HomeNewsPurchasing & Supply: Essentials of value for money procurement

Purchasing & Supply: Essentials of value for money procurement

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Businesses need to be efficient in order to compete effectively globally.

Efficiency is a measure of how much input was required to achieve a certain output and is known as “value for money” in procurement terms.

Achievement of value for money needs to be balanced with other pillars of procurement that include integrity, the ability to manage corruption and conflict of interests, and accountability and responsibility in procurement decision making.

There are further considerations for public procurement that include equal opportunity and equal treatment of suppliers, fair treatment of suppliers, corporate social responsibility and opening up of public markets to international trade.

Most procurement systems in both the public and private sector fail to put in place systems to achieve value for money in sourcing.

The majority of the systems do procurement on an ad hoc basis without procurement plans. In the process, procurement decisions are made on the basis of compliance to tender requirements without much regard to the value for money principle.

Public procurement systems such as the World Bank operate with procurement plans that guide the budget and the procurement method for the intended purchase.

The systems allow for submission of documentation after the tender closing date when such submissions do not improve the supplier’s bid.

Most procurement systems disqualify bidders for failure to submit documents such as company registration certificates and end up awarding contracts to higher bidders at the expense of the value for money concept.

World Bank procurement procedures allow for follow up of registration documentation within stipulated time periods to enhance value for money concept.

Follow on submission are not regarded as improvement of the bid. In such systems, there is no provision for adjustment of technical specifications and bid rates since that would amount to improvement of the original submission.

The measure of whether a procurement process has achieved value for money is by the review of the process against the budget.

A cap of 10% over the budget price may be acceptable depending on system policy.

This implies that an award of a contract may not be possible when the compliant bidders’ offers are above the budget in consideration of value for money in procurement processes.

For this system to work, budgets must be realistic based on thorough research of the market. The budgets may be known in advance to prospective bidders as in the case of World Bank procurement.

Some organisations are not comfortable to disclose the budget on the ground that it can create an appetite for bringing prices upwards in the event that some suppliers have capacity to do the project at lower costs than the budget.

Value for money procurement can only be achieved if organisations operate with procurement plans that are supported by the budget.

Nyasha Chizu is a Fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: chizunyasha@yahoo.com; nyashachizu@harleyreed.com

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