At the 2020 World Economic Forum held between 20-23 January 2020 in the mountain town of Davos, governments, organisations (both for profit and not-for-profit) and individuals discussed how they can better deliver the United Nations Sustainable Development Goals (SDGs). Central to this discussion was how innovative partnerships (i.e. commercial relationships) could help achieve this, especially within the public sector. But why is the focus on public sector so important?
Supporting this discussion, The Economist Intelligence Unit (EIU) supported by UNOPS (the UN organisation with a core mandate for infrastructure and procurement) released a new report “The future of public spending: Why the way we spend is critical to the Sustainable Development Goals”. The report investigates the potential for less wasteful, more efficient government spending practices to help address a critical spending gap that countries face in achieving the Sustainable Development Goals, and how social, environmental and economic sustainability objectives can be achieved through procurement. This report highlighted that:
“Public spending has an extremely large footprint, typically representing 15-30% of GDP. Which projects governments choose to spend money on—and who they spend it with—therefore makes a substantive difference. Rather than being “neutral”, such spending will positively or negatively impact everything from local employment to levels of carbon emissions, making public spending integral to many of the SDGs.”
Here in Australia, the Commonwealth Procurement Rules (CPRs) requires all Commonwealth entities to publish a range of procurement information on AusTender, the Commonwealth Government’s mandated procurement information. My former organisation, the Australian Department of Defence, between July 2018 and June 2019 was responsible for 67% of all procurements listed on AusTender, or $43.178 Billion Australian Dollars (see Department of Finance). This proportion (not value) would be similar in many countries. The key question is whether we can use this funding to achieve more than the original contract requirement(s). Is it possible to achieve both the project requirements while also delivering wider community benefits?
In considering this, many of you, regardless of whether buyer or seller, will be asking the impact of this approach on the overall price. Will it cost more? While there is anecdotal evidence to say there typically is a slight increase in the overall price to the buyer, the question is not whether this approach represents the lowest price. It never will. But whether it represents the best Value for Money (VfM) in the long-term, and not only to the specific area undertaking the procurement activity, but also the wider department and community. Indeed, the reason for the focus on the public sector at Davos is that many governments have recently included this additional requirement is their procurement rules. For example, the CPRs states:
4.5 Price is not the sole factor when assessing value for money. When conducting a procurement, an official must consider the relevant financial and non-financial costs and benefits of each submission including, but not limited to:
the quality of the goods and services;
fitness for purpose of the proposal;
the potential supplier’s relevant experience and performance history;
flexibility of the proposal (including innovation and adaptability over the lifecycle of the procurement);
environmental sustainability of the proposed goods and services (such as energy efficiency, environmental impact and use of recycled products); and
Additionally, a recent change to the CPRs states that for “for procurements above $4 million (or $7.5 million for construction services) (except procurements covered by Appendix A and procurements from standing offers), officials are required to consider the economic benefit of the procurement to the Australian economy.”
But why am I bringing this up in a Performance Based Contracting forum?
A good Performance Based Contracting approach can support the implementation of these wider procurement objectives. As one of my favourite quotes goes:
“What gets measured gets done, what gets measured and fed back gets done well, and what gets rewarded gets repeated.”
John E. Jones
By using the Generation 3 Performance Based Contracting techniques I have illustrated in this blog including:
- a tiered approach to performance measures including Strategic Performance Measures (see When is a KPI not a KPI) that are;
- focused on outcomes not outputs (see Inputs, Outputs and Outcomes – Part 1 and Part 2) that are
- qualitative in nature (see Designing a Subjective Performance Measure Part 1 and Part 2):
it is possible to achieve this.
For example, a client in Europe recently included performance measures called Enterprise Performance Measures (EPMs) reflecting the performance of the wider “enterprise” compared with the performance of one seller in a single contract. The EPMs are not solely focused on the core output of the contract, but also on wider Corporate Social Responsibilities such as the impact on the environment (e.g. minimisation of landfill and carbon targets) to building a better community (e.g. collaboration, engagement and treatment of small-medium businesses within the supply chain, and the implementation of a Science, Technology, Engineering and Maths (STEM) program in local schools). So it is possible, just not typical.
Some of you may be thinking that organisations, especially for profit organisations are only doing this in response to the “nudge” from the buyer. And in some ways that is true. A former top executive within the Australian Department of Defence once said, referring to his for profit contractors, that “what interests me should fascinate them”. By this he meant if we (the buyer) focused on these wider outcome it would cause the sellers to also take an interest in delivering them. However, and it may surprise many readers, some these organisations already do a range of community minded activities without the “nudge”. For example, one large multi-national organisation as part of an annual “day of service” allows employees to volunteer in areas of need in their local communities (e.g. aged care, home repairs, supplying meals and many other forms of assistance) as a paid day of work.
The sceptical amongst you will be thinking that this behaviour is only to gain favour with the public sector procurement officer, and there is an element of truth to this. However, these organisations are all made up of individuals with families in the communities where they work who also believe in the ideals in the Sustainable Development Goals. These individuals help make this a priority for the organisation, not simply to gain favour, but because it is important to the people within it.
So the question I leave with each of you, regardless whether buyer or seller, is not why should we; but why shouldn’t we. Image what could happen if we allowed these large commercial relationships to deliver, even if only partly, on these wider outcomes. I believe that many of us want this not just for ourselves and our families, but also for the wider community. The question is simply how do we do it leveraging the great work may organisations and individuals are already doing. But more on this in a later article.