Challenge, Choices and Consequences: Sustainability and Risk Round Table
This Round Table event held at The Mere Resort 4th July 2012 was attended by senior representatives from major public and private sector organisations and the academic sector. The event was facilitated by Brian Farrington Limited (BFL).
The first focus was on risk management in procurement and supply chain and an explanation of BFL’s new service product Procurisk®. It was widely accepted that there are, currently, a range of risks that need identifying and for robust risk mitigation strategies to be developed. It was also widely accepted that most organisations have a robust corporate risk register but that procurement and supply chain risks do not always inform the corporate risk register.
Unsurprisingly, comparisons were drawn between public and private sector procurement. Resources were a constant theme with procurement organisations held to be short of resource to deliver the range of KPI’s that were expected. It was accepted that procurement and supply chain risks were wide ranging. They include the risks of strategic supplier financial failure, particularly when Plan B does not exist. The trend to single sourcing has the very risk of not having instantly available a proven second source of supply. The risks attached to intellectual property rights was explored with vigour, using the retail sector habit of ‘copy action’ as an example of a third party IPR’s being breached with the resultant consequences. If this logic was extended to those organisations who do not have Escrow agreements in place when there are IT supplier failures, these risks would impact on an organisation’s ability to survive.
It was accepted that Procurisk® offers a structured and robust methodology for assessing procurement and supply chain risk. It was briefly explained that there are twelve datasets that can be purchased from BFL. It was recommended, for example, that three specific datasets would apply to every organisation. These datasets were, Contract Risk, Contract Management Risk and Pricing Risk. Working examples were given to illustrate the benefits of using the Risk Metrics. There are contracts in place that have extremely low Limits of Liability and, unfortunately this has not been negotiated. The debate extended into the use of Standard Forms of Contract such as FIDIC and Orgalime S 2000. Whilst it was agreed that these Standard Forms of Contract have a place, it was also agreed that specific purchases should be assessed with risk in mind.
Contract Management Risks were explored and it was recognised that in many organisations, procurement were not accountable for contract management. In these situations the risks include the fact that those charged with contract management were not necessarily expert in the detail of contracts, nor were they trained to apply appropriate knowledge and skills. It was highlighted that some contract managers are not permitted to read the contracts they are supposed to be managing. This point emphasises the practical and real life focus of the Round Table discussion. The debate then centred on risks associated with pricing decisions. Various examples were given of escalating prices, contracts with no price agreed and automatic price escalation. It was acknowledged that there are severe pressures on budgets, emphasised by the public sector constraints. This presents an opportunity for procurement specialists to put considerable energies into further managing prices. An example was given on an approach to handling contingency provision in major project pricing. The creation of a ‘contingency pot’ in a contract that carefully sets out the process for accessing contingency funding was explored.
In the summary of Procurisk® Dr Farrington proposed that risk assessment was an opportunity for procurement to engage with stakeholders as early as the business need being identified. Some participants emphasised that this wasn’t possible because they were not consulted early enough in the process. The overall conclusion was that far more can be done to model procurement and supply chain risk.
The second major theme of the Round Table was Sustainability in Procurement. The motivation for the input was British Standard BS8903:2010.
This standard is guidance only, not mandatory. It was predicted that it will become mandatory and that the public sector may use the standard as a Pass/Fail at the PQQ phase of procurement. BFL have created a robust approach using their copyright Metrics of Performance. These Metrics are based on the standard but are augmented by BFL Metrics where the standard omitted serious considerations. Dr Farrington emphasised that the standard, in his opinion, was not robust and appeared to be dominated by public sector thinking. However, it was agreed that Sustainable Procurement mattered regardless of the standard.
The debate was informed by a Round Table member who explained that BFL had just completed a review of their Corporate Procurement’s approach to Sustainable Procurement. The detail of the BFL process highlighted the inclusive approach to stakeholders, for example where the procurement specialists were invited to provide documentary evidence of their achievements.
A view was advanced that in some large organisations there was the absence of a Knowledge Management system to capture examples of best practice within a large procurement department. Some facets of Sustainability Procurement were then discussed, commencing with Life Cycle Assessment. It was acknowledged that life cycle assessment and life cycle costing was lacking on the agenda of many organisations. Dr Farrington gave an example of a project where the finished product had a predicted life of 23 years and explained the difficulties of suppliers making proposals for end of life disposal. This debate then extended into conducting audits to prove that suppliers and contractors were actively complying with their contractual obligations in respect of sustainability. It was accepted that audits are not on the agenda of some departments. Examples were given of actual audits that had been conducted in the construction sector. It was accepted that the training of procurement staff in audit techniques was often lacking.
It was accepted that, in the future, the ability of organisations to convince customers that they have a credible sustainability procurement strategy could be an important competitive edge.
In summary, the Round Table was welcomed by the participants who variously said that it had stimulated them, how much they enjoyed networking with colleagues and having had the opportunity to debate live issues. BFL have given an assurance that similar events will be held in the future.