On June 8, I attended the IDC Summit in Prague. We had great attendance from public sector CIOs, and I had the chance to speak with many.
One of them told me something that struck me: “When I have to choose between an IT supplier that provides half-good products and services, but they have all of the procurement compliance boxes ticked, and a best-in-class supplier that is not yet even listed in government-wide frameworks, I’ll pick the former; and it’s not even a close call, because I would have to clear too much legal bureaucracy to work with the latter.”
When you hear something like that, you realise how much public procurement has broken and how much it slows down technology-enabled business innovation in the public sector. One of the biggest lost promises of public procurement innovation is public private partnerships, or PPP.
The Public Private Partnership Debacle
I remember I first started to analyse public private partnership good and bad practices in 2004. At the time, New Public Management theories were still in vogue and public administrations, particularly in Anglo-Saxon jurisdictions like Canada, the UK, and Australia, had already burned their fingers with public private partnerships.
PPP is generally intended as a contractual agreement in which the private sector is given responsibility to build, own and operate (or build, operate and then transfer ownership of) a public sector infrastructure or service and be paid back through fee for service or revenue sharing. Typical areas of application are multi-year physical infrastructure projects, such as highways, tunnels, hospitals, or schools.
For instance, International Financial Institutions use PPP to fund infrastructure in low- and middle-income countries. In ICT, PPP have been used for broadband infrastructure, datacentre infrastructure, and in some cases in technology-enabled revenue collection services, such as road-tolling or tax collection.
Many of PPP agreements encountered similar challenges. The public sector entered the agreement for the wrong purpose — to get the private sector partner to pay for the onerous capital investment in the infrastructure build out phase — but often ended up with contractual and technical lock-in that prevented innovation and cost taxpayers a lot of money. The private sector partner entered with high hopes of locking in the customer and co-developing innovative solutions that they could resell, but often ended up with a lot of unplanned costs to manage the transfer of public sector personnel or change organisational processes and eventually made a disappointing margin on the contract.
PPP can work when certain conditions and governance arrangements are in place, such as defining transparent and measurable benefits for all partners, setting up incentives for knowledge transfer between the private and public sector, and so forth. However, such arrangements are really hard to manage. The length of the contract required to recoup the capital outlay usually works against incentivising either the public sector or the private sector to innovate.
However, what PPP have highlighted is that the public and private sectors need to collaborate. They need to do so by applying ecosystem collaboration models that go beyond the traditional buyer-seller contractual arrangements that are constrained by the rigid public procurement rules fostering risk averse practices among many public sector CIOs.
Making the Public Private Ecosystem Work
The acceleration of digital transformation driven by the COVID-19 pandemic, long-term societal challenges such as climate change, international political and economic volatility and the Recovery and Resilience funds generate the perfect storm for public service reform. Technology and data can be leveraged to reimagine public services to make societies more inclusive; infrastructure more efficient and resilient to shocks; cities more liveable and prosperous; and mobility more convenient, affordable, and safe.
Senior civil servants understand that they cannot achieve these goals alone. They need to collaborate with the ecosystem, from private sector to academia to community organisations; and they are constantly reminded of this, such as in the case of the quick reaction to the Ukrainian refugee crisis, where NGOs played a crucial role. To realise the benefits of ecosystem collaboration, senior civil servants need to:
- Keep an open mind. Chief procurement/commercial officers should not be blocking chief information and digital officer initiatives, rather than empowering them to experiment with different contractual models, including PPPs, special purpose vehicles, challenge-based procurement, sandboxes, and revenue sharing.
- Change the culture. Senior leaders should foster a mindset of risk taking that rewards learning from mistakes rather than punishing it.
- Separate pre-qualification from selection. Framework contracts can be burdensome at first, but they offer a cross-government mechanism to pre-qualify suppliers based on regulatory compliance, while letting buyers and vendors focus the second phase of the procurement on innovation and business outcome centred discussions.
- Rethink policies. Risk taking does not mean forcing senior leaders to look for workarounds that could end up in non-compliant practices or a waste of money. New policies, principles and guidelines must be put in place to enable experimentation. For instance, most EU funding must be used only for capital expenditure, rather than to pay for operational expenses, which prevents tapping into as-a-service contracts; with adequate changes to EU grants and loans eligibility and reporting rules, as-a-service contracts should be made possible. Also, legal sandboxes with well-defined and temporary exceptions to GDPR could be created to experiment with data sharing between the private and public sectors.
European public sector leaders that embrace the challenges and opportunity offered by an open, collaborative public private ecosystem will accelerate reform. Those that continue within the boundaries of public procurement bureaucracy will miss the opportunity to reimagine public services or end up in some arcane contractual arrangement that locks them in, both commercially and technically.
Join IDC experts and public sector leaders from around Europe at the IDC Government Summit to learn more about innovative technology procurement practices and to share your experiences.