How councils could save billions

New research shows councils could save billions on procurement. The hard part is turning those potential savings into reality.

Local councils could save themselves £2.2bn a year by driving a better deal on the goods and services they buy from private companies, according to new research.

The data, compiled by procurement company Spikes Cavell for Guardian Public, shows that if all England’s councils matched their top-performing peers, they could cut 6.6% from their £33bn annual spending with the private sector.

If fully realised, that would be more than the £1.165bn in local council cuts demanded by the Treasury in May, though some of the savings are for one-off capital projects.

Procurement expert Jonathan Jones, of the West Midlands Innovation and Efficiency Programme, said the figures were “feasible”.

The data also shows where councils spend the most money (see graph 1). By far the two biggest categories are construction, which accounts for £7.4bn a year or 22.3% of total spending, and social care, which accounts for £7.2bn or 21.7% of spending.

Spikes Cavell works with two-thirds of the UK’s 463 councils. Its figures are extrapolated from those councils but based on actual invoices and, the company says, are accurate to within 1%-2%.

Some £150m could be saved just by consolidating invoices (see graph 2). That means getting mobile phone companies, say, to send only one monthly bill rather than 20 each month, slashing processing costs.

Some £430m could be saved where different arms of a council have myriad contracts with different suppliers, and consolidating contracts would create a better deal.

Another £310m could be saved by getting better terms from companies that have started doing so much work for councils that they should be delivering economies of scale. In areas where councils deal with just one supplier, £100m could be saved by renegotiating deals or tendering them more widely.

At the most complex end, £530m is up for grabs – but only if councils completely rethink the way they buy goods and services in areas such as adult social care and construction.

Luke Spikes, the company’s founder, says these are the most challenging areas: “You don’t buy adult domiciliary care from a catalogue.” Instead, councils should, he says, follow a three-step process: draw up a new, comprehensive plan for the services they need; buy those services using a pre-selected framework; then create the tools – generally online – that will allow staff to quickly work out which supplier is offering the best deal.

Spikes says his company was able to help Peterborough primary care trust cut £1.8m from its £9m spending on caring for people in their homes – a 20% saving – simply by putting all the providers’ price and quality details into an online ordering system.

However, councils say achieving such savings is not easy. “There’s still huge scope [for savings],” admits David Pointon, Portsmouth city council’s head of procurement. “But it is not just procurement alone. You are not going to make those savings simply by bullying down prices. You are going to do it by fundamentally reviewing … the goods and services we are buying.”

Jones, meanwhile, warns that knowing where savings lie is not the same as realising them. “Sometimes where councils fall down is, they have the spending analysis done, they have good data … but they don’t do much with it.”

First published in The Guardian