Stirring the pot on marketplaces and panels

Whether by chance or design, the ANAO’s recently released and snappily titled “Establishment and Use of ICT Related Procurement Panels and Arrangements” contains all the ingredients for an interesting dish.

Those ingredients are transparency in government IT procurement; value for money; and the appropriateness of the panel construct to deliver either. The pot just needs a more vigorous stir.

Procurement panels are generally established through deeds. Fun fact: deeds are quaint legal instruments, untroubled by the digital age, that can be signed on parchment (“a writing material made from specially prepared untanned skins of animals” – Wikipedia) or vellum (calfskin) if you’re out of 80GSM. And as such they are symbolic of the modernity of government’s IT procurement thinking.

Catherine Thompson
Catherine Thompson: The current Digital Marketplace is not the model that was planned

Panels were a solution to another problem

Panels were originally created to sidestep the cycle time and effort of competitive tendering. They establish groups of pre-qualified suppliers that can then be contracted directly without further competitive process.

Over the years, panels have become a central construct of government IT procurement. Department of Finance rules and guidance have crystallised around them and these form the prism through which the ANAO conducted its audit.

In an environment where panels contracted in vellum are the answer, it’s to be expected that born-digital, alternative contestability models like the Digital Marketplace won’t thrive. They don’t fit this model and can’t be explained by it.

Nonetheless, an unspoken tension between existing standards and the possibility of something different is evident in the ANAO’s report. The underlying question – one hinted at cautiously – is whether panels remain the most appropriate response to procurement challenges in the digital age. Whether, if we were building from scratch, with all the advantages of digital transformation, we’d again opt for panels.

Certainly, they can be a speedy way to buy. The rules explicitly permit panel providers to be engaged without further commercial process, regardless of the magnitude of the purchase.

The ANAO’s report highlights a $12.3 million award made on this basis. By way of contrast, non-panel procurements over $80,000 must include competition. The rules also say that panels comprising a single vendor are acceptable.

Both these practices are predicated on the questionable belief that the establishment of a panel provides as robust a competitive environment as a tender. In a typical tender, winner takes all and competitive tension sharpens minds and offers. In a call for panellists, there are as many winners as can satisfy the panel criteria.

In a tender, there is an actual use-case against which bidders’ solutions and pricing can be objectively assessed, whereas a call for panellists relies on proxies such as rates schedules and capability statements. Realistically, a panel assessment can establish that a vendor is likely to provide value for money if presented with an actual opportunity.

Shifting the point of assessment to the front end, prior to the need for a purchase, runs the risk that “value for money” becomes a theoretical exercise.

Lack of transparency is a risk factor

All panel procurements are however classified as open tenders, irrespective of whether or not a competitive process is followed. This opacity is not atypical of government’s IT procurement practices, despite Commonwealth Procurement Rules requiring procurement activities to “facilitate accountable and transparent decision making”.

Checklists and advisories for buyers that would shed light on government assessment criteria are hidden behind the DTA’s procurement portal. A 2017 commitment to delivering a dashboard of IT spend remains unactioned. A previously reliable Finance report on IT spend is no longer published (and an email to their contact address went unanswered).

Perhaps as a result of these challenges, the ANAO themselves struggled to quantify government’s IT spend, hazarding that it topped $3.9 billion. This is more than $2 billion shy of the 2017 ICT Procurement Taskforce’s calculations. So we are talking material difference.

Cumulatively, a lack of transparency in procurement matters is important. It’s said that sunshine is the best sanitation. Certainly, working in the open is a powerful disincentive to malpractice and fraud. The report’s intriguing reference to ongoing investigations into “fraud allegations relating to the supply of IT contractors” provides a nod in this area.

Where outcomes and spend data lack transparency, signals about the health of the procurement ecosystem can be missed. Where outcomes can’t be assessed, the process that delivers the outcome becomes the logical point of scrutiny. And where that process is locked into obsolescent ways of thinking about procurement, this becomes problematic.

Ultimately, it can lead to confusing a high compliance environment with an effective control environment, when the two are not always the same.

The Digital Marketplace was not born of the existing system

The Digital Marketplace was a born-digital alternative contestability model that worked in a way that’s very different from a panel. Marketplaces use transparency of data and open access to opportunity to regulate price and quality outcomes.

Digital technologies allow them to do this at scale and speed, and to overcome some of the tendering challenges to which panels are currently the preferred solution.

Though it now operates purely as a government procurement platform, the Marketplace’s foundational mission and funding from the National Innovation and Science agenda was to use government’s power as a buyer to help develop the domestic technology sector.

In other words, to operate as an instrument of economic policy in relation to technology SMEs.

Sellers whose narratives needed fine tuning received feedback from Marketplace, and this was characterised in the ANAO report as allowing failing suppliers multiple attempt to meet the mark.

However, the practice of providing commentary that assists vendors to evolve their offering isn’t a new one. In procurement circles, it’s known as “supply market development” and is used as a tool to enhance longer-term market competitiveness. For many of these SME suppliers, it was their first experience of interacting with government.

The Marketplace worked in a way that’s very different from a panel, with a two-tier assessment model that started by introducing new sellers and their expertise in an online format that was discoverable by government buyers and any member of the public.

Potential providers who wanted to go further and actively participate in procurements applied for assessment to join the panel construct that (of necessity) supported the community of active sellers. This assessment focussed heavily on capability, because the mechanism for assessing pricing was the action of the Marketplace itself.

Rates bid by suppliers for digital specialist services were collated and posted on the marketplace, so that buyers and sellers alike could see demand and price curves by role, together with the amount of competition, and modify their pricing and purchasing strategies according to the evolving supply market dynamic.

The Marketplace was designed for buyer “briefs” for digital outcomes to be posted openly on the Marketplace and all qualified suppliers to be able respond to them. The Marketplace process is designed for the market to come to the buyer, and not the other way around.

Most government buyers work across a wide range of purchases and don’t have strong connections with individual supply markets. If required to select a bidlist, they are likely to pick suppliers with whom they’re already familiar, biasing the process against newer and smaller participants.

The ANAO’s report fundamentally misconstrues proper Marketplace operation by suggesting that buyers start their procurement by selecting a bidlist. Unfortunately, it’s now an easy mistake to make.

As the Marketplace increasingly resembles familiar procurement models, a decreasing percentage of opportunities is open to all sellers (~30 per cent currently).

Reverting to a system in which only certain suppliers are invited to bid reduces both the transparency of government opportunities (the opportunity information is hidden behind a login wall) and the ability of new sellers to connect with government.

The practice of restricting respondents also challenges the value for money equation, because it reduces competition, especially from nimbler and more innovative competitors.

Value for Money

Do panels deliver value for money outcomes? Without more publicly available data points it’s hard to say. They are one link in the chain of contributors to value. But they should no longer be the link by which all others are defined, because, as NISA put it back in 2015:

“We are committed to changing the way government delivers to Australians by trialling good ideas, sharing information, looking for innovative suppliers and changing our policies when they are not working.

It has often been easier for government to continue with the ways things have been done rather than embrace new technological opportunities. We are making government digital by default and opening up procurement and data to encourage innovation in Australian business”

Catherine Thompson is co-Founder and Principal at Hypereal, a company that advises governments on the opportunities and challenges of digital and emerging technologies. Catherine was one of the DTO’s foundational leaders and led the team that designed and built the original Digital Marketplace.

Do you know more? Contact James Riley via Email.

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