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How can government make public procurement more strategic? Start by streamlining, automating, and standardizing.

July 21, 2015

Highly respected voices in procurement circles—public and private—are evangelizing the message that procurement must become more strategic and less fixated on costs to achieve its true potential. This message resonates favorably with internal and external procurement stakeholders, especially those who feel pressured into buying or selling decisions.

However, for many years public procurement has been haunted by reports, going back to the 1980s and 1990s, of $436 hammers and $640 toilet seats. Consequently, the idea that paying less attention to cost is a good thing does not inspire an "It’s about time!" response from the average citizen.

Wherever you stand, though, the issue of strategic procurement goes much deeper than a discussion of how to purchase equipment and supplies more intelligently. It is an issue that potentially has a major impact on citizen income and quality of life.

Case in Point: American Recovery & Reinvestment Act (ARRA) Stimulus Funding

I served as the director of procurement and contracting for Palm Springs International Airport, and in a similar capacity for the City of Palm Springs. For the Palm Springs airport, about 90 percent of major capital improvement projects were funded by grants issued through the Federal Aviation Administration (FAA). Receipt of these grant funds was based on multiple factors. One factor was having the project already designed and ready to bid and construct.

In the City of Palm Springs, like many cities in the United States, capital projects financed by local funds are developed very differently than FAA-funded airport projects. These projects are not designed ready to go out to bid prior to being approved through the budget process. This distinction diminished the success of "shovel-ready" ARRA-funded infrastructure projects, which were supposed to be an immediate economic stimulus. When the ARRA stimulus funding program was announced, city projects that were needed but unfunded were pushed forward in an attempt to qualify for the funding.

Keep in mind that local government never used the term "shovel ready." Instead, it used the more generic phrase "ready to go," which meant that planning was completed, environmental requirements were addressed, and design work was finalized.

The only projects on the shelf that met those criteria were already budgeted and funded, however. The problem: Because the stimulus program was designed to create new jobs that would not exist without it, projects already approved and funded were ineligible for funding.

Was It a Process or Strategy Problem?

Clearly, moving complex projects forward in sufficient time to qualify for stimulus funding posed a formidable challenge for Palm Springs and other local governments. Federal decision makers committed a strategic error by not checking with local government about the immediate stockpile of projects "shovel ready" to receive ARRA stimulus funding approval. This made it impossible for the stimulus program to achieve its goals: create a projected number of immediate jobs and accomplish much-needed infrastructure improvements.

The lack of collaboration and connectedness between federal acquisition programs conducted under Federal Acquisition Regulations (FAR) and state and local government procurement rules and regulations is longstanding. Both are involved with contracting for supplies, equipment, and such services as construction, but the operating environments are very different. They are so different that there is no significant cross hiring between the two sectors. They operate in parallel but separate tracks.

Federal, state, and local procurement programs share a larger problem than failing to collaborate effectively. The real pain point is that both suffer from not having a seat in the government equivalent of the C-suite. As a result, there is a lack of procurement considerations in broader planning and strategy. In the end, procurement is simply seen as dealing with questions of means (how to do something) rather than with questions of ends (what to do).

For procurement to be recognized as a strategic function, its professionals must participate in strategic decisions involving ends. Procurement needs to be redefined and recognized as a strategic activity. To do that, the profession must contribute to overall government objectives—something it failed to do with the stimulus program. Bottom line: procurement must find a way to take a leading role.

Ironically, procurement was fingered as the source of the failed rollout of the Affordable Care Act (otherwise known as ObamaCare). On one hand, this blame was undeserved because mandated (but antiquated) procurement procedures handicapped procurement in the solicitation and awarding of effective IT systems. On the other hand, we could argue that procurement was culpable because it failed to adequately make the argument that existing procedures were not relevant to the acquisition of current and future technology.

The good news: The flawed rollout of ObamaCare may turn out to be a long-term blessing for public procurement. It has generated cries for procurement reform from many sources.

For example, reform proponents have raised the question of how advances in technology can streamline and automate procurement processes. Consider Amazon and eBay. People can easily participate in an eBay auction and simply—and quickly—pay for their purchases via PayPal. People making purchases on Amazon instantly have access to multiple choices and can easily view and weigh risk factors such as product reliability and performance issues.

It is interesting to note that, like Amazon, a federal feedback program is being initiated that enables customers to evaluate their experience with IT service providers. It is being likened to Yelp for government.

Meanwhile, in the area of payments, some of the e-invoicing firms are now able to capture and pay electronically for transactions that are not managed or tracked in the traditional ERP installations. This enables enhanced spend analysis and better controls and monitoring.

Making procurement more strategic goes hand-in-hand with seizing the opportunity to streamline and automate traditional performance and monitoring functions, which will free up valuable staff time. Indeed, most public procurement departments today are understaffed and overworked. Worse, they are bogged down with process-based activities and rarely have time to devote to the activities they learn in professional training.

Automation and streamlining also benefits the business community that works with government entities. Automated systems will speed payments for services and new e-invoicing systems will decrease transaction costs associated with existing Visa, MasterCard, or American Express payment systems.

Another very worthwhile goal of procurement reform is to standardize the language used in solicitations and contracts. Procurement is one of the only professions in which globally accepted descriptors and terms are not used for identical processes.

For example, what is called a "bid" in the United States is called a "tender" in Canada and the United Kingdom. Likewise, federal and local government agencies in the United States call the same processes by different names. Also, what the federal government calls "acquisition," local agencies and the private sector typically call "procurement."

The business community confronts this language and terminology barrier when contracting with different government agencies. Many complain that each agency insists that those wishing to do business with it, respond using its preferred terminology.

Years ago, the American Bar Association developed the very successful and widely adopted Model Procurement Code. More recently, ConsensusDocs was developed for managing processes related to construction contracting. A project to develop a model solicitation document using standardized terminology would be a worthwhile endeavor, incorporating a lasting benefit for buyers and sellers alike.

Moving Forward

A truly strategic public procurement organization will positively affect citizens by lowering costs and adding value while doing the business of government. In addition, a strategic procurement department will serve as a vehicle to prevent government problems, such as the process failure of the ARRA Stimulus program and the defective rollout of the Affordable Care Act.

To become strategic, public procurement needs to drive changes related to streamlining, automating, and standardizing governmental services contracting. As such, government should consider adopting processes that have operated successfully and securely in the private sector.

In short, public procurement needs to look at the big picture and take its rightful place in shaping policy and positive change.

Author: Hal Good

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