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Smart Procurement for the Long Term

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Over the last five years, organisations have sought to maximise the benefits gained from procurement.

“Smart Procurement” is seen as the key to unlocking greater savings in securing access to products and services.

The delivery of services from Infrastructural asset relies on effective operations and maintenance along with timely renewals and improvements. Much of this work is out-sourced and a variety of procurement methodologies exist.

Published in: Government & Nonprofit
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Smart Procurement for the Long Term

  1. 1. Grant Holland Senior Consultant Waugh Infrastructure Management Limited Smart Procurement For The Long Term
  2. 2. Abstract: Over the last five years organisations have sought to maximize the benefits gained from procurement. “Smart Procurement” is seen as the key to unlocking greater savings in securing access to products and services. The delivery of services from Infrastructural asset relies on effective operations and maintenance along with timely renewals and improvements. Much of this work is out-sourced and a variety of procurement methodologies exist. Appling a business case approach, we will examine if we really are that ‘smart’ in what we are doing as a sector. • What really is value for money? • Are we compromising long term issues as we chase the best value for money option? • Does our behaviour reflect the style of contract we negotiated? • Are our organisations’ objectives and our procurement processes aligned? Smart Procurement For The Long Term 2
  3. 3. Abstract continued: This paper is intended to challenge our views of how we procure, and will consider the role and comments of contractors, consultants, local authorities and central government organisations. WARNING: You may not agree with what I raise! There may have been some changes since I wrote the paper DETOUR? I hope you are challenged to think about what you are doing, and if there are other options to consider. Smart Procurement For The Long Term 3
  4. 4. Paper Overview: Todays discussion structure: 1. Service Delivery And Procurement - What Happens In New Zealand? 2. What Really Is Value For Money? 3. The Five Case Model – overview of each case and what we can learn about procurement 4. Are Our Organisations’ Objectives And Our Procurement Processes Aligned? 5. Are We Compromising Long Term Outcomes As We Chase Some ‘Best Value For Money’ Option? Lets go! Smart Procurement For The Long Term 4
  5. 5. Service Delivery And Procurement - What Happens In New Zealand? Smart Procurement For The Long Term All New Zealand Roading Agencies out-source physical works Over time, a reduction in the number of contracts through aggregation and bundling of works and services and by using longer contract terms Care needs to be taken to manage the risks to healthy competition in the market there is a risk that further aggregation and bundling may reduce competition and ‘hollow out’ the structure of the industry. There is some dispute over this “To ensure healthy competition in the sector is maintained, consideration should be given to the scale of aggregation and bundling, maintaining a desirable mix of contract lengths, and the number of capable tenderers.” A wider view is required including all New Zealand Roading Agencies (the strategic case) 5
  6. 6. What Really Is Value For Money? Smart Procurement For The Long Term Defining what value for money means to you is key to smart procurement. Otherwise what is success? “The best possible outcome for the total cost of ownership.” “The right job at the right time at the right price.” It’s about using money for infrastructure effectively and efficiently. 6
  7. 7. The Five Case Model: The Five Case Model helps us consider procurement from different perspectives Can we achieve an outcome that benefits all parties involved? Smart Procurement For The Long Term Source: Better Business Cases Guidance on Using the Five Case Model: An Overview The New Zealand Treasury 28 February 2014 Also HM Treasury, Victoria Department of Treasury and Finance
  8. 8. The Five Case Model: The Strategic Case Typically contained in the AMP • What are we trying to achieve? • The operating context • The reasons for change (or not) Smart Procurement For The Long Term 8
  9. 9. The Five Case Model: The Economic Case May be in your Procurement Strategy or Purchasing Policy • What does value for money mean? • How do we achieve value for money? Not always well understood or communicated to service providers Establishing Critical Success Factors to Measure Results!  Improve effectiveness  Improve efficiency  Improve Quality  Meet Statutory, regulatory or organisational requirements  To reduce costs  To re-procure services Smart Procurement For The Long Term 9
  10. 10. The Five Case Model: The Commercial Case Is it viable over the contract term? Can the service provider actually do it? Is this really considered? Do your homework! Look at the situation from different perspectives Smart Procurement For The Long Term 10
  11. 11. The Five Case Model: The Financial Case Can we afford it? What are the funding constraints? Are we expecting service providers to make the savings? When it comes to measuring the success we seek we need to know – is it from the deal or a change in practice? It’s important to differentiate between ‘budgetary’ and ‘non- budgetary’ savings/benefits. Smart Procurement For The Long Term 11
  12. 12. The Five Case Model: The Management Case Can we deliver the result needed? (That’s the client and the provider) Have we set up a situation that will fail (sooner or later)? Are we on the same page? Are we changing the ‘rules of the game’ but refereeing the old game? Smart Procurement For The Long Term 12
  13. 13. Are Our Organisations’ Objectives And Our Procurement Processes Aligned? How do you know if your organisational goals are reflected in your procurement and asset management processes? Are you all heading in the same direction? A sound Procurement Strategy is essential Smart Procurement For The Long Term 13
  14. 14. Are We Compromising Long Term Outcomes As We Chase a ‘Best Value For Money’ Option? Smart Procurement For The Long Term Often we rely on the procurement process, such as a public tender to deliver the savings we seek NZTA is on this path at the moment as funding reductions kick in What does this mean in the long term? There are concerns from different corners of the industry about how competition is affected What if local government aggregates at the same time? (If we consider five cases, not just one, it’s probably not very smart!) 14
  15. 15. Summary SMART PROCUREMENT: 1. Uses tools such as the five case model to explore procurement widely 2. Focus on value for money, not the cheapest 3. Is efficient and effective in delivering the organisation’s goals 4. Considers the long term (especially for public assets) 5. Uses a procurement strategy/policy to link objectives and practice 6. Measures success Smart Procurement For The Long Term 15
  16. 16. Acknowledgements: Ross Waugh and Dr Theuns Henning Senior Staff at the New Zealand Office of the Auditor General Contact Details: email: grant.holland@waughinfrastructure.co.nz internet: www.waughinfrastructure.com www.inframanage.com Smart Procurement For The Long Term

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