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Under scrutiny
Public-sector buyers show their mettle
By Lisa Wichmann
To do list for public-sector purchasers: spend less, spend faster, get on-line, avoid embarrassing fiascos, answer to suppliers, taxpayers, watchdog groups, know your procurement treaties inside and out, get into the swing of new purchasing laws, store those records.
Sound daunting? It is. But instead of sweating it, some public-sector buyers are taking the proverbial bull by the horns to get their purchasing departments under control. It’s a job that requires grace under pressure.
“The biggest challenge we face as a public buyer is to remain ethical in our conduct because we’re liable to the tax payers. Everything has to be transparent,” says Sybille Hoffmann, procurement agent with Edmonton Public Schools (EPS). “We work in a fish bowl…We’re also trying to buy more with less because of all the cutbacks in funding.”
With budgets so tight, the school board decided a couple of years ago to put a stop to maverick buying. Most of the equipment used by the schools—such as TVs and fridges—has now been standardized. Each school can tap into the board’s “virtual mall” web site to see which makes and models have been pre-approved (and there’s plenty of choice in each category), then order it directly on-line.
“We do all the research, we establish the contacts. All the schools have to do is go on the site, see a picture and the information…hit send and it goes to our order desk,” Hoffmann says. “So it’s very time-efficient on their end.”
Before standardization, each school was doing its own thing. For instance, they would shop around to find the best price on computers. “But we all know that cheaper is not always the best, and the price of the computer itself is only about 20 per cent of the whole investment,” Hoffmann says.
The board now deals with CompuSmart and AOpen to custom-build their computers, taking into account future need for upgrades, maintenance and service.
Reverse auctions
Working closely with Hoffmann is Brian Barclay, manager of purchasing and contract services with EPS. He’s interested in e-procurement, and has already taken reverse auctions for a test drive. By now, many purchasers know what they are—secure web sites where pre-qualified suppliers can bid against each other for the business.
“We tried it, but unfortunately, the market became so unstable in that commodity,” Barclay recalls. The commodity he’s talking about is natural gas. Changes in the Alberta energy market made it wiser for the board to deal directly with suppliers, resulting in “very favorable” pricing.
“But we still want to use that tool (reverse auctions). It’s a neat concept. You have to use it at the appropriate time and with the appropriate commodity and timing,” Barclay says. “If it’s a very competitive market and there’s opportunity and lots of vendors available to compete on it, then I would say it’s prime time to use it.
“If you’re going into a market where there’s a limited number of suppliers, and the commodity is in a position where there’s not much opportunity to fluctuate…then (a reverse auction) would not be very favorable at that time.”
While the technology is exciting, it does pose some problems for buyers. Some say e-procurement is running too far ahead of traditional purchasing practices. Just a decade ago, requests for proposals went out by snail mail. Bids were confidential, and often delivered back to the buyer in person (at the stroke of deadline), or again, by mail. The whole process was like a slow-moving train.
The speed offered by the Internet creates the temptation to take shortcuts, or to deal only with electronic documents that may or may not be properly stored. Smaller suppliers, who may be less technology savvy, could have difficulty bidding, which doesn’t bode well for public-sector buyers.
“They’re in a very political environment where if you don’t get selected as the vendor of choice, you go to your MP and all of a sudden there’s a hue and cry,” says Roy Barron, a retired consultant who has held high-level procurement positions in both the private and public sector.
He says government has been slow to adopt e-procurement technology such as reverse auctions. But it’s not for lack of knowledge. “They’re being cautious and not wanting to make any mistakes.”
Some consider it a wise approach, given the powers that be are watching closely. When disputes arise, they’re handled by the Canadian International Trade Tribunal at the federal level, and by the courts at the provincial and municipal levels.
The courts, at least, are not overly enthused with reverse auctions, according to Paul Emanuelli, a Toronto-based lawyer who recently compiled a “best practices” research report on government purchasing.
“Reverse auctions are being considered at different levels, but they haven’t yet come within the main stream of government procurement,” Emanuelli says. “What the courts have often said is they are reluctant—in order to protect the integrity of the bidding process—to make [procurement] become, in effect, an auction. They want the fixed norms.”
Smart purchasing
Nothing legal prevents the use of reverse auctions, but buyers must make a paradigm shift away from the traditional, formal bidding process. Along the way, they must ensure all the bases are covered in terms of transparency, fairness and bidding opportunity.
Above all, they shouldn’t use a one-size-fits-all approach. A reverse auction might be suitable for one situation, but another commodity might call for a traditional RFP invitation. Deliberately deciding what approach is best—on a case-by-case basis—“is what smart purchasing is all about,” Emanuelli says.
Despite all the best efforts to maintain “smart purchasing,” mistakes do occur. Witness the infamous Toronto computer leasing scandal, which saw a $43-million contract for computers balloon to over $83 million without city council approval.
Then there was the federal sponsorship program, a $250-million fund set up to promote national unity. The program drew raucous accusations of mis-spending after it was revealed $100 million had gone to Liberal-friendly ad firms for little or no work.
Indeed, public-sector buying is under more scrutiny than ever, following all the media attention on the contracts gone bad. But according to Emanuelli, the foundation of public-sector buying is not at fault.
“The federal government’s purchasing manual is a six-inch binder with rules for everything you could possibly imagine. But if those who are running the process disregard the rules, then that’s the problem. It’s not a question of having the proper rules in place, but having the enforcement of those rules.”
There was no shortage of advice following the City of Toronto computer deal. According to Emanuelli, the Toronto Computer Leasing Inquiry released a multi-volume report containing recommendations.
“We’re completing the implementation of the auditor general’s recommendations…and there will also be recommendations from the [Madame Justice Bellamy] report. So those will present some challenges,” says Lou Pagano, director of purchasing and materials management with the City of Toronto.
“We put together new procedures with roles and responsibilities more clearly defined…I don’t think there were any drastic mistakes or shortcomings that purchasing had at that point,” Pagano adds. “I think the way contracts were managed might have been something that needed a lot of improvement.”
The City is also venturing into e-commerce, with plans to hire a consultant to do a study on e-procurement. “I think to go into it blindly without doing a review like that would be a mistake because we would be kind of hitting in the dark…We’re looking to automate our bidders list and put our documents online so they can be downloaded instead of having people pick them up or receive them by mail.”
Best practices
The federal government is responding to its critics as well. It cancelled the sponsorship program, and embarked on an extensive study to examine how the government buys goods and services. Out of that effort came plans to spend taxpayer money more wisely by making better use of bulk buying, improving forecasting and looking to the private sector for best practices.
The Ontario government is getting in on the game too. As of January 1, 2005, Ontario municipalities and local boards had to implement new procurement by-laws. The by-laws have to stipulate:
the types of procurement processes used and the goals to be achieved by using each type;
• the circumstances under which each type of procurement process will be used;
• situations in which a tendering process is not required;
• when in-house bids will be encouraged as part of a tendering process;
• how the integrity of each procurement process will be maintained;
• how the interests of the municipality or local board, the public and persons participating in a procurement process will be protected;
• how and when the procurement processes will be reviewed to evaluate their effectiveness.
“Everybody was required to have a new purchasing by-law with all the ethics and processes,” says Larry Gordon, president of the Ontario Public Buyers Association (OPBA), and director of purchasing for the City of Kitchener. “All the ethical pieces have been put in place.
“This was provincially-driven and it’s emphasized the fact that [procurement] is a public process and has to be dealt with in that manner. So it’s more open and we see a lot more transparency,” Gordon says.
While many purchasers look upon the recent purchasing fiascos with chagrin, Gordon takes a more positive outlook. “I think it gave public purchasing a big boost. We’re a service group and sometimes people think we’re more in the way than a benefit, but now, all of a sudden everyone is paying a lot more attention to process and making sure things are done correctly.”
Other than fine-tuning procurement ethics, OPBA members are also bolstering information-sharing with each other. The association maintains a library of more than 1,700 product specs. Members can log in when they’re putting a tender together, and simply pull down the specs from the web site, instead of having to do all the research themselves.
It’s faster and more efficient, and that’s good PR for purchasing as a trade. “When people need something, they need it right away and they think ‘if I send this to purchasing it’s going to take a month before they drag through it and get it to me’. So I think we’re finding ways to do the right thing and do it faster,” Gordon says.
When reflecting on the overall state of the nation in public purchasing, he applauds how tight-knit the sector is. Public buyers are attuned to each other’s challenges and are quick to offer advice and help—a notion that’s rare in the private sector where competitive advantage holds sway.
“We’re fortunate in the public sector that we do work together. If you had a bad supplier, it only takes about a nanosecond before everybody knows the problems that you’ve had with them. Conversely, if you’ve had a good experience, everybody knows that as well. It’s unbelievable, the information sharing that goes on.”
That support network is an invaluable force in public-sector purchasing, an area where constant challenges and pressure abound. But with all the success strategies cropping up, the field also has its share of victories to savour. b2b
Lisa Wichmann, editor of Purchasing b2b, may be reached at lisa.wichmann@ pb2b.rogers.com
Online auction success story
Niagara school board finds a better way
Believe it or not, there are people who will pay $25 for a box of old junky cell phones. Ken Redekop knows that first-hand.
As central services administrator with the District School Board of Niagara in St. Catherines, Redekop put a reverse auction in place to get rid of equipment its schools no longer needed.
“It got started because we needed a better way,” Redekop says. “We were going through a period where we were closing a good number of schools and we were disposing of the surplus items by a closed auction with sealed bids. And of course it took forever to go through them all and notify the winners.”
Redekop and his team had a conversation with their web services people, who pointed them to free software (http://www.everysoft.com/auction). A successful on-line auction was born. Surplus goods are first made available to other schools in the district, before being sold to the general public. Winners are required to pick up the items at the school. “We have 700 registered bidders on our site at the moment.”
The auction sells equipment that would otherwise sit in storage, waiting for a buyer, or get thrown in a dumpster, Redekop says. “We had a pick-up truck from one of our schools. They needed to get at least $1,000 for this truck. On the sealed bids that we put out, we didn’t have anything that high. So we said ‘OK, let’s try this one item on the auction’. We ended up selling it for $1,200,” says Redekop.
His IT people added a couple of features to the site—allowing the Board to send e-mail to everybody’s who’s registered, and to send e-mails to winners only and report on all the items (whether or not they had bids). The auction is paying off remarkably.
“We’re [no longer] transporting and holding surplus items anywhere, so there’s a big cost savings there,” he says. Far fewer goods get thrown out, so disposal costs have been slashed too. In addition to the box of old phones, the auction managed to unburden Redekop of an ancient Dictaphone machine he thought no one would want.
“People actually want it,” he says. “With stuff like that, which is useless to anybody in our system, if somebody gives us $5 for it, we’re happy.”
Storing e-data
As procurement becomes more automated, it’s important managers realize electronic documents are virtually as legally binding as paper ones.
In the US, the Uniform Electronic Transactions Act came into force in a number of States, giving electronic documents much of the same legitimacy as paper files, according to a report from Kahn Consulting Inc. (Highland Park, Ill.).
“Despite this reality, many organizations routinely discard digital information (such as e-mail messages) without taking into account its content or the business and legal value that content might have,” the report reads.
“Organizations must manage the information output of all systems and devices, including mobile devices such as PDAs and laptop computers that are used to store business records or critical information.”
Other analysts, such as Palo Alto, Calif.-based Frost & Sullivan, point to the need to re-invest in data storage systems. “In addition to having to cope with a plethora of different data retention and destruction guidelines, public-sector organizations have been forced to utilize storage technology that is in many cases obsolete or at a minimum, several years behind the curve when compared to private sector organizations,” according to a Frost & Sullivan white paper on data archiving and retrieval in the public sector. b2b
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