Treating all kinds of government acquisition in the same way is an approach that needs to be critically examined.
Even if a competitive approach always guaranteed the lowest purchase price, such a low price does not guarantee the best value for money. This is especially true with services.
The provision of services is by definition relationship-based and services themselves are often quite complex in their requirements.
Service providers are not interchangeable. There is a huge difference in the quality of legal services or accounting services provided by the leading expert in the field and the quality offered by a recent entrant into either of those professions.
Treating services and many kinds of goods as far as fungible commodities is ultimately disadvantageous to government at every level. When viewed against the broad array of goods and services that are to be purchased, it is almost certain not to lead to best value for money.
No one would deny there are benefits in competition.
An open and competitive process reduces perceptions of favouritism and gives all suppliers (each of which is a taxpayer) a fair chance to bid for the government contracts that their taxes fund.
However, numerous studies have shown that governments around the world pay generally more than the private sector for the goods and services they buy.
The solution to this problem most decidedly is not to move towards single-sourcing the vast majority of government purchases. Monopoly generally violates the public interest, since by being insulated from competition the monopolist can both charge higher prices and produce products of lesser quality because the consumer has no choice.
One obvious problem with government procurement is that by virtue of the tender system the government is essentially stuck with the first price it is quoted. It is assumed a tender results in each supplier bidding its lowest price available in the market.
Elementary price theory is sufficient to explain why the tender system does not and cannot lead to a buyer getting the lowest price.
Even in a perfect tender, each bidder would bid not the lowest price at which it is prepared to supply, but rather a price that is lower than what it expects any other bidder to bid.
None of this is to say that public authorities should move away completely from the use of tenders. However, it is to say they need to take a far more critical view of that process in the future.
Its limitations as well as its benefits need to be considered and the process should not be used where those limits outweigh the benefits.
This is one of the most critical issues that needs to be addressed in the public procurement area.
In my opinion, the reason why Canadian municipalities are generally inflexible in dealing with procurement issues is because they have been repeatedly punished (through the award of adverse judgments) by courts when they have acted in a way that is perceived to be incompatible with the integrity of the tender system.
Under Canadian law of tender, among the worst anti-integrity steps that a government can take, the courts tell us, is the process of bid shopping.
Efforts to play one supplier off against another may be “outside the boundaries of the established tendering protocol” in the public sector.
In the private sector it is very common for customers to ask their suppliers — who are after all supposed to be in competition with each other — to meet or better the prices that one or the other may offer, so as to drive down the price.
When you look at the entire process some suppliers do not look after the customer’s interest so why should any government customer be asked to look after the interests of those suppliers?
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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