August 2013 —This month, George Washington University (GW) Provost Steven Lerman and I signed a Memorandum of Understanding to formalize our institutions' partnership for the Global Procurement Initiative: Understanding Best Value. The goal of the Initiative is to educate public procurement officials in emerging markets about how to establish procurement practices and policies that integrate life-cycle cost analysis and best-value determination in a fair, transparent manner.
The U.S. Trade and Development Agency (USTDA) developed the Initiative in consultation with our industry partners, who spoke with us at length about the procurement challenges they face and the ways in which an Initiative like this might address them. We also reached out to our colleagues at the multilateral development banks. Given their role as leading financiers of large infrastructure projects in emerging economies, as well as their on-going efforts to reform procurement policies, they have been a tremendously valuable resource for us. And we will continue to collaborate with them to plan and execute activities under this Initiative.
Partnerships like this one with GW have been a hallmark of USTDA's success. USTDA coordinates with our fellow government agencies and with U.S. companies to support infrastructure development in emerging economies. These relationships allow USTDA to carry out its unique mandate: That is to invest in projects that support economic growth in our partner countries, while also increasing business opportunities for U.S. industry.
In carrying out our mission, we have come to recognize that one of the greatest impediments to sustainable development in our partner countries – and the greatest hindrance to U.S. companies trying to enter new markets – is the lack of fair and transparent procurement systems. Many countries rely on least-cost procurement policies to govern their selection and award procedures. We have heard from our private sector partners that these policies often impede fair and open competition for U.S. industry.
The reliance on lowest price as the determining factor for award discounts high-quality, high-value equipment and comprehensive maintenance agreements. While these elements may increase the initial investment, they actually lower the total cost of ownership and provide the best-value for the project sponsor over the life of the project.
Least-cost procurement policies, on the other hand, can be detrimental to the project, the project sponsor and, ultimately, the country's development. We have heard from our overseas partners about equipment that does not work properly after it has been installed, or about the sudden addition of operational fees that were not part of the original bid. Without planning for such costs, project sponsors are at a disadvantage, and the solution they purchased is often left to deteriorate until it is of no use. Our project sponsors from developing and middle-income countries cannot afford to suffer this kind of loss.
Procurement officials in these economies require increased knowledge and skills in order to move away from least-cost as the determining factor for award. Then, they can consider the benefits of lower maintenance and operational costs, improved project efficiency, and greater project longevity. This will lead to smarter, longer-term investments with overall savings to the government. And when our overseas partners understand how to fairly and transparently evaluate best value, government contracts in these markets will offer revitalized business opportunities for U.S. companies that offer "best value" solutions.
So, how do we get there? Two years ago, USTDA changed its policies to ensure that Agency-funded project planning activities include life-cycle cost analyses. This has helped to educate our project sponsors about the total cost of ownership.
However, after further discussion with U.S. companies, overseas project sponsors, the MDBs and GW, we realized that this requirement was not enough. The procurement challenges that we face go well beyond financing sound feasibility studies that accurately reflect the true cost of a well-maintained investment.
We must do more. We need to offer the tools that these project sponsors require to build best-value determinations into their procurements. We need to share best practices for public procurement in order to drive reforms of policies. We need to provide technical training for procurement officials so that they understand life-cycle costs and can incorporate more complex criteria for evaluating performance and overall quality.
That is why we launched the Global Procurement Initiative. To ensure the success of the Initiative, we asked GW's Government Procurement Law Program to serve as its technical backbone. The Program houses globally recognized public procurement advisors that will guide USTDA in developing customized activities under the Initiative.
While we are actively planning the first programs under the Initiative, we still need input and guidance in order to make it successful. We will continue to collaborate with GW, the MDBs, our government colleagues, our partners in the private sector, and our overseas project sponsors to identify areas where we can improve procurement practices in ways that will enhance project development and level the playing field in emerging markets.