Better economies of scale for councils

Most local council contracts are dominated by a handful of suppliers, especially in big-spending areas such as construction and waste disposal, with just 17% of suppliers holding contracts worth nearly half of all local council business. New research carried out for Guardian Public by procurement company Spikes Cavell, also shows that the top 10 businesses serving local government are dominated by waste and construction firms (see graph [2a] below). These figures will be important, procurement experts say, as local councils look to get a better deal from their suppliers. They show that in three areas - waste disposal, construction and financial services - a handful of firms have over 90% of the business between them. The dominance is almost as pronounced in several other fields, including IT, energy and building management. Public services advisory firm Kable believes that while IT is important to local authorities as they reshape services, the supplier roster won't change dramatically. "The two obvious options available to local authorities are transformational outsourcing and shared procurement. Both of these tend to benefit larger, established suppliers, which can deliver economies of scale", says research director Stephen Roberts. Predictably, the list of biggest suppliers is dominated by waste firms, including Veolia and the Waste Recycling Group, and construction companies, among them Wilmott Dixon and May Gurney. The most dominant companies will have dozens, possibly hundreds, of contracts with England's 463 local councils. Spikes Cavell estimates £50m is lost each year by "price variance" - companies charging different amounts to different councils . The firm suggests that up to £290m could be saved if councils collaborated more, bringing forward wide-ranging joint contracts to get a better deal from big suppliers. In total, councils could save almost £2.2bn by being a more canny client: getting better terms from existing suppliers, re-tendering contracts in areas with a sole supplier or, conversely, reducing the number of contractors in some areas to get economies of scale. Suppliers will have to learn to deal with stronger, better informed councils, procurement experts say. "The supply side may well need to wake up [and realise] that the dynamic of power has shifted from the supplier to the buyer," says Spikes Cavell founder Luke Spikes. He says councils are missing out on the best deal from suppliers and says some adjustment will be needed, particularly for longer-established suppliers. 'Suppliers like a challenge' Councils agree more could be done to get a better deal. "There's some strategic pricing which goes on," says Portsmouth city council procurement head David Pointon, diplomatically. "There's bound to be. But in my experience, suppliers like a challenge." Jonathan Jones, who helps run a procurement hub in the West Midlands, says councils often have a huge amount of fragmented spend, which is going to the same suppliers but tendered on an individual basis and not always co-ordinated. "Collectively, that costs quite a lot of money," he comments. "A lot of the spend is going to be in the hands of a few suppliers, and it seems logical that we could all be dealing with suppliers in an aggregated and coordinated way." But it's not just about councils cooperating, Pointon adds. When letting, say, a new bus contract, he asks why local authorities don't talk to universities or primary care trusts. "It's an area which is ripe for review," he says. Pointon also favours buying online - e-procurement, in the jargon - which cuts the cost of competing for smaller local firms. Those suppliers are not doing as badly as might have been thought, however. Although the Spikes Cavell data shows that large companies (those with over 250 employees) get 49.6% of all local council contracts, the remaining half does go to small (26%) and medium-sized firms (24%).