Observations
In previous papers, we have discussed the need for a strategic approach to procurement.
The Commonwealth Procurement Rules (CPR) 2025 provide a procurement framework for Government agencies, ensuring a consistent and fair approach to procurement that delivers an audit trail to demonstrate value for money when commercial suppliers do business with Government. While it is a set of rules for Federal Government procurement, similar processes are used by all organisations that need to procure IT services of one kind or another and are accountable to a board or shareholders. The key areas of the CPR are summarised in Figure 2, below.
In this growing world of Cloud and SaaS-based applications, consumers of IT services are increasingly drawn into multi-year commitments for services and their management, either through licensing agreements or contracts, or to manage the rate of change that represents a strategic relationship for your organisation. To be effective in delivering business goals and containing costs, it is essential to create value for money by selecting strategic vendors.
The key difference between a strategic IT services supplier and a transactional one is that the relationship with the vendor is about more than just profit margins. A strategic vendor/supplier is, by definition, a partner in both your success and their own. IBRS observes that a supplier for SaaS applications, platform-based approaches to business operations, or for managing the services becomes a strategic partner when:
- The business operations are critically dependent on the supplier.
- The supplier sees a significant advantage in your business outcomes.
- The business performance and the supplier cost envelope are linked so that performance improvements and cost savings benefit both parties.
No business stands still in time, so when building your relationship with strategic partners, organisations should consider the IBRS strategic partner framework. The following IBRS strategic partner framework will ensure that the opportunities for benefits can be jointly realised.
From the vendor/supplier perspective, assisting your organisation as a strategic vendor allows them to maintain long-term profits, be retained for longer, improve their own cost of doing business, and, in many cases, extract intellectual property based on how they have supported your organisation better.
The IBRS framework will enable your organisation to:
- Build in value capture clauses for contracts with strategic partners.
- Develop a jointly agreed-upon strategy for improving business delivery with your strategic partner(s).
- Develop a forward schedule of change through a SWOT analysis on the relationship to better understand where the opportunities lie, and the threats that may hinder success.
- Hold regular meetings with strategic partners to map your organisation’s goals with the suppliers’ planned improvements to their product set.
- Create innovative procurement models that harvest savings, where suppliers improve services and pass savings to your organisation.
- Methodology for tracking and reporting of benefits for both parties.
Value Capture
IBRS defines value capture clauses in contract agreements as methodologies in which products and services are continuously improved, and delivery costs are reduced; the savings are passed on to the consumer. Some examples of this are where:
- Processes are automated, reducing the time or resources needed to complete a task or operation.
- Software upgrades reduce the need for customisation, allowing configuration to reduce support costs and improve workflow.
- Simplifying architecture or workflows reduces data exchange and consumption costs in a Cloud environment.
In developing contracts with strategic partners, organisations should build in clauses to enable regular review of services and products, and, where opportunities exist to improve services at a reduced cost, a portion of the savings can be passed on. These credits can then be used by the organisation to further improve internal processes or enhance the service or product supplied by the strategic partner.
Joint Strategy for the Relationship
The need for a joint strategy for managing the relationship and the goals (benefits) it seeks to achieve needs to be agreed upon by both parties. Some examples are:
- Transparency of each party’s objectives in the delivery of product(s) and/or service(s).
- Agree on approaches for continuous improvement of each service and/or product.
- Focus on where opportunities for improvement can be realised.
- Clear communication on how reduced operating costs can be monetised.
By developing a joint strategy for what the strategic relationship will deliver, each party can better understand their obligations and what is expected in the delivery of products and services.
Forward Schedule of Change
Organisations should work with strategic partners to complete a SWOT analysis of the vendor-client relationship to better understand where each party has potential to gain from the relationship. This SWOT analysis should then be used to identify a forward schedule of change, where each party commits to developing product and process improvements to realise the benefits. These benefits improve productivity for both the vendor and the client, reduce costs for both parties, and pass the vendor’s savings on to the client at an agreed rate. For example, it may be decided that only 80 per cent of real savings in year one be passed to the customer, to allow for supplier effort in developing and realising the benefit.
The forward schedule of change should align planned product and/or service improvements for each party so that each party can maximise the benefits of the planned change. Some examples for inclusion in the forward schedule of change are:
- One or more contracted processes may be automated, reducing the supplier’s cost of delivering that service and improving the customer’s productivity.
- A planned upgrade to code may eliminate the need for customisation or enable the customer to improve workflow automation, reducing internal costs for the customer in the provision of services.
Meet on a Regular Basis
In any relationship, it is vital to ensure that each party is aware of the other’s needs and priorities. A strategic partnership is no different. You need to build trust in the relationship, and a real way to do this is through regular meetings (say quarterly) to discuss:
- Planned improvements not yet public to each party.
- Performance of the joint strategy and the forward schedule of change.
- Priorities for each party for the next six, twelve, and twenty-four months.
Meetings of this kind will ensure transparency between the parties and allow each opportunity to be fully realised, with benefits shared by both parties: the supplier doesn’t waste effort in the supply, and the customer gets the best possible product for service and the best price.
Agree Procurement Model
The strategic partnership will, if well managed, produce savings in the form of improved services at reduced cost. In some cases, these reduced costs will not be predictable enough to align with your organisation’s budget planning processes. The contract with your strategic partners may require the customer to make regular payments under the original contract. If this is the case, you will need to consider the inclusion of clauses in your contract agreement to allow for one or more of the following options to be enacted where reduced costs are realised:
- Credits that can be consumed within the contract for other/new products and or services.
- A fund managed by the supplier (potentially at a fee) that the customer can access to procure products or services from suppliers of the customer’s choice.
- Annual reviews of the contracted price to amend the cost to the customer resulting from the benefits delivered.
Reporting of Benefits
It will be important for both parties in a strategic partnership to demonstrate value from the relationship. As such, you should agree on metrics for measuring the benefits, both tangible and intangible. It will also be essential to ensure the reporting of these benefits meets probity and procurement guidelines for your organisation.
Your strategic partner will be looking to use your organisation as a reference site, be considered as a preferred supplier, and demonstrate that the partnership has improved your organisation’s performance and reduced costs, while still delivering a healthy profit for themselves.
Your organisation will be looking to demonstrate that the partnership has improved your productivity, enhanced your customer experience, and reduced your IT costs (or at least delivered more for the same, or at a reduced, overall cost).
It is therefore crucial that your organisation and the strategic partner agree on how each party will measure and report the benefits it gains from the partnership.
Next Steps
- Review your critical supplier arrangements to see where a strategic partnership will deliver value.
- Meet with critical suppliers who are of strategic value to enable a more targeted use of the relationship and deliver continuous improvement for both parties.
- Apply the IBRS strategic partnership framework model to improve value and reduce cost for each partner over the life of the contract.
Footnotes
- ‘Commonwealth Procurement Rules (CPR) 2025’, Australian Government Department of Finance, 2025.
