Updated September 2021
Public procurement is the main driver of government operations. Globally, governments spend $13 trillion a year on public procurement contracts. For every $3 of public spending, $1 goes to private contractors tasked with implementing government projects. Public procurement can account for around 13% to 15% of GDP. This means that a good public procurement process lies at the heart of a well-functioning public financial management system.
Government procurement encompasses all activities related to the government’s acquisition of goods, services and works. A good public procurement system ensures that the needs of end-users are met while maximizing value for money for taxpayers. Likewise, because of the quantum of funding involved, government procurement systems should follow specific legislation and regulations that ensure transparency and accountability. A poorly managed public procurement system can negatively impact government operations and dampen economic growth.
Unlike the private sector, government budgets are subject to the laws of the country and managed through commitment accounting. Government procurement represents a corruption risk but at the same time, is also a major contributor to effective public investment management.
What is Electronic Government Procurement?
Electronic procurement, or eProcurement, in government refers to the use of information technology (IT) in public procurement. Some governments initially use IT for one or more procurement steps before a full roll out. With time, government eProcurement reforms usually expand towards end-to-end coverage.
The goal of using government eProcurement is to increase the efficiency of the procurement process through the reduction of manual processes. This can potentially save taxpayers’ money by reducing errors that could lead to delays and procurement failures.
Components of an Government eProcurement System
Although procurement legal frameworks vary per country, all government eProcurement systems share some common basic functions and have linked modules, streamlining the management of the process.
The following functions correspond to the various stages of the government eProcurement process:
- Registration: The system should provide a secure means of access for government personnel involved in the procurement process.
- Procurement Planning: Most legal frameworks require the preparation of an annual procurement plan. This is commonly posted in the public domain. A government eProcurement system facilitates the preparation and publication of the procurement plan and links this to the other relevant system modules.
- Posting and Notification: Users from procuring entities post bid opportunities via the system. Likewise, prospective bidders access bid documents through the procurement portal linked to the government eProcurement system.
- Searching for Bid Opportunities: Efficiently matching a government’s needs with what can be supplied by the private sector is critical in public procurement. A properly indexed, searchable, and user-friendly web portal increases the likelihood of many potential contractors finding the right procurement opportunities.
- Tendering: A good eTendering module enables procuring entities and prospective bidders to clarify details of the tender, prepare their bids, and securely upload the required documents onto the system.
- Evaluation and Award: This module allows procuring entities to open, decrypt, and evaluate bids, as well as award contracts to the winning bidders.
How does a Government eProcurement System Improve Public Procurement?
Because the system is integrated with the government’s financial management system (IFMIS), its interoperability strengthens internal controls, promotes transparency, and reduces the potential for errors. In addition, the system provides for the following:
- Statutes that determine procurement rules, like modalities and length of time that tenders must be available to vendors, are automated based on the procurement plan.
- Tenders are automatically created based on rules and are posted to eProcurement sites for the proper length of time.
- Contracts and purchase orders are automatically created based on tenders, and are compliant with procurement regulations.
- Vendors are checked to ensure tax compliance.
- Procurement processes automatically reflect statutes.
- Commodity purchases are automatically tracked and are placed in the inventory.
- Inventory trends are tracked and can be used to inform procurement plans.
- Fixed assets are placed automatically in registries, expenses against assets are tracked, and depreciation of assets is automatically calculated.
- Fixed assets are automatically assigned to public servants.
- Asset registries can be used to inform plans to procure replacements.
Why is Interoperability Important?
Interoperability between the government’s eProcurement system and the IFMIS means that integration is automated, with no need for any manual interface processes. The potential for corrupt practises is therefore reduced. Through integration of metadata, such as the Chart of Accounts, vendors, catalogs and organizational charts are shared among financial applications which in turn share controls such as commitment controls and the segregation of duties.
Integrating government eProcurement and the IFMIS supports the budget planning process by linking the following:
- Procurement Plan to the Budget: Budget allocations can be set aside as soft commitments in anticipation of the upcoming procurement.
- Awarding of Contracts to Purchase Orders: Funds for the obligations are set aside after the procurement cycle has been completed.
- Contract Management to Payment: Goods receipts, expense vouchers and payments in line with the contract requirements.
- Multi-Year Contracts to Medium-Term Budgeting: End-of-year processes to carry over budgets based on rules, including the support of multiple-year commitments.
- Vendor Catalog to Budget Costing: Vendor catalogs in the eProcurement system can be used to create cost drivers.
An integrated eProcurement system helps governments with commitment accounting and internal controls in a number of ways:
- Procuring units can only procure when they have the budget for it
- Segregation ensures that the proper goods are properly received from certified vendors
- Only received goods will be accounted for
- Vendor information including catalogs and framework agreements will be automatically used to achieve lower prices
Most importantly, the processes of commitments, de-commitments, obligations, and de-obligations, are fully automated.
eProcurement Performance Management
Linking eProcurement to the IFMIS also helps in performance management. Procurement information, such as the variance between the budget and the contract price, provides a value for money dimension to performance reports. Procurement status reports also provide context to the outputs and outcomes of the budget. Likewise, automation of contract management such as tracking of milestones improves the management of the execution of the budget.
Interoperability also improves auditing by enabling risk-informed audits. Auditors can save time and energy by focusing on high-value items. Likewise, an interoperable government eProcurement system allows auditors to easily track transactions across systems. An integrated system can also prevent problematic pay-outs linked to potential non-compliant suppliers.
The FreeBalance Accountability Suite™ is a government resource planning (GRP) system that supports the integration of the procurement cycle with the budget. Through a unified design, the GRP supports the seamless integration of a government’s procurement process with its financial management cycle — making FreeBalance’s interoperable solution superior to many commercial-off-the-shelf and standalone procurement systems.