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Are Public Sector Contracts Doomed To Fail?

April 14, 2014

The issues that forced the resignation of US Health Secretary Mary Sebelius are just one example of the complex challenges facing those in the health service today. Spiralling costs, driven by ever-rising social expectations, are forcing a major re-think in the structuring and delivery of services. While the specific challenges may vary between countries, this is a global phenomenon – and not restricted to the health sector.

The immediate cause of Ms. Sebelius’ departure was the disastrous roll-out of a new website that lay at the heart of healthcare reform. As with most changes in the field of health, the reform itself has been bitterly contested and political opponents have been quick to jump on any misstep. It often seems to be the case these days that technology acquisition lies at the root of program failure and enormous cost overruns. Surely, with all the investment there has been in advanced Procurement skills and training, we should be able to avoid these disasters?

In fact, the investments in Procurement may have made the problems worse, because they are too narrowly focused and have resulted in a false sense of security. As Dan Gordon, former US Administrator for Federal Procurement Policy, observed at a recent World Bank conference, ‘the perfect procurement’ does not ensure ‘the perfect outcome’. The procurement process is just one element of acquisition and – as the UK Government has recognized – does not adequately address selection of the right supplier or ensure effective management of post-award performance.

Government and public sector agencies must adjust to the fact that rapid change is now the norm, not the exception. They will face constant demands for innovation as they seek to reconcile expectations for improved services with resistance to increased costs. Growing dependence on external suppliers and stakeholders requires answers to new questions – such as “What service delivery models can we use? What factors cause so many major procurements to deliver the wrong outcome? What performance management techniques are needed?’

It is in fact remarkable that so many large organizations in both public and private sector continue to engage in expensive, high-profile projects with very little understanding of the factors that affect the quality of results. Increasingly, research is available, but it is largely ignored. An example is the role of contracts, which may be seen as part of the solution, but tend to be entrusted to another powerful professional group – the lawyers. As a result, contracts for complex projects are mostly unintelligible due to their length, confusing structure and use of archaic forms of expression. In the public sector, they may also be designed to address policies or practices that no longer reflect market norms or realities.

Public sector procurement suffers from this deadly combination of ‘the perfect procurement’ and ‘the perfect contract’, which together act as constraints on effective communication, selection and management of buyer-supplier relationships. Better results depend upon a readiness by Government ministers and their executives to challenge current approaches and to recognize that successful change demands commercial innovation and radically improved acquisition capabilities.

 

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