This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Government procurement is big business. From the high-volume acquisition of simple goods and services to the award of complex new construction and technology projects, each year public institutions flow billions into local economies through the award of government contracts. In addition to serving as a major driver of economic growth, government procurement also serves as a key method of delivering government programs and services to the public through government contracts with private sector suppliers.
Given this dual role as a driver of economic development and vehicle for public service delivery, it is a matter of paramount public interest that government procurement be managed with a high degree of speed and precision. To properly achieve strategic execution, public sector project teams must simultaneously meet pressing operational objectives, manage limited resources, meet pressing timeframes, and comply with increasingly stringent procedural standards. Striking this balance is no easy task.
To put this challenge in context, in Government at a Glance 2017, the Organization for Economic Cooperation and Development (OECD), an organization of advanced economies worldwide, reported that government procurement accounts for 12 percent of gross domestic product (GDP) across OECD countries. The report revealed a strong correlation between higher levels of government procurement expenditures and higher levels of economic development. For example, the report noted that within OECD countries, government procurement ranged from as low as 5.1 percent of GDP in Mexico to as high as 20.2 percent of GDP in the Netherlands. Higher levels of government procurement clearly drive higher living standards. However, when the engines of government procurement fail, this has a stalling effect on the economy and an adverse impact on our living standards. As noted in the OECD report, while serving as a critical engine of economic growth, government procurement also serves as a key means by which government institutions at all levels meet their public service delivery objectives:
Public procurement, the purchase of goods, services and works by governments and state-owned enterprises, is increasingly used by governments as a strategic tool to deliver their mandates and achieve broader policy objectives. In addition to conforming to standard principles and existing rules, governments are devoting efforts to increase efficiency and effectiveness of this key government function. From identifying the needs, determining the person or organisation to supply them; to ensuring delivery of purchases, within the agreed timeframe and to the expected quality, public procurement has implications for public sector performance and citizen’s satisfaction. In fact, it is relevant not only for central governments, but also for sub-central governments, as the majority of public procurement spending in the OECD countries (63%) is carried out at this level.
The OECD confirms that the increasing reliance on government procurement as the means of delivering critical public programs in a broad range of areas, including health care and education, underscores the importance of ensuring the successful execution of public procurement projects:
Public procurement helps governments deliver their mandates to provide public services to citizens. Health expenditures on average represents the largest share, accounting for almost one third of public procurement spending in OECD countries (29.8%), representing even over 40% of public procurement spending in Belgium (47%), Italy (44.8%), Japan (44.5%) and Germany (42%). Variations in the structure of public procurement spending reflect each country’s specific public service portfolio. Economic affairs (17%), education (11.9%), defence (10.1%) and social protection (9.8%) represent significant shares of public procurement spending across OECD countries. These large spending areas, closely related to social well-being of the population, are also often associated with high perceived risks. Efficient and effective public procurement is therefore essential to responding to the needs of the citizens, standing more and more as a key pillar of good governance and helping to restore trust in the public sector.
While the majority of government procurement spending occurs at sub-national levels, local government institutions are typically not provided with the adequate support structures to ensure that public funds are properly spent and that the policy objectives that rely on those spending initiatives are properly met. To help deliver these critical public programs, public procurement professionals are increasingly called on to produce extraordinary results under pressing conditions. Paradoxically, as budgets are cut and transactional timeframes are compressed with increasing urgency, public institutions are being held to increasingly stringent compliance and transparency standards. It is no wonder that project teams often fail to meet the high expectations placed upon them. As the deep body of case law precedents and audit reviews illustrates, the initial rush to market to meet pressing operational objectives is quickly replaced with a rush to judgment when due diligence standards are breached, deadlines are missed, budgets are overrun, and operational goals are not met.
To meet operational needs while under the conflicting pressures of accelerating timeframes, shrinking resources, and rising due diligence standards, public institutions need to update their procurement governance practices and align those practices with globally recognized standards. It is only through proactive strategic governance at the institutional level that public institutions can ensure successful execution at the project and transactional level.
As the case studies illustrate, and practical experience confirms, it is only through proactive planning, supported by well-functioning internal governance mechanisms, that public institutions can build the winning conditions necessary to launch project teams on a trajectory to successful project execution. To enable strategic execution to deliver projects with speed and precision, public organizations need to implement a rapid action plan by redesigning, rebuilding, and rebooting their procurement governance systems. This rapid action plan calls for an accurate assessment of existing conditions within the organization, followed by the implementation of a procurement-centric process improvement strategy, and culminates in the deployment of a rebooted operating system supported by advanced training programs and smart procurement technologies.
While this is no simple task, this challenge is made easier by the convergence of global procurement standards, which provide a common global source code for the operating system of good governance. Local distinctions and variations in government procurement are eroding at an accelerating rate as global currents align procurement governance standards worldwide. From Europe to the UK, from Canada to the US, from the Caribbean to Africa, India, Australia, New Zealand, the Pacific, and Asia, the trade winds of an increasingly interconnected global marketplace have empowered an unprecedented convergence in our procurement operating rules. While local variations may persist at the jurisdictional and institutional levels, those variations are quickly diminishing. Procurement professionals worldwide increasingly speak a common good governance language, allowing us to leverage lessons learned on a global scale to enable due diligence at the local level.
No matter where we sit, serving the public interest stands at the height of our global public policy priorities. The Art of Tendering: A Global Due Diligence Guide offers the navigation points for those charting a course towards good governance and the pursuit of the public interest.