23 Jun 14

Why do public sector supplier relationships seem so accident prone?

Why do public sector supplier relationships seem so accident prone?

By Mel Shutes, Executive Consultant and Head of SRM at State of Flux

Earlier this year Mr Bill Crothers, Chief Procurement Officer at the Cabinet Office, was very forthright about a number of the government’s IT suppliers. He accused some suppliers of taking advantage of relationships with government and monopolistic behaviour, going as far as describing their behaviours as abusive. 

Speaking to BBC Radio 4 World at One he said, “this is about the oligopoly; the cluster of big suppliers that have had it too good for too long”.
This is the latest in a number of public criticisms levelled at suppliers with government or public sector contracts. IT suppliers have long been in the firing line, but we have also seen the criticism of G4S leading up to the London Olympics and more recently Serco relating to the electronic tagging of offenders. 
What characterises these statements is that they reach the public domain via a string of sound bites quoting individual horror stories, but seldom conveyed is any real context or appreciation of the bigger picture, which   has a very complex contract and relationship underlying it. Typical examples will describe horrendous budget overruns or will include quotes such as “we were charged £60 for a replacement cable” or “we could buy this laptop cheaper on the high street”. Rarely, if ever, is there any acknowledgment of government procurement’s responsibility in allowing the situations to develop. 
Before you think I’m blindly defending suppliers, I should point out that I am a procurement professional with 35 years’ experience. The first 25 years have been in senior purchasing positions and the last ten with State of Flux as an Executive Consultant and Head of Supplier Relationship Management (SRM). Over that time I have seen many examples of poor supplier performance, alongside examples of extraordinarily good performance. 
In my experience, the majority of instances of poor performance had in their root cause some failure by the customer to either define their requirements clearly or to meet their own obligations. For example, failure to exercise proper control and management of contracts is a major factor leading to poor performance. Conversely, great performance is usually the result of a great partnership, characterised by a shared vision of what success looks like for both organisations, and collaborative working within a well constructed contract supporting performance metrics and a structured relationship.
For good or bad, supplier relationships are largely framed by the sourcing process. If conducted professionally and to best practice standards, the contract will provide a foundation upon which a successful relationship can be built. By this I mean getting the basics right, such as a clear definition of requirements; a fair and transparent supplier selection; and above all, a contract that meets the needs of both organisations. However, best practice doesn’t end there. It must extend to adopting leading practices to manage the ongoing relationship, ensuring the obligations and value for both parties embedded in the contract are delivered. With this established as a platform, the possibility to deliver additional value can and should be explored.
I applaud opening up government IT contracts to a wider range of suppliers including SMEs, and this will certainly create more competition (and I suspect more innovation). From my experience of dealing with government as a supplier, I agree better value and performance could be achieved if this were done for consulting and advisory services. The question is what does government procurement do with this new found competitive leverage?
Unless the strategic sourcing and category management processes are improved and most importantly effective contract, performance and relationship management introduced, I fear we will just have more examples of failure – just on a slightly smaller scale each time and perhaps these will be less likely to dominate or even feature in the headlines.  
All this points to a suggestion that government needs to invest more to better develop their SRM capability for dealing with both large and small suppliers. Of the six public sector bodies that responded to the State of Flux 2013 global SRM research, only one reported an approach to SRM that placed it amongst what we consider to be the leaders in this field. The average response of the remaining respondents placed them below the follower average.
The good practice developed and implemented by at least one public sector procurement organisation dispels the myth that developing supplier relationships in the public sector is in any way inconsistent with the Official Journal of the European Union or other public sector procurement regulations. On the contrary, good practice SRM can be the means by which best value for the tax payer is derived from contracts.
Please contact Mel on +44 (0)2078 420 600 or email him at mel.shutes@stateofflux.co.uk for further information.
Take part in the State of Flux 2014 global SRM survey to benchmark your current SRM capability.