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Cost vs. Quality

A debate as old as time, and a loop that goes around and around; or so it seems in the Public Sector commercial space.

Every few years, often every couple of spend control cycles, the debate of cost vs. quality rears its head again; with Commercial weighting flip flopping between Quality as the most important factor, to cost (or lowest cost) as the highest priority.

When quality is the most important factor in the commercial space; Government Departments will prioritise the outputs they want to achieve; and weighting their commercial scores to the areas that indicate Quality – things like ‘Value Add’; ‘Delivering Quality’, ‘Culture’, ‘Delivering in Partnership etc’. We will see more output focused contracts coming out on to the market; with organisations clear on the vision they want to achieve and problems they need to solve and looking for the supplier that can best help them achieve that.

When reducing costs becomes the highest priority, the commercial weighting moves to ‘Value for Money’. Contracts are more likely to be fixed price and are often thinly veiled requests for suppliers to act as body shops rather than partners with commercial tenders scoring day rate cards rather than requesting the cost for overall delivery of outcomes.

Unfortunately, a lot of the time, when the priority switches to cost over quality; we end up with a lot of projects not being delivered; of outcomes being missed, and user needs not being met. In order to cut more and more costs, offshoring resource can become the only way to deliver the results cheaply; with the departmental project teams working out of sync with their offshore delivery partners; making co-design and delivery much harder to do, and making it almost impossible to achieve the required quality. This goes in a cycle, with Departments toting and grooming between “offshore as much as possible to cut costs” and “the only way to deliver quality is for everyone to be collocated in the office 100% of the time”. Full collocation of the teams inevitably driving up the costs again.

So, does that mean in order to get quality we have to have high costs? Surely there is an obviously a sweet spot we’re all looking for, where cost and quality align; but why does it seem so hard to achieve within the Public Sector and what do we need to be looking at to achieve it?

When the government commercial function (and GDS) shook up the public sector digital world over nearly a decade ago they introduced things like the Digital Marketplace and implemented the Spend Control pipeline; with the aim of moving departments away from the large SI’s that won 90% of government contracts. These suppliers often charged a fortune and rarely seemed to deliver what was actually needed. (This blog gives the details on what they intended, back in 2014).

Lots of SME suppliers began to enter the market and began to win contracts and change up how contracts were delivered, as completion increased, costs decreased; with quality partnerships forming between new suppliers and government departments; and the quality of delivery increased as new options, solutions and was of working were explored.

However, this left Departments managing lots of individual contracts; which grew increasingly complex and time consuming to mange. In order to try and reduce the number of contracts they had to manage; the scale of the contracts began to increase, with more and more multimillion pound contacts emerging.

As the size and value of the contracts increased, SME’s began to struggle to win them, as they couldn’t stand up the teams needed quickly; nor could they demonstrate they had the experience in delivering contracts of that scale; which became a bit of a self-fulfilling prophecy, as the larger SI’s continued to win the larger contracts as they were the only ones able to provide the evidence they could staff and deliver them; and their costs remained high.

This left the SME’s facing three options:

  • Decide not to try for the larger contracts, reducing the amount of competition; potentially increasing costs and decreasing quality in the long run);
  • Form partnership agreements with a number of other SME’s or a larger supplier (again reducing the amount of completion) in order to be able to stand up the teams needed and enable delivery of larger contracts. However having a consortium of suppliers not used to working together could complicate delivery, which could in turn decrease the quality or speed of delivery if not carefully managed; as such not all contracts allowed consortium or partnership bids due to the perceived complexity they could bring.
  • Or the SME aimed to grow to allow them to be able to win and deliver the larger contracts. As SME’s grew however, they would often have to either increase their costs in order to run a larger organisation that could still deliver the same quality they did as before; or they could keep their costs low, but their quality would likely decrease.

Throughout the pandemic, the focus has been on delivery; and there’s been a healthy mix of both small and large contracts coming out, meaning lots of competition. While costs have always been a factor;  the pandemic allowed both departments and suppliers to remove much of the costly admin and bureaucratic approval processes in favour of lightweight approaches involved to bring on suppliers and manage teams outputs, encouraging innovation in delivery and cost; with lockdowns ensuring co-location was now out of the question many suppliers were able to reduce their rates to support the pandemic response as both departments and suppliers agreeing that the priority had been on delivering quality products and services to meet organisations and users urgent needs.The removal of co-location as a prerequisite also open up the market to more suppliers to bid for work, and more individuals applying for more roles; which increased competition and inevitably improved the quality out the outputs being produced. This in fact led to a lot of innovation being delivered throughout the pandemic which has benefited us all.

As we move out of the pandemic and into the next spending review round; the signs are that the focus is about to swing back to costs as the highest priority. With larger contracts coming out that are looking for cheaper day rates in order to allow departments to balance their own budgets; but as the economy bounces back and departments begin to insist again that teams return to the office, most suppliers will want to increase their costs to pre-pandemic levels. If we’re not careful the focus on cost reduction will mean we could decrease the quality and innovation that has been being delivered throughout the pandemic; and could cost the taxpayers more in the long run. Look at DWP’s first attempt to deliver Universal Credit for how badly things can go wrong when cost is the highest priority and when the Commercial team and runs the procurement process with minimum input from Delivery; driving the commercial and deliver decisions being made more than quality.

To find the sweet spot between Cost and Quality we need to create the best environment for innovation and competition. Allowing flexibility on where teams can be based will support this; supporting and encouraging SME’s and Medium sized suppliers to bid for and win contracts by varying contract sizes and values. Focusing on outputs over body shopping. Looking for what value suppliers can add in terms of knowledge transfer and partnership rather than simply prioritising who is the cheapest.

It’s important we all work together to get the balance between cost and quality right, and ensure we remain focused on delivering the right things in the right way.

Seesaw