Joel GhosnNicole Merlo © Oliver WymanCONTENTSExecutive SummaryMaking the case for a Government Procurement Agency1. How much do governments spend, and why is that important?2. What do governments spend on?3. What are the current inefficiencies?4. How to progress towards implementing a successful GPA?5. What are the key success factors?6. How do GPAs mature over time?7. What is the expected impact of an increase in procurement maturity?8. Conclusion 344561416171920 © Oliver WymanEXECUTIVE SUMMARYGovernment procurement accounts for USD ~13 trillionworldwide, representing on average around one-fifthof all government expenditures. Such high volumesof capital mean huge potential for savings — andOliver Wymanhas identified that governments couldsave up to 50% of procurement costs by reducinginefficiencies. While there is no one-size-fits-allapproach, an essential step to unlock value for somecountries is theestablishment of acentralizedGovernment Procurement Agency.Oliver Wymanhas mapped government efficiencythrough our Public Procurement Performance Index(PPPI), identifying that countries with a pressingneed for optimization could save up to 25% in theshort term by deploying a dedicated task forceto review procurement contracts. Meanwhile,sustainable savings require a strategic and holisticrethinking and a centralization of the procurementfunction. This operating model could then lead toan additional 25% in potentialsavings.Governments that implement the actions described in this paperare demonstrating a commitment to optimizing operationsand are taking significant steps towards achieving cost savings.By unlocking value for the broader public, these efforts willenhance trust in the government’s actions anddecisions. While the degree of centralization in procurementdepends significantly on factors such as a country’sgovernment structure and size (with smallercountries generally having the potential for morecentralized procurement),all governments canleverage Government Procurement Agencies(GPAs) in some shape or form in order tooptimizepublic sourcing.However, achieving these fundamental structuralchanges requires time and the backing of seniorstakeholders. Typically, the transformational processtakes three to six years, contingent on the country’slevel of maturity and institutional framework. Onceestablished, it is important that GPAs mature andevolve with time to continue to reach higher levelsof technological and operationalsophistication.While optimizing and centralizing procurementoperations requires time and strategic attention, ouranalysis indicates that it is a worthwhile investment. © Oliver WymanMAKING THE CASE FORA GOVERNMENT PROCUREMENT AGENCY1.HOW MUCH DO GOVERNMENTS SPEND,AND WHY IS THAT IMPORTANT?1Excluding military spend.The market for government procurement (includinggoods, products, and services) currently amounts toaround $13 trillion annually worldwide1, representingroughly one-fifth of all government expenditures,with the exact percentage varying by country(Exhibit1).Due to this sizeable value and the high proportionofgovernment spend that goes towards procurement,advanced public procurement systems are akey tool in achieving public sector efficiencyand delivering policy goals, such as increasedtransparency and accountability, innovation, jobcreation, and private sector development.Pre-requisites for effective public procurementsystems includewell-defined policies,transparencyon spend targets, streamlinedprocesses, andstrong procurement capabilities.As demonstrated during the COVID-19 pandemic,procurement is a core citizen service, and failuresin any of the aforementioned areas are likely toimpact procurement directly, which in turn canaffect the quality of life and well-being ofcitizens.All in all, public procurement demonstratesa government’s ability to steer spend wisely, andis therefore acrucial lever to deliver the publicsector's commitment to guaranteeing andmaintaining public trust.Exhibit 1: General government procurementas a share of total general governmentexpenditures, 2021NetherlandsIsraelGermanyEstoniaFinlandHungarySwedenUnited KingdomIcelandIrelandCzech RepublicNorwayCanadaOECDLatviaAustriaBelgiumDenmarkPolandLuxembourgSlovak RepublicSloveniaLithuaniaFranceSpainPortugalGreeceItaly45%38%35%34%34%33%33%32%32%31%31%30%29%29%28%28%27%27%27%27%27%27%26%26%23%21%21%21%Source: OECD, Oliver Wyman Analysis © Oliver Wyman2.WHAT DO GOVERNMENTS SPEND ON?1OECD Government at a Glance 2021 (2021).Public procurement covers all government demandneeds, including health, education, public order,and economic affairs. Government spend can becategorized asfollows:1.Vertical spend:needs that are dependent ona specific sector or ministry, for example, theprocurement of medical supplies2.Horizontal spend:needs that are commonacross all governmental entities, for example,the procurement of IT software, office supplies,or the leasing of governmentfleetThe distribution of a country’s public procureme