Trends in Public Sector Procurement. Perspectives for FMI Ontario Chapter

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Ross Wilson
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1 Trends in Public Sector Procurement Perspectives for FMI Ontario Chapter April, 2013

2 Fiscal imperatives across the Canadian public sector are influencing perceptions of the role of procurement Provincial Budget Balances: Pre-Financial Crisis & Today 2008/ /13 BC $2,741M BC $1,141M AB $4,737M AB $886M SK $641M SK $6M MB $558M MB $460M ON $600M ON $14,400M PQ $0 PQ $589M NB $112M NB $183M NS $419M NS $249M PE $4M PE $75M NL $1,412M NL $258M Then 2008/09: $11b aggregate surplus Stimulus spending focus Compliance emphasis (CITT, court decisions) Now 2012/13: aggregate $19b deficit Balanced budget focus Compliance emphasis persists (Charbonneau Commission, new trade agreements) 1

3 Current conditions allow procurement organizations to redefine or embody their missions with greater emphasis on value Procurement expenditures for goods and services account for 10 20% of provincial budgets (including grants to entities for procurement activities) In 2012, most provinces carried 2 5% budget deficits, with balanced budget targets between 2013/ /15 Procurement cost reduction programs may achieve 3 10% cost savings across aggregate spend up to 2% total budget reductions possible Economic impact of government procurement cost reduction programs are moderate compared to other program and employment cuts. 2

4 There are structural and tactical opportunities to improve procurement capabilities Structural Procurement Opportunities Emphasize value for money through procurement Increase procurement collaboration across public sector Enhance central procurement capabilities while simplifying processes and empowering departmental decision makers Cross-Category Opportunities Develop and enhance category approach to procurement Innovate sourcing approaches, including full use of available tools and approaches (e.g. negotiation, piggyback contracts, eprocurement, esourcing) Drive standardization through clarified specification process Moderate consumption through demand management Category-Specific Opportunities Increase category insights within procurement assist departments and entities in decision-making, market awareness and commercial strategies Set targets and measure results: cost savings, compliance, supplier performance 3

5 Structural Procurement Opportunities Procurement s cultural focus on value for money should be given equal standing to other procurement objectives Expectations for Procurement From Ministers, Members and Senior Government Managers: - Tangible support for fiscal objectives; - Simpler, faster and more flexible processes to support program delivery; From the public: - Expectation for cost management in the face of broad spending cuts elsewhere; - Good stewardship and credibility in response to other environmental factors that have shaken Canadian confidence in public procurement From the supplier community: - Increased ease of doing business; - Greater transparency & collaboration; - Opportunity to bring innovative approaches to create value; Creating a Value Culture Communicating a vision for procurement value - Interpretation and expectations surrounding value are often not widely communicated or embedded in the culture of the procurement department Setting targets & measuring performance - Current metrics are focused on process compliance vs. spend results / value outcomes; - Staff and suppliers are not evaluated or recognized on the basis of cost savings value delivered Balancing risks and opportunities - Fair, open & transparent ethos creates a highly compliance-driven culture, with low tolerance or reward for innovation or assertive approaches to cost control; 4

6 Excess focus on transactions and small value competitions leaves insufficient time and resources to focus on key opportunities Cross-Category Opportunities RFP Competition Value 2011/12 Canadian Province Example 205 Comments Median award value for competitions in Canadian public sector is <$100k Transactions. K <$10 $ $-$50 $50-$100 $100-$500 $500- $1, Procurement Transaction Value 2011/12 Canadian Province Example >$1,000 NULL2 High volume of (frequently) manual transactions consumes too much time, without commensurate value <$1000 $ $ $ >$10,000 AP P-Card PO 5

7 Cross-Category Opportunities Effective procurement should include a focus on moderating demand by working within a category strategy, rather than reacting to requests Monthly Variance from Average Spend (FY11-12) Canadian Province Example Comments 100% 80% 60% 40% 20% 0% -20% -40% -60% Province Adv. Ed. School Boards Muni Procurement category management has a role and responsibility to serve client departments in spending money wisely for including specifications standardization and demand management For example, March Madness frequently in spite of efforts to stamp it out (although some year end spending is normal) March IT & Telecom +210% Professional Services +135% Fleet & Transportation +109% Facilities +54% Education Supplies +18%

8 Cross-Category Opportunities Increased procurement collaboration across the public sector stands to create substantial cost savings and efficiencies Procurement Collaboration Procurement collaboration across the public sector has improved (e.g. Ontario BPS, Council of Atlantic Premiers), but most procurement is still done independently Collaboration can range from Lead-Buyer piggyback to GPOs and integrated Shared Services Enhanced collaboration improves 1) Process inefficiencies Duplication of effort Excessive tenders 2) Outcome inefficiencies Missing out on volume purchasing discounts Overpaying Product Paper (8.5 x 11, 5,000 sheets ) HP 4250 Toner Cartridge Q5942A HP Black Laser Toner 3600/3800 Microsoft Visio Adobe Acrobat (v10 Pro) Collaboration Example: Cross-Province Pricing Low High Price Price $31 $33 $29.40 $41.45 $116 $149 $160 $72.49 $ $ $137 $142 $ $12 $6.40 $83.23 $67 $59.22 $68.00 Prov. Adv. Ed. Muni SBs Collaboration Example: Supplier Overlap Variance 41% 122% 61% 1200% 15% Services Firm $2 $5 Total: $8M Prov IT OEM $5 $7 Total: $14M Muni Contractor $2 $12 Total: $15M Auto OEM $2 $3 Total: $5M Adv Ed $- $5 $10 $15 $20 $M 7

9 Procurement s window to increase value for government is open, and public sector entities are acting Public sector entities are acting to: Define or re-define procurement s mission in terms of procurement value for money and services, in addition to not in lieu of fairness, openness and transparency Backed with action, tools and accountability Maintain and enhance procurement s role in setting the procurement agenda: Collaboration across entities Full use of available procurement tools (RFPs, negotiation, spend analysis, demand and specification management, etc.) Investing in purchasing process automation to free resources for strategic activities Supplement procurement skills training and development 8

Fiscal Coordination in Canada

Fiscal Coordination in Canada Nipun Vats Federal-Provincial Relations Division, FInance Canada Presentation to OECD-MENA Senior Budget Officials Nov 1, 2010 This presentation does not necessarily reflect the views of the Department