Thursday 23 August 2012

Towards best practice in procurement

By Ho Yew Kee, Published The Straits Times, 22 Aug 2012

RECENT media reports on government procurements are timely reminders that Singapore needs to be vigilant and not become complacent in procurement where fallible human beings are involved.

There was much buzz about NParks' acquisition of the Brompton brand of foldable bicycles.

Procurement lapses were also reported in the Auditor-General's Office (AGO) report and the Minister for Finance spoke in Parliament about improving the procurement system.

Singapore should never become victim to its success, by having a mindset that it has great processes, a clean Government and that everyone can "take it easy".

It will be extremely unusual if there are no government procurement lapses; this is much like expecting no crime in a country because of good legislation and great policing.

In fact, the KPMG Singapore Fraud Survey Report 2011 found that fraud was reported by nearly one in four companies surveyed here. Lapses are not necessarily fraud, but they provide us with opportunities to reflect on how we can curtail such future possible occurrences within tolerable costs.

This article looks at a basic tenet of best practice procurement and suggests ways to strengthen the system further.

The basic tenet of a good procurement system is to allow market forces, or "the invisible hand of Adam Smith", given the economic self-interests of buyers and sellers, to reach a mutually acceptable price for such procurement.

The pre-conditions for free market forces to work well are: informed buyers and sellers; no impediment of access to the market; and the existence of multiple buyers and sellers.

In this Internet age, the popular auction site eBay comes close to a perfectly competitive market.

GeBIZ, the Singapore Government's one-stop e-procurement portal, was supposed to be an Internet "exchange" where its procurement needs are broadcast to interested sellers who will then offer their products or services.

This allows the procuring unit to source for the best deal.

Using the above free market as a reference point, some of the current lapses arise from failures in meeting free market conditions.

For example, the one-bid problem could be due to market impediments such that there is only one interested seller or that information is not reaching would-be sellers. There were also concerns that due diligence was not undertaken as the buyer did not have sufficient knowledge or information to make an informed decision.

The minister was swift to suggest improvements to plug failures in GeBIZ. For example, the number of days in which a procurement request is to be kept open is lengthened and this helps to ensure that sellers are better informed to respond to the invitation to quote.

This improvement, however, can be further enhanced by guidance on "busy periods" where a longer period may be required because of societal customs or practices where businesses experience down time, like festive periods.

Greater effort to create the needed free market conditions must be present and it should be the conviction of procurement officers to obtain the best deal.

Another suggestion is to make the market more complete by "populating" GeBIZ with potential sellers. Since investment in the portal is already in place, why stop at only 55,000 vendors?

Could there not be a massive publicity drive to attract many more potential sellers to the portal? In addition, allowing more than one free authorised representative per vendor will be a welcome move. The cost of $280 per additional authorised representative per annum is an impediment which should be reconsidered.

Given the potential cost savings from a free market, the Government may be better off reducing the fee and thus encourage more information flow to vendors. The business model of Groupon holds a lesson. It sends out free e-mail advertisements to subscribers whenever there are new coupons available in the market.

Approving officers should not be rubber-stampers as effective procurement is more than merely "following the rules". Such officers have to ensure that the organisation's interests are protected.

This task can be challenging if the timeline for approval is so tight that a rejection may mean the cancellation of an event or creation of a bottleneck. This calls for earlier planning and scheduling. Approving officers as gatekeepers must be willing to reject the "urgent approvals" when there are signs that the process may be compromised.

Finally, procurement officers must deal with the reality of perception and value systems.

With respect to younger procurement officers, buying a bicycle for $2,000 or an expensive ergonomic chair may be the best value for money in the long run or for quality reasons.

However, they have to contend with the public's perception that a $2,000 bicycle or an expensive ergonomic chair may be beyond reasonable expectations.

This does not mean that the procurement should not take place but empathy and greater sensitivity would have to be exercised.

Associate Professor Ho Yew Kee heads the Department of Accounting at the National University of Singapore Business School.

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