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Councils taxed by web buying
Supply Management – 17 March 2005

Local authorities in England have made only 'patchy' progress on e-procurement, as they struggle with the demands of the government, councillors, the Gershon review and suppliers. Mark Smulian reports

They might not think it, but private-sector purchasers have it easy. Their job is to make money, and if switching to e-procurement makes that easier, it will be adopted.

But their counterparts in England's near-400 local authorities have different and sometimes conflicting priorities. While they must serve the public, they must also demonstrate best value.

The shift to e-procurement is a technical and managerial challenge for any organisation, but councils must also take account of political and local economic factors. Furthermore, they have to consider government directives that influence e-procurement even if they do not relate specifically to it.

For example, all local government services are supposed to be online by the end of the year: while this was not introduced with purchasing in mind, it does have a knock-on effect for buyers.

Local government purchasers must also be alive to political issues. For them, e-procurement should deliver substantial savings by making processes more efficient. This is good news for councillors under government pressure to keep down their council tax increases.

But those savings depend on upfront investment in software, training and management time, which drives up short-term spending. In such cases, councillors may choose to defer expensive investment until a more politically convenient moment. For example, the general election could be only weeks away - this is likely to focus the minds of local politicians and may push projects further into the future.

Also, the range of services that councils provide can make their procurement needs fearsomely complex, and even the smallest authority might buy everything from paperclips to dustcarts.

The final complication is Sir Peter Gershon's efficiency review, which inspired chancellor Gordon Brown to call for 21 billion of savings by 2008.

As a consequence, the Office of the Deputy Prime Minister (ODPM), which covers local government in England, has directed councils to find efficiency savings of 2.5 per cent a year - 6.5 billion in total - before that date.

Gershon's report meant councils that had previously taken a leisurely approach to e-procurement are now casting around for information on what to do.

Jos Creese, head of IT at Hampshire County Council, says the review has spurred interest in e-procurement, making it "probably the number one way in which it ought to be possible to create efficiencies".

The amount councils spend a year on goods and services - 25 billion on 38 million purchases from 800,000 suppliers, according to local government think-tank the Improvement and Development Agency (IDeA) - demonstrates the size of the task.

The organisation charged with steering local government through these choppy waters is the National e-Procurement Project, chaired by Colin Whitehouse.

He expects that the 1.1 billion savings from e-procurement, which Deloitte has estimated are possible, will take three-five years.

This may prove to be a little hopeful, as many smaller local authorities have yet to undertake a supply and spend analysis and so are uncertain about what they purchase and from whom.

If they don't know how these two things, gauging savings will be difficult.

"The principal issue this year is to promote the take-up of work already done, to write 'how to' guides, and to promote implementation in smaller local authorities," he says.

To this end, NePP has employed eight consultants to provide guidance to councils in the use of e-auctions, e-tendering, e-invoices and procurement cards. Whitehouse says authorities can choose from a range of software on the market. They could buy either integrated e-procurement systems or standalone units to piece together themselves.

"An integrated system may have some parts that are less appropriate, but the alternative can cause integration problems. I couldn't say that one path was necessarily better than the other," he says.

Both NePP and the regional centres of excellence (RCEs) - council-led bodies set up by the ODPM to encourage collaborative purchasing - are urging smaller councils to pool their buying power to gain more market muscle.

But the multiple and sometimes conflicting priorities of councils can trip up the unwary purchaser.

In most businesses, it would be obvious that economies of scale are desirable. Councils, though, must promote their local economies. Indeed, an authority may be an important customer for local small and medium-sized enterprises. A council leader who saved money by buying from a multinational while presiding over a local economic downturn would soon be out of office. This tends to concentrate the minds of the politicians who run local councils. It also impedes the normal logic of e-procurement.

In London, where the 33 borough councils each spend an average of 250 million a year with 7,000 suppliers, 30 per cent of invoices are for less than 100. In one case, the figure is 94 per cent. That is a lot of small suppliers. So, Whitehouse says, there is a conflict with SMEs between good procurement and the needs of the local economy.

David Pointon, NePP's director for support to local authorities, has tackled this problem in his role as procurement manager at Portsmouth City Council.

He explains: "We have awarded a 500 million highways maintenance contract to [road construction and maintenance company] Colas and it needs all kinds of subcontract work.

"We have not said that Colas must use companies from Portsmouth, but if local companies can supply the service and offer it more quickly because they are local, we argue that it makes sense to use them, and helps Colas as well as the local economy.

"This sort of thing happens more as contracts get larger and larger and the smaller guys suffer from a communication gap between themselves and the big contractors. Local authorities can help them to bridge that gap, which helps local economic development."

Another barrier is whether suppliers can even bid if they don't have e-procurement systems. For an SME, they can carry a hefty price tag and such companies are the "least likely to have e-cat_alogues and e-pro_curement cap_abilities", says Robin Edwards, procurement director at the West Midlands RCE.

It has got around this problem by running a free online procurement portal offering small companies an opportunity to find and bid for low-value tenders (those falling below the thresholds for European Union procurement rules).

Suppliers register according to their trade, at no cost, and receive e-mails when any of the centre's 38 members are tendering in their sector.

Since the portal started about two years ago, about 2,500 suppliers have registered to bid for 4 million of contracts.

At a council level, it is hard to discern current progress on e-procurement. Pointon says it is like everything with local authorities. It takes time to move forward, but when the first council does it, the momentum will carry others along.

"I have no doubt at all that the market is starting to move."

Edwards suggests another reason why it is so hard to say how far councils have advanced. An IDeA survey of the West Midlands centre found that under half of its members had a "fully working strategy" on e-procurement.

But the question of what people mean when they say e-procurement makes it difficult to define precisely how much councils are spending online.

The key measure of success, says Ken Cole, director of the London centre of excellence, "isn't whether councils are using e-procurement but how much they are using it for.

"If they are doing any more than 5 per cent through e-procurement, I'd be amazed."

This again raises the problem of measuring savings. Edwards points to one major hurdle.

"Councils have traditionally done well at analysing spend against budget and department," he says, but not by supplier. "With e-procurement, you can at least access supplier spend data."

Pointon says there is "a huge amount of anecdotal evidence that you can extrapolate", but no firm evidence of savings due to e-procurement.

"Almost every local authority in the country is doing something, but it is likely to take three years from building a business case to decision-making to implementation."

Whitehouse is more optimistic. In his view, just over half of England's councils have got at least as far as drawing up strategies for e-procurement .

Issues of training and changing organisational culture also lie in wait for council e-procurement enthusiasts. Although staff are sometimes cynical about "change management", it cannot be left to chance. Whole departments that may have done their own thing have to collaborate within and across councils.

Pointon says: "It is chicken and egg: business process re-engineering first and then put in the IT, or put in the IT first and then change the way you work?" But the real danger lies in trying to do half the job. "What you can't do is put old methods into new technology and expect it to work. Plenty of people have fallen down doing that and there are some horror stories."

Problems have also arisen where there is only partial support for e-procurement - for example, where the purchasing managers are enthusiastic but senior management does not understand the issue and councillors do not want to vote extra money for it.

"If politicians are not prepared to sign up to the investment and to the consequences of change, then when things go wrong you don't get people reacting as one team."

Glyn Evans, director of business solutions and IT at Birmingham City Council, says performance is patchy, with some authorities a long way behind:

"E-procurement is going ahead in most councils, but is not on the radar in others."

In his view, measuring cash already made from e-procurement is an inexact science. "People claim significant savings and I've no reason to doubt them," he says. "But it is difficult to answer whether the savings are being realised."

He points out the need to follow a huge volume of regulation for public contracts.

"There are rules for probity, transparency, accountability, and also European Union procurement directives to observe, and all are strictly defined," he says.

Councils must be able to demonstrate that contract awards have not been influenced by any improper considerations, such as friendships, and also that they have spent public money in a legal and responsible fashion. These imperatives need costly monitoring.

He thinks one issue that local government has yet to tackle is the concept of seeing procurement as a continuum from an initial idea through to disposal of an asset at the end of its useful life, and how e-procurement can help authorities to build this total cost of ownership (TCO) into purchasing decisions.

"We see it as just an acquisition process," he says. "We are starting to build the total cost of ownership into decisions, which is rarely done in the public sector, although it is more common in the private sector."

Birmingham City Council recently considered TCO when it bought some desktop computers.

"It is a concept that works well for commodity items," he says. "If you look at a cheap lot of desktop computers you have a saving, but you do not look at maintenance costs or what they could be sold for second-hand. You don't see it in the round and e-procurement has the potential to address that."

Taking total cost into account can also help councils to meet savings targets by considering the "full end-to-end processes rather than just the individual parts", says Creese.

Many welcome the chance to measure efficiency and not everyone is unhappy with the Gershon target. For some it provides the chance to reinvest savings.

Tim Byles, chief executive of Norfolk County Council and leader of the Eastern region centre of excellence, says the good thing about the Gershon review is that it has imposed a national efficiency framework on local government.

Norfolk recently saved 250,000 in an e-auction for computer equipment on behalf of various local councils, but he adds: "This needs to go beyond electronic transactions to different ways of working together. I hope we are setting the stage for groups of authorities to work together on e-procurement."

Although such schemes are the most effective options, they are the hardest to get off the grounds, says Robin Edwards from the West Midlands RCE.

Creese feels the main role now for NePP is to "give a leg-up" to struggling councils. There has certainly been progress, but it is patchy. E-procurement will no doubt spread more rapidly because of the pressure to find savings and through increased familiarity with technological change.

But, as the government has discovered in other fields, trying to impose uniformity on councils is like herding cats and the likeliest outcome is a patchwork of local solutions.

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