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Procurement Perspectives: The economic foundation for democratic accountability

Stephen Bauld
Procurement Perspectives: The economic foundation for democratic accountability

The justification for openness and transparency in public administration arises from the fact that public finance and procurement, and the public services and projects to which both of them relate, are inherently matters of public concern.

This is not the case with respect to the private sector, in which private money, property and business are being administered with a view towards private gain.

Without an open and transparent system of procurement, the rights of the citizen to review public administration and hold government to account for mal-administration are compromised. Thus, transparency and openness in public procurement provide an important economic foundation for democratic accountability and the rule of law.

The view that public procurement must necessarily be fair requires more complex consideration. The term “fair” is always an inexact one, as the term has entirely separate, and sometimes inconsistent, meanings.

For instance, in terms of the award of a municipal contract, the terms might be taken to refer to the fairness of the process by which the contract was awarded (procedural fairness), the fairness of the terms of the contract (substantive fairness), or the fairness of the exercise or purported exercise of some right under the contract to which the municipality is entitled (fairness of treatment).

In order for the process of contract award to be procedurally fair, a number of requirements would need to be satisfied:

The award must be made in accordance with defined rules, which are applied in a uniform manner to all bidders;

the rules must be disclosed to all bidders prior to the closing of the contract award process, so that each may govern itself in accordance with those rules, and adjust its proposal so as to best fit within those rules;

fair opportunity must be given to each bidder to clarify any uncertain aspect of the rules;

equality of opportunity. All bidders must be provided with the same information and must be requested to submit their bids on the same basis; and

the contract award process must be free of both bias and the appearance of bias.

Such a procedurally fair system does not require that the rules themselves be reasonable or justified, nor does it require that the application of the rules be explained. A requirement for substantive fairness could be taken to exclude any one-sided provision in the contract that works to the municipality’s favour.

Thus, under the interpretation, a municipality would be denied the opportunity to exploit its commercial strength as a major purchaser. If municipalities are subject to a further limitation, which restricts the exercise of those rights that they have reserved to themselves in a manner that is “fair,” their position is even more insecure.

However a requirement for fairness may be defined, it puts a municipality at a considerable disadvantage when bargaining, relative to the position of a customer in the private sector.

When coupled with the requirement for transparency, the municipality seems to be subject to an exception to provide full disclosure as to its position, and then to bargain (and perhaps even enforce its rights) with one hand tied behind its back.

Fortunately, the courts have not imposed such obligations upon a municipality, save in respect to the award of a contract under tender under which a municipality must award the contract fairly, as defined by the rules of the tender.

To an economist, an efficient system of procurement is one that will maximize the utility derived from expenditure. Within certain obvious limits, the merit of seeking to maximize the value that may be derived from a given expenditure of tax dollars would seem to be self-evident. The problem comes in trying to decide how far a municipality should go in its pursuit of doing so.

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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