Strategic Suppliers: Procurement enhancement strategies to strengthen relationships, 5 observations

There are key differences in the core functions of private and public sector organisations. When you bring them together in a complex strategic supplier relationship, you will have some who will be fundamentally opposed to the partnership from an ideological standpoint. Some, however, will cite from the many examples where this standpoint has been proven incorrect.

However, just like meeting someone new for the first time, it’s important to treat any strategic partnership with both a healthy amount of awareness, fuelled by past experience, and an openness to treating them with commercial trust, guided by their own unique influences.

In the abstract, public sector bodies/organisations are targeted to provide the taxpayer with value for money, focusing on quality of service, social values, and supporting the population while protecting the public purse.

Private Sector: Is it really only about the profit?

While the tide is moving to more socially responsible behaviours, some private sector organisations are still seen as all about the profit and beholden to shareholders to earn as much as they can from any project so they can grow and expand.

While this vision of conflicting priorities is accurate to a degree, this is more of a caricature than a life-drawing of the reality of private–public sector strategic supplier relationships, and only part of the bigger picture.

For instance, despite their best intentions, not all public sector organisations that run services are achieving best value. And many private sector organisations focus on more than just profit-making: they contain some of the market’s best expertise which can ensure that the services delivered by them are completed for less and add in social responsibilities (such as apprenticeships for socially and mentally disadvantaged individuals) while still making a good profit. A win-win for everyone.

Private sector organisations tend, on the whole, to be less risk averse than the public sector, thus usually becoming more efficient at innovating to ensure better outcomes and/or swifter completions. This behaviour often justifies a higher project cost for a shorter time of better output. These organisations realise the gains much faster, thus the additional cost of accelerating the projects pales into insignificance when weighed against the benefits achieved.

The Challenges with Public–Private Sector Strategic Supplier Relationships

Any collaboration between public and private sector organisations requires more nuanced consideration than the overly simplistic view that some will espouse.

That being said, there are plenty of examples of private sector organisations that have followed the direction of their caricatures, so an organisation’s motivations and its history of evidencing commitment to priorities that match your own, should always be investigated before consideration in your procurement process.

An Example of One Strategic Supplier Relationship that had a Mixed Outcome

UK Trade and Investment’s (UKTI) contract with PA Consulting is one of those cautionary tales. Reported as a “fiasco beyond belief” by Public Accounts Committee (PAC) chair Meg Hillier, the primary problems in that relationship were reported to stem from contractual alterations which meant that it became impossible to tell whether overcharging was going on.

On the plus side, PA Consulting had spent several years performing exceptionally well for the benefit of the British public – securing huge investments, supporting billions in exports and creating tens of thousands of jobs. Even when looking at strategic partnerships which end in problems it’s vital to look at the relationship in the round, to identify the good as well as the bad in order to start to learn the lessons of where things went wrong.

The NAO conducted a report into the relationship and the key problems the parties faced were summarised as follows: “UKTI and PA then agreed to incorporate activity from another contract, thus making a significant change to the specialist services contract. UKTI subsequently pursued with PA moving to a different charging model – which led to PA sharing and UKTI reviewing actual costs incurred under the contract, which would not have happened under the existing charging model.”

Inaccuracies were discovered around a year later and an independent accounting firm was instructed to unpick the complex web of charges, identifying potentially millions of pounds’ worth of fees with question marks over them.

However, the reported lessons learned for the issues that brought this relationship to an end pointed mainly at PA Consulting. The NAO report suggested that UKTI should have:

1. 1. Shown higher standards of governance in the procurement process and the management of the relationship.
   2. Understood the pricing structure better in the contract and agreed clearer documentation on this.
   3. Resisted calls for such an extensive renegotiation of the contract so early in its existence, which looks like it increased PA Consulting’s profit on the contract.
   4. Placed a greater importance on both understanding and monitoring the contract from the outset which may have meant an earlier discovery of the pricing issue.

Five Observations to Ensure a More Successful Procurement Strategy for a More Aligned Working Relationship

Most of these observations can add nuance to the way that any client or supplier would view their strategic relationships, but often it’s that nuance which will mean the difference between a partnership that is aligned in all the most important ways and one that deviates from the path of good effectiveness and innovation.

1. 1. Quantify and clarify

To know where you are headed, you must first know where you’ve been. A clear vision of your future aspirational state/position needs to be identified and quantified, but the value of the change you are proposing can only be determined if you have a crystal clear appreciation for your current position, warts and all. The front-ending of analysis will ensure not only more accurate objectives and KPIs/milestones, but also make it easier for all parties to communicate and understand the expectations of the other.

1. 2. Roles and responsibilities

Each party should appreciate their role in the greater whole of the relationship. Not only what they are required/expected to do, but also the ramifications of not performing to expected standards. Unless you know what you are responsible for completing, and when, you cannot know whether you have achieved a particular milestone. And, unless you know what the domino effect this missed milestone might cause, you cannot identify the impact it will have on all parties, including your own.

1. 3. Early market testing

Being informed is key to the success of any strategic supplier relationship. The more time you can dedicate to gaining expert views on the viability of your project aspirations, the more able you will be to drive the right procurement method, scoring and shortlisting decisions, and to have the ability to sort suppliers by their competencies for your specific relationship needs. You can read our brand new guide on Early Market Engagement which also includes a Request For Information template to get you started.

1. 4. Pre-contractual scoping

Ask shortlisted suppliers to carry out pre-contractual scoping to the Terms of Reference you provide them with in order to gather a truer picture of what you can realistically hope to achieve in your strategic partnership. There is no point in setting goals that clearly outstrip a supplier’s capacity for achieving them. By doing so, you either evidence that you would be better off with an alternative supplier or that your expectations are beyond the means of any support you could procure. Realistic high expectations are a far better goal to have.

1. 5. Robust, understood, and an agile complete contract

Your contract needs to be a robust document, formed from all the best information from the Terms of Reference and results of pre-contractual scoping exercises to identify a fair and agreed path for all parties. Before signing, the contract (from the pre-contractual scoping completed in point 4 above) you should identify:

1. • what you will receive and what the service/solution will enable for your organisation
   • what you are unlikely to receive
   • the consequential impact of what you are unlikely to receive on your organisation achieving the outcomes you had anticipated.

All of this needs to be understood and agreed by all parties so they buy into the commitment of living up to the standards it contains, and it must be a complete pack of documentation, one that clearly, and in a language that all parties can appreciate, shows a route to a successful conclusion, identifies actions should anyone veer off course and ways in which a realignment can be achieved.

Conclusion

We described the PA Consulting–UKTI partnership as a cautionary tale because it is just one example of where public and private partners have acted as stereotypes of their respective ‘sides’, with one seemingly placing profits above all else and the other showing a level of  abdicated responsibility that meant it took far longer than it could have to uncover the issues inherent in the relationship.

There are many examples of public–private relationships that have been very successful too, so it’s important to be open to this possibility when seeking out assistance in your next project. However, it’s just as important to follow a tried and tested road to procurement success that will increase your chances of identifying issues and realigning partners with competing priorities or aspirations.

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