Public AdministrationWritten evidence submitted by IACCM (PROC 8)

This response is provided by Tim Cummins, Chief Executive of the International Association for Contract & Commercial Management (IACCM), a worldwide non-profit organisation dedicated to improving the quality and results of trading relationships.

Summary

IACCM research suggests that the failure rate in Government procurement is no greater than that experienced in the private sector.1

However, the costs associated with public procurement policy and skill deficiencies are far higher.2

The core issue is therefore “value for money” and in this regard the Government procurement process requires substantial overhaul.

Some of the current initiatives appear likely to increase the problem.

1. Introduction

1.1 While Cabinet Office has consistently shown leadership and imagination with regard to the vision for public procurement,3 there are significant shortfalls in aspects of strategy and execution. Organisation and skills throughout the service remain significant inhibitors, but these are supplemented by an apparent fragmentation of strategy and limited understanding or interest in supplier perspectives or “lessons learned”. This leads to inconsistency of both message and practice, undermining the level of trust or the commitment to performance.

1.2 As with all trading relationships, good performance depends on a degree of mutual understanding, predictability and fairness. Within the private sector, procurement practices are tempered by the fact that companies operate first and foremost as sellers or suppliers of goods and services. They are to some extent constrained in their buying behaviour by the need to maintain and manage broader market relationships. Because it lacks paying customers for most of its services, Government does not have the benefit of this same market discipline. As a result, it tends to place burdensome terms on its suppliers which generate negative behaviours. In particular, the contracting culture is one of mutual self-protection and a tendency to allocate blame.

1.3 The situation is made worse when:

(a)Government contracting models are developed unilaterally and are frequently non-negotiable.

(b)Government advisors tend to advocate models of contracting similar to that of the retail sector, in which all risk and responsibility for performance is placed on the supplier and all acquisitions are treated as commodities.

(c)Procurement staff often appear to have little understanding of the role or purpose of contracts or contract management. Lacking authority to explore alternative approaches, they are driven by a lowest price mentality that frequently undermines longer-term value and increases cost.

2. General Observations

2.1 The topics raised within the Committee’s “Issues & Questions Paper” are wide-ranging. Section 3, “Recommendations”, briefly answers each of those questions.

2.2 The Procurement Process within Government appears fragmented, varying between departments, and with no apparent point of ownership or accountability for its effectiveness. This lack of definition inevitably impacts the extent to which there is investment in skills, resources or the tools and systems that are necessary to achieve maximum impact. It also results in little consolidation of results or data to support continuous learning or improvement.

2.3 As a result, core questions related to capabilities appear to be unanswered. For example, what types of performance measurement should be used to monitor and motivate the success of Procurement as an organisation and at the level of individual practitioners?4 To what extent should contract management and supplier relationship management be part of the Procurement role, or separate from it (the situation in private industry is varied and often depends on the underlying complexity of the business)?

2.4 There seems to be an innate resistance to skills analysis and benchmarking, so while work to identify required skills has been undertaken, it is not evident how gaps will be addressed. The level of skill and knowledge varies significantly within and between departments, depending on the relative complexity and type of acquisitions to be made. However, most Procurement professionals appear to have been trained to deal with commodity purchases and have little appreciation of the methods or techniques that are needed to effectively gather requirements, evaluate supplier capabilities, develop relationships and oversee contract outputs or outcomes. This is a serious deficiency in a world that has moved increasingly to services and solutions, where outcomes matter far more than inputs.

2.5 Organisational fragmentation within Government Procurement is already a source of weakness which is perhaps getting worse. The lack of central oversight and management creates tensions that undermine efficiency and effectiveness. These problems are in some respects exacerbated by the creation of commissioning officers and the Major Projects Authority. While the development of specialists is to be welcomed, there is a very real risk that they are rendered ineffective because they lack the underlying process, resources and systems to drive improved commercial performance. These resources are likely to spend their time overcoming the system in the interests of their specific project, rather than leveraging or developing the system to generate better results.

2.6 In the absence of coherent process, supported by appropriate measurements, efforts to hire-in skills or outsource performance will be frustrated. This has been a repeated experience in the private sector—outsourcing problems does not bring solutions, especially when the contracts and associated business practices do not support or encourage collaboration.

3. Recommendations

3.1 In principle, the Procurement service should be centralised, if only to enable the required developments set out above. Over time, it would be beneficial to move to a centre-led operation, but only after the necessary process, skills and systems have been deployed.

3.2 Framework agreements are essential to effective contracting and to the ability of the private sector to engage with Government.5 However, these must be developed with a proper reference to the market and an understanding of the economic impacts of terms and contracting models.

3.3 Required management information is lacking. There is little consolidated data relating to outcomes; there is no apparent ability to monitor cost of ownership; the absence of central visibility into claims, disputes and sources of failure results in repetitive issues undermining value delivery; there is no inventory of skills or skill gaps to support capability development etc.

3.4 Investment in modern systems and techniques is either absent or inefficient. For example, despite legislation to enable electronic signature, there appears to have been no action to take advantage of this within Government. Similarly, the use of contract management software is sporadic and isolated implementations appear to have been undertaken at high cost. Priority has been given to areas such as spend management, reflecting the unerring focus on product purchasing and commodity thinking. Service and solution acquisition—the areas where value is achieved and where errors most often occur—has been left with little support or training.

3.5 Government needs to provide more cogent and coherent advice to both Government agencies and suppliers related to compliance with European Public Procurement directives. For example, it appears that the interpretation to date has reinforced a view that lowest price is the primary driver, rather than examining acquisitions on more appropriate value-based criteria. This reinforces a highly transactional, commodity-based approach, at a time when the success and value of many procurements depend on collaborative, solution-based relationships.

3.6 Risk must be assessed in the context of both probability and consequence. It must also be understood that risk allocation has economic consequence, in terms of direct price and in terms of potential gain or loss of opportunity. Government contracting today is mostly driven by a risk-averse policy that focuses exclusively on shifting consequence to the supplier. This is probably the least effective approach to risk management that could be taken; it serves no one except perhaps the legal advisers who can profit from such an approach. An immediate improvement could be made simply be understanding and addressing the probable causes of poor performance and addressing those through revised terms and conditions.6

3.7 The allocations of risk should be adjusted to the nature of the procurement and also the conditions of the market. There are intelligent criteria that enable a portfolio of contracting models to be used, based on the levels of risk associated with the deal or the relationship.7

3.8 Prime contract decisions should be based on risk and opportunity criteria. These include factors such as skill availability, performance history, extent of market competition, the importance of innovation and the degree of supply chain transparency. The biggest problem for Government at this time is not whether prime contract relationships will or will not work, but more whether Government has the skills available to manage any complex relationship.

3.9 NAO reports have outlined many of the key lessons to be learned. Over 60% of their reports have highlighted weaknesses in contract and commercial skills and systems, yet little appears to have been done to address these. Over this 5 year period, Government has invested large amounts of money in professional development training and in consulting reports; it continues to spend significant sums on legal advisers. Yet there is no evident improvement in outcomes.

3.10 Learning would also be enhanced by a less insular view. Policy appears driven by a domestic audience and largely domestic advisory network that offers limited insights to new ideas or approaches. Best practice and innovation are not determined by geographic or cultural boundaries. We live in an electronic age in which ignorance should never be an excuse for sub-optimal results.

4. Conclusion

4.1 The world of procurement has changed dramatically in recent years. We operate in a global environment where the speed of change and the complexity of business systems continue to multiply. Every organisation struggles to keep pace with this demanding environment, which calls for unprecedented levels of agility and adaptation, yet also demands far greater standards of governance.

4.2 This has proven especially challenging for Government agencies which function under public scrutiny and therefore must operate to unique standards of probity. Finding a balance between these competing pressures, while also meeting the political agenda of the day, is extraordinarily taxing. It demands fresh solutions, especially in the field of Procurement, and at this time those solutions do not appear forthcoming. Indeed, the Procurement agenda seems rather to be struggling with battles of the past rather than adequately equipping for the needs of today and the future.

4.3 Government must be more open to research and an exploration of best practice. It must focus on methods to build more collaborative supply relationships. It must expand the sources of information, innovation and professional development. UK public administration has much to commend it; it is time to take a more radical approach to establishing world-class procurement processes.

January 2013