What makes a Best Practice?

Below is a 'first of many' guest post by colleague, mentor, former boss and now, business associate, Chris Duggan. This article was originally published in NECI's The Legal Edge Issue 81

Best Practices, Business Rules, or Just Good Ideas?

by Chris Duggan

Do you employ best practices in your organization? How do you know they are the “best”? Did you invent the practice, or did you adopt it, or adapt it, based on some pre-existing practice? Does the practice work for both the purchaser and the supplier? How and when should you solicit your suppliers for input on your best practices?

The term is commonly misused to describe business rules or good ideas that must be or should be followed because of corporate governance or basic logic.

Best Practices Reform in Procurement
Many public-sector organizations across Canada are redeveloping their procurement functions. These initiatives have been labelled “procurement reform,” “procure-to-pay,” “modernization,” and “optimizing accountability.” All seem to recognize the strategic importance of the procurement function in organizations. And it’s about time.

Procurement and contract managers have long understood the strategic contribution they can make to the organization. As one simple example, Leenders, Fearon and England, in Purchasing and Materials Management (R.D. Irwin, 1989) describe the “Profit-Leverage Effect,” contrasting the procurement and sales functions to demonstrate how each contributes value to the organization’s bottom line. To improve the bottom line by $50,000, the sales department needs to increase sales by $1 million (assuming a 5% net profit). Assuming that purchases account for 50% of the sales dollar (i.e., $500,000), the procurement department only needs to reduce costs by 10% to achieve the same result.

Some of the latest developments in the procurement function can be identified as best practices, but with caution: a best practice in one situation may be a worst practice in another. It is also important to ensure that what is asserted to be a best practice is not political manoeuvring in disguise, and that individual circumstances are factored into any decision to invent, adopt or adapt any particular practice within an organization.

High-Level Best Practices
Some thoughts on the high-level best practices in the public-sector procurement reform movement include, but are not limited to:

• Separating the procurement function from the financial function, to enable appropriate debates on often-competing organizational goals.
• Separating procurement policy from service delivery, to create an environment of principles-based risk management, rather than rules-based prescriptive policy enforcement.
• Updating, simplifying and automating procurement and contract management policies and procedures (as well as related templates and guidance documents) so that they are easy to read, understand and use.
• Leveraging organizational technology platforms to provide accurate and timely information to users, including up-to-date information on established supply arrangements, and access to online sourcing systems for unique procurements.
• Providing relevant and timely competency-based knowledge and skills training to those who are charged with managing the function.

Suggested Best Practices
Here are a range of suggested best practices in procurement and contract management for complex, high-value procurements for goods or services:

• Engage in formal procurement planning, including scalable business-case development that covers functional needs assessment, feasibility study, cost/benefit analysis, and risk assessment.
• Consider a wide range of information-gathering and competitive-solicitation strategies, such as various market-sounding techniques, Requests for Expressions of Interest, Requests for Information, Invitations to Tender, Requests for Proposals (RFPs), etc.
• Consider Joint Solutions Procurement, alternative service delivery, and public-private partnerships (P3s) only for high-value, strategic infrastructure procurements.
• Use plain and unambiguous language that is easy to read and understand, and consider inviting suppliers to comment on your solicitation package design and content before you officially release it.
• In the RFP process, test the document design, especially the scoring method, to ensure that the successful proposal will meet your desired performance requirements and deliver the optimal combination of cost, quality and timeliness.
• Use Life-Cycle Costing, Total Cost of Ownership, and environmentally responsible procurement considerations (e.g., the Toolkit example described earlier in this issue) to help determine the best long-term value for money and the lowest degree of negative environmental impacts.
• Protect suppliers’ trade or process secrets when you are issuing addenda to a competitive solicitation. Provide clarifications and corrections as appropriate, but do not automatically respond to supplier questions, and avoid repeating supplier questions verbatim.
• Avoid excess use of mandatory requirements and encourage supplier innovation.
• Consider incentives or rewards for strong supplier performance.
• When evaluating proposals or bids, engage a multi-stakeholder team, use formal evaluation handbooks, and require that each team member sign a conflict-of-interest disclosure form.
• Consider using a fairness monitor to provide procurement-process oversight.
• Focus your unsuccessful proponent debriefings on ways to help improve their chances of success on future opportunities.
• Always review the results of the procurement and contract management process, to determine lessons learned that can lead to continuous improvement of your process.
• Consider procurement councils as a way to share information across organization(s).

Reprinted from The Legal Edge Issue 81, September - October 2008