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CALS and Canadian Government Acquisition 1994

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This is a paper written for, and presented at, CALS Europe 1994 in Paris. It outlines how the principles, and in some cases the technologies, of the Continuous Acquisition and Lifecycle Support (CALS) initiative were applied to complex custom procurement within the Canadian Federal Government.

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CALS and Canadian Government Acquisition 1994

  1. 1. 1 ACQUISITION IN THE CANADIAN GOVERNMENT: BUSINESS PROCESSES AND SYSTEMS J.A. Gollner Project Manager, CALS Office Public Works and Government Services Canada Ottawa, Canada September 1994 ABSTRACT The Department of Public Works and Government Services Canada (PWGSC) operates as a common service provider for the departments, agencies and Crown Corporations of the Canadian Government. One of these common services is acquisitions. It has therefore fallen to PWGSC to develop, implement and support an integrated acquisitions system to service the needs of the government. For one, this integrated acquisitions system must address simplified procurement of catalogue items through Electronic Data Interchange (EDI) and the efficient financial settlement between client and supplier. It must also support the acquisition of customized goods and services through improved development and distribution of procurement opportunities and streamlined administration of awarded contracts. INTRODUCTION The Canadian Government annually acquires in excess of ten billion dollars of goods and services through the activities of PWGSC. Approximately 20% of this value, while representing the low dollar value acquisition of simple goods, accounts for 80% of the identified administration cost for government acquisition. This has made improving the mechanisms whereby government units acquire basic goods a major priority. It is here that the government hopes to realize rapid payback through the adoption of modern catalogue ordering systems and EDI technology. The above statistics can, however, be misleading, especially if it leads to the belief that streamlining simple procurement will be enough. The cost of the remaining the goods and services annually procured by the government, those representingS0% of the total annual expenditures, in fact reflects the net result of the government's traditional approaches to managing complex custom procurement. Here, the real cost of administration is seen in the increased contract costs and life cycle support activities that are borne by the department acquiring the system. The Crown, as an enterprise, stands to save more by improving the management of custom procurement than by eliminating all the administrative costs of simple procurement. It is, however, a much more challenging target – one requiring some radical solutions.
  2. 2. 2 SIMPLE PROCTJREMENT The problem: too many hands Simple procurement entails the recognizable goods and services that are consumed within normal offices or in support of existing equipment and systems. Included would be paper, office furniture, printing services and travel. In the execution of a typical transaction, say the acquisition of more pens for an office, there are, under the current regime, specific activities expected of the end user with the need, their immediate supervisor, staff within a supply facility (such as the government operated self-service store) and at least three finance (accounting) staff. Even this simple transaction will muster a finance clerk in the user's organization, the supply facility and the central accounting authority (PWGSC). The solution: improving the process Improving the process of simple procurement requires improving the user's access to the required supplies and, optimally, allowing users to select products and issue the orders directly to the suppliers for immediate delivery. For this to happen, a number of things must take place. First, an up-to-date "catalogue" must be accessible by the users from their place of work whether that be a workshop floor or an office desk. This catalogue must contain a current and comprehensive listing of products, suppliers, costs and delivery methods. Currently, commodity information is accumulated and maintained by PWGSC through a process of negotiation with suppliers. This approach was intended to leverage the volume of Crown acquisitions to realize better pricing. In reality, it created higher costs (by imposing administrative burdens on suppliers) and significant administrative overheads. Furthermore, the task proved too much to be managed effectively with the quality of information available to clients suffering dramatically. An up-to-date catalogue, therefore, depends on an automated mechanism whereby suppliers maintain their own product and pricing information. Second, the users of the goods must be empowered with the ability to select and order goods under a certain dollar value (a value identified to cover the vast majority of requirements). The authority to acquire effectively all commodities should likewise be delegated to management within operational organizations. In both cases, a system must be in place that implements the authorization controls, required under the Financial Administration Act, and captures the necessary audit data. Finally, the reconciliation of accounts amongst the supplier, the central accounting authority and the user's organization must be streamlined and implemented as an automated process. Effectively, this is the relegation of the accounting process to a "hands-off' audit function rather than a deliberation prior to the delivery of goods.
  3. 3. 3 Implementing a system for simple procurement There are projects underway within PWGSC to implement, in varying degrees, the components required to support an automated simple procurement system. Electronic Procurement and Settlement / Electronic Payment Authorization As a general strategy, the Electronic Procurement and Settlement (EPS) system envisions the deployment of credit instruments (lines of credit) across the government to facilitate the direct purchase of goods and services from suppliers or other departments. Under the EPS plan, the procurement action is followed through to its final conclusions with the settlement of departmental accounts and the payment of suppliers. There remains the requirement for the user to authorize an order and to accept, as satisfactory, the goods or services delivered. The Electronic Payment Authorization (EPA) system will implement just such a mechanism ensuring that the essential elements of financial control are enforced with a minimum of administrative overhead. Common Departmental Financial System The Common Departmental Financial System (CDFS), nearing completion, will replace a variety of legacy financial systems and provide a single venue for departments to manage their budgets and reconcile expenditures among government agencies. Ultimately, CDFS will provide the foundation upon which modernized financial processes will be implemented on a government- wide basis. PWGSC is also developing extensions to the financial environment allowing for payments and remittances to be transacted automatically. Electronic Data Interchange / Catalogues There will be a heavy reliance upon Electronic Data Interchange (EDI) and online catalogues to facilitate both the selection of products and the issuance of orders electronically. EDI will support the invoicing process (if it continues to exist) and is currently being tested as the mechanism for allowing suppliers to update their catalogue entries.
  4. 4. 4 COMPLEX CUSTOM PROCUREMENT Complex custom procurement is used to describe all acquisitions which cannot be managed as simple orders for standardized goods or services. This covers all acquisitions that require a unique description of requirements and which result in a customized contract. Under this umbrella, one would include contracting for plumbing services to replace 300 feet of pipe to meet a revised building code. One would also include some of the government's most ambitious undertakings such as the Canadian Patrol Frigate, the Income Security Program or, more notoriously, the New Shipborne Aircraft (EH-101). The problem: lack of information sharing The process is all too familiar. A requirement is identified within an operational unit or an objective is set by the elected government. The requirement evolves, by stages, into a concept of operations and a funding proposal, and, from there, into a design and a specification. Depending upon the size of the acquisition, even the formative stages of a program can be hampered by poor communications between involved parties, euphemistically known in Ottawa as "stakeholders". There are, of course, the big hurdles where the product of one group (i.e. Department of National Defence) is submitted for review and / or implementation by a second group (PWGSC). This is known as throwing the brick over the wall. It is a good way to describe what actually happens. Neither party can see the other's environment and is therefore ignorant of what may constitute hard realities in that domain. Neither party traditionally avails itself of the input of the other while they perform their part of the process. Finally, the respective parties have evolved techniques and philosophies for grappling with their mandates which are rarely compatible with other views of the world. If this were not enough, the traditional insular approach to managing the component parts of a major acquisition -finance, engineering, operations, logistics, procurement, and industrial benefits – results in the increasing relevancy of the input from these groups as they become experts in servicing their own ends. For example, the contracting expertise of PWGSC, the government's contracting authority, would, in all honesty, have to be described as rudimentary. The end result of all this is a process characterized by delay and conflict, and which consistently increases costs and risks while reducing program quality. All too frequently, the traditional process leads a program into obsolescence and then termination. This applies to the small custom contract as completely as to a Major Crown Project (MCP) -the differences are those of magnitude not type. The root of these problems is the lack of information sharing. The consequences are seen in increased costs and risks as incurred by both the Crown and the suppliers. It would not be difficult to assert, even without substantiation, that the wastage associated with the custom procurement process annually exceeds the total dollar value expended on simple acquisition (i.e. greater than 20Yo of total expenditures).
  5. 5. 5 The solution: process change comes first Implicit in the above description of the complex custom procurement process is the importance of effective information sharing. This observation leads to the obvious conclusion that the Crown must deploy standards and a modernized technical infrastructure to facilitate that information exchange. This investment must wait, however, until some very basic decisions are made in the area of how business objectives are set and implemented in a government environment. It does not take long before one recognizes that the many of the inconveniences, even absurdities, within the system are reflections of inconsistencies inherent in the nature and form of our government. While no one, one hopes, would attempt to address these issues in order to improve the efficiency of government administration, there remain areas where real change can be implemented. PWGSC has, for example, undertaken a number of initiatives to address the more glaring problems. Common Purpose Procurement One area where there has traditionally been a high wall against communication is in government and contractor relations. Common Purpose Procurement (CPP) is a procurement strategy developed by PWGSC together with Treasury Board (the funding authority) for use in complex custom procurement scenarios. In essence, CPP encourages departments, having identified a requirement, to form an interdepartmental executive team which, together, solicit an industry partner to see a program from inception to completion and even through to the end of the system's life cycle. As an example of how it can work, the Reserve Integrated Information Project (RIIP) selected an industry consortium to support all aspects of the program based upon a six-week solicitation period and a twenty page (maximum) management proposal. Treasury Board has been actively promoting the CPP strategy within a variety of departments to confirm its viability as a standard procedure. Having been involved with a number of CPP initiatives (including RIIP), I have some reservations about its current form but I, nevertheless, applaud the attempt to do things differently. At its root, CPP attempts to eliminate the barriers to the free flow of information between stakeholders. In the case of RIIP, it resulted in a joint Crown / Contractor Project Management Office (PMO) with a management structure that did not differentiate between government employees and contractors. Special Operating Agencies Special Operating Agencies (SOAs) were originally formed to give certain parts of the government the flexibility to operate as business units serving the evolving needs of government departments. Effectively, SOAs must successfully recover their operating costs and are therefore driven to adopt a management regime modelled on industry rather than government. One example is Canada Communications Group (CCG), formerly the Queen's Printer and one of the original SOAs, which has become among the government's most progressive service providers. Whereas some SOAs did not succeed in delivering services as effectively as industry and are passing into history, CCG created a service model worthy of emulation in
  6. 6. 6 many parts of the government. In areas such as printing legislation, its traditional role, CCG has stayed in business by remaining responsive and cost effective. What is interesting with CCG, however, is the approach taken to new services where its role is less of a service provider than a broker between client departments and industry. In areas such as the development of films or other communications programs (areas requiring specialized expertise), CCG operates as a knowledgeable project manager and contracting agent (CCG remains a part of PWGSC). It is the hope of CCG, that from the client's perspective, a user will come to CCG and, rather than encountering a wall, will encounter a value-added service that results in efficient contracting and quality deliverables. An example will serve here. Last winter, the Department of National Defence identified the urgent requirement to develop a Document type Definition (DTD) for technical information. By involving CCG as the project manager and contracting agent, DND was able to focus upon the development of a DTD as opposed to dealing with the traditional procurement process. DND was testing the DTD with operational data and commencing the revision process before the procurement paperwork would have been complete had they gone another route. What makes this approach different is the level of expertise CCG deploys in supporting the acquisition process, CCG makes it possible for operational managers, knowing only their requirements, to contract successfully for sophisticated services and equipment. From an industry perspective, the opportunities brokered by CCG are clearly defined and properly funded. The strategic deployment of expertise, effectively the sharing of information among government bodies, reduces the risks incurred by industry and the user, and thereby lowers the final cost of the acquisition. Systems to support complex custom procurement As mentioned previously, the investment in systems to facilitate an improved communication environment for participants in the custom procurement process has taken a back seat to identifying new ways of doing business. There are some initiatives, however, worthy of note. Open Bidding Service (OBS) The electronic posting of all procurement opportunities exceeding a certain dollar value ($50,000) for review by registered suppliers to the federal government. It has been operational for more than two years and is ready to undergo a series of enhancements. Automated Buyers Environment (ABE) A highly integrated working environment for PWGSC Buyers which will, initially, allow Buyers to concentrate on servicing user requirements and developing useful expertise rather than processing paper. As it evolves, the ABE should include direct links to the OBS and extensions into the working environment of users.
  7. 7. 7 CONCLUSION PWGSC CALS Office PWGSC recognizes that, in its plans to improve the acquisitions process within the Government of Canada, it is attempting to implement the principles of concurrent activity, information sharing and enterprise integration that underlie the CALS initiative. The standards and business model of CALS are directly applicable to our domain. In partnering with major stakeholders such as the Department of National Defence and Treasury Board, it is the hope of PWGSC that, through CALS, the value realized by government expenditures can increase even as spending budgets shrink. Given the wastage inherent in the current situation and the potential of current initiatives and CALS to achieve savings, we believe that it is possible to downsize and improve concurrently.

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