RETHINKING PUBLIC-SECTOR CONTRACT NEGOTIATIONS TO SECURE VALUE There is tremendous value associated with public-sector procurement, given that departments and agencies purchase goods and services along a wide spectrum of industries, including defence, education, healthcare, and infrastructure. Across the globe, annual public-sector purchasing amounts to more than $9.5 trillion of goods and services. With so much value at stake, it would make sense for public-sector organizations to deploy similar negotiating and contracting practices as the private sector, where companies have developed procurement and contracting strategies to protect their bottom lines. Yet our experience shows that while using similar practices as the private sector would be beneficial, it's rareand at times difficultfor public-sector organizations to do so. When they can utilize those strategies for major programs and systems contractsincluding, but not limited to, infrastructure, large IT programs, and large service contracts procurement departments see 20 to 40 percent savings on overall contracts, regardless of size. Across the globe, 20 to 40 percent of the $9.5 trillion could yield approximately $2 trillion to $4 trillion in savings for the taxpayer. In addition to cost reduction, this type of strategic contracting has a number of other benefits, including enhanced vendor performance and service-level agreements, reduced supply risk, increased transparency, and more flexibility in the agreement executionall of which provide greater value to taxpayers. So, what is preventing public-sector organizations from implementing these practices? Many of the barriers, such as personnel fluctuations, contract and process complexities, lack of resources, limited stakeholder coordination, and a greater emphasis on transparency and competition, are a result of the unique context in which public-sector procurement operates. For instance, public-sector procurement teams must navigate purchasing's legal, structural, and political implications. And while these implications are typically found in representative democracies, they can also arise in other systems of government. Additional barriers to navigate are structural, legal, and political: Structural. Many government programs have a sole-source relationship with manufacturers, so there are fewer opportunities to switch suppliers. In addition, governments employ fewer contract personnel and process requirements are more complex than industry, leading to longer time-to-award cycles and larger sets of stakeholders to engage. Legal. Control is decentralized and requires strict compliance to regulations in pre-award and post-award phases. At the same time, suppliers must disclose data to the government in greater detail than exists in the public sector. For example, contract personnel are personally liable for certifying a price as "fair and reasonable" and face legal consequences if they sign off on a contract that does not meet the criteria. Political. Contract timelines are often driven by factors outside the department's controlfor instance, legislative timelines, turnover of political appointees, or shifting priorities. This is aligned with the fact that contract and operational decisions are often influenced by legislative interests. In other words, government budgets dictate what can be spent. While public-sector procurement departments have unique and specific contexts and challenges, it is possible to implement practices from the private sector to improve processes, guide decision making, and help build negotiation skills 2 and capabilities within the department. This in turn can result in cost reductions, improved negotiation outcomes, and speedier contracting. Extracted from: https://www.mckinsey.com/industries/public-and-social-sector/our-insights/rethinking-public-sectorcontract-negotiations-to-secure-value-for-taxpayers QUESTION 1 (10 Marks) With reference to any relevant literature, critically discuss the different challenges that are encountered when managing public sector procurement contracts. QUESTION 2 (20 Marks) With reference to the public sector, examine the methods and or strategies that can be adopted by procurement professionals to attain cost reductions, improved negotiation outcomes, and speedier contracting.