It’s not just about avoiding another Carillion scandal, reforming public procurement can build a better Britain

From the collapse of Carillion to the Brexit ferries fiasco, public procurement has had a rocky few years.

But while the focus has rightly been on ensuring that such disasters don’t happen again, we must not forget that public procurement can actually be an enormous force for good.

Public procurement is the act of the government buying things from external providers, from stationery to submarines, nurses’ uniforms to IT systems. It’s the government’s largest spend, amounting to almost £300bn a year and representing around 13 per cent of the UK’s GDP. That’s a huge figure: almost three times what we spend on the NHS in England. 

And it’s not just money, it’s an opportunity. In fact, new Demos research published yesterday outlines how this vast spending power represents the enormous potential to shape a fairer Britain.

How? By using it as leverage to encourage the companies seeking these contracts to act more in the interests of society, from how they treat workers to the tax they pay to reducing their impact on the environment.

The fundamentals are already in place. Through “social value” criteria, the government can try to maximise the social, environmental and economic impact of procurement. But standards, definitions and priorities for social value remain disjointed and unaligned across the government. 

Our report recommends that these criteria are clarified and properly aligned with the government’s priorities for building a fairer, greener, more prosperous Britain. New cross-government objectives could foster a “mission-oriented” approach to public procurement, ensuring that we reach the full potential of the pioneering legislation that introduced these powers.

For example, in-work poverty could be tackled by requiring government suppliers to offer their workers the real living wage, as pioneering councils such as Preston are already doing. 

To increase their chances of winning government contracts, some companies are striving to offer the government more social value, such as by providing high quality training and skills to areas in need. But this could be taken so much further.

Or take the environment. The government’s drive to tackle climate change and improve biodiversity could be fostered by public procurement demanding that suppliers meet strict new environmental criteria, dramatically “levelling up” the playing field. 

It could also drive better tax behaviour. Our research identifies that almost three quarters of the biggest state suppliers have operations in tax havens. Tackling tax avoidance in a globalised world through legislation is complex, but new standards should allow government departments to include a bidder’s effective tax rate – the amount of tax they pay to the Exchequer – when considering who to award contracts to, rewarding those firms that pay their fair share. 

None of this, however, will have much impact if the government doesn’t have a fair and competitive market to choose providers from. But this happens far too rarely: almost one in four public sector contracts only receive just one bid, leaving commissioners no choice at all. 

It is therefore vital that steps are taken to increase the number of companies competing. This involves ensuring that procurement works better for small and medium-sized enterprises, which too often feel that they have little or no chance of winning government contracts. 

That’s why we are calling for small business advisory councils – made up of small business owners themselves – in the biggest government departments. We also need to provide businesses with more information about why and how bids are awarded, improving their chances of winning contracts in the future.

Government procurement can be so much more than the purchasing of goods or services. It should be seen as a route to a fairer, greener Britain – something that politicians of all stripes should welcome.

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