Centralized Procurement: Theory vs Practice

In theory, theories work.  In practice, they often do not.  Whether practice does or does not comport with theory is often dependent on the vision the theorists have and convey vs the commitment and practices the practitioners decide to use to implement the theory. "'Tis many a slip twixt cup and lip", as they say.

The following is yet another example of a good idea gone wrong because it was gleefully exaggerated and politically oversold. Implementation requires good management, but so does planning. If you plan for the unreasonable, no amount of good management will get you to the final vision.

Cabinet Office did not get departmental buy-in for shared procurement plans, says spending watchdog

The UK government’s attempts to reform central buying through the Crown Commercial Service (CCS) was launched in April 2014, bringing in staff from the Government Procurement Service, with a mandate to buy common goods and services directly rather than simply creating frameworks for departments to use.

But a new report by the National Audit Office ("NAO") says the Cabinet Office was too reliant on this mandate, and “severely underestimated the difficulty of implementing joint buying across government”.

Cabinet Office underestimated difficulty of procurement reform, say auditors

In theory, central buying should achieve very large savings, the NAO said. But it was not clear what spending should be centralised. It said the Cabinet Office relied on a Cabinet committee mandate to get departments to transition services quickly, and did not consider how it would manage them once services were transitioned.

Overall, the CCS has not achieved its ambitions, which the NAO believes were not realistic. The Cabinet Office’s plan to create the service “wrongly estimated both the activities and the amount of goods and services that were appropriate to be bought centrally.” Auditors recommended that the Cabinet Office should reiterate the mandate for CCS in central government, and set clear expectations for those departments yet to transfer their buying of common goods and services to CCS.

Auditor general Amyas Morse said that without a sound overarching business case or a detailed implementation plan, it is not surprising that the Crown Commercial Service rapidly ran into difficulties. “It is particularly disappointing that the Cabinet Office has not tracked net costs and benefits,” he added. “Because of this, it is not possible to show that CCS has achieved more than departments would otherwise have achieved by buying common goods and services themselves.”

CCS centralised buying in the public sector isn’t working yet, but worth pursuing

Something’s not working somewhere. CCS was set up in 2014 with an objective of saving £3.3 billion in procurement spend by 2018. For the 2015/2016 period, it’s claimed that £521 million of savings can be attributed to CCS. Some £12.8 billion of spending by central government and public sector organisations uses CCS frameworks for the deals.

But the NAO concludes that it’s impossible to tell whether those would have occurred anyway without transferring buying responsibilities to CCS. In addition, these claimed savings were calculated on a different basis and are not directly comparable to the planned net benefits of £3.3 billion over four years. Most damning of all the criticisms is the one that states that to date CCS hasn’t actually done the job it was supposed to do.

The NAO goes on to suggest that a significant problem for CCS was lack of consistency of data and no common understanding of what can and can’t be centralised:

[CCS] did not have consistent information on what departments spend and there is no agreement with departments about what should be centralised and what should be bought locally. The Cabinet Office’s estimates of the common goods and services suitable for centralisation have varied from £8 billion to £15 billion. For example, all departments buy information technology, but many of these contracts are strategically important to the department and hard to specify centrally.

With all that in mind, it’s hardly surprising that the NAO report notes that “from the start there was a rapid erosion in departments’ confidence in CCS” and that by 2015 the programme was “widely acknowledged to be in difficulty”.

Leaping to the defence of the Cabinet Office, John Manzoni, chief executive of the Civil Service, says:

The Cabinet Office will always set ambitious targets for the work we do right in the heart of government. CCS has made huge strides in recent months, and we expect to see more and more savings as the changes we make take hold across departments. From the centre we will increase skills and bring in the talent needed to make sure every penny of taxpayers’ money is used to its absolute maximum.

That’s a pretty standard reaction to criticism from ‘Sir Humphrey’, coupled with a a mile-high statement of direction from the centre, but it doesn’t address the problems at hand.

CCS’s current management does not consider [CCS original] plan to have been achievable as it thinks the plan wrongly estimated the amount of common goods and services appropriate for centralisation, and the buying services which should be undertaken centrally. CCS’s current management also believe the original plan did not adequately define the activities that customers would still need to carry out.

For all its criticism, the NAO admits that the “strategic argument for joint buying remains strong” and that the right structures and management is now being put in place. Since launch in 2014, only four of the original 11 board and senior management team at CCS have stayed in site. But the second half of this year has seen CCS bring on board four senior managers with “significant operational experience”.

[The author of this article, Stuart Lauchlan, offers his take:] Any kind of significant reform in government is going to take time, dedication and a willingness to challenge the status quo. Making bold policy declarations isn’t enough in its own right. One of my favourite phrases here is that of the political will meets the administrative won’t. That demands strong and coherent leadership from the centre and that’s something that undermined CCS in its early days.

My take: When even the best laid plans of mice and men oft go awry, sketches of plans and lofty marketing almost always certainly will.

Divided we fall -- the Uniformity principle

A core principle, if not a pillar, of an effective procurement system is uniformity.

This principle is illustrated in the American Bar Association's Model Procurement Code, which calls for appointment of a Chief Procurement Officer. (MPC § 2-201.) It is the duty of the CPO to "procure or supervise procurement of all supplies, services, and construction needed by the" jurisdiction, and to "ensure compliance with" the procurement law and regulations of the jurisdiction. (MPC § 2-204(3).)

The MPC Commentary explains its rationale: "State and local public procurement systems are the means through which critical and strategic services, supplies and construction are purchased to support essential public functions. To operate effectively, it is imperative in those systems that there be central leadership to provide direction and cohesion. The Code’s drafters, in creating a central procurement official, do not intend to promote the idea that the day-to-day procurement functions must be performed directly out of the central office. It is expected that the Chief Procurement Officer will freely delegate his or her authority...." (Commentary to MPC § 2-301.)


This centralized authority is expected to make sure there is a common approach, "direction and cohesion", to procurement across all divisions and departments of a jurisdiction. It is an application of the old saying, united we stand, divided we fall, to the integrity of the procurement process.

The U.S. state of Maryland is, as suggested in the following article, having trouble coming to grips with that notion.

Procurement clash may be coming

First, the good news: Gov. Larry Hogan last week created a 19-member commission to come up with ways to fix Maryland’s maddeningly inefficient system for purchasing $7 billion worth of goods and services each year.Here comes the bad news: This group may wind up trying to re-invent the wheel because state legislators appear ready to pass legislation, based on three years of study, that could dramatically change state purchasing practices.

There’s no doubt Maryland’s now-antiquated and creaky procurement system needs an overhaul. What once was a national model in the 1980s for sensible and effective state purchasing practices is now a costly embarrassment.

Comptroller Peter Franchot has been on the warpath for years complaining about this “increasingly unworkable” and “broken” purchasing system “in dire need of reform.”

Lawmakers, especially Del. Dan Morhaim of Baltimore County, have been pushing for procurement reforms, too.

So why are the executive and legislative branches unable to synchronize their reform efforts? Hogan, on his part, appears to want full credit for any changes. He’s hesitant to work with legislators and seems to have ignored the extensive work already completed on procurement reform.

here’s a lingering sense Republican Hogan wants nothing to do with anything initiated by Democratic Gov. Martin O’Malley, whom the current governor has indirectly criticized time and again while announcing his own reforms. Yet it was O’Malley who first took steps to revamp Maryland’s procurement system.

Back in 2012 O’Malley asked the Board of Public Works “to bring someone in to kick the tires” of the purchasing system. “We need to pull this apart and put it back together.” The board contracted with Treya Partners for a thorough study of Maryland’s procurement activities.

The consultant found fragmented oversight of procurement bidding and the ultimate awards, with multiple state agencies setting their own standards and procedures; conflicting and inconsistent interpretations of procurement practice; lax contract management; and poor relationships with state vendors.

Treya made 11 recommendations. After studying these proposals in 2014 and examining procurement laws in other states, the Department of Legislative Services backed many of Treya’s suggestions and added some of its own. Among the main recommendations to lawmakers: Create a Chief Procurement Officer (CPO) under the Board of Public Works and consolidate most procurement officials spread throughout state government under the CPO.

State purchasing would be centralized, uniform processes would be followed consistently and one official would be accountable for ensuring that Maryland gets the best deal and the best quality for dollars spent on services and supplies. It turns out Maryland is one of only a handful of states lacking a Chief Procurement Officer.

None of this is reflected in Hogan’s announcement. Nor is there any recognition that Democratic lawmakers are ready to turn into law many of these procurement recommendations.

Read more at the article link above.

Procurement reforms du jour

Scotland.  Local preference and training.

Scottish procurement reform bill sent to Parliament

Changes to public procurement rules in Scotland that will make it easier for small businesses to bid for public contracts have moved closer, as a reform bill goes to Parliament. The Procurement Reform Bill sets out how European legislation will be interpreted and put into practice in Scotland.

First minister Alex Salmond said the bill would generate new training and employment opportunities. The Bill will require public bodies to consider how procurement activity can improve the economic, social and environmental wellbeing of local communities.

“Our Bill here in Scotland will give Parliament the opportunity to go further than Wales, by taking the power to regulate how companies are selected to bid and how their suitability should be assessed,” he said. “These regulations will address blacklisting, working within the framework of EU law.”

Namibia.  Centralization and effective review.

Namibia introduces legislation as part of procurement reform

The country seeks to streamline large public sector procurement, help SMEs and reduce loopholes.

Namibian procurement reform edges closer

The Public Procurement Bill would create a Central Procurement Board to centralise the management of high-value contracts across the public sector, while a review panel would give aggrieved bidders a route for redress without having to go to the courts.

Minister of finance Saara Kuugongelwa-Amadhila said as she tabled the bill: “The intention is to provide for the speedy resolution of such complaints, which will minimise the frequency of bidders’ recourse to court actions.”

The bill also seeks to stimulate economic growth by giving preference to local businesses and socially disadvantaged groups, according to the state-owned New Era newspaper.

The new law also repeals the Tender Board Act of 1996, which is described as “no longer sufficient or adequate to achieve the country’s developmental objectives”.

Unlike the tender board, which dealt with almost all public sector contracts, the new board would only deal with contracts over a certain threshold value, with lower value contracts dealt with by the public body concerned.

Singapore.  Integrity enhanced.

Trust in public service crucial to success of govt policies: PM Lee

Singapore Prime Minister Lee Hsien Loong has emphasised that a major determinant of success in implementing government policies that improve the lives of people is trust in the government, and in particular, the public service. He said it is important that Singaporeans trust that the government understands their needs, is committed to the people, and will remain a steward of the public good.

He said: "Ultimately, integrity is not about systems and processes but values. The government must have a culture that doesn't tolerate any wrongdoing or dishonesty and the public officers must have the right values -- service, integrity, excellence -- and each officer and the service as a whole must take pride in being clean, incorrupt. "This is your command responsibility, you cannot devolve it to your subordinates, you cannot leave it to your procurement or financial officers. You are the boss, you are in charge."

Mr Lee also stressed that critical to maintaining public trust is upholding the highest standards of integrity -- something which has been painstakingly built up over many years. Mr Lee said because there is integrity, businesses can compete fairly instead of relying on improper influence. And because there is integrity, public officers can be given the discretion to exercise judgement when managing multi-million dollar projects.

The Prime Minister emphasised that one reason why Singapore has been able to maintain a clean system is that it pays public servants properly in line with the quality of the officers and the value of their contributions. He stressed that this policy will continue. In return he said, Singapore insists on the high standards of performance and integrity, and if an officer is discovered to have been dishonest, he will be punished to the full extent of the law.

Mr Lee said this principle will be maintained even when it may be embarrassing to the government. Mr Lee acknowledged that the past year has seen a string of high-profile cases involving public officers, including some senior ones in sex for favours scandals, procurement lapses and fraud cases.

He said beyond these individual cases, the public service must strengthen its systems to uphold reputation for integrity and incorruptibility, and dispel any doubts that standards have fallen. Head of Civil Service, Peter Ong, said Mr Lee's presence at the annual seminar was a clear demonstration of the type of leadership he is encouraging public sector leaders to show - that is to lead by example and model the right values for staff.

Singapore officials to declare casino trips after graft scandal

Singapore civil servants must declare casino visits starting Tuesday, authorities said, months after a senior anti-graft official was charged with embezzling state money to fund his gambling habit. Civil servants must declare within seven days if they have visited the city-state's two casinos more than four times a month, or if they purchase an annual pass that allows unlimited access, the government's Public Service Division (PSD) said.

Government officials in certain positions where "misconduct will have significant reputational risk to the Public Service" must declare every visit within seven days, it said in a statement. Singapore pays its civil servants some of the highest government salaries globally in what it says is a deterrent to corruption.

Civil servants involved in gaming enforcement as well as others who represent the government in business dealings with the two casino operators will remain barred from visiting the casinos unless in an official capacity.

The agency said it was also bringing in compulsory job rotations and block leave for some officials holding positions that "are more susceptible to being suborned and exploited if the incumbent were to remain in the same job for too long". "Officers are expected to maintain the highest standards of personal conduct and integrity, and their actions must not bring the Public Service into disrepute or call into question its impartiality," PSD said.

The move follows a string of high-profile corruption cases in the city-state, including one involving Edwin Yeo Seow Hiang, an assistant director at the Corrupt Practices Investigation Bureau (CPIB), the country's graft-busting agency. Large-scale graft cases remain rare in Singapore, a thriving business hub and financial centre, and the government has jealously guarded its reputation as among the least corrupt in the world.

New Zealand.  Uniformity.

New government procurement rules come into effect

The new rules replace 44 different pieces of legislation, Cabinet directives and miscellaneous guidance released by a multitude of government agencies over many years. The emphasis will shift from who can deliver the lowest upfront costs to who can deliver the best value for money and other direct financial benefits over the life of a contract.

“By... making the tendering process consistent across the public service, we expect to make our procurement business more accessible to smaller local firms who previously may have been discouraged by the process,” Economic Development Minister Stephen Joyce said in April when announcing the changes.

The new procurement rules will apply to all Public Service departments, the New Zealand Police and the Defence Force. Other State Sector agencies and the broader Public Service will also be encouraged to adopt them.

Centralization, accountability key to UK procurement reform

Procurement "still needs a culture shift"

The coalition's new procurement strategy is the most coherent approach to reform yet and has resulted in savings but the government is failing to save as much as it could through centralised procurement, according to a report from the National Audit Office (NAO).

The NAO said that since 2010 there had been signs of good progress in key areas, such as expenditure on common goods and services and participation by small and medium enterprises (SMEs). Also, the creation of a Chief Procurement Officer and other posts had formed clearer lines of responsibility and the Cabinet Office has a much firmer grip on procurement expenditure. The NAO agreed that savings had amounted to around £426m in 2011/12.

However, the report highlighted ineffective governance structures, unrealistic targets, incomplete data and weaknesses in contract management. These "operational issues" meant that the centralised approach was not releasing procurement resources in departments as originally expected.

NAO head Amyas Morse said: "The Cabinet Office will have to lead a major cultural shift across government if the centralising of buying goods and services is to deliver the significant benefits on offer.

"There are signs of real progress, but the success of the reforms cannot depend on whether departments choose to cooperate. Departments must commit as much of their procurement expenditure as possible to central contracts and the government procurement service must be held accountable for its performance."

"Two and a half years after the government committed to centralising public procurement, individual departments are still too often doing their own thing," said Jim Bligh, CBI head of public services reform. "We need to see strong leadership from the Cabinet Office to drive a culture shift across the whole of Whitehall, highlighting the benefits of bringing procurement under one roof."

Bligh added: "High quality procurement can be an important driver of growth and although the government has made some progress in using more SME suppliers, it needs to create more opportunities for smaller businesses directly and through supply chains."

Richard Bacon, a member of the public accounts committee, said the Cabinet Office was making some real progress in improving government procurement, adding that big names do not necessarily mean best value.

Massachusetts Town Procurement Officer turfs it out with Public Schools

CAVEAT: Be sure to read the FOLLOW UP added below 10 Feb. 2012 (Guam time).

Cast of characters:
Town Manager, Francis T. Crimmins, Jr
Acting Chief Procurement Officer, Lindsay Pope
Superintendent of Schools Dr. Marguerite Rizzi

Procurement Divides Town and School Department

Town Manager, Francis T. Crimmins, Jr, who serves as chief procurement officer for the town, has sought to tighten procurement policies and centralize purchasing for all departments in town, the schools included.

As stated in a memo Crimmins sent to all department heads, boards and committees on December 7, 2011:

Section C4-2(H) of the Town Charter states that the powers of the Town Manager are “To purchase all supplies for every department of the Town, except books for the schools or the public library. He may delegate the responsibility to purchase supplies to an authorized representative and may revoke such delegation at his will.”

According to a memo issued by Acting Chief Procurement Officer Lindsay Pope:

Awards for bids, proposal openings, and request for quotes must only be given by the Chief Procurement Officer (CPO) designated through the Inspector General’s Office by the Town in order for that procurement to be valid. If a procurement is not valid that procurement cannot be paid for or acquired in any way using public funds.

The schools have not complied with these efforts, town officials say, and therefore are in violation of state law. Pope points to multiple violations, the most recent being a bid opening for a $400,000 to $600,000 roof at the Jones School.

But the schools say this simply isn’t the case.

“The School Committee has particular rights,” Superintendent of Schools Dr. Marguerite Rizzi told reporters during a recess at Tuesday’s Board of Selectmen meeting.

“The Town Manager wants to take over the entire process…it’s unnecessary, unfortunate, [and] in the end he’s not going to prevail.”

The School Department has had procurement powers since 1990, Dr. Rizzi said.

“The charter does say [the Town Manager] can revoke procurement,” Dr. Rizzi said. “There was no need to do that. He didn’t need to get the Procurement Officer involved, but he did.”

Crimmins, in separate documents dated December 6, 2011—the day prior to issuing the aforementioned memo—delegated procurement powers to Pope and to town accountant William Rowe. On December 6, Crimmins also revoked the procurement powers of the Superintendent of Schools and the Deputy Fire Chief. The following day, Crimmins delegated limited procurement powers to Dr. Rizzi.

Pope wrote: “This is a problem that has now elevated to knowingly breaking the law and must be solved immediately.”

“The Superintendent of Schools is under the impression the laws don’t apply to her,” Crimmins said. “Don’t blame Lindsay Pope, she’s trying to make it right.”

Dr. Rizzi took exception to these claims: “I somewhat take umbrage at the implication that anyone in the School Department does not respect the trust that has been given to us. There are no improprieties.”

Since beginning this blog and taking note of stories like the above, I have been amazed that Guam can get its procurement law so much more right than many on the Mainland. Sure, it is followed more in the breach than the execution, but that is changing.

Under Guam's centralized procurement regime (5 GCA §§ 5120, 5125), modeled after the ABA Model Procurement Code, the Department of Education and other agencies must rely on the Chief Procurement Officer to conduct procurement of supplies and services, and on the Director of the Department of Public Works to procure construction.

The CPO has authority, as apparently does the Town Manager here, to delegate and revoke or condition and limit procurement authority.

Unfortunately, the actual autonomy and authority of Guam's agencies, like the School Department in the story, has been shrouded in lore and practice, in violation of the law. That, again, is changing, particularly since the successful seminar sponsored by the Guam Chamber of Commerce, Judiciary and Bar Association last fall. See the program outline here.

It has also been painful for the agencies who have been forced to give up some of their unearned turf, and more painful for some who have ignored the procurement law to their peril. Guam has a "ENFORCEMENT OF PROPER GOVERNMENT SPENDING" Act, which allows a resident taxpayer to enjoin or seek personal damages against any official, including the Governor, "from expending money without proper appropriation, without proper authority, illegally, or contrary to law" (5 GCA § 7103).

There are cases pending.


FOLLOW UP: In any government contracting controversy, the first point of call should be, does the controversial agency have the legal authority to engage in the particular type of acquisition in question? For instance, a critical exam of Guam's procurement authorities reveals a crazy-quilt of authorities, with some agencies having no direct authority to procure anything, some able to procure supplies but not services, and others supplies and services but not construction.

The case described in the story above seemed to suggest that the school board had no authority to procure the construction work in question there; that the Town procurement officer had that authority. There are new stories emerging that suggest that may not actually be the case; that the school no longer has that authority, but at the time it was exercised it did. Either way, the purpose of this blog is to treat reported stories more as hypothetical case studies than actual factual situations, and for a student of procurement, case studies, factual or fanciful, are ideal way to issue spot and analyze.

Stoughton school board chairwoman wants apology over bidding battle

The drama between school and town officials continued this week when the school board chairwoman said she wants a public apology after town officials acknowledged the School Department was within its rights to award a bid for the Jones School roof project.

The project was filed before the town adopted a design selection policy in March 2011, so is grand-fathered.

Read more: http://www.enterprisenews.com/topstories/x50589969/Stoughton-school-board-chairwoman-wants-apology-over-bidding-battle#ixzz1lu7iD5k1

For those needing more factual details of the school roof controversy, see SNYDER’S STOUGHTON: Schools look for apology

The difference between government acquisition and procurement

(Note:  Given I get a lot of hits to this article, let me clarify that procurement and acquisition are each defined in terms of the other.  The ABA Model Procurement Code defines the term "procurement" in terms of the "acquisition" of something (see, e.g., Guam's Model Code enactment at 5 GCA § 5030(o)). The FAR defines the term "acquisition" (see Subpart 2.101 (b), "Acquisition") and then discusses acquisition in terms of a procurement; it's definition of "procurement" in that same subpart says simply,  “Procurement” (see “acquisition)". 

Without being pedantic about it, I use the terms with a nuanced difference detected in the common parlance:  acquisition is purchasing something without the trappings beyond mere contract law, but procurement is a formalized process, typically infused with a regime of accountability, transparency, due process, financial controls, and other trappings associated with bureaucratic, if not necessarily governmental, purchasing.  My use of the two terms here is more of the common connotations, not the technical.)

Government can acquire its needed construction services or it can procure them. This is an example of how a government simply acquires them:

Auditors Find Rampant Problems In Highway Construction Inspections

This report is a follow-up to a July audit that detailed potentially criminal, ethical and contracting violations in the [Maryland] State Highway Administration's Office of Construction.

auditors uncovered a contracting system that had few rules of its own and skirted existing law.

Contractors often used creative accounting to transfer unspent funds between different projects. Meanwhile, the construction inspection office did not maintain any documentation of what contractors were supposed to do, and had no standard method of estimating how much different projects should cost.

Contracts were often extended and modified without the required step of getting Board of Public Works approval, and new contracts were often awarded when there were still contractors doing work.

Maryland is broken up into several regions by the State Highway Administration, and construction services inspection contracts are given to people and agencies who will do inspections in a region for a fixed amount of time. State procurement law states that money can only be spent on the contract for which it was approved.

Auditors found that contractor were often involved in performing inspections in several areas, and tended to move the money they received between areas to cover for funds that ran out. For 10 contracts auditors looked at, nearly a fourth of all funds - about $11 million - were spent on different projects.

Contracting staff told auditors that this kind of borrowing funds was an accepted practice in their office. Myers said that this procedure is not accepted anywhere else, and he cannot recall finding another department doing this in other audits.

Auditors also found that administration staff also unilaterally extended contract times, never bringing any of the contracts to the Board of Public Works. The reason that contracts would be extended, the report states, is so unspent money in the contracts could get spent. About $26 million spent through unauthorized contract extensions should have been returned to the state for other needs, auditors wrote.

Construction inspection services contracts were often missing several critical pieces of information that could be used to ensure the state was getting its money's worth. Auditors found that contracts had no scopes of work - detailed lists of tasks that must be done under the contract.

Office of Construction personnel told auditors that the contracts were detailed enough, and putting together a scope of work for each one would be cumbersome. Auditors disagreed on both counts.

Auditors also found that there was no single way to determine the maximum amount that a contract could be worth. Auditors examined four contracts worth $34 million, and asked the office for documentation backing up the money spent on each. No sensible documentation was provided, and different employees gave completely different methods of trying to estimate the costs.

The office sometimes gave inspection contracts for an area to multiple contractors. Auditors found that far too many contracts were given for no reason. One area had $15.4 million unspent on inspection contracts, and received Board of Public Works approval for another $16 million. Another area had $36.5 million in unspent contracts floating around, and received Board of Public Works approval for another $10 million.

Auditors received no justification for these initial contracts, and reported that the office never reported the amounts of other pending contracts to the Board of Public Works.

This is quite remarkable -- and ironic -- since Maryland was an early adopter of the ABA Model Procurement Code and seemingly had implemented it statewide. It just goes to underline the importance of properly implementing the system that is actually adopted.

Making procurement reform the law of the land in India

REMINDER: Most articles posted here include only excerpts, sometimes rearranged to suit the blogger. You should thus refer to the original article for complete authenticity.

Public procurement needs an overarching framework to be fair

The objective is to create a system founded on transparency, competition and objective criteria in decision-making that is effective in preventing corruption. They clearly spell out that the cornerstone principles of open, transparent and non-discriminatory procurement based on open competitive bidding are the best tools to achieve value for money and quality benefits as it optimises fair and equal competition.

However, there is no national law exclusively governing the public procurement of goods. Public procurement is regulated through a series of executive directives, mainly instructive in nature. Instructions issued by the Central Vigilance Commission (CVC) also supplement the regulations. The practices are administered by government agencies, who may issue more detailed instructions in conformity with the GFR.

An overarching framework will provide government agencies with a yardstick to review procurement norms and it would do well to take into consideration the following recommendations.

First, a public procurement law should be promulgated at the Centre and in each state to cover the objectives of government procurement, substantive procedural requirements to achieve them, debriefing of unsuccessful bidders, publication of contract awards, an appeal or challenge mechanism and post-award contract execution such as bid security, performance security, maintenance contract, advance payment, etc.

This should be complemented by a set of national regulations enshrining the five fundamental principles, namely, open tendering through effective advertisement; non-discriminatory tender conditions and technical specifications; public tender opening; bid evaluation based on pre-disclosed criteria and methodology; and selecting the most advantageous bidder without any negotiation on price or any other term.

Also, there should be provisions for institutionalising 'integrity pacts' or any other enforceable integrity condition as a legally-binding ethical code of conduct to govern the procurement cycle. This needs to be buttressed by provisions penalising violations of the pact's terms and conditions. The steps of decision-making on public procurement should be available for public scrutiny.

It is important that information be provided after the award of the contract on matters such as nature and quantity of products or services in the contract, name and address of the winning tender, value of the winning award and the highest and lowest offer taken into account in the awarding of the contract.

Besides, it should be highlighted in law that alternative methods of procurement such as direct contracting, single-source procurement, limited tendering, etc, can be adopted only where justified, fully explained, documented and, thus, available for public review.

A domestic bid challenge system should be created, giving aggrieved suppliers a right of recourse to an independent quasi-judicial domestic tribunal like a public procurement tribunal, outside government control, to whom bidders can appeal an award decision.

Lastly, the procuring authority should legalise e-procurement. Since corruption thrives in the absence of transparency, there should be an emphasis on facilitating information accessibility through modern procurement methods.

Public procurement is a multi-step process of established procedures to acquire goods, works and services by a government entity. It involves the full cycle through need assessments, process design and bid-document preparation to the awarding and execution of contracts and the final accounting and auditing of a completed contract.

Government procurement provides a fertile ground for private distribution of largesse and having credible procedures and practices can significantly reduce corruption. Therefore, it is critical that reforms in the procurement regime are fast-tracked to ensure that principles of integrity, transparency, accountability, fairness, economy and efficiency are vigorously applied in all public investments and purchases.

Procurement controversies -- Guyana

Public accounts head berates gov’t over procurement commission Published - Friday, November 19, 2010

Government’s failure to submit their nominees for the Public Procurement Commission (PPC) was cited again as the National Assembly yesterday adopted the report of the Public Accounts Committee (PAC) on the public accounts of Guyana for 2006.

Chairman of the PAC, Volda Lawrence noted that the PPC is an important body in securing and procuring items and must come into being. She pointed out that the Constitution – 10 years ago – says that there must be one.

Lawrence said that the government has shown no interest in bringing the PPC into being and this failure has stymied the work of the PAC. A problem arising out of the non-existence of the PPC is the non-compliance of Ministries and agencies at various levels with the public procurement Act and the breach of tender board procedures particularly the splitting of contracts, Lawrence said.

She noted that that many of the issues highlighted in the 2006 report have been overridden by time and events. Lawrence said that there continued to be various levels of non-compliance with the existing tender board regulations relating to the procurement of goods and services and undertaking of works, both capital and current, by some agencies. She cited that Ministry of Public Works, the Ministry of Education, the Ministry of Home Affairs, the Ministry of Health, the Ministry of Legal Affairs and Regions, Three, Seven and Ten as those who disregard the Public Procurement Act.

Another “perpetual problem” is overpayment to contractors, Lawrence said. “This practice continues unabated. We are yet to hear of any Ministry or agency receiving a successful judgment against a single contractor or any officer being surcharged or disciplined for making substantial advances or payment upfront to contractors”. She said that the PAC has concluded after interviewing several accounting officers and staff of various ministries and agencies that “there is collusion between staff and contractors to defraud the Guyanese people of large sums of money”. Reading from the report, she said that: “The PAC recommends that officers and consultants who affix their signatures of completion in which overpayments are found should be sanctioned or surcharged where necessary”.

Commentary: It might be noted that the Guam Procurement Policy Office is the central authority for GovGuam procurement policy matters, with sole power to promulgate procurement regulations. It was established in 1983 when the Procurement Act was first adopted. See 5 GCA § 5102.

To my knowledge the Policy Office has instigated only one policy act, being the initial adoption of the Procurement Regulations about 25 years ago. Since then, it appears that there has been no constitution of the Office and no further policy consideration or implementation, notwithstanding other significant developments to Guam procurement law.

Procurement reform -- India

A procurement policy to curb corruption soon The government is working on a new central public procurement policy to bring transparency, curb irregularities and corruption.

The policy aims to plug the inconsistencies in the government purchases as there is no uniformity in guidelines.

he procurement of services will also be part of the new policy for engaging experts on contracts instead of permanent employment involving salary, service benefits and pension to avoid a big drag on the government's economy.

The services are sought to be procured in the PPP (Public, private partnership) mode. So far there are absolutely no rules for hiring experts and others for providing services.

He points out that many countries have such a policy in practice for many years while it is for the first time when India is drafting a foolproof policy.

Raman gives credit for the whole idea to Central Vigilance Commissioner Pratyush Sinha who wrote to the Cabinet Secretary in February, stressing need to put in place a comprehensive public procurement standards in India with a single authority to handle the task.

There will be, however, no centralised procurement, clarified M Raman, who has prepared a concept paper on the draft public procurement policy before laying down the office as the Director General of Supplies and Disposal (DGS&D) last month-end.

Officers who held a round of meetings on Sinha's suggestion, however, disagreed on the controls going into the hands of a single agency.

Raman's draft paper suggests a Central Public Procurement Law to cover purchases by all government departments and organisations and lay down rules for different type of procurements.

He has recommended two laws: A substantive law enacted by Parliament to lay down rights and obligations of the public procurement entities and a procedural law that may be laid down by the government, without going to Parliament, to specify the sector-specific rules and procedures for procurement.

The ministries can tweak the second but it should be "in complete concordance with the public procurement law, both substantive and procedural."

Is the economy of scale tipped against policy of competition?

Beveridge Report failed in its duty to Scotland, say top economists

Two of Scotland’s foremost economists have launched a damning attack on Crawford Beveridge’s Independent Budget Review for failing in its duty to consider Scottish economic development.

Writing in today’s Sunday Herald, they also rejected the logic of the four-year-old McClelland Report, the proposals of which have helped to concentrate Scottish public procurement into larger single contracts.

Geoff Mawdsley, director of think-tank Reform Scotland, broadly agrees with the Cuthberts’ views that local services and facilities would be better served by more dedicated contractors.

“We would like to see the devolution of power to local authorities so that they can decide how they manage their services more generally. Procurement is part of that. We want to see things driven from the bottom up rather than trying to force centralised procurement or efficiency savings from the top down.

“I don’t think that procurement should be restricted to Scottish companies, but this would likely be a natural by-product of a more local focus because you would end up with more competition.

“We have tried to force a one-size-fits-all mentality, assuming there’s one right way to do things. We have gone for a uniform approach where we should be looking for diversity.”

David Watt, director of the Institute of Directors Scotland, has some sympathy with the Cuthberts’ arguments but said there is a danger of oversimplifying the complexity of achieving optimum procurement for the good of the country.

He believes that the McClelland Report “very sensibly” suggested that the country would get better value for money by centralising procurement, but agreed that this tends to disqualify Scottish companies because they don’t have the scale to cope with the size of the contracts.

He said: “The question is, are we as individuals and as businesses prepared to accept some poorer value for money in order to promote economic development in the longer term? I don’t know the answer to that question. The Cuthberts are arguing there’s a case for doing that, but the media would crucify the Scottish Government if it went down that road.”

It might be noted that, on the other end of the spectrum from the disaggregation of contracts in the above case, there is a similar argument as regards the "bundling" of contracts under US Federal procurements. This is an ongoing debate going back, formally, to the late 1990's at least. (See, for instance, this 2002 article, which describes the legislative and regulatory framework.) A recent rendition of the debate is illustrated by the following article:

DOD now required to report bundled contracts, sole-source awards

Acquisition officials in the Defense Department now must post notices about bundled contracts and their benefits, according to a new interim rule.

DOD’s contracting officers are required to publish a notification on FedBizOpps.gov or any similar site at least 30 days before releasing a solicitation for a bundled contract

Contract bundling occurs when an agency combines several smaller procurements into one larger purchase. If a defense agency expects to reap measurably substantial benefits because of bundling, the notification must include the brief description of those benefits, the rule states.

The rule is based on a provision in the fiscal 2010 National Defense Authorization Act, which became law in October.

The interim rule isn’t expected to have a significant effect on companies, particularly small businesses. On the other hand, small companies may benefit in the end.

MORE:

Defense agency seeks 10 percent price reduction from suppliers

the Defense Logistics Agency is looking to its suppliers to help cut costs.

"First, we will pursue price reductions by as much as 10 percent in selected areas by providing greater focus on price reasonableness, incorporating price reduction factors in strategic sourcing opportunities and establishing more long-term contracts," said Vice Adm. Alan Thompson, director of DLA.

"The payoff from our pressure on pricing should be realized near term," he said.

Additionally, the logistics agency will upgrade its enterprise business system to consolidate procurement of depot-level parts and supplies for all the military services into a single contracting instrument. "This will allow us to make larger buys, which will be targeted at reducing costs," Thompson said.

As DLA leverages its buying power by consolidating purchases across the agency, some of its small business contractors might have to build relationships with larger firms, where they can function as subcontractors, Thompson said.

Of Gooses and Ganders

There's an old saying in culinary circles, "What's good for the goose is good for the gander". But maybe not so in the case of Hawaii's procurement administration.

The University of Hawaii houses the Hawaii Procurement Institute, in conjunction with the Hawaii State Procurement Office. The Procurement Institute describes its role and purpose this way:

The Institute operates as a "think-tank" for the development and analysis of state and local procurement policies, laws, and regulations. The Institute is a model for the United States and its Commonwealths and Territories to follow. The Institute offers conferences, programs, and courses geared to government officials, public and private legal practitioners, and students interested in keeping current in the practice and policies of government procurement. The Hawai‘i Procurement Institute is ready and willing to train public and private procurement personnel from all of these sectors about effective and appropriate procurement policies and contracting.

So, what does this model of procurement knowledge do when the procurement going gets tough? It opts out.

UH’s procurement privilege could release $337M

The University of Hawaii system will be exempt from following the state’s public procurement code, which it has largely blamed for its backlog of deferred maintenance and capital improvement projects, under a new law that takes effect July 1.

University officials say the exemption, effective for two years, will help the 10-campus system operate more efficiently and with greater flexibility in awarding contracts for goods and services, including construction work.

House Bill 347, which Gov. Linda Lingle signed into law May 6 as Act 82, allows the statewide public university system to come up with its own procurement process “in lieu of” the state procurement code.

The university system has pointed to the existing code, which requires larger contracts to be awarded through a competitive sealed bidding process, for tying up projects and increasing costs as a result.

Read more: UH’s procurement privilege could release $337M - Pacific Business News (Honolulu)

The online cite above is a good synopsis of the whole story that appears in the Pacific Business News, May 21, 2010 (Vol. 48, No. 12). The hardcopy offers more detail:

This was the sixth consecutive year that UH asked lawmakers for the exemption.

"Under this new law, the university is charged with creating a two-year pilot program to streamline the procurement process and provide us with greater flexibility", said UH system spokeswoman Jeanne Belding.

The state's procurement code stipulates how government agencies spend and receive money for contracted work for every type of purchase. For example, contracts valued at $50,000 or ore are required to go through a competitive sealed bidding process, while professional services must be procured through a process that requires the agency to develop a list of qualified individuals who then must go through a selection committee to negotiate a contract.

UH have objected to the process, saying it has increased its own administrative costs as well as costs for vendors that would do business with UH.

The State Procurement Office testified against the measure, saying that exempting UH would "not be in the best interest of government, the business community and the general public."

"The code establishes a time-tested, fair and reliable set of rules and processes for the award of contracts," said Aaron Fujioka, administrator of the State Procurement Office.

"The code should not be viewed as an obstacle to a purchasing agency's mission, but rather as the single source of public procurement policy to be applied equally and uniformly. If individual agencies are exempted and allowed to develop their own individual processes, it becomes problematic and confusing to vendors, contractors and service providers that must comply with a variety of different processes and standards.

"Fairness, open competition, a level playing field and government disclosure and transparency in the procurement and contracting process are vital to good government."

"The idea behind a uniform procurement code was that different government agencies do business a little differntly, and that can make it hard for outside businesses to know what the rules are," said Tim Lyons, president of the Subcontractors Association of Hawaii. "You need to know the rules before you put in a bid, and it's awfully hard to determine the rules, many of which have cost implications, if we're not all on the same page."

"What good is the code if only some agencies have to follow it?" he asked.

"If rule changes are needed, we should be looking at the code directly," Lyons stated. "I can't imagine that UH is encountering problems that all other government agencies aren't. They're not special."

The American Council of Engineering Companies of Hawaii also opposes the exemption for UH.

"We are, of course, generally in favor of measures that fast-track infrastructure spending. However, we remain strongly opposed to a wholesale exemption ... in the name of expedience," said National Director Janice Marsters.

"While the university may discuss a few cases involving procurement difficulties, they procure thousands of contracts each year under the current requirements, and a few difficult cases do not warrant a complete exemption."

Now here's where things get a bit interesting. Even the University of Hawaii's own Procurement Institute is on record as saying "exempting agencies from the Code will be unnecessary and, in the long run, potentially problematic for the administration."

COMMENT: Make no mistake: The nuts and bolts of procurement is hard stuff. But it should begin and end with the law, not "special" exceptions. If exceptions are necessary because, despite best efforts, the nuts won't fit the bolts, alter the whole system to improve the system as a whole, consistent with the common fundamental purposes and policies of public contracting.

Making exceptions only undermines the integrity of and confidence in the system as a whole.

I just can't get over the feeling (admittedly without knowledge of the facts of this situation) that the central issue in cases like this is a breakdown in management, particularly management planning, which is number one of the four classic pillars of management: planning, organizing, leading, controlling.

Hawaii is an ABA Model Code jurisdiction, as is Guam. One of the core policies of the code is the "Policy in Favor of Planned Procurement". Most other policies deal with competition, transparency, accountability, fairness and the like. The planning policy focuses on the nuts and bolts.

Planning policy doesn't get much practical emphasis in the Code. But that should not be the benchmark of its core importance. Although not an especially "legal" subject, it must receive at least equal importance from management, whose business and supposed expertise is to manage.

No matter how fair, transparent and accountable a system is, it is worthless if it is not effective. All of those objectives must be met, and it is a red herring to bleat on about fair, transparent and accountable if the agency is not willing to tackle and overcome the planning objectives which any good management system must have.

What's good for the goose must be good for the gander.

Tennessee procurement reform

Panel approves procurement bill

Legislation overhauling the way state government contracts for the purchase of up to $25 billion in goods and services has been approved by the Senate State and Local Government Committee.

The legislation, Senate Bill 3598, sponsored by Senator Bill Ketron, R-Murfreesboro, is designed to implement cost saving strategies taken from the best practices implemented by procurement officials nationwide.

The bill uses information contained in a State of Tennessee Procurement Assessment showing state authority for contracting is divided with one path for procuring goods and routine services and another path for the purchase of professional services.

Each path has its own rules, players, decision makers, databases, technology, policies and staff. Without a single entity in charge of or accountable for statewide procurement spending, there is currently no easy way to manage a coherent, comprehensive, statewide cost saving strategy for procurement.

The report also said it was confusing for vendors to do business with the state due to inefficient and redundant processes.

The proposed legislation would combine procurement of goods and services for the state into one central office housed in a department to be chosen by the governor. The governor would also appoint a single Chief Procurement Officer who has extensive qualifications and experience in contract administration to head the agency. The Chief Procurement officer would lead a staff of 88 well trained professionals to carryout the function of procurement management, contract management, contract compliance /quality assurance, and vendor customer relations.

An Advisory Council for State Procurement would be established to provide counsel to the new agency, replacing the present Board of Standards and Review Committee. It would consist of representatives from state agencies, the legislative branch and those with expertise from the vendor community.

COMMENT: I have been advocating that Guam also constitute an Advisory Council composed of knowledgeable broad procurement industry representation from public and private participant groups. The concept of and recommendation for an Advisory Council is provided in the ABA Model Procurement Code.


FOLLOW UP: Wilson: Streamlined purchasing will save taxpayers money

Thankfully, the General Assembly recently approved legislation sought by my office that will simplify and streamline the purchasing process.

The new law, which was approved with strong bipartisan support, requires the purchasing of goods and services to be combined under the oversight of one office with a single leader.

The law requires policy decisions to be made in one place - with strategic planning - after input has been received from state agencies and vendors.

The law also requires more emphasis on professional development and training for employees and for qualified vendors involved in the procurement process.

This is not revolutionary; Georgia adopted similar reforms five years ago. Those reforms have already saved Georgians tens of millions of dollars.

There are several ways we should be able to save money under the new law. A fairer and simpler system should encourage more vendors to participate, which should help drive down the prices we pay for goods and services. Also, centralized purchasing will allow us to purchase items in greater quantities, which can help us negotiate price discounts.

It will not be easy to match Georgia's cost savings in Tennessee. Vested interests here, particularly those that have been benefitting from our closed system, resisted the legislation and will throw up roadblocks to the changes that we will be making.

Making the new system work will take leadership and vision. Real change does. But we will save the taxpayers money.

Best of all, we will inject fairness, opportunity, competition and accountability into our purchasing system.

And shouldn't that be the bottom line?