If you want to make a ‘private sector’ approach work for public procurement – start small by Jon Hansen

Editor’s Note: The following is the article I wrote that appeared in the most recent edition of IACCM’s Contracting Excellence ezine  regarding the viability of the public sector adopting private sector procurement practices.  Check out the IACCM website to access other interesting articles and insights.

Having written extensively about the New Public Management or NPM mind-set that first began to influence – if not dominate – public sector procurement in the late 90s, I am noticing a change and I like it.

Increasingly, people keep talking about ‘relational management’ – a model I believe will become integral to the process. If it does not, we will likely see a spiraling trend of public sector procurement failure.

Public procurement professionals have tried using the “private sector” approach – but it doesn’t seem to work. What’s going wrong? Can we correct it? And what are the consequences of continuing on the present path?

The NPM¹ approach was based on the assumption that the private sector was more proficient than the public sector in its purchasing.  So, the public sector began trying to emulate private sector practices to get better results in key areas – including savings.  But it hasn’t worked as hoped.

I’ve noted two huge differences between public and private procurement that have been overlooked:

1. Governments need to do more than just make savings. They need to leverage their purchasing power to drive regional economic benefit and innovation. They also have an overriding need to ensure the request for proposal (RFP) process is deemed fair.
2. The private sector ‘s main objective is simply to use the best methods possible to get the desired outcome.

These differences must be recognised and a true symmetry of purpose or intent established before a private sector approach can be viable in the public sector. So, the change I’m seeing is encouraging, but we’re not there yet.

Put a circle around the term, relationship management – it is key to what the public sector needs to embrace.

Relationship vs transactional – what’s the difference?

Given the differences, how do you bridge the gap and build the all-important relationships needed for a successful complex acquisition or public-private partnership within the context of a “love all, serve all – everyone deserves a shot at the business” framework?

Let’s face it, there’s no comparison between purchasing low-dollar everyday items such as pens and staplers and commoditizing complex acquisitions or projects.

Compare buying milk at the corner store to choosing a doctor for open-heart surgery, for example. I don’t have to know or even like the clerk behind the counter where I buy milk, because I do not depend on that person beyond the initial transaction.  Even if the milk is bad, I simply have to return to the store to get either a replacement or a refund.

Open-heart surgery, on the other hand, is similar to complex contracting with implications that extend well beyond the operation itself.  If someone is going crack my chest open and hold my beating heart in hand, I want to know, like and trust that doctor. I must build a relationship and form the necessary bond to help both of us collaborate on my treatment program – a program that will likely last years.

For collaboration to be effective, I must also play a major and proactive role in my treatment by staying current on medical breakthroughs and the introduction of new drugs, and monitoring my vital stats like cholesterol and blood pressure.  If I discover information that requires my doctor’s help it’s up to me to ask.

This shared ownership doctor-patient approach exemplifies a relational model, whereas buying milk represents a transactional model.

Wrong model gets wrong results …

Unfortunately, public sector procurement applies the transactional model for both simple and complex acquisitions. That’s the problem. So, how can the public sector switch to becoming truly relational within the framework of its existing approach?

Complex acquisitions or initiatives cannot succeed unless the public sector moves from a transactional to a relational model that encourages close working relationships, not discourages them.

But making this change can be a bit threatening within the public sector, with its concerns about possible claims of bias or lack of transparency, which  ultimately shift the focus to anticipatory damage control, or avoiding failure as opposed to managing for success.

For example, I can still recall the day a senior executive from a major corporation approached me after one of my seminars to tell me that the overriding difference between the private and public sector is that when you “mess up in the private sector you are not likely to find yourself on the front page of the newspaper!”

I know of several examples of his point.  In one case, a vendor sued a North American government for over $60 million after losing a contract to the incumbent supplier.  It drew sensational headline attention. In my experience I doubt if many similar cases have existed in the private sector, and even if they had, they would not have made the headlines.

Transactional to relational – how to make the switch?

Against such hyper-sensitive scrutiny, how do you become relational in the public sector?

Adopting a private sector mind-set would not be privatization per se.  But it would change the approach to more of a proactive collaboration that monitors stakeholder needs and capabilities, along with market changes, to ensure the initiative is always moving towards the optimum result – even if the objective changes along the way.  If this happens, the relational approach gives stakeholders the opportunity to recognize and adapt to the inevitable requirement shifts that can so easily derail an initiative – and often do.

Focus on the outcome, not the process

To get to this stage, the focus of a bid should not be on the process itself (transactional), but instead on a desired or improved outcome (relational).

The public sector needs to revamp its contract award process from a mandatory bid requirement based primarily on time or contract length, to one that is driven by merit or stakeholder capability in relation to changing needs and industry advancements.

A relational process requires an investment in building the relationship outside of the traditional constraints of a performance-based contract.  If the buyer requires changes or if the supplier raises challenges, they are addressed on a collaborative basis much like the patient-doctor relationship mentioned earlier. A “we are in this together” mind-set develops and actually encourages open and transparent communication. Think of it as a “core,” continuous or perpetual contract, in which the stakeholders may change as it progresses towards accomplishment, as opposed to a contract of arbitrary length, centered on a static set of requirements.  If a new skill set is required during the life of the contract, the existing suppliers get a chance to adapt or add a new supplier with contributory capabilities, as a part of the overall implementation strategy.

Of course making such a significant change in the bid process would be a monumental task and present a significant obstacle.

To succeed, build on small successes

Notwithstanding, micro-projects within individual departments are likely the best and perhaps only way to gain the growing traction that would be necessary for a broader, government-wide adoption of the relational model.

Micro-projects are not about a low dollar amount.  Rather, they align with strategic elements for initial success by starting with:

• a low profile project that is not already in crisis;
• a project where stakeholders express their desire to find a better way and;
• a project with much latitude for senior management buy-in and support.

This “one-step-at-a-time” approach reflects the flywheel concept that Jim Collins references in his book Good To Great³.   The approach uses initial small successes to create awareness and then buy-in for the larger initiative.

In this sense, and somewhat ironically, the very obstacle that necessitates the need for micro-projects may actually lead to successfully adopting the relational model on a larger scale.  The government is not likely to make a highly publicized announcement of an overarching initiative to change the way it procures goods and services.  Not only would this stir up controversy and backlash, it would paint a big target on those championing the cause – simply because everyone would be watching.

It’s much easier to develop a working model in a small way, out of the spotlight, away from scrutiny and “relegated to obscurity,” as Andy Akrouche points out in his book Relationships First: The New Relationship Paradigm In Contracting².

When a pattern of small successes has been achieved and documented, proposing a more ambitious adoption plan becomes much less daunting, as there are proven results that everyone can refer to. Instead of leaping into the unknown, the process expands an already successful approach.

Can the public sector become relational?

It’s not a question of “can” but “will” the public sector become relational in its procurement practice? Personally I do not think it has a choice.

Something has to change given the failure rate of the present procurement methodology, as high as it is.   Otherwise public sector procurement will be forever mired in another Collins Good To Great Concept . . . The Doom Loop.³

End notes / definitions:

1. New Public Management (NPM) – by definition refers generally to government policies designed to modernise and render the public sector more efficient  by introducingthe “three M’s” (markets, managers and measurement). NPM hypothesizes that market management of the public sector will lead to greater cost-efficiency for governments, without  negative side-effects on other objectives and considerations. (See author’s blog Procurement Insights)
2. Published 2013, Relationship First: The New Relationship Paradigm in Contracting, Andy Akrouche.
3. Good to Great, article by Jim Collins, 2001 (based on Collins’ book Good to Great, Harper-Collins, 2001). Extract follows:

“Companies that fall into the Doom Loop genuinely want to effect change—but they lack the quiet discipline that produces the Flywheel Effect. Instead, they launch change programs with huge fanfare, hoping to “enlist the troops.” They start down one path, only to change direction. After years of lurching back and forth, these companies discover that they’ve failed to build any sustained momentum. Instead of turning the flywheel, they’ve fallen into a Doom Loop. Disappointing results lead to reaction without understanding, which leads to a new direction—a new leader, a new program—which leads to no momentum, which leads to disappointing results. It’s a steady, downward spiral.’”

30