This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide.
While public procurement audits often raise concerns over recurring major project failures, an increasing number of recent audits are finding projects that were delivered on time, on budget, and in compliance with due process rules. The following recent audits illustrate how planning and training are key to innovation and successful project delivery.
Cost and scope overruns are two recurring risk areas identified in recent audits. For example, in its December 2020 audit entitled Value-for-Money Audit: Metrolinx Operations and Governance, Ontario’s Auditor General found that Metrolinx, a provincial mass transportation agency, was overly dependent on its incumbent service provider for the delivery of its fare card program. The audit noted that Metrolinx expanded its Presto fare card program by awarding a series of sole-source contract extensions to the incumbent, which added $1.7 billion in untendered work to the original $232 million contract. The audit raised concerns over how the sole-source work awarded to the incumbent could compromise the fairness of any future bidding processes to replace the current system, and underscored the importance of better planning for full life cycle requirements when scoping and awarding long-term contracts.
Similarly, in its March 2021 audit entitled Heavy Lift Helicopter Program: Navy Should Address Cost and Schedule Risk, the U.S. Government Accountability Office (GAO) raised concerns over the decision to expand the production of heavy lift helicopters before completing prototype testing. The GAO recommended that broader production be delayed until prototype testing was completed to help contain design-related cost overruns in future production. The GAO determined that the current scheduling for completing the helicopter program was unreliable and “not fully credible or well-constructed”, and that project planning failed to allocate resources appropriate to meet scheduling milestones. The GAO found that the failure to establish a realistic project schedule resulted in “overlap between testing and procurement”, warning that the overlap between prototype testing and additional new purchases “could result in costly retrofits to helicopters built before the completion of operational testing”.
In its 2021 report entitled Report 2: National Shipbuilding Strategy, Canada’s Auditor General revisited its well-documented prior concerns over production delays in the federal government’s multi-billion-dollar shipbuilding program. The Auditor General concluded that the project “was slow to deliver the combat and non-combat ships that Canada needs to meet its domestic and international obligations.” In fact, the audit found that “the delivery of many ships was significantly delayed” and warned that “further delays could result in several vessels being retired before new vessels are operational.” While the report noted that the government had “implemented measures to maintain their operational capabilities until new ships are delivered”, the Auditor General warned that “interim capabilities are limited and cannot be extended indefinitely.” This report offers another reminder of how protracted procurement delays can ultimately result in adverse operational impacts.
However, notwithstanding ongoing concerns over project delays, project teams should be careful to avoid rushing a procurement based on artificial contract award deadlines, since rushed procurements are a key cause of flawed contracts and long-term project failures. While it may seem paradoxical, many recent reports highlight the importance of slowing down the project planning process to ultimately help accelerate proper project delivery. For example, in its May 2021 report entitled Megabang for megabucks: Driving a harder bargain on megaprojects, the Grattan Institute, an Australian think tank, warned against rushing headlong into poorly planned projects since “rushing projects to market often leads to disputes, threats, and delays”, which inevitably also result in governments paying more than the originally agreed upon contract price. As the report recommends, governments should put more focus on properly scoping their projects, while also avoiding the entrenched bias for larger contracts since “bigger bundles mean that fewer firms are willing and able to bid for the work”. As the report warns, big firm bias can remove specialized firms from the bidding process and increases “the level of risk borne by a single contractor or consortium.” Since government project managers are often offered “little guidance on how to package works optimally”, the report recommends that public institutions formalize procedures for proper contract scoping, while building sufficient time into their procurement planning to properly consider those key design decisions.
Not all recent audits paint the same bleak picture regarding recurring process breaches, cost overruns, and project delays. In fact, in its November 2020 report entitled Scottish Public Pensions Agency, Audit Scotland found that the Scottish Public Pensions Agency extended an existing contract and delayed the start of a major procurement for its new pensions platform replacement project to establish appropriate project governance frameworks and conduct proper project planning. The report found that the Agency ensured that appropriate staff were appointed to lead the procurement approach and strategy and to ensure that an initial roadmap for the project was developed. By emphasising proper planning, the report found that the Agency avoided rushing into a broadly scoped project and decided instead to “tender for a componentised solution”. As the audit concluded, in applying lessons learned from prior projects, the Agency executed a new procurement strategy that “recognises the need for a clear business case, realistic procurement timetable and clear governance and project management arrangements.”
Similarly, in its January 2021 report entitled Management of the Search and Rescue Aircraft Contract, Australia’s National Audit Office (NAO) concluded that the government’s project was delivered on time, on budget, and in compliance with its original project scope. As the audit noted, the project team was granted sufficient advanced planning time to ensure proper execution. The audit also found that the project team included well-trained contract management staff. The NAO made a series of general recommendations in the report aimed at assisting other public institutions with their major projects. Those recommendations included starting procurement planning early, focusing on proper contract scoping, establishing key performance indicators for measuring contractor performance, and integrating well-trained contract management staff into the procurement planning process.
In fact, many recent public audits have concluded that staff training is key to effective project execution. In its December 2020 report entitled Government of Guam Procurement Training and Certification Program, Guam’s Office of Public Accountability (OPA) reviewed Guam’s legally mandated procurement training program and found that procurement disputes decreased as procurement training increased. As the report noted, Guam’s procurement law “prohibits the participation of government personnel who have not obtained the mandated procurement training and certification” since it is “necessary to produce employees who are knowledgeable in procurement to effectively and efficiently perform their agency procurement functions.” As the OPA noted, the government began administering its mandatory procurement training in 2012. By 2020 procurement disputes were cut in half. As the report concluded, “continued compliance with the procurement training and certifications may have contributed to the continued decline in procurement appeals and decreased the likelihood of protests.” The report also stressed the need for continuing education to supplement the basic training provided to procurement staff to “ensure that individuals certified in procurement training obtain reasonable hours of continuing education needed to maintain certification for each section.”
Sharing case study information as part of advanced training, particularly in areas of innovation, is recognized as being essential to meeting future procurement demands. In its October 2020 report entitled Army Should Improve Use of Alternative Agreements and Approaches by Enhancing Oversight and Communication of Lessons Learned, the GAO encouraged better partnering with industry and academia to implement innovative approaches to science and technology projects. As the GAO noted, advanced training from a broad range of sources is critical to finding innovative solutions. The report encouraged the adoption of “more diverse perspectives” and broad information sharing so that “lessons learned are not confined to a subset of organizations or officials involved in decision-making.” As the report stated, leveraging lessons learned “is a principal component of an organizational culture committed to continuous improvement”. The report noted that advanced case study training includes “collecting, analyzing, validating, archiving, and sharing information and knowledge gained on positive and negative experiences.” This information sharing provides personnel with “increased access to what has worked well and what has not when interacting with industry and academia” and allows staff to “more effectively engage with new partners in support of its modernization goals.”
The broader adoption of agile procurement is a prime example of how public institutions can leverage lessons learned to improve procurement outcomes. In its 2021 report entitled Procuring Complex Information Technology Solutions, Canada’s Auditor General noted that Canada’s federal government adopted agile procurement as a means of modernizing its aging information technology portfolio, which currently includes 21 large procurement projects valued at $6.6 billion. The report distinguished agile procurement from traditional procurement, noting that “while the traditional procurement process is linear and awards a single large contract, the agile procurement process is iterative and awards multiple smaller ones”. Further, the report explained that “agile procurement aims to achieve business outcomes by establishing close collaborations between procurement experts, end users (those who use the procured systems), and private sector suppliers through multiple phases.” This process “permits course corrections and helps federal organizations apply lessons learned.” The report also stated that agile procurement “is best used for complex projects in which it may not be clear at the outset what the best potential solution is to address business needs.”
While the audit found that the Canadian government “made good progress toward adopting agile procurement practices for large IT systems”, the Auditor General concluded that more progress was required in training government staff, noting that the government “will need to build on these lessons and experiences with agile procurements.” As the report stated, the government needed to “update their guidance and training for procurement officers, especially on how to apply new agile procurement methods.” More specifically, while the report noted that “agile procurement was far more interactive and transparent, which was beneficial for meeting business outcomes”, and that the test pilot projects “adopted innovative techniques for evaluating proposals, such as requiring live demonstrations and testing products early in the evaluation process to make sure that the proposed product could perform key functions to meet business needs,” the Auditor General found that the government rolled out its agile procurement program with insufficient staff training. As the report concluded, the responsible departments “did not provide sufficient guidance or training to employees on how to conduct agile procurement for major IT initiatives, including how to effectively collaborate and respond to suppliers’ questions and feedback.”
The Auditor General confirmed that other jurisdictions, including the US and the UK, supported their agile procurement deployments with more extensive staff training and better reference materials but that Canada’s procurement manuals and training materials “did not explain how procurement teams should collaborate with suppliers or capture their exchanges when using agile procurement methods”. Further, the report found that the government “did not assess what skills or competency training was needed to support the move to agile procurement.” The Auditor General therefore recommended that the government “develop more comprehensive guidance and training for employees to improve understanding of agile procurement and how to apply collaborative methods.”
Similarly, in its January 2021 report entitled New Zealand Public Private Partnership Model Review, New Zealand’s Infrastructure Commission recommended better training in the use of dialogue sessions in major procurement projects. As the Commission explained, these dialogue sessions, which were referred to in the report as “Interactive Tender Process (ITP) sessions”, allow for interactive discussions between purchasing institutions and competing bidders. These sessions are intended to assist bidders in submitting the best proposal possible by allowing them to “discuss the development of their commercial and operational approach, concepts and designs and to seek clarification and feedback to improve their understanding of the project and required outcomes.”
However, as the report explained, some private sector participants “felt that some ITPs did not provide sufficient feedback and guidance to the bidder, particularly in the design sessions.” The report cited several possible causes for this lack of feedback, including an overly cautious approach by government staff who did not want to be seen as directing the development of proposals, and a lack of confidence in providing more detailed feedback during ITP sessions. The report also warned that a lack of experience and maturity from ITP attendees would have an adverse impact on the effectiveness of the dialogue sessions, noting that “it is important to carefully select the right attendees from both sides to obtain the most benefit from the sessions”. The report concluded that “all participants should have a good understanding of the ITP process and how to best use the time, either through previous experience or through appropriate training.”
As these recent reports illustrate, building in sufficient time for strategic planning and ensuring that project teams are properly staffed with trained personnel are key elements for enabling innovation and increasing the success rate of major procurement projects. Public sector purchasing institutions would be well-served in leveraging these case studies and applying lessons learned to their own major projects.
