30 Jul 2006: The Observer - Page 8 - (793 words)
Business & Media: Business: MANAGEMENT EDITOR: It's not just what you buy, it's the way you buy it
EARLIER THIS month the Treasury announced that Sir David Varney was leaving his job as chairman of HM Revenue and Customs to become Gordon Brown's full-time adviser on 'transformational government' - in English, improving public services through the use of IT. Coming as the government announced the scrapping of the ill-fated Child Support Agency (IT spend pounds 540m, backlog 300,000 cases, running costs 70p of every pounds 1 collected), this might seem somewhat satirical.
Varney, after all, arrives from the same Revenue and Customs that spent pounds 100m on an e-VAT system that after four years was used by 1 per cent of traders instead of the 50 per cent anticipated and whose family tax credit system produced such dysfunctional results - hardship rather than help - that the Prime Minister had to apologise to its victims last year.
Buying IT systems is notoriously difficult, which might be thought a reason for approaching them with less than the current blind faith. But they are only the most obvious symptom of a much broader failing which a number of observers believe could undermine the latest ambitions for public sector reform. Procurement - buying everything from paper clips to billion-pound computer systems - is hardly the sexiest subject. But it is critical for a government trying to drive resources to the front line.
Partly this is a matter of buying power. Local government spends pounds 40bn a year on goods and services, and the whole public sector more than pounds 100bn. In his 2004 efficiency review, Sir Peter Gershon reckoned that better buying could yield pounds 7bn in cost savings - the largest chunk in the pounds 21bn identified as possible.
However, in the mixed economy of service providers now emerging in the public sector, procurement takes on as much strategic as monetary importance. It is not just about buying, but commissioning in its broadest sense, says Craig Baker, a partner at consultancy Ernst and Young: defining strategy, shaping solutions, specifying the requirement, identifying suppliers 'and then driving delivery through to improved outcomes'.
Yet in a co-authored report Good Britain to Great Britain: Delivering world-class services for a world-class economy , Baker notes the 'client-side' is an area where public sector management has noticeably weakened in recent years. 'Outsourcing has led to a "hollowing out" of these capabilities,' says the report. 'Procurements are initiated too soon, before requirements are fully defined. Too much is abdicated to suppliers, or "strategic partners", all too often ending in tears and recriminations.'
The public sector fails to understand that world-class sourcing has to bring together managers responsible for providing service with commercial purchasing teams, adds Andrew Cox, professor of business strategy at Birmingham Business School and chairman of Newpoint Consulting. Lack of commercial understanding in senior departmental managers and the low standing of purchasing functions means procurement is reactive and based on short-term power relationships. 'This problem has not been addressed in any way by the Gershon reforms', which have focused exclusively on the easy pickings, Cox charges.
The results of procurement failings reach far and wide. One is that the public sector has to buy its expertise elsewhere. Last week word leaked out that a US company is poised to take over responsibility for pounds 4bn of NHS procurement. A month ago it was disclosed that global healthcare companies were being asked to tender to take over key commissioning functions from primary care trusts, spenders of 80 per cent of the NHS budget. Both would introduce a new layer of cost and profit into the system.
In IT, where ironically in the Sixties and Seventies the UK public sector was one of the most advanced users and managers, it is now so dependent on its suppliers for the specification of requirements that it can't sack them even when it wants to. The dependencies have also resulted in some murky relationships, with suppliers recruiting public servants indecently soon after they leave office.
Finally, and paradoxically, the need to get results from public sector procurement in general and IT in particular has provided a bonanza for management and IT consultants, now worth more than pounds 1bn a year. (For gory details read David Craig's Plundering the public sector: How New Labour are letting consultants run off with pounds 70bn of our money , Constable). 'The public sector has bought a lot of poor-quality advice,' concedes Baker.
In time, Baker believes the new departmental capability reviews will improve procurement skills. But there remains a deeper problem. As my colleague Nick Cohen has pointed out, the real reason behind the CSA's accumulation of pounds 3bn of uncollectable debt wasn't hopeless computers: it was the naive bureaucratic assumption that a computer programme could resolve the messy, agonising drama of family break-up. Computers crunch numbers. Humans solve problems - including, and especially, transformational government.
The Observer, 30 July 2006