One major trend over the past twenty years in public procurement has been the greater centralisation of procurement activity. Conceptually and practically, working together is seen as being a good thing. We have seen national procurement organisations being created, or existing bodies strengthening their position in many European countries. There are also regional or local collaborative bodies covering part of a country, and those who are focused on helping organisations in particular sectors, such as health, police or local government.
In some countries, the national collaborative bodies have gained a strong mandate in terms of some organisations being “forced” to use them; in others, it is still very much a voluntary option for users, but in general, more contracting authorities than ever, we suspect, are using such collaborative bodies.
What are the pros and cons of this development? Today we will look at the positives as they are usually assessed, then in part 2 we will take a more critical look and examine some of the negatives around this strategy.
The Benefits of Collaborative Buying
1. There should be – or perhaps we can say may be – economies of scale by bringing together multiple organisations and their purchasing requirements. This is the obvious reason that the general media and politicians are usually positive about collaborative ventures. “Why is every public organisation doing a separate deal for copier paper? If we just had one deal we would get a much better price,” is what we hear. If we bring together spend from multiple organisations, and approach the market with that aggregated requirement, then we should have more buying and negotiating power and be able to obtain a better commercial deal.
2. There should be a saving in the overall effort and therefore in the cost incurred to carry out the procurement work; the whole tendering process from early market engagement to tender and contract award. Simply, collaboration means we are running one single procurement exercise on behalf of (say) 10 organisations, rather than 10 organisations each running a separate procurement. That should generate an obvious benefit in terms of the resource needed to do that.
3. That efficiency saving is also replicated on the supplier side, leading to lower costs for the market. Instead of potential suppliers having to bid many times, completing many PQQs or ITTs, which of course may all require different answers, data and input, they only have to do this once. (The issue of a lack of standardisation in terms of processes such as pre-qualification is a particular dislike for many suppliers!)
4. Particularly where the contract covers relatively complex goods, services or works, there is the opportunity to develop procurement-related expertise in the collaborative body in a way that is difficult for each single organisation to do themselves. So it is unlikely that every town council can afford to have a really skilled energy buyer; but an organisation that is buying on behalf of 50 or 100 towns can afford to invest in that expertise, which should generate benefits for the users of that contract.
5. There may also be the opportunity to use the collaboration to drive standardisation, which can then have another range of benefits. Those benefits can range from a reduced need for total stockholding (stock can be shared between different entities) or less need for staff training. So if different Police Forces collaborate around (for instance) protective equipment, and agree to common specifications, then that equipment can be used by different police forces, and there is no need for training if a police person moves from one Force to another.
These benefits can be significant. In our experience, many people assume that the economy of scale argument is the most powerful as a driver for collaborative procurement. We disagree based on observations over the years. We will come back to some of the issues and negatives in part 2, but the benefits from standardisation and from having deep expertise in the collaborative body can often outweigh the economy of scale benefit, we would suggest.
More on that in part 2.