Buyers of public services could reap greater benefits from competition - OFT

36/11 15 March 2011

Government commissioners and procurers of public services could do more to leverage competition as a means of achieving long-term value for money, an OFT study has found.

The OFT's 'Commissioning and Competition in the Public Sector' study, published today, argues that having an open, transparent and competitive tender process is not enough on its own to ensure that public services markets are open and contestable, both over the short-term and long-term. Achieving effective competition in public services must also involve: reducing barriers to entry and exit, encouraging a diverse supplier base and ensuring suppliers have the right incentives to make efficiency savings, raise quality and innovate.

Drawing on case study research and engagement with a range of public, private and third sector parties involved in public services delivery, the OFT has identified key practical steps for commissioners and procurers in local, central and devolved government to consider when designing or implementing commissioning and procurement strategies. The guiding principles behind those practical steps are:

Reducing barriers to entry through ensuring procurement policies and processes do not discriminate against certain types of business models or suppliers, particularly smaller suppliers, and encourage the widest possible participation.
Reducing barriers to exit by ensuring requirements to maintain continuity of service do not automatically favour the largest supplier or the public sector, and that the Government can effectively and quickly switch from a poorly-performing supplier to a more efficient one.
Promoting genuine choice by giving end-users of public services the right tools to make well-informed decisions that drive competitive outcomes.
Ensuring the right incentives to drive commissioners, procurers and suppliers to strive for long-term value for money and not just focus on the short-term.

By taking account of these factors, commissioners and procurers will be better equipped to balance some of the difficult trade-offs they face - such as the choice between local versus centralised procurement or between large and small contracts.

Sonya Branch, OFT Senior Director said:

'Recent and ongoing Government initiatives will clearly have a major impact on how public services are commissioned and procured but government will need to become a more competent and strategic procurer to maximise the benefits of effective competition in public services.

'This study aims to help commissioners and procurers in central, devolved and local government to more effectively leverage competition as a means of driving better value and services for taxpayers and greater productivity for the economy.'

NOTES

The full report can be downloaded from the project page.
Today's report follows on from the OFT's Choice and Competition in Public Market paper (pdf 658kb) published in March 2010 and its Government in Markets paper (pdf 980kb) published in September 2009.

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