Significance of Public Procurement in Economic Policy
It is a privilege to be here today, alongside esteemed Chairs and members from the three All-Party Parliamentary Groups (APPGs), to discuss two reports published by the Competition and Markets Authority (CMA) that focus on a critical aspect of UK economic policy: public procurement.
Every year, the UK government allocates approximately £400 billion towards acquiring goods, services, and infrastructure from the private sector. This substantial sum, sourced from taxpayers, carries considerable weight, especially given the mounting financial pressures faced by households and public institutions.
Traditionally, public procurement has not attracted widespread attention; however, it has far-reaching implications. The decisions made in this realm can influence the growth trajectories of firms, the success of technologies, the flow of investments, and ultimately, the value derived from these expenditures. Moreover, these choices determine where the UK holds strategic advantages and dependencies. This embodies the true essence of ‘purchasing power’—a concept that governments worldwide are increasingly leveraging.
There is a growing consensus that public procurement represents one of the most potent tools within the government’s industrial strategy arsenal, crucial for fostering a robust, dynamic, and resilient economy.
Today, we unveil two reports synthesising findings from extensive research and engagement undertaken over the past two years. These documents contain recommendations for the government, which we believe can bolster the UK’s economic success and sovereignty while ensuring better value for taxpayers. The presence of four APPGs in this discussion underscores a collective recognition of the necessity to navigate this landscape effectively.
Exploring Public Procurement: Key Issues
Our first report, titled “Public Procurement in the National Interest,” originated two years ago with the aim of advising the government on how competition could be harnessed to support industrial strategy. Initially expecting public procurement to be a facet of our analysis, it soon emerged as the central theme throughout our engagements.
Our investigation began broadly, encompassing the eight priority sectors, before delving deeper into specific challenges such as the UK’s scale-up dilemma, cloud computing, civil engineering, and defence sectors. The insights gained from ongoing dialogues with members of the CMA’s Growth and Investment Council significantly informed our perspectives.
After two years of thorough examination, we have arrived at a consensus: while public procurement is a formidable strategic asset, its deployment in the UK has not been as effective as it could be.
Five overarching issues came to light during our analysis:
Firstly, clarity of objectives and the willingness to embrace trade-offs are essential. Public procurement is now expected to fulfil a diverse array of objectives, extending beyond mere value for money to encompass innovation, growth, resilience, national security, domestic job creation, skills development, and social value. This broad spectrum often necessitates trade-offs and requires clear prioritisation. For instance, minimising immediate costs could undermine long-term value through enhanced competition and market dynamism. A reliance on established suppliers may reduce perceived risks but could obstruct innovative British firms from gaining the clientele, investment, and credibility essential for expansion. There are scenarios where prioritising local employment and training opportunities is vital, while in others, leveraging global market capabilities may be crucial. When the government aims for greater strategic independence in pivotal technologies and infrastructure, it may need to accept increased uncertainty and adopt a more active market-shaping role than conventional procurement practices typically allow.
Addressing Fragmentation and Cultural Challenges
The second issue identified is the detrimental effect of fragmentation on purchasing power. Our research revealed instances where various public sector entities were procuring from the same suppliers without adequate coordination of demand, expertise, or market intelligence. This was particularly observable in the civil engineering sector, where fragmented accountability, inconsistent procurement strategies, and uncertain project pipelines weakened suppliers’ incentives to invest in skills and innovation. Decisions that make sense on a micro level do not always yield optimal outcomes for the broader system.
Moreover, the government’s role as a significant customer means that fragmented purchasing can hinder effective market shaping, obscure future demand for suppliers, and impede systematic learning from procurement experiences. While it is not necessary to centralise every procurement decision, there is a need for greater deliberation regarding collective purchasing actions, sharing expertise, and coordinating efforts to enhance local decision-making.
Incentives within the procurement process also emerged as a vital concern. Feedback indicated that many challenges in public procurement stem from behavioural and cultural factors, as well as structural ones. Procurement teams are increasingly tasked with fostering innovation and business dynamism while facing performance evaluations primarily focused on procedural adherence, risk management, and short-term value. This can lead to a system that prioritises processes over tangible outcomes.
Reducing Barriers and Enhancing Innovation
The fourth issue is the high barriers to entry for new suppliers. Numerous stakeholders expressed that public procurement can often be overly costly, complex, and unpredictable for innovative companies. The involvement of a significant public sector client can provide emerging firms with essential revenue, credibility, and a pathway to broader investment opportunities—often marking the difference between stagnation and successful growth.
However, requirements that seem reasonable on their own can cumulatively create an environment that favours established players with specialist bidding teams and extensive public sector experience. This results in fewer bidders, diminished competition, and fewer chances for innovative firms to flourish. The principle of proportionality is crucial; every major procurement requirement should be assessed not only for its benefits but also for the burdens it imposes and its implications for entry, competition, and growth.
Lastly, we noted that public procurement is not yet fully leveraged as a tool for innovation. The government possesses significant purchasing power, and if used strategically, it can generate demand, facilitate real-world testing, expedite commercialisation, and assist innovative firms in scaling. However, procurement processes often focus on acquiring known solutions, managing uncertainty, and minimising risk, which may not align with the needs of emerging technologies that are vital for the UK’s future economic competitiveness. In many cases, the best solutions may not yet be available or evident.
Transformative Recommendations for Effective Procurement
In light of our findings and extensive consultations, our report outlines five transformative recommendations, conceptualised as five pivotal shifts:
Firstly, there should be a shift in focus from processes to outcomes, facilitated through robust system leadership and clearer prioritisation. This entails narrowing priorities to a manageable number, explicitly addressing trade-offs, and empowering public authorities to recognise and navigate these complexities. Clear directives on how public procurement should align with broader strategic objectives are essential, with the newly established Office for the Prime Minister and Cabinet playing a crucial role in this regard.
Secondly, a transition from fragmentation to coordination is necessary. This can be characterised as informed devolution, recognising that different markets may require tailored approaches while committing to share expertise, coordinate pipelines, pool market intelligence, and systematically learn from procurement outcomes more effectively than we currently do. Regardless of where purchasing decisions are made, the government must gain a clearer understanding of market dynamics and how public buyers can collaborate to enhance leverage and realise efficiencies.
Thirdly, we advocate for a shift from assumption to evidence through improved data collection and infrastructure. Effectively targeting procurement outcomes necessitates measurement. The government needs enhanced visibility into how procurement impacts competition, scaling, innovation, resilience, and other pivotal policy objectives. To make informed decisions moving forward, stronger data is essential, not only regarding suppliers but also about the real-world consequences of procurement choices.
Fourthly, we recommend a shift from barriers to opportunities for expansion. Each requirement imposed on bidders should pass a straightforward test: does the benefit outweigh the burden? This is especially pertinent for British SMEs and scale-ups, whose success we wholeheartedly support. The government should conduct systematic reviews of procurement requirements through the lenses of competition, innovation, business dynamism, and sovereignty to ensure that processes are as simple, streamlined, and proportionate as possible.
Finally, in a rapidly evolving technological landscape, it is imperative for the UK to shift from merely procuring existing solutions to actively fostering the markets and technologies of the future. This requires developing a procurement framework that is conducive to frontier innovation—one that acknowledges that many emerging technologies do not conform to traditional approaches and empowers procurement teams to adopt a more experimental and flexible mindset. Such strategies should not be reserved for emergencies or exceptional situations; if the UK aims to lead in strategically significant technologies, we must become more comfortable utilising public procurement to assist innovative firms in testing, scaling, and commercialising new capabilities.
Addressing Bid Rigging to Ensure Genuine Competition
However, the successful implementation of these recommendations hinges on one crucial aspect: the integrity of competition. This leads us to our second report, “Rigged Bids, Real Costs.”
Bid rigging occurs when suppliers conspire during a procurement process, creating an illusion of competition while covertly undermining it. The risks associated with this practice are far from theoretical. Since 2014, the CMA has completed seven bid-rigging cases, imposing fines exceeding £129 million, with more than half of these cases involving public procurement. International data indicates that the UK is not an outlier in this regard.
The broader implications are alarming. Research highlighted by the OECD reveals that bid rigging can inflate procurement prices by 20% or more. By employing conservative estimates, the CMA suggests that taxpayers could be overpaying suppliers by between £1 billion and £3.5 billion annually. This is a significant sum that directly impacts already strained departmental budgets, diverting essential