Issue
The OntarioBuys program is a provincially-funded shared-service organization (SSO) and an example of this problem. Under its organizational sphere, SSOs have developed RFP
procurement processes that include stipulations which reduce the competitiveness of small and medium sized business in bidding on provincial contracts. Of the many SSOs, the Ontario Education Collaborative Marketplace (OECM) is of particular concern.
Background
OntarioBuys is a government initiative launched in 2004 to achieve savings in the procurement of goods and services in the provincially-funded broader public sector (BPS) including hospitals, school boards, colleges and universities. The BPS Supply Chair Secretariat, part of the Ministry of Finance, is responsible for administering and managing OntarioBuys. Ontario is the only province in Canada with a formal program that provides funding and advice to BPS organizations to help them improve their supply-chain management practise. OntarioBuys encourages BPS organizations to engage in collaborative ordering, delivering, warehousing and payment of goods and services.
Since 2005, the program has provided $148 million to expand SSOs (Shared Services
Organizations; basically a central organization whose sole purpose is to act as one voice for
broader public sector organizations) and support projects aimed at helping broader public sector organizations become more efficient.
The first SSOs to be created under OntarioBuys is the Ontario Education Collaborative
Marketplace (OECM). OECM is a not-for-profit corporation founded by nine educational
institutions (six universities, two colleges and one school board). With $35 million in funding from the Ministry of Finance in 2007, the OECM objective is to establish an e-procurement marketplace for the goods and services currently purchased by its members. Over the next five years the number of members of OECM is anticipated to increase to 45 members with an average spending on goods and services of $2 billion annually. OECM is the largest OntarioBuys initiative in terms of projected savings.
In 2009, the OECM released its first RFP for office products. A review of the RFP raised a
number of concerns for suppliers. First, the terms of the RFP required three-year firm pricing, which was subsequently changed to one-year firm pricing just before the close of tender with no extension granted. This has left many businesses unable to responded based on the new information. The RFP also stipulates that there should be no minimum order size. This means if an institution orders a set of the pens – it can – without receiving a higher charge rate based on size of purchase. This an unrealistic expectation considering the scope of educational delivery sites within Ontario and the request for departmental delivery.
As well, there are no provisions in the RFP process that allow for the value added components that ensure the overall service of business to its clients. The only level of service provision is the need for a toll free telephone number. Many small and medium sized companies take pride in the high level of service provided to its clients, and it is an important competitive edge in many communities across Ontario. In fact, the current system which is driven by locally based institutions working with suppliers to keep costs contained through a strong working relationship between supplier and purchaser will be erased completely within the new guidelines.
In addition, OECM demanded a rebate of up to 5 per cent on all purchases, plus a volume
escalation discount and prompt payment discount that could actually increase the cost of
products. Since the closing of the RFP, OECM has changed the rebate to a 3 per cent
administrative fee that will be charged by the awarded suppliers to the participating
organizations under OECM. Again, the changes took place after the closing of the RFP negating the opportunity for all suppliers to re-submit on the RFP. The rebate will be used to finance yet another government bureaucracy at a time when governments should be looking for ways to reduce its size.
Modifications have been made to the RFP process, but there is still a concern that the
competitiveness of the process is unfairly balanced. This concern was echoed in a report from the Auditor General in the fall of 2009 that assessed the OECM. The report demonstrated that there are significant risks that were overlooked in the creation of OECM. One of the noted concerns was low supplier participation. According to the report, SMEs are unable to access OECM due to the size of the RFPs, and the stipulations of the RFPs being issued by the organization.
While the government should be commended for seeking ways in which the procurement of goods and services is conducted in a manner that saves money and reduces expenses, the process of procurement should not be prohibitive to SMEs across Ontario. In addition there should be considerable metrics to determine the actual savings that the Ontario government is making through a modified supply-chain management process. In doing so the provincial government will be able to be both accountable and ensure competitiveness integrity when it comes to the OntarioBuys program.
Recommendations:
The Ontario Chamber of Commerce urges the Government of Ontario to:
1. Include private sector representation on the boards of all shared-services organizations operating under OntarioBuys, including from SMEs and regions of Ontario;
2. Immediately develop monitoring guidelines to assist OntarioBuys staff as they conduct oversight of project funding;
3. Mandate performance metrics for the OntarioBuys program and its shared-service organizations as a means to measure the actual return on investment compared to the realized cost savings and leveraged efficiencies; and
4. Immediately initiate consultations with business to develop proper guidelines that address the concerns raised by the Auditor General in its review of the OECM.