Government procurement – What needs to change (I’ve had enough!)

Back
As government procurement processes strive to meet (often) competing policy priorities, they can miss the mark in terms of best value for money for both government and industry. I put out a call for high-level changes to procurement practices – including renewed focus on industry engagement.

I have fundamental concerns with how government procurement is run today, and much of this stems from attitudes and policies towards industry engagement and industry development.

Some recent government quotes relating to government procurement include:

“We are getting to the position where we don’t have a single bidder for our major projects…”

“We need this system, but technology procurement can be too high risk so we will just do without…”

“We need more efficient procurement mechanisms – but we also need procurement to stimulate industry development…”

“We can’t meet with you [business] due to probity…”

This is all a little disturbing.

government procurement

During the late 90s and early 2000s, the focus of government procurement practices was on industry engagement, collaboration, and communication, all within the framework policies of openness, competition and even-handed treatment of all companies. This recognised the essential partnership between buyer and prospective suppliers to generate best value for money outcomes.

I saw this with my own eyes. During my time in the Department of Defence I had the pleasure of being involved in the development of a defence industry strategy, aimed at enhancing defence procurement practices to better support a sustainable local defence industry. Then, while in the Victorian government, my title was ‘Procurement and Relationship Manager’.

Again, this all signified the importance of the industry relationship to delivering strong government procurement outcomes, or Best Value for Money outcomes.

The rise of ‘category management’

Things began to change when, in the early 2000s, the procurement industry and government started talking about ‘category management’ as a way of better understanding a procurement category, the sector, opportunities and market forces.

Category management is a common sense way of approaching procurement, as it helps governments to buy effectively and efficiently, particularly when looking at commodity items where there is a specific market. However, it has had the adverse effect of causing government to move away from industry engagement. I have two concerns with government’s implementation of category management:

  1. Category managers have become focused on the contract (as a written document) and the product or service that is the subject of the procurement, and completely lost sight of industry relationships.
  2. The process does not necessarily fit evolving services, particularly in the technology space, where government is buying solutions from an evolving marketplace.

Conflicting procurement policy agendas

Setting aside category management practices, my other fundamental concern with government procurement is conflicting procurement policy agendas. Government procurement policy objectives, across jurisdictions, are invariably aimed at maximising:

  • Value for money
  • Competition
  • Openness
  • Local content
  • Industry development (in particular small to medium sized enterprises)
  • Social and ethical procurement, and
  • Procurement efficiencies.

How can a procurement officer gain procurement efficiency when they must succeed against every other policy objective? Government procurement approvals are then given against policy adherence, not outcome!

And at this time I would like to quote the Secretary of the Victorian Department of Premier and Cabinet who, at an IPAA address in 2016, said: “As a public purpose sector we must focus on the outcome and benefits… rather than only on the inputs and process.”

Please don’t get me wrong. I am the first one to agree that government has a responsibility, through its procurement spend, to drive social policies, competition, local content and industry development. With first hand experience in providing procurement approvals, I also know the importance of adhering to proper process for those rogue government buyers. But this must all be overlaid with an outcome focus and a partnership with industry.

So I call for three high-level changes to government procurement practices:

  1. Inclusion of industry engagement as part of good procurement practice, and as an essential element of category management.
  2. Procurement policies need to be unpicked to understand the outcomes required from each, and the procurement type best suited to deliver each outcome.
  3. Development of a government industry engagement plan to ensure value for money outcomes. The plan needs to sit in harmony with the procurement policies and encourage open and constructive industry dialogue within a probity environment.

THE SOLUTION

Unpick procurement policies

Government needs to unpack each procurement policy and understand the best way for each to be delivered. It’s nonsensical to believe that every government procurement can deliver against each policy outcome. For example, I maintain that it’s very difficult to achieve efficient procurement outcomes AND industry development.

Marketplaces such as eServices and the Digital Marketplace are examples of this policy conflict. Unless there are strong mechanisms that force government purchasers to involve new suppliers in the quotation process, they will continue to use the companies they have used before. For low-complexity and straightforward procurements, government should be able to release direct quotations (regardless of value) to a panel or register without being criticised for lack of industry development.

Instead, there are various other types of government procurement that can foster the development of industry – from start-ups to national businesses – just as there are various methods for engaging with industry, based on the procurement need.

Policies that could be adopted include consideration of the best market approach to achieve specific government procurement objectives. For example:

Efficient procurement

Victoria’s Construction Supplier Register provides a great model where businesses are pre-qualified against a range of contract values based on experience, financial viability and capacity. This is a way to segment registers such as eServices and the Digital Marketplace without being apologetic to those large businesses that miss out on lower value work and vice versa. Government purchasers then have the opportunity to issue direct quotations to those businesses in the appropriate financial band and which have the appropriate capabilities.

Victoria’s DHHS Platform + Agile panel also provides an innovative model to maximise efficient procurement outcomes. (See our guest post from Dr Steve Hodgkinson, Chief Information Officer for the Victorian Department of Health and Human Services (DHHS), on Procurement in the age of Platform+Agile.)

Local procurement and industry development

Similar to the VIPP, government procurement policies would identify the dollar value threshold upon which industry development becomes a factor – for example, procurements greater than $20M. For these bids, a minimum percent (for example, 25% of the work) would be given to a certain number of small to medium sized businesses (SMB), where that work is smart work or value adding and provides scope to grow the experience and capabilities of those SMBs.

(NOTE: This is different to VIPP commitments, which look at local content across the supply chain. This policy gives experience and exposure to our mid-tier businesses helping them to grow.)

Social procurement policies

There is scope for social procurement policies to be included in all government procurements. Again, the way they are included should give consideration to the value of the procurement and the additional cost to industry in complying with them, against the potential contract value. Social procurement policies can include gender equality, aboriginal and Indigenous involvement, greater use of workers with disabilities, involvement of workers transitioning from declining industries such as the automotive manufacturing industry, etc.

And, while governments and businesses have moral obligations to create opportunities for social procurement, it’s also not realistic to include employment or engagement conditions in procurements of lower value. However, perhaps a condition of tendering for these lower-value procurements could be commitments to investigate opportunities for a business to build social practices into their businesses? Certainly if these businesses are on panels they should be expected to report on these commitments.

What a government industry engagement plan might look like

The one aspect the above proposed government procurement policies have in common is a pragmatic approach to industry involvement.

Governments must develop programs of how they will develop the industry specifically through procurement practices. This is different to other industry and sector development plans that are often externally (to Government) focused, and I haven’t seen something like this in government for a long while. It’s important for governments to have a strategy for how they partner with industry to achieve better value and more timely outcomes.

The industry engagement plan must recognise the need for probity to protect the government’s interests – and industry’s interests. However, probity should be managed as an enabler of outcomes, not an excuse for inactivity.

The industry plan must operate in parallel with procurement policies and enable their achievement with a pragmatic approach to industry engagement. The plan must therefore also consider broader issues such as:

  • IP management, particularly during EOIs and interactive vendor dialogue
  • Contract terms, such as no fault termination, to encourage greater opportunities for pilots and prototypes; and stronger performance management regimes where projects (technology projects in particular) are delivered in a more iterative manner against defined benefits.

Strategies that could be considered:

  • Develop sandpit opportunities for start-ups to be involved in the government procurement ecosystem in a low risk manner. These sandpits could take the form of design, R&D and innovation grants (similar to the Public Sector Innovation Fund).
  • Create a lower-value category of procurement, where agencies are encouraged to directly engage (i.e. single quote) for the delivery of a solution. The government may even build a start-up marketplace to achieve this, with strict rules on the size and nature of that start-up involved in this marketplace.
  • Encourage early industry involvement to help support the delivery of government agendas. This involvement would be way before a procurement phase in working with government to identify industry opportunities and capabilities, and capacity to deliver.
  • Enable a direct market approach where the focus of the procurement is on a single system and is most appropriate for low-complexity projects – for example, a single and/or standalone system.
  • Establish a protocol for early market engagement suitable for more complex and high-risk procurements that focus on the delivery of an integrated solution that requires industry input to that solution design. The market would be involved in some way in defining requirements. (NOTE: This model will not foster full innovation as vendors will still protect aspects of their IP, as market input is provided under a competitive market activity.)
  • Consider prototyping and pilots. This helps to build an innovative industry and a government sector that becomes more comfortable with risk.
  • Establish a protocol for interactive vendor dialogue suitable for high-complexity and (often) market-leading solutions that involve delivery of an eco-system. In such cases, industry would help to design the solution with government through collaborative dialogue (under an EOI process for example). While greater IP is given through the collaborative dialogue, true innovation is still held back as the final solution is put to market.
  • The greatest industry involvement would come from a co-design and co-production approach, where the market is approached to deliver a stage one design concept and then develops the solution against stages. This requires strong management of performance at the end stages and shared risk; however, it fosters greater innovation and vendor ‘buy-in’. An outcome of this could be a Build, Own Operate Model (for IP management and efficient delivery reasons) and in essence would not operate very differently from a Public Private Partnership.

Of course we can’t get these industry engagements right until we have the procurement policies in place, but the industry engagement plan and procurement policies should be developed in recognition of each other to achieve the goals of both.

In a blog post last year (What does a digital Victorian Government look like?) I discussed my vision for the government of the future. This government took a much smaller role in service delivery and instead focused on policy-making and ensuring the delivery of outcomes to its citizens.

As technology changes the landscape of service delivery and jobs, governments must build closer and trusting relationships with industry to deliver these services. This includes getting procurement right!

6 comments in this article

  1. Patricia Hunt

    Great article Deirdre

    1. Deirdre Diamante

      Thank you, i was inspired by the need for change.

  2. Chris Fosberry

    For once someone has looked at a Vendor oriented view of Government Procurement. Great article Deirdre, hope someone takes note and makes the appropriate changes.

    1. Deirdre

      Thank you Chris. I strongly agree that we need to better integrate industry into government procurement which should drive better outcomes for industry and government. And yes, hopefully Government takes note!”

  3. Steve Bungay

    The idea of prototyping and pilots is great as it helps in bedding a concept without excessive expense. It allows to test new ideas and fosters innovative thinking. The innovative thinking is crucial to better governance.

  4. Deirdre Diamante

    Thank you Steve, i agree the need to foster greater innovation, it will support government innovation and greater procurement outcomes.

Leave a Reply

Your email address will not be published. Required fields are marked *