Working in IT, I come across procurement problems frequently. The root cause, it seems to me, is that government procurement rules are implicitly designed for a steady state, whereas IT projects implement change, which is inherently imprecise. These rules need a radical overhaul. The new Procurement Bill, currently (Feb 2023) going through the House of Commons, aims to do this.
What sort of problems? 1) Long delays. A procurement that might be a simple executive decision in the private sector can be a three or six month exercise in the public sector. On a project, delay has a cost. This cost often outweighs the potential benefit of the procurement process. 2) Inflexibility as requirements evolve. Sometimes you don’t know exactly what you need until you talk to suppliers. But you can’t talk to suppliers without a formal procurement process.
I cannot give specific cases, for reasons of client confidentiality. But I can highlight the areas of the procurement rules that create these problems. The intention of the public procurement policy is clear and legitimate: to achieve “the best mix of quality and effectiveness for the least outlay over the period of use of the goods or services bought”. The question is whether the rules do this in practice.
I must say at the outset, these thoughts are from a “user” perspective. I have no great knowledge of the procurement rules, only my experience in performing procurements as part of an IT project. The amount of regulation and guidance applying to procurement is vast, and I don’t know how anyone could master it. The scope is vast too: £ hundreds of billions of contracts, of every conceivable type, and ranging in value from £ billions to £10,000. I don’t believe it is realistic to try to codify the rules for this vast enterprise, but that is what the policy does.
I led a piece of work to implement a small piece of software that integrated two different systems. There are four products that do this. It is quite a niche area, with not much published information. The value of the purchase would be small, in relation to the two systems being integrated. The products are priced by volume of usage, with annual subscriptions. There were various technical complications about integrating with the two specific systems in our case.
The obvious thing to do was to buy a few licences and learn on the job. We were not allowed to do this. The rules said that no purchase of any kind could be made without a selection process, in this case to decide which ones to trial. The public information was not sufficient to justify the selection of a single product to trial. The next obvious thing was to talk to vendors. We were strictly not allowed to do this. Talking informally to any vendor would prejudice a fair selection.
So we developed our selection criteria as best we could (based on what we could glean from the published information), and then carried out a systematic trial of all four products sequentially. The trial involved actually implementing all four products, and asking staff to evaluate their experience when using them. The experience was almost identical, as we expected.
Some of our important selection criteria were technical, for example compliance with security requirements, and licensing terms. For these, we had to ask the vendors to respond to an RFP. As you can imagine, the responses were inadequate to provide any assurance, without speaking further to the vendors.
After going through the selection process, amazingly, we had not actually completed the procurement. All the vendors sold licences through resellers, as you would expect. So, after the selection, we needed to pick a reseller. You’ve guessed it! We needed a procurement to pick a reseller to sell us the licences for the product we had selected. Fortunately, we were able to use the Crown Commercial Services framework to ask for quotes.
The end result was that we purchased a few licences for the product we expected to pick at the beginning, but many months later and at considerably greater cost than the cost of the licences.
The basic problem here is that we do not live in a world of perfect information. At the outset, we cannot know all the ins and outs of different products. Vendors design their product information to highlight advantages and hide weaknesses. Vendors do not publish real prices. Vendors do not respond to RFPs with full and honest answers to questions.
Think of it from the vendor’s point of view. Some government department wants to make a small purchase. The department invents a long and complicated process and invites them to participate. What should they do? Obviously, just send them the data sheet and the price list. Why would they go to the effort and expense of responding when the total profit if they won would be less than the cost of responding?
I led a project to upgrade the technology of an existing system, the purpose of which was to enable integration with another system. Sorry if that is a bit obscure: the reason is confidentiality.
The original system was contracted for before the integration even existed. We were not allowed to select our new network supplier with the integration built in to their product. This service was not in the scope of their new contract, because no-one at the time knew we would need to do this. It would have required a completely fresh procurement of the primary product, which would have taken at least a year.
In this case we were allowed to vary the existing contract. The rules on variation are highly complex. They require a good understanding of Annex A – Regulations 72 and 73 of the Guidance on Amendments to Contracts 2016. We were allowed to vary the contract but only provided the contract used different technology to do the same thing.
This gave us a few big challenges to negotiate. One, we needed a new type of support for the new technology not provided in the original contract. Two, we needed a third party (at additional cost) to provide a service to assist in the integration.
After something like a year we had completed the integration. At this point there was less than a year to run on the existing contract. But we could not extend the contract. The rules on extension are especially severe: they are one of the “red lines” for IT procurement. So the next stage had to be a full procurement of the whole service, having just completed the transformation of the previous service.
The basic problem here is that we don’t live in a world of isolated products and services. They are all inter-related in some way. It is not possible to have perfect foreknowledge of all the ways the services might need to change in the future.
I have a few observations.
- Procurement rules do not take account of the cost of complying, in relation to the value obtained.
- They assume the availability of adequate market information to make perfect choices without speaking to vendors.
- They also assume vendors can and will respond with accurate detailed information about what they offer.
- They do not take sufficient account of the relationships with other products and services, and the way these all evolve over time.
- It is simply not possible to comply with the rules intelligently, without having a large and skilled Commercial department.
- Commercial department cannot have a full knowledge of the product or service being procured and, therefore, there will be extensive delay or bad choices made.
- Delay is built in to the system, and the cost of delay is not accounted for.
- The cost and delay of procurement means that people are incentivised to wrap up products and services into large contracts that preclude innovation and competition – the exact opposite of what is intended.
The original Public Contracts Regulation 2015 stemmed directly from the EU Public Contracts Directive. The intention was to make contracts open across Europe.
But the idea that you can regulate all procurement across all of Europe with a value of more than £138,760 (Jan 2022 threshold) seems unrealistic. Let’s say you have an organisation of 10,000 staff. Let’s say a contract might run for 5 years (printing, laptops, software etc.). The threshold means that any contract worth about £3 per member of staff per year must be subject to a full, open, procurement. Let’s say the vendor profit on the procurement is 20%, or £27,752. The procurement process will cost more than that!
The explicit aim of the current Public Procurement Policy is to obtain value for money. But people don’t need rules to enable them to obtain value for money when buying a holiday, or a car, or the weekly shopping. People will do this for themselves. What the public needs is rules to prevent corruption. Anything that knowingly does not obtain value for money is corrupt. The new Procurement Bill says it aims to do this: “Integrity must sit at the heart of the process. It means there must be good management, prevention of misconduct, and control in order to prevent fraud and corruption.”
I will leave it to others to describe the changes in the new bill. But it is interesting to consider how it might affect the two cases I mentioned.
- A below-threshold contract is one worth more than £12,000 and less than (I think) £138,760
- For a below-threshold contract, the contracting authority “may not restrict the submission of tenders by reference to an assessment of a supplier’s suitability to perform the contract [including technical ability]. I take that to mean that all procurements must be open to all potential suppliers and not shortlisted. That is admirable, and I see no difficulty in making all these tenders public. But for obscure and specialised requirements the result is likely to be a deluge of irrelevant tenders and/or no valid submissions at all.
- This does not apply to frameworks, so the best way to procure anything below-threshold will always be through a framework. But frameworks can only sell commodities. They can’t sell niche specialised products.
- Modifying an existing contract is covered in Section 74 and Schedule 8. I think a contract extension is limited to 10% of the term, i.e. 6 months of a five year contract. This is still not enough where a change of circumstances occurs during the contract.
- The provision for additional goods, services or works during a contract seem less restrictive then before. “A modification is a permitted modification if (a) the modification provides for the supply of goods, services or works in addition to the goods, services or works already provided for in the contract, (b) using a different supplier would result in the supply of goods, services or works that are different from, or incompatible with, those already provided for in the contract, (c) the contracting authority considers that the difference or incompatibility would result in (i) disproportionate technical difficulties in operation or maintenance or other significant inconvenience, and (ii) the substantial duplication of costs for the authority, and (d) the modification would not increase the estimated value of the contract by more than 50 per cent.” That seems to be a lot more flexible than before.
The scope of government contracts, even just IT contracts, is vast and I don’t know how it is possible to codify the rules governing them except by introducing a great deal of bureaucracy and expense.
Curiously, the word “integrity”, despite being one of the bill’s objectives, only occurs once in the bill, other than in the statement of the objective. It occurs in the context of the supplier’s integrity. But, when a private sector organisation contracts with a vendor, the organisation is relying on the integrity of the staff, not the vendor. If the staff act with integrity, the organisation is confident the best choice will be made.
Speaking for an SME, I’m glad the bill has provisions to make it easier for small businesses to obtain contracts from government. But I have difficulty seeing how that will work in practice. Bidding is an expensive process. The way a small business manages the cost of bidding is to screen the opportunities for a competitive advantage. This might be having a good reputation with previous clients, or offering a high quality of service, or having strong skills in a particular area. These are intangibles that are screened out in a bureaucratic tendering process.