More on Government’s central negotiations with top suppliers

We wrote here at some length about the government initiative to negotiate immediate cost savings from major contracts.  I thought one of the comments we received, from 'Rob', was worth highlighting here.

Recently, I led a significant negotiation of the largest (by spend and profile) supply contract for a high profile public body. It led to ‘annualised’ cost savings (measured at a budget level, ie not ‘projected savings’) of 39% – I was ever-so-slightly disappointed that we didn’t quite hit the 40% mark… Most notably, and relevantly, the supplier sits on Mr Maude’s ‘top 19′ list. The negotiation, from inception to receipt of the negotiated schedules, lasted just under three months.

A fairly significant cross-functional team was formed comprising approx 20+ relevant people selected from both the client organisation and the supplier. To achieve the savings, we reviewed the strategy and focus of the service provision (to align it to delivering more relevant outcomes), refined the scope and specification, overturned every stone while challenging every existing cost (in some instances, with benchmarks), and even introduced a new incentivisation scheme to encourage the supplier to achieve, maintain, and surpass service levels, especially during transition which, due to the scope/profile of the service (and reduction in headcount) and its focus on supporting ‘front-line’ users, would last six months.

We planned out our strategy, approach, and tactics in detail, and established a cross-functional team that brought together the right blend of ‘policy-lead’, ’specifier’, ‘buyer’ and ‘provider’ together to enable every stage of the negotiation to take place on an informed basis, and at speed.

I would expect to see similar dynamics underpinning these central negotiations, not simply because of my recent, personal experience (having led and delivered a successful renegotiation with one of these suppliers), but because, after more than two decades as a procurement practitioner, I know that this is simply best practice.

I thought this was an excellent description of the process that is required in order to drive significant cost savings from existing contracts; and something it would be good to see every public sector organisation doing.  Much more likely to succeed than centralised 'supplier kicking'.

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