I have spent the last week in running commercial acumen training for the national transport agency in various parts of New Zealand. This course focuses on raising the awareness for government organisations of the business models and commercial practices of consultants and contractors. Further, it works through the procurement practices that they can put in place on capital, operational and maintenance contracts that will drive the right behaviors from their service providers, reduce their tendering and procurement costs and ensure they receive value for money over the life of the contract. It is innovative, challenging and really gets government organisations thinking differently around how to procure in a win-win manner taking in to account new knowledge around their service provider’s commercial practices.
I have been very impressed with my clients commitment to skilling up their project managers, key technical staff, procurement teams and other teams involved in engaging and working with service providers. The commitment has been extensive with over 100 staff having gone through the two day training over the last twelve months. The response to the training has been very positive with responses ranging from some massive ‘a-ha’ moments around the following key areas:
- This makes sense as to why my consultants price their services the way that they do;
- I have never understood the differences between how consultants and contractors price up their work;
- Our commercial and technical scopes are not as clear to the market as they need to be to gain value for money from our service providers;
- How much money are we paying our contractors and consultants to prepare tenders for us that don’t add value?; and
- I now understand how we can procure more smartly to better engage with our consultants and contractors.
It is the type of training that I believe will transform the industry in the way they procure on capital, operational and maintenance contracts so that they save money for all parties concerned. It requires a different mindset and openness to change that will de-risk tenders, projects and outcomes.
After finishing the last training course in Christchurch for the client, I was sitting at a spare desk while the local NZ consulting association and contractors federation spoke to the workshop participants around their expectations of working with the government agency, their business models, challenges and the current environment. The transport agency key contact I worked with in designing and delivering the course come out and dropped the latest edition of the Contractor Magazine on my desk and suggested I might want to read it.
In the magazine, there was an article from the CEO Jeremy Sole of the NZ Civil Contractors Federation around the high costs of procurement when tendering for work. There were some great quotes in the article – The procurement space – Contractor Magazine, I have captured a few that I think are worth noting:
- Here’s a riddle for you – what goes down the drain and has nothing to show at the other end?…… money wasted on poor procurement practices
- But I guess on closer examination, there is actually something coming out the other end and it is poor relationships, a lack of trust and unnecessarily expensive maintenance and capital works costs.
- The problem often stems from a lack of awareness that contractors and consultants and councils live in a more or less closed ecosystem where cause and effect can be immediate, and have long cycle times…. In other words, today’s maintenance and construction outcomes are factored in tomorrow’s tender documents, bids and performance
- Each party needs to understand this system dynamic and to understand the others quirks and internal dynamics if this ecosystem is to function cleanly and be self-regenerating
- If the procurement and contract management people in government better understood the commercial aspects of running a contracting business, then they would be more likely to structure their own interventions and activities in a way that worked for all stakeholders without disadvantaging themselves
- Our experience is that this alone can save as much as two percent on procurement costs – and has subsequent flow on affects in terms of lower bids at the tender box as a result of better understanding and trust.
I completely agree with the quotes and insights above. It highlights that practices of government organisations that are not aligned to commercial drivers of service providers will not benefit anyone. This article demonstrated to me that commercial acumen training can significantly benefit all parties including the consultants, contractors and service providers. It can be a true win-win arrangement by increasing the openness and transparency around good commercial practices that drive the right behaviours from all parties concerned.
If you would like to learn more about how your service providers operate commercially, their business models, and how to use the right commercial qualifiers and assumptions, risk allocation and procurement models to to deliver better outcomes. Please feel free to contact us at email@example.com or on +61 8 8212 5752.