Sir Philip Green's review of government procurement has uncovered the type of incompetence, waste and over-charging that will be familiar to anyone who has ever read an account of any government IT project. To begin with, he struggled to get any decent information out of central government - which in itself reduces its ability …
And the implied solution seems to be...
...centralising everything. Yeah, that sounds *really* efficient.
It is for procurement. Buy in bulk and use your size to force supplier prices down.
It's pretty simple, even a government minister should understand it.
Who says its the big centralised units that tget the best prices? For IT contracts, maybe, since they ought to be able to keep experts on the staff, but for the smaller stuff local buyers with local accountability probably stand a better chance.
I seem to recall reading that US govt. would save a fortune on stationery simply by handing someone a fiver and asking then to buy some pencils (or whatever) on their way in the following morning.
The price of flexibility
Bulk buying only works when you can commit to a long-term contract. That means you will know that your requirements, or volumes won't change from what was agreed. It means that you can't make changes without paying a penalty. It means that if someone else comes along halfway through the contract period with a cheaper offer (or a better solution) you are tied in to the old specification at the old price. So for example, who'd have thought 3 years ago, that a 2TB disk would be £80, retail. I expect that a 5 year contract started in 2006 would still have the government buying 500GB disks at £100 a go - having congratulated themselves on such hard-nosed negotiations. Conversely, if they wrangled too-good a deal, so that the supplier goes bust they lose the efficiencies of bulk and the benefits of uniform specifications, and possibly not being able to get spare parts.
That's even if suppliers can be assured that the party in power will still be there for the term of the contract - and that the next lot (or a post-reshuffle minister) won't do a complete U-turn, thus invoking mega-penalty payouts, which would lead to equally hysterical headlines in the Daily Wail.
Wonderful! Until it is actually used...
Our company decided to adopt that approach, to centralise procurement of everything so as tyo drive down price and support costs.
Well, except for the fact that we now, globally, have mobile phones with US AT&T contracts (centrally procured, got a great deal for bulk).
Which is feck all use when you are based in the same country as your office, such as the UK. Every mobile call costs a bloody fortune as they are all US contracts and hence on international roaming charges.
Yeah, no two ways about it, centralised procurement truly is the saviour of the company!
... the answer is a mixed model - centralised procurement with the ability to make smaller procurements when necessary. It is simply the old "petty cash" system, which, with appropriate monitoring, works well. It deals with short-term problems, gives some (illusion of) control to the local team, and prevents frustration and inefficient hold-ups due to unexpected hiccups in the procurement/distribution/delivery/use of assets.
The great thing is....
That in a private company the idiots that put that little agreement together (and the even bigger idiots who approved it) can be sacked. In the Civil Service they get promoted as it's the only way to get them out of the department.
Which works great....
For homogenous goods, Paper, printing cartridges and laptops are not.....
You are always going to have to balance the gains of centralisation (economies of scale, leveraging suppliers for loss leaders etc) against the cost (time/money/human resources) of putting an additional step in the procurement process (which centralisation inherently does).
I think there should be a good calculation for this per product
Essentially your variables are:
Percentage advantage of centralised purchasing
Time sensitivity of procured product (how many days do you normally need it in - lead time from supplier)
Complexity of product/chance of incorrect ordering i.e. number of variables per order
Cost and quailty of additional person required for centralised purchasing role (hours required annually/cost of resource)
Total expected expenditure on product annually
Not all details can be known exactly but must businesses that have been running for some length of tile should have an approximation
You should then be able to make a tipping point suitable for your organisation to either centrally purchase or leave regional/departmental.
I'd love to see what paper costs over £70 per box.
Maybe its a really big box
or really big paper!
I think you meant that in jest, but it probably *IS* large-format paper. I know my municipal government uses the stuff all the time for village-plan maps and the likes.
I suppose the stuff they like to use for certificates and awards might be a bit more expensive too...
Another reason to pull out of the EU
PBO's have to stick to EU laws and are made accountable by this, Does Sir Green have to do this when a Top Shop needs a computer? No he is able to send a minion to Tesco for one of the shelf, whereas a goverment body cannot be seen to do this...
What Bollocks - you think a company the size of Arcadia doesn't centrally procure IT.
piss ups and breweries - not within governmental capabilities.
That the people who will be screwed will be the small suppliers, who will find they are supposed to fund the government debt by having the sort of payment terms supermarkets / chain stores like to insist on and those towards the lower end of the value chain e.g. cleaning / catering companies who can grind down their staff a little more, whilst the big IT / management consultancies will continue to get their large fees (because if there is one thing we know, it is that big changes mean expensive 'change management consultants' etc. etc.)
As I've said...
on various newspaper article comments sections, why cut child benefit when you can save more through efficiency? The best analogy is the water utility company's who extol us to save water, not have so many baths, impose hosepipe bans and so on whilst their system loses a fifth of the supply every day through leaks.
....and in another 5 years
someone else will be reporting that the "Department for Administrative Affairs" are wasting millions on centrally managed procurement and it would be much cheaper if individual departments were allowed to buy things themselves and cut out a lot of the bureaucracy!
"Is the minister aware that a pen can be bought for 50% less if civil servants were simply allowed to buy them in a high street shop?".
Can you tell I'm re-watching "Yes Minister"?
Some of the savings may not be so simple
I know the £2000 laptop price looks ridiculous but what spec are they:
If it's a laptop with a Flagstone drive installed then the machine will be bloody expensive, more so if there are any hardware keys required for the device.
Not quite so simple, same for the printer paper as you can't get your 'secure paper' in the local office supplies store.
Mind you such exceptions will not be that common in the overpriced government departments.
What they are probably not taking into account is
all the Microsoft taxes they need to include.
Licence for "Business" version of Windows - Check!
Licence for Office Suite - Check!
CALs for a metric shedload of various servers from Exchange through to Sharepoint - Check!
In a typical situation a the cost to purchase a laptop is double that of the sticker price.
I still don't understand why it is just taken as an accepted fact that all this guff *needs* to be provided for every single user in the organisation.
But what would I know, I don't have an expensive MCSE qualification to protect at all costs.
I await the tirade against Local Authorities to ensue!
it's called privatisation
More here: http://www.guardian.co.uk/business/2010/oct/12/greens-centralised-procurement-old-ideas
The tories wanted to give their pals some momey, now they want to take it away?
Do we care
that private sector companies are ripping off these govt departments or is that just sensible business practice?
Anyway good news that this is being exposed even if there won't be the punitive repercussions that might be fun.
Some things seem a little silly though, of course the cost of laptops, paper and cartridges vary - there's all sorts of different types - I would expect to see similar variations in the cost of fruit so it would be useful to have a breakdown by type.
Ooh look, big numbers!
Look at all the scary big numbers - they must all be bad! All of them!
>Printing paper varies from £8 to £73 per box.
Plain paper, verses watermarked secure paper with tear-offs or stickers (like you MOT certificate) perhaps?
>Printer cartridges range from £86 each to £398.
Maybe a boggo laser printer to a massive plotter for printing hugenormous A0 posters?
>Prices range from £353 to £2,000 for laptops.
Because everyone in government needs exactly the same kit, don't they. Nobody could need a ruggedised one, or one with a huge screen if they're visually impaired.....
I'm not saying there's no waste - there's cleary tonnes - but a bit of context please Reg. (Like how many £8 boxes vs £73 boxes?) This isn't the Daily Mail!
I pay under £2 per box for quite small quantities of printer paper or does the gov only buy huge boxes.
I also buy toner at well under £86, price depends on printer.
It seems that the minimum prices they pay are what is really unreasonable.
yup, sickening numbers
Having worked IT support in centeral gov, i have seen the 'special' pricelist offered to the government by its suppliers. The pricetag is appalling, sickening to see and frankly discraceful.
We could fund many many more moats for MP's/benefits for the proles/wars by simply going to (gasp) PC World for comparible/identical kit.
I'm sure there are some items which the gov pay market rates for, but I'm pretty sure its in the minority.
AC just in case.
That comparable kit is like our developers asking why Tier 1 storage is more expensive than SATA disks on eBuyer
My Dear Mr Aggleton,
I’ve not been to a store in a while, but I suspect you may struggle to find such high reliability disks in PC world!
By comparable kit, I mean, literally, comparable kit. Stuff you could buy in PC world that will fill the same performance/capacity/availability/integrity/security functions. Eg: Average to executive level laptops. No specialist kit in them (to my knowledge), lots of them purchased across the various government departments.
It was my understanding that specialist software such as disk encryption was added afterwards. (by the arcane OS iMage alchemists that dwell deep in the depths of the dark towers of IT support.) Basically, this wouldn’t (shouldn’t?) have been added on the vendor price tag.
Clearly, as soon as you are looking at specialist, high security, high availability or server room equipment it will cost more.
However, specialist equipment, this was not.
I would be interested to hear an actual, plausible counter argument justifying the larger price tags. (Unless the reasons will make me want to sit in the darkened room, eg free jollies and branded desk-trinkets.)
There is every possibility that there is a good reason why it isn’t possible to provide standard kit to the government at market rates.
Still AC... but with a largely inflated profit margin.
"significantly greater than they should be"
Yeah, but have you ever tried to work with some of these people? Does the phrase 'twat tax' mean anything to you?
Post anonymously - because...
No wonder Labour f%cked up the economy, education, welfare, health. They are incompetent and couldn't run a grocery store, along with many civil servants.
Gordon Brown was lauded as the saviour of the World's economy.....my @rse.
£73 per box of printer paper
Is this an usually large box, or does it come with platinum crown watermarks?
don't need to centralise everything
Just get the data centralised
Purchaser for dept A buys something for X pounds.
Purchaser for dept B knows this, but is quoted X+Y pounds. So dept B can go back to the supplier and ask why A got it cheaper.
Plus the general improvement in writing contracts and not changing specs all the time should be a no brainer.
That app could be written withing a few days and run on a desktop. That's the sort of thing governements should be doing, not contracting EDFuckingS to spent 6 years and 1/2bill£ on a mainframe system that doenst work.
OK, so there's backup and remote access to consider, but really, not a big job.
Re: "..should be a no brainer."
Yes it should, but it obviously isn't.
We've got extensive evidence that many thousands of people with absolutely no brains at all have been comprehensively screwing up contracts and specs in government for donkey's years.
Centralisation does not necessarily deliver savings
Centralisation does not necessarily deliver savings. There is a fine line here.
A laptop build to be used by 20000 people in different job roles with different needs has a testing and integration bill that eats all savings from having up to 20 different systems with around 1000 users for each one.
This one is usually not factored in and in fact is usually counted from a completely different budget.
By the way, private corporations are not any better than the government here if not even worse.
is that Sir Philip's factfinding runs against government policy of spreading the wealth out, and let's face facts, if the government were to centralise telecoms with one supplier that would be 67 companies bankrupted overnight, a few hundred out of work and then on benefits. Going directly to the big boys would create an even large old boys network than currently exists and cut out the alleged benefits of freemarket economics, capitalism and cost cutting.
If 67 Telecom companies rely on the Government to stay alive then they should go bust and allow more good companies into the government contract market. Now thats capitalism in its truest form. Relying on the government for you business model is called socialism (or more comonly called spreading my hard earned tax money around).
Just structure the contracts correctly and don't let the suppliers put you over a barrel so you can play them off against each other come renewal. Not having a telcom contract longer than 12-18 months would be a good starting point for negotiations and keep the Telco's on their toes. Come on this isn't rocket science. Any half decent CTO/IT manager is already doing this.
if you look at the report itself, it says "Fixed line telecoms is the best example
Government fails to leverage its scale".
I don't know if anyone remembers when BT was publicly-owned.
As far as I remember the idea was that UK telecoms would quickly cease being a monopoly, and would therefore bring significant saving to the customer.
err. 26 years later, not sure if that has happened yet.
And it seems that one of BTs bigger customers - the government we pay for - is, instead of getting its phones at cost price, having to pay through the nose.
great stuff that privatisation.
and don't get me started on HMSO...
Sorry not quite right...
The reality is that to get the best deals you have to commit for the long term as someone else has already said. I worked on a deal for a Govt dept but they would not go for the cheapest option of a 5 year deal telecoms deal because their contract with their IT supplier finished earlier than that so they went for the 3 yr deal even though their IT supplier told them the 5 year one offered better value for money. The shorter period also meant that they could think about their future telecoms strategy around all their telecoms.
The problem is that the "Government" is not a single customer. In doing his report Philip Green should have considered government expenditure as if it was being done by lots of different companies in the same business group. I have the feeling that the picture may not be dissimilar.
Having read the report...
...it seemed that the biggest savings would be in getting someone who actually knew what they were doing to sort out office accommodation. Apparently the silly buggers often don't negotiate break clauses in their leases so, as in one example, an agency leased an office at £1.2M/year on a 15 year lease with no break clause and were abolished a few months later. £18M down the toilet.
The report also points out that they don't actually know what they're spending half the time - example they were initially told central government spend £2 billion on travel. It was actually £551 million. At least it was in the right direction ;-)
ps - Apparently the guy who did a similar report for Labour 8 or 9 years ago goes along with most of the recommendations.
If only it were that simple...
... there are undoubtedly some huge savings to be made across the board in government procurement and certainly to be leveraged by its size. However the size and breadth of government means that some of his targets are so simplistic as to be laughable sadly. Striaghtforward example - get all government to sign up to a single mobile phone service provider. Fail - which of the providers guarantees 100% coverage across all government sites? Or which guarantees to have sufficient capacity to deal with the demand during a major national incident? Answers - none of them. So you're forced to take whichever works best for the particular circumstances unless you seek to address the coverage and capacity issues. At my site I am effectively restricted to a single workable choice of provider because it's the only usable signal...
I find myself incredibly annoyed by both sides of this piece. After 12 years of multi-channel retail experience I can fully understand where Sir Phillip is coming from because he and his staff have the freedom to make a decision and implement it without any recourse to outside considerations or requirements, except shareholder satisfaction. After the last 3 years in the public sector I can fully understand the complexities and the frustrations of having to navigate a way through the endless legal hoops just to buy pretty simple stuff. There is of course a whole raft of central framework agreements that in theory you can just draw upon, until you realise that you can achieve lower prices if you are willing to put the effort in on behalf of whichever department or body you work for...
And don't get me started on the piss-poor contracts! I've had the pleasure of producing the specification for and letting some sizeable contracts during my time with my organisation and they are delivering year-on-year savings and improved service against what was in place previously and significantly better value for money in comparison with many other bodies. By focussing on the outcomes to be achieved and not the technologies or mechanics of how it happens, suppliers can be set free and demonstrate the real value they can provide - this is how to realise the larger-scale efficiencies and savings that the ConDems are seeking, not by sorting out the paper-clips, print cartridges and phones
Coat icon cos I'm seriously thinking of getting mine for real, turning off the light and going to do my own thing. Public sector can go hang, it's so broken it can't be fixed
This isn't totally surprising - and not for the "government are incompetent" reasons, either.
GCAT (as it used to be called) was supposed to solve a lot of this, by central government setting up framework agreements that all departments could buy under.
However, GCAT never really worked - for me at least. For starters, for every order, the government department running GCAT took a 7% (or thereabouts) cut on every order. They didn't do anything. It was just their commision for setting up the contract.
Secondly, the pricing on GCAT was never that great. In theory, it was supposed to be impossible to buy cheaper than a GCAT price. In reality, it was easy. When I worked in a government department, I rarely bought under GCAT. I always went out to the market.
The other thing against GCAT, is that it favours the big companies/resellers over the little guy.
printer cartridges £398.
Ah, they must be buying OEM supplies from Epson or HP...
What's the saving on paper then, Phil?
Unintended adverse PR from this report is that it was a Conservative Government that rejected Gershon's recommendation to develop Centralised Procurement.
Easy headlines here for Mr Green but not very much information - perhaps because, as he said, the data proved to be difficult to work with.
"...printing paper varies from £8 to £73 per box, ..."
I'm quite willing to believe that the cost of paper does vary within those limits but are we comparing apples with apples - what is the weighted price actually paid for a ream of A4, 80 gsm white paper? Knowing the range tells us nothing, it doesn't even tell us what the cost saving opportunity is. In contrast, his musings on the property portfoltio look much more interesting even if it takes time to unwind from the current holdings.
BTW since the MPs in the HoP are public employees when are we going to see their proposals for cutting their costs by 25%?
Dead right. Privatisation is the biggest lie ever perpetrated by any government ever.
Do we get better service? Perhaps, because a business intent on making money can't be stuffed full of dead wood and timeservers. But is there any reason a government couldn't require the normally-expected standards of work from its employees, and back that up with firings (after the mandatory numbers of warnings, etc., of course)? Absolutely not.
Instead we end up paying what we'd have paid anyway under a government-run service, *plus* a nice fat wodge to the shareholders. Shareholders would mostly be extremely unhappy with less than a 5% return on investment, so that means we're all paying 5% more for our services. Deep f**king joy.
Yeah, blah, blah, big numbers.
I'm sure there's a lot of waste, but some of that sounds like a bargain.
£21M for 105,000 phones is £16/phone/month. I wish I could get a corporate contract that cheap for my SME.
Having worked closely with numerous government and major business IT departments and IS finance groups, I can tell you this information is completely out of context, and flatly misleading.
A company may pay $20 for a box of paper. Added to that is shipping, storage, and internal labor in the inventory and facilities groups. A Department needing that box of paper can't pay $20 for it, they have to cover the cost of the guy who goes and gets it, another guy who brings it over to their area, the costs of someone processing the paperwork to make that happen, and the costs of someone monitoring inventory (and the inventory management and asset tracking system) so that more $20 boxes of paper are appropriately ordered so as not to go out of stock. $50 for a box of paper is completely reasonable.
Even for a small office, if you're sending an office clerk over to Office Depot to buy a $20 box of paper, are you costing out just $20? No, you should be costing out their labor (and overhead) costs for the time it took, their expense report for the use of their car, charges associated with processing the corporate card payment (or employee reimbursement in payroll), and the cost of that paper (plus taxes). If it takes 60 minutes to get the job done, and they make $10 per hour, that $20 box of paper might have cost $40-50 easy once all the soft costs are factored.
In large firms, everything is charged somewhere. Overhead however is not charged as a line item, it's bundled into internal costs. When we internally sell a SQL server cluster to a department for use, we don't charge them just for the hardware and license, which might be $30K, we charge them for deployment, remediation, maintenance, monitoring, 3 years warranty, overhead and oversight of the teams deploying it, backup tape costs, SAN configuration, network configuration, switch port costs, and 3 years of electric and cooling costs, plus some for the facilities (rack space). Line items on our invoice might be $40K for the servers and licensing, but we charge somewhere between $90 and 150K for that sql cluster costed over 3-5 years depending on complexity, SLAs, and RTO/RPO/DR/BC needs.
We don't back-bill for monthly running costs, they're estimated. Line items for overhead and facilities have to be added in. One agency may also acquire good from an entire other division because they might not even have their own dedicated budgets, and that can add additional costs.
Whatever the merits of Sir Philip's plans, isn't it nice being lectured on cost savings by someone who's avoided billions in tax through offshore dodges.
*checks legal difference between avoidance and evasion*
...avoidance is the legal one. OP got it right.