Our finance minister this week unveiled the new procurement board, and in my view, if the new board stays true to the principles of good governance than I am pretty sure our public procurement system is in for a smooth sailing. Over the years the scramble for tenders in the country has escalated, and only those close to power benefited handsomely. Although the tendering system was designed to procure goods and services for the State at the cheapest rates without compromising on quality, the entire system was turned into a cashcow by greedy individuals who were interested in filling their tummies in the shortest time possible. Nepotism and cronyism are some of the elements that were eating the system from within, so much that businesspeople who were not well-connected stopped tendering because they knew they stood no chance. The Tenderboard was headed by permanent secretaries, the very same people who are supposed to rein in public spending, therefore it baffles me as to how these very trusted individuals could allow the system to denigrate into such a disparaging state. You would hear how tenderpreneurs charged prices five times the original price of the goods when it is government procuring, but when a private firm seeks to procure the very same good the price is much lower. It seems those tasked to take care of the State resources have little regard for it simply because there is no sense of ownership. After all, what do you expect if the board memebers that are responsible to dish out tenders have proxies lurking around the corner?
Disadvantage of competitive tendering
In his 2011 column titled “Seven Reasons Competitive Tendering Fails (And What You Can Do About It)”, independent Researcher Murray Stanley outlined the disadvantages of tendering which I feel the new procurement board members should acquaint themselves with. The article recommended that competitive tendering be abolished. Where possible; long term, mutually beneficial relationships should be developed with trusted and reputable suppliers. Selection of these suppliers should be based on thorough research. Once selected, these suppliers should be paid a fair profit margin for the quality product or service they provide.
Disadvantage #1: Leading suppliers may not tender;
In some countries government procurement guidelines only allow suppliers who actually tender to be considered for a procurement decision. If the leading supplier or suppliers do not tender, the purchaser can only consider bids from suppliers who do tender. If leading suppliers are not considered, the purchaser may end up buying inferior product or service.
Disadvantage #2: Barriers to communication between supplier and customers;
When making significant purchases, frank and open communication between potential supplier and customer is crucial. Competitive tendering is not conducive to open communication; in fact, it often discourages deep dialogue because in many cases all discussions between a bidder and the purchaser must be made available to all other bidders. Hence, Bidder A may avoid asking certain questions because the questions or answers may help other bidders by revealing Bidder A’s approaches, features, and the like.
Disadvantage #3:The cost-plus phenomenon;
To run the game of cost plus in industry a supplier offers a bid so low that he is almost sure to get the business. He gets it. The customer discovers that an engineering change is vital. The supplier is extremely obliging, but discovers that this change will double the cost of the items……the vendor comes out ahead.”
Disadvantage #4: Use of cheaper, poor quality materials and/or labor.
Disadvantage #5: Safety shortcuts;
Contractors may cut corners and creating safety risks in the process. As a result the buyer was urged by the union to put in checks and balances in the tendering process. Such checks and balances a) miss Deming’s points about the flaws in competitive tendering, b) create financial costs, time delays, and c) make it more likely for disagreements about terms to occur, perhaps leading to litigation.
Disadvantage # 6: Competitive tendering can be extremely slow
Disadvantage #7: Insufficient profit margin to allow for investment in research and development, new technology or equipment;
Competitive tendering can force a supplier to accept a very slim profit margin. These low margins can result in a supplier having little or no money to spend on research and development, new technology and equipment. The result – society gets a lower price tag today, but society loses out tomorrow and well into the future. In conclusion, it is my hope that the reforms to our public purchasing processes will save the country millions if not billions which will then be diverted to poverty eradication programmes, but we should remain cognizant of the fact that the only way Namibia’s public procurement system can thrive is through good governance.