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Strengthening financial resilience in local government: Five procurement strategies from private equity
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- Insight
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Authors: David Taylor, Adrian Leibovitch, Scott Collins
As local government organisations face profound financial pressures, incremental adjustments to approaches that worked in more stable conditions are proving insufficient.
Between 2019/20 and 2024/25, net expenditure on services increased by over £26bn, driven by rising demand in adult social care, children’s services, and SEND provision. However, funding has not kept pace. The Local Government Association (LGA) forecasts a £6bn gap in council budgets this year, with many local authorities already issuing or actively considering Section 114 notices.
Beyond the immediate pressures, local authorities face deep-rooted structural challenges in procurement, including fragmented commissioning, inconsistent commercial practice, gaps in commercial capacity, and underinvestment in digital and data skills. All this hampers their ability to respond strategically and efficiently.
However, there is also an opportunity for a new approach to procurement. Operating in similarly high-pressure environments, private equity-backed organisations have developed a distinct set of commercial disciplines to manage risk and deliver value.
This piece sets out five actionable strategies from the PE commercial playbook, adapted for local government. These strategies are already delivering measurable results in both sectors and, with the right leadership and support, can help local government organisations strengthen their financial resilience and improve outcomes for residents, moving from reactive crisis management to sustainable, long-term transformation.
1. Smarter contracting
Many local authorities remain tied to transactional, activity-based contracts that pay for hours or tasks delivered, rather than for real outcomes achieved. This approach stifles innovation, restricts provider flexibility, and too often fails to deliver value for residents, particularly in high-need areas such as social care.
PE-backed organisations build commercial discipline into contracts by linking payments to tangible, measurable outcomes. This drives performance, enables rapid course correction, and focuses suppliers on what truly matters.
Examples include:
- Healthcare providers owned by PE moving to value-based care, where income is tied to patient health outcomes rather than appointment volume.
- Education service firms linking revenue to metrics like student progress, retention, or exam results.
- Facilities management businesses adopting gainshare models that reward efficiency and cost reduction.
- PE-owned business process outsourcing (BPO) providers tying contract value to client satisfaction or process error rates, rather than just transaction volumes.