Procurer Curers: The Worst Advice Ever?

Open Letter to Public Bodies Who’ve Ever Said These Before

by Ethar Alali

I was at Stockport Council’s Textbook Tendering event on the Tuesday 15th March. I have to admit to being quite disappointed with the event on a number of fronts.

It was useful if one has never been involved in tendering before and it was touted as attempting to demystify the tendering process. However, having had plenty of experience in the space myself and spoken to a couple of others just after the main event, the overall feedback was that an event billed as making it simple, actually left many folk with more questions than answers and from the perspective I am at, simply didn’t cover enough information to make it useful or viable. It even left a lot of acronyms undefined, so we tweeted a number out for people if they wanted it.

https://twitter.com/Axelisys/status/709664534634569729

Now, this may have happened because there wasn’t any time, or perhaps because they didn’t want to give too much away, as STaR and the growth hub service were also awareness raising for their workshops.

However, SME’s in attendance should realise there is a lot more than was presented. It was an overly simplistic view, without a lot of the necessary background. To state the obvious, it was claimed the process is simple, yet at various points, the speakers naturally admitted to complexities in the process, especially around “funny acronyms” like “PQQ”, “ITT” etc. etc.

There were lots of missing parts and even items within the agenda were not really covered.

What was interesting though was our figures were presented to the audience by the speakers. Remember this infographic from a few months ago? The figures in it somehow got an airing. At least people are listening up :)

My Disappointment

I have to be honest, I was also quite disappointed in the Federation of Small Businesses, especially being members of that organisation. My associates, some also members themselves, got in contact with them on a couple of occasions to ask about a policy stance and indeed, serving this space in a more supportive way than STaR’s suppliers offered through the Growth Hub. Were told that wasn’t on anyone’s radar and wasn’t a concern. That was 2 months ago. Yet, they appeared to endorse and even speak at this event.

Still, I’m sure the backing of the Business Growth Hub, attached to Greater Manchester Chamber of commerce, who we’re working with on a couple of fronts, are creating a platform that helps SME’s embark on that journey, which regardless of position on the matter, we still feel is necessary, even if we’re not involved with it ourselves.

Sharon Mayo of Stockport Council

Innovative Players, Beware!

There weren’t that many questions asked in the Q&A. I happened to ask one, which was answered with something that also wasn’t very useful. Not from the perspective of the content, which was fine, but the process to do so.

If you’ve been following the LinkedIn posts and other Medium posts on the subject of procurement in recent months, I’ve highlighted how the procurement process is totally skewed against innovative companies. We went through a tender not too long ago which we individually are happy to admit we lost. Though as I was reading it for the third time and confirming our response, I knew that we had a good chance of losing the bid.

Without naming the organisation, they were tendering for a service in their green division. The division is about helping SME’s who serve ecological causes or work in sustainable ways. The tender asks for evidence of sustainable credentials. We supplied them with that, especially since we have moved to full cloud hosted environments by default now (as of March 2016 we do not in any way use or recommend the use of on-site hardware- that’s a story for another day). Such cloud infrastructure, per CPU second, consumes a lot less power and not just that, you are utilising already procured hardware elsewhere. So you don’t have to buy or host your own boxes, meaning you automatically ‘carbon offset’ your consumption into carbon used already, reuse the floorspace for other things and reduce the workload on your IT staff in terms of hardware maintenance. It’s a win-win-win.

…Except for companies who use this technique, as public buyers are, to be frank, on the whole exceedingly poor at understanding the technology side of the process.

Perhaps that isn’t surprising to many people, but with companies like ThoughtWorks finally having won a series of tenders, they’re now making the changes needed to get the public sector to act in the best interest of the spirit of the law, it’s tax payers and indeed, themselves.

Principled Stance?

Some of the key principles of procurement are:

  • Non-discrimination — Which we naturally violate by having ‘table stakes’ and offsetting losses incurred in the process to the SME’s bidding.
  • Free movement of goods — That isn’t possible
  • Freedom to provide services — This we do OK
  • Freedom of establishment — To most degrees, this is OK too
  • Equality of treatment — Definitely not true, since by nature a balance scorecard favours those with more money in the bank
  • Transparency — This isn’t truly possible with the structures available and the procedure of “open bidding” in turn conflicting with the UK’s own anti-collution legislation.
  • Mutual recognition — This we do OK
  • Proportionality- This is crucial for SME’s, since tenders worth £11,000 and being of little risk would require professional indemnity of £5 million to £10 million (and mandate it) which in turn, can add an extra £1,000 to a small company’s insurance bill. This is one of the best things to come out of the EU. Just a nod to Brexit.

As well as being sustainable, public sector procurement also has to account for every penny of public money and any authority has a responsibility to get value for that money. That bit is fine. However, £45,000 across the collective is lost on average for every single procurement exercise, of which the component of salaries of those tasked with running the procurement process comes out at around £8,000 per exercise. So we have a process which is 53 days longer than the average in the EU and 90% more expensive. It’s not the EU, it’s us.

There are 110,000 of these ‘lossy’ exercises annually nationwide.

Our Example Case

The irony of our bid was it did what is best for the organisation. We could have chosen to provide the worst solution out there on the market, pretty much as they wished in the tender. We took a punt in submitting the services we provided, since they were a green organisation, who wanted to promote and be seen to be promoting that side of their remit. Indeed, they mandated bidders have an environment and sustainability policy to evidence it.

It turns out, because they don’t know what that entails in IT, bless them, they specified procurement of a service which wasn’t cloud based (even though it can run on IaaS without any issue). Because they didn’t specify they wanted it (they also didn’t not specify it) and hadn’t indicated a strong objection in the Q&A, we naturally got marked down. From our position and the position of Amazon, Google, Microsoft and Facebook, it’s an embarrassing choice for them! I rarely get embarrassed for organisations, but this genuinely was one time! It truly was cringeworthy.

  1. A green-focussed organisation procured less-green tech <- Have to be honest, I still can’t get around how they did this.
  2. That division is responsible for public money so should be aiming to optimise the resource spend. Cloud was cheaper by default for their platform, given the hardware maintenance is included in the fee. Yet they chose against it.
  3. The great big hole in MEAT (Most Economically Advantageous Tender) calculations. I’ve covered those elsewhere. They still exists and allow companies who wish to exploit public sector’s mathematical naivety, to do so (i.e. why management accounting firms have ‘siphoned’ money from public services for years without delivering value — for goodness sake plug it! The EU does not mandate we do it that way! That’s our own rules). Changing from lowest price bidder to MEAT doesn’t remove this problem! Remember this rule:
“Fool me once, shame on you. Fool me twice, shame on me!”

What’s the Solution?

Well, it’s not this:

“Go to Meet the Buyer Events!”

Nope nope nope! This was the answer provided to a question of how to work as an innovative organisation within the framework. Here’s why that shows the council are still out of touch.

If you are an innovative SME, you are spending all your time doing one of two things. ‘Building’ or ‘Selling’. If you are not doing either of those two things, you are losing an opportunity cost and/or revenue which impacts your rate of return on your previous investments of time and money.

To suggest someone goes to meet the buyer events on the off-chance they can convince a buyer who is several steps removed from a point of understanding it, is ludicrous. As a company in the tech space, we’ve had problems getting tech folk to understand things because it’s needed two hours just to get on the first step. This isn’t because we haven’t simplified it either, it’s mainly because tech folk don’t get or want to get, accounts, financial, commercial factors or the like. The opposite is true with non-tech folk (i.e. they don’t get tech and don’t really want to get tech). So, taking a half day out to meet the buyers, where there isn’t even an opportunity on the table, let alone the chance of winning it is a really bad idea! i.e. it’s 100% guaranteed loss! If a meet the buyer event attracts SME’s who turn up, they are not the SME’s you are looking for!

Seriously, don’t suggest that… ever.. on anything. It might be useful for the council but overall it’s just adding to the waste of public money that’s generated, since the money not made because businesses are at such an event ultimately doesn’t go back into the public purse! Stop suggesting it! Seriously! If you want to run a Market Questionnaire, do that instead. SME’s can do that out of hours. But don’t suggest a meet the buyer event to glean or provide information! It is not a privilege for top class companies to work for public sector buyers. They can go anywhere! Many are! So what are you left with?

The Lowest Bidder Trap

Since we’ve been caught by this a few times, I asked the question about shifting capex to opex and being caught in a trap of being the ‘abnormally’ lowest bidder. Pure SaaS models have that. There is no… I mean zero… zilch capex investment. So where a tender splits ‘capital’ and ‘revenue’, we revoke our interest when MEAT scoring is used and the tender states exclusion on those grounds. Since it’s obvious we’ll get thrown out unless we’re lucky enough another competitor happens to provide a similar service.

In normal ‘closed’ tenders, you never know who else is bidding (These are are called “open procures” — Not because you know who is bidding, but because they are open to scrutiny and available to any interested party… as long as they have the funds, insurance, policies and a few other things). Given we’d have to rely on another bidder to maintain a competitive position within the tender evaluation, we never know if another bidder is supplying a SaaS solution with similar terms. That is more uncertainty on top of the other uncertainties. If you multiply one probability by another probability, you get a smaller probability. It’s impossible for it to get bigger. Flip two coins when you want ‘all heads’ gives you a 1-in-4 chance. By contrast, one coin is 50–50.

Hence, innovative suppliers, who truly care about public funds and how to utilise them, who also save local authorities tens or hundreds of millions every year, naturally have a worse chance of winning such a scorecard than the heavier, more wasteful, more expensive suppliers, who usually bomb big time! Remember the £11bn single NHS IT system? That was a consortium of large suppliers. Anyone? So what’s the answer? Remove the chance of finding yourself in that position by putting your prices up! I hope councils realise the behaviour this creates. They are in a position where they need to save public money not encourage tender respondents to push their prices upwards to avoid the trap.

Conclusion

Think about it this way. The process doesn’t benefit the council, doesn’t benefit the tax payer, nor does it benefit SME’s. Indeed, I would urge councils to be mindful that they don’t have the skills to specify the procured service they need, precisely because they are procuring them. However, because they don’t have them, they risk not being able to identify the skills they need when they do arrive. This is a manifestation of the Dunning-Kruger effect. Watch it! It can take you by surprise that one.


Ethar Alali is Manchester based Chief Executive of Axelisys, specialists in Lean Enterprise. Follow us on twitter. Connect on LinkedIn.

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