Thursday, 14 November 2013

Do the incumbents of government contracts have an advantage?

On Tuesday I discussed the NAO Memorandum to Parliament on the management of strategic suppliers. I now turn to the parallel Memorandum on the role of major contractors in the delivery of public services. This is slightly different though in that it aims to stimulate public debate.

As usual, an excellent report from the NAO with plenty of useful insights for procurement practitioners.

I have little to contribute to that debate, however, I do think paragraph 1.9 in the report is worth discussion:
Incumbents can be seen by procurement and policy officials as he easier and softer option. Across the 15 applicable services we looked at as case studies for this memorandum , seven had been retendered at least once, with four of the most recent competitions being won by new providers.
I don't agree that procurement and policy officials would have a preference to the incumbent, and I doubt if the success in retendering demonstrates they do.

Incumbents have many first mover advantages and would be expected to do well in a retender as they should be able to identify scope for inefficiencies and have a greater understanding, possibly than the client, of the client's needs. The incumbent will also know where the emphasis can be placed in pricing strategy and where demand is lowest.

I do not see four out of seven wins by incumbents as being particularly high, if anything I think that is quite low if the incumbent has a good understanding of the existing service and, if the procurement and policy officials have a preference to stay with the incumbent.

But the NAO could explore their assumption further by looking at how much attention is given by procurement practitioners in creating an contract exit strategy which removes barriers for a potential new provider.

The NAO could also consider the extent to which procurement and policy officials consider the incumbent to have gained too much power, perceived to have been inflexible, failed in delivering expected benefits, been adversarial, and haven't been easy to manage. In those situations, I would argue, most procurement officials would prefer a fresh start with a new provider on whom they practice their lessons learnt.

The NAO could also help inform the debate by probing the circumstances which led to incumbents losing the contracts - that's something which would really add value to an informed debate and more effective market?

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