In 2007, I had an opportunity to comment on revised draft policies "Acquisition of Consulting/Contracting Services" and "Competitive Bid Process Requirements" for a client who was becoming frustrated with the 'red-tape' associated with procuring services.
As background, the head office needed like to solve the problem of policy non-compliance and reduce it’s risk of public scrutiny and financial penalties. Some problems occured with service contracts turning out to be employer/employee relationships. There were increased accusations of a lack of open, transparent practices, and the need to ensure best value for money. Separate from Procurement, the Human Resources department had posted policies and guidelines regarding hiring of independent contractors, yet eighteen (18) months later an internal audit identified issues with a lack of compliance to that policy and increased risks of employer/employee relationships.
Revised draft policies were issued for comment. These new policies included new steps in the procedures that really stood out to us as creating further bottlenecks to acquiring services. First was the use of a mandated HR checklist (in addition to the standard contracting checklist); next, a requirement for obtaining a purchase order number in addition to the contract (compliance would be checked by demanding vendors put the PO# on their invoices in order to be paid); and finally, an extra approval from HR required based on length of contract (not based upon dollar value nor risk/complexity).
Legally, a signed contract is all the vendor requires. An internal policy requiring a po# before payment would not be conducive to strong vendor relationships. Yes, requiring a vendor to put a contract/po# on its invoice as proof they have a valid contract makes sense. But, this policy required the signed contract to be sent to the head office, and until they issued a po# (to be able to track the contract in the system), the vendor would not be paid. Yet, the vendor had a signed contract! It is not up to a vendor to ensure the staff are following policy by forwarding the signed LEGAL agreement to head office. A vendor need only be concerned about their own conduct (conduct within their control), a vendor should not be penalized (payment withheld) for not ensuring policy compliance of the organizations' contract managers.
Issuing a purchase order number after a contract is signed is an additional, non-value added step. It opens a risk of a purchase order being accidentally sent to the contractor, which would then negate the terms and conditions of the contract (most purchase order templates state that the PO terms and conditions override any other terms and conditions).
It would be best to solve the problems of non-compliance through the following:
1) Streamline the approval processes by using ONE checklist. As part of the existing contract checklist, include an HR review for contracts over a certain threshold and to avoid employer/employee relationships. NOTE: It is not prudent to have HR review contracts for ‘as if and when requested services’ that span more than one month, but are under $5000.
2) If your system only matches invoices to POs - To ensure a trackable number exists, have the PO# issued BEFORE the contract is signed and use that number as the contract number.
3) To ensure compliance with documentation and addenda, utilize the ERP system requisition process for contracted services. This will allow for reporting on outstanding approvals, outstanding contract documentation, and when used for matching to invoices, will provide a notification when contracts are nearing expiry and/or maximum contract value.
4) Educate the staff as to WHY policies are necessary, don't start implementing more and more policies to force compliance. The BC Government has implemented a training program on procurement and contract management for various levels of staff (from administrators to managers, to directors and executive). The BC Government has noticed an improvement in practices since implementing the program. There are various educational seminars/workshops available with regards to tendering and contract management risks and law.
Adding more red tape will not improve compliance - in all likelihood, it'll decrease compliance!
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