How public procurement can become our competitive advantage
By Keith Moen.
In the wake of NAFTA negotiations and ‘America first’ policies, there exists a fine line between favourable and unfavourable public procurement practices.
From a free enterprise perspective, a strong case can be made for the inherent benefits of interjurisdictional trade, whether it be at the international or interprovincial level. Conversely, when it comes to public dollars, there is just as clear of a benefit for those dollars to be spent within the jurisdiction from which goods or services are being procured.
When you try to combine the two scenarios, however, the vision, the process, and the results become much murkier. And the line between good public policy and outright protectionism becomes as fine as a razor’s edge.
Saskatchewan Premier Brad Wall has been among the more outspoken supporters of free enterprise, market-driven economic policies. One of his first orders of business upon being elected in 2007 was declaring that Saskatchewan was, in fact, open for business. Soon thereafter, the province joined Alberta and B.C. in the New West Partnership Trade Agreement, patterned after the two western-most provinces’ TILMA pact (Trade, Investment, and Labour Mobility Agreement), first struck in 2006. The spirit of these agreements is to serve as a means of breaking down trade and investment barriers and increasing interprovincial cooperation.
Given the relative instability of government priorities due to changing political whims, ideologies, and budgets with each respective fiscal year, building a business on or around public procurement isn’t likely anyone’s top strategy. But, having recently experienced the contraction of the resource sectors, many companies — manufacturers included — are increasingly looking to public procurement to keep their work orders filled and employee bases intact.
There are two approaches to public procurement that can produce dramatically different outcomes. For years, Saskatchewan modelled its procurement on a lowest cost definition of ‘best value.’ This is, unfortunately, far too common of a practice, with little foresight given to the lifecycle cost of ownership — potential warranty work, maintenance and management requirements, longevity, and downtime. Every shortcut imaginable would be exercised in the name of being the lowest-cost supplier. Innovation was an afterthought.
Fundamentally and refreshingly opposite to this approach is true ‘best value’ procurement, where several other factors are weighted against price to ensure dollars are being spent in an efficient, prudent, and cost-effective manner. In Saskatchewan, this prospect has been made possible by the creation and work of a government agency called Priority Saskatchewan. Like any other prospective procurer, the provincial government now has the mechanism to impart discretion as a purchaser (what a novel concept!).
By opening the definition of ‘best value,’ the Province is allowing for what we might call strategic procurement. Procurement officials in a request for proposal (RFP) or invitation to tender (ITT) can actively seek out and reward innovative technologies and processes that jointly create a greater level of value for the intended application and for the taxpayer. Incenting this type of forward thinking can also give rise to new or more competitive businesses, and entire new industries. Renewable energy technology to support Saskatchewan’s power generation needs (which are supplied by a Crown corporation) is a perfect example.
This has been the case with Saskatchewan’s potash mining sector. The ongoing development of the province’s vast potash reserves over the past 50 years has genuinely positioned Saskatchewan as the world’s leading jurisdiction for potash mining infrastructure. From manufacturers and machine shops to welding and fabrication facilities and other service providers, these are world-class companies that can compete not only in-market, but globally as well. They are, bar none, the best in their field.
The point is: If you instill purpose — and the necessary dollars — to develop an industry, you can create the opportunity for innovation in the supply chain.
On the opposite side of the spectrum, in comparison to what happened in Alberta through the oil boom, Saskatchewan missed the proverbial boat. Before the Second World War, both provinces consisted of a similar population and scope of industry development. The entrepreneurial political philosophy adopted by our sister province to the west, however, especially with regard to investment attraction and supply chain development, led to both a boom in exploration and in the infrastructure necessary for extraction and shipping. Before you knew it, the City of Calgary exceeded the entire population of Saskatchewan.
Potash and oil development are two private sector case studies that paint a vivid illustration of how public procurement can have a very real impact on shaping the economic landscape of a province. It is why strategic procurement needs to be the norm, not a novelty.
To date, the team at Priority Saskatchewan has worked hard to broaden the definition of ‘best value’ and build the foundation for the implementation of strategic procurement across the various government ministries and Crown corporations. Even though it is a relatively new entity, Priority Saskatchewan has already riddled off an extraordinary number of successes. Three in particular stand out:
First and foremost is the structuring of tenders to score and award points for innovative ideas. This is especially effective in design-build RFPs that allow companies to propose alternative design options so long as they meet basic project requirements.
Second is the reissuing of tenders that are too restrictive in nature. All too often, specifications are written in a manner that prevent competition and, in some cases, multiple bidders altogether. Nothing stifles the drive toward innovation quite like limiting your pool of suppliers.
And third is the continual education effort to urge procurement officials to challenge their ideas of which companies can do what type of work. The production of a fire pump handle, for instance, does not require a deep specialization or unique equipment, yet was previously purchased and shipped to Saskatchewan from Ontario. Identifying the manufacturers that had the competencies and capacities closer to home (and there were many — a long list of which supplied industrial sectors like mining, as well as oil and gas) led to a cost savings of 40 per cent and a quicker turnaround time.
It must be stressed that strategic procurement does not equate to protectionism by any measure, definition, or interpretation — nor does ‘best value’ mean ‘local only.’ While a local company may ultimately provide the best value, it cannot and should not hinge on their location. What we should be rewarding are those suppliers providing value above and beyond the minimum standards of an RFP or ITT, and those contributing to the growth of an industry or sector that can compete beyond our own borders.
The last thing an export-reliant, landlocked province of 1.1 million people wants is to be seen as having its borders closed for business. In the case of Saskatchewan, nothing could be further from the truth. Not only are they open for business, they are open-minded when it comes to using public procurement as a means of driving innovation and competitiveness. The rest of Canada should follow suit.
Keith Moen is the executive director of the NSBA – Saskatoon’s Business Association.