All roads lead to Rome:

Global procurement trends all converge on Clever Buying™ principles

It’s been a year since the new EU procurement rules came into force. In that time, reforms in procurement have been a key focus for many of our western trading partners, including key players in Australia, the UK, World Bank and Asia Development Bank projects, the USA and the Asia Pacific region.

So, what can we learn and what should we borrow from the reforms that other countries are prioritising? This review led us to the startling realisation that the practices that New Zealand are at the front of the race towards excellence in procurement. Here are the main trends.

Cost-efficient: There’s widespread recognition that complex and time-consuming supplier selection processes not only alienate small and medium-sized enterprises (SMEs), but they also can ultimately add unnecessary cost into our purchases. In America, as well as the latest World Bank directives, there’s a realisation that complex rules, processes and requirements have been hindering new vendors from entering the government market – the system favours legacy companies who have experience in navigating procurement.

International focus is on making procurement simpler so that SME businesses can afford to respond. That’s even more important for the New Zealand economy, where 80% of companies are classed as SMEs, and we have a strong culture of entrepreneurship – and the maverick companies are often the ones who break the mould to provide step-up value for money outcomes.

How do we therefore encourage our SME companies to tender? A few important learnings are:

  1. Simplify tendering processes: Eliminate unsuitable suppliers as early as possible in the procurement process (by preconditions, prequalification processes, supplier panels, EOIs, etc.)
     
  2. Then target the evaluation tools to focus only on what’s needed to differentiate the outstanding suppliers from the merely average ones. The smaller that list of differentiating factors, the sharper your evaluation tools. Nothing else is necessary.
     
  3. Create a balance of opportunities for small, medium and large businesses to participate, especially in government contracts. That’s the key to creating healthy competition in the future, by providing growth pathways for SMEs to develop their track record, their management systems and their internal capabilities.
     
  4. Beware of procurement methods that are heavily focused on cheapest price. To avoid false economies, supplier selection decisions should be based on maximising whole-of-life benefits. They should seriously consider the social and environmental risks and benefits presented in suppliers’ solutions, as well as risks and timing issues over the life cycle of the project as well as the resulting asset.

A recent example of false economy created by ‘cheapest price’ mentality in supplier selection was the rehabilitation of an airport runway on a Pacific Island. By selecting the cheapest bidder without considering the risks, the client wound up with airport closures spanning several months, at a cost that far exceeded the difference between that cheap supplier and the better organised bidder with resources ready to go.

Fit-for-purpose: A primary focus of EU procurement reform has been to move from standardised selection processes to smarter, tighter, more streamlined decision-making tools. Standardised RFx documents are blunt instruments, used by the lazy or the uninformed to create a ‘one-size-fits-all’ approach to supplier selection. They waste both suppliers’ and evaluators’ time in responding to and evaluating generic questions, that are not focused on optimising value for money.

Today’s emerging selection tools are tailored to the key aspects of achieving best value for money. They’re focused on just two things: how well will this supplier mitigate the project’s risks; and what opportunities do they offer to add value. With unsuitable suppliers already weeded out of the mix, the procurement process then is tailored to deliver the best value for money for the job.

To create this procurement environment, the procurement rules are becoming more flexible, and there’s a much stronger emphasis on the skill-base of those who plan procurement and design the tools and processes used to select the best value bidders.

Transparency and Consistency: Another interesting global trend which has also been seen in New Zealand, is an emerging appetite and courage in the supplier community to challenge procurement decisions that appear to be unfair. In the USA, it is reported that ‘in recent years, the percentage of successful bid protests (that is, those in which the protest was sustained or the Federal Procurement Agency took voluntary corrective action) has climbed from 33% in 2001 to 42% in 2011.’ [Overview of Public Procurement in the USA http://us.practicallaw.com/3-521-7446?q=&qp=&qo=&qe=#a601567]

Government jurisdictions throughout the Western world are putting in place stronger control processes to manage conflicts of interest; to make selection weightings and criteria clear to suppliers so they know what to focus on; and curtailing practices whereby clients leave themselves open to changing weightings or criteria after tender submissions are received.

In New Zealand, we’ve seen several landmark cases involving procurement protests in the past few years, reinforcing the need for clients to train their procurement staff well and review their procurement processes. The third edition of the Government’s Rules of Sourcing made a significant change to require agencies covered by the rules to publish weightings applied to selections where they are being used.

Back to our review …
The rewarding result of this review for us, has been to see that the tools and practices that are being implemented in New Zealand are at least as good as those that are emerging elsewhere in the world. We are fortunate to have a relatively small and well-coordinated government procurement environment – one that’s moving fast to not only adopt principles of best practice procurement, but is also starting to put in place the tools that join theory to practice.

With the right training in place, combined with intelligent processes and tools as support, our procurement professionals can deliver extraordinary savings, both in the efficiency of selecting suppliers and in the long-term value for money that’s achieved.

The Clever Buying™ team has been working with a number of Councils and government organisations to streamline procurement and put in place tailored, effective processes for supplier selection. Our Clever Buying™ two-day training course is now well established as the leading workshop for procurement practitioners, aimed at introducing a toolbox of effective procurement practices that can be applied to their workplaces immediately after the course. In some cases, these tools have led to savings in procurement of many hundreds of thousands of dollars in just a few months. For more information, please contact us.