Public Sector contracting: innovation or bureaucracy?
by TIM CUMMINS, CEO, IACCM
Governments are the largest consumers in an economy — on average the public sector spends 45–65 percent of their budgets and 13–17 percent of their GDP on procurement.[i]
The effectiveness and efficiency of public sector procurement impacts the scope and quality of public services, as well as ensuring that taxpayers receive ‘value for money’. Overall perceptions of performance are not generally favorable, fuelled by media comments that range from ‘Corruption is rampant in 60 countries, and the public sector is plagued by bribery, says Transparency International’, through to the more general implications of incompetence each time there is a failed, high-profile project.
It often seems popular to criticize those responsible for public procurement; but is it justified? It would be equally easy to select a range of terms or relationship types invented by government agencies and suggest that they are, in fact, a source of significant innovation.
Certainly, there are many failed projects, or those that have enormous cost overruns, but the same is true in the private sector — perhaps they are just less visible. There are also suggestions — including those that arose from an IACCM study in May 2007[ii] — that public procurement policies fail to optimize value. These assertions may have some truth, but that is not evidence of incompetence or lack of care. Staff involved in government and public sector contracting face an array of obstacles in achieving consistent goals, not least of which is political interference and inconsistency. This is then exacerbated by fears of ‘bribery’ or other actions that undermine free and fair competition. For many countries, the need to build policies that ensure transparency, fairness and a level playing field often act against the ‘deal-making’ culture of the private sector. There is no question that this carries a cost.
That cost is often a high level of rigidity (for example, non-negotiable terms and conditions) or bureaucracy (for example, inflexible rule books that ensure consistent governance and facilitate audit, but crush innovation).
On the other hand, government is uniquely placed to innovate — it has the budgets and the power to mandate new approaches, or to assume unusual risks.
However, on an international basis, there are remarkable differences in capability and maturity of contracting. In the US, for example, the acquisition and contract management communities are prolific. They are well trained and professionally certified. This community has often been the originator of new terms and conditions, many of which have then become global in their application (for example, termination for convenience, liquidated damages, or the current focus area, software assurance).
There are those who question whether this ‘innovation’ is helpful or destructive. Government has unique powers and also unique forms of accountability. Even if the terms they devise are beneficial, they may not translate well in the private or commercial sector. For example, liquidated damages has arguably driven a culture of cover-up and blame, rather than its intended effect of cleaner and quicker resolution of delays or failures.
Outside the US, the evidence of well trained resources at any consistent level is far more variable. In the UK, for example, the Office of Government Commerce (OGC) has developed a plethora of policies and guidelines which are broadly followed even if not universally loved. It has also developed creative approaches to contracting — for example, the public-private partnerships (PPPs) that have seen new relationships being formed to tackle major, high cost (and often high risk) projects. But unfortunately success has been mixed and in part the reason for this seems to be that the community at whom these initiatives are directed is extremely fragmented. There is no professional body of contract managers using consistent methods and practices, except in highly sensitive departments with long-term project-based contracting, such as the Ministry of Defence.
This pattern is repeated across many countries. For instance, the EU may have a sophisticated public procurement policy, but many countries lack sophisticated staff to manage it. Rigidity deters competition. Failure to manage post-award performance leads to sub-optimized results.
As projects become increasingly complex, as the range of relationships continues to increase, as the pace of innovation and change increase, government and public sector bodies are being forced to confront their need for increased investment in high quality, well-trained contracts and acquisition professionals. Projects are under way in several of the leading countries to address this issue and to safeguard outcomes. In the process, we may perhaps start to escape the image of bureaucracy and inefficiency, and instead develop a reputation for value and innovation.
Government has the power to drive change; it is probably first and foremost a question of whether it has the vision.
In this edition of Contracting Excellence, we seek to inspire with ideas and examples that show things can be — and should be — very different.
Tim Cummins,
CEO, IACCM.
[i]. International Institute for Sustainable Development — Sustainable Public Procurement Report May 2007
[ii]. IACCM study of EU public procurement suggested that current policies result in a significant (28 percent) price premium
