This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide.
Recent high-profile public purchasing scandals have left little doubt that our government institutions need effective oversight to help promote transparency and accountability and to help ensure the proper spending of public dollars. However, these critical policy objectives must be balanced against the need to produce timely and cost-effective results.
With an ever-expanding line-up of reviewers, regulators, and rejecters shining a spotlight on public purchasers, and with the ever-present risk of legal challenge, a critical question must be asked: Is red tape paralyzing public purchasing?
Recent scandals have spawned an increase in statutory and administrative rules aimed at imposing greater internal and external controls. In an era of increasingly stretched public resources, we should ask ourselves whether government institutions have achieved the proper balance between oversight measures on the one hand and efficient business practices on the other.
By imposing a high degree of oversight on their procurement processes, public institutions run the risk of obstructing and under-resourcing the “doers” within their organizations who are responsible for delivering results.
A 2006 background paper by Liane E. Benoit and Ned Franks entitled “For the Want of a Nail: The Role of Internal Audit in the Sponsorship Scandal” in Restoring Accountability, Research Studies Volume 2: The Public Service and Transparency (known as the Gomery Report) offers the following caution:
[W]hen the balance of “doers” to “checkers” gets too strongly tilted in favour of the latter, the oversight becomes oppressive and the corresponding impact on the morale and self-esteem of public servants can be significant. It is in no government’s best interest to create so much tension among its employees—between the pressure on them to perform and the pressure on them to account for that performance—that they lose all latitude for creativity, innovation or common sense.
While no single oversight measure may in itself paralyze the system, the total accumulation of red tape can expose the purchasing process to death by a thousand paper cuts. Ironically, public institutions should consider imposing control measures over their control measures to avoid driving their purchasing cycle into bureaucratic gridlock.
The legal system is one of the leading contributors of red tape. In its 1981 decision in Ontario v. Ron Engineering & Construction (Eastern) Ltd., the Supreme Court of Canada applied a process contract, known as “Contract A,” to the tendering process. That decision has gone down in history as the case that launched a thousand lawsuits.
In a pyrrhic victory, the government won the right to keep a reneging bidder’s bid security. However, since then, the courts across multiple Commonwealth jurisdictions have relied on Contract A to impose a broad range of legal duties on purchasers and to incent litigation against government by making lost profit damages available to losing bidders.
The often-stated judicial policy aims of “protecting the integrity of the bidding process” and “ensuring fairness to bidders” have resulted in four decades of piecemeal justice delivered on an often unpredictable and inconsistent case-by-case basis. The net result has been increased legal risk and uncertainty for public purchasers, with little business advantage gained in return for the taxpayer.
The cumulative adverse impact of this legal red tape on the efficiency of the procurement cycle has been immeasurable. Public purchasers must now deliver results under extreme time pressures while navigating a legal maze of implied duties and guarding against the ever-present risk of legal challenge for lost profit damages in many jurisdictions and procedural remedies across all rule-of-law jurisdictions.
Yet, suppliers and their lawyers continue to advance – and the courts continue to entertain – new legal theories that would help suppliers launch even more lawsuits. It begs the ultimate question: can a legal regime geared to giving so many rights to unsuccessful suppliers translate into a purchasing system that serves the best interest of taxpayers and the public?
Striking the right balance between accountability and action should be the ultimate policy objective of the public purchasing system. The system needs to run cleanly and transparently but it also needs to run efficiently and expeditiously. The system needs to run with strategic execution.
Public institutions should consider taking a solid step towards reversing the tide of red tape by realigning their procurement operations so that more resources are directed towards equipping and training their purchasing professionals.
A well-trained and focused procurement operation, guided by an effective and minimally intrusive oversight system, coupled with a less litigation-friendly legal environment, would go a long way to reducing inefficiency and delivering positive results to the public.
