AccountabilityManagement
June 3, 2012

Ordering cake and eating it too

It’s so much easier and less painful to learn from the costly mistakes of others. Some small, seemingly insignificant purchases can cause large problems. This is the tale of one such situation and offers one critical lesson, which I’ll share upfront: all documents should be reviewed by at least four eyes before being made public.

First, a few questions: Is your agency highly visible to the vendor community, the public and the media? Has your agency had adverse publicity related to a major procurement within the last two years? Have your council, ruling body or political bosses reassured the public and directed senior management that all procurement activities are to be fair, open and transparent? Has senior management instructed staff that every procurement must be open to competition with a few, rare exceptions? Are the experienced, senior procurement people overworked? Are the junior procurement people under-trained? Are your procurement procedures overly prescriptive, providing step-by-step instructions that must be followed?

If you answered “yes” to each of these, the following adventure could unfold in your agency.

Let’s begin with a little background: Your agency requires a small number of items valued at more than $2000. Because the value exceeds $2000, your policy requires that you use an Invitation for Bid (IFB) rather than a less formal method designed for minor procurements.

However, since the value is low (and consequently assumed to be low-risk), the project is assigned to a new, under-trained procurement staffer. After reviewing the policy and procedure related to IFBs, the person dusts off your standard IFB template. Since it is a small acquisition, no market research is done. Rather, the purchasing history is obtained from the finance department and included in the IFB. No further review or approval is required, so the IFB is issued – all 30 pages.

This might not be possible in your agency, but such an incident did take place a few years ago at a California transit authority. The results were swift and dramatic.

Here’s how Barry Witt of the San Jose Mercury News reported it:

“With the sort of exacting specifications one might expect for a multimillion-dollar construction project, the Santa Clara Valley Transportation Authority in November issued official bid number VTA06-513-P04 for suppliers to provide – sheet cakes.

 

That’s cakes, as in the yummy treats bakeries make for going-away parties. The VTA consumes about three-dozen a year. A good recipe might require a page in a cookbook. VTA issued 33 pages of bid instructions.

 

The bid rules were demanding, requiring the supplier to offer 11 cake flavors (including peach); 16 fillings (banana cream, chocolate cream, mint cream and vanilla cream, among them); five icings; and six different toppings.

 

To ensure industrial-grade quality control, the VTA planned to put together a five-member tasting panel. If the panel found samples to be ‘stale, rancid, melted, liquefied or otherwise not fit for consumption,’ the offering could be rejected. But the bakery would get a second chance to supply something the tasters could stomach.

 

To top things off, bidders were required to show they maintained liability insurance of $3 million ‘per occurrence,’ whatever it is that might occur.”

Needless to say, after all the publicity that was generated, there were no bidders and the IFB was withdrawn.

In this case, some simple lessons had been forgotten: even small, seemingly insignificant purchases can cause large problems; low thresholds for formal procurement processes often cause the effort required to exceed the value of the contract; p-cards and informal procedures have a valid place as procurement methods; and all documents should be reviewed by at least four eyes before being made public.

Could this happen in your agency? Are your procedures strictly enforced? Will lack of staff do you in?

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