The steps that a procurement authority must take to maximize the efficiency of its operations were identified progressively over the last century through the steady evolution of purchasing theory.
The term “purchasing theory” refers to that field of business science which relates to the study of the procurement of construction, goods and services, materials storage and distribution, as well as other aspects of the supply chain management process.
In the private sector, the theory is based on the premise of profit maximization. In the public sector, it is based upon the premise of sound public administration.
Despite this difference in focus, many of the general objectives underlying the principles of purchasing theory are the same for municipalities as for private sector corporations.
A key concern in public administration is conservative administration of public property and frugal expenditure of public funds. All managers in government are entrusted with public resources when they use them to deliver programs and services.
They have a responsibility to manage those resources with prudence and probity, giving due regard to economy, efficiency and effectiveness and must account for their utilization of those resources.
While not exactly the same, these concerns are not far away from profit maximization. Thus, as a general rule, in both the public and private sector, the overall goal in materials management is to maximize the amount of bang for the buck.
In order to do so, a number of conditions must be satisfied, but two stand out as being of particular importance. First, the procurement activity of the municipality must be linked closely to the strategic objectives of the municipality.
Second, there must be rigorous pursuit on the part of the purchasing department and the operating departments of the municipality, towards securing the best value from the range of purchase options on offer.
The difference between the way purchasing theory applies in the public sector and the way it applies in the private sector, arises from the greater need in the public sector to carry on business not only in a way that is fair but so that it is seen as fair.
The concern may in some cases necessitate a municipality adopting a tactical plan which is somewhat different from that which would be followed by a private sector counterpart.
However, it would be unwise to overemphasize the difference in approach.
For both the municipality and the private corporation there is an obvious need to spend money wisely.
The measures that must be put into place to see that is done are largely the same. Similarly, private sector organizations are not inherently hostile to being fair.
In reality, the principles of best value and open access are in many respects diametrically opposed, rather than being complementary.
Far from assuring best value, the open, competitive bidding process beloved of government contracting virtually ensures the best value will not be obtained, because Canadian laws relating to the tender process make it impossible, or at least, very difficult, to hammer down the prices of potential suppliers by playing one off of the other.
One can agree both open access and best value have desirable aspects to them, and one can also agree that openness has sufficient merit to it in the public contracting to justify some sacrifice of best value.
However, even if these points are conceded, that does not mean both of these objectives can be obtained simultaneously.
In the private sector, the normal procurement process involves the more closed approaches of intensive contract negotiations and hard bargaining in order to secure the best value in contraction.
On an intuitive level, therefore, it seems more likely it is these approaches that will lead to the lowest cost. If only because the private sector is almost totally dependent for its survival on the return of a profit on investment.
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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