Traditionally government is a good market; it doesn’t default, pays its debts on time and tends to buy when the rest of the economy isn’t doing so. Unfortunately the level of investment in cost and time to sell to government is usually much higher than for the private sector.
A seismic shift, the ‘recession’, is exacerbating the situation and government will be driving a harder bargain and cutting back and / or cancelling more projects, reflecting the internal pressures they are under. The aim of this book is to reduce the level of investment whilst improving success rates, particularly relevant in these difficult times.
With government strange things can happen, here are some examples (without names to avoid law suits).
- A government framework for complex systems was cancelled after the short listing phase, as was its replacement. The whole saga took over two years and as approximately 20 suppliers had been short listed each time the cost to the buyer and to potential suppliers was in the millions of pounds. Both cancellations were due to changes in policy for how complex systems should be purchased.
- After more than a year and with each of three suppliers having spent something over a million pounds a government department realised that a competition wasn’t necessary and cancelled it.
- At the end of over a years competition a government buyer pressed for large cost reductions on a set of major contracts, some suppliers decided that the contracts couldn’t be profitable and withdrew, others signed and subsequently some realised the contracts weren’t profitable and paid compensation to escape their contracts.
- A government buyer published a requirement and found that no supplier was prepared to bid for their business. This was probably because each supplier felt that the odds of them winning were too low to justify the cost of competing, possibly because the rules of the competition gave no opportunity to differentiate or the cost to bid seemed unreasonably high.
- A supplier quoted a low price and expected to make up the loss by charging high prices for changes or bid for business where they knew they aren’t particularly well qualified to deliver.
So why do buyers, and sellers, behave in this way?
One explanation is that equal access to information is a key part of theories about free markets and competition. This is why competition authorities object to activities that restrict access to information, such as insider trading. In a perfect world the buyer would provide accurate information about what they want to do and are prepared to pay, and sellers would compete on their ability to meet the requirement and on the price they charge, but…..
For reasons discussed in the next chapter, in the real world government buyers don’t usually discuss openly what they want to achieve and the constraints on how it can be done with prospective suppliers. Suppliers are also careful not to reveal any more than they have to as they don’t want to “give” their ideas / intellectual capital to their competitors. This causes buyers and sellers to act defensively and fail to communicate, and sometimes find out too late that they’re on the wrong track. To make the situation even worse, the communication that does take place may well have been designed to influence the competition and gain competitive advantage.
It’s not surprising that things do go wrong, and as you are going to be damaged by it almost as much as the buyer it’s very much in your interests to act professionally by promoting open communication and avoiding dealing with buyers who won’t cooperate. Because if things go wrong you lose twice, first of all with a wasted bid for business and secondly, as a taxpayer you will be paying your share of governments costs.
The damage from poor communication doesn’t even stop when the contract has been won. If it has resulted in a contract that doesn’t achieve what the buyer really wants the supplier will inevitably have to agree to change it. Whilst this may gain the supplier extra revenue it’s also likely that managing the bad feeling will make it unprofitable.
So whilst government is generally a good market, government organisations are not necessarily good customers. To succeed you need to know the ‘rules of the game’, behave professionally and keep your eyes open.