‘Oh, a storm is threat’ning
My very life today
If I don’t get some shelter
Oh yeah, I’m gonna fade away’
Gimme Shelter, Rolling Stones.
At half past midnight on 20 March 1986, the Cairngorm summits were lashed by gusts of wind measured at 172 mph; incredibly, a group of 18 mountaineers survived an impossible storm thanks to their exceptional skills, equipment, training and courage. With the public sector and the people who make a living from it facing their biggest challenge in generations, we can learn some valuable lessons from people who know how to survive in a harsh environment. We need to develop procurement tools and processes that are fit for purpose, train people how to use them properly, and change how we behave if we are to survive the lean years ahead. Above all, we need to simplify public sector procurement.
We all knew the storm was brewing in the months leading up to the May election, but none of us knew how bad it was going to be. We did not have long to wait. With his promise to leave ‘no stone unturned’ in the hunt for efficiency savings, Francis Maude, Minister for the Cabinet Office, has set out about his task with a relish not seen since Christopher Lee terrorised the witches of 17th-century England in the film Witchfinder General. Unlike Christopher Lee, Francis Maude and his team from the newly created Efficiency and Reform Group (ERG) did not torture their victims or set fire to them but they have been deadly serious about cutting ICT spend.
As early as June, John Suffolk, Government CIO, announced a freeze on new central government ICT contracts above £1 million unless they had Treasury approval. Suffolk’s memo to CIOs in central government departments, agencies and quangos also marked the start of a review of major ICT contracts by ERG and the departments. The review of more than 300 projects has now been completed, and a number of contracts have been terminated or renegotiated. The ID card scheme was scrapped in May, and Raytheon Systems’ £750 million contract to provide a system for checking travellers leaving and entering Britain against police, security and immigration watch lists was terminated in July.
Chief executives of 19 key ICT suppliers to government faced an uncomfortable summer after Maude invited them to help cut the cost of their services to government. Accenture, Atos Origin, Cable & Wireless, Capgemini, G4S, Logica, ORACLE, Serco and Siemens have all signed memoranda of understanding supporting the government’s efficiency agenda.[1] Although no details of these memoranda have been published, suppliers are expected to achieve savings by reducing their profit margins, agreeing to reduce the scope of existing projects and working to less rigorous service levels.
ICT suppliers may also have been surprised by the publication of their contracts on government web sites (albeit with many of the key schedules redacted), or to be able to view details of departmental spend with them and their competitors.[2] This is all part of the Cabinet Office’s Transparency Agenda.
Many consultants and interim managers are dusting off their CVs, as the new age of austerity starts to bite. The Cabinet Office reported a 30% fall in the number of temporary, agency and interim staff working in government – many of them are highly skilled (and highly paid) contractors who have been working on government programmes for years. Law firms will also start to feel the pain as new procurements have stopped and most of the major renegotiations have finished. Only the litigators are happy, as they feast on the ‘dripping roasts’ of failed and failing programmes.
Things can only get better?
‘Things can only get better
Can only get, can only get
They get on from here
You know, I know that
Things can only get better’
Things can only get better, D:Ream
Looking ahead, the next 12 months look grim for the ICT suppliers, consultants and lawyers who make a living from the public sector; things will then start to change as new policy initiatives and programmes turn into new procurements. We can expect to see major initiatives to reduce the number of government data centres (apparently, there are more than 8,000), consolidate help desks and rationalise legacy applications. Changes to the benefits system will lead to new rules and systems as old systems are phased out. There will be more local procurements in the NHS and renewed popularity for shared services across the whole of the public sector.
If things can only get better, are we equipped with the right tools and processes to make procurements faster, cheaper and more effective? If we had tools and processes that were fit for purpose, would we know how to use them to make better contracts? And would buyers, suppliers and their advisers exhibit the right behaviour when they made contracts for complex ICT services? Unfortunately, the answer today has to be a resounding ‘No’.
In 1990, Trent Regional Health Authority provided IT services to 40 hospitals across South Yorkshire and East Midlands; the systems were hosted in a data centre and accessed across a secure wide area network. Staff could move from hospital to hospital, comfortable in the knowledge that they would be using the same systems, processes and reports. Systems were simple, reliable and effective. The services were outsourced, and the outsourcing contract was about 60 pages, including schedules. There was a simple SLA based around availability of key systems, supported by a basic service credit regime. Pricing was rudimentary but clear and easy to administer. The procurement took less than six months from start to finish. Today, the procurement would take an average of 12 months.[3] The boilerplate terms alone would have been more than 100 pages long, and there would be thousands of pages of schedules, annexes and appendices. Accountants would have created an enormous financial model, and consultants would have written copious requirements, supported by scores of service levels and service credits, each needing complex measurement and reporting. Suppliers’ bid costs would run well into six (if not seven) figures. The contract would need a small army of managers, lawyers and consultants to manage it, many of them funded by the taxpayer. How did we end up like this ?
The problems aren’t caused by the Public Contracts Regulations 2006, despite what many of us might like to think. Compared to 20 years ago, public sector procurement now is vastly more fair and transparent. But the Regulations can be a blunt instrument, especially for making lower value contracts. There is a case for raising the financial thresholds considerably, and adopting regulation with a light touch for procurements below the thresholds. However, this would need consent from all 27 Member States of the European Union.
We need to tackle three main problems if public sector procurement is to be simplified :
· buyers and sellers of complex ICT systems and services spend too much time on things that deliver little benefit, and not enough time on things that really matter
· we re-invent the wheel every time we create procurement artefacts such as PQQs, requirement specifications, evaluation criteria, pricing templates, service levels and contracts, and we make them far too complex, producing longer procurements and higher costs of procuring, bidding for and managing contracts
· buyers rely too much on consultants and lawyers to help them through procurements and manage contracts.
During the procurement, we often lose sight of the very reason why organisations make contracts in the first place – to realise benefits. The business case is often a closely guarded secret, even from the buyer’s own procurement professionals, and benefits realisation rarely features as part of the evaluation criteria. For all the talk of OBS (Output Based Specifications), buyers of ICT continue to contract for inputs rather than outputs or outcomes.
An authoritative study[4] by IACCM (International Association of Contract and Commercial Managers) concluded that discussions between buyers and sellers continue to be dominated by risk-avoidance provisions, rather than provisions which deliver benefit to both parties. It is interesting to compare what contributors actually focus on, compared to what they believe we should focus on :
|
What we focus on |
What we should focus on |
|
1. limitation of liability |
1. scope and goals |
|
2. indemnities |
2. change management |
|
3. price/charges/price changes |
3. communications and reporting |
|
4. intellectual property |
4. responsibilities of the parties |
|
5. confidential information/data protection |
5. service levels and warranties |
|
6. payment |
6. price/charges/price changes |
|
7. service levels and warranties |
7. limitation of liability |
|
8. delivery/acceptance |
8. delivery/acceptance |
|
9. liquidated damages |
9. dispute resolution |
|
10. warranty |
|
IACCM blames contracting professionals and lawyers for this disconnect, suggesting that they are positional advocates with limited decision-making power who feel unable or unwilling to challenge internal policy and stakeholder resistance. If anything, the recession has increased the gulf between buyers and suppliers, making them both more risk averse. And how do organisations tackle the perceived risk in contracts? They put more rules in the contract.
The OGC model ICT services agreement[5] enshrines the principle that due diligence is deemed to have taken place before contract execution (even when it hasn’t) and that the supplier bears all the risk of inadequate and inaccurate information provided by the buyer. At worst, this encourages buyers to behave as if they are playing a game of poker with suppliers, and to think that the less information they reveal to suppliers, the better. Suppliers are then faced with the dilemma of taking the risk, or including risk premium and contingency in their price (but potentially losing the competition because they’re too expensive). Yet there is a critical connection between the quality of information provided to suppliers and their ability to price their services more accurately, and to design and deliver better solutions: information about people, third-party contracts, data, asset registers, historic performance data, legacy applications, help desk volumes, and processes may all have a critical bearing.
Despite the excellent guidance notes produced by OGC (now part of ERG at the Cabinet Office), the current procurement toolkit looks pretty threadbare. The OGC model ICT services agreement is far too big and complex to make it a useful tool for many ICT procurements, especially since the government has declared that contracts with a value of more than £100 million will be the exception. What starts off as a big contract gets even bigger once the departments’ lawyers get their hands on it – some extra indemnities here, maybe a few more warranties, and how about some more personal data clauses? Consultants run amok with the requirements, with some OBS containing several thousand requirements, with bidders responding with technical solutions that are incomprehensible. And why do some contracts need hundreds of service levels, which need an industry to measure and report against them? Unlike Scotland.[6] England does not have a standard tender evaluation template. Some evaluation templates produced by central government are so detailed that the bidders’ ability to meet each individual requirement is marked – with an OBS with 1,000 requirements, this means that 0.1% of the available marks might be awarded if a bidder achieves a perfect score against an individual requirement.
In the absence of an effective toolkit, consultants and lawyers have filled the vacuum with their own tools and methodologies. It would be fair to say that many big government programmes would not have got off the ground without their help; however, it has also led to lengthy and costly procurements, high bid costs and over-engineered contracts. The only people that can understand the contracts are the lawyers and consultants who created them, perpetuating the public sector’s reliance on outside expertise.
Shelter from the storm
‘I was in another lifetime one of toil and blood
When blackness was a virtue and the road was full of mud
I came in from the wilderness a creature void of form
“Come in” she said
“I’ll give you shelter from the storm”‘
Shelter from the Storm, Bob Dylan
How did the mountaineers in the Cairngorms survive their ordeal? They built snow holes with ice axes and snow shovels – shelters that were simple, functional and effective. Like the mountaineers, lawyers, consultants and procurement professionals need the right tools for the job, and the skills to use them effectively.
Historically, there have been a bewildering array of agencies responsible for producing model contracts, hosting framework agreements and issuing guidance. These agencies are now under one roof at the Cabinet Office, with OGC and BuyingSolutions now being part of ERG.
The Cabinet Office, Local Partnerships and Infrastructure UK are developing a ‘lite’ version of the OGC model ICT services agreement for use in less complex outsourcing arrangements (for example 2nd or 3rd generation outsourcing) which involve little or no application development activity. We can expect this to be shorter and less complex than the current version 2.3. It would be helpful if the government made its use mandatory, to prevent departments and law firms from adding unnecessary bells and whistles. This is expected to be launched in Spring 2011.
ERG is also developing timeline tools[7] to enable buyers to plan procurements better, with the aim of making them faster and less costly. Work is also taking place on standardising and simplifying the Pre-Qualification Questionnaire (PQQ) form. ERG should also consider creating a standard evaluation template along the lines of the Scottish template; this is very flexible and easy to use.
A more ambitious project would be to create a catalogue of common requirements, such as desktop support, help desk, data centres and hosting, legacy applications support, network management, telephony, etc. Requirements across government are rarely unique, and enormous savings could be achieved by simplifying and re-using standard requirements. Used like a Lego kit, a buyer could assemble its requirements from the catalogue to produce a viable OBS in the fraction of the time that it currently takes. Less time would be spent in dialogue explaining ambiguous requirements to bidders and rewriting them. Sourcing consultants and one or two law firms have been doing this for more than a decade.
Once these new tools are available, ERG needs to make a greater effort to promote their use, and to train people how to use them. The current guidance is not widely read, and law firms and consultants produce their own guides covering much the same ground. Building links with trade associations such as Intellect, key ICT suppliers and the main law firms and consultancies would certainly help.
Simplified procurement tools should reduce the public sector’s reliance on external expertise, and force buyers to take more responsibility for what they buy and how they buy it. Potentially, buyers and suppliers will spend less time churning huge documents and shirking risk, and more time focusing on things that make a difference such as planning, communication, collecting information, and identifying and realising benefits.
Any lawyer advising public sector buyers should be able to:
· develop a simple plan for conducting a restricted procedure and competitive dialogue and identify the people needed to deliver the plan
· write a requirements specification that can be understood by an intelligent reader with no background knowledge of the subject matter
· create evaluation criteria, sub-criteria, weightings and methods of evaluation that are legally compliant, transparent and simple to use
· produce a pricing template that does not need the reader to have a PhD in mathematics in order to be understood
· identify the key information needed by suppliers to develop their pricing and solutions, and make sure that it is made available at an early stage of the procurement
· understand how to construct a business case and the linkage between the contract and benefits realisation (for example, a supplier undertaking a transformation project involving server consolidation or replacement of legacy applications may depend on the buyer doing certain things or making certain decisions).
A cold hearted cynic might be forgiven for thinking that lawyers would be happy to preserve the status quo, on the basis that public procurements generate lots of revenue. Asking us to simplify things might be likened to turkeys voting for Christmas. But the current model is unsustainable. Lawyers will continue to lose work to consultants unless we improve our skills in project management, deal economics and pricing, and information gathering and analysis, and apply them in simple practical ways that our clients can understand. All it needs is a little curiosity and courage for us to change how we behave.
John Yates is a Fellow and past Chair of SCL. He runs his own consulting business v-lex, specialising in technology and outsourcing contracts, commercial management and procurement. John is an ex-IBM lawyer and former head of Beachcroft LLP’s outsourcing and technology practice. John can be contacted at john.yates@v-lex.com
[1] For example, G4S announced that it had achieved savings of £10 million through changing specifications on existing contracts.
[2] Available through the Treasury’s Combined Online Information System database (COINS).
[3] The average procurement of an ICT services contract in central government takes between 57 and 77 weeks. Source : H M Government ICT Strategy 27th January 2010.
[4] IACCM’s 9th annual report on the Most Frequently Negotiated Terms, based on contributions from more than 1,000 organisations across all industry sectors and major legal jurisdictions. Contributors were typically commercial directors and managers from suppliers and procurement professionals from buyer organisations.
[5] OGC model ICT services agreement version 2.3, clause 2. However, OGC’s guidance makes it plain that it is in both parties’ interests to ensure that due diligence is carried out in a timely and effective fashion. The guidance notes that bidders should be encouraged to produce a list of their due diligence requirements as soon as reasonably practical in support of their solution design, specifically identifying the due diligence issues that impact materially on price.
[6] A copy of the Excel template can be obtained from http://www.scotland.gov.uk/Publications/2006/11/16102303/evaluationmatrix; it’s easy to use and cells are linked to perform auto-sum calculations when the template is populated with prices and evaluation scores.
[7] A copy of the timeline tool for restricted procedure is available from http://www.ogc.gov.uk/templates_tools_and_model_documentation_procurement_timeline_tool.asp, and a model is being developed for competitive dialogue.
