The Fu­ture of Gov­ern­ment Pro­cure­ment is Vir­tual

Gov­ern­ment pro­cure­ment can be an un­wieldy, dis­tinctly non­lin­ear process. Pro­cure­ment ex­ec­u­tive Chand Sooran has a pro­posal for how to iron out the kinks.

Policy - - Contents - Chand Sooran

Gov­ern­ment pro­cure­ment is a mess. It is an end­less thicket of red tape for ven­dors and an in­flex­i­ble, rules-rid­den process for buy­ers. As fed­eral Pro­cure­ment Om­buds­man Lorenzo Ieraci said in his 2016-17 re­port, “One of the con­cerns I rou­tinely hear from Cana­dian sup­pli­ers, in par­tic­u­lar small and medium-sized com­pa­nies, is that fed­eral pro­cure­ment is com­plex. Many point to fed­eral so­lic­i­ta­tions that num­ber dozens—some­times hun­dreds—of pages as ex­am­ples.”

On the other hand, there is the gov­ern­ment’s per­spec­tive. Ieraci notes that doc­u­ments are very de­tailed be­cause “fed­eral or­ga­ni­za­tions must fully and ac­cu­rately dis­close the de­tails of the pro­cure­ment process and the re­sult­ing con­tract. Fed­eral of­fi­cials have told me in­for­mally they don’t want to make so­lic­i­ta­tion and con­tract doc­u­ments overly de­tailed, but that they have no choice in or­der to re­spect this prin­ci­ple and pro­tect their or­ga­ni­za­tion from pro­cure­ment-re­lated chal­lenges.”

Put those two re­al­i­ties to­gether and what you have is an un­wieldy, in­flex­i­ble, in­scrutable, ex­pen­sive, lengthy process that ser­vices nei­ther the buyer nor the seller well. It alien­ates, frus­trates, and angers po­ten­tial ven­dors who quickly re­al­ize the process is not worth the time, ef­fort, and ex­pense for a bid they might not win. For gov­ern­ment, it ties up pro­gram man­agers and scarce pro­cure­ment of­fi­cers from car­ry­ing out their day-to-day jobs and oversee­ing con­tracts once they are in place. More­over, things are likely to get worse with the loom­ing re­tire­ment of al­ready over­worked and skilled pro­cure­ment of­fi­cers.

What does this mean in eco­nomic and fis­cal terms, as well as lost op­por­tu­ni­ties for Cana­dian busi­ness and gov­ern­ment?

Many, if not most, of the alien­ated ven­dors are small- and medium-sized en­ter­prises (SMEs). Some of these SMEs are owned and led by women, In­dige­nous peo­ple or mem­bers of other dis­ad­van­taged co­horts—the very groups iden­ti­fied by the cur­rent fed­eral gov­ern­ment as ones who need to be­come more fully en­gaged in the Cana­dian econ­omy. These are ven­dors who might have brought bet­ter so­lu­tions for the prob­lems faced by the pur­chas­ing agency; sup­pli­ers who might be com­pet­i­tive on price and other as­pects of the con­tract; and busi­nesses led by peo­ple who want noth­ing more than a level play­ing field.

These same SMEs face their own unique set of chal­lenges with pub­lic pro­cure­ment. They in­clude over­com­ing “cat­e­gory man­age­ment” that groups pur­chases to­gether in larger lots or wider ge­ogra­phies; per­cep­tions of in­con­sis­tent treat­ment of sub-con­trac­tors; and dis­trust in the over­all fair­ness of the process when bids seem to be “wired” for spe­cific ven­dors, of­ten the in­cum­bent sup­plier or larger ven­dors. In­deed, this lack of trust due to the per­cep­tion that the process is tilted to fa­vor ex­ist­ing or larger ven­dors is a crit­i­cal di­men­sion of the pro­cure­ment chal­lenge. It is no won­der that, ac­cord­ing to a study by the Univer­sity of Ot­tawa, the “ma­jor­ity of Cana­dian SMEs (81.5 per cent) do not view the fed­eral gov­ern­ment as a po­ten­tial client.” Ac­cord­ing to the Busi­ness De­vel­op­ment Bank of Canada, 99.8 per cent of busi­nesses in Canada are SMEs (de­fined as firms with fewer than 500 em­ploy­ees). Yet these same SMEs win only 35 per cent of the con­tract value awarded by Pub­lic Ser­vices and Pro­cure­ment Canada (PSPC). To put it an­other way, 0.2 per cent of busi­nesses in Canada re­ceived 65 per cent of fed­eral gov­ern­ment pro­cure­ment.

None of this is to deny the rea­sons why the sys­tem is the way it is. There are valid con­cerns about ven­dors, in­clud­ing ca­pac­ity, rep­u­ta­tion, and min­i­miza­tion of hazard. In the po­lit­i­cal and risk-averse en­vi­ron­ment of gov­ern­ment pro­cure­ment, that is to­tally un­der­stand­able. The cur­rent sys­tem is a kind of fail-safe, belt-and-sus­penders way to pro­tect buy­ers from mak­ing mis­takes that lead to waste, fraud, and abuse. But all too of­ten this over­com­pen­sa­tion for le­git­i­mate con­cerns re­sults in un­in­tended con­se­quences—not hav­ing enough ven­dors bid on busi­ness, not see­ing the full range of po­ten­tial so­lu­tions, not get­ting enough com­pe­ti­tion on price, and not get­ting things done on a timely ba­sis.

Many, if not most, of the alien­ated ven­dors are small- and medium-sized en­ter­prises (SMEs). Some of these SMEs are owned and led by women, In­dige­nous peo­ple or mem­bers of other dis­ad­van­taged co­horts—the very groups iden­ti­fied by the cur­rent fed­eral gov­ern­ment as ones who need to be­come more fully en­gaged in the Cana­dian econ­omy.

Ac­cord­ing to the Busi­ness De­vel­op­ment Bank of Canada, 99.8 per cent of busi­nesses in Canada are SMEs (de­fined as firms with fewer than 500 em­ploy­ees). Yet these same SMEs win only 35 per cent of the con­tract value awarded by Pub­lic Ser­vices and Pro­cure­ment Canada (PSPC).

It leads in­evitably to some un­com­fort­able ques­tions. How much SME in­no­va­tion has gov­ern­ment missed be­cause of its ap­proach? How much money could have been saved by work­ing with more flex­i­ble SMEs?

The truth is it doesn’t have to be this way. Pro­cure­ment doesn’t have to be com­pli­cated, messy, and ex­clu­sion­ary. There is a bet­ter way to match large buy­ers with sell­ers of goods and ser­vices. An easy model per­mit­ting buy­ers and sell­ers to en­gage un­der a frame­work of strin­gent and com­plex reg­u­la­tions al­ready ex­ists, and it’s star­ing us in the face: stock mar­kets. No doubt you

are won­der­ing, how can the of­ten fre­netic, un­pre­dictable, and chaotic in­stan­ta­neous trad­ing of stocks pos­si­bly ap­ply to the cur­rent web of rules sur­round­ing the pon­der­ous process gov­ern­ment pro­cure­ment?

Ev­ery day, hun­dreds of bil­lions of dol­lars of equities change hands in a global mar­ket­place where in­for­ma­tion abounds, over­seen by reg­u­la­tors en­forc­ing an in­tri­cate web of rules and laws. The most in­ex­pe­ri­enced re­tail in­vestor can ex­e­cute a trade eas­ily and in­ex­pen­sively with­out train­ing, con­fi­dent in the pro­tec­tion of the law. Any­one with a web browser can tell you at what price a listed se­cu­rity trades. Many stocks trade in the mil­lions of shares daily. And the costs of ex­e­cut­ing a trade is a frac­tion of what it was 25 years ago, with tech­nol­ogy con­tin­u­ing to push ex­penses lower. It is not only pos­si­ble, but re­al­is­tic to imag­ine a world in which pub­lic pro­cure­ment works sim­i­larly to eq­uity mar­kets. This would not only make the process more us­able for buy­ers and sup­pli­ers alike, but also bring more SMEs into the process. To reach this bet­ter world re­quires the Gov­ern­ment of Canada to use a new plat­form that sup­ports its ex­ist­ing pro­cure­ment tools. For starters, this plat­form would re­quire a dras­ti­cally sim­pli­fied 21st-cen­tury user ex­pe­ri­ence, open­ing ac­ces­si­bil­ity to the process be­yond the shrink­ing cadre of ex­pert pro­cure­ment of­fi­cers. It means har­ness­ing the in­for­ma­tion and dig­i­tal tech­nol­ogy of 2018 to cre­ate a pro­cure­ment process that is in­clu­sive, trans­par­ent and rig­or­ous. In ad­di­tion to the Gov­ern­ment of Canada, the new plat­form would host buy­ers from other lev­els of gov­ern­ment, gov­ern­ments in other coun­tries, cor­po­ra­tions, uni­ver­si­ties, and other large or­ga­ni­za­tions.

In prac­ti­cal terms that means:

• Sim­plic­ity and Con­sol­i­da­tion: With an easy user ex­pe­ri­ence to in­crease ac­cess for a broader set of ven­dors and to en­cour­age deeper en­gage­ment, the plat­form would span mul­ti­ple agen­cies and ju­ris­dic­tions, act­ing as a clear­ing­house for com­mon sup­plier man­age­ment ac­tiv­i­ties, such as reg­is­tra­tion, con­vert­ing a one-to-one frame­work to a oneto-many frame­work;

• Ef­fi­ciency: Ven­dors would re­ceive all re­quest-for-pro­posal in­for­ma­tion in real-time, fil­tered in­tel­li­gently for rel­e­vance, mean­ing there would be no more hunt­ing across tens of web­sites weekly, search­ing for op­por­tu­ni­ties;

• Trans­parency: A uni­fied data­base would help ev­ery­one see RFP ac­tiv­ity from all par­tic­i­pants, in­clud­ing pric­ing in the form of posted pur­chase or­ders so that buy­ers could use in­for­ma­tion from re­cent and re­lated RFPs to gen­er­ate their own doc­u­ments, faster and with­out the risk of be­ing swayed by an in­di­vid­ual ven­dor; and • So­cial Net­work­ing: The new mar­ket­place would come with mes­sag­ing ca­pa­bil­i­ties that cre­ate a so­cial net­work of buy­ers who can col­lab­o­rate on de­vel­op­ing RFPs; share in­for­ma­tion about what works and what does not; and, po­ten­tially, pur­chase jointly, with ven­dors band­ing to­gether on the so­cial net­work to sell col­lab­o­ra­tively so that they can com­pete for larger con­tracts or across larger ge­o­graphic ar­eas. Think of it as “peer-to-peer pro­cure­ment” for the first time. Buy­ers could ac­cess crowd­sourced rat­ings of ven­dors, so that all sup­pli­ers feel that rep­u­ta­tion was a real fac­tor in a fair pur­chas­ing de­ci­sion.

The plat­form would be a se­cure, Canada-based, cloud-de­liv­ered ser­vice, in­de­pen­dent from any in­di­vid­ual or­ga­ni­za­tion’s in­for­ma­tion tech­nol­ogy in­fra­struc­ture. For buy­ers and sell­ers, the costs are low and prin­ci­pally vari­able (tied to in­di­vid­ual trans­ac­tions), as op­posed to high and fixed. The oper­at­ing costs for the plat­form would be spread across all users, as would the po­lit­i­cal risk of fail­ure. The beauty of this new mar­ket­place is it would ad­dress all the belts-and­sus­penders con­cerns, while re­duc­ing the un­in­tended con­se­quences of the cur­rent sys­tem. Ad it would work along­side cur­rent sys­tems with min­i­mal dis­rup­tion. It would be easy to buy and easy to im­ple­ment.

It is not only pos­si­ble, but re­al­is­tic to imag­ine a world in which pub­lic pro­cure­ment works sim­i­larly to eq­uity mar­kets. This would not only make the process more us­able for buy­ers and sup­pli­ers alike, but also bring more SMEs into the process.

Do these things and more ven­dors will come to the ta­ble, bring­ing a greater di­ver­sity of so­lu­tions, and more com­pe­ti­tion on price. It will be key to en­gag­ing the com­pa­nies that gen­er­ate the bulk of Canada’s fu­ture growth, help­ing them de­velop ca­pac­ity that they can use to sell into ex­port mar­kets.

All it takes is the will to act.

Chand Sooran is the founder and CEO of Edge­worthBox, which seeks to make it eas­ier for SMEs to do busi­ness with large cor­po­ra­tions and gov­ern­ment. His ex­pe­ri­ence spans pub­lic ser­vice, mar­ket-mak­ing in for­eign ex­change op­tions, in­vest­ing glob­ally as a hedge fund spe­cial sit­u­a­tions an­a­lyst, and lead­ing po­si­tions in tech­nol­ogy star­tups. He is a grad­u­ate of RMC, Queen’s, and the Mas­sachusetts In­sti­tute of Tech­nol­ogy.

Get­ting pro­cure­ment wrong is some­thing gov­ern­ments do sys­tem­i­cally. How to do it right? iS­tock photo

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