E-procurement could save millions

25 Sep 2003

Until relatively recently e-government has largely concentrated on service delivery as in replacing hatches, counters and application forms with the internet and all of its associated technologies. It started with the creation of websites to give better information and has progressed to more and more interaction ranging from online forms to full transaction initiation over the web.

But there is a perceptible change now and people are starting to look at how government works behind the scenes with a broadening of the concept of ‘service’ to include the way taxpayers in general are ‘served’ — that is, how their hard-earned tax euros are used in the process of public administration.

One area that is complex, costly and that has the potential to really benefit from reform is the public procurement process. Every year, government, local authorities, health boards and so on buy enormous quantities of goods and services on behalf of the taxpayer — everything from roads and public toilets to hospital equipment and army uniforms.

A couple of years ago, the government engaged PricewaterhouseCoopers to produce a report and proposals for the development of e-procurement to streamline the public procurement process. The only trouble is that the projected cost of taking the big bang approach is huge. While in the longer term there may be the promise of considerable savings, the history of failed investments in technology and the prospect of a long payback period are considerable constraints to moving forward. And with economic prospects looking ever dodgier, the likelihood of using taxpayers’ money in such a risky venture seems more remote if not imprudent.

Of course, those who know about using technology to bring about such a profound change in the way the system works know too that the real obstacles and risks are in the capacity for people and organisations to either facilitate or obstruct progress — and that’s the same no matter whether you’re talking about the public or private sectors.

So, the dilemma for government has been how to reform the public procurement process without exposing taxpayers’ money to potentially considerable risks. The payoff is not just in reducing the cost of the procurement process itself, but also in the potential for economies of scale and, as some would see it, the potential to bring more and more players in the small to medium-sized enterprise sector into the ‘e’ world — and that’s vital if Ireland is to remain a significant player in the global economy.

Well, there’s good news at last. A couple of months ago Christine Tonkin was seconded to the National Public Procurement Policy Unit in the Department of Finance. Tonkin is director of Queensland Purchasing and has been a key player in Queensland in modernising its procurement processes. She has considerable experience and knowledge. She knows where things can go wrong and she is very sharply focused on achieving results. She also believes that there is considerable merit in taking an incremental approach. Tonkin is working with Gráinne McGuckin at the Department of Finance and together they have produced a strategy to achieve quick results, without much fuss or large nail-biting investments.

The strategy is simple. It has four legs — building organisational capacity to maximise savings; developing people to sustain improvements; reducing costs through aggregation of demand; and improving efficiency through technology. According to McGuckin, the objective over the first 12 months is to achieve ‘maximum enduring change’.

One of the key areas of potential savings is in aggregation of demand for goods and services where in the region of €470m is being spent in 2003 across the Civil Service. While not all of this is suitable for aggregation, a lot of it is — things such as travel, post, communications, computers, office machinery and supplies, facilities management, consultancy services and uniforms. In the health sector there’s scope to aggregate demand for goods and services to the tune of €1,047m, of which roughly €575m is in common with the Civil Service. So it’s possible to aggregate both within and across sectors. The local government and education sectors are not yet fully analysed but it is safe to assume that the scope for aggregation in and across these sectors has to be significant as well. Work on devising a new aggregation strategy is well under way and a fully developed strategy is expected to be in place by this coming December with some aspects of it already implemented.

The other main area for potential cost saving is in the actual purchasing processes themselves. That’s where the ‘e’ comes in. Essentially, it means using technology to optimise automation in the ‘purchase to pay’ cycle through the financial management information systems. Tonkin says that in Queensland transaction costs were reduced from AUS$250m in 1996 to AUS$42m in 2002. It also means using technology in a central procurement portal with tendering functionality, e-catalogues with aggregated procurement arrangements and guidance and information about the progress of implementation. Already, the existing e-tenders website is being developed into a portal on an Oracle platform. The plan is to have it in place by December, by which time it will have an ‘electronic tender box’, evaluation tools, a wizard to automate advertising in the EU Official Journal, an electronic catalogue, as well as guidance and compliance material.

For low-value, low-risk purchases that are not suitable for aggregation — or where, according to Tonkin, there is a lot of ‘noise’ — the strategy sees more use of purchasing cards with suitable usage restrictions and links to the financial management systems for automated reconciliations. This is really to remove a lot of transactions costs on low-value goods from the system through automation. Again, the strategy sees a significant increase in the use of purchase cards by the end of this year.

Finally, the strategy looks to market specific e-procurement solutions for things such as the print and uniforms markets, by automating best practice. The Department of Finance, along with the Government Supplies Agency and the Northern Ireland Procurement Directorate, is working on a seminar to look at the possibilities around automating best practice in publishing and print management.

All in all, things are moving on a number of fronts. The Department of Finance has teamed up with the Health and Local Government sectors and with the Departments of Defence, Justice, Welfare, Communications and the Office of Public Works and it is hoped that the Department of Education will be brought on board soon. The Northern Ireland Procurement Directorate is also expected to participate in an intensive training programme in mid-September.

There is a real sense of getting things done and an eagerness to engage with the key players right across the public service. As perhaps one of the most potentially rewarding aspects of e-government in terms of cost efficiencies and engagement in e-commerce, the reformed procurement regime stands to deliver a lot.

By Syl O’Connor