In so many areas of life, being successful is about continually improving versus your previous best. The baseline is key. Outsourcing is no different, without a robust baseline it’s difficult to measure performance and apportion risk and reward in a sustainable and balanced way.
The competition to take over the procurement of defence equipment for the UK Armed Forces brought this into focus. It was reported that one of the two remaining consortia had withdrawn citing the commerciality of the opportunity was no longer where it had thought it was due to a lack of certainty with regards to the baseline.
From experience, this won’t surprise many who have been involved in bidding for such an opportunity. It does highlight the implications of not being able to accurately and credibly identify the baseline. In most cases the lack of certainty around the baseline is compensated for in the risk premium that the contractor builds in to their pricing. This in turn is kept in check through the process of competition.
Take competition out of the equation, and it provides a new challenge. Whilst in this case, there is a quasi competition with a bolstered up self-delivered option, it is likely that there will need to be an adjustment to the process.
It is likely that whichever route this particular procurement takes, it will have to address the issue of baseline before it ever gets to the full ‘GoCo’ solution that was the original aspiration. The development of a robust baseline is key, whether this is done before the opportunity is outsourced or as a distinct phase of activity with a preferred partner after some form of preliminary down-select.
Maybe with this relatively high profile ‘failure’ we will see an increased focus on the baseline with future public sector outsourcing opportunities. Such a focus is likely to be easily justified in improved success in the longer term and a reduction in the risk premiums charged by the outsourcers on those opportunities.
Earlier in the year I wrote about ‘Rewarding by Results‘ highlighting some of the key components that are required for success in moving towards this kind of contracting and a robust baseline should be added to that list.