Would Transparency in Procurement Lead to Better Outcomes?
We live in an adversarial world where information is easy to discover. Want to find general information about a specific vertical category? Want to find out who the suppliers are? As the kids say, “Let me Google that for you.”
The amount of data available to us daily is overwhelming and often filled with self-serving spin and disinformation.
“People crave a way to cut through the opinions, marketing speak and propaganda to get to the truth … Every 60 seconds, 160 millions emails are sent, 98,000 tweets are shared on Twitter, 600 videos are uploaded to YouTube, and 1,500 blog entries are created.”
It used to be the case that buyers were fragmented with suppliers hoarding category knowledge to be able to seize more of the value from any transaction. Now, it is not unusual for buyers to get up to speed on the market before suppliers even know the buyer is interested, reducing or eliminating the window of ignorance in which the supplier traditionally attempts to shape the RFP in its favor. Of course, not every buyer is this sophisticated or has the resources to conduct market research independently, and even then, it’s not clear that buyer efforts are productive or useful. (The real challenge is engaging suppliers.)
So, the relationship, as embodied by the historic RFP process dating back to the Industrial Revolution’s earliest days, is and remains adversarial. Secrecy is a key feature.
Often, buyers have mutual non-disclosure agreements (NDAs) in place with suppliers because of the putative downside from a breach of confidence. There are a variety of purposes.
These include protection of information competitors may use to copy or reverse engineer the buyer’s products, stopping the supplier from sharing things like engineering documents or the bill of materials with anyone else, and stopping the supplier from using your plans to reproduce the product for his own ends.
The protection ensures that the buyer’s competitors do not know from whom they purchase, what they purchase, in what amounts, and at what price.
However, “an NDA is not a cheap substitute for a patent, or trademark legislation.” If buyers are genuinely interested in protecting the integrity of their products, an NDA is not going to be enough. Competitors can purchase goods and services and attempt to reverse engineer them, including the bill of materials. Wall Street analysts do it all the time. Should buyers avoid disclosure during the engineering stage, but permit disclosure after the product release?
What do buyers really get from all the secrecy? What do buyers want from all the secrecy?
Perhaps, buyers are protecting themselves from embarrassment. If they published their contract, then others might see that they overpaid, or that they picked the wrong solution for the problem the RFP was intended to fix.
Say, Supplier 123 tells Buyer A that Buyer A can get specific pricing only on the condition that he does not reveal it to anyone else. So that Supplier 123 can charge a higher price from Buyer D. Or, is it that Buyer A is the one who is overpaying and won’t find out what Buyer C paid for the same items?
What if supplier 456 has a service with a better RFP-solution fit than what Supplier 123 is offering? Supplier 456 may never know that Buyer A has this problem if Buyer A never publicizes his contract with Supplier 123.
Secrecy can inure to the benefit of the supplier, at the expense of the buyer, just as easily.
What about indirect spend? The bill of materials for a good or service refers to direct spend; indirect spend is everything else.
If the downside protection isn’t all it’s cracked up to be, what about the foregone upside from a full (or even partial) disclosure of the acquisition contract?
In a fantasy world, where a critical mass of buyers released their purchasing information, then buyers would see a more complete spread of solutions and pricing. They would be more informed about the marketplace, even before they composed their own RFPs.
How would knowing that buyers will publish contracts affect the behavior of suppliers? Would they not participate, or would they adjust their pricing and offering to reflect that fact? Do suppliers imagine that their competitors don’t understand how they price their products?
What if Buyer A, Buyer B, and Buyer C all bought the same products? Could they form an ad hoc cooperative to purchase in greater volume to obtain better pricing?
Would buyers learn to trust a supplier more over time if the supplier was comfortable having his contract published in a contained environment? This would give buyers the ability to assess suppliers on their record of consistent performance, compounded by a platform in which buyers could speak with one another.
Is there an adverse selection problem that transparency’s signal could address? Is there value in knowing which suppliers are okay with having their contracts disclosed? This is already not an issue for government.
This is also a Tragedy of the Commons problem. The database of historical contracts is a shared resource that benefits everyone with access, including those buyers and suppliers who do not contribute to it. It is non-excludable.
At EdgeworthBox, our platform anticipates that the future answers to these questions of imposed secrecy will be different than they have been in the traditional RFP process.
Our platform makes the RFP process simpler, fairer, and faster by superimposing three categories of tools on a marketplace in which buyers can post RFPs, suppliers can post their responses, and buyers can notify the winners and losers of any purchasing action. These three categories are a clearinghouse for administration (vendor management and opportunity notification); a clearinghouse for data (live and historical RFP — consisting of both public and private databases — and contracting information); and social networking tools (profile pages and messaging). Organizations pay a fixed seat license; there is no limit on seat licenses for individuals within the licensing organization.
Our databases come in two flavors. The public databases are visible to any user of the platform (buyer or supplier), listing information principally from government sources as well as from others who are willing to share their data. The private databases are only available to members of the licensing organization. We believe that over time, starting with indirect spend, enlightened buying organizations will start publishing information in our public database that they would have carried initially in their private databases, for precisely the reasons we have laid out here.