5 Steps to procurement perfection
15th September 2007
Kevin Lavery, CEO of Serco Solutions looks at five key areas in which local authorities can improve procurement processes to add value and enhance service delivery
The public sector spends more than £100 billion every year on procuring goods and services. Yet procurement practices are inconsistent from council to council and although improvements have been made since the abolition of Compulsory Competitive Tendering in 2000, there is immense scope for improvement.
Procurement is much more than simply buying goods and services. When used properly it can be a strategic tool which challenges current services and determines new models for service delivery. In fact effective procurement is fundamental to service improvement as third parties play an increasing role in service delivery. When procurement is used poorly, it can have a massive impact on the achievement of targets, burden on the taxpayer as well as the risk profile of a local authority.
There are a number of barriers to effective procurement, the most common of which include legal complexity, risk aversion, supply side weaknesses, lack of client-side capacity and organisational culture.
However those authorities which recognize the benefits of effective procurement are taking steps to overcome these barriers and in doing so are demonstrating best practice and reaping benefits.
So what are the steps to effective procurement and how can they improve services, add value and minimise risk?
1. Clarity = Certainty. It is imperative for local authorities to be clear on what they are trying to achieve. For example, what is the primary driver? Are efficiencies the goal or are service improvements, regeneration or the creation of jobs more important? All too often councils lack clarity in their vision and this can have a knock on effect onto procurement. Bidders become confused about what is required and the procurement changes direction throughout the process. This increases costs for all parties and reduces the effectiveness of the end result.
2. Know the market. In my view this is one of the biggest problems in procurement. It stands to reason that an understanding of the market will ensure that local authorities get the best out of it. However all too often companies are short-listed for contacts which they simply do not have the capabilities for. For example the IT and services space is often misunderstood. Although it comprises services companies, software companies, ICT companies and consultancies, as well as a few organisations which offer all of the above – they are often perceived as one and the same. Understanding which type of company can help with a given project can equate to significant savings of both time and money.
3. Good Processes. It is important for local authorities to manage the process rather than the other way round. Procuring a major service arrangement usually takes around 15 months and in the worst cases takes considerably longer. This costs money because the standing armies required to bid the work and negotiate the contract are ultimately paid for by the customer. Procurement need not be so time consuming. Too often local authorities build unnecessary stages into the selection process which adds little value but incurs substantial additional costs.
Procurement consultants can add real value because they have been involved in similar assignments elsewhere. However, it is important to select advisers who have the right experience, ensure they work on the account (as opposed to less experienced colleagues) and to manage them well. Always check their credentials and request references.
4. Money Talks. It is important to demonstrate an understanding of commercial issues in the procurement process. For example, a business can be very profitable on paper but this may paint a false picture if the cashflows are negative over a sustained period. Many public bodies are not that sensitive to cashflow implications because they have grants at the start of the year and are cautious with investing the surpluses. But cashflow requirements can have a huge impact on the deal and must be given appropriate attention in negotiations.
5. A Two-Way Street. Local government is the largest and fastest growing part of the Government ICT market. As a result there is no shortage of work for good providers and many are becoming increasingly choosy about which organisations they will work with. It is therefore important to consider the type of market when procuring. Procuring in a buyers’ market can be a ticket to being very demanding, whereas taking that approach in a sellers’ market is a different story altogether - local authorities need to work hard to attract good providers as it is a two-way process.
Fundamentally good procurement depends on strong leadership. Local authorities need to be clear where they are going and why, make choices and set priorities. And finally, it is vital to understand the provider and advisory markets in order to get the best out of both.
4 steps to effective procurement
Lay the foundations
Adopt clear procedures, involve the right people and ensure access to the right skills
Grand Designs
Understand the market, scope the contract and finalise the ‘make or buy’ decision
Devil is in the Detail
Ensure good processes, good project management and good communication
Continuous Improvement
Maintain momentum of improvement using rewards and motivation for the provider and a strong client-side function