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Part 2 Strategic Procurement: What Canada can learn from the US and the UK before CETA

In Part 1, we saw that Canadian municipalities have had some leeway, for some time now, to use strategic procurement to maximize social or local economic goals. We looked at all the things that seem to be holding them back. Next, in Part 2, we look at how the US and the UK in comparison have been intrepid and ambitious in at least experimenting with strategic procurement, despite regional trade agreements they have. They have gone through years of challenges, hardship and self-reflection to get procurement right. Although it's still not right in many cases, there is a valuable path of education from which a lagging Canada can learn. These lessons are not excuses to hold back, but to move forward knowing a clearer path has been blazed. Government procurement is a huge resource for any regional economy. To not consider strategizing this function is missing a huge key to a better economy. CETA's restrictions are no more of a challenge than current NAFTA or WTO ones have been for our trading partners.

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Part 2 Strategic Procurement: What Canada can learn from the US and the UK before CETA

  1. 1. Regions, Municipalities & the Maximization of A Major Economic Tool 1
  2. 2. Review of Part 1 (  The OECD found that most of the 31 developed countries keep procurement as an administrative, not strategic, function Strategic Procurement may involve important, but difficult-to-monitor criteria such as sustainability, equity or economic impact. In contrast, simple Cost-Based Procurement may miss socio-economic opportunities, but it’s considered to be more measurable and objective, does not require monitoring, and is more easily defensible when challenged  International Trade Agreements (ITAs) seek to eliminate barriers to trade at all levels of government, inhibiting any preferential policies or practices (such as local favouritism) in the procurement of goods or services above a certain price threshold 2
  3. 3. Review of Part 1  Some municipalities in Canada list sustainability and social requirements in the terms of reference for their Requests For Proposals, for bidding contractors to meet  However, monitoring whether the winning contractor actually abides accordingly is largely not done  In terms of furthering local economic goals, two particular sides of a debate seek to influence procurement:  Favouring local business, OR  Opening the city up to foreign business and investment  Cost-based procurement / open competition remains the standard practice in Canada and around the world, according to the OECD 3
  4. 4. Hurdles that Remain  Monitoring of performance (sustainability, social, economic), beyond lowest cost, once a government contract is awarded, remains a difficulty for most procurement departments*  Compliance with the terms of ITAs adds further complexity for municipalities to exercise strategic procurement. The debate between favouring local vs. open competition challenges policy makers to find better ways of pursuing local economic objectives *This presentation will focus on how local and regional governments in the UK and the US have coped with this problem 4
  5. 5. Cases from:  Canada  The US  The UK 5
  6. 6. In Canada: Monitoring “is too difficult”  In 2004, Toronto City Councillors voted to end the “Canadian Content Policy”, which had been giving a 10% cost advantage to Canadian Content, citing:  Canadian Content claims are difficult to validate,  In a survey of 14 other Canadian municipalities, none were found to have a similar policy respecting Canadian Content  It can be seen as a deterrent to full and open trade and economic development, and provides very little benefit to Canadian suppliers, the economy or the City  The Auditor General indicated similar concerns in his report on the “Procurement Process Review” which was adopted by Council in April 2003  Only 6 contracts between 2001-2003 were affected by the policy  At a cost of $43,394.42 (total cost of selected bids minus total cost of actual cheapest bids)  Total value of City purchases made during the same period was $3.13 billion  3 years earlier, the Province of Ontario had also repealed the same policy 6
  7. 7. In Canada: Self-Study: Improve Procurement  Toronto City Council voted in 2012 for a major overhaul of procurement policy and practice by 2015  This “Social Procurement” framework is designed to maximize the City's    “economic, workforce and social development goals, when determining best value for public funds”  However, the City Manager Joe Pennachetti, in a report to Council in early 2013, expressed concern about federal CETA / ITA policies, which may limit local efforts to do any kind of strategic procurement 7
  8. 8. Discussion:  In repealing the Canadian Content policy, there did not seem to be a balancing calculation of what economic impact the policy might have had:  “The rationale for the 10 per cent Canadian Content preference was to stimulate and encourage Canadian manufacturing activity and to assist Canadian suppliers in competition for the supply of goods and services to government.” (had this been measured to any degree?)  Validating claims of Canadian Content was expressed as a difficulty in administering the policy (but what was the cost of such monitoring? Was it prohibitive?)  Without full knowledge of how ITAs will affect local procurement (i.e. terms of CETA and a Pan-Pacific agreement remain unknown), local efforts to reform procurement may be missing crucial input 8
  9. 9. In the USA: Local strategic procurement is a major ambition Local governments have aimed for “the triple bottom line” (local economic, environmental, social) through procurement & coordination with other governmental departments): Nijaki, LK and Worrel, G, 2011. “Procurement for sustainable local economic development”. International Journal of Public Service Management. 25 133153. City Local Economic Environmental Social Los Angeles, CA -10% cost advantage to local bidders Coordination with Economic Development to pilot test new products re: pollutant release, waste generation, recyclability, energy consumption Coordination with Economic Development for extension of 1990s program which facilitated employment within markets for recycled content products New York, NY - Bid preference for local business - Replacement of all traffic lights to LED ($7 M in utility savings) - Purchase of remanufactured furniture ($100K/yr savings) and print cartridges ($50/unit savings -Enacted Local law 118: to develop standards to “conserve energy and water, increase the use of recycled materials, reduce hazardous materials, decrease greenhouse emissions, improve indoor air quality, promote end-of-life management, and reduce waste” --Local Law 123 aims to reduce pesticide use Portland, OR Considers life cycle cost analysis in procurement Adheres to city-wide: - Focus on “greatest common good” when - Sustainable paper use policy making a purchasing decision - Renewable fuels policy - Training for local businesses to be greener Uses low-VOC paint to save on paint - Replacement of all traffic lights to LED (85% savings in and more competitive in municipal Nijaki LK, Worrel G, 2011. “Procurement for sustainable local economic development”. International Journal of Public Sector costs utilities) construction contracts Management. 9 371-410. Seattle, King County WA -considers longevity of products, efficacy of services and disposal costs -Goal of purchasing 100% green products -Develops contracts for innovated green products -Maintains website to educate government workers in all departments on how to make green purchases --considers women- and minorityownership; 9
  10. 10. In the USA: Preference for Local and Minorities  A 2004 survey of 256 members of the National Institute of Governmental Procurement, (of whom 39% represented local; 21% regional), showed:    Favouring Local-(32%), Minority-Owned (31%) and Women-Owned businesses (24%) were the top “Preference Programs” 72.7% of respondents had Preference Programs The larger the government jurisdiction, the more Preference Programs it had (thought to be due to higher public demand and resources to implement) % of respondents 36.3% 11.1% How procurement determined bidders’ adherence to a preference program State-prescribed eligibility Federally-prescribed eligibility 22.2% Self-Certification 25.6% No special system to determine eligibility 17.9% Other (no preference used) Qiao Y, Thai K, Cummings G, 2009. “State and Local Procurement Preferences: A Survey” Journal of Public Procurement. 9 371-410. 10
  11. 11. In the USA: Monitoring is a hassle  (from previous slide) while 47% of public procurement professionals officially pre-certify bidders as a means of monitoring, another 47% have no formal method or allow subjective certification of bidders  How public procurement workers feel about preference programs: 28.90% Leads to higher prices 27.50% 25% "Makes my job more difficult" 26.60% 24.20% 22.30% 20.30% 18% 3.90% strongly agree agree no opinion disagree 3.10% strongly disagree Qiao Y, Thai K, Cummings G, 2009. “State and Local Procurement Preferences: A Survey” Journal of Public Procurement. 9 371-410. 11
  12. 12. In the USA: Which Laws Were Consulted to Change Procurement Policy? Any 2 of 3 12% State Law 33% All 3 13% 17% + 25% (and possibly more) do not consult with higher governments to change or enact new preference programs / strategic procurement Written policy of the procurement office 17% Local Law 25% Qiao Y, Thai K, Cummings G, 2009. “State and Local Procurement Preferences: A Survey” Journal of Public Procurement. 9 371-410. 12
  13. 13. Discussion:  Many municipalities in the US implement some kind of strategic procurement program (usually a program which prefers Local or Minorities)  Some do it without rigorous monitoring of input quality  More than 42% studied cases adopted strategic procurement programs independent of higher governments  Some procurement workers feel it adds difficulty to their job   If so, what effect does the attitude of procurement officials have on the effort to enact policy changes? How do these attitudes affect the costs associated with the added “difficulty” of evaluating contracts beyond the price of bids?  Some procurement workers have observed it “leads to higher costs”   If so, do they mean product lifecycle costs or purchasing costs? Has the economic impact of the program (i.e. monitoring of the outputs) been considered in balance with a strictly cost-based process? 13
  14. 14. In the UK: Right vs. Left Economic Policies  One non-partisan policy that has remained consistent in UK governing is the encouragement of Small/Medium-sized Enterprises (SMEs) by implementing “supply-side” policy such as:    SME entrepreneurial education Government advice services for small business Subsidies and other incubation resources  But these Economic Development policies, above, are not consistently paired with “demand-side” policies:  i.e. The biggest customer in town, the government, has not made a sustained effort through Procurement policies, to buy the goods and services of these small entrepreneurs they’ve encouraged  Thus, the effects of procurement policies have varied according to the party in power Pickernell D, Kay A, Packham G, Miller C, 2011. “Competing agendas in public procurement: an empirical analysis of opportunities and limits in the UK for SMEs”. Environment and Planning C: Government and Policy 29, 641-658. 14
  15. 15. In the UK: Conservative Policies  Compulsory Competitive Tendering (CCT) became the procurement policy standard in the mid-1980s when fiscal discipline was sought to combat stalled economic recovery Pickernell D, Kay A, Packham G, Miller C, 2011. “Competing agendas in public procurement: an empirical analysis of opportunities and limits in the UK for SMEs”. Environment and Planning C: Government and Policy 29, 64165  A £ 40 B austerity budget in 2010 by the Tory government included heavy cuts in spending. This inevitably affected social programs in deprived localities previously dependent on grants and Labour “spatial Keynesian” procurement strategies to develop national territories evenly  Ex. In Birmingham, contracts made available to the Citizens Advice Bureau and similar community service-providers were reduced from £ 600K to £ 287K, which serviced 44,000 fewer people, under the austerity budget 15
  16. 16. In the UK: Labour Policies  Many from the left felt the 2010 Tory austerity measures fueled the London Riots:  71% of the 2011 Riots took place in districts ranked in the bottom 10% for social cohesion, 58% in areas ranked in the top 10% for crime and 55% in areas ranked in the top 10% for unemployment  However, the UK’s vulnerable areas had long been dependent and depressed under both governments  Labour governments have had difficulty in maintaining consistency in strategic social policies From the late 1950s until the late 1970s, the afore-mentioned “spatial Keynesian” idea was behind policy to spend more to develop depressed areas  However, the devaluation of the pound in 1967, made worse expensive failed experiments in Labour government initiatives to spur and support innovation  The mid-1970s UK had double-digit inflation, massive strikes, a loan from the IMF, an oil crisis and a recession  A short lived government stimulus plan in the late 1970s, was not carried through  Strategic procurement had to be set aside as an official focus   New Labour in 2000 added to CCT, “Best Value”: Public-Private Partnerships in procurement to build trust and increase “economic, efficient and effective” services in longer-term contractor relationships  A service review manual to monitor BV’s results was developed: Pickernell D, Kay A, Packham G, Miller C, 2011. “Competing agendas in public procurement: an empirical analysis of opportunities and limits in the UK for SMEs”. Environment and Planning C: Government and Policy 29, 641-65 16
  17. 17. Currently in the UK:  The idea of creating regional procurement hubs or outsourcing to private consortia who specialize in this service, is gaining favour in the UK: Public (and private) aggregation of common goods and services (in, say, health or education) can lead to savings, and can help cushion austerity measures  This leaves the government to monitor a single, central procurement relationship with procurement specialists in pursuit of its strategic goals  This may solve the lack of expertise in government, and overcome the aversion to go beyond costbased decisions   However, the National Audit Office in 2013 found that the concept of centralizing procurement, despite improvements, still struggles to overcome impediments to change: “ineffective governance structures (no mandate, no enforcement to join central procurement) unrealistic targets, (different departments had varying levels of operational risks and pre-existing contracts with varying end-dates that were not considered in this new centralized model)  incomplete data, (data collection is not standardized between agencies, resulting in data gaps)  weaknesses in the management of the central contracts” (i.e. accountability gap: a central office controls procurement, but a department is liable for over-spending or missing targets)   17
  18. 18. Currently, in the UK:  The Office of Government Commerce in the UK issued an auditors’ guide and strategic procurement case studies showing how considering the following were beneficial:      Calculation of l ong-term cost-efficiencies, not just cost of the expense Identification of strategic vs. non-strategic items in procurement Use of “e-procurement”; professional certification of workers Identification and management of risks associated with supporting innovation in procurement  However, the public sector remains largely risk-averse and resistant to change from the cost-savings model, due to:       Lack of data from lack of monitoring efforts in many departments, Complex macro-economic factors such as recession, currency devaluation and EU crisis interfering with UK governmental policy results, Low-levels of procurement expertise among government workers, Rigid bureaucratic procedures, Lack of input from senior management for strategy Lack of interdepartmental collaboration to experiment with a new idea or innovation 18
  19. 19. Discussion:  Despite the UK’s patchy legacy of new, changed, failed and revised policies on strategic public procurement, there is, at least, a national, bi-partisan effort to get it right  Numerous literature reviews and case studies  Analyses of national policies on local procurement  Experimentation with adjustments to previous models  Efforts to re-organize as hubs or with private consortia  Active and observant auditor general and central commerce offices on this issue, who publish guides, best practices and common problems  Continuous focus on reforming procurement to be strategic key to economic benefit for localities, regions and ultimately, the nation 19
  20. 20. Conclusions  Canadian municipalities (like Toronto) have only started to study their own case regarding strategic procurement  Canadians can learn from the pitfalls of more intrepid local governments in the US and UK, who have already encountered the challenges that lie ahead:  Lack of feasible planning or budgeting for the monitoring process has discouraged more      complex procurement policy Strategic procurement is not a partisan issue—the well-being of municipalities is integral to a nation The risk-averse nature of government workers and their lack of expertise or training in strategic procurement have been observed hindrances The cooperation of other departments in government to experiment, create a hub, or to create wider policy makes it possible to even study effects of strategic procurement The participation of the central commerce and auditor generals’ offices lends important expertise to the process The education of the nation, policymakers and government workers through continuous study, focus and reflection on strategic procurement makes improvement inevitable 20