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By: Stephen B. Gordon
Executives in the private sector recognized long ago that effective purchasing and supply management can support their number one strategic goal: profitability. In contrast, elected officials and senior executives in government are only now beginning to recognize that effective procurement and contract management can support the strategic goals of public sector enterprises. Those strategic goals, which best practice procurement and contract management unquestionably can support, include or should include making ends meet in dire financial circumstances and responding timely in the wake of natural disasters. FEMA’s pre-positioning of emergency supplies along the eastern seaboard in advance of the landfall of Hurricane Sandy is an excellent, very recent example of how strategic procurement and contract management can serve best interests of the public in emergency circumstances. That simple action by FEMA was lauded in a November 5, 2012 article by Steve Vogel in The Washington Post.
Procurement in the public sector historically has been viewed and executed as a compliance process; as an unpopular but legally mandated cause of delay and inefficiency that must be suffered. The individuals who run governments have not envisioned procurement as a strategic programmatic activity which, if properly resourced and empowered, can reduce costs, extend resources, and optimize the timeliness, responsiveness, and efficiency of governmental operation and service delivery. Instead, as a result of the heavy emphasis in procurement statutes, codes, and regulations on assuring fairness, openness, and integrity in the award of contracts (all good things), they have paid much more attention to assuring at least the appearance of compliance, despite possibly cutting a corner or two in the process along the way.
Most procurement statutes, codes, and regulations in place today can be traced directly or indirectly to the Reform Era of the early Twentieth Century. Thus, it should come as no surprise that today’s procurement policies and laws are designed primarily to mitigate fraud, waste, and abuse; not to assure that a public entity gets the best deal or that the entity operates as efficiently as it should. Even where statutes, codes, and regulations have been updated to enable public entities to pursue best value and mitigate risks in the award of contracts through the use of more flexible and business-like methods of source selection, a surprising number of large, significant contracts still are awarded to respondents to solicitations based exclusively or primarily on the lowest initial price offered.
As strange as it might seem to a business person or a taxpayer, many public entities routinely assign the highest possible number of evaluation points to “cost” in the evaluation of competing proposals; and stranger yet, define cost as “price, objectively measured”. They reason it would be easier to defend an award based on cost defined that way than to defend an award based on cost as it should be defined: as the true cost/value of a proposal relative to the non-cost (management and technical) merits of the proposal. Fears of protests in an environment increasingly populated by contract attorneys have reinforced the inclination of some public officials to play it safe when awarding contracts, even if that means not making the best possible award.
On average, a governmental body will spend approximately a fifth to a fourth of its budget to acquire goods, services, and construction in the marketplace, and the items procured will directly affect the ability of the entity as a whole and its component units to achieve strategic goals. Yet, elected officials and senior administrators, while recognizing the dollar value and the strategic and operational impact of purchases and contracts, have tended to cast procurement as a reactive, operational-support activity performed on-demand by a purchasing or contracting office and its staff; not as a strategic program comprising all parties that can impact or be impacted by purchases of goods, services, and construction. Even in entities where the policy makers and senior administrators assert that they manage for results, it is not unusual to see procurement buried as a tactical (rather than a strategic) line of business within a financial services program or a general services program. Not only does such placement further distance procurement structurally from the policy-making and decision-making core of the entity; it also places procurement and contract managers in an environment where the prevailing culture and orientation of the “host” program may not be compatible with, and may even stifle, best practice procurement and contract management.
The common, longstanding practice of central procurement offices delegating some of their procurement authority to line and administrative business units indicates that it is not only possible but beneficial to involve business units outside the procurement office in the planning, execution, and administration of purchases and contracts. However, there are policy-makers, senior administrators, and procurement officials who are either unable or unwilling to entertain moving beyond the concept of procurement as an action or set of actions that one business unit (the procurement office) undertakes on behalf of another (the client business unit) at the initiation of the latter.
When policy makers and senior administrators conceive of procurement and contract management as a tactical, transactional activity, little or nothing is done to address those areas which historically have been Achilles heels in public procurement and contract management: plans for individual procurements are not developed to align with the goals of the client business unit or the entity as an enterprise; requirements for goods, services, and construction are poorly defined; contracts are not awarded with the goal of providing the best practicable support for strategic goals; and far too little attention is paid to the administration of contracts. Failures to strategically plan procurements, define requirements well, and properly award and administer contracts have cost public entities dearly – in both dollars and opportunity, and in both the short term and the long term. Some public procurement and contract management officials have compounded the problem by building a cocoon around their offices and acting as if the goals, objectives, tactics, and actions of their offices were independent of the goals of the enterprise. Others have created ill-will by acting as policemen rather than enablers. Still others have either be unable or unwilling to press for strategic public procurement and contract management.
The time for public procurement and contract management to play a strategic programmatic role within strategically managed organizations is now. Making this a reality will require all participants and stakeholders to work together to effect a transition from assuring compliance to providing best practicable support of enterprise goals.
This is the first column in what will be an ongoing, twice monthly feature in the PA Times. The column will be written on a rotational basis by six experts in public procurement. In addition to the author of this column, other authors who will be in the rotation include Dr. Frank Spampinato of FEMA, Mr. Jim Bartha of the U.S. Corps of Engineers, Dr. Rene Rendon of the Naval Postgraduate School, and Dr. Cliff McCue and Dr. Khi Thai of Florida Atlantic University.
Stephen B. Gordon, Ph.D., FNIGP, CPPO, is the Program Director of the Graduate Certificate in Public Procurement and Contract Management at Old Dominion University in Norfolk, Virginia. Dr. Gordon is a member of the graduate faculty of the Department of Urban Studies and Public Administration in the College of Business and Public Administration. He can be contacted by email at [email protected] and by telephone at (757) 683-6049.