Good Practice
Risk Aversion in Public Procurement – Part 4

Continuing our series on risk aversion in public procurement, and what to do about it, we wrote in the last installment about the need for better training to educate professionals about how they might become more innovative and creative – without simply ignoring public procurement regulations.

We need a new type of training and education, that aims to ensure professionals thoroughly understand the regulatory regime, yet also have tools and knowledge that enable them to work within regulations but achieve more in the way of innovation. They must know when to take calculated and sensible risks where that is the best approach. So a deep understanding of the “rules” is actually an important starting point to allow public procurement executives to apply new thinking and take calculated risks with confidence.

But as we said then, there are other areas aside from education that could be addressed to help reduce the risk aversion that often constrains procurement performance. Three areas come to mind as major factors in this discussion.

Issues around regulation are in some ways the most straightforward that could be addressed, in that a “simple” change in the rules could alter attitudes immediately. Yet in another sense the chance of this happening seems pretty remote, given the length of time any change in law takes in most jurisdictions. Law-makers are also rightly sensitive to the risk of corruption and have the desire for procurement to be open. So introducing more “flexibility” into the tendering process has positives, but there will be concerns about those other issues.

But we might consider the most onerous issues which really affect attitudes to risk-taking and where a change in regulations might really make a difference. So for instance, has the punishment got out of line with the crime in terms of the Remedies regime, and are organisations being hit for genuine and sometimes quite insignificant breaches of the regulations? As Dan Warnock says, if even the European Commission itself can accidentally fall foul of the rules, then what hope is there for the “average” contracting authority?

On the other hand, when we see the recent Nuclear De-Commissioning Authority case, where the whole evaluation process was a shambles, we cannot allow organisations to get away with bad practice simply by saying “it was a genuine error, sorry, please let us carry on”. But maybe there are creative solutions here. For example, should authorities be able to ask someone representing the Commission (or the national regulator) for their views in advance of using any innovative process or approach?

Secondly, we might address the cultural issues. This relates to the discussion in a previous post.  If direction comes down from the top, then more junior staff will respond to that. So even individuals who might be inclined to be less risk averse are sucked into the type of behaviour and approach that they see from above. If the organisation has a culture that does not respond well to innovation or risk taking, it is hard for any individual or even a team to break out of that.

The change of culture has to come from the top – from procurement leadership and even above that. The senior team has to make a conscious decision to promote a more risk-taking attitude and support those who will strive to be innovative. That also relates to our points in the previous post around education and knowledge, because that assumes leaders themselves know how to be less risk averse without simply ignoring the regulatory framework. They must be comfortable with that approach if they are to relay that culture to others.

Finally (for now), incentives are key – again, this was a point Dan Warnock made as a practitioner. We are all motivated by various types of incentive, and procurement is no different. Currently, in most cases, leaders reward staff for being risk-averse – following the rules, staying out of trouble, rather than for creative and commercial problem solving. If that is how incentives work, then a certain type of behaviour will follow. We can’t move to a situation of course where staff are rewarded when suppliers constantly challenge their procurements and the lawyers have a reserved parking place in the agency car park! But at the same time, an approach that recognises staff that do come up with new ideas, who take well-judged risks, would be welcome.

So that’s all from us on risk aversion for a while anyway. But we suspect the topic will come up in the future in different contexts.