Fiscal realities and Government contracting (Part 3): Compliance over Value?

Posted on September 8, 2011

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Government contracting must be conducted in a manner that will:

  • stand the test of public scrutiny and reflect fairness in the spending of public funds;
  • respect operational requirements;
  • support long-term industrial and regional development and other appropriate national objectives, including aboriginal economic development; and
  • comply with the government’s obligations under the trade agreements.

from the Government of Canada PWGSC buyandsell.gc.ca website (The Procurement Rules and Process)

As I read the above referenced rules of engagement I considered how they corresponded with the government’s stated objectives relative to the acquisition of goods, services and construction in a manner that as stipulated on the same site 1) Facilitates access, 2) Encourages competition, 3) Treats suppliers fairly and, 4) Results in the best value to Canada.

Even though I am making specific reference to the Canadian Federal Government, I would imagine that it is a safe bet that other governments around the world subscribe to the same principles.

Taking into account the existing mindset, the immediate question is simply this, are the procurement guidelines and stated objectives aligned to achieve the desired outcome and, what impact will changing fiscal realities in the public sector have on the way in which buyers procure goods and services?

It is a reasonable question considering that many suppliers view public sector procurement with a degree of cynicism that has likely made it extremely difficult for buyers to achieve a best value outcome long before the recent financial crisis materialized.

Within this context, does the manner of conduct described above assist or hinder government buyers?  Let’s review each point a little bit closer . . .

stand the test of public scrutiny and reflect fairness in the spending of public funds;

I am immediately reminded of a book I read back in the early eighties by Walter Stewart titled Towers of Gold, Feet of Clay: The Canadian Banks, and in particular one concise review that talked about how Stewart’s work takes the reader behind the facade of ‘friendly service’ and shows you how to be sure that you’re getting a fair deal from the banks.  In short, Towers of Gold has the facts you should know about our banks.

In terms of public sector purchasing, the principles of withstanding public scrutiny in an effort to reflect fairness represents the very belt with suspenders mindset reminiscent of the banking industry that limits a buyers ability to make a best value decision.  This is due to the fact that it places the emphasis on decision justification versus decision effectiveness to the extent that the process exists to satisfy an adherence to the rules of engagement versus the rules being in place to help the buyer to deliver actual value.

As a  means of supporting this position, those of you who have been following the Procurement Insights blog for sometime will undoubtedly recall my previous references to an e-mail I had received from a senior Treasury Board executive.

For those of you who may be joining us for the first time, the e-mail to which I am referring is one in which the executive’s response to my suggestion that a large acquisition in the millions of dollars was unlikely to yield the expected results was to tell me that I may very well be right, however they followed the proper tendering procedures and that this was the most important consideration.  By the way, the project in question did in fact fail miserably, and in the process went over budget to the tune of several million dollars.

Again, I would have to say that the application of this edict has been the origin for many poor purchasing decisions and therefore I would suggest that this hinders government buyers.

I would also have to conclude that given the current fiscal realities of a struggling economy, the scrutiny – fairness issue needs to be examined so as to provide calculable relevance versus being an opaque reflection of a feel good ideal.

respect operational requirements;

Okay, this sounds good from a practical execution standpoint but what does it actually mean?  Of even greater importance is how does it help the buyer to facilitate access, encourage competition, treat suppliers fairly and produce a best value result for Canada?

One would reasonable think that there would be definitive links to examples as to what specifically are the operational requirements and why they exist in the first place.  Unfortunately no such direct link exists with the exception of a Best Practices in Buying section on the buyandsell.gc.ca website.

Outside of providing common sense suggestions as well as highlighting practices to avoid such as retroactive contracting, the reference to operational requirements seems tantamount to someone asking you how to get to Albany and your responding by pointing in an easterly direction and telling them to go that way.

I realize of course that there is an overabundance of rules and guidelines available to the point that one could consider the entire buyandsell.gc.ca website as the definitive source in describing operational requirements but, to an outsider attempting to navigate the government buying world it is a convoluted morass of do’s and don’ts that waters down any real meaning.  And this is coming from someone with years of purchasing experience.

Based on the apparent vagueness of the edict I would have to say that this neither helps nor hinders the buyer.

support long-term industrial and regional development and other appropriate national objectives, including aboriginal economic development;

The link between government purchasing and regional economic development is nothing new.

Back in 2007 when I chaired a roundtable discussion regarding the Government of Canada’s Way Forward initiative, I would write in my session report about government’s responsibility to bolster regional economies with the might of their buying power.

However and beyond the complexities of pursuing socially/economically motivated initiatives targeted at specific industries, the more pressing problem deals with how efficient (or inefficient) the government is when it comes to engaging their indigenous supply base.  Or to put it another way, are the procurement policies and practices (including the ones about which we are talking today), detrimental to the very suppliers upon whom the government is relying to deliver maximum value to the taxpayer.

One of the best examples for illustrating the concern surrounding a negative supplier experience was ironically highlighted in a July 9th, 2007 post titled Public Sector Procurement and the Wal-Mart Effect.

Even though Wal-Mart is a private sector organization it’s shear size and purchasing volume puts it on an even level with many governments in terms of a ubiquitous influence over its supply base.

As the article points out, the negative consequences for suppliers engaged in this elephant and mouse tango are enormous in that studies clearly show that suppliers doing business with the giant retailer almost always make less profit than their sector’s industry average.

What this means is that only those suppliers that are usually desperate for business (and are usually the least desirable) are the one’s responding to buyer requests.

The downside in the public sector is that this creates a tremendous obstacle for buyers to consistently make best value purchasing decisions as you cannot buy from the best possible supplier if they are not even going to come to the bidding table.

The paucity of suppliers who respond to tenders, which has been lamented by governments at the Federal, Provincial/State and municipal levels, provides testimony to just how serious this overall situation is becoming.  Coupled with the continuing financial crisis (particularly in the U.S.) any success in succoring regional industries will be lessened significantly by an increase in cost and a decrease in service levels caused by supplier apathy towards pursuing government business.

Another question that is also worth considering is to identify at what point do supplier stimulation strategies cross the line of driving real benefits to one of merely satisfying a set aside mandate that fails to add value because it is either politically correct or expedient?

While the intentions relative to development in the areas highlighted are worthy pursuits, in practice the social impact side of the equation is ultimately bad for the buyer under the present system.

comply with the government’s obligations under the trade agreements;

I simply have to refer you to my interview with Canada’s then Trade Minister Stockwell Day (An Interview with Canada’s Trade Minister on U.S. Trade), as well as a subsequent segment which aired in August 2010 regarding trade negotiations with Europe (An Economy In Trouble? Why the Canada and EU Trade Talks are Important), to effectively demonstrate how the globalization of the world’s economies underlines the domestic importance of trade agreements.

This being said, the real issues with this final conduct imperative is the extent to which the majority of buyers are up to speed on the topic of trade agreements beyond the mere adherence to a perceived edict from on high.

I would suspect, and anyone out there can correct me if I am wrong, that it would be safe to assume that the vast majority do not connect in any tangible fashion the procedures they follow relative to honoring trade agreements and, the impact on their region’s or country’s economy.  In essence, how many are just following orders without recognizing the broader impact of their actions and, what effect does this ultimately have on the end result from a best value perspective?

While I would suggest that there are some buyers who would see the compliance with the government’s trade obligations as being a hindrance, from the standpoint of attaining fiscal stability it is definitely an important vehicle.

Closing thoughts . . .

When everything is said and done, there is more said than done.  These were the long ago sage words of one of my mentors who in talking about the apparent flurry of activity generated by some, pointed to the fact that very little was actually being accomplished in terms of real-world objectives.

There is no doubt that government buyers are from an overall standpoint overwhelmed by the shifting sensibilities associated with a procurement process that at times seem to be at odds with the very goals that are being pursued.

One can only hope that the stark reality of a declining revenue stream can help the public sector to cut through the haze of bureaucratic machinations and instead become more attuned to a streamlined approach to leveraging procurement to drive economic interests to the greater good of all.

In Part 4, we will take a look at the issue of the shifting financial landscape in the public sector from the standpoint of the supplier.

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