Contracting Excellence Journal

Articles, news and insights from IACCM staffers and over 60,000 Members.

Subscribe and never miss out. There's always something going on here!

At the 2020 World Economic Forum1 of January 2020 in Davos, participants discussed the United Nations Sustainable Development Goals (SDGs).2  They specifically asked, “How could innovative partnerships such as commercial relationships help achieve these objectives, especially within the public sector?”

 

But why is the focus on public sector so important?

First, consider the challenges

Joining this discussion the Economist Intelligence Unit (EIU)3 supported by UNOPS4  -- the UN organization with a core mandate for infrastructure and procurement -- had released a new report titled The future of public spending: Why the way we spend is critical to the Sustainable Development Goals.5 

The report investigates the potential for less wasteful, more efficient government spending practices to help address a critical spending gap that countries face in achieving the SDGs, and how procurement best practices can achieve social, environmental, and economic sustainability objectives. 

Specifically, this report highlighted that:

“Public spending has an extremely large footprint, typically representing 15-30% of GDP. Which projects governments choose to spend money on—and who they spend it with—therefore makes a substantive difference. Rather than being “neutral”, such spending will positively or negatively impact everything from local employment to levels of carbon emissions, making public spending integral to many of the SDGs.”

Here in Australia, the Commonwealth Procurement Rules (CPRs)6 require Commonwealth entities to publish a range of procurement information on AusTender7 the Commonwealth Government’s mandated procurement information. 

My former organization, the Australian Department of Defence -- between July 2018 and June 2019 -- was responsible for 67% of all procurements listed on AusTender, or $43.178 Billion Australian Dollars (see further information on Department of Finance)8

This percentage or proportion would be similar in many countries, but the key question is whether we can use this funding to achieve more than the original contract requirement(s).  Is it possible to achieve both the project requirements while also delivering wider community benefits?

In considering this, many of us, regardless of whether we are buyer or seller, will be asking about the impact of this approach on the overall price.  Will it cost more? 

Although we have anecdotal evidence that verifies a slight increase in the overall price to the buyer does typically exist, the question is not whether this approach represents the lowest price.  It never will.  But whether it represents the best Value for Money (VfM) in the long-term, and not only to the specific area undertaking the procurement activity, but also to the wider government department and community. 

Indeed, the reason for the focus on the public sector at Davos is that many governments have recently included this additional requirement in their procurement rules.  For example, the Commonwealth Procurement Rules (CPRs) states:

4.5    Price is not the sole factor when assessing value for money. When conducting a procurement, an official must consider the relevant financial and non-financial costs and benefits of each submission, including, but not limited to:

  • the quality of the goods and services;
  • fitness for purpose of the proposal;
  • the potential supplier’s relevant experience and performance history;
  • flexibility of the proposal (including innovation and adaptability over the lifecycle of the procurement);
  • environmental sustainability of the proposed goods and services (such as energy efficiency, environmental impact and use of recycled products); and
  • whole-of-life costs.

A recent change to the CPR states that for “for procurements above $4 million (or $7.5 million for construction services except procurements covered by Appendix A and procurements from standing offers), officials are required to consider the economic benefit of the procurement to the Australian economy.”

What is the answer

  • Why is the focus on the public sector is so important?
  • And why am I linking this to Performance-Based Contracting (PBC)?

A good PBC approach can support the implementation of these wider procurement objectives.  As one of my favorite quotes goes:

“What gets measured gets done, what gets measured and fed back gets done well, and what gets rewarded gets repeated.” John E. Jones

It is possible to achieve this approach by using the Generation 3 PBC techniques, including:

  1. a tiered approach to performance measures including Strategic Performance Measures (SPMs)9;
  2. that are focused on outcomes, not outputs or inputs 10/11; and
  3. are qualitative in nature12/13

For example, a client in Europe recently included performance measures modifying the term SPM and calling their top tier of performance measures Enterprise Performance Measures (EPMs).  In their, arrangement EPMs reflect the performance of the wider “enterprise,” including both buyers and sellers compared with the performance of one seller in a single contract. 

Importantly, the EPMs are not solely focused on the core output of the contract, but also on wider corporate social responsibilities such as building a better community for the environment by efforts such as minimizing landfill and carbon targets.  EPM outputs, for example, can result in better processes such as:

  • collaboration efforts;
  • engagement and treatment of small-to-medium businesses within the supply chain; and
  • Science, Technology, Engineering and Math (STEM) programs in local schools). 

So, it is possible, just not typical.

Some of you may be thinking that organizations, especially ones for profit, are only doing this in response to the “nudge” from the buyer.  And in some ways, that is true. 

A former top executive within the Australian Department of Defence once said, referring to his “for profit” contractors, that “what interests me should fascinate them.”  In other words, if the buyers focus on these wider outcomes, it would cause the sellers to also take an interest in delivering them.  However, some of these organizations already do a range of community-minded activities without the “nudge.” 

For example, one large multi-national organization --  as part of an annual “day of service” -- allows employees to volunteer in areas of need in their local communities as a paid day of work.  This can include providing aged care, home repairs, meals, and many other forms of assistance.  

Some skeptics might think that the motive of this behavior is only to gain favor with the public sector procurement officer.  Although there is an element of truth to this, these organizations are comprised of individuals with families in the communities where they work who also believe in the ideals in the Sustainable Development Goals.  They help make this a priority for the organization, not simply to gain favor, but because it is important to the people within it.

So, regardless of whether we are a buyer or a seller, the question is not why should we, but why shouldn’t we? 

Imagine what could happen if we allowed these large commercial relationships to deliver, even if only partly, on these wider outcomes. 

I believe that many of us want this not just for ourselves and our families, but also for the wider community.  The question is simply how we leverage the great work may organizations and individuals are already doing?  But more on this in a later article.

END NOTES

  1. 2020 World Economic Forum
  2. United Nations Sustainable Development Goals (SDGs)
  3. The Economist Intelligence Unit (EIU)
  4. UNOPS
  5. The future of public spending: Why the way we spend is critical to the Sustainable Development Goals.
  6. Commonwealth Procurement Rules (CPRs)
  7. AusTender
  8. Department of Finance
  9. When is a KPI not a KPI
  10. Inputs, Outputs and Outcomes - Part 1
  11. Inputs, Outputs and Outcomes – Part 2
  12. Designing a Subjective Performance Measure Part 1
  13. Designing a Subjective Performance Measure Part 2

 

 

Dr. Andrew Jacopino, Senior Advisor at Ngamuru Advisory Canberra, Australia


View All Articles

About Globality

Globality’s stated mission is to “give all companies an opportunity to compete and win based on the merits of proven performance, expertise, and passion.”

> Back to all posts
    Download our
    Ten Pitfalls Report

    Download the Pitfalls Report

    See the February Edition of the Contracting Excellence Newsletter
    See the December Edition  of our Contracting  Excellence Newsletter

    Posts by Topic

    see all

    Recent Posts

    IACCM Membership Types & Pricing

    Take a look at the various membership types, or take a better look by becoming a FREE Trial Member

    Membership Types & Pricing