Good luck with that, Mr. Carney! Part 2: Procurement

Over schedule and over budget: that’s the story of procurement.

Since I had a summer job in a civil engineering company and first read those critical words, “Time is of the essence of this contract,” I have pondered why that essential factor goes awry in one procurement after another.

Again, I’m not an expert, but I have some observations from both sides of the table. As a publishing manager, I have done my share of procurement and, as a contractor, I have bid on contracts that I needed to deliver on time and on budget.

Two-envelope system

I am also heavily influenced by having worked for the Association of Consulting Engineers of Canada, which argued that engineering clients, in particular, should use a two-envelope system. The first envelope contains the technical proposal and the second, the cost proposal. The client evaluates the technical proposals in the first envelope, choosing the best of these proposals. Then the client opens the second envelopes and just makes sure that the cost of the best proposal is not out of line. The contract does not necessarily go to the lowest-cost bidder.

Thus, the evaluation is blind to the cost, and the cost proposed is more likely to be accurate because the bidder knows that the evaluation is blind.

Procurement evaluations

The federal government uses a variety of approaches in evaluating bids, including

• a threshold pass/fail for technical proposals, with the winner being the lowest-cost bid that has an acceptable technical proposal

• a cost-per-point system where the cost is divided by the number of points scored on a technical evaluation, favouring the best technical proposal

• for military procurement, there must also be investments in Canada, which are included in the evaluation

There’s something missing from this whole process, which is a down-in-the-weeds evaluation of whether the proposal is accurate. Especially, whether the schedule is realistic and has plenty of contingency buffer built in, and whether the cost is at risk of escalating.

The way it is, there’s a strong incentive for bidders to estimate a tight timeline and a low cost in order to be competitive, based on its guess about what other bidders will propose.

This leads to that most Canadian of phenomena, the boondoggle — the project that goes over budget and over schedule but can’t be cancelled because it’s in someone’s riding and it employs a lot of people. And, at the end of the day, it produces something we need.

Accurate, realistic bids

Imagine if you told bidders, “We are going to award the contract to the bid that is most accurate and realistic about the schedule and cost.” That is, you might well give the contract to the bidder with the longest timeline and the highest cost, if these are truly realistic. The procurement would be more likely to be on time and on budget. As it is, I’ve heard from those on the inside that the schedule and cost on many bids are known to be fiction, by the bidder and the client. Which is dishonest from beginning to end and makes no sense. It’s just setting up scandal.

So, tell bidders that accurate, realistic timelines and costs count in the evaluation (heavily, maybe even decisively). Have expert evaluators review the timelines and costs in detail. Accept a bid that is accurate.