SOUND public procurement practices have a bearing on whether an economy grows, or not. The price at which the government pays for inputs and the quality of services delivered to it is matters to be consistently monitored.
Ideally, the government should purchase goods and services at competitive prices, of the appropriate quality, and which are delivered in a timely manner.
On the other hand, if the government secures its purchases at inflated prices, compromised quality standards and in manner characterised by delays, it will eventually spend more than it should in order to keep state capacity available.
Ultimately, the poor procurement practices of government will likely reflect in a stronger growth in public debt, higher domestic interest rates, an unstable currency, poor performing economy and a smaller tax base, among other things.
In some countries, public procurement is also used to pursue secondary objectives, which go beyond securing the most efficient supply chains for government.
Such objectives may include promoting small to medium enterprises (SMEs) by encouraging them to be suppliers to the government, and promoting previously disadvantaged persons (youth, women and people living with disabilities), among others.
In South Africa, for example, the general rule is that all companies which intend to do business with the state must have a record which confirms their support towards previously disadvantaged persons.
The legislation known as the Broad-Based Black Economic Empowerment Act (Act 53 of 2003)/ B-BBEE, serves to validate such secondary objectives in state procurement.
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The downside of such secondary objectives is typically that they are not consistent with the goal of maintaining efficient public procurement systems.
Preferential procurement can easily lead to the selection of less productive, less skilled and less efficient suppliers, whose contracts are guaranteed, regardless of their underperformance.
Due to the apparently different objectives of state procurement, as discussed above, it is critical for policymakers to ensure that there is a balance in fulfilling them (objectives) in a sustainable manner.
That naturally means an over-sized focus on only one of the objectives can lead to undesirable political or economic consequences.
Contemplating SCMR in Zimbabwe
In the public sector, supply chain management review (SCMR) is a programme, which entails the periodic evaluation of government’s supply chains.
The assessment is done to determine if the state’s supply chains are performing optimally, in the national interest, or they have become problematic.
Problems, which can be identified during such reviews include, inflated pricing of supplies, corruption associated with procurement, delays in delivery of goods, delivery of poor quality goods and so forth.
The time period and intervals it takes to do SCMR for the state is dependent on decisions made by the relevant policymakers. Whether the review is done at regular predictable intervals or at more randomly announced proclamations, is also dependent on the determination of the pertinent public officials, who have the authority to decide on such matters.
During SCMR, an audit of government supply chains will cover broad levels of government, which are central, provincial and municipalities, including, state-owned entities such as the Zesa Holdings, Zimbabwe National Water Authority and Air Zimbabwe, for instance.
The state of public procurement, in the aforementioned government institutions and its characteristics, are evaluated by the relevant auditors.
During the audit, they typically have to identify prevailing strengths and weaknesses, whilst providing strategies to address the weaknesses. A review of progress on proposed processes aimed at addressing previously recognised weaknesses is also a typical feature of SCMR programmes.
Involving all organs of the state, in such a review, is critical because of their significant influence on public procurement. As an example, in South Africa, central government only contributes around 24% to total government expenditure on goods and services.
On the other hand, state-owned entities, along with provincial and municipal governments, have expenditure which constitutes a significant 76% to total public procurement. Unfortunately for Zimbabwe, such data is not readily available.
When an SCMR initiative is adopted by government, auditors have to do an analysis of various issues, some of which are mentioned below.
An evaluation of the compatibility of administrative processes, which cover public procurement, in all arms of the state will be critical. This encompasses assessing whether each branch of the state has its own unique procurement requirements, forms and processes, which are neither similar nor compatible, with other sections of government.
Such disparities are generally not desirable because they make it administratively harder, more expensive and time consuming for suppliers to serve more than one level of government.
They also curtail the ease of oversight and enforcement of compliance to established standards. The legislation, which governs procurement among the different levels of government, also needs to be taken note of.
In South Africa, for example, there are 80 different legal instruments and regulations, which govern state procurement that apply to the various branches of government, differently.
For instance, the Municipal Finance Management Act, which provides established procedures for how municipal finances (including procurement) should be administered, does not apply to state-owned entities or the central government.
A prominent challenge, which can arise from such fragmentation is that it makes the government-wide training and capitation of state employees, more difficult. Clearly, it would not be possible to find just a few instructors to cover training for all the fragmented departments.
Rather, there would be a need to hire much more instructors, whilst more resources would need to be invested towards coordinating such initiatives.
Additionally, the disparity may require that there be different procedures to procure similar types of goods and services, including those which involve the same suppliers. In reality, this can result in different prices being paid across the public sector, for the same goods and services, from the same suppliers, depending on the cost incurred by suppliers to fulfil the orders, among other things (including corruption).
The multiplicity of processes can be particularly burdensome for SMEs, which intend to do business with government. It creates uncertainty around ideal procurement standards, and also complicates the enforcement of contracts by the courts and other relevant authorities, when there is a dispute.
SCMR also evaluates the enforcement of existing procurement procedures and legislation by the relevant government departments. Weak enforcement can result in repeated procurement violations by suppliers and errant employees.
Bribery, nepotism, fraud, theft of resources, conflict of interest, abuse and manipulation of information and processes by employees, waste, and abuse of public resources, are likely to arise, if there is weak enforcement.
Clearly, such losses will eventually be borne by the taxpayer. Such risks in public procurement make SCMR a useful initiative.
SCMR also reviews the suitability and synergy of IT systems used for procurement, among the different levels of government. Compatibility of the IT systems, with non-procurement IT systems (such as budgeting), within government, is assessed as well.
The manual processing of procurement transactions, in cases where IT has not yet been deployed, should be noted, and ideally minimised. If IT systems are used to only cover the early stages of the procurement process, whilst the rest are administered manually, that can give rise to more opportunities for fraud, less accountability, delays, mistakes, etc.
A lack of compatibility of technological processes of the different levels of government (and with among different IT deployments — procurement/ budgeting, etc.) leads to inefficiencies, including delays, and weak enforcement of compliance to established regulations and standards.
The standardisation, aggregation and use of consolidated government-wide data, becomes difficult, when IT systems are not integrated.
In such instances, there will be several missed opportunities for understanding the data and leveraging it for various forms of efficiency.
The influence of preferential objectives, such as policies which promote the contracting of SMEs, women and youth, as preferred suppliers to the state, should be assessed.
If such objectives lead to heavy losses due to delays, inflated prices and unfulfilled contracts, the SCMR should report that.
The state’s capacity to carry out public procurement based on its human resource capabilities should be checked. This involves evaluating the skills and educational capacity of personnel assigned with the handling of state procurement, across government.
In neighbouring South Africa, the SCMR of 2016, reported that state capacity was scarce across the public sector. That means state procurement was generally handled by staff, which had limited skills and capabilities to serve in their roles.
Municipalities, in particular, were identified as acutely under-capacitated. Such capacity challenges have driven some governments across the world to make use of central purchasing bodies (CPBs). These are centralised departments, which implement procurement transactions on behalf of multiple public institutions.
CPBs can be established at central, provincial or municipal level. They help to create savings through aggregating the demand of various public institutions, whilst they facilitate transparency and accountability at lower costs.
Scarce procurement resources can thus be leveraged, through the centralised expertise.
The transparency of procurement systems need to be verified as well. Procurement documents, minutes of meetings of tender-evaluation committees and related processes should ideally be published, and opened to public scrutiny.
The same applies to progress and contract implementation reports, which pertain to contracts that have come into effect.
Open contracting data standards (OCDS), which facilitate the structured publication of shareable, reusable and machine readable data, from all phases of the procurement process that are suitable to a variety of stakeholders (NGOs, competitors, government officials, citizens, auditors, etc.). This may prove essential.
Being mindful of confidentiality constraints, the names of beneficial owners of firms which have been contracted by government should be published. Publication of lists which disclose performing and non-performing companies will also prove sensible.
Conclusion
It is desirable for the state to periodically implement government-wide SCMR programmes. They assist in identifying strengths and weaknesses in public procurement.
They also serve to establish new goals/objectives to achieve through government supply chains.
Financial savings to be realised through the use of such reviews can be channelled towards the reduction of public debt, social assistance to the vulnerable, etc.
On the other hand, preferential procurement can be optimised so that it benefits the overall economy, through such SCMR initiatives.
Tutani is a political economy analyst. — [email protected]
