PROCUREMENT is big business.
Ministries, Departments and Agencies (MDA’s) and State Owned Enterprises (SOEs) spend Ghana Cedi billions every year on the procurement of Good, Services Works and, lately, on Partner Entities {Cabinet has only recently approved for implementation the concept of Private Public Partnerships (PPPs)}.
PROCUREMENT is the whole life cycle process of acquisition of goods, services and works from third parties i.e. from the initial concept and delineations through to the  end of the useful life of the asset procured and of the services contract. Failure to purchase their cost effectively can put the achievement of key objectives and services at risk.
All public procurement of goods and services, including works, must be based on value for money, having due regard to propriety and regularity.
The form of competition should be appropriate to the value and complexity of the procurement and barriers to the participation of suppliers should be removed.
MDAs are not profit oriented. Procurement by MDAs should therefore be based on VALUE FOR MONEY and be capable of retaining the benefits accrued therefrom.
SOEs should endevour to secure best prices for goods, services and works, particularly because:
- Procurement can influence profit levels.
- They take a long-term strategic view of their procurement needs and the best way of meeting them.
MDAs and SOEs should in consequence of the above, strategize to:
- Manage procurement projects and their associated risks
- Develop contract strategies and manage good supplier relationships
- Ensure reliable and timely Procurement and Financial Management Information Systems.
- Measure and evaluate Procurement Performance.
All activity including Procurement, by MDA’s and SOEs involves some risk:
- that key outputs are not delivered on time, to budget and of appropriate quality; the risk of financial impropriety, fraud and waste.
- of something coming out of the blue which knocks planned achievements off course; and
- of missing an opportunity to do something better and more cost effectively
Some of the typical Procurement Risksthat need to be managed effectively by the MDA’s and SOEs are set out below:
- Unnecessary purchasing
- Procurement does not impresent Value for Money.
- Excessive stock holding
- Supplier fails to deliver
- Goods and services are not of appropriate quality
- Impropriety and fraud
- Missed opportunities
- Contractor fail to meet performance order of service delivery
- Residual Risk (Assets taken over in good condition)
- Technology / Obsolesce risk
- Project financing risk: Internal and external
VALUE FOR MONEY AUDIT/REVIEW
UPGRADE CONSULT can help the MDAs and SOEs to achieve VALUE FOR MONEY from the procurement activities.
UPGRADE CONSULT, a professional firm of independent resource persons in Finance and Accounting; Procurement, Business and Management Consulting, has associated with a team of Architects and Planners, Cost Estimators/Valuers, Electrical and Mechanical Engineering specialists, with proven competencies, to conduct systematic and purposeful VALUE FOR MONEY (VFM) review/audit of Government Procurement and Project activities.
UPGRADE CONSULT employs the GATEWAY REVIEW processes to assist its clients improve upon VALUE for MONEY in strategic and nonstrategic high and low value procurement.
THE GATEWAY REVIEW process simply allows the review of the strategic and non-strategic procurement or project process at each of the Decision Points. This review will be undertaken by UPGRADE CONSULT for and behalf of the sponsors of the project or procurement activity.
The objective of our GATEWAY REVIEW is to determine:
- Whether or not the procurement/project is justified.
- Whether the procurement approach is likely to achieve VALUE FOR MONEY.
The matrix of the Critical Decision Points vis. their respective Review Objectives is represented thus:
CRITICAL DECISION POINTS (GATES) |
OBJECTIVE OF REVIEW |
| 1. Needs Assessment/Case Development |
To confirm Business justification 1 |
| 2. Define Procurement Strategy |
To confirm Procurement method 2 |
| 3. Invite, Evaluate and Refine Tenders |
To confirm Investment decision and source of supply 3 |
| 4. Award Contract |
To confirm Readiness for service 4 |
| 5. Manage implementation of Contract |
To confirm in Service Benefits 5 |
| 6. Manage and Operate Contract |
To confirm achievement of set objectives 6 |
BENEFITS OF THE VALUE FOR MONEY REVIEW PROCESS
The MDAs and SOEs can achieve better VALUE FOR MONEY from procurement in many ways such as:
- Those aimed at reducing the cost of purchasing and the time it takes for example, the administrative effort in processing an order, seeking and evaluating tenders, and taking delivery of the goods ordered. This is the procurement overhead and can typically add between 10 to 50 percent to the cost of buying goods and services:
- Specifying the purchasing requirement in output terms so that suppliers can recommend cost-effective and innovative solutions to meet that need.
- Reducing the cost of buying goods or services by streaming procurement and finance processes.
- Those aimed at getting more value for money by negotiating improved deals with suppliers (reduced cost and/or better quality), or aggregating demand to get greater leverage on suppliers:
- Getting an increased level or quality of service at the same cost.
- Aggregating transactions to obtain volume discounts
- Collaborating with other departments to obtain the best prices and secure better discounts from bulk buying.
- Developing a more effective working relationship with key suppliers to allow both departments and suppliers to get maximum value from the assignment by identifying opportunities to reduce costs and adopt innovative approaches.
- Those aimed at improving project, contract and asset management.
- Avoiding unnecessary purchases.
- Ensuring that user needs are met but not exceeded.
- Sharpening the approach to negotiations to ensure departments get a good deal from suppliers. Departments should act as intelligent customers by discussing with suppliers all the elements of the contract price including level of service, timescale of the assignment, skill mix of the supplier’s team and how costs are to be remunerated.
- Optimizing the cost of delivering a service or goods over the full life of the contract rather than minimizing the initial price.
- Introducing incentives into the contract to ensure continuous cost and quality improvements throughout its duration.
- Reducing the level of stocks held.
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