PA 201 Chapter 6 - Managing the Purchases and Contracts.pdf

PA 201 Chapter 6 - Managing the Purchases and Contracts.pdf

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  MANAGING THE PURCHASES ANDCONTRACTS: GOVERNMENT PROCUREMENT CHAPTER 6 P A 2 0 1 - T H EORY & P R A C TIC E I N P U BLI C A D M INISTRATION
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  “IT IS IMPOSSIBLEFOR THE KING TO HAVE THINGS DONE AS CHEAP AS OTHER MEN”. -SAMUEL PEPYS, 1662
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  Managing the Purchases and Contracts: GovernmentProcurement I. TheRoleofGovernmentProcurement II. Objectivesof GovernmentProcurement III. OtherObjectives IV. TheProcessof PublicProcurement V. MajorIssuesin PublicProcurement VI. ManagingRisk VII. GovernmentProcurementin theUnited States
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  I. THE ROLEOF GOVERNMENT PROCUREMENT • Good budget execution passes through good procurement. • Improvements in public procurement can expand the provision of services, reduce taxes or curtail corruption • Poor procurement management has implications beyond raising the direct cost of government • Has special constraints, must follow prescribed procedures that give a major weight to fairness and equity
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  NON-WAGE BENEFITS SALARYSTRUCTURE AND THE PRESERVATION OF INCENTIVES • ECONOMY - acquisition of inputs at lowest cost and a timely basis; • EFFICIENCY - means producing an output at the lowest cost per unit; • Effectiveness - the achievement of the purpose (“outcome”) for which the output is produced • Equity - observance of due process. • Primary objective: acquire goods, services and works in a manner to provide the best value to the government and the people • Economical procurement- depends on a variety of organizational and incentive factors beyond the control of the individuals in charge. II. OBJECTIVESOF GOVERNMENTPROCUREMENT FOSTERING COMPETITION • Competition in procurement - equality of opportunity for qualified suppliers to compete for government contracts. • Just inviting new bidders to compete is insufficient to foster the growth of competition • Competition is often restricted by other market imperfections, such as barriers to entry. • Barriers are sometimes put up by the government itself, e.g., by floating very large bids to save time with a single decision, or over-specifying bidding requirements
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  III. OTHER OBJECTIVES DOMESTICPREFERENCE • Public procurement may encourage the growth of local industry by giving preferences to local suppliers or the equivalent, which is restricting contracts with foreign firms • Giving some preference to domestic firms is widely accepted as a means to stimulate the growth of local competitors to large multinational companies PROTECTING PUBLIC SERVICE PROVISION • When service delivery is outsourced to private companies, government still retains the basic responsibility to protect the standards of service and ensure that the services reach the citizens. • In procurement, this responsibility implies monitoring contract execution, providing reliable information to citizens about the private companies, and opening channels of complaint. A. Protecting the Environment • Environmental protection and reduction of waste are recognized factors in public procurement in developed countries, to reduce any adverse environmental impact of government activity. B. Fostering Equity and Offsetting Past Discrimination • Preferences may be given to ethnic or regional minorities discriminated against or previously excluded.
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  SALARY STRUCTURE ANDTHE PRESERVATION OF INCENTIVES IV. THE PROCESS OF PUBLIC PROCUREMENT THE LEGAL AND REGULATORY FRAMEWORK • Emphasis has been on adopting a uniform procurement legal framework, supplemented by rules promulgated by each ministry for its specific needs. • A model framework, adopted in 1994 by the United Nations Commission on International Trade Law (UNCITRAL), consolidated previous laws and has been updated to incorporate new practices such as e-procurement. ORGANIZATIONAL ARRANGEMENTS • Broad procurement policy is set at the national level. • The main advantages of centralizing purchases and contracts is that the procurement staff becomes familiar with the law, policies and procedures, and build up institutional memory. • The main advantages of decentralizing transactions are to speed up the process and enable better suitability of the goods and services to the ministry concerned.
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  IV. THE PROCESSOF PUBLIC PROCUREMENT COMPETITIVE BIDDING AND OTHER FORMS OF PROCUREMENT • Depends mainly on the nature of the goods, services and works, the size and complexity of the contract, the administrative level and the market structure. • Main forms of procurement: competitive bidding, shopping & sole- source contracting, force accounts and procurement of consulting services. 1. Open tendering/ competitive bidding - aims at providing all eligible bidders with timely and adequate notification of procedures, and with an equal opportunity to bid for the required goods, services or works. 2. Shopping - procurement modality used for readily available of-the-shelf goods, such as standard office equipment and supplies, books, and educational materials. 3. Sole-Source Procurement - Direct selection, no- bid, or single-tender; a purchase or contract awarded to a specific supplier without any competition 4. Force account - direct provision to a government ministry of goods, services or works produced by the government’s own personnel and with its own equipment. C. Procurement of Consulting Services • Consultant - includes a wide variety of private and public entities – individuals, consulting firms, non-profit organizations and universities. • Consultants may help in a wide range of activities, from policy advice to engineering services and project supervision.
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  NON-WAGE BENEFITS CONTRACT MONITORINGAND QUALITY ASSURANCE IMPORTANCE OF CONTRACT MANAGEMENT • Government projects are implemented largely through contracts. • Good project implementation is essential for project success, and good contract management is essential for good project implementation. • Contracting for works and construction - handled differently from the purchase of goods and services. Unlike goods and services serve as intermediate inputs, public works are final outputs with major long-term impact on large population groups. CONTRACT MANAGEMENT AND MONITORING IV.THE PROCESS OF PUBLIC PROCUREMENT • Even when the contract is clear and complete to begin with, it is unlikely to be executed well without supervision and monitoring. • This is a critical but often neglected area in many developing countries and even some developed countries – reflecting either weak supervision capacity, or inattention by senior government managers or both. • No amount of careful preparation of the contract or detailed specifications will ensure adequate performance if the actual performance is not monitored.
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  V. MAJOR ISSUESIN PUBLIC PROCUREMENT Systematic Neglect by Senior Management • A fundamental problem in government procurement is the disinterest and neglect by policy makers and senior managers, who tend to leave procurement to the specialists.
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  CORRUPTION GOOD PROCUREMENT REQUIRES GOODPLANNING GAMING THE SYSTEM: CONTRACT-SPLITTING V. MAJOR ISSUES IN PUBLIC PROCUREMENT • Public procurement has been and remains a notorious source of corruption risk everywhere. • The procurement function cannot be exercised efficiently without good advance planning. • To decide what to buy and when, you must have decided what you want to accomplish and how. Emergencies • Needs can be anticipated, advance planning avoids recourse to special procurement procedures. • Not anticipated and is sufficient to justify deviations from established practices, the procurement transaction would then demand much tighter supervision and scrutiny by top managers and the political leadership. • Short of actual collusion, among the various ways to game the system is the evasion of the bidding value thresholds by breaking up the purchase into several smaller contracts, each below the value that requires national or international competitive bidding – a practice known as “contract-splitting”. • Contract-splitting may be forced on an agency by fluctuations in the availability of funds during the fiscal year owing to a badly prepared budget or unrealistic cash plan. • The most direct route to bribery is to avoid competitive bidding altogether and have the contract awarded to the desired party through collusion and direct contact, with related arrangements under the table.
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  VI. MANAGING RISK QUANTIFYINGPROCUREMENT RISK BEWARE OF FLEXIBILITY WITHOUT ACCOUNTABILITY THE DETERMINANTS OF PROCUREMENT RISK • To allow greater managerial flexibility without robust oversight is to ask for trouble. • More autonomy can lead to greater efficiency, but only if accountability is strengthened along with it. • When public spending is stable or grows at a slow and steady rate, giving managers more flexibility is less risky, as abuses are more visible and thus less frequent. • Procurement risks include inefficiency, unsuitability, and corruption. • The specificity of the transaction is inversely related to risk: the more specific the product or contract, the fewer the opportunities for manipulating the procurement process. It’s easier to rig the procurement of pencils and paper than the procurement of electron microscopes. • The four main phases of procurement – standard setting and invitation to bid, bid evaluation, contract negotiations, and award and contract monitoring. • The findings of the very extensive literature on procurement risk assessment cannot be summarized, but the simple matrix can be used to classify sectors with different degrees of risk.
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  VII. GOVERNMENT PROCUREMENTIN THEUNITEDSTATES The BroadPicture • Purchasing and contracting by the US federal government date back to the earliest days of the republic and, as in England, to assure reliable supplies for the armed forces. • Robert Morris, then-superintendent of finance, observed that: “In all countries engaged in war, experience has sooner or later pointed out that contracts with private men of substance and understanding are necessary for the subsistence, covering, clothing, and manning of an army”
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  NON-WAGE BENEFITS SALARYSTRUCTURE AND THE PRESERVATION OF INCENTIVES VII. GOVERNMENT PROCUREMENT IN THE UNITED STATES POLICIES, REGULATIONS AND ORGANIZATION The foundation of modern federal procurement was built shortly after World War 2, with the Federal Property and Administrative Services Act of 1949 and the Armed Services Procurement Act, also of 1949. A. Federal Acquisition Regulations System (FAR) • The FAR has been established for the codification and publication of uniform policies and procedures for acquisition by all executive agencies. • Agency-specific regulations implement or supplement the FAR. B. Organizational Arrangements • As in most developed countries, procurement standards and rules are set by a central agency, but the actual purchasing is done by the individual agencies in conformity with the standards and rules. • The General Services Administration is the central office for administering the procurement regulations
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  THE 21ST CENTURYTREND: SPEND MORE, MANAGE WORSE VII. GOVERNMENT PROCUREMENT IN THE UNITED STATES The rapid increase in federal contracting has been associated with a rise in contract mismanagement. The primary areas of mismanagement have been: • award of noncompetitive contracts; • reliance on risky forms of contracts; • abuse of contracting flexibility; • poor procurement planning; • inadequate contract oversight; • specifications unsuited to local conditions; • straight bribery
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  END OF PRESENTATION CHAPTER6 MANAGING THE PURCHASES AND CONTRACTS: GOVERNMENT PROCUREMENT