Transparency in government white paper (June 2010)

2010
A Knowledge
Leadership Publication
By Procurement
Insights
Author: Jon W. Hansen

[TRANSPARENCY IN
GOVERNMENT
PROCUREMENT WHITE
PAPER]
[Broadcasting LIVE from the 3rd Annual Business of Government Summit in Washington,
D.C. the PI Window on Business aired a probing 90-minute Roundtable Discussion on what
transparency really means in the realms of public sector procurement. The insights
provided by the esteemed panel of experts shed some much needed light on a subject that
has often eluded a practical, real-world definition. This paper is the result of that
discussion.]

Executive Summary: What is Transparency in Government? ........................ 3
Contents

2010 Broadcast Sponsor ................................................................................................ 4
Washington Roundtable Guest Panel ........................................................................ 5
Washington Roundtable Host and Moderator ....................................................... 9
About the 3rd Annual Business of Government Summit .............................. 10
“High Stakes” .................................................................................................................... 11
So What is Transparency in Government? .......................................................... 12
Perceptions, Relationships and Supplier Value.................................................. 18
Transparency and the Talent Gap ............................................................................ 22
An Over Reliance on Technology Versus Scalable Intelligence .................... 30
Supplier Navigation of a Non-Linear Process .................................................... 37
The Economic Impact of Government Procurement ...................................... 42
Epilogue .............................................................................................................................. 51
About the PI Window on Business Show ............................................................. 52

[Washington Summit - April 2010] | Transparency in Government Procurement 2

In my keynote address “Contracting To Win: Buyer and Seller
Executive Summary: What is Transparency in Government?

Responsibilities in 21st Century Government Procurement” at the 3rd
Annual Business of Government Summit in Washington, D.C., I made the
statement that “transparency is not holding fast to the illusion of a level
playing field, but to a clear understanding of the layout of the field
itself.”
Reflecting on Part 6 in our 7-Part “Seven Steps to Success: Jump Start
Government Contract Series” with Washington-based expert author
Judy Bradt (which airs on the PI Window on Business Show on Blog Talk
Radio), we broached the subject of relationships in terms of their
importance in the government contracting process. I will expand on the
specifics of what Bradt means in terms of early involvement shortly.
Being based in Canada, one thing that I found interesting was Bradt’s
assertion that while the U.S. government is viewed as being openly
accessible, there is an absence of the same degree of transparency in
Canada where the details of a bid outcome can be somewhat obfuscated.
While we touched on many key areas in this sixth segment, Bradt’s point
that “the process for winning government contracts is truly based on the
ability of a supplier to legitimately and transparently win preference
with government buyers,” continued to resonate as a key element for
success.
What the April 27th Washington Roundtable discussion that tackled the
question “What is Transparency in Government,” which aired as part of
our Live Event coverage of the Government Summit did, was add a
depth of insight and perspective into the world of government
procurement that could only have been gained through the expertise
and combined experience of the panel we had assembled for a
memorable 90-Minute Special.


Included as part of the guest panel was Karen Evans, the former CIO for
the United States Government, Tim Cummins who is the CEO of the
International Association of Contract & Commercial Management
(IACCM), Colin Cram, a 30 year public sector veteran and author of the
seminal Towards Tesco – Improving Public Sector Procurement paper,
as well as expert author Judy Bradt, principle of Summit Insights.

2010 Broadcast Sponsor

Elcom International - Making Essential Connections


Washington Roundtable Guest Panel

As the former CIO for the U.S. Federal Government under the Bush
Karen Evans

Administration, Karen Evans oversaw the development of over $70B
spent by the federal government in Information Technology and
associated services, advised the Director of the Office of Management
and Budget on the performance of these investments, as well as the
federal enterprise architecture promoting inter and intra-agency
cooperation for key Presidential initiatives and cross government
solutions.
Her accomplishments included Homeland Security Presidential
Directive 12 regarding authentication; IPv6, Information Sharing
Initiatives, Cyber Security, privacy to address the interests of the
citizens and government to improve government services through the
use of technology and leveraging the federal government buying power
and requirements with the establishment of the SmartBUY program.
Under her direction, transparency and accountability were
demonstrated with the publication of the Management Watch List and
High Risk List, the E-Gov Benefits Report to Congress, FISMA reporting
and increased focus on cyber security with the creation of the Federal
Desktop Core Configuration.
Evans is currently a partner at KE&T Partners LLC.
Karen was recently a panellist on the June 23rd, 2010 "Women on
Success" series that aired on the PI Window on Business Show.



Tim Cummins

Tim Cummins is CEO of The International Association for Contract &
Commercial Management (www.iaccm.com).
Tim spent many years as a commercial manager and executive, working
in the banking, automotive, aerospace and technology industries. His
work has taken him to more than 40 countries and he has lived in the
UK, France and the United States. Tim’s career included a period on the
Chairman’s staff at IBM Corporation, in a group studying the business
impacts of globalization and options for corporate restructuring; he
then led the reengineering of IBM’s worldwide contracts and
contracting organization. Tim was the founder of IACCM and has led its
development since incorporation in 1999. In this role, he acts as an
ambassador for change in the way that trading relationships are
structured and managed, and provides advice to member companies
and public sector agencies on how to improve contract and relationship
outcomes.
Tim has previously been a guest on the PI Window Business Show,
including his participation as a panellist on the September 30th Buy
American Special, which featured an interview with Canada's Trade
Minister Stockwell Day.



Judy Bradt

As the Principal of Summit Insight in Washington DC, Judy’s been
covered by national media including SBTV, ABC Radio, the Financial
Post, Fortune Small Business, and Entrepreneur Magazine. From 1988
to 2003, Judy was the top specialist in US government contracting at the
Canadian Embassy in Washington DC.
Leveraging her more than 20 years of experience advising more than
6000 clients on success in government contracts that collectively have
accounted for revenues in excess of $300 million US, Judy will take us
through her critically acclaimed “Seven Steps to Success” presentation.
As a supplier you will gain the necessary insights to shorten the time-
line between the response to government tenders, and the realization of
tangible revenue. As a government procurement professional, you will
find the answers to why bid responses have been declining and with it
the value in both pricing and quality of service.
Judy's 7-Part "Seven Steps to Success: Jump Start Government Business"
Series is currently airing on the PI Window on Business Show on Blog
Talk Radio.



Colin Cram

Colin Cram has a successful procurement, outsourcing, conference
programme and training consultancy business, Marc1 Ltd. An Office of
Government Commerce accredited consultant, he is a regular speaker at
national and international seminars and training events, lectures on
university degree courses, is a regular contributor to professional
journals and is an associate of Manchester Business School. He has been
a member of EU working groups on Procurement, Innovation and
Sustainability. He provides consultancy services to public and private
sectors, including how to secure business from the public sector.
Colin Cram, a Fellow of the Chartered Institute of Purchasing and
Supply, held senior procurement positions in the public sector for over
30 years, including central government, higher education, scientific
research and local government. He was responsible throughout for
initiating and implementing innovative strategies for procurement,
shared services, outsourcings and organisational re-engineering. He
developed and successfully implemented strategies to tackle monopoly
supply situations. In creating several leading edge procurement
organisations and collaborations, he was responsible for third party
spends of up to £7bn a year. Savings from his initiatives exceed £1bn pa.
Colin is a regular guest on the PI Window on Business as part of the
show's Thought Leaders Series.


Washington Roundtable Host and Moderator

Jon Hansen

Jon Hansen has studied and written extensively about e-Procurement
and the changing face of procurement around the globe. In addition to
being a highly acclaimed international speaker, Jon has written more
than 800 articles and papers on subjects ranging from supply chain
optimization and the utilization of agent-based modeling in the software
development process to the evolution of sustainable purchasing
practices and the impact of traditional ERP-centric implementation
methodologies on the high rate of supply chain initiative failures.
Funded by the Government of Canada’s Scientific Research and
Experimental Development (SR&ED) program his work in both
identifying the existence of Commodity Characteristics as well as
defining and recording their impact on “best value” purchasing practices
represented a seminal breakthrough that led to the establishment of
new theories surrounding the practical utilization of synchronized
platforms in achieving sustainable coordinated savings and overall
process efficiencies. He has also authored 2 books, with a 3rd scheduled
for release in September 2010.
Jon is also the host of the highly acclaimed PI Window on Business Show
on Blog Talk Radio (BTR). As a BTR Network featured host, Jon has
welcomed leaders and bestselling authors from the world of business
discussing both timely and thought provoking topics. The PI Window
on Business Show airs throughout the week between 12:30 and 1:30 PM
EDT.


About the 3rd Annual Business
of Government Summit

The Shared Services & Outsourcing Network (SSON) is the largest
and most established global community of over global community of
shared services and outsourcing professionals with a presence in over
95 countries. We provide the roof under which key industry experts and
organizations share their experience, knowledge and tools, and your
practitioner peers connect with other all over the world, face to face and
online.
SSON focuses on developing its members through providing face to face
training, tools, and networking opportunities in major cities around the
world, including: New York, London, Singapore, Stockholm, Sao Paulo,
Sydney, Berlin and Dubai.
SSON's International Quality & Productivity Center "IPQC" was the
Summit's organizer.
The main theme of the 2010 Summit was centered around discussing
priorities the Obama administration is focusing on for complete
government transformation including:
Addressing high-priority performance goals
Improving human capital management
•

Closing the technology gap
•

Creating a more participatory government
•

Eliminating waste and boosting customer satisfaction
•

•


“High Stakes”

“UK public sector spending amounts to some 1.5 percent of global GDP.
In 2009-10 it will amount to nearly 50 percent of UK GDP, approximately
£11,000 per man, woman and child in the UK. This is equivalent to a
lifetime investment of £850,000for a person with average life
expectancy.”

The public therefore has a right to expect that this money is spent
efficiently and wisely. However, despite some excellent recent initiatives,
the efficiency of the public sector remains too much a legacy of its past
and a prisoner of its structures."

From Towards Tesco - improving public sector procurement by Colin
Cram


When I first posed this question to the panel, the preliminary responses
So What is Transparency in Government?

ranged from Bradt’s experience earlier in the day when at a speaking
engagement one of the attendees complained that a particular
government solicitation was “wired” which can lead one to conclude
that the individual was voicing a concern that the bid was fixed.

Judy Bradt, Summit Insight
The critic was silenced when Bradt asked if they had become involved
early in the process or, merely responded to an RFP? This is a powerful
question, the answer to which we will touch on in greater detail later in
the paper.
Joining the PI Window on Business for the first time was Karen Evans,
the former CIO for the United States Government who oversaw the
expenditure of close to $70 billion related to Information Technology
during her impressive tenure with the Federal Government.

Karen S. Evans, Partner at KE&T Partners, LLC
Succinct in her opening comment, Evans indicated that there are many
factors that impact and affect the procurement process in the public
sector, a point she would expand upon as the discussion progressed.


Rather than defining transparency in general terms, IACCM’s Tim
Cummins referred to what he called “bad” transparency in his opening
comments. Specifically, and more related to mindsets and
environments, he talked about the negative impact of a program that
accomplishes the exact opposite of the intended outcome by preventing
openness and honesty.

Tim Cummins, CEO IACCM
Citing his position that the “more we develop openness and fairness in
transparency,” the better it is in terms of both domestic interests and
given the expanding global marketplace, international trade.
The discussion then took an interesting turn, when I posed the question
“is there a difference between the private and public sectors relative to
transparency in the procurement process?”
Referencing a conversation I once had with a senior executive from
Colgate-Palmolive who made the observation that the only difference
between the private and public sector is that when a program goes awry
within the private sector, “it is not likely going to end up on the front
page of the local paper.”
While IACCM’s Cummins expressed the opinion that there are parallels
that can be drawn between the public and private sectors when it comes
to transparency, the “big problem” as he put it is that within the public
sector there is a greater tendency to “avoid” accountability versus
“accepting” accountability.
Given the Cummins response, Evans highlighted the fact that one of the
key differences between how transparency is viewed in the private
sector versus the public sector originates in the reporting hierarchy.
The fact is that within the private sector your board is a known quantity


that share common interests such as market share, profitability and
stock value.
In short, and while opinion regarding the best route to achieve these
results may differ, the goals are ultimately much clearer and less
convoluted by partisan or regional interests.
This of course is a factor in the public sector as the board is the 535
people in the House of Representatives in the Senate, where
jurisdictional interests and competing priorities contribute, at least in
part, to the risk averse lens through which transparency is viewed.
This aversion to risk, in essence exposing oneself to open criticism in
the pages of say the “Washington Post” according to Evans, prevents
people from the taking the kind of necessary risks that are required to
improve services.
Joining in on the discussion, Colin Cram, who is a 30 year UK-based
public sector veteran and expert whose “Towards Tesco – improving
public sector procurement” paper provides a clarity of perspective that
has actually led to my rethinking of the shared services strategy that has
been unsuccessfully pursued by many governments, introduced the idea
of “apparent” transparency versus “real” transparency.

Colin Cram, Towards Tesco
More to the point, Cram indicated the critical need for governments to
find a better balance between the appearance of transparency and,
actually delivering real value for money in what he referred to as a
“commercial way.” This is one of the important parallels between the
public and private sectors to which the Towards Tesco paper is
referring.


Expanding on Crams comments relative to the private sector attributes
that should be incorporated into the public sector mindset, Judy Bradt
talked about the fact that the real definition of transparency should be
based on “everybody knowing the rules, where all suppliers have fair
and open access to opportunities to pursue and win government
business,” while maintaining the right to make “inquiries regarding the
outcome” through for example, “the Freedom of Information Act in the
United States.”
I think that it is important to stress the fact that the fair and open access
to which Bradt had referred should not be confused with having an
attitude of entitlement relative to getting or being owed “a piece of the
government pie” so to speak. Recalling her opening comment relative to
the vendor in the audience who expressed the opinion that a particular
government bid was wired, Bradt has often talked about suppliers
getting involved early in the game in terms of building relationships
with key stakeholders both within and external to the government.
By building relationships prior to an RFP being issued, affords a vendor
the opportunity to “legitimately and transparently win preference with
government buyers.”
As a Canadian, one of Bradt’s comments I found most interesting was
her assertion that while the U.S. Government is one of the, if not the
most open in terms of bid result disclosure, Canada was somewhat less
accommodating in terms of subjecting its decisions to scrutiny. This is
certainly a topic I will have to pursue at greater length in another forum,
but I think that it is important to stress that a more limited access to bid
results is a far cry from a process being truly wired or corrupt.
In fact, referencing the Procurement Insights October 30th, 2008 post
titled “New Zealand Public Sector eSourcing: Transparent Procurement
encourages Competition & Investment,” Canada was actually ranked in
the Top 10 at the number 9 position, in terms of the overall confidence
in the veracity of the procurement process by Transparency
International, the “global civil society organization” which leads “the
fight against corruption, by bringing people together in a powerful
worldwide coalition to end the devastating impact of corruption on
men, women and children around the world.” The 2009 results from
the organization’s “Corruption Perceptions Indexes” or “CPI,” the year


for which the latest statistics are available, saw Canada move up to the
number 8 position, tied with both Australia and Iceland.

In line with Cummins’ earlier statement regarding the importance of
transparency in relation to international trade, this same post discussed
the “positive” correlation between transparency and Foreign Direct
Investment, and in particular a 1999 paper by Z. Drabek and W. Payne
published by the World Trade Organization titled “The Impact of
Transparency on Foreign Direct Investment.”
The following Abstract for the paper, drives home the point that
Cummins so astutely presented:
“Non-transparency is a term given in this paper to a set of government
policies that increase the risk and uncertainty faced by economic actors
foreign investors. This increase in risk and uncertainty stems from the
presence of bribery and corruption, unstable economic policies, weak and
poorly enforced property rights, and inefficient government institutions.
Our empirical analysis shows that the degree of non-transparency is an
important factor in a country’s attractiveness to foreign investors. High
levels of non-transparency can greatly retard the amount of foreign
investment that a country might otherwise expect. The simulation exercise
presented in the statistical part of this paper reveals that on average a
country could expect 40 percent increase in FDI from a one point increase
in their transparency ranking. Pari passu, non-transparent policies
translate into lower levels of FDI and hence lower levels of welfare and
efficiency in the host country’s economy. A nation that takes steps to
increase the degree of transparency in its policies and institutions could
expect significant increases in the level of foreign investment into their
country. This increased investment translates into more resources, which

Ironically, and despite the ability to easily access bid results through the
in turn increases social welfare and economic efficiency.”

Freedom of Information Act, the United States held the number 19
position in 2009 in terms of perceived transparency, which was one
position lower than its number 18 ranking in 2008 where it shared that
position in terms of world opinion with both Belgium and Japan.


At this point in the discussion I presented the concept that regardless of
whether a supplier is dealing with either a public or private sector
client, the axiom that buyers invariably deal with someone “they know,
like and trust,” was not met with disagreement by Evans.
The basis for her agreement was tied to the fact that dealing with a
known entity, the buyer has confidence that the vendor is going to
perform and deliver on their contractual obligations.
That said and in line with the above referenced October 30th, 2008
Procurement Insights post, Evans stressed the importance for
government buyers to “put out has much information as possible to
remove any barriers or perceived barriers for suppliers.”
While Evans stressed the importance of reaching out and engaging as
many suppliers as possible, especially with large IT acquisitions, as it is
virtually impossible for a buyer to “know what all the technologies are
in terms of what is out there (in the market), the need for greater clarity
in terms of articulating what service the government wants to provide
and how it is different from what is currently in place or is known is
crucial.
This according to the former US Federal Government CIO, provides
vendors with the ability to clearly state and demonstrate how their
solution is going to get the job done.
The clarity to which Evans referred also extends to providing a
meticulous outline as to how vendor solutions and capabilities are going
to be evaluated by the government, as it can reduce the potential for
challenges or protests of contract awards down the road.
Ultimately this takes us back to the primary question of what is
transparency in the government procurement process, in that
maintaining an open dialogue between the government and its vendors
can potentially circumvent the problems associated with
miscommunication.
Based on Evans’ comment that “now being on the other side,” she can
see “why people have challenges with government procurement”
because “it is not as clear as you think it is,” may at least in part explain
the United States’ lower ranking in the 2008 and 2009 Transparency
International CPI.

Perceptions, Relationships and Supplier Value

“The process for winning government contracts is truly based on the
ability of a supplier to legitimately and transparently win preference
with government buyers.”
Judy Bradt, Seven Steps to Success: Jump Start Government Contracts

I have always contended that at the end of the day, regardless of
(Blog Talk Radio)

industry or sector, people ultimately buy from whom they “know, like
and trust.”
In fact with greater expenditures and the resulting increase in risk, this
axiom becomes even more critical. The analogy I often use is that I do
not have to know the person behind the counter (or even like them) at
my local corner store, as all I really care about is whether or not the milk
I purchase is fresh.
However, when I buy a car or a house, or for that matter choose a
doctor, the focus naturally shifts to one of trust and comfort. In short, if
I do not connect with the individual or individuals through whom I am
going to make a major purchase I am not likely to deal with them.
As we pick up where we left off in the previous post, this concept or
principle leads into Judy Bradt’s statement that “the rules provide ways”
in which you can still do business with “people you like – especially in
the U.S.”



Specifically, and in line with her analogy of a runner showing up for the
race at the starting line without having trained, which is what the
majority of suppliers do when they consider the release of the RFP to be
the first step in doing business with the government, Bradt repeatedly
emphasized the importance of building relationships prior to an RFP
being issued.
By becoming involved at the early stages of the government
procurement process, such as responding to a draft RFP or Requests For
Information (RFI), the Washington-based expert indicated that vendors
can “legitimately shape the perception of need,” including the manner in
which the “evaluation factors” are written and ultimately published.
Karen Evans’ assertion in the previous instalment of this series that the
lack of clarity in terms of requirements and the expressed or intended
deliverables associated with many RFPs creates countless challenges,
perhaps underlines the need for improved communication and
collaboration during these early stages of a government acquisition.
Evans’ observation that the degree of this disconnect has become even
more evident given her current vantage point from the vendor side of
the transaction fence, is therefore noteworthy.

This would of course suggest that through stronger “out of the gate
relationships,” when RFPs are first being structured, stakeholders
would be better positioned to address and even avoid the
communication breakdowns that lead to non-compliance or a vendor’s
inability to fulfill contractual obligations down the road.
Certainly U.K.-based Colin Cram believes that the know, like and trust
axiom has merit given his position that relationships are the key in
preventing what he referred to as the “transparency of process”
impeding the buyers ability to achieve a “best value outcome.”


In essence, and this is my take, pursuing the illusion of transparency at
all costs represents what Cram had previously indicated was an
appearance over value proposition.
Cram added that this overemphasis on transparency often times results
in the government awarding contracts to “suppliers who have been
justified by transparency procedures” versus “dealing with suppliers
who can offer best value for the money.”
The 30 year public sector veteran and author of the breakout paper
Towards Tesco – improving public sector procurement, added that he
has “many, many examples” of what he referred to as “boneheaded,
procedural procurement that doesn’t deliver a best value result for
anyone, least of all the taxpayer.”
Tim Cummins added that while it is “easier for the private sector to
engage best value suppliers, there are “common problems that run
through both the private and public sectors.”
Even with this apparent ease to engage best value suppliers, the IACCM
CEO stressed that whether private or public, a key overall problem that
transcends all industries and sectors is what he referred to as “the
evolution of the current procurement practice,” which has created “an
adversarial environment.”
Despite the reference to a universal or shared issue, Cummins once
again turned his focus to the public sector which through the dominance
of its size has taken a “leadership” role in terms of “creating a
procedural-based, buyer adversarial process” which is further
compounded by “new unilateral terms and conditions such as liquidated
damages and termination for convenience.”


In the end concluded Cummins, “all of these terms and conditions lead
to premium pricing and a complete loss of transparency.” The reason
for the loss of transparency, he continued is that “far too often, public
sector procurement is about a blame game.”
The problems with the resulting aversion to risk in the public sector, or
what I call the “belt with suspenders mindset” is that it creates
according to Cummins, “a highly lopsided risk allocation” born mostly
by the supplier.
Not only does this lead to a closed or self-protecting environment in
which true transparency is obfuscated by a need to cover one's bases, it
also drives further erosion of already thinning supply bases.


Transparency and the Talent Gap
However, with the raised expectations on procurement to deliver
sustainable bottom-line savings, the need to nurture top talent is
more acute than ever. Some 65% of respondents rated capability
development and talent management as a key objective area for the
coming year, and further augment their functions with the right
blend of category, supplier and market expertise with the usual
contracts and pricing knowledge. However, as highlighted by the
Capgemini survey, the CPO continues to see a dearth of talent as a
major challenge to their ability to meet these expectations.
from Chances and Challenges for Buyers by Leon Smith, Supply Chain

Talk surrounding the talent gap is nothing new, especially when the
Europe (November 2009)

economy went into a tailspin resulting in significant layoffs throughout
all industry sectors. In fact, the impact associated with this recent
decline had considerable reach into job areas that were at one time
considered to be if not untouchable, certainly somewhat insulated.
Nowhere was this new reality more apparent than it was in the world of
Lean Six Sigma. In an April 2009 interview with expert author Forrest
Breyfogle III titled “Unemployed Excellence – Why Lean, Six Sigma Have
Left Some People Out in the Cold” we discussed what at the time was the
surprising job loss trend amongst Six Sigma Black Belt and Master Black
Belt professionals. The irony of the revelations that were revealed
during the interview with Forrest is tied to the belief that Lean Six
Sigma expertise during an economic decline would become essential.
The reasoning of course is that one would think that process efficiencies
would become increasingly important as workforce size was pared
down and the remaining employees would be called upon to pick up the
workload of those who had been laid off.
I guess process efficiencies and cycle time reductions become less
attractive when faced with the cold reality of diminishing revenues.


While those in the Six Sigma realms were considered expendable, the
procurement world was going through an evolutionary period of its
own based largely on the growing recognition of purchasing’s strategic
importance in delivering what Smith referred to as “sustainable bottom-
line savings.” The problem, which was the polar opposite of those
associated with the Six Sigma Black Belts sudden trek to the
unemployment line, was the paucity of experienced buyers. In other
words and, after so many years of being viewed as a functional adjunct
of finance, purchasing’s phone rang but no one was home to answer the
call.
Suffice to say there are countless challenges in finding “the right blend
of category, supplier and market expertise with the usual contracts and
pricing knowledge.” A point that was raised during our recent Live
Event Feed Roundtable discussion from the 3rd Annual Government of
Business Summit in Washington, D.C. Our guest panel, which included
the former U.S. Government’s CIO Karen Evans, IACCM’s Founder and
CEO Tim Cummins, 30 year public sector veteran and author of the
seminal paper “Towards Tesco – improving public sector procurement”
Colin Cram, and Washington-based expert author Judy Bradt, talked
about the impact that the talent gap has on government’s focus on
creating a transparent procurement process.
Evans’ response to the question regarding the impact that the talent gap
has had relative to transparency in the government procurement
process, extended beyond a mere head count – increased workload
perspective to include the differences between compliance and
achieving results.

This is a noteworthy distinction, especially in light of her statement that
the “process-laden” procurement practices of the government is not
inherently conducive to effective collaboration in the first place.


When combined with what the former top CIO in the country referred to
as the steadily decreasing number of acquisition people who
understand that there is “an art to doing procurement,” and therefore
can properly leverage the available tools to stimulate important
dialogue with key stakeholders, we begin to see the very real problems
caused by the growing talent gap emerge.
Specifically, a much heavier reliance on the very belt and suspenders
contractual terms resulting in what IACCM’s Tim Cummins called “a
highly lopsided risk allocation” born mostly by the supplier.
The need for creating and complying with these “lopsided” terms and
conditions, which ironically diminish rather than enhance transparency
is, according to Evans, driven by the prospects of having to stand before
a Senator or the House of Representatives and explain why a project has
or is failing. In short, this means that best value decision-making is
confined to an adherence of guidelines that ultimately center on
avoiding blame versus achieving optimized results.
At this point Evans’ past experience and understanding came to the
forefront when she revealed the number of times she was called in to
get a particular project back on track. In fact, and as Evans put it,
“during my tenure I can go through project after project that had failed”
in which my direct intervention was required.
The first step she took towards implementing a remedy was “putting in
clear and concise requirements” where everyone was provided with a
“solid understanding and expectation of the performance metrics” by
which they would be measured. This approach according to Evans,
removed the chief cause of the blame game especially with time and
material contracts, in that a precise target or objective was established
that eliminated the disconnect regarding stakeholder expectations that
plagues many public sector contracts. This “coordinated
understanding” as Evans calls it means that everyone is reading from
the same book.
Through a coordinated understanding the acquisition official, who is
almost always called to task when a project runs off the rails and either
more time and/or more money is required to move forward, will not be
subjected to the heightened scrutiny of a poorly drafted contract.


The question that this raises of course is why was a poorly drafted
contract put in place without clear deliverables in the first place? The
answer brings us right back to the opening paragraphs of this section
where CPOs are lamenting the “dearth of talent as a major challenge to
their ability to meet these expectations.” In essence, and making up for
the absence of “the right blend of category, supplier and market
expertise with the usual contracts and pricing knowledge,” acquisition
officials tend to incorporate into contracts onerous, one-sided terms and
conditions that are designed to reflect blame rather than achieve the
desired results.
That being said, this is not a single, unilateral issue flowing out from the
government side of the transaction alone. Citing a segment from my 7-
Part “Seven Steps to Success” Series with Judy Bradt, I likened the
contractual compliance issue in which the outcome is obfuscated by
avoiding blame to the suppliers “winning contracts instead of money”
analogy.

In the latter instance, Judy had referenced a GSA70 IT contract worth
billions of dollars from which only a very small percentage of suppliers
actually generated meaningful revenue. A good percentage of the total
number of “winning” suppliers, many of whom did not receive a single
order despite being certified and approved, did not achieve their
outcome simply because their expectations and subsequent efforts did
not align with the reality of the situation or, in this case opportunity.
Judy attributed this supplier-side disconnect to what she referred to as
“a gap in the total process” which is largely due to the absence of the
tangible and meaningful relationship with the government buyer that is
essential to gaining a clear understanding of what winning suppliers
actually do to win government business.


The reciprocal misalignment in which suppliers erroneously chase
government contracts in the same way that acquisition officials chase
deflecting compliance means that all parties are at crossed purposes.
No wonder Evans can point to “project after project that had failed.”
UK-based, 30 year public sector veteran Colin Cram raised a valid point
when he expressed the opinion that “there is an issue ” at how
stakeholders arrive at the point of “a shared understanding.”
While Colin shares similar sentiments with Bradt regarding the
importance of suppliers getting in the game long before an RFP has been
issued (or chasing government contracts as it is called), he was also
quick to point out the need for the government “to effectively engage
with the supply base market,” and not just issue tenders “willy nilly.”

This according to Cram means that government has to gain a better
“understanding of the market,” which was also an opinion expressed by
Evans in the May 11th excerpt when she “stressed the importance of
reaching out and engaging as many suppliers as possible, especially with
large IT acquisitions, as it is virtually impossible for a buyer to “know
what all the technologies are in terms of what is out there (in the
market).”
It is also interesting to note that with both Cram and Evans, this better
understanding of the supply market begins with the procurement
professional. It is also at this point that the talent gap comes into play
according to Cram as “the difference between the top class category
procurement professional and the average buyer,” is reflected in the
“value for money” purchases each makes.


In this regard according to Cram, the “top notch person knows how to
handle procedures that are appropriate to the business at hand,” versus
what he called “the procurement hacks who simply follow procedures.”
These top flight professionals “engage properly with the industry
consistently delivering brilliant outcomes” compared to the average
buyer whose idea of engagement is myopically confined to the
specifications they are given, in essence merely filling an order.
What is worth noting is that many of the up and coming procurement
professional’s who have chosen the profession rather than just falling
into it by chance, are graduating from accredited institutions with the
necessary skills to which Cram had referred.
However, and referencing the Smith article, there is an “increasing trend
amongst procurement professionals,” to move into the
“interim/contractor market to maximize their earning potential.” Thus
retaining “top notch” talent to the point where their expertise can have
the positive impact that Cram indicated is necessary to effect the
required changes can be problematic.
IACCM’s Tim Cummins, while expressing his belief that many, many
interesting points were being raised, cautioned that “government deals
with a full portfolio of different relationship types” be taken into
consideration. From the “commodity transaction” suppliers in which
relationships are more direct and basic, to “mega defence deals or
outsourcing arrangements” that by nature are complex, and therefore
when they fail tend to grab headlines, Cummins stressed that a “sense of
proportion” be maintained in that the actual rate of contract or initiative
failures “falls into the minority.”



This however emphasizes the importance of Cram’s observations
regarding the difference between the top notch procurement
professional versus the everyday buyer.
Specifically, and with commodity type purchasing, following
specifications will likely suffice. Although I would contend that effective
supply market engagement is key regardless of the size and type of the
acquisition, if an organization is to avoid the one-two punch of an
eroding supply base coupled with the phenomena of creeping margins
that can slowly lead to the financial bleeding that is tantamount to a
death by a thousand cuts.
Whether in the majority or the minority, Cummins still recognized that
project failures – especially with complex projects (which the IACCM
CEO indicated are “areas of vulnerability”), are often times due to
unclear or misaligned requirements. However, Cummins added an
interesting variable into the mix when he suggested that a lack of
“adaptability” in terms of an “acquisition strategy” is another factor that
should not be overlooked. In particular, a “good supplier match today,
may not be down the road because of market changes.”
In this regard, the talent gap also has an important impact in that rather
than address the question of adaptability through greater transparency
relative to “risk sharing,” Cummins expressed the opinion that “one of
the biggest problems with government procurement today” is that it is
in reality heading or “gravitating” towards the self-protecting, belt and
suspenders mindset associated with a paucity of top notch procurement
professionals.
Lacking expertise and the related understanding of the market, the most
“frequently negotiated terms and conditions” that represent the greatest
“sticking points” continued Cummins, relate to what he called “the
blame game,” and what ultimately happens when “things go wrong.”
The “rigid positions that the government takes over things like
indemnity, intellectual property rights, and liquidated damages,”
present real and enduring problems stated Cummins.


“If we can’t get to a more balanced position on the economic gains and
losses, or the understanding that there needs to be mutual benefits,”
then government procurement is going to “continue to struggle to get
value for money and, positive outcomes on many of these high profile
projects,” concluded the IACCM CEO.


An Over Reliance on Technology Versus Scalable
Intelligence
Ironically, given the huge investments made in procurement
technologies during the past decade, usage of these systems remains
markedly poor. Only 1 4% of the companies surveyed expressed
confidence that 60% of spend was being channelled through
eProcurement, the typical benchmark for applications of this nature;
more than 60% placed eProcurement usage at less than 20%.
from Chances and Challenges for Buyers by Leon Smith, Supply Chain

One of the most interesting aspects of what was already a thought-
Europe (November 2009)

provoking discussion was introduced when I had made the suggestion
to our expert panel that perhaps government had abdicated the
relationship side of the procurement process in favor of technological
compliance and scalability. In essence, focusing more on what IACCM’s
Tim Cummins called “contractual rules” through technologically driven
compliance versus actual “commercial acumen” leading to best value
decision-making.

Through this broadening lens of informed understanding the abysmal
usage statistics referenced above make a great deal of sense. This is due
to the fact that the emphasis has traditionally and almost exclusively
been placed on the end-user adapting to the technology as if following a
pied-piper, with the same result of being led over a cliff of increasing
costs and declining returns.
In this regard, Karen Evans hit the proverbial nail on the head when she
made the statement that “products” (re technology), does “not replace


skill sets.” According to the former CIO of the U.S. Federal Government
“vendors have to change their business models” focusing on the critical
areas of “quality of service and reliability of data.”

This Evans continued is “different from selling an Oracle data base,”
even if it is within the realms of a virtualized or “cloud computing”
architecture. Her reasoning is that computing in the clouds is really just
“optimizing the use of infrastructure” and is therefore a commodity
versus being an actual service.
This is an incredibly important observation by Evans in that it goes to
the heart of the paradigm shift that has created the chasm between the
traditional ERP-based applications offered by the Oracles, SAP’s and
until recently Ariba’s, and the emergence of the original SaaS-based
solution providers.
The inherent problems faced by traditional ERP vendors such as Oracle
and SAP is that they view SaaS as a pricing model within the framework
of their existing architectures versus being an organically originating,
radically different adaptive platform.
In both my May 18th (SaaS Sprawl, One-Stop Shopping and Free 8-
Tracks To Boot: A Sad Day in the World of SAP) and May 26th
(Traditional ERP vendors such as SAP and Oracle overlook the
Disruptive Innovation question when they discuss their move to a
SaaS model) posts, I make reference to a comment by Ariba’s CMO Tim
Minahan. Minahan, who is the former CSO and Senior Vice President,
Global Supply Research at Aberdeen Group, expressed his opinion that
“Oracle’s on-demand sourcing is not really on-demand at all,” and “if he
were an Oracle or SAP customer,” he’d be confused, and that he thinks
that “that’s their intention.” (Once again, I strongly recommend that you
check out the on-demand version of the Minahan interview.)


Obviously risking a “one who lives in a glass house should not throw
stones” response from either Oracle or SAP, and of course without
calculating the ultimate result of Ariba’s DNA transformation to a on-
demand provider, Minahan nonetheless echoes a similar sentiment to
those expressed by Evans.
Evans further stressed her point by emphasizing her belief that
“government needs to make hard decisions about best solutions,” and in
the process “reduce operating costs” through leveraging or “maximizing
what is already out there.” This shift in mindset in which government
can no longer “buy products,” but should instead focus on acquiring
“services and relationships” presents the greatest challenge and
perhaps threat to the traditional vendor models under which the
Oracle’s and SAP’s have conducted business (re technology-centric
collaboration).
Based on recent comments by SAP’s John Wookey regarding the
vendor’s “orchestration” of on-demand functionality within the current
SAP architecture, it would appear that this is a point that continues to
elude his organization despite the minimal utilization statistics
referenced in the Smith article. That being said Wookey’s own
acknowledgment that “customers that already have gone with SaaS in
addition to an on-premise suite may not swap out for on-demand
orchestration,” might indicate a recognition that a change is afoot.
The bottom line reality is that these traditional technology vendors are
simply too sufficiently top heavy in terms of head count and associated
operating costs which, when combined with Wall Street influences,
preclude them from moving aggressively towards the kind of “DNA
cultural transformation upon which Ariba embarked last year.” It
should be noted that Ariba’s decision to make the move to an on-
demand model was to a certain degree influenced by their losing $3
billion on $1 billion in sales between 2001 and 2005. This is a
motivating factor that neither SAP or Oracle presently faces . . . at least
for the time being.


While the shifting sensibilities of end user decision-making gravitates
towards a more service/relationship oriented outcome, and therefore
provides original and emerging SaaS vendors with a marked advantage
over their ERP-based counterparts, these new titans of the
eProcurement world would be well-advised to avoid the same trappings
of leading with their technology alone, including an overemphasis on
their lower costs and reduced implementation time lines. The
temptation to do so is usually strong given the algorithm driven, agent
based solutions they provide on a pay-per-transaction basis. In short,
real-time, real-world dashboard technology is pretty cool stuff.
However, technology no matter how advanced, has to be a behind the
scenes facilitator of efficient and relational process versus being a front
and center initiative-based player. This of course leads us right back to
IACCM’s Cummins’ remarks about buyer skill sets now being more
focused on commercial acumen versus rules compliance, and the need
to build collaborative relationships and solutions.
As a result, all vendors need to understand that merely providing
centralized guidelines electronically and then automating the
purchasing process (no matter how advanced technologically) is not
sufficient. This is because the challenges that end users face, as
Cummins pointed out, is not one of technology, but is directly related to
the aforementioned limited skill sets (which again is beginning to
change), and an inability to effectively “outsource relationships.” An
issue Cummins noted that is not indigenous to the public sector domain
alone. However, it is especially problematic for government entities
given that many are either contemplating or already pursuing a Shared
Services or Outsourcing strategy. Both of which are heavily dependent
on personnel aptitude and effective stakeholder interaction.
The question of disconnected relationships is also according to
Cummins, not confined to external interactions with suppliers, but is
also reflective of a general “failure” on the part of “public procurement
agencies to look beyond their own internal borders.” This “fascinating
lack of real substantive discussion,” is perhaps a contributing factor in
what Colin Cram cited as one reason behind the “huge amount of added
cost” which is based on procurement people being more interested in
“protecting themselves versus delivering real value.”


Perhaps in what was one of the most critical highlights of the serious
flaws associated with a traditional technology-driven approach to
procurement according to Cram, is how it enables government to “hide
within” or behind costly “procedures.”
Referencing his “Towards Tesco – improving public sector
procurement” paper, which indicates that the UK government could
save £25 billion per year through improvements in key areas, Cram
expressed the opinion that besides the problems with “procurement
fragmentation when engaging the private sector,” government has
“excessive procedures” that unnecessarily complicate and hinder
supplier participation.
It is therefore not an unreasonable conclusion that similar to the old
“garbage in – garbage out” analogy, automating procedure-laden
processes will not make up for the absence of the required skill sets or
collaborative platforms. This is yet another indicator as to why
adoption rates of eProcurement technologies are as low as they are.
Consistent with the opinions expressed by both Evans and Cummins,
Cram also believes that government has to begin “contracting out for
relationships.” Unfortunately, according to the 30 year UK public sector
veteran, while “many authorities are getting the picture” regarding the
need to focus on relationships, few have actually addressed the onerous
procedures associated with establishing and building the necessary
rapport through the current RFP process, which according to Cram are
unnecessarily arduous.
This ultimately leads back to the steady erosion of the very supplier
relationships that are needed to ensure that government is achieving
maximum value for money.


Simply put, suppliers continue to believe that the government
procurement process through which technology is a dominant presence,
is geared toward a belt and suspenders approach to justifying a decision
that has already been made.
With fewer suppliers coming to the table, pricing inconsistencies from
one agency to the next and, low bids with declining service levels is the
usual outcome lamented Evans.
So what is the answer to effectively utilizing technology to build the
collaborative business relationships that leverage improving skill sets
and maximize service delivery?
According to Washington-based expert author Judy Bradt, the
foundations for addressing the above challenges are already in place
and especially strong in the United States.

Sharing a similar level of enthusiasm to that expressed by Dr. Betsy
McCaughey, who during a recent interview regarding an equally
daunting and somewhat pervasive problem indicated that the “good
news” is that “you don’t often come across such a big problem that you
can solve,” Bradt cited a recent announcement by the DoD that they
were “formally encouraging the use of social media” as one of the key
reasons for her optimistic outlook. (Note: refer to "Policy" article of
September 23rd, 2009.)
The DoD decision is without a doubt, very interesting given past
tendencies on the part of both public and private sector enterprises to
either limit or restrict outright employee access to social media during
business hours.


This change of heart according to Bradt, will further enhance what she
referred to as an already “rich business culture” that “based on the
power of existing associations to bring stakeholders together” will
further strengthen the needed relationships and open the required
channels of collaboration within the public sector procurement world.
Bradt’s views certainly have a great deal of merit as web-based
“technologies” such as LinkedIn and Facebook, and services such as
Twitter are platforms within which a growing number of buyers and
vendors are beginning to interact. What is telling is that some of these
vendors are actually looking beyond the communicative advantages of
the group development and blogging venues associated with social
media, and are extending the functional capabilities of their core
solutions through a direct social media interface.
In an ironic twist, free or low-cost social media collaboration platforms
may very well become the transformational bridge between the costly
ERP-centric type applications of the past, and the steadily emerging on-
demand SaaS solutions which, through their dramatically reduced cost
and shortened implementation period, fall in line with Evans’
assessment that government can no longer “buy products,” but should
instead focus on acquiring “services and relationships.”


Supplier Navigation of a Non-Linear Process

As previously mentioned, the Government takes great interest in the
health of SMEs and is making it a priority in wanting to “cut the red
tape faced by the private and not-for-profit sectors when doing
business with the government [and fixing procurement]” (2008
Speech from the Throne). The Government is proud that it has done
much in improving SME access to government contract opportunities
by reducing procurement barriers, simplifying the contracting
process, improving training and education to SMEs wishing to do
business with the Government. The Government also believes that it
can do more and will do so as outlined in the Response.
Additionally, through the OSME, the Government is committed to
creating an ongoing dialogue between the Government and SMEs to
create a better understanding of SMEs’ concerns and to ensure these
concerns are continually addressed by the Government in the future.
from GOVERNMENT RESPONSE TO THE SEVENTH REPORT OF THE
STANDING COMMITTEE ON GOVERNMENT OPERATIONS AND
ESTIMATES: In Pursuit of Balance: Assisting Small and Medium
Enterprises in Accessing Federal Procurement (Report No. 7, June

Once again, there was no shortage of unique perspectives, valuable
2009)

insights and thought-provoking dialogue that occurred during the
course of our Roundtable discussion on transparency within the
government procurement process this past April in Washington, D.C.
However, and looking to conclude the train of thought that started with
the previous section (which initially focused on technology and
naturally evolved into one centered on supplier engagement and
utilization), the words of Judy Bradt earlier in the broadcast took on an
even greater significance.
Specifically Bradt, who is a Washington-based expert author on the
subject of winning government contracts, made the statement that the
Canadian government tends to hold their contracting and disclosure


cards very closely to their proverbial vests. In short, Canada’s public
sector procurement apparatus operates on a strict, narrowly defined
need to know basis.
Perhaps this is why the word “relationship” only appears once (and that
was used in reference to horizontal internal engagement) throughout
the entire Standing Committee of Government Operations and
Estimates’ Report No. 7. Or why, the reported findings seem to focus
more on centralizing control versus building true stakeholder
relationships, creating and introducing procedures and policies in place
of meaningful collaboration and, the pursuit of functional exchanges
versus practical outcomes.
These are not merely semantical reference points as they actually strike
at the heart of the Roundtable discussion on how suppliers view the
public sector procurement practice – regardless of country. Particularly
as it relates to the costs for suppliers to get into the game.
While generally unknown by those procuring goods and services on
behalf of the government, it is worth noting that the majority of
suppliers also lack the needed understanding of the “true cost” of doing
business in the public sector. This is a critical knowledge gap that needs
to be filled according to Bradt, for any vendor looking to navigate what
she referred to as a “non-linear process.”
It is therefore immensely important for these companies to take the
time to “very carefully” gain a clear understanding of what pursuing, let
alone winning, government contracts will cost which Bradt stressed
usually takes “a lot more time and investment of resources than initially
expected.”
The first step in this exercise begins with the relationships a vendor has
with their teaming partners and even competitors, the practical advice a
vendor receives through agency briefings that are in the case of the
United States held at the Offices of Small and Disadvantaged Business
Utilization “OSDBU” and, one-on-one counselling sessions with small
business specialists within the government. These according to Bradt,
who has helped more than 6,000 clients win in excess of $300 million in
government contracts, all add up to a supplier being able to really
understand the process and help them to legitimately and transparently
gain buyer preference.

What may be most surprising about the above revelations for many,
especially those who champion the automated electronic tendering
services such as a MERX or FedOpps, is that those vendors who are
consistently successful at winning government contracts usually hear
about business opportunities first through these “preferential”
relationships. Examples of alternative intelligence venues include
referrals from a client or a friend telling them about an upcoming
acquisition plan or, an “on the street” tip from someone in the know.
In fact and as previously stated in earlier excerpts, if you are only
hearing about an opportunity and/or getting involved at the RFP issue
point you are already a day late and a dollar short. It is through the
above mentioned relationships stressed Bradt, that you gain the heads-
up lead time that enables you to compete versus simply respond to a
government tender.
A point that was driven home by NSI Chief Executive Officer Alfred
Gordon, who over a dinner one evening shared his experience with an
audience of vendors who were looking for ways to gain an edge in both
pursuing and winning government contracts.

As Gordon explained it, he asked every individual who was in
attendance to tell him how many government contracts each one’s
company pursued over the previous year, and at what cost? The
responses ranged from a dozen bids to several hundred being
submitted, at a cost that was as high as a couple hundred thousand
dollars. Now here is the telling part of the Gordon story; when he asked
how many of them won the bids to which they invested so much time
and money, not a single person raised their hand. Not one win for those
vendors whose primary point of initial engagement was responding to
an RFP.
Gordon’s findings are in line with Bradt’s analogy about waiting to get
into the game until after an RFP has been issued being tantamount to a
runner showing up at the starting line on race day without having
trained in the months leading up to the race and expecting to win. The
only things you can expect to achieve by simply responding to


opportunities through a MERX or FedOpps tendering system is a lower
bank balance and increasing disillusionment.
The only exception to what the Washington-based expert called
“bidding cold” (and it is a big one), is if you have been trying to get into
an agency that has been unresponsive to your calls. Under
circumstances such as this, where you “do not know the buyer, the
incumbent or the budget,” in other words you haven’t been able to talk
to anybody in the agency, but you believe that there is a good fit based
on the written requirements, going in blind can serve a purpose.
According to Bradt, the only legitimate reason for blind bidding is that
by submitting an offer, you can ask for a debriefing. Like a sales call on
steroids, it may be the only way to get a face-to-face and thus establish
both a rapport as well as determine the factors upon which the agency
makes its purchasing decisions. This suggestion is not only logical but
Bradt can point to an actual example where this first step towards
establishing a relationship resulted in a $500K contract for the supplier
down the road.
Given the above, and the consensus by our guest panellists that
establishing relationships are a critical and often overlooked part of a
successful bid, it could be said that electronic tendering platforms such
as MERX and FedOpps are icebreakers that are as much a part of the
sales process as they are the acquisition process.
At the end of the day, and this once again is perhaps the most important
point relative to a supplier’s view (and understanding) of the
government procurement process . . . you will have to spend time and
resources in building relationships long before an RFP is issued.
Therefore it is incumbent upon you to be strategic perhaps even
surgical in terms of where you will focus your energies so that the odds
of a return on your significant investment will increase. In short,
pursuing government contracts is a calculated risk, one in which you
need to thoroughly understand the math.
By approaching it in accordance with a method to the madness mindset,
the eventual outcome can be rewarding as illustrated by a story Bradt
shared during the broadcast.


In her recounting of the events, Bradt referenced a woman who owned a
communications company and how, over a period of two years, she
worked to build relationships within the Office of Personnel
Management and Budget leading up to a response to a tender request
for the very services her firm could provide.
It took 8 people 6 weeks at a total cost of $200K to put together the
proposal that ultimately led to her to winning a $6 million contract that
to this day is her flagship account.
There is an important point to be made at this juncture in that how
many vendors would spend $200K over a 6 week period responding to
an RFP but – and this is key, have not spent the preceding 2 years
establishing the necessary relationships to make that expenditure
count?
Regardless of the amount of money or time involved in responding to an
RFP, it is a supplier’s level of commitment leading up to the release of a
tender that will likely determine success or failure.
Referring once again to the protagonist in Bradt’s story, after being
informed that her firm had won the contract, she went into the office of
her program manager and said “I have this contract, but I have no
furniture in my living room. But, I have this contract!
This spoke volumes as to the level of investment this individual was
willing to make to succeed, starting with taking the time to build the
rapport and the relationships that provided a clear picture in terms of
what it was going to take to win the business.
As a movie buff, I am reminded of the 1987 film The Untouchables,
where towards the end of the picture as Elliot Ness (Kevin Costner) is
kneeling over a dying Jim Malone (Sean Connery), the veteran beat cop
grabs Ness by the collar and asks him “now, what are you prepared to
do?”
This is a good question, and one that every vendor wanting to pursue
government contracts should ask themselves. What are you prepared to
do?!


“In the summer of 2006, I chaired the Summit Roundtable that reviewed
The Economic Impact of Government Procurement

the critical elements of the Canadian Federal Government’s Way
Forward initiative. Based on the input that was received through a
series of meetings in which representatives from both the public and
private sectors were in attendance, I drafted a procurement Blueprint.
Highlighted in this Blueprint, was one of the key findings of the
discussion in terms of the purchasing guidelines that define public
sector practice. Specifically, “the general consensus that government is
not a corporation and therefore has different priorities and imperatives
to meet when procuring goods and services. This acknowledgment
takes into account socio-economic implications including the
importance of developing key Canadian business sectors or industries.
Examples of key sectors or industries include the SME/minority-owned
business community, or Canadian-based manufacturing sectors such as
shipbuilding where job creation and community financial stability are
taken into consideration.”
Fast forward ahead to the April 27th, 2010 Roundtable Discussion on
Transparency in Government Procurement which aired live from the
3rd Annual Business of Government Summit in Washington, D.C. on the
PI Window on Business Show, and you will find that little has changed in
terms of the critical role that Government procurement plays in driving
both domestic and global economies.
According to recent studies, Government procurement accounts for
10% to 15% of a “developed” country’s economy, and up to 20% of a
“developing” nation’s economy. In short, government or public sector
procurement is not an island unto itself in which the consequences of
the process is isolated to the siloed interests of the buyer. There is a
greater reach that has to be considered, in which a best value
transaction has many facets including the need to drive innovation.


It is however in this area of an expanded point of view according to 30
year public sector veteran Colin Cram, that there are two important
issues that must be understood and addressed if government
procurement is to achieve its maximum potential as a key economic
contributor both domestically as well as globally. This of course
includes working with other nations.

In this regard, and other than a few exceptions such as contracting to
build military aircraft, Cram contends that few governments are capable
of working with other nations. Specifically, the “collaboration between
two parties means that both parties have to be fit to collaborate.” This
is a capability according to the author of the seminal paper Towards
Tesco – improving public sector procurement, that few nations posses.
From a domestic economic standpoint “public sector procurement”
continued Cram, is “so huge that it can have a major impact on public
sector providers” in two important areas; major developmental impact
on services or products they (being suppliers) offer and, the ultimate
value for money these suppliers provide.
Focusing on the effectiveness of his own government, Cram “doesn’t
think that the UK would be a good partner with anyone, other than a
select few.” This of course coincides with one of many articles on public
sector collaborative practices including an October 13th, 2007 post here
in the Procurement Insights Blog titled “Cluster Development and the
CAC (PWGSC): Facilitator or Competitor?.” In that article I talked about
the UK government “Way Forward” report from 2005, which stressed
that stakeholders in the government procurement process “have to find
a way to identify and remove the obstacles to true collaboration.
Otherwise another 3 years will pass without any discernible progress
being made.” Based on Cram’s comments the desired progress has not
become reality.


Referring to the biometric card project that was discussed earlier, the
question regarding the dual purpose of government procurement in
terms of suppliers being able to generate revenue domestically while
simultaneously opening up their technological innovation to the global
market, was posed to Karen Evans.

Evans, the former US Federal Government CIO under the Bush
Administration who oversaw more than $70 billion in IT expenditures,
delivered a perspective that centered on the influence governments
such as the US have on the global stage.
While the biometric card project was definitely one instance of a
successful collaborative effort between the public sector and private
sector, Evans pointed to the US government’s decision to move from
Internet Protocol version 4 to version 6 relative to providing an
example of government influence both domestically, as well as on a
global basis.
IPv6 was defined in December 1998 by the Internet Engineering Task
Force “IETF” as a means of addressing amongst other things what is
referred to as IPv4 exhaustion. Without getting into the specific
technological differences between the two versions (which in and of
itself would warrant a separate paper), we will content ourselves with
the fact that IPv6 as Evans explained it would create an limitless
ubiquity that would further open up both the performance and
capabilities of the Internet.
Relating to this paper, Evans indicated that when the government
“signalled to the market” that the US was moving in this direction two
things occurred. From a supplier perspective, and in line with Cram’s
earlier statement regarding the major developmental impact
governments have on supplier products and services, Evans alluded to
the directional instruction the move had on government vendors.


In short, if the US government is moving to IPv6, does it make sense for
a vendor to focus on improving IPv4? (Note: as an aside, and according
to a 2008 study by Google Inc., “less than one percent of Internet-enabled
hosts in any country” have adopted the IPv6 protocol. However, the same
study indicates that “IPv6 has been implemented on all major operating
systems in use in commercial, business, and home consumer
environments.” This is a reminder of what panellist Judy Bradt referred to
as the importance of a prospective supplier having a clear understanding
of the opportunities they are pursuing including the costs, time lines and

The US government’s decision to pursue an IPv6 strategy also prompted
ultimate potential to actually win the business.)

a flurry of calls from other governments around world, who wanted to
gain a better understanding of the decision to make the move to the new
protocol, which as Evans indicated was freely shared as it was
information that was in the public domain.
The IPv6 discussion was a natural segue into the much larger question
of a nation’s economy.
Citing my research and subsequent articles on the Clark and Fourastie
“three sector hypothesis of industry” (now four with the introduction of
the Quaternary Sector), and in particular a September 24th, 2009 post
titled “Will Britannia Rule the Waves of the Vast Sea that is the
Global Economy?,” I introduced this element into the discussion.
Under a “general pattern of development,” a wealthy nation progresses
through each phase or industry sector which includes the Primary
sector (the extraction of raw materials), Secondary (manufacturing),
Tertiary (services) and, Quaternary (knowledge-based) industries.
Effectively managing this progression is critical to what Fourastie
referenced in his 1949 publication “The Great Hope of the Twentieth
Century” as “the increase in quality of life, social security, blossoming of
education and culture, higher level of qualifications, humanization of
work, and avoidance of unemployment.”


While there are similarities or overlap between the service-based
Tertiary sector and knowledge-based Quaternary sector, knowledge-
based industries are incredibly important to the future evolution of
existing and emerging economies.
A point that was succinctly (perhaps even acutely) made by the
incomparable Arianna Huffington of the famous Huffington Post, who in
a controversial article titled “When It Comes to Innovation, Is America
Becoming a Third World Country?” discussed the US’ failure to keep
pace with the rest of the world in these key industry
service/knowledge-based industries.
This of course is one of the reasons why I previously asked the question
in the September 24th post “is the UK and India positioned to emerge as
economic titans over the next decade.”
Let’s look at the United Kingdom. The Tertiary and Quaternary sectors
represents the largest part of their economy, employing 76% of their
entire workforce.
With India, the indigenous software engineering talent has made that
country the off shoring destination of American high-tech firms, each of
which have committed to investing $1 billion into its economy. The
result of this boom is that India has seen double-digit wage growth for
much of the 2000s.
While Cram expressed some concern that the “UK is too dependent” on
these emerging sectors, he reiterated his earlier point that “government
expenditures are so large that they could have a much larger and more
meaningful impact on the development on both the service and
knowledge-based industries.”
Washington-based expert author Judy Bradt, who’s 7-Part “Seven Steps
to Success: Winning Government Contracts” Series on the PI Window on
Business concludes on Monday, July 12th at 3:00 PM EST, expressed her
belief that the discussion regarding the government’s role in driving the
emerging sectors of industry was “timely,” and that this ultimately
emphasizes the “importance of transparency and collaboration” in the
public sector procurement process.


Referencing the Recovery.com website, which provides “easy access to
data related to Recovery Act spending,” and the opportunities this
represents to potential suppliers, Bradt focused her comments on the
specific role of maintaining a technological leadership capability from
the standpoint of levelling the public sector contracting playing field.
Through advanced technologies smaller vendors according to Bradt, are
now in a better position to build relationships with key government
decision-makers through the ability to “remotely and easily access
meaningful contacts.”
This Bradt concluded, is cause for a great deal of excitement as the
increased accessibility means that government is not going to be limited
to dealing with large vendors.
The importance of bringing the smaller vendors to the table was
highlighted in a December 2007 article in the Defence AR Journal by
Timothy T. Nerenz titled “Government contract bundling: myth and
mistaken identity.”
The article, which “summarizes” Nerenz’s 2006 doctoral dissertation
Federal Procurement Policy Analysis: Has Extent and Effect of
Government Contract Bundling on Small Business Been Overstated?
challenges the then long held belief that “contract bundling–the
combining of separate smaller contracts into a single large contract
unsuitable for small businesses–is the most important barrier to small
business participation in the $300 billion-plus federal government
contracting marketplace.”


Nerenz’s opening paragraph packs a powerful punch in that it refers to a
U.S. Small Business Administration “SBA” report which “estimated that
34,221 new bundled contracts were awarded from 1992-2001,
transferring $840 billion of contract revenue from small to large
businesses.” The end result the SBA report concluded was “a 56 percent
decline in the number of small businesses contracting with the
government.”
Despite sharing in Bradt’s excitement relative to small business
enterprise’s “SME” growing access to government opportunities ,
IACCM’s founder and CEO Tim Cummins cautioned that there remains
many significant challenges in the public sector procurement process.
In this regard, the Nerenz article provides telling statistics and, may
provide at least a partial explanation for Huffington’s “Third World”
concern relative to declining US-based innovation.

According to Cummins, smaller companies are indeed more innovative
than their larger enterprise counterparts because they are more prone
to take the risks associated with “driving the good (or innovative) idea.”
The problem is the somewhat symbiotic view of risk shared by the
government and its bigger suppliers. This “risk averse” mindset to
which Cummins referred, has led to the inclusion of onerous contractual
terms and conditions that are “not conducive to engaging the small
innovators.” The end result lamented Cummins is that “small players
are forced into participating as a sub-contracting supplier to a bundled
contract,” which the IACCM CEO correctly pointed out can be "rather
stifling."


Unfortunately, and in an effort to offset or reduce said risk to tolerable
levels, large enterprises including of course governments introduce
what Cummins called “draconian terms,” which ultimately “flow down
to smaller suppliers in the form of consequential damages” such as
limited liability. Besides stifling innovation, this “unbalanced approach
to contracting cause it (being innovation) to go other places.”
In illustrating the negative impact of this unbalanced approach,
Cummins concluded with an example from the telecom industry.
Highlighting the fact that while “most of the telecom industry’s
innovation is taking place in Western Europe and the US,” the majority
of the resulting pilots “take place in the Far East.” The reason is simply
because the “big players in those markets do not place the same onerous
terms” in their contracts. In essence, the Far East giants “understand
the principles of relationship and partnership in a way that
unfortunately seems to be very often alien to the rather risk averse
Western cultures.”
The question this raises is how does one combat the risk averse natures
that follow a onerous and somewhat arbitrary “belt with suspenders”
mindset to drive the innovative engine that fuels the new economy?
Judy Bradt’s answer to “show or demonstrate success” is succinct and to
the point in that you are more likely going to be able to generate public
sector opportunities if you have an established track record.
Cummins’ response came in the form of a real-world analogy where the
“client indicates that they absolutely want to be leading edge, and then
asking who else has already done this?!”
This tongue in cheek perspective garnered Cram’s sympathy for the
smaller firms especially given the “onerous nature of the existing
tendering process.” That said and referring back to Bradt’s earlier
statement, Cram was quick to point out that smaller firms by virtue of
their size are not precluded from demonstrating that they can “solve a
specific problem” through their technological innovation.
This was also a sentiment mirrored by Karen Evans, who talked about
the tendency on the part of suppliers to attend a meeting with a
government buyer without having done the proper homework relating
to the actual problems their prospect is facing.


Or to be more precise, if you have to ask me what my problems are, then
I am not likely going to deal with you.
Or as the self-possessed Bradt, who has assisted more than 6,000 clients
to win in excess of $300 million US in government contracts so
eloquently put it, “what problems do you (as a supplier) solve and, who
has those problems.”


Epilogue

In the end, the best way to sum up the 90-Minute Roundtable discussion
on Transparency in Government Procurement is as follows;
“Transparency is not the holding fast to the illusion of a level playing
field, but is achieved through a clear understanding of the layout of the
field itself.”
Using the above axiom as the starting point represents the first step
towards removing the silos of misunderstanding and misinformation,
and laying the groundwork for making essential connections to
ultimately work towards an open and effective collaborative effort
between all interested stakeholders both within and external to the
government.
This leads to generating tangible best value business that in turn
ultimately drives a nation’s economic engine in the emerging global
economy.
Use the following link to access the on-demand Roundtable
Discussion broadcast:
http://www.blogtalkradio.com/jon-hansen/2010/04/27/live-
event-feed-3rd-annual-business-of-government-summit-day-1-
roundtable


About the PI Window on Business Show

According to industry research combined with strong audience growth,
the PI Window on Business Show has quickly become the definitive on-
air show for the business professional. PI Window on Business
discusses provocative subjects from the world of business including the
global supply chain community.
The regularly scheduled 60 minute segments as well as our 90-minute
specials continue to feature insightful and entertaining guests from the
world of business and politics, including bestselling authors and
industry thought leaders.
We look forward to you joining us on-air and live on the PI Window on
Business Blog Talk Radio throughout the week between 12:30 and 1:30
PM EDT.
PI Window on Business Blog:
http://piwindowonbusiness.wordpress.com/

PI Window on Business Main Show Page:
http://www.blogtalkradio.com/jon-hansen

© Procurement Insights 2008-2010


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