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Thursday, 28 July 2011

Government purchasing: an insider view

Some companies spend over £250,000 bidding for a large government contract.  They bid with the knowledge they will win on average only one in four bids.  That's a spend of £1m to recoup on each successful project to cover the cost of bidding.

My experience isn't limited to the IT sector, but when a report by MPs released today found some government departments were paying ten times the market value for goods and services I wasn't surprised.

Before I started blogging I ran my own small IT company, with a product - Budget Activity Tracker - designed to manage spending decisions on publicly-financed construction projects.  As a new company with an unproven track record the only way I could get near a government contract was via a third party supplier - who would add their slice of profit on their terms.

But my career has been an eye-opener into the world of government contracting.  I worked closely with two large UK companies selling (non-IT) services to government departments. Before that I worked as a system architect on the police communications network Airwave, and before that on MoD and DoD funded radar research.

From my experience, government purchasing seems to be centred around three key priorities:
  1. Delivery success (on time, on budget and on spec)
  2. Value to the taxpayer
  3. Preventing corruption 
I don't doubt the majority of civil servants overseeing purchasing want to achieve the best result possible.  They don't set out to commission a buggy database or feather the pockets of large construction companies with low-risk contracts.

Yet I've seen my fair share of absurd public sector procurement decisions symptomatic of a procurement process designed with the best intentions in the world; a system which completely fails in its aim of delivering value to the taxpayer.

Barrier to entry

Governments want every project to be a success.  So priority (1) means they need to look very closely at each supplier, and only accept bids from suppliers with a proven track record.  Fine in principle, but this has lead to the supply scene being dominated by existing suppliers who know their way around the bidding process.

Moreover, they know how to spin each and every previous project as a roaring success. Plus, they know how to explain that they've learned from all past projects, and the next one will be even better.

Not to mention that the end-user or public view of each of the Emperor's new IT systems rarely plays a major role in deciding whether a project was a roaring success.  Who cares if the Emperor is left standing naked, so long each of the success criteria, determined by a series of Key Performance Indicators (KPIs), have been met?

Listening to the sales teams you'd almost think that each supplier was doing the government a favour in choosing to work on the next project.

The KPIs are generally agreed in advance with the supplier, for heaven forbid that the next great glorified electronic filing cabinet installed by Acme Regional System Engineering (UK) Inc should be hailed as a failure by those using the system.  What would that do to the share price of ARSE (UK) Inc?!

A communications network delivered for the emergency services at tens of billions of cost to the taxpayer is seen as a success because it meets the criteria established in the late 90's.  Never mind the lack of high speed data capability etc.  You get the idea - contracts are inflexible and rigged in favour of the supplier.

Screwing for value through micromanagement

It's not enough for the government to look at the service and the price of service before deciding on awarding a contract.  Quite rightly the government wants to ensure they choose a responsible supplier, so I'd expect a level of investigation into the supplier before the contract is awarded.

But the meddling and micro-management goes far beyond ensuring staff health, safety and welfare criteria are met.  Suppliers are sometimes asked to provide a full breakdown of their profits.  It doesn't matter that the price is right, i.e. competitive, but the government wants to make sure the price is right.

Of course the fact that government buyers need to check this detail is a tacit acknowledgement that the supply market is broken.  If there's a worry about profiteering then there's a lack of competition, surely?

This leads to more entry barriers, as established players know how to re-classify profit as investment in innovation, etc.  It can also have a disturbing side-effect, as a company with a high proportion of female employees once told me their profit margins were questioned - but they needed to be higher than average to plan ahead for maternity pay and cover!

And micromanagement has an even more serious downside once the project actually starts, when the contractor finds decisions questioned by civil servants who are cocksure in their attitude but lacking in any industry experience whatsoever.

"No, we'll do it like I say," said one senior civil servant, pulling on his braces as he said it.  I was there in the room as a man with no experience in the engineering subject under discussion has the final say on all the decisions.  And his casting vote was not always representative of the prevailing view of the engineers in the room.

Getting the guy we want

When I read last week Met Police defending the hiring of ex News of the World Executive Neil Wallis as a contract won as part of a "competitive tender" process I spit my cereal.

I know several very fine consultants who've won "competitive tender" contracts for various government departments.  But usually such contracts are created with a specific consultant in mind.  The chosen one is usually invited for a quiet chat, discusses acceptable fees, and told he or she is the man or woman they want in an ideal world.

The job specification, contract price and qualifying criteria are then written with that person in mind.  From the cases I'm aware of, it's unusual for the chosen one not to get the contract.  

And I'm not sure whether this particular point even represents a problem - it seems perfectly valid to want to hire the services of a particular leading industry expert.  What is farcical is the process being hailed as proof that decision was open to rival bids. 

In the case of hiring specialists, the process offers a false sense of security, when in many cases transparency alone should be the best oversight; "we wanted X because he's known to us and is a leading expert in Y."

And in a general sense the process offers false security; "we've ticked the boxes, followed the best practice tender process, now we expect the best system and the best price!"



  1. Eurim is looking at the public procurement problem: http://www.eurim.org.uk/activities/pubproc/pubproc.php

  2. This is naive. Have you spoken to any of the slightly more junior civil servants - who do know a lot about IT and what's required in their departments - about what happens if they point out the systems proposed by the brought in "experts" won't work? They get threatened with dismissal. "Sing from the charlatan song sheet or get out" seems to be their motto. And lo and behold - loads of these IT systems don't work.

    There are *loads* of people out there who've been shunted out like this. How come no-one ever bothers to speak to them? Could it be that select committee reports and the like only ever consult the great and the good, rather than those who were at the coal face and really know what happened?

    Frankly, the people who (used to) understand IT in the civil service are lucky if they managed to get thrown out on redundancy terms or early retirement.

    The whole thing *stinks*.


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