This story first appeared in Government News magazine June/July 2015.
Collaborative procurement platforms that leverage are efficiency fast gaining traction over traditional tenders. Julian Bajkowski approaches tests the market.
The established public sector practice of buying goods and services by going to a public request for tender or expression of interest has been taken as the accepted best practice of procurement for decades ‑ but that could be about to change.
As cost pressures on buyers and sellers alike mount up, a top level rethink across all three levels of Australia’s governments as agencies is underway as agencies, departments and councils all try to keep pace with a wave of disruptive innovation caused by digital business models, online services and collaborative networking.
At the heart of the debate is whether contestability, value for money and innovation can still be delivered by tenders and similar mechanisms that are now heavily burdened with expensive compliance and administrative requirements.
The growing sentiment is that going to tender can often restrict access to the government marketplace for all but a handful of well-resourced and dominant suppliers, but push up prices in the process.
The pressure on governments to reform their procurement practices arguably been most acute in the technology and technology-enabled services sector; where business models surrounding the delivery of infrastructure, software and services has been turned upside down thanks to cloud computing, the proliferation of mobile devices and web-based services.
A decade ago most procurement rules required government purchasers to strike individual deals with suppliers after running the equivalent of a beauty contest where only one or two bidders walked away with a prize and the remainder footed a very big bill for entering the pageant with no reward.
Added to this scenario was the highly questionable investment by many suppliers in lobbyists and government relations staff who sought – and often succeeded – in exerting influence over the way procurement rules were written in order to protect their market from competitors.
Now both experts and governments like New South Wales are actively contesting what value tendering brings to the government table and the taxpayer.
The price of process
The University of Sydney Business School’s David Hensher ‑ who is the director of the internationally respected Institute for Transport and Logistics Studies (ITLS) – is one critic who points to the high cost of tendering compared to what is bought.
Citing the example of a bus services tender in Adelaide, Prof. Hensher says that more than $12 million was spent over a five year period on the tendering process related to contracts worth $ 750 million.
“These costs, $ 5million for government and $7 million for operators, was money that might be better spent on improving services,” Prof. Hensher said.
“The additional costs above the bid offer price associated with awarding a new entrant a contract through a tendering process rather than an efficient incumbent, adds measurably to the risk of service disruption and could result in extra costs of as much as 10 per cent to the cost of a contract price.”
“We suspect that the tender assessment committees know this but ignore it,” Prof. Hensher says.
He’s not the only one questioning established procurement wisdom.
In New South Wales Finance, Services and Property Minister Dominic Perrottet has been instrumental in restructuring the way the state government buys goods and services, starting with a strong deliberately overt regime to give far more firms, especially smaller and newer enterprises, better access to government business to stimulate competition.
A hallmark of the Perrottet procurement reforms has been the establishment of so-called ‘marts’ of suppliers, goods and services in areas of commonality so that an accredited supplier can pick-up contracts from multiple agencies.
The key mechanism for that process is standardised supplier approval requirements across agencies, so that these then become transferable in the state government marketplace. Put simply, the reforms mean that if a supplier passes the test for one agency (or a supplier panel) it then becomes eligible to win contracts from others without having to go through the expensive process of individually tendering for each deal.
Just as importantly, pricing also becomes consistent and transparent. That means a small agency with little bargaining power is able to the access the same preferential pricing a big one because of the application of whole-of-government discount that would otherwise be impossible to achieve through individual bids.
In October 2014 Mr Perrottet threw down the gauntlet to other jurisdictions to follow the NSW lead on procurement reforms, provocatively offering to consider giving access to the NSW government’s pre-approved supplier panels on technology to both federal agencies and local governments.
“I think whatever level of government, we should be looking at ways to drive efficiencies and local government is no different to state government, Mr Perrottet told Government News, last year, noting he was more than prepared to work with NSW Local Government Minister Paul Toole.
The offer from a state finance minister to allow cross jurisdictional access to supplier panels might sound uncontroversial, but it still presents a very serious challenge to state-based local government associations that have carved a lucrative niche out of running procurement processes in their sector.
While most local government procurement regimes typically try to achieve economies of scale for their customers and suppliers in the interests of ratepayers, there are growing questions in some quarters over whether combined procurement ventures are in danger of becoming profit-seeking businesses in their own right.
One logical question is whether combined procurement organisations can serve the potentially competing interests of ratepayers and their shareholders alike. Another view is that government organisations must necessarily to be able to choose from whoever offers them the best deal – even if it comes from an interstate supplier panel that could be construed as a rival – to maintain value.
To this end, the pursuit of accredited government supplier panels which are open to other jurisdictions (and potentially not-for-profit non-government organisations) may yet provide an avenue for far more efficient transactions between government purchasers and suppliers – and at a national level.
Should that come about – and there is a long way to go – the opportunity to maximise value and reduce costs for government buyers and their suppliers alike could go a long way to reducing expensive red tape and fostering real improvements and innovation.
VendorPanel spurs collaborative procurement
Procurement solutions and platform providers are not sitting idle as purchasing reforms sweep across local and state government sectors.
One firm arousing very serious interest for its innovative approach is VendorPanel, which creates opportunities for better value procurement by weaving together a purchasing platform application that allows users to aggregate and plug into procurement processes across jurisdictions – and at an authorised and appropriate level.
A key reason that local government organisations as well as state agencies (not to mention suppliers) are increasingly looking to the VendorPanel platform is that it was selected by local and state government state backed National Procurement Network (NPN) to create an efficient, reliable and secure system for procurement collaboration.
The major challenge for local government buyers who spend around $20 billion a year was that with each Council running individual infrastructure, collaboration without losing control appeared insurmountable.
For that reason Magnetized Markets (the creator of VendorPanel) was chosen by NPN to create a platform that would:
- Simplify and aggregate government purchasing processes at the most efficient and appropriate level: local, regional, statewide or national.
- Standardise the purchasing process, and increase transparency, governance, and probity in how quotes are obtained and public monies are spent.
- Help Councils manage and access their own and each other’s supplier arrangements in a single central repository.
- Enable Councils to manage and access preferred supplier arrangements using a consistent, structured and transparent quotation, evaluation and select the lack of an efficient, reliable and secure system for collaboration.
By getting that calibre of project and value over line, it’s probably not surprising that VerndorPanel has emerged as Australia’s fastest growing government procurement platform thanks to its rapid uptake.
Government contracts aren’t the only thing being awarded either. VendorPanel itself scored the 2014 Victorian State Merit Award for Government Technology at the prestigious at the iAwards as well as making the cut for the 2013 Deloitte Technology Fast 500 (Asia Pacific). The company has also been repeatedly recognised by CIPSA, collecting numerous prizes from the peak procurement body.
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