Government audit into project failures reveals need for new procurement practices

The results of a recent audit by the Victorian Auditor-General’s Office highlight a need to re-look at the way procurements are specified. Instead of focusing on systems, invite industry to put forward proposals that meet business requirements only.

So we have another audit into poor project practices in government. The Digital Dashboard: Status Review of ICT Projects and Initiatives – Phase 2 presents the results of a recent audit by the Victorian Auditor-General’s Office focused on ICT project governance and delivery — including  procurement practices.

Large ICT projects managed by six government agencies were the subject of the audit. Weaknesses observed include:

  • inadequate assessment of the vendor’s capability to deliver the project
  • ineffective project governance and poor project management
  • inability to fully appreciate and specify the business requirements for the ICT system being purchased, including the changes/upgrades required for it to integrate with the existing information technology (IT) infrastructure and systems
  • failure to provide key oversight of vendor performance, and
  • failure to provide appropriately considered advice to senior management at key stages of the project.

While it’s obvious that project management practices around governance have impacted project performance across the board, we must start understanding the critical role of procurement practices in project success and failures — and consider whether new procurement models may prove beneficial.

The public private partnership model: valuing expertise

I have written many blogs on the topic of procurement practices in government. In one (What is the role for suppliers in project governance?) I discussed the need to consider public private partnerships (PPP) as a model for procuring complex assets, whether they be infrastructure or technology.

Under a PPP model, government has a very good idea of its own expertise, and industry’s complementary expertise, and then structures the procurements along those lines. In this way it’s government’s role to:

  • specify outcomes (not the how)
  • specify volume and demand
  • specify relevant government policies and objectives
  • specify benefits, and
  • specify budget.

Industry then tells government, as the buyer, how these assets should look, be built, operated and maintained.

What we can learn from DFAT’s example

In one of our November 2015 posts I discussed the Department of Foreign Affairs and Trade (DFAT) tender for managing the government’s foreign aid program. DFAT turned the procurement process on its head by specifying only the outcome, capacity requirements, objectives and budget — not the how. This different approach to procurement practices increased the number of responses, increased the degree of innovation, and ultimately increased value for money outcomes.

Returning to the PPP analogy above, the example I used in that post to demonstrate how outdated our traditional procurement practices are was the hypothetical procurement of a train station. For such a procurement the purchaser would never specify the number of bricks needed, the colour of bricks or even the weight those bricks would have to support. Rather, it would specify a set of expectations and expect industry to deliver against them. The ‘how’ should be left to industry to determine.

The Auditor General’s report demonstrates that this inability to properly specify business requirements (which may have been written as system requirements) and integration requirements is a key failing of technology projects.

To change procurement practices: Focus on business requirements

Considering the examples presented by the PPP model and that particular DFAT tender, I believe we need to get to a level of maturity in procurement where we trust the industry to put forward proposals that meet business requirements only.

We need to understand and we need to embrace opportunities like software as a service or infrastructure as a service where — just as in infrastructure projects — industry builds, owns and operates assets, providing a lease or license to government to use.

I see no difference in how these regimes should work. But I do see a big difference in the level of maturity in procurement, and the culture needed to affect these changes.

In this digital age we cannot not buy technology. However, in government what we are seeing is greater risks associated with buying this technology.

If this risk appetite doesn’t kill off the project before it starts, it may have a further impact of introducing layers and layers of process, which I think further impact positive project outcomes. Either way, governments will begin to lag behind in delivering solutions essential for productivity and government service delivery — as core government business.

So in summary, yes I think the Auditor General is right in its audit observations. The Victorian Government should be much better at project governance arrangements, specifying business outcomes, and managing vendor service delivery. However, this can only be considered within reformed procurement practices, where the service provider has much greater responsibility for defining and delivering based on its individual expertise.

Deirdre Diamante is Director and co-founder of Mia. Based on 15 years of experience in procurement and governance roles, Deirdre’s intimate knowledge of public sector procurement environments makes her a sought-after advisor by commercial and public sector organisations alike. Deirdre helps companies of all sizes engage effectively with government, and works with government to implement industry and procurement programs.

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