Procurement
April 16, 2012

Just what is competition?

The next time you hear someone argue that government procurement has to be based on competition, you might ask, “what do you mean by competition?”

Competition is no single and simple thing. It depends on individual definitions and circumstances. And depending on them, the results of “competition” can be good, mediocre or bad.

The federal government’s Contracts Regulations say that, “before any contract is entered into, the contracting authority shall solicit bids.” Essentially this calling for bids is both the government’s definition of “competition” and what most people think about when they say that government procurement has to be competitive.

The government has gone further: the call for bids should be open to any potential supplier. The open call is transparent so that everyone can see what the government is buying. It is fair to suppliers: everyone plays by the same rules. It supports broader access to government contracts, including helping new suppliers enter the market because they know where the opportunities are and can bid when they choose. It keeps “old” suppliers on their toes, since they face the constant threat of new competitors. It encourages all bidders to “sharpen their pencils,” so that the government and taxpayers get better value for money.

This definition of competition usually works best when suppliers offer similar goods or services as relative equals. It can work less effectively when there is clear differentiation between products or services, or when there are some very large potential suppliers and some smaller ones. In such cases, competition starts to be between “less equals” and, in extreme cases, can be between suppliers that are demonstrably not equal. What looks like competition is more like a midget hockey team playing the Stanley Cup champions.

Competition can actually have a perverse effect. Suppliers invest in research and development hoping to strengthen their position in the marketplace and thus distinguish them from their competitors. The government’s bidding approach – not only what it says it needs to buy, but the design of the selection process for the eventual contractor – tends to negate this.

Consider an apparently successful action: a “winner” found from several competing bids. Does this mean there was effective competition? What if none of the leading suppliers in the industry bid – and suppose that their reasons included not only the design of the procurement, but the government’s terms of payment, or an unwillingness to work with the buying department based on negative past experience, or simply that they were already busy. The best of a mediocre lot: is that competition?

Every supplier has a business model chosen to maximize its chance of success and profitability based on price, or quality, or service or location. However, most public procurement imposes artificial rules set by the buyer to meet its apparent needs and, all too often, not a match to how the supplier community regularly works. There may be “fairness,” since all potential bidders follow the same artificial rules foreign to their established ways of doing business, but if the rules do not allow suppliers to bid based on their strengths, is the process really competition, and is the result likely to be best value?

Sometimes competition is not about competition at all but about sole-source contracting. For many, sole-sourcing is bad, equated with preferential and therefore unfair treatment, and denying access to other suppliers. The issue is trust. No matter how sound a government decision to sole-source may be, any such action is going to be questioned as to motive. As a result, every sole-sourcing proposal is thoroughly examined and challenged; resulting calls for bids can be prophylactic.

Once again the buyer’s actions may go directly against how the marketplace works. A supplier invests time, effort and resources into developing a unique service offering: it “competes” against its marketplace competitors and “wins” only to find that the government cannot or will not buy.  The successful competitor is denied the fruits of that victory. Is that competition?

PWGSC’s Canadian Innovation Commercialization Program helps companies bridge the pre-commercialization gap for their innovative goods or services. Innovation and commercialization are good – now, how about focusing on attracting, dealing with and benefiting from the goods and service offerings of other suppliers of demonstrated excellence?

True competition requires broad-based actions that attract the best possible suppliers, able and willing to propose their best solutions to meet government needs. True competition reduces barriers, wherever and whatever they may be. It’s not just about calling for bids. So, the next time you hear someone argue…

John Read provides procurement consulting services to pubic sector clients. He served for almost 15 years in the Public Works procurement arena.

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