Promises and pitfalls for clients and suppliers in 2017

What’s the good news in Procurement in 2017? There’s plenty, and we figure it’s only getting better.

In this article, we’ve collected and combined the views of the 15-strong Plan A team, who work with suppliers to write, review, manage and edit bid responses in just about every sector. We’ve also tapped into the experience within Clever Buying – the organisation that trains and mentors hundreds of procurement professionals and qualifies tender evaluators.

In the summary below, we’ve captured the main factors that are combining to shape and change our procurement environment for both clients and suppliers. Here’s our analysis of where we’ve come from, and what we can expect in procurement in 2017.

Those Pipeline Forecasts will drive better procurement planning on both sides

Oh, what we’d all give for a crystal ball that told us how to plan our business development activity in detail for the coming few years. An accurate, reliable tool that told us all what resources we’d need for tendering; where we should allocate budget in business development; and how to get exactly the right mix of staffing and plant utilisation to optimise and grow our businesses!

The forecasting tools for both clients and suppliers to the infrastructure sector have come a long way in the past couple of years; and there’s every indication that they’ll continue to improve, providing more certainty and enabling us to minimise investment in wasted efforts on both sides of procurement.

In 2015 and 2016, we’ve seen publication of far more accurate and detailed infrastructure project pipelines from organisations such as the National Infrastructure Unit, Infrastructure New Zealand and the NZ Transport Agency. They’ve served two purposes.

First, this has enabled clever end clients to put serious time, expertise and planning into their tender documents. The best tender documents make it clear in objective terms, what they are looking for. They incorporate ‘gates’ which effectively make it impossible for an unsuitable supplier to get past Base One; then they zero in to the factors that will make a tangible difference to the success of the project and the long-term sustainability of the assets created.

Standard sets of questions that are used as a template for every tender are now openly acknowledged to fall short of Best Practice. The risks and opportunities to add value are different for every project. So the tender documentation, if designed carefully to target risks and opportunities that will determine project success, provides the tools that lead directly to the right decisions. That’s good for all of us, especially when it’s our money invested in public assets that’s at stake.

Equally importantly, detailed pipelines of upcoming projects coming to market have given suppliers an incredibly useful forecasting tool to plan their tendering activity. Armed with that intelligence, they can plan and put in place the partnerships, the resources, the staff and the plant they’ll need to deliver those projects efficiently and competitively.

No longer blind-sided by massive tenders that spring on us on the 23rd of December to be completed by the 10th of January – supply-side tenderers can put real time and careful thought into developing clever methodologies that will deliver sustainable benefits over the life of the asset. This is a huge advance over the cheap and short-term seat-of-the-pants bids that won the job but delivered a low quality flimsy asset that didn’t last the distance.

Winning on quality more possible – but will demand more effort in tendering

A consequence of this, however, is that suppliers need to put significant effort into the preparation of their tenders. Winning on quality is everyone’s goal, but it doesn’t happen without effort and time invested. Based on experience, those suppliers who start planning strategy and preparing their bids early, engage professional help when needed, and are open to independent input into their review are those who most often score highest.

Last-minute rushed tender preparation is never anyone’s ideal, but sometimes a massive effort is needed in a short space of time. To meet that need the Plan A team now incorporates Northern Hemisphere bid writers, who leverage time zone differences to enable round-the-clock activity on tenders when needed. Suppliers who plan their tenders effectively and are willing to invest in winning work will always be at an advantage; so using those forward work plans to plan your bid programme through 2017 is prudent.

Full marks to those government organisations who are most active in communicating their forward work plans to tenderers and using them to plan their tendering activity.

The New NZQA Procurement Qualification will prove its worth

The new NZQA Procurement Qualification came online this year – strengthened, updated and extended to all of infrastructure. Its assessment tools were approved in November; and the first few candidates are working through it.

As an alternative to the UK-developed procurement qualification suite available from CIPS (the Chartered Institute of Purchasing and Supply), The NZQA Certificate in Infrastructure Procurement is relevant and focused, providing a practical qualification for procurement professionals who are engaged in tendering. Assessment and learning is via workplace activity rather than exams and reading textbooks, so the knowledge and skills are immediately applicable to professionals who are working in procurement in New Zealand. What’s more, the qualification is the only one to build in a working knowledge of the NZ Government Rules of Sourcing, which have been mandatory, expected or encouraged as best practice for NZ government organisations since 2013.

Progress on achieving compliance with those sensible rules has been agonisingly slow over the past three and a half years; but this qualification has the potential to create step-change in compliance within those directly responsible for government procurement activity, from Ministries and Departments, right down to Councils and even, for example, School Boards.

What this means for clients is that the proven NZTA tender evaluator qualification is now even better than before. Since the early 1990s that qualification has been the mainstay of Councils and Road Controlling Authorities throughout New Zealand as the benchmark in competence in best practice procurement via tendering.

Traditionally, it relied heavily on evidence of experience to provide the basis of achievement of the qualification. That proved a risky tactic in some cases, since best practice in procurement was not well defined and acceptance of a variety of legacy practices was sufficient to gain the qualification.

It was difficult for assessors of the old qualification to be confident that an individual had the skills and competence to prepare RFx documents or evaluate tenders to the standard required, since the evidence was largely shown via documents that were jointly prepared by teams of evaluators.

The new version of the qualification requires assessment via observation and interviewing to assure the assessor of that individual competence. Rolling out standard templates prepared originally by others – with minor tweaks or edits from the individual being assessed – will no longer be acceptable in the new qualification. They’ll need to demonstrate their personal understanding and involvement in decision-making, to conform with well-defined best practice standards.

This is excellent news for anyone involved in tendering. Suppliers will see that with additional discipline in procurement planning and tailoring the RFx documents to drivers for best value for money, there are more opportunities to win work based on the quality and sustainability of the solution offered. The price war mentality – which cut costs to the quick and resulted in so many cases with false economies – is reducing, with the support of the requirements of this new version of the Infrastructure Procurement Qualification.

The ‘Balanced, Healthy Market’ debates will continue – proceed with caution

There has been much debate among major procurers about the merits of aggregating or bundling contracts, to streamline the number of suppliers that clients interact with and reduce administration and tendering costs. While on the surface, this sounds sensible, there are fish-hooks in this approach which should not be overlooked.

Clients argue that although this tips the market in favour of larger companies and potentially reduces the number of opportunities for smaller companies, it is possible to maintain a healthy market through requiring those head contractors to engage a minimum quota or percentage of subcontractors for major projects.

This is a simplistic approach which unfortunately does not solve some worrying issues. When smaller companies are presented with a glass ceiling that prevents them from contracting direct, they have few or no opportunities to develop their own management systems and expertise. While they are under direction from the Head Contractor, who is not bound to follow the principles of fair procurement that applied to their own engagement with a major government client, subcontractors are often squeezed on price to the point where business growth for them is difficult to achieve.

Let’s not forget that the giants that dominate our infrastructure landscape today grew from small enterprising companies several decades ago, who had real opportunities to grow and seized them, with characteristic Kiwi and Aussie ingenuity.

As we face a promising and healthy pipeline of infrastructure projects over the next five, ten and 20 years – prudent client organisations will provide a balance of large and small projects to go to market, to encourage the best in every tier of infrastructure providers to grow and prosper. That’s insurance for generations to come that our infrastructure market will continue to attract a range of competitive, high quality suppliers.

Procurement Soup – stronger and deeper alignment between procurement agencies

A key point of debate prompted by Infrastructure New Zealand earlier this year was the proposal to establish a central agency that would provide a centre of excellence in procurement specifically targeted to assist with procurement of large projects. This was widely supported, but – not surprisingly – the question of who, and how are head-scratchers.

Clever Buying has been picking the best from various procurement models including NZTA and MBIE (among other international examples) over the past five years, and blending these into a best practice training programme for procurement professionals. That’s been challenging at times, with misaligned practices and no common language still evident in the methods taught by those entities. Both those agencies provide good models and practices, however it is quite difficult to blend them into a seamless model.

The past year has seen growing signs of increased cooperation between these two agencies, which is welcomed. The NZTA manual is being revised to create stronger alignment with the Government Rules of Sourcing. Workshops between the two entities have begun to explore their strategic alignment, although there is still work to be done to combine the actual practices that are evident in tendering from each of these agencies into a unified model for all NZ Procurement Professionals to follow.

We are hopeful that the work done so far will continue in this direction, so it will actually make a difference to procurement tools used to make decisions on asset investments. With a working knowledge of having prepared thousands of responses to tender documents all over the world over the past 19 years, Plan A’s managing partner, Caroline Boot, can confidently say that the practices routinely used by the NZTA are head and shoulders above most others in their effectiveness, transparency and fairness.

While it’s always good to be aware of emerging best practices, we have excellence in our own back yard and in Boot’s opinion, we don’t need to invest too much time and effort into offshore investigation to adopt procurement practices that are the envy of the civilised world. We have that Centre of Excellence already – all we need to do is extend its influence over infrastructure beyond transport.

A landmark year…?

In summary, 2017 could be a landmark year for Infrastructure Procurement. In a nutshell, here’s why:

  • We have a healthy and visible pipeline of work in New Zealand and (to a lesser extent) in Australia, which is increasingly detailed and accurate. Suppliers and clients now have the tools to plan the respective business development and procurement activities far more effectively than previously.
  • Both clients and suppliers will put more effort into procurement planning, and this investment will pay off with better decision-making tools, more effective use of public money, and more sustainable infrastructure solutions.
  • The new version of the NZQA Procurement Qualification can provide a powerful tool for infrastructure agencies to demand effective procurement practices that directly lead to compliance with Government Rules and conformance with best practices in procurement.
  • The balance between providing efficient category management to streamline procurement activity and reduce tendering costs, and providing a healthy and balanced market so suppliers of all sizes have opportunities to grow, will continue. Clients need to be mindful of both the benefits and potential pitfalls, and take care not to make decisions that could affect the viability of significant sectors of our infrastructure supplier markets into the future.
  • We’ll welcome further progress on convergence of best practice tools and models in procurement. Alignment at a strategic level is useful, but often falls short of making real differences that drive better outcomes. We hope that the initial signs of cooperation between the two most influential agencies in NZ procurement will filter through to achieve alignment in the areas that actually deliver infrastructure projects.

We welcome your opinions or feedback on this article. If you have a perspective on these issues, or more to add or debate, please contact Caroline Boot at caroline.boot@plana.co.nz or caroline.boot@cleverbuying.com or phone 021 722 005.