Financing Digital Technologies: Conversations about Public Procurement

This blog is part of a series aimed at exploring the scalability of financing digital technology and the procurement process for digital tools in the development sector, specifically for low-and-middle-income countries (LMICs). Our aim is to better understand the drivers and market-shaping activities that attract supply options for digital that otherwise might not be available to LMICs, improving access and price. Please see here for the first and second blog posts.

We’ve been talking with stakeholders across the digital development ecosystem, including digital technology specialists in the United Kingdom, the United States, Malaysia, Australia, and Ireland. We chose to speak with these country governments because they have each decided to change their approach to the procurement of technology: challenging traditional, conservative, and risk averse public procurement practices to better align with the dynamic and rapidly changing world of digital technology. We recognize that context is critical and know that wealthier countries, such as those we have been talking to, may face fewer challenges than their colleagues in lower-income countries. They tend to have access to more supplier choice, need to engage with a less complex range of stakeholders involved in decision-making, and grapple with different investment risk profiles. That said, there is value in understanding what already exists and learning from our peers – particularly those with whom the development sector does not regularly engage.

What we have found most interesting in our conversations is that, even with the same digital technology goals, different approaches and strategies have proven successful. Below we have summarized the organizations we spoke with as well as their structures, purposes and backgrounds.

Learnings for Digital Development

1. Centralization of digital technology procurement via a lead agency or digital marketplace has its benefits as well as challenges

Many specialists we spoke with agreed that a centrally-led operating model for procurement of digital has benefits. It increases economies of scale and negotiating power, improves the interoperability of digital technologies implemented by the government, simplifies and streamlines selection processes, enables standardization of contractual terms and conditions, and presents a whole-of-government view that generally builds trust in the supply market.

As we can see from the examples in our table, there are various ways to lead from the center. One approach is to establish a coordinating entity in a central government agency, which is the organizational structure chosen by Ireland and Australia. In Ireland, OGCIO and OGP centralized to some degree, placing focus on whole-of-government IT applications that are crosscutting and impact multiple departments, as opposed to technologies that are specific to one ministry, and streamlining applications such as payroll or messaging, while leaving devolved decision-making for agency specific technologies with the relevant agency. In Western Australia, they chose to establish a whole-of-government framework agreement to transition ministries from a multitude of existing contracts to one new consumption model for ICT infrastructure. Although the initial implementation of the cloud solution was quite challenging, often with business processes lagging the technology, the centre-led model enabled clear articulation of the value proposition across government. The DIAL-ITU Digital Investment Framework aligns with these government approaches and advocates for SDG outcomes to be linked to development use cases and the choices governments make around coordinated technology services.

While there are benefits to centralizing procurement, we recognize that this might not always be possible for other countries to replicate. In the United States, where many government departments have a high degree of autonomy, a model permitting agencies to opt-in to support from a group like 18F has gained traction and may be more suitable for highly devolved contexts. Another option, implemented in the UK, is to create a digital marketplace for government agencies and provide government technology buyers with access to pre-qualified suppliers and the flexibility to shape how they access and utilize those suppliers in public service delivery.

2. Many countries recognize that the procurement of digital technologies requires a non-traditional approach (e.g. agile, modular, outcomes or principles-based)

Purchasing the development of software, or a messaging technology is quite different to procuring office furniture, yet the same procurement processes are often applied to both.  The specialists we spoke with confirmed the value of iterative and agile procurement as it relates to digital goods. In the United States, the Technology Transformation Services (TTS), is a strong advocate for a procurement approach known as modular contracting/ procurement. Similar to the agile procurement approach employed in the UK, modular contracting is a strategy that breaks up large, complex procurements into multiple, tightly scoped projects to implement technology systems in successive, interoperable increments. 18F encourages agencies to look at implementing discovery and user-centered design, to do a ‘build vs buy’ analysis, and to define the real problems they need to solve before designing the procurement strategy. In the United Kingdom GDS first established a set of guiding principles and then a Digital Outcomes Framework that enables procurement of an outcome rather than the traditional request for proposal with detailed specifications.  The Principles for Digital Development, stewarded by DIAL and endorsed by over 200 organizations, are a set of design principles that can form the foundation to a principles-based procurement strategy for digital.

3. Ultimately you need to adapt to domestic supply market requirements and conditions

All governments have an interest in economic development within their country and will seek to support and collaborate with domestic suppliers for several reasons: to stimulate local industries, to ensure the transfer of knowledge, and to maintain national security. A thriving local IT sector contributes to increased productivity, employment, and innovation, but technology firms in developing nations often face limits to growth due to the lack of domestic demand. This was also raised as an issue in the latest blog series by DIAL and Dalberg that found the lack of funding and the trend towards global outsourcing has resulted in local software firms remaining relatively rare and small. In low-income economies, public sector spend typically represents a major segment of local demand and boosting such demand could come from new approaches to public procurement. The governments we spoke to have adopted a simplified approach to pre-qualification to be more inclusive of small and local suppliers, have sought ways to reduce the time and cost for suppliers responding to requests, and have generally sought to lighten the load.[1]

Which brings us to the topic of talent and skill sets. A common feature across the countries we spoke to is the recognition that even highly experienced teams may not have the right skill set to lead and implement a new approach to technology procurement. Australia chose to invest in having those skills on staff through intensive recruitment and training exercises. The US model with 18F is to support agencies that might not have the skill set internally but to set up arrangements that enable knowledge transfer. These approaches to digital are not ‘set and forget’ programs, the resulting contractual arrangements need proactive management, with ongoing review and adjustment. Long-term access to teams with the right skills and knowledge is critical.

4. The source of funding for digital transformation matters

In the UK, Ireland, and Australia digital transformation has been organized and implemented through bodies that receive government funding. In the United States 18F was very explicit that they are now a cost-recoverable entity that does not receive funds from Congress. An alternative model is the Malaysian example, where government created a dedicated corporation to drive national digital transformation – the Malaysian MDEC. The entity is permitted to generate its own income and was established as a corporation rather than a statutory body. This was done to ensure MDEC could be financially self-sustaining in the longer term, less bureaucratic, faster in implementing national agendas, and able to enter commercial arrangements that other government line ministries may not. This is a model that deserves consideration for some development contexts. In the US the Federal Deposit Insurance Corporation (FDIC), which provides deposit insurance to ensure trust within the banking system, is funded by member banks’ insurance dues alongside a line of credit with the US Department of Treasury. For domestic digital development the dues could be paid by companies that would profit from a more digitalized society such as mobile network operators and internet service providers.

Concluding Thoughts

Regardless of the approach taken to technology strategy and procurement, strong and supportive leadership in government is essential. In Malaysia, led by the Prime Minister, the MDEC has had the full support of senior members of government who are invested in its success and the vision for the country’s future. At a federal level in Australia, the Digital Transformation Agency was launched in 2016 with the goal of centralizing IT investments under the Prime Minister. It takes time to build and demonstrate the value proposition that streamlining public sector technology procurement frees up resources to focus on citizen centric service delivery. The other country models we have discussed here have all needed leadership that has provided them that time to scale and address fragmentation, enabling the shift from a vertical view to a horizontal, whole-of-government view, recognizing that procurement practice is critical in driving digital transformation.

[1] Note on pre-qualifications: as we learned from 18F, if you are going to have a pre-qualified list of suppliers then it is critical that the process to update (add or remove) suppliers is clear and done frequently.