Procurement

Written evidence submitted by David Chassels (PROC 6)

Author: David S Chassels CA. Current CEO of software technology company Procession plc, former partner BDO and executive with ICFC/3i.

· The emphasis in this submission is on the Government’s failure to achieve what was described in the PASC report on Good Governance: effective use of IT as the "intelligent customer" which is alluded to in a number of the questions.

· The perspective is from a SME Software Technology supplier and is relevant to the specific issues regarding the three stages of procurement.

· The comments are to help "us" learn from past actions and gain knowledge to just get it right to the benefit of efficiency in Government and recognise that Government procurement can be leveraged to aid economic wealth creation that lies within home grown technology companies. This latter point is highlighted in the title of the House of Lords Science and Technology Select Committee, First Report of Session 2010-12, Public procurement as a tool to stimulate innovation.

· The Appendix is a case study summary that addresses the challenges for Government in linking procurement and stimulation of innovation

Answers to relevant Questions

Q1. How successful has the Cabinet Office been at improving public procurement policy and practice?

A1. From the perspective of an SME tech company with relevant innovation it has been a failure. Despite the PASC recommending that "the Government should establish a permanent mechanism that enables SMEs to bring innovative ideas directly to government in confidence, thereby minimising the risk of losing business with prime contractors" this has not been implemented effectively. Initiatives such as the Skunkworks, the Innovation Launch Pad, the Solutions Exchange and ICT Futures they have all failed to not just deliver on taking innovation into Government contracts but to respond to innovators in an appropriate manner.

Q2. What should be the strategic aim of the Government’s public procurement policy?

A2. There should be two strategic aims.

· First be the intelligent customer by understanding and being in control of what you buy that prioritises matching the specific needs not just on the lowest price. It is essential that you understand how your vendors build their software, not just what they build and on that custom coding transactional requirements is well out of date and relatively expensive. Government have failed to recognise that there are new emerging technologies. For example where build of applications should be object model driven with no coding described as the future by many see request for papers here  http://www.igi-global.com/publish/call-for-papers/call-details/733 and the rise of Adaptive Case Management which can change the old Enterprise software model such as described here http://www.acmlive.tv/agenda.html

· Second is the need to leverage Government spend to buy into home grown innovative technologies to help not just gain efficiency from use of such innovation but build new UK based global players. See www.beinformed.com a Dutch company that has been supported by the smarter than average Dutch Government see the Ovum Radar report well worth a read and note now looking to build their Universal Credit with knowledge gained from smaller projects

Q3. Does the Government have the right skills and capabilities to procure effectively?

A3. Yes but it needs direction to deliver on the strategic objectives. It needs greater "joined up" thinking and more of a collaborative grass roots approach often called "systems thinking" as articulated by Dr W Edwards Deming (¹) which is an approach that "optimises how business processes operate from end to end, working together with the solution supplier, for the benefit of the customer and ultimately for the benefit of their customers". (²) This puts the onus on leaders to set the right environment. Disturbingly some in Government think that the intelligent customer is about knowing what you need but this is the intelligent business. As an intelligent customer it is vital you know what capabilities exist which will influence selection of projects and articulation of needs.

Q5. Does the Government have the organisational structures in place to enable it to procure effectively? (For example, how far should the Government centralise responsibility for public procurement? Do central government procurement ‘framework agreements’ enable more effective public procurement?)

A5 Currently no but the GDS initiative to appoint a "neutral vendor" to co-ordinate and facilitate has interesting possibilities. Becoming the intelligent customer needs to be a central resource and this new role would be an effective way to distribute knowledge. However Government as the customer should be responsible for collection of the knowledge. It is important that suppliers understand Government have and use such knowledge which will improve the working relationships with mutual respect something that "framework agreements" never achieved?

Q8. How should Government assess and manage risk when negotiating

procurement contracts? (For example, how much risk should Government be prepared to accept and what are the limits on the transfer of risk to the private sector?)

A8 This comes back to being the intelligent customer with knowing "the art of the possible". It is a dynamic environment as innovators push at the boundaries of the possible. But from such knowledge come not just informed decisions on procurement but throughout the whole cycle of evaluation of a project including policy decision making. As a result risks will be identified early in the process and managed accordingly. Yes Government should accept risk where there are matching rewards in achieving strategic objectives.

Q9. What is the best role for ‘prime contractors’ and what are the advantages and disadvantages of relying on ‘prime contractors’?

A9. For large contracts it makes sense to have a "prime contractor" who is an orchestrator and administrator of all relationships very much like the construction industry. They should not be the supplier of the underlying technology "build blocks" which will be chosen with the acquired knowledge of being the intelligent customer working with the prime contractor. The model being developed as the "neutral vendor" will be a learning experience that could be used to good effect in establishing this model for larger contracts.

There have been considerable disadvantages with the old ways where contractors’ interests always ruled exampled by their "unwillingness" to adopt cost saving innovation that would affect their revenue streams. This is called "the innovators dilemma" and applies to the dominant suppliers if they adopt or make new products that are simple to implement and easy to use, they will lose their massive streams of services revenue. The most recent example was a direct introduction to a large prime contractor by the Skunkworks and despite a good meeting where positive comments were made they backtracked and did nothing eventually saying "bring us a contract"? The ecosystems that the core vendors build up with big serviced companies who are the prime contractors will ruthlessly exploit (with of course a friendly smile) a customer that is ignorant of then available capabilities. It is also part of their strategy to see senior executives placed in position of "influence" to further secure their position.

Q10.What are the key lessons to be learned from the experience of cost overruns, delays and project failures in central Government procurement over the past five years or so?

A10.The old ways have been very costly and it is not yet over. The way which large current contracts have been designed and built such as the DWP Universal Credit will deliver more failures. The key lessons should be

· Agree strategic objectives are much wider than just the cheapest options!

· Be smarter by becoming the intelligent customer and be prepared to engage with innovators with proven new technologies

· Be aware of the successes showing not just successful delivery but real cost savings and learn from these examples (unlike current policy of ignoring them)

· Recognition that procurement is not the end game it is a process where knowledge is shared across functions and starts with the ideas even policy making

· "Agile" is only a methodology which undoubtedly can make significant improvements but flexibility is vital as new supporting technologies will change how to approach delivery of successful outcomes

Conclusion

These views are from the perspective of an outsider seeing consequences of action over a decade and in particular the past few years. Whilst it is particular to ICT procurement the principles are equally valid across all procurement. In the Appendix is a more specific summary focusing on our experiences with Government covering what is known as the "exploitation gap". It may help understand the barriers to achieving the strategic objective of assisting with exploitation on home grown innovation.

Notes:

(¹) Dr W Edwards Deming was one of the greatest management thinkers of the 20th century. The Japanese credit him with providing the management approach that has enabled the dramatic and unprecedented success of their industry since the Second World War.

(²) This quote is from the Deming Forum booklet "Managing Transformation actually means Transforming Management" http://www.deming.org.uk/

Appendix

UK Government Stimulating Innovation;

The Relevance and Challenge

The UK has a good reputation for innovation creation BUT a poor record for commercial exploitation to create home grown global companies. This applies in particular to the important business to business markets where the US has been so successful. The Government is the largest buyer of goods and services and as such has the ability to lead change to help remove the exploitation gap. The Procession story will aid understanding the real challenges UK Government face to achieve better procurement outcomes and stimulating innovation.

Procession’s new software technology has over 12 years of proven capability with early adopters such as UK Sport and British Olympic Association. However new disruptive technologies face the "innovators dilemma". Add the fact that UK Government ICT fails to really understand has proven to be an insurmountable challenge to see wider adoption. The proven savings in both build and efficiency suggest this "failure" by UK Government ICT has been very costly. This brief note attempts to focus on" why" to help those with influence can be comfortable in daring to question "IT" experts that speak a different "language"; a problem that also exists in the commercial world.

What is Procession? It is a complete new approach to building software applications that delivers on removal of coding and thus the "language" interpretation gap between "IT and users. This was recently articulated by respected independent analyst Naomi Bloom "Writing less code to achieve great business applications was my focus in that 1984 article, and it remains so today.  Being able to do this is critical if we’re going to realize the full potential of information technology" Bill Gates in 2008 articulated this removal of code as the "holy grail of development forever", "the dream the quest…. but would be in a time frame of 5 to 8 years." This is exactly what Procession’s R&D over 20 years has created and tested with early adopters with such capability described as "Pointing to the technical foundation of future". The key is being user centric with very fast build of complex applications with in built adaptability to support constant change and dynamically support users working with customers.

The Relevance Today. Procession was a decade or so ahead of its time facing too many vested interests. In 2003 UK Government shut its own in house R&D capability in Norwich losing expertise to recognise and evaluate new technologies. Thereafter the policy expected the ICT prime contractors "to do the best for taxpayers"; a quote from an exchange with the then UK Government CIO, John Suffolk before the last election. But the world has changed where cash is tight and efficiency is a priority with old ways being challenged. Procession’s early adopters were all business driven and UK Sport has been a good example by quickly reacting to users needs with a result that it is the most efficient UK Government grant body where costs at 4.4% of distribution with next best 10.5%. It brings a simplicity and understanding that both politicians and business people can understand. A UK Sport administrator recently said "It captures all my weird and wonderful ideas and all done without telling me that I am expecting too much" and at a potential new customer the CEO and CFO said "why do it any other way?"

The Challenge. Despite 10+ years dialogue with individuals in UK Government all with few exceptions thought interesting and understood relevance but no one was able or willing to take responsibility or "risk" to challenge the "old ways". Despite numerous invitations to visit UK Sport to see how build takes place with high levels of operational efficiency no one has responded. Any referrals to prime contractors failed as the innovator’s dilemma kicked in.

Contacts with DWP totally ignored this new adaptive customer centric approach which supports a current industry new initiative called Adaptive Case Management (ACM). To spend approaching £500m on Universal Credit defies belief compared with an ACM approach. We were shown the specification for Child Maintenance & Enforcement Commission (CMEC) costing £50m built in India but would have been less than £5m with our technology. Despite raising our concerns on both projects no one challenged us or investigated and that is the challenge?

No one is responsible for being the "intelligent customer" and understanding the importance of "It really matters how your vendors build their software, not just what they build". To this end research on Object Model Driven Engineering to remove coding is now being promoted and seen as the future foundation of software. As a UK pioneer in such an approach we have been invited to submit our "story" to be published in 2013 in a research paper. This is in contrast to our own Government who ignore us. Why? Certainly not helped by the current obsession with agile using open source which certainly have a place but not to build custom coded transactional solutions.

The new alternative using Adaptive Software delivering ACM will transform Enterprise software a view now being expressed by experienced experts. UK Government needs to understand and as a UK pioneer should work with us – just as the Dutch Government does with one of their own innovative suppliers now looking to build their Universal Credit.

UK Government needs to address the issues raised if there is any hope of seeing new UK global players emerge in the particular challenging business to business markets.

January 2013

Prepared 5th February 2013