The government needs to work with its suppliers more effectively to spare the taxpayers' purse and fix the "crisis of confidence" it is currently suffering, according to the National Audit Office (NAO).
In a pair of reports – The Role of major contractors in the delivery of public services and Managing government suppliers – the NAO accused the government of not being on top of its supplier strategy and said some contractors do not treat the public sector fairly.
Between 2012 and 2013, central government spent £40bn with third parties, £10bn of which was spent with 40 strategic suppliers. The Cabinet Office claims the spending with strategic suppliers managed to rack up savings of £840m over the period.
But despite the savings, the NAO said that there is a lack of transparency over contractor business.
"The Cabinet Office is currently focused on short-term savings and has adopted a robust approach with departments and suppliers, which has enabled it to report significant savings from contract renegotiations," the NAO said in its reports.
"However, this approach will become harder over time, and risks missing out on achieving longer-term value for money through innovation and investment. There is a balance to be struck between tough negotiations and maintaining relationships with suppliers in the long term, if government is to maintain competition in public sector markets."
The NAO praised the Cabinet Office for making efforts to get greater value by contracting things out and for sending out signals that the government will not accept underperformance, but said it still has a lot more to do.
"There is some tension and uncertainty between the Cabinet Office and departments. Departments and suppliers are currently unclear where accountability lies and this has placed a strain on some relationships," it said.
"There is a risk that the Cabinet Office's ambitions for the centre of government are not matched by the right resources, capability and information."
Government supplier and G-Cloud member Skyscape said government procurement can be dysfunctional due to its risk-averse nature.
"The NAO's reports come as no real surprise as it has long been clear that government procurement is dysfunctional and in many cases, not fit for purpose," said Phil Dawson, Skyscape's chief executive.
"An understandable, yet potentially damaging, aversion to risk is deeply embedded in government procurement culture, which has resulted in the dominance of incumbent suppliers and a stagnant marketplace."
He added that time is needed to change government procurement culture, but that it is beginning to take steps in the right direction.
"Thanks to the G-Cloud programme, there is a new generation of suppliers of all sizes that is willing and able to do things differently, with transparency and competition at the heart of their propositions and services," he said.
"In less than two years, G-Cloud has catalysed genuine change and market disruption and government purchasers would do well to learn from this."
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