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Sunday, July 18, 2010

Using procurement rules to create non-competitive purchasing

It is the economic cornerstone of procurement theory that creating competition will be better, in the broad macro scheme of things, for the government and better for the community. And then along comes bureaucratic push back, cloaked in the arguments of efficiency and effectiveness at the micro coalface. Even if we leave favoritism and rigging to one side, this tension will always exist between creating competition and creating routine and habit.

Canada's procurement ombudsman is observing just such an "unintended consequence" to one of its bureaucratic salves.

Ombudsman wants review of federal contracting rules
Procurement ombudsman Shahid Minto said monopolies or market dominance by few firms may be an "unintended consequence" of the government's 2005 decision to make standing offers mandatory for the routine goods and services bought by government.

Standing offers are a key buying tool for Public Works, the government's procurement arm. Companies bid prices for their goods and services and those with the best offers win a spot on a list of pre-approved suppliers that departments can simply call up when they have work or orders to fill.

Suppliers list their prices and quantities available and buyers make their orders with much less hassle than a full contract tendering.

Supply arrangements are similar, but the suppliers who make the list don't give firm prices until federal buyers seek prices from several suppliers in a second round of bids on the specific work or goods they want to buy.

Suppliers on standing-offer lists are ranked and, in some cases, the first one is given the "first right of refusal" for any work. Only if that top-ranked firm refuses will that work be offered to the next suppliers on the list.

But firms at the top of the lists rarely turn down work and other firms on the list may never get the call.

The broad trend is the number of suppliers has decreased while the value of contracts increased.

"The government has inadvertently created the conditions (for monopoly)," Minto said. "It's not what the government intended to do and that's why we think a review would be beneficial to see what the impacts are, including the unintended effects."

Read more: http://www.montrealgazette.com/news/canada/Ombudsman+wants+review+federal+contracting+rules/3285214/story.html#ixzz0u4z1UvLJ

COMMENTARY: Guam law has a "Blanket Purchase Agreement" method of source selection for non-construction purchases under $15,000, similar to the Canadian supply arrangement it would seem. Guam law, however, requires that purchases be distributed amongst the suppliers, though to what extent that happens or is enforced is not apparent.

The US Federal government also has a Supply Schedule scheme that allows non-competitive purchases from selected vendor contractors. But to get on the list the contractor must offer "best customer" pricing of their products. The different contractors usually offer differing prices and, except for very small purchases, which must be spread around, the government can buy from any contractor on the list.

On Guam, which has access to that scheme as a territory of the US, all government copier machines were purchased from one such supplier for years, without regard to creating any diversity or competition. Go into any Guam government office and like as not you will only see the one brand of copier.


FOLLOW UP: I have come across an interesting commentary to the comments made by the Canadian Ombudsman quoted above. Particularly as to the idea that these were "unintended consequences". This commentary suggests, though perhaps unintended, they were certainly foreseeable:


Procurement ombudsman says Federal buying policy unwittingly helping to create monopolies
Ahh those were the days of the good old boys club when the Canadian Government’s oligarchical fraternity of ex-IBMers and the like would close ranks and politely snub their noses at both common sense and the rest of the world.

Perhaps Mr. Minto should visit the Ottawa Citizen archives for a story dated September 2, 2006 titled “Treasury Board reviews how PS fills top jobs: Treasury Board is reviewing a controversial program that has parachuted about a dozen high flyers from private technology and consulting firms into key executive jobs within the public service.”

According to the story, the “Treasury Board (was) reviewing a controversial program that (had) parachuted about a dozen high flyers from private technology and consulting firms into key executive jobs within the public service.” Again IBMers (and the like) such as Mornan, Ken Cochrane and Dan Belanger, immediately come to mind.

Speaking from first hand experience, this tightly knit group as well as the others which infiltrated the government’s decision-making hierarchy was anything but unwitting, unintended or inadvertent in their manner and vision. Surrounding themselves with sycophants or alternatively politically adept, practically neutered players such as Jamie Pitfield, where the government is today is by no means an accident.

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