13 August 2014
As someone who inhabits the world of public sector procurement, I’ve seen first-hand how hotly anticipated the new public procurement directives have been. The Cabinet Office has highlighted its role in shaping the new directives, emphasising that they will reduce ’red tape’, enhance flexibility and boost small and medium enterprises (SMEs). How, though, will the new directives help realise the government’s objectives?
Reduce red tape - if not the internal red tape
The new directives are designed to facilitate faster and simpler procurement, for example by reducing minimum time limits for bidder responses and requiring only the winning bidder to provide supporting documents.
Although these measures would reduce the workload of bidders and authorities, the real red tape often lies with managerial behaviours (which have less to do with the directives). A typical procurement project – especially for a major deal – has several layers of approval and sometimes requires sign off from third parties. It is commonplace to witness days or weeks of ‘reading and thinking’ time before making a call.
With these levels of administration, it is easy to see how even a relatively straightforward procurement exercise could turn into a Normandy-landing initiative - in other words, a big event – despite the simplified directives.
Increase flexibility - but buyers must still be cautious before closing the competition
The new directives allow "negotiation", and this can be seen as a throwback to pre-2006 and a more relaxed negotiated procedure. This has created a groundswell of excitement because authorities can defer difficult issues until preferred bidder stage, instead of having to resolve them with all bidders before inviting offers.
However, good practice is that all issues should be resolved in a competitive situation to minimise the value of the deal being eroded in contract. Therefore, the idea that we will revert to the pre-2006 practice gives false hope because the final tender stage will be held with all the bidders and negotiation will not be permitted after that point. This means authorities will end up negotiating with all bidders until they are confident that all difficult issues are resolved. In essence, there is no change to current best practice.
Boost SMEs (for the right type of contract)
The expectation is that the new directives will benefit SMEs because authorities will be encouraged to use smaller lots, limit the use of the ’turnover multiple’ test and allow bidders to self-certify their ability.
Of course, we all know that there are potential economic gains from promoting the use of SMEs in government, but as we saw with the Ministry of Justice’s court translation services, using smaller suppliers is not without its risks. It is unrealistic and unconstructive to encourage authorities to ignore these risks in favour of helping smaller businesses. Authorities will need to be aware of the risks when encouraging SMEs to compete for large, complex or high profile contracts – the new directives cannot diminish these risks.
The key to running successful procurement processes remains sticking to the essential basics: well organised plans and processes, a strategy that balances the size of the opportunity with likely players in the market, balanced governance and comprehensive documentation proportionate to the risk or complexity of the contract being let. The new regulations may make small gains around the edges, but are unlikely to bring wholesale change.
Yoon Chung is a government procurement expert at PA Consulting Group
For thinking and insights on this subject, click here or contact us now.