August 13, 2012

Work to improve the contract process

Procurement Perspectives | Stephen Bauld

Working closely with contractors and suppliers throughout the entire contract process is beneficial to both parties.

Perhaps as important to securing best value for money in confirming that the internal decision-making and project-management process are up to the challenges presented by a major capital project, is the process of making sure that all qualified bidders are properly briefed and put in a position to submit a competitive bid in relation to that project.

Their ability to do so should not be assumed as a matter of course.

Few things are as embarrassing to a municipal council as when only one (or no) bid or proposal is submitted for a high profile public project.

Such a situation allows no opportunity for cost comparison. It is virtually impossible to decide whether the bid is attractive or not.

In the private sector, relationship development is a critical aspect of the procurement process. It is obviously critical to the success of relationship-based procurement, in which the supplier and customer are given access to each other’s strategic plans, relevant cost information and forecasts.

This is so that they can work out a joint procurement/supply strategy under which risks and rewards are addressed openly, and divided fairly between them. The open, fair and transparent competitive process for the award of municipal contracts qualifies the extent to which municipal contracting can be conducted on a relationship basis.

Nevertheless, every municipality should strive to have a good supplier-customer relationship.

Even in the most competitive process there is no reason why municipalities cannot discuss with their prospective suppliers how to govern their pricing policies.

Municipalities need to become familiar with the concerns that influence the pricing of the goods, services and construction that they are likely to buy.

The tender and RFP (request for proposals) process allows municipalities considerable control over the terms in which they conduct trade, but since terms adjust the risk allocated to a supplier or contractor under the contract, the price paid will inevitably be affected by the terms that the municipality sets.

An informed and constructive dialogue between the municipal customer and its private sector suppliers can lead to a better understanding on the part of the municipality of the cost implications of addressing some of its contracting concerns. On the other hand, if suppliers are familiarized with those concerns, they may well be able to bring forward less expensive alternatives for addressing them, than those that have been chosen by the municipality.

Most business people are probably wise enough to understand that the local municipality can be and should be one of their most prized customers in view of the potential volume of business it offers to the market.

For this reason, the business that they operate should be prepared to accommodate the municipality where this can be done without taking on excessive work.

It is important to note that an improved supplier-customer relationship can also lead to improved levels of service. Often, the senior management of a supplier has little immediate knowledge of the dealings between the municipality and the supplier.

Therefore, if a municipality is having difficulty with its supplier or requires an improvement in a service, making contact with those managers — not in a hostile way, but so as to discuss how service might improve — can lead to significant progress.

Clearly, it is the purchasing manager who has the critical role to play in this area, as the natural interface between the client department and the supplier.

As important as government contracts are to the overall economy, they make up a minority of the total work available to the private sector. The open, competitive system of contract awards is a process with which many private sector companies are only barely familiar.

Stephen Bauld, Canada’s leading expert on government procurement, is president and CEO of Purchasing Consultants International Inc. He is also the co-author of the Municipal Procurement Handbook, published by LexisNexis Canada. He can be reached at stephenbauld@bell.blackberry.net.

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