How can AI transform government procurement?

Artificial intelligence (AI) has the potential to transform procurement, which accounts for around a third of government expenditure. But at what cost? 

In a recent discussion hosted by the Institute of Government, a group of experts weighed up the potential for AI to streamline processes and drive down costs with the risks involved.

Levelling the playing field

One of the biggest perceived benefits of AI in government procurement processes is the ability to level the playing field and reduce costs. 

Writing bids for contracts takes a significant time and resources, but generative AI allows suppliers to create bid text more quickly and can lead to more firms bidding for more contracts. It could also be used to find businesses that should be bidding but aren't. 

The UK has the most expensive public procurement process in the world - with the average full procurement cost totalling about £45,000 a year for businesses. Meanwhile, government spends around £300 billion a year on public procurement. 

Against this backdrop, Kate Steadman, Group Strategy & Communications Director at Serco, said AI can open the door to major cost reductions for bidders and help those that may lack the resources to apply for government contracts -  leading to more competition and better outcomes for government. 

“It allows suppliers both big and small to be involved in the bidding process and that’s a really important priority for governments. Keeping up that competitive tension is really critical.”

The challenge, however, is how government can prepare for a higher number of bids while ensuring that AI is not a replacement for genuine capability. If bid responses are being auto-generated, how can government ensure that authentic capability lies behind those words? 

“I think it is likely that past performance of suppliers is going to become more important. Paradoxically, this means we have got to be careful that the requirement for past performance and genuine ability doesn't inhibit new entrants - the very opposite of what we're trying to achieve,” Steadman said. 

She added that a cookie cutter approach to all proposals generated could lead to a decline in innovation and genuinely new thought in public service delivery. 

Still in ‘discovery mode’ 

Government departments across Whitehall are starting to think about and prepare for the impact of AI on procurement processes - but they are still hesitant, said Einav Ben-Yehuda, Chief Commercial Officer at the Department for Environment, Food and Rural Affairs (Defra). 

“I will say we're in discovery mode. It's not a new technology but it's reasonably new in this space. From a government perspective, if we want to use this kind of technology, we are going to have to have to rethink our processes because in order to automate something you're going to have to simplify it first.”

At this stage suppliers are not anticipating that AI will replace bid writing entirely, Ben-Yehuda said. “From what we're hearing, they see it as a supplement rather than a replacement -  at least until they’ve seen something more sophisticated.”

Speakers also noted that it is tricky to automate some complex things like mental health services for vulnerable people. 

Eyes on Korea

The UK government has been slow to regulate new technologies when they are widespread. 

In light of this, Sally Guyer, Global CEO of World Commerce and Contracting, said it is important to look at how other governments around the world are responding to a greater volume of AI generated bids. Countries like the US, Estonia, Singapore, Dubai and Korea have already set out how they can deploy AI in their own systems internally to assess those bids. 

Guyer said the Korean Republic's system is a good example with respect to its impact outcome, with 75.6% of total procurement spend now being awarded to SMEs through the evolution of its AI platform. It has also increased transparency, enhanced efficient efficiency and generated cost savings of $1.4 billion for government and $6.6 billion for businesses. 

“Many of us are still in discovery mode but I think it is incredibly important for us to raise our heads and look at what is happening elsewhere in the world and take lessons from countries that have been more bold,” she said. 

The human touch

There are still limitations to what AI can offer when it comes to softer skills like culture - something Defra's Ben-Yehuda believes cannot be replicated by technology (yet).

“Government wants suppliers to look to understand what our culture is and how they can match it.  We want to know that what we buy actually represents the organisation as opposed to what the software told the organisation to say.”

It was also suggested that governments do not necessarily need leading technology like AI to address the complexity of public procurement. “There are some things that we can do manually to address the challenges in public procurement so I think we need to make sure that we are balancing this” Guyer said. 

She added that there will always be limitations to what AI can do for government until technology is fully embraced. “AI has the power to shift the gears as far as improvement and efficiency is concerned, but success in digital services is not fundamentally about the technology, it is about mindset and building a culture of trust.”

Another challenge associated with the use of AI is the technological skills of government officials.

“AI is speeding up the world and if we're going to use this technology effectively, the skill base in government has got to keep up with it. I think that's a challenge on all sides,” Steadman said. 

There is understanding that AI must augment, but not replace human insight especially when considering what government is trying to achieve: better outcomes for citizens and improved public services for taxpayers. 

Maintaining public trust 

There has been criticism about poor transparency in government procurement processes, particularly during the pandemic.

In a world where suppliers are bidding supported by AI, and government might be using AI to partly assess that, there are concerns over how government can maintain public trust in the procurement process.

Lord Richard Allan said this area is "very contentious" as government moves into the world of AI and believes that how  fairness is assessed will need to be redefined. He said that from a public interest perspective, more transparency and openness is crucial, particularly with the speed that this can offer government with respect to scrutinising contract delivery. 

"The more information there is about what went well and what didn't go well the better. This should feed into government's process and structuring of bids.”