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“It doesn’t have to be this way” (Adversarial practices in procurement and contracting)

Why are procurement and contracting practices adversarial? And more pressingly – Should Commonwealth procurement practices be adversarial? This is a question that has dogged me for longer than I care to remember, particularly as the answer appears to be a resounding ‘yes.’
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Rethinking work
22 May 2024
Saskia Keenan - Executive Director
5 minutes

Why are procurement and contracting practices adversarial? And more pressingly – Should Commonwealth procurement practices be adversarial? This is a question that has dogged me for longer than I care to remember, particularly as the answer appears to be a resounding ‘yes.’ In fact, adversarial procurement and contracting practices are rife, except where they should be. More on that later!

It’s not my intention to suggest that this adversarial dynamic is intentional – and that the public sector plans to adopt an aggressive posture. In fact, it’s my firm belief that society (in general) and public servants (in particular) strive for and ‘do the right thing.’ That ethos is reflected through Department of Finance (DOF) policies and guidelines, the Joint Select Committee on Government Procurement, and other sources.

Despite these policies, the reality is that the Commonwealth Government will (generally) have more power, and thus commercial leverage over suppliers. However, the mere existence of a power imbalance does not, nor should it equate to the exercise of that power. The reason? In my opinion, the habitual exercise of this power or regularly leveraging commercial advantage may have short-term gains. In the long term, these practices tend to work to the detriment of both parties – supplier and purchaser. With that in mind, let’s examine some common adversarial practices, along with some thoughts on how to (potentially) improve them.

 

  1. Contracts heavily favouring one party over the other – Like any other commercial player, governments tend to draft contracts that favour their interests. A traditional SLA/KPI approach is generally utilised with strong termination, and damages clauses. There is also a propensity to draft contracts where there’s an imbalance in rights, obligations, and benefits – and often to the detriment of one party. Other examples include ambiguous contract language, which can create potentially divergent interpretations and increase the risk of disputes and disagreements during the life of the contract. Additionally, contracts often lack flexibility, which reduces the contracting parties’ ability to adapt to unforeseen circumstances. In turn, this hinders the parties’ ability to negotiate changes or modifications based on evolving project and business needs. This stifles creativity and reduces the likelihood of parties developing creative and cost-effective solutions. As outlined in my article – Only Sticks and No Carrots, I think we need to move away from this model and to a more collaborative contracting approach – and provides benefits more equally.

 

  1. Sharing of risks – In many instances, tenders tend to place a disproportionate amount of risk on ‘the other party.’ This is despite Commonwealth guidelines requiring agencies to allocate risk to the party best placed to carry the risk, collaborate to manage their shared risks and ensure they apply due consideration to these issues. In that regard, refer to Implementing the Commonwealth Risk Management Policy (RMG 211). Requiring a business partner to ‘wear’ all or most of the risks can strain business relationships, lead to disputes, and result in suboptimal outcomes for all parties involved. Adversarial procurement practices can also lead to financial losses, a reduction in the ability to leverage value for money, along with reputational impacts and a reduction in market confidence. On the flipside, developing contracts that prioritise fairness, transparency, and collaboration is crucial for building positive and sustainable business partnerships.

 

  1. Obscure procurement processes – This may not sound like an adversarial practice, but agencies that provide inadequate data about procurement process tend create ‘phantom adversaries’ in the marketplace. How? Information deficits will generally favour specific suppliers (often incumbents) with an existing understanding of the agency’s needs, operating environment, etc. By not having access to data about specific government contracts, suppliers can often waste significant time and resources on proposals for which they are not skilled, or suited. The effect? Suppliers may adopt a scattergun approach to tendering, rather than concentrating on their inherent strengths. It could also lead suppliers to exit the market, leaving a small group of (often incumbent) providers. In those scenarios, agencies and the Commonwealth could be deprived of cost-effective and innovative solutions from recent entrants or firms with new approaches. At the same time, I want to make it clear that I am not casting aspersions on incumbents. In fact, I would applaud agencies if they were to seek bids (only) from a limited set of known suppliers. That presumes that the limited group of suppliers have experience with the agency’s operations and if it is not economical for the agency to ‘go to market.’ There are valid tender and panel mechanisms to do just that – and suppliers would also (likely) applaud Commonwealth agencies if they were spared from drafting a tender proposal where there is little or, indeed, no chance of winning.

 

 

  1. Poorly understood and managed conflicts-of-interest – This is where agencies take an adversarial, but polite stance, i.e. in managing conflicts of interest. It is rare, but we have seen instances of decision-makers not excluding themselves from tender processes where they have personal relationships or interests that could influence procurement decisions, or for not all relevant parties to declare all their COIs. The remedy for those ills is to have clear conflict-of-interest protocols that examine not only the actual impact of a conflict, but also the perception of such conflicts. In my experience, conflicts rarely have a negative impact on a procurement process. In fact, the act of reviewing and calling out potential conflicts – that acts as a signal to agencies and APS staff that it’s just BAU. In other words, it’s part-and-parcel to tendering process, all while promoting public trust in Commonwealth procurement activities.

Those are only a few areas where we can improve the adversarial nature of Commonwealth procurement protocols. A good starting point could be to recognise that tenders and procurement processes are not a dog-eat-dog competition. Instead, each procurement could be seen as an offer from an expert who is keen to share their expertise, not only to assist the Commonwealth, but to build a better Australia.