The reason why a shift towards a more strategic procurement approach is necessary at the municipal level (and, indeed, across the public sector in general) is clear. As I have noted in several columns over the years, governments tend to pay more than private sector firms for comparable type, quality and quantity of supply.
Over the years, I have given many examples that support this assertion. The examples I have reviewed were not selected arbitrarily, and each has numerous analogs, they highlight four distinct problems in public procurement:
- Simply paying too much for what is obtained;
- Paying more than can be justified on a cost-benefit basis;
- Allowing uncontrolled cost overruns, often for an indefinite period; and
- Buying something that is simply not needed.
All these examples possess one common characteristic: a lack of strategic foresight in the discharge of the procurement process. A shift from bare procurement towards a more strategic materials management-oriented approach requires the introduction of procedures and other controls to mitigate the risk of such over-expenditure.
As I have indicated in several previous columns, to have any chance of being effective, such an approach must be systematic in both design and application and focused on strategic goals. It is also necessary to employ the correct method of procurement, with a proper balance of risk between the supplier and the municipality as its customer.
I want to point out that most municipal (and public) supply contracts are not problematic. The suppliers perform well. They deliver their goods and services on time. The price paid is not beyond sight of the prevailing market price. I accept all this as true. Unfortunately, it does not address the fact that across the continent reported account of misuse and in some cases wastage of public funds — particularly, albeit not exclusively, at the municipal level — run into the high hundreds every single year.
This litany of complaints — in many cases made by unimpeachable sources such as public auditors or judicial investigations — are too many to dismiss as isolated. Evidence of systemic weakness in public procurement is not difficult to find. The U.K. Treasury Review of Civil Procurement in Central Government noted that:
There are no common systems across government for recording what is purchased, the associated prices and sources of supply; analyzing the true costs of procurement transactions; rating the capability and performance of suppliers; or targeting and measuring year on year value for money improvements from the purchasing function.
Good common measurement systems are an essential component of any procurement system which aspires to be best in class.
These points relate to concerns that are relevant in any procurement. In the municipal context, as in any other context, it is of vital importance to know whether the municipality is awarding contracts for supply based purely upon simple bid prices (i.e., base or sticker price), or upon the full-life cost (or life cycle cost) of the goods and services that it purchases.
It is also beneficial to have in place a systematic approach towards rating the capability and performance of suppliers. Every municipality should have a settled business plan directed towards improving the efficiency or effectiveness of their procurement function. Mechanisms of this nature are business tools that are intended to keep problems such as those identified above to a bare minimum.
While no system of public procurement will ever be fail-safe, it is obviously essential for such problems to be minimized. The large number of problematic cases that come to public notice in the municipal realm each year leave considerable room for doubt as to whether proper measures are in place in relation to municipal procurement. Systemic problems are far more difficult to solve than those that relate to individual cases of abuse.
Stephen Bauld is a government procurement expert and can be reached at email@example.com.
Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.