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The right side of the books

In which the board learns a valuable lesson

[Efficiency]

It should have been an ordinary, run of the mill multimillion-dollar tender.

The board of the business bidding for maintenance contract renewal in one of the country’s largest cities voted not to measure and manage its greenhouse gas emissions. It was a decision they would reverse—rapidly.

The directors were shocked when told they would probably lose the business. The city now expects suppliers to show an authentic commitment to sustainable practice. The lowest day-one price doesn’t win as much any more.

In another city, bids come in two envelopes. The second envelope, containing the price, isn’t even opened if the bidders don’t score high enough in the sustainability envelope, opened first.

For those who don’t think it matters, the concept of sustainable procurement is now well advanced in central government agencies and increasingly in local councils, where contracts worth more than $25 billion a year are at stake.

Why would government, councils and their suppliers not just pick the cheapest up-front provider? It’s cost, of course. Governments in the European Union and other countries, including the US, are finding savings of between eight and 30 percent when whole-of-life costs are considered, not just the day-one price.

One city council in the Auckland region has saved a staggering 50 percent on the operating costs of its small car fleet by looking at costs involved over the four-year term of the deal, rather than lowest first-day price.

And the public agrees. In a new national ShapeNZ survey of 3,300 New Zealanders conducted for the New Zealand Business Council for Sustainable Development:

• 67 percent say government agencies should buy goods and services based on best value for money over the whole contract, while only 19 percent say they should buy on the lowest day-one price.
• 75 percent believe sustainable procurement should be extended to local and regional councils.

Importantly, business decision-makers and voters for the governing National and Act parties are right behind the idea:

• 88 percent of Act and 79 percent each of National and Labour voters want sustainable procurement extended to local government, and 89 percent of Green voters.
• 85 percent of business managers and executives and 76 percent of business proprietors, professionals, self-employed and senior government officials also back the extension.

And those with the highest purchasing power for their organisation most support the extension: 87 percent of those with purchasing authority of $50,000 to $100,000, and 79 percent of those with authority over $100,000.

In June, the result of the new National-led government’s review of government procurement policies was announced. The Ministry of Economic Development confirmed that sustainable procurement by government agencies is now standard practice.

You’d have to be a silly supplier, buyer and citizen to ignore the all-round benefits. And there’s little future for boards that insist on staying on the wrong side of customers and history.

Peter Neilson is chief executive of the New Zealand Business Council for Sustainable Development. Learn more about ShapeNZ surveys at www.shapenz.org.nz

1 comment

Julie Garland McLellan

2009-09-09 13:53:50

This is sadly a fairly frequent occurence. Boards, when being briefed about one issue, are not fully informed of the impacts of that issue on other areas of the company's operations and strategy. It should have been clear when the original decision was made what would be the effects on the rest of the bsiness. Too many boards are expected to 'join the dots' and see the big picture without help. A better board presentation could have avoided this saga.

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