At a time when the focus should be on innovation and best value, the argument rages on over materials and price. These arguments are evidence that the role of procurement in the municipal water sector is misunderstood, undervalued or worse, both.
By Jim Baehr
At a time when the focus should be on innovation and best value, the argument rages on over materials and price. These arguments are evidence that the role of procurement in the municipal water sector is misunderstood, undervalued or worse, both.
The debate about open competition, also identified as “open procurement” continues with no real end in sight. There’s been considerable time, money and effort expended and the participants appear to be nowhere near resolution as they harden their positions. Professional coalitions, industry associations and community leaders are all pressing for answers that address their concerns. A few years ago, it reached the point of the participants advocating for and against legislation intended to regulate the matter. The issue has become emotional and debilitating. What’s worse is there’s a lack of clarity as to whether this is a materials issue or a process issue.
What is the root cause? Is it about materials? Price? Engineering? Fairness? The rights of the municipality?
In 2018, the Coalition of Michigan’s Water Infrastructure Experts opposed Michigan’s H.B. 5723 Procurement Act legislation on the basis “there’s no problem with the current procurement process.” Yet, the 2015 Utility of the Future (UOTF) annual report from the National Association of Clean Water Agencies (NACWA) underscored “traditional procurement processes can impede innovation” and “the education process…needs to focus on how to use alternative procurement and program delivery approaches to increase innovation while respecting local procurement law.”
Manufacturers, distributors and contractors are frustrated by all the turmoil. They believe they can be doing much more to support water utilities but see restrictive purchasing behaviors and practices as inhibiting their ability to deliver added value. They recognize opportunity can bring in innovation – but restriction and innovation can’t coexist. At a time when safeguarding water affordability is a top priority, U.S. mayors see “adhering to entrenched or convenient procurement policies…a direct impediment to cost-savings by stifling innovation.”
The reality may be there’s a prevailing lack of confidence, on all sides, in the procurement process. It’s striking that in all the statements made, by all the groups involved, there’s little mention of the procurement process, and no mention of the role of Procurement as a business function. Procurement as it exists today in many municipal water and wastewater entities is behind the times; otherwise, this might not be an issue. One could reasonably ask if these same criticisms are being directed to the investor owned water and wastewater companies? The answer is “no”.
The real debate should be about best value. The Institute for Public Procurement (NIGP) defines best value as…
- A procurement method that emphasizes value over price. The best value might not be the lowest cost. Generally achieved through the Request for Proposals (RFP) method.
- An assessment of the return that can be achieved based on the total life cycle cost of the item; may include an analysis of the functionality of the item; can use cost-benefit analysis to define the best combinations of quality, services, time, and cost considerations over the useful life of the acquired item.
This is an important distinction from “low bid, responsive and responsible” and especially true for large dollar goods or services purchases and even more so for capital projects. The driving force in these decisions should be value.
But, how does one satisfy all the different factions in this debate? Let’s start with a few givens:
- Municipal utilities and their engineers and design professionals as the subject matter experts should have responsibility for project decisions, including material selection;
- Not all geographies and associated ground conditions are the same;
- The various pipe materials available have globally established records of performance;
- Not all pipe materials are equally suitable for all applications;
- Not all water systems conduct their operations in the same manner.
Now let’s add a few more:
- Departmental boundaries (functional siloes) restrict opportunities for innovation;
- Cross-functional, collaborative teams (CFT) are an accepted practice in both the private and public sectors;
- Cross-functional teams have the potential to identify problems as well as opportunities – in doing so they can deliver real value;
- Manufacturers, distributors and contractors can be a resource and add value by being engaged, as required, into the project development process.
The role of the procurement office must be more than just a channel for processing bids. There should be a greater emphasis on strategic sourcing – not as a notion, but as a cross-functional collaborative practice. And, strategic sourcing should be initiated at the inception of a project, not when it’s time to issue the RFP. The traditional approach foregoes examination of problems that could be prevented through early internal and external stakeholder involvement. Problems encountered later at the workface result in delays and incur additional costs.
For capital projects the strategic sourcing process should be enhanced by the introduction and application of Integrated Project Delivery (IPD) concepts. The American Institute of Architects defines IPD as “an approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste, and maximize efficiency through all phases of design, fabrication, and construction.” Construction costs and conditions are weighed at the outset of a project. These considerations are built into the RFP. Fewer changes are necessary during bidding and negotiation, and fewer change orders are required when implementing.
The sourcing/IPD approach isn’t limited to only the large water and wastewater utilities. It can be applied regardless of the size. The merits of the process need to be accepted by the utility. Senior leadership needs to commit to the concept. The process needs to be developed. And, CFTs need to be put in place and trained. There also needs to be the clear communication of purpose and intent when engaging contractors and suppliers. These external stakeholders likely have experience working in this manner with investor owned utilities and will recognize the mutual benefit. Finally, research shows that using IPD is reliable in terms of meeting schedule, cost and goals.
The open procurement debate is, at its essence, not about pipe materials or municipal independence. It’s an indictment that procurement, in its current incarnation within municipal water utilities is outdated and suboptimal. If municipal water entities are concerned about being legislated to ensure open procurement, then these entities need to step up and be as responsive and responsible in the procurement process as they expect of their suppliers. To do so requires an assessment of the procurement function and a commitment to make procurement an integral business process, capable of making the most of opportunities to innovate.
There will still be winners and losers – but manufacturers, distributors and contractors will have some degree of assurance that all parties have an equal opportunity and the playing field is level – not biased or legislated into fairness. The time, energy and resources currently being invested in this debate can then be directed to other, more relevant matters. Utilities may have to make an investment in developing the people and capabilities to drive IPD enhanced sourcing. But when implemented, they will have demonstrated their commitment to the principals of innovation and affordability.
The ultimate winner will be the ratepayer.
Jim Baehr is the founder of the Sourcing Strategies Group, supporting the supply management needs of clients in both the public and private sectors. He has also served as an independent advisor leading transformation initiatives and supply management projects for chemicals, energy, retail and water clients. Baehr is a frequent contributor to WF&M.
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Jim Baehr is the founder of the Sourcing Strategies Group, supporting the supply management needs of clients in both the public and private sectors. He has also served as an independent advisor leading transformation initiatives and supply management projects for chemicals, energy, retail and water clients. Baehr is a frequent contributor to WF&M.
