What is procurement? A guide to how the N.W.T. government spends
In the N.W.T., procurement is big business
Between controversies over government contracts and talk of sweeping changes to the system, procurement has been in the headlines a lot in recent weeks — especially for a topic that would put many people to sleep.
But procurement is one of the most important things governments do — it's how they spend money in the private sector.
In the N.W.T., the government is estimated to spend more than $260 million per year through procurement contracts with the private sector. That spending is guided by a 178-page set of guidelines and three general principles:
- Value for money, through competitive bidding.
- Being transparent, to ensure everyone gets a fair shot.
- Keeping that money in the North, as much as possible.
That's not always how it works. What looks at first like a relatively simple and equitable process can quickly get bogged down by legions of acronyms, hundred-page bidding guidelines and incentives that sometimes go awry.
But before you can understand how that happens, you first need to know how procurement works.
How government says it wants to spend money
If you run a business, at some point, you've probably seen the headlines announcing new multimillion-dollar spending programs and wondered, "how do I get a piece of that?"
But the answer is not so simple. The government has a number of ways in which it can decide to distribute that cash.
"The procurement process can range from simply deciding to directly award a contract … to a multi-stage process that involves information gathering, pre-qualification and solicitation," reads the territory's procurement guidelines.
In most circumstances, the government can purchase goods or services under $25,000 in value just the way we would, with a simple purchase agreement or contract.
But for expenses over $25,000, departments are generally required to undertake a "competitive process." That means announcing the need and taking bids from companies in the form of a request for proposals (RFP) or a request for tenders (RFT).
Those can run the gamut from clear and obvious, like this opportunity to become the territorial government's official supplier of bamboo toothbrushes, to the obscure and indecipherable, like this request for a geomatics services refresh (whatever that is).
All these requests are managed by the government's Procurement Shared Services division, and posted on a public website. Each request also comes with a dedicated point person responsible for ensuring everyone receives the same information.
RFPs and RFTs can be hundreds of pages long, and full of technical details. Usually, they require the bidder to meet stringent insurance requirements and have extensive experience in the field, or even provide security payments to the tune of hundreds of thousands of dollars — all barriers which crowd out many small companies.
Despite their gentle moniker, in the N.W.T., tenders are more rigid than RFPs, with the competition being decided solely on price. RFPs are more "solutions-based," meaning that usually the department is asking for suggestions on how to address a need as well as a cost estimate for doing so.
In both cases, companies make bids stating what they'd provide and for how much, and the department selects a winner. In theory, it's that simple.
But there's one big way that process is complicated — the Business Incentive Policy, or BIP.
What is the Business Incentive Policy?
Like many jurisdictions across Canada, the N.W.T. has a policy in place to give local businesses a leg up in bidding for government contracts.
In the North, a policy like the BIP can help many smaller, local companies use the income provided by government contracts to expand their capacity and, eventually, bid on bigger projects. It also, in theory, helps take a bite out of unemployment by generating local jobs.
So how does it work? It can get very complicated, though the basic rule is easy to understand when the winner is being selected based on price alone.
When companies registered for the BIP make a bid on a contract, their price can be automatically adjusted downward by 15 per cent on the first $1 million, and a further five per cent if the company is local to the community.
Take as an example road works in the town of Hay River. A local company prices the work at $900,000. A company from Yellowknife says it can do it for $40,000 less, while a company in Edmonton says it'll do it for just $780,000.
Even so, the Hay River company takes it. Because it's both local and from the N.W.T., the company's bid is adjusted down by 20 per cent, to $765,000 overall.
That simple equation is more complicated the bigger the project gets. A project that requires the expertise of a southern contractor will have the cost of that service subtracted from the overall amount that's eligible for the BIP.
That means companies have to predict how much of that work will be performed by northern companies and their workers when submitting their bid. It's a tricky bit of analysis, and one that leaves the system open to some manipulation.
The issues with the BIP don't end there. The BIP doesn't give advantages to Indigenous-owned companies, many of which are looking for opportunities to become major employers in their community.
It's also another layer of paperwork in a proposal process that the guidelines acknowledge is already "often costly to industry."
But the BIP could yet see some major changes. The territory is undertaking a review of its procurement process, and this is one acronym that's sure to come up a lot.
Any more acronyms I should know?
Well, there are a whole slew of others — RFIs, RFEIs, and RFQs, to name a few. Most of these are used to identify or attract eligible bidders before the item goes to a proper RFP.
There are also SOAs, or standing offer agreements, which allow departments to anticipate a general need — notepads, for instance — and set a price with a supplier without guaranteeing they'll purchase a set amount. SSAs are a similar tool for prequalifying suppliers.
Of course, there's one very important term that isn't often referred to by its acronym — that's sole-source contracts, one of the more controversial tools in the government's toolkit.
What is a sole-source contract?
If the government already has a supplier in mind, it uses a sole-source contract. That means other companies don't get a chance to bid on it.
Sometimes, these contracts are signed as-is, and other times, they're negotiated. They can be a powerful tool for giving smaller companies a vote of confidence and the necessary investment to build capacity for bigger projects, and are frequently used to direct opportunities to Indigenous suppliers.
But the reasons for non-competitive contracts are rarely disclosed. Because they are effectively a form of government favouritism, sole-source contracts are subject to cabinet approval. That makes them political, and often controversial.
The government's guidelines say sole-source contracts can only be used when the value of the contract is low, when there is only one company deemed capable of doing a job, or when there is an urgent need.
"The inability or failure to plan or organize ahead of time is insufficient justification for a sole-sourced contract," the guidelines emphasize.
There's always more to learn
Now you know how you can get paid by the government — as long as you can decipher its needs, compete for its business and successfully win yourself a contract.
Want to take a look at what's available? Head to the territory's contracting website to see all the government's ongoing business.