Procurement
May 16, 2012

Solving fiscal issues without reinventing the wheel

Don’t pay for what you can get for free. We’ve heard this old adage for years from generations of thrifty grandparents who survived the Great Depression. Yet as we enter our own version of Difficult Times, it would be good to listen to the advice of our elders.

Today’s politicians would be wise to pay attention, too. Politicians too often pay expensive private sector consultants to declare how to reduce the costs of government so they can blame “the plan” on them if things don’t go right.

That’s been the story in the United Kingdom, the states of Georgia and New York, and many others. And the results are often the same and follow the same advice.

Well, here’s a new idea for politicians in Canada: save taxpayers millions in consulting fees by simply looking at the results from these jurisdictions. Do not repeat the initial and costly inquiries and broad studies. Just start with the existing reports.

One of these zero cost reports, not in wide distribution in North America, is insightful, based on years of public sector experience, and has got it right.

In May 2010, just before the general election in Britain and with the new government needing to reduce its spending by billions of pounds, Peter Smith issued a discussion paper called The Perfect Storm. Smith is an acknowledged, highly credentialed, respected industry leader who wanted to provide his perspective on the government’s spending crisis.

Smith stated that “public procurement will have to do more with less, which will need some dramatically different ways of doing things.” He then went on to discuss his key recommendations for procurement reform. Here they are:

Transform “procurement” into “spend management”: Stop thinking of procurement as “buying stuff” and start thinking of it as “managing the government’s spending.” This requires a paradigm shift. Smith said, “the only way in which the required savings can be delivered will be through relentless attention to the whole spend management process…and (we must) re-brand public ‘procurement’ as ‘spend management’.”

Impose a stopping gate: Spend management starts with demand management. Stop things being purchased. Do this at the micro level first. For example, stop existing major projects if they are not feasible or too costly. Kill projects off at birth, in spite of politicians’ need to start new ones.

Stop buying the best: Manage specifications. Identify not the “perfect specification” but the “minimum acceptable level required.” Put more emphasis on lifecycle costs. Smith suggested weighting “total lifetime cost as at least 60 percent of the overall weighting in the evaluation. This seemingly trivial step would actually send a strong message to supply markets and lead to lower priced goods and services being chosen in many cases.”

Collaborate with other agencies: Combine demand and leverage your power. “There should be greater clarity and explanation of strategies for specific spend areas across government…(Collaboration) must be based on organizations committing spend to the contract in advance of the approach to market.”

Merge procurement units: Its hard to be effective and efficient when, for example, there are only three people in procurement and spending is less than 50 million. “[M]any procurement departments in public organizations are of sub-optimal size in terms of both operational effectiveness and market leverage…Our experience is that organizations need a spend of over £100 million and at least 20 professional staff in order to obtain critical mass in terms of capability and leverage.”

Manage contracts better: How does a professional services contract to implement a new computer application escalate from $500K to $1 million? It’s simple: award a $500K contract with ambiguous specifications and poor contract management. The change orders will quickly get to $1 million. Smith argued there is often a significant gap in the skills, resources and mandate for the management of major contracts.

Get control of professional services: Smith recommended that government introduce a “cap on day rates for professional service providers to public sector organizations, linked to the Prime Minister’s salary…This will also have the benefit of encouraging work on a payment by results or risk/reward basis.”

That’s what Peter Smith said at the time of the election. Once the new government was in place, it launched a spending review. Five months later, in October, its release its findings: A Roadmap for Spending Reform.

You know your grandparents would tell you to just get on with it. Don’t spend money you don’t have to. Do your job by empowering your procurement director to get this done. Provide time and budget for your director to consider ways to fit these recommendations into your structure, policies and culture. Most important: don’t reinvent the wheel!

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