The New Zealand’s and United States’ models offer valuable ideas on how to improve the procurement process of the Government of Puerto Rico but need to be tailored to the local culture. The primary changes needed to transform Puerto Rico are in two areas: making selections on total value per dollar instead of price and forming collaborative instead of adversarial relationships with suppliers. The details can be tailored to fit the local culture.
As the governments of both New Zealand and the U.S. have learned, it is key to develop a supportive relationship with the providers of the service. A key to this is to open doors and invite the providers in. Encourage them to investigate and learn as much about the organization as they can. The more they learn, the better able they will be to develop innovative solutions.
To move toward a system based on getting the highest value per dollar spent, government officials in Puerto Rico must develop a budget and then list the organizational problems it needs to solve and let bidders compete on developing the best solution within the price range. This provides the most powerful solution for the lowest cost.
Currently, Puerto Rico’s government relies on selection based on price presented. To move toward an approach based on value, we recommend switching to a method, similar to New Zealand’s, that allows government officials to consider the total cost of ownership of a solution and incorporating vendor led solutions that emphasize innovation. For simplicity, we can name it the Most Value per Dollar (MVD) approach. The MVD approach has two main steps. First, government officials should provide a budget and list of problems to solve and ask bidders to submit proposals. Next, the government should evaluate the proposals for innovation and effectiveness, using a matrix in which price is eliminated from the evaluation process until the very end. That is the basic recipe to maximize value per dollar. The government should follow these steps for all complex purchases over $50,000 and a scaled down version for all purchases that are not commodities.
Applying the two areas of change recommended, an effective process for Puerto Rico can be outlined in six steps:
- Define the problems to solve. Start with the must-solve problems that led to the request for proposals (RFP). Then focus on macro governmental and agency goals and work down into more detail.
- Build a strategic acquisition team. Include a cross section of personnel from core areas to refine the problems to be solved from a macro level to a micro level.
- Invite vendors into the process. Give vendors only the problems to solve. Let them explore the issues and have access to all non-sensitive information and personnel. This is a key step and very different from current practice. Currently, the organization tells the bidder how to solve the problem and provides limited if any access to personnel.
- Set evaluation criteria. Structure it around problems to be solved and utilize vendor input, industry best practices and total cost of ownership.
- Structure the RFP. Provide the budget but not the solution and request a two envelope submission where pricing is separated in the second envelope
- Evaluate and select. Use total cost of ownership, the quality and effectiveness of the solution, and the performance record of the bidder – not price – as the criteria.
For a more detailed explanation of how this model works, see Appendix E.
Moving to this system would represent a big shift for Puerto Rico. Nonetheless, there are intermediate steps that can be taken that will immediately improve purchasing over what it is today. For instance, an RFP could be run on a total cost of ownership approach, rather than on price. To take it one step further, the government could improve its due diligence on the providers by including face-to-face presentations and verifying performance history. A simplified balance between quality and cost could be achieved using the information collected in due diligence and a simple formula.
To be even more effective, the government should continue a best practice strategy through implementation of the technology and for the life of the agreement with the provider. There are methods to entice the provider to meet its commitments and even improve the solution as time goes by. The best practice methods ensure that the collaborative and supportive relationship continues between the government and the vendor throughout the life of the agreement.
This proposed system is not the only method that can help Puerto Rico turn around its procurement system. Nonetheless, this or a similar method should be implemented immediately to help Puerto Rico’s economy turn towards recovery. As both New Zealand and the U.S. have found, the best time to achieve meaningful reform is often during an economic crisis.