Achieving value for money through procurement – Part 1: DFID’s approach to its supplier market
The Department for International Development (DFID) has developed a credible approach to enabling fair and open competition in its supplier market and to achieving value for money in its procurement, a new ICAI review has found.
DFID’s spending through suppliers has doubled over the past five years reaching £1.4 billion last year, or 14% of its budget, making it an increasingly crucial component of securing value for money.
This is the first of two ICAI reviews examining DFID’s procurement practices. This review looks at DFID’s engagement with actual and potential suppliers in order to shape its supply chains and achieve better value for money through its procurement.
ICAI’s review found that DFID has made a concerted effort to build up its commercial capacity and develop its supplier base.
It also found that DFID has identified areas of its procurement practices which might inhibit competition among its suppliers – such as the size and complexity of contracts – and has launched new initiatives to address these issues.
It stressed, however, the need for improved communication about procurement opportunities and a more sustained focus on market creation in partner countries.
DFID has exceeded cross-government targets for the share of contracts won by small and medium sized enterprises – but the review found that the department still needs to do more to increase the range and diversity of suppliers.
The review found that, despite introducing open-book accounting the department has been slow to exercise these rights due to capacity constraints.
It also warned that some suppliers with a track record of delivering DFID programmes could have advantages over new entrants that may have the unintended consequence of limiting competition.
ICAI awarded DFID a green-amber score for its approach to shaping its supplier market, in recognition of its increased ambition and the positive direction of travel but also highlighting important areas in need of improvement.
As a result of this review ICAI made the following recommendations:
- DFID should adopt a more systematic approach to its stated objective of promoting the participation of local suppliers, to the extent permitted within procurement regulations, including measures at the central, sector and country office levels to encourage the emergence of future prime contractors from developing countries. This might include identifying opportunities for local suppliers to compete directly for DFID contracts, increased supervision of the terms on which prime contractors engage local suppliers, and more inducement of DFID’s prime contractors to invest in building local capacity.
- DFID should develop clear plans on how it will progress its use of open-book accounting and improve fee rate transparency, and ensure that its plans are clearly communicated to the supplier market, to minimise the risk of unintended consequences.
- DFID should accelerate its efforts to improve communication of pipeline opportunities to the market. It should also assess what potential information advantages are gained by participants in its Key Supplier Management Programme, and ensure that this is counterbalanced by more effective communication with all potential suppliers. Internally, DFID should provide clearer guidance to staff as to what can and cannot be discussed during key supplier meetings.
- The next phase of DFID’s commercial reform plans should be accompanied by a stronger change management approach, with explicit objectives that are clearly communicated to staff. Its plans should be supported by robust monitoring and management information arrangements, to enable full transparency, regular progress reporting and mitigation of potential negative effects.
The government publishes a response to all ICAI reviews. You can read the government response to ICAI’s review online.
International Development Committee
Parliament’s International Development Committee (IDC), or its ICAI sub-committee, hold hearings on all ICAI reviews. The IDC hearing on DFID’s approach to its supplier market is available to watch online.
ICAI follows up on all of its reviews to check what progress has been made since publication. ICAI’s follow-up is available to read now.