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Last December, the government published a Green Paper on Transforming Public Procurement. It  stressed that investments should be subject to consideration of the public good, including supporting national priorities. It discussed leveraging commercial activity to achieve social and environmental value. For our good practice guidance for managing the commercial lifecycle, we examined similar opportunities and […]

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Commercial strategy needs to be joined up to achieve best value

Posted on November 25, 2021 by

Last December, the government published a Green Paper on Transforming Public Procurement. It  stressed that investments should be subject to consideration of the public good, including supporting national priorities. It discussed leveraging commercial activity to achieve social and environmental value.

For our good practice guidance for managing the commercial lifecycle, we examined similar opportunities and how to support them. We shared fresh insights and learning from our extensive body of work on government’s commercial activities. In this latest post, I will share some of our insights on commercial strategy.

Commercial strategy means thinking about the overall approach to ensure that procurement and other commercial activities provide the outcomes that government wants and benefit us all. This is the part of our guidance which really focuses on the context around what government does when it runs a competition or revises a contract, and the importance of joining up different elements.

Joining up commercial strategy is vital if government wants to achieve its wider aims as well as value for money. That includes establishing a consistent approach to risk management, and the organisational capacity and capability to respond to uncertainty. It is also where other considerations come in, including where procurement can be a lever for larger goals like encouraging innovation or diversifying the landscape of suppliers to government. Commercial strategies should demonstrate how each commercial agreement aligns with wider strategic objectives and how this is then reflected in the approach for managing commercial risks and incentives throughout the commercial lifecycle.

A couple of our past reports give good examples of the importance of joining up strategy at the programme level and more widely.

Aligning timetables

In 2018 we reported on The Ministry of Defence’s arrangement with Annington Property Limited, a sale and leaseback arrangement for accommodation. As part of our review, we found that the timetable for developing the Ministry of Defence’s wider estate strategies was not aligned with the timetable for rent reviews. The department was developing a ‘Future Accommodation Model’ intended to provide personnel with more flexible accommodation options. However, the timing meant that its negotiations on the sites with Annington would begin before a decision was taken on the wider model. This affected its ability to develop negotiating strategies for these sites. We recommended that the department align the timetables to use realistic scenarios in its negotiations, giving it a clearer strategic view.

Leveraging procurement across government 

On a wider scale, we reported in 2016 on the government’s spending with small and medium-sized enterprises (SMEs). The government recognised that SMEs could offer many benefits to the public sector, including flexibility, innovation and better value for money due to lower overhead costs, as well as increasing local investment and improving social outcomes. We recommended that the government should take a more focused approach, identifying where SMEs could bring the most benefit, and look into an integrated cross-government procurement platform to support its commercial strategy. The government has since introduced guidance for SMEs applying for contracts and promised to invest in joining up the different procurement systems. The intention is that this will help drive the commercial benefits from better data sharing – as part of changes to procurement processes following exit from the European Union.

That is an example of the kind of strategic approach to identifying risks and opportunities which we want to see applied consistently across organisations, and we look forward to seeing how government’s follow-up to Transforming Public Procurement would help to further encourage this.

What good looks like

Our good practice guide sets out areas of improvement and outlines our expectations of best practice, with specific case study examples that demonstrate some of these expectations of a joined-up commercial strategy. They include:

  • Commercial, policy, operational and business teams work together to develop a clear understanding of the contracts and produce required outcomes
  • Each contract staffing model is developed early, regularly reviewed and tailored to different contract stages
  • Capability plans include operational resilience to address unplanned demands
  • Knowledge and experience of underlying contract issues is retained throughout the lifecycle of a commercial relationship
  • There is investment in the organisation and its people to ensure adequate access to training and development to support commercial awareness and expertise.

About the author

Iain Forrester

Iain Forrester is a qualified accountant with long experience of working on the NAO’s commercial and contracting related work. This has included cross-government work on grants, shared services, EU Exit, and the government’s response to COVID-19. He also worked on the commercial and contract management insights guide published in 2016.



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One response to “Commercial strategy needs to be joined up to achieve best value”

  1. @JagPatel3 says:

    As part of its post-Brexit commercial strategy which aims to spread prosperity & opportunity around to serve its levelling up agenda, it is this government’s policy to widen the participation of small and medium-sized businesses in the market in goods and services for which the government is the main customer – specifically, the government has committed itself to spending 33% of the central government procurement budget on SMEs by 2022, either directly or indirectly via its top-tier contractors.

    The target for the Ministry of Defence, which spends about £17bn a year on procuring new military equipment, is a modest 25%.

    The clear message behind the government’s defence procurement policy is that equipment for the Armed Forces is to be purchased through fair and open competition – the only exceptions being off-the-shelf purchases and single-source development contracts, the latter to be handed out on a preferential basis (to the Select Few).

    Indeed, in its most recent policy statement on defence procurement expressed in the Defence Industrial Policy* published in December 2017, the government says (on page 23):

    “We strive to provide our Armed Forces with the capabilities they need at the best value for money, obtaining this through open competition in the global market, wherever possible. Competitive tension is the greatest driver for innovation, productivity and earning power in any economy.”

    Yet, in the very next sentence, the government comes clean and acknowledges that 42% of new MoD contracts by value were placed via open competition in 2016/17, down from 64% in 2010/11 – which leads one to conclude that the trend is towards more of the same.

    By handing out taxpayer-funded contracts in this way, MoD has shown leadership and set an example by inadvertently directing prime contractors to adopt the same method of hand picking their first-tier supply chain partners, for each dissected workshare part of their evolving technical solutions.

    But unlike MoD, which has been disbursing such contracts on national security grounds, prime contractors have been using the tried-and-tested old boys’ network to choose their first-tier subcontractors, usually during a gathering at the 19th Hole limited to the great-and-the-good from subsidiary companies wholly-owned by the prime contractor, or some other favoured, old school-tie chums – which has allowed corrupt activities, characterised by artificially inflated subcontract prices and the obligatory kickbacks that go with them to flourish. It is the stupid act of disclosing the budgeted expenditure figure in the invitation to tender that has given prime contractors the opportunity to “divvy up” this money in the same way as they dissected the technical solution into its workshare parts, thereby offering leeway for discretionary payments.

    By its very nature, this type of clandestine activity in the defence industrial supply chain is very difficult to unearth, because the extremely small number of people right at the top who benefit from it will go out of their way to keep it under wraps, citing the excuse of commercial confidentiality whilst skilfully covering their tracks.

    It is truly a bizarre situation, where the buyer tells the seller (confidentially) the price level at which he should pitch at, so that they can both profit. A scenario which can only occur on government-funded contracts!

    It is therefore entirely understandable why the Prime Minister’s former chief adviser, Dominic Cummings referred to defence contractors as “corporate looters”. In the now famous blogpost published in 2019, he says:

    “Regardless of elections, the farce has continued to squander billions of pounds, enriching some of the worst corporate looters and corrupting public life via the revolving door of officials/lobbyists.”

    But what is especially disturbing about this epic story of bribery and corruption is that, it is instigated and perpetuated by people who were previously in the pay of the State – given that the workforce on defence contractors’ premises, large or small, is made-up entirely of former public servants who came across in overwhelming numbers, via the “revolving door” to pursue a second career in the private sector.

    Whatever happened to the much-vaunted principles of selflessness, integrity, objectivity, accountability, openness, honesty and leadership which was supposed to define these people?

    What’s more, MoD’s green lighting of this practice has prompted first-tier subcontractors to also select their lower-tier suppliers in the same manner, paving the way for the entire defence industrial supply chain to be corrupted, right down to the lowest level of piece-part & component manufacturers.

    But the real tragedy about this whole sorry saga is that agile and innovative engineering businesses from adjacent sectors, who have not previously engaged with MoD, have been shut-out from the opportunity to act as subcontractors to these defence prime contractors, which would explain why it has failed so miserably to comply with the government’s own policy of spreading prosperity & opportunity around, by increasing the proportion of MoD spend with small and medium-sized enterprises to 25% by 2020. The actual figure for financial year 2019/2020 was 21.3%.

    Additionally, not using the market-based instrument of fair and open competition to select first-tier subcontractors has the effect of protecting these defence SMEs from being exposed to the full rigours of the free market, that is to say, shielding them from “feeling the heat” of competitive market forces, which has in turn, led to them becoming notoriously inefficient, because they are simply being gifted a steady stream of uncontested subcontracts which they expect to receive in perpetuity – cultivating an dependency culture.

    It is also the reason why engineered products manufactured by indigenous prime contractors cost substantially more than equivalent items in the non-defence sector – which would explain why they have become seriously uncompetitive both, in the domestic market and in export markets.

    It is a mystery why the government would want to tolerate this sort of criminal behaviour on taxpayer-funded contracts, given the intense focus of attention on the dubious habits of the private sector right now, and the uncertainty surrounding the continuance of free market capitalism in its present form in the UK.
    @JagPatel3

    * Defence Industrial Policy document entitled “Industry for Defence and a Prosperous Britain: Refreshing Defence Industrial Policy”, published by UK Ministry of Defence, December 2017, PDF file (1.28 MB) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/669958/DefenceIndustrialPolicy_Web.pdf

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