Why procurement’s current model “is broken” and what’s the fix?

0

Calls to overhaul Australia’s “outdated and unsustainable” infrastructure procurement model have been echoed by a company which says the best-value approach to competing and awarding contracts should be accelerated. 

JNT Excel Consulting, which made a submission to the inquiry into Procurement Practices for Government, has even championed anonymous evaluations of tenders to raise the bar. 

John Matta, Director and Founder – JNT Consulting, has teamed up with companies  worldwide to implement the best-value approach to competing and awarding contracts –Expertise-Based Project Delivery (XPD).

John has backed recent calls for a shift from cost-driven transactional model of procurement to an enterprise-model based collaborative relationships being trumpeted by owners and suppliers in the UK. 

Project 13, the UK-based group seeking to change the way major infrastructure projects and programs are delivered in their country says Australia’s contracting model is unsustainable and outdated, putting the country at risk of falling behind. Read about Project 13’s movement. 

And John even went a step further to say the procurement model in Australia is “broken”. 

In the first of a two part series, John unpacks why he believes traditional procurement needs a shake-up – and he provides some views on what the fix is. 

The current procurement model is broken here in Australia, and this is a sentiment shared by many in the industry. There’s no doubt that the traditional procurement processes used in the past have given us many challenges which need to be addressed.

These challenges mean that we, as an industry, and at higher levels of Government, must change our behaviour to end up with different results. It’s been refreshing to be a part of the recent Federal Parliament inquiry into Procurement Practices for Government-funded Infrastructure.

It’s clear from these hearings and from reading submissions, that many different parties are in agreeance that things need to change. The current model is broken and it needs to be reframed, re-established and, in essence, fixed.

What’s wrong with the current model?

The challenges that Australian infrastructure projects face are well documented and it’s clear that a better job must be done with procurement practice and in delivering construction and infrastructure services.

Challenges include:

  • Adversarial relationships – whereby no one works as a team and parties are too focused on protecting their own interests then achieving a joint outcome.
  • Increased internal management – contractors who hire subcontractors without the required experience or expertise, which can lead to high-risk of failure and owners needing to spend too much time monitoring and managing the process.
  • Lack of innovation – innovation is not rewarded under the current process for bringing innovative ideas to the table.
  • Highly experienced versus inexperienced – the current process does nor reward contractors who minimise your risk by hiring highly experienced staff and rewards cutting costs instead.
  • No planning – the current approach doesn’t incentivise contractors to preplan until a contract is signed and this means key personnel’s input is not taken into account early enough.
  • Poor performance – there is no consistent record for high-quality outcomes in the current approach, with many large or complex projects seeing massive delays, additional costs and poor quality.

With all of these challenges and a procurement approach that’s broken, this can lead to poor results such as:

  • Projects completed late
  • Numerous costly change orders occur
  • Many delivered projects aren’t necessarily a ‘success’
  • Assumptions that lowest price will deliver best value, resulting in poor outcomes or additional costs
  • Assumptions that all contractors have the same information and understanding of requirements – this is not the case and many items end up missed, resulting in higher costs overall.

This means that traditional procurement and tendering approaches are failing to deliver consistent, successful outcomes, particularly for complex, high risk and high-value projects. The procurement model is broken and must be rethought and repaired.

How can we fix Procurement?

So, it’s clear the procurement model is broken. But how do we fix it? You can reverse the above challenges and also implement a new process, approach and model that works for all parties. We can also learn from our international counterparts.

Australia’s challenges are not unique and there is a solution! JNT Excel Consulting is joining other companies worldwide to implement the best-value approach to competing and awarding contracts – Expertise-Based Project Delivery (XPD).

XPD was developed by engineering researchers at Arizona State University (ASU) and has since been rigorously tested and implemented successful for two decades, across thousands of projects and services.

This solution is a complete procurement and project delivery approach which can be used on more complex projects to improve the overall outcome. This approach has resulted in:

  • 20-30% reduction in cost change orders
  • 20-50% increase in contractor responses
  • 50% increase in diversity and small/local business awards
  • 30-60% reduction in client efforts required to manage the work.

This approach could fix the procurement model which is broken by applying it to infrastructure projects. The XPD approach was even recently used by the City of Los Angeles to design and construct groundwater treatment facilities to restore the quality of groundwater in the San Fernando Basin (valued at over $450 million).

Next week, we’ll bring part two of how procurement can be fixed according to John Matta.

About Author

mm

PASA (Procurement and Supply Australasia) is the leading provider of information, education and networking opportunities to procurement professionals throughout Australia and New Zealand. PASA supports the largest community of engaged procurement stakeholders in the region, through its renowned series of events, publications, training, awards and PASA CONNECT membership network. PASA is a trading name of BTTB Marketing Pty Ltd. BTTB Marketing has operated under the BTTB, CIPSA Conferences and PASA names for over twenty years. https://procurementandsupply.com/

Leave A Reply