Procurement: local for local's sake poor judgement
- 10 November, 2010 22:00
One of the more contentious issues around the all of government procurement scheme is the debate over deals going to local or multinational companies. History tells us that within government, the majority of contracts go to multinationals for a variety of reasons, including scale and the ability to generate buying power. But as New Zealand companies grow and are able to compete in terms of scale, we still see the lion’s share of contracts going to multinational companies. And there is a lot of industry protest against this.
It was interesting to note that when Integral Axon was acquired by Datacraft recently some commentary focused on Datacraft being owned by Dimension Data, and that large government contracts were going “offshore”. I had thought that the acquisition, particularly as it is one of the largest we have seen in New Zealand for quite some time, would have been the focus of public comment.
So what is it that attracts government to multinational service providers time and time again? This can be viewed through either rose-tinted glasses or the lenses of a sceptic. But there are several critical factors that set local and multinational players apart: size, buying power and accountability.
When it comes to service levels, there are considerable trade-offs to be made. While local players can provide more accessible service, with resources based locally, multinational players can more often than not provide round-the-clock service from expert staff around the globe. There are theoretically cost benefits in having a local provider, and reducing travel costs, however there are also a number of benefits to leveraging the extensive experience that multinationals promise (but don’t always deliver) from overseas projects.
In reality, there are very few New Zealand companies that can provide the same degree of buying power as multinationals – and to be fair, those that can are almost always included on supplier panels. There are potentially adverse reactions to the government making decisions that result in spending going outside of the New Zealand economy, and this is amplified when there are perceptions of reckless spending or huge project overruns. While as tax payers, we should be happy with a government that places great emphasis on cost, there are often hidden costs and a blown-out total cost of ownership that cast doubt on the validity of the decisions made.
But what really needs to be the primary consideration is which company is best for the job. Excluding multinationals and awarding deals to New Zealand companies for the sake of them being New Zealand companies not only draws legal ramifications and breaks covenants of the World Trade Organisation, but it can also lead to serious project issues.
We can learn from our Australian government counterparts in many respects – one is the certification of government- approved suppliers, such as that undertaken as part of the Victorian Industry Participation Policy. This removes much of the risk associated with unfamiliar service providers, and cuts considerable cost from the RFP process each time a government department decides on a new technology or service.
This certification process does not restrict competition – both open and closed tenders are still issued – but the respondents need to be certified, which upholds a base level of competency and provides greater opportunity for small and local companies to be successful in the process.
The New Zealand government may not have it completely right at the moment, but the all of government procurement scheme does see them moving in the right direction. Perhaps a little more attention just needs to be paid to ends they are actually trying to achieve.
Jenna Woolley is a former services analyst and researcher for IDC in New Zealand and Asia Pacific. She specialises in ICT market strategy and can be contacted at firstname.lastname@example.org