Procurement Models: what is the best way to source the services you need?

Procurement is critical to the success of any enterprise, including councils. As the wonderful businessdictionary.com states:

“A business will not be able to survive if its price of procurement is more than the profit it makes on selling the actual product.”

While profit may not be the determining factor for councils, the delivery of essential services using scarce resources is – and that makes the statement above very pertinent.

What does procurement involve?

Businessdictionary.com defines procurement as:

“The act of obtaining or buying goods and services. The process includes preparation and processing of a demand as well as the end receipt and approval of payment. It often involves:
(1) purchase planning
(2) standards determination
(3) specifications development
(4) supplier research and selection
(5) value analysis
(6) financing
(7) price negotiation
(8) making the purchase
(9) supply contract administration
(10) inventory control and stores
(11) disposals and other related functions.

The process of procurement is often part of a company's strategy because the ability to purchase certain materials will determine if operations will continue”.

Early contractor procurement model

Several different procurement models can be adopted to deliver services (allocate resources) to the community in an effective and efficient manner.

This article discusses the early contractor involvement model, often shortened to ECI. ECI has several benefits, particularly if the project involves complex design, significant risks, tight timeframes or unknown factors.

An ECI procurement process in those circumstances should result in:

• shorter delivery times

• team approach and collaboration

• early procurement

• fewer changes and variation

• reduced costs, particularly in the pre-tender phase.

How does one maintain probity?

Because ECI involves the early engagement of service providers, councils adopting it need to address probity issues. How to address them will vary depending on the nature and subject of the project. However, these principles will generally apply:

• Impartiality, integrity and honesty. These principles are generally adhered to when all tenderers are treated fairly and consistently, and the rules of natural justice and procedural fairness are applied to the tender process.

• Accountability, transparency and value for money. Parties involved in the tender should have clearly defined methodology for the evaluation and conduct of the tender.

• Avoidance of conflicts of interest. Any actual or potential conflicts of interest of any parties involved in the tender process need to be identified, declared and avoided.

• Confidentiality. A benefit of ECI is the early involvement of ideas, designs and innovations of tenderers. It is important, however, that intellectual property is protected so that tenderers feel they will be truly rewarded for any innovative ideas.

• Consistency in communication with tenderers.

Other aspects of the ECI procurement model that need to be carefully considered by councils include:

• The risk of feeling pressured to proceed with a tenderer given the degree of involvement/investment in the preliminary project design and/or tender process.

• Council being open and flexible in any of its design and/or project expectations.

• The process may require significant resources at the earlier stages of the procurement process to deal with the added involvement and ideas of potential tenders.

Balance is the secret 

Procurement is not simply the buying of goods or services; it is the act or process of buying them. The decision to buy is preceded by the decision of how to buy.

Choosing the right procurement method is an important preliminary decision that involves solving the perennial problem of how to allocate limited resources in order to provide services to the community in an effective and efficient manner. It’s important to remember that:

“The measure of success is not whether you have a tough problem to deal with, but whether it’s the same problem you had last year.” – John Foster Dulles

In solving the constant procurement problem, it may be appropriate to consider alternative models such as ECI.

If you have any questions regarding this article, please contact Michael Cossetto.

Author: Norman Donato

Supporting partner: Michael Cossetto

Read further articles in Council Connect