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The impact of terms and conditions

February 14, 2017

Anyone involved with public procurement knows that the terms and conditions of contract are often onerous and inflexible. Past IACCM research indicated that a substantial price premium results from these terms – essentially, a cost of risk aversion. We also know that the rigidity of contract structure can contribute to costly failures and overruns.

But to what extent do public procurement rules limit competition? Ensuring fair and open competition is, after all, at the heart of these regulations, so it is ironic if the impact actually reduces market participation. A major problem here – as with so much regulation – is its inability to keep  pace with change. Over recent years, we have seen growing public sector reliance on the private sector and a massive shift in the volume of services acquired. The change has also been in the nature of what is acquired – moving from a world of largely direct, commodity acquisition to an environment where growth has been in the procurement of complex – often unique – services and solutions, especially in areas of technology and outsourcing. The levels of risk are fundamentally different. the extent of IP investment and the duration of the commitment can also be extreme. In such circumstances, the extent of market engagement and the skills required to oversee commissioning and delivery have been challenging – but standard contract models do not take account of this fast-moving environment.

Another big question is the extent to which national governments consider the procurement rules to be sacrosanct. Their rigidity is supposed to create a level playing field, but the inability of negotiate is clearly an impediment to good commercial decisions. So do some governments exercise greater levels of flexibility and judgment than others?

To build on its research in important areas such as these, IACCM is exploring the competitive impact (to what extent firms decide not to bid and the particular terms that most impact that decision) and also the consistency (or inconsistency) in major EU countries (both of response and also the extent of negotiability). Our focus is on IT, software, telecommunications and related outsourcing / services since it is in these areas that the greatest tensions (and many of the most visible failures) occur. Early returns show that there are interesting variations between the way companies deal with procurement rules and in the way that governments interpret them. Given the nature of the research, replies to this survey will remain entirely confidential and it will not lead to any published report except to those who participate. The survey can be accessed at https://www.research.net/r/EUterms

 

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