Getting Governments to Shop for Best Value, Not Lowball Bids
by Bill Armbruster, blog anchor
A new US program and a revised World Trade Organization agreement aimed at getting governments to shop for best value instead of lowest cost may open significant opportunities for US companies to sell in foreign markets.
The US Trade and Development Agency’s government procurement initiative provides training for government officials in developing nations to help them better assess sales offers from companies in other nations. Government agencies are frequently required to accept the lowest offer, without regard to quality or long-term overall costs.
Such least-cost procurement policies often have two consequences: Buyers find themselves learning the painful lesson “You get what you pay for,” and US companies fail to get the business because they can’t compete on price alone.
Government procurement is a huge market, typically comprising 10 to 15% of a country’s GDP, according to the US Trade Representative’s office.
TDA kicked off the initiative last September at a conference of the Inter-American Government Procurement Network, an Organization of American States program.
“We’ve established a very strong partnership with OAS,” said Andrea Lupo, TDA’s director of global programs.
Fifteen nations from around the world have approached her about the program since last fall, she said.
The first country to receive TDA training was Botswana, a small, middle-income African nation, ranked as the best credit risk in Africa by two major ratings agencies. “It had large tenders for airport modernization and a power plant that went poorly. The government feels it’s because they chose the least-cost provider,” Lupo told me in a telephone interview.
Much of the training was conducted by Daniel Gordon, who spent 20 years with the Government Accountability Office, much of it in procurement, and is currently associate dean for government procurement law at George Washington University. “There could easily be 25 countries that would love to have us do in their countries what we did in Botswana. I heard repeatedly from government officials that they had awarded contracts to Chinese companies that won contracts based on low price but delivered unacceptable quality,” said Gordon.
TDA officials have also visited Vietnam, where a new procurement law takes effect on July 1, and which wants to design a similar training program, according to Lupo.
“They’re investing a lot of money in energy, transport, telecommunications, water and health,” she said.
TDA’s training is designed to strengthen the capacity of procurement officials in the areas of tender specification and design, best-value determinations, contract management, risk mitigation, and complaint review mechanisms
The WTO’s amendment to its government procurement agreement is expected to open $80 billion to $100 billion in the market for government purchases of goods and services. That’s in addition to the estimated $1 trillion market already covered by the existing agreement.
The agreement covers the procurement of goods, services and capital infrastructure by public authorities. It aims to open up, as much as possible, government procurement markets to international competition and to help eradicate corruption in this sector, according to USTR. The amendment, which took effect on April 6, adds numerous agencies and expands the list of services covered by the agreement.
The agreement applies only to about 40 WTO members that have signed it, but they include all European Union nations as well as major markets such as Canada and Japan.
China, the third largest US export market after Canada and Mexico, and potentially the largest foreign market for government procurement exports, pledged to sign the agreement during the negotiations leading up to its accession to the WTO in late 2001, but has not yet done so.
“They said they would do so as soon as possible, but here we are 13 years later, and they still haven’t. If they did, a lot of government procurement market access issues would go away,” said John Frisbie, president of the US-China Business Council.
China has made three or four proposals on its terms for acceding to the agreement, but none of them have been acceptable, he said.
Learn more about the WTO revised government procurement agreement here. Find more information, including links to resources, about the USTDA Global Procurement Initiative: Understanding Best Value here.
About Bill Armbruster
The anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write Bill care of [email protected]
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.
Date posted: April 24, 2014