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$13.1m Savings From Procurement Reforms

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will save more than $13 million annually from a centralised, modern public procurement system, with the current process failing to “consider value for money or economies of scale”.

This damning assessment is delivered by an Inter-American Development Bank (IDB) report, which reveals that the Bahamas scored a ‘D+’ in a 2010 assessment of the Government’s public spending and financial accountability on a criteria featuring “competition, value for money and control”.

Apart from a $12.732 million in annual savings on the Government’s goods and services purchase costs, the IDB study said the proposed reforms would save $394,163 and $1.774 million, respectively, via efficiencies on the procurement officer and bidder sides.

While these findings will surprise no one in the private sector, the report, obtained by Tribune Business, for the first time provides specific examples of wastage and inefficiency within the Government’s procurement processes.

Blaming this largely on a ‘decentralised’ approach, where individual Ministries and agencies have largely been left to do as they please, the IDB found:

* The Ministry of Works was paying a price 15.29 per cent higher than the Ministry of Education for the same product. The ministries were using different suppliers, thus negating potential cost savings from their buying power.

* Department of Education tendering processes for school and cleaning supplies showed a 21 per cent variation and 61 per cent variation, respectively, between the average and minimum prices quoted by the bidders.

Given that procurement information is not shared between the Ministries, the IDB said there was a possibility that “any [Ministry] could be quoting on any three vendors that are, for instance, 21 per cent above the minimum price awarded by the Ministry of Education “.

* The report also highlights how open the Government procurement process is to potential corruption, and the awarding of contracts to family, friends, cronies and political supporters when they do not merit.

For example, procurement officers interviewed by an IDB team said most contract awards involved sums less than $50,000 to avoid having to go through “the bureaucracy” of the Tenders Board.

This, though, could also be deemed as intended to avoid scrutiny and oversight of contract awards.

And procurement officers also told the IDB that they had to deal with bidders who “have no experience” in the work they are seeking to win, again alluding to the possibility for corruption.

The IDB paper is an ‘economic analysis’ designed to support a $45 million project intended to reform the Government’s financial management and public procurement systems, bringing them into line with the Financial Administration and Audit Act.

The goal is to develop a centralised Public Procurement Unit that would realise synergies and cost savings, and to decrease the Government’s goods and services purchasing costs from 4.2 per cent of gross domestic product (GDP) to 4 per cent.

The IDB report’s revelations will likely stoke further consternation in the private sector and Bahamian public, who are being asked to contribute more in taxes via Value-Added Tax (VAT) and other increases to cover the Government’s rising costs.

Many are likely to query, yet again, whether wastage and inefficiency within the Government is the real problem, and whether this should be fixed first before they are asked to contribute to fill a ‘black hole’.

While the IDB report described public procurement as having “a moderate weight” in the economy, accounting for $353.6 million annually, it added that there was “no information” on how many tenders were awarded annually.

And the manual systems used by the Government did not determine how many contracts were over $50,000, and had to go through the Tenders Board, or stayed below this threshold and avoided a public tender.

“According to several purchasing officers interviewed, most of the processes are conducted in the threshold of $501 to $50,000 to speed up the process and avoid the bureaucracy of the Tenders Board,” the IDB said.

“The present scenario of public procurement shows that each Ministry has its own procurement units responsible for the purchasing of goods and services required by each Ministry.

“There is no aggregation of demand, which does not allow the Government to use its purchasing power as a tool for achieving better conditions from vendors. There is evidence that the same good is bought by different Ministry at different prices from different vendors.”

Using the example of 8.5 x 11 inch copy paper, with 500 sheets per pack in 1,600 cases, the IDB report said the Ministry of Education was paying $32.96 per unit to buy this from Nassau Paper Company.

Yet the Ministry of Works was paying $38 per unit, or 15.29 per cent more, to buy exactly the same product from BOSS - Bahamas Office and School Supplies.

As for the Department of Education’s 2014-2015 tender for school supplies and cleaning supplies, the IDB paper added: “The evaluation of the tendering process on school and cleaning supplies conducted by the Department of Education shows a high variation in prices for the same item.

“Percentage of variation between the average price of all vendors and the minimum price shows a minimum of 21 per cent for the school supplies, and 61 per cent for cleaning supplies.

“As the different Ministries do not share information on prices of reference or vendors, there is the possibility that any Ministry could be quoting on any three vendors that are, for instance, 21 per cent above the minimum price awarded by the Ministry of Education. It is important to mention that the system allows the uploading of only three quotes.”

The IDB report described the requirement that all bidders supply a valid Business Licence and National Insurance certificate of compliance as “time consuming” for all parties.

“In meetings with the procurement officers of Ministries, it was mentioned that in most of the tendering processes, there are vendors presenting bids that does not have experience in the category they are bidding, and sometimes they do not have all documents required for performing business with the Government,” the IDB report said.

“However, procurement officers are required to perform the evaluation of these bids, which is time consuming and could be avoided if the vendor is validated [beforehand] by a vendor registration system.”

The IDB said the new Act provided an opportunity to implement “the best possible solution” for public procurement in the Bahamas, promoting better resource management and use of funds through a uniform, automated approach.

“The procurement system modernisation will generate approximately $13 million in 2018 in savings on goods and services, by implementing the Reference-Price methodology for all Ministries and an e-procurement system to enforce the use of this methodology,” the IDB concluded.

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