Smarter sourcing: how governments can use market-informed design and sourcing to deliver better outcomes for citizens
A closer look at how adding the MIDAS touch to traditional govt procurement can open up new possibilities & greater outcomes for citizens.Share article
What does it take to run successful market-informed procurements? Here are four success factors from @BCGShare article
The public sector #procurement landscape has evolved rapidly, but what can govts do to stay ahead of the game? Here are some suggestions.Share article
The authors wish to thank Georgie Stokol and Rachel Xu for their contributions to this article.
In recent years, the public sector procurement landscape has evolved rapidly. Not only are governments worldwide facing mounting pressure to deliver better outcomes with less funding, but they are also being called upon to deliver unprecedentedly complex technology.
With public procurement representing roughly 10%-15% of GDP in OECD countries, many governments are seeking to readjust the balance between in-house and outsourced capability. More services are being delivered internally, with the public sector focusing on building strong, agile delivery in-house. Nonetheless, private sector resources will still remain critical for policy implementation, and governments are turning their minds to how best to source these resources and capabilities.
Competitive, adversarial procurement processes have long been used in the public sector with a view to securing value for money, and many government agencies around the world continue to rely on such methods - whether in outsourcing arrangements, public-private partnerships (PPPs) or full-scale privatisations. In some cases, these head-to-head methods work very well - when the product or service being procured is well defined and well understood, where there is a large and competitive market of prospective providers, and the selection criteria are clear and quantifiable (e.g. lowest fixed price or highest guaranteed revenue).
However, with governments embracing agile models of service design and delivery, solutions are increasingly bespoke and complex, and cutting-edge technologies like robotic process automation are becoming more widespread. As technical solutions grow more complex, there is a need to invest more time upfront to understand the problem, the solution, and the market landscape. Using traditional practices for these complex procurements creates significant information asymmetries, and can lead to worse outcomes. Rather, a new approach to public sector procurement is required: one that focuses on the co-creation of solutions, and the transfer of lasting knowledge and capability between vendors and government.
A new approach to government procurement
Market-informed design and sourcing (MIDAS) is an innovative approach that helps resolve many of the challenges confronting traditional procurement (see diagram below). It aims to make the government an informed buyer and potential providers informed sellers. It de-risks delivery by resolving uncertainties around the solution and the commercial structure early on in the process and maintains government's bargaining power by strategically positioning rounds of competitive procurement between long phases of collaborative design.
Interactions with the market through market-informed design can take a variety of forms, ranging from the contracting authority issuing a formal document which solicits thoughts and feedback from prospective providers, to integrated and co-located teams co-designing potential solutions.
Collaboration in public procurement is not new: many governments around the world have trialled such efforts to combat the changing procurement landscape. For example, many governments conduct industry days to understand how the market might approach the problem, or run informal workshops with providers alongside the formal submission of written tenders.
To be successful, government departments must work in tandem with tenderers to identify risks and create strategies to mitigate them - a truly collaborative approach, which allows all parties to discuss who is best placed to manage the risk. The best results are realised when governments actively and consistently consider how best to engage the market from the outset of any major policy change, and not just in the later stages of service delivery.
Collaborative procurement methods are ideal for projects where the vision and objectives are clear but the design of the solution, the approach to delivery, and/or the commercial model are not - especially where suitable solutions are not yet commercially available. These projects may involve, for example, building and operating complex digital infrastructure (such as a sophisticated data registry), the design of a new piece of transport infrastructure which will fundamentally change a city's layout or role (e.g. a major airport), or the design and launch of a cutting-edge offering to citizens (e.g. a PPP for advanced cancer treatments).
In such instances, MIDAS can deliver a better outcome than a conventional approach. If deployed correctly and in the right context, the long-term benefits of a market-informed approach would significantly exceed the initial cost. This is because many important tasks are completed during the collaboration phase - for example, detailed design and prototyping - and because the collaborative process helps to resolve strategic ambiguities and set functional working norms, in turn reducing delivery costs and risks further down the track.
Such cost-savings are particularly valuable in technology-enabled projects, which have historically suffered from a high failure rate due to budget and time overruns. This resequencing of effort at different stages of the process - engaging the market early on before the strategy and design are set in stone - reduces the overall cost of procurement while improving outcomes.
The four success factors
It is both unsurprising and reassuring to see governments around the world increasingly embracing innovative, collaborative procurement methods. The New South Wales state government in Australia is moving away from traditional adversarial approaches and seeking to partner more actively with industry and codesign major infrastructure projects. Similarly, in Canada, the MaRS Procurement by Co-Design programme has enabled entrepreneurs and healthcare providers to solve technological challenges in partnership with government. And Ireland's Smart Dublin project is using a combination of pitch-based and collaborative design to leverage city data and deliver “smarter government services” to citizens.
But what does it take to run successful market-informed procurements? Based on our experience globally, we see four main success factors:
- Once the procurement process is underway, strike a delicate balance between collaboration and competitionCompetitive stages are still necessary to get value for money. Collaborative procurement is best begun at the design phase, where the ambiguity and complexity are greatest. Once the design phase has been completed, and there is a clear understanding by both parties of the risks and challenges that may arise, a competitive approach can be taken to finalise the costs and project team requirements. When considering taking a project through a collaborative procurement process, it may be beneficial to use a multi-stage tender, where rounds of competitive procurement bookend longer periods of collaborative design. Using a mixed collaborative and competitive procurement process, the successful vendor can more easily transition to the delivery phase, because resource integration and relationships between government and vendor have already been navigated.
- Structure incentives so that providers act openly and cooperativelyMIDAS can only work if there is truly open collaboration between the provider and the government during design phases. There are a number of ways governments might motivate providers to engage transparently and collaboratively in the process. For example, governments may formally evaluate the provider on their collaborative effort, as well as on credentials and references from previous collaborations. They may also choose to institute reciprocal information-sharing practices to incentivise open participation.The balance between collaboration and competition is a fine one, and the juxtaposition of the two may engender some behavioural risks that governments should consider and account for in their planning. However, with the right incentives in place, this mixed collaborative and competitive procurement process can allow the government to reap the benefits of cooperation without compromising value for money.
- When it comes to teaming and delivery methods, begin as you mean to go on
Government contracts increasingly involve a public sector team working side-by-side with a private sector provider to design and deliver a solution. When done well, such collaborative approaches can help build the right relationship and working dynamics before the contract is signed.By creating diverse, integrated teams as early as possible - for example, by running agile codesign processes with prospective providers in parallel - the participants can get to know each other's work styles and strengths, public-private resources can be combined, and delivery timelines and interdependencies can be made transparent to all parties. The effort expended during setup will then lead to a well-functioning, integrated delivery team.
- Doing things differently brings challenges - so address them proactively and strategicallyThe degree of collaboration needed to deliver a MIDAS approach requires governments and providers to embrace wholly new ways of working. Thus, early and proactive engagement to address the inevitable challenges and resistance will set the programme up for success. The maintenance of high standards of integrity, for example, is critical to public sector operations, but open-book transparency brings with it complicated legal and ethical challenges, because sensitive information is handled by a number of stakeholders in a fast-paced environment.
Engaging change management early on and instituting processes that encourage open communication within clear legal and probity boundaries will be essential to minimise risks downstream, bring stakeholders onside, and enable the project to succeed.
The benefits of collaborative innovation
Governments looking to deliver value for money through procurement must master a careful balancing act - between insourcing and outsourcing, and between collaboration and competition. As the nature of governments' and citizens' needs evolve, as products and services become more complex and ambiguous, and as bespoke solutions become increasingly necessary, governments must seek out solutions that are both innovative and relevant. A market-informed approach to the design and sourcing of complex solutions is a critical step forward in tackling many of these burgeoning challenges.
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