August 10, 2016Doug Hadden
Procurement transparency is considered a good government practice. The benefits are clear: better prices, improved value for money, reduced corruption. How do governments leverage this good practice to improve government outcomes?
The first important principle is performance is much more difficult to measure in government than in the private sector. And, as described in a blog entry in 2012, performance in government is tightly linked to budget preparation.
In the past, governments saw performance in terms of “inputs” – the accurate execution of budgets. It was assumed that spending based on the annual budget would result in meeting objectives. The complexity of government actions often means objectives are not met. This has resulted in measuring government outputs. Outputs are a measurement of activity but often do not capture outcomes. For example, the number of additional kilometers of paved highways (output) in a country ought to lead to economic growth (outcome) because of improved transportation infrastructure. However, additional interventions may be required to achieve the outcome such as mobile phone infrastructure for agricultural information, reform to make it easier to create new businesses, and tax changes to facilitate the importation of trucks.
Government organizations improve performance through a holistic and integrated approach. In other words, performance needs to be “baked” into the complete procurement life-cycle. Our experiences at FreeBalance have shown how this procurement life-cycle can be tightly integrated:
- Government Priorities: Governments with clear multiple-year priorities can create a taxonomy or structure for performance. Many countries have articulated objectives at the national level such as “Vision 20xx” or “National Development Strategy.” Some governments embed strategy in government platforms or budget speeches. National priorities that cover all possible sectors are not effective. Government with few clear priorities are more successful at driving procurement performance.
- Policy Linkage: Government policy linkage to top-level priorities enable ministries, departments and agencies to align detailed objectives. It is a good practice to cascade high-level priorities to organizational and annual objectives. Policy misalignment occurs when national priorities are seen as a marketing exercise outside of the daily routine of public administration.
- Program and Performance Chart of Accounts: Governments embed priorities within budget and accounting classifications by using program and objective segments. This enables governments to track revenue expenditures to objectives. An effective “Chart of Accounts” can simplify this process while providing reporting against other priority structures such as the Sustainable Development Goals (SDGs). There is no effective method to linking financials with priorities when the COA is only structured using organizational classifications.
- Multiple-Year Budget Priorities: Governments achieve strategic objectives across many years. For example, it is not realistic to expect spending on transportation infrastructure can occur within a single budget year and that businesses are able to grow in that year. Budgets developed with a medium-term perspective, across three to five years, provide the continuity necessary to track performance improvements. Budget classifications enable this multiple-year tracking. The results from executing budgets can be used to improve future budgets.
- Public Investment Planning: Governments typically plan capital and recurring, or operating, budgets. Public investment planning is a special case of capital budgeting because it is policy-driven, requires multiple years to complete, and often requires multiple ministries, departments and agencies to execute. Public investment planning is also highly political. Therefore, it is important to plan public investments with a clear idea of desired outputs and outcomes. Public Investment Planning links to procurement strategy.
- Avoidance of “Solutioning”: Procurement cycles often begin with a “Request for Proposal” with specifications and contract provisions. These specifications are often derived from “solutioning” the problem that needs to be solved. Governments often survey the market or are provided expert opinion that follows so-called “best practices.” Yet, many vendors have innovative solutions that could solve the underlying problem better, faster and less-expensively within the country context. Performance procurement includes more vendor surveys and options for innovative proposals.
- Procurement Value for Money Structure: Top-level government priorities can be cascaded down to individual procurement cycles. This creates incentives for vendors to achieve government results because the value calculation of price, quality, time, efficiency etc. is directly aligned to objectives. This mitigates risk and optimizes performance results.
- Tender and Bid Processes: Governments acquire goods and services across a spectrum from the inexpensive high-volume commodity to the highly expensive low-volume complex. Acquisition methods should reflect this spectrum. Streamlined methods are needed for those acquisitions that are not material to government performance. More elaborate methods are needed for procurement where performance is material including issuing of Letters of Interest, finding additional vendors, creating two stage bids, and ensuring sufficient time to respond.
- Contract Provisions: Governments can embed outputs and outcomes in performance contacts. Vendors will follow contract provisions. It’s important to ensure that vendor incentives are aligned to government incentives.
- Results Transparency: Outcomes are very difficult to measure, particularly in public investments. This is why procurement needs to be transparent across the cycle to achieve performance, from:
- Transparency of government priorities to
- Transparency of budget plans to
- Transparency of procurement opportunities to
- Transparency of winning bidders to
- Transparency of outputs on contracts to
- Transparency of budget execution to
- Transparency of meeting outcomes
It is clear that performance in procurement requires alignment across the entire acquisition cycle. There is often suspicion about government spending – waste, fraud and inefficiency. Transparency can provide the appropriate level of trust necessary to enable governments to execute strategy. There have been numerous occasions where my colleagues have demonstrated how this works with the Government of Timor-Leste. Public servants in more “advanced countries” have told me how they can find out more about what is going on in Timor-Leste than in their own government!
The Timor-Leste Government Results Portal, developed by FreeBalance, provides information about public investments. These investments are aligned by objectives. Project objectives and alignment with national priorities are described. Outputs are described including spending and proof of meeting milestones.
Procurement opportunities and resulting winning bidders, that lead to governments results, are presented in the E-Procurement Portal. Budget plans and budget execution are presented in the Budget Transparency Portal. These portals are driven automatically from the back-office Government Resource Planning (GRP) software from FreeBalance. The critical factor in aligning these portals with the back-office system across the budget cycle is the consistent Chart of Accounts. COA elements for acquisition type, program and performance objectives provide this alignment.