The issue of public micro-purchases has just gained political salience in the UK. The opposition Labour party has launched a dedicated website and an aggressive media campaign calling citizens to scrutinise the use of government procurement cards (GPCs). The analysis revealed so far and the political spin being put on it question the current government’s wastefulness and whether ‘lavish’ GPC expenses are adequate and commensurate with the cost of living crisis and other social pressures. Whether this will yield the political results Labour hopes for is anybody’s guess (I am sceptical), but this is an opportunity to revisit GPC regulation and to action long-standing National Audit Office recommendations on transparency and controls, as well as to reconsider the interaction between GPCs and procurement vehicles based on data analysis. The political football around the frugality expected of a government in times of economic crisis should not obscure the clear need to strengthen GPC regulation in the UK.
Background
GPCs are debit or credit cards that allow government officials to pay vendors directly. In the UK, their issue is facilitated by a framework agreement run by the Crown Commercial Service. These cards are presented as a means to accelerate payment to public vendors (see eg current UK policy). However, their regulatory importance goes beyond their providing an (agile) means of payment, as they generate the risk of public purchases bypassing procurement procedures. If a public official can simply interact with a vendor of their choice and ‘put it on the card’, this can be a way to funnel public funds and engage with direct awards outside procurement procedures. There is thus a clear difference between the use of GPCs within procurement transactions (eg to pay for call-offs within a pre-existing framework agreement) and their use instead of procurement transactions (eg a public official buying something off your preferred online retailer and paying with a card).
Uses within procurement seem rather uncontroversial and the specific mechanism used to pay invoices should be driven by administrative efficiency considerations. There are also good reasons for (some) government officials to hold a GPC to cover the types of expenses that are difficult to procure (eg those linked to foreign travel, or unavoidably ‘spontaneous’ expenses, such as those relating to hospitality). In those cases, GPCs substitute for either the need to provide officials with cash advances (and thus create much sounder mechanisms to control the expenditure, as well as avoiding the circulation of cash with its own corruption and other risks), or to force them to pay in advance from their private pockets and then claim reimbursement (which can put many a public sector worker in financial difficulties, as eg academics know all too well).
The crucial issue then becomes how to control the expenditure under the GPCs and how to impose limits that prevent the bypassing of procurement rules and existing mechanisms. From this perspective, procurement cards are not a new phenomenon at all, and the challenges they pose from a procurement and government contracting perspective have long been understood and discussed—see eg Steven L Schooner and Neil S Whiteman, ‘Purchase Cards and Micro-Purchases: Sacrificing Traditional United States Procurement Policies at the Alter of Efficiency’ (2000) 9 Public Procurement Law Review 148. The UK’s National Audit Office (NAO) also carried out an in-depth investigation and published a report on the issue in 2012.
The regulatory and academic recommendations seeking to ensure probity and value for money in the use of GPCs as a (procurement) mechanism generally address three issues: (1) limits on expenditure, (2) (internal) expenditure control, and (3) expenditure transparency. I would add a fourth issue, which relates to (4) bypassing existing (or easy to set up) procurement frameworks. It is worth noting that the GPC files report provides useful information on each of these issues, all of which requires rethinking in the context of the UK’s current process of reforming procurement law.
Expenditure limits
The GPC files show how there are three relevant value thresholds: the threshold triggering expenditure transparency (currently £500), the maximum single transaction limit (currently £20,000, which raised the pre-pandemic £10,000), and the maximum monthly expenditure (currently £100,000, which raised the pre-pandemic limits if they were lower). It is worth assessing these limits from the perspective of their interaction with procurement rules, as well as broader considerations.
The first consideration is that the £500 threshold triggering expenditure transparency has remained fixed since 2011. Given a cumulative inflation of close to 30% in the period 2011-2022, this means that the threshold has constantly been lower in comparative purchase parity. This should make us reconsider the relevance of some of the findings in the GPC files. Eg the fact that, within its scope, there were ‘65,824 transactions above £500 in 2021, compared to 35,335 in 2010-11’ is not very helpful. This raises questions on the adequacy of having a (fixed) threshold below which expenditure is not published. While the NAO was reluctant to recommend full transparency in 2011, it seems that the administrative burden of providing such transparency has massively lowered in the intervening period, so this may be the time to scrape the transparency threshold. As below, however, this does not mean that the information should be immediately published in open data (as below).
The single transaction limit is the one with the most relevance from a procurement perspective. If a public official can use a GPC for a value exceeding the threshold of regulated procurement, then the rules are not well aligned and there is a clear regulatory risk. Under current UK law, central government contracts with a value above £12,000 must be advertised. This would be kept as the general rule in the Procurement Bill (clause 86(4)), unless there are further amendments prior to its entry into force. This evidences a clear regulatory risk of bypassing procurement (advertising) obligations through GPC use. The single transaction limit should be brought back to pre-pandemic levels (£10,000) or, at least, to the value threshold triggering procurement obligations (£12,000).
The maximum monthly expenditure should be reassessed from an (internal) control perspective (as below), but the need to ensure that GPCs cannot be used to fraction (above threshold) direct awards over short periods of time should also be taken into consideration. From that perspective, ensuring that a card holder cannot spend more than eg £138,760 in a given category of goods or services per month (which is the relevant threshold under both current rules and the foreseen Procurement Bill). Current data analytics in basic banking applications should facilitate such classification and limitation.
(internal) expenditure controls
The GPC files raise questions not only on the robustness of internal controls, but also on the accounting underpinning them (see pp 11-12). Most importantly, there seems to be no meaningful internal post-expenditure control to check for accounting problems or suspected fraudulent use, or no willingness to disclose how any such mechanisms operate. This creates expenditure control opacity that can point to a big governance gap. Expenditure controls should not only apply at the point of deciding who to authorise to hold and use a GPC and up to which expenditure limit, but also (and perhaps more importantly), to how expenditure is being carried out. From a regulatory theory perspective, it is very clear that the use of GPCs is framed under an agency relationship and it is very important to continuously signal to the agent that the principal is monitoring the use of the card and that there are serious (criminal) consequences to misuse. As things stand, it seems that ex post internal controls may operate in some departments (eg those that report recovery for inappropriately used funds) but not (effectively) in others. This requires urgent review of the mechanisms of pre- and post-expenditure control. An update of the 2012 NAO report seems necessary.
Expenditure transparency
The GPC files (pp 10-11) show clear problems in the implementation of the policy of disclosing all expenditure in transactions exceeding £500, which should be published published monthly, 2 months in arrears, despite (relatively clear) guidance to that effect. In addition to facilitating the suppression of the transparency threshold, developments in the collection and publication of open data should also facilitate the rollout of a clear plan to ensure effective publication without the gaps identified in the GPC files (and other problems in practice). However, this is also a good time to carefully consider the purpose of these publications and the need to harmonise them with the publication of other procurement information.
There are conflicting issues at hand. First, the current policy of publishing 2 months in arrears does not seem justified in relation to some qualified users of that information, such as those with an oversight role (or fraud investigation powers). Second, in relation to the general public, publication in full of all details may not be adequate within that time period in some cases, and the publication of some information may not be appropriate at all. There are, of course, intermediate situations, such as data access for journalists of research academics. In relation to this data, as well as all procurement data, this is an opportunity to create a sophisticated data-management architecture that can handle of multi-tiered access to different types of information at different times, by different stakeholders and under different conditions (see here and here).
bypassing procurement frameworks
A final consideration is that the GPC files evidence a risk that GPCs may be used in ways that bypass existing procurement frameworks, or in ways that would require setting up new frameworks (or other types of procurement vehicle, such as dynamic purchasing systems). The use of GPCs to buy goods off Amazon is the clearest example (see pp 24-25), as there is nothing in the functioning of Amazon that could not be replicated through pre-procured frameworks supported by electronic catalogues. In that regard, GPC data should be used to establish the (administrative) efficiency of creating (new) frameworks and to inform product (and service) selection for inclusion therein. There should also be a clear prohibition of using GPCs outside existing frameworks unless better value for money for identical products can be documented, in which case this should also be reported to the entity running the relevant framework (presumably, the Crown Commercial Service) for review.
Conclusion
In addition to discussions about the type and level of expenditure that (high-raking) public officials should be authorised to incur as a political and policy matter, there is clearly a need and opportunity to engage in serious discussions on the tightening of the regulation of GPCs in the UK, and these should be coordinated with the passage of the Procurement Bill through the House of Commons. I have identified the following areas for action:
Suppression of the value threshold triggering transparency of specific transactions, so that all transactions are subjected to reporting.
Coordination of the single transaction threshold with that triggering procurement obligations for central government (which is to also apply to local and other contracting authorities).
Coordination of the maximum monthly spend limit with the threshold for international advertising of contract opportunities, so that no public official can spend more than the relevant amount in a given category of goods or services per month.
Launch of a new investigation and report by NAO on the existing mechanisms of pre- and post-expenditure control.
Creation of a sophisticated data-management architecture that can handle of multi-tiered access to different types of information at different times, by different stakeholders and under different conditions. This needs to be in parallel or jointly with proposals under the Procurement Bill.
There should also be a clear prohibition of using GPCs outside existing frameworks unless better value for money for identical products can be documented. GPC data should be used to inform the creation and management of procurement frameworks and other commercial vehicles.