Procurement: Whole of Govt Approach
LOUISE MERCIER-JOHNSON
© 2008 FrontLine Defence (Vol 5, No 4)

The much-touted whole of government approach is seen as a critical step in ensuring the transparency of large capital procurement contracts. In addition, potential opportunities derived though government and industry partners working as a collective have never been more apparent than today, especially in terms of defence procurement.

After many years of arguing that ships should only be built in Canada only if it could be done as “efficiently and effectively in Canada as somewhere else” Senator Colin Kenny is emerging as Saul enroute to Damascus, where he has seen a new vision based on a dynamic and changing environment. In a fluid oil market, and changing global economy, he has highlighted, in a recent article for OTTAWA Life magazine, the need to embrace a whole of government approach to capital procurement.

In his article, “Our Military Needs Ships; A Case for Building Them Here” Senator Kenny leads the charge in not just a new ship building policy but in an entirely new way of thinking about the need for a revitalized procurement approach to major capital procurement. Senator Kenny’s argument clearly articulates the need for investment in modern complex technologies during a time where the manufacturing industry is struggling to maintain its job footprint in the Canadian economy, global uncertainties are contributing to fluctuating gas prices, and the need to manage the cost of risk is unprecedented. He encourages new legislation for shipbuilding that encompasses the needs of the Ministers of Defence, Industry, Transport, and Public Works. Although he focuses on the need for a national ship building policy, the argument of a united government approach is the cornerstone to the success of the Senator’s argument.

Coordinated Contracting Procurement
Any attempt to describe the current process for large capital procurements as “efficient” falls on deaf ears of the informed. Government departments are not focused on actual procurement efficiencies and ­effectiveness but on their own internal departmental objectives. This confounds industry leaders who can’t get a common answer to the question: is it more important to meet the operational imperative, or to have at least two compliant bids, or to provide regional development? The only regular compromise appears to be the imposed dumbing down of requirements and the cultural reaction to push risk out to industry.

One proposed solution would be to cast an eye on the procurement success of our commonwealth partners in Australia who have effectively adapted a public-private partnership (P3) model for capital procurement. The P3 model creates a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.

There appear to be multiple types of P3 programs in the Australia model, and all seem to be based on government providing capital for investment while operations are run jointly with the private sector or under contract. In other types of joint ventures between industry and government, capital investment is made by the private sector on the strength of a contract with government to provide agreed services. No one model is imposed for every solution.

Typically, a private sector consortium forms a special company called a "special purpose vehicle" (SPV) to develop, build, maintain and operate the asset for the contracted period. In cases where the government has invested in the project, it is typically (but not always) allotted an equity share in the SPV. It is the SPV that signs the contract with the government and with subcontractors to build the capability and then maintain it. This allows for distributed risk, transparency and flexibility. The Australian Government has agreed to establish a coordinated procurement-contracting framework to deliver efficiencies and savings from goods and services in common use by Australian Government departments and agencies.

Benefits of a Coordinated Approach
A whole-of-government approach to the coordination of procurement contracting and the adoption of a more streamlined approach to purchasing through behavioural and business process reforms could:

  • reduce the impost and cost of doing business for both agencies and industry;
  • create a genuine risk sharing model; where if the risk is undefineable, the risk must remain with the Crown
  • reduce duplication and improve purchasing efficiencies;
  • provide consistent and transparent purchasing practices; and
  • enable aggregation of government purchasing power to obtain better pricing arrangements and value for money outcomes.

While the P3 approach may seem too radical for the Canadian mindset, the need to come together with industry and government is crystal clear. The opportunity to leverage a whole of government approach similar in philosophy to that taken in the efforts to reconstruct Afghanistan could be leveraged in the procurement process. Recognition for change seems almost universal and should be negotiated with all partners; to contract, and manage effective P3s; determine value for money; benchmark; finance and apply due diligence to ensure practical efficiencies.

The old ways are no longer viable in this rapidly changing global environment. What is needed is one government, one holistic approach. The time for government and industry partners to work as a collective is now. Industry is ready; who should take the lead?

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Louise Mercier is VP, Marketing & Government Relations, with Adga Group Consultants.
© Frontline Defence 2008

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