Evidence suggests many countries do not collate basic data such as who spends public money, with whom and on what.
By Colin Cram
Guardian Professional, Monday 22 October 2012 04.12 EDT
How much does local government spend on procurement globally? In the US, I estimate that the public sector procurement spend by and within states amounts to some $1.5tn a year. This is around 70% of total US public sector spend. Yet in the UK, some of this expenditure – such as spending by universities and higher education institutions – would bot be recognised as a local government cost.
Here in the UK, local government expenditure accounts for the equivalent of approximately US$80bn, just under 25% of total UK public sector spend. In other countries such as Indonesia, Poland, Australia and South Africa, much government procurement spend is delegated to local government.
Globally, anything between 25% and 75% of total public sector procurement could account for spending by local governments; for large countries, “local government” can include states and provinces that have sufficient devolved responsibilities.
So how much is the global public sector spending on procurement? No reliable figure exists. In the US, it is close to 12.5% of GDP. In the UK it is about 20%. In Indonesia the figure is just 5% of GDP. We might naturally presume that this pattern continues around the globe, with government procurement as a proportion of GDP much greater in the developed world.
Globally, a figure of 10% of total GDP looks a pretty conservative estimate for public sector procurement. This would amount to US$7tn and, of this total, local government would account for around $3.5tn.
Why does this matter? Because this immense resource is not well managed. In the UK, despite improvements, procurement management is fragmented, with individual local authorities coping with varying expertise. In the US, it is fragmented between and within states; there appears to be no state with an overall picture of both the state government’s procurement spend and the public sector spend within its geographical boundaries (though Virginia has an excellent handle on the state government’s own procurement spend).
Data on procurement – who spends the budget, with whom, on what and where – is often woefully inadequate, which means that the fundamentals of good procurement management are immediately lost. In countries such as Indonesia or Poland – and even in some areas in the UK and the US – central government has ineffective oversight of local government procurement. This fragmentation means that nations cannot use public sector spending to manage markets, whether to obtain lowest cost or to support economic growth.
Local government in both the UK and the US is struggling with limited resources. Much better management of this huge expenditure could help alleviate some of the problems both countries are facing.
In the UK, there is plenty of evidence of the benefits of joint procurement, within central and local government, the NHS and education. And the UK does have a fair idea of how and with whom the money is spent. Yet progress towards mature joint procurement remains slow, despite common suppliers and common products and services.
In US there is some collaboration between states, but this represents a small proportion of procurement spend.
So why might councils and authorities be reluctant to work together on procurement? On both sides of the Atlantic there are fears about loss of independence; could joint procurement turn out to be the thin end of the wedge?
Naturally, joint procurement could lead to fewer jobs and turkeys won’t vote for Christmas. There is also a typical conservatism about moving away from known suppliers and specifications to work with new partners, while decision-makers sometimes have little understanding of procurement and how to secure the best deal from the process.
The first large country to bring together its total procurement spend, have clear oversight of the budget and an ability to implement social policies through procurement, will have an economic advantage over its competitors. It will be able to ensure that procurement resources are directed towards those industries which generate economic growth. It is unlikely to happen in either the UK or the US in the coming years.
Colin Cram is a consultant and the former chief executive of the North West Centre of Excellence