Procurement savings for Chicago – Accenture’s kind of town?

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 organisations. 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 have a good base-line 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 organisation 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 programme..

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

Voices (11)

  1. StrategicSourceror:

    Over on the Strategic Sourceror, we have launched a multi-part series diving into some of the details of the contract, including why it is “only” 10%. Hint: there are a lot of “soft costs” that will be projected as savings.
    http://www.strategicsourceror.com/2011/08/cost-savings-in-windy-city-will.html

  2. Craig:

    If you look at their history, you can see why they feel a Chicago company. Arthur Andersen and all that.

  3. Dan:

    I thought they were in Bermuda, but looking at this press release http://newsroom.accenture.com/article_display.cfm?article_id=4830 they swapped to Ireland as “Ireland offers a stable political and economic environment and has the financial and legal infrastructure to meet Accenture’s needs, both today and in the future”

  4. Jenny Sutton:

    Yes – this was an interesting announcement. And an interesting post. Surely an overhaul of procurement should start with the procurement process for the very project aimed at achieving this objective?

    Which as far a I am concerned should be purely fee-based, and where the fees should only be payable upon achieving a longer term result – gain-share for this type of contract drives the wrong behaviour on all sides!

  5. Greg:

    You really are showing your ignorance regarding the structure of global organizations, or is that “organisations”. I contend that if you were to actually do your homework and earn your 2 pence you’d find that the name of the legal entity on the contract is, surprise, a US domiciled entity, the largest of its offices actually located in Chicago. Eh?

    1. Peter Smith:

      Hi Greg from Accenture. I think “ignorance” is a bit strong frankly, and sorry to upset you. I should say I’ve got nothing but respect for Accenture – almost joined you once, know current and ex senior people, and they’re great. I’m sure you’ll do a great job for Chicago. Didn’t like the huge money you put into golf though, someone we know (not Mr Woods) left his wife on the back of his Accenture winnings…
      I just thought it was a bit odd the way you were described by Emanuel. It may feel to you like you’re a Chicago firm but here’s your own “Noitce of the 2011 Annual General Meeting” –
      Accenture plc is organized under the laws of Ireland and maintains its registered office in Ireland at 1 Grand Canal Square, Grand Canal Harbour, Dublin 2, Ireland.”
      http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Nzg1MjF8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1
      I assume the legal entity on the contract is part of Accenture plc? So it looks to me like Chicago City has done the deal with the Chicago office (and good to hear you’re the largest in the US) of an Irish firm. Please explain if that is an “ignorant” interpretation.

    2. Greg:

      A fine, interpretation however self-serving. As in politics all business is as well, local. Query Accenture LLP, the Accenture contracting entity. Tell me it’s not homegrown.

      1. Peter Smith:

        Greg, Actually, you make a very good point. I actually wasted many an hour a while ago arguing with think tanks and others who spouted nonsense about using public sector procurement to support “local” business (I was sort of “represenitng” the UK government at the time). There’s a lot of rubbish talked about the issue so I don’t basically care where Accenture are based – the main thing is they do a great job for Chicago. But I think it’s a great topic for a future blog or two actually. Anyway, hope you keep reaidng and tell all your colleagues to do the same!

        1. Greg:

          Will do. Enjoyed the dialogue. Best of luck.

  6. Steve:

    One of Accenture’s largest offices is in Chicago.

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