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The Pitfalls of Procurement

veryard projects > procurement > pitfalls

In dealings between multiple organizations, the traditional way of guarding against moral hazard is through contractual obligations. However this leads to distortion, inefficiency, inappropriate game-playing and/or excessive contingency. more
Counter-Productive Protection Mechanisms more

veryard projects - innovation for demanding change

Counter-Productive Procurement Mechanisms

veryard projects > procurement > counter-productive mechanisms

I'm particularly interested in the counter-productive nature of the contactual mechanisms used by large companies to avoid being ripped off by their suppliers.

Savvy suppliers use these very mechanisms to gazump their customers.  They win a competitive tendering situation by submitting a low bid against a flawed specification, in the certain knowledge that they can recoup the profitability of the contract later by "discovering" the flaws in the contract. And the customer often loses more (both financially and otherwise) by resisting the supplier's gazumping gambit than by acceding to it.

(This is like house-buyers who use trivial details on the structural survey to demand large reductions in the already agreed price.)

The fact that the purchaser insists on these mechanisms communicates a lack of trust to the supplier.  This lack of trust is self-fulfilling -- the suppliers behave badly because they are in a context where bad behaviour (on both sides) is expected.

It could be argued that it is the lack of trust shown by these mechanisms that encourages such tricky tactics.

Although these phenomena are notorious in IT -- especially in relation to large Government contracts -- they can be found in many other domains - including military, aerospace and civil engineering projects.

We need strategies for building trust (or dismantling distrust), with a recognition that this may take time.

Good fences make good neighbours.  What is the nature of the fence between business and IT?  High enough to demark
the territory, low enough to have a decent conversation. Some procurement procedures and contracts are like planting
Cyprus Leylendii - it grows so high, you cannot see your angry neighbour plotting with a chainsaw.  Hedging your bets?
more Trust
Procurement Examples (Risk Broker)
Business-IT Alignment

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