Archive for the ‘Public procurement’ Category

Public procurement: What can happen when there’s no call-off, no control and no invoice matching

March 25, 2010

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For the past few months, the press in Sweden has reported about how Busslink – a public transportation contractor – has over invoiced SL for 733 extra busses. Busses that somehow have been lost on the road. A recent audit shows that “at least 733 busses lack traceable documentation”. No-one seems to know if they ever made it out on the roads, yet they have been invoiced all the less.

Now, one can suspect that no-one ever called off these busses from the contract and given the circumstances that usually call for extra busses to be on the roads in the first place: break downs, weather, traffic situations etc there might not be a simple solution to be able to manage this type of ad hoc situations.

Still, in theory, even the simplest call-off to create a PO solution would have done the trick. 20 years of e-procurement seems to have little impression on SLs view of public procurement.

Key success factors for public procurement

March 10, 2010

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Public service procurement has taken some intense flack in the past few years – and not without due reason – but I think it’s time to acknowledge some of the great stuff that actually is happening in the area at the moment. Because it’s there, it’s just that it’s hidden under an enormous pile of bad reputation, fraud cases, contracts being overturned, administration and god knows what.

This morning I ran into Mark Masterson – the head of IBX UK – who was in town on a public procurement mission. While chatting near the coffee machine (ristretto for me, white tea for him) he mentioned an article that he had written for Supply Chain Europe recently highlighting some of the breakthrough in public sector procurement as well as proving some pointers for those who want to get on the band wagon.

With Norway and Scotland leading the way in Europe Mark points out that Norwegian users have seen “a 20-40 percent reduction in the time it takes to handle orders, goods receipts and invoices”. The Norwegian government has also made it mandatory for all public bodies to use e-invoices by 2011. Apart from these process savings the Norwegian public sector has also achieved more far reaching effects:

“A prime example is the health sector in Norway, which is going to be running a pilot scheme, as part of the PEPPOL project, where it will buy blood plasma directly from Austria, to ensure that they always have the right stocks and an optimum cost. In this case, e-procurement is literally helping to save lives.”

In the UK, results are also picking up. Since 2005, ten collaborative IT hardware e-auctions, involving 144 public sector stakeholders have led to savings of £43,8 million.

So what does the laggards in the EU have to do in order to catch up. Mark points to five keys to success:

  • There’s no time like the present – there’s no reason to wait until e-procurement becomes mandatory.
  • Keep it simple – user friendliness is the key.
  • Set clear goals – set realistic targets and timelines
  • Central funding – Scotland’s procurement success is routed in its free availability to public bodies
  • Ensure procurement and business managers work together – not only does e-procurement benefit the purchasing functions, it also helps keeping the organization financially stable

In any case, successful public procurement will be essential for the EU to regain some of its momentum especially in times when the rest of the world is betting on which country is going to be the next Greece.

Overcoming the differences between private and public sector procurement

October 22, 2009

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Over the past few years many of my colleagues and I have been on a mission bolster the notion that mindset is the key issue that separates the laggards from the top performers in the purchasing field. And this is particularly evident when it comes to understanding why public procurement so often lags behind its private counterparts.

In a recent McKinsey Quarterly article; McKinsey on Government; the gaps in performance is significantly larger in the softer dimensions – mindset, talent management and aspirations – than in the areas most often promoted by purchasing solution vendors – tools, processes and strategy. While many research organizations often stop when they’ve realized their findings, McKinsey in this instance offers a rather pragmatic explanation of why public and private procurement professionals differ in these key areas:

Two important reasons [for these differences] are that, first, the members of the [public sector] purchasing staff are typically not on a career track as attractive as that of civil servants, which makes it difficult to attract and retain the best people. Second, a culture that rewards zero errors—for instance, one dedicated to “protecting the minister”—tends to favor preserving existing processes and mandates and offers limited incentives to aim for anything more ambitious.

Unfortunately, McKinsey leaves the subject of mindset and aspirations and returns to the more familiar hunting grounds of tools implementation and purchasing process streamlining; a track that is already being centrally driven in the EU through the PEPPOL initiative. And although better processes and widespread tools adoption surely will close some of the gaps between public and private sector procurement, these gaps will always remain if the softer dimensions mentioned above are not properly dealt with.

Public sector IT-procurement gone wild

April 8, 2009

No one in Sweden can have missed the headlines caused by the Swedish Social Security Agency and their recent IT disaster. As the project deteriorated, causing one headline after the other, the project was forced to be audited by the Swedish National Audit Office whose final report was released on April 6th (More here – in Swedish).

The report is a showcase of what might (and dare I say, often will) go wrong when the power balance between stakeholder, supplier and purchasing is off.

The Audit office has examined four of the Social Security Agencies recent IT-purchases (all quite large and vital to not only the agency as such but to all of their customers, i.e. the population of Sweden) and not only have the Social Security Agency bypassed all regulations regarding government contracts but the audit also found major faults in the purchasing processes as such:

  • Low RFP quality, complex yet lacking in specifications
  • Too little time give to suppliers in order for them to be able to answer the RFPs in a proper manner

This has led to suppliers declining in participation in the sourcing event.

The audit also found that the purchasing function at the Social Security Agency lacked resources and time to prepare the sourcing event of this magnitude which in turn led to poor quality analysis and reporting regarding which supplier was awarded the contract and why.

Last and not least, the audit found that the power balance between the stakeholder (the IT department) and the purchasing function was so asymmetrical that it could hardly be called a power balance at all. In two of the four projects purchasing chose to bypass all sourcing activity and just call-off consultants on hourly rates on their current frame agreements leading to cost escalation and practically no cost control what so ever. In Computer Sweden auditor Karin Lindell goes as far as saying: There was a WAR between purchasing and IT

Due to the fact that so few suppliers participated in the sourcing process, suppliers had their ways and in many cases dictated the terms; for instance one supplier was paid three months in advance(!!!!) and contracts were mostly drawn up to make the Social Security Agency responsible for any delays.

As one digs into the details regarding the different projects it gets really scary. For one SAP project (Customer Self Service) two suppliers submitted bids:

IBM – who bid 84 million SEK – and Logica – who offered a price interval of 25 to 46 million SEK (and someone should have pumped the breaks at that very moment).  Logica was awarded the contract with the motivation that they had submitted a bid which was substantially lower that IBM and the project was due to be delivered in March 2008.

As of today, the project has not yet been delivered and Logica has invoiced the Social Security Agency 77 million SEK and other suppliers have invoiced the agency 63 million SEK.

That puts the tab at 110 million SEK and running, public procurement has surely seen better days.

President Obama Pinpoints the Keys to Procurement Success

January 28, 2009

In his rather low-key (on the Obama-meter) inauguration address, President Obama was spot on when it comes down to procurement practices.

“…those of us who manage the public’s dollars will be held to account, to spend wisely, reform bad habits, and do our business in the light of day, because only then can we restore the vital trust between a people and their government…”

Taking out the fluff, President Obama is demanding that his government’s procurement practice is guided by three principles:

  • Spend wisely
  • Reform bad habits
  • Do our business in the light of day

Or in the words of a purchaser:

  • Do your spend analysis and act accordingly
  • Implement best practice processes
  • Increase spend transparency

Seems simple enough, yet in many areas of purchasing, much spend still flies under the radar. According to A.T. Kearney’s 2008 Assessment of Excellence in Procurement the top 5 percent (aka the Leaders) boast that they have 72 percent of their indirect spend under management, for the followers this number was a disappointing 42 percent. Since the leaders in this study are yielding overall spend related savings that are 2,3 times greater than their followers, not only are they outperforming their peers in the purchasing department, they are delivering a huge advantage in earnings per share versus their competitors, all accounting to getting more spend under management.

Growing up as a strong believer in smart suits, Vespa’s and the power of the crash chord I would offer this piece of advice to those that struggle with getting their spend under management (courtesy of UK mod revivalists The Secret Affair): “This is the time, this is the time for action”. Unfortunalty rock rarely speaks eloquently enough to be fitting in the board rooms, so one can borrow another of President Obama’s inaugural catch phrases:

All of this we can do. All of this we must do.

How the Irish dioxin scandal exposes some of the difficulties of public procurement

December 18, 2008

In Sweden, traditional Christmas ham is one of the main dishes on the Swedish Christmas table; approximately 7 000 tons of Christmas ham is sold in Sweden each Christmas. Yet recently, the Irish dioxin scandal – which resulted in nearly 100 000 Irish pigs to be culled due to farmers using cheap animal feed – almost upset this tradition.

In Sweden, the dioxin scare was very real and very close to home since food produced with the polluted meat was sold to municipal operations such as schools and elderly care.

Seen from a procurement angle this significantly exposes one of the key challenges for public procurement: what is really the total cost?

Municipal governments in Sweden span over a large range of public offices, where procurement is one, another is health. In this case, the procurement functions had sourced food for municipal operations from large well known firms, yet their eyes were probably firmly locked on the cost per meal. On the other side of the hall (in our factual municipality building) sits the health inspectors, they spend some of their time banning practices which they see as unhealthy, unethical and plain wrong. Sweden has rather strict laws when it comes to keeping animals – whether this is good or bad is another question, for now this is the playing field – resulting in banning standard practices of foreign farmers for the sake of animal safety.

Simply put; procurement has bought goods – perfectly legal – from sources (further down the supply chain) which the health inspectors would have closed down. And these are people that probably know each other quite well; and they are both just trying to do their jobs best they can.

When we say that public procurement is lagging behind procurement practices in general, we often fail to see the vast differences in responsibility between the public and private sector.


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