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Review of Public Procurement in Scotland - Report and Recommendations

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1 Economic Environment

The mix of goods and services being purchased by the public sector is complex but, equally important, widely varied. Therefore the supply base demand and capacity profile varies with that diversity. In some areas of expenditure there are supplier capacity constraints and price is under pressure. At the other end of the spectrum there is existing or potentially free capacity that can offer opportunities for procurement organisations to obtain good value and improved results.

In addition the regional, UK and international aspect of spend injects an additional element of geographical variability to the public procurement spending environment.

On the wider economic front, although debate continues on the likely outcome of current results for UK economic growth the fact is that whatever end of the forecast range the economy moves towards, economic growth and inflation are relatively low. Whilst these are positives for buyers, and in the wider context for a well-managed and stable economy, it means for private enterprise that there are limited opportunities for natural or organic growth. Companies are thus anxious to exploit other avenues. One of these is clearly reflected in the ongoing consolidation we see where acquisition or merger brings not only acquired growth but economies of scale and scope for cost rationalisation. Another is the capture of market share from competitors. In this environment, public sector business, which is large in scale, perceived to have good margin and which has insignificant cash collection or bad debt exposure, is extremely attractive to suppliers. In summary, in the current economic environment high-value public sector orders should capture very good value.