By: Gavin Bowden-Hall
|"The private sector has no reason to stimulate a healthy market so truly ‘open competition’ is rarely undertaken… without adopting a best-practice procurement process, and orchestrating an open competition, how can business be sure of value for money? Or is it that ‘value’ is just measured differently, and is less open to public scrutiny? "|
Two comments regularly heard when networking with peers are: “It takes so long to procure a public sector contract and costs so much to do it,” and “I’m not sure this private sector contract is really value for money.” Why is Procurement so different in the two sectors?
World Governments believe in free trade (well, as free as it can be). Those who traded centuries ago – Marco Polo, for example, trading silks from the Far East in the 1300s – did not realise trade would become such a generator of wealth and that so many would come to rely on it. Today’s governments have signed up to various treaties to stimulate trade in the knowledge it will generate wealth for all and underpin civic society. World Trade agreements are not just in place to ensure a level playing field; they are also there to stimulate innovation, the creation of small businesses, and a healthy market. Yes, there are distortions and exceptions. Global differences mean we have to live in an imperfect market. Public procurement regulations, such as GATT (now embodied into the World Trade Organisation Marrakesh Agreement), are the way Governments stimulate world markets and trade to secure the outcomes they seek.
Public sector procurement
When public sector procurement managers undertake a procurement, they do so with utmost probity, according to many global and local regulations. It is not just to demonstrate value for money, often a prima-facie driver for the buyer, but also as their Government’s lever to stimulate the market. It is probity and risk of transgressing these regulations (and, therefore, legal challenge) which so often shapes and drives a Public Procurement. This means the conduct of a public procurement is frequently precise and onerous. Although there are many sources of good advice and guidance, all designed to smooth the procurement process and ensure probity, public sector projects continue to be complex, with large number of stakeholders to be satisfied. These procurements, therefore, take longer and are more expensive to both buyer and supplier. The outcome: contracts which rarely secure value for money and invariably distort the market because of bid timescales and costs.
Private sector procurement
Turning to the private sector, there is little regulation other than contract law. This frees up the procurement manager to conduct affairs differently. Consequently, procurements can often be shorter and less resource consuming. Typically, potential suppliers may be selected via stakeholder contacts or a through a desk-top research exercise. Stakeholders are invariably fewer. It is quite possible different suppliers are treated differently in the detail. Probity is not such an issue and risk is managed when it arises. Yes, there is some use of best practice and the paper trail of key decisions does exist; there is, however, no risk of legal challenge as in the public sector. The greatest risks of a business getting it wrong are a stained brand and nugatory spend.
However, there are two downsides to conducting a procurement in this context: first, the private sector has no reason to stimulate a healthy market so truly “open competition” is rarely undertaken. Secondly, without adopting a best-practice procurement process, and orchestrating an open competition, how can business be sure of value for money? Or is it that “value” is just measured differently, and is less open to public scrutiny?
There is no intention to criticise either procurement environment. We have to ask, nonetheless: Is it possible to combine the two and to get the best of both worlds so value for money can be assured in the context of a healthy global market? Yes it is! Public sector disciplines and private sector timescales are achievable.
Five top tips deliver an optimal procurement:
- Plenty of preparation and planning so the procurement manager can deliver the contact into a small community of stakeholders, who understand precisely how the contract will work in their business context;
- Open competition with a well defined path to selecting a shortlist;
- Being less prescriptive around detailed technical requirements and focussing on output and outcomes;
- Managing issues well as they arrive, rather than hampering a project with excessive management of risk; and
- Proactively managing, challenging and empowering the selected supplier, once engaged.
Value for money and a healthy market come from holding all these issues in positive tension. For a procurement manager, the greatest challenge comes from deliverings contracts using public sector disciplines in private sector timescales!