Five ways departments can help deliver Andy Burnham’s procurement agenda

The government spends £400bn each year buying goods, works and services – but despite this sizable outlay procurement has long been underused as a strategic tool. So it is welcome that the new government is setting its sights on a more proactive use of its purchasing power. Andy Burnham even mentioned it in his first speech as prime minister – and now the chancellor, John Healey, and Burnham’s de-facto deputy Louise Haigh are reportedly asking departments to use procurement as a "strategic lever to deliver growth and innovation in every postcode". ⁷ ft.com/content/9878a2e4-3ac5-43b0-b2c9-b1fe1a4b65e7?syn-25a6b1a6=1   

But the government should not rip up the existing system. Stability is important, and it was only last year that a major (and positive) overhaul came into effect through the Procurement Act 2023. Focus should instead be on targeted reforms that build on the existing regulations, and attempts to streamline them. 

Social value criteria 

Central to the reforms are changes to social value – the criteria used to assess whether suppliers will help deliver social objectives that are not core to the contract, such as carbon emissions targets. Ministers are right to worry that social value risks layering complexity, adding costs for businesses and creating barriers to entry for small suppliers. Streamlining the criteria and raising the threshold at which the criteria to £1m are welcome improvements.

Procurement – through social value requirements – can be an effective way to achieve objectives that would be difficult to achieve through other policy tools, especially where they require collective action, such as emissions reduction or supporting local jobs. The risk is that using social value to decide who wins contracts may reduce value for money on core deliverables; a risk that is heightened by government raising the social value weighting for contracts over £5m to 20%. This makes it particularly important that any social value criteria are focused on genuine priorities, as has been done with jobs and skills under Burnham. As Haigh said, “if you prioritise everything, then you’re prioritising nothing.”

Alongside the changes to social value, ministers have been asked to set out “five announcements to support the new procurement agenda”. ⁸ http://ft.com/content/9878a2e4-3ac5-43b0-b2c9-b1fe1a4b65e7?syn-25a6b1a6=1  Each department will have different priorities and opportunities to contribute, but here are five ways – drawing on an IfG report published last year – that all departments can use better procurement to deliver on the government’s priority of supporting “growth and innovation in every postcode”. 

1. Signal demand to shape markets

The government is a huge buyer, which means it shapes the behaviour of suppliers – whether it tries to or not. But it is often not intentional enough about shaping the markets it’s buying from. 

Public sector organisations should publish longer commercial pipelines. Setting out provisional plans for major procurements over the next three years would help industry invest in the skills and capacity to better meet public sector demand.

Government can also signal demand in a way that helps innovation scale to make it commercially viable for both public and private markets. “Pull mechanisms” (such as advance market commitments or ‘Contracts for Innovation’) commit government to purchasing innovative solutions if they can be developed. Departments should set out particular problems where these tools could be used to help scale innovation that could help both the public sector and support growth in the wider economy.

2. Make preliminary market engagement a core procurement activity

A key weakness of procurement currently is that government does not engage early or extensively enough with the market to understand how suppliers could help address a problem it is facing. This means tenders are less well written, suppliers are less prepared to meet demand and new, smaller suppliers are more likely to be shut out. Government should engage much more widely, and actively with the market – including to identify opportunities to support innovation and buy from high-growth domestic businesses.

The ‘competitive flexible procedure’ makes this easier than it was in the past, including by clearly mitigating some legal risk. Senior commercial leaders should ensure that preliminary market engagement is seen as a core procurement activity – visibly demonstrating how this can be done well to give others in the department confidence to do the same.

3. Actively seek innovation opportunities

Re-thinking how a service could be delivered or a new innovative product integrated takes time and resource. But too often a lack of forward planning for contracts due to expire or new procurements leaves government on the backfoot, defaulting to standard practice and familiar providers rather than thinking about opportunities for innovation. Departments should set up ‘horizon scanning’ processes for major contracts to actively identify opportunities where innovation could help the public sector get better value for money, and support wider economic growth. This should work alongside the new ‘public interest test’, introduced in the final weeks of the Starmer government, that assesses whether insourcing or outsourcing is the right model for service delivery.

4. Use data to understand public sector markets

The Procurement Act 2023 brought in greater transparency about who is buying what. Departments should use this to better understand the markets it is buying from: where competition is weak, and where opportunity to buy with innovative and potentially growth-boosting providers is not being utilised – including across different parts of the UK. Good data will also be crucial to understanding whether the new social value criteria are supporting job creation in practice.

In turn, departments should ensure they are publishing timely contract data in an accessible format to help give suppliers visibility of the market landscape, allowing them to better see how they could supply to the public sector. 

5. Strengthen commercial expertise

Buying innovative solutions can be difficult. To do it well, departments need effective commercial professionals who understand public sector markets and can bring in innovative suppliers. It is also vital to have skilled teams managing contracts to support further innovation in delivery while ensuring value for money.

So departments should identify the specific commercial capabilities they need and plan their workforce around this. For many, this will include senior strategic commercial professionals who can shape policy development and skilled contract managers. With the abolition of DSIT, which previously housed the Commercial Innovation Hub and Digital Commercial Centre of Excellence set up under Starmer, departments and government as a whole must ensure digital expertise is maintain and further strengthened.

Haigh is right to reach for procurement as a tool but must not try to reinvent the wheel

This government is right to see procurement as a way it can help deliver its priorities across the public sector. But any changes should enhance and strengthen, not replace, the changes under the Procurement Act 2023 that are just beginning to bed in.