Transparency in government white paper (June 2010)

2010 A Knowledge Leadership Publication By Procurement Insights Author: Jon W. Hansen [TRANSPARENCY IN GOVERNMENT PROCUREMENT WHITE PAPER] [Broadcasting LIVE from the 3rd Annual Business of Government Summit in Washington, D.C. the PI Window on Business aired a probing 90-minute Roundtable Discussion on what transparency really means in the realms of public sector procurement. The insights provided by the esteemed panel of experts shed some much needed light on a subject that has often eluded a practical, real-world definition. This paper is the result of that discussion.]

Executive Summary: What is Transparency in Government? ........................ 3 Contents 2010 Broadcast Sponsor ................................................................................................ 4 Washington Roundtable Guest Panel ........................................................................ 5 Washington Roundtable Host and Moderator ....................................................... 9 About the 3rd Annual Business of Government Summit .............................. 10 “High Stakes” .................................................................................................................... 11 So What is Transparency in Government? .......................................................... 12 Perceptions, Relationships and Supplier Value.................................................. 18 Transparency and the Talent Gap ............................................................................ 22 An Over Reliance on Technology Versus Scalable Intelligence .................... 30 Supplier Navigation of a Non-Linear Process .................................................... 37 The Economic Impact of Government Procurement ...................................... 42 Epilogue .............................................................................................................................. 51 About the PI Window on Business Show ............................................................. 52 [Washington Summit - April 2010] | Transparency in Government Procurement 2

In my keynote address “Contracting To Win: Buyer and Seller Executive Summary: What is Transparency in Government? Responsibilities in 21st Century Government Procurement” at the 3rd Annual Business of Government Summit in Washington, D.C., I made the statement that “transparency is not holding fast to the illusion of a level playing field, but to a clear understanding of the layout of the field itself.” Reflecting on Part 6 in our 7-Part “Seven Steps to Success: Jump Start Government Contract Series” with Washington-based expert author Judy Bradt (which airs on the PI Window on Business Show on Blog Talk Radio), we broached the subject of relationships in terms of their importance in the government contracting process. I will expand on the specifics of what Bradt means in terms of early involvement shortly. Being based in Canada, one thing that I found interesting was Bradt’s assertion that while the U.S. government is viewed as being openly accessible, there is an absence of the same degree of transparency in Canada where the details of a bid outcome can be somewhat obfuscated. While we touched on many key areas in this sixth segment, Bradt’s point that “the process for winning government contracts is truly based on the ability of a supplier to legitimately and transparently win preference with government buyers,” continued to resonate as a key element for success. What the April 27th Washington Roundtable discussion that tackled the question “What is Transparency in Government,” which aired as part of our Live Event coverage of the Government Summit did, was add a depth of insight and perspective into the world of government procurement that could only have been gained through the expertise and combined experience of the panel we had assembled for a memorable 90-Minute Special. [Washington Summit - April 2010] | Transparency in Government Procurement 3

Included as part of the guest panel was Karen Evans, the former CIO for the United States Government, Tim Cummins who is the CEO of the International Association of Contract & Commercial Management (IACCM), Colin Cram, a 30 year public sector veteran and author of the seminal Towards Tesco – Improving Public Sector Procurement paper, as well as expert author Judy Bradt, principle of Summit Insights. 2010 Broadcast Sponsor Elcom International - Making Essential Connections [Washington Summit - April 2010] | Transparency in Government Procurement 4

Washington Roundtable Guest Panel As the former CIO for the U.S. Federal Government under the Bush Karen Evans Administration, Karen Evans oversaw the development of over $70B spent by the federal government in Information Technology and associated services, advised the Director of the Office of Management and Budget on the performance of these investments, as well as the federal enterprise architecture promoting inter and intra-agency cooperation for key Presidential initiatives and cross government solutions. Her accomplishments included Homeland Security Presidential Directive 12 regarding authentication; IPv6, Information Sharing Initiatives, Cyber Security, privacy to address the interests of the citizens and government to improve government services through the use of technology and leveraging the federal government buying power and requirements with the establishment of the SmartBUY program. Under her direction, transparency and accountability were demonstrated with the publication of the Management Watch List and High Risk List, the E-Gov Benefits Report to Congress, FISMA reporting and increased focus on cyber security with the creation of the Federal Desktop Core Configuration. Evans is currently a partner at KE&T Partners LLC. Karen was recently a panellist on the June 23rd, 2010 "Women on Success" series that aired on the PI Window on Business Show. [Washington Summit - April 2010] | Transparency in Government Procurement 5

Washington Roundtable Guest Panel Tim Cummins Tim Cummins is CEO of The International Association for Contract & Commercial Management (www.iaccm.com). Tim spent many years as a commercial manager and executive, working in the banking, automotive, aerospace and technology industries. His work has taken him to more than 40 countries and he has lived in the UK, France and the United States. Tim’s career included a period on the Chairman’s staff at IBM Corporation, in a group studying the business impacts of globalization and options for corporate restructuring; he then led the reengineering of IBM’s worldwide contracts and contracting organization. Tim was the founder of IACCM and has led its development since incorporation in 1999. In this role, he acts as an ambassador for change in the way that trading relationships are structured and managed, and provides advice to member companies and public sector agencies on how to improve contract and relationship outcomes. Tim has previously been a guest on the PI Window Business Show, including his participation as a panellist on the September 30th Buy American Special, which featured an interview with Canada's Trade Minister Stockwell Day. [Washington Summit - April 2010] | Transparency in Government Procurement 6

Washington Roundtable Guest Panel Judy Bradt As the Principal of Summit Insight in Washington DC, Judy’s been covered by national media including SBTV, ABC Radio, the Financial Post, Fortune Small Business, and Entrepreneur Magazine. From 1988 to 2003, Judy was the top specialist in US government contracting at the Canadian Embassy in Washington DC. Leveraging her more than 20 years of experience advising more than 6000 clients on success in government contracts that collectively have accounted for revenues in excess of $300 million US, Judy will take us through her critically acclaimed “Seven Steps to Success” presentation. As a supplier you will gain the necessary insights to shorten the time- line between the response to government tenders, and the realization of tangible revenue. As a government procurement professional, you will find the answers to why bid responses have been declining and with it the value in both pricing and quality of service. Judy's 7-Part "Seven Steps to Success: Jump Start Government Business" Series is currently airing on the PI Window on Business Show on Blog Talk Radio. [Washington Summit - April 2010] | Transparency in Government Procurement 7

Washington Roundtable Guest Panel Colin Cram Colin Cram has a successful procurement, outsourcing, conference programme and training consultancy business, Marc1 Ltd. An Office of Government Commerce accredited consultant, he is a regular speaker at national and international seminars and training events, lectures on university degree courses, is a regular contributor to professional journals and is an associate of Manchester Business School. He has been a member of EU working groups on Procurement, Innovation and Sustainability. He provides consultancy services to public and private sectors, including how to secure business from the public sector. Colin Cram, a Fellow of the Chartered Institute of Purchasing and Supply, held senior procurement positions in the public sector for over 30 years, including central government, higher education, scientific research and local government. He was responsible throughout for initiating and implementing innovative strategies for procurement, shared services, outsourcings and organisational re-engineering. He developed and successfully implemented strategies to tackle monopoly supply situations. In creating several leading edge procurement organisations and collaborations, he was responsible for third party spends of up to £7bn a year. Savings from his initiatives exceed £1bn pa. Colin is a regular guest on the PI Window on Business as part of the show's Thought Leaders Series. [Washington Summit - April 2010] | Transparency in Government Procurement 8

Washington Roundtable Host and Moderator Jon Hansen Jon Hansen has studied and written extensively about e-Procurement and the changing face of procurement around the globe. In addition to being a highly acclaimed international speaker, Jon has written more than 800 articles and papers on subjects ranging from supply chain optimization and the utilization of agent-based modeling in the software development process to the evolution of sustainable purchasing practices and the impact of traditional ERP-centric implementation methodologies on the high rate of supply chain initiative failures. Funded by the Government of Canada’s Scientific Research and Experimental Development (SR&ED) program his work in both identifying the existence of Commodity Characteristics as well as defining and recording their impact on “best value” purchasing practices represented a seminal breakthrough that led to the establishment of new theories surrounding the practical utilization of synchronized platforms in achieving sustainable coordinated savings and overall process efficiencies. He has also authored 2 books, with a 3rd scheduled for release in September 2010. Jon is also the host of the highly acclaimed PI Window on Business Show on Blog Talk Radio (BTR). As a BTR Network featured host, Jon has welcomed leaders and bestselling authors from the world of business discussing both timely and thought provoking topics. The PI Window on Business Show airs throughout the week between 12:30 and 1:30 PM EDT. [Washington Summit - April 2010] | Transparency in Government Procurement 9

About the 3rd Annual Business of Government Summit The Shared Services & Outsourcing Network (SSON) is the largest and most established global community of over global community of shared services and outsourcing professionals with a presence in over 95 countries. We provide the roof under which key industry experts and organizations share their experience, knowledge and tools, and your practitioner peers connect with other all over the world, face to face and online. SSON focuses on developing its members through providing face to face training, tools, and networking opportunities in major cities around the world, including: New York, London, Singapore, Stockholm, Sao Paulo, Sydney, Berlin and Dubai. SSON's International Quality & Productivity Center "IPQC" was the Summit's organizer. The main theme of the 2010 Summit was centered around discussing priorities the Obama administration is focusing on for complete government transformation including: Addressing high-priority performance goals Improving human capital management • Closing the technology gap • Creating a more participatory government • Eliminating waste and boosting customer satisfaction • • [Washington Summit - April 2010] | Transparency in Government Procurement 10

“High Stakes” “UK public sector spending amounts to some 1.5 percent of global GDP. In 2009-10 it will amount to nearly 50 percent of UK GDP, approximately £11,000 per man, woman and child in the UK. This is equivalent to a lifetime investment of £850,000for a person with average life expectancy.” The public therefore has a right to expect that this money is spent efficiently and wisely. However, despite some excellent recent initiatives, the efficiency of the public sector remains too much a legacy of its past and a prisoner of its structures." From Towards Tesco - improving public sector procurement by Colin Cram [Washington Summit - April 2010] | Transparency in Government Procurement 11

When I first posed this question to the panel, the preliminary responses So What is Transparency in Government? ranged from Bradt’s experience earlier in the day when at a speaking engagement one of the attendees complained that a particular government solicitation was “wired” which can lead one to conclude that the individual was voicing a concern that the bid was fixed. Judy Bradt, Summit Insight The critic was silenced when Bradt asked if they had become involved early in the process or, merely responded to an RFP? This is a powerful question, the answer to which we will touch on in greater detail later in the paper. Joining the PI Window on Business for the first time was Karen Evans, the former CIO for the United States Government who oversaw the expenditure of close to $70 billion related to Information Technology during her impressive tenure with the Federal Government. Karen S. Evans, Partner at KE&T Partners, LLC Succinct in her opening comment, Evans indicated that there are many factors that impact and affect the procurement process in the public sector, a point she would expand upon as the discussion progressed. [Washington Summit - April 2010] | Transparency in Government Procurement 12

Rather than defining transparency in general terms, IACCM’s Tim Cummins referred to what he called “bad” transparency in his opening comments. Specifically, and more related to mindsets and environments, he talked about the negative impact of a program that accomplishes the exact opposite of the intended outcome by preventing openness and honesty. Tim Cummins, CEO IACCM Citing his position that the “more we develop openness and fairness in transparency,” the better it is in terms of both domestic interests and given the expanding global marketplace, international trade. The discussion then took an interesting turn, when I posed the question “is there a difference between the private and public sectors relative to transparency in the procurement process?” Referencing a conversation I once had with a senior executive from Colgate-Palmolive who made the observation that the only difference between the private and public sector is that when a program goes awry within the private sector, “it is not likely going to end up on the front page of the local paper.” While IACCM’s Cummins expressed the opinion that there are parallels that can be drawn between the public and private sectors when it comes to transparency, the “big problem” as he put it is that within the public sector there is a greater tendency to “avoid” accountability versus “accepting” accountability. Given the Cummins response, Evans highlighted the fact that one of the key differences between how transparency is viewed in the private sector versus the public sector originates in the reporting hierarchy. The fact is that within the private sector your board is a known quantity [Washington Summit - April 2010] | Transparency in Government Procurement 13

that share common interests such as market share, profitability and stock value. In short, and while opinion regarding the best route to achieve these results may differ, the goals are ultimately much clearer and less convoluted by partisan or regional interests. This of course is a factor in the public sector as the board is the 535 people in the House of Representatives in the Senate, where jurisdictional interests and competing priorities contribute, at least in part, to the risk averse lens through which transparency is viewed. This aversion to risk, in essence exposing oneself to open criticism in the pages of say the “Washington Post” according to Evans, prevents people from the taking the kind of necessary risks that are required to improve services. Joining in on the discussion, Colin Cram, who is a 30 year UK-based public sector veteran and expert whose “Towards Tesco – improving public sector procurement” paper provides a clarity of perspective that has actually led to my rethinking of the shared services strategy that has been unsuccessfully pursued by many governments, introduced the idea of “apparent” transparency versus “real” transparency. Colin Cram, Towards Tesco More to the point, Cram indicated the critical need for governments to find a better balance between the appearance of transparency and, actually delivering real value for money in what he referred to as a “commercial way.” This is one of the important parallels between the public and private sectors to which the Towards Tesco paper is referring. [Washington Summit - April 2010] | Transparency in Government Procurement 14

Expanding on Crams comments relative to the private sector attributes that should be incorporated into the public sector mindset, Judy Bradt talked about the fact that the real definition of transparency should be based on “everybody knowing the rules, where all suppliers have fair and open access to opportunities to pursue and win government business,” while maintaining the right to make “inquiries regarding the outcome” through for example, “the Freedom of Information Act in the United States.” I think that it is important to stress the fact that the fair and open access to which Bradt had referred should not be confused with having an attitude of entitlement relative to getting or being owed “a piece of the government pie” so to speak. Recalling her opening comment relative to the vendor in the audience who expressed the opinion that a particular government bid was wired, Bradt has often talked about suppliers getting involved early in the game in terms of building relationships with key stakeholders both within and external to the government. By building relationships prior to an RFP being issued, affords a vendor the opportunity to “legitimately and transparently win preference with government buyers.” As a Canadian, one of Bradt’s comments I found most interesting was her assertion that while the U.S. Government is one of the, if not the most open in terms of bid result disclosure, Canada was somewhat less accommodating in terms of subjecting its decisions to scrutiny. This is certainly a topic I will have to pursue at greater length in another forum, but I think that it is important to stress that a more limited access to bid results is a far cry from a process being truly wired or corrupt. In fact, referencing the Procurement Insights October 30th, 2008 post titled “New Zealand Public Sector eSourcing: Transparent Procurement encourages Competition & Investment,” Canada was actually ranked in the Top 10 at the number 9 position, in terms of the overall confidence in the veracity of the procurement process by Transparency International, the “global civil society organization” which leads “the fight against corruption, by bringing people together in a powerful worldwide coalition to end the devastating impact of corruption on men, women and children around the world.” The 2009 results from the organization’s “Corruption Perceptions Indexes” or “CPI,” the year [Washington Summit - April 2010] | Transparency in Government Procurement 15

for which the latest statistics are available, saw Canada move up to the number 8 position, tied with both Australia and Iceland. In line with Cummins’ earlier statement regarding the importance of transparency in relation to international trade, this same post discussed the “positive” correlation between transparency and Foreign Direct Investment, and in particular a 1999 paper by Z. Drabek and W. Payne published by the World Trade Organization titled “The Impact of Transparency on Foreign Direct Investment.” The following Abstract for the paper, drives home the point that Cummins so astutely presented: “Non-transparency is a term given in this paper to a set of government policies that increase the risk and uncertainty faced by economic actors foreign investors. This increase in risk and uncertainty stems from the presence of bribery and corruption, unstable economic policies, weak and poorly enforced property rights, and inefficient government institutions. Our empirical analysis shows that the degree of non-transparency is an important factor in a country’s attractiveness to foreign investors. High levels of non-transparency can greatly retard the amount of foreign investment that a country might otherwise expect. The simulation exercise presented in the statistical part of this paper reveals that on average a country could expect 40 percent increase in FDI from a one point increase in their transparency ranking. Pari passu, non-transparent policies translate into lower levels of FDI and hence lower levels of welfare and efficiency in the host country’s economy. A nation that takes steps to increase the degree of transparency in its policies and institutions could expect significant increases in the level of foreign investment into their country. This increased investment translates into more resources, which Ironically, and despite the ability to easily access bid results through the in turn increases social welfare and economic efficiency.” Freedom of Information Act, the United States held the number 19 position in 2009 in terms of perceived transparency, which was one position lower than its number 18 ranking in 2008 where it shared that position in terms of world opinion with both Belgium and Japan. [Washington Summit - April 2010] | Transparency in Government Procurement 16

At this point in the discussion I presented the concept that regardless of whether a supplier is dealing with either a public or private sector client, the axiom that buyers invariably deal with someone “they know, like and trust,” was not met with disagreement by Evans. The basis for her agreement was tied to the fact that dealing with a known entity, the buyer has confidence that the vendor is going to perform and deliver on their contractual obligations. That said and in line with the above referenced October 30th, 2008 Procurement Insights post, Evans stressed the importance for government buyers to “put out has much information as possible to remove any barriers or perceived barriers for suppliers.” While Evans stressed the importance of reaching out and engaging as many suppliers as possible, especially with large IT acquisitions, as it is virtually impossible for a buyer to “know what all the technologies are in terms of what is out there (in the market), the need for greater clarity in terms of articulating what service the government wants to provide and how it is different from what is currently in place or is known is crucial. This according to the former US Federal Government CIO, provides vendors with the ability to clearly state and demonstrate how their solution is going to get the job done. The clarity to which Evans referred also extends to providing a meticulous outline as to how vendor solutions and capabilities are going to be evaluated by the government, as it can reduce the potential for challenges or protests of contract awards down the road. Ultimately this takes us back to the primary question of what is transparency in the government procurement process, in that maintaining an open dialogue between the government and its vendors can potentially circumvent the problems associated with miscommunication. Based on Evans’ comment that “now being on the other side,” she can see “why people have challenges with government procurement” because “it is not as clear as you think it is,” may at least in part explain the United States’ lower ranking in the 2008 and 2009 Transparency International CPI. [Washington Summit - April 2010] | Transparency in Government Procurement 17

Perceptions, Relationships and Supplier Value “The process for winning government contracts is truly based on the ability of a supplier to legitimately and transparently win preference with government buyers.” Judy Bradt, Seven Steps to Success: Jump Start Government Contracts I have always contended that at the end of the day, regardless of (Blog Talk Radio) industry or sector, people ultimately buy from whom they “know, like and trust.” In fact with greater expenditures and the resulting increase in risk, this axiom becomes even more critical. The analogy I often use is that I do not have to know the person behind the counter (or even like them) at my local corner store, as all I really care about is whether or not the milk I purchase is fresh. However, when I buy a car or a house, or for that matter choose a doctor, the focus naturally shifts to one of trust and comfort. In short, if I do not connect with the individual or individuals through whom I am going to make a major purchase I am not likely to deal with them. As we pick up where we left off in the previous post, this concept or principle leads into Judy Bradt’s statement that “the rules provide ways” in which you can still do business with “people you like – especially in the U.S.” Judy Bradt, Summit Insight [Washington Summit - April 2010] | Transparency in Government Procurement 18

Specifically, and in line with her analogy of a runner showing up for the race at the starting line without having trained, which is what the majority of suppliers do when they consider the release of the RFP to be the first step in doing business with the government, Bradt repeatedly emphasized the importance of building relationships prior to an RFP being issued. By becoming involved at the early stages of the government procurement process, such as responding to a draft RFP or Requests For Information (RFI), the Washington-based expert indicated that vendors can “legitimately shape the perception of need,” including the manner in which the “evaluation factors” are written and ultimately published. Karen Evans’ assertion in the previous instalment of this series that the lack of clarity in terms of requirements and the expressed or intended deliverables associated with many RFPs creates countless challenges, perhaps underlines the need for improved communication and collaboration during these early stages of a government acquisition. Evans’ observation that the degree of this disconnect has become even more evident given her current vantage point from the vendor side of the transaction fence, is therefore noteworthy. Karen S. Evans, Partner at KE&T Partners, LLC This would of course suggest that through stronger “out of the gate relationships,” when RFPs are first being structured, stakeholders would be better positioned to address and even avoid the communication breakdowns that lead to non-compliance or a vendor’s inability to fulfill contractual obligations down the road. Certainly U.K.-based Colin Cram believes that the know, like and trust axiom has merit given his position that relationships are the key in preventing what he referred to as the “transparency of process” impeding the buyers ability to achieve a “best value outcome.” [Washington Summit - April 2010] | Transparency in Government Procurement 19

Colin Cram, Towards Tesco In essence, and this is my take, pursuing the illusion of transparency at all costs represents what Cram had previously indicated was an appearance over value proposition. Cram added that this overemphasis on transparency often times results in the government awarding contracts to “suppliers who have been justified by transparency procedures” versus “dealing with suppliers who can offer best value for the money.” The 30 year public sector veteran and author of the breakout paper Towards Tesco – improving public sector procurement, added that he has “many, many examples” of what he referred to as “boneheaded, procedural procurement that doesn’t deliver a best value result for anyone, least of all the taxpayer.” Tim Cummins added that while it is “easier for the private sector to engage best value suppliers, there are “common problems that run through both the private and public sectors.” Even with this apparent ease to engage best value suppliers, the IACCM CEO stressed that whether private or public, a key overall problem that transcends all industries and sectors is what he referred to as “the evolution of the current procurement practice,” which has created “an adversarial environment.” Despite the reference to a universal or shared issue, Cummins once again turned his focus to the public sector which through the dominance of its size has taken a “leadership” role in terms of “creating a procedural-based, buyer adversarial process” which is further compounded by “new unilateral terms and conditions such as liquidated damages and termination for convenience.” [Washington Summit - April 2010] | Transparency in Government Procurement 20

In the end concluded Cummins, “all of these terms and conditions lead to premium pricing and a complete loss of transparency.” The reason for the loss of transparency, he continued is that “far too often, public sector procurement is about a blame game.” The problems with the resulting aversion to risk in the public sector, or what I call the “belt with suspenders mindset” is that it creates according to Cummins, “a highly lopsided risk allocation” born mostly by the supplier. Not only does this lead to a closed or self-protecting environment in which true transparency is obfuscated by a need to cover one's bases, it also drives further erosion of already thinning supply bases. [Washington Summit - April 2010] | Transparency in Government Procurement 21

Transparency and the Talent Gap However, with the raised expectations on procurement to deliver sustainable bottom-line savings, the need to nurture top talent is more acute than ever. Some 65% of respondents rated capability development and talent management as a key objective area for the coming year, and further augment their functions with the right blend of category, supplier and market expertise with the usual contracts and pricing knowledge. However, as highlighted by the Capgemini survey, the CPO continues to see a dearth of talent as a major challenge to their ability to meet these expectations. from Chances and Challenges for Buyers by Leon Smith, Supply Chain Talk surrounding the talent gap is nothing new, especially when the Europe (November 2009) economy went into a tailspin resulting in significant layoffs throughout all industry sectors. In fact, the impact associated with this recent decline had considerable reach into job areas that were at one time considered to be if not untouchable, certainly somewhat insulated. Nowhere was this new reality more apparent than it was in the world of Lean Six Sigma. In an April 2009 interview with expert author Forrest Breyfogle III titled “Unemployed Excellence – Why Lean, Six Sigma Have Left Some People Out in the Cold” we discussed what at the time was the surprising job loss trend amongst Six Sigma Black Belt and Master Black Belt professionals. The irony of the revelations that were revealed during the interview with Forrest is tied to the belief that Lean Six Sigma expertise during an economic decline would become essential. The reasoning of course is that one would think that process efficiencies would become increasingly important as workforce size was pared down and the remaining employees would be called upon to pick up the workload of those who had been laid off. I guess process efficiencies and cycle time reductions become less attractive when faced with the cold reality of diminishing revenues. [Washington Summit - April 2010] | Transparency in Government Procurement 22

While those in the Six Sigma realms were considered expendable, the procurement world was going through an evolutionary period of its own based largely on the growing recognition of purchasing’s strategic importance in delivering what Smith referred to as “sustainable bottom- line savings.” The problem, which was the polar opposite of those associated with the Six Sigma Black Belts sudden trek to the unemployment line, was the paucity of experienced buyers. In other words and, after so many years of being viewed as a functional adjunct of finance, purchasing’s phone rang but no one was home to answer the call. Suffice to say there are countless challenges in finding “the right blend of category, supplier and market expertise with the usual contracts and pricing knowledge.” A point that was raised during our recent Live Event Feed Roundtable discussion from the 3rd Annual Government of Business Summit in Washington, D.C. Our guest panel, which included the former U.S. Government’s CIO Karen Evans, IACCM’s Founder and CEO Tim Cummins, 30 year public sector veteran and author of the seminal paper “Towards Tesco – improving public sector procurement” Colin Cram, and Washington-based expert author Judy Bradt, talked about the impact that the talent gap has on government’s focus on creating a transparent procurement process. Evans’ response to the question regarding the impact that the talent gap has had relative to transparency in the government procurement process, extended beyond a mere head count – increased workload perspective to include the differences between compliance and achieving results. Karen S. Evans, Partner at KE&T Partners, LLC This is a noteworthy distinction, especially in light of her statement that the “process-laden” procurement practices of the government is not inherently conducive to effective collaboration in the first place. [Washington Summit - April 2010] | Transparency in Government Procurement 23

When combined with what the former top CIO in the country referred to as the steadily decreasing number of acquisition people who understand that there is “an art to doing procurement,” and therefore can properly leverage the available tools to stimulate important dialogue with key stakeholders, we begin to see the very real problems caused by the growing talent gap emerge. Specifically, a much heavier reliance on the very belt and suspenders contractual terms resulting in what IACCM’s Tim Cummins called “a highly lopsided risk allocation” born mostly by the supplier. The need for creating and complying with these “lopsided” terms and conditions, which ironically diminish rather than enhance transparency is, according to Evans, driven by the prospects of having to stand before a Senator or the House of Representatives and explain why a project has or is failing. In short, this means that best value decision-making is confined to an adherence of guidelines that ultimately center on avoiding blame versus achieving optimized results. At this point Evans’ past experience and understanding came to the forefront when she revealed the number of times she was called in to get a particular project back on track. In fact, and as Evans put it, “during my tenure I can go through project after project that had failed” in which my direct intervention was required. The first step she took towards implementing a remedy was “putting in clear and concise requirements” where everyone was provided with a “solid understanding and expectation of the performance metrics” by which they would be measured. This approach according to Evans, removed the chief cause of the blame game especially with time and material contracts, in that a precise target or objective was established that eliminated the disconnect regarding stakeholder expectations that plagues many public sector contracts. This “coordinated understanding” as Evans calls it means that everyone is reading from the same book. Through a coordinated understanding the acquisition official, who is almost always called to task when a project runs off the rails and either more time and/or more money is required to move forward, will not be subjected to the heightened scrutiny of a poorly drafted contract. [Washington Summit - April 2010] | Transparency in Government Procurement 24

The question that this raises of course is why was a poorly drafted contract put in place without clear deliverables in the first place? The answer brings us right back to the opening paragraphs of this section where CPOs are lamenting the “dearth of talent as a major challenge to their ability to meet these expectations.” In essence, and making up for the absence of “the right blend of category, supplier and market expertise with the usual contracts and pricing knowledge,” acquisition officials tend to incorporate into contracts onerous, one-sided terms and conditions that are designed to reflect blame rather than achieve the desired results. That being said, this is not a single, unilateral issue flowing out from the government side of the transaction alone. Citing a segment from my 7- Part “Seven Steps to Success” Series with Judy Bradt, I likened the contractual compliance issue in which the outcome is obfuscated by avoiding blame to the suppliers “winning contracts instead of money” analogy. Judy Bradt, Summit Insight In the latter instance, Judy had referenced a GSA70 IT contract worth billions of dollars from which only a very small percentage of suppliers actually generated meaningful revenue. A good percentage of the total number of “winning” suppliers, many of whom did not receive a single order despite being certified and approved, did not achieve their outcome simply because their expectations and subsequent efforts did not align with the reality of the situation or, in this case opportunity. Judy attributed this supplier-side disconnect to what she referred to as “a gap in the total process” which is largely due to the absence of the tangible and meaningful relationship with the government buyer that is essential to gaining a clear understanding of what winning suppliers actually do to win government business. [Washington Summit - April 2010] | Transparency in Government Procurement 25

The reciprocal misalignment in which suppliers erroneously chase government contracts in the same way that acquisition officials chase deflecting compliance means that all parties are at crossed purposes. No wonder Evans can point to “project after project that had failed.” UK-based, 30 year public sector veteran Colin Cram raised a valid point when he expressed the opinion that “there is an issue ” at how stakeholders arrive at the point of “a shared understanding.” While Colin shares similar sentiments with Bradt regarding the importance of suppliers getting in the game long before an RFP has been issued (or chasing government contracts as it is called), he was also quick to point out the need for the government “to effectively engage with the supply base market,” and not just issue tenders “willy nilly.” Colin Cram, Towards Tesco This according to Cram means that government has to gain a better “understanding of the market,” which was also an opinion expressed by Evans in the May 11th excerpt when she “stressed the importance of reaching out and engaging as many suppliers as possible, especially with large IT acquisitions, as it is virtually impossible for a buyer to “know what all the technologies are in terms of what is out there (in the market).” It is also interesting to note that with both Cram and Evans, this better understanding of the supply market begins with the procurement professional. It is also at this point that the talent gap comes into play according to Cram as “the difference between the top class category procurement professional and the average buyer,” is reflected in the “value for money” purchases each makes. [Washington Summit - April 2010] | Transparency in Government Procurement 26

In this regard according to Cram, the “top notch person knows how to handle procedures that are appropriate to the business at hand,” versus what he called “the procurement hacks who simply follow procedures.” These top flight professionals “engage properly with the industry consistently delivering brilliant outcomes” compared to the average buyer whose idea of engagement is myopically confined to the specifications they are given, in essence merely filling an order. What is worth noting is that many of the up and coming procurement professional’s who have chosen the profession rather than just falling into it by chance, are graduating from accredited institutions with the necessary skills to which Cram had referred. However, and referencing the Smith article, there is an “increasing trend amongst procurement professionals,” to move into the “interim/contractor market to maximize their earning potential.” Thus retaining “top notch” talent to the point where their expertise can have the positive impact that Cram indicated is necessary to effect the required changes can be problematic. IACCM’s Tim Cummins, while expressing his belief that many, many interesting points were being raised, cautioned that “government deals with a full portfolio of different relationship types” be taken into consideration. From the “commodity transaction” suppliers in which relationships are more direct and basic, to “mega defence deals or outsourcing arrangements” that by nature are complex, and therefore when they fail tend to grab headlines, Cummins stressed that a “sense of proportion” be maintained in that the actual rate of contract or initiative failures “falls into the minority.” Tim Cummins, CEO IACCM [Washington Summit - April 2010] | Transparency in Government Procurement 27

This however emphasizes the importance of Cram’s observations regarding the difference between the top notch procurement professional versus the everyday buyer. Specifically, and with commodity type purchasing, following specifications will likely suffice. Although I would contend that effective supply market engagement is key regardless of the size and type of the acquisition, if an organization is to avoid the one-two punch of an eroding supply base coupled with the phenomena of creeping margins that can slowly lead to the financial bleeding that is tantamount to a death by a thousand cuts. Whether in the majority or the minority, Cummins still recognized that project failures – especially with complex projects (which the IACCM CEO indicated are “areas of vulnerability”), are often times due to unclear or misaligned requirements. However, Cummins added an interesting variable into the mix when he suggested that a lack of “adaptability” in terms of an “acquisition strategy” is another factor that should not be overlooked. In particular, a “good supplier match today, may not be down the road because of market changes.” In this regard, the talent gap also has an important impact in that rather than address the question of adaptability through greater transparency relative to “risk sharing,” Cummins expressed the opinion that “one of the biggest problems with government procurement today” is that it is in reality heading or “gravitating” towards the self-protecting, belt and suspenders mindset associated with a paucity of top notch procurement professionals. Lacking expertise and the related understanding of the market, the most “frequently negotiated terms and conditions” that represent the greatest “sticking points” continued Cummins, relate to what he called “the blame game,” and what ultimately happens when “things go wrong.” The “rigid positions that the government takes over things like indemnity, intellectual property rights, and liquidated damages,” present real and enduring problems stated Cummins. [Washington Summit - April 2010] | Transparency in Government Procurement 28

“If we can’t get to a more balanced position on the economic gains and losses, or the understanding that there needs to be mutual benefits,” then government procurement is going to “continue to struggle to get value for money and, positive outcomes on many of these high profile projects,” concluded the IACCM CEO. [Washington Summit - April 2010] | Transparency in Government Procurement 29

An Over Reliance on Technology Versus Scalable Intelligence Ironically, given the huge investments made in procurement technologies during the past decade, usage of these systems remains markedly poor. Only 1 4% of the companies surveyed expressed confidence that 60% of spend was being channelled through eProcurement, the typical benchmark for applications of this nature; more than 60% placed eProcurement usage at less than 20%. from Chances and Challenges for Buyers by Leon Smith, Supply Chain One of the most interesting aspects of what was already a thought- Europe (November 2009) provoking discussion was introduced when I had made the suggestion to our expert panel that perhaps government had abdicated the relationship side of the procurement process in favor of technological compliance and scalability. In essence, focusing more on what IACCM’s Tim Cummins called “contractual rules” through technologically driven compliance versus actual “commercial acumen” leading to best value decision-making. Tim Cummins, CEO IACCM Through this broadening lens of informed understanding the abysmal usage statistics referenced above make a great deal of sense. This is due to the fact that the emphasis has traditionally and almost exclusively been placed on the end-user adapting to the technology as if following a pied-piper, with the same result of being led over a cliff of increasing costs and declining returns. In this regard, Karen Evans hit the proverbial nail on the head when she made the statement that “products” (re technology), does “not replace [Washington Summit - April 2010] | Transparency in Government Procurement 30

skill sets.” According to the former CIO of the U.S. Federal Government “vendors have to change their business models” focusing on the critical areas of “quality of service and reliability of data.” Karen S. Evans, Partner at KE&T Partners, LLC This Evans continued is “different from selling an Oracle data base,” even if it is within the realms of a virtualized or “cloud computing” architecture. Her reasoning is that computing in the clouds is really just “optimizing the use of infrastructure” and is therefore a commodity versus being an actual service. This is an incredibly important observation by Evans in that it goes to the heart of the paradigm shift that has created the chasm between the traditional ERP-based applications offered by the Oracles, SAP’s and until recently Ariba’s, and the emergence of the original SaaS-based solution providers. The inherent problems faced by traditional ERP vendors such as Oracle and SAP is that they view SaaS as a pricing model within the framework of their existing architectures versus being an organically originating, radically different adaptive platform. In both my May 18th (SaaS Sprawl, One-Stop Shopping and Free 8- Tracks To Boot: A Sad Day in the World of SAP) and May 26th (Traditional ERP vendors such as SAP and Oracle overlook the Disruptive Innovation question when they discuss their move to a SaaS model) posts, I make reference to a comment by Ariba’s CMO Tim Minahan. Minahan, who is the former CSO and Senior Vice President, Global Supply Research at Aberdeen Group, expressed his opinion that “Oracle’s on-demand sourcing is not really on-demand at all,” and “if he were an Oracle or SAP customer,” he’d be confused, and that he thinks that “that’s their intention.” (Once again, I strongly recommend that you check out the on-demand version of the Minahan interview.) [Washington Summit - April 2010] | Transparency in Government Procurement 31

Obviously risking a “one who lives in a glass house should not throw stones” response from either Oracle or SAP, and of course without calculating the ultimate result of Ariba’s DNA transformation to a on- demand provider, Minahan nonetheless echoes a similar sentiment to those expressed by Evans. Evans further stressed her point by emphasizing her belief that “government needs to make hard decisions about best solutions,” and in the process “reduce operating costs” through leveraging or “maximizing what is already out there.” This shift in mindset in which government can no longer “buy products,” but should instead focus on acquiring “services and relationships” presents the greatest challenge and perhaps threat to the traditional vendor models under which the Oracle’s and SAP’s have conducted business (re technology-centric collaboration). Based on recent comments by SAP’s John Wookey regarding the vendor’s “orchestration” of on-demand functionality within the current SAP architecture, it would appear that this is a point that continues to elude his organization despite the minimal utilization statistics referenced in the Smith article. That being said Wookey’s own acknowledgment that “customers that already have gone with SaaS in addition to an on-premise suite may not swap out for on-demand orchestration,” might indicate a recognition that a change is afoot. The bottom line reality is that these traditional technology vendors are simply too sufficiently top heavy in terms of head count and associated operating costs which, when combined with Wall Street influences, preclude them from moving aggressively towards the kind of “DNA cultural transformation upon which Ariba embarked last year.” It should be noted that Ariba’s decision to make the move to an on- demand model was to a certain degree influenced by their losing $3 billion on $1 billion in sales between 2001 and 2005. This is a motivating factor that neither SAP or Oracle presently faces . . . at least for the time being. [Washington Summit - April 2010] | Transparency in Government Procurement 32

While the shifting sensibilities of end user decision-making gravitates towards a more service/relationship oriented outcome, and therefore provides original and emerging SaaS vendors with a marked advantage over their ERP-based counterparts, these new titans of the eProcurement world would be well-advised to avoid the same trappings of leading with their technology alone, including an overemphasis on their lower costs and reduced implementation time lines. The temptation to do so is usually strong given the algorithm driven, agent based solutions they provide on a pay-per-transaction basis. In short, real-time, real-world dashboard technology is pretty cool stuff. However, technology no matter how advanced, has to be a behind the scenes facilitator of efficient and relational process versus being a front and center initiative-based player. This of course leads us right back to IACCM’s Cummins’ remarks about buyer skill sets now being more focused on commercial acumen versus rules compliance, and the need to build collaborative relationships and solutions. As a result, all vendors need to understand that merely providing centralized guidelines electronically and then automating the purchasing process (no matter how advanced technologically) is not sufficient. This is because the challenges that end users face, as Cummins pointed out, is not one of technology, but is directly related to the aforementioned limited skill sets (which again is beginning to change), and an inability to effectively “outsource relationships.” An issue Cummins noted that is not indigenous to the public sector domain alone. However, it is especially problematic for government entities given that many are either contemplating or already pursuing a Shared Services or Outsourcing strategy. Both of which are heavily dependent on personnel aptitude and effective stakeholder interaction. The question of disconnected relationships is also according to Cummins, not confined to external interactions with suppliers, but is also reflective of a general “failure” on the part of “public procurement agencies to look beyond their own internal borders.” This “fascinating lack of real substantive discussion,” is perhaps a contributing factor in what Colin Cram cited as one reason behind the “huge amount of added cost” which is based on procurement people being more interested in “protecting themselves versus delivering real value.” [Washington Summit - April 2010] | Transparency in Government Procurement 33

Colin Cram, Towards Tesco Perhaps in what was one of the most critical highlights of the serious flaws associated with a traditional technology-driven approach to procurement according to Cram, is how it enables government to “hide within” or behind costly “procedures.” Referencing his “Towards Tesco – improving public sector procurement” paper, which indicates that the UK government could save £25 billion per year through improvements in key areas, Cram expressed the opinion that besides the problems with “procurement fragmentation when engaging the private sector,” government has “excessive procedures” that unnecessarily complicate and hinder supplier participation. It is therefore not an unreasonable conclusion that similar to the old “garbage in – garbage out” analogy, automating procedure-laden processes will not make up for the absence of the required skill sets or collaborative platforms. This is yet another indicator as to why adoption rates of eProcurement technologies are as low as they are. Consistent with the opinions expressed by both Evans and Cummins, Cram also believes that government has to begin “contracting out for relationships.” Unfortunately, according to the 30 year UK public sector veteran, while “many authorities are getting the picture” regarding the need to focus on relationships, few have actually addressed the onerous procedures associated with establishing and building the necessary rapport through the current RFP process, which according to Cram are unnecessarily arduous. This ultimately leads back to the steady erosion of the very supplier relationships that are needed to ensure that government is achieving maximum value for money. [Washington Summit - April 2010] | Transparency in Government Procurement 34

Simply put, suppliers continue to believe that the government procurement process through which technology is a dominant presence, is geared toward a belt and suspenders approach to justifying a decision that has already been made. With fewer suppliers coming to the table, pricing inconsistencies from one agency to the next and, low bids with declining service levels is the usual outcome lamented Evans. So what is the answer to effectively utilizing technology to build the collaborative business relationships that leverage improving skill sets and maximize service delivery? According to Washington-based expert author Judy Bradt, the foundations for addressing the above challenges are already in place and especially strong in the United States. Judy Bradt, Summit Insight Sharing a similar level of enthusiasm to that expressed by Dr. Betsy McCaughey, who during a recent interview regarding an equally daunting and somewhat pervasive problem indicated that the “good news” is that “you don’t often come across such a big problem that you can solve,” Bradt cited a recent announcement by the DoD that they were “formally encouraging the use of social media” as one of the key reasons for her optimistic outlook. (Note: refer to "Policy" article of September 23rd, 2009.) The DoD decision is without a doubt, very interesting given past tendencies on the part of both public and private sector enterprises to either limit or restrict outright employee access to social media during business hours. [Washington Summit - April 2010] | Transparency in Government Procurement 35

This change of heart according to Bradt, will further enhance what she referred to as an already “rich business culture” that “based on the power of existing associations to bring stakeholders together” will further strengthen the needed relationships and open the required channels of collaboration within the public sector procurement world. Bradt’s views certainly have a great deal of merit as web-based “technologies” such as LinkedIn and Facebook, and services such as Twitter are platforms within which a growing number of buyers and vendors are beginning to interact. What is telling is that some of these vendors are actually looking beyond the communicative advantages of the group development and blogging venues associated with social media, and are extending the functional capabilities of their core solutions through a direct social media interface. In an ironic twist, free or low-cost social media collaboration platforms may very well become the transformational bridge between the costly ERP-centric type applications of the past, and the steadily emerging on- demand SaaS solutions which, through their dramatically reduced cost and shortened implementation period, fall in line with Evans’ assessment that government can no longer “buy products,” but should instead focus on acquiring “services and relationships.” [Washington Summit - April 2010] | Transparency in Government Procurement 36

Supplier Navigation of a Non-Linear Process As previously mentioned, the Government takes great interest in the health of SMEs and is making it a priority in wanting to “cut the red tape faced by the private and not-for-profit sectors when doing business with the government [and fixing procurement]” (2008 Speech from the Throne). The Government is proud that it has done much in improving SME access to government contract opportunities by reducing procurement barriers, simplifying the contracting process, improving training and education to SMEs wishing to do business with the Government. The Government also believes that it can do more and will do so as outlined in the Response. Additionally, through the OSME, the Government is committed to creating an ongoing dialogue between the Government and SMEs to create a better understanding of SMEs’ concerns and to ensure these concerns are continually addressed by the Government in the future. from GOVERNMENT RESPONSE TO THE SEVENTH REPORT OF THE STANDING COMMITTEE ON GOVERNMENT OPERATIONS AND ESTIMATES: In Pursuit of Balance: Assisting Small and Medium Enterprises in Accessing Federal Procurement (Report No. 7, June Once again, there was no shortage of unique perspectives, valuable 2009) insights and thought-provoking dialogue that occurred during the course of our Roundtable discussion on transparency within the government procurement process this past April in Washington, D.C. However, and looking to conclude the train of thought that started with the previous section (which initially focused on technology and naturally evolved into one centered on supplier engagement and utilization), the words of Judy Bradt earlier in the broadcast took on an even greater significance. Specifically Bradt, who is a Washington-based expert author on the subject of winning government contracts, made the statement that the Canadian government tends to hold their contracting and disclosure [Washington Summit - April 2010] | Transparency in Government Procurement 37

cards very closely to their proverbial vests. In short, Canada’s public sector procurement apparatus operates on a strict, narrowly defined need to know basis. Perhaps this is why the word “relationship” only appears once (and that was used in reference to horizontal internal engagement) throughout the entire Standing Committee of Government Operations and Estimates’ Report No. 7. Or why, the reported findings seem to focus more on centralizing control versus building true stakeholder relationships, creating and introducing procedures and policies in place of meaningful collaboration and, the pursuit of functional exchanges versus practical outcomes. These are not merely semantical reference points as they actually strike at the heart of the Roundtable discussion on how suppliers view the public sector procurement practice – regardless of country. Particularly as it relates to the costs for suppliers to get into the game. While generally unknown by those procuring goods and services on behalf of the government, it is worth noting that the majority of suppliers also lack the needed understanding of the “true cost” of doing business in the public sector. This is a critical knowledge gap that needs to be filled according to Bradt, for any vendor looking to navigate what she referred to as a “non-linear process.” It is therefore immensely important for these companies to take the time to “very carefully” gain a clear understanding of what pursuing, let alone winning, government contracts will cost which Bradt stressed usually takes “a lot more time and investment of resources than initially expected.” The first step in this exercise begins with the relationships a vendor has with their teaming partners and even competitors, the practical advice a vendor receives through agency briefings that are in the case of the United States held at the Offices of Small and Disadvantaged Business Utilization “OSDBU” and, one-on-one counselling sessions with small business specialists within the government. These according to Bradt, who has helped more than 6,000 clients win in excess of $300 million in government contracts, all add up to a supplier being able to really understand the process and help them to legitimately and transparently gain buyer preference. [Washington Summit - April 2010] | Transparency in Government Procurement 38

What may be most surprising about the above revelations for many, especially those who champion the automated electronic tendering services such as a MERX or FedOpps, is that those vendors who are consistently successful at winning government contracts usually hear about business opportunities first through these “preferential” relationships. Examples of alternative intelligence venues include referrals from a client or a friend telling them about an upcoming acquisition plan or, an “on the street” tip from someone in the know. In fact and as previously stated in earlier excerpts, if you are only hearing about an opportunity and/or getting involved at the RFP issue point you are already a day late and a dollar short. It is through the above mentioned relationships stressed Bradt, that you gain the heads- up lead time that enables you to compete versus simply respond to a government tender. A point that was driven home by NSI Chief Executive Officer Alfred Gordon, who over a dinner one evening shared his experience with an audience of vendors who were looking for ways to gain an edge in both pursuing and winning government contracts. As Gordon explained it, he asked every individual who was in attendance to tell him how many government contracts each one’s company pursued over the previous year, and at what cost? The responses ranged from a dozen bids to several hundred being submitted, at a cost that was as high as a couple hundred thousand dollars. Now here is the telling part of the Gordon story; when he asked how many of them won the bids to which they invested so much time and money, not a single person raised their hand. Not one win for those vendors whose primary point of initial engagement was responding to an RFP. Gordon’s findings are in line with Bradt’s analogy about waiting to get into the game until after an RFP has been issued being tantamount to a runner showing up at the starting line on race day without having trained in the months leading up to the race and expecting to win. The only things you can expect to achieve by simply responding to [Washington Summit - April 2010] | Transparency in Government Procurement 39

opportunities through a MERX or FedOpps tendering system is a lower bank balance and increasing disillusionment. The only exception to what the Washington-based expert called “bidding cold” (and it is a big one), is if you have been trying to get into an agency that has been unresponsive to your calls. Under circumstances such as this, where you “do not know the buyer, the incumbent or the budget,” in other words you haven’t been able to talk to anybody in the agency, but you believe that there is a good fit based on the written requirements, going in blind can serve a purpose. According to Bradt, the only legitimate reason for blind bidding is that by submitting an offer, you can ask for a debriefing. Like a sales call on steroids, it may be the only way to get a face-to-face and thus establish both a rapport as well as determine the factors upon which the agency makes its purchasing decisions. This suggestion is not only logical but Bradt can point to an actual example where this first step towards establishing a relationship resulted in a $500K contract for the supplier down the road. Given the above, and the consensus by our guest panellists that establishing relationships are a critical and often overlooked part of a successful bid, it could be said that electronic tendering platforms such as MERX and FedOpps are icebreakers that are as much a part of the sales process as they are the acquisition process. At the end of the day, and this once again is perhaps the most important point relative to a supplier’s view (and understanding) of the government procurement process . . . you will have to spend time and resources in building relationships long before an RFP is issued. Therefore it is incumbent upon you to be strategic perhaps even surgical in terms of where you will focus your energies so that the odds of a return on your significant investment will increase. In short, pursuing government contracts is a calculated risk, one in which you need to thoroughly understand the math. By approaching it in accordance with a method to the madness mindset, the eventual outcome can be rewarding as illustrated by a story Bradt shared during the broadcast. [Washington Summit - April 2010] | Transparency in Government Procurement 40

In her recounting of the events, Bradt referenced a woman who owned a communications company and how, over a period of two years, she worked to build relationships within the Office of Personnel Management and Budget leading up to a response to a tender request for the very services her firm could provide. It took 8 people 6 weeks at a total cost of $200K to put together the proposal that ultimately led to her to winning a $6 million contract that to this day is her flagship account. There is an important point to be made at this juncture in that how many vendors would spend $200K over a 6 week period responding to an RFP but – and this is key, have not spent the preceding 2 years establishing the necessary relationships to make that expenditure count? Regardless of the amount of money or time involved in responding to an RFP, it is a supplier’s level of commitment leading up to the release of a tender that will likely determine success or failure. Referring once again to the protagonist in Bradt’s story, after being informed that her firm had won the contract, she went into the office of her program manager and said “I have this contract, but I have no furniture in my living room. But, I have this contract! This spoke volumes as to the level of investment this individual was willing to make to succeed, starting with taking the time to build the rapport and the relationships that provided a clear picture in terms of what it was going to take to win the business. As a movie buff, I am reminded of the 1987 film The Untouchables, where towards the end of the picture as Elliot Ness (Kevin Costner) is kneeling over a dying Jim Malone (Sean Connery), the veteran beat cop grabs Ness by the collar and asks him “now, what are you prepared to do?” This is a good question, and one that every vendor wanting to pursue government contracts should ask themselves. What are you prepared to do?! [Washington Summit - April 2010] | Transparency in Government Procurement 41

“In the summer of 2006, I chaired the Summit Roundtable that reviewed The Economic Impact of Government Procurement the critical elements of the Canadian Federal Government’s Way Forward initiative. Based on the input that was received through a series of meetings in which representatives from both the public and private sectors were in attendance, I drafted a procurement Blueprint. Highlighted in this Blueprint, was one of the key findings of the discussion in terms of the purchasing guidelines that define public sector practice. Specifically, “the general consensus that government is not a corporation and therefore has different priorities and imperatives to meet when procuring goods and services. This acknowledgment takes into account socio-economic implications including the importance of developing key Canadian business sectors or industries. Examples of key sectors or industries include the SME/minority-owned business community, or Canadian-based manufacturing sectors such as shipbuilding where job creation and community financial stability are taken into consideration.” Fast forward ahead to the April 27th, 2010 Roundtable Discussion on Transparency in Government Procurement which aired live from the 3rd Annual Business of Government Summit in Washington, D.C. on the PI Window on Business Show, and you will find that little has changed in terms of the critical role that Government procurement plays in driving both domestic and global economies. According to recent studies, Government procurement accounts for 10% to 15% of a “developed” country’s economy, and up to 20% of a “developing” nation’s economy. In short, government or public sector procurement is not an island unto itself in which the consequences of the process is isolated to the siloed interests of the buyer. There is a greater reach that has to be considered, in which a best value transaction has many facets including the need to drive innovation. [Washington Summit - April 2010] | Transparency in Government Procurement 42

It is however in this area of an expanded point of view according to 30 year public sector veteran Colin Cram, that there are two important issues that must be understood and addressed if government procurement is to achieve its maximum potential as a key economic contributor both domestically as well as globally. This of course includes working with other nations. Colin Cram, Towards Tesco In this regard, and other than a few exceptions such as contracting to build military aircraft, Cram contends that few governments are capable of working with other nations. Specifically, the “collaboration between two parties means that both parties have to be fit to collaborate.” This is a capability according to the author of the seminal paper Towards Tesco – improving public sector procurement, that few nations posses. From a domestic economic standpoint “public sector procurement” continued Cram, is “so huge that it can have a major impact on public sector providers” in two important areas; major developmental impact on services or products they (being suppliers) offer and, the ultimate value for money these suppliers provide. Focusing on the effectiveness of his own government, Cram “doesn’t think that the UK would be a good partner with anyone, other than a select few.” This of course coincides with one of many articles on public sector collaborative practices including an October 13th, 2007 post here in the Procurement Insights Blog titled “Cluster Development and the CAC (PWGSC): Facilitator or Competitor?.” In that article I talked about the UK government “Way Forward” report from 2005, which stressed that stakeholders in the government procurement process “have to find a way to identify and remove the obstacles to true collaboration. Otherwise another 3 years will pass without any discernible progress being made.” Based on Cram’s comments the desired progress has not become reality. [Washington Summit - April 2010] | Transparency in Government Procurement 43

Referring to the biometric card project that was discussed earlier, the question regarding the dual purpose of government procurement in terms of suppliers being able to generate revenue domestically while simultaneously opening up their technological innovation to the global market, was posed to Karen Evans. Karen S. Evans, Partner at KE&T Partners, LLC Evans, the former US Federal Government CIO under the Bush Administration who oversaw more than $70 billion in IT expenditures, delivered a perspective that centered on the influence governments such as the US have on the global stage. While the biometric card project was definitely one instance of a successful collaborative effort between the public sector and private sector, Evans pointed to the US government’s decision to move from Internet Protocol version 4 to version 6 relative to providing an example of government influence both domestically, as well as on a global basis. IPv6 was defined in December 1998 by the Internet Engineering Task Force “IETF” as a means of addressing amongst other things what is referred to as IPv4 exhaustion. Without getting into the specific technological differences between the two versions (which in and of itself would warrant a separate paper), we will content ourselves with the fact that IPv6 as Evans explained it would create an limitless ubiquity that would further open up both the performance and capabilities of the Internet. Relating to this paper, Evans indicated that when the government “signalled to the market” that the US was moving in this direction two things occurred. From a supplier perspective, and in line with Cram’s earlier statement regarding the major developmental impact governments have on supplier products and services, Evans alluded to the directional instruction the move had on government vendors. [Washington Summit - April 2010] | Transparency in Government Procurement 44

In short, if the US government is moving to IPv6, does it make sense for a vendor to focus on improving IPv4? (Note: as an aside, and according to a 2008 study by Google Inc., “less than one percent of Internet-enabled hosts in any country” have adopted the IPv6 protocol. However, the same study indicates that “IPv6 has been implemented on all major operating systems in use in commercial, business, and home consumer environments.” This is a reminder of what panellist Judy Bradt referred to as the importance of a prospective supplier having a clear understanding of the opportunities they are pursuing including the costs, time lines and The US government’s decision to pursue an IPv6 strategy also prompted ultimate potential to actually win the business.) a flurry of calls from other governments around world, who wanted to gain a better understanding of the decision to make the move to the new protocol, which as Evans indicated was freely shared as it was information that was in the public domain. The IPv6 discussion was a natural segue into the much larger question of a nation’s economy. Citing my research and subsequent articles on the Clark and Fourastie “three sector hypothesis of industry” (now four with the introduction of the Quaternary Sector), and in particular a September 24th, 2009 post titled “Will Britannia Rule the Waves of the Vast Sea that is the Global Economy?,” I introduced this element into the discussion. Under a “general pattern of development,” a wealthy nation progresses through each phase or industry sector which includes the Primary sector (the extraction of raw materials), Secondary (manufacturing), Tertiary (services) and, Quaternary (knowledge-based) industries. Effectively managing this progression is critical to what Fourastie referenced in his 1949 publication “The Great Hope of the Twentieth Century” as “the increase in quality of life, social security, blossoming of education and culture, higher level of qualifications, humanization of work, and avoidance of unemployment.” [Washington Summit - April 2010] | Transparency in Government Procurement 45

While there are similarities or overlap between the service-based Tertiary sector and knowledge-based Quaternary sector, knowledge- based industries are incredibly important to the future evolution of existing and emerging economies. A point that was succinctly (perhaps even acutely) made by the incomparable Arianna Huffington of the famous Huffington Post, who in a controversial article titled “When It Comes to Innovation, Is America Becoming a Third World Country?” discussed the US’ failure to keep pace with the rest of the world in these key industry service/knowledge-based industries. This of course is one of the reasons why I previously asked the question in the September 24th post “is the UK and India positioned to emerge as economic titans over the next decade.” Let’s look at the United Kingdom. The Tertiary and Quaternary sectors represents the largest part of their economy, employing 76% of their entire workforce. With India, the indigenous software engineering talent has made that country the off shoring destination of American high-tech firms, each of which have committed to investing $1 billion into its economy. The result of this boom is that India has seen double-digit wage growth for much of the 2000s. While Cram expressed some concern that the “UK is too dependent” on these emerging sectors, he reiterated his earlier point that “government expenditures are so large that they could have a much larger and more meaningful impact on the development on both the service and knowledge-based industries.” Washington-based expert author Judy Bradt, who’s 7-Part “Seven Steps to Success: Winning Government Contracts” Series on the PI Window on Business concludes on Monday, July 12th at 3:00 PM EST, expressed her belief that the discussion regarding the government’s role in driving the emerging sectors of industry was “timely,” and that this ultimately emphasizes the “importance of transparency and collaboration” in the public sector procurement process. [Washington Summit - April 2010] | Transparency in Government Procurement 46

Judy Bradt, Summit Insight Referencing the Recovery.com website, which provides “easy access to data related to Recovery Act spending,” and the opportunities this represents to potential suppliers, Bradt focused her comments on the specific role of maintaining a technological leadership capability from the standpoint of levelling the public sector contracting playing field. Through advanced technologies smaller vendors according to Bradt, are now in a better position to build relationships with key government decision-makers through the ability to “remotely and easily access meaningful contacts.” This Bradt concluded, is cause for a great deal of excitement as the increased accessibility means that government is not going to be limited to dealing with large vendors. The importance of bringing the smaller vendors to the table was highlighted in a December 2007 article in the Defence AR Journal by Timothy T. Nerenz titled “Government contract bundling: myth and mistaken identity.” The article, which “summarizes” Nerenz’s 2006 doctoral dissertation Federal Procurement Policy Analysis: Has Extent and Effect of Government Contract Bundling on Small Business Been Overstated? challenges the then long held belief that “contract bundling–the combining of separate smaller contracts into a single large contract unsuitable for small businesses–is the most important barrier to small business participation in the $300 billion-plus federal government contracting marketplace.” [Washington Summit - April 2010] | Transparency in Government Procurement 47

Nerenz’s opening paragraph packs a powerful punch in that it refers to a U.S. Small Business Administration “SBA” report which “estimated that 34,221 new bundled contracts were awarded from 1992-2001, transferring $840 billion of contract revenue from small to large businesses.” The end result the SBA report concluded was “a 56 percent decline in the number of small businesses contracting with the government.” Despite sharing in Bradt’s excitement relative to small business enterprise’s “SME” growing access to government opportunities , IACCM’s founder and CEO Tim Cummins cautioned that there remains many significant challenges in the public sector procurement process. In this regard, the Nerenz article provides telling statistics and, may provide at least a partial explanation for Huffington’s “Third World” concern relative to declining US-based innovation. Tim Cummins, CEO IACCM According to Cummins, smaller companies are indeed more innovative than their larger enterprise counterparts because they are more prone to take the risks associated with “driving the good (or innovative) idea.” The problem is the somewhat symbiotic view of risk shared by the government and its bigger suppliers. This “risk averse” mindset to which Cummins referred, has led to the inclusion of onerous contractual terms and conditions that are “not conducive to engaging the small innovators.” The end result lamented Cummins is that “small players are forced into participating as a sub-contracting supplier to a bundled contract,” which the IACCM CEO correctly pointed out can be "rather stifling." [Washington Summit - April 2010] | Transparency in Government Procurement 48

Unfortunately, and in an effort to offset or reduce said risk to tolerable levels, large enterprises including of course governments introduce what Cummins called “draconian terms,” which ultimately “flow down to smaller suppliers in the form of consequential damages” such as limited liability. Besides stifling innovation, this “unbalanced approach to contracting cause it (being innovation) to go other places.” In illustrating the negative impact of this unbalanced approach, Cummins concluded with an example from the telecom industry. Highlighting the fact that while “most of the telecom industry’s innovation is taking place in Western Europe and the US,” the majority of the resulting pilots “take place in the Far East.” The reason is simply because the “big players in those markets do not place the same onerous terms” in their contracts. In essence, the Far East giants “understand the principles of relationship and partnership in a way that unfortunately seems to be very often alien to the rather risk averse Western cultures.” The question this raises is how does one combat the risk averse natures that follow a onerous and somewhat arbitrary “belt with suspenders” mindset to drive the innovative engine that fuels the new economy? Judy Bradt’s answer to “show or demonstrate success” is succinct and to the point in that you are more likely going to be able to generate public sector opportunities if you have an established track record. Cummins’ response came in the form of a real-world analogy where the “client indicates that they absolutely want to be leading edge, and then asking who else has already done this?!” This tongue in cheek perspective garnered Cram’s sympathy for the smaller firms especially given the “onerous nature of the existing tendering process.” That said and referring back to Bradt’s earlier statement, Cram was quick to point out that smaller firms by virtue of their size are not precluded from demonstrating that they can “solve a specific problem” through their technological innovation. This was also a sentiment mirrored by Karen Evans, who talked about the tendency on the part of suppliers to attend a meeting with a government buyer without having done the proper homework relating to the actual problems their prospect is facing. [Washington Summit - April 2010] | Transparency in Government Procurement 49

Or to be more precise, if you have to ask me what my problems are, then I am not likely going to deal with you. Or as the self-possessed Bradt, who has assisted more than 6,000 clients to win in excess of $300 million US in government contracts so eloquently put it, “what problems do you (as a supplier) solve and, who has those problems.” [Washington Summit - April 2010] | Transparency in Government Procurement 50

Epilogue In the end, the best way to sum up the 90-Minute Roundtable discussion on Transparency in Government Procurement is as follows; “Transparency is not the holding fast to the illusion of a level playing field, but is achieved through a clear understanding of the layout of the field itself.” Using the above axiom as the starting point represents the first step towards removing the silos of misunderstanding and misinformation, and laying the groundwork for making essential connections to ultimately work towards an open and effective collaborative effort between all interested stakeholders both within and external to the government. This leads to generating tangible best value business that in turn ultimately drives a nation’s economic engine in the emerging global economy. Use the following link to access the on-demand Roundtable Discussion broadcast: http://www.blogtalkradio.com/jon-hansen/2010/04/27/live- event-feed-3rd-annual-business-of-government-summit-day-1- roundtable [Washington Summit - April 2010] | Transparency in Government Procurement 51

About the PI Window on Business Show According to industry research combined with strong audience growth, the PI Window on Business Show has quickly become the definitive on- air show for the business professional. PI Window on Business discusses provocative subjects from the world of business including the global supply chain community. The regularly scheduled 60 minute segments as well as our 90-minute specials continue to feature insightful and entertaining guests from the world of business and politics, including bestselling authors and industry thought leaders. We look forward to you joining us on-air and live on the PI Window on Business Blog Talk Radio throughout the week between 12:30 and 1:30 PM EDT. PI Window on Business Blog: http://piwindowonbusiness.wordpress.com/ PI Window on Business Main Show Page: http://www.blogtalkradio.com/jon-hansen © Procurement Insights 2008-2010 [Washington Summit - April 2010] | Transparency in Government Procurement 52

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Transparency in government white paper (June 2010)

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