ABCtech #35 15FEB15 Public procurement policies and practices – Serving the interests of SMEs

ABCtech #35 15FEB15 Public procurement policies and practices – Serving the interests of SMEs?

Public procurement, that is – the solicitation of bids by government for a public service/good, is not only a complex affair, but increasingly under pressure from various interest groups.  Federal, provincial and municipal governments redeploy huge sums of tax payer money in their respective public’s interest. The following articles and editorials portray the array of pressures policy makers and practitioners of public procurement have to balance an array of interests – for example, to: increase or restrict trade, recognize the unique value of prescribed suppliers, protect jobs and/or create employment, diversify their economy. Our March 24th Conference features delivery of a Workshop by 3-levels of government entitled  – “Public Procurement – A balanced perspective” and follow-on Chat Room for discussing these interests and how they may affect the commercialization of technologies. – Editor

Public procurement policies and practices – Serving the interests of SMEs? – by Ken Hein, CMC

Before proposing solutions to the problem of procurement practices that seem unfair to SMEs, let’s look at both sides of a public procurement transaction. First we have governments that must adhere to various trade agreements/ legislation.  Their policies require consistent, transparent processes for effective program delivery. Then we have SMEs, small and medium enterprises that often do not have the time or interest in learning or even considering bidding on highly regulated procurement processes to win new business. They may not even challenge the represented solutions as cost efficient and of value to the public. Absence of SMEs in the bidding process, impedes the capacity of government to help the industry grow.

However, while both parties, the government purchaser and the SME vendor, proclaim the same objective – to procure and supply products or services of value for the public, they have divergent views on government procurement practices. Let’s look at the purchasing organizations a little closer.

Public sector organizations: Governments and public service organizations are mandated to adhere and comply with legislated procurement agreements such as the Agreement of Internal Trade and the New West Partnering Trade Agreement. These agreements regulate public service procurement practices. The public organizations further their practices and processes through policies and procedures complying with the Agreements, on how they will conduct procurement initiatives.

SMEs: This group is typically in business to sell a product or service. But they also purchase goods and services, often preferring to buy their goods and services from a supplier that is quick, agile, and does not require a complicated procurement process. They usually don’t have extensive resources for structured procurement and it is important for the SME to focus their time and resources on survival and growth. This group is interested in the shortest most cost-efficient path possible to market for selling their products and services.

So the question is, how do we determine effective procurement solutions for these divergent purchasing and vendor organizations?

Learning and building trust.  For the SME, there needs to be an understanding of how and why government or public sector organizations and NGO’s conduct their purchasing. A significant factor in competing in business is relationships. This is not to be confused with having a good relationship with a purchaser who makes a non-competitive decision to buy the SME’s solution on the spot. Establishing a trusted relationship with these public service organizations is important before procurement initiatives occur. Building a relationship with these organizations required diligence and time and complicated by the size, regulations and pace of public sector decision making … and staff turnover.  Vendor management and relationship building is a challenge for both – often very busy, parties.

To explain, when a public service organization identifies a problem, and the type of solution viewed to solve the problem, it may elect to procure a solution from the marketplace – this is termed the “make or buy” option for assessing the best value supplier. An SME – nimble, innovative, informed, local, networked, may have much to offer from their expertise and how their product or service would benefit and add value to purchaser, often before the purchaser has defined the problem. An SME that has a specific product or service needs to develop and grow a relationship of trust and credibility with these purchasing organizations, in order to secure the delivery of that solution to the problem.

The relationship between the SME and purchasing government organization must be highly evolved and rooted in trust and a mutual understanding of the level of risk tolerance and position of trade law compliance within the purchasing organization. Generally, lower tolerance of risk drives a purchaser to accept less information from a supplier to avoid a biased and unfair competitive advantage for the SME. The dilemma is that the SME may have more experience and knowledge of how to fix the purchasers’ problem with its solution than the purchaser would. The SME must know the risk threshold of the purchaser, often defined in the insurance specifications in the bidding document. More often than not, the thinking that goes into procurement requirements criteria are derived from market sources such as relationships with supplying SME vendors. An SME that understands the purchasing organization and is allowed to engage the staff in understanding their requirements through an established relationship of trust, increased the potential that their proposal will be competitive.

To Summarize: A successful contract between an SME and the public is both a science and an art. The SME must have an effective relationship with the purchasing organizations, learn the procurement rules if they are to submit a competitive proposal.

Recommendation: Government and SMEs should confer for helping Alberta’s SMEs in public procurement. SMEs have features contributing to innovation and diversification, retention and attraction so important in today’s economy. Together; SMEs and the purchasing public can introduce policies and practices that of increased benefit to Alberta. FOR MORE

The Conference Board of Canada

Business Innovation Summit 2014

April 28/29th, Toronto

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Consulting Engineers of Alberta – recommends QBS in GOA Procurement

On February 5th Matt Brassard, President of the Consulting Engineers of Alberta (CEA) responded to the current decline in oil prices by asking its members to hold the recommended 2014 rates. In addition they recommended that the Alberta Government:

1.    Give special consideration to funding infrastructure thereby avoiding a significant deterioration in existing infrastructure and avoiding future costs.

2.    Implement Qualifications Based Selection (QBS) for procurement of consulting engineering services.

Quoting from the CES News Release … “QBS is a procurement process that puts primary focus on qualifications rather than price.  It has been used throughout the United States since the 1970s and by the City of Calgary since the late 1970s. Reports show that QBS results in cost savings of approximately 5% over the lifecycle of an infrastructure project.”

The Price is [Not Always] Right – Chamber Supports QBS

A call for Qualifications Based Selection (QBS) provincial procurement – Edmonton Chamber of Commerce

The value of a product is not determined by price alone. The quality, service and timeliness of delivery are only a few of the many considerations every business owner makes when buying something for their company. As we have all learned the hard way, whether in our business or our home, just because something is cheaper, it does not necessarily mean it is right.

The Edmonton Chamber of Commerce believes government should procure their products and services using the same logic, looking at more than simply the price of a bid. Sadly, the Government of Alberta’s procurement services and policy currently directs departments “…to award contracts on the basis of lowest response or most cost effective response.”

While we are always supportive of efforts to spend less of our tax dollars, the problem with purchasing solely on price alone means that factors such as overall quality, timeliness of delivery and expertise of a company too often fall by the wayside in the consideration of bids. The short-term gain of spending less up front often leads to long-term pain, when the full life cycle cost of a project becomes known.

QBS in not a price-based selection system. It is a step-by-step selection process that chooses a service provider on the basis of qualifications and competence in relation to the size and type of project. It also facilitates the development of an appropriate scope of work for a particular project. Used (in varying degrees) in many U.S. states and the City of Calgary, QBS is a recognized procedure that satisfies governments’ requirements to get the best available services for taxpayers’ money and to conduct a fair, equitable selection process for procuring services.

In order to maximize value for tax dollars spent on procurement from private sector service providers and to ensure a fair, objective and consistent process, the Government of Alberta needs to adopt QBS on a broad, ministry-wide basis.