ECI Procurement for ICT Projects
Early Contractor Involvement (ECI) is critical for most ICT procurement projects.
The world is littered with the outcomes of horror ICT procurement examples. Media stories of abandoned or poor performing ICT projects are universal. The ICT graveyard keeps expanding inexorably. Clients have been left with sunk costs, embarrassing system outcomes and written off assets. Providers have lost reputation and severely eroded their balance sheet.
Early Contractor Involvement (ECI) is a two-stage contracting strategy that uses a combination of collaborative solution development and conventional delivery contracting. In Stage 1, the development stage, the client and provider agree to collaboratively develop the project scope and requirements, and the proposed solution. Stage 2, the delivery stage, generally takes the form of a more conventional contracting strategy, where delivery risk transfers almost solely to the contractor.
In ICT procurement failures, the most recurring critical reasons most always seem to centre around one or more of the following:
- The client’s inability to fully express their requirements, even in outcome terms
- The client thinking it knows exactly how to express its business and desired outcomes
- The client’s limited technical resource and knowledge base
- The ICT provider’s struggle to understand the nuances of the client’s business and requirements
- The ICT provider projecting unrealistic confidence in their proposed solution
- Failure to understand and agree how the ICT provider is intending to meet the client’s detailed requirements
- Unrealistic expectations in prematurely seeking a competitive price from the provider
- The client’s desire to completely shift commercial risk to the IT provider
The reasons outlined above are in addition to more generic sources of failure including poor project governance and management, and cultural issues within either the client of provider’s organisation.
The risk of failure
The ultimate cost of the project will be driven by the quantum of professional labour applied to the task and the maturity of the components offered for the proposed solution. Unlike other industries, the provision of ICT products and services are characterised by extensive research, exploration and iteration, all very labour intensive.
The risk of failure is exacerbated by an unrealistic expectation to secure a competitive price with the minimum of time and effort, and in so doing, believing that most commercial risk will then be transferred to the provider.
The risk of failure can also be embedded by the traditional procurement methods that require several IT providers to submit a price based on the necessarily limited scope and requirements provided by the client at the time of tendering.
Providers may be forced to submit a price laced with as many caveats and qualifications as they think the client can bear. In addition, the provider’s tendered margin will have to reflect the assessed commercial risk of the project which may be very high, based on this tender and previous contract history.
Stage 1 of the ECI approach
In Stage 1, the development stage, the client and provider agree to a collaborative arrangement to develop the detailed project solution – scope and requirements, conceptual design, delivery methodology and cost estimate. The client/provider relationship is based on the successful approach used in alliance contracts, where they work closely together and share commercial risk.
If the client is required to demonstrate a cost competitive tendering environment, two or possibly three providers may be invited to develop a project solution in parallel. Of course, this approach requires significantly greater client and industry resources, and the arrangement tends to be interactive, but not necessarily collaborative.
This stage provides the opportunity for the client and provider to exchange information, questions and answers, constraints, and developing solutions. Stage 1 should not be completed until:
- The client knows exactly what the provider is proposing to offer as a detailed solution
- The client has confidence that the proposed solution will meet their requirements
- The provider has sufficient confidence to price their proposed solution with minimum risk premium
For a sole ECI provider, at the completion of Stage 1, the client will award the tender to the provider provided that the client is satisfied with the proposed solution and price. With multiple ECI providers, the client will assess the solution and price offered by each of the providers on a competitive basis, and award the tender to the provider offering the best value for money.
All of the Stage 1 activity needs to be recorded for future reference, and the outcomes bundled with the Stage 2 tender/contract documentation.
Stage 2 of the ECI Approach
Stage 2, the delivery stage, generally takes the form of a more conventional contracting strategy, where delivery risk transfers almost solely to the contractor. However, this is not always the case and it is possible to continue with a collaborative relationship-based contracting strategy in Stage 2, where commercial risk is shared between the client and the provider. This collaborative approach may be appropriate when there are still a number of indeterminate scope items, or where later parts of the solution are contingent upon the successful implementation of the earlier parts.
Benefits of the ECI Approach
The key benefits to the both the client and the provider are the improvement in cost predictability, and the confidence gained in the reduced risk of proceeding with the agreed solution.
Experience has shown that the overall benefits of the ECI process can include:
- Higher levels of control and predictability of outcomes;
- Better control and management of risk;
- Better control and understanding of project costing;
- More effective control of the project schedule;
- Better market appeal for principal providers and subcontractors;
- Reduced potential for claims and disputes between the provider and the client;
- Transparent costing and contingency allowances; and
- A better understanding of the client’s requirements by the provider.