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Tuesday, July 30, 2013

The price factor

Public funds are meant to be spent prudently and wisely. Not for the government purchaser is the joy of buying on whim, impulse and sheer abandon and show.

So, price is a factor, and a central factor, in any decision to dip into the public purse.

But how much of a factor? It, of course, depends. Getting something that is needed is always a balance of knowing fairly precisely what it is that you need, and how much do you need it compared to all the other things that are needed. It boils down to getting bang for buck: how much bang do you need and how many bucks can you justifiably spare to get it.

The need question typically precedes the buck question. If you need something desperately, you will pay dearly; if you don't, you won't. Just search for "price elasticity" to overwhelm yourself with reading and technical analysis of that simple commonsense equation.  Professional services, especially health care services, tend to be inelastic.

Guam provides a request for proposal process to acquire professional services. It is based on the model the ABA Model Procurement Code incorporated in its original 1979 form, but which has been since set aside. In this particular RFP process, the procedure first ranks responsive and responsible offers in terms of quality of service, and price pays no part in the evaluation or ranking. It is only after all offers are ranked that price becomes a factor. The process requires that the government negotiate with the highest ranked offeror first, to negotiate a "fair and reasonable" compensation. If it is unable to come to terms on fair and reasonable compensation with the highest ranked offeror, then it proceeds to negotiate with the next highest offeror for fair and reasonable compensation, and on down the list as necessary.

Thus, when obtaining professional services under that RFP process, price is a secondary factor, but ultimately determinative.

For the most part, government, and especially state, shire or municipal governments, do not acquire supplies and services that are unique. They tend to buy the same thing cyclically, or the same things that other organizations acquire; that is, they acquire standard commercially available supplies and services. If you think of these standard products as commodities, it typically hardly matters which one you select (discounting the personal taste or other ego factors). In that case, price matters first and foremost. It is essentially an auction process.

Thus, in the language of the ABA Model Code, the acquisition process for such supplies and services (and routine construction) is conducted by "bid": an Invitation for Bids. Just like at an auction, people bid the price they are willing to pay or accept, and the fine points of product or service differentiation are ignored (to the chagrin of marketing and brand managers). It is a simple equation: low bid wins. Price is the only factor.

And to digress a moment. First, there is a variation on the bid process for non-standard supplies or services whereby bidders first offer supplies or services to be evaluated for acceptability to meet the described government need, but they are not ranked. All acceptable products are then determined and bids are then opened, with the lowest bid price taken. Second, it is worth pointing out that in the Model code, absent competition (such as when only one bid is received), as with the acquisition of professional services, the government must be assured that the price it pays is "fair and reasonable", otherwise it does not make that acquisition.

Then there is a middle ground, and it is murky, but only in the sense that objectivity is blurred, and subjective discretion is given greater weight than price. This comes in a variety of forms and nomenclature, such as "best value". It typically arises from an offer process, where proposals are submitted and negotiations take place before the government accepts a contractor. 

This process generally places a great deal of trust in the integrity, skill and market knowledge of the government purchasing team -- in a word, in their professionalism.   In this process, price is a component of the offer, and is negotiable along with other specifications, within the scope of the solicitation.  The price component is usually weighted by some specified proportion against other critical components, thus it is neither the first nor the last factor considered, but one that is blended with and weighted against other desirable, or nondesirable, factors.

Getting the ingredient mix, and especially the price ingredient, is a difficult task, as is any recipe. The choice of ingredients, and the proportions, can make a great souffle or a sorry one.

The difficulty in getting the recipe made in the first case is illustrated in the following story.

Jefferson Parish restores price as factor in evaluating service contractors
A new procurement reform that the Jefferson Parish Council has adopted restores price as a factor in awarding some service contracts. The council had removed price from the scoring in 2011. The ordinance says the price proposed by vendors will count for 20 percent of their overall grade by technical committees that score proposals. The law applies to non-professional services, such as landfill operation and catering, for which the government is not required to accept the cheapest proposal.

The non-profit Bureau of Governmental Research criticized that move as a precursor to favoritism. Most concerning to the organization was the council's broad authority to pick most types of service contractors, essentially relegating the evaluation committees to toothless advisory bodies.

That the legislative branch chooses contractors is "abnormal" on its face, the report stated, and the council's "nearly unfettered discretion" to disregard the committee recommendations creates "a fundamental conflict of interest." A better method, BGR said, is to uphold the evaluation committee recommendations, or at least to choose from one of the committee's top-ranking firms. The council has resisted the push for more executive control in choosing contractors.

Councilwoman Cynthia Lee-Sheng said a certain degree of council discretion is necessary. Evaluation committees might not know of vendor problems that rigid scoring criteria do not factor, such as recent mistakes with continuing projects. "Sometimes the technical evaluation committee might not have the newer information I might have," Lee-Sheng said. "I'm not going to blindly select the top ranked firm."

The new ordinance fixes price as a 20 percent weight. BGR CEO Janet Howard stated that a chief procurement officer should determine the importance of price in any given procurement. "If you are a hiring a consultant where you are really hiring their judgment and expertise, price would generally be a much lower factor, versus something that maybe is more of a service provider in which case the scope of work is well defined or routine," Purdy said.

Lee-Sheng agreed, stating that price should be a stronger consideration in grass cutting, for example, because the end result isn't likely to vary much. "I don't think it's ever really a great system," Lee-Sheng said. "At least if you set it at the beginning, no one can accuse anyone of messing with the formula."

Sunday, July 28, 2013

Not so fast, buster

The cost of busing kids to school is driving school districts to distraction. I have previously reported on the problems experienced in Canada.

In New York State, according to School bus costs called the first in line,
School districts in the state spend $1,141 per student on transportation, which is 149 percent more than the national average of $459. The amount has more than doubled in the last decade alone, the report found. In 2010, New York schools spent $3 billion to transport students, compared to $1.5 billion in 2001.

The commission report found that New Jersey spent $908, the second highest amount of money transporting students. By contrast, Massachusetts spent just $592, the 13th highest, and California was last on the list with $238 in annual expenditures.
The Honolulu Civil Beat has done a an extensive study of Hawaii school bus costs, with a timeline analysis and comparison going back several years. The study is set out in a series of reports reported here: Taken For a Ride — Series on Hawaii's School Bus Costs.

One of the reports, Taken for a Ride: Hawaii's Runaway School Bus Costs, written in 2011, brings it all together.
Hawaii is spending $1,850 per student on school bus transportation this year — more than twice the national average of $900 in 2008, the most recent year reported. In 2008, Hawaii averaged about $1,200 per student.

Civil Beat analyzed hundreds of bid documents spanning 11 years and found that competition among school bus contractors came to an abrupt halt in 2008. In fact, while educators and lawmakers have been bemoaning the cost increases and questioning whether lack of competition was the cause, in the last four years, not a single regular school bus route in Hawaii has drawn competitive bids. Over that same period, the department hasn't rejected a single bid, as is its right, to try to get a better price for taxpayers. [See my prior post, "The dilemma of "only one bid received".]

In 2007, the last year there were competitive bids, more than half of the 116 routes up for grabs had more than one company vying for them. The competitive bids averaged $49,000 per year, while the average non-competitive bids were slightly higher, at $53,000. In 2008, when all 12 bus contractors mysteriously stopped bidding against each other, the average price of the more than 136 routes up for bid skyrocketed to $86,000 per year — an overnight increase of nearly 70 percent.

By the department's own figures, the state's school bus costs have been on a runaway path since 2005. This year they are more than double that year's $34 million price tag, at about $72 million, while the number of riders has remained flat, around 44,000. Routes haven't changed much either.

"The lack of any competition doesn't pass the smell test," Rep. Marcus Oshiro said. "We've known for a while that something's not right here, but you can't quite put your finger on it."
Civil Beat put a finger on it: "Simple Equation: Less Competition = More Costs"

Meanwhile, back in New York, the are Breaking up big busing.
Atlantic Express controls the majority of the kindergarten through 12th grade busing in the city and is the third largest provider of student transportation in the U.S., with contracts with about 100 school districts all over the country. In New York City, Atlantic Express’ Amboy Bus Company unit is the beneficiary of the city’s largest single busing contract, with $213.9 million spent on the company for special education and $317 million for general education busing in the first nine months of fiscal 2013.

At the company’s founding in Staten Island in 1972, it had just 16 school buses. Today, it operates between 4,000 and 5,000 vehicles in five states and employs nearly 10,000 drivers, escorts, mechanics and support staff, according to its website.

Under the city’s new competitive bidding process, much smaller bus companies with cheaper labor costs severely underbid the behemoth operator. In the first round of competitive bidding, Amboy was outdone by every other competitor. For one 185-bus contract, the median bid was 36 percent below Amboy’s, while the lowest bid was 63 percent lower. If the next two rounds of bidding look similar to the first, New York City taxpayers could potentially save more than $300 million a year, out of the $1.1 billion the city currently spends, as a result of the new bus contracts.

That would reduce the average cost of transporting a student down to about $5,300, down from more than $7,000 per child.

Tuesday, July 23, 2013

2 stories

Two stories from today's press via Google News. This first story poses a question.

Official: Rotate contracting officers between government, private sector
Joseph Jordan, the White House’s top contracting policy chief, floated the idea Tuesday of having contracting professionals rotate between government and the private sector. “There are all sorts of issues, I know,” said Jordan, who is the administrator for the Office of Federal Procurement Policy. “But I refuse to say this is off the table.”

The Obama administration has placed tight rules clamping down on the so-called revolving door between government and special interests among political appointees, though Jordan’s remarks were aimed an audience of career workforce professionals.

“Is there a way where we can have people kind of bounce back and forth ... between industry and agencies?” Jordan said in remarks here at the National Contract Management Association conference.
Does this second story hint at a reason this might not be such a great idea?

Former government contracting official sentenced to prison
A former government contracting official, Robert Edwin Steele, 38, of Alexandria, was sentenced Friday to 48 months in prison for 14 counts of unauthorized access to a protected computer. In addition to his 48-month term of imprisonment, Judge Lee also ordered Steele to serve two years of supervised release, imposed a fine of $50,000, and required restitution $335,977.68.

When Steele left Company A on December 15, 2010, he gave verbal and written assurances to officials of Company A that he would not access its systems after his departure, and even urged them to shut down his existing accounts. That same day, however, Steele began logging into Company A’s e-mail systems using a secret administrative account which he learned about during his work for Company A. Steele immediately began downloading hundreds of proprietary documents using this administrative account.

Shortly after resigning, Steele joined another government contractor, Company C, that directly competed with Companies A and B for government contracts. At Company C, Steele worked as “Director of Law Enforcement” and prepared bids for government contracts on law enforcement projects. In that position, Steele undercut Company A’s bid on a government contract by approximately $100,000, while downloading Company A’s documents on the same contract. Although his attempt to win the bid failed, Steele continued to methodically sift through thousands of valuable documents stored on computers for Company A.
Of course, you need to read both stories in full for context, but why would you need to hack for information if you can just bounce back and forth and gather as you go?

Friday, July 19, 2013

Procurement controversies -- Estonia

Estonia has an interesting public procurement law, delegating almost all details to a regulatory scheme. See the unofficial English translation here. Read that (pretty short and sweet) and you too will know everything I know about the subject.

I do not write to explain or opine on Estonian or any other law, only to use factual situations, as they appear in the articles cited and then cut, paraphrased and rearranged to my liking, as "teachable moments" to compare and contrast Guam's ABA Model Procurement Code based laws and regulations. So, turning now to the controversy du jour,

Furniture maker accuses Tax Board of bias in public procurement
Estonian furniture maker AJ Tooted is disputing the public procurement for supplying furniture for the new main office of the Tax and Customs Board. AJ Tooted won the first procurement held in March submitting the cheapest offer of 800,000 euros.

Then, in May, the Tax Board’s work environment council inspected the existing working conditions and found that the workplaces of several employees did not comply with ergonomic requirements.

By the end of May, the Tax Board had cancelled the first procurement and announced a new call to tender. AJ Tooted has now disputed the decision to cancel the first procurement.

Last week the dispute panel of public procurement announced that the tender documents of the second tender were partly illegal because they were too specific. Among others, the Tax Board is demanding that the frame must be made of 12mm birch, that the seat must be exactly 700 mm wide and that the manufacturer must submit compliance certificates.

The only furniture maker that complies with such requirements is Estonian furniture giant Standard that, for instance, is the only one who has certificates required by the tax board. Other companies don’t have not obtained compliance certificates for tailor-made furniture. A representative of the tax authority said that such strict requirements were necessary so that all bidders can understand them in the same way.
I have to say I am a bit puzzled by the facts stated. Is AJ Tooted, for instance, complaining that the specifications were too narrowly drawn, prejudicing its bid or award? Or is the Tax Board saying it wants to rebid the contract because it got the specs all wrong to begin with? Either of these scenarios, or others that may be speculated, offer analytical exercises.

For purposes of this post, though, I just want to make a simple assumption, even if it is not the situation they're facing in Estonia. I will assume that AJ Toot, who won the award, is complaining about the cancellation of the bid because the furniture "giant" Standard is behind the cancellation of the award. And I will assume that its furniture did not in fact meet the meet the "ergonomic requirements" of the work environment council.

What I point to under this scenario is the difference between a solicitation dispute and a contract dispute, and of course, I discuss this in the context of Guam's law, not Estonia's. The basic rubric is, can a competing bidder complain, after award, that the winning bidder did not deliver the goods the solicitation documents specified?

Guam law would usually say no. It distinguishes between disputes concerning the method of source selection, the solicitation or the award of a contract (5 GCA § 5425) from a contract dispute (§ 5427). As a general rule, competing bidders may be aggrieved and protest the solicitation, but have no standing in a contract dispute. Thus, if the contractor did not provide precisely the thing that was specified, that is an issue between the government and the contractor alone, as the only two parties who are "privy" to the contract. Under contract law generally, the government has the right to accept the nonconforming goods, but in doing so reserves the right to claim damages arising from the nonconformity.

But the situation could be different if the facts are altered: it depends on the degree of non-conformance. If the goods the government accepts are materially "beyond the scope" of what was solicited, the acceptance of them relates back to the integrity of the process, and may be treated as a fault of the solicitation process. 

Here, AJ Toot was not prejudiced by the overly restrictive specifications, and it would be unfair to penalize it for providing, substantially, what it was the government ordered. 

If the government nevertheless decides that it cannot continue to use the equipment its own specifications required because of the ergonomic requirements, it should first elect to terminate the contract before rebidding, under the termination for convenience clause and procedure Guam law allows.  In that case, AJ Tooting would at least be compensated for certain damages, including some of the profit it was expecting, offset by any damages caused by nonconforming goods delivered (which I have only assumed in this scenario).

Wednesday, July 17, 2013

African states debate whether procurement rules aid or hinder growth

Rwanda: Continued Engagement On Public Procurement Critical
According to officials in the Ministry of Finance and Economic Planning, when procurement is carried out in a proper and transparent manner, it enhances efficiency and service delivery, thus contributing greatly to economic growth.

In Rwanda, public procurement has come of age. Today, it is responsible for up to 16 per cent of the Gross Domestic Product (GDP).

In the yesteryears there was no such a thing as competitive bidding for government contracts. Bureaucrats only handpicked service providers, often times causing heavy losses to the treasury, especially through shoddy work or uncompleted projects. Today, we can confidently say that we have since managed to reverse the trend. Public officials now know that you cannot spend taxpayers' money without due process.

Nonetheless, some service providers and experts have raised concerns over what they call long-winded procedures and vagueness of the current law on public procurement. They argue that legislation doesn't provide specific guidelines for the day-to-day practices in the sector, thus difficult to implement in some cases.
Under no circumstances should Rwanda's commitment to strict adherence to proper tendering procedures be compromised. We have all seen the fruits of this policy, the most recent being Rwanda's emergence as the least corrupt African country, and among the 'cleanest' in the world, ranking 13th globally, according to Transparency International's Global Corruption Barometer, released last week.
Nonetheless, the Rwanda Public Procurement Authority and other relevant organs, should keenly examine complaints with regard to the existing law, and subsequently initiate the necessary adjustments to help improve service delivery, eliminate red-tape and plug any other potentially costly loopholes.
But, over in Zambia ...

Tedious public procurement processes delaying the pace of national development-Minister
Home Affairs Deputy Minister Nickson Chilangwa says long and tedious public procurement processes are delaying the pace of national development. Mr. Chilangwa said the PF government is failing to execute some of its urgent plans because Zambia’s public procurement processes take long to complete.

He said some of the requirements in public procurement are unnecessary and create an opportunity for corruption. “We have to reform our procurement laws, there is no way we could develop this country if it will take us six months to procure anything for the good of the nation,” Mr Chilangwa said.

He cited the procurement planned procurement of modern crowd control equipment for the Zambia Police Service as one which is being frustrated by the long procurement processes. “Everybody knows that we need to get modern equipment for our officers. There are now more riots breaking out and our officers need better protection and everybody knows the urgency of the matter but if the Permanent Secretary or the IG wakes up one day and say buys the equipment, everybody will start saying abuse of office. This is nonsense and we have to change this.”

He warned that Zambia will continue lagging behind unless serious public procurement reforms are under taken.
Beware of Ministers bringing "reforms".  Sometimes, often times, that word "reform" does not mean what we think it means.

What's the point of having rules?

Out of Singapore, we have this globally recurring theme:

Procurement lapses due to individual officers' failure to follow rules: MOF
The Auditor-General's report scrutinized the expenditure of government ministries and statutory boards for the last financial year and was released on Wednesday. Several ministries were cited for various oversights.
[The StraitsTimes reported, For instance, the Media Development Authority negotiated with a vendor for a revised proposal to organise the $4.57 million Film Festival. This was after the request for proposal exercise had closed, and contravened government rules. Another tender by Republic Polytechnic was not conducted in an open and fair manner, Auditor-General Willie Tan said. The tender was for a $19.14 million project to develop an integrated academic system."]

The Ministry of Finance said it has reminded all permanent secretaries and heads of government agencies to pay close attention to procurement issues.

Government agencies are also urged to undertake regular reviews of procurement processes and ensure vigilant supervision throughout all stages of the procurement process.

The ministry stressed that it is essential that the public service and its officers remain fully accountable for the use of public funds and uphold the integrity of public procurement.

To further strengthen government procurement as a whole, the ministry said it has already stepped up the training of public officers, as well as requiring all agencies to conduct regular internal audits to provide an independent check.

Work is also in progress to develop a procurement specialist track, with professional development opportunities and proper career pathways.

MOF explained that the procurement specialist track will help professionalise the practice of procurement by giving officers greater recognition and more opportunities to develop deep skills and knowledge.

The ministry said while it cannot expect to be able to completely eliminate lapses in a system with over 80,000 tenders and quotations annually, the public service is committed to take every effort to avoid them or promptly rectify them when they are detected.

Monopsony: monopoly through the looking glass

Government Should Leverage Its Size to Get Better Prices, Senators Say
“When Wal-Mart buys, I guarantee they get the best price, and when Honeywell buys, they get the best price,” said ranking member Sen. Tom Coburn, R-Okla.

Chairman Tom Carper, D-Del., called the Obama administration’s key procurement officers to respond to Government Accountability Office reports showing that the top four purchasing departments -- Defense, Energy, Homeland Security and Veterans Affairs -- were achieving only 5 percent of contracts using strategic sourcing’s careful analysis of spending needs and markets and rigorous monitoring of vendor prices. “Federal agencies appear to behave more like medium-sized, unrelated businesses than the largest purchaser in the world -- which is what the U.S. government is,” Carper said.

A defense of progress to date came from Joe Jordan, administrator of the White House Office of Federal Procurement Policy. The obstacles include “a decentralized process with a lack of visibility into what other agencies do,” Jordan said. But he cited progress in reducing what once was 4,000 separate wireless phone agreements with 800 plans to one contract vehicle, the saving of $600 million through shared contracts for janitorial services, and the General Services Administration’s office supplies contracts that have upped the rate of small business participation from 67 percent to 76 percent.

Dan Tangherlini, newly confirmed as administrator of GSA, said strategic sourcing in 20 agencies has saved $300 million since 2010. “Contractors are required to report transactional data on all program sales,” he said. “For the first time, this level of financial information collection provides us with a clear picture of agency spending behavior. Over the last several months, GSA has used this data to show contractors their pricing item by item, compared with their competitors in an anonymous fashion. This has empowered contractors to understand their competitive position, and in many cases offer better deals.”
I'm reminded of the post from a couple of days ago: Published benchmark costs bring procurement savings.

In the article in chief above, criticism of government procurement uniformly complained that the government did not achieve the market-leveraged savings of private business. Private business, of course, is not burdened with the many so-called "wealth distribution" programs (see, here) of the federal government, such as Buy American. And, WalMart acquires large parts of its product in China and other non-US production centers. Do we want our government to do likewise? We could do it.

America made a great leap forward economically at the start of the 20th century by dismantling the monopoly "trusts", a form of forced "creative destruction" of concentrated capital. The lesson learned is that too much concentrated market power is not good for the larger society or economy.

So, what is a Monopsony? According to Investopedia:
Definition of 'Monopsony': A market similar to a monopoly except that a large buyer not seller controls a large proportion of the market and drives the prices down. Sometimes referred to as the buyer's monopoly.

Investopedia explains 'Monopsony': People have accused Ernest and Julio Gallo (the big wine makers) of being a monopsony. They had such power buying grapes from growers, that sellers had no choice but to agree to their terms.

“The rule is, jam to-morrow and jam yesterday--but never jam to-day.'

'It MUST come sometimes to "jam to-day,"' Alice objected.

'No, it can't,' said the Queen. '
It's jam every OTHER day: to-day isn't any OTHER day, you know.'

'I don't understand you,' said Alice. 'It's dreadfully confusing!'

'That's the effect of living backwards,' the Queen said kindly: 'it always makes one a little giddy at first--'

'Living backwards!' Alice repeated in great astonishment. 'I never heard of such a thing!'

'--but there's one great advantage in it, that one's memory works both ways.'

‘I'm sure MINE only works one way,' Alice remarked. 'I can't remember things before they happen.'

'It's a poor sort of memory that only works backwards,' the Queen remarked.”
― Lewis Carroll, Through the Looking-Glass, and What Alice Found There

Monday, July 15, 2013

A penny saved is a penny earned

Benjamin Franklin is credited with the saying in the title to this post. He's also quoted in the following story, but I hadn't heard this one before. Loose lips, yes, but small leaks?

UK public procurement most expensive in EU
"Beware of little expenses. A small leak will sink a big ship." The words of Benjamin Franklin, one of the founding fathers of the United States, are as relevant today as they were in the 18th century. In fact, they are eerily true when considered in the context of government procurement.

Public sector procurement in the United Kingdom is certainly a big ship. It accounts for some £230bn of public funds each year. And as for the leaks? Fresh research released by the Centre for Economics and Business Research has found that the UK has the most expensive public procurement processes in the European Union. The cost to a public sector body to attract a bid from a potential supplier in a competitive process is £1,260.

This leads to the question of why the UK is such an expensive place to conduct procurement processes.

Combined with high labour costs, the length of a typical competitive process plays a critical role in increasing the cost of public procurement on both the buy-side and sell-side. The public sector purchasing process was found to be 53 days longer than the EU average.

Higher costs are obviously bad news for government departments that are fighting budget cuts, but the high cost of procurement also has more indirect negative effects. Expensive processes create barriers to entry and dissuade firms from taking part. The net result is that fewer firms submit tenders, reducing choice and competition, and therefore value, for public sector organisations looking to award contracts.

But all of this is about to change. In 2016 the European Commission's ruling mandating e-procurement for all European public sector organisations will come into force. The savings are predicted to be substantial: in the region of £30bn according to some estimates. These cost reductions will come in part from better management of costs and improved spend analysis enabled by e-procurement. But as well as cost savings, the widespread introduction of e-procurement will bring benefits such as greater transparency, a reduction in procurement fraud, plus faster and more cost-effective purchasing and bidding processes.

The UK public sector already has e-procurement frameworks, such as CloudStore, which private sector companies are compelled to join to ease the process of selling to public sector organisations. However, some firms feel the accreditation process for joining is still too stringent to justify the allocation of limited resources. For e-procurement to enable greater competition and lower costs for buyers and sellers, these barriers need to be removed. If the government can make best use of these new platforms, it could soon be plain sailing for public and private procurement.

Read more: http://www.publicserviceeurope.com/article/3755/uk-public-procurement-most-expensive-in-eu#ixzz2Z6wrvhSH
We'll see, and hope for the best.

Friday, July 12, 2013

Going local en la cabeza

We plan Public Procurement Act amendments about easier access of small businesses, more transparency: Bulgarian PM
Sofia. We plan amendments to the Public Procurement Act to ease the access of smaller businesses and ensure more transparency in tenders, Bulgarian Prime Minister Plamen Oresharski said in the parliament, while presenting a report on the government’s performance, FOCUS News Agency reported.

“We held working meetings with employers’ organizations, associations in the tourist sector, the leaders of the two trade unions, with the National Association of Municipalities in Bulgaria, and NGOs to discuss and outline measures for overcoming the crisis,” said the PM.
Northern contractors blast biased public procurement
Three of the largest regional contractors in the North of England have fired a broadside at the Government’s procurement strategy for favouring national operators. The letter states: “While twelve firms have been selected for the north panel and twelve for the south – nine of the firms selected are on both. How can this deliver fair competition?”

The firms also blasted the Scape framework which required bidders to have a minimum £500m turnover while contracts let can be as small as £2m. They said: “Few regional contractors meet this turnover criterion whereas many are more than capable of carrying out the work.”
Gansler proposes procurement preference for Maryland-made goods
Maryland Attorney General Douglas F. Gansler (D), who is gearing up to announce his bid for governor in September, on Friday proposed the creation of a new preference in the state procurement process for Maryland-made goods and services. The initiative was part of a package of ideas put forward by Gansler to bolster the state’s manufacturing sector during an appearance at a United Auto Workers hall in Hagerstown.

Gansler offered limited details on how a “Buy Maryland” preference would work, but said it would be “a significant factor” in the procurement decisions made by state agencies. “If it’s of the same quality and competitively priced, there ought to be a preference,” he told reporters

What has taken this so long to happen

Planning.    One of the essential four classic duties of management.

Bid protests.   As sure as rain in the tropics.

We plan for all kinds of contingencies but act like protests are an unforeseen bolt out of the blue. I have long advised that we must plan for all known and foreseeable contingencies.  Not planning for protests is not planning at all. 

Better to light a candle than curse the darkness.

I am therefore heartened to read this short article in the Federal Times.

Bid protests so common agencies plan for them, officials say
“We build time in our procurement now for protests. We know we are going to get protested,” Mary Davie, assistant commissioner of the Office of Integrated Technology Services at the General Services Administration, said at a conference Thursday.

Frank Baitman, chief information officer at the Health and Human Services Department, said contracting within the federal government is broken and that bid protests are one reason why procurements may take up to four years.

“We go into large procurements knowing we are going to be protested,” Baitman said.

Speaking at the 2013 Multiple-Award Government and Industry Conference in Alexandria, Va., Davie said that part of the problem is agencies are not clearly communicating to companies why they did not win the contract, which prompts companies to protest to get more information.

MORE ON THIS TOPIC and from the same handy Federaltimes.com source:

How bid protests are slowing down procurements
The Navy announced June 27 it was awarding Hewlett Packard a potential five-year, $3.5 billion contract to develop a computer network to serve up to 800,000 Navy and Marine Corps personnel. Three weeks later, the inevitable happened: The losing party, a team of Harris Corp. and Computer Sciences Corp., filed a protest, potentially delaying the contract award by more than three months.

This came as no surprise to Sean Stackley, assistant secretary of the Navy for research, development and acquisition. “There is no defense against a protest, but there is absolutely preparation to ensure that in the event of a protest that the government prevail, and we took every measured step to do that,” Stackley said.

“We build time in our procurement now for protests. We know we are going to get protested,” said Mary Davie, assistant commissioner of the Office of Integrated Technology Services at the General Services Administration, at a July 11 conference.

Michael Fischetti, executive director for the National Contract Management Association, said with fewer contracting dollars being spent because of the sequester, some companies are almost certain to file a bid protest — particularly if the vendor is an incumbent seeking to prolong the contract. “They may not really know what they’re protesting,” Fischetti said. “But they’ll throw everything against the wall, and during the discovery process they may find something. I think that’s just human nature.”

Joe Jordan, administrator for federal procurement policy at the Office of Management and Budget, said bid protests are an important part of the acquisition process, but too many of them can gum up the process. OMB encourages agencies to explain clearly to companies why they lost a competition and why an award went to a particular company. By sharing more information, agencies can reduce bid protests, Jordan said.

GSA Administrator Dan Tangherlini said the agency is working to minimize bid protests by reviewing its contracting process and identifying opportunities to train employees on comprehensive contracting requirements. GSA also has lengthened its lead time on certain contracts to make sure the agency has done its due diligence but balances that with keeping up a timely contracting process.

Wednesday, July 10, 2013

Published benchmark costs bring procurement savings

Rigorous transparency is a two-way mirror. It not only reveals what the government is doing, it also reveals what the private contractors are doing. Too often we make the assumption that a transparent system just reveals the government action. And then we scratch our heads trying to understand how two different agencies buying the same thing end up with sometimes grossly divergent costs.

In an attempt to capture that low cost to government, big companies have championed cooperative purchasing, a method of source selection where everyone buys from the one seller at the one price. Good for big business, bad for small business and a widened tax base.  It increases efficiency, arguably, at the expense of fostering competition.

The UK government has thought outside that box and achieved the low cost benefit without (directly anyway) bestowing a monopoly on one supplier. 

How?    By disclosing actual costs paid to its contractors.

Construction procurement reform saves £447 million
Cabinet Office minister Chloe Smith announced the latest set of benchmarked government construction costs, which are designed to give public sector customers an indication of how much they should pay. She described the benchmarking system as a “key” efficiency reform and said its ability to deliver projects 15 to 20 per cent cheaper meant the public sector would reinvest £1.2 billion in projects by 2015. This would equate to around 60 new secondary schools, she added.

The new benchmarking figures provide more granular department cost benchmarks and data direct from local authorities, according to Smith. “We have now published department cost reduction trajectories and construction cost benchmarks, which help inform central government and wider public sector clients as to what they currently pay for construction and what their construction should therefore cost,” said Smith.

Changes to public sector procurement to benefit SMEs were also underway, she said, to raise the amount of government business to SMEs by 2015 to 25 per cent. “These reforms are starting to pay off. Overall government has increased its direct spend with SMEs from 6.5 per cent in 2009-10 to 10 per cent in 2011-12,” said Smith. “And in 2011-12 figures from government’s top suppliers shows SMES had benefitted from a further 6.6 per cent of spend in the supply chain.”

She identified prompt payment down the supply chain as “critical to the survival of many SMEs” and said all central government contracts were now contractually obliged to pay to tier three suppliers within 30 days. The government was also trying to roll out Project Bank Accounts, a project which aims to pay prime suppliers at the same time as subcontractors down to tier three, across government construction projects.

- See more at: http://www.supplymanagement.com/news/2013/construction-procurement-reform-saves-447-million/#sthash.0Md2Tt0e.dpuf
So far, the cost disclosure has apparently been limited to the construction sector, but there is no reason in my mind why it should not be at least tried in the services and supply sectors.

The Government have issued a series of reports on the subject. One of the papers describes Cost Benchmarking Principles and Expectations:
This document sets out for the first time the principles of construction related cost benchmarking standards. This publication therefore supports the new procurement models being trialled as part of the delivery of the Government Construction Strategy and the achievement of the overarching target of a sustainable1 reduction in construction costs of 15-20% by the end of this Parliament.

This document should also provide a helpful point of reference for the wider public sector – for example Health Trusts and Local Authorities – in determining a standard approach to construction cost benchmarking.
Another paper discusses progress and other aspects:
Effective cost benchmarking is central to the successful delivery of the Government Construction Strategy (GCS) and the Infrastructure Cost Review. It provides the “should cost” capability1 that is an essential component of the new procurement models being trialled as part of the delivery of the GCS.

The key to this program is uniformity of standards and data integration and integrity. The notion of transparent costing and the papers raise very interesting concepts, and it will be worth evaluating the deliverables that this approach experiments with.



Monday, July 8, 2013

That ain't the way we do it

New Rules Don’t Fit: Council Questions City Engineer Selection Process
The city attempted to follow its new 2012 City Procurement Rules to update the city engineering services contract, but ran into a glitch with changes to the new rules. City procurement rules are required by state law; the city’s previous engineering contract is not in compliance with state law.

In the past, “we had experience with one person doing everything,” Councilor Bill DiMarco said. “Now with the new state rules and with our procurement rules, those are probably two different jobs, and maybe we can’t wisely or even legally do that anymore.”

The Sewer and Streets Committee formed a City Engineering Request for Qualifications (RFQ) Selection Committee to review the RFQs submitted. Each committee member was tasked to review the RFQ proposals and score them based on preset criteria. The committee would then forward the top two scoring proposals to the Council for consideration.

Based on scoring results submitted by four of five committee members, the top two scores were HBH Engineering with 729 out of 800 points followed by Westech Engineering - the current city engineer - with 630 points.

DiMarco’s understanding of this RFP was that it was to hire a plain city engineer, whose job is separate from project manager, state negotiator or state facilitator. “My impression is that it is not wise anymore to combine them in one person,” he said. “Westech is very highly regarded,” dissenting evaluator and Councilor Christensen said. “I would like them to be the engineer on record and do the sewer project.”

Councilor Randy Nelson did not feel comfortable letting a handful of people on a committee make an important decision like this for the City Council. “I want to know how we got there and what we can do legally to change it if we can,” Nelson said.
The Council tabled the topic until July 23 to give councilors a chance to review the scoring process and seek legal counsel.
Adjustment to open, fair and competitive procurement processes is a large pill to swallow for those accustomed to calling the shots.