Despite the fact that it makes up a significant portion of government spending, the economic impact of public procurement is not fully understood. A chief reason for this is that the current approach overlooks value and focuses almost exclusively on obtaining goods and services at the lowest cost.
As the Government of Ontario shifts its priority from economic recovery to growth, there are opportunities to maximize the positive impact of its own economic weight. Like it or not, government expenditure makes up approximately 20 percent of Ontario’s GDP. This encompasses the full range of government spending, including the public procurement of a wide array of goods and services.
It is safe to say public procurement is rarely a dinner-table conversation topic. Yet, everyday Ontarians are confronted by its outcomes, whether in the form of services they access or products they use.
Despite the fact that it makes up a significant portion of government spending, the economic impact of public procurement is not fully understood. A chief reason for this is that the current approach overlooks value and focuses almost exclusively on obtaining goods and services at the lowest cost.
Emphasizing cost instead of return on investment is a major mistake.
When you renovate your home, cost is surely an important factor. However, it is by no means the all-encompassing criteria for selecting how you renovate–quality plays a critical role in guiding your decisions.
Emphasizing cost instead of return on investment is a major mistake.
Similar logic can be applied to public procurement, but with a key difference. When you apply this thinking to your home renovation, you are only accountable to yourself. When government views its procurement through this lens, it is accountable to all taxpayers, making the need to reconsider its approach even more critical.
The Government of Ontario is facing numerous challenges. Fiscal pressures and demographic shifts mean an anticipated decrease in tax revenue, combined with an increase in demand for public services. Meanwhile, government has committed to eliminating the deficit by 2018.
Government must utilize all of the tools at its disposal for the maximum benefit. In times of austerity, international counterparts, including our neighbours to the south, have adopted a strategic approach to public procurement. Ontario should follow suit.
A strategic approach to the public procurement of goods and services holds the potential for significant economic benefits to the province, including job creation and increased innovation.
We think that the Government of Ontario should build its internal capacity by creating an independent, centralized body which would enable information exchange and skills development for procurement agencies’ officials. A body with a similar mandate already exists in the United Kingdom, known as the UK Commissioning Academy.
Ontario can also learn from its home grown success stories, and strengthen its engagement with industry at all stages of the procurement process. Infrastructure Ontario is a notable example. Over the last few years, this crown corporation has taken steps to lower the barriers faced by small and medium enterprises by encouraging them to team up on bidding for major infrastructure projects.
Greater fiscal pressures, anticipated rise in demand for public services, and government’s economic priorities make learning to shop smarter an imperative. In the long run, adopting a strategic approach to procurement will enable government to spend less, save more, and generate greater return on investment over the long-term.
To learn more about how government can leverage the power of public procurement, read the OCC’s recent report Spend Smarter, Not More.
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