A KATONAI BESZERZÉSI ÉS BERUHÁZÁSI PROJEKT TERVEK KIDOLGOZÁSA A CSEH HADSEREGBEN. Introduction. PETR MAREK, Ing., Lt. Col. 1 ALENA LANGEROVÁ, PhDr.

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1 PETR MAREK, Ing., Lt. Col. 1 ALENA LANGEROVÁ, PhDr. 2 CHRONOLOGY OF PROCEDURES USED IN PROGRAM FUNDING WHEN PROPERTY FOR MILITARY UNITS AND MILITARY INSTALLATIONS OF THE ARMY OF THE CZECH REPUBLIC IS PROCURED A KATONAI BESZERZÉSI ÉS BERUHÁZÁSI PROJEKT TERVEK KIDOLGOZÁSA A CSEH HADSEREGBEN The program funding system being implemented within the Czech Republic MoD is closely interconnected with program funding in the Czech Republic. The paper describes the chronology of steps taken in meeting the requirement for property renovation and the additional requirements for property procurement within the MoD starting from identification of the need in a military unit or military installation to its procurement. A katonai beszerzési és beruházási projektek kidolgozása a Cseh Hadseregben és a Cseh Köztársaságban szoros együttműködés alapján történt. A cikk időrendben írja azokat a lépéseket amelyeket a két program követelményeinek összehangolása érdekében tettek. Introduction Each strategic business entity in the Czech Republic (CR) organizes its procurement of property and services to meet ordinary, operational and other demands. It also must take into consideration its own renovation, 1 Petr Marek, Ing., Lt. Col., University of Defence, Faculty of Economics and Management, Department of Logistics, Kounicova 65, , tel , petr.marek@unob.cz. 2 Alena Langerová, PhDr., University of Defence, Faculty of Economics and Management, Department of Languages, Kounicova 65, , tel , alena.langerova@unob.cz. HADMŰVÉSZET 7

2 by which it maintains its efficiency, readiness for action and adaptability to the situation in the market or in the department (as for the organizational parts of the state), etc. In this way, the procurement of required raw stock, material, parts, auxiliary substances, fuel and services (hereinafter property and services) becomes a primary activity of each organization. The procurement of property and services affects a broad range of activities from the management of purchases (that, among other things, includes generation of supply orders based on demand) to the support of activities linked with the procurement of property and services. Program funding in the CR consists of programs that have the status of property renovation programs financed from public funds and state guarantee credits. The property renovation programs are determined by the CR budget prospective that is detailed in the program documentation and by the State Budget Act for a particular year. The property renovation programs include individual actions and projects. An action is a part of a program controlled by a program manager of property renovation 3 to support the accomplishment of program objectives mentioned in the program documentation. A project is an action that conforms to the rules of project management in its preparation and implementation stages as determined by the program manager. The Program Funding Information System administered by the Ministry of Finance is an integral, extremely significant part of program funding. The CR Ministry of Defence performs administration within its domain, i.e. for chapter 307 of the state budget the Ministry of Defence (MoD). The Program Funding Information System serves to record the data and information about programs of property renovation and about its particular projects and actions. Program funding is a specific field of financing aimed at the procurement of property and services using public funds (chapters of the state budget of the MoD). Program funding actions and projects within the CR Ministry of Defence are so vital for organization and implementation that they must be documented well in advance. The Medium- 3 A program manager of property renovation within the MoD is an authorized officer responsible for the efficient material and financial planning, implementation and evaluation and management of a program; for program prioritising; for the representation of a user when implementing acquisition needs, operating and other expenses and for the management of public funds and other state finances of a particular program. 8 HADMŰVÉSZET

3 Term Plan is an example of such a document. The Medium-Term Plan defines the program contents, i.e. particular investment and non-investment actions including financial amounts in specific years. For each action included in the program using the Medium-Term Plan a user study is developed. A demand of property or services that occurs in military units and military installations of the Army of the Czech Republic (ACR) is the basis for the development of the user study. 1. Chronology of procedures used to satisfy a regular requirement for property renovation A military unit or military installation of the ACR (hereinafter unit) will determine there is a need for property procurement. Based on the need the unit will elaborate a user requirement that it will submit through the channel of command. Particular superior levels of a given unit will assess and, if need be, deal with the requirement within the framework of their competences or they will submit it to a superior level to comment and subsequently submit it to higher command. The operational headquarters will submit valid requirements to the Directorate of Logistic and Medical Support (Support and Training Force Command) that will satisfy the requirements for property renovation using its own resources or will elaborate a combined requirement for particular property classes that will be handed over to a particular property class administrator. The property class administrator in cooperation with particular commodity managers 4, overall program managers or, if need be, program managers will determine the order of priorities of the requirements and develops a user study of acquisition needs in cooperation with the commodity manager. The specification of property to be procured is a part of the user study. The property class administrator will hand over the user study to the MoD Manpower Planning Section which will decide on the inclusion of the requirement in the Medium-Term Plan. The preceding text is expressed in flowchart No 1. After the inclusion of the requirement in the Medium-Term Plan the program manager will elaborate an investment plan based on the user 4 Director, Support Section, MoD is sometimes a commodity manager and at the same time a property class administrator. HADMŰVÉSZET 9

4 study and specification. Then he will submit the investment plan including specification to the acquisition unit which will process the basic data for the issuance of a registration card and approval of the contracting. The program manager will apply for the issuance of a registration card through the overall program manager. After that, the overall program manager will receive the original copy of the registration card and will hand it over to the program manager who will send it to the particular acquisition unit. On the basis of the registration card and, if need be, the approval of project contracting, the acquisition unit will let the contract (based on Order of the Minister of Defence No 2/2005, Acquisition of property and procurement of construction work and services against payment within the Ministry of Defence and Act No 40/2004 Coll. on public contracts). After the public contract is let and the most appropriate candidate is selected, the acquisition unit will elaborate the basic data required for decision-making regarding participation and will send them to the program manager. The program manager will ask the MoD chapter program manager to take a decision on contract participation through the overall program manager. After that, the overall program manager will receive the original copy and will submit it to the program manager who will send it to the appropriate acquisition unit. Based on the decision on participation the acquisition unit may enter into a contract with a contractor. With regard to the overall complexity of the system that shares in program funding, the planning cycle and the interest of all command levels from the brigade level, the minimum time to satisfy a requirement for property procurement takes 2 or more years from its emergence to property procurement. The planning phase, i.e. the time period from specifying the requirement by a unit to the approval of the Medium- Term Plan, takes approximately 6 months to 1 year. The budget phase, i.e. from the approval of the Medium-Term Plan to the state budget scheduling for a particular year, takes approximately from 6 to 9 months. The elaboration and approval of the investment plan and the specification takes from 3 to 6 months. The acquisition process itself which includes the period from the investment plan approval, the request for documentation and the contracting and acquisition takes approximately 1 year. 10 HADMŰVÉSZET

5 Simplified chronology of procedures used to satisfy a regular requirement for property renovation within the Czech Republic Ministry of Defence 1 MILITARY UNIT MILITARY INSTALLATION will determine the need for property (services) procurement. Based on the need the military unit elaborates a user requirement of acquisition needs. 2 SUPERIOR COMMAND LEVEL (BRIGADE) establishes whether it can satisfy the requirement within its own competence. If not, it will hand it over to the operational headquarters. 3 SUPERIOR COMMAND LEVEL (OPERATIONAL HEADQUARTERS) establishes whether it can satisfy the requirement within its own competence. If not, it will hand it over to the Directorate of Logistic and Medical Support (Support and Training Force Command). 4 DIRECTORATE OF LOGISTIC AND MEDICAL SUPPORT checks whether the property required is available in depots. If not, a total requirement is elaborated based on property classes and sent to the property class administrator. 5 PROPERTY CLASS ADMINISTRATOR will develop a user study of acquisition needs and will enter into relations with the commodity manager and the overall program manager. Subsequently, he will send it to the Manpower Planning Section of the CR MoD. 6 MANPOWER PLANNING SECTION OF THE CR MOD will decide on the inclusion of the requirement in the Medium-Term Plan of the CR MoD Activities and Development. 7 MEDIUM-TERM PLAN OF THE CR MOD ACTIVITIES AND DEVELOPMENT After the inclusion of the requirement in the Medium-Term Plan the program funding system itself will begin. The whole process will take approximately one year. Flowchart No 1. Simplified chronology of procedures to satisfy a regular requirement for property renovation HADMŰVÉSZET 11

6 2. Chronology of procedures used to satisfy an irregular requirement for property procurement An irregular requirement usually appears in unpredictable and unexpected situations. An extraordinary need for property procurement occurs for example in the case of permanent damage to property, the decision of the Minister of Defence or, if need be, other officers (deputy ministers of defence, MoD directors of sections, operations commanders) or in the case of a decision to dispatch a unit to a foreign mission and its required support, etc. An irregular requirement may be a need for property procurement that is not included in the Medium-Term Plan and in the Acquisition Plan of Central Deliveries but was decided to be realized in the current year or, if need be, the following year within the framework of preparing the proposal of the MoD chapter state budget. After the occurrence of an irregular need for property procurement the unit will elaborate a user requirement and will submit it to the particular operational headquarters through the command channel. The procedure of submitting and approving is the same up to the level of the property class administrator and commodity manager (see item 1). The property class administrator in cooperation with the commodity manager (provided that it is not the same person) will proceed as follows: In the case of a requirement for the following year he will ask the MoD budget chapter manager that prepares the proposal of the state budget for the inclusion of the irregular requirement (provided that the requirement is not a part of the approved Medium- Term Plan). The request of the property class administrator should be completed by the concurring opinions of the MoD Manpower Planning Section and the program manager (if the request is not submitted through the program manager or the overall program manager) to realize the irregular requirement including the proposal for the inclusion in the program. In the case of a requirement to be included in the current fiscal year or a requirement that developed after the accomplishment of the state budget proposal preparation for the following year, the property class administrator (after the approval of the irregular requirement by the MoD Manpower Planning Section), the program manager or, if need be, the MoD budget chapter manager asks for the 12 HADMŰVÉSZET

7 earmarking of the necessary financial resources. If the program manager finds available financial resources within the program he manages or if the MoD budget chapter manager earmarks financial resources, the requirement for property procurement may be accomplished based on standards of practice, i.e. from the development of the investment plan through the issuance of basic documentation, entering into a contract and up to the final evaluation. In the case that the requirement for property procurement was not included in the preparation of the state budget proposal or free financial resources within the framework of the current fiscal year were not found, there is another possibility. The property class administrator in cooperation with the commodity manager will earmark the necessary financial resources within the available limits allocated for the next planning cycle. An irregular requirement for property procurement becomes a regular requirement when this variant is realized. 3. The analysis of some issues and feasible optimization of program funding in relation to property procurement Optimization is defined as a process of the most appropriate variant choice out of the amount of feasible variants. 5 Program funding within the MoD shows some features of the so-called bureaucratic organization and is partly an inflexible system that responds to changes slowly. The main features of a bureaucratic organization are, in particular, impersonal rules and centralization of decision-making. Bureaucratic organizations are encumbered with impracticality which results from the fact that such organizations tend to become more independent of the objectives, on account of which they were formed initially. 6 The effectiveness of a certain phenomenon or process can be defined as a result of relation between the amount of inputs invested in the reali- 5 Composite authors: Large Thesaurus. 1st edition, Prague: DIDEROT, ISBN Kunc, P.: The CR MoD having features of a bureaucratic organization. Proceedings of VA Brno from the scientific conference called Economics, Logistics and Ecology in the Armed Forces II. Brno, HADMŰVÉSZET 13

8 zation of a phenomenon or process and the amount of outputs obtained on realization of this phenomenon or process 5. Act No 320/2001 Coll. on financial control in public administration and the change of interrelated laws defines effectiveness as a use of public funds, with which the most feasible extent, quality and benefit of fulfilled tasks are achieved in comparison with the volume of funds invested in their accomplishment. Effectiveness is also related to rationalization that can be defined as changes of an organization or procedures leading to the increase of effectiveness or economy of the process 5. Profit does not exist in the public sector, so it is more difficult to judge the effectiveness of particular activities and to see the optimum level of financial resource expenditure without prejudice. The costbenefit analysis serves for judging effectiveness in the public sector. It is usually used when evaluating public projects and deciding on them. Within the MoD, the expenditures on either the entire program funding process or its individual parts are not kept under review. As for program funding, only the expenditures on particular property procurement (cost value, transport costs, expenditures concerning the introduction in use within the MoD, etc.) are kept under review. The program funding benefit is given by its output (final effect), i.e. property procurement. Program funding is established by Act No 218/2000 Coll. 7 and regulation No 40/2001 Coll. 8 and it is elaborated using basic normative acts for the conditions of the MoD. Program funding cannot be dismantled or replaced by any other more effective process. This can be done only by changing the applicable legislation. The final effect (output) of program funding is the procurement of new property for the MoD and successive expenditures related to it when the property is used. There is a question: Can a more effective output be achieved when the program funding process is realized? Certainly yes. It would be advisable to optimize the program funding process so that lower expenditures and shorter realization time could be achieved. The process optimization would bring simplification and dynamism to the entire process and, consequently, it would be possible to quantify cost savings in the field of mandatory expenditures using economic instruments. 7 Act No 218/2000 Coll. to regulate budgetary rules and the change of interrelated laws. 8 Regulation No 40/2001 Coll. on the state budget interest in funding programs of property renovation. 14 HADMŰVÉSZET

9 When a program manager at the MoD Armament Section elaborates the program documentation, some problems usually emerge with regard to the material and time program specification. The specification of financial requirements does not tend to be a problem. The Medium-Term Plan specifies the program only in financial terms for particular years and determines which actions will be included in the program, but it does not specify the target date for program realization (time specification), pinpoint program objectives and their technical and economic justification. The Medium-Term Plan defines the program content, i.e. individual investment and non-investment actions including the financial needs in particular years. The program manager will receive elaborated user studies after the development of program documentation. It happens that the user study sometimes has little or no informative value. Therefore, it is not usable for the development of program documentation because the program manager does not have at his disposal any relevant basis for its development. Setting the target date for program realization is questionable because the termination of the program and individual actions are not clear from the Medium-Term Plan. The program manager in the MoD Armament Section does not have enough information to elaborate the most important parts of the program, e.g. program objective specification, technical economic justification of program objectives and the evaluation of effectiveness of resources invested in the preparation and realization of the program. The cooperation of the commodity manager or, if need be, the property class administrator is ideal for the development of program documentation. The cooperation of the commodity manager is not laid down in any internal normative act. He elaborates only a user study, commodity and text parts of the specification. Thus, program managers (especially in the gestion of the MoD Armament Section) are not able to assemble complex program documentation that would meet the requirements of the MoD Economic Section (as an MoD chapter manager) and the CR Ministry of Finance. The incorporation of active cooperation of the commodity manager (or property class administrator) in specific internal normative acts of the CR MoD may be a way-out of the above-mentioned situation for the development of program documentation. With regard to his competences the HADMŰVÉSZET 15

10 commodity manager is able to share considerably in defining the program, in defining program objectives, setting parameters and evaluating the effectiveness of invested resources for program realization. The reduction of the number of reviewing staff by eliminating those not required by law is another way of speeding up the process. It is particularly the overall program manager that is not defined in legislation, mainly in the law 7 and the regulation 8. The function of the overall program manager has been established only within the MoD. Other departments and budget chapters in the Czech Republic do not have the function of overall program manager. By the elimination of this function the flexibility of the program funding system would improve, the procedures would simplify and the call for basic documentation would accelerate, thereby the whole property procurement process within program funding will accelerate. High quality planning of property procurement and property renovation, best in the five-year horizon, however a minimum 1 to 2 years in advance, is one of important factors for the use of program funding as an effective instrument. This way enough time for the preparation of program documentation, the preparation and realization of particular actions included in program funding and the timely development of user studies, complex specifications and investment plans will be provided. Conclusion Based on the CR legislation, the future belongs to program funding for property procurement. Program funding within the MoD of the Czech Republic is one of the main effective instruments for property procurement. Currently, long-term tangible and long-term intangible assets are provided mostly using program funding. Most expenditures connected with procurement of property and services within the MoD will gradually be incorporated in program funding in the form of actions and projects. Lengthy time consumption to realize particular actions is one of the main problems of the program funding system within the CR MoD. It is caused primarily by a large number of subjects participating in the entire program funding process. Program funding within the CR MoD is directly shared by the investors (program participants) as the lowest level, the program manager, 16 HADMŰVÉSZET

11 the overall program manager and the MoD chapter program manager (the MoD budget chapter manager) as the highest level in the MoD of the Czech Republic. When the investment plan is developed, the high-quality specification and user study, from which the investment plan results, are of great importance. The elaborated investment plan must be in compliance with the program documentation, the Acquisition Plan of Central Deliveries and the Medium-Term Plan. The software support of the program funding system within the CR MoD is provided by the Program Funding Information System that is a supra-departmental information system. The system is used at various control levels. The Ministry of Finance is a top level, the competent ministries and other budget chapters, workplaces of the competent ministries, detached and subordinated workplaces are a lower level. It is a fact that within the MoD expenditures in the program funding process have not been kept under review till now. Within program funding, only selected expenditures related to the procurement of specific property (cost value, transport costs, expenditures concerning the introduction in use within the MoD, etc.) are kept under review. The program funding system within the CR MoD lacks the ability to react dynamically to changes emerging within the department. However, in spite of partial shortages it is an integral system, the priority mission of which is the goal-directed spending of earmarked state budget finance resources to property renovation programs. LITERATURE Acts, regulations [1] Act No 218/2000 Coll. to regulate budgetary rules and the change of interrelated laws (budgetary rules). [2] Act No 320/2001 Coll. on financial control in public administration and the change of interrelated laws (financial control in public administration). [3] Regulation of the Ministry of Finance No 40/2001 Coll. on the state budget interest in funding programs of property renovation. Internal normative acts [4] Ministry of Defence. Administrative order to support the implementation of program funding budgeted expenses within the Ministry of HADMŰVÉSZET 17

12 Defence, file number: /2003/DP Prague: MoD Economic Section, [5] Ministry of Defence. Complement No 1 of the administrative order to support the implementation of program funding budgeted expenses within the Ministry of Defence, file number / Prague: Economic Section, [6] Order of the Minister of Defence No 42/2002, Organizing Financial Support and Management of Financial Resources within the MoD. (MoD Bulletin No 23/2002). [7] Order of the Minister of Defence No 2/2005, Acquisition of property and procurement of construction work and services against payment within the Ministry of Defence, (MoD Bulletin chapter 1/2005). [8] Všeob-P-4. Management of Property within the MoD. Prague: MoD, HADMŰVÉSZET