Unit 1: The potential of public procurement
Summary
Traditionally, public procurement is thought of as a ‘compliance procedure’. It is therefore structured as a one-way channel through which pre-specified goods or services are bought from the market, seeking to obtain the best value for money. You stand to achieve more by turning procurement into a collaborative and interactive process to effectively solve problems and create value for citizens by addressing their needs.
Procurement, when used as a strategic tool for governance, can present an exciting opportunity for cities to meet their goals, drive innovation and boost economic development. At its best, procurement can be agile, responsive and open — effectively sharing solutions among cities can help avoid costly re-inventions. In this unit, we introduce the potential of using procurement strategically and provide insight into how to make the process more agile and engaging.
Why procurement matters
City governments have a powerful mandate and equally high level of accountability as it is their spending and regulatory decisions that affect citizens most. Procurement policies, processes and practices should pursue value for citizens in order to create trust and increase transparency. Value for citizens means addressing citizens’ needs effectively while finding the right balance between quality and price.
As cities struggle with limited resources, better management of such expenditure could help address issues related to health and wellbeing, economy and society, and infrastructure and environment. Introducing improvements can therefore have a significant impact on budgets through savings and efficiencies, freeing up resources to address other priorities. Furthermore, you will find that effective procurement delivers better solutions, faster.
“An average of 15 percent of global gross domestic product is spent through public procurement systems, amounting to over $10 trillion. These systems yield tremendous benefits in terms of delivering public goods and services, but they can also reap secondary benefits, such as increased standards of living and social equality, and more resilient economies. Innovative procurement offers tremendous opportunities to use government buying power to shape the world around us for a better tomorrow.”
Ban Ki-Moon, Secretary General of the United Nations at the MDG Innovation Forum, July 2014
Government procurement is 19% of GDP in Europe, 11% of GDP in the US, and an average 13% in OECD Countries.
Government procurement spending at state and local levels accounts for 55% of total general government procurement spending on average across OECD countries.
With our estimate of worldwide spending on local government procurement amounting to around 10 percent of global GDP or $4.5 trillion annually, the money invested in procurement reflects its importance. Yet, that money is not always well spent. By placing citizens’ needs at the center of procuring goods and services, putting a value on their effectiveness, and measuring performance, governments can maximize their impact through procurement. The public sector has a mandate to look beyond lowest price and evaluate the value created for citizens.
Who should get involved
When thinking about the stakeholders involved in procurement, you traditionally imagine a set of two fixed groups: the city government — through the purchasing/contracting departments often handing over specific parts of the process to legal or procurement experts — and the providers. Yet, a lot is to be gained by an open approach that involves a variety of stakeholders collaborating throughout the process with a shared focus on problem solving.
This approach of procurement as a strategic function disrupts the traditional view of procurement as a compliance procedure or a technical task. Whereas the traditional approach is similar to a production line delivering a planned product, the open approach means strategy and creativity, collaboration, effective communication and engagement, leading toward a desired outcome.
Internal stakeholders — City government
Procurement plays a fundamental role in aligning the political vision and strategic objectives of your City with its service delivery and problem solving efforts. Having your political leader’s endorsement (mayor, council leader or otherwise) sends a strong message to the market and positions your City as an internationally recognized practitioner at the forefront of innovation.
Breaking down silos and bringing together a multi-disciplinary, cross-departmental team is the next crucial piece. This means engaging those responsible for addressing needs and delivering specific services, not only the purchasing/contracting departments. They should all share the vision and work together towards accomplishing the city government’s strategic objectives.
“The first mistake is to think that the procurement system exists in isolation from anything else in government”.
Philipp Krause, Team Leader Public Finance, Overseas Development Institute
“Procurement responsibility is to connect the silos in the administration. When we have a requirement, we try to put together all stakeholders to work on it and to craft the scope of work”.
John Adler, Vice President of Procurement at Dallas Area Rapid Transit
External stakeholders
Procurement is generally associated with restrictive procedures and complex specifications. Only providers that have the capacity to meet those requirements, and some degree of experience navigating the process, have the chance to bid. Lowering the barriers to entry by undertaking a strong outreach process and simplifying procedures and requirements, will allow more diverse providers to participate, including smaller ones. These types of providers can bring disruptive ideas and offer different business models.
Along with broadening the provider base, it is essential to consider citizens, particularly those affected by a specific problem or experiencing a pressing need. Their participation is fundamental for the identification of needs and priorities and for providing insight into the potential effectiveness of proposed solutions. What’s more, citizens also can become problem solvers by proposing their ideas: citizens can become entrepreneurs.
Finally, the expertise of the private sector, academia and research centers can enhance the procurement process. They are well-known resource, yet not often consulted.
Below is a map of both internal and external stakeholders, laying out their interest and influence according to the PKC vision.
What procurement can achieve
We have seen that procurement is much more than simply getting a contract approved, it is about addressing citizens’ needs and integrating solutions. It is also a part of making cities more resilient as it equips them to respond to the effects of mounting external pressures. Furthermore, procurement can help your government achieve a higher return on investment by effectively matching needs with supply, and creating opportunities for entrepreneurs.
Using procurement as a strategic tool can generate the following benefits:
- Increased value for citizens: better quality services, delivered faster.
- Local job creation: create opportunities and lower entry barriers for smaller providers, so diversifying the provider base.
- Increased effectiveness: more problems solved at a lower cost.
Procurement is a means by which local governments can put into practice the values of responsiveness, efficiency, transparency and fairness. This will ultimately increase citizens’ trust in government procedures.
“If you only consider procurement at the compliance procedure level you don’t get the great value that you can obtain when spending public dollars most effectively… compliance is an operational function, but best value is a strategic function. The procurement professional can play a significant role in identifying the best way to utilize those tax dollars for the betterment of their community”.
Rick Grimm, Chief Executive of NIGP, the National Institute for Public Procurement
The current landscape
As shown below, there are two main types of initiatives to improve procurement: those that aim to simplify processes and create efficiencies, and those looking to design new, innovative approaches.
Key Takeaways
- Think of procurement as a creative resource for problem solving, rather than just an administrative step in getting things done.
- Procurement can help you maximize how money spent counts towards your goals.
- You can use procurement strategically to deliver better solutions faster, reduce costs, build trust in government, share solutions with other cities, and engage smaller and more diverse providers.
- Collaborate with internal and external stakeholders as a team of problem solvers to secure the best results.
- Learn from what other cities have done to unlock the potential of procurement for delivering greater value to citizens. After trying a new approach, share what you have learned and what could be improved.
Now do your homework!
Get a copy of the Worksheet to understand the potential of procurement in your city and how it can be leveraged as a strategic tool to achieve your mission. This worksheet will enable you to identify the big picture goals and map the stakeholders that you need to engage with.
Congrats!
Proceed to Unit 2: Intention — collecting needs and defining statements
References
Sources for Table 2b:
[25] Portland, OR: Early Adopter,” Code for America, 2014
[26] KCMO: Innovation Partnerships,” Code for America, 2014
[27] “Yorkshire Innovation Fund”
[28] Sascha Haselmayer, “Let’s spend city money on empathy”, TEDx Hamburg,” 2014.
[29] Justine Brown, “Bringing Innovation to Procurement,” Government Technology, 4 March 2014.
