Barack Obama’s recent decision to initiate a US troop ‘surge’ in Afghanistan has received support in the UK from both the Labour party and the Conservatives, and the UK’s own funding for military operations in Afghanistan may increase in the short term. It appears therefore that even in the context of major cuts in public spending generally, there are certain areas where, for special reasons, political parties are willing to maintain or increase the level of public expenditure.
The challenge for UK politicians is that Afghanistan is not the only area where there is pressure to commit additional resource. The UK’s National Audit Office (NAO) recently issued a report entitled “Commercial skills for complex government projects”. In this report the NAO highlighted that value for money on major government projects valued at around £200 billion is at risk because of weaknesses in commercial skills and expertise in government departments. Should there be a ‘surge’ in commercial resources on complex government projects, in light of this report?
In the current economic and political climate additional spending on commercial resources appears unlikely. In May this year, for example, HM Treasury announced, as part of its ‘Operational Efficiency Programme’, details of a plan to significantly reduce spending on back-office operations, including commercial functions. More recently the Government announced its intention to achieve ‘efficiency savings’ of £12 billion a year in departmental spending by 2013/14. Requests by project teams for additional commercial support may be met with a frosty reception in light of this.
However, the Government should think carefully before cutting back commercial resource on complex projects. The NAO suggests in its report that the resource reductions envisaged in the Operational Efficiency Programme could “potentially conflict with the need to invest in staff with the commercial skills to deliver complex projects”. Government departments are frequently criticised for entering into major contracts on complex projects which do not deliver value for money. This failure is often due to inadequate commercial input at the procurement stage. Even if sufficient commercial expertise does exist during procurements, it is not always available post-contract when contract management skills are required. An unwanted ‘less is more’ position often arises as a result: limiting spending on commercial resource can lead to greater cost overall on complex projects.
The NAO does not advocate a ‘surge’ in the sense of simply throwing additional resource at the problems identified. Although it does raise concerns over reductions in commercial resources, the NAO’s overall message is directed at ‘surgery’ on the existing government commercial function: using what already exists more effectively. Indeed, spending on certain types of commercial expertise may be cut if the NAO has its way. To fill gaps in their internal commercial teams, government departments employ substantial numbers of temporary staff and consultants. The NAO suggests that government departments should implement staff retention strategies for complex projects and apply a cross-departmental approach to commercial resource needs, including facilitating secondments between departments. As a result, gaps in internal commercial resource could potentially be reduced, leaving less room for consultants and contractors.
In addition, re-use and standardisation are advocated by the NAO. Standard project methodologies and standard form contracts are already common on government projects. The NAO’s view is that the use of standard approaches should be increased. In a similar vein, increased levels of joint working between the Office for Government Commerce (OGC) and government departments are encouraged, to ensure that departments are making the best use of the OGC’s initiatives and are avoiding duplication of effort.
Implementation of the NAO’s recommendations will not be easy. Joint-working between departments and sharing of resource will require a degree of cultural change. Equally, standardised processes and contracts can be very blunt instruments. Government commercial teams, for example, often find themselves locked in negotiations with suppliers over so-called ‘standard’ contracts and spend long periods amending the terms to fit the needs of the project in question. Standardisation has to be implemented intelligently in order to achieve the right result.
In any event, the NAO’s recommendations will achieve little if there are significant cuts in the commercial resources available for complex projects. The concern is that any such resource cuts could prove to be a false economy, resulting in further cost-overruns and inefficiency on complex government projects, and could leave the Government no closer to meeting its targeted spending reductions. A dramatic ‘surge’ in commercial expertise may not be needed. However, a measured ‘spend to save’ approach to departmental commercial resource coupled with intelligent implementation of the NAO’s recommendations may bring major benefits for complex projects and achieve significant cost savings.