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ARCHIVED - Report of the Review of the Draft Treasury Board Policy on Managing Procurement

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4.0 Procurement Context

The procurement environment has grown increasingly complex and challenging in the public sector. Taxpayers expect greater levels of transparency and accountability. Governments face ongoing budget constraints. Meanwhile, evolving technology, global sourcing, and ever-expanding vendor options present difficult choices to those responsible for public procurement.

At one time, public procurement was considered to be a clerical function of government, simply processing purchase orders. This is no longer the case. Today, public procurement consists of a widely recognized body of knowledge practiced by professionals with a highly developed expertise who play a critical role in the quality of service delivery to citizens.

4.1 Definition of Procurement

The U.S.-based National Institute for Governmental Purchasing's (NIGP) Dictionary of Purchasing Terms defines procurement as "Purchasing, renting, leasing, or otherwise acquiring any supplies, services or construction; includes all functions that pertain to the acquisition, including description of requirements, selection and solicitation of sources, preparation and award of contracts, and all phases of contract administration."

Further, the Purchasing Management Association of Canada (PMAC) identifies procurement as the first link in the supply chain, which also involves the core areas of operations and logistics. "Supply chain management is the process of strategically managing flows of goods, services and knowledge, along with relationships within and among organizations, to support and achieve enterprise objectives."

4.2 Impact of Procurement in Canada

The Government of Canada purchases more goods and services of all kinds than any other institution in the country. The federal government spends $13 billion annually on procurement and conducts over 500,000 transactions. The percentage that all levels of government combined typically contribute to the gross domestic product (GDP) of their countries ranges from 25% to 50%. As such, public procurement expenditures have a powerful effect on the lives and prosperity of individual citizens, on the development of the communities in which we live, and on the economic success of our countries in a highly competitive world. Effective procurement policy can ensure that Canadians receive the best service possible, that the government receives value for the money it spends, and that a culture of accountability is cultivated in the Government of Canada.

4.3 Public vs. Private Sector Procurement

The principles of sound procurement practice share some similarities in both public and private sectors. These common principles include: contributing to organizational goals; providing continuity of supply to meet operational needs; maintaining high standards in the items purchased; developing co-operative relations among suppliers, procurement officials and internal clients ; and minimizing costs without sacrificing quality, delivery and service goals.

However, the procurement environment can differ dramatically between public and private sectors. A key difference is that the public sector looks beyond the bottom line to balance multiple stakeholder interests and overall policy objectives. By contrast, the private sector is largely driven by profit maximization and shareholder return.

There are further distinctions. Public sector procurement is governed by a number of laws, regulations and policies. Governments operate with a heightened level of fairness, openness, and transparency in ensuring equitable access and treatment of all suppliers. Moreover, they face the added accountability of demonstrating sound stewardship of public funds. While procurement professionals in the public sector must also comply with standards of law and ethical behaviour, there is generally more latitude in the private sector for calculated risk-taking, innovation and entrepreneurship in service of achieving organizational objectives.

4.4 Public Procurement Objectives

4.4.1 Best Value - Achieving the best value for tax dollars spent is a primary objective of public procurement, not simply the lowest bid. It is recognized today that the cheapest price does not necessarily translate into the lowest total cost in the long run. The purchase price is just the visible tip of the iceberg that is the total procurement or life-cycle cost. Total procurement costs include all aspects in the operation and maintenance of a product over its life cycle. This cycle consists of inspection, testing, repairs, upgrades, user training, as well as costs associated with downtime, diminished performance, disposal and more. Determining best "value for money" requires an analysis of the supplier's ability to meet satisfactory quality, quantity, delivery, price and service.

4.4.2 Socio-Economic Outcomes - The size and scale of government expenditures creates opportunities for influencing the economy and social well-being of a country, in addition to that country's place in the world economy through global supply chains. Governments use procurement as a policy tool to mandate environmental protection, stimulate regional economies or industrial growth, and prescribe fair employment practices on the part of their contractors. In the interest of equity, governments also stipulate that some supplier groups should receive special consideration through set-aside programs that require a certain percentage of business be given to targeted groups. For example, the United States government has legislation that gives preference to Americans, local suppliers, small business and minority-owned businesses. The Canadian government has a set-aside for Aboriginal businesses.

4.4.3 Openness and Competition - Open competition is generally considered to be a hallmark of public procurement in seeking bids and awarding contracts. This approach to open tendering has been taken with the intention for government to obtain the best value for the dollars it spends. Furthermore, as a public entity, government seeks to create a level playing field, providing equal opportunity for suppliers to win government work. Competition has also proven valuable in spurring both business and government to reduce costs and improve quality, as well as to stimulate innovation.

4.4.4 Integrity and Transparency - All public procurement professionals must maintain an unimpeachable standard of integrity and honesty in all of their business relationships both inside and outside of government. As key players in the solicitation, evaluation and selection of suppliers, in addition to the ongoing management of contracts, procurement professionals must not only do the right thing, but be seen to do the right thing. It is essential that the procurement process be transparent, treating suppliers fairly and equitably.

4.4.5 Responsible Management - The prudent spending of public funds in support of the broad public interest is paramount in government procurement. Governments have an obligation to optimize the use of resources to provide the maximum benefit to taxpayers. They also seek to manage financial, technical and other risks to ensure the government's ability to fulfill its mandate. This sound stewardship is achieved through clear procurement policy, strong oversight, and cultivating the highest standards of professional competence among those procuring goods and services for the government. Responsible management of public dollars ensures government services benefit those intended and builds trust in government.

4.4.6 Competing Interests - The goals of public sector procurement are numerous and procurement decisions are multi-faceted. The result is that trade-offs are inevitably required. For example, while government strives to maximize competition and obtain the best price through putting procurement contracts out for open tender, the process of participating can be so cumbersome and cost prohibitive that the supply base is actually reduced. Similarly, while managing risk is critical, it has to be balanced with new and better approaches to providing services to citizens, in which some risk is inherent.