Risks are an inherent part of business in both private procurement and the public sector. There’s no getting away from them, but you can manage them. Before you can do that, however, you need to identify the risks you’re likely to face in public procurement.
The earlier you can identify procurement risks the better because you can act proactively to prevent or minimise their impact on your business’s services. A comprehensive public sector risk management strategy is the best way to do this.
There are several types of public sector risks and very often government suppliers have to deal with more than one at a time, like transparency and political risks or financial, contractor, and political risks.
That’s why it’s so important for your risk management strategy to identify all potential risks to your sector in public procurement. This enables you to devise strategies with some overlapping innovative solutions for related procurement risks that affect public contracts.
We will look at effective ways to identify and manage risk so that public sector buyers will give your bid extra weight and increase your chances of winning central and local government contracts.
How Can SMEs Create a Procurement Risk Management Strategy?
It helps if you have the resources to put together a risk management team that continuously monitors the procurement process, from risk identification to strategy implementation.
However, SMEs don’t necessarily have the staff or budget for a full-time team. In this case, suppliers have the option to divide the procurement risk assessment process into logical components and assign one to each staff member based on their strengths.
For example, Bill manages your business’s finances. He might be a good choice to identify financial risks in upcoming contract opportunities and brainstorm possible solutions to the problems.
Kate specialises in IT. She could be a good choice to identify various types of cyber risks in new public contract opportunities and brainstorm possible solutions to a unique set of challenges.
You could then get together as a team to discuss the potential procurement risks and management strategies. You can work together to create a comprehensive, holistic strategy that can deal with identified risks and other issues, should they arise.
Teamwork to optimise supplier services
You’re aiming to get buy-in from all staff members who can better understand and support the procurement process and principles.
This approach has the potential to encourage collaboration and establish joint accountability when planning and managing risks associated with smaller contracts.
Another advantage of this approach is that each specialist must stay on top of changes in their industry, especially those that affect public contracts regulations, procurement risks, risk management strategies, and even your public procurement policy.
Public Sector Risks To Watch Out For
Here we’re going to look at some of the most common risks to suppliers along the supply chain.
Remember that these risks to government services are seldom found in isolation, so consider how you can best leverage components of your strategy to deliver solutions that apply simultaneously to several procurement risks.
Financial or economic risks come in several guises, including volatile exchange rates and bankruptcy at any point in the supply chain. Interviews, meetings, and questionnaires could indicate a vulnerable financial situation among sources, but this information is superficial and may not represent the truth of their economic situation.
It’s up to you to investigate organisations more thoroughly to find out if they’re about to turn their circumstances around and enhance their services or if rats are hurriedly leaving a sinking ship.
Inflation in international public procurement
Inflation is also a serious risk to procurements, especially if you have sources in different parts of the world. In this instance, you don’t just have to consider local inflation, but inflation in the countries where you have key business relationships.
It’s tricky to develop a strategy for something as unpredictable as foreign financial markets.
The best practice in wider public sector contracts is to monitor activity in the global procurement markets that have the potential to affect the value of your business and devote a lot of time and energy to avoid them.
Environmental/Climate change risks
You can think of climate change risks as forces of nature because they include things like floods, haywire seasons (e.g., blizzards very early or very late in winter), and runaway wildfires. You can’t plan for them exactly, but you can have contingency plans for events you can reasonably expect, like floods if you work near a river.
You can take a proactive approach to risks of this type in public procurement. For instance, if dams are running dry and your local government is considering water restrictions, you can use grey water wherever possible.
Grey water is especially economical in flushing toilets because one flush uses about three gallons of water.
Environmental social value
Another environmental factor to consider when it comes to local government procurement contracts is the social value emphasised in the new Procurement Bill. The social value regulations apply to all government contract agreements and public sector tenders.
Social value endeavours have at least 10% weight in contract awards. However, some public sector procurement buyers give it even more weight, up to around 30%.
Social value uplifts local communities through several public procurement initiatives, including those with an environmental focus. As a result, it’s extra important to avoid all related risks, such as a contractor who dumps waste illegally in the surrounding communities.
Even though your connection to the contractor might be indirect, it could still give potential local government buyers a negative impression.
We provided an example of an iffy public procurement contractor above. However, despite research into the reliability and performance of public sector contractors, there’s the chance that a bad egg will put the entire supply chain at risk.
Let’s look at another scenario in public services
A contractor in public sector procurement could use unapproved spare parts or sub-standard materials that not only affect the quality of your product/service/work but could also put you in contravention of procurement rules and transparency regulations, and cost you a fortune in the process.
Risk management requires you to conduct thorough background checks on all contractors who deliver supplies and services to local and central government departments.
If you don’t, you run the risk that your reputation will be ruined. The perception of the quality of your products and services could be tainted, and your social value score in public sector procurement contracts will plummet.
The political unrest in Ukraine has proven just how fragile global supply chains can be. While it’s not possible to create a risk management strategy for specific situations, it’s a good idea to have a general Plan B if Plan A goes belly up.
Essentially, don’t rely on one public sector procurement source only. Having several sources not only provides access to a variety of materials, but also includes inherent redundancies, so your supply chain isn’t too badly affected by international conflict.
As with global financial procurement risks, it’s important to keep on top of the political situation in the countries where you have resources and ensure you have a good exit plan.
Cyber threats are a very real risk these days, so it’s essential to have the best cybersecurity you can afford. Many modern procurement, sourcing, and supply software services, especially those based in the cloud, include high-performing cybersecurity technology that protects suppliers against data breaches, malware, and unauthorised access.
Comprehensive cyber security technology products
As local and central government procurement suppliers, you could potentially have access to sensitive government information, work on projects that require a degree of confidentiality, or provide services at government facilities with non-disclosure contracts.
Your cloud-based procurement software must be comprehensive and reliable. Investigate the technology available and choose the tools that provide the best protection for your services.
In a nutshell, public procurement cyber security tools include:
- Artificial intelligence
- Machine learning
- Zero trust architecture
- Blockchain technology
- Mobile security
- Network intrusion detection
- Encryption tools
The new Procurement Bill places a lot of emphasis on transparency requirements in public sector supply chains, especially when it comes to the procurement process.
Essentially, contracting authorities and suppliers should be able to see all critical processes and actions related to their specific contracts. For example, the integrity of your sourcing methods, including whether contractors violate labour laws by using products manufactured by victims of modern slavery.
Transparency requirements and risk management
Contracting authorities also want to see that supply chains encourage non-discrimination and open competition. Any party along the supply chain that doesn’t embrace the principles of free and open competition can negatively impact public sector organisations, suppliers and buyers, that are closer to providing the end product.
As you can see, many risks can be mitigated by thoroughly researching businesses and public sector organisations that will form part of your network of procurement professionals.
It’s certainly worth spending extra time, energy, and money on this process because the potential fallout from hazy business practices or violating public procurement rules could be devastating.
Risk Assessment Assistance For Public Contracts
Public sector risk assessment requires skill and while many SMEs are perfectly capable of assessing risk and creating management strategies for local government contracts, they must decide if they can afford to take time away from core activities.
If employees’ responsibilities are too important to sacrifice in the name of risk assessment, then it’s a good idea to investigate hiring a consultant experienced in public contracts regulations.
However, it’s not always easy to find a consultant who excels at assessing contract risks in public services.
Fortunately, other parties in the wider public sector procurement have an extensive network that includes risk assessors. For instance, Supply2Gov is supported by its parent company, BiP Solutions, which has decades of experience in public sector procurement.
You can contact S2G for more information, or register to receive tender alerts of public sector opportunities across the UK.