One of the areas we have discussed in great length on our easygovernment website is the importance in Commercial Acumen for government leaders. I have stated in previous blogs that I believe it is one of the most important skills a government leader needs to develop in order to be respected within their organisations and industry in terms of their supply chain, key stakeholders and partners.
Commercial Acumen covers everything from understanding your service provider’s business models, key drivers, commercial business models, business cases, procurement of large projects as well as other areas critical to running businesses. This is an area that has a significant impact on achieving valuable monetary outcomes for the community though it is often poorly executed by government due to a lack of understanding of how their procurement models drives pricing and behaviours of their service providers.
A great insight in to this problem was recently provided by the Lend Lease Chief Executive in a recent article. The Chief Executive discusses large project procurement by government and how there was a real imbalance in risks being allocated to construction companies. Effectively, the transfer of certain risks to the constructor where the Government is better placed for the initial ownership comes at an enormous cost. It is priced in bids, drives behaviours in constructors that are not collaborative and means that from a productivity perspective, the community wears the large cost for an infrastructure budget blowout.
You may think this is a case of a constructor complaining for the sake of the business being difficult. I on the other hand see Government leaders and their procurement teams not understanding how constructors and consultants price up their projects. This fear drives risk transfer, unnecessary bureaucracy and unreasonable expectations due to the fact that the market may accept it to win work. However, it is not sustainable long term. The market will choose to not engage if opportunities in other sectors arise or they choose to work with clients who are more commercially astute around what they are driving from a risk allocation perspective.
It is in all of our best interests to get the risk allocation right. Government must better manage their own risks more efficiently and ensure that constructors only own the risks most suited to their skill set linking to the behaviours we want to see. It is tricky but not impossible. It just takes a little commercial acumen and upfront challenge to ensure the best outcomes are achieved for all concerned.