International Centre for Parliamentary Studies

1. International Centre for Parliamentary Studies “International Public Sector Reform Symposium”,13th & 14th December 2011, London Improving Procurement Practices to Improve Service Delivery in Challenging Times www.deficit-reduction.com www.futurepurchasing.com Jon Hughes Chairman, Future Purchasing &Visiting Fellow, Henley Business School ejhughes@futurepurchasing.com Dr. Marc Day Professor of Strategy & Operations Management Henley Business School, University of Reading marc.day@henley.reading.ac.uk

2. Our methodology, approach & ongoing analysis of public sector procurement transformation • A decade of reports • 110 departmental accounts • 100 case studies Phase 1: Q4, 2010 Analysis • Six value pillar structure • Barriers to reform • Practical recommendations Phase 2: Q1-3, 2011 Synthesis Jon Hughes Chairman , Future Purchasing &Visiting Fellow, Henley Business School • Dedicated micro site • Conferences • E-mails and bulletins Phase 3: Q4, 2011 Dissemination • Tracking progress • Executive presentations • Bi-monthly updates Phase 4: 2012+ Commentary & Ongoing Analysis Dr. Marc Day Professor of Strategy & Operations Management Henley Business School, University of Reading Registration & free updates: www.deficit-reduction.com

3. UK public sector procurement case study and alignment with three key policy goals Reduce the £109bn Structural Deficit by 2015 (and as per Autumn Statement, by 2017). Stop borrowing 1 in 4 of every £ spent. Rebalance the Economy and stimulate economic growth. State spending as a % of GDP reduced from 48% to 40% by 2015. Open up public services to greater choice and competition. Particularly through SME access, entrepreneurialism & voluntary / social enterprises. 1 2 3

4. Clinical and Medical Analysis of reports from Gershon to Green, NAO& PAC, case studies & UK-wide spend data Professional Services Construction Facilities Spend £bn 5 10 15 20 25 30 Social Care ICT Hardware and Software Defence Learning & Development Temporary Staff PFI Running Costs Consulting • 15 mega-categories account for 90% of £243bn procurement spend. • Does not include the £267bn “black box” of PFI liabilities. Vehicles Operational Goods Financial Advice Travel & Events Source: HM Treasury, Cabinet Office, ERG Spend Estimates

5. Evaluation of the size of the spend, opportunities, comparators and realistic assessment of it Snapshot of the UK Public Sector Procurement Landscape Size & Savings AnnualUK GDP £1,473 bn PFI £267bn • 650+ liabilities over 25 years • Renegotiate & claw back “National disgrace” Public Sector Total Expenditure £632bn Total External Supplier Liabilities Defence £25bn • £36bn black hole & over-runs • Rebuild procurement “Weak & dysfunctional” £562bn Conventional Procurement Spend £243bn Health £48bn • Inadequate focus, CEOs down • Chronic under-performance “Too often lamentable” Private Finance Initiative Liabilities £267bn 25% ERG Savings Goal Local Govt £51bn • 28% front-loaded grant cuts • Redefine commercial structures “Some good, most not” 35% McNulty Rail Target 15% Cost Reduction, Conventional Spend £37bn Education £16bn • Encourage new providers • Need smart procurement “Devolved & difficult” What it Equates To Percentage of the UK’s GDP Others £58bn • Mandated aggregation • Inject expertise & best practice “Hard to gauge” 20% Annual Tax Per UK Taxpayer £5,000 Centre £31bn • Category aggregation • Major projects & top suppliers “Encouraging start” 37 new hospitals and bed space for 31,000 patients 8 capital projects the size of Heathrow Terminal 5 Welfare £4bn • Payment by results (PBR) • Extend to other social policies “Real innovation” 700,000 middle management jobs

6. Framework 1: Major levers of change for UK public procurement practice 1. Value 2. Spend 3. Options 4. Structures 5. Processes 6. People Make it a government policy goal Coalition of ministers to own it £37bn delivery. Scrutiny by PAC, NAO, NED All £500bn+ i.e. annual and PFI claw-back Departmental reform plans to attack it Phase 1 to 2015 & Phase 2 to 2020 Huge scope tactically & strategically Three tracks: price, cost & commercial Quantum of delivery reflects sophistication Not advocating a centrist model at all Majority of change is local & regional Structural consolidation is essential Faster, better, stronger best practice Category & programme management 50% reduction in bid time + 25%+ SMEs Top level minister & CEO leadership All pivotal professionals who buy Government Procurement Academy

7. Framework 2: Improving procurement practices across price, cost and commercial structures 1.3 Price & Contract Innovation 2.3 Re-engineering Supply Chains 3.3 New Service Delivery Models ComplexLong Term 25-40% cost reduction: breakthrough change, innovative commercial restructuring Scale ofChange Ways of Working OperatingModel Timescales FinancialBenefits 1.2 Contract Renegotiation 2.2 Supplier Value Management 3.2 Outsourcing & Redefinition of Services 10-25% cost reduction: deeper change, value maximisation and service redefinition 1.1 Tactical Renegotiation 2.1 Specification Rationalisation 3.1 Aggregation & Shared Services 5-15% cost reduction: through quick wins, specification changes and aggregation ImmediateFast Gains “Price Structures” Renegotiating and Restructuring Supplier Pricing and Contracts “Cost Structures” Impacting the Cost Drivers and Re-Engineering Supply Chains “Commercial Structures” Reconfiguring Organisational and Operating Models

8. Framework 3: Scale of change in improving procurement practices and service delivery Case Study Example: Local Government Services Radical Change Incremental Change  Vertically integrated services with no external provision 10 9 8 7 6 4 5 1 3 2  Compulsory competitive tendering in narrow service categories  Performance managed by bids, tenders, contracts and SLAs  Application of category and supplier management processes  Cross-functional and cross-service commissioning teams  Centres of excellence for procurement and commissioning  Local and regional procurement hubs  Procurement consortia and shared services  An enabling council, with considerable outsourced service delivery  Merged council structures commissioning external services

9. Do keep in touch via the Micro Site Please download a complimentary copy of the strategy, blueprint and action plan for procurement reform: Why Public Procurement is Central to the UK’s Economic Performance ........ and How to Transform It A Strategy for Deficit Reduction, Service Delivery and Economic Growth Access it on: www.deficit-reduction.com or www.futurepurchasing.com Free updates are available every two months, starting January 2012 Looking forward to future contact and dialogue through this Parliamentary term .... and even across the next one!