Achieving “value for money” through good procurement practice – what does it mean?
Most, if not all, procurement processes have as one of their objectives achieving ‘value for money’. Frequently, however, little time within the overall project timeline is set aside to enable the procurement process the best opportunity to produce a genuinely good outcome. Organisations that have specialist procurement teams are sometimes even worse, expecting their procurement advisers to produce high-quality documentation in a very short timeframe in order to get the Request for Proposals (RFP) into the marketplace in short order.
All consultants have ‘war stories’ of poor procurement processes they’ve had to work their way through to try to win work. This article isn’t about telling war-stories: rather it’s about incentives:
Aligning public sector drivers and private sector drivers to deliver mutually beneficial results.
We do this by identifying how public sector entities can substantially increase the value they get from procurement processes by investing more time upfront, and in doing so, make participation by a wide range of contractors and consultants attractive, delivering more robust competition.
It also contains a few anecdotes to illustrate some points…
Really understand your project to determine how to approach the market.
Who are your internal clients? How will they need to be involved throughout the procurement process?
Who are the decision-makers, and how will they make decisions?
What’s the timeframe for each stage of work – internal procurement, external procurement and the actual project itself - and are these timeframes actually achievable?
Are your answers to the above assumptions, or are they built on solid knowledge?
Can you clearly articulate – in a few paragraphs or bullet points at best – what outcomes your project will achieve, when it will achieve them, how decisions will be made and how the work will be funded?
If the answer to any of these questions is a clear no, then you need to put more effort into confirming what approach to market you’ll take. Answering ‘no’ doesn’t necessarily mean you’re not ready to head to the market – just that you may not be ready to jump all the way to an RFP that seeks to bring in a third-party provider with the expectation that they’ll be able to efficiently and effectively ‘do the job’. In this situation, you should really think about starting with a de-scoped procurement proposition so that you can enter the market with a clear direction on what it is you’re seeking.
Consider the following, staged approaches:
Expression of Interest (EOI):
Ask parties to self-identify their interest and to sketch out in broad terms how they would go about advancing the work.
what sort of questions would the consultant ask of you as a client?
what sort of assumptions would they make right now in order to be able to advance the analysis? Are these assumptions acceptable?
how much experience do they have in helping other organisations with this sort of work and in the likely available timeframe?
This sort of intelligence can helpfully narrow down a project into component parts so you can enter the next stage of the process with an objective that’s clear both to you and to potential consultants. Having identified potential partners through the EOI, you can now run a much tighter, clearly scoped RFP process that now involves fewer parties to evaluate (decreasing the procurement workload).
This isn’t just about making it easier for the tender evaluation team. It’s about making the work more attractive to potential partners, so they’re more likely to respond, and more likely to put considerable effort into their proposal because they’ve got a better chance of that effort paying off. When incentives are aligned, you get better outcomes.
Defining the problem:
Another alternative is to bring in a trusted advisor on a short-term basis who can use their skills to draw out a clear pathway forward for the project. This might be an Investment Logic Map Facilitator who can help bring governors and decision-makers together to agree on the problem scope (and to “own” the consequences), or it might be a person or team that can develop an appropriately scoped Indicative Business Case (IBC) or Strategic Assessment (basically, the first case in an IBC) that enables greater direction to be sought from decision-makers, narrowing the future choices. This would also then allow you to go to market with a much clearer set of objectives, which means the market doesn’t have to second guess you (or ask dozens of questions through GETS…).
Tightly define the scope of what you’re going to market for
If you can’t define the scope tightly, you really should be thinking about going to market to find client-side advisers that can help you to do this. Understanding precisely what you’re trying to accomplish is a really important first step in the process of finding a team to help you. If you aren’t able to accurately and succinctly describe what the end point looks like and how you would know you were successfully on your way, then it’s very difficult for a consultant to identify this in a short procurement process under probity restrictions.
Defining the scope tightly is difficult, since everyone can always imagine a series of assumptions proving to be incorrect, market conditions changing unexpectedly, or decision-makers declining to rule options out. However, an open scope is difficult for consultants to price and risky – so the price will likely rise. A loosely defined scope also makes it hard to produce a tight response to an RFP, which makes participating in the procurement process more expensive for the potential consultants and harder for the client to evaluate.
This should be a key area for clients to focus on.
Write a great document that has the main focus of getting you precisely what you want. Everything else is secondary, and shouldn’t cloud the main focus.
This may sound a bit simple, but it’s surprising the number of procurement documents that are not predominantly focused on telling consultants what it is the client actually wants to achieve.
Too often boiler-plate requirements can cloud the focus in the procurement documents: we accept that public sector entities have obligations to drive social and environmental objectives with their public spend. This should not, however, be at the expense of achieving a project’s objectives. Procurement processes can also only drive social and environmental objectives so far: large-scale, multiple month projects have much more scope for driving improvement in the diversity of employees, for example, than do small-scale, shorter-term professional services projects. Equally, professional services projects – writing a business case for example - are unlikely to help you drive efficiency in water use (real example!)
Insurance is also something that keeps popping up as a key impediment for SMEs in procurement processes. Insurance is an expensive must-have cost of doing business – of course. However, too often we see little thought being put into understanding the sort of risk that might be covered by insurance to the benefit of the client.
Clearly, large scale infrastructure projects have considerable risk at all stages – particularly where big expensive kit is being designed or built. But at the other end of the spectrum, professional services advice – particularly where it is part of a package of advice going to decision-makers – has very little insurable risk. That’s not to say there’s no risk – but that it’s very difficult to identify loss caused by reliance on this sort of advice because it’s generally not the only thing being considered. So why require multiple millions of dollars of professional indemnity and public liability insurance? It’s just adding on to the rates the consultants charge you, or dissuading SMEs from participating in the procurement process.
We’ve had one procurement process where our (well thought-through, specifically-written) proposal document was not even evaluated because we “failed” the mandatory requirements: we didn’t have vehicle insurance. That’s because we don’t own any vehicles… The icing on the cake? The job was designing a public transport network and fare structure…
The point we’re making here is that secondary objectives in procurement need to be carefully considered in light of the overall objectives and timeframe. Onerous conditions around local employment, diversity and sustainability policies and tick-the-box insurance requirements can just result in incumbent, large firms being entrenched in place, rather than enabling smaller, dynamic, new companies from presenting their value proposition. They may also add unnecessary cost to the process without clearly delivering any of the ‘outcomes’ they purport to seek when they’re used for small-scale or inappropriate procurement opportunities.
Think really carefully about the scale of the work in relation to the scale of the ‘extra’ conditions that are sought, and the risk that your public sector entity really faces from the work going awry. All of these additional obligations add cost to consultants, and therefore, to you and your taxpayers and / or ratepayers.
Value for money: a nebulous concept or the genuine focus?
Value for money can be a subjective concept. It needn’t be, however. If Ministers and public servants are honest about when they are looking for low-cost widgets or low[er] hourly rate ‘less-experienced’ consultants, then the market can serve that up to them. If, on the other hand, they are in fact interested in actually achieving value for money, then appropriately specified outcome statements and project objectives should be identified so that consultants can use their experience and expertise to identify different methodological approaches to getting to that end point.
For some projects, “value for money” will involve lots of people crunching through lots of work; for others, it will mean a few, highly paid, highly experienced people applying their wisdom to resolving a problem. Both might end up being a similar cost (or not), but with very different implications for time and quality – and presenting very differently in a proposal evaluation process.
Participating in public sector procurement processes is expensive for contractors and consultants. The vast majority of procurement processes are not remunerated, and despite all the time and effort we put in, we accept that we won’t win each one we enter. Well-designed procurement processes do, however, provide a fair, transparent way for public sector agencies to identify private sector partners to help them with their work. Opaque, rushed, poorly administered or fake (i.e. agencies going through the motions because they’ve already ‘picked their winner’, but have to go through a formal process) procurement processes don’t help anyone: they’re expensive to participate in, they’re expensive to run and they don’t deliver value for money to the people paying the bill – the taxpayers. Putting in a decent amount of effort up front to have confidence that you know what you’re trying to buy and you’re running the right process is the least that taxpayers can expect public sector agencies to do.
We’ve worked in a diverse array of departments and infrastructure entities across New Zealand and Australia. We haven’t seen it all, but we’ve seen a lot! The vast majority of consultants want to work on interesting projects that solve genuine problems efficiently and effectively. We think that’s value for money.
Communicate! Regularly and when you said you would!
Is there anything worse than working late nights and weekends to meet an (unreasonable) deadline, and then hearing nothing from the decision-maker? This happens in the public sector as well as the private sector!
We’ve all been guilty of optimism bias around the length of time it will take to work through internal approval processes and the like to get contracts signed off and procurement decisions approved. The one thing that helps when we have misjudged how long things will take, however, is honest communication.
It costs very little to send all participants an update identifying that evaluation processes are taking longer than anticipated / more proposals were received than assumed / the Board has asked for more information to support their decision. But it goes a long way to help contractors and consultants to understand they’re still in the mix, they’re being taken seriously, it wasn’t a fake procurement process (where the ‘winner’ had been identified before the proposals were evaluated). This is particularly important for SMEs trying to balance the use of their labour across multiple projects. If you don’t let people know they’re still in the mix, they don’t know they should keep themselves available for your important job.
Procurement processes do add lots of value – when time and effort is put into right-sizing them
One-size-fits-all generally fits no-one. The same is true for procurement processes.
Of course there is a place for standardised processes to support probity, fairness and rigor in procurement processes. Rather than in bog-standard boilerplate requirements, however, perhaps this is best achieved through categories of procurement, with bands of value applied. Perhaps now is a good time, while not much procurement is happening, for procurement teams to actively reflect on how best to meet this Government’s expectation to focus on value for money, and not simply by cutting costs or timeframes.
Well thought-through procurement processes, strongly focused on what the client actually wants to get out the end of the work, that balance ‘apples with apples’ assessment of different proposals with enabling innovation to shine, will deliver better outcomes for public sector clients and for consultancies. Appropriate (limited) use of boilerplate requirements, along with commercially feasible obligations that are right-sized to the scale of the work and the actual risk (insurance requirements, commitments to diversity etc) will also help to ensure that SMEs – the vast majority of businesses in New Zealand –stand a competitive chance of showcasing their innovation, while also minimising cost to both parties.
That’s value for money.
