Public Procurement

2.3.1. The Concept of Public Procurement

Thai (2001) traced the history of public procurement to the issuance of the first procurement order in Syria, dating back to between 2400 and 2800 B.C. Miller et al., (2000:59) defines procurement as;

“...the acquisition of goods or services through a transparent, competitive, public process”.

Hunja (2003) affirmed that public procurement involved all processes involved in the purchase of goods and services, with vast amounts from the private sector by the public sector. According to the OECD (2011), public procurement can be described as the purchase of goods, services and works by state-owned companies and the state itself. From these definitions, it becomes clear that public procurement remains central to government business globally and constitutes a huge component of the government’s expenditure. For instance, OECD member states spend an average of 12.6% of their GDP on public procurement (OECD, 2011). This is lower than the amount spent in the developing world, as is evident from Agaba and Shipman (2007). They posit that public procurement usually accounts for about 70% of Ugandan GDP and 40% of Malawi’s GDP. Wittig (1999) stated that the public procurement sector is the largest domestic market in less developed countries such as African countries, and as such any improvement therein can have a direct and beneficial effect on the overall economic situation of a country. This goes to show the significance of public procurement to developing economies. The huge expenditure and attendant complexity arising from its multi-actor posture makes public procurement vulnerable to corrupt practices, waste, and fraudulent practices. Notwithstanding, the call for the reform of public procurement practices globally and the role of public procurement in delivering government policy appears to be on the rise (Erridge, 2007, Arrowsmith, 2010, Telgen et al., 2012).

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No doubt, public procurement stands out as one way through which socio-economic policies could be implemented. This will be discussed in subsequent sections of this study.

2.3.2. Socio-economic Policies and Public Procurement

Researchers have stressed that the procurement of public facilities such as infrastructure is increasingly being structured in such a manner that it could be used to attain social aims in various countries around the world (Macfarlane and Cook, 2002, Watermeyer, 2003, McCrudden, 2004, McCrudden and Gross, 2006, Kattel and Lember, 2010, Binks, 2006). This is understandable considering the high level of importance which the public procurement system assumes in the procurement of infrastructure, especially in developing countries.

Macfarlane and Cook (2002) observed that the huge public expenditure which is deployed towards the provision of basic amenities in certain areas with high poverty/unemployment rates, could be utilised in such a manner that this investment could also contribute towards resolving such societal malaise. They insist that this can be done through the incorporation of the desired outcomes in terms of employment or poverty reduction levels, into the specification of the product (infrastructure), being purchased. Arrowsmith (1995), Binks (2006) and Hawkins and Wells (2006) in separate submissions agreed that governments such as the United States, the United Kingdom and South Africa have resorted to the use of public procurement as a tool for the achievement of socio-economic outcomes. These countries have done this through: the promotion of industrial development by exercising enormous influence on the market, given the enormity of the size of government and secondly through the use of regulatory organs to support social objectives for the welfare of its citizenry. Whilst acknowledging the fact that public procurement has been used in various instances to deliver socio-economic outcomes, McCrudden (2004) admitted that there was an almost complete lack of adequate information detailing the processes through which these outcomes are achieved. Watermeyer (2003) and Arrowsmith (1995) pointed to the absence of both qualitative and quantitative data on the socio-economic outcomes emanating from the implementation of these preferential procurement policies.

Figure 2.1 is an illustration of how public procurement has been used in the attainment of national objectives.

34 Procurement Mainstreaming More Competition More Transparency Greater efficiency Less corruption More professional procurement Greater respect for public

procurement institutions

Greater Value for money Budgetary savings Improved public service

delivery More effective use of

public funds Better co-ordination of

public funds Debt reduction Stimulus for private sector

growth

-Better chance to achieve MDGs -Better chance to achieve

other government objectives -improved reputation for government institutions -Enhanced respect for rule

of law -increased access by local

to government contracts -Improvement in social

sector services -Better environmental

management -Better conflict prevention

Direct Procurement Impact

Economic Impact

Social Impact

Figure 2.1 Torchlight Diagram

Source: OECD/World Bank (2005)

Figure 2.1 highlights the direct and indirect benefits of public procurement as a tool for achieving policy outcomes as defined within a national context. The second part shows the direct impact of procurement mainstreaming. These direct impacts are often referred to as the primary objectives of the procurement activity. The third and fourth segments of Figure 2.1 depict the secondary impact of the procurement activity and are usually described as the secondary goals.

Telgen et al. (2012) list the several stages of public procurement development: sourcing and delivering of goods and services; compliance with legislation. Warner (2011) stated that large-scale procurement has been severally undermined as an obvious medium for the strategic and procedural development of national industries, Small and Medium

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Enterprises (SMEs) and the creation of jobs. He also mentioned various tools of the procurement exercise which can be skewed towards the attainment of these strategic objectives or goals as including; procurement regulations, contracting strategies, vendor pre-qualification, technical standards, bid documents, tender evaluation criteria and contract conditions.

It is expected that the delivery of socio-economic policy outcomes can be achieved during either or a combination of these stages. Several instances abound where public procurement has been applied in the advocated manner.

2.3.3. Public procurement as a Driver of Socio-economic Benefits

There have been several instances with some of the cases presently on-going, globally, where public procurement has been used to pursue the delivery of socio-economic outcomes. Rendered below is a brief review of some of these instances;

 United Kingdom: In the United Kingdom, the SCA (Special Contract Arrangement) served as a form of preferential procurement strategy. It was described as a scheme which was aimed at assisting the employers of severely disabled persons within the European economic area to bid for UK government departments and agencies contracts (McCrudden, 2004). According to Erridge (2007), public procurement has been used in the following instances within the UK to deliver socio-economic benefits: Sustainability and the Environment (Home Energy Efficiency Scheme-to combat fuel poverty and the Environment Action Plans concerned with the environment and the effect on the local communities); best value; ethnic minority involvement in public procurement (Race Relations Amendment Act of 2002); and the use of procurement to resolve unemployment issues in Northern Ireland.

 United States: The United States of America is not left out in the use of public procurement for the attainment of socio-economic outcomes. Evidence of this can be found in several policies such as: the use of affirmative action to ensure that companies who discriminate do not benefit from government contracts; and the use of ‘set-asides’ such as contained in the Public Works Employment Act (1977) to provide for the participation of the minority business enterprises so they can benefit from government procurement.

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 Malaysia: The New Economic Plan (NEP) of 1971 and the National Development Plan of 1991 policies were put forward by the Malaysian government to bring back the ethnic Malays (Bumiputeras) into the mainstream of the nation’s economy and politics. This group of persons, despite being in the majority, were side-lined in the scheme of things during the era of colonisation, with preference for the ethnic Chinese and the Indians. These latter groups assumed economic and political dominance in the country’s affairs, thus leading to, post-independence, a strong advocacy for redistribution of wealth and power in the country (McCrudden, 2004). The use of procurement contracts formed a major component of this redistribution endeavour under the NEP.

 South Africa: In post-apartheid South Africa, the use of public preferential procurement was adopted in redressing the impacts of discrimination and inequality in the country. Targeted procurement was adopted in the award of government contracts, hence supporting the constitutional provisions to that effect in the post-apartheid constitution. The policy goals of this targeted procurement include: contracting with persons, or groups of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability, and implementing the Reconstruction and Development programme (McCrudden, 2004).

2.3.4. Challenges to the Delivery of Socio-economic Benefits through Public Procurement

Erridge (2007), in lending support to the increasing advocacy for the utilisation of public procurement in driving the delivery of socio-economic benefits, lamented that the potential for the attainment of such lofty ideas was being overshadowed by the current overemphasis on market-led commercial goals. These commercial goals, he argued, place more value on economy and efficiency over and above social, welfare and public value. In furtherance to this claim, he proceeded to identify the regulatory goal, the commercial goal, and the socio-economic goal as the goals against which policy and public values might be analysed.

Whereas the regulatory goals are directed at ensuring that procurement activities and contracts meet the requirements of propriety and transparency, commercial goals are concerned with ensuring that procurement activities and contracts meet the requirements

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of economy and efficiency from the client’s perspective. Socio-economic goals on the other hand, lean toward the use of public procurement to support wider government policies for the good of the citizenry. The commercial and regulatory goals are pursued from the prism of adherence to and the use of market-driven mechanisms to achieve the direct goals of the procurement exercise: reduced cost, timely delivery and improved quality (Erridge, 2007).

The existence of these goals further leads to and aggravates conflict within the procurement system. The goals become treated on the basis of primary and secondary objectives, with the socio-economic goals seemingly assuming the position of a secondary objective or goal in most cases. This has led to an argument against treating the socio-economic goals as a secondary objective. This argument was championed by Arrowsmith (2010), wherein she argued against the use of secondary objectives in describing socio-economic objectives and advocated for the use of a different terminology such as a horizontal policy. Erridge (2007) discovered the existence of severe conflicts of the goals enumerated earlier. Furthermore, he observed that there has been limited experience of properly structured projects directed at achieving socio- economic goals within these regulatory and commercial constraints, and a scanty dissemination of the outcomes of such projects.

Local Content Development Policies (LCDPs) belong to the class of such socio- economic oriented policies which have come to occupy the centre stage of several infrastructure projects, particularly in naturally resource rich countries, such as Nigeria. This study adopted the Nigerian version of the LCDPs as an exemplar. It explored how the interactions between the various implementers within the implementation structure- an interorganisational structure, influenced the achievement of the policy objectives from a project perspective.

2.4. Local Content Development