“Encourage public-sector bidders to push technical boundaries but don’t expect a lowest cost/higher risk commercial strategy will deliver it.”
Private sector companies exist to make and grow profit. The public sector spends ever-decreasing budgets on an ever-increasing list of requirements. And there’s the ‘beef’ – the crux of the problem for procuring public-sector services or equipment.
No matter how we phrase it, or how pure our desire is to create ‘a collaborative relationship’ between the end user and the private sector supplier, the objectives of both parties oppose each other and do not align easily.
It’s real
A business in the private sector that fails to grow profits will ultimately fail, it’s only a matter of time – witness the decline of traditional manufacturing.
For the public sector there is ever-greater pressure to procure better services in greater quantities, in a tight and at times restrictive regulatory environment, but with slashed budgets.
All is not lost – but be practical
The public sector should consider the bidder’s objective/s when setting out their procurement strategy, and the degrees to which they align or are contrary to it. Where they are contrary, practical incentives to are needed to encourage the bidder to get on track and deliver what’s needed at an affordable price.
Ignore it and the bidder will try and find ‘wriggle room’ a chance to deliver what they want you to have at a price they will make money on.
The alternative is a purely combative procurement competition, a non-zero-sum game (the winner’s winnings do not equal the loser’s losses) with the stakes (cost + risk) raised for both sides. Get it wrong and the economic consequences are tomorrow’s news headlines.
All roads lead to the objective
The procurement strategy for buying complex public-sector services and equipment is broken down and developed within technical, commercial and financial modules, different people in different teams inputting at different stages.
The challenge is to bring together the modules into an overall strategy that does not contain contradictory messages or incentives. In a successful procurement all roads will lead to the objective.
“It’s fine to request bidders push the technical boundaries of their equipment but it is unrealistic to expect a commercial strategy that would have them commit financial suicide delivering it.”
This requires a structured development methodology, a due process that through discovery, analysis and procedural control ensures all modules are individually effective and contribute to the whole. Follow this and you will achieve the delivery of the procurement’s objective – “we only ask for what we really want.”
Fail to get it right and the door to unintended consequences is opened;
- We get what we want through plain luck.
- We encounter a setback that could have been avoided.
- We get the opposite result to what we wanted.
- We get things that we don’t want and won’t use.
Innovation is the outsider
“If only bidders were more innovative, they could provide relevant and affordable public-sector procurements.”
Given sufficient bidding time, context and profit, bidders may well provide that innovation.
However, innovation is hard to pull off, and real innovation changes whole industries. Anything else is just features – with more or fewer features for the budget.
Innovation is expensive to develop and can be quickly copied by others, so it doesn’t stay innovative for long.
And you can expect to pay more not less for innovation as a company maximises its revenue from a potentially short-lived unique market position.
Innovation is the outsider in complex public-sector procurements but be practical it’s very difficult to do, with the effort to realise the benefits the hardest part. However, it’s not impossible by any means and it should not be discarded.
The road to fair value
Unsurprisingly the road to fair value does not lie in contradictory procurement modules, a purely combative procurement competition, the law of unintended consequences or an overly optimistic faith in innovation.
Instead it requires a structured approach to achieving the objective for both parties. An approach whose constituents are constantly tested in a feedback loop, where key elements are measured, and positive impact provides improvement and above all progress.