Public procurement to the rescue?
ACCA Think AheadWednesday, June 23, 2021
BY FELICITY HAWKSLEY
THIS was almost impossible to imagine: a deadly pandemic; a severely restricted global economy; politicians, employers and families scrambling to reinvent health care, education and industry, on the fly.
To meet the immediate needs of their citizens, governments the world over have made massive amounts of money available to buy things like personal protective equipment, ventilators, tracing systems and more. And more resources are being pumped into many economies to hoist them out of the pandemic, through employment programmes, infrastructure plans and improvements to systems revealed as broken.
Most of this work will be undertaken by private companies, potentially ushering in a golden age of public procurement not seen since the New Deal, the domestic spending programme brought in by US President Franklin D Roosevelt in response to the Great Depression of the early 1930s.
46 per cent of SMEs globally won't bid on government contracts because of lengthy or difficult bidding processes.
Transparency key to value
Public procurement is already a massive business. Pre-pandemic, US$8.5 trillion was spent annually by governments contracting private companies to deliver vital goods and services to their citizens, according to management consulting firm Oliver Wyman.
COVID-19 has seen high levels of urgent spending, with mixed results. This is a serious problem for several reasons. First, it means that the public does not get value for money – or, worse, does not get what it needs. Second, it means that the economy suffers further since the capital, and the work, has not been allocated efficiently. And third, it erodes public trust — which, in some cases, may help the virus advance.
Right now, in many countries, public procurement systems are not functioning efficiently. The need for speed and the amount of money involved has strained governments' capacity for oversight, and encouraged bad actors to make hasty, questionable or corrupt decisions. In addition, the systems for advertising and processing procurement contracts are knotty and error-prone.
E-invoicing can help address SMEs' concerns about late payment and also help to reduce the procurement life cycle.
For example, according to ACCA's report, New models of public procurement: a tool for sustainable recovery, 46 per cent of small private sector businesses (SMEs) globally cited a lengthy or difficult bidding process as a reason why they would not decide to bid on government contracts; 34 per cent wouldn't bid because of concern over late payments; 32 per cent said that they had limited awareness of upcoming contracts; and 23 per cent said that they didn't have the in-house capacity to make the bid.
Wariness among SMEs represents a significant lost opportunity. Public contracts for small private companies help to boost the economy, keep people in jobs and ensure prices remain competitive.
So how can governments ensure that SMEs are willing to bid on contracts, and how can they facilitate efficient delivery? The answer: change the public procurement process to make it more transparent and accountable, sustainable and efficient.
Make it modern
E-procurement systems — which use electronic systems of communication, transaction and recording for tendering work and buying services — can help meet all of these goals, to some extent.
Research by ACCA suggests that the initial cost of these programmes can be quite low, and pay-off impressive. Since 67% of SMEs globally are concerned about bribery and corruption in public procurement, such systems can go a long way to build trust in the process of awarding and delivery of contracts since they make the whole process auditable.
E-procurement systems have other benefits too, since they typically use e-invoicing. This can help address SMEs' concerns about late payment, while studies have shown that it also helps to reduce the procurement life cycle.
The UK' National Audit Office reports that SMEs are right to be concerned about late payment; in many instances they write off up to 7.5 per cent of these as bad debt, with some businesses ultimately ending up insolvent because of cashflow problems.
Central control is key to an efficient and transparent public procurement process. And there are some quick wins here, too. First, governments should centralise purchasing bodies to help prevent government-to-government competition in the market, reduce prices and ease auditing.
Governments should also advertise work centrally and make it a condition of each contract awarded that they are published in a centralised register. Here they can be viewed easily by authorities, and by the public, too.
In addition, governments can publish a register of suppliers' poor performance. This helps commissioning departments understand the companies and persons involved in contracts that have not gone well in the past and so avoid working with them in the future. This has proved successful in Northern Ireland, where such a register was set up in 2017.
Such registers benefit companies, too. If there is one place to look for contracts, companies will cease to have limited awareness of what work is available. And if they are looking to subcontract as part of completing a job, they may check the poor-performance register to know who to avoid.
It is also within governments' gift to adjust adverts, registers and selection programmes to ensure purchase from sustainable businesses. Certainly, the goal of public procurement now is to deliver services fast and help SMEs stay afloat— but COVID-19 is a crisis borne of insufficient attention to sustainability. Greening procurement requirements can help change that.
There is no doubt that economies have suffered a huge blow. The urgent need for equipment, infrastructure and systems to fight the pandemic offer a way out for struggling SMEs if, and only if, governments recognise the need for a more transparent, efficient and sustainable public procurement process.
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