In the March 2012 edition I wrote about the pernicious Public Works and Government Services Canada’s (PWGSC) practice, when issuing standing offers, of ranking suppliers of professional services and giving the “winner” first choice access to contracts based on the lowest per diem rate.
It escapes me why PWGSC uses and glorifies this approach, and why the Treasury Board exacerbates the problem by making the use of these misguided PWGSC standing offers mandatory across government. As I noted, “[a] less expensive contractor that takes longer to produce may easily cost more than a more expensive professional who produces faster and better.” Consider the lower quality, slower delivery and higher internal costs.
PWGSC puts these standing offers in place with no vested interest in the results of their use. I am not aware of performance evaluations and pay bonuses in PWGSC based on whether this approach actually saves anyone any money. One wonders whether PWGSC even has any good measures of what the ostensible savings are. Rather, there are public relations benefits to saying that the government is buying from the “lowest priced” suppliers.
Perhaps TBS seeks the same thing? But the problem remains: those shoes are not made for walking since results are sacrificed to appearances. The Board has the defence against criticism with the argument that it has set “good” rules but that departments apply them badly.
A departmental official told me that he liked the PWGSC approach because, having identified a need, the department did not have to pay any attention to the eventual total price of a contract. Should anyone examine files and conclude that money had been poorly spent, the department had a ready-made defence: “This was not our fault. PWGSC put those approaches in place, and TBS says we have to use them.”
Overall, it is not obvious that anyone really cares what the total price paid is, and whether the work could have been done better, faster and/or at less total cost using another approach.
An option would be to rank service providers based on a fixed price for specific service results. Instead of asking job description writers to bid their per diem rates, the government would rank them on a fixed price to prepare a complete job description. Who could argue, then, if all of the business goes to the consultant who has bid $400 per description, and none to the others who all bid more?
Who indeed! Likely all the managers that were forced by their procurement group, PWGSC and the Board to give their business to that lowest priced supplier.
And what can possibly be wrong with knowing exactly what you will pay for a specific completed product? In fact, just about everything. A service provider working under a too-short time frame (to permit that fixed price) will hurry the work and cut corners, leading to lower quality, more client time in managing the contract and fixing the problems, and the possibility that the “result” will be so bad that the client has to start all over again.
In fact, such an approach is arguably contrary to policy, which requires buyers to consider the complete cost of each procurement and not just the initial contract value. Still, PWGSC continues the practice – and the Board accepts it – of encouraging, if not actually sanctioning, the likely contravention of its own rule.
These are two approaches with the same risks of higher total prices paid, lower quality, slower delivery, and higher internal costs. That said, low per diems and fixed prices are legitimate and effective ways to contract in the right circumstances. You need excellent knowledge of exactly what work is to be done and how long it will take, as well as knowledge of the service provider to ensure success.
Also, you must have the ability to determine that any one service provider that meets those characteristics is in effect the equivalent of any and all others so that low price does become the true differentiator.
The problems occur when such valid processes are developed and applied for the wrong reasons and in the wrong circumstances, by perhaps inexperienced or poorly-led people who follow process blindly without thinking through what is actually the most appropriate approach to achieve the best results. Procurement for results becomes replaced by procurement by rote and process.
Good procurement takes good people using the right tools at the right time in the right way. Procurement people are – or should be – paid to think. If a process will not work – or works imperfectly – change it. Results for your clients must trump cosmetic safety for the system.
John Read provides procurement consulting services to public sector clients. He served for almost 15 years in the Public Works procurement arena.