OFT launches investigation into public sector procurement

The Office of Fair Trading has launched a study looking into commissioning and competition in public sector procurement.

The research will look at commissioning across a range of public services, including health, education, welfare and justice.

The OFT said the study was designed to help government buyers “promote competition in markets in order to realise better value for money” and to provide constructive and practical guidance to policymakers and commissioners of public services in local, central and devolved government “on how to take due account of competition issues in the procurement of public services”.

As part of the project the research team will identify examples of best practice in competitive procurement, and consider the impact of issues such as payment by results, the role of SMEs and the third sector and the delivery of services by mutuals.

The review will consider three key questions in particular:

• What are the key challenges faced by commissioners of public services when moving from self-supply to third party contractors?
• What, if any, are the trade-offs between involving SME and newly formed enterprises in the tendering process and ensuring successful delivery?
• If contractors are made responsible for managing the supply chain, how far should they be required to maintain competition down the supply chain?

Researchers will also consider the parallels with competitive commissioning of private services and make international comparisons.

The study is set to be published in March 2011.

Sonya Branch, the OFT’s Senior Director of Services and Public Markets, said: “By collecting evidence on the impact of specific purchasing practices, our aim is to help policymakers and procurers preserve and promote competition in public services markets.

“Used in the right places and in the right way, vigorous competition among public services providers can increase efficiency, improve the quality and range of services on offer, and achieve a better allocation of resources. In the long-term it can also lead to greater innovation, and substantial savings for the taxpayer.”

The OFT recently set up a new group looking at public markets to reflect its greater focus on the public services sector.

In July, OFT chief executive John Fingleton called for competition to be “hard wired” into the commissioning and procurement of public services to ensure its full benefits are gained.

He also warned of the dangers of being locked in to long-term contracts that make it difficult to switch supplier, and of potential collusion among tenderers.