Competition in public procurement is not limited to financial competition; it is a key source of innovation and guarantees the fair allocation of public contracts. However, a recent National Audit Office (NAO) investigation has found that there are major obstacles to competition in this sector. If not resolved quickly, these issues could lead to higher costs, less innovation and missed opportunities to improve public services. This analysis will explore the main NAO findings, look at their wider significance and propose steps to reinvigorate competition in government procurement.
The Importance of Competition in Public Procurement
The essence of competition is to allow multiple suppliers to compete for a government contract under the same conditions so that the best value is achieved. Public sector procurement is driven by competition to achieve economic efficiency and stimulate innovation, providing new ways to deliver vital goods and services. This is not just theoretical; the benefits of competition are tangible, and public bodies and citizens alike can feel them. Some examples of how competition in public procurement include better roads, increased digital infrastructure, and greater environmental compliance. Robust competition in public procurement can bring these promising outcomes.
Yet, limited competition in the procurement landscape can be disastrous. Without competitive bidding, prices go up, and the quality of goods and services languishes. Monopolistic behaviours can then flourish, and public sector bodies are not able to access the wide range of capabilities. Additionally, this lack of diversity in supply chains can lead to overreliance on a few select suppliers. If one of these suppliers were to fail, critical services would be put at risk.
Key Findings from the National Audit Office Report
The NAO report offers a detailed analysis of the current state of competition in public procurement, highlighting several key areas of concern. One of the most pressing issues is the over-reliance on framework agreements by central government departments. While these frameworks simplify procurement and reduce administrative burdens, their extensive use has inadvertently limited the scope of competition, reducing the pool of prospective bidders and leaving new suppliers unable to access opportunities. Instead of opening the doors for a competitive market, framework agreements can sometimes act as a gatekeeper, keeping new entrants out.
The report also revealed that supplier diversity needs to be improved, with many government contracts going repeatedly to a narrow set of large firms. This is particularly problematic for Small and Medium-sized Enterprises (SMEs), which often need more resources to participate in complex, bureaucratic tender processes dominated by a few more prominent competitors. As a result, the UK public sector may be missing out on SMEs’ innovation and flexibility.
Furthermore, sectors such as healthcare and technology have shown particularly weak competition, with many contracts being awarded without proper competitive tendering. Limited transparency during the procurement package design and contract awards process often means that smaller suppliers are disadvantaged compared to well-established companies with prior knowledge and resources to navigate the system.
Implications for Public Procurement Practices
The National Audit Office report’s findings have broad implications for public procurement. When competition is weak, government departments risk procuring poor-quality tenders, leading to cost overruns, project delays, or failed outcomes. The current procurement structure often means SMEs cannot access public contracts due to excessive administrative burdens or a lack of visibility into available opportunities.
Market concentration is another growing risk highlighted by the NAO. The dominance of a small number of large suppliers creates a scenario akin to monopolistic control, reducing the government’s ability to access better-value solutions. For instance, when multiple bids are not encouraged, or frameworks are overused, the central government works with limited suppliers, leading to a lack of innovation and stagnant service delivery.
Strategies to Enhance Competition in Public Procurement
Several strategies have been proposed to enhance competition in public procurement, both in the NAO report and as additional recommendations.
Increasing Transparency and Reducing Administrative Burdens
One critical recommendation is to increase transparency in procurement opportunities. Transparency is crucial to ensure that potential suppliers have the same access to relevant information, enabling them to prepare detailed and competitive bids. Platforms like Contracts Finder can be used more effectively to inform suppliers of upcoming procurement opportunities, allowing would-be suppliers to plan and participate fully.
Reducing administrative burdens for SMEs is another vital step in levelling the playing field. The NAO recommends simplifying the tender process, reducing the bureaucracy involved, and clarifying the procurement pipelines so smaller suppliers can assess opportunities and participate on equal terms with larger organisations.
Prioritising Open Tendering and Targeted Supplier Diversity
Open competition should be prioritised over more restrictive frameworks whenever feasible. Open tendering ensures a wider potential supplier pool, allowing contracting authorities to draw on a broad base of talent rather than defaulting to framework agreements that may limit new suppliers’ participation.
Another recommendation is to encourage supplier diversity through targeted outreach programmes that involve smaller firms. By actively engaging with the SME community, procurement teams can ensure that procurement decisions reflect a financial imperative and the broader goal of supporting a competitive and innovative market environment.
Role of Technology in Promoting Competition
The role of technology in fostering a competitive procurement landscape cannot be understated. E-procurement platforms and data analytics tools can provide greater visibility into public sector procurement opportunities, making it easier for suppliers to identify contracts suited to their capabilities.
Technological solutions such as AI-driven tender analysis can streamline the evaluation process, helping to assess qualitative elements alongside pricing. This allows the government to place appropriate relative weight on factors such as innovation, sustainability, and broader community impact beyond cost. By making the tendering process more efficient, technology helps to reduce both the time required to award contracts and the cost necessary for suppliers to prepare competitive bids.
Case Studies and Real-World Examples
Several public sector bodies have already started implementing innovative approaches to procurement, successfully fostering competition. For example, the Crown Commercial Service (CCS) has employed digital platforms that allow SMEs to compete directly with larger firms for specific categories of goods and services. By focusing on transparency and making procurement more accessible through streamlined platforms, CCS has increased competition and achieved better value for money.
The Cabinet Office has also taken steps to ensure that contract awards are fair and open, providing detailed feedback to both successful and unsuccessful bidders. This feedback process helps suppliers understand where they went wrong, learn from the experience, and become more competitive in future bids. By engaging suppliers as a trusted and valued part of the procurement ecosystem, the Cabinet Office has helped foster a healthier, more dynamic supply chain.
Future Trends and Policy Implications
The Procurement Act 2023, which will come into effect in February 2025, is poised to bring much-needed changes to the landscape of UK public sector procurement. The Procurement Act, which has many aims similar to the NAO’s recommendations, aims to reduce administrative costs while increasing flexibility for contracting authorities. For example, the shift to a “Most Advantageous Tender” approach will allow more significant emphasis on qualitative outcomes like social value and environmental impact rather than focusing solely on cost.
Another emerging trend is the increasing use of digital marketplaces. These online platforms facilitate central purchasing by bringing together multiple suppliers in one location, making it easier for contracting authorities to compare options and choose the best suppliers. Such platforms also help embed transparency by ensuring relevant information about each supplier is readily available to other buyers.
Building a Competitive Procurement Ecosystem
In summary, the NAO report highlights key challenges hindering competition in public procurement, ranging from the overuse of framework agreements to barriers that prevent SMEs from effectively participating in government procurement. Addressing these challenges requires a multifaceted approach, including enhancing transparency, reducing administrative burdens, and leveraging technology to make procurement more accessible and efficient.
Contracting authorities must prioritise competition as a critical component of their procurement strategies, actively promoting competition to ensure the UK public sector can access the best available talent, ideas, and goods and services. In doing so, they safeguard taxpayer money and contribute to a more innovative and diverse supplier market, delivering better value for all. By embedding these practices and drawing on both creative and traditional procurement methods, we can create a robust, competitive ecosystem that benefits the public sector, suppliers, and, ultimately, the citizens of the UK.
