the probability of not enjoying a functional and qualitative operation of the asset rises spectacularly. Allow me to detail this claim by providing an example closely tied with the concept of LCC: in the public transportation sector, it is common knowledge that by the time a piece of rolling stock is decommissioned, the value of the initial CAPEX will have been spent somewhere between five and seven times in OPEX (in updated currency). This ratio is quite similar in any other industrial or infrastructural sector. It is therefore clear that procurement at the cheapest price induces a harmful evolution of OPEX throughout the life cycle. However, intellectual honesty demands that we also point out that the injection of a CAPEX supplement in the procurement phase does not suffice to ensure the correct management of OPEX over the rest of the life cycle. As we know, it is the best-practice conduct of the procurement project (considering both what is integrated in capital expenditures and the anticipated expectations of OPEX performance) that will indeed generate desirable results.
• The contemporary regulations inducing “cheapest bid” deals for public markets are inherently unable to avoid the pitfalls for which they’ve been designed; if they could, we would know it by now. Indeed, their enforcement is not (or not anymore) an obstacle to the occurrence of conflicts of interest, or even of events of corruption; once again, we would know it by now.
One can only rejoice in the fact that some countries have really seized the opportunity to tackle this problem, and have succeeded in developing functioning models of public markets aligned with the fundamental principles of Asset Management, but not solely—they are especially very supportive of states that act as financial investment backers using public funds. New Zealand, in particular, has for the last decade led a successful campaign aiming at the redefinition of these public market regulations, taking a clear stand in favor of the consideration of the life cycle as early as in the procurement phase. Furthermore, it has operated this transition in great simplicity: the public market regulations in New Zealand state that the replacement of assets reaching the end of their life cycle must be priced by the assets which will replace them at the time of dismantlement—and that this must occur as early as in the purchase offer stage. This implies that the offer should integrate a global life cycle cost attractive enough for the renewal to be profitable for the buyer; hence, the system encourages a long-term sight by making bidders project a vision on the end of the life cycle and help their clients in the efforts they will have to deploy to renew the asset.
In practice, this implies that the stated requirements should include a tender amount that will integrate the initial CAPEX as well as the CAPEX provisioned for the identical renewal during the end of life.
Other countries are nowadays trying to draw inspiration from this model, not only in Australia but in various other parts of the industrialized world. This trend is all the more laudable if we consider that, historically, other attempts to include the notion of “life cycle” in public tenders had systematically failed. As an example, we could state the case observed in the United States in the 1980s. The Department of Transportation at that time, encouraged by the wave of liberalization and privatization of public infrastructure implemented by the Reagan government, had developed public market specifications whose only admissible tenders in the urban transportation field were those in which the life cycle cost of the equipment was eligible; in other words, instead of favoring the lowest procurement CAPEX, this initiative offered to award the markets to the lowest LCC. These clauses were successfully imposed for a few years in the United States, but they were abandoned as soon as the state agencies became aware that the bidders were in a situation of such ignorance regarding their LCC projections that the purpose of the initiative was fundamentally discredited.
To conclude on a positive note, we could assert that despite market regulations remaining well under the standard set by Asset Management principles in most countries, undeniable progress is being made in the present era. The emergence of a dosage between price, technical quality, performance, and HSE criteria will potentially bring into question the habit of buying at the cheapest price, even if this may not suffice to induce a true taking into account of CAPEX and OPEX throughout the life cycle.
2.2 Outsourcing and Accountability
Over the course of the last decades, a new trend has become the standard in the context of industrial contracts. In addition to material purchases, organizations now purchase an increasing quantity of services. Hence, entire sectors of industrial and infrastructural management are currently being delegated to outsourced companies—the most visible part of these transfers has probably applied to IT services, but they are also happening in the industrial maintenance sector.
The market share of outsourced industrial maintenance is in constant augmentation. This means that organizations have become aware that they could delegate those specific tasks that external agents could realize more efficiently and at a lesser cost. This practice has encountered such success that industries have gone a step further, transferring ever more of their activities to outsourced companies in order to attempt to simultaneously transfer the responsibilities inherently tied with the risks. However, the standards that apply at the moment state that only the corporate director may be deemed accountable for risk; hence, we can see through the illusion embodied by the “performance contracts” whose results are made up of parameters that may by no means be tied with a subcontractor’s responsibility, in terms of social or legal accountability. This approach is therefore practically limited in terms of performance, due to the fact that organizations lack a normative frame suited to their wishes.
The ISO set of standards (in our case the ISO 5500X) have emerged in this complex context. They have acted as a true game changer by integrating within their management systems the notion of outsourcing. The ISO standards’ approach consists of defining a frame in which a free but aligned practice of outsourcing may be exercised. In short, one can consider that organizations who seek to obtain the ISO certification are entitled to purchase and outsource any service or product, so long as they ensure that their management systems are totally aligned with their subcontractor’s (and vice-versa). Thus, these standards regard outsourcing as an integrated extension of the organizations’ management system within which the alignment of operating modes is the foremost priority. It is therefore required that the subcontractor take part in the virtuous circle realized by the organization in its process of continuous improvement. These ISO standards mark a first external effort to implant more systemic and sustainable conceptions in the procurement sector.
It is also necessary to discuss the inherent subjectivity, which is tied to the procurement function and which comes with a heavy consequence: that of divergent appraisals. I recently overheard an old friend, himself a purchasing manager and a specialist of the supply chain, assert that the industrial world is faced “with a real problem when it comes to assessing purchases because there are no buyers’ schools,” or at least, not in the sense that there are “engineer schools” or “manager schools.” There are, in fact, a few specialized degrees and MBAs—but we must admit that this role is all too rarely regarded as a fully legitimate segment on its own in the sociological representation of organizations. Furthermore, the buyer is characterized by his role as an “interface” between the operator (who employs him) and the suppliers with whom he is asked to negotiate. However, it must be understood that these two tribes do not necessarily speak the same language. The operator knows that he needs a performance but he does not necessarily master the expertise required to evaluate the quality of the product or the service that was provided; on the other hand, the manufacturer may not exactly understand his customer’s requirements, or worse yet, he may understand them but be unable to come up with a satisfactory solution.
Hence, it is not necessarily easy to give long-term guarantees to the purchases made, which is a real problem. All of these notions reinforce the idea that a departitioning of the procurement sphere is in line with the empirical reality.
