From apoliticalManagement
February 19, 2020

How to reform contracting in four steps

You can’t change government for the better without a well-oiled procurement system

What was once Santiago’s largest food distribution centre, the Vega Poniente marketplace in the southwestern district of Chile’s capital, is today a smaller, specialised venue selling herbs and fresh produce sourced from the entire country.

While it’s not as busy as it once was, the surrounding neighbourhood still houses dozens of warehouses with stores of perishable goods. Every day, vendors transporting goods to their shops drop leaves, branches, weeds and all sorts of organic waste along their way — a sanitation hazard for the entire city.

Since cleaning the area requires multiple special services (collecting trash, sweeping, dusting and washing the streets), the municipality has traditionally relied on the private sector to get the work done.

In 2016, Santiago faced a triple challenge that had built up over the previous years: the cost of its sanitation and urban maintenance contracts had risen notably, the quality of services delivered had deteriorated and fiscal constraints had tightened.

The increase in costs was driven by a combination of higher labour costs, a higher transient population and persistent hidden costs of doing business with the municipality.

What is open contracting?

Santiago had an opportunity to address these issues in 2017, when its key urban sanitation and parks maintenance contracts came up for renewal.

To improve service delivery while keeping costs controlled, the municipality set out to overhaul its procurement process. In particular, it sought to change its approach to solicitation drafting and contract management practices to align contractor incentives with citizen needs and policy priorities.

The municipality applied a best-practice reform strategy that is useful for any government that wants to break free from a tick-box compliance culture and ensure its contracts achieve their desired outcomes.

From school meals to national defence, public sector effectiveness depends on having procurement processes that are fair, efficient and responsive. These aspirations should be built into procurement processes from the very start.

Here, I will offer some tips to put concrete, outcome-orientated procurement strategies into practice, focusing on two approaches that help drive performance and improve service delivery: results-driven contracting and open contracting.

The results-driven contracting approach is a set of strategies developed by the Harvard Kennedy School Government Performance Lab to improve service delivery by aligning contracted spending with governments’ needs and priorities.

Open contracting promotes transparency by encouraging governments to publish open, accessible and timely contracting data and use it to drive performance, address policy problems and improve service delivery.

“Open contracting promotes transparency by encouraging governments to publish open, accessible and timely contracting data and use it to drive performance, address policy problems and improve service delivery”

Open contracting also engages various stakeholders both in and outside government to identify and fix problems across the procurement cycle.

Escaping status quo

What these approaches have in common is a reliance on procurement systems that produce measurable evidence of what works and management practices that are responsive to stakeholder feedback.

What does this look like in practice? Outcome-focused contracting begins with identifying goals and desired outcomes. Solicitation documents are then centred around goals.

This signals to the vendor community what is most important about the procurement. It also ensures that the resulting contracting is structured to realise the government’s priorities.

Next, contracts are structured to encourage innovation by balancing “must-have” requirements with flexibility for vendors to meet procurement goals. The key is to create incentives for vendors to perform the contract with quality.

Finally, during the contract management phase, the buyer works in close collaboration with contractors to monitor progress and detect and resolve issues in real time. This involves developing tools to track implementation, while establishing mechanisms to regularly communicate with contractors to understand their needs and adjust accordingly.

Reforms to improve contract outcomes often face multiple obstacles and, unfortunately, the consequence is too often that the status quo is maintained across the procurement cycle, stifling innovation. Strategies based on evidence and partnerships have proven to help overcome inertia.

1. How to plan procurement better

So, what’s the right place to start? Effective procurement processes start by defining the problem you are trying to solve, which means explaining the gap between where you are now and where you want to be (your desired outcomes).

Too often, new contracts are issued and past contracts renewed without assessing what worked well in the past and defining current priorities.

Before drafting any solicitation documents, governments should engage service providers, end users and relevant community groups to collect feedback and understand their needs.

In Santiago, to understand what could be improved in its sanitation contracts, the municipality established a cross-functional working group tasked with analysing past performance and critically assessing contract requirements.

By analysing contracting data for similar services from neighbouring municipalities, as well as interviewing vendors and inspection services, the team discovered issues inflating contract costs and limiting quality in service delivery.

Municipal inspection services frequently argued with contractors over minor contract specifications, including the brand of cleaning agent used, the size of the trash containers or the age of the contractor’s equipment.

Yet, penalties did not translate into better cleanliness standards as service providers — anticipating fines — simply inflated the price of their bid. This increased frustration among municipal inspection services, who felt powerless to secure compliance. The new contracts needed clearer service standards and better accountability mechanisms.

The procurement planning stage also offers a unique opportunity to capture and advance community priorities in upcoming solicitations. To use another example, the City of Philadelphia, with support from the Sunlight Foundation and the Open Contracting Partnership, implemented “good food” policies in its food purchasing for vulnerable populations.

The city engaged final beneficiaries, frontline staff and city workers to understand how to buy nutritious food, sourced from the local economy and using fair labour practices, while providing better access to and better quality of food to people housed in its prisons and juvenile justice centres, as well as to the children participating in the city’s summer programs.

Through this consultation process, the city discovered how being bound by lowest-bidder rules limited the ability of buyers to secure consistent food quality. Moreover, a cumbersome ordering process generated challenges securing continued availability of fresh produce. Kitchen staff struggled with inconsistent delivery processes, which in turn affected the quality of goods provided to final beneficiaries.

Contractors had no incentive to be responsive to food delivery or quality problems. Improvements in service delivery required mechanisms that advanced quality management and feedback.

2. Identify partnerships and goals

Clearly identifying goals and outcomes in a contract is the first step to creating effective partnerships around achieving these goals, while enabling accountability.

Placing procurement goals up front and centre in the solicitation document allows you to define the scope of the work required, to structure the contract to realise those goals and to signal the government’s priorities to vendors and community members. As such, it aligns incentives between relevant stakeholders from the outset of the solicitation process.

Focusing on outcomes is an effective tactic to drop unnecessary requirements that limit competition and drive prices upwards. Santiago managed to generate savings of 24% of total contract value in its parks maintenance contracts by removing onerous contract specifications and providing operational flexibility.

Solicitations are uniquely positioned to bridge the needs of target populations.

Using the input from their staff and vendor community, the City of Philadelphia developed a best-value Request for Proposals (RFP) aimed at selecting vendors capable of delivering high-quality fresh food and having a responsive customer service, instead of focusing solely on price.

The RFP enabled frontline staff to continuously inform the quality and value of the food provided and share their insights with decision-makers.

3. Track performance and enable feedback loops

Establishing key performance indicators to track progress toward goals enables a collaborative relationship during contract implementation.

Information collected should be analysed and shared with contractors to continuously improve service delivery.

One approach — active contract management — can enable you to do this through high-frequency performance meetings with vendors. The focus is to overcome adversarial contractual relationships by identifying trends and good practices, and address any challenges that arise in real time.

For the first time in the sanitation department’s history, Santiago’s Vega Poniente new RFP introduced objective outcome metrics and contractor reporting requirements. To enhance accountability, the new specifications included remote sensing technology and linked payments to contractor performance.

In an effort to collect feedback from end users, local community boards shared their views on service quality on an annual basis.

“Reforming contract management often means generating behavioural change”

Reforming contract management often means generating behavioural change.

After simplifying contract requirements, Santiago’s parks inspectors continued monitoring activities instead of managing outcomes.

To change contract implementation practices, the municipality developed an electronic inspection form focused on objective and quantifiable performance indicators (cleanliness, grass quality, irrigation, accessibility and outdoor furniture). Completing a simple questionnaire enabled the inspection to focus on key performance areas.

The department also reformed inspection routines to collect meaningful data on service delivery. Vendors often neglected green areas with less official oversight. The new routine consisted of a daily high-level survey of the entire 520 acres covered by multiple contracts and a detailed review of all areas on a weekly basis. This allowed the department to analyse service delivery by zone over time.

4. Embed and sustain reform

Procurement systems should be designed to achieve a jurisdiction’s wider policy priorities. This means setting up organisational practices and management frameworks to establish and track performance goals.

For Santiago, this required developing an organisational structure to manage high-priority contracts, enhance procurement planning and increase interdepartmental collaboration.

But even successful reforms run the risk of being one-off accomplishments instead of generating a wider impact. Open contracting can elevate the procurement function to achieve its strategic importance. Open contracting data can support the decision-making process for key programmatic and funding issues.

On a primary level, it provides the foundational data to identify upcoming procurements and prioritise resources for the most important ones. It can further generate visibility for overall procurement goals and break up information silos to enable cross-departmental collaboration.

During the implementation of procurement reforms, open contracting data helps communicate progress on a jurisdiction’s priorities.

There are numerous tools and tactics that can set a procurement system to realise its goals. Ukraine publishes KPIs on its public business intelligence tool, including savings, number of bidders, bidders per tender, complete versus cancelled and unsuccessful procedures, and competitive versus non-competitive procedures.

Paraguay’s National Procurement Agency (DNCP) publishes indicators that serve as red flags for procurements, including a list of the agencies not publishing their procurement plans, the award value relative to reference price and the execution levels of procurement plans.

Contracting accounts for such a significant proportion of public spending that governments should be harnessing its potential as a vehicle for realising their key policies and communities’ top priorities.

Embedding evidence-based decision-making and multi-stakeholder collaboration across the entire contracting cycle, open contracting can help transform contract outcomes and drive effective, sustainable procurement reforms.

Santiago has continued to introduce different innovations in various sanitation and parks maintenance contracts. These strategies have improved service delivery, creating neighbourhoods that are cleaner, safer and more liveable for its citizens.

This shows the power of public procurement reform, which may not always be top of mind for many people, but has the power to impact society in a transformative way.

This piece originally appeared on Apolitical, the global network for public servants. You can find the original here. For more like this, see Apolitical’s government innovation newsfeed.

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Oscar Hernández

This article is written by Oscar Hernández, Latin America Program Manager at the Open Contracting Partnership.

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