Accenture, Rahm, and a New Era of Savings in Chicago: Peter Smith’s Take

Spend Matters would like to welcome a guest post from our UK counterpart, Peter Smith.

The new mayor of Chicago is Rahm Emanuel, previously Chief of Staff to Barack Obama and a man who has been tipped as a future Presidential candidate himself.

Rahm Emanuel, Mayor of Chicago

As well as being the home to the sprawling and global Spend Matters empire (Jason Busch, Lisa Reisman and family), and a place I'm visiting next month for the first time, Chicago has been known for financial mis-management, corruption, and union power. So the city's finances are in a pretty parlous state; hence it's not surprising that Emanuel is focusing on procurement as one of his cost saving priorities.

So he has engaged Accenture to come in and do a procurement savings exercise. The City spends $2 billion a year, and Accenture think they can take at least $25 million out of $500 million of "in-scope" spend. The first step will be an analysis of current expenditure, followed by "contracts renegotiated or re-bid" plus some collaborative buying with other local public sector organizations. The CPO has threatened to terminate contracts "for convenience" if prices are now out of line with the market.

So what can we draw from this? Firstly it sounds like there is no current picture of spending -- not totally surprising, but depressing for a city of this size. What have the procurement team been doing for the last few years?? With the advent of low-cost, easy to implement spend analytics tools, there's no excuse really for not having this in place.

Then we have the focus on re-negotiations. Is that a little narrow? What about demand management, reviewing specifications, strategic supplier management...? The clue to that may be in the detail of the agreement with Accenture.

Accenture will then be paid 10 percent for the first reviewed $70 million and a smaller percentage thereafter.

So it is very much a gain-share, with Accenture taking 10% of the savings -- not a high percentage, it has to be said, by the usual standards of these deals. We've talked about gain-share previously, and our concerns about their suitability for different types of assignments. One of the risks is that they can lead to the consultant taking very much a "low hanging fruit" approach, and that must be a danger of that here -- a bit of re-negotiation is obviously a lot quicker, easier, and potentially more lucrative for Accenture than a full-scale re-engineering of procurement strategy and process.

And let's hope Chicago has a good baseline and a strong savings methodology, so that Accenture are rewarded for real, delivered savings -- not notional, "identified" options.

Then we have the savings target -- at 5% of spend over several years, it is not exactly aggressive or transformational for an organization that is in some difficulties. And what about the other $1.5 billion that does not appear to be in scope?

As the Sun Times reports, Emanuel did make one strange comment:

"It was high time that Chicago used a Chicago-based company to find those savings for its taxpayers," the mayor said during a news conference.

Eh? Accenture -- Chicago based? They were headquartered in Bermuda, and then in 2009 became incorporated in Ireland with the global HQ in Dublin. Tax reasons? We couldn't possibly comment.

But let's give Emanuel credit:

He is also using reverse auctions to get a better price while reining in no-bid contracts and posting all of them on the Internet.

And finally -- how were Accenture selected for this assignment? Does Chicago have a Freedom of Information process? It would be interesting to know if this contract was competitively bid!

Anyway, I've volunteered to pass on our long history of UK public sector procurement experience and success to City Hall while I'm out there -- compulsory competitive tendering, CUP, Gershon, OGC, 'good' PFI, NHS Supply Chain, collaborative buying, sustainable procurement, the Work program.

Guess I may not mention NPfIT, 'bad' PFI, the Green review, regional procurement hubs, aircraft carrier contracts, fire control centers.

- Peter Smith

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