Procurement Policies in the Public Sector
Most people like to follow the rules. In many organizations, this could mean adhering to policies which lack current relevance to organizational and stakeholder needs. Playing follow the leader without challenging the status quo. Changing direction requires a procurement policy leadership strategy.
Image by: Mark Duffel
Procurement policies are often written as edicts under the assumptions that if everyone obeys, all will be well. Many policies are outdated and don’t reflect best practices or current market events such as trade agreement amendments or case law rulings. Informal “work around” processes may prevail. As social procurement is being adopted by progressive public sector entities, procurement policies are often lagging on this important means to affect values and outcomes.
The purpose of a procurement policy is to ensure the organizational values are reflected in business practices. For example, a City wants to adopt a Fair-Trade policy or a Province wants to ensure small and medium businesses have better opportunities to compete for its supply contracts. A Hospital could ensure social enterprises have a stake in providing work on the project for people facing barriers. These strategic outcomes are set by elected officials and or Boards. Therefore, outcomes need to be reconciled to policy and enacted in practice.
One of the best tools to ensure a policy is understood, is to provide staff with the how and why of a policy. The how and why is provided through a policy guide complemented with in-house training. While the guide is important for procurement staff, it is even more valuable for other decision-makers to apply the policy statements to their departmental needs. Suppliers look for consistency as to how policies and practices align. Consistency can create competitive tension.
For example, a department manager receives an unsolicited offer from a supplier, how should that manager respond to it? An example of a policy statement and how it is addressed in a policy guide are as follows:
Policy statement: Unsolicited proposal – A proposal from a supplier which has not been solicited through a competitive process.
Policy guide: Unsolicited proposals are typically submitted by a supplier who may also be able to supply similar goods or services as those in current use. The City should not consider these proposals further where they already have a contract in place. The City could, however, contemplate unsolicited proposals based on innovative practices or which use more responsible materials than are currently being used. In the short-term, the City may trial or pilot a program to evaluate the ideas further, without conflicting with existing agreements. In the long-term this could result in a competitive process being initiated to determine best value.
The department manager now has guidance on how an unsolicited proposal could be handled. It is respectful to the supplier, ensures the current contract is honoured, and allows a means to accommodate new ideas in the market under the City’s priority of need.
Policies also act as a means of risk mitigation. When staff are well-informed as to the policies of the organization, they will apply them consistently in their business dealings. A common risk is a misunderstanding of the basic principles of competitive bidding found in Contract A and Contract B obligations. Good intentions do not excuse non-compliance. A guide should reiterate the importance of Contract A and Contract B compliance along with other related competitive bid and contract management caveats.
Alternatively, when stepping out of the Contract A/B box to conduct a negotiated RFP a guide should ensure that staff are aware of risks and the correct process to use. Conducting evaluations often requires clear guidelines for objective outcomes to be fair and transparent.
Staff turnover compounds the potential for risk in bidding and contracting processes. The procurement policy guide increases the accountability for the designated authority, whether decentralized or in a centralized reporting structure. New staff can refer to a current guide when making procurement decisions. The guide mitigates the risk by having a searchable format readily available and updated annually. This implies, that the procurement policy should be reviewed on an annual basis. Staff training around a revised policy instils a better understanding of individual roles and responsibilities. If a city, as an example, is spending $50M or $500M per year for goods and services, there should not be an excuse of “I wasn’t aware of the legal obligations” when problems occur. It is incumbent upon the city to exercise all reasonable best efforts to ensure decision-makers are informed and as up to date as possible.
The commitment to social procurement has led to new opportunities in public sector strategies. Ensuring value for money is always the objective. Social procurement strategies are applied to increase social values and economic development outcomes while concurrently dealing with budget constraints. Social procurement practices within a policy are perceived as desirable and not mandatory, either-or options. A strategic outcome of social procurement practice is to build market capacity with social enterprises. A procurement policy which is inclusive of social procurement values encourages suppliers to adopt social procurement values and work with social enterprises. Social procurement is leveraging the existing spend to improve social outcomes. Again, the why and how needs to be provided within a guide for staff to appreciate the shift in the definition of value. Competitive bids need to have the appropriate criteria and weighting to affect change.
Ethical conduct in procurement requires an extra level of due diligence on the part of an organization to ensure fairness and transparency in its business practices. From declaring conflicts of interest in the procurement policy and how to clearly manage real or apparent conflicts during a bid process is part of the role of the guide. Not only is an individual’s integrity at stake but that of the organization itself.
An issue related to putting policy into practice is doing so in an apolitical manner. Individual beliefs or self-interests should not compete with organizational intentions. For example, the price variance between product choices. In one city, the environmentally responsible policy implied that cleaning products which contained volatile organic compounds (VOCs) should be avoided. However, products which did contain VOCs, at the time, were ~10% less. As the price difference could negatively impact the Facility Manager’s budget, the price-conscious manager went with the traditional cleaning product containing VOCs. His interpretation of the policy was one where the budget was the more important responsibility. After all, it was the taxpayer’s money. Therein, lies the rub. We now have an individual’s personal understanding of value being the proxy for the organization’s values. This is where the policy guide reiterates the need for clarity in setting the evaluation weighting so that the manager can proceed with a higher cost product-responsibly and ethically. The apolitical issue can be more problematic in decentralized organizations where authority is widely dispersed. This can contribute to inconsistency as to how a policy clause may be interpreted by the many decision-makers. Guides remove the doubt.
How do policies become ineffective? Summarily, out-of-date policies which do not meet the needs of decision-makers or external stakeholders; bureaucratic inertia developed by being overly risk averse; rogue buyers not being reprimanded for ignoring protocols; bid templates and related documents not reflecting best practices; oversight for the policy not being an organizational priority.
Purchasing card policies are part of a procurement strategy. The use of Purchasing cards also requires clear guidelines on best practices to ensure value for money and avoidance of fraud.
As a procurement advisor to the Auditor General for Local Government, on several occasions this author found large and small public sector entities with serious gaps in their procurement policies and practices. Many of these shortcomings led to the inability to assess value for money on multiple contracts and a lack of accountability as to how public funds were spent. Policies are effective where the people that put them into practice find them to be delivering on value.
Is your policy leading lemmings or providing leadership?
The author, Larry Berglund, has extensive experience in drafting and implementing Procurement policies, Procurement policy guides, full suites of competitive bid templates, and staff training to align policy with practice. He has assisted many organizations with the introduction of social procurement into policies and practices.
Lemming image found here.