Procurement Planning in Government
Last week, we discussed Guyana’s Budget Transparency Action Plan (BTAP) that the Government had developed in 2015 with the objective of improving the budget process and more generally of enhancing transparency and accountability. The BTAP contains 14 items, of which the advancing of the accountability cycle is perhaps the single most important item. The cycle involves budget preparation and approval by the Legislature; budget execution; independent ex post evaluation; Public Accounts Committee (PAC) review of the results and reporting to the Legislature; and the Government’s response via the Treasury Memorandum. The Government is required to take measures to progressively advance the accountability timeframe so that the cycle can be completed within 12 months of the close of the fiscal year.
The purpose of this action is two-fold. First, the Government needs to discharge its accountability and stewardship responsibilities in a timely manner. While acknowledging the efforts of the PAC to bring its work up-to-date, the situation is far from satisfactory, considering that it takes on average four years for the cycle to be completed. Second, legislators need to use the results of the previous year’s audit and PAC examination and reporting as important reference points for the consideration of the national budget for the next fiscal year. As it stands, they approve of the budget without any knowledge of how moneys allocated to meet the expenditure on public services in the previous year, were expended, especially as regards economy and efficiency, and the extent to which the desired outputs, outcomes and impacts have been achieved.
The other items of the BTAP include: consultations with key stakeholders during the preparation of the budget; an enhanced programme budgeting framework; procurement planning and oversight; improved and timelier mid-year reporting; effective follow-up of external oversight of the budget execution; and strengthening of internal controls.
Today, our focus is on procurement and procurement planning.
Public Procurement in Perspective
Public procurement relates to the acquisition of materials/services and the execution of works in support of the Government’s programmes and activities as reflected in the national budget. The main objective is to have in place adequate arrangements for the delivery of materials/services and works of the right specifications and quantities at competitive prices and within specified delivery schedules for the smooth and uninterrupted execution of agreed work plans. Public procurement must also be conducted with due regard to adherence to the highest possible degree of transparency throughout the process.
In outlining the role of the Public Procurement Commission, the Constitution considers procurement as a process whereby “goods, services and execution of works are conducted in a fair, equitable, transparent, competitive and cost-effective manner according to law and policy guidelines as may be determined by the National Assembly”. This is reinforced by the Procurement Act which defines procurement as “the acquisition of goods by any means including purchase, rental, lease or hire purchase, and the acquisition of construction, consulting, and other services”. The Act also refers to the need to promote competition among suppliers and contractors as well as fairness and transparency in the procurement process.
Specific objectives of public procurement include:
(a) ness; (b) Ensuring transparency in the procurement process;
Maximizing economy, efficiency and effective
(c) Promoting the integrity of, and fairness and public confidence in, the procurement process as well as competition among suppliers and contractors;
(d) Fostering and encouraging participation in procurement proceedings by suppliers and contractors, especially participation by suppliers and contractors regardless of nationality; and
(e) Providing for the fair and equitable treatment to all suppliers and contractors.
Public procurement is the most significant item in the Estimates of Expenditure, consuming almost 70 percent of budgetary allocations of Ministries, Departments and Regions. Using the original Estimates of Expenditure for 2018 of G$267 billion, this works out to G$186.9 billion. Sound procurement planning and its efficient and effective implementation as well as careful monitoring, are therefore indispensable to ensuring the highest possible degree of efficiency and effectiveness and the best possible value for money. They will also reduce the extent to which leakages exist in the procurement system.
Leakages in the Procurement System
In previous articles, we had highlighted several areas where leakages in the procurement system take place. These include: (a) Absence of procurement planning; (b) Lack professional and technical competence of those responsible for procurement;
(c) Ad hoc, non-systematic and often emergency procurement;
(d) Faulty assessment of bids/tenders due mainly to the lack of professional/technical competence of evaluators;
(e) Collusion with suppliers/contractors to inflate bids/tenders; (f) Poor selection of suppliers and contractors; (g) Sub-standard goods/services and execution of works provided as well as incorrect specifications;
(h) Leaking of Engineer’s Estimate to favoured suppliers/contractors;
(i) Sub-division of contracts (contract-splitting) to avoid adjudication by higher authority levels;
(j) Failure to obtain guarantees for mobilization advances;
(k) Absence of performance bonds to guard against unsatisfactory performance;
(l) Poor monitoring of progress in the execution of contracts, especially when certifying progress payments;
(m) Absence of penalties for undue delays in the execution of contracts;
(n) Failure to enforce retention payments requirements until defects liability period is over; and
(o) Over-payments to suppliers and contractors.
The cumulative effect of the above leakages over the years has been in the order of 20 percent, or G$37.4 billion, using the 218 Estimates. This was based on assessments carried out through careful and detailed reviews of the Audit Office’s findings during the period 1992 to 2004, updated accordingly. The estimated amount of leakages should not be viewed as a reflection of the extent of corruption in Government, though some of the leakages identified may be the result of corrupt behaviour.
A comprehensive review of procurement was recently undertaken at a major State institution having a similar profile as that of Central Government in terms of procurement. The review culminated in a report of findings and recommendations, a revised procurement policies and procedures manual and a new set of procurement rules that are aligned to and consistent with the Procurement Act. The review was followed by the conduct of training seminars/workshops on the revised rules. Approximately, 140 employees from all levels participated in these seminars/workshops in groups of about 25.
Participants broke out in smaller groups and discussed the extent to which procurement leakages existed in the organisation. They identified eleven such leakages corresponding with most of the items identified above. Participants were then asked to make an assessment and assign a percentage for each item. When the results were computed for all the groups and the overall average taken, the extent of leakages in procurement for that organisation was in the order of approximately 20 percent.
The BTAP Requirements on Public Procurement
Item 5 of the BTAP requires all budget agencies to prepare comprehensive procurement plans in support of their budgetary allocations, and to publicise them in the media and government websites with effect from the fiscal year 2017. The objective is two-fold. First, it provides a reasonable and objective basis as well as the necessary justification for the allocation of resources, rather than indulging in a mere number crunching exercise to arrive at figures for the individual items in the budget. Second, by publicizing procurement plans, prospective suppliers and contractors are alerted well in advance of the procurement requirements of Ministries, Departments and Regions so that they can prepare themselves to offer their materials and services by the time the advertisements are placed in the media.
Procurement plans are not a mere shopping list of items required or services needed. They must be based on precise and concise technical specifications of items, detailed enough to enable individual items to be costed using the latest available estimates of costs to arrive at the dollar value to be reflected in the budget. Procurement plans should be phased at least on a quarterly basis and should reflect the categorization of items by authority levels and limits, such as Ministerial/Departmental Tender Board, Regional Tender Board, National Procurement and Tender Administration Board involvement, and Cabinet review. They must distinguish between local procurement and overseas procurement. The latter can take several months, depending on the availability of the items and the length of time it takes to ship the items. For projects that are funded by lending agencies, such as the Inter-American Development Bank and the World Bank, due regard must be had of the time it will take for ensuring compliance with the procurement rules/guidelines of those organisations (which are far more detailed), and for the necessary no objection to be given in relation to the proposed award of the contract.
Due consideration must be given to minimum stock levels, reorder levels and quantities, and procurement lead times. The latter relates to the period between the issuing of the purchase order and the receipt of materials and services. Care must be exercised to ensure that procurement activities are such that they do not lead to an excessive build-up of stocks which can result in slow movement, deterioration and eventually obsolescence, with consequential financial loss to the organisation. Account must also be taken of the time between the issuing of purchase requisitions, advertisement, assessment of bids/tenders by the relevant tender committee, and the award of the procurement contract.
Item 11 of the BTAP provides for the authorities to ensure greater oversight of public procurement process. By December 2017, the Procurement Act and Regulations were to be reviewed/revised and presented to the National Assembly. It is not clear what is the status with regard to this action item, as no information on this matter is reflected in the NPTAB website. In addition, the NPTAB was to establish a complaints mechanism and debarment procedures by December 2017. While procedures have been developed for dealing with complaints from suppliers and contractors, there are no similar procedures for debarment. As a result, the List of Debarred Firms/Individuals in the NPTAB’s website contains no entries.
Conclusion
Without planning, one allows things to happen; with planning one makes things happen. Planning provides a road map, a sense of direction towards a chosen destination, supported by careful and rigorous monitoring to ensure that everything goes according to plan. Where there are deviations, action is taken to either bring activities in line with to plan, or to modify the plan. So it is with procurement and procurement planning, the chosen destination being the timely availability of goods, services and works of the highest quality at the most competitive prices for the smooth and uninterrupted execution of the Government’s programmes and activities. Many of the leakages in procurement identified in this article can be avoided by having in place an efficient and effective procurement planning system. The cost savings can be enormous.