Innovative procurement approach from the United Kingdom
Occasionally the Office of the Procurement Ombudsman (the Office) is made aware of innovative procurement approaches being used in other jurisdiction or countries. The Procurement Ombudsman recently received a guidance document developed by the Institute for Competition and Procurement Studies at Bangor University in the United Kingdom entitled “Simplified Open Procedure Guidance”.
The Simplified Procedure identifies new procurement practices that can make it easier to advertise and award contracts below European Union dollar thresholds. These new practices are intended to replace the EU’s traditional open procedure for contracting as well as the practice of requesting quotes which are seen, respectively, to entail excessive costs and act as a barrier to entry for smaller sized businesses. The Simplified Procedure is wholly electronic, can be completed in less than 40 days from start to finish, and is intended to benefit both suppliers and public procurers by increasing transparency and reducing transaction and opportunity costs.
This Simplified Procedure is a good example of advancements being made to modernize and make procurement more efficient and transparent while addressing many of the concerns being voiced to the Office by suppliers about the Canadian federal procurement system.
The Office inquired about any similar initiative/plan for Canadian federal procurement; none was provided.
- Simplified Open Procedure Guidance (PDF format)
- Simplified Open Procedure – Gwynedd Case Study (PDF format)
- Simplified Open Procedure – Carmarthenshire Case Study (PDF format)
Checks and Balances – Establishing a Procurement Review Committee
Departments are to have a system of checks and balances in place to ensure sound management of public funds, including monies spent on buying goods and services. A review of the procurement challenge and oversight function within departments gave the Procurement Ombudsman an opportunity to observe the following practices which other departments may find helpful in strengthening their control frameworks:
- Keep the procurement review committee's terms of reference up-to-date to ensure information is always current (i.e. mandate and authority, members who understand the procurement process, reviewing submissions at the outset of a procurement process, and types of procurements it reviews).
- Use a procurement checklist/template to ensure that documents submitted for review by the Committee address key departmental risks.
- Guidance for preparing documents for Committee review should include supplementary questions to ensure that people preparing the documents have considered all angles. These questions are in addition to what is provided in the procurement checklist/template.
- Develop a streamlined review process for low risk procurement submissions – this incorporates sound risk management processes and appropriate use of resources.
- Support the procurement review committee through a computerized system that provides a tracking function to determine the status of decisions it makes.
- Have a way to "flag" contracts coming up for renewal so their renewal is not automatic, and to ensure options in the original contract are not exercised without giving consideration to holding a competition.
- Procurement review committees can measure the impact of their decisions – whether they improve or worsen the department's procurement activity.
- Procurement review committees can track the stage in the procurement review process where the procurement submission is, to keep their clients informed of the status of their procurements.
For more information about what was reviewed, what we found, which practices need improvement and which practices are good, go to the report on Procurement Challenge and Oversight Function.
Giving Suppliers Feedback on their Bids
Suppliers invest time and effort to submit a bid on government requirements for goods and services. Given this investment, they have a natural expectation to obtain feedback on their bid. If they do not receive feedback or relevant information, they can become discouraged from bidding. The Procurement Ombudsman carried out a review of supplier debriefing practices and, although there are no consistent standards across and within the departments that participated in the review, the following good practices were observed:
- Include a clause in bid solicitations informing suppliers they can ask for a debriefing;
- Share information with suppliers on when they can ask for a debriefing and what information they can expect to receive;
- Provide guidance to people involved in procurement on how and what information can be disclosed to suppliers
- Develop a debriefing and disclosure policy and share this with procurement personnel and suppliers
For more information about what was reviewed, what we found, which practices need improvement and which practices are good, go to the report on Supplier Debriefings.
Challenges to Advance Contract Award Notices
Advance Contract Award Notices, or ACANs, are made public to increase the transparency of the Government's plan to direct a contract to a pre-selected supplier. An ACAN is used when the Government is relatively, but not completely, certain that only one supplier can provide the goods or services it requires.
Under the ACAN process, other potential suppliers are given an opportunity to demonstrate they are also capable of providing the goods or services. Suppliers do this by submitting a "Statement of Capabilities" to the department, who decides whether to accept or reject it. The Treasury Board Contracting Policy requires the decision to reject to be made by a government official other than the one who approved the use of the ACAN.
During a review of departmental practices related to ACANs, the Procurement Ombudsman observed a good practice than went one step further, as follows:
- Having a Statement of Capabilities reviewed by a government official one level higher in authority than the one who approved the use of the ACAN.
For more information about what was reviewed, what we found, which practices need improvement and which practices are good, go to the report on Advance Contract Award Notices.
Standing Offers - Information to Support Decision-Making
In 2005, it became mandatory for departments to use Public Works and Government Services Canada's Standings Offers for commonly purchased goods and services. A Standing Offer is an offer from a supplier to provide the Government with goods or services at pre-arranged prices over a specific period of time.
As a result of a review of Standing Offers, the Procurement Ombudsman observed the following practices which may be useful for other departments in establishing their own Standing Offers:
- Accurate information on the demand for, and use of, the good or service is important for planning and monitoring purposes;
- If databases are being used to capture information, ensure data is complete and accurate and that all users are aware of any data limitations;
- When information being maintained in a database is not being used for decision-making, because other sources of information are better, determine whether the effort and cost involved in maintaining the database should be continued.
For more information about what was reviewed, what we found, which practices need improvement and which practices are good, go to the report on Mandatory Standing Offers.
Managing Changes to Construction Contracts
The construction industry is a key economic driver in the Canadian economy and the majority of Canadian construction companies are small. By nature, construction projects are risky. Amendments, or changes, to construction contracts are common and managing these changes can be challenging.
During the course of a review of how changes to construction contracts are handled, the Procurement Ombudsman observed the following good practices:
- Provide comprehensive information, through policies and procedures, on the change management process, including the requirements to initiate a change, how to determine costs, the need to assess the impact of the change on the project schedule, standard forms and what is necessary to complete each form, direction on how to negotiate costs and approvals, checklists for managing, and samples and information on emergency and urgent contract change processes.
- Develop and use a checklist of records needed to substantiate the change:
- A summary of the contemplated change, and instructions about the worksite, prepared by the project manager;
- A quote from the contractor showing the cost for any extra work;
- Written confirmation from the project manager that the costs for any extra work are fair and reasonable;
- Confirmation that funding is available for the proposed change;
- A copy of contract changes that have been signed-off by the project manager and issued to the contractor.
- Develop ways to speed up the process for contract changes to ensure they are approved and issued in a timely fashion, such as:
- Using a short-form process;
- Giving project managers some authority over contract changes to allow for quick decisions and approval;
- Having a pre-approval process, supported by a contract risk assessment that allows for quick approvals when the work is underway.
- As part of the process to manage changes, require that changes be reviewed by someone who is not directly involved before receiving approval.
- Recruit staff who have specialized skills and knowledge related to construction so they can develop and mentor other staff to build capability.
- In addition to on-the-job training related to construction, invest in co-training for project managers and procurement personnel.
For more information about what was reviewed, what we found, which practices need improvement and which practices are good, go to the report on Construction Contract Amendments.
Validating Payments to Suppliers
The Government of Canada buys goods and services from suppliers through contracts worth about $14 billion a year. Most payments to suppliers are based on a firm price stated in the contract. In other contracts, the price is not determined until after the work is done and the amount to be paid can vary based on a number of factors such as the actual cost of materials and the number of hours of labour. These contracts are typically more complex and higher-risk, and the price is negotiated on a cost-reimbursable basis. For either firm price or cost-reimbursable contracts, the Government can examine supplier records to validate that the price paid under the contract was fair and reasonable – this is called a cost-audit.
The Procurement Ombudsman undertook a review to find out whether auditing payments for cost-reimbursable contracts is a practice which is contributing to the fairness, openness and transparency of government procurement. During the course of that review, the following good practices were observed:
- Even if the Government does not undertake a cost-audit, including a clause in contracts that gives the Government the right to do that:
- is useful to support ad hoc requests, by departments, for additional documentation from suppliers
- may act as a deterrent to suppliers submitting improper invoices
- Internal audit groups within departments recommending that cost-audits be done:
- in some cases where Public Works and Government Services issued the contract on the department's behalf
- for construction contracts to reduce the risk of excessive project cost and to demonstrate value-for-money
- Having a cost-audit program specifically for cost-reimbursable contracts has benefits, including the recovery of any overpayments to suppliers
For more information about what was reviewed, what we found, which practices need improvement and which practices are good, go to the report on Departmental Verification of Suppliers' Records to Validate Contract Payments.
Bid Evaluation and Contractor Selection
Before buying goods or services, departments need to identify what exactly their requirements are to support their operations, and how they will ensure what they buy will provide the best value. The Procurement Ombudsman undertook a review of departmental plans and the methods of supply they use to solicit bids from suppliers, how those bids are evaluated, and how a winning contractor is selected. During the course of that review, the following good practices were observed:
- To minimize the risk of buying goods or services that do not meet a department's needs, procurement officials require program managers to confirm, in writing, that:
- the Statement of Work represents their requirements
- that they agree with the way bids will be evaluated and a contractor selected
- when creating new ways of buying goods or services, incorporate the results of market research and the views of key stakeholders
For more information about what was reviewed, what we found, which practices need improvement and which practices are good, go to the report on Procurement Strategies – Bid Evaluation and Selection Methods.
Managing Supplier (Vendor) Performance
Vendor performance is the actions taken by a vendor to meet its obligations under a contract to deliver goods or provide services. To varying degrees, organizations monitor and evaluate vendor performance, apply corrective measures to right something that has gone wrong, and report on whether performance objectives were met. Although there is no formal Treasury Board policy on vendor performance, the Contracting Policy states that contracts should be managed and administered in a manner that ensures they are successfully completed in keeping with the agreed to terms of time, cost and performance.
The Procurement Ombudsman undertook a review of approaches to managing vendor performance and observed the following good practices:
- Establish a process that is structured and defined according to the type of good or service that is being bought, the operational requirements to be met, and the value, scope and complexity of that particular contract.
- Identify vendor performance measures at the beginning of a procurement process – the requirement definition stage – and incorporate these measures into bid solicitations and resulting contracts. This is critical for evaluating vendor performance over the period of the contract.
- Use past vendor performance information and results of client satisfaction surveys to identify performance measures for future bid solicitations.
- Use Key Performance Indicators, or KPIs, to measure performance for a specific activity and for determining whether the vendor has been successful in meetings its contractual obligations.
- Include performance clauses in contracts, such as:
- liquidated damages - these are commonly used in construction contracts so when a vendor does not meet a condition of the contract, it has to make a payment to the organization
- penalty – for example, penalize a vendor for performing below the agree-upon service level
- payment holdback – hold back 10% of a payment, for example, to ensure a vendor meets all terms and conditions of a contract before it is paid in full
- Monitor performance to minimize contract risks linked to time, quality, schedule and cost. If staff is dedicated to this activity, issues they raise can be dealt with swiftly and effectively.
- Use tools, such as milestones, progress meetings and technical review meetings to manage performance issues as they occur.
- Checklists, forms, templates, user guides and manuals can support decision-making.
- Use automated systems to assist with monitoring, evaluation and reporting of vendor performance.
- Upon completion of a contract, use formal close-out procedures such as verifying that the goods have been delivered or services provided in accordance with the contract, the vendor has been paid, and a vendor performance evaluation form has been completed.
- Inform the vendor, at the bid solicitation stage, that a formal evaluation will be conducted once it completes the contract and that the results will be shared with them for comment.
- Use the results of the formal evaluation to apply corrective measures, such as suspending the vendor's ability to bid on future requirements for a period of time.
- Have a vendor performance policy to ensure all vendors are treated equally and consistently. Having a policy will also inform vendors as to what the government's expectations are and on what basis decisions will be made and actions will be taken.
For more information about what was reviewed, what we found, which practices need improvement and which practices are good, go to the report on A Management Approach to Vendor Performance.
Managing Risks of Directed Contracts under $25,000
The Government Contracts Regulations set out the conditions for entering into contracts. Although competition is the norm, there are certain exceptions to this rule. One of these exceptions is that bids do not have to be solicited for goods and services under $25,000. When a contract is not open to competition, what is called a "directed contract", there are benefits but also risks. As a result of a review, the Procurement Ombudsman made the following observations:
- To be seen as transparent and to be able to withstand public scrutiny, justify and document on file:
- why the contract was not competed
- why the contract is being directed to a particular supplier
- why the price is considered fair and reasonable in the absence of competition
- Monitor and manage, from a strategic perspective, all departmental procurement activity to mitigate risks such as perceived favoritism for a specific supplier and contract splitting. Analysis of contracting information can also inform departmental procurement plans and training plans.
- Provide training not just for procurement personnel, but for others involved in the process.
For more information about what was reviewed, what we found, which practices need improvement and which practices are good, go to the report on Directed Contracts Under $25,000 –A Risk-Based Study.
What has OPO said about procurement practices?
Full reports on procurement practices are available on Office of the Procurement Ombudsman website. Highlights can be found below.
Procurement Review Committees
- What are the essential characteristics of a procurement review committee?
- Should committees review ACANs?
- Other useful tips, tools and practices related to procurement review committees
- How can my department inform suppliers about how to request a debriefing?
- What recourse do suppliers have if they are dissatisfied with a debriefing?
- What information should be included in a debriefing?
- Is there guidance about a standardized approach?
- What methods can be used to debrief a supplier?
- What other departments are doing related to debriefings?
Advance Contract Award Notice (ACAN)
Standing Offers and Supply Arrangements
- How long should standing offers be in effect?
- Planning to establish a supply arrangement - what should be documented?
- Things to keep in mind if you're setting up a standing offer or supply arrangement for your department.
Construction Contract Amendments
- What should construction contract policies and procedures include?
- What documents should be included in a construction contract file?
- Should there be training specifically for construction contracting?
- What would statistics on types of contract changes and number of amendments tell me?
- Other useful practices related to construction contract amendments
- How are vendor performance processes structured?
- When are vendor performance measures identified?
- What's a Key Performance Indicator (KPI)?
- What are vendor performance tools?
- Why do I need a vendor performance policy?
- What makes a good vendor performance policy?
Improving the Procurement Process
- What should I document if I'm awarding a non-competitive contract under $25K?
- What would contract statistics tell me?
- RFQs, T-Buys, ITTs…how can they help?
- What about training for program managers?
- Are you, or others in your department, at risk of exceeding your contracting authorities?
- Do you think the description of the requirement has been tailored to favour a particular supplier (or exclude others)?
- Do your "files" include documentation to support decisions made and can they withstand public scrutiny?
- Should contract requests that involve ACANs be reviewed by a contract review committee?
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