muniBLOG: Purchasing

BC AGLG Flags Management of Vendor Performance

The Auditor General for Local Government in BC has published a series of booklets designed to help improve government performance and complement its performance audit reports.   Although specifically targeted to local government in BC, these booklets provide a wealth of information, templates and suggestions that can help guide any Canadian public sector organization.

In a January 2016 publication the AGLG highlights vendor performance management as one of three topics to improve achieving value for money in operational procurement. It discusses key elements of a vendor performance management framework, best practices in managing vendor performance and includes a number of templates that can be adapted for use by any organization. The full document can be accessed at https://www.aglg.ca/app/uploads/sites/26/2017/04/Perspectives-T1-T1-PDF.pdf.

This important report complements PSPP 203 – Managing and Evaluating Contract Performance – and augments many of the examples and templates we cover in that course. As an organization that works with public sector right across the country, we see repeated examples of major procurement and contract mishaps related to incomplete or inadequate vendor performance evaluation. Users and business clients become frustrated when the procurement department ‘continues to engage the poor performers’. Yet the procurement department is not provided with enough (or any) information about performance issues to solve this problem. Outstanding vendors see the less than stellar performers continue to be awarded contracts, so they are de-motivated to keep up their own performance standards. All contract performance then slips to the lowest common denominator, further frustrating the users and eroding value for money from government spending. And as we know, terminating a contractor without adequate performance documentation can lead to expensive and protracted lawsuits, unwanted publicity and consumption of valuable resources that could best be directed elsewhere.

If any of this is starting to sound familiar, you or your staff may want to join us online, starting June 26, for a cross-country cohort in <PSPP 203>. (link to 203 reg for june 26 session)   Spanning four weeks, this course takes approximately 3 hours of time per week, and delves into many detailed examples, illustrations and best practices related to this important aspect of the procurement and contract management cycle. The analogy that we often use is that if the RFX process is the ‘wedding’, then the contract management process is the ‘marriage’ – that’s where the hard work really takes place! Determining how performance will be measured and managed must be thought about in the planning stage, carefully described in the RFX and resulting contract, and then implemented as contract performance unfolds.

Share

Pump Procurement Prompts Protest – You Be the Judge

On March 15, 2015, PWGS issued a solicitation for multiple frigate pumps on behalf of the Department of National Defence, with a closing date of May 15, 2015. Springcrest Inc. submitted its bid by the deadline and was informed in August that the bid was responsive, but that PWGS had decided to cancel the solicitation and re-issue it with modifications.

On May 17, 2016, PWGS again issued a solicitation on behalf of the DND for the pumps, and included a modification requiring that the pumps be shock tested prior to bid submissions. The original deadline was set for June 27, but was eventually amended to September 30, 2016. On May 26, Springcrest submitted an objection to PWGS asking that the modified requirement be removed, since it was impossible for any manufacturer to meet that requirement. Upon the next extension of the deadline, that requirement was not removed.

In July, Springcrest then asked PWGS if the original equipment manufacturer (“OEM”) was also required to provide certification of shock testing on its pumps. Four days later, the PWGS issued an amendment to the solicitation stating that if the OEM offered a motor different from the original pump, then the OEM must provide shock testing certification; if the motor was the same, the OEM did not have to meet this requirement.

On that same day, Springcrest made a formal complaint to the CITT on two issues: (1) the terms of the RFP were biased in favour of the original equipment manufacturer; and (2) the timing of events in the solicitation process made it impossible for suppliers of equivalent products to meet the process’ requirements. Specifically, there was insufficient time given to bidders to obtain a shock testing certification, meaning that only OEM suppliers with prior certification could apply. Springcrest further submitted that standard industry practice is to perform a shock test on the first pump a manufacturer produces, meaning that it would take a manufacturer approximately a year to be in a position to provide this certificate. When Springcrest filed its complaint, there were only 62 days between bid issuance and the deadline.

Springcrest further argued that if OEM suppliers were not required to provide shock testing certification, the terms of the solicitation were discriminatory as they precluded, in effect, non-OEM suppliers from bidding. The requirement, according to Springcrest, was also contrary to industry standard and previous DND practice: generally, shock testing is done after contracts are awarded rather than before a bid deadline date. Springcrest also submitted that no pumps were currently available that could meet the specification, as the manufacturer of the motors used in the original pump assemblies was no longer in business, and that no company currently owns the rights to make them.

PWGS submitted that requiring shock testing certification at bid closing was not discriminatory because it was part of the government’s legitimate operation. Further, the pumps were urgently needed by the DND in order to service the Halifax class frigates of the Royal Canadian Navy, which does not currently have sufficient working spare pumps in order to fill their demand. Thus the certification was required in order to procure pumps without further delay, as allowing bidders to get the certification after would delay the Navy getting the pumps by several months. PWGS also submitted that generally governments do require this certification at bid closing, despite what Springcrest had submitted. PWGS did submit evidence agreeing with Springcrest’s assertion that it could take a company a year to get shock testing certification.

This agreement was governed by the Agreement on Internal Trade (AIT) and by the Canadian International Trade Tribunal Procurement Inquiry Regulations (Regulations). The Tribunal also consulted Article 1007 of NAFTA and Article X of the AGP, which provide that technical specifications should not be drafted in certain prescribed ways that favour a particular supplier or suppliers. Do you think Springcrest’s complaints are valid? If yes, what remedy would you grant, with reference to subsection 30.15(3) of the CITT Act?

Answer

In Springcrest Inc v Department of PWGSC PR-2016-021 the CITT ruled the complaint was valid, recommended that the DPWGS cancel the existing solicitation and issue a new one, and awarded Springcrest its costs.

First, the Tribunal considered whether Springcrest’s assertion that the amended solicitation was discriminatory, and accepted that the DND had legitimate operational requirements leading to them seeking the pumps without further delay, such as that caused by shock testing certification. Moreover, Springcrest’s evidence did not indicate that PWGS deliberately sought to be discriminatory in excluding suppliers of equivalent products, or of favouring the OEM supplier. Rather, the evidence suggests this was inadvertent. Thus the CITT ruled that this ground of complaint was invalid.

The Tribunal next considered Springcrest’s second complaint, which was that the timing of the events in the process made it impossible for non–OEM suppliers to meet the amended bid’s requirements. Both parties agreed that it could take up to a year to manufacture pumps and have them be shock tested. Thus the CITT found that the timing did have the effect of discriminating against non–OEM manufacturers and that PWGS should have allowed for more time, in the interests of fair competition. Accordingly, this ground of complaint was found to be valid.

Springcrest requested a remedy either of amending the solicitation to remove the shock testing certification requirement, or of re-issuing the solicitation without that requirement. Since the bid period had closed by the time of the CITT ruling, Springcrest’s first suggestion for a remedy was not feasible. The CITT thus ruled that PWGS must cancel the existing solicitation and issue a new one which either removes the contested requirement or allow suppliers sufficient time to provide shock testing certificates before bid closing. Springcrest was also awarded its costs.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.

National Education Consulting Inc.

Phone: (250) 370-0041     Toll Free: (888) 990-7267

[email protected]

COURSE CALENDAR

Share

Leadership in Supply Chain

Leadership in Supply Chain 

by Larry Berglund, SCMP, MBA, FSCMA

Presentations Plus Training & Consulting Inc.

Ideas are easy. Implementing them is the challenge.

Leadership in organizational structures is fleeting. Leaders take on the tough tasks and provide a vision and direction for attaining their goals. Managers follow the plan and try to insert efficiencies along the way. In supply chain management we often use the term “leading practices” when in actuality, we are referring to common practices across a sector.

When one organization continues to issue competitive bidding process for services, following the practices of its peers, we consider this to be following a leading practice. When another organization is first in its sector to adopt a vested outsourcing strategy, we are observing leadership in action

Leaders are not satisfied with the status quo. The need to drive innovation is inherent in every leader and thus every industry. Followers value leadership because while they can perceive when something needs to change, they tend not to accept the professional and personal risks associated with driving that change.

Change is perhaps the only true constant – but leaders must articulate a vision before real change can happen. Such a vision does not necessarily come from a brief and illuminating epiphany, but more often from leaders’ abilities to perceive that which is beyond the noise in the market or the confusion in the messages. Leaders instead appreciate nuances during the discovery and presentation of new ideas while accepting a reasonable level of risk. Leaders are also not too humble to draw from successful ideas of others and give credit where due.

What makes a person a leader? First, it is their self-conviction in knowing what needs to be done and their commitment to following that goal. They realize when it is beyond their personal resources to reach their goals without the commitment of others. A leader is less concerned with the how of change, allowing for their followers to utilize their own ideas and energy for carrying out that change. A leader is more focused on the why of change.

Leaders paint the picture of the future and have their audience – their followers – understand how their roles can complement the vision. This aspirational aspect of leadership is concurrent with the inspirational communications within the organization and to its external stakeholders.

Leaders need to create the buy-in. Without followers’ commitment to the vision, success is doubtful or compromised. Buy-in requires credibility, a focus on common interests, shared passions, resilience and an emotional connection created by the leader. People need affirmation that a leader is authentic before they will hear the new message. Leaders anticipate both a certain level of resistance and the occurrence of conflicts. They need to listen to concerns and adequately address them in their action plans. A guiding strategy requires an approach in accord with the organization’s values. Changes in behaviour indicating a stronger alignment with the leader’s vision can provide evidence that the buy-in is taking place.

In supply chains, we see these changes in behaviour when leading practices – such as adopting total cost of ownership – replace pursuing the lowest cost; when public organizations utilize the buying power in procurement to positively affect social and economic development; when targets are set to ensure diversity across supply chains; when we see inclusive opportunities for people who face employment barriers; and when value for money exceeds arbitrary budget limits and considers benefits to the community as a whole. That is leadership. Leadership begins when we start to think outside the books.

Larry has been in the supply chain management field as an author, manager, business trainer, academia, and consultant for many years. Larry has worked in both the private and public sectors. Recently he has been co-facilitating NECI eSeminars, classroom sessions, and online modules. His new book, Good Planets are Hard to Buy is now available on Amazon.com

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication

National Education Consulting Inc.

Phone: (250) 370-0041     Toll Free: (888) 990-7267

[email protected]

Share

Dodging Defensible Documents Decried

While Canadian procurement is rooted in our unique legal structure, we are among many jurisdictions in the world that ascribe to fair, open and transparent competitive procurement processes. As we know, organizations that follow these guidelines tend to get better value and attract more sophisticated respondents while fully demonstrating the unbiased nature of their contract award decisions. In the public sector this translates into demonstrating effective stewardship of public funds, which in turn bolsters taxpayer confidence.

A recent decision out of the UK highlights the international attention to fairness in procurement. Energysolutions EU Ltd. v Nuclear Decommissioning Authority [2016] EWHC 1988 (TCC) outlines a myriad of fairness complaints lodged by an unsuccessful bidder to a procurement for the decommissioning of 12 different nuclear facilities in the UK. Among other arguments, the claimant Energysolutions (‘ES’) alleged:

  • Acceptance of a non-compliant bid from Cavendish Fluor Partnership (‘CPF’), the entity who was ultimately awarded the contract;
  • Manipulation of the evaluation process to ensure CPF success;
  • Seeking clarification differently with respect to some bidders;
  • Providing inaccurate or incomplete information to ES during debriefing; and
  • Deliberately limiting the permanent records of the evaluation process to thwart any potential challengers to the process.

The complaint was not filed within the time limit for suspending the contract award decision, which meant that ES was limited to only a claim for damages. They estimated their losses to be £100 million (roughly CDN$165 million).

As one of the largest contracts ever tendered by the UK government with a procurement process spanning nearly two years, the final decision by the High Court understandably includes a long and complex analysis. For the purposes of this article, we will focus on the final challenge, which related to the government’s insufficient record-keeping.

The evidence presented at the lengthy trial shows that the government was acutely aware that an unsuccessful bidder might initiate a challenge to the contract award decision, and pro-actively and deliberately directed staff to limit or destroy documentation that might be detrimental to its case. This defensive approach included restricting evaluators’ note-taking, possibly destroying contemporaneous notes, and issuing directives to “consider shredding documents” that could damage their position should the matter proceed to litigation.

The credibility of the government became an issue early on in the proceedings, as they failed to produce witnesses to provide evidence on key points, and, in the words of the judge, the witnesses that did appear “suffered from what, on occasion, bordered on an almost obstinate refusal to accept that any mistakes or errors had been made at all.” Pivotal to the Court’s finding of liability against the government was evidence of deliberate attempts to avoid scrutiny by unsuccessful bidders and to subvert the procurement rules that required an open and transparent process.

Damages payable to ES will be assessed in a separate proceeding, but we can assume they will be in the range of several hundreds of millions of dollars – certainly not an effective use of tax dollars.

While this is a particularly egregious example of deliberately sabotaging principles of transparency, it serves as a cautionary tale for all procurement professionals. Had the UK government spent as much time and energy ensuring the process was conducted fairly – rather than redirecting those resources to limiting documentation that could support a potential challenge – the outcome would have likely been entirely different. A well-designed process with skilled and highly trained evaluators, coupled with rigor and discipline throughout the evaluation documentation process, would have provided a complete defence to any potential challenge. Instead, the UK government has taken a huge hit to its credibility, wasted potentially millions of taxpayer dollars and become embroiled in highly contentious and public litigation.

This case serves as a stark reminder of one of the key principles of our Canadian legal system: ‘justice must not only be done, it must be seen to be done.’ As we have seen in other, less egregious cases, it is not enough that the evaluators acted fairly and transparently: the procuring entity must be able to prove such conduct through proper and complete documentation of its process. We often receive questions about how much documentation should be retained through the procurement evaluation process, and our answer is always more rather than less. Retaining the absolute minimum required by legislation and/or policy is not always an effective approach to risk mitigation when it comes to procurement challenges in this litigious era.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication

National Education Consulting Inc.

Phone: (250) 370-0041     Toll Free: (888) 990-7267

[email protected]

Share

Living Wage Policies in the Supply Chain: It’s Not a Zero-Sum Game

Living Wage Policies in the Supply Chain: It’s Not a Zero-Sum Game

by Larry Berglund, SCMP, MBA, FSCMA

Presentations Plus Training & Consulting Inc.

“If we pay contractors who work for our municipality a living wage, it will cost the taxpayers more money.” This is an urban myth.

What is a living wage?

According to the Canadian Living Wage Framework (CLWF), the hourly living wage rate is based on the cost at which a household can meet its expenses once government transfers have been added and government deductions from wages and taxes have been deducted.

A living wage is defined using several criteria including:

  • A healthy family of two adults and two children
  • One child in full-time daycare; one in before- and after-school care
  • The hours worked between the two parents is 35–40 hours per week
  • One parent taking evening courses to improve their employment opportunities
  • Groceries
  • Rent
  • Transit passes

A living wage excludes:

  • Credit card, loan, or other debt obligations
  • Retirement savings
  • Owning a home
  • Saving for the children’s future education
  • Cost of elder care

AND excludes:

  • Any costs “beyond the minimal required for recreational, entertainment or holidays”
  • Any costs “beyond the minimal for emergency or hard times”

Canadian municipalities that have introduced the living wage policy having varying rates according to the cost of living in the various locales.

Table 1

Sample Living Wage Rates by Province and Capital City – per CLWF 2017 

Province

General Minimum Hourly Wage

Hourly Living Wage by Capital City

Alberta

$13.60

$17.36

BC

$11.85

$20.01

Manitoba

$11.00

$14.07

Ontario

$11.40

$18.52

Nova Scotia

$10.85

$19.17

 

There are approximately 65 Living Wage Communities in Canada – and growing. There are hundreds of private sector employers which participate in living wage programs. Why?

It makes good business sense to do so. It’s argued that raising any wage rate increases production costs and the price of selling those goods must therefore increase and your competitors will eat your lunch: higher wages lead to layoffs. But the research shows otherwise. UBC economics professor David Green says that while the latter may apply to teenagers working part time, once you get over the 20-year old age limit employment isn’t really affected. The higher wages contribute to employee job satisfaction and provide those workers with greater economic stability. Every employer faces an affordability factor; however, higher wages do support staff attraction and retention. This leads to lowering the costs associated with hiring and training.

Families receiving a living wage stay within their communities and support local products and services through the redistribution of revenues. These individuals also see an improvement in their self-esteem and in general health – less sick time and medical visits – which in turn saves social costs. Living wage earners, while still considered as lower-income earners, spend more of their increase on essential needs when they receive a higher wage. All the evidence shows that minimum wages, certainly in urban areas, do not meet the cost of living.

Innovation within a living wage business philosophy also considers access to professional development courses, access to in-training staff, or no-cost services for community partners. These ideas can be quantified into a living wage calculation.

Living wage organizations:

The City of New Westminster was the first city to implement a living wage policy for its contractors. In 2011, the city enacted an ordinance for all its contractors to be paid a living wage rate. The living wage criteria is a part of their competitive bid process and is closely monitored for compliance. Living wage rates are adjusted where a contractor is paying some form of economic benefits to its employees. Living wage rates are adjusted annually.

Vancity credit union reviewed its contracts with approximately 1200 contractors across 45 industry sectors. They targeted strategic annual contracts over $250,000 and contracts that typically involved lower wage earners where contracts had lower annual spending thresholds. The latter included personnel agencies, janitorial services, catering, and security services. The financial cost to the bottom line for Vancity to implement its living wage policy was about 1% of its budget. Vancity is one of Canada’s largest living wage employers.

City of Vancouver

In 2017, the City of Vancouver implemented its Living Wage policy aimed at contracts $250,000 per year for ongoing service requirements. The minimum number of hours for these contracts is 120 hours per year per contract. Social enterprises are exempt from their living wage policy.

Living wage criticisms:

Living wage programs are not without their detractors. It is relatively easy to assess the difference in out-of-pocket costs between free market hourly rates, minimum wage, and living wage rates. It appears that the taxpayers – or members of a financial cooperative, for example – are absorbing the difference and do not enjoy a corresponding benefit.

Arguably from a total cost of ownership perspective, it may be more difficult to measure the social benefits between these three wage rates. Putting a cost to building a strong community is as difficult as placing a price tag on improved performance, better employee morale, improved customer service, improved health rates, increased self-esteem, reduced rates of absenteeism, increased staff retention rates, or increased support for local goods and services.

Bottom line – building a healthy and wealthy community is being done by private and public sector organizations through the living wage programs across Canada.

Thanks to Maya Maute, SCMP, Director, Procurement & Contract Management, Vancity credit union for her contributions to this article.

Larry has been in the supply chain management field as an author, manager, business trainer, academia, and consultant for many years. Larry has worked in both the private and public sectors. Recently he has been co-facilitating NECI eSeminars, classroom sessions, and online modules. His new book, Good Planets are Hard to Buy is now available on Amazon.com

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication

National Education Consulting Inc.

Phone: (250) 370-0041     Toll Free: (888) 990-7267

[email protected]

Share

A Verbal Contract Is Not Worth the Paper It Is Printed On

A Verbal Contract Is Not Worth the Paper It Is Printed On

NECI clients will be familiar with this mantra, used in many of our courses and online offerings. Although it can take additional time to document agreements properly and incorporate legal assistance where necessary, such documentation can provide invaluable evidence and head off time-consuming and relationship-damaging disputes.

Several recent cases out of BC highlight the critical importance of ensuring that contracts are expressed in writing and signed by all parties. All too often we see “handshake deals” that fall apart, create unexpected cost overruns and, occasionally, wind up in court. Here are two examples:

Peter Walry Construction Ltd. v Canadian Adventure Company Holdings Ltd., 2017 BCSC 67 concerned construction work done by the plaintiff on the defendant’s backcountry ski resort in 2013. The defendant did not pay the plaintiff for any of its work. The plaintiff sued for its unpaid invoices in the amount of $40,320.00, plus interest and costs. The defendant denied the claim and counterclaimed, alleging the plaintiff’s work was deficient and caused the defendant considerable damage and loss.

At trial, the court had to wade through evidence of an oral contract, along with several emails and other written pieces of correspondence corroborating portions of the alleged oral contract. After an eight day trial, the plaintiff Peter Walry Construction Ltd. received a judgement in the amount of $40,000 plus interest and costs.

In Willms v MacDonald Builders (Celtic Homes) Ltd., 2016 BCSC 1910, the construction contract between the parties consisted of a “written estimate” in the range of $50,000 to $80,000, along with oral representations and email correspondence. After the work was finished, a dispute arose as to whether the contract was a cost-plus or a fixed price contract. The parties also disagreed over the precise terms of the contract. Approximately $40,000 was paid, but there were allegations of deficiencies, and the owner initiated a counterclaim for between $40,000 and $60,000.

After a seven day trial, the BC Supreme Court concluded that the owner’s claim for $53,000 was valid and the contractor was still owed $40,000. This resulted in a net damages award to the owner of approximately $13,000.

As these cases illustrate, leaving the critical terms of your contracts to be sorted out by the judiciary is risky business indeed. Although in both these cases the court was able to reach a decision, the costs of these lengthy trials far exceeded any damages awarded. Don’t become a litigation statistic – ensure your contracts and other critical communications are well documented, acknowledged and executed by all parties, and amended in writing as necessary as the work unfolds.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.

Share

Governments Making a Difference: Social Impact Investing

From simply involving disadvantaged populations to help with aspects of service and program delivery to the public, to the complex, interrelated obligations of Social Impact Bonds, the concept of social impact investing is gaining considerable traction in Canada and globally. In this article, we will focus on the latter, often referred to as “SIBs.”

What Are Social Impact Bonds?

Usually a three-way agreement among government, private investors, and service providers, SIBs strive to provide a stable source of non-government funding so that (typically) not-for-profit agencies are able to deliver programs designed to help create a positive social impact. With financial return to the investors based on achievement of clear and measurable social outcomes over a specified period of time, SIBs and other forms of social financing drive specific results that are beneficial to society as a whole, without the traditional reliance on government funding.

Illustration: Sweet Dreams – New Home for Single Mothers

Objective: Sweet Dreams is a supported-living home for at-risk single mothers in Saskatoon. When single mothers receive housing and other support, they are more attached to their children and less likely to have them go into care. This in turn reduces the costs to government of ongoing support for the children, and ultimately strengthens the fabric of society.     

Under the program, at-risk mothers are provided with affordable housing and support while they complete their education, secure employment, or participate in pre-employment activities such as life skills training and parenting classes. The ultimate goal is to help these families transition back into the community, and the specific measurement is the number of families leaving the supported accommodation and staying together for more than six months without re-entering care. 

Funding Model: Under the Social Impact Bond agreement between the government of Saskatchewan, Conexus Credit Union, Wally and Colleen Mah, and EGADZ (the service provider for Saskatoon’s Downtown Youth Centre), the service provider receives $1 million from the private investors to achieve the specific social outcome set by the government – in this case, to keep children out of foster care. 

Outcome Measurement: Critical to the success of SIBs, return on investment to the investors hinges on the achievement of specific and measureable social impact results to be achieved by the service provider over a specific period of time. In the case of Sweet Dreams, the success of the social outcome will be measured by an independent assessor at the end of the second, fourth and fifth years of the agreement.       

This latter aspect of these arrangements is the trickiest, due to the causality issue. Governments across the country and around the world still struggle to measure social outcomes in a precise and defensible manner. And even if the social outcome is achieved, to what degree is that attributable to the program delivered by the SIB agency, and to what degree is it due to outside factors? If the outcome is not achieved within the specified period of time, then the government doesn’t pay out the return to investors. This, in itself, is a major shift for government, given the political overlay.

It is critical to have the right planning, the right parties, and the right expertise when contemplating complex arrangements such as SIBs. Deloitte LLP was the financial advisor on the Sweet Dreams agreement. 

SIBs in Other Jurisdictions

It is still early days for SIBs in Canada, although they have been implemented in other jurisdictions such as the UK with varying degrees of success for many years. A quick Google search will uncover different SIBs, such as agreements designed to reduce the reoffending rates of short-sentence offenders, reduce the number of young people entering Pupil Referral Units in the UK, and many more related to returning children from government care to their families, or preventing government placement altogether.

Some ­­­­Differences between Alternative Service Delivery (ASD) and Social Impact Investing

  • ASD tends to result in contracts with a single provider, while SIBs tend to fund a portfolio of interventions.
  • With ASD, the service providers may have trouble accessing working capital and startup funding. With SIBs, the service-provider costs are covered by investors up front.
  • With ASD, the government usually only pays for success, while the risk and associated costs of unsuccessful interventions are typically borne by the service provider. With SIBs, the risk is borne by the third-party investors.
  • The ASD contract typically sets a threshold for success, and payment is either made or not made depending on whether the threshold is reached. SIBs generally involve outcome payments that are proportionate to the success.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.

National Education Consulting Inc.

Phone: (250) 370-0041     Toll Free: (888) 990-7267

[email protected]

COURSE CALENDAR

Share

The Critical Importance of Performance-Based Contracting

By:

Maureen Sullivan, LLB, CTP

NECI President,

Legal Editor & Publisher

Facing today’s economic and political pressures to demonstrate how they are doing more with less, procurement professionals can find themselves pushed into giving short shrift to procurement planning. In a rush to get the RFx out the door and move on to the next drafting process, it can be tempting to give only cursory attention to the performance contract itself, and to lose sight of the main reason you are going to the market in the first place – to drive competitive tension and demonstrate transparency.       

As we continually remind our learners, you will never have more leverage than you do before the competitive process starts, so take advantage of that by including clear, measurable performance requirements in the draft contract that is typically attached to or included with the procurement document. Not only will this help respondents provide their most accurate and competitive pricing – because they know exactly what is expected of them, and how it will be measured – but it will also be immensely helpful for keeping the contract deliverables on track and demonstrating that you have achieved value for money.             

Most procurement professionals have had to deal with user dissatisfaction, delayed or deficient performance and reporting, and cost overruns (with the attendant political fallout). Only when stepping in to try and remedy such deficiencies does it become clear that the governing contract has no measurable, clearly defined performance expectations. A client recently advised that, when she stepped in to resolve a tense dispute over the performance of a landscaping contractor, the only reference in the contract to performance that she could find was a statement that “the lawns must look magnificent.” No wonder there was a dispute!             

As procurement professionals should know, vague assurances about “high-quality goods” and “professional service delivery” don’t carry any weight in actually resolving a contract dispute. In fact, such statements work against the buying organization, under the principle of contra proferentum, in that ambiguity in a contract will be interpreted against the party that drafted it.              

If you take the time to develop very precise, clearly defined performance standards and other contract requirements, you will avoid ambiguity that can lead to misunderstanding. Just as importantly, your contract managers will have the tools they need to work through the inevitable hiccups in performance, and, ultimately, to demonstrate that the organization realized its operational goals through the procurement and the resulting contract.             

Clearly defined service levels or other key performance indicators can also be used as a powerful motivator for the contractor, by linking their measurement (good or bad) directly to the contractor’s ability to obtain more work – both for this contract and for future opportunities with your organization. Attaining specified performance levels can be tied, for example, to automatic extension or renewal rights, or adjusted volumes for the contractor, and can even feed into its ability to remain on your Standing Offer Agreements (SOAs), Master Services Agreements (MSAs) or other prequalified contractor list.             

We have all heard the adage that “what gets measured gets managed.” We encourage you to take that to heart when drafting your next RFx and resulting contract, by spending adequate time setting up very clear, specific, and measurable performance expectations. The time, energy and credibility that this can save – both from deterring unqualified or incapable respondents, and in giving contract managers the tools they need to enforce the contract – will truly pay off tenfold for your organization.

National Education Consulting Inc.

Phone: (250) 370-0041     Toll Free: (888) 990-7267

[email protected]

COURSE CALENDAR

 

 

 

Share

Procurement Policy Best Practices: Benchmarking for Improvement

Larry Berglund, SCMP, MBA, FSCMA

Author | Good Planets are Hard to Buy  Principal | Presentations Plus Training and Consulting Inc.

Admittedly, procurement policies may not sound exciting but they are critical to drive value in any organization. Policies are the means used by the organization to convey their values and aspirations to stakeholders and staff.

Policies need to be revised and should be seen as a “living document.” Necessity to update can be driven by legislation, leadership principles, community values, international agreements, or technical advancements. One of the key responsibilities of senior management is to update policies and ensure practices are aligned. This could refer to ethical values, environment considerations, total cost of ownership, local sourcing, or quality of materials on any number of goods or service which are required.

There are many common factors which can undermine the intended purposes of policies. Whenever a policy does not meet the operational or administrative needs of a department, decisions will be made based on good intentions which may compromise the organization’s interests. Scheduling regular policy reviews and updating bid and / or contract templates mitigates these occurrences.

In most instances where repercussions for unauthorized deviation from policy are not embedded, staff may take liberties with the policy. People like to make decisions which demonstrate their resourcefulness or innovation. For the most part it works – however, allowing decisions to be made outside of policy condones the practice and encourages similar behaviours. Rewarding deviance always invites an element of risk.

Tying procurement performance to measurable outcomes is one of the tools organizations use to assess how effectively policies are meeting stakeholder needs. Matching metrics to the practices which arise from a policy is an important part of organizational strategy. If you can measure it you can manage it. And certainly what gets measured with a bonus gets managed really well!

Ensuring vendor performance assessment is formalized in policy and implemented in practice are keys to ensuring and demonstrating value for money. The absence of a requirement for vendor performance evaluations as a part of contract management is one of the more common deficiencies in many organizational policies. This is especially relevant where spending authority is decentralized. Anecdotal information is inadequate to provide feedback to a vendor; and “no news is good news” is not a basis for good contract management. Vendor performance should be a part of comprehensive procurement policy, be evident in contractual agreements, and be well documented by contract managers.

Quality can be specified and measured against engineering-based or internationally recognized standards. Vendor performance on service contracts is where leading organizations are making advancements. Many companies are using past performance as an indicator of future performance during the proposal evaluation process.

Areas such as social and economic development are gaining traction in strategic policy development. Front line staff who are motivated largely by budget limits, need clear policy language in order for them to make an informed decision as to which product or service meets the organization’s definition of value.

Benchmarking between divisions of an industrial company or between various municipalities or health care operations is often done on financial factors. This is certainly a reasonable step to take and determining what accounts for the differences in the financial variance should follow. Financial differences are often linked to the definition of value adopted by a specific organization. An example could be that Org A pays .05% more on its COGS than Org B due to a policy by the latter of only sourcing conflict-free minerals. Therefore policy clauses which address non-financial criteria do affect the financial outcomes.

Policies which support the FIAT principles (fairness, integrity, accountability, transparency) contribute to vendor reassurance that their responses to competitive bid opportunities will be assessed objectively. Consistently using policy to affect practice leads to competitive tension which is good for all players in any market sector. Conversely, where a policy implies a strong commitment to non-financial values yet evaluations are skewed to favour financial interests, this detracts from credibility of the process and may diminish the level of competitive tension.

Policies represent the values and ultimately the brand built by the organization, and help to ensure that decisions are not made arbitrarily or based upon the personal interests or values of an individual. Policies are not platitudes nor should they be seen as ultimatums. Effective policies provide guidance and good governance across an organization to contribute to its success and to receiving value for money.

Wondering how your organization stacks up with its procurement policy? Join us online October 24 for an interactive eSeminar that explores Procurement Policy Best Practices: Benchmarking for Improvement.

Larry has been in the supply chain management field as an author, manager, business trainer, academia, and consultant for many years. Larry has worked in both the private and public sectors. Recently he has been co-facilitating NECI eSeminars, classroom sessions, and online modules. His new book, Good Planets are Hard to Buy, was released in the fall of 2015.

 

National Education Consulting Inc.

Phone: (250) 370-0041     Toll Free: (888) 990-7267

COURSE CALENDAR

[email protected]

 

Share

Senior Executives Must Know Risks of Sole Sourcing

Under pressure to produce results, senior executives in government or private-sector organizations are often seduced by the apparent speed of sole-source contracting.              

In limited situations, sole-source contracts can indeed provide results. But that attitude can be dangerous, especially with complex deals and multiple parties.

Bond Development Corporation v. Esquimalt (Township) [2006], B.C.J. No. 1101 (B.C. Court of Appeal) is a cautionary tale for senior executives: don’t give up the serious benefits of competitive contracting without clearly understanding the risk/reward trade-off. 

Decision to Use Sole Source

In March 2001, Esquimalt wanted to develop a town centre to include a new city hall and public library. It also wanted to encourage the construction of commercial retail premises in the area. Instead of a public tender, the Chief Administrative Officer invited an experienced real estate developer, Bond Development Corporation to develop a proposal. Over an eight-month period, the parties had meetings to settle the design and quality of the building to be constructed, and the compensation to be paid to Bond. To assist in these discussions, Bond hired an architect who provided design drawings, a building contractor who prepared cost estimates, and a structural engineering firm that provided advice.             

In October 2001, the two parties signed a formal contract. Esquimalt agreed to pay a maximum of $4.06 million for a town centre building of 20,000 square feet. Esquimalt would pay part of the price in cash, and the balance paid by Bond’s receipt of the title to the land where the old city hall was located (known as the “CRB site”). 

Tips for Senior Executives: Don’t confuse meetings with making progress – especially for complex projects. Getting the sole-source contractor in early (the development proposal) is NOT always faster and more efficient than public tendering. It took eight months of discussions before Esquimalt and Bond signed their initial agreement. In contrast, eight months should deliver real progress on most public tenders.              

What about the cost? Since Bond was paying the fees for the architect, contractor and engineering consultants, the development process initially seemed to be low cost. It wasn’t. Ultimately, Esquimalt paid a far higher price.  

Negotiating Price and Quality

The October 2001 agreement did not settle the terms of price and quality. Clause 3.8 dealt with quality by saying that the town centre would be built “… substantially to the performance standards of the British Columbia Buildings Corporation for government offices … ” To assist the parties, Clause 3.8 identified two local buildings as “illustrations of the quality and finish” that was intended. Since the parties could not agree on the value of the CRB site, they decided to engage separate appraisers to estimate the value of the site, and then to average the two appraisals to fix the value of the property.             

The parties spent another seven months trying to reach agreement on extent and quality of the work to be done, and the value of the CRB site. After 15 months of negotiations, the end result was that the parties walked away from the contract. 

Tips for Senior Executives: Competitive bidding imposes a discipline on your organization, and provides a familiar process for most players. For example, the tendering method forces your organization to deal with the design and quality of the building to be constructed, and the price to be paid. Normally, your organization will hire its own architect and/or consulting engineer to prepare the detailed plans for the building. Then, the tendering process will distribute these plans to the contracting community, and tender bids will provide you with competitive pricing.  

Collapse of Contract Discussions

After the talks broke off with Bond, Esquimalt contacted the architect and the contractor previously hired by Bond, and built the town centre without Bond’s participation (at a higher price than $4.06 million). But this created a serious legal problem. In Bond’s view, Esquimalt had benefitted from the development services that Bond had provided, from the design its architect had provided, and from the cost estimates its contractor had provided. Bond sued to recover the value of those services.             

In April 2004, the B.C. Supreme Court found that Bond had done valuable work for Esquimalt, and that the work went beyond the usual level of preparation to make a tender bid or proposal. The trial Judge awarded Bond $222,658 plus court costs, based on the legal doctrine of quantum meruit – essentially “reasonable value for services.”             

In January 2006, the B.C. Court of Appeal not only upheld the damage award, but increased it. The Court of Appeal directed the trial Judge to compensate Bond for its efforts during an earlier stage of the “development proposal” process. 

Tips for Senior Executives: Sole sourcing means that your organization has given up huge negotiation leverage. In effect, the invited contractor has been given a favoured position – before you reach agreement on quality and price. Even worse, you are dependent upon the invited contractor; you don’t have a backup contractor who is ready and willing to do the job at a fixed price. A competitive bidding process (i.e., tendering or an RFP) maintains your negotiation leverage. If discussions with the preferred bidder break down, then you can go to the second-ranked bidder, and probably get your deal at his price.

Reprinted from The Legal Edge Issue 69, November 2006

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.

 

 

 

Share