International Handbook of Public Procurement

Khi V. Thai, Khi V. Thai

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351562386
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Since the 1990s, government at all levels is under increasing pressure to do more with less. However, despite the U.S. government spending about 15 to 20 percent of its GDP on contracts for goods and services, there is a paucity of reference books for public procurement officials and very few textbooks for courses on the subject.

Filling this void, the International Handbook of Public Procurement provides the knowledge necessary to understand how procurement works and how to improve the cost-effectiveness of procurement systems. Taking a multidisciplinary approach, the book focuses on the managerial, economic, political, and legal aspects of this topic. It begins with a conceptual framework and highlights various reforms occurring in certain countries. By examining these improvements, readers are able to apply this knowledge to their own strategies.

The next section presents selected cases that illustrate the public procurement process, examining systems in various nations including Germany, China, South Africa, Cambodia, Uganda, and Estonia. The book also discusses the rise of electronic procurement systems (E-procurement) and reviews the benefits of these efficient systems. Other topics presented in this comprehensive volume include practical discussions on contract negotiations, bidding, price strategies and cost analysis, and an insightful chapter on the market's response to contract award announcements.

A virtual encyclopedia from numerous international experts, this book was assembled by Khi V. Thai, Professor at Florida Atlantic University and Editor of the Journal of Public Procurement. Dr. Thai has provided technical assistance in the area of public procurement to governments across the world. Empowering those on all sides of the issue, this volume dispenses advice valuable to government officials and contractors, as well as providing a comprehensive text for public administration students.

Chapter 1

International Public Procurement: Concepts and Practices

Khi V. Thai

CONTENTS

1.1 Introduction

1.2 Public Procurement Framework

1.3 Governmental Framework and Environment

1.3.1 Governmental Framework

1.3.2 Cultural, Administrative, Economic, Legal, and Social Environment

1.3.2.1 Economic or Market Conditions

1.3.2.2 Legal Environment

1.3.2.3 Political Environment

1.3.2.4 Social Environment

1.3.2.5 International Trade Agreement

1.4 Public Procurement System

1.4.1 Laws and Regulations

1.4.2 Public Procurement Organization

1.4.3 Public Procurement Workforce

1.4.4 Public Procurement Process and Methods

1.4.4.1 Procurement Planning

1.4.4.2 Preparing and Processing Procurement Requests

1.4.4.3 Developing and Reviewing Requirements Documents

1.4.4.4 Planning for Evaluation

1.4.4.5 Contract Award

1.4.4.6 Preparation and Signing of Contract

1.4.4.7 Contract Administration

1.5 Implications of the Public Procurement Framework

1.6 Procurement Integrity and Corruption

Notes

References

1.1 Introduction

Public procurement is continuing to evolve both conceptually and organizationally. That evolution accelerated during the 1990s as governments at all levels came under increasing pressures to “do more with less.” Indeed, all governmental entities of rich and poor countries are struggling in the face of unrelenting budget constraints; government downsizing; public demand for increased transparency in public procurement; and greater concerns about efficiency, fairness, and equity. Additionally, public procurement professionals have faced a constantly changing environment typified by rapidly emerging technologies, increasing product choice, environment concerns, and the complexities of international and regional trading agreements. Further, policy makers have increasingly used public procurement as a tool to achieve socioeconomic goals.

In this environment, public procurement has become much more complex than ever before, and public procurement officials must deal with a broad range of issues. They have been walking on a tightrope in:

■Balancing the dynamic tension between (1) competing socioeconomic objectives, (2) national economic interests, and (3) global competition as required by regional and international trade agreements

■Satisfying the requirements of fairness, equity, and transparency

■Maintaining an overarching focus on maximizing competition

■Utilizing new technology to enhance procurement efficiency, including e-procurement and purchase cards

Procurement officials have to constantly weigh the trade-offs between conflicting procurement objectives, for example:

Quality and Cost Trade-off. Public procurement officials constantly face difficult choices between cost and quality. Should they pick Firm A, which proposes $25,000 for an item at a quality of 90 percent of the best item available in the market, or Firm B, which proposes $27,000 for a similar item at a quality of 97 percent of the best item available? Quality cannot be considered without regard to cost, just as cost cannot be considered without regard to quality.

Timeliness and Cost Trade-off. Assume that a public procurement official has two offers for an item. Firm A, a local firm, proposes $50,000 for a contract and will deliver the item within two days after receiving an order, and Firm B, located in another part of the state, proposes $45,000 for the same item, and it takes him or her two extra days as compared with Firm A. Which firm should receive the contract?

Risk and Cost Trade-off. Public procurement officials may decide to pay a higher price to a responsible firm than gamble on a firm that cannot affirm its responsibility. Likewise, public procurement officials may decide to pay a higher award price to a firm which based on an evaluation of his or her relative technical and business management strengths is more likely than a competitor to succeed in meeting the government's objectives. There may also be an inverse relationship between the goals of minimizing risk and maximizing competition. If minimizing technical risk were the only procurement goal, public procurement officials would tend to award only to firms who successfully performed the same or similar work on their previous contracts.

Socioeconomic Objectives and Cost Trade-off. Government entities often pay a premium, explicitly or implicitly, to accomplish socioeconomic goals. The Buy American Act authorizes government entities, under certain circumstances, to pay a higher price for domestic-made goods vis-à-vis foreign-made goods. On the other hand, socioeconomic programs, despite their cost, have arguably contributed to accomplishing other procurement goals. The small business program, despite its cost, has provided considerable work for small businesses and in doing so can be said to have been effective in creating new sources of supply, thus maximizing competition.

Competition and Cost Trade-off. The primary benefit of competition is its demonstrated success in reducing contract prices. On the other hand, this benefit of competition is subject to diminishing returns. And, the government incurs an additional cost for every offer it considers (e.g., the salary expenses of government workers who read the offer, technically evaluate it, apply price-related factors, and—if the offer has a reasonable prospect for award in negotiated acquisitions—discuss it with the offeror). This suggests that there is an optimum level of competition for any given acquisition. This is among the reasons that the Federal Acquisition Regulation now allows for “efficiency” in terms of narrowing the number of offerors in the competitive range with whom a contracting officer must negotiate prior to award.

In this chapter, a public procurement framework that depicts basic components of public procurement as a function of government will be presented. Then, implications of this framework will be briefly explored. Actually, this framework became a basis for the chapter selection of this book. As public procurement has been a neglected area of study and research (Thai, 2000), and as much attention has been focused on procurement laws and regulations as evidenced by the existence of such academic journals as Public Procurement Law Review (published by Sweet and Maxwell), and Public Contract Law Journal (published by the American Bar Association Section of Public Contract Law), searching a public procurement framework that reflects the scope of public procurement is a challenge.

In the remaining part of the chapter, more attention will be given to procurement integrity and corruption, a problem that has been recently addressed by such international organizations as the World Bank, the United Nations, the Organization for Economic Cooperation and Development (OECD), and major donor countries including the U.S. Agency for International Development (USAID) and the U.K. Department for International Development.

1.2 Public Procurement Framework

The United Nations viewed public procurement as an “overall process of acquiring goods, civil works and services which includes all functions from the identification of needs, selection and solicitation of sources, preparation and award of contract, and all phases of contract administration through the end of a services' contract or the useful life of an asset” (United Nations Development Programme, UNDP, 2007). Although procurement process is the heart of a sound procurement system (Harink, 1999), public procurement, according to Harink (1999, p. 15), “involves more than the procurement process alone” and it should not only consist of supporting, but also “important components” including strategy and policy of the organization, methods and procedures, personnel and organization, and information. In the last decade, several authors and organizations have suggested conceptual procurement models. The World Bank has developed a framework of procurement assessment under its “Country Procurement Assessment Review.” This framework consists of four elements: legal framework, institutional framework and capacity, procurement operations and practice, and integrity of the procurement system. This framework provides basic guidelines or a procurement benchmarking tool for assessing the quality and performance of country procurement systems. Detailed areas covered under this framework include (1) legal framework, (2) institutional framework, (3) procurement execution capacity, (4) procurement procedures/tools, (5) control system, (6) anticorruption initiatives, (7) private sector participation, (8) contract management, and (9) system for addressing complaints (Araujo, 2004).

In the United States, the Government Accountability Office (2005) suggested a conceptual framework for assessing the procurement function that is based on four “cornerstones”: organizational alignment and leadership, policies and processes, human capital, and knowledge and information management. Most recently, in 2006, the OECD developed a procurement assessment model, based on indicators from OECD-DAC (Development Assistance Committee)/World Bank Round Table, which was convened in the period 2003 to 2004 (OECD-DAC, 2006). The model consists of four “pillars” including legislative and regulatory framework, institutional framework and management capacity, procurement operations and market practices, and integrity and transparency of the public procurement system.

Analyzing the above models, this author revisited his previous model (Thai, 2001) and the revised model consists of (1) public procurement system and (2) a government framework and environment within which the procurement system is operated. The public procurement system can be operated effectively or ineffectively depending on its four pillars: procurement organization, procurement laws and regulations, procurement workforce, and procurement process and procedures.

1.3 Governmental Framework and Environment

1.3.1 Governmental Framework

The term “government” implies the organizational structure and leadership within a country. In this framework, public procurement is one of many government functions, and the procurement system can be prescribed in the national constitution (like in South Africa where the public procurement is provided in its constitution), or determined through procurement laws and regulations and through policy and budget decisions by legislators and the executive branch. It is important that the “public procurement system is mainstreamed and well integrated into the public sector governance system” (OECD-DAC, 2006, p. 20).

Organizationally, public procurement is dictated by the government system. In general, there are two major government systems: unitary and federal. In a unitary system, the central government exercises various levels of control over local governments in various countries, be it provincial or local governments. Local government procurement structure and process are dictated by the national gover...