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Contract Reform & Cozy Relationships

May 17, 2010

“President Obama called the finger-pointing among the companies tied to the (Gulf of Mexico) oil spill a “ridiculous spectacle,” and vowed to end the “cozy relationship” between regulators and companies.” (New York Times, May 17th 2010).

 I strongly endorse an end to the culture of blame that permeates so many of todays’ trading relationships. However, I am fearful that the term ‘cozy relationships’ may be misinterpreted and that we will see its replacement by increasingly adversarial relationships, which create similar results. While this epidemic of finger-pointing is not unique to the United States, it does appear  more frequent here. Is that because of a more open and honest system, or is it because of the litigious nature of society and the role of lawyers in forming adversarial agreements?

‘Cozy relationships’ and an absence of real competition is a problem in public procurement in many parts of the world. Public procurement policy has tried to address this through open competition rules (which the US Senate and Congress have undermined) and laudable anti-corruption rules. In the private sector, while abuses remain, there is greater freedom to decide whether the balance of economic benefit is achieved via open competiton, or through established relationships. It is in part this absence of choice that creates problems for the public sector, because strict bidding rules often prevent open discourse with individual suppliers.

There is a big difference between cozy relationships and open, collaborative relationships. I hope that the frustration with governance failures does not result in a break down in buyer / supplier communications and a belief that the only way forward is to impose even greater risks and penalties on suppliers. It is right that President Obama questions the way things work right now, but once again we are seeing the results of measurement and reward systems that distort behavior. Successful relationships depend on people who exercize judgment based on objective measures of success, absent of personal financial rewards or incentives. Just over a year ago, Presidnet Obama was one of the leaders to sign the G20 communique which read: “Staff engaged in financial and risk control must be independent, have appropriate authority, and be compensated in a manner that is independent of the business areas they oversee and commensurate with their key role in the firm. Effective independence and appropriate authority of such staff are necessary to preserve the integrity of financial and risk management ….”.

This statement referred to the abuses within the financial services industry. Today, it could be applied to public sector procurement and regulation. The principles within this statement point to the need for high quality contracts and negotiations professionals, driven not so much by rules (though these matter), but more by a code of consistent and high quality judgment.

One Comment
  1. Tim:

    I am compelled to share your tremendous insights from the Washington Roundtable discussion because yours as well as the other panelists viewpoints speaks to the heart of the issue of your post.

    Here it is:

    Session 4 (Roundtable) Segment Title: What is Transparency in Government? (http://www.blogtalkradio.com/jon-hansen/2010/04/27/live-event-feed-3rd-annual-business-of-government-summit-day-1-roundtable)

    In my keynote address “Contracting To Win: Buyer and Seller Responsibilities in 21st Century Government Procurement” this morning I made the statement that “transparency is not holding fast to the illusion of a level playing field, but to a clear understanding of the layout of the field itself.”

    To expand on this concept of transparency further, I will refer to a comment that was made by Washington-based expert author Judy Bradt who, as I will mention in her introductory bio has helped more than 6,000 clients win in excess of $300 million US in government contracts, during Part 3 of our 7-Part “Seven Steps to Success: Jump Start Government Contracts” Series on Blog Talk Radio. Specifically, Judy’s point that “the process for winning government contracts is truly based on the ability of a supplier to legitimately and transparently win preference with government buyers.”

    Joining me in this probing 60-minute segment on what transparency really means in the realms of public sector or government procurement is a guest panel of experts whose experience, expertise and insights will shed some much needed light on a subject that has often eluded a practical, real-world definition.

    Moderator: Jon Hansen (The PI Social Media Network)

    Panelists: Tim Cummins (CEO, IACCM), Judy Bradt (Summit Insights), Colin Cram (Marc1 Ltd, Towards Tesco author) and Karen Evans (former CIO, United States Government)

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