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Shining A Light On Public Sector Contracting

October 14, 2010

The recent report by Sir Philip Green on the state of UK public procurement has revealed consistent waste and value leakage in the acquisition process. Yet in fact, this is not new news and there is extensive support available to remedy the problems. The issues are also not unique to the UK; as the complexity and volume of public sector procurements has grown, the organisation and procedures to manage them has lagged far behind – and in many cases, the investment in new procurement practices and external consultants have directly  undermined success and value for money.

There is a carefully researched set of defined practices that organisations need to follow if they are to be successful at managing their supply contracts and relationships. Therefore, perhaps the biggest surprise about Sir Philip Green’s findings on the inefficiencies of UK public procurement is that they are a surprise.

Even allowing for the disingenuous claims of a newly elected government anxious to castigate its predecessor, it has been evident for quite some time that public sector agencies are in general not good at managing contracts or suppliers.  Quite simply, the most basic analysis shows that they lack most of the necessary ‘best practice’ capabilities and behaviours. Indeed, this has been pointed out by publications such as The Economist (August 2009) and repeatedly by the UK’s National Audit Office, often in conjunction with the Office for Government Commerce (OGC). Many top suppliers have also been forthcoming in their criticisms, had anyone been inclined to listen.

As the volume and complexity of public procurements has grown, the weaknesses in contracting and commercial management have become steadily more evident. This is a problem also faced by the private sector, which has been similarly exposed by the challenges of managing ever bigger projects, with increased responsibility for ensuring successful outcomes, often stretching across highly interdependent international supply networks. The big difference is that the private sector is mostly taking steps to raise its competency by investing heavily in skills and resources to shape and manage these contracts. Government, in general, has not; it sought to escape the problem by pushing responsibility for success onto consultants and suppliers, engaging in increasingly adversarial negotiations and ill-considered approaches to the allocation of risk.

 In recent years, millions of pounds (and other currencies, depending on location!) have been poured into procurement training and staffing, along with expensive acquisitions of minimally useful software tools. But there has been little or no consideration given to the competence needed to frame and manage these acquisitions with appropriate forms of commercial arrangement and relationship governance. It is as if we have spent a fortune buying an expensive new boiler and constantly refilling it with oil, but have ignored the need (and the entreaties of our suppliers) to connect the pipes to a plumbing system.

Best practices in this emerging field of contract and commercial management are available. Indeed, ironically, the UK’s recently renamed OGC has been at the heart of many of them. Of all government agencies around the world (with the possible exception of Australia), OGC did more to develop and document methods and to work with organisations like the International Association for Contract & Commercial Management (IACCM) to understand and validate leading-edge ideas. Its efforts were largely wasted because it lacked authority to impose any central structure on the jealously guarded independence of Government departments.  This culture of independence also means that pockets of contracting and project excellence within certain departments have been largely ignored and their successes not replicated. Public sector staff who fill contract or commercial management roles are frequently isolated, starved of training or growth opportunities and lacking significant authority or status.

I am far from confident that the situation is better elsewhere. In the US, for example, the Obama initiaitives to improve contract management appear to heva been diverted onto the ‘control and compliance’ agenda that is actually a key piece of the original problem.

There are solutions at hand. Doubtless this sudden exposure will lead to the emergence of a whole new set of overnight ‘experts’ anxious to offer high-price consulting and organisational design services. But there is also true expertise, in the form of IACCM, its membership and a growing body of international academics who grasp the fundamental importance of contracting and commercial competency to forge successful trading relationships in a complex, interconnected and interdependent world. The fruits of their work and research are accessible through a variety of studies, training programs and publications of which the UK Government (and others) can immediately take full advantage.

4 Comments
  1. I think that you are right that there is a lot of missed tricks in the public sector, mainly as a result of poor co-ordination and collaboration between various agencies.

    The disappointing fact of the UK Government’s latest Comprehensive Spending Review was the zeal in which it sought to cut back “back office” functions. Yet, the need for a competent and talent purchasing team is essential is the necessary reforms are to be driven through.

    • Jonathan, you are of course right in your observation. Thre is no question that the fragmentation of spending decisions has missed many opportunities, not least the potential to raise the quality and professionalism of the procurement and contract management resources. I am optimistic that this point may be recognized. In the end, good procurment comes from the quality of staff, rather than the quantity. It may be that both objectives can be reconciled.

      Tim

Trackbacks & Pingbacks

  1. IACCM CEO Cummins discusses government waste due to poor contract management « Procurement Insights
  2. Debate sobre contratación pública electrónica | . . . . Contratación Pública Electrónica

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