, which was three times as much as the figure that Accenture put forward. It was still less than the figure that Accenture paid for private sector employees. But again, as you know, there is a whole group of commercial directors who are operating successfully within the public sector that come from a private sector background. I think all this has done is to try and drive and bring those best practice principles to the organisations that they manage.

SB: But you think that the number of millions per person can be improved on, or can be brought closer to £31 million?

JC: The £31 million is the ideal optimal number. I believe it can be improved as a consequence of the changes that we have embarked upon.

SB: Okay. The overall spend is going to be reduced, but the spend per person is going to be increased. That suggests that you are going to need fewer people.

JC: It would become more efficient, Steve. I think that is the whole intention of the government and it is the whole intention of the Efficiency Reform Group that they do become more efficient. I believe – and I think we have seen this in action over the last six weeks, and I am speaking from personal experience as close to the centre as I have ever been – with all the changes we are talking about, improvisation, major contract renegotiation, looking at new ways of deliveries, new ways of operating, I think this is a fantastic opportunity for procurement professionals to share. If procurement professionals wish to develop and enhance their careers within the most of challenging environments that are going through the level of changes that we are, I think it is a fantastic place to be.

SB: George Osborne talked about natural wastage and turnover of about 8 per cent in staffing terms. Do you see that for procurement and the possibility of voluntary redundancies? Is that something that is on the agenda, rather than compulsory redundancies, of course?

JC: As I said earlier on, any workforce reductions will be part of departmental plans. I haven’t been involved in any of those discussions. I am hoping that the instructions of the Minister and the Chief Operating Officer will basically put together a plan for improving they way they deliver procurement.

SB: Can you just clarify? Have those plans been submitted, or they are going to be submitted?

JC: Which plans?

SB: The plans that each of the departments are going to submit, which will outline what they are going to need over the next few years. Have those plans been submitted already or are they about to be submitted?

JC: It is part of the process. It is up the departments to manage within the financial settlement that they have received. Each department has published within the new government’s list of commitments that each department will have business plans. Those business plans are due to be published over the next month and those business plans, I would assume, we will see those adoption numbers contained, and they will agree to work within the financial settlements over the next four years.

SB: This is what all our readers will want to know. What is the effect going to be on jobs. More details of possible or any headcount reductions will be clearer within a month, that’s fair to say, is it?

JC: Again, not from my perspective.

SB: More broadly that once the information is passed over, there will be a clearer picture on possible headcount reductions?

JC: Steve, I haven’t seen the business plans that are being produced, and therefore, it would be wrong of me to comment on that, unless it was produced within the business plan and then I would feel much more confident about answering your question.

SB: Sure. I am not trying to make you saying things that are not within your gift to comment on, because obviously it is a very sensitive area. One more point. You mentioned earlier on the Philip Green report. How are you dealing with his findings and is that running in parallel, or is this part of the same deal?

JC: I suppose talking to these issues, I was asked by the Minister to work with specifically the procurement issues.  Philip was also looking at some of our financial processes, property management areas, but from a procurement perspective I was asked to work with him. It was a fantastic experience, an almost unique experience. It was probably like participating in a whole series of The Apprentice within a short period of time! Philip put us under a lot of pressure to get data, in a sense the way I would describe, we would probably have done that, it may have taken us a bit longer, but he short-circuited the process for us to get that data and for us to be able to support the publication of his review. 

But Philip wasn’t specific in the savings that he felt were achievable. He mentioned one figure in relation to procurement, and that was in regards to telecoms. Given that we had already started a programme called Public Sector Network, PSN, which is looking transforming the way that we supply and provide telecoms across the wider public sector, some of the recommendations that the Philip Green review made are already being fed into that work. That is an example, an illustration, in answer to your question.

SB: Have all these recommendations been accepted or have some been rejected?

JC: If you take one of the first recommendations that Sir Philip Green made, it was “I recommend you centralise procurement”, and that is exactly what the Minister on a number of issues communicated back in August of this year. That is the reason I was appointed and it is the reason I am getting my arms around the challenges. The Philip Green review was almost an endorsement for centralisation, and we are using that positively and the information that we gather to feed into that review is the reason why we need to improve and why we need to improve quickly.

We are currently incorporating the Philip Green recommendations into my plan for centralised procurement. The moment he came on board, they have been incorporated into the plan. We have taken that on board and we are currently implementing them.

SB: Good. John, thank you very much for that. One final point, are you on a four-year contract for this, for the whole review? How does that work?

JC: I am a civil servant, not a fixed term contracted employee. I was fortunate enough to be asked by the Minister to lead this particular programme. I am sorry we are not able to see each other in person today because you would see the level of enthusiasm and energy I am bringing to this particular role. I think it is a fantastic opportunity to centralise – I have done it before, I am loving the job. The reason I am loving the job is I have the executive buy-in to actually do it, and the support of my colleagues to do it, and that is the approach that I am taking.

SB: Excellent, and the permanent contract to boot!
JC: I have always had a permanent contract.  It has always been that case. The way I have always approached my job, For me it’s a programme because that way I can manage this at pace, and my aim is to deliver as much of this as I possibly can by the end of March next year. That is the agenda I am working towards.

SB: By the end of March next year?

JC: That is the target. Obviously I am not in a position to share that with you until today, because that is going to be communicated as one of Philip Green’s wider plans.

SB: Just to clarify that point. You mentioned March next year. What is the significance of that date, given that we are talking about a four-year project?

JC: Generally the change in making some of these changes happen, It re-inflates the programme to start delivering the change from the commencement of the new financial year.

SB: This is an important point. Everything being put in place now and the savings will start to be made from March next year?

JC: No, the savings are already underway. The contract renegotiation work will deliver savings this year. The work we are already doing, for example, in better managing travel within the department as part of the initial £6.2 billion reduction target will realise benefits this financial year, but in terms of moving from the very specific departmental focus by managing these categories across government focus, my job in charge of affairs is to put in place that infrastructure to make that happen so that it is fully operational by commencement of the new financial year. What that does is that emphasises the case that the new government wish to operate. It is a different approach.

SB: You are already working on the savings, but in terms of the actual structural change, that will be in place by the end of March or by the new financial year?

JC: Yes. We are working through that and we will have a formal programme in place. The programme has been approved, it has been signed off. We are basically delivering that in a key number of workstreams, and I would be happy to take you through that at a future meeting where I can show you the target operating model.