UK public sector spend soars in 2020 as government prepares for post-Brexit procurement overhaul

Derek du Preez Profile picture for user ddpreez January 7, 2021
The latest report from Tussell highlights that whilst the UK economy is set to shrink, suppliers to government are fairly well protected from the COVID-19 crisis.

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Suppliers to the public sector experienced a boon in spending during 2020, as a result of the government's response to the COVID-19 pandemic. However, non-pandemic related contracts did fall significantly in value compared to 2019. 

The latest spend data from Tussell, which provides market data on what the government is purchasing, highlights that whilst it is often challenging, being a supplier to the public sector during a crisis can have its benefits. 

Tussell also notes that there are likely to be implications for UK-based suppliers and SMEs in 2021, as the British government seeks to overhaul its procurement practises following its exit from the EU. 

The report notes too that much of the increase in spending for the 12 months to August 2020 came directly from central government. It states: 

In the 12 months to August 2020, public sector procurement spending increased by 13% to £113bn, with Central Government accounting for £52bn - a 24% increase on the 12 months prior.

The effect of Covid-19 is particularly pronounced in the monthly Central Government data. In April 2020 it spent nearly twice as much with private sector providers as it had in the same month in 2019. It then continued to spend at least £1bn more per month as in the previous year.

Although Covid-19 had a massive impact on both the NHS and Local Government, it did not result in the same level of growth in spending as Central Government, where most of the procurement activity took place. NHS trusts & CCGs spent an extra 17% with private companies in 2020, while growth at Local Government level was lower, at 7%

The data

Over the period analysed, there were 40,000 public sector contracts awarded by 2,000 public bodies. These totalled £101 billion, including £21 billion going to COVID-19 related contracts. 

There were 20,000 suppliers to government, of which 13,000 were SMES. However, the report doesn't include information on how much spend went to SMEs, it just outlines the crude number of suppliers. The British government has been attempting to broaden its supplier base for years, with a very mixed set of results

In addition to this, in 2021 £13 billion worth of contracts for services will be expiring. 

However, the primary procurement story of the year was of course COVID-19. As noted above, there have been 2,500 pandemic-related contracts published to date worth a whopping £21 billion - most of which can be attributed to acquiring PPE and the Test and Trace system. Tussell notes: 

The enormity of the challenge presented by Covid-19 has demanded an incredible amount of support from the private sector. From PPE, to testing supplies and consultancy services, the private sector has been involved in every aspect of the government's response. The bulk of contracts were awarded early in the crisis.

Most PPE contracts, as well as £1.6bn worth of contracts purchasing extra hospital beds from private healthcare providers, were awarded in May and June. Testing contracts have trickled in more slowly. The bulk of the value was awarded in October when the government started to implement ‘Operation Moonshot'.

The government's response to Covid-19 has also drawn controversy, with a sizeable number of contracts criticised due the perceived capability or experience of the suppliers selected.

Despite the boon to overall spend due to the pandemic, there was a hit to the value of procurement contracts outside of this as attention turned to the COVID-19 response. 

Tussell highlights that the first lockdown in March had a severe impact, where the number of opportunities published between April and May fell by more than 50% compared to the prior year. Regular procurement contracts were also £30 billion lower than in 2019. 

However, demand soon recovered in June and has been sustained through the rest of the year - where there was year-on-year growth in December 2020 compared to 2019. 

In terms of where the government was spending money in 2020, every sector saw an increase, apart from construction which was down 5%. 

Professional, scientific and technical services saw a 1% boost to £7.7 billion (with the top suppliers being PwC, Mott MacDonald and Deloitte), whilst IT and telecoms saw a 6% increase to £7.08 billion (with the top suppliers being Capita, Atos IT and Capgemini). 

Finally, looking towards 2021 and plans for the coming year, Tussell highlights the £13 billion opportunity for suppliers, with thousands of contracts coming up for renewal. It notes: 

There are more than 11,000 contracts for services, worth £13bn, due to expire in 2021. These are much more likely to be re-procured, and thus give a good indication of what the public sector will be looking to buy this year.

Several other priorities will influence services that the government will be looking to purchase - including its commitment to meeting net zero targets, ‘levelling-up' left behind regions of the UK and creating a shared services platform for Central Government departments.

An overhaul on the way

Whilst it may be easy to forget given the pandemic has dominated government focus during the past year, 2021 also marks the first year that the UK will operate with ties officially severed from the EU. This means that government procurement will no longer be subject to EU regulations and the UK can define how it wants to approach its public sector spend. 

Tussell points to the government's recently published policy note, which could mean more spend going to local and SME businesses. The report states: 

UK Public procurement will be undergoing significant reforms in 2021 and beyond. Some have already taken place. UK contracting authorities no longer publish procurement notices into OJEU, but into a new service called ‘Find A Tender'.

As announced in a procurement policy note published in December 2020, contracting authorities are now allowed to reserve contracts below a certain value (the "OJEU thresholds") for suppliers based on their location. This implies that national contracts could be reserved for UK suppliers, or that a local authority could reserve contracts for local companies. In 2020, the UK public sector awarded 27,000 ‘below threshold' contracts, worth £2.2bn. Although these account for only a small proportion of the total value of contracts awarded last year (2.2%), this could be a significant opportunity for smaller suppliers.

Reforms are likely to go much further than this. In December 2020, the government published its review of procurement policy reforms in the wake of the UK's exit from the European Union, ‘Transforming Public Procurement'.

In terms of what to expect, Tussell outlines some of the proposals, which include: 

  • Creating a procurement oversight body

  • Simplifying procedures and regulations

  • Allowing contracting authorities to exclude suppliers more easily for previous poor performance

  • Developing a centralised supplier registration system

  • Creating new types of dynamic purchasing systems

  • Creating a single register of procurement tools

  • Improving procurement transparency

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