$2.6 billion over budget, 7 years late in delivery ... and that's just the revised estimate. If only the Department of Homeland Security and the IBM Corporation had studied IACCM's guidance on 'the 10 pitfalls of contract management' before they embarked on their project to automate major elements of the US immigration process.
Today sees the launch of IACCM's 'massive open online course' (MOOC) on contract management. Some 20,000 students are enrolled for this 3 week program and already the chat boards are filling with comments and discussions from around the world.
IACCM research is showing a direct correlation between attitudes to risk and ease of doing business. Both these elements are significant in our approach to negotiation and in turn impact the quality of business relationships - and thereby affect results.
IACCM Thought Leadership Webinar -- "Procurement as a Strategic Function" with Tim Cummins
Procurement as a function is once again at a dramatic inflection point. As traditional sourcing techniques become increasingly outdated, the meaning of 'strategic' has shifted, and best practices must evolve to align with new priorities. Correspondingly, procurement professionals must acquire new competencies to truly enable differentiation.
During this session, we will examine the impact of changing business conditions on the procurement marketplace, including public sector procurement. Tim will outline predictions regarding the future of the procurement function and the opportunity for Buy-side professionals to be the most important strategic leaders and value creators of the future.
While the economic outlook for the UK looks set to improve, the pressure on public finances continues. With significant further public spending restraint expected until 2017/18, this pressure is unlikely to fade away as the 'new' conservative government beds in during the rest of 2015 and beyond.
Against this backdrop of ambitious public sector savings targets over the next few years and increasing scrutiny over spending, delivering better value at lower cost is essential for all public bodies. The scale and extent of the required cuts means new ways of working are needed.
Taking the right approach to contracts in the public sector has an important role to play in delivering the savings that are needed.
Don't forget the service delivery phase
Public sector bodies are prepared to apply significant effort in the procurement phase of large complex projects. But they generally do not continue this level of support in the critical service delivery phase. This is where most money is spent and where there is greater risk of losing essential value. The lack of robust contract management is often dramatically exposed too late...when significant value to the public sector is already lost and disputes arise a few years later.
To achieve intended value for money for public spending, organisations need to consider the whole contract lifecycle and invest in robust contract management from the outset. They need to ensure knowledge is transferred from the procurement phase onwards and hold contractors to account for the full extent of what they agree to deliver.
While the need for the public sector to provide robust contract management is, at times, acknowledged, the ability of public sector organisations to deliver it is sometimes limited. A lack of commercial skills and know-how to match the private sector contractors potentially puts the public sector at a disadvantage.
Don't under-estimate the task
Another key factor is the lack of understanding of what is required in the services phase of a contract to provide proper contract administration and to manage the often complex mechanisms in large service contracts. The level of attention and rigour required is often underestimated and the necessary complexity of the contract management task is not well understood. In underestimating the requirements of contract management, public sector organisations can inadvertently allow contractors to take advantage and transfer the risk back to them.
In order to minimise the risk of losing value throughout the whole contract lifecycle here are a few things that public sector organisations should consider:
1. Focus on the entire contract lifecycle - It's in the service delivery phase where most money is spent and the risks are arguably the greatest. Public sector organisations need to extend the scrutiny and focus on procurement over the whole of the contract lifecycle in order to deliver value for money.
2. Bridging the gap between procurement and contract management - Too often the expertise of a procurement team is lost after contracts are awarded. Ensuring that important knowledge and expertise are transferred from procurement to the latter phases of the contract lifecycle is critical to delivery.
3. Continuously monitor compliance, performance and finances - Checks and balances across the contract lifecycle to prevent value leakage. Organisations must monitor and address the gap between the 'delivery promise' and the value actually delivered.
4. Independent professional advice can be crucial - The complexity of the task of contract management shouldn't be underestimated. Independent professional advice can be used proactively and cost effectively after the contract has been awarded to secure the contracted outcomes and avoid unnecessary failures.
5. Don't wait until it's too late - The lack of robust contract management is often dramatically exposed too late when significant value is already lost. Invest upfront in contract management to manage risks and ensure the value embedded in the contract is delivered.
In a climate of continued public sector austerity, rising demand and increased scrutiny, the public sector needs to ensure that contracts are delivering their full value. By applying rigour in contract management to retain the procured value post award, the public sector should get exactly what it deserves - excellent value for money public services.
We are looking for experiences and recommendations for using social media for procurement in the public sector. Please post a response in this forum or send to email@example.com. All comments and suggestions are welcomed. Thanks.
As a government body engaging in international (Gov-to-Gov) trade, what is the position on the Environmental Information Regulations 2004 and Freedom of Information Act 2000? Do the Act and Regs have effect on Clients and Bodies outside the UK?
Thanks for your help!
IACCM REPORT FINDING: Private sector personnel are almost 80% more likely to be influenced by the need to promote competition and minimize operating costs -Please share your thoughts. Hoping this generates some activity.
When I read IACCM article, I was perplexed by the statement above and therefore I offer the following thoughts:
In the U.S. public sector procurement is the intersection between three interconnected non-complimentary forces; law, public policy, and industry. Public policy combined with Federal law dictates that competition is the single most important aspect of the U.S. Federal procurement process. In accordance with the law contracting professionals in the U.S. Government are required to consider/ research 7 different socioeconomic categories before they can compete an opportunity in a full and open environment. At each layer acquisition professionals make a business decision about the capability of industry to perform the work at hand for a reasonable price. Contracting professionals are required to do this for simple procurements and large strategically sourced contract vehicles.
In fact, at the Department of Homeland Security (DHS) the initial market research described above has helped create an industry base of 15,000 current contractors 11,000 of which are small and medium sized business. Each year over 3,000 new companies win a contract with the Department. This ensures that the Department has a highly competitive marketplace that is constantly competing to meet mission objectives and win contract awards. Although the Government incurs additional labor costs to perform the market research the cost savings from the robust market place and constant competition is tremendous. Furthermore, the companies that survive in the marketplace have a keen understanding of the mission and how to achieve it at the lowest cost. At DHS, performance metrics include rate of competition on each individual procurement ( 76% in FY 12) and operational cost savings (approximately $330M from strategic sourcing alone).
The interesting point here is that the level of competition is so high that contracts tend to be awarded to industry partners that have determined the best way to meet the mission at the lowest cost. This is much different than the goal of helping a corporation maximize shareholder wealth. In the public sector (many times in my experience) we are contracting for services that would normally be an individual company’s competitive advantage. Meaning that many of the contracts we write are to perform a service that many companies would never outsource.
The survey results posted above seem to indicate that public sector professionals do not value competition as a way to minimize operating costs. However, I believe public sector procurement professionals value competition just as much and work in a more complex environment that challenges them to think beyond a single value proposition (maximizing shareholder wealth).
I am wondering if the way the question is written generated misunderstanding. If not, then I believe we need to resuscitate the discussion around minimizing operating costs and promoting competition to ensure that public sector employees understand how valuable this can be. Thoughts?
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