We listed our six challenges for public procurement in 2015 at the beginning of the month. Here they are again.
Challenge no.1; Implementation of New Directives
Challenge no.2; Austerity continues
Challenge no.3; Social issues
Challenge no. 4; Value and Innovation
Challenge no.5; The Fight against corruption
Challenge no.6; Capability and competence
Today, let’s look at the fourth of our list of key priorities, value and innovation.
Value for money is at the heart of public procurement. It is the most fundamental objective for contracting authorities, and the treaty principles, EU and national regulations are designed to try and ensure that value is achieved from public expenditure. But there is often confusion between cost (or price) and value. Sometimes contracting authorities choose low price, but achieve poor value. And sometimes they pay too much, thinking they are getting “value” but really, it is not clear that the value is worthy the additional cost.
Getting the balance right is therefore a critical role for procurement people and functions. Then we have the issue of “innovation” and how to achieve it through the procurement process. This has become a major topic for discussion, yet few contracting authorities have really worked out what it means and how to contract for innovation. That is another area where procurement professionals can add value to their organisations by understanding the options.
- As pressure on the public purse grows, (see our “austerity” comments), there may be a temptation for contracting authorities to focus strongly on lowest price (or lowest whole life cost) as the driving factor behind public procurement decisions. But whilst in some cases that is the right approach, it can also often be a false economy.
- Value should always be the focus – but note that sometimes the lowest cost product or service will be the best value. Indeed, in our experience, many evaluation methodologies perhaps give too much weighting to “quality” or similar non-price factors within the process.
- The EU and many national governments are also giving attention to how public procurement can be used to drive innovation, with the view that this will have beneficial long-term effects on economies, and stimulate enterprise and invention.
- The new procurement directives address this directly, with the concept of “innovation partnerships” to “spur innovation” and encourage public procurement to be used to assist in the development of an innovative product or service, and the subsequent purchase of the innovative results. (If there are any, of course!)
Actions for procurement
So what should procurement consider in 2015? Here are some ideas.
– For every procurement, be clear about what “value” means, push budget holders to explain what value means to them, and focus on achieving that through the procurement and tender evaluation process.
– Model your evaluation methodology before you approach the market or issue the tender, to make sure that it reflects the balance between price and other value factors that you want. In other words, be clear how much extra you are prepared to pay for some quantity of “added value”, whether that is delivered by higher quality, more features, etc.
– Do not be afraid to choose a low-cost option, but equally understand where paying a higher price will genuinely deliver better overall value to the contracting authority and the citizen.
– Ensure that you understand the key points of “innovation procurement”, and what is possible under the new directives. It will not be applicable for every organisation and every situation.