'Governments need to invest more in contract management'

By David Donaldson

April 17, 2015

Sitting down with new providers for up to six months and taking a more cautious approach may not seem like innovation, but government procurement is risky for everyone. Especially if the depth of understanding isn’t there, say experts on both sides.

Governments need to invest more in contract management skills and innovative procurement, argues PwC partner Adrian King. Without this investment an aversion to risk will continue and easy, less productive procurement decisions will continue to be made. As service delivery tendering moves gradually towards commissioning outcomes, rather than describing how the outcome is to be delivered, many departments find this concept difficult to navigate.

The reasons the public service sometimes fails to avail itself of innovative practices, thinks King, are twofold: attitudes towards risk management and the “relative immaturity of contract management within government”. While public servants will often be punished for failure when trying new things, he says, “there’s usually not a lot of reward for getting it right or taking a risk.”

King, who sees both sides of the process — PwC consults to government agencies going to market and is also involved in winning contracts — believes contract management is “an under-invested skill set” within government.

“A lot of agencies and departments pride themselves on their policy development and service delivery skills, but contract management is not an area that’s heavily invested in,” he thinks. “While there are pockets of excellence it’s not something many people working in government aspire to.”

As a result, government often ends up “being taken advantage of, to be honest” as it doesn’t have the skill set or capacity to manage complex, grey area contracting issues.

“Often you’re working with a commercial partner who is very savvy and can take you to town if you get anything wrong.”

Often the biggest thing preventing innovation in procurement is the need to ensure public sector accountability standards are being met, says Helen Dickinson, associate professor in public governance at the University of Melbourne.

Despite going to market often being seen as a solution to the difficulty of introducing innovation into government, the need for accountability often stifles potential innovation.

“It’s a perennial issue public services come across: how you can work with third parties to harness the full innovation of the market and be able to do things differently,” Dickinson argues, “but if you’re measuring people across tight metrics it can be difficult to deliver these sorts of things.”

Public servants are forever under the microscope, making it difficult to take on risk, even when there is the potential for better outcomes.

“Often you’re working with a commercial partner who is very savvy and can take you to town if you get anything wrong. I think that’s often why the Finance or procurement department will be restrictive about these things,” she told The Mandarin.

It doesn’t help that the public service tends to “incentivise in favour of the status quo”, she says. Performance managing on an individual, rather than team, basis “doesn’t incentivise high performance”, she adds.

“Corporates will performance manage more on group basis, so risk is spread across team,” meaning small failures can be tolerated more easily.

Focus on outcomes

Both King and Dickinson emphasise the importance of having a clear idea of the outcomes being sought.

Dickinson says, “my experience here and overseas is that when you talk to organisations busily doing things, and you ask them what outcomes they are trying to deliver for consumers, many struggle to come up with clear goals on which all agree.”

Her advice is to sit down and think hard about what the agency is trying to deliver, and what success or failure would look like. An organisational narrative can help.

One example is the Torbay Care Trust in the UK, which created a fictional woman as an approximation of the average consumer of their services. This Mrs Smith is “a typical older lady who needed a range of services”.

“Whenever they have meetings about their services they always ask ‘what does this mean for Mrs Smith?’ It’s been quite effective for them,” says Dickinson.

‘Do your homework’

Longer lead times help, too. PwC senior manager Zlatko Todorovski thinks the most important advice he’d give public servants is: “Do your homework beforehand — engage in conversation with industry before you release anything to market.”

“Industry wants profit, and government needs to understand what industry wants and what they want so each can make sure they’re meeting the other party’s needs.”

Speaking to service providers before going to tender helps build up an understanding of what might be available, making the process of defining outcomes and evaluating tenders much simpler once the formal process begins. Holding information sessions with potential providers can help. Strong relationships between parties are also important, as is “taking a warts and all look at your own processes and technology, what you do and don’t do well”.

“Industry wants profit, and government needs to understand what industry wants and what they want so each can make sure they’re meeting the other party’s needs,” he says.

Then, after deciding on a service provider, says Todorovski, governments too often rush into signing the contract.

He recommends for significant contracts that officers sit down with the provider for three to six months prior to signing, “to work out how they will work together, how they’re going to deliver, and discussing the limitations of each party, so you can iron things out, rather than having teething problems and having to put abatements in place.”

One example Todorovski cites is of a contract KPI stating that a representative of a service provider had to attend a particular meeting every quarter. The individual sat in the meeting but didn’t say much, causing irritation with the other party.

A better approach would have been to clarify why that attendance was required early in the process — what they should be contributing and what insights were expected to be provided. “It’s harder to measure that” he argues, but being clear about goals and outcomes early on can potentially be much more valuable than rigorous performance management stipulating outputs.

Defining those outcomes early will save hours down the track monitoring compliance and pointing fingers, he says.

“It’s about defining outcomes early. You’ve got to ask yourself, what is the intention here? What kind of behaviours are we trying to drive? And you’ve got to make it an iterative process.

“Investing in the skills to help officers do that more would go some way to assisting government agencies in getting a better outcome.”

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