Tips for using systemic risk management in public procurement
Clients responsible for purchasing within the public sector tend to be risk averse, and for good reason. Public tendering in Canada has historically been subject to costly lawsuits and highly public scandals. While tasked with meeting challenging operational requirements, public procurement professionals must constantly worry about legal risk and exposing their organization to reputation damage. Because of this challenging environment, many public procurement professionals take a reactive approach to risk management, addressing issues as they arise. However, there is another way to approach procurement risk: adopting a proactive approach to risk management focusing on systemically identifying areas of risk, legal exposure and non-compliance across the organization.
When reviewing an organization’s procurement processes with a view to minimizing risk, the lens should be contextual. The legislative, trade and policy framework that applies to an organization will vary depending on its sector, geographical location and operation purposes. A central government agency that focuses on administrative oversight will clearly have different risk management requirements than a municipality that maintains front-line infrastructure and services for citizens. Calibrating the appropriate matrix of external procurement requirements and internal operational needs, and mapping those challenges to public procurement best practices, is the first step to identifying areas that could present exposure.
A second major fix is creating an effective internal governance roadmap with a clear policy requiring that business and project planning be integrated into the procurement cycle and aligned with the budget approval process. Effective planning during the early phases means projects can be resourced and issues identified before they create liabilities and delays. This requirement should be implemented for all projects, not just those that are enterprise-wide or major endeavours.
Another important component of risk management is ensuring that the ethical dimensions of procurement are understood across an organization. While ethics should always be top-of-mind in purchasing, in the public sector ethics take on this paramount role given the duty to taxpayers to prudently spend public resources. Public sector entities must ensure purchasing decisions are conducted ethically and are free of conflicts of interest or bias. While some ethical elements of purchasing are obvious, other aspects—like the downstream conflict of interest when external consultants advise in early project planning and then want to bid on the work—are more challenging since they’re ingrained by long standing custom within some sectors. Ensuring public procurement ethics addressed and understood across the organization is another important aspect of proactively risk management.
Finally, a review of an organization’s existing suite of procurement templates is essential to streamline risk. Procurement templates should be periodically reviewed to ensure they meet policy and trade treaty requirements, are keeping pace with case law developments and fulfil operational requirements. Consult in-house or external legal counsel to ensure templates contain the necessary legal language to ensure they minimize risk.
While business and commercial risk can never be completely removed from the procurement cycle, the purchasing professional’s role is to minimize those risks while meeting the timelines of the specific project. To strike the right balance between managing risk and achieving timely results, public institutions should be taking the time to step back from the day-to-day aspects of their projects to systematically review their organization’s procurement processes. Experience proves that being proactive is a large step in the right direction in minimizing risk.
Rosslyn Young is a commercial lawyer whose practice focuses on procurement and competitive purchasing. She can be reached at firstname.lastname@example.org.