By Paul Emanuelli

This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.

In February 2012, Don Drummond, the Chair of the Commission on the Reform of Ontario’s Public Services, released a cost-cutting report entitled Public Service for Ontarians: A Path to Sustainability and Excellence, also known as the Drummond Report. The report made recommendations on how to balance the provincial budget, maintain a sustainable fiscal environment for government operations, and achieve value-for-money. To address Ontario’s escalating fiscal crisis, the Drummond Report recommended cutting procurement-related bureaucratic red tape and achieving better value-for-money by removing duplication and consolidating public sector purchasing.

With respect to red tape in procurement, the Drummond Report officially recognized what procurement professionals have known for years: red tape is paralyzing the purchasing process. The system needs to be recalibrated to achieve better efficiency and properly serve the public interest. As the report stated, accountability needs to be balanced against efficiency in order to achieve the parallel objectives of transparency and value-for-money:

Balance the Requirements of Accountability and Efficiency for Government Operations
Accountability is an essential aspect of government operations, but we often treat that goal as an absolute good. Taxpayers expect excellent public-sector management as well as open and transparent procurement practices. However, an exclusive focus on rigorous financial reporting and compliance as the measure of successful management requires significant investments of time, energy and resources. At some point, this investment is subject to diminishing returns.
While acknowledging the importance of transparency and prudent use of taxpayers’ money, the implicit costs of accountability measures should be reviewed as well. The Commission has found that little consideration has been given to the appropriate balance between containing risk and the effort and expense diverted to compliance with rules and regulations. The impact of inefficient rules in this regard go well beyond the OPS, and extend throughout the BPS to include hospitals, post-secondary education, elementary and secondary schools, and municipalities. The added cost to the government — and thus by extension to the public, private and non-profit sectors in ensuring compliance — should be considered in gauging the appropriate response to the risk of waste or fraud in operations.
The government should shift to measuring outcomes rather than inputs and process, and should take a risk-based approach to accountability. In trying to balance the goals of accountability and efficiency, the government may well find that there are opportunities both to streamline administration and ensure accountability in the OPS, BPS, private sector and non-profit sector.
Recommendation 16-11: The government should ask the Ontario Auditor General to help find an appropriate balance between ensuring accountability and continuing oversight of compliance with rules and regulations.

These recommendations served as useful reminders to all public institutions of the need to properly tailor their oversight functions so that they do not place a disproportionate burden on the public purchasing process and undermine the government operations that rely on timely and efficient procurement.

With respect to unnecessary duplication, the Drummond Report recommended an expansion of procurement shared services, stating that the consolidations at the Ontario provincial level within the Ontario Public Sector (OPS) should be expanded to the Broader Public Sector (BPS) with the consolidation of purchasing within school boards and the health sector:

Back Office Consolidation into Broader Public Sector
In a number of areas, efficiencies already introduced in the OPS should be extended to the BPS. Among these:
  • Shared services for back-office functions (e.g., payroll, financial transactions, procurement, collections and insurance) and common administrative services (e.g., printing, mail, translations and asset management) can save money;
  • The consolidation of I&IT services in the OPS saved $100 million [(CAD)] per year; savings would be greater if this were pushed out to the BPS;
  • A standardized framework would enable the BPS to leverage its immense purchasing power through collaborative purchasing, standardization of products and processes, and back-office consolidation; and
  • Centralized maintenance practices already established in the OPS should be extended to the BPS.

The Drummond report claimed that considerable efficiencies could be obtained by increasing procurement consolidation efforts within the health sector:

Recommendation 5-95: Centralize all back-office functions such as information technology, human resources, finance and procurement across the health system. There is redundancy and duplication in the current system design, with hundreds of independent organizations having some level of administrative/corporate structure and backoffice models that result in higher-than-necessary administrative costs. These structures could build on some of the procurement mechanisms in place now (e.g., Plexxus, 3SO, Shared Services West) but need to go further and move forward faster to create stronger single enterprise solutions for all central back-office functions. They should be integrated at a LHIN level (and possibly across all LHINs) to reduce the percentage of overall spending on these services to benchmark levels that have been achieved in other provinces. Assuming a savings benchmark of six to eight per cent of total spending on administration costs, the potential savings in Ontario could be up to $1 billion. In addition, leveraging purchasing power, standardizing procurement practices and managing inventory more effectively would generate savings through lower costs for goods and services purchased.

In addition to recommending health sector consolidation, the report noted that school boards “should also continue to seek out opportunities to foster procurement efficiencies through their expanded buying power.” According to the report, this could lead to further cost savings and procurement efficiencies:

School boards should continue to seek opportunities to collaborate with each other and with other parts of the BPS to foster procurement efficiencies. As significant purchasers of similar supplies, equipment and services, school boards can work together to make smart purchasing decisions through their expanded buying power. Important steps have already been taken in this respect through the establishment of the Ontario Education Collaborative Marketplace (OECM), a not-for-profit procurement organization. In consultation with the education and postsecondary sectors, OECM competitively procures common contracts on behalf of school boards, colleges and universities. Additionally, regional buying groups and transportation consortia have encouraged prudent joint procurements.
School boards and other BPS bodies, such as post-secondary institutions, should continue to find ways to create savings and efficiencies through collaborative procurement. Future measures could include a co-ordinated procurement policy framework, strategic sourcing, contract management and product/process standardization. Boards should be required to take advantage of existing organizations such as the OECM and regional buying groups.

Given the increasing fiscal pressures faced within the public sector, the Drummond Report recommendations helped place a focus on the consolidation of government spending as a means of obtaining better value-for-money for the taxpayer; however, as other case studies illustrate, such consolidation efforts must be carefully managed.