The public spending watchdog has called on the government commercial function to spearhead a crackdown on the number of "poor quality" procurement frameworks through which government money is channelled.
The National Audit Office said public procurement in the UK is "largely decentralised", with a mix of public and private-sector organisations offering many thousands of frameworks for buying goods and services. It said government has no oversight of the many frameworks and providers, and that there is no definitive list – although some estimates suggest there could be up to 21,000 public sector frameworks.
According to the NAO's Efficiency in government procurement of common goods and services report, the government could "significantly improve" the value for money of the roughly £125bn a year that the public sector spends on common goods and services.
In 2022-23, £25bn was spent through frameworks operated by the Crown Commercial Service, which is a trading fund and executive agency of the Cabinet Office, the NAO said. According to CCS's latest annual report and accounts, published this week, annual spend increased to £30bn in 2023-24.
CCS's main objective is to help the UK public sector get better value for money from its procurement of common goods and services. However, the NAO said the emergence of procurement frameworks hosted by small contracting authorities such as health trusts or academy schools – but operated by private companies – "raises questions about how those frameworks contribute to value for money at a system level".
CCS funds its operations by charging suppliers that use its frameworks commissions that average 0.7%. But the NAO said other public sector frameworks charge suppliers as much as 5% and 6% in commission – and sometimes incentivise direct awards rather than competition.
Among its recommendations, the NAO said there is an "urgent need" for the government commercial function to create a playbook or good practice guidance for framework agreements.
"Through the playbook, GCF should set the standards for accrediting framework providers and ensure greater transparency over how frameworks are created and operated," it said.
The guidance should also cover how and when direct awards via frameworks should be permitted, the NAO added, "the aim being to achieve fewer frameworks, lower levies and commission rates and improve the quality of frameworks and framework providers".
While the report said CCS's average commission of 0.7% compares favourably to other rates, it also said there is a risk that the organisation has focused too much on growing the volume of spend that goes through its commercial agreements at the expense of maximising value.
The NAO said CCS's levy rate has generated double the income the organisation needs to achieve its financial objective of a 5% return on capital employed on average over a five-year period. CCS generated income from levies of £177m in 2022-23, almost double its operating cost, it said.
If the CCS cut its levy rate by half and passes savings on to departments and other framework customers through price cuts, the benefit to the public sector would be £500m over five years, according to the report.
"As a result of its successful growth, CCS should now focus on delivering an efficient central purchasing system for the UK public sector," it said.
'Headcount cap' clips CCS wings
Elsewhere in the report, the NAO said CCS could take a "system leadership role" in the public procurement of common goods and services but has been "constrained by its operational capacity".
CCS reported that it had implemented a 20% staffing reduction in 2022-23 because it was subject to the Cabinet Office's headcount "cap", the report said.
The NAO said CCS told it that although it has an ambition to increase the value it provides to the public sector, the staff reduction had "made it more challenging" to realise that ambition.
Among the issues cited was a difference between the skills required to deliver procurement and those required for innovation, data collection and market analysis.
The watchdog said CCS should put in place "appropriate commercial capability" to act as the system leader for the procurement of common goods and services, "make better use of the data already available within the procurement system and identify opportunities for innovation and more effective competition in the wider market wherever feasible".
According to the report, the CCS had a headcount of around 1,000 at the end of the 2022-23 financial year: 782 employees, 172 staff deployed from the Government Commercial Organisation and 47 agency and contract staff.
A Cabinet Office spokesperson said the department had noted the report and would consider its findings.
"Crown Commercial Service’s purpose is to achieve maximum value for money across public sector procurement," they said.
"In 2022-23, it delivered £3.8bn worth of commercial benefits through its agreements."
The Cabinet Office added that CCS's revised business plan for 2024-26 set out its plans for improving category-management strategies and the quality of commercial agreements.
It also said the NAO report recognised there was uncertainty about whether suppliers would pass on any reduction in the CCS levy to public sector organisations in the form of reduced prices in individual contracts.
This story was updated at 16:00 on 26 July 2024 to include additional background information from the Cabinet Office