Friday, 11 February 2011

When outsourcing costs more,is bad value and when the RFQ or RFP is too inflexible is Selling ever Buying's " keeper"?

Most stories of commercial poor practice that hit the news focus on bad behaviour on the Selling side. These stories should be told of course but excessive media coverage does taint the reputation of the majority of those in the profession who try to do a good job for their customer, for their companies and for themselves.

Stories abound about pensions miss-selling, preying loan sharks in the current recession or stories churned out on BBC TV's "Watchdog" or Radio 4 " You and Yours" stereotyping dodgy double glazing selling or mobile phone contract scams abound.

But before we in Selling get any sense of vindictive satisfaction in reading a story for once of Buyers 'getting a good kicking' we should remember the customer in the M25 extension fiasco is the nation.

You would think that if a commercial project was running to time , was under budget and one that will complete its critical deadline of national importance ( London 2012 Games) that all would be well and good.

Indeed as a set of metrics it might suggest good buying and good selling had taken place.

Yet in the report published 8th February 2011, the Public Accounts Committee have cited, “poor cost estimation” and a lack of “robust information” as key flaws in the handling of the project, describing it as “poor value for money for the taxpayer”.

The case in question is the massive construction project to widen London’s M25 orbital road between junctions 16-23. The Buyer in this case-( the Highways Agency) has been heavily criticised by the Public accounts committee of the UK Parliament.

On BBC Radio 4’s Today programme chair of the committee Labour MP Margaret Hodge said

“They have got it completely wrong.”

She derided the 30-year, £3.4bn private finance contract for widening the M25 and said the mishandling had cost the taxpayer as much as an extra £1bn.

She urged ministers to renegotiate the contract, whose management costs she said were "far too high" following "appallingly bad estimations" produced by consultants employed by the Department of Transport.

Margaret Hodge said "The taxpayers have been the main loser. Road users have had to tolerate constant traffic jams, and the only beneficiaries have really been consultants and advisers."
"The public accounts committee had been "shocked" to learn that £80m was spent on consultants to advise the department on "how to build a road".

This report from Parliament follows the National Audit Office (NAO) report of last year on the project

"Lessons to be learnt" has been the PR soundbite from the criticised buyers but there will ramifications of course for those Selling to the public sector from hereon. The NAO recommended the following for the Buyer in this case - The Highways Agency:-

1. The agency was criticised for being too slow to investigate potentially cheaper alternatives, such as allowing traffic to use the hard shoulder.

2. The NAO study said: “The agency should have adopted a more agile approach to procurement, recognising the potential for making savings using an alternative method of relieving congestion: hard shoulder running.”

3. It estimates this could have saved between £400 million and £1.1 billion. It said slow progress on testing hard shoulder running and the agency’s commitment to widening the motorway limited its options and provided less value for money.
4. An 18-month delay in preparing and finalising the procurement work to widen the road meant the contract was let in May 2009, at the height of the credit crisis. This increased the cost of the deal by almost a quarter to £3.4 billion.
5. The report also described “shortcomings in its cost estimation process”. The Highways Agency’s cost estimates were 27-43 % higher than the bids it received. The NAO recommended the agency investigate the reasons for the difference.

Outsourcing is not always the answer it seems.

The NAO also called on the agency to develop its in-house skills in procurement and contract management because it is “over-reliant” on consultants.
“The agency has not reviewed the total costs of its procurement to identify lessons for future projects,” said the NAO.

“The agency continues to rely on advisers for contract management support and documentation about the procurement."
“The agency’s reliance on advisers has built up over time and in part reflects insufficient commercial and technical skills within the agency.”

The Highways Agency spent £80 million (7.5 per cent of the capital value) on advice and support from external organisations, including £45 million on technical advice, during the course of the procurement for the road widening.

Caveat emptor "Let the buyer beware" one might think . It is the Buyer's lookout but there is always Caveat venditor "let the seller beware" to consider.

Should Selling take responsibility for the product and be discouraged from selling products or services ( including consultancy) that are unreasonable or unsuitable ?

The dilemma here was for those suppliers who wanted to suggest the cheaper hard shoulder option. Their suggestion would probably have run the risk of being rejected because such a suggestion may not have kept within the strictures of the terms and conditions of the request for proposal RFP.

The Buyers Views of Salespeople Survey has also identified additional changes in Purchasing practice. 15% of the sample had increased their outsourcing. But as we see from the M25 extension case this may not mean best value.
Click for free executive summary of the Buyers Views of salespeople research study
Readers might also find the increase in purchasers' consideration of sustainability issues, local sourcing and changes in the number of suppliers used interesting


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