VALUE FOR MONEY

KENYAN PERSPECTIVES

PSPTB ANNUAL CONFERENCE

AT AICC, ARUSHA

PRESENTATION BY:

HEDWIG NYALWAL

HEAD OF SECRETARIAT – KENYA INSTITUTE OF SUPPLIES MANAGEMENT

Printing of election materials for 2010 elections in Kenya

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WHEN CONDUCTING PROCUREMENT ……….. BEWARE!

EXAMPLE OF EQUIPMENT PURCHASE (RFX)

•FOR THE SAME PIECE OF EQUIPMENT •SUPPLIER A OFFERS $1203•SUPPLIER B OFFERS $1257•We issued specifications•We received a price•To ESTABLISH VALUE examine the COST BREAKDOWN….

COST DRIVER ANALYSIS

COST DRIVER ANALYSIS

Supplier B has $26 more in MATERIAL VALUE

COST DRIVER ANALYSIS

OVERHEADS (No-value add = Waste)Supplier A has $90 more waste

COST DRIVER ANALYSIS

But,

Supplier B has $118 more in PROFIT

Is profit value?

VALUE FOR MONEY

•WE SELECT PRODUCTS THAT ARE THE RESULT OF THEIR SUPPLY CHAIN

•To realize VfM: Scope of procurement must extend beyond MANAGING SUPPLY to MANAGING THE SUPPLY CHAIN

VfM

Value for money (VfM) is economy, efficiency, effectiveness……

•ECONOMY – optimal allocation/application of available resources to CLEARLY DEFINED and GENUINE USES/PRIORITIES …. which are aligned to the STRATEGIC NEEDS AND GOALS of an organization, community, country etc

VfM

•EFFICIENCY – no/minimal waste with regards to quality/time/cost

• 

•EFFECTIVENESS – what was INTENDED = ACHIEVED | NEEDS = ADDRESSED

VfM

VfM approach to public procurement demands professionalism:

•Professionals are responsible/accountable for their use of RESOURCES

•Professionals are responsible/accountable for the OUTCOMES attained

•Money is spent not only in the RIGHT WAY but also in the BEST WAY

THE BALANCING ACT

THE BALANCING ACT

•Where on this triangle does procurement give best VfM?

•Can procurement function optimize all three elements of this triangle to give best VfM?

•Need identification ……QUALITY

•Specification……..COST

•Contract management………DELIVERY/PERFORMANCE•Legalistic/Regulatory approach = trade off = No VfM•Professional approach = Eliminate waste = VfM

VfM – PILLERS IN PROCUREMENT

PLANNING

EVALUATION: 67 out of 125 APPEAL CASES

……..in one case the applicant an insurance broker charged that it had exceeded the minimum score of 75% in the technical evaluation and was the lowest priced bidder and, further that the PE had introduced new criteria (choice of underwriters and past performance) in order to exclude it from the contract….the PE charged that the applicant was a current provider of insurance services to the PE and had a record of poor performance ….interestingly the applicant was still rated highly in the technical evaluation stage enough to allow it to proceed to financial evaluation! The PE was ordered to re-evaluate all tenders using criteria set out in its original tender documents……..

……….will the PE get VfM in this procurement?

PROFESSIONAL’S DILEMA

…….efficiency and effectiveness appear to have been sacrificed at the alter of modern-day integrity oriented public contracting system …by removing the public official’s discretion over choice of contractor, competitive bidding eliminates the officials ability to obtain superior goods and services ….in effect the PE does not choose the contractors, rather the contractors choose themselves by their bids ….not surprisingly, quality of goods and services suffer…(Steven Kelman, 1990)

FOCUS FOR PROMOTION OF VfM

Demand management•Detailed specifications•Lower cost specification•Optimal service level•Quantify spend volumes •Common specification•Collaboration with other public sector bodies •Implement framework agreements

FOCUS FOR PROMOTION OF VfM

Supply base management•Supplier development programmes•Review / establish service level agreements•PPP contracts where appropriate•Performance benchmarking•Cost breakdown analysis

Total cost management

THE VfM FUNCTION

VfM = ʄ [Professionalism (+); Legal framework (-); Regulatory framework (-);

Procurement-Organization (+)]

………..Radical proposal to promote professionalism in Kenya seeks to recognize the opinion of the procurement professional by making him the professional adviser to the accounting officer and abolishing the Tender Committee……(Public Procurement and Disposal Bill 2014) ……..will this make a difference?

----THANK YOU---