The Role of Value for Money in Public Sector Procurement

The public spending of the UK had been registering an upward trajectory from 35% to over 45% by 2010 (Lember, Kattel and Kalvet 2013, p 23). According to the HM treasury, the public spending by November 2017 declined to 39% (HM Treasury 2017, p 43). The case of the reduced public spending in the United Kingdom showcases why it is important for the public sector procurement to ensure value for money (Lember et al. 2013, p 51). Based on the results noted from effective public sector procurement, there is a general change in the attitudes of a majority of the taxpayers and leaders, who appreciate value for money in the UK. Such is evidenced by a survey of 47 local authorities, which showed that 89% of council leaders, 77% of procurement directors and 84% of chief executive officers considered VFM as the main objective of purchasing (International Public Procurement Conference & Thai 2015, p 67). Whilst VFM is considered to be at the core of public procurement, Arrowsmith & Quinot (2013, p 128) call attention to the fact that it often sacrificed to a certain degree in favour of other goals such as industrial and social objectives, support of international free trade and probity.

Additionally, OECD (2013, p 58) contends that ensuring that the taxpayer receives VFM leads to improved quality service while having poor procurement regulations can result in low service quality management. Bovis (2013, p 98) observed that effective public sector procurement contributes to efficient and proper delivery of the citizens’ interests and obligation. Service quality management refers to the process of reducing the performance gap between customer expectation and the actual delivery (Evans 2016, p 33). Van (2018, p 41) adds that tax payers expect to reap value as customers. On the other hand, Starkman et al (2013, p 27) observes that to achieve value for money, a project’s life costs including the labour, need to be kept at the minimal possible. As such, there is possibility of loss of jobs for people and unemployment for others as the government works on maintaining a lean and efficient team that delivers value to the people at the best cost possible. In support of this concept, Calleja (2017, p 197) notes that a major characteristic of public procurement contracts is the bundling up of operational costs and investment expenditure, VFM is only evident when there is an efficient mix of cost-cutting and an increase in social welfare benefits. Calleja (2017, p 197), however, argues that the public sector procurement while can be made to be productive for the society, is not a panacea for all its problems.

By making sure that there is VFM in the procurement processes, the government or its agency is able to maintain credibility, dissuade practices of corruption and avoid favouritism (Bovis 2013, p 78). Arrowsmith & Quinot (2013, p 6) agree that achieving the objective of value for money, contributes to fairness and integrity. Caldero, Dailey and Withrow (2018, p 68) argue that in some instances, corruption can be good. Arrowsmith and Quinot (2013 , p 39) also note that while the principles of fairness and integrity mainly work in ensuring VFM and vice versa, there are instances where this cannot be achieved. The public procurement rules are geared towards ensuring that the contracting authority gains from the availability of good conditions that occur as a result of effective competition (Arrowsmith and Quinot 2013, p 72). However, Arrowsmith and Quinot further argue that the same rules and regulations that provide guidance can also act as a source of conflict in the public procurement process (Arrowsmith and Quinot 2013, p 56). In agreement to this, Calleja (2017, p197) notes that the procurement rules, stability of public demand, transparency, and predictability provides an environment that can facilitate anti-competitive behaviours and collusion among bidders. The concept is supported by Arrowsmith & Quinot (2013 p 58) who note that while VFM is seen the main objective of public procurement system, there is always a trade-off with efficiency considerations within the process.

Political environment has the possibility of influencing value for money and vice versa (International Public Procurement Conference & Thai 2015). The achievement of value for money needs political will that includes the commitment to make policies in favour of and adhere to them (Collins 2017, p 53). Calleja (2017, p 55) suggests that since public procurement naturally follows political fashion, it can only be effective and receptive when under the grip of political actors. Grandia and Meeham (2017) undertook a paper review on the possibility of using public sector procurement (PSP) to influence policy making and found out that PSP has over the years significantly contributed to policies through strategic aspirations and possibility to address divergent societal issues. Additionally, Grandia and Meeham (2017) indicate that the political class is willing to develop policies that meet societal objectives under PSP; however, there is a significant gap that exists between the policies formulated and their actual implementation, an area that needs further research. The findings of Grandia and Meeham (2017) are supported by Janssen, Wimmer and Deljoo (2015, p 360) who acknowledge the existence of a gap between policy formulation and implementation in public sector procurement. Janssen et al (2015, p361) recommend the use of the top down approach that provides a linear connection between formulators and implementers. Without commitment from the political class starting from the top downwards, corruption and mismanagement of public resources becomes rampant (Arrowsmith and Quinot 2013, p 140). On the other hand, widespread corruption and lack of value for money causes political instability (Lember et al., 2013, p 76). When people are dissatisfied and feel that they are not getting value for their taxes, uprisings and street protests destabilize peace and cause political conflicts.

According to Lember et al. (2013, p 33), benefits of value for money also extend to the private sector including the businesses that gain confidence in the public sector procurement and as such are able to thrive through open competition. Lember et al. (2013, p 64) add that having confidence that the process and the remunerations are fair improves efficiency of the contracted businesses to deliver good quality works and services and in good time. Bovis (2016, p 42) cites that while the government benefits significantly from competition, it is dependent on the market conditions. As such, the public can only benefit as much as the market competition allows. The view is criticised by Kunzlick (2013, p 55), who argues that although value for money is legally justifiable as a concept of competition, it is based on economic freedom. Lember et al (2013, p 66) emphasise on the need to maintain a formal environment that fosters open competition. Ackah (2016, p 48) supports this impersonal concept by proposing that tendering should be open to all qualified firms. However, a study by Witjes and Lozano (2016, p 85) on the link between sustainable PSP and business models found out that collaboration and maintenance of a good relationship between suppliers and procurers may improve value for money while developing more sustainable business models. Additionally, governments are able to support small business through training and allocation of some of the works or services (Van 2018, p 32).

Research Gaps

While there is a lot of awareness on the importance of value for money in the UK as shown by the high focus on value for money by key stakeholders (International Public Procurement Conference & Thai 2015, p 97), the gap between the knowledge and actual practice is a field for further research (Caperchione, Demirag and Grossi 2017, p 43). Caperchione et al (2017) in their editorial paper on reforms in the public sector conclude that there are existent policies on PSP but poor implementation. The deduction is supported by Storsjö and Kachali (2017, p 67) who as a conclusion to their study on the policy-practice gap within the PSP also agree that the gap between policy and practice in ensuring VFM within the public sector is a challenge that needs further research. However, it seems that the scholars consider value for money as an end and an ill-defined one (McKevitt 2016, p 58) and hence, do not explore the subject further after its achievement. McKevitt (2016) in his study on VFM, the ethical implications concept, as well as its usefulness identifies a need for more research on its usefulness. Additionally, McKevitt (2016) calls not only for further research but the involvement of key stakeholders in a debate that brings out the usefulness of the concept of VFM. As a result, there is limited research and opportunity for further study on the importance and impact of VFM in public procurement, which forms a basis for this research.

References

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