• A culture clash in procurement

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    MIKE WOOTTON

    MIKE WOOTTON

    The 1970s and ‘80s were the time of North Sea Oil in Europe. The oil price was high and economic development was certain for many discoveries. This required a lot of construction work of offshore facilities. Substructures were made of concrete or steel and topside production facilities were of modular construction weighing anything between 500 and 2,000 tons.

    The UK government wanted to ensure that as much as possible of the equipment supply and construction work was sourced from the UK. They set up the Offshore Supplies Office [“OSO”] to support the UK industry and monitor oil companies contract awards and ensure that at least 70 percent of the spending went to British companies. It was often the preference of the oil companies to award their module construction contracts to companies in Holland or Norway, or France or Denmark on the grounds that the known companies in these continental European locations would assure on-time delivery meeting quality and cost targets. These occasional mismatches could cause tensions with the OSO.

    Best value for money procurement cannot always be achieved solely by conformance to well intentioned pre-set rules. Operational, business and confidence considerations can force departure from the rules depending on the circumstances at the time; for example in the North Sea case above, all the preferred British fabricators being fully occupied with other work.

    It is fair to say that in those days the bidding and evaluation of offshore related supply and construction contracts [most of which had values in excess of 300 million UK pounds or P2 billion]was undertaken in a very objective and transparent way—venture partners had to be satisfied and the OSO had to be satisfied that award proposals were properly and objectively made and were well justified.

    In much of Asia things don’t work like that. Contract awards are frequently influenced by very subjective factors: “I was a classmate of the owner of the supplier company—he won’t let me down”; the bid evaluator or contract holder may be offered an all expenses paid trip to Europe or the USA; a facilitator may offer to pay the evaluator or contract holder a commission in the event of an award to a certain supplier; the bid documents may be specifically designed to restrict full and fair opportunity in order to favour certain suppliers. There really are so many ways of “fixing” a bid evaluation and contract award in order to arrive at some predetermined conclusion. In many cases, no “fixing” is necessary, the boss just decides himself where awards should be made and it’s just tough if anybody thinks that the boss’ decision is not in the best interests of the company—the boss is the owner after all!

    Clearly most people would think it not ok to undertake a bidding exercise or make a contract award where bribes are paid in whatever form, in order to achieve a particular outcome. That said it has long been the aspiration of Chinese workers to get a job in the procurement department, and large Chinese companies will ensure that a family member is in charge in that group.

    Question is, though, is it wrong for the owner of the buyer entity to just decide by himself on a flimsy subjective basis what is the best source of supply to meet a particular need? It depends in my opinion. On the face of it in the Philippines it is not illegal unless the supplier has asked for a bribe. If a number of companies have been asked to bid but the outcome has been predetermined than it is wrong. If the selection of supplier is made without proper evaluation of the effect of that choice on other aspect of the business, it is ill advised. If the award results in a higher cost than may have been achieved through a proper competitive procedure then it will have an effect on the competitiveness of the business. In the longer term it raises costs because the supplier market knows that its offers will be evaluated in a quixotic sort of way and eventually the non-favoured suppliers will just not submit offers any more.

    There is something of a cultural clash in procurement methodologies. The Western way works on the assumption, backed up by wide-ranging laws that procurement activities will generally be undertaken in an objective way. The Asian way appears more “flexible” with room for greater subjective influence. Procedures will not change much, it’s a mindset thing . . .

    Mike can be contacted at mawootton@gmail.com

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