Supply Side
Public Procurement Trade-offs: Openness & New Suppliers versus Tried and Tested

We wrote here about the trade-offs that we see in public procurement. Whether it is the balance between “policy through procurement” initiatives and more basic value for money, or the trade-off between flexibility and anti-corruption based processes, many aspects of government buying require consideration of those factors.

For each of the trade-offs, we are going to look in more detail at the nature of the potential conflict, then suggest some steps that public procurement professionals can take to minimise the potential for real issues and problems. The nature of these trade-offs means that there are no magic solutions, but there are ways to reduce the risks. Today, a trade-off that many people are not even aware of as they go about their usual procurement business – not an important one, nonetheless – have huge consequences for organisations and even countries that get it wrong.

Openness versus tried and tested

We (contracting authorities and procurement professionals) want to encourage new suppliers with innovative solutions. There is a big emphasis on “innovation” from the Commission, through national governments to contracting authorities, driven by the idea that innovative products and firms will drive economic success, jobs and prosperity for citizens.

There is also a desire in many markets to bring in new suppliers in order to increase competition. If we look at some key European public markets, from defence equipment to major IT outsourcing or waste disposal, arguably there are not really enough major suppliers to form a genuinely open, dynamic, innovative market.  So this all suggests that buyers should be very open to new suppliers, be willing to give them a try, and should support new market entrants.

However, there is a trade-off as always (well, as always in this series anyway!) What if these “innovative” firms can’t actually deliver the contractual requirements? What if the exciting new product, or new way of delivering the service, just does not work? What if the local conditions mean that, even if something worked in the USA or Portugal, it doesn’t work so well in Denmark or Ireland?

There are many examples of organisations failing to deliver an innovative or new requirement, or firms who are new to an existing market finding it difficult to perform adequately.  A recent example in the UK saw the very rapid failure of an “innovative” contract to deliver health services to older people in Cambridge. The cost was significant for the authorities, the taxpayer and (in service terms) for the clients.

Those risks explain why many contracting authorities tend to stick to the “tried and tested” providers, and why the big, well known suppliers become more and more dominant in certain markets. It is an understandable case of risk aversion, and the desire not to end up on the front pages of the websites or newspapers if a major contract fails!  So procurement professionals have to carefully balance these issues and manage the trade-offs.

Addressing the risks

Here are our suggestions to help contracting authorities balance these trade-offs between openness (and new suppliers) and sticking to the tried and tested. There are actually two elements to this, so let us look at each in turn. The first is simply about being open to new suppliers or market entrants. Here are some suggestions for achieving this.

–  Advertise opportunities widely and carry out “early market engagement” activities to stimulate and inform the market.

–  Don’t put barriers in the way – consider dis-aggregating requirements in markets dominated by major suppliers to encourage new entrants and experimentation.

–  Make sure the selection process is sensible in terms of qualification and issues such as minimum turnover. Think carefully about what is really essential to deliver the contract and do not eliminate bidders without a good reason.

The second part of the equation is then managing the risks around appointing a supplier who cannot deliver. This is really about how we can gain confidence through the procurement process.

–  Where possible, it can be useful to introduce new suppliers or market entrants in a controlled or gradual manner. So running pilot programmes, or a staged implementation process to introduce the new supplier or contract can help.  Awarding smaller contracts initially, or (as above) dis-aggregating requirements allows more chance for experimentation and learning by suppliers.

–  Look to verify claims and test the proposals that are offered in the tendering process by suppliers. It is important to test (as far as possible) whether this is just a theoretical “solution description” or something that the bidder can actually execute.

–  Evidence that the bidder has done this type of work before or at least has demonstrated the core capabilities involved can give confidence.

–  Test the robustness of the proposal as far as possible. Interview the bidders, and take up references where they are given. Some contracting authorities are even running “simulations” to see how prospective suppliers might handle certain situations.

–  Consider a staged implementation where possible rather than a “big bang” so the supplier and authority can learn and gradually increase delivery.