Reverse eAuctions and NHS Procurement
A study by the University of Oxford’s Regulatory Policy Institute has found that Department of Health claims about the savings that can be delivered through the use of reverse eAuctions are exaggerated. They also point out that the eAuction approach can, in fact, lead to higher prices or lower quality products being supplied which cost more in the long run.
As the report’s authors put it: ”We do not think the claims made for eAuctions would long survive the rigorous scrutiny of an external audit by a body like the NAO.”
The authors are also concerned that the promotion of eAuctions in UK public sector procurement could lead to organisations wasting significant time, resources and money on an approach that does not deliver for them.
John Wilkinson, Director General of the Association of British Healthcare Industries (2004-8), said:
“For some time our members have been concerned at the presentation of eAuctions as a magic bullet solution for procurement managers in the NHS. This study shows that there are real dangers in heading down this path without any evidence that this approach delivers real benefits.”
The report highlights instances where promotional literature on public sector procurement has made claims of massive savings delivered through the use of eAuctions that do not stand up to scrutiny. Savings that could be attributed to a number of factors were all treated as being generated by the eAuction process and savings in the pilots were extrapolated across huge chunks of NHS spending.
One Department of Health promotional document claims that “E=£270M off the bottom line” was felt to be especially misleading. The headline figure was generated by applying the savings in 13 small pilot schemes to 30% of all NHS non-pay expenditure. The authors found that the savings in the pilots were likely to be overstated and any suggestion that they could be reasonably extrapolated across NHS spending ignored the huge range and complexity of products and services supplied to the NHS.
If suppliers think price is the most important factor in winning tenders then that will have an impact on their behaviour, the report found. Suppliers could downgrade quality in order to compete on cost and investment in product quality improvements could be hit as companies seek cost advantages over all others.
Researchers interviewed a number of major NHS suppliers and found widespread discontent with aspects of the eAuction approach. In particular the absence of clinical input in eAuctions and the overemphasis on price worried some suppliers. Another recurring theme was the inability of reverse eAuctions to take adequate account of factors such as quality and customer service.