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Following is the full text of the speech by the Secretary for the Treasury, Miss Denise Yue, at the Closing Session of the International Public Procurement Association (IPPA) Conference today (April 19):
Government Purchasing in the 21st Century
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Ladies and Gentlemen,
I am pleased to address the International Public Procurement Association at the conclusion of its Year 2000 conference. I am proud that the Hong Kong Special Administrative Region has been chosen to be the host for this important conference, which has been attended by some 70 delegates from 29 economies, together with many local participants. I hope that the subjects you have discussed have improved understanding about the developments in public procurement. This exchange of knowledge and experience help us to learn about practices overseas that may be worthwhile for adaptation in our own systems. We are also well placed collectively to consider how public procurement may best be developed in the years ahead.
The years since this series of conferences began in 1986 have seen enormous changes in the organization of public procurement. There has been a trend away from having purchasing undertaken by specialized departments of the central government. Over the years, such departments have been transformed into trading funds, or state-owned companies, or have even been privatized. Her Majesty's Stationery Office of the United Kingdom provides an example of a central purchasing and supply department which has been through all these various stages of transformation, and now functions as a private company under the title of The Stationery Office. UGAP in France and many other state-owned companies that are engaged in public sector procurement have their origins as central government departments.
These developments may indicate that many governments have come to view procurement as a strictly commercial concern. Public procurement today is expected to be undertaken with a high degree of business efficiency. If the public sector itself cannot meet this requirement, then the function can satisfactorily be taken over by the private sector.
A second important trend found in many economies over the same period has been towards greater decentralization. This has often been accompanied by a move away from standardization. Take Hong Kong as an example, some twenty years ago we stipulated a standard range of furniture for all government offices, and most of the furniture was manufactured internally in the Government Supplies Department's own workshops. We have since accepted that individual departments and end-users should be allowed a reasonable degree of choice over the kind of products they acquire.
The balance of advantage between a centralized and a decentralized procurement system is bound to depend on particular circumstances. In Hong Kong, which is a compact place and where we like to think of government as a single organizational unit, we have retained many features of centralized procurement, including the central storage and delivery of goods. We consolidate individual departments' requirements into contracts of larger value, thus achieving greater purchasing power and the cost benefits of bulk buying. We conduct tendering, including electronic tendering, and other forms of procurement by a dedicated team of experts who provide a single point of reference for suppliers. But these advantages may be less applicable for governments of larger geographical areas.
But no matter whether the system is government-run or contracted out to the private sector and no matter whether it is predominantly centralized or decentralized, governments must obtain good value in their public procurement since it accounts for a major part of public expenditure. Many governments need to balance two principal aims in their procurement policies. First, their purchasing procedures and decisions must adhere to their procurement regulations. These regulations may not only reflect own policies but may also be based on international agreements, such as the Agreement on Government Procurement of the World Trade Organization or the European Union directives. The second aim is to achieve what our private sector counterparts would understand as a successful purchase, which is determined by whether the most suitable products are acquired for the end-users' needs, at advantageous prices and terms of supply, from reliable suppliers who are committed to customer satisfaction, and with sufficient flexibility built in to allow for new technology and other unforeseen developments.
While these two aims are not inherently in conflict, they are not always easy to align. Strict compliance with the terms of the WTO Agreement on Government Procurement may lead to a mechanistic style of purchasing that is not conducive to achieving best value for money. The tenderer who has put in the lowest conforming offer may not be the best supplier over the longer-term. It is often difficult to define in tender specifications all the features that represent best value in a product, particularly in areas where technology is changing rapidly, yet the rules may require acceptance of the lowest-priced offer that complies with the tender specifications. We may not be able to deliver customer satisfaction when the brand that users have acquired through the tendering process may not be the one in which they have confidence. Moreover, government procurement often becomes tainted by the perception that we buy the cheapest products and services on the market with inadequate regard to quality. Government is also perceived as an unstable business partner because, unlike the prevailing practice in the private sector, we may fail to reward a good-performing contractor with renewal of business when the contract comes up for retendering.
At the risk of stating the obvious to this audience, we must, as responsible purchasers, endeavour to reconcile these aims and ensure that we achieve good value for money while at the same time complying with the procurement regulations and with the terms of any broader agreement that may apply. We may address the concerns I have described in various ways. First, procedures for the prequalification of suppliers prior to tendering may ensure that competition is limited to those suppliers who have already demonstrated their capability to meet high standards of performance. Even where prequalification procedures are not adopted, the use of a marking scheme in tender evaluation may enable us to focus not only on price but also on the quality aspects of the product or service, including those features which have not been specified as mandatory in the tender specifications but which nonetheless represent a worthwhile improvement to the offer. The second response we can make to the concerns about traditional tendering practices is to make greater use of framework agreements, which offer scope for end-users to exercise their preferences among a range of products or services for which supply agreements have been made.
The WTO's Agreement on Government Procurement has achieved much in opening up the government procurement market to international competition. Hong Kong has always been a strong supporter of the Agreement, particularly of the fundamental principle that procurement should be conducted on a transparent, fair and level playing field that does not give an unfair advantage to domestic suppliers. However, we should recognize that there are growing concerns about certain consequences of economic globalization and trade liberalization , which came to the forefront at the recent WTO Ministerial Meeting in Seattle. Some of those concerns that are relevant to government procurement have been discussed at the present Conference. Speakers have drawn attention to the importance of the government market in sustaining many small businesses in developing economies and businesses run by other disadvantaged groups. Others have stressed the obligation of governments to support environmentally-responsible purchasing and other aspects of ethnical manufacturing.
To address these various concerns in a sensible and balanced way will make the role of government purchasers significantly more complex and will require a much greater degree of professional skill than may have been sufficient in the past. It is important that the rules on government procurement should reflect this greater complexity. To enable this to be done, those who are professionally qualified and experienced in government procurement should participate actively in formulating their government's position on the rules that govern their work. And in addition take the most of opportunities found in the current review of the Agreement on Government Procurement in the World Trade Organisation, where a much stronger input from professional purchasers might help to shape the new WTO Agreement in ways that would reflect best purchasing practices for the public sector.
In drawing this Conference to a close, I should like to thank you all for your participation, which has enabled the Conference to hear a wide range of divergent views and a broad spectrum of experience and expertise. I wish you all a safe journey home and hope that many of us will meet again at the next IPPA Conference in approximately 18 months' time.
End/Wednesday, April 19, 2000
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