The State of Public Procurement: Part 1 - Past and Present

This is the first in a two-part series on the state of public sector procurement: how the landscape has changed, where it currently stands and what the future may look like.

1. The State of Public Procurement: Part 1 - Past and Present

2. The State of Public Procurement: Part 2 - Future Predictions

Government Procurement: Shaped by Milestone Events

Why look at the past of public procurement? Because knowing how we got here is an important part of appreciating where we are and why.

To understand this broader picture, let’s look back at the last decade and see where we’ve come from.

Did you get three quotes?

Historically, procurement in the public sector has been seen as a compliance activity. After all, it’s easier to check whether you got three quotes than to ask if you got value for money. This naturally leads to a focus on process rather than output or outcomes when spending public funds.

This has begun to change as the understanding of the role and contribution of procurement has evolved. The expectations about what the procurement process can deliver have broadened.

Avoiding reputational damage

No one wants to be on the front page of the newspapers for the wrong reasons, especially politicians. When the Australian Federal Government rolled out the “Pink Batts” program in 2009, the goals were laudable. The program was planned to help the recovery from the global financial crisis.

When the program was linked to four deaths and more than 200 house fires, the program was scrapped. At a subsequent Royal Commission, the relevant minister took responsibility for the dysfunctional procurement process and the negative program outcomes.

This was significant, as it confirmed the principle that politicians are liable for procurement processes and outcomes.

Supply chain risks on the agenda

You may remember the tragic Rana Plaza factory collapse in Bangladesh in 2013, when 1100 workers died and 2,500 more were injured. The factory manufactured garments and workwear for major brands like Walmart.

This incident triggered awareness that risk may lie throughout the whole supply chain, not only with the vendor who supplies us directly.

Fast forward to today. Many contracts now have 'Modern Slavery' clauses to try and manage one type of supply chain risk, the exploitation of workers.

There has been a gradual and deliberate progression from thinking about procurement in terms of governance to thinking about procurement in terms of contributing to policy goals.

The rise of category management

Workwear is a good example of a category where there are many upstream risks, including environmental, labour and ethical issues. Category management has matured in the public sector, especially at the State Government level.

A direct consequence of this is that the quality of category management strategies has improved in the last ten years.

Using the spend portfolio to realise policy goals

The last few years have seen the desire to avoid doing “bad things” complemented by attempts to do “good things”. Public sector organisations have always tried to use their spending to develop local economies.

As an example, many federal defence contracts have 'offset' provisions requiring the successful contractor to spend a proportion of the contract value with local suppliers. Local government has always been sensitive to the fact that local businesses create jobs for ratepayers, and Councils led the way in local procurement initiatives.

Local preference schemes feature tender evaluation frameworks favouring local suppliers. Weightings can range from 10% to 30%.

State governments have hardwired the priorities of the “government of the day” into procurement practices through procurement principles. The focus used to be exclusively on realising the economic benefit to the state, especially non-metro regions of the state.

Social and environmental goals

Recent years have seen the gradual adoption of social and environmental goals as well as economic goals to the list of procurement objectives. ‘Social and environmental goals’ translates into support for disadvantaged groups, small and medium-sized businesses and social enterprises.

This may take the form of awarding points in bid evaluation for compliance with policy goals in respect of the participation of indigenous people in the workforce, the engagement of women, and people with disabilities.

Where is Government Procurement Going?

To read our predictions on what the next ten years of procurement will look like, stay tuned for our next instalment in this series.

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