September 8, 2006
Re: VendorAct Update and Second Phase
Public Works Scraps $24M Procurement Plan
From: John Reid, President, CATAAlliance
Please review the attached article for your update on CATA's VendorAct Campaign We will be tabling shortly a new procurement strategy discussion paper, the basis for positive dialogue with the federal government and stakeholders on future reforms. Members will again be fully engaged in the second phase of the VendorAct Campaign. Thank you for your support.
Public Works scraps $24M procurement plan
(Kathryn May, The Ottawa CitizenPublished: Friday, September 08, 2006)
Public Works Minister Michael Fortier pulled the plug on the controversial plan in a $24-million consultants' report that federal suppliers compete against each other in reverse auctions to drive down prices.
The decision is a major turnaround for the government's procurement overhaul, which sparked an unprecedented revolt among suppliers who feared they would be put out of business. It comes barely a week after Public Works dismissed the two private-sector executives recruited to lead the overhaul of its procurement and real estate operations.
In a statement, Mr. Fortier said he heard suppliers' complaints and is scrapping reverse auctions and reopening consultations with industry groups on a new buying strategy for the 34 goods and services commonly purchased by departments.
"We are working with the industry to make sure we understand their concerns and are in a position to address them in the best interest of Canadians," said Mr. Fortier. "That is why, after further consideration, I have asked my officials to take off the table the use of reverse auctions as part of our procurement strategy for all categories of commonly purchased goods and services. The procurement reform can be achieved without the use of reverse auctions."
But officials in Mr. Fortier's office said the minister is not backing down on his target to save $2.5 billion in procurement costs over five years. Public Works spends about $13 billion a year on goods and services. Mr. Fortier's decision to scrap reverse auctions and dismiss senior advisers David Rotor and Douglas Tipple also forestalls the changes from becoming an issue when MPs return to Parliament on Sept. 18.
"It's still the target," said spokesman Jean-Luc Benoit. "We have to find a way because it is in the fiscal framework and the minister is committed to achieving those savings."
The government is going ahead with competitions for its pre-approved supplier lists or "standing offers," which have been on hold since the furore began in June.
Mr. Fortier asked the Conference Board of Canada to act as an independent go-between in the talks between Public Works and three of the biggest and most complicated purchases: temporary help, IT professional services and office furniture.
Public Works has been under fire since suppliers, in midst of consultations with department officials, discovered the work of procurement specialists A.T. Kearney Ltd. was behind an unexpected decision to make suppliers compete in reverse auctions -- live, online auctions in which the lowest price wins.
Reverse auctions would change the way government does business. They gained popularity in the 1990s, promising big savings for buyers and turning the traditional auction on its head by reversing the roles of the buyer and seller. With a reverse auction, sellers duke it out for the right to supply the good and lowest price wins.
Critics, however, say the practice has never achieved the savings promised and it is coercive, destroys buyer-supplier relations, leads to retaliatory pricing and violates the government's own contracting principles of fairness, openness and integrity.
"They cancelled the most negative of the reforms and removed the two key consultants, which are good signals they are serious, so we'll proceed in good faith," said John Reid, president of the Canadian Advanced Technology Association (CATA) and the most vocal opponent.
"The government is essentially starting over, and I say more power to them for recognizing the error of their ways and the importance of doing this together. It's better to work together than in a state of warfare.
Public Works hired A.T. Kearney to help develop a new buying strategy on a $1.75-million contract last November that ballooned to $24 million within nine months.
The government claimed it had to accelerate the three-year contract or it wouldn't meet its $600-million savings target next year.
Without reverse auctions, some question whether the government will reach its promised $2.5-billion savings target. Many have long argued the target was pulled out of thin air and based on little analysis. One senior bureaucrat said the projected savings are "built on quicksand with no validity and should be discarded."
Many say Mr. Fortier's decision also raises questions about what value Canadians received for A.T. Kearney's $24-million report.
"I think they paid about $23.5 million too much," said Jon Hansen, a procurement specialist who led several roundtables on the changes, and president of e-Procure Solutions Corp.
Mr. Hansen said the government fell into the same trap as most companies and governments that try to overhaul procurement systems. He said the consultants hired to lead the changes invariably offer solutions around the products their firms sell. A.T. Kearney provides a service that does reverse auctions known as eBreviate.
"They define the customer's problems so it fits the solution they are selling," said Mr. Hansen. "You aren't going to sell the competition's process. They try to fit the problem to the solution they're selling and that's why 75 to 85 per cent of e-procurement fail in the public and private sector."
Alan Williams, a former assistant deputy minister for procurement, said reverse auctions may work for the private sector, which is driven by profit and return on investment for shareholders, but the government juggles many stakeholders and policy objectives and has to weigh the repercussions of its decisions on departments, industry and taxpayers
"A.T. Kearney's reverse auction idea was a waste of money from the get-go," said Mr. Williams.
"The public sector has a moral obligation to work on a higher ethical plane. The government's objective isn't to wring out every last cent, but to make sure industry makes a fair profit, departments needs are met and Canadians well-served. It has to balance."
©The Ottawa Citizen 2006