Procurement is a strategic issue in the public sector. The expenditures are vast. In addition to fostering an ethical environment, you must comply both with the public policy of fair, open and transparent procurement as well as the rulings of our Supreme Court. Remember Gomery or the Toronto leasing scandal.
We all know that finance is more than budgets and payables. We also know that procurement is more than simply “buying stuff.”
From a policy perspective, procurement’s role is simple: acquire the needed goods and services using a competitive process to achieve “best value” while conducting business in a fair, open and transparent manner (as defined by the Supreme Court of Canada).
Implementing this policy is challenging. It’s difficult to do this in a timely manner, with reduced staff, increased public scrutiny and a more litigious vendor community.
Being an effective procurement or material management executive in the public sector requires harnessing new technologies and creating an innovative, ethical environment.
There are a number of worldwide trends in public procurement. Some have been with us for a long time; some are new to the scene. Here are my dirty dozen trends that procurement executives need to recognize as their emerging reality (if they haven’t already done so), trends that can significantly impact their plans for procurement reform:
1. Governments and agencies have, in the past few years, espoused fair, open and transparent competition as a value. Driven by scandals and litigation, many agencies have listened to their professional procurement staff and revised their practices.
2. We’ve gone from lowest price to best value. That’s why lifecycle costing and Requests for Proposals are on the rise. RFPs get you “best value.”
3. Cooperative purchasing and piggybacking on other agencies’ contracts is a major force and saves money by increasing leverage of small entities. So, if the government of Ontario gets a great price on printers and its contract allows piggybacking by your agency, then you can purchase off the same contract with no competition and little effort.
4. We often use alternative dispute resolution mechanisms because of the expense and delays in the court system. This saves money by reducing the formal legal process. It also bypasses the court system and saves billable legal hours.
5. Many agencies have tried P3 – public private partnering or joining forces with a private sector firm to implement a major project – typically on a highway or bridge. This saves money by using private capital for initial funding. It is highly controversial and always a political issue.
6. Using credit cards, called P-cards, to reduce the costs of small purchases can save money by reducing paper processes. Without P-cards, you typically set up the vendor on your master file, issue a purchase order to the user area, obtain approval, mail the purchase order to the vendor, receive the goods, match the shipping documents with the purchase order, initial a cheque requisition, issue a cheque, reconcile the cancelled cheque, post the charges to the department. This typically costs between $75 and $150; a P-card can save about 50 percent per transaction.
7. Implementing e-procurement or having the procurement processes automated saves time and effort and improves management information and control.
8. Reverse auctions, where the agency asks for bids on a specific commodity and the vendors submit prices until the end-time saves money by driving down the price and driving business off-shore.
9. Using a Fairness Officer to re-assure the public that a specific procurement has been carried out in a fair and open manner. While this doesn’t save money, it does preserve public policy and reduces the probability of scandal, protest or legal action.
10. Green procurement – RFPs and ITQs where “green” is a requirement or an evaluation factor – has shown that it can actually save money when you do lifecycle costing. There are organizations dedicated to green procurement that publish sample RFPs and sample green specifications.
11. Strategic procurement means changing the function from order takers, an operational perspective, to a broader, strategic perspective involving long-range plans for ensuring timely supply of goods and/or services that are critical to an agency’s ability to meet its core objectives.
12. Outsourcing, the transfer of “non-core” functions from an agency to the private sector, means divesting a business function, involving the transfer of people and the sale of assets, to the supplier. The process begins with the agency identifying what is to be outsourced and building a business case to justify the decision.
Michael Asner is an independent consultant specializing in public procurement. He is author of The Request for Proposal Handbook and a frequent conference speaker (www.rfpmentor.com, firstname.lastname@example.org).
For more on this topic, see State Procurement: Strategic Positioning for the 21st Century January 1999: www.naspo.org/whitepapers/whitepaper-21century.cfm.