Purchasing B2B

 

October 27, 2014

 

Government purchasing professionals beef up expertise

Participants gather for professional development, idea exchange and networking at the CPPC Forum

 

Practitioners, experts and consultants met in Montreal late last month for the 2014 edition of the Canadian Public Procurement Council Forum. Participants attended seminars, swapped best practice ideas, built networks and grabbed brief glimpses of this beautiful city during the few breaks in a packed agenda.

 

The event’s theme, “United Under Public Scrutiny,” perfectly encapsulated the pressures facing governmental procurement personnel in an era of tightening budgets and increasingly complex work environments. We’ve highlighted a couple of presentations that caught our interest.

 

Lessons from the Charbonneau inquiry

Any government procurement conference held in Quebec was bound to address the Charbonneau Commission, an inquiry set up in 2011 to suggest measures to identify and reduce corruption in public construction contracts.

 

Sébastien Laprise, a partner with Langlois, Krönstrom, Desjardins, provided an overview of developments in the province since 2009, when irregularities were discovered in the awarding and management of certain contracts. These led to new legislation and the launch of the commission itself, which has so far received more than 70 briefs and interviewed countless witnesses.

 

Despite more than 100 days of hearings the commission has yet to deliver a final report. However the process is advancing with interested parties scheduled to submit additional briefs during coming weeks. At this time it remains unclear what suggestions, if any will be made to improve rules relating to contract management policies, supplier undertakings, eligibility and administrative oversight.

 

Laprise reviewed key recommendations made so far by numerous interveners including the Canadian Public Procurement Council itself, and of key lessons learned. One crucial point to remember is that Quebec already had in place many of the checks and balances that would normally have prevented, detected or avoided much of the nastiness that was uncovered. This included relatively comprehensive legislation such The Cities and Towns Act, the Municipal Code and the Act Respecting Contracting by Public Bodies.

 

However numerous municipalities in the province were hit by what Laprise calls a “perfect storm.” A combination of crooked officials, collusion among suppliers who cooperated with them (as opposed to reporting them) and flawed oversight mechanisms enabled widespread corruption to proceed and prosper undetected.

 

For example a City of Montreal database set up to provide users information regarding what previous construction projects had cost so they had a benchmark, was itself corrupted, as the price comparisons used were from the city itself, where officials were taking bribes to overlook overcharging. The result was that the high prices paid became built into the system.

 

A strong ethical culture is key

As a result, many of the suggestions picked up by the Charbonneau Commission will likely relate to the ethics and training of procurement officials. For example CPPC recommendations include increased emphasis on professional certifications such as Certified Professional Public Buyer and Certified Public Procurement Officer, as well as security clearances or background checks.

 

Better oversight, including internal audit procedures and increased staffing will also help. The City of Montreal’s recent naming of an inspector general is a step in the right direction. An overhauled price comparisons database set up on a provincial and possibly a national level would go a long way toward identifying irregularities.

 

However the biggest takeaway is that no amount of formal rules and oversight can take the place of a strong ethical culture throughout an organization. “When a small number of people deliberately set out to falsify documents, commit bribery and cover up theft, it can be exceedingly difficult to detect, even with good controls in place,” said Laprise, quoting an SNC Lavalin official. “This has proven to be true at corporations around the world.” 

 

Learning from project failures

One of the major added values provided by the Canadian Public Procurement Council Forum was the ability that it gave participants to draw lessons from the experiences of others. Paul Emanuelli, general counsel and managing director of the Procurement Office (and a frequent contributor to Purchasing B2B) presented case studies of public sector procurement debacles in national defence, infrastructure, transportation, healthcare and energy that helped fire up subsequent discussions.

 

“Failures tend to recur in the same areas: failure to meet operational needs, stay within budget, deliver on time or to follow process rules,” said Emanuelli. “Project teams that ignore these ever-present risks do so at their peril.” The Harper Government’s mismanagement on the defence procurement front provides examples of all four categories of failure in acquisitions ranging from helicopters to ships.

 

Emanuelli quoted former general Andrew Leslie, who said that the government had “the worst record,” on military procurement of any government in the last 50 years and that it “can’t even buy a fleet of trucks painted green.” For example the Harper Government’s issuance of no-bid contracts to Lockheed Martin related to F-35 Lightning II joint strike fighters, the largest procurement in Canadian military history, violated a basic rule that any private sector procurement junior learns her first day on the job. According to an auditor general’s report, the government took key steps out of sequence. This led to bid specifications being drawn up advance at a low level in defence and public works department hierarchies, which effectively ruled out all competing options. 

 

This resulted in the choice of a highly controversial aircraft, using widely optimistic forecasts as to projected costs, which were ultimately revised upwards four-fold. All this for an aircraft which Emanueilli quotes Michael Hostage, a US general, as saying is incapable of flying solo missions, as it cannot properly defend itself against enemy fighters.

 

The botched Joint Stike Fighter initiative, which is currently under review, provides a perfect example of what Emanuelli calls an “optimism bias” which characterizes public sector projects. This consists of small initial cost estimates, which tend to inflate as the project is accepted and gets underway, which demonstrates a pressing need greater rigour in initial estimates.

 

 

 

Governance in IT procurement

One of the most daunting public sector procurement challenges relates to large scale information technology capabilities, which have grown increasingly complex, says Leo Gotlieb, a director of Western Management Consultants. Key to doing this effectively is proper IT procurement governance, which includes a leaner procurement cycle, transparency, flexibility and vendor competition. 

 

To illustrate the challenges, Gotlieb cited a public sector client, who wanted to install an e-commerce portal, using a SAAS (software as a service) model. A brief inquiry indicated that the client had not yet established a privacy policy related to cloud data storage and had no idea as to the legal, contractual, security or risk elements involved. Worse, the client estimated that to study them would cost $500,000, double the cost of the proposed IT solution.

 

“In public sector procurement everyone has a veto; no one can proceed alone, said Gotlieb. “There appears to be a desire to make IT procurement perfect. However any objective assessment signals that procurement in an imperfect world is more art than science.” Evolving challenges include greater uncertainty regarding hardware, software and regulatory policy changes and an increased number of stakeholders. These lead to larger projects, with higher costs and longer-term contracts, due to the difficulty in switching an entrenched system.

 

Traditional procurement approaches not well suited

Complicating matters is the fact that traditional procurement approaches are not particularly well suited to these technical and market realties says Gotlieb. Complex, multi-dimensional systems increase the likelihood of cost and schedule overruns, and even of outright project failure. As a result, many vendors are not surprisingly unwilling to bid on inflexible, one-sided contracts. Those that do are often high risk bidders and thus need to be watched carefully and possibly excluded from the process.

 

Gotlieb cites a recent report “Recommendations to Improve Large Information Technology Procurements: A Road Map for Success in California, as a source of effective guidance regarding governance in IT procurement. Strengthening market research in the project approval process and providing stakeholder guidance on how to go about that is thus crucial. Clearly defining roles and responsibilities, as well as designating a senior project executive, lead agency for multi-agency projects, clear time-line restrictions and success factors are also key.

 

Best value procurement spreads to Canada

One of the most innovative panels was on best value procurement (BVP), which (as the name implies) consists of prioritizing a solution that provides best overall value over others that may cost less. Paul Dugan, manager of purchasing services at the University of Manitoba, led a discussion on the technique, which is popular in the United States, but less well-known in Canada. “Best value procurement is highly suited for the public sector and can substantially improve productivity,” says Dugan. “Those not implementing it are leaving millions of dollars on the table.”

 

Developed by the University of Arizona, BVP systems have been around for almost two decades and can be applied to any organization, structure, project or need. Traditional requests for proposals (RFPs) are forgone in favour of general requests that ask suppliers for advice on how to meet an identified need. Vendor proposals are assigned points based on factors such as price, past performance and delivery. Suppliers are also asked identify risk elements upfront and thus assume greater overall responsibility for any resulting cost overruns. Proposals are anonymous so as not to prejudice the evaluation staff

 

Dugal, along with Peter Jeffs, a procurement manager at the University of Western Ontario, Mary Aylesworth, director of procurement services at Simon Fraser University and Mike Drane, director of procurement at Dalhousie University discussed their respective partnerships with the University of Arizona, which provides consulting services as to how to implement BVP systems.

 

According to Drane universities which have long been leaders in innovation, were, not surprisingly, one of the first sectors to seize on the opportunities stemming from best value procurement, which developed in the construction industry. Initial assessments indicated that BVP initiatives at Dalhousie are working well so far said Drane, noting that numerous contacts were not awarded to the low-cost bidder.

 

Aylesworth had similar experiences, noting that although BVP is not a panacea, because more contract elements are spelled out in advance that there tend to be fewer deviations and order changes, which saves money down the line. Costs to suppliers are also reduced said Aylesworth, due to the system’s obviating the need for traditional requests for proposals, which can cost thousands of dollars to prepare.

 

According to Jeffs best value procurement systems are best suited for highly complex projects that have a large service element. If details are not spelled out clearly in advance, such contracts can leave suppliers all kinds of opportunities to run up extra charges. However BVP has also been used at the University of Western Ontario to commission a relatively simple $50,000 room upgrade.

 

Jeffs rates initial efforts at adopting best value procurement positively. “We have assessed five pilot projects and they all scored high,” said Jeffs. “However to implement the processes properly you need support not only from the top of any organization but also in from related departments and interest groups.”

 

“The use of anonymous bids is particularly helpful,” said Jeffs. “In several cases we awarded contract to firms, who at first glance, we had not believed were capable of delivering the best value. In short, best value procurement is fair, open and transparent. What’s not to like?”

 

 

 

*****

 

Highlight these quotes in bold in a larger font in a separate text box:

 

“Quebec already had in place many of the checks and balances that would normally have prevented, detected or avoided much of the nastiness that was uncovered.”

Sébastien Laprise, partner Langlois, Krönstrom, Desjardins

 

“Failures tend to recur in the same areas: failure to meet operational needs, stay within budget, deliver on time or to follow process rules.”

Paul Emanuelli, general counsel and managing director of the Procurement Office

 

“There appears to be a desire to make IT procurement perfect. However procurement in an imperfect world is more art than science.”

Leo Gotlieb, director, Western Management Consultants

 

“Best value procurement is highly suited for the public sector. Those not implementing it are leaving millions of dollars on the table.”

Paul Dugan, manager purchasing services, University of Manitoba

 

peter@peterdiekmeyer.com

 

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