1. Big concerns for public sector
Gregg Barrett
THE public sector has significant influence on private sector contracting. Many
innovative terms and contracting methods have seen their beginnings in public
procurement - examples range from ‘termination for convenience’ through to public-
private partnerships.
Yet for all the innovation, the popular image of public procurement remains one of
bureaucracy, inefficiency and under-performing contracts.
Within private sector firms, negotiators dealing with government or public agencies are
generally viewed as having ‘drawn the short straw’.
They are not typically the top performers, since the room for creativity or imagination is
seen as limited.
Public sector processes are not just moribund, but they stifle win-win relationships.
In the words of one analyst: “A benchmark I did in 2004 on supply management in the
public sector found that cost reductions ranked way down on the bottom of the list of
priorities for governmental procurement agencies. Instead, these folks were still most
concerned with complying with existing procurement regulations and meeting the
demands of internal customers.”
He made the point that the processes they protect are often inefficient and the demands of
internal customers far too frequently driven by short-term political priorities.
He went on: “As for benchmarking……Few of them do it. This always comes back to
bite them when some governmental watchdog agency is tasked to look into procurement
practices.’
But is this a case of perception of fact?
The environment
A 2007 International Association for Contract and Commercial Management (IACCM)
survey of Public Procurement practices in the European Union (EU), highlighted the
following characteristics of the contractual relationship environment:
- Complexity and speed of change are increasingly features of modern contract
relationships;
- Rigid rules undermine cooperation and trust;
- Successful organisations need flexible relationships supported by responsive
governance frameworks; and
- Superior commitment management is about capability and accountability, not
ownership and bureaucracy.
Needless to say Public Procurement practices were not aligned to this environment,
instead observations on contractual relationships in Public Procurement:
- Mostly executed using traditional contracting model with SLA (service level
agreement) and legal focus;

2. - Objectives appear focused on control (less perceived risk, ability to apportion / avoid
blame);
- High failure rates (between 40% and 80%, measured against expectations);
- Limited potential for raising performance, proposing innovation; and
- Frequent negative impact of third party advisors.
Findings from the RAND Europe Report
The results of that survey (which are available in detail on the IACCM website –
www.iaccm.com) have been used as a key part of a recent “Working Report” released by
RAND Europe, an independent think tank whose mission is to help improve policy and
decision making through research and analysis.
The report, titled Evaluating Public Procurement: a Platform for Discussion identifies and
analyses weaknesses in public procurement practices in Europe.
It particular focused on information and communication technology (ICT) procurement
and provides some insightful and useful recommendations on how to improve the public
procurement process to the mutual benefit of suppliers, the authorities and the public at
large.
The report is useful reading for anyone concerned about the financial considerations in
contracting, as it highlights key issues in terms of cost and risk allocation for potential
suppliers in participating in pubic sector projects.
Based on extensive reviews of results from the literature and new research as well as key
informant interviews, the report highlights that public procurement is slower, up to twice
as costly, and less profitable than, private sector procurement.
Given that the public sector is by far the largest purchaser of goods and services in the
EU (approximately 16% of EU GDP), the public procurement process has significant
influence over the development of a single market and the promotion of competition and
innovation.
However, the report confirms the tendency of current public procurement practices
throughout the EU to defeat established policy objectives.
The report states “An excessive and rigid focus on public procurement contract cost
minimisation and risk transfer undermines the single market. The main problem is
behaviour rather than rules, and modernisation is required.”
Poor Performance
Some of the causes for poor performance in current public procurement practices which
RAND suggests in its report include:
- lack of contracting authority accountability, management experience and continuity;
- failure to specify requirements in appropriate terms and sufficient detail;
- poor understanding of the complexity of requirements and procurement procedures and
the implications;
- lack of involvement of the end-users of the services concerned;
- lack of oversight by the authorities of project costs and progress; and

3. - inability (shared with many private ICT procurers) to identify the strategic value of
contracts.
It’s also about transparency
Not surprisingly transparency is highlighted throughout the report, specifically:
“transparency still needs to increase in the future in order to improve market performance
in public procurement markets.
“Transparent and predictable procurement procedures improve economic efficiency by
promoting competition amongst domestic and foreign suppliers.
They can also contribute to fostering private investment by lowering risk because
transparency and predictability of market mechanism are crucial factors influencing
business decision on how and where to invest and generate value added.
Transparency also enhances the competitiveness of local producers by establishing a
market-launch base which is especially good for SMEs.
Stronger competition brings down costs, improves quality and delivery terms and fosters
the introduction of innovations”.
While “bailouts”, nationalisation” and “stimulus” are terms of our time, we should
carefully consider the findings of the RAND Report as well as those prior.
At the very least the findings of these reports highlight reasons for concern where goes
the Public Sector and it’s practices. The truth of the matter is that the Public Sector has
had ample information on the problems and possible solutions for sometime now, yet the
question remains…..what is the hold up?
There are no longer any excuses, we know what needs to be done….start doing it.