Ministry of Defence privatization plans: Setting up stakeholders for failure or success? by Andy Akrouche
We are all familiar with quotes such as “Insanity is doing the same thing over and over again but expecting different results.”
Even though the announcement that the Ministry of Defence’s plans to privatize its troubled procurement process would be scrapped has been anticipated for the past couple of weeks, when news of the initiative’s demise had finally materialized it was nonetheless noteworthy. Especially with its detractors whose refrain “I told you so,” could be heard clear across the Atlantic.
While I am not one to echo those same sentiments, it should probably come as no surprise to anyone, especially those who have attended my seminars or read my book, that I am all for outsourcing. However, I am also a strong believer that the public sector cannot simply outsource its responsibility and accountability for the delivery of a service it is legally mandated to deliver. Nor do I believe that it can successfully transfer and wash their hands of the associated risks of its duties to a private entity.
Within this context, the outsourcing of these complex business processes to the private sector can work if they are structured as a partnership, and in a manner that maximizes shared insight and learning on an ongoing basis. This is especially true when it comes to establishing the criteria by which success will be measured and modified both now and throughout the life of the relationship.
Unfortunately, and as experience has shown us time and again, said partnerships cannot be borne out of a strategy that is designed around a transactional mindset that is myopically focused on circumstances in the here and now only.
Nowhere is this precept more critical than it is when an organization attempts to outsource the purchasing process.
Procurement affects the whole operation. It is the place where if you apply a change in one area, it will almost certainly have to varying degrees, a dramatic impact on all areas of the organization. As a result, you have to be extremely careful not to misconstrue your objectives and misinterpret the corresponding results.
For example, realizing a lower cost on a particular product is not tantamount to realizing an improved collective or enterprise-wide outcome. In fact, it could mean arriving at a worse outcome for the very same stakeholders you are attempting to satisfy. After all, a gain in one area should not be achieved at the expense of another area of the program.
This is another key point, in that a “disconnect” of this nature – particularly when it extends to include an external partner – will ultimately come back to hurt the entire program and nullify the anticipated benefit. I call this the unintended consequence factor.
In the case of MoD, the desire to address the known challenges with the procurement process is laudable. However, and by relying on the same broken procurement regime to both analyze and source the new arrangement in the hope that it will deliver a different result, is where the program went wrong.
A new more adaptive approach is needed, that takes into account not only the factors that are known today as well as identifying any unknowns through a proper industry analysis, but maintains a relational ability to recognize and respond to future changes.
What do I mean by a relational ability? Quite simply, it means that all stakeholders are a party to both the understanding and establishment of the collective goals and outcomes of the relationship. The only way to accomplish this is through an effective engagement mechanism that focuses on the selection of partners based on strategic fit. Specifically, you must select those partners who are able to work with you to deliver your known set of deliverables and, are also strategically positioned to work with you to manage the known unknown variables that will invariably crop up up down the road.
I completely agree that MoD should retain advisors that can help them innovative/renovate their process. But they need to properly source the relationships that are necessary to fix the present procurement function within the government, instead of simply outsourcing their problems and a set of arbitrary objectives that will likely set their third-party partner up for failure rather than success.
In short, they have to build their capability and capacity to source relationships as opposed to transactions or deals.
Ubiquitous Progression: How the SRS Relational Model is becoming an Industry Standard by Andy Akrouche
I have to admit that I was happy to see that my numerous discussions with IACCM has made an impression on them to the point that they would talk about the core elements of the SRS relational model that we developed and implemented over the past 20 years in their recent “Contract Management Success: The Secret Sauce” webinar.
While this does not surprise me in that other associations and industry pundits are talking about the importance of my Relational approach to contract management – including the creation of a Relationship Charter – with increasing frequency, it is nonetheless a humbling experience. The fact is that this paradigm shift to which I had referred in my new book “Relationships First: The New Paradigm in Contract Management,” is long overdue.
All this being said I never expected that similar to Kleenex, which has become the ubiquitous term used for all tissues regardless of make, my terminology and the principles that define the SRS Relational Model would itself become a defining reference point in terms of the evolution of contract management.
However, there is a cautionary element that must be considered relative to the momentum surrounding the use of Relational terminology. Specifically, talking the talk and walking the talk are two very different things.
As we have learned about the long on promise short on results sentiments relating to the “win-win” negotiating approach, simply recognizing the key elements of a model is not the same as actually being able to successfully implement it. Over the past 20 years, and as outlined in great detail in my book, myself and my team have successfully implemented the Relational model in both the public and private sectors.
Our vision is to make the Relational Model the de facto standard for complex procurements and strategic initiatives including outsourcing and Public-Private Partnerships. Sourcing and managing relationships is fundamentally different than sourcing and managing contracts, deals or transactions. Based on our extensive experience and expertise, we help our clients to make the transition to a relationship based contracting model, by way of a full suite of proven advisory services. This includes capacity building (in class and online training) and knowledge transfer services to help them to establish and manage high performing relationships.
Once again, it is fantastic that the industry as a whole is working to reverse the high rate of complex contract management failures by adopting the SRS relational contracting model constructs. Going forward, I see such tremendous potential for organizations to finally address the value erosion to which Tim referred in the IACCM webinar through the use of the SRS Relational model. In this context the coming months and years should prove to be very exciting, and for me personally fulfilling.
Have you ever wondered why there is such a great emphasis placed on learning negotiating techniques? After all, and as a simple search on the Internet will demonstrate, there are tens if not hundreds of books written on providing insight and direction on negotiating deals rather than building relationships. From “negotiating to yes” to “zero sum” and everything in between, the myriad of models all seem to aim at establishing the ever elusive win-win or “we” arrangement.
What is being completely missed here is that the prerequisite conditions for a true collaborative relationship cannot be borne or delivered from a “contract first and relationship second” mentality.
So what is a contract first mentality?
Quite simply, it represents the “you get what you negotiate not what you deserve” mindset that is based upon an adversarial approach to working with your partners. Or to put it another way, you first have to “beat” your partner before you can start to “work” with your partner. Regardless of the negotiating technique you employ, this one-upmanship approach is hardly the ideal scenario for forming a lasting, mutually beneficial relationship.
In my book Relationships First: The New Paradigm in Contract Management, I discuss how there is no real substitute for insight-based decision making in successful long term relationships. Of course the only way to gain the required level of insight for a successful long-term relationship is through an ongoing joint focus on relationship planning, business process improvement, issues management and opportunities development leading to improved relationship outcomes. Again, this is something that is difficult if not impossible to do at the negotiating table.
This is also the reason why in my book and at my seminars, I discuss at length the following three crucial elements and the key role they play in establishing and managing successful relationships:
• Industry analysis – a process of in-depth understanding of related industries, strategic groupings and private sector capabilities that drives the alignment of relationship objectives and outsourcing or partnering strategy
• Strategic Fit evaluation – assessing vendors not just on their ability to meet the known requirements but also the alignment of their corporate strategy and strategic capabilities with client strategic outcomes and key enablement requirements
• Establishing and managing a Relationship Charter within which delivery, performance and relationship is managed and evolved
In the end, what I am really saying is that we need to place less emphasis on the negotiation phase, negotiator skills or tactics, and instead place greater reliance on building truly collaborative relationships throughout the entire procurement process.
Not only will your adoption of the Relationships First mindset ensure that you have the right partner at the table both now as well as into the future, it also means that you will be able to establish a jointly agreed upon collaborative framework that will enable you to co-manage the generation of deliverables, ongoing relationship performance and the inevitable situational changes that occur throughout the life of the contract.
In a recent presentation I gave to a senior government management team I was introducing what I believed to be an innovative yet practical approach relating to cross agency collaboration.
While there seemed to be no disagreement as to the merits of what I was presenting, the inevitable first questions were not unexpectedly centered on what I call the “let Mikey try it first” mindset. Specifically, where has this be done previously, did it work and, what were the results?
On the surface, they are reasonable questions. However, it is not so much the actual asking of the questions themselves, but the reasons behind their being asked that leads one to wonder if we Canadians have lost the ability to think and the ingenuity to innovate without the tacit approval garnered through the previous experience of other governments such as the United States, UK, Australia or New Zealand. Logic and overwhelming evidence to the contrary we have for all intents and purposes become fixed on an innovative entry strategy of between fourth and second in.
Speaking of being fixed, let’s examine more closely the Fixed Wing Search and Rescue (FWSAR) project.
In its 8th year, the project to purchase new aircraft to replace our aging CC-115 Buffalo and CC-130 legacy Hercules aircraft is reminiscent of the number of years that have passed since the Toronto Maple Leafs last won Lord Stanley’s Cup or for you movie buffs, the 31 years that the animated film “The Thief and the Cobbler” was in production before it was finally released.
Okay, the examples may be somewhat extreme in terms of actual time, but the point is pretty clear . . . why is it taking so long to replace rapidly aging equipment?
Perhaps this is the reason why the Canadian Government has created a secretariat to oversee the FWSAR procurement similar to what had been done for the shipbuilding program. Although it is worth noting that in the latter instance, the framework for the shipbuilding project lacked critical relational elements that have plagued its progress from the get go.
Challenges notwithstanding, the FWSAR team is using its best efforts to select the replacement aircraft from an existing array of capable technologies ̶ a summary of which is available on the following website; http://www.journal.forces.gc.ca/vol12/no4/page58-eng.asp
Interestingly enough, and as reported by The Ottawa Citizen’s David Pugliese in his July 22nd article Team Spartan Finishes Cross-Country Partner Tour For Fixed Wing Search and Rescue, one of the manufacturers competing for the contract recently concluded a cross-country partner tour under the name of Team Spartan. I am of course talking about the C-27J team who embarked on the tour with the “twofold objective” of gaining a better understanding of the aerospace and industrial capabilities of each Canadian region as they relate to Team Spartan’s FWSAR offering, and to identify new Canadian partners who match Team Spartan’s platform and Industrial Regional Benefits (IRB) needs.”
While the outcome of the tour was deemed to be generally positive, it still failed to answer what I consider to be the most important of questions; why do we want to own and operate the equipment in the first place? Would it not make more sense to procure them as a service?
The idea is certainly not out of the realms of being a sound strategy worth pursuing. In fact when I used the FWSAR project as a case study during my July 10th and 11th seminar in Toronto on Public-Private relationships, every senior executive in attendance indicated that they would pursue the outsourcing strategy as opposed to their owning, maintaining and operating these aircraft themselves.
After all, and being mindful of the importance of the “who’s done it first” viability test, the British not that long ago made the decision to outsource their SAR requirements to a third party (see Colin Cram’s July 24th article Outsourcing of UK Air/Sea Rescue). This decision according to the Defense Industry Daily is part of a global trend toward public-private partnerships to perform some Coast Guard and SAR functions, including Australia’s billion-dollar Coastwatch program.
So what’s holding Canada back from becoming part of the above trend ̶ or perhaps creative contracting evolution would be a better term? The way I see it, there are many benefits relating to outsourcing our SAR operations including:
- Gain a major step change in service coverage and quality that cannot be gained organically by means of evolution or incremental change.
- Manage fluctuation in demand for SAR services.
- No capital investment – relieves Canada from the task of having to decide what plane or combination of planes can do the job properly and from making huge capital investments and upgrades on an ongoing basis. In essence, Canada will pay for the service at the quality levels it deems necessary at any time today and into the future.
- Under a relational procurement approach, the outsourcing option provides ongoing alignment with Canada’s needs versus the needs at a particular static point in time.
- Focus on core business – the business of SAR delivery management through relationships and not SAR delivery itself.
Once again, we have to stop and take advantage of this unintended 8 year pause to ask why we are continuing to go the buy route.
Even though I would not consider outsourcing the security and defence of our country, when it comes to non-military services, we owe it to ourselves to examine this option in an objective, forward looking manner.
I firmly believe that if we consider our goals and expected outcomes relating to SAR operations we will, like a growing number of other governments, come to the conclusion that a service based relationship with a private sector provider and partner will deliver a high quality service at a lower cost.
Further, and with the right outsourcing strategy we can create significantly more sustainable economic value in Canada when compared to the current options on the table.
Last week , the Procurement Insights European Union Edition was one of the very first blogs to report on the news that the Minister of Justice Chris Grayling had announced that the Serious Fraud Office (SFO) had been called in to investigate G4S and Serco. Grayling indicated that there was evidence that both companies had overcharged the UK government by 10s of £millions for contracts related to tagging criminal offenders.
As the news of the investigation began to spread globally, the Obama Administration announced that they had awarded a contract worth as much as $1.2 billion to a British company to help them sift applications for health insurance and tax credits under the new health care law. That company is Serco.
This apparent disconnect in contracting sensibilities led me to seek out Andy Akrouch who is the President of the Centre for Relational Outsourcing and Strategic Management.
Similar to the questions raised in Canada relating to the SNC-Lavalin scandal as a result of the introduction of this government’s new integrity policy, which stipulates that “companies can be blocked from bidding on government contracts if the company or one of its directors has been found guilty of offences such as fraud, bid-rigging, money-laundering, tax evasion, bribing a foreign official, drug dealing or being involved with organized crime,” one wonders if it is fair to penalize an entire organization for one or two bad apples.
For example, with the Canadian policy, “Companies can escape the provisions of the federal government’s tough new integrity policy for procurement if an official under a cloud leaves the company before conviction.”
Even if you are inclined to accept this sifting of the bad apples to preserve the entire barrel approach, an even bigger question that needs to be answered is how something like what happened at SNC-Lavalin as well as with G4S and Serco in the UK, could occur in the first place? This is where Akrouche’s insights come into play.
The following is from a comment that was posted by Akrouche relating to the July 11th, 2013 article BREAKING NEWS: Evidence of fraud on the part of government suppliers G4S and Serco reported by Minister of Justice by Colin Cram:
First let me say that in no way I would attribute this behavior to G4S/Serco company policy or to a management directive. Colin is the expert on this, but I would assume this is always done by individuals who do not conform to policy, ethics and good governance. I would suspect that there many more instances and cases similar to this than we know. We just simply don’t know and had no way of knowing.
Why am I not surprised by this? Until the SRS Relational model came along, public sector organizations structured business arrangements as deals or transactions and employed layers over layers of oversight to manage these contracts. This UK- Serco-G4S finding confirms what we have been saying all along that it is not possible to achieve optimum contract performance and minimize risk (all risks including fraud risk) by means of oversight mechanisms only. The only real way you can truly mitigate risk is via insight.
Insight, however, is gained through shared purpose, active management, joint governance and open book financial management framework. It also means that we employ different methods of sourcing and managing these contracts – relationship based methods. I just finished delivering a two-day course on relational contracting and had extensive dialogue with public sector leaders on exactly this same issue. The Relational Model OBF provides the means for complete financial transparency and accountability in the management and effectiveness of funds throughout the entire relationship life cycle.
What are your thoughts regarding Akrouche’s comment? Are events such as what happened with SNC-Lavalin here in Canada and G4S and Serco in the UK going to serve as the impetus for changing the way in which government contracts and related risks are managed?
Finally, and perhaps this is the most important question as it can certainly fuel the desire to make any necessary changes to the contract management process ̶ should companies who are under investigation for fraud be allowed to bid on government contracts both domestically as well as internationally?
In yesterday’s Part 1 post (The truth about Private Public Partnerships) Colin Cram provided some much needed insight in terms of both the promise and the failings associated with Private-Public Partnerships or PPP-driven initiatives.
Cram, who has served in the public sector at the senior executive level for more than 30 years, is obviously familiar with PPPs. As a result, he adeptly points out the unquestionable benefits in terms of the public sector getting facilities, hospitals, roads or prisons built without upfront investment. The challenge however is not in the promise of an end result but in the management of expectations, returns and ultimately relationships.
This last point has proven to be the major stumbling block that has derailed many PPP-driven programs.
The problems according to Cram originate with the process for negotiating what he refers to as being complex and inflexible “consortium” contracts. Then through what he considers to be the ineffective decentralized management of disjointed objectives, PPP relationships usually denigrate into a self-serving abyss of unrealized outcomes.
In other words, in the rush to capitalize on complementary strengths and individual gains, PPP stakeholders overlook the most important elements of a successful partnership, which is the Relationship governance model.
This is why recent announcements of relationship-based PPP legislation in states such as Florida are very interesting.
While I applaud Florida’s Governor for seemingly walking away from the traditional transaction oriented mindset that governed past initiatives, I cannot help but wonder how the new legislation in and of itself will foster a more collaborative or relationship oriented approach.
Certainly the intent for a practical and manageable governance model exists as demonstrated by the following legislative requirements associated with Florida’s HB 85 PPP Bill:
· The legislation requires that the responsible public entity ensures that provisions are made for the private entity’s performance and safeguards the most efficient pricing.
· The legislation provides for protections that will ensure that provisions are made for the transfer of the private entity’s obligations if the comprehensive agreement is terminated or a material default occurs.
· Additionally, there is an assurance that the public entity must perform an independent analysis of the proposed public-private partnership that demonstrates the cost-effectiveness and overall public benefit.
Once again, the above requirements or elements of the new Bill ̶ if read correctly ̶ are laudable, as they actually reflect the insight versus oversight process associated with the SRS relationship-based model.
For those who may not be familiar with the SRS relational model, it is a model that advocates an evolutionary approach to relationships by ensuring that stakeholder expectations, priorities and needs are properly aligned with present day realities on an ongoing basis.
In the previous post Colin Cram pointed to the importance of this ongoing adaptability when he made reference to the inflexibility of traditional contracts and the difficulty in seeing many years into the future. The fact is that attempting to structure a deal based on an initial set of assumptions and plans limited to what we know in the here and now is a recipe for disaster.
What is required is a dynamic model that is responsive to change, as opposed to a rigid and inherently adversarial static transactional model. This of course is the key to creating a truly collaborative and adaptable governance framework in which all stakeholders benefit according to their different yet inextricably linked objectives.
As the Florida Bill is likely to be used as a reference point for other states, let’s examine the key elements or requirements in greater detail.
With regard to the first point, when we talk about the need for ensuring that provisions are made for the private entity’s performance and safeguarding the most efficient pricing, what we are really discussing is the need to pursue dynamic relationships as opposed to transactional engagements based solely on present day assumptions. More specifically, this means that the legislation requires a continuous alignment throughout the entire relationship, and not just at the beginning by way of the traditional “carved in stone and signed in blood bankable” P3 agreements with which we are most familiar.
In terms of providing the protection referenced in the second point by way of provisions which ensure the transfer of the private entity’s obligations should the agreement be terminated or a material default occur, this quite simply refers to an executable “off ramp.” An executable off-ramp provides the means by which the relationship would be terminated in the event that the strategic fit between stakeholders ceases to exist. Interestingly enough, the likelihood that a strategic fit will endure over the life of the contract should be established as part of the original sourcing process utilizing the certainty score evaluation methodology associated with the SRS relational model.
Finally, Florida’s Governor wants to make certain that there is a high degree of accountability in terms of whether or not the public-private partnership is actually delivering value. This is why the third point is so important. Traditionally, and for those familiar with the P3 planning process, a public sector comparator case or PSC is initially used to financially justify an acquisition or initiative that excludes the private sector “partner” element. Once the PSC case has been built, a Value for Money or VfM assessment is undertaken to determine the impact that the introduction of a private sector partner would have on the same acquisition or initiative. The hope is that the outcome of the VfM assessment will justify a Public-Private Partnership. The inherent flaw with the above assessment process is that it attempts to get an accurate read on the nature of the relationship 20 to 30 years down the road based solely on assumptions in the here and now. As Colin Cram pointed out in Part 1 of this series, many fail to recognise beforehand or erroneously believe they have the expertise to effectively see into the future. Unfortunately they do not, which ultimately results in a sub-optimal project or even worse, a near disastrous one.
The only way the Governor and the State of Florida can realize the true and full value of a Public-Private Partnership, is to ensure that the VfM assessment is linked to an ongoing or continuous management and realignment process. As allude to earlier, an insight as opposed to oversight process that is focused directly on improving the outcome and performance of the relationship.
In the third and final part in this series, I will share with you a set of practical steps to form and manage a dynamic public-private relationship.
NOTE: This article was originally published in the Procurement Insights European Union Edition.
In Part 2 I will provide a detailed commentary centered around Colin’s post as well as the recent news that States such as Florida have just signed into law Public-Private Partnership legislation, including what it means on a go forward basis – Andy Akrouche
There was much debate when the current UK government came to power in 2010 about whether PPPs provided value for money. PPPs are a means whereby the public sector can get facilities built, such as hospitals, roads or prisons, without upfront investment. That means that infrastructure projects, that might otherwise have to wait many years, can be built quickly. The private sector provides the funds and is then paid to run the facility for a period of, say, 25 years. At the end of the contract period, it hands back the facility to the contracting authority.
The contractor recovers the costs of building the facility over 25 years. So, contractors are usually part of a consortium – a finance provider, construction company and facilities management company. Negotiating the contracts is complex and many public sector organisations do not possess the skills. They therefore rely on private sector consultants, who also often fail to possess the skills that they claim to have.
PPP (originally called Private Finance Initiative – PFI) was ’invented’ in the United Kingdom – to get infrastructure built quickly, but with the rationale that private sector contractors would have an incentive to build to higher standards than would happen if the public sector commissioned a building project. This is because the private sector supplier would want to minimise running costs. Perhaps surprisingly to those who advocated the policy on financial grounds that prediction turned out to be correct.
There have been several issues with PPPs. Firstly; it is argued that government’s can borrow more cheaply than the private sector. Therefore, it doesn’t make sense for them to contract with a private sector provider of finance. Secondly; contracts can be fairly inflexible. If the contracting authority starts to run short of funds during the life of the project, oh dear! Also, if demand varies from that which is predicted – up or down, there will be financial consequences. The contractor will still want to recover its upfront investment plus profit. For hospitals where, in the UK, much of the PPP effort has gone, 25 years requires some pretty good crystal ball gazing, particularly given medical advances and attempts to reduce the length of stay in hospitals. Also, will the structure of the building be suitable for new technology in 10 years time?
Another issue is that the specification should be right. Should the facilities management include cleaning or should it focus on infection reduction?
Health authorities in the UK have been criticised over PPP contracts that worked less well than they should. Problems have been partly because each one let its contract independently, whereas had the contracts been let by a single centralised team, the expertise of that team would have been available to all.
Other potential issues are that creating a competitive market is difficult. Inadequate competition or the same bidders each time creates condition ripe for making excessive profits. The uncoordinated approach in the UK to letting such contracts has made this easier. This can render PPPs ideal for corruption. It is difficult to rule out that some may take place in order to provide a commission to someone as who will argue against a new hospital? That is a further reason why one needs an independent procurement team to manage the contract negotiations and be prepared to blow the whistle either if the business case does not stack up or if there appear to be irregularities in the amount of competition.
So what is the verdict on PPPs? From the hospital patient point of view, they are a great success – new facilities instead of out of date and unsatisfactory old ones. They are also great for the medical profession – much better working environments. However, they can be a major financial headache and lack of contracting and specification expertise in the contracting authority – something that many fail to recognise beforehand or where senior people in the hospital believe they have the expertise, but do not – can create a sub-optimal project – or even a near disastrous one.
“By moving away from each department independently managing these activities, there are opportunities to drive economies of scale, achieve savings for taxpayers and improve services,” the budget reads. “Moving forward, the government will explore further whole-of-government approaches to reduce costs in the area of procurement of end-user devices and associated support services.”
The above is an excerpt from a April 5th article by Jordan Press (Federal IT agency tasked with hardware procurement duties) in which the writer reported on the government’s decision to mandate Shared Services Canada with the task of procuring end-use hardware and software for “workers in the 43 federal agencies is serves, along with a handful of parliamentary watchdogs and other federal agencies.” In total, 106 federal organizations’ IT spend will be managed by SSC.
In and of itself this isn’t really news. In fact anyone who has been actively involved in and with the public sector will likely tell you that the government’s decision to transfer IT acquisition responsibility to the SSC as opposed to creating a new agency to buy hardware was a when as opposed to an if scenario. Besides being the defacto ICT Agency for the Federal Government, putting IT purchasing under the SSC immediately presents the opportunity to move away from centralized procurement vehicles such as Standing Offers which, over the years, has proven to be ineffective on many levels.
For example under the old standing offer model, departments were usually forced to do their own sourcing of hardware and support services. For the vendors who went through an at times lengthy and costly process just to make the list, revenue opportunities were limited to localized relationships that rarely justified the effort in terms of financial return and business growth. In other words standing offers were little more than bulletin boards for unrealized opportunities for vendors, while splintering the supply stream for the government into an at times unmanageable spend morass.
In this regard I have to tip my hat to Mr. Flaherty, in that this decision has finally laid the foundation for getting the job done right!
All this being said I think it is important to recognize right off the bat that when it comes to hardware, you are for all intents and purposes acquiring a fully managed service. After all no one really buys hardware anymore do they? This lesson was learned by the BC government who, in outsourcing all of their end user computing services to IBM, concluded that it is better to approach IT acquisition from the standpoint of it being a service rather than a purchase of hard assets.
Within this context, the real question becomes one of support. How do you support departmental needs through the provision of a fully managed service to enable the introduction of new applications and support more sophisticated end user expectations?
In an attempt to both understand and address this question, the majority of federal government departments as well as agencies like CIOB, PWGSC and the DND have expended considerable cycles doing everything from analyzing countless studies from firms such as Gartner, to engaging consulting firms – including ours – in an effort to get a handle on driving innovation and savings with the intended outcome being improved productivity. Once again, with the decision to move the IT acquisition function to the SSC, it appears that a major obstacle to achieving these objectives has been removed.
However, and as promising as the news is, for the government to harvest the benefits of this move there must also be a change in how technology is viewed. Specifically, there must be a concentrated and deliberate transition towards a more agile and dynamic user environment. In other words, and looking beyond what will likely be a significant human resource transformation, the government must see their IT agenda as an exercise in building and managing relationships.
In 2002, I personally lead a team of IT and procurement specialists from both the public and the private sector in which we worked together to establish a relational governance structure for the Province of Ontario. The success of the program speaks for itself, as do the results of a benchmark study conducted by the CRA a year after they adopted the same model.
There is of course no reason why the present day government cannot realize similar results as it relates to savings (the CRA program for example showed at 25% reduction in acquisition costs), as well as dramatically improved productivity levels across the board.
It is with this firm understanding of the potential benefits associated with the recent decision that the following questions have to be asked (and answered);
- Is SSC going to outsource the service, and if so what model of outsourcing should they use? We know that the traditional models have proven to be ineffective.
- How will the SSC address the challenges associated with the aggregation of demand that has traditionally led to a shrinking supply base? Historically, aggregation has almost always led to diminished competition and escalating costs. What is the strategy here?
- As opposed to protecting SMEs, how do we facilitate or stimulate SME participation and growth as an important partner in the transition to a more agile and dynamic user environment. After all, Initiatives like this should not be done at the expense of SME sustainability and development – if we do we all lose in the end.
Focus on building relationships that create sustainable value in Canada key to CF-18 Hornet replacement contract (Part 1) by Andy Akrouche
“I am not pro or against the technology, I just want to build value in Canada. So let’s take the focus off of politics and technological leanings and place it where it best serves everyone’s interests. What I am talking about is leveraging the proper industry analysis, strategic vendor capability assessment tools and to build the relationships that are necessary to create sustainable value in Canada. If you do that you will inevitably make the right decision.”
The above is the response that I gave regarding a recent question from the media surrounding the controversy of the F-35 situation, and in particular the paper by the Conference of Defence Associations Institute.
I of course read the F-35 paper with great interest, noting in particular that the authors and the institute itself at least indirectly, seem to be championing the fighter jet as being the right answer for Canada’s military needs.
For me the paper’s efforts to stack the deck in favor of the F-35 by suggesting that a new procurement framework be used to specifically select the fighter under the proposed “international model for defense procurement scheme” thereby averting our usual procurement regime, is disconcerting on many levels.
To start what the paper is suggesting would ultimately mean our abandoning an investment in Canada and leaving it to the “International Allies” to throw us some “leftovers” under a sub-contract arrangement. This is hardly the ideal scenario under which we can develop our own capability to build weapon systems of significant military value. It would also mean that a select few US, UK, French and German corporations would become the de-facto suppliers, thereby reducing our national role to that of nothing more than a trained consumer of defense systems and technologies. In practical terms this would all but kill the whole idea of using procurement to promote innovation and jobs in this country.
Let’s look at Canada’s Industrial and Regional Benefits or IRB policy.
The primary goal of the IRB policy is to ensure “that Canadian industry benefit from Government defence and security procurement.” In this capacity, the IRB policy is a crucial instrument for SME innovation which, as everyone would agree, is the engine of our economy.
Now there are those who contend that by actively working towards achieving the goals associated with the IRB policy, it will cost more to build warships and fighter jets. That may be true, but as an investment in our country’s industrial base, we will create an economic endowment in Canada in which the benefits will far outweigh the additional initial cost, for generations to come. I am not just talking about jobs. I am also talking about progressing and securing the nation’s economic position in the world by developing the all-important Tertiary and Quaternary industrial sectors.
For those of you who may be unfamiliar with this reference, the Quaternary sector is considered to be an extension of what was originally referred to as the “three-sector hypothesis of industry.” Developed by Colin Clark and Jean Fourastie, the hypothesis includes the extraction of raw materials (Primary), manufacturing (Secondary), and services (Tertiary). The Quaternary sector is generally viewed as being the engine driving both innovation and expansion. It consists of those industries providing information services such as “computing, information & communication technologies, consultancy, research and development.”
Because this transitional process spans many years, the groundwork for where we are today was laid a long time ago, through different times and involving many different governments. Therefore from a political perspective, and in relation to my earlier reference regarding government procurement, we have to both ask and answer the following question; “has the government done enough to stimulate development and growth (including re-training) through each sector for future generations?”
Given the significant cuts in recent years to Department of Defence budgets, the fact that we would potentially reduce our industrial stake in remaining contracts – such as the CF-18 Hornet replacement undertaking – to that of a spectator, would suggest that the answer to my question would be no.
What is particularly important to note, is that this is truly a bipartisan issue that should not solely rest at the feet of the current administration. As a result, the adherence to the true intent of the IRB policy is critical because it transcends political agendas and affiliations as well as which party is or is not in power.
In part 2 of today’s post, I will talk about what needs to be done to refocus our attention on leveraging military spend to achieve IRB objectives, including the tools that are available to ensure that we build the proper relationships to meet Canada’s military needs today and solidify our economic position in the emerging global economy.
Relationship Contracting Expert: Questionnaire on CF-18 Hornet replacement dubious at best by Jon Hansen
In relation to the so called KPMG framework, there is nothing that one couldn’t find readily available in a managerial or financial accounting academic text book. As a tax payer, I hope I didn’t pay much for it and frankly I am not surprised by TBS falling for it because it supports current TBS framework for approval of complex capital projects, which by the way, I have been trying to change with some success. In any case the issue is the same, they are trying to bring price predictability into the selection of a long term relationship which we know does not work. Although, they recognize the need to be innovative ( which is good) they are focused on the wrong stuff and using the wrong tools. LCC (which, as we explain in our seminar and our online training program, is an ongoing cost analysis option) cannot be used to predict the cost, based on primarily an initial set of inputs and assumptions. I don’t even think it would be legitimate to select vendors on these basis. So net-net, I don’t think the outcome in this procurement would be any different than previous procurements of the same kind.
Andy Akrouche, President of The Centre for Relational Outsourcing & Strategic Management
In my February 18th, 2013 post Government’s proposed changes to procurement show that they are in the right room but haven’t turned the lights on . . . yet!, Andy Akrouche provided what was both an interesting and thoughtful assessment regarding the government’s contemplation of; a) rolling out individual “secretariats” for each successive military procurement, as was done in the fall of 2011 for the Royal Canadian Navy’s new fleet of warships or b) consolidate an estimated 10,000 bureaucrats from three federal departments – Defence, Public Works, and Industry Canada – into a “single huge new agency, under the aegis of a single minister.”
However, and based on an article by Dave Majumdar in the Flightglobal website (Canada releases industry questionnaire on CF-18 Hornet replacement), regardless of what option the government chooses – individual secretariats or single agency – success with complex capital projects will remain an elusive quest.
As outlined in his above assessment regarding the utilization of a questionnaire to “support a rigorous examination of available fighter aircraft options,” Akrouche sees little difference in the viability of the current process and the one that was originally used to select the ill-fated F-35′s as a replacement for Canada’s aging CF-18 Hornets.
So here is the $9 billion dollar – well make that $17 billion, or should it be $40 to $60 billion – question; why does the government keep making the same mistake by following the lead of consultancy firms such as KPMG?
What are your thoughts?