Aerospace and defence procurement: Achieving value for money
Dale Shermon, QinetiQ, and Philip Lear, Commerce Decisions, look at practical ways to improve the procurement process to ensure better value for money.
Whether you work in the public or private sector you will want to achieve value for money through your procurement processes. You will want your career to be remembered for wise, evidence-based, value-for-money acquisitions.
So, how do you effectively assess multiple tenders quickly and effectively – even in complex environments or where there is no COTS (commercial off-the-shelf) solution in existence?
In these circumstances there are several items to consider when preparing for a procurement process:
- What do we need?
- How do we buy it?
- How much will it cost?
- How much more would we pay for a better solution?
The key is to create an environment to ensure better and more robust procurement outcomes for complex projects.
These capabilities provide confidence that your supply chain decisions will be transparent and benchmarked against average industry, realistic cost targets whilst satisfying the overarching goals of the organisation.
The first of these approaches is to determine what you need and how you buy it.
The ‘what we need’ is often developed into a detailed set of requirements and specifications. In many cases, these are used as the only technical factors in determining who wins the contract – not a good plan.
By heavily specifying the solution rather than focusing on the need statement, you’ll only get one solution – the one you designed.
The suppliers – many of whom are the experts – feel hamstrung into supplying what you asked for and not the bold, innovative, cutting-edge solution you really need.
Any assessment of solutions needs to allow flexibility and measure each tenderer’s ability to deliver a solution to meet the needs at an acceptable risk level. This includes consideration of all the packaging strategies, procurement approaches and contracting models.
The next aspect to consider is how much the solution defined above should cost. This includes setting a realistic but achievable target price within the tender request document and ensuring a level playing field for the various tenderers, i.e. producing a pricing model which enables the solutions to be compared on a fair and equal basis.
In environments where nothing like this has been done before, defining the target prices can be daunting. Parametric cost modelling can help with this.
Parametric cost modelling involves the regression of historical cost, design and performance data to normalise previous analogous projects to form a normalised cost density. Recognising the statistically significant cost drivers, it is possible to create cost estimating relationships which are realistic, credible and robust for the purposes of industry engagement.
Articulating the needs of the organisation and the basis for selection are where the ‘rubber hits the road’ in any procurement project. It’s where industry decides whether you are serious and have the means to execute or whether to withdraw from the field. Providing robust prioritised criteria and cost estimates gives industry the confidence required to invest their time and efforts in working to build a solution.
Combining the technical criteria and pricing model in to an overall Value for Money approach is fundamental in ensuring a successful procurement process. Balancing these factors and articulating how much more you’ll pay for a great solution over an acceptable offer is critical to ensure industry understands what you need, what you value and how to focus their efforts.
When this comes together effectively, everyone is on the same page and can provide the best possible solution to an organisation’s requirements.
The industry needs to feel that the competition is fair; to achieve this they should be informed of the process and timescales and should be engaged effectively at all stages - through pre-tender market engagement, initial qualification, requests for information or clarifications, any negotiation and final decision debriefing.