Public Works, CATA at loggerheads over discount dispute

A Public Works plan to streamline the way Ottawa deals with suppliers may have caused confusion initially, but will ultimately make standing offer contracts much more valuable to the vendors, according to the department.

The government

made the plan known to suppliers in a letter dated April 5 which called for a 10 per cent reduction in the cost of public sector goods and purchases. Canadian Advanced Technology Alliance president John Reid said that the letter caused “needless confusion” and the plan failed to account for any resulting job loss or detriment to the Canadian economy.

The intent of that letter may have been misunderstood, said Janet Thorsteinson, acting assistant deputy minister of the acquisitions branch for PWGSC. “Undoubtedly we should have made our original letter more clear, based on the confusion it’s caused,” she said.

Public Works sent out a follow-up letter dated April 20 which is still making the rounds to the government’s standing-offer suppliers. A copy of the letter, obtained by ITBusiness.ca, states that the plan is for a “strictly voluntary volume discount of up to 10 per cent.”

Ultimately, the goal of Public Works is make the value of its standing offer agreements with suppliers more valuable, said Thorsteinson. “One of the things that we were told by the supplier community is that a standing offer – where we say we might buy something from you someday, sometime, if we feel like it – isn’t of very much use to them,” she said.

All federal government departments and agencies were advised by Public Works that standing-offer suppliers will become preferred suppliers. The federal government will use those suppliers for a given commodity or service unless it can show just cause to buy from an unlisted supplier.

“Standing offers would then become more valuable,” said Thorsteinson. “We thought it was reasonable to go out and ask (vendors), on a voluntary basis, whether because of that they would be in a position to offer us a better price.”

In the case of PCs, for example, Thorsteinson said that the government uses several standing-offer suppliers. One of the most recently named was Lenovo, which took over IBM’s PC business following a deal that closed earlier this week.

Standing offers are decided through a competitive process and are listed on Merx, said Thorsteinson, like any other government contract. Proposals are assessed on a variety of factors, including price, service agreements and environmental factors.

In order to ensure that the process remains competitive, the government will convene councils for each of the major product and service groups from which it purchases. These councils will comprise representatives from the government departments that use the products as well as relevant industry associations. In the case of IT, that could include CATA, said Thorsteinson.

Despite the government’s attempts to make this change to purchasing processes more transparent, CATA’s John Reid said that confusion still reigns. He applauded the idea of creating advisory groups, but said that vendors weren’t consulted before the government instituted the new 10 per cent purchasing policy. IT vendors were not assuaged by the follow-up letter of April 20, said Reid, and some have been in touch with CATA to express their concern.

“We all share a need for efficient government,” said Reid, “but you don’t do it this way. If you have an open system for bidding, you don’t need to pick 10 per cent out of the air.”

Vendors won’t treat the 10 per cent suggested discount as voluntary, said Reid. It will be viewed as mandatory since it comes from a body with tremendous authority and purchasing power.

“Why put it in at all if it’s optional?” he said.

One of the government’s largest suppliers said that the 10 per cent discount probably won’t have the desired effect because it refers only to a vendor’s ceiling bid, not the ultimate value of the contract. The spokesperson (who asked that he and his company remain anonymous) said that large vendors rarely resort to a ceiling bid because they need to remain competitive with other potential bidders.

“It’s rarely the price we use, it’s just the maximum price,” he said. “When these one on one competitions are going on, the market price is brought to bear. . . . This 10 per cent proposal assumes that everybody is bidding their ceiling rates, but in fact very few are bidding their ceiling rates because the market is so competitive.”

The biggest impact will be felt by small and medium-sized vendors, he said, who will see their profits dwindle if they are compelled to set their ceiling rates lower. “For SMEs, that could represent up to a 50 per cent reduction in profit.”

Reid suggested that the government start the whole process over from scratch and create a forum to test out changes in purchasing policy with vendors before instituting them. “There’s nothing wrong with starting again.”

Thorsteinson said that she has heard from approximately 40 of the affected government suppliers. While some have requested further clarification, “none of them have complained about being able to provide a voluntary reduction.”

Comment: info@itbusiness.ca

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