Transforming Purchasing, Transforming Government: Professional Public Purchasing For the Next Millennium
Constance Cushman, J.D., C.P.M.
Constance Cushman, J.D., C.P.M., Attorney and Consultant, New York, NY, 10024-2044, 212/799-9986
82nd Annual International Conference Proceedings - 1997
Summary: This workshop presents a vision of a transformed public purchasing function, where best practices of professional purchasing implemented in the context of a "Public Purchasing Bill of Rights" free public purchasers from dysfunctional regulatory constraints and empower them to obtain value for the tax dollar and safeguard the public trust.
I. Government Purchasing: A Catalyst for Transforming Government. It is no secret that governments today, whether national, state or local, face a credibility crisis as well as a performance crisis. We have only to look at the voter turnout in recent elections to realize how deep is the public sense of alienation from government. Fed up with budgets that spiral upwards out of balance and out of control, taxpayers everywhere are insisting that government do more with less.
This paper presents the view that public sector purchasing can be a powerful catalyst for transforming government, but that it will achieve this goal only if it adopts the best practices of private sector purchasing in the context of an emphasis on professional training, skills, and exercise of discretion, rather than regulatory controls.
The numbers alone are staggering evidence of public procurement's potential impact: hundreds of billions of dollars spent on contracts for goods, services, technology and construction each year. But the impact of government procurement is far more than fiscal.
First and foremost, government "works" through its contracts. If its contracting mechanisms are effective, government can be effective; if they are not, government service delivery founders. We all have a stake in effective government contracting, because it is our tax dollars that are at work in government contracts, and the goods and services procured are intended for our benefit. Wasteful or secretive or corrupt contracting erodes confidence in government at a fundamental level.
Governments also look to their contracting policies to fuel economic growth. Government spending on contracts ripples through the economy. Government waste snowballs, making a region less competitive in the battle to attract industry. Conversely, effective purchasing also has exponential impact, because residents and businesses get more from government for the tax dollars they must pay, and so the region attracts private sector investment. Protectionist policies favoring one group or another may have a short term effect but in the long run true competitiveness depends on strength without protectionism. A competitive government fuels a productive society.
Those who have tried to improve government contracting realize that procurement is a core process of government whose improvement will impact all the other core processes of government. Effective procurement requires long term strategic planning, a budgeting and contracting cycle that is not restricted to a single fiscal year and that rejects the "use it or lose it" principal, mechanisms to recoup savings in real dollars in the budget so that they can be realized in a concrete manner, personnel policies that provide incentives for professional growth in the field of purchasing management. Public procurement in which citizens have confidence requires open access to information about competitive opportunities, the procurement decision making process, and performance records of government contractors. Information technology can be an enabler of all these changes, and nowhere more powerfully than in managing the contract/purchasing spending of government.
II. What's Happening in the World? To be effective, public purchasing must be attuned to the significant trends in business and global commerce generally. Five key trends stand out:
- New, more rigorous standards of quality and timeliness of customer service have become the benchmarks of performance and thus keys to survival in an intensely competitive arena. This is true for governments as well as for private companies, partly because citizen expectations for government performance are molded by their experiences with top quality customer-focused private sector firms. Today, businesses that don't score high on these measures lose their customers and go bankrupt; governments that don't score high on these measures lose their tax base and go bankrupt; leaders that don't score high on these measures don't get re-elected; agencies that don't score high on these measures have their functions "privatized." Purchasing is no exception; it is not at all far-fetched to consider outsourcing the purchasing function, at least in part.
- Technology and the information revolution, whose impact some liken to the agricultural and industrial revolutions, are affecting public purchasing directly. Technology provides new tools for purchasing: automated purchasing systems, electronic bid solicitation and receipt capacity, electronic data interchange, catalog shopping on-line, even electronic commerce via expert systems and knowledge agents--all one evolving continuum of information technology tools in purchasing. Also thanks to technology, detailed information can be collected, packaged and studied to support cost-effective and results-driven purchasing, as through identifying opportunities to leverage volume purchases within organizations and across organizational boundaries, tracking supplier performance, calculating life-cycle costs, and comparing the total cost of contracting out to the cost of government provision of services. Equally significant, information technology could finally make the old debate of "centralized vs. decentralized" purchasing less vexing. Standard policies and clear authority to assure accountability can be established for an entire jurisdiction, and where appropriate master contracts can be put in place at some central point, but authority to award contracts can be delegated as situations warrant, and end users everywhere can "shop" (place orders and receive direct delivery) without purchasing's intervention.
- Welfare reform and other similar initiatives are transforming relationships between levels of government, and between government and the private sector. Devolution and deregulation are gathering momentum, in an era of budget deficits, cost-cutting and a drive to create "a government that works better and costs less." Under the new framework, more and more functions will be performed by states with block grant funds; at the same time, those block grants will have fewer programmatic and regulatory strings attached. At the same time, privatization (known in the private sector as outsourcing) means that more and more formerly "government" functions will be performed for government by private sector organizations.
- New, more fluid organizational arrangements, whether public, private, non-profit, or collaborative enterprises, now go well beyond "quasi- governmental organizations" such as public authority, government not-for- profit corporation, local development corporation and special district, to include public-private revenue producing partnerships; consortia (public, private and public/private), and other team and "team-net" approaches to particular efforts. This leads to a blurring of distinctions between partner and competitor, government and private organization, with profound implications for the standards by which public procurement is governed. When public dollars are spent by a private company acting as agent for government, do commercial or government procurement standards apply?
- The world of commerce, including the world of government procurement, has become truly global. Even local governments are players in the world market and the vendors who sell to state and local governments certainly are. It is not cost-effective for suppliers to deal with a myriad of inconsistent procedural requirements that have the force of law, (nor, since these costs are inevitably albeit indirectly passed along to government) for governments to impose them. Global standards are emerging for public sector procurement: GATT, UNCITRAL, the World Bank Guidelines for procurement using World Bank loan funds; even globally- recognized quality certifications for suppliers in the international marketplace.
All these powerful forces in the environment within which government operates can either fuel a positive transformation, or precipitate government's breakdown. Procurement will have a profoundly catalytic role in either case.
III. SWOT Analysis: Public Purchasing Today. As we consider the road ahead, it is useful to assess the Strengths, Weaknesses, Opportunities and Challenges facing public sector purchasing today.
Strengths (those qualities within government that provide resources for positive action) include: Government's immense market power; the fact that government touches every aspect of our daily lives; the sheer number of different governmental units, so that government can be a laboratory of innovation; the notable history of public purchasing organizations and professional education.
Weaknesses (those qualities within government that may prevent achieving the goal) include: Government's market fragmentation; its bureaucratic decision making processes and dependence on developing consensus for legitimacy of significant decisions; purchasing's reputation as a clerical or control- oriented function; the lack of any well-articulated and accepted vision about the desired future state; the fiscal crisis facing all governments; and the legacy of outdated legal systems, including the perception that public purchasing should primarily be managed by laws and rules.
Opportunities (factors outside government that provide helpful conditions to the transformation of which we speak) include: the private sector's ability to innovate and its management skills; the increasing willingess of governments to form partnerships with the private sector (teams and collaborations are on the rise); information technology's immense new capabilities and the fact that it touches everything that government--and the private sector--do; the growing public perception of purchasing as a professional discipline and strategic function in world-class organizations; the widespread exchange of ideas, information about management, purchasing, and best practices; an unprecedented alignment of interests of public sector, private sector, and citizens; and the fact that in many jurisdictions purchasing laws are in a state of flux.
Threats (factors outside government that present risks to the transformation of purchasing, and of government) include: the potential for abuse in politics/business as usual which often overrides the decision making authority of professional public purchasers; the crisis of confidence in government referred to above; an unwillingness both within and outside government to trust public employees to make sound and ethical professional decisions(the "control" mentality); the ever-present temptation of politicians to compromise the fundamental purposes of public purchasing--namely, to achieve value for the tax dollar and protect the public trust--in the interest of using public purchasing to achieve social goals.
IV. The Public Sector Procurement Laboratory. In this environment, understanding purchasing as a professional discipline provides the conceptual basis for liberating public procurement from over-regulation and for exploring innovative, cost-effective solutions in government contracting.
Professional purchasing has all the hallmarks of any professional discipline: A defined body of knowledge and skills; a code of conduct for members of the profession, who are acting as fiduciaries, agents for the organizations which employ them; a decision making process in which judgment, in addition to knowledge and skills, is brought to bear on varying situations and circumstances in order to achieve the desired result--rules are not enough; and a commitment to continuous professional education and development of skills and judgment.
Public purchasing requires laws and rules so that the body politic can confer authority to purchase on designated officials and provide parameters for the exercise of that authority. Often, however, lawyers, judges and politicians--not purchasing professionals--establish and interpret these laws and rules, they do not reflect best practices, and certainly not evolving best practices, in the purchasing profession as a whole. In many cases the laws and rules establish decision making processes which are seen to substitute for the exercise of professional skill and judgment--they micro manage. The laws do not have as their basic premise that public purchasers are professionals, with skill, training, judgment, and an ethics code which binds them to serve the public as fiduciaries, and therefore can be entrusted with responsibility to exercise discretion as agents for the taxpayers and citizens of their jurisdictions.
On the other hand, professional purchasers have increasingly played a significant role in drafting modern procurement laws and regulations, and there has been an increasing emphasis on professional education, professional associations, and keeping up with changing techniques in the profession. So some laws do provide flexibility to apply professional skills, even innovations.
Where this is the case, around the country innovations have occurred. Governments have re-engineered their purchasing functions, streamlined process and improved focus on the customer, implemented technology innovations, and raised purchasing thresholds to permit increased autonomy and user empowerment. Best practices in professional purchasing are being implemented here and there in government: making purchasing a strategic participant in enterprise productivity; embracing Total Quality Management with its customer focus and its emphasis on integrity; adopting the approach of supply chain management, with its emphasis on establishing partnerships with suppliers and "down costing" or working jointly to reduce costs while improving performance; using purchasing teams across organizational boundaries; emphasizing cycle time reduction and process elimination. The workshop session will present examples of all these practices in the public sector.
Nonetheless, professional public sector purchasers remain frustrated. Somehow, the reforms seem to be nibbling at the edges, never really gathering momentum and credibility so that they can truly use the power of the professional skills that are available, to bring about the transformation in government that we need and that we know is possible.
To achieve that transformation, we need a compelling vision, a simple, understandable expression of what public purchasing should be about. With such a vision, all jurisdictions could strive to make their laws, rules, systems and personnel live up to it. Such an expression is a Public Purchasing Bill of Rights.
V. Toward a Public Purchasing Bill of Rights. Such a Bill of Rights should have three major components.
- A "General Public's Bill of Rights" articulates the fiduciary obligation of the government--its elected officials, its public employees, and its agents--to spend public money for best value in the public interest and for no other purpose: not political (as awarding contracts to less qualified campaign contributors), not personal (as in return for some personal benefit). It emphasizes effective competition as a primary tool in achieving value, and also articulates the premise that timely, quality delivery of government services to the public at reasonable cost depends upon effective and efficient procurement management in a system that encourages good firms to sell to government. It states the public's right to participate in the establishment of spending priorities, and its right to the services of skilled procurement professionals to manage the actual procurement activities and decisions which execute those policies. It expresses the public's right to information about contracting decision making, and emphasizes the importance of this access to information as a means to assure that the public's business is conducted in the public interest.
- A "Public Employees' Bill of Rights" endorses the purchasing professional's Code of Ethics and right to be free from improper interference with the application of professionals skills and judgement. It supports training and education for purchasing staff, as well as opportunities for professional advancement, and freedom to innovate and take risks in a good faith effort to assure value for the tax dollar. It expresses the concept that purchasing, as a support function, must perform effectively to permit all other public employees to do their jobs, and that purchasing professionals must "add value or get out of the way." Therefore, it expresses the right of agency "internal customers," those who depend upon purchasing for the things they need to do their jobs, to timely and effective support of their enterprise mission from the purchasing function, and their right to have savings achieved by effective procurement both documented and applied to enterprise purposes.
- A "Suppliers' Bill of Rights" endorses suppliers' right to fair treatment in contract solicitation, award, and administration as well as their obligation to deliver value. While endorsing competition, it expresses the principle that once a contract has been awarded, government and contractor have joined forces to serve the general public, and have formed a strategic alliance to that end. It enunciates the contractor's right to a reasonable profit and government's duty to honor contract obligations. Suppliers, like the general public, have access to information about contracting decision making; nevertheless, protections are in place for proprietary and confidential information of bidders and proposers.
This public purchasing bill of rights should apply to all public purchasing. This includes quasi-governmental organizations such as authorities, governmental corporations, and special districts, that now are usually expressly exempt from procurement and personnel rules that apply to traditional government agencies. It includes non-profit organizations and profit-making companies which today often assume responsibility for service delivery on behalf of government--service delivery is "out-sourced" or "privatized". It includes as well construction practices such as design-build or turnkey projects, or the still more common hiring of a private sector construction manager. Such quasi-governmental entities have been around for some time, but recently their use is growing astronomically.
Now we see something new again: public-private enterprises which pool the resources of government and private enterprise to develop and manage revenue producing projects for the benefit of both. Sometimes these are long- term partnerships; in other cases they are more ephemeral, forming around a limited mission and uncoupling when that is accomplished. All parties, and the public, need to be aware that when government and private firms team up to provide services, successful performance requires more than just an "arms length" relationship. A "partnership" must be established, in which the contractor assumes some of government's responsibilities, its fiduciary obligations to the public, and its accountability. Now that government is getting into the profit business, the Public Purchasing Bill of Rights should apply here, too.
A Public Purchasing Bill of Rights like that outlined here is no more and no less than the best practices of professional private sector purchasing, applied for the benefit of all citizens. There is no reason that taxpayers, purchasers, public employees and suppliers should not band together to claim our rights. If we do, government as we know it may be transformed, in the words of the Athenian Oath, into something "greater, better and more beautiful" than it is today.