Home Emerging Technology How to develop a winning procurement strategy for new technologies

How to develop a winning procurement strategy for new technologies

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Construction road sign against a blue sky

When it comes to assessing new technologies, traditional procurement methods are quickly becoming obsolete. Here we look at ways of procuring innovation through a host of fresh – innovative ­­– strategies.

When your routine approach to vendor comparison doesn’t work for assessing technology, forming a new outlook on negotiation could be the difference between managing disruption to your advantage and being left behind.

It goes without saying that guidelines and policies are important when procuring construction services. They ensure fair process for all parties, probity, transparency, consistency and, when used well, can ensure the best project outcomes.

For routine operations where a basis for comparing contractors can be readily established, the traditional procurement methods are effective, with standardisation saving considerable time. There are, however, many cases where efforts to achieve an ‘apples to apples’ comparison stifles innovation – because comparing unfamiliar proposals using traditional methods doesn’t always work.

It may seem tempting to avoid procuring for ground-breaking solutions, but this comes at a cost.

Where traditional procurement encourages incremental improvement – slight gains in efficiency and quality and slight reductions in cost – procuring innovation encourages the type of exponential advances that are essential to operate in a climate of rapidly evolving technology.

The change management process

Perhaps one of the greatest challenges in engaging with innovative solution providers is internal. Great leaps forward in performance and outcomes can be and are killed by resistance to change.

Regardless of the potential of an innovative solution, don’t take for granted that it will receive a positive welcome from the whole organisation. Resistance to change is often a far bigger challenge than any technical or operational obstacle. A solid body of knowledge exists around change management to help you through this process. It is important that you successfully communicate to your team the need for change; bring powerful influencers on board; and that there are some short-term wins for your team to acknowledge and celebrate on the path to your goal.

Innovation in government procurement

Peter Carr from City of Hobart is preparing for a more connected future. As Director of City Innovation at the Council, it’s his responsibility to consider ways to transform the city’s ageing communications, transport and energy models. He does this by bringing together big data and spatial information to adapt services through using technology creatively – such as sensor equipment – to make the city more liveable.

His challenge, first and foremost, requires a mindset shift among staff, elected representatives and the community. According to Carr, the practices that got local governments to where they are today won’t get them to where they need to go in future, and Hobart is making good progress.

“As part of a broader organisational transformation that has included a complete rethink and restructure of our end-to-end project and portfolio management methodology and systems, Council’s procurement team have been hugely supportive in embracing new approaches to market engagement,” said Carr.

“This has been especially beneficial in underpinning the speed of adoption and fast trials and small-scale proof of concept (fast fail) culture we’ve been driving within the innovation division.”

Employing an Early Contractor Involvement model

A typical project procurement is based on some form of Request for Proposal (RFP). Multiple vendors are provided a scope based on available information, and a mutual commitment is made for the life of the project. This model is well-established and works acceptably where projects are familiar, and the capabilities of contractors are understood.

However, when innovation is necessary the RFP model can result in misaligned expectations between principal and vendor, possibly resulting in a mismatch between vendor and expected outcomes.

A slight variation on this model, Early Contractor Involvement (ECI), can help ensure governance obligations are fulfilled while allowing for innovation. Consider for example, a typical design and construct engagement: rather than committing to one vendor from the start, multiple vendors receive a limited budget under ECI (perhaps between $10,000 and $100,000 depending on the project) to develop their proposal to a more mature stage.

The additional effort can resolve much of the uncertainty present during pre-engagement, reducing risk to the organisation and serving as a foundation for negotiating full-scale implementation. The solution is co-created between the organisation and its vendors – an impossible outcome through traditional RFP. This ‘fail fast’ model is the norm for private start-ups and allows for accelerated learning while limiting overall exposure, especially when considering the true lifetime costs of significant civil projects.

The organisation can then proceed to engage the most promising vendor with greatly increased alignment and confidence in their ability to deliver the project.

Even terminated ECIs are not true failures as using the process serves to build the capacity of all government vendors, creating a sound foundation for future innovation. This is especially important in regional or remote areas outside the supplier-dense capital city markets.

Carr’s City of Hobart team found that government procurement policies are not the barrier to innovation they are often perceived to be – the real obstacle is the willingness of employees to approach projects with a fresh outlook.

“What was most surprising was how easy it was to break the over-arching assumptions that our procurement policies were restrictive. We just had to ask,” he said.

Procuring from start-ups

The Victorian Government recently recognised the challenges faced by start-ups with no track record when bidding for public sector work, and the resulting missed opportunities for government organisations.

They set up LaunchVic, an independent start-up agency responsible for developing Victoria’s prospering start-up industry.

LaunchVic, through its CivVic Labs program, contracts a start-up to perform the work, without the requirement of procurement policies that would otherwise preclude them. Through the agency, start-ups are being invited to apply their emerging technology ingenuity in projects to help keep Victorians safe at work, and to make the Victorian transport system more responsive to user safety and well-being.

Using value-based assessments

While your challenges may be less ambitious than the Victorian Government’s, most organisations benefit from at least some innovation within their portfolio of projects. Any offering that differs from the norm is challenging to procure with standard procurement methods.

A difficult but important principle for procurement is to assess projects based on the benefits they create and their associated whole-of-life costs. A prescriptive approach where all respondents are proposing the same outcome is easiest to compare, as the difference between vendors is limited to cost and perceived capabilities. These are poor proxies for true value.

Assessing true value creation is a complex exercise, but it’s an important starting point in procurement decision-making.

To establish objective criteria subject matter, experts should be consulted to assess from first principles what the total benefits will be – such as economic and social benefits – and the total lifetime costs – construction, maintenance, end of life, etc.

Any procurement can benefit from this mindset, not just in the case of finding an innovative solution.

Retrospective assessment for innovation procurement

Where risk is tolerable and comparison between vendors is difficult, retrospective assessment can be an option to ensure best value outcomes. Under this method, a vendor’s assessment for future work is based on outcomes for projects already completed.

This can be an effective method when procuring consultants and services. Often time-based payment methods are used for consultants as it is not possible to define a scope for lump-sum pricing. This has the effect of putting a large weighting on a time-based rate. Performance difference between consultants and service providers can be great however, due to their variable capabilities.

A consultant with the highest rates might in fact be the best value-for-money option, especially when their costs are a small portion of the project cost and they bring new thinking and collaboration. Likewise, for innovative products and services, traditional units of measure may give a misleading judgement of true value-creation.

An unintended side-effect of these misaligned measures is a perverse incentive for vendors to increase revenues post-award in ways that might not create value. Risk believed to be transferred to vendors returns to the organisation at this time in the form of higher costs. In a retrospective assessment, vendors are assessed based on the value they have created versus the cost of their products or services. The incentive then shifts to being considered for the next project, and not an individual project in isolation.

In an increasingly connected world, it will be necessary for everybody to embrace a new way of working based on innovation – not just the ‘techies’. New technologies are already making our processes more transparent than ever before. Among other things, ineffective procurement based on ‘the way we’ve always done things’ is almost certain to be phased out. Rather than being seen as an obstacle, innovation is an opportunity for public works engineers to provide even more value to their organisations – and it’s becoming one of the pillars for a career in public works.