Procurement: A Key Driver for Development and Trade
The establishment of sound procurement policies and practices is fundamental to ensuring a fair, level playing field in international tenders. Transparent procedures for awarding contracts for goods and services establish accountability and encourage the cost-effective use of public funds, which creates dependable, stable and efficient markets. This is particularly important in developing countries, where government spending can account for up to 20% of GDP.
Nevertheless, throughout many emerging economies, low-cost procurement policies pose an impediment to fair competition and to sustainable economic growth. By relying on low-cost as the determining factor for award, governments often fail to consider the benefits that can be gained from high-quality products and services that include warranties, maintenance agreements and reliable, long-term customer service. These policies also prevent firms from offering quality, innovative goods and services in order to keep their bidding price low.
In order to address these issues, USTDA launched the GPI in 2013. Working with partner countries to strengthen their procurement systems and realize development benefits, the GPI shares best practices about how to establish procurement systems that integrate best-value determination and life-cycle cost analysis, as well as how to promote objective evaluation through a trained, professionalized procurement workforce.
- Partner countries have repeatedly told USTDA that their current policies do not always allow them to get the best value for their money in procurement decisions. By relying on cost as the determining factor for award, government procurement practices fail to take into account key factors such as equipment quality, operation, and service and maintenance. Least-cost analyses often lead governments to procure low quality goods with relatively short useful lives, or high ongoing operating costs, preventing the efficient development of infrastructure needed to support expanding populations and sustain economic growth.
- Activities under the GPI aim to improve procurement methodologies by working with partner countries to promote the understanding and use of best-value determination. This type of analysis considers whole-life costs, quality, resource allocation, timeliness, and convenience to determine whether these elements as a whole constitute good value and provide economy, efficiency, and effectiveness. In the context of procurement decisions, best value implies that bids are not awarded to the lowest cost bidder, but to the most qualified bidder that offers the overall best value for money.
LIFE-CYCLE COST ANALYSIS
- Life-cycle cost analysis (LCCA) is one tool that assesses value in procurement decisions and plays a large role in the GPI. LCCA quantifies the "whole-life costs" of a project, also known as the "total cost of ownership" and compares them against alternative investment options. More than a simple cost comparison, LCCA offers sophisticated methods to determine and demonstrate the relative economic merits of different purchase alternatives in an analytical and fact-based manner. LCCA offers metrics that can demonstrate that the purchase of high-quality products can lead to better long-term economic outcomes.
- U.S. firms have expressed to USTDA that the increased use of LCCA would positively impact their ability to successfully compete for contracts in developing and middle income countries. Although the high-quality, high-value equipment and comprehensive service and maintenance agreements provided by U.S. companies sometimes come at a higher initial purchase price, they offer lower overall costs when considering the entire useful life of the technology or equipment.
- To facilitate the use of best-value determinations and life-cycle cost analyses in emerging economies, the GPI promotes the use of objective evaluation criteria. Procurement decisions that take a more comprehensive view of life-cycle costs and performance standards are poised to result in significant benefits for the host country's long-term economic development. These evaluations require the implementation of clear policies and processes as well as concrete metrics to justify higher cost acquisitions and to ensure objectivity and transparency.
- Emerging economies often rely on least-cost analysis in procurement decisions in part due to the lack of professional training of the procurement workforce. Procurement specialists often do not have the training to execute the sophisticated calculations required for best-value determinations and life-cycle cost analysis. A key component of GPI is to strengthen the professional capacity of acquisition officials, to ensure their protection from accusations of corruption or fraud that may come with the use of new methodologies, and to promote knowledge-sharing on efficient and modernized procurement practices.