I read with a mixture of amusement and horror at the effort that George Osbourne has had to invest in getting a cheap Christmas tree for the Treasury’s offices. He wanted to get something around the £50 mark but it transpired that he was tied into a PFI contract which meant the tree would cost over £800.
When Liam Fox looked into the option of cancelling the two aircraft carriers planned under Labour it turned out to be more expensive to cancel the contract than to build the things. Being tied in to this contract means that we can’t afford the aeroplanes to put onto the ships until a couple of years after they are launched.
Both, seemingly unrelated, stories indicate a problem which goes to the heart of the country’s financial problems. The public sector’s unwillingness and inability to properly negotiate contracts with the private sector.
Everyone in business knows that a contract with the public sector is not always easy to win, often going to one of a small pool of preferred suppliers, but once won are highly lucrative. I used to work in magazine and web publishing and the government’s media department, the COI, was the big fish that everyone wanted to land. All over the country, in all areas of the public sector we are paying too much in PFIs and other contracts with the private sector.
I say that there is both an unwillingness and inability to negotiate properly, The unwillingness is born out of two parallel public sector mindsets, firstly that all public spending is good public spending and that by paying over the odds the public sector is “keeping the economy going”. The second is a misplaced but understandable fear that by negotiating hard the public sector buyer may push the private sector seller out of business. Both these mindsets need to be stamped on.
The idea that public spending drives the economy is intellectual rot. Public spending is paid by taxes or public borrowing (deferred taxes) both of which stifle private sector growth. Secondly when two companies negotiate neither has altruistic motives, they both try to get the best deal and agree a mutually beneficial position. The public sector should drive down costs as far as it can when negotiating, the company will not sign up to a deal that would lose it money.
Because they have never tried to get good negotiated settlements there is no experience in the public sector of proper negotiations. If we are going to bring about real value in public sector procurement we need to train up a new generation of buyers who drive just as hard a bargain as their private sector contemporaries and we’ll need to pay them properly to do so. A small number of big salaries in purchasing departments could save us billions every year.