As important as government and private sector procurement methods have been in the past, it is likely to become even more important in the future.
The reasons are partly demographic and partly the result of a huge infrastructure deficit that results from years of deferred maintenance replacement.
I predict the continuing rise in population will create a greater demand for additional government and private sector infrastructure.
No matter which party wins the upcoming U.S election this Nov. 5, I can see a large investment in infrastructure by both parties for vastly different reasons.
Also, taking into consideration the demand for expertise in the construction industry, coupled with a shortage in skilled labour, it creates a greater need for skilled purchasing people.
The negotiation of major projects by procurement can be the largest saving opportunity for any organization on an ongoing basis.
Over the next 20 years, Canada will add the equivalent of a city the size of the Greater Toronto Area to its population base.
In addition to the pressure resulting from population increase, there is a growing need for infrastructure because many government capital facilities that were built in the 1960s, ‘70s and ‘80s are now beginning to come to the end of their useful life and will either need major refurbishment or replacement soon.
Much of the infrastructure that will be required over the coming years will either be built at the municipal level or will have a substantial municipal component.
Key projects in most of the major cities across North America are likely to include waste disposal facilities, water pump and treatment works, sewage treatment facilities, road and airport upgrades, installation, upgrades and expansion of rapid transit systems of various kinds, as well as many others.
Moreover, much of the public expenditure that will be undertaken in other parts of the broader public sector (including schools, universities and hospitals) will have important municipal implications.
Many of these types of projects will be built using several types of construction such as design-built-finance-maintain (DBFM) contracting.
Many purchasing managers in today’s construction markets are skilled in this type of procurement process and can bring a great deal of expertise to these types of construction projects.
The DBFM approach is an extension of the DBOM project delivery method in which the contract team is also responsible for securing the financing of the deal and takes the risks of financing the project during the term.
Under the DBFM arrangement, a construction consortium of designers, builders and building maintenance suppliers undertake to design, build and operate a facility to agreed output and facilities management specifications for a period of years. In Canada, generally in the range of 25 to 30 years of operation, plus a two-year design and build term.
DBFM construction contracting was a form of contract that evolved in Great Britain in the later years of the Margaret Thatcher era.
However, it came into its own under the Tony Blair administration, when it was adopted largely for accounting reasons.
Under the government accounting rules then in effect, capital expenditures were charged to government income in the years in which they were incurred.
In contrast, under the DBFM approach, the cost to the government was amortized over the life of the finance period.
With a shift more towards accrual accounting by most governments in Canada, this accounting sleight of hand no longer affords much of an attraction, but the DBFM approach has continued nevertheless, and is now in wide use by governments around the world.
The DBFM approach is sometimes described as alternative finance and procurement, a public-private partnership or a private finance initiative.
The terms are essentially synonymous. The approach can be controversial and there are several points both pro and con that can be validly made regarding the approach.
Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
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