Katie Foley: Winning State of Mind

For companies bidding for government work, there will be big winners and big losers this year – tears, tantrums and tenders. Our government’s annual procurement spend of $30 billion is pegged to be reduced by 10 to 15 per cent a year, over a four-year procurement reform programme encompassing government-wide contracts and business-friendly tactics. The reform is the government’s answer to a legacy of inefficient procurement that has resulted in a fragmented and uneconomical system in which individual agencies and departments all negotiate their own supplier contracts.

Chief executive of software company SilverStripe, Brian Calhoun, has experienced the ‘request for proposal’ process through bidding for work building websites for local government.

“You fill out this document and you kind of throw it over the wall so to speak, and several other people that you are competing with throw it over the wall as well,” he says. “Then the government makes a decision and they say ‘okay, you are the winner’ – no negotiation. “A lot of times we can’t even find out why we weren’t selected; it is like talking to a brick wall – no response.”

Chief Advisor for Procurement Reform Chris Browne says they accept there is a perception from business that responding to government tenders can be an exercise in frustration.

He says the best thing he can say to reassure businesses is that the reform programme is actions as well as words.

“The first thing I would say is change is happening, this project is happening, it is changing the way in which we do procurement in New Zealand. That is really what we are very focused on: trying to make it a very different experience – a positive experience.”

The first three all-of-government contracts for passenger vehicles, stationery and IT (laptops, desk- tops and multifunctional printer/ scanner/copiers) will be in place by 30 June this year. It is expected that every all-of- government contract will be serviced by a multi-supplier panel as opposed to a single company.

“At the moment there are about 200 agencies covered through the reform programme, so that is 200 separate contracts,” Browne says. That is a lot of repeat bidding costs, so what we are trying to do is take some of those repeat costs out. And equally, for government that is a lot of repeat procurement cost, plus legal cost and everything else. So it is trying to take that cost out of doing business.”

The grand objective of making supplying government more acces- sible to business is to be fulfilled in several ways. Standardised contract terms and conditions to be piloted in June are designed to reduce the costs of seeking professional advice, and will provide consistency. A ‘suppliers guide’ document will set out the expectations and process of working with government.

And by engaging earlier with businesses, government procurers are intending to push innovative solutions. The primary goal in the first year is, unashamedly, cost savings. The money saved will be, as Min- ister for Economic Development Gerry Brownlee puts it, “a truck- load of hips, cataracts, and knees”.

There are those in business that see government savings as money taken directly out of their pockets. Chief executive of Ricoh Mike Pollok says businesses making noise over lower margins are not in tune with commercial reality.

“I think that is a very naive view to have and if you think that, you shouldn’t be in business.”

Brownlee responds to business fears of margin squeezing by saying companies need to look past the emphasis on price to see there are genuine opportunities when it comes to volume.

“I suppose you could take that rather pessimistic and fatalistic view that the government is setting up an opportunity to hammer people on price, but the other side of it is to say ‘well, the government does spend a terrific amount of money’.

“We spend a great deal of that, it would seem, offshore with the suppliers who are not from New Zealand and so therefore if you can be a domestic supplier there is huge opportunity there as well.”

Click to enlarge

He says it has not gone unnoticed that New Zealand businesses may have been overlooked by government procurers in the past.

“Anecdotally you hear of [government procurers] that could have got something a kilometre down the road, but instead they took an international flight to see what was available somewhere else. And there is a little bit of, I guess from the procurer’s point of view, we suspect there may have been a bit of a question asked: ‘well, do I want to go to Christchurch and get this or do I want to go to, well, any foreign capital, the United States or whatever’, you know what I mean?”

The New Zealand procurement reform programme is based on successful overseas initiatives in Australia, Canada, Scotland, Eng- land and Wales, where savings have been in the range of 10 to 15 per cent a year. There is much positive support for procurement reform, but it comes hand-in-hand with scepti- cism about priorities, practicalities and long-term outlook.

Chief executive of state-owned telecommunications and media company Kordia, Geoff Hunt, says procurement reform, if implemented and followed through correctly, can only be positive for New Zealand business.

“From the point of view of a supplier to the government, this is good news. In terms of one of the other ones, achieving costs savings, that is always a motivation to do the big deals well.”

He stresses that procurement needs to be about more than just price.

“It needs to be quite a proactive thing by the government procure- ment organisations; they have got to have in their minds that this is not just buying at lowest cost. Just the word procurement, to me is a little bit of a problem. Procurement to me is about buying commodity services – lowest cost and highest quality and about compliance and so on. But when it comes to building industrial capability I think there needs to be more emphasis on part- nering as well as procurement.”

SilverStripe’s Brian Calhoun has seen how all-of-government contracts have panned out overseas and is unconvinced they can offer any value to New Zealand. Calhoun cites the situation produced by low-bid, all-of-government contracts in California, where the wining company for the state furniture contract was Prison Industries Inc.

The name says it all – the com- pany has an abundant supply of low-cost labour at its finger tips: state prisoners.

“Any time I hear things like ‘all- of-government contracts’ or ‘low-bid winners’ I think that is a bad idea for New Zealand,” Calhoun says. “Everybody wants to cut costs. Nobody can fault that logic. The problem is where do you cut the costs and how do you cut the costs?

“That is precisely what stifles innovation: when you get monopolistic practices and that’s what this is really.”

It’s no secret government tenders can be a confusing world of smoke, mirrors, and red tape. Win or lose, you often come out the end of the process a little more frustrated than when you went in, and a little lighter in the pocket as well.

One industry professional puts the success rate for average companies responding to govern- ment tenders at about one in five. The average time given to respond to a tender in the United Kingdom is 30 days. In the United States it is 42 days and in New Zealand just 12.

Research carried out by the Ministry of Economic Development found the main issues the private sector had in doing business with government revolved around a lack of transparency, short timeframes, a myriad of varying terms and conditions, risk aversion of agencies and mixed skill levels of government procurers. Manager of the Government Procurement Development Group Phil Weir says the difficulties stem from the fact that the procurement profession across both the private and public sectors in New Zealand is under-developed.

“I know I have seen things in the past – people’s perceptions of the profession in New Zealand being about five years or so behind Australia, and even longer behind Europe and the UK,” he says. “Perhaps because of the small na- ture of our country, or the types of industries and things we have had in the past, it has just been slower to grow as a profession in New Zealand.”

The next steps in the reform in- volve the implementation of further all-of-government contracts based on the success of the first three. A review of the current tender interface, the Government Electronic Tendering Service (GETS), was carried out last year.

Companies and stakeholders were asked what kind of function- ality they would like to see in a second generation GETS. The government has already tendered for a separate e-procure- ment tool to help agencies connect into the all-of-government contracts, and there is potential for the same tool to be used to give suppliers access to government.

In terms of change management, Ministry of Economic Development documents have identified “pockets of resistance”.

Brownlee says he does not expect resistance from government agencies and departments because, “that would be requiring you to be very cynical about the willingness of the New Zealand bureaucracy to participate in a government programme.”

The objectives of procurement reform throw up some interesting ques- tions around mutual exclusivity.

Can the reformers have it all: innovative solutions at a low price, government savings, and increased business capability and access? Will the words and intentions translate into the appropriate actions? Will the actions filter down correctly from the reform team to affected government agencies and departments? Will those agencies and departments fully comply? Calhoun echoes the sentiments of several executives spoken to by IN-Business.

“I think it is just all talk. It’s not realistic. When you want to find out the effects of what is really happening in any situation in life you look at the actions, you don’t look at the words. “You look at the actions of low- bid, all-of-government contracts on one hand, and on the other hand you’ve got these words that say, ‘we want to support local business’. It doesn’t match.”

Cross posted from In Business: http://www.in-business.co.nz/winning-state-of-mind/

ENDS

© Scoop Media