Understanding the Public Services Industy

Public Services Industry Review
The role of government
6.17 The role of government is absolutely critical to the development of a successful Public
Services Industry, and a diverse and thriving PSI is in turn essential to improving the
quality of public services, at a cost that the taxpayer is willing to bear. The evidence
is clear that competitive challenge brings better value for money, not only through
greater efficiency but also through innovation. Effective competition for government
contracts requires multiple bidders from private, public and third sectors. Their
business models must be robust enough that they can absorb the cost of bidding
for the contracts that they lose in the profits on those that they win. Thus it is in the
interest of all parties to keep the length and attendant cost of the bidding process
down (Recommendation 5).
6.18 PSI providers who work for both public and private sector clients report that it takes
two to three times longer to bid for a contract from the public sector. They believe
that some of this is justified by the special set of rules governing public procurement.
However, many of the problems relate to unnecessary delays and changing
specifications. Procurement staff appear to have little incentive or accountability for
minimising the time and costs associated with the bidding process. This has caused
some providers to shift their strategic focus away from bidding for government
business. Others have pointed out that opportunities in other countries compete
directly with UK contracts since the number of staff they can afford to tie up in the
bidding process is limited.
6.19 High bid costs are a particular problem for SMEs and third sector providers. It will
be very difficult to meet government objectives for increasing their participation
in PSI contracts unless bid costs can be reduced or HMT guidelines changed to
permit reimbursement when major delays or cancellations occur. In a 2007 survey
of providers, 84 per cent of respondents agreed that high bid costs prevent greater
competition, especially from SMEs, in public procurement markets; and 52 per cent
said that over the past five years bid costs on like-for-like contracts had increased
substantially (CBI, 2007). Concern is growing that the ‘competitive dialogue’ process
currently being introduced will further extend bid times (Section 4).
An uncertain future
6.20 This Review has highlighted the growth of the public services industry in the UK and
the contribution it has made to better value for money in public service provision.
It has also revealed a number of worrying trends for the PSI and, therefore, for the
prospects of attaining higher quality, more personalised public services. The industry’s
rapid growth of 7 per cent per year in real terms for the period 1995/96 through 2003/04
has since levelled off to just 3 per cent per year. Projections based on departmental
spending plans for procurement to 2010/11 indicate a continued period of slower
growth at 3.4 per cent per annum (Section 2).
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