Public
procurement is frequently discussed through the language of legislation,
procedure, governance and compliance, yet considerably less attention is given
to whether public organisations are genuinely good at buying. With hundreds of
billions of pounds passing annually through contracts for goods, works and
services, that distinction matters enormously. Following the correct
procurement process is unquestionably important, but procedural correctness
alone does not assure that the resulting commercial decision represents genuine
value for money.
Commercial
ineptitude is deliberately provocative terminology, but it does not suggest
that every public-sector procurement professional or organisation performs
poorly. Many excellent examples of sophisticated commercial practice exist
across government, local authorities, social housing and other public bodies.
The concern is instead that recurring weaknesses remain remarkably persistent,
despite successive legislative reforms, professionalisation initiatives and
procurement strategies intended to improve how public money is ultimately
converted into effective services, sustainable contracts and measurable
outcomes.
A
career spent within procurement and supply chain management repeatedly
demonstrates the difference between running a compliant tender and securing a
genuinely good commercial deal. Specifications, evaluation methodologies,
pricing structures, supplier margins, inflation mechanisms, risk allocation and
contract management all influence eventual value. None can be reduced simply to
completing the correct documentation, observing statutory timescales or
demonstrating that several suppliers were provided with an opportunity to
compete through a demonstrably fair and transparent procurement process.
Social
housing provides a particularly revealing environment in which to examine these
issues. Registered providers procure substantial programmes covering repairs,
maintenance, construction, decarbonisation and professional services, while
simultaneously facing increasing financial pressure and heightened expectations
from residents and regulators. Every pound unnecessarily surrendered through
inappropriate indexation, poorly constructed pricing schedules, excessive
framework charges, weak commercial challenge or uncontrolled variations is
ultimately a pound unavailable for investment elsewhere in homes, communities
and essential services for residents.
Procurement reform alone cannot guarantee better commercial outcomes. The Procurement Act 2023 provides significant opportunities for improvement, but legislation cannot supply commercial judgement, curiosity, challenge or negotiating capability. Those qualities must come from the organisations and professionals responsible for spending public money. The objective should never be merely to demonstrate that procurement was undertaken correctly, but to demonstrate that the resulting commercial arrangement was intelligent, sustainable, appropriately challenged and capable of delivering measurable value throughout its contractual life.
The Commercial Challenge: £434 Billion of Public Spending
UK
public sector procurement totalled £434 billion in 2024/25, an increase of £19
billion on the previous year and roughly a third of total public expenditure,
making its mismanagement particularly consequential. For social housing
providers procuring repairs, maintenance and new-build contracts worth billions
annually, commercial competence cannot be peripheral. Yet errors in pricing,
evaluation, competition and contract management continue to resurface across
sectors, decade after decade, despite repeated attempts at procurement reform.
Although
a new legislative regime has arrived, many established commercial habits
remain. The Procurement Act 2023 came into force on 24 February 2025, replacing
the Public Contracts Regulations 2015 and introducing the “Most Advantageous
Tender” test in place of MEAT, alongside mandatory pipeline notices and a
single digital platform. Revised procedures cannot themselves correct decades
of weak commercial practice. Legislation can reshape procurement processes, but
it cannot manufacture the commercial judgement upon which genuine value
ultimately depends.
Social
housing has particular exposure to these commercial weaknesses because
registered providers depend heavily on third-party frameworks, including
Fusion21, LHC, Procurement for Housing and CHIC, to deliver repairs,
decarbonisation and development programmes worth hundreds of millions of
pounds. From April 2026, the rebranded Government Commercial Agency assumed a
stronger central role in professionalising commercial capability. Nevertheless,
framework convenience can still substitute for rigorous commercial scrutiny
when individual call-offs and supplier appointments are actually undertaken.
Against this background, the following article examines ten recurring commercial weaknesses within UK public procurement, ranging from mismeasured inflation and framework dependency to weak evaluation, abnormally low tenders and contract management that deteriorates after award. Each weakness is illustrated through real organisations, named throughout, whose documented experiences demonstrate precisely what commercial ineptitude can cost taxpayers. More importantly, these cases demonstrate what disciplined, informed and genuinely commercial purchasing should look like when public money is treated with appropriate commercial rigour.
Mismeasuring Inflation: Why CPI and RPI Distort Costs
Many
public contracts continue to use the wrong ruler when indexing annual price
increases, relying upon the Retail Prices Index or Consumer Prices Index, which
measure household spending on items such as food, clothing and fuel.
Construction and maintenance costs behave differently. BCIS analysis placed
general building cost inflation at 3.8% in March 2026 against CPI of 3.3%, a
gap understating the true annual cost pressure on a £10 million contract by
roughly £50,000.
Input
indices matter because the Purchase Price Index (PPI) and construction-specific
measures such as Building Cost Information Service (BCIS’s) Price
Adjustment Formulae Indices track what contractors actually pay for materials,
labour and plant, drawing upon the Office for National Statistics (ONS) PPI
Index rather than household spending patterns such as the RPI or CPI Indexes.
JCT and NEC contracts both provide for this form of adjustment precisely
because it reflects the contractor’s real cost exposure, rather than forcing an
estimate based upon unrelated consumer inflation into the original tender
price.
Badly
designed indexation can cut both ways commercially. Broad CPI-linked uplifts
can provide suppliers with windfall increases unrelated to movements in their
actual cost base. At the same time, overly rigid fixed pricing encourages
contractors to incorporate defensive inflation contingencies into their tender
prices instead. Social landlords negotiating multi-year repairs and
decarbonisation contracts should therefore specify an index that genuinely
reflects the works being undertaken, rather than simply selecting whichever
published measure happens to be easiest to locate and cite.
The commercial consequences of selecting the wrong index are rarely obvious during the first year because the financial effect compounds steadily thereafter. Across a five-year repairs contract, a one-percentage-point annual difference between a general index and actual construction cost movements can remove six figures from a landlord’s budget, or provide a supplier with margin that nobody intended, creating precisely the type of commercial exposure that few evaluation panels are adequately equipped to identify before contract signature.
The Framework Illusion: Convenience at a Price
The
convenience offered by third-party frameworks can carry a significant price
tag, with some framework providers levying operational charges on suppliers
calculated against the value of contracts awarded through them. Published
commentary on the National Audit Office’s July 2024 report on centralised
purchasing has cited charges reaching as much as 6% of contract value, creating
a cost that suppliers must ultimately accommodate within their commercial
models. The NAO also identified duplication and increased bidding costs across
an estimated £259 billion of annual expenditure.
The
National Audit Office warned that greater oversight of framework agreements
could save the public purse an estimated £500 million, criticising insufficient
scrutiny of whether providers’ pricing structures, growth incentives and
commercial terms represented the best available route to market for buyers. Its
findings suggested that contracting authorities too often defaulted to
established frameworks because they offered speed and procurement compliance,
rather than independently testing whether the chosen framework actually
represented genuine value for money.
Not-for-profit
frameworks within the housing sector demonstrate that the framework model
itself is not necessarily the problem when appropriate commercial governance is
applied. LHC, established in 1966 as a not-for-profit central purchasing body,
reported saving the equivalent of £27.7 million in management and
administration costs on £210 million of purchases in a single year, while
Fusion21 recorded £13 million of efficiencies on £67 million of investment,
demonstrating that framework governance ultimately determines the value
delivered.
For social landlords, the important commercial lesson is that frameworks provide a procurement route rather than an automatic guarantee of value. Registered providers should interrogate a framework’s fee structure, supplier margins and mini-competition rigour with the same commercial discipline that would be applied to an open tender. Framework membership should never become a permanent substitute for commercial scrutiny, particularly when determining whether each individual call-off continues to represent the most appropriate and economically advantageous purchasing decision.
Before the Tender Begins: Getting the Requirement Right
Effective
procurement specifications should describe the outcomes required rather than
prescribe precisely how a supplier must deliver them, because excessive
prescription restricts innovation and prevents bidders proposing more efficient
delivery models. When combined with inadequate preliminary market engagement,
authorities can enter procurement with limited understanding of market
capacity, contemporary pricing or emerging commercial models. The procurement
strategy is consequently fixed before potential suppliers have been given any
meaningful opportunity to inform, challenge or improve the proposed approach.
Birmingham
City Council provides a striking example of the consequences when requirements
and business processes are inadequately understood. The Council began replacing
its SAP finance system with Oracle Fusion in 2019, with an original budget of
£19 million. Subsequent analysis identified systemic business-process and
specification failures, with projected costs reaching £216.5 million by 2026.
The Oracle difficulties formed part of the Council’s wider financial crisis
preceding its September 2023 Section 114 notice, alongside a substantially
larger equal pay liability.
Procurement
specifications can gradually accumulate preferences and desirable features that
provide little measurable operational benefit, while each additional
requirement potentially reduces the number of suppliers willing or able to
compete. Every mandatory condition, whether a particular certification,
arbitrary turnover threshold or unnecessarily bespoke reporting format, should
therefore be challenged against genuine operational necessity. Requirements
inherited from previous contracts should never automatically survive into their
replacements simply because they have become embedded through many years of
established and unchallenged organisational practice.
Accurately forecasting an organisation’s actual demand is equally important because poor visibility of anticipated volumes, stock condition, or asset numbers forces suppliers to incorporate contingency into tender rates from the outset. Social landlords procuring responsive repairs or void works without robust and current stock condition information are effectively asking bidders to price uncertainty rather than genuine identifiable risk. The resulting contingency increases expenditure without necessarily providing any corresponding improvement in the service ultimately delivered to tenants.
Scoring the Wrong Things: When Evaluation Undermines Value
Getting
the balance between price and quality wrong can fundamentally distort a
procurement outcome. Excessive price weighting may award the contract to the
cheapest bidder despite inferior whole-life value, while excessive quality
weighting can reward marginal improvements carrying substantial cost premiums.
Poorly constructed evaluation methodologies create problems in either
direction, particularly where panels insufficiently challenge commercial
assumptions, proposed resources, overhead recovery and supplier margins
concealed behind an exceptionally polished and persuasive tender method
statement.
Carillion
demonstrated the consequences when commercial warning signs are insufficiently
reflected in public procurement decisions. The company held 420 live public
sector contracts when it collapsed in January 2018, despite receiving £1.9
billion of new taxpayer-funded work after revealing a financial black hole in
July 2017. The Cabinet Office did not increase its risk rating to “red” until
September, while no evaluating body concluded that procurement rules then in
force provided grounds to disqualify Carillion’s bids.
Evaluation
can also end up scoring the promise rather than assessing the likelihood of
subsequent delivery. Suppliers skilled at producing sophisticated tender
responses do not necessarily provide superior operational performance after
mobilisation. Commitments concerning staffing levels, technology, response
times and social value can achieve substantial evaluation scores yet receive
comparatively little scrutiny once delivery begins. Authorities may
consequently discover the difference between the written tender commitment and
operational reality only considerably later, when the contract has already been
awarded.
The
quality premium should therefore be subjected to an explicit commercial test
rather than assumed to represent value simply because an evaluation methodology
produces a higher overall score. Where a supplier scores marginally higher
against a 30% quality weighting but submits a price 15% above a competitor,
authorities should explicitly monetise and interrogate that difference. The
fundamental question remains whether the additional quality being purchased
genuinely provides sufficient measurable benefit to justify the additional
price being paid.
Commercial challenge should not automatically end when tender prices are submitted. Where the chosen procurement procedure permits negotiation or clarification, authorities should test assumptions concerning staffing, overhead recovery, margins, mobilisation, risk allowances and proposed contractual terms before accepting that the submitted position represents the supplier’s best commercial offer. Private-sector buyers routinely challenge these components of a deal. Public bodies that regard negotiation as somehow incompatible with procurement discipline can unnecessarily surrender legitimate commercial leverage before the contract has even begun.
Beyond the Tender Price: Understanding the True Cost of the Contract
Headline
tender prices can conceal substantial future expenditure when mobilisation,
maintenance, energy, consumables, variations and exit costs are excluded from
evaluation. Contracts can consequently appear economical when signed but become
considerably more expensive during subsequent years of delivery. Although
whole-life costing is an established principle across most UK public
procurement, many evaluation methodologies still fail to extend beyond
comparatively simplistic year-one price comparisons between competing suppliers
that have successfully reached the final tender shortlist.
Croydon
Council illustrates the consequences of entering major commercial relationships
without adequately understanding their complete financial implications. The
Council transferred land worth considerably more to its wholly owned developer,
Brick by Brick, in transactions described by Private Eye as being at “mate’s
rates”, while lending the company almost £200 million without receiving
interest or dividends. The Council subsequently issued a Section 114 bankruptcy
notice in 2020, with auditors concluding investment decisions were “not
grounded in a sufficient understanding” of the market.
Suppliers
can recover margin through pricing mechanisms that receive considerably less
scrutiny than headline tender rates. Ambiguous schedules of rates allow bidders
to price highly visible, high-volume items competitively while recovering
margin through call-outs, variations and lower-volume ancillary services.
Without sufficiently disaggregated historical expenditure data, authorities
cannot reliably determine whether the resulting pricing schedule accurately
reflects their genuine purchasing profile or has instead been structured around
the supplier’s own strategic decisions concerning where future profitability
will ultimately be generated.
Understanding
where a supplier expects to generate profit is equally important when assessing
whether a pricing model represents sustainable value. Management charges,
subcontractor mark-ups, overhead recovery, rebates and margins on variations
can materially alter the economics of a contract without appearing prominently
in the evaluated headline price. Commercial scrutiny should therefore examine
not simply what the authority expects to pay, but how the supplier expects to
make money, particularly where open-book arrangements or significant volumes of
additional work are anticipated.
Developing genuine should-cost discipline requires whole-life evaluation of occupancy, lifecycle replacement, energy and exit costs alongside the headline tender price from the outset. Pricing schedules should also be rigorously tested against actual historical call-off volumes before contract award, rather than retrospectively questioned after delivery has commenced. Commercial scrutiny becomes considerably less effective when it begins only after the first unexpectedly expensive invoice for a supposedly minor variation arrives unannounced on the finance team’s desk several months later.
Shrinking the Field: Competition, Aggregation and SME Exclusion
Reducing
the number of bidders invariably weakens the competitive tension that helps
deliver better pricing and value for money. Restrictive financial thresholds,
disproportionate insurance requirements and unnecessarily complex procurement
documentation can discourage SMEs and other capable suppliers from
participating. The Procurement Act 2023 places greater emphasis on removing
unnecessary barriers facing smaller businesses, while government has separately
maintained ambitions to direct a substantial proportion of public procurement
expenditure towards SMEs, making proportionate procurement requirements
commercially important as well as a matter of policy.
Single-bidder
markets demonstrate why maintaining genuine competition matters. The National
Audit Office’s July 2023 report on competition in public procurement found that
the Cabinet Office had neither established expected bidder numbers within major
markets nor systematically monitored single-bidder trends across departments.
Suppliers identified high bidding costs and limited confidence in the fairness
of evaluation processes among the reasons for choosing not to compete, meaning
that potential competition was already being reduced before tender
opportunities were even formally published.
Aggregation can strengthen or undermine competition depending upon how intelligently requirements are structured. Consolidating fragmented departmental expenditure can improve purchasing leverage and significantly reduce duplicated supplier overhead. At the same time, excessively large lots can exclude SMEs and specialist suppliers capable of offering better quality or pricing for individual elements. Fusion21’s regional lot structure, dividing national frameworks into local and service-specific lots, provides one deliberate design response to this recurring commercial trade-off between achieving economies of scale and maintaining accessible competitive markets.
Too Cheap to Be True: Testing Tender Prices
An
exceptionally low tender price can sometimes reflect genuine supplier
efficiency, but it may equally indicate omitted costs, misunderstanding or
deliberate underpricing designed to secure market share regardless of
longer-term consequences. English case law, including Varney v Hertfordshire
CC, requires authorities investigating suspected abnormally low tenders to
communicate specific concerns to the bidder, maintain a clear audit trail and
provide an appropriate opportunity for the supplier to explain its pricing
before any decision to reject the tender is made.
Carillion
demonstrated the consequences of underbidding at considerable scale, building
its final years around rapid acquisition and substantial debt. At the same
time, evidence submitted to Parliament described wafer-thin profit margins and
aggressive pricing used to secure work and maintain market presence.
Approximately 30,000 suppliers and subcontractors were owed close to £2 billion
when the company collapsed in January 2018, demonstrating the consequences when
apparently competitive pricing proves financially unsustainable across a
substantial portfolio of contracts.
Benchmarking
becomes essential because authorities can mistakenly accept a tendered price
simply because it is lower than competing bids, without external comparisons,
historical analysis or should-cost modelling to establish whether any
submission genuinely represents value for money. Every tender received could be
comparatively expensive, or alternatively every tender could be unsustainably
low. Without an independent commercial reference point against which prices can
be tested, evaluators have no reliable means of determining which of those
circumstances actually applies.
Establishing an informed should-cost position before entering the market significantly strengthens an authority’s ability to challenge tender pricing, regardless of whether individual bids appear unexpectedly high or suspiciously low. That reference position should be developed before tender issue using historical expenditure, appropriate market intelligence or independent cost modelling. The relatively modest investment required to understand what a service should reasonably cost is insignificant compared with the considerable commercial and operational risks that this discipline can remove from the procurement process.
After the Ink Dries: Contract Management, Variations and Incumbency
Winning
a competitive tender does not automatically mean that an authority continues to
receive value throughout the resulting contract. Commercial gains secured
through competition can rapidly disappear without robust KPIs, benchmarking,
appropriate open-book scrutiny, and active challenge of invoices and post-award
variations. Weak contract management is arguably one of the largest sources of
lost value in UK public contracting, particularly because commercial
performance after award often receives considerably less scrutiny than the
competitive procurement exercise that originally established the contract.
Birmingham
City Council’s experience demonstrates how costs can continue compounding long
after implementation. Its Oracle expenditure did not end with go-live in 2022.
Having already spent more than £100 million, the Council awarded Oracle a
further £9.987 million professional services contract in mid-2024 to stabilise
a system that remained not fully functional, alongside £45 million identified
in early 2024 alone to correct posting errors, with variations accumulating
considerably beyond the scope originally envisaged and agreed.
Variations
and specification changes can gradually erode the value established through a
competitively tendered contract when they receive only a fraction of the
commercial scrutiny applied during the original procurement exercise.
Uncontrolled contract extensions create similar exposure when they are
exercised simply because the underlying agreement permits them. The existence
of an extension option should never remove the commercial discipline of
periodically testing whether the incumbent supplier continues to represent
genuine value against prevailing market prices, capabilities and alternative
solutions.
Incumbency can become a commercial trap when familiarity with an established supplier gradually reduces competitive tension and historical pricing becomes accepted without testing whether superior alternatives have subsequently entered the market. Allowing an incumbent to become operationally indispensable can make credible competition particularly difficult when reprocurement eventually occurs. Effective contract management should therefore preserve competitive tension throughout the relationship, periodically benchmark performance and pricing, and ensure operational dependency never becomes an unintended barrier to meaningful future market competition.
Pricing Risk Badly: Allocation, KPIs and the Myth of Risk Transfer
Transferring
contractual risk to a supplier does not eliminate that risk or its associated
cost because contractors price the liabilities allocated to them into every
tender submitted. An authority transferring every conceivable risk to its
contractor therefore does not necessarily avoid paying for those risks;
instead, it pays through increased tender prices, frequently including a
substantial premium for contingencies that may never materialise. Intelligent
risk allocation should place each risk with the party genuinely best equipped
to manage it.
Interserve
illustrates the importance of considering financial risk alongside procurement
opportunity. The company secured a place on the £8 billion Homes and
Communities Agency Panel in September 2017 despite its falling share price and
steadily mounting debt. Subsequently, it continued winning major public
contracts, including a £227 million DWP award. Interserve plc entered
administration through a pre-pack arrangement in March 2019, with its operating
businesses transferring to a lender-owned company and continuing to trade,
thereby avoiding the immediate service disruption associated with Carillion’s
collapse.
Poorly
conceived service levels can create unnecessary commercial risk when
performance requirements extend substantially beyond genuine operational need.
Suppliers inevitably price the additional resources, capacity and contingency
required to meet those obligations, increasing tender costs without necessarily
delivering corresponding value to the organisation or its residents. Service
requirements should therefore reflect proportionate operational need and
realistic risk exposure, ensuring authorities purchase the performance they
genuinely require rather than paying a premium for contractual protection
unlikely to provide meaningful practical benefit.
Reading the market’s own warning signs should form an integral part of continuing supplier risk management. Interserve’s financial distress, like the warning signs preceding Carillion’s collapse, was visible through its declining share price and increasing debt levels well before its restructuring. Public bodies that monitor supplier financial health as rigorously as operational KPIs are considerably better positioned to understand and manage commercial risk appropriately, rather than discovering the true extent of their exposure only after financial distress has reached a critical stage.
Compliance Theatre: Procurement as Paperwork, Not Commerce
Procurement
compliance is essential, but being procedurally compliant is not synonymous
with securing good value for an organisation, its residents or taxpayers.
Perhaps the most fundamental weakness within UK public procurement is its
tendency to treat procurement principally as an exercise in demonstrating
procedural compliance, rather than a commercial discipline requiring
negotiation where appropriate, market intelligence, financial analysis and
active management throughout the contract lifecycle. A perfectly compliant
procurement can still ultimately produce a commercially mediocre outcome.
The
scale of this problem was illustrated by the Public Accounts Committee in
December 2023, which found that the government could not demonstrate value for
money across £259 billion of procurement expenditure in 2021-22. Significant
gaps were identified in the quality and completeness of published contract
data, providing clear evidence that compliance with transparency and
publication obligations had not translated into meaningful commercial oversight
or demonstrated value for money across this considerable level of expenditure
from the public purse.
High
levels of investment alone provide no guarantee of successful outcomes. Social
landlords collectively commit billions of pounds to repairs and maintenance.
Yet, the Housing Ombudsman continues to publish findings of maladministration
involving major providers failing to meet tenants’ basic repair requirements.
The resulting contrast between substantial expenditure and delivered outcomes
demonstrates the limitations of compliance-focused contract management,
particularly where organisations measure whether money was properly spent
without adequately establishing what that expenditure actually achieved for
residents.
Genuine commercial capability requires strong procurement teams to combine lawful competition with negotiation where the chosen procedure permits it, informed market intelligence, rigorous commercial analysis and appropriate allocation of risk, followed by active contract management after award. None of these disciplines requires another piece of procurement legislation to achieve. Instead, organisations must recognise their procurement teams as professional commercial functions responsible for extracting sustainable value from expenditure, rather than administrative departments principally responsible for processing compliant procurement paperwork.
Summary: From Compliance to Commercial Confidence
These
are not isolated procurement failures but manifestations of a recurring
commercial pattern. From Birmingham’s £216 million ERP failure to Carillion’s
collapse and Croydon’s bankruptcy, the individual mechanisms differ
considerably. Yet, familiar weaknesses repeatedly emerge: prescriptive
specifications, insufficiently scrutinised pricing, weak evaluation challenge
and contract management that gradually fades after signature. With £434 billion
of annual public expenditure at stake, legislative reform alone cannot optimise
procurement outcomes, however necessary and genuinely welcome that reform may
be.
The Procurement Act 2023 should therefore be regarded as an opportunity to improve commercial practice rather than a solution in itself. Alongside the Government Commercial Agency’s expanded remit from April 2026, it creates genuine opportunities to embed better practice, particularly through greater transparency and below-threshold flexibility for SMEs competing for smaller contracts. However, legislation reshapes process; it cannot replace should-cost modelling, whole-life evaluation and rigorous commercial challenge that contracting authorities must consciously choose to apply themselves on every procurement.
Social housing consequently requires considerably greater commercial discipline from registered providers managing billions of pounds in repairs, decarbonisation and development expenditure through frameworks and open tenders alike. Closing the gap between procurement that is merely compliant and procurement that is genuinely commercially astute is neither optional nor aspirational. It represents the difference between value demonstrably delivered to tenants and value quietly surrendered through indexation errors, framework fees, unchallenged variations and contracts whose true costs were never properly understood.
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