Getting serious about digital purchasing could save billions

7 March 2016

Two weeks ago the Government announced plans to cancel its £23 million contract with Steatite to provide high-tech electronic tags. The procurement of electronic monitoring capability started back in 2012, but to date, no tags have been delivered. Unfortunately, this is just the latest instance of government purchasing gone wrong.

When the Coalition Government came to power, whether procurement was delivering value for money was at the forefront of ministers’ minds. The then Cabinet Office Minister Francis Maude labelled previous practice as “incontinent”, and set in train a series of initiatives. As a Reform report details today, and as the tagging example indicates, these changes have delivered mixed results. Moves to cut red tape were successful, but whether procurement durations fell is less clear. The Crown Commercial Service (CCS), a revamped body charged with centralised purchasing, has found £6 billion worth of savings, yet suppliers and departments are sceptical about CCS’s ability to manage relationships both in and outside government.

Recent attempts to digitise procurement have been more successful. In 2012 the G-Cloud was unveiled, an online portal government uses to purchase IT services. Administratively light, G-Cloud has reduced barriers to entry, stoked competition and delivered value for money. The Department for Work and Pensions cut its web-hosting costs by 90 per cent through the marketplace, although gains of this magnitude are at the top range of estimates. CCS suggests savings in the region of 20 per cent, but when administrative costs are taken into account, the figure might be as high as 50 per cent.

Digital purchasing presents an exciting opportunity, and one to which overseas governments are alive. Estonia, another country bound by detailed EU procurement regulations, has reduced the cost of procurement administration by 30 per through digital procurement. Online markets account for 64 per cent of the South Korean government’s purchasing.

The UK has now committed to following international best practice. In November, Cabinet Office Minister Matt Hancock pledged to extend the lessons of G-Cloud “across government procurement, introducing a Crown Marketplace to find innovative suppliers and the savings they unlock, in digital and beyond.”

Exactly what this will look like in practice is unclear, but today’s report offers some guidance. Drawing on international experience, it argues that products which are easily commoditised, and even some more bespoke items, could be moved onto the new Crown Marketplace. Tools for ‘pre-market engagement’ and a payment function might be added, creating a single portal for digital purchasing. On conservative estimates, digital procurement could deliver savings of £470 million annually by 2020. If the UK reached the levels achieved by Estonia or South Korea, efficiencies might reach £10 billion.

These gains, however, will not be made without progress elsewhere. Settling the occasionally difficult relationship between CCS and the Government Digital Service – who developed the G-Cloud – must be a priority. Improving government’s tracking and publication of procurement data will also require attention. Most fundamentally, the Government needs to tackle the long-standing problem of civil service commercial skills. Suppliers interviewed for the paper repeatedly raised concerns about the expertise of officials. Limiting rotation and boosting secondments into and from the private sector are immediate steps that should be accompanied by a review of civil service commercial skills. Moving towards a performance-related model of pay might also help tackle the culture of risk aversion within procurement teams.

If history is anything to go by, transforming procurement will not be easy – administrations since the late 1990s have tried to improve value for money in public sector purchasing. Digital channels, however, can provide the catalyst for a new wave of reform. The prize is not just big savings for the taxpayer, but improved public services and outcomes for citizens.

William Mosseri-Marlio, Researcher, Reform

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