Originally, procurement is the government consumption of goods and services aimed to serve the requirements of the community. Procurement regulations have been expanded by the government for two key objectives. First, the government aims to make all capabilities available to interested commerce. They permit government representatives to consume supplies and services in an impartial atmosphere. Second, procurement originally results in more cost effectual consumption for the government, thus saving taxpayer finances. It is also applied by government institutions for budget regulation reasons. Procurement is generally referred to as government request, government capabilities, and tenders.
The requirements of government structures are widely expanded: from the procurement of workplace supplies to the structure of hydroelectric power stations; from shoelaces to distant sensing tackle. Government consumers procure more than 17 000 various categories of yield. (Keene, 2006)
The procurement of merchandise and services by government structures for their own aims is a central component of the operation of governments. It saves the inputs that empower governments to complete their assignments, having a key collision on key stakeholders in the community. Government procurement is also a significant feature of global trade.
Background of the Problem
Since public reserves are limited, the effectiveness of the procurement procedure is a primary deliberation of every procurement system. Open, transparent, and non-prejudiced procurement is communally regarded to be the best instrument to achieve ‘value for money as it optimizes rivalry among providers. At the same time, lots of WTO Members still apply their purchasing results to attain family policy aims, such as the promotion of special domestic industry segments or social groups.
Government procurement is a significant feature of worldwide trade, offered the substantial size of the procurement market (often 10-15 percent of Gross Domestic Product) and the advantages for local and foreign stakeholders in times of augmented opposition. (Celec, Voice, etc., 2005)
The purpose of Government procurement is to guarantee that government choices regarding government acquirements of goods and services do not depend upon where the good is manufactured or the service provided, nor upon the provider’s foreign associations. The GPA parties’ initial step in stating this “non-favoritism” was to make a working group at the 1996 Ministerial Conference in Singapore to examine government procurement clearness. All WTO associates were symbolized in this working group. (Swaine, 2003)
Many countries place constraints on government procurement of both goods and services for a diversity of motives. Some will do so to hearten domestic production, though many developing states have restricted domestic service industries, and turn to foreign service suppliers as a result. Some expanded states would like to see Government procurement become a multilateral consent. Such a step would augment market capabilities for their own companies, permitting them to bid for distant government purchases on a “level playing ground.” The most verbal proponents of a multilateral Government Procurement are the U.S. and E.U.
Advocates of a multilateral Government Procurement also see it as part of a “good governance” schedule for the expanding world – the more translucent procurement procedure are, they argue, the less capability there will be for dishonesty and rent-seeking on the part of family administrations and contractors.
As for the substances of profitable procurement, Public authorities and usefulness companies still face the need – and yet the obligation with stares to taxpayers – to offer inhabitants with repairs of public attention of the best probable excellence. As common goods and services often face circumstances of market breakdown in the sense that the normal market inducement for contractors to invest in research and modernism for private-sector purchasers is higher than for community sector purchasers, public authorities are enabled to intentionally drive modernization from the demand side in those marketplaces.
It is from this approach that this report tackles public procurement. To tackle this matter that is required to implement Commercial Procurement of Innovation in Europe. Pre-commercial communal procurement systems in other parts of the world such as the US and some Asian states have confirmed their capability to offer missing links among the private sector of the Research and Development investment and the public sphere as ‘first consumer’ of new technologies.
This precious knowledge in refining the first-buyer approach discloses that the pay-off in terms of making truly generous lead markets for new skills is only going to be essential when applied in Europe if our pre-profitable procurement approach admirations two essential standards :
enthusiasm of public purchasers to share dangers and benefits of high-tech Research and Development procurements with future contractors,
bundling of demand to decrease market disintegration and narrow the R&D communal procurement speculation gap between the EU and the US.
The incentives to overcome risk hatred of public procurers are also required. These matters will be studied in further detail.
Discussion
In spite of the considerable dimension of the spend on gatherings, bringing it under regulation control is far firmer than with passing business journey.
An investigation by the Institute of Travel Management (ITM) at the end of the previous year revealed that meetings development was more controversial than everyday business travel as the participation of “more stakeholders and the function of meetings in the attainment of wider business purposes make the commoditization of gatherings harder”. (Paige, 2004)
ITM managerial manager Paul Tilstone stated that within particular meetings there are more capabilities for things to go wrong on a grander scale. So it is not astonishing that while 65% of consumers also manage meetings, 67% manage consultations and 60% manage events spending, few have made real evolution in terms of economies, policy, or fulfillment.
It is not just the larger number of stakeholders Moreover, according to some. “The big matter is fulfillment. Companies distinguish that some fairly junior people have been authorizing huge contracts with contractors. It’s putting the companies at risk.
It has been gradually more evident for the past few years that travel consumers are having meetings adjoined to their accountabilities, largely due to the augmenting involvement of investment and procurement in their activities.
Yet controlling spend in a buoyant market for venues is going to be difficult. There is strong upward pressure on venue rates in the UK. The recently discharged Meetings Industry Report 2008 from the meetings agency stated that 88% of meetings consumers and planners sampled for the report said that it was their central matter.
As the majority (almost two-thirds) of such actions take place in hotels, meetings expend are intimately tied to hotel speeds, and this track is unavoidably upwards.
A recent study by the hospitality sphere team at Pricewaterhouse Coopers forecasted that income per obtainable room at Britain’s hotels was set to augment by 4.1% in 2008 and 3.6% in 2009. In London, the forecasted augments are even advanced, with 6% rises envisaged for 2008 and 4.4% for 2009.
The numerals are grounded on the modest financial increase but rates are still likely to augment in the event of a sharp financial retard. (Keene, 2006)
Technology may also assist but while hard backing of the transient journey has steadily moved online, meetings territory has been slower to make them budge.
Corporations offering temporary meetings territories, such as Regus and MWB, have been early adopters of online booking knowledge, yet larger places have been slower to take it up. The larger corporations are very feared that someone can go in there and can wedge out space for them. What we have been suspicious about is everybody impending up with their own decisions. It requires three or four of the larger booking agencies to come up with a general structure.
Strachan, as a travel director of a technology corporation, is also looking at meetings knowledge. Some of the gatherings technology has really recovered in the latest few years. I have used some and they are wonderful. It appears to be amazing that some corporations are still handling attendees’ administration on a spreadsheet.
Matters of Commercial Procurement
Commercial Procurement of Innovation submits to the procurement of Technological modernism up to and entailing a first pre-commercial quantity consignment of products and services authenticated via field examinations. Commercial Procurement of Innovation entails direct public Research and Development investment in the first three stages (commercial part) of a typical Research and Development project life cycle. pioneering Procurement, equivalent to the typical Research and Development project life cycle, is a very significant balance to Pre-commercial Procurement of modernism to ensure wide take-up of recently expanded pre-commercial Research and Development products or services.
It is obvious that Commercial Procurement of Innovation entails a higher degree of danger than Innovative Procurement; both in terms of technical dangers (require earlier stage Research and Development, prototyping, examining, etc) and in terms of non-technical jeopardies (more doubtful return on speculation period, larger dangers of indecision in cost judgments, etc). The way to get Commercial Procurement of Innovation going is to divide, not only the dangers but also the advantages among purchasers and providers. This makes Commercial Procurements of Innovation appropriate to some extent of State Aid for Innovation.
If the whole point is to use community command more tactically and very aimed to offer lead markets for new innovative ICT Research and Development solutions in particular public sector areas, then knowledge reveals that a purchasing tool (Public Procurement) is more effective than a subsidy tool (State Aid for Research and Development). State Assistance for Innovation is useful to recompense the risk-taking assisted with modernization and to hearten organization and cooperation among the Member States, but Public Procurement is required as the baseline lawful instrument for attaining the new Research and Development entailed with Commercial Procurement of Innovation.
As for the intrinsic risk-aversion of municipal purchasers, it is required specific tactics for Commercial Procurement of Innovation grounded on sharing of dangers and advantages of Commercial Research and Development actions. It s required specific legal regulation which does not regard Commercial Procurement of Innovation as a normal saleable procurement movement but as a disconnect, pre-commercial public acquire which locates itself in the continuation of the research phase, and is thus qualified for a convinced level of State Aid for Innovation from the communal side.
Addressing such confronts can necessitate new and better decisions. New tackle will be needed e.g. to execute the cutting-edge medical study, enterprising early analysis of diseases and finding new actions, to reduce energy expenditure in buildings and communal move, to defend citizens from refuge threats without intruding on their solitude. Some of the necessitated developments are so technically demanding that either no commercially steady explanation exists yet on the marketplace, or existing explanations exhibit inadequacies which require new Research and Development.
By expanding forward-looking procurement tactics that include Research and Development procurement to expand new decisions that tackle these confronts, the public sphere can have an essential collision on the mid to long-term effectiveness and efficacy of public services as well as on the modernism presentation and the competitiveness of European industry. (Swaine, 2003)
Conclusion
Concentrating on how and where a subdivision’s money is spent, and how it gets value from that spend, a Commercial or Government Procurement offers independent tactical regard of the overall procurement capacity of the association and its wider network of agencies, classifying exemplars as well as spheres for improvement.
References
Celec, S. E., Voich, D. J., Nosari, E. J., & Stith, M. T. (2005). Measuring Disparity in Government Procurement: Problems with Using Census Data in Estimating Availability. Public Administration Review, 60(2), 134.
Keene, W. O. (2006). Government Procurement Enters a New Era. The Public Manager, 30(1), 3.
Paige, S. (2004). Human Factors Present Procurement Reform Pitfalls. Insight on the News, 14, 44.
Swaine, M. D. (2003). Taiwan’s National Security, Defense Policy, and Weapons Procurement Processes. Santa Monica, CA: Rand.
ADCO’s procurement and supply contract involve making promises to pay suppliers a specific amount of money for supplying the required materials, tools, and services within the recommended quality levels and the set timeframe. The specifications are provided in the company’s contractual terms and conditions. This section addresses these terms and conditions.
ADCO’s Terms and Conditions
The company’s contracts are guided by a set of terms and conditions that regulate the conduct of parties that are involved in the contract. At ADCO, particularly in the Supply Chain Management section, different terms and conditions are critical in ensuring that the firm manages the risks of poor quality, an extension of time, increased operations costs, and unethical practices. Article 4 (contract administration) of the company’s terms and conditions provide a recourse for managing the risks of poor quality in the procurement and purchase contracts. Indeed, sections 4.2 and 4.3 set out the roles of ADCO and consultant representatives.
According to Section 4.2, the company should appoint ADCO’s agent who shall have the power to stand for ADCO in all consultancy issues. The issues include “performance of the Services, acceptance of the Services by ADCO, and the right to require the correction of faults and deficiencies in any part or all of the Services which is not based on the requirements of a contract” (ADCO 13). These terms give ADCO the moral authority to guarantee compliance with the procured items and materials to the established specifications depending on the intended use of the items and the materials.
Where lack of compliance is noted, the second party that is herein termed as the CONSULTANT or the supplier in case of the purchasing and procurement processes has to abide by the requirements to correct the condition of the supplied items and materials so that they do not amount to a breach of contract. The capacity to curb risks of poor quality is further enhanced through Section 4.3 of ADCO’s terms and conditions. The section requires a CONSULTANT to appoint a representative who keeps on checking and signing on the party’s behalf for any items and supplied materials. He or she has to be there when modifications, additions, order changes, and any deletions are required.
The execution of contract deliverables may be delayed. In the purchase and procurement procedure, this delay leads to an extension of the delivery time of the procured materials and items for any organization (Leclerc 68). This situation translates into delays in ADCO’s operations and other processes. Article 36, Section 36.1 of the company’s terms and conditions helps the company to handle the risk of time extension through the payment of liquidated damages for delays in contract performance. The anticipated completion date is specified in the contract form in such a way that the suppliers remain aware of the expected delivery time. The company includes a disclaimer clause that any amount paid in the form of liquidated damages does not attract a penalty for time extensions or delays in completion.
What can happen if the supplier does not honor the obligation to pay the liquidated damages? Section 36.2 of the company’s terms and conditions provide a remedy for dealing with the risk of time extension in such situations. ADCO considers liquidated damage debts that are due for payment to be paid to the consultant. However “ADCO may, without prejudice to any other method of recovery, deduct the amount of such liquidated damages from any due payments that may be payable to the CONSULTANT” (ADCO 28).
The terms protect ADCO since they do not amount to relieving the suppliers’ obligation to complete the performance of a contract. Besides, they do not prejudice ADCO’s civil liberties as provided for in the contract law. The terms only ensure that the supplier or any other service provider complies with the set standards and/or keeps on checking the specified completion dates.
To operate competitively, it is crucial for ADCO to mitigate the risk of increased cost. Through Article 11 (warranties and liabilities), ADCO ensures that the services that are provided by a CONSULTANT are useful for a reasonable period to alleviate the risk of incurring costs soon after completion. For example, Section 11.2 requires a consultant to rectify service deficiencies and defects that are detected prior to the completion of services according to the specified requirements at no extra cost. ADCO provides remedies for meeting the warranties upon notifying the contractor to do so within a given period, the contractor should reimburse any costs incurred. Through Article 17, ADCO does not pay taxes or levies on behalf of the contractor.
Article 19 ensures that ADCO mitigates the risk of increasing costs. Service providers or contractors should meet their insurance needs and those of their employees. Article 25 mitigates the risk of increased costs by demanding the CONSULTANT to refund the amount that ADCO pays in the form of claims above the contract price. Through Article 5, the company alleviates itself from incurring costs that relate to the CONSULTANT. Such costs include, but are not limited to, the CONSULTANT’s organizational operations, payment of personnel, and remunerations among other costs. These terms help in protecting the company since they enable the procurement and purchasing department to settle not only the costs that are directly associated with its operations but also those of the supplier.
In the purchasing and procurement contracting relationships, the ethical codes of conduct help an organization and suppliers to determine what to do or not to do. For ADCO Company, Article 22 points out the confidential ethical conduct in terms of information disclosure and transfer of files and records upon the completion of service delivery. Article 29 of ADCO’s terms and conditions establish ethical considerations that are necessary when addressing conflicts of interest in a contracting relationship. These stipulations help in shielding the business since they present ethical guidelines in the field of operations and relationships of different parties during the purchasing and procurement procedures.
Conclusion
On a daily basis, firms engage in contract relationships. Contracts can be established in the area of employment, the building of firm facilities, the supply of raw materials, transportation and logistics, and/or the provision of support services such as human resource management and customer relationships administration among other forms of contracts. ADCO’s contracts are bilateral in nature. As revealed in the first section, contracts of the company involve making promises between ADCO and a second party (CONSULTANT), that are subject to the applicability of various terms and conditions as discussed previously.
The Battle of Forms
Introduction
Organizations that supply goods and services to ADCO through the purchasing and procurement department deploy standard form contracts. However, the terms of the contract often contradict. For successful business performance between the parties, offers and acceptances have to be made if legally valid contracts must be established. The concept of the battle of forms implies the emerging legal disputes in case of contradicting standard forms of a contract between parties. The concept is applied where the parties recognize the existence of an enforceable contract but are divided into terms implied by a specific contract. This section demonstrates an understanding of the concept of the battle of forms concerning ADCO’s contracting relationships with its CONSULTANT.
The Battle of Forms
The contract law requires one party to make an offer while the other accepts it for an agreement for it to become legally binding. When one of the parties alters the offer, a new proposition is created, which requires acceptance (Weitzenböck par.5). However, the battle of forms concept constitutes an exception to this rule. Two contracting parties never negotiate boilerplate terms. As illustrated below in figure 1, the battle of forms scenario mostly emerges when offers and counteroffers are established where two parties wish to engage in a legally binding agreement for sales and purchases of goods and services.
Fig. 1: Illustration of the Battle of Forms Concept.
When situations that lead to the battle of forms emerge, courts must decide which terms to be applied in a particular scenario. In this process, two tests are applied. In the first test, the parties do not need to read the boilerplate terms. If any of the parties possess the knowledge of terms, it is likely that the party will alter the acceptance of the consent equation (Koffman and Macdonald 78). The second test involves determining whether the parties completed the selling transaction. This information acts as evidence of the intent and the desire to engage in legally binding business relationships.
When the two tests are passed, the court acknowledges the existence of a contract. The next challenge entails determining whose terms apply. However, no universal resolution for the battle of forms exists. Thus, no single rule is applicable in every situation. Judges have the responsibility of evaluating circumstances in terms of their totality (Koffman and Macdonald 91). In some scenarios, a judge may invalidate the applicability of any of the parties’ boilerplate terms. In other situations, only the terms that do not involve material elements are validated. A third outcome may involve the validation of the applicability of one of the party’s boilerplate terms in controlling the contractual relationship.
The judicial precedence of Balmoral Group Ltd v. Borealis Group Ltd establishes rules that demonstrate the applicability of the battle of forms concept in relation to whose terms should prevail. The case involved two parties that had entered into a contract for the supply of a large amount of polythene polymer that is useful in producing tanks for storing chemicals. However, Balmoral’s green oil tank that utilizes the material in large proportions failed.
The company moved to court suing Borealis for damages amounting to £50 million. Balmoral asserted that for every purchase order, a separate offer was established. The offer was then accepted through the delivery of goods or in a word of mouth. However, Borealis included its terms regarding invoices. The terms limited the supplier’s liability to repaying the purchase price in case of defective goods or replacing faulty goods.
During the legal tussle in the court, Balmoral maintained the invoices that came when every contract had been signed. Therefore, every invoice only amounted to the payment of price claims. The court ruled in favor of the supplier. The presiding judge ruled that when the supplier’s prices were quoted, the quotation was made according to the terms and that the party intended to enter into a contract only when the terms were valid and acceptable.
According to the facts of the case, Balmoral was aware of the terms at the back of the invoice that was issued by the supplier. He had crosschecked them by paying without bargaining. The company also continued to pay in subsequent contracts without any protest. When Borealis notified Balmoral about the changes of terms, Balmoral never objected to the new conditions. Therefore, in the case of Balmoral Group Ltd v. Borealis Group Ltd, the supplier’s terms applied such that Balmoral could not be reimbursed for the damages. Based on this case, ADCO can ensure that the contract is based on its terms by ascertaining that the terms are part of the contract such that a contract is entered subject to the terms. Kraljic Portfolio Model for procurement and purchasing (fig. 2) provides a way forward for accomplishing this task.
Fig. 2: Kraljic Purchasing Model.
As illustrated in figure 2, Kraljic Model is a square matrix of order 2. For example, bottleneck items present a high supply risk and a low impact on profits. Thus, knowing that ADCO has a high buying power of such products, it can develop terms and conditions and/or push for their applicability to regulate the contractual relationship for the supply of highly risky items and products. This case applies considering that the supplier does not accept the terms.
ADCO will only experience a low impact on its profitability if no contract is formed. However, this scenario cannot apply for strategic items. ADCO’s procurement and purchasing section can only use its buying power to bargain on the terms and conditions that address the supply of highly risky products or items in a way that the two parties arrive at a compromise position. This outcome entails a win-win situation whereby offers are accepted as subject to contractual terms that apply to both parties. Where one party is not keen on the boilerplate terms that accompany each organization’s business documents, including invoices, this aspect of the Kraljic Purchasing Model leads to a legal tussle of the battle of forms.
Conclusion
From the challenges of the battle of forms, the question that emerges is, ‘what offers the best suit ADCO’s procurement and purchasing department so that it can readily accept them without any fear of risks?’ Kraljic Portfolio Model of procurement and purchasing can help the department to respond to this interrogative. Initially published in the Harvard Business Review-Journal in 1983, Kraljic remains an important model that is deployed by many companies across the globe to make their purchase decisions and/or determine suppliers’ acceptance capacity.
How ADCO’s Terms and Conditions ensure Monitoring and Management of Performance Measures
Introduction
ADCO enters into contractual relationships with suppliers with a clear objective of receiving items and materials in some specified conditions and form. Therefore, terms and conditions in purchasing and procurement contracts need to ensure that the supplying party does not deliver items and materials that are below the desired conditions and form. The terms and conditions need to ensure that the relevant performance measures are monitored and managed. How is the monitoring or management accomplished by ADCO through its terms and conditions?
Monitoring and Management of Performance Measures
Before making the actual purchase, ADCO’s contractual terms and conditions require it to place its representative in the premises of the CONSULTANT who evaluates the products or services to determine whether they conform to the established performance standards as established in the terms of engineering designs and various performance parameters. This cycle of events can be represented in the form of a purchasing cycle model as shown in figure 3.
Fig. 3: Purchasing Cycle Model 1.
After making the initial purchase, the actual performance of the products and services while on the premises of ADCO is significant in influencing future contracting relationships with the CONSULTANT. This preparedness makes the monitoring of various performance measures of the services and the products when operating at the company’s facilities important. Where the results of the performance monitoring indicate satisfactory performance as provided for through the guarantees and warranties, ADCO develops better procurement and purchase relationships with the CONSULTANT.
This move makes it arrive at a decision of retaining the CONSULTANT for future considerations of an offer for supplying products and services to satisfy the same need or even a related need. This situation indicates the need for incorporating the performance monitoring and management retention aspect in the purchasing model that applies to ADCO. Such a cyclic model is illustrated in figure 4.
Fig. 4: Purchasing Cycle Model 2.
Some of the potential causes of the poor performance of the delivered services or products by a supplier include poor workmanship and inconsistency between engineering parameters that are used by the supplier or the contractor and those in the design prototypes developed by the client (in this case ADCO). Purchases and procurement terms and conditions should guarantee the monitoring and management of these two important issues to ensure reliability in the performance of items/products and services supplied to ADCO by a second party (CONSULTANT). From the context of ADCO’s contractual terms and conditions, the company has sufficient mechanisms for monitoring and managing performance measures unless where boilerplate terms and conditions that lead to a battle of forms on the part of CONSULTANT may exist.
Article 3 (general scope of services) introduces a mechanism for capturing and managing performance measures. Section 3.1 calls upon the CONSULTANT to exercise reasonable skills, diligence, and care in the process of performing services to ensure compliance with terms and conditions set out by ADCO. It further compels a consultant to depict sound engineering practices together with the principles based on the established international standards for engineering works.
This strategy is a way of monitoring key performance indicators (KPI) since any acceptable practice in the process of performance of a contract by the consultant needs to compare and measure up to the internationally accepted standards and practices. ADCO also requires the CONSULTANT to provide equipment, personnel, and facilities on satisfactory performance levels.
Article 8 underlines the necessity for exchanging engineering data between ADCO and the CONSULTANT. The data includes designs, diagrams, models, prototypes, calculations, specification data, and plans among others. Such data guarantees consistency between service performance and the expectations of ADCO concerning performance measures in the consultant work. Management of KPI is enhanced by Section 8.2 of ADCO’s contractual terms and conditions, which require the consultant to examine any provided engineering data to notify ADCO within a reasonable time about any deficiency, inaccuracy, and inconsistency (ADCO 17).
In case of failure to accomplish this duty, ADCO considers the CONSULTANT liable for any poor performing deliverable where deficiency can be tracked from information that is provided to the CONSULTANT. Section 8.3 also establishes the need for ADCO’s representatives to inspect reports, deliverables, and studies conducted by the CONSULTANT during their process of preparing to perform a contract. This clause is essential in helping to capture inconsistencies between the data and ADCO’s KPIs.
Poor workmanship may arise where a CONSULTANT seeks the services of a third party in the process of performing a contract. ADCO ensures that it manages the risks of poor performance in such situations by including a contractual term demanding that any third party recruited by a CONSULTANT is to seek authority from the company before beginning to offer any service to the CONSULTANT. This move ensures the third party’s approval of its capability to deliver on key aspects of the contract in compliance with specifications.
Conclusion
In the best interest of an organization, many companies ensure that contracts are established with respect to their terms. ADCO has developed its terms and/or conditions to guide its contractual relationships with a second party that is herein referred to as a CONSULTANT. One of the key considerations in the terms and conditions of ADCO is ensuring that a supplier only provides goods and services that meet the company’s performance specifications. Hence, it considers monitoring and management of performance measures to be an essential component of its terms and conditions that are applied when developing legally binding business relationships with its suppliers (CONSULTANTS).
Works Cited
ADCO. Special Terms and Conditions, The Emirate of Abu Dhabi: Abu Dhabi Press, 2013. Print.
Koffman, Laurence, and Elizabeth Macdonald. The Law of Contract, Oxford: Oxford University Press, 2007. Print.
Leclerc, Yekul. “Sustainability and the Supply Chain: How to Reduce Cost and Save the Environment.” Manufacturing business technology 2.1(2012): 67-71. Print.
Skok, David. Understanding the Customer Buying Cycle and Triggers, Oxford: Oxford Publishers, 2012. Print.
Material management and procurement processes are all important parts of PHC supply chains. In order to facilitate efficient supply chains, most PHCs have dedicated software for material coding, inventory management, and medical supply and demand projections. Despite this, most governments, including the UAE, do not have any precise instructions for managing PHC-related materials such as drugs, vaccines, personal protective equipment, medical equipment and the like, in primary healthcare facilities.
Various studies report that inefficient materials management and procurement can cause drug shortage, prolong laboratory investigations, and cause incidents of non-utilization of government-funded health facilities available to the general public. Most drug shortages are caused by improper demand projections, while laboratory on-provision delays are caused largely by equipment malfunctions, employee shortages, and shortages of required reagents.
Management of these resources includes their procurement process, storage, distribution, maintenance, and disposal. The purpose of this paper is to map out and analyze the materials management and procurement processes in Abu Hail Health Center, Dubai, identify the gaps and redundancies in their current SCM and propose a set of solutions and recommendations to improve the situation.
Background
Abu Hail Health Center is a relatively small PHC that provides quality healthcare to the people of Dubai and surrounding areas. It has a total of 141 qualified medical personnel, out of which 47 are doctors and 94 are nurses and paramedics. This PHC is currently under the administration of the Ministry of Health. It was set up in 1999, meaning it is a relatively modern PHC. It possesses good capabilities and resources required for cutting-edge medical treatment (“Abu Hail health center,” 2017).
Aside from standard medical procedures, Abu Hail Health Center operates a well-equipped laboratory with state-of-the-art investigative medical facilities. It also provides radiography services , which include standard radiography and X-ray, ultra-sound, mammography, fluorography, OPG, and other services.
Healthcare Utilization Indicators
Three healthcare utilization indicators that influence the population around Dubai. PHC are socio-economic standing of the population, median age of the population, and quality of offered care. Socio-economic standing stands for how rich the population is. If the majority of patients have jobs and savings, and are not constrained by monetary concerns, they are more likely to utilize PHC facilities.
Median age has a direct correlation to the number of PHC visits, since old age is associated with numerous ailments and diseases. Lastly, the quality of provided care directly corresponds to the level of trust between the patients and the PHC workers, meaning that patients are more likely to attend PHCs with high quality of care. Effective chain supply management has a direct correlation on the last health utilization indicator, and can affect the first one indirectly. Avoiding drug shortages effectively increases the quality of provided care, thus contributing to improving the levels of trust between patients and the medical facility. Other than that, it also helps save money, which in turn helps reduce costs and make healthcare more available to everyone.
PHC Supply Chain Model
The modern theory of supply chain management identifies three supply chain models – Foundation Model, Optimization Model, and Transformation Model (Schwarting, Bitar, Arya, & Pfeiffer, 2011). Abu Hail PHC, as many modern and advanced medical facilities, operates using the Transformation Model. This is a complex model which balances medical costs, medical efficiency, and seeks to ensure positive patient outcomes.
It is classified by its patient-centric approach, meaning that all decisions in regards to supply chain management are taken with patient needs in mind. It implements lean materials management, judges medical products based on their contribution to organizational and clinical goals, and incorporates improvements in clinical protocols in SCM decision-making (Schwarting et al., 2011). The result is optimized operational costs, minimization of mistakes due to human error, through system integration and optimization of procurement processes using the most advanced automated protocols, and reduced organizational purchasing risk due to increased compliance with established supply contracts (Schwarting et al., 2011).
Material Planning and Procurement
In Abu Hail, drug demand forecast is based on utilization data from the previous year. The demand for the current year is formulated by reviewing a number of drugs used in the previous year and adding 10% to the new purchase order (Uthayakumar & Priyan, 2013). The calculated amount is sent to the District Health Office, where the requisition request is reviewed by the pharmacist, who then files the document for the materials to be supplied to the PHC from the Central Store in Dubai.
Abu Hail PHC receives its drug supply from several independent sources, which are (Uthayakumar & Priyan, 2013):
Medical supplies from the Central Store received as Annual Drug Stock.
Drugs received as supply in accordance with various national health programs, in addition to the Annual Drug Stock.
Drugs received by sending a request to the District Health Office.
Procurements of drugs from the local suppliers in accordance with individual supply contracts.
One of the major challenges in this procurement system is the Annual Drug Stock. Although it is given out in amounts based on demand in Abu Hail PHC, its contents are developed on a statewide basis, and not on individual criterions for each PHC. This lack of flexibility means that the PHC might receive plenty of drugs that it does not require, while the amount of medical supplies it actually needs is based on demand would barely be enough to operate with, without causing any potential shortages. This flaw is common in many state-funded PHCs, as they all operate using similar PHC supply chains (Uthayakumar & Priyan, 2013).
In order to make up for the shortcomings of the current system, Abu Hail PHC is forced to work with private medical suppliers in order to purchase the drugs they need, in a case of shortage or an emergency. Although this helps alleviate some of the tension, prices offered by such suppliers are often higher than they would have been if the PHC received the required amount of drugs from government-sponsored institutions (Uthayakumar & Priyan, 2013).
Storage and Stock Entry
Abu Hail PHC has dedicated storage facilities for different materials. The materials are split according to their type – one room is dedicated to storing drugs, injections, and medicines, another – for storing instruments and materials related to X-ray, Laboratory, and Radiology practices, and the third room is dedicated to storing linen. Every room has its dedicated pharmacist or a nurse to help distribute required materials (Denton, 2010).
The stock contains numerous labels that are pre-designated for specific medicines and products. These include stock registers for tablets, syrups, and capsules, surgical equipment, injections, linen, film, reagents, and other supplies. Register template features the date or receiving, name of medicine, quantity, total quantity of balance, stock issued to the department, and expiration date registry (Denton, 2010). This register is updated as soon and as often as it is possible.
The pharmacist reviews the drugs that are near their expiry date, which is within 3 months. In order to ensure that these medicines are not wasted, inquiries are made to other PHCs to find out if they have the need for such medicine. Alternatively, these medicines are used in the PHC setting, should the Medical Officer decide that it is appropriate (Uthayakumar & Priyan, 2013).
Material Disposal
In Abu Hail PHC, drugs are seldom disposed of. Most of them are utilized in an efficient manner prior to their expiration date. However, should any drugs cross the expiration line, they are treated in a similar way to how medical waste is disposed of – they are put in sealed bio containers and delivered to the medical disposal facility, which then conducts the disposal processes in a safe and efficient manner, according to high standards for the procedure (Render & Heizer, 2013).
Laboratory-related Material Procurement and Maintenance
Laboratory equipment and reagents are largely supplied by the DHO at Dubai. The operation of procurement is the same as for drugs – the PHC sends a report of material use for the last year and requests the same quantity of materials and reagents plus 10%. The equipment is used until a malfunction occurs, after which obligatory maintenance is in order (Genovesi, 2015). Maintenance checks are performed from time to time to assess the safety level of particular apparatuses. Once the equipment is beyond repair, it is then utilized for scrap, and an indent is sent to the DHO.
The main issue with this approach is that eventual malfunctions of laboratory equipment cause delays in providing analyses, which in turn is connected to certain financial expenditures and health-related risks, as the inability to provide accurate laboratory analyses in time can be detrimental to the overall quality of healthcare provided in the facility (“Manual for procurement,” 2013).
Radiology-Related Material Procurement and Maintenance
Radiology departments possess a great number of various devices to assist in all sorts of medical endeavors. The equipment involved in radiology practice includes static X-ray units, mobile X-ray units, Fluoroscopy units, CT, MRI, Mammography, Ultrasound, and Radiography equipment (“Manual for procurement,” 2013). X-ray units all require a film to project the results of the scan onto, whereas the rest of the units require liquid conductors to be placed on the body of the patient, in order to increase the accuracy of the scan. All mechanisms require maintenance and spare parts, as time goes on.
Once more, the procurement process for this equipment and all related materials is similar to that of drugs – they are supplied by the DHO. When it comes to maintenance, the PHC technicians on site perform small repairs and regular maintenance procedures. In the case of serious breakdowns, the equipment is either sent to maintenance to the office of the company that provided it or is disposed of and sold to scrap, should the wear-and-tear prove to be beyond repair. Although these malfunctions are infrequent, they pose a serious danger to hamper or paralyze the work of the entire radiology department, should malfunctioning equipment be one-of-a-kind (“Manual for procurement,” 2013).
Another issue that is raised among the staff of Abu Hail PHC is that the staff of radiology department is rarely included into decision-making in regards to procurement and maintenance of their respective equipment. The PHC largely operates on DHO generalized guidelines rather than out of its own practical concerns.
Conclusions and Recommendations
Although Abu Hail PHC maintains a good level of efficiency when it comes to PHC supply management and procurement strategies, there are several issues that may pose potential risks in case of a deficit of required supplies and materials. In this section, innovative strategies would be provided to deal with some of the more prominent issues with Abu Hail PHC’s Supply and Management System (Render & Heizer, 2013):
DHO Generalized Annual Drugs Stock. Although the PHC manages to deal with the issues of the Annual Drug Stock not meeting the actual demands of the PHC by exchanging medicines that are near their expiration date with other medical facilities, and by relying on local suppliers to make up for the deficit whenever it is required, these measures do not offer a long-term solution. In order to change the DHO policy towards Annual Drugs Stock, Abu Hail and other government facilities should promote a more diversified approach, in order to ensure every PHC receives its Annual Drugs Stock in accordance with their specifications and needs (Uthayakumar & Priyan, 2013).
Demand Forecasting. The current method of demand forecasting is standard for many medical facilities around the world. However, while it is considered staple in many manager books, it fails to take certain issues into account, which could cause a potential deficit. Other parameters that need to be taken into account during demand forecast are (Uthayakumar & Priyan, 2013):
Trends in medicine during the last two years (not one).
Prevalence of certain diseases in the country and particular region.
Analysis of patient age groups.
Population growth rates within the immediate area around Abu Hail PHC.
Involvement of Laboratory and Radiology Departments in Procurement Processes and Decision-Making. As it stands, Abu Hail PHC practices a top-down approach, where the decisions are made at the top, using annual reports and standard management practices. It leads to generalization of the needs of departments, which is further extrapolated by the DHO. In order to promote accuracy and efficiency in lean supply management, representatives of these respective departments are to be involved in procurement and decision-making processes.
Preemptive Maintenance Practices. Although it is addressed to some degree during regular scheduled maintenance procedures, Abu Hail PHC addresses serious equipment maintenance issues post-factum, which usually happens after equipment suffers a malfunction. This may cause unnecessary delays. Two potential strategies can help deal with these issues (“Manual for procurement,” 2013):
Major preemptive maintenance procedures that include replacing certain parts and pieces of the equipment prior to it suffering a major malfunction. This could be used during low seasons, where patients are not as many, which would allow to perform maintenance without risking any inconveniences.
Fixed asset lifecycle concept. Although it may be too expensive to perform with certain equipment, particular instruments, devices, and mechanisms should be replaced by the DHO after a certain period of time, in order to avoid potential malfunctions.
Incorporating Total Quality Management Model into PHC Supply Models. It is a relatively recent approach to management implemented on a horizontal level between end users, suppliers, and distributors of medical supplies. There are three ways in which incorporating TQM will improve overall efficiency at the Abu Hail PHC (Render & Heizer, 2013):
More employee involvement in decision-making in regards to supply matters and procedures.
Reducing the amount of steps required to procure required medicine, instruments, equipment, and tools.
Quality improvement of patient care will also reduce the amount of medicine otherwise wasted due to expiration date and other factors, which will contribute to avoiding shortages.
References
Abu Hail health center. (2017). Web.
Denton, B.T. (2010). Handbook of healthcare operations management. New York, NY: Springer.
Manual for procurement of diagnostics and related laboratory items and equipment. (2013). In World Health Organization. Web.
Render, B., & Heizer, J.H. (2013). Operations management: Sustainability and supply chain management. New York, NY: Pearson.
Schwarting, D., Bitar, J., Arya, Y., & Pfeiffer, T. (2011). The transformative hospital supply chain: Balancing costs with quality. New York, NY: Booz&Co.
Uthayakumar, R., & Priyan, S. (2013). Pharmaceutical supply chain and inventory management strategies: Optimization for a pharmaceutical company and a hospital. Operations Research for Healthcare, 2(3), 52-64. Web.
The modern healthcare system’s increased ability to offer quality services has increased the importance of some previously overlooked issues such as organ donation. In today’s scenarios, there exist a wide variety of methods through which people can procure replacement organs. Health institutions are, therefore, hard pressed to ensure that they adhere to the best practices in ensuring that their clients have fair access to legally-procured organs. They must also ensure that these patients are prioritized in a transparent and ethical manner, without affording preferential treatment to any of their cases. Therefore, the bioethics of organ procurement are vital for helping health professionals to meet their mandate to their clients.
Donor organs are living tissue and as such, must be handled in ways that preserve their integrity. From the onset, Organ Procurement Organizations (OPOs) must obtain the donor’s consent before collecting any of their tissue either after death or through surgery in the case of kidney or skin transplants (Howard, Cornell, & Cochran, 2012, p. 14). To achieve this, OPOs coordinate their operations with health institutions to ensure their efficiency. Those OPOs that cannot afford to have in-house specialists to perform organ procurements resort to hiring them through other service providers (Howard et al., 2012, p. 15). Access to these professionals ensures that OPOs can educate the public on organ donation, receive donor information, evaluate individual cases, manage post-mortem scenarios, seek the consent of the donor’s next-of-kin, and contact other health providers to find suitable recipients (Howard et al., 2012, p. 15).
Even as OPOs strive to connect willing donors with recipients in need of their tissue, there are some complexities around the receipt of donor tissue. For instance, recipients have to take a long course of immunosuppressant medication to reduce their bodies’ chances of rejecting the donor organs (Ridjic, et al., 2011, p. 108). Resultantly, recipients must be beneficiaries of insurance schemes that will help them shoulder the economic cost of being an organ recipient. Medicare, Medicaid, and the Social Security Retirement system are some government initiatives that assist low-income and elderly patients in accessing post-op immunosuppressant medication (Ridjic, et al., 2011, p. 109). Even so, Medicare’s coverage is limited, and some gaps still exist, which is a disadvantage for many individuals from the recipient pool (Ridjic, et al., 2011, p. 112).
Organ disbursement is a complicated process due to the availability of a small number of donor organs compared to the overwhelming number of potential recipients. The United Network for Organ Sharing handles disbursement in the US and has adopted a “best bet” organ allocation policy to ensure efficient and fair allocation (Cherkassky, 2011, p. 418). This system allocates donor organs to recipients who are most likely to benefit from them and survive for longer, and not to those who need them the most, as is often the case with medical emergencies (Cherkassky, 2011, p. 420). This approach rules out the urgency of cases such as those of potential recipients who are nearing death due to organ failure but in turn, favors patients who have little or no history of negative behaviors that would shorten the donor organ’s life span (Cherkassky, 2011, p. 420).
Organ transfer is a critical issue that affects the donors, recipients, their families, health institutions and many other stakeholders. As a result, the procurement and disbursement processes must ensure that they follow the most prudent paths to protect the interests of individuals on both sides of the donation. Organ allocation is a contentious issue, and distribution agencies are still trying to formulate fair allocation protocols to ensure that they perform their duties ethically. By doing so, they can ensure that donor organs are put to the best possible use and that the recipients will, in turn, live more fulfilling lives because of them.
References
Cherkassky, L. (2011). Does the United States Do It Better? A Comparative Analysis of Liver Allocation Protocols in the United Kingdom and the United States. Cambridge Quarterly of Healthcare Ethics 20(3), 418-433.
Howard, R. J., Cornell, D. L., & Cochran, L. (2012). History of Deceased Organ Donation, Transplantation, and Organ Procurement Organizations. Progress in Transplantation, 6-17.
Ridjic, O., Ridjic, G., Masic, I., Muminagic, S., Slipicevic, O., Agic, N., & Karamehic, J. (2011). Financial and Legal Aspects of the Organ Transplantation. AIM, 108-113.
In this informational age, the importance of information technology has continued to grow with more and more firms turning to invest in IT projects. These projects are aimed at streamlining the firms’ operations and deliver value to the clients in the organization. A well executed IT project has the capacity of improving a firm’s performance, reducing delivery time and responding promptly to the needs of the customers. IT has continued to play an integral part in the operations of the healthcare sector. The essay that follows will discuss the procurement process in the healthcare sector, looking at the present challenges and possible solutions to these challenges.
For some time now, Canadians have been accustomed to receiving all the services they need through a network that records their preferences and delivers the services in a more personalized and friction-free way (Card, 2012). The computing devices and networks used to deliver on the services has afforded all parties involved the convenience that is key to competitive pricing and efficiency (Card, 2012). This has seen most of the services offered to the public becoming scheduled, efficient and tailored to match the taste needs, and preferences of the clients. The same expectation has since been placed on the healthcare system with clients hoping that the practitioners in the industry will also adopt IT as a way of improving service delivery.
The use of IT in the healthcare industry is poised to make the industry become efficient, competitive, and more accessible to the clients. IT can be used in the healthcare industry to handle logistics, propagate better practices, and handle communications, logistics, and scheduling. Additionally, the practitioners in the field can also use ICT to automate referrals, for reporting, for delivery, purchase, scheduling appointments, and tracking events. These benefits of an IT system point out at the need for the implementation or adoption of an IT system in the health sector. However, attempts made to introduce IT systems in hospitals have faced challenges which range from time delays, cost-overruns, and suboptimal service results (Card, 2012).
The failures in IT system implementation in large hospitals can be attributed to factors that include failure to fully utilize project management tools, lack of proper planning and scoping before embarking on the project, lack of a shift in mind set, and project implementation prior to drawing up a proper plan. These It implementations are often capital intensive and as thus proper planning and scoping must be employed to ensure that public funds are not sunk and wasted on projects that will fail to take root. Evidently, all these failures can be traced back to the public procurement process (Whitt, 2012). Luckily, the solutions to the problems bedeviling IT procurement in healthcare lie within the confines of the public procurement process. Simply put, once the failures are addressed, then and only then will the IT system stand strong and stable.
According to Whitt (2012), procurement systems comprise of rules that define the systems specifications and then floats these specifications in the tendering or bidding market to find suppliers that can supply the systems. The bidding process is open, competitive, disciplined, and controlled. Fair and reasonable prices emanate from that competitive bidding process. Misapplication of the rules that govern the procurement process has the capacity of plunging the whole process in disarray. It is improper and counterproductive to apply procurement rules meant for one line of goods or services to a different line without looking at the system requirements. Many projects have failed miserably because of the application of wrong or incompatible procurement rules. It is imperative to apply procurement rules that are compatible with the projects at hand.
There is an outcry among the stakeholders in the health sector who decry how the current procurement rules are applied to hinder the implementation IT systems in healthcare reforms. The healthcare IT participants hold the expectation that a successful implementation of an ICT system would contribute towards the much needed reforms in the healthcare sector. However, the outcry still resounds with most of the stakeholders arguing blaming the draconian procurement rules for the woes facing the IT procurement efforts in the healthcare sector.
Seaton (2012) argues that the public procurement problem is quiet gigantic but it can still be overcome. The government is seen as applying stringent procurement rules in the guise of ensuring openness in the public procurement process. Sadly, these efforts terminate in impeding efforts made by players in the IT sector to venture into the lucrative healthcare sector. Procurement rules are good and they are a welcome relief to the players in the healthcare industry; however, these rules should not be too tight as to impede on any intended advancements in the implementation of IT procurement in healthcare.
The beneficiaries in the healthcare sector, who mainly comprise the vendor community, support the procurement rules meant to ensure fairness, transparency and openness in the procurement process. However, the suppliers are not amused by the way most of the rules and interpretations affect the procurement process. These rules are notorious for decreasing efficiency, increasing process cost, and stifling the intended ICT innovations in healthcare.
Public procurement has found its way into the debate of most of the leading organizations in healthcare ICT. Small and medium sized procurement firms are forced to bow out of many procurement bids as the terms of engagement seem to disfavor them. Major corporations and multinational companies are also reluctant to bid on the procurement projects because of the high risk and small margins that characterize most of the healthcare ICT projects (Federici, 2009). Most jurisdictions apply national and international laws inconsistently causing the procurement process to be more fractured and difficult. In such a setting, vendors find it difficult to achieve economies of scale and would mostly opt to abstain from such markets. This introduces another problem in public procurement. The shortage of suppliers of the system requirements creates a monopolistic market which will have few vendors. Consequently, the cost of procuring the ICT infrastructure ends up sky-rocketing because of these shortages.
Additionally, the inability of the current systems to align with the international standards limits the penetration of Canada ICT products in the export markets. Certain process not only affect the procurement process but also erect barriers to trade. This imposes a challenge to vendors, especially those with innovative products, because they cannot enter the markets with their ICT innovations. The stringent procurement rules and conditions dissuade most vendors from participating in the bidding process. These entail unlimited indemnification and limited ownership of rights in intellectual property. Further, the high risks associated with most eHealth initiatives and the high bidding costs are becoming increasingly prohibitive on small and medium vendors participation in the procurement process (Federici, 2009). Furthermore, the opposition parties, activists, and mainstream media have a habit of interpreting procurement issues out of context and this presents procurement as a system laden or riddled with corruption and malpractices. This has caused the authorities to tighten the already stringent procurement rules.
The long procurement cycles also play a role in increasing the cost of doing business. Informational technology is known to change at a faster rate compared to other infrastructure. Long procurement cycles need to be bridged down to ensure that all benefits are derived from the ICT infrastructure before it is rendered obsolete. Certain procurement rules are literally cast in stone and as thus they inhibit innovation and therefore, most players in the healthcare sector fail to take advantage of the new technology provided. Moore’s law can be applied to understand the complex nature of the procurement process.
Martineau (2012) predicted that the computing power of every machine produced by Intel will double after every two years. Applying this principle in procurement and this means that the complexities experienced in procurement of healthcare IT is likely to double every two years. Of course, this can be curtailed by an introduction of deliberate and robust reforms in the procurement of healthcare IT systems. Accordingly, the transformations that have led to the complexities can be pegged to the complexities involved in buying, the cost of selling, and the autonomy of the team making the purchase or procurement decision. All these factors work together to make it harden the procurement process and make it more complex.
One of the proposed solutions for the problems bedeviling the procurement sector rotates around coming up with procurement processes or procedures that will enable or allow government agencies, healthcare sector included, to adopt new technologies on a rapid pace. By so doing, the blockades that were previously imposed on healthcare IT by draconian procurement laws will be loosed and innovation systems will get access into the marketplace. The major downside of most of the restrictions placed by the procurement rules lies in the fact that the ICT systems are often delivered late and as thus most of them are found to be either obsolescent or already obsolete.
Another solution to the problems and restrictions imposed on the procurement processes lies in co-opting with the current restrictive rules. In other words, it would be wise to introduce contingent measures to address the restrictions imposed by the traditional procurement system. This can act as a temporary reprieve to vendors that are so willing to supply the needed Healthcare IT systems. While this gets underway, stakeholders need to refocus attention towards the development and implementation of a more permanent solution.
In conclusion, all stakeholders in the healthcare sector agree that there is need to enter urgent and rapid reforms in the procurement of healthcare IT systems. A concerted effort among different players will render this dream a reality. In the interim, all concerned parties must work in concert to ensure that they lessen the burdens placed on vendors by the current draconian procurement rules. By so doing, the procurement process will be made fair and competitive and the delays together with high costs will be eliminated.
References
Card, D. (2012). Technology Procurement Success: Avoiding Common Mistakes. Healthcare Information Management & Communication a, 26(3), 36.
Federici, T. (2009). Introducing E-procurement in a local healthcare agency. Hershey, Pa.: IGI Global.
Martineau, M. (2012). Procurement Meets Moore;s Law. Healthcare Information & Communication, 26(3), 53.
Seaton, B. (2012). Public Sector Procurement: A Problem that is Big but not Impossible to Solve. Healthcare Information Management & Communication, 26(3), 12-13.
Whitt, M. (2012). Healthcare IT Procurement in 2012. Healthcare Information Management & Communication, 26(3), 6-8.
The progress of health problems is closely related to such factors as an environment, education, quality assurance, procurement services, and the structure of pharmaceutical systems. In Africa, many hospitals undergo significant medicine shortages in the public sector, leaving some tropical diseases untreated (Modisakeng et al., 2020). The threat of communicable diseases cannot be ignored because they have a number of negative outcomes on human lives, including the challenge of intellectual abilities, poor educational performance, low productivity, and increased poverty (Kirigia & Mburugu, 2017). According to the World Health Organization (2019), malaria, neglected tropic diseases (NTDs), HIV/AIDS, and tuberculosis are the important causes of death in Africa. Many countries are interested in controlling the spread of these diseases by improving procurement services and the quality of medications that may be available to the African population. The United Nations Development Programme (UNDP) is a global network that enhances technical and humanitarian support to developing countries, including the procurement of health products to challenging environments. The UNDP’s impact on tropical malaria management in Africa will be offered as a central theme of this thesis project regarding the current situation in local hospitals.
Background
At this moment, Africa is the second largest continent in the world. There are 54 countries that are located in five main sub-regions, namely Northern, Eastern, Central (Middle), Western, and Southern (Worldometer, n.d.). According to Modisakeng et al. (2020), medicine shortages are observed in many African countries, and South Africa is one of the regions that strive for universal access to health care and medication supply. During the last several years, malaria is defined as a dangerous mosquito-borne disease that was diagnosed in more than 228 million people globally and caused about 405,000 deaths in 2018 (Centers for Disease Control and Prevention, 2020a). Specifically, in Africa, approximately $12 billion are spent to manage economic problems related to this disease (Centers for Disease Control and Prevention, 2020a). Despite the access to appropriate medications and diagnostic tools in developed countries, travelers are still exposed to the threat of tropical diseases brought from African countries.
Problem Statement
Millions of people are aware of malaria and NTDs’ risks in Africa, but they cannot stop traveling to different regions due to their work-related or personal purposes. For example, in the United States, about 2,000 cases of malaria are discovered in returned travelers (Centers for Disease Control and Prevention, 2020b). These patients get special treatment, including drugs, appropriate regimens, and lifestyle recommendations. However, those who stay in Africa, cannot receive the same quality of services. Many African hospitals lack medications and professional care providers who could help patients and protect the population. Not many organizations are ready to contribute to the development of pharmaceutical and healthcare services in all African countries. Therefore, the attention of global organizations and the impact of such programs as UNDP cannot be ignored. Even if additional sources to deliver antimalarial medicines under the UNDP are discovered, the problem of quality assurance and rational use of medications stays unsolved. Communication with local care providers for informative and educational purposes is required.
Purpose of the Study
In this thesis project, it is expected to investigate the current malaria situation in several African regions and gather information from local care providers about available medications and preventive strategies. The main purpose of the study is to identify if the UNDP global fund system is beneficial for a pharmaceutical system’s ability to provide quality assurance and rational use of medications for malaria in Africa. Additional objectives in this work are to reveal the current strengths and weaknesses of the health information system, learn available supply resources, and examine the level of the staff’s knowledge in African hospitals. The procurement of antimalarial medicines in Africa is not stable. Considering the UNDP’s goals to reduce inequalities and promote structural transformations in developing countries, it is important to clarify if this network could bring effective results in stabilizing malaria treatment for the population.
Significance of the Study
This study creates several opportunities for the researchers to analyze the current pharmaceutical procurement system in African hospitals, identifying the gaps in the system and the role of global organizations. Its focus is on the demand and supply of antimalarial medications among African citizens and the readiness of hospitals to provide patients with the necessary help in treating the chosen tropical disease. According to the World Health Organization (2020), African regions demonstrates disproportionally high rates of the malaria burden, with about 94% of global cases and death being registered there. Children turn out to be one of the most vulnerable groups affected by the disease (World Health Organization, 2020). Therefore, it is believed that an improved procurement system under the guidance of the UNDP could promote the quality and safety of the African population.
Malaria
Many lower and middle-income countries are challenged by tropical vector-borne diseases, and malaria is one of them. Cohee and Laufer (2018) admit malaria eradication as a global priority because this disease puts children and pregnant women at high risk of living with disabilities or even death. Mosquitoes transmit malaria parasites to humans through their bites. Because of high mortality ratings and its worldwide morbidity, the World Health Organization and other governmental and non-governmental companies support antimalarial campaigns to control the situation. In a short period, a bitten person has the signs of malaria, including fever, chills, nausea, vomiting, and headache (Tizifa et al., 2018). Staying untreated, this disease could provoke acute kidney injury, liver damage, hypoglycemia, and pulmonary edema (Tizifa et al., 2018). Although malaria remains a burden in African countries, many researchers admit that it is preventable and curable (Cohee & Laufer, 2018; Kakmeni et al., 2018). American patients diagnosed with malaria at its early stage can be treated with artemether-lumefantrine, mefloquine, hydroxychloroquine, or tafenoquine (Centers for Disease Control and Prevention, n.d.). African patients do not have access to these drugs, but they can follow vector control interventions.
Healthcare System in African Countries
African hospitals experience severe challenges in the healthcare system due to the existing financial, human resource, technical, and political factors. Oleribe et al. (2019) recommend developing public-private initiatives to solve the problems of inadequate human resources, poor leadership, and unprofessional budgetary allocations. At the same time, it is wrong to believe that all African hospitals do not have high-quality health care. There are many regions where private hospitals meet the standards of global care. Still, not all citizens are able to address such facilities and continue living with serious diseases, being poorly diagnosed and untreated. As a result, medicine quality creates a threat to malaria management due to poor diagnostics procedures, lack of effective therapies, and insufficient access to medications (Newton et al., 2017). Many NTDs are considered as not major causes of death, and the related value of human life loss is about 0.1% (Kirigia & Mburugu, 2017). People find it normal to continue working and completing their routine tasks if no evident health problems are revealed. African citizens do not know a lot about preventive strategies, regular hospital check-ups, and cooperation with local doctors to maintain a healthy lifestyle.
Procurement System Peculiarities
Pharmaceutical processes become a crucial part of healthcare services and the improvement of life quality among Africans. According to Modisakeng et al. (2020), a continuous supply of medications is required to manage tropical diseases like malaria. A good procurement system includes the choice of reliable people (partnerships), high-quality technologies, and well-directed activities that ensure delivery (Modisakeng et al., 2020). In Africa, people suffer from production delays and shortages in equipment and material. People do not have the necessary experience in establishing contacts at regional, national, and international levels. Some organizations reject cooperation because of African pharmaceutical companies’ failures to pay and work with digitalized code lists (Modisakeng et al., 2020). If there is a trade agreement with another country or a global organization, procurement is challenged by storage shortages and lack of knowledge. The quality of products is not always high, and patients do not receive medical help. Walker et al. (2018) admit the challenge of poor-quality medicines (PQMs), namely, falsified (mislabeled), substandard (not compliant with standards), and degraded (passed expiry date or exposed to harmful environments). Medicine procurement services should be systematized, and the personnel must be acknowledged.
UNDP Contributions to Public Health
There are many ways to control and improve the work of pharmaceutical systems and provide quality assurance, rational use, and tropical disease prevention. In Africa’s case, many hospitals continue cooperating with their international partners like the Provincial Department of Health in South Africa (Modisakeng et al., 2020). The United Nations Development Programme (UNDP, n.d.) has several regional service centers in several African countries, including Ethiopia, Kenya, and some sub-Saharan regions. Its goals are to deliver desired services and promote state-society dialogue about tropical disease prevention as one of the crucial topics (UNDP, n.d.). In 2003, UNDP offered the Global Fund to fight AID, tuberculosis, and other tropical diseases like malaria in more than 50 countries around the globe (UNDP, 2018). In addition to education and social cooperation, UNDP provides implementation support like medicines’ procurement and capacity-building efforts. Africa needs international assistance in strengthening its healthcare system and logistic services. Medications are necessary to stabilize human health and reduce the progress of malaria-related complications and deaths.
Methodology
In proposing a new research project, it is important to identify and prove the appropriateness of the chosen methods. A descriptive, cross-sectional study will be conducted, covering the characteristics of medicine procurement systems in African hospitals and awareness of the staff about malaria prevention and the role of global organizations. There will be two phases in this research: a literature review to identify recent studies and statistics about the topic and an empirical investigation to gather current information from participants. It is impossible to promote an intervention directly to several African countries, so, the decision to develop an observational study. Due to the lack of a comparison group, a descriptive study is promoted to provide valid information on the topic and explore available resources and the already taken steps in the field (Barría, 2018). Longitudinal observational studies have to be made over a certain period of time. As the decision to work with several countries distantly is made, a cross-sectional design type is preferred to focus on a single occasion (problematic procurement systems).
Regarding the purpose of this study, the observation of the events in African hospitals and data collection will be developed at one point in time. It is planned to contact at least five hospitals per African region, meaning that 25 hospitals will be randomly chosen. Interviews with hospital representatives in the pharmaceutical department will be conducted, including ten open- and close-ended questions. The questions for participants to be answered will be divided into several sections as per the purposes of the study:
The description of the current situation in the regions
What is the current malaria situation in your region, including the statistical data of the disease and the demographics of patients?
How do you define the level of readiness of your hospital to help patients and provide them with the required care quality?
What medications are available to the population to be applied to a successful treatment plan at this moment?
What strategies does the hospital use to support the population, prevent the development of the disease, and educate local people about malaria’s threats and health consequences?
The work of pharmaceutical systems in the regions
5. Are you satisfied with the quality of work within your local pharmaceutical system, meaning the quality of delivery and supply resources?
6. How do you evaluate your awareness of malaria prevention and treatment strategies (from 0 to 10)? Explain your choice.
7. Are antimalarial medications rationally used in local hospitals? Explain your choice.
8. Do you have specialists who work in the medical quality assurance department?
The role of UNDP programs in the regions
9. Have you heard about UNDP programs that can be effectively used in African regions?
10. Do you believe that the use of UNDP medical resources could stabilize the malaria situation in your region? What areas in health care and pharmaceutics should be improved first?
There is a possibility of changing questions during the process of communication that will be organized online, via Skype. Invitation letters will be sent to participants after the hospital staff is researched online. Questions will be developed to gather information about current procurement opportunities and challenges, the participation of global organizations in medication delivery, and the awareness of the participants about the UNDP and similar initiatives.
Ethical Considerations
To meet all ethical standards of research procedures, it is necessary to obtain permission from the country’s ethics committee and the local academic facility. All information that will be collected from the participants will be treated confidentially, meaning that no names being mentioned in the study. The research team will have access to the details of interviews and follow the principles of respect, confidentiality, and anonymity. Informed consent will include information about the aims of the study, the identification of voluntary participation, and the deadlines. A covering letter will be sent to all participants for them to understand the importance of collecting information and its application in the study.
References
Barría, R. M. (2018). Introductory chapter: The contribution of cohort studies in health sciences. In R. M. Barría (Ed.), Cohort studies in health sciences (pp. 1-10). IntechOpen.
Centers for Disease Control and Prevention. (n.d.). Malaria in the United States: Treatement tables. Web.
Cohee, L., & Laufer, M. (2018). Tackling malaria transmission in sub-Saharan Africa. The Lancet Global Health, 6(6), 598-599. Web.
Kakmeni, F. M. M., Guimapi, R. Y., Ndjomatchoua, F. T., Pedro, S. A., Mutunga, J., & Tonnang, H. E. (2018). Spatial panorama of malaria prevalence in Africa under climate change and interventions scenarios. International journal of health geographics, 17(1). Web.
Kirigia, J. M., & Mburugu, G. N. (2017). The monetary value of human lives lost due to neglected tropical diseases in Africa. Infectious Diseases of Poverty, 6(1). Web.
Tizifa, T. A., Kabaghe, A. N., McCann, R. S., van den Berg, H., Van Vugt, M., & Phiri, K. S. (2018). Prevention efforts for malaria.Current Tropical Medicine Reports, 5(1), 41-50. Web.
United Nations Development Programme. (2018). UNDP quality assurance policy for health products. Web.
Walker, E. J., Peterson, G. M., Grech, J., Paragalli, E., & Thomas, J. (2018). Are we doing enough to prevent poor-quality antimalarial medicines in the developing world? BMC Public Health, 18(1). Web.
Quasi market procurement is a system in which governments buy public services from non-public establishments, such as not-for-profit and voluntary organisations, on behalf of users.
Governments use this approach to introduce free market principles of price and quality in the provision of public services. In the United Kingdom, the system has yielded mixed results from various industries, of which the education and health sectors have been the most prominent.
One of the key theorists within this field, LeGrand (2001: 4), states that quasi market procurement is expected to lead to greater efficiency. However, Fisher (1998: 11) adds that too much emphasis on the motives of the supplier and the buyer undermine user interests, and hence efficiency.
Cooper (2009: 339) explains that the method of procurement enhances responsiveness. However, this may not always happen when large suppliers monopolise the demand and procurement of purchasers (LeGrand, 2011: A3).
Quality can improve through innovation, but this may also be undermined by opportunistic behaviour (Propper et. al., 2008: 59). Moral hazards and adverse selection can both lead to unwanted outcomes (LeGrand & Bartlett, 1993: 6). Moreover, quasi markets boost choice by driving down costs and increasing competiveness on the basis of price (LeGrand, 2001: 22).
Maintenance of close relationships between suppliers and buyers can neutralise this effect (Grout, 2009: 5). This may enhance equity by availing alternatives to users, however creaming and parking could counteract those gains (Brighouse, 2000: 103).
The above theory will be applied to a case study of the Department of Work and Pensions’ Work Programme, which started in 2011 (Newton et. al., 2012: 33). This paper will start with a definition of key terms, an outline of key theories in the school of thought.
Thereafter, some prerequisites to effective quasi market procurement will be examined, and these findings will be applied on the case study. Finally, a conclusion on whether evidence supports quasi market procurement will be given.
Theory
Definition of quasi market procurement
Government procurement is the process by which public sector organisations purchase public services from providers. These providers may include non-profit institutions, voluntary organisations, self employed business persons and the private sector.
When markets operate within the public sector, they are a means to an end, not a replacement of the public sector. This means that the government will finance services and it can still maintain its role as provider (LeGrand, 2001: 15).
In the United Kingdom, there are three areas that drive for the involvement of the market: innovation, low cost and improvement in production. The private sector has experience and specialist knowledge in various areas of service provision; therefore, this equips it with the ability to innovate.
In contrast, bureaucratic organisations tend to maintain the status quo and are slow to change (Domberger, 1998: 66). Introducing a private sector company is likely to inject new ideas into public service provision.
Aside from innovation, public sector procurement allows the public sector to benefit from low costs. Economic theory states that competition reduces monopolistic tendencies, which drives down costs. The public sector has a tendency to overstaff and to downplay cost efficiencies.
Market players are cost driven and they also have the benefit of large economies that allow them to enjoy higher returns. The notion of creating value for money has catalysed the market-driven procurement policy of the United Kingdom (Taylor, 2001: 198).
In regards to markets possessing the ability to improve production, it is assumed that when public sectors with varying expertise collaborate with one another, quality will improve (LeGrand & Bartlett, 1993: 74). These players will introduce new techniques in production, and this could lead to better outcomes.
It should be noted that various dynamics are taken into account before the realization of these advantages, as they are dependent upon the existence of favourable conditions. The question one must ask is whether the public sector readily provides these conditions.
Quasi market procurement is a method of buying public services that relies on relationships between buyers and sellers that closely resembles, but does not represent markets. It is the interaction of the public sector and non-public providers in an economic relationship. That is, the government acts as the purchaser while providers act as suppliers.
This helps to break government bureaucracy, such that public services remain in the hands of independent contractors and service purchasers (Walch, 1995: 83). Market rules of speed of delivery, quality and price apply, whilst the competition between service providers is also relevant. However, competition may not always depend on price. The state uses purchasing agencies to distribute the budget.
The method is called quasi market because consumers are not directly involved in the economic interaction; instead, the state acts on their behalf. Agents, public providers and non-profits act as the purchasers. In this particular context, the UK government chose this procurement model because it has the ability to increase choice for consumers, the rate of effectiveness as well as responsiveness of the service providers.
It should be noted that this method differs from contracting because contracting out entails transference of a public sector function to the private sector. Therefore, the latter would be responsible for all elements of service provision, including purchase.
The UK government refrains from total outsourcing because of the need to implement altruistic goals like social justice. Thus, a pure market system of procurement would be too focused on economic rules to propagate social or developmental objectives (LeGrand, 2001: 18).
Limitations and gains made through quasi-market procurement as seen through the education and health sectors
According to some, the UK government has been one of the most radical implementers of quasi-market procurement. In certain sectors, this approach has yielded substantial gains, such as in education, whilst in others, it has offered relatively little in return.
The divergent results indicate that several dynamics may come into play when implementing this model. Moreover, evidence from public institutions indicates that the extent to which these dynamics apply to a given industry will affect its outcomes (Fisher, 1998: 121).
The government has used quasi market procurement primarily to increase efficiency (LeGrand, 2001: 24). When introducing the model in various sectors, public-sector representatives have stated that it will reduce the cost of service delivery. Their assertions stem from economic principles of profit maximisation.
Quasi market providers want to get the highest value for the services they deliver, by using minimal input and increasing their output. Theoretically, the model is expected to work by increasing the productive efficiency of public service delivery. Gibbons et. al. (2005: 29) confirmed this in English primary schools, where the pupils that lived in competitive regions performed better than those that in isolated areas.
In certain circumstances, prices may not reflect the preferences of the providers and their purchasers. This stems from the sidelining of end-user needs and the focus on provider and purchaser motives during contract negotiation (Fisher, 1998: 77).
The model also heightens the degree of responsiveness within the public sector. In such cases, the needs of the public or the end consumer will drive output, as will location in certain situations. Responsiveness may not always be realised when monopolies develop on either the purchaser or the procurement side.
If state purchasers have a monopoly because minimal competition exists among them, then reactivity to consumer needs will be low. For instance, Cooper et al. (2009: 339) believe that the NHS’ responsiveness to consumer needs increased drastically during quasi market reforms in comparison to previous performances. Patient waiting times were greatly reduced, which was an indicator of commitment to quality.
Monopoly on the part of the provider can also occur if large providers dominate smaller ones. In certain circumstances, this pattern may cause hostile relationships among providers, such that a number of them may withdraw from the market. Monopolies thus cause the removal of efficient providers and maintenance of inefficient ones.
LeGrand (2011: A3) explains that in terms of the NHS, they failed to achieve tangible results in quasi reforms because of the government’s failure to ‘let go’. It continued to assist inefficient hospitals and subsequently neutralised the incentives for market competition in the health sector.
Quality is a critical motive for the use of quasi market procurement. This parameter is quite complicated to define because it means different things to different people (LeGrand, 2001: 30). Some sectors define it in terms of the intensity and nature of services provided, while others characterise it in terms of the degree of client satisfaction.
Alternatively quality improvement may occur through high economic impact, such as the financial viability of schools. Quality may sometimes be compromised when procurement occurs through opportunistic behaviour. In such cases, suppliers take advantage of knowledge gaps to minimise their costs, and thus reduce quality.
Propper et al. (2008: 80) state that, in the health sector, the UK government failed to achieve substantial returns in certain areas because of an overemphasis on price over quality. The degree to which a profit-driven provider can focus on quality over cost is quite debatable.
Literature highlights two key threats to quality in terms of opportunism. Some providers may engage in moral hazards when they knowingly commit to the provision of certain services in the contract, but then renege on the promise by placing fewer resources (LeGrand & Bartlett, 1993: 77).
Since procurement contracts do not specify all the possible scenarios that can arise and how to respond to them, some service providers may limit the nature of services that they provide. For instance, a drug rehabilitation provider may reduce the amount of contact they make with the addicts in order to reduce costs. Theoretically, one can solve this problem by continually monitoring the service provider.
However, doing so would heighten administrative costs, which is counterproductive if cost reduction is one of the key drivers for the strategy. Moreover, such an approach would minimise providers’ willingness to cooperate in uncertain situations, further obscuring the gains of this strategy.
Alternatively, quality of public services may be compromised due to adverse selection. When a provider does not disclose all the information about their ability to offer the services, the purchaser is at a disadvantage. The public service purchasers may be better off getting the service elsewhere, but because they are unaware of the flaws, they may select an inefficient party.
Asymmetric information can be detrimental to the quality of the public service procured. One can assert that it is easy to minimise this problem by drafting an explicit contract; however, this could increase the transactional costs of the relationship. Social services are complicated and it is difficult to think of all future contingencies. This neutralises the noble intentions of the quasi market model (Bartlett et. al., 1998: 191).
The platform of quasi market procurement also leads to greater choice, in theory. If the government were to maintain a monopoly of public services, consumers would have nowhere to go for better services. However, when a series of providers exist, then it is possible for individuals to find outlets for their respective needs.
This goal may not always be realised, particularly when providers and purchasers develop a very close relationship. The provider may be reduced to nothing more than an implementer of the decentralised budget (Grout, 2009: 55). Usually, a lack of change in mindset may propagate the problem and if such conditions exist, then clients will not really get a choice. They will simply be switching between different types of implementers.
In the United Kingdom, some scholars believe that quasi market reforms led to greater choice among consumers in the health sector (Cooper et. al. 2009: 339). While switching may not have been evident in the sector, it still occurred.
Hospitals with shorter waiting times and impressive quality parameters, like low death rates, experienced a rise in consumers. This implies that the quasi market model provided health consumers in the NHS with the right to choose.
Equity is also a critical consideration in the adoption of this model. The government has stated that its concern for provision of social services to all categories of consumers has led to the proliferation of this model. It is assumed that the quasi procurement model treats the needs of the public as its primary goal, rather than other factors such as social status or income.
Perhaps one of the biggest challenges that the state must contend with in this model is risk selection (Brighouse, 2000: 42). Certain providers engage in “cream skimming” (or creaming), whereby they discriminate against expensive users (Walch et. al., 1997: 44).
For instance, education stakeholders may only target average-educated communities and sideline the uneducated ones. Creaming goes against the primary aim of providing social services as it leads to inequity.
Sometimes the condition of the industry will provide more incentives for creaming. In the health sector, Propper et al. (2008:134) were surprised to find that minimal inequity arose in the health sector among low-income consumers. One may postulate that this was because the end user did not do the procurement.
Conversely, in the education sector, the end user, as a procurer, has significantly less advantage over the service provider. Parents and pupils have no way of protecting their interests (Taylor 2001: 211).
They lack access to information and cannot travel to their preferred providers. Furthermore, a hierarchy exists between schools on the basis of academic attainment and geography. Therefore, schools engage in creaming by basing recruitment on these aspects.
Prerequisites to success in the quasi market
Market structure
For the quasi market procurement method to work, favourable structural conditions need to exist. The provider and purchaser ought to be separated during tendering. Sometimes the separation may exist on paper, but will not be realised in practice because of difficulties in changing mindsets.
Derkensen et al. (2000: 81) explain that the non-existence of competition among avoiders also leads to challenges. This is especially true when government monopoly exists in the provision of certain services. Usually, these challenges can be tackled by having well-defined tendering procedures and suitably designed contracts.
When designing contracts, duration and scope are the key traits. If a contract is too long, it may cut out other providers, and if it is too short, it may not allow providers to recover their investments. In addition, if the scope is too large, it may create a monopoly by only allowing large players to participate.
In this aspect, the level of specificity of investment needed during the service provision affects the degree of competition. If the details are too expensive, then fewer players will enter. The degree of quality description in contract may impede entry of new players if it is too rigorous or unrealistic (Walch, 1997: 60).
In the tendering process, a balance should be maintained between price and competition. If it is easy to define quality, the price should be the only criterion that governs the quality selection. However, in many circumstances quality is ambiguous; therefore, price will not be the only consideration.
Even when under-pricing, bidders may not understand the magnitude of what they are purchasing, so price competition need not be the only parameter. When using quality, purchasers may select bidders that have expertise in the service.
However, this could lock out potentially qualified providers whose past may have been irrelevant to the current public sector environment. Those in authority must therefore decide the weight that they can allocate to price and quality in order to match their users’ needs (Domberger, 1998: 23).
Sometimes the level of centralisation among the purchasers also affects outcomes. If a tendering process is clearly defined by the central government with well known procedures, then bidding will be transparent and the best candidates will be selected.
However, if it is decentralised, then purchasing organisations will incorporate the needs of their consumers in the model and this will fine tune the process. Therefore, procurers must incorporate both centralisation and decentralisation in tendering procedures (Walch, 1995: 54). They need to have a uniform procedure for tendering as this also minimises transaction costs.
Accountability
If a procurement system is based on outcomes, chances are there will be a shortage of information on what providers are required to do. This may lead to poor coordination between providers as work will be done independently.
Furthermore, transparency may also be introduced by evaluating and monitoring programmes. However, these entities will only yield positive results if they work in conjunction with other monitoring bodies, and avoid overlaps (Fisher, 1998: 22).
Supervision of contractual compliance can ensure accountability in public systems. This may be carried out to ascertain whether the outcomes that the state paid for, is being delivered or not. However, if a monitoring process is too strict, then it may minimise flexibility among providers, who may only focus on the actual monitoring process.
They may also refrain from innovating or even improving a service, because these aspects are not monitored. Extremely rigorous monitoring procedures may also take a toll on the administrative load of the purchasers (Productivity Commission, 2002: 85).
Performance measurement may also be another mechanism for instating accountability in quasi market procurement. It only works, however, if the providers understand the sign posts being measured, and purchasers refrain from changing them.
Additionally, the parameters being measured must relate to the needs of the user; otherwise, it will cause providers to dwell on the measures rather than their mandate. Furthermore, if the measures are too narrow, then they will move providers away from their core activities (Struyven et. al., 2002: 162).
Transaction costs
During the tendering process, providers and purchasers ought to understand their transaction costs. Purchasers often incur costs when specifying information about their contracts, when negotiating agreements and monitoring the contract. If senior level expertise is lacking in these areas, then those costs can go up.
A vast number of resources, including people and time, may be necessary in instating competitive tendering. On the supply side, entities will incur costs when preparing their bids and when making room for measurement of their bids (DEWR, 2002: 95).
Costs can also escalate during contract termination and renewal. This causes uncertainty among providers and confusion among users (Domberger, 1998: 72). Procurers can solve this problem by carrying out the bidding process in a two-stage process that allows for rollovers for previously well-performing providers. However, only a certain percentage should be permitted to roll over in order to stimulate competition.
Incentives
The degree to which the procurement process deals with incentives can mitigate some of the challenges of this model. Information asymmetries exist in the quasi market structure, and on certain occasions, providers have a greater understanding of the consumer base than purchasers, which can cause them to take advantage. Their skills and technologies are only known to them, so purchasers can only make an estimate.
To mitigate these imbalances, financial incentives must exist to guide provider behaviour. Purchasers can pay fees for input whenever they secure a contractor, and then offer bonuses for outputs. The balance of input and output payment can neutralise information asymmetries substantially. However, some operational costs, such as training, are difficult to define, so they may demoralise providers (LeGrand, 2000: 31).
It is essential to align incentives with long-term goals. Outcome-based payments cause providers to align their behaviour with payable measures. If outcomes are short term, providers will pick users whose needs fall within the time frame of the next outcome payment. They will also select clients whose service needs are easiest to meet. Therefore, incentives that focus on long term needs ought to be given due priority (Alcock, 2010: 18).
Tackling cream skimming
A working quasi-market procurement system is one in which mechanisms exist to eliminate creaming. As mentioned earlier, creaming occurs when procurers select easy candidates.
Additionally, parking occurs when providers offer minimal assistance to users who appear difficult. Some users may engage in self parking behaviour if they are demoralised. Procurers can mitigate this problem by requiring providers to take on all users consigned to them (Grout, 2009: 13).
The problem of creaming may also be counteracted by adjusting the payment system. Purchasers can give more weight to difficult users during payment, so that providers have an incentive to work with them. Parking may be dealt with by offering provider a fee for offering any service to the consumers. This will give them an incentive to focus on user needs and outcomes rather than cost cutting.
Overall, the challenge of creaming comes naturally to a profit-making body. Therefore, purchasers must take proactive measures to mitigate them. Properly defining the target group and placing their needs in contracts will ensure that selfish behaviour among service providers is mitigated.
Case study: The Work Programme
The Department of Work and Pensions (DWP) led Work Programme is an example of a quasi market procurement strategy. Malik (2013: 5) reports that the Public Accounts Committee gave a damning report on its success, wherein only 3.6% of the users in the programme were able to access permanent employment. This fell short of the 11.9% performance target set by the department.
Additionally, the group of people that were the hardest to assist; that is the youth, received minimal assistance. In the year 2013, only 20 out of 9,500 claimants under 25, had jobs that lasted longer than three-months (Stevenson, 2013: 8). Persons with disabilities were also another difficult group that has not enjoyed much assistance.
Thus, issues of creaming and parking became a reality in this scheme. 18 providers are responsible for the programme, yet none of them have achieved their contract goals.
In fact, their presence seems to have exacerbated the problem of unemployment because the Department had predicted a much lower number of the unemployed in the absence of the programme. Stakeholders, like members of parliament, predict that service providers will go out business when the purchasers cancel their contracts (Malik, 2013: 8).
The latter view is held by the public accounts committee and the media. Some research firms, like the Institute for Employment Studies, found that modest gains were taking place in the programme (Newton et. al., 2012: 38).
However, their objectivity may be put into question owing to the fact that they were commissioned by the DWP at the outset, which is the primary procurer of the program. Other stakeholders claim that it is too early to judge the program since it has only been in operation for two years.
Newton et al. (2012: 40) did not assess the programme quantitatively and found that certain discrepancies existed. Providers’ definition of sustainable employment differed from the public’s perception of the same.
Furthermore, providers focused on classifying users on the basis of distance and the degree of support that they require; therefore, selectivity was taking place. Most providers focused on job searching without considering other methodologies. Many providers had a problem with the sanctioning process and felt that communication was lacking.
Stevenson (2013: 11) blames these disappointing results on the ‘payment by result’ system adopted in the programme. Public accounts committee members have also quoted the latter strategy as the key culprit behind poor performance. Funding is based on a provider’s ability to meet its targets. This has reduced providers’ cash flow and their incentive to stay in the programme.
Many of them claim that the defined targets are unrealistic and too stringent. They also believe that the system lacks transparency, owing to its continued propensity to delay the release of those outcomes. Furthermore, many do not understand how the government came up with some of its respective performance measures.
In essence, if the abysmal performance continues, then subcontractors and key providers will go out of business, job seekers will lack help and the government will lose more money on new procurements.
Application of theory on the case study
As mentioned earlier, a quasi market procurement system only works when certain measures are in place. It appears as though the Department of Work and Pension did not instate these conditions.
In situations where it committed to the precondition, The Department did not follow through on implementation, or it overemphasised it at the expense of other parameters. Key areas that needed more work were performance measurement, contracting and incentives.
Some of the approaches in the scheme may explain this dismal performance. Most providers emphasised job searches over and above other means of unemployment assistance. While making job applications, preparing CVs and performing online job searches are crucial to service provision, they are not the only methods that can reduce unemployment.
Training and support are critical to dealing with long-term aspects of work, but it seems like most providers were unwilling to use this strategy. This sort of behaviour may be interpreted as a moral hazard because the providers are only selecting easy interventions in order to make them appear like they are working (Pollitt and Bouckaert, 2000: 55).
The Department of Work and Pension could have prevented the above problem by including these other forms of assistance in the contract during the procurement process. It would have also paid for training or other long-term services designed to assist the long-term unemployed.
Resource constraints are often some of the most obvious causes of parking (Kahkonen, 2005: 20). Service providers will attempt to protect themselves by focusing on visible approaches, and sadly, this is what took place in the Work Programme.
The case analysis also demonstrates instances of creaming and parking. Providers are engaging in the behaviour because they want to achieve performance targets. This suggests that the incentives in the performance scheme were not sufficient to cause a change in behaviour (Moyes et. al., 2011: 29). The government had implemented differential payment in order to avoid the programmer.
However, this approach has not yielded results because the user groups and weight accorded to them in the payment system were not equivalent. If the government increased the weight in accordance to the hard-to-help candidates substantially, then this might affect provider behaviour.
Another approach could be careful selection of providers during tendering. They need to demonstrate expertise in dealing with hard-to-place consumers as they are most in need of the service (Lowery, 1998: 139).
Problems with performance measurement are also evident in the analysis. The literature highlighted that purchasers need to have a clearly defined performance plan that all the stakeholders understand. It appears that the service providers are more inclined towards providing users with any jobs. Moreover, in the majority of cases, these jobs are temporary and involve no contracts.
Therefore, no sustainability of employment is offered in the programme. Conversely, the Department of Work and Pensions expects providers to offer long-term employment and assessment of their effectiveness (Stevenson, 2013: 11).
Thus, a mismatch exists between provider and purchaser expectations of performance. It is necessary to clarify these expectations during the contract negotiation process and also to explain to providers why certain goals have been selected. This would work to the advantage of the concerned groups.
Excessive measurement and unrealistic performance targets are another problem in the programme. First, the Department of Work and Pensions could have tackled this problem by defining performance measures in terms of what users need, rather than what the providers can offer (Battye, 2011: 15).
Furthermore, they should not have made these measures so narrow because they stifled creativity among providers. There also appears to be shifting performance signposts, which undermine provider outcomes. Perhaps most importantly, the goals are only short-term, and therefore, need to align with employees’ long term needs.
Stevenson (2013: 9) states that the Work Programme lacks transparency. Information sharing was deficient among providers and oversight authorities did not work together. This problem can be mitigated by fostering a greater degree of cooperation between stakeholders.
Information sharing should be streamlined and the concerned monitoring bodies need to work in tandem with other. Care should be taken to avoid excessive monitoring.
Conclusion
This essay demonstrates that certain prerequisites in the market need to exist for quasi market procurement to fruition successfully. These include accountability, proper market structures, low transaction costs, proper incentives and mechanisms to handle skimming.
Evidence from the education and heath sectors indicate mixed results. Some gains were made in education and heath through performance improvement and greater choice, respectively. However, problems of inequity, high transactions costs and centralisation behaviours undermined the reform.
In the case study of the Work Programme, it is clear that the lack of transparency, selectivity in service provision and failure to meet performance goals stemmed from the above mentioned prerequisites to success. Moral hazards occurred because contract negotiation did not stipulate other aspect of job searches.
Cream skimming could have been prevented by providing greater weight for the hard-to-help users, and selection of experienced contractors with this user group during tendering. Failure to clarify expectations in negotiations and poor performance measurement are to blame. If these issues were incorporated into service provision, the Work Programme may have worked.
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With many organizations continuously opting for suppliers from the emerging markets, the opportunity for potential fraud and corruption is rising every day. This claim is evident in the case of public procurement. Fraud and corruption may take different forms.
The basic understanding of fraud is the intention by a person or group of people to deceive another by means of misrepresentation of fact.
This parody may be done through conduct or concealment of data that needs disclosure to deceive the individual entity while basing the actions on misinformation. Such a deception exposes the individual or entity to damages after relying on the misguided information.
This vice can occur at any or all phases of the process or cycle of procurement. Movement of personnel between the public and private sector increases the potential risk of procurement fraud, especially in the public procurement process.
Derailment of the growth of the American economy has been largely the result of fraudulent procurement processes. The situation is complicated further by the fact that a tight regulatory framework serves to promote the vice in some instances.
This situation poses a dilemma to some policymakers whose intentions are genuinely intended to regulate the vice.
Although a lot of research has been conducted on the topic of corruption and fraud, there has been minimal effort in conducting a specific investigation that focuses on the effect of this vice in procurement on the performance of the United States economy.
This paper seeks to dig deeper into the issue of procurement fraud. It aims at showing its effect on the performance of the national US economy with the intention of triggering further empirical study into the issue.
Introduction
Current trends show that many companies around the world prefer suppliers from low-cost regions. According Reffett (2011), there is also an immense financial pressure resulting from the increasingly volatile economic environment.
These factors cause a lot of pressure on firms. Such a strain makes some of them seek ingenious ways of maximizing their gains.
One of the major areas where they try to capitalize their gains on is procurement. Procurement fraud is a potential risk to many companies across the world irrespective of their size. Moreover, research suggests that procurement is one of the areas that are most vulnerable to corruption or fraud.
Even though procurement fraud is a phenomenon that is more common in the private sector, it is becoming rife in the public sector, with the initiator in this case being either the supplier in the private sector or a public officer who is tasked with awarding the tender or contract.
The losses due to procurement swindle in businesses in the US stands at almost 10 percent of all the returns. This situation affects negatively the firms’ ability to achieve their goals. Notably, mobility of the workforce contributes to fraud and its effects.
A tight regulatory system promotes the actions of fraudulent characters. The public sector is the most affected by fraud.
Lastly, poor people are the worst hit by the effects of fraudulent procurement. Despite these grave consequences of fraud and corruption, it is regrettably notable that this issue has not received its deserving presentation in academic research.
This paper intends to explore the issue and its effects on the American economy.
Types of Procurement Fraud
There are about seven basic types of fraud in the procurement.
The first one is misrepresentation, which is mainly done through document forgery.
In this case, misrepresentation of the company’s details regarding the turnover, directors, ownership structure, and the management takes place to avoid unearthing conflict of interest that may lead to disqualification from participation in the tender.
The second type is collusion in the tendering process that takes place between the bidding company and the staff of the organization that is issuing the tender. Collusion results in kickbacks and bribes.
In fact, it is a common occurrence where weak controls exist, especially in cases that involve government departments, thus prompting entities that demonstrate unethical conduct to make gains out of this loophole.
The third type involves falsifying claims and statements during the tendering process. It includes lying about fulfillment of the requirements for qualification to participate in the process of bidding (Green & Reinstein, 2004).
The fourth is a case of substitution of goods for those of defective quality instead of those stated in the tender.
The fifth form is that of price fixation through collusion with some of the competitors to ensure a win in the bidding process for the colluding partners.
The next type is one of the worst forms of fraud. It leads to a huge cash loss since it involves awarding of tenders to firms that never applied for the tenders.
The assumption is made that the company to which the tender was awarded performed the required task based on false invoices with corrupt officials who make the payments against the false invoices.
The last type is price inflation, which is common in tenders that involve pharmaceutical, water purification, and chemical products. Once the contract is operational, the corrupt officers who enabled the tender to go through receive rebates from the company that has won the tender.
Mobility of the US Workforce and its Effects
Increased mobility of staff from the public to the private sector and vice versa increases risk of fraud in the US. One cannot ignore the fact that the US private sector is endowed with great expertise than can be of great value to the public sector.
However, it is apparent that the increased movement of personnel from the private sector to the public sector and likewise from the public sector to the private sector heightens the risk of fraud.
In the US, public servants who take up employment opportunities in the private sector need to depict exemplary ethical standards (Persons, 2006).
The senior American army retirees depict a behavior of taking up lobbying jobs in the private sector within the first two years of exiting the military. Their conduct is obviously an act that is below the expected standards for officials of their status.
The inside information that such former public servants have on the government can make them act in a way that promotes fraud by giving out information that gives private firms an advantage over the government.
This situation amounts to fraud, which calls for stricter controls to guide the entry of initial public employees into the private sector.
There are cases where individuals working in government departments get appointments in the private sector with the US firms that have initially won major tenders with these departments. This raises doubts on the conduct of these former public servants (Zahra, Priem, & Rasheed, 2007).
Such occurrence of events points out to possible incidences of fraud. This fraud may make the government department face huge challenges in achieving its objectives. In fact, it is likely to have a ripple effect on the performance of the American economy.
An explanation of this ripple effect can be found in the fact that the US government departments usually play a role in smoothening public sector functions.
Another common form of fraud takes place when officials who work in the public sector or politicians institute policies or other expenditure decisions that are in favor of specific suppliers or industries with the aim of making private gains.
Such fraud is common across the globe. It presents a challenge to the US as well as other countries since it is sometimes very difficult to detect upon considering some of the forms in which the rewards come. Rewards may come in the form of job opportunities to family members.
They may also be in the form of delayed gifts or cash payment, thus making it hard for one to connect the policy decisions with the beneficiaries and the rewards.
Effect of Procurement Fraud on the Poor Class
Effects of corruption mainly hit hardest on the poor people (Persons, 2006). The poor class is more vulnerable to these effects due to its overreliance on government subsidies for many of its basic needs.
Corruption diverts away funds that are desperately needed to provide for healthcare, education, and other kinds of public services to the pockets of corrupt individuals.
Real development does not just imply an increase in the gross national product, but rather an increase in the gross national product that is accompanied by an improvement in the living standards of the country’s citizenry.
This means that the inability of the government to ensure equal access by all American citizens to basic commodities leads to stagnation of the economy in terms of development.
When many people encounter a situation of roadblocks while accessing these basic commodities, it can negatively affect their productivity immensely. Worth noting is the fact that many of the low-class US citizens contribute a lot to the economy in terms of labor.
In fact, they are the main drivers of the various sectors of the economy. The UN recognizes that corruption is a major drain to the national economy because it drains money from efforts that are directed at reducing poverty and/or ensuring distributive justice.
If one can trace and reinvest back into the economy the money that is acquired through fraudulent ways and/or stashed in foreign accounts, he or she is likely to experience a heightened level of economic activity.
Procurement Fraud higher in the US Public Sector
Large expenditures on the part of the US government provide a good environment for fraudulent dealings since it is sometimes hard to trace specific details regarding all public expenditure transactions that are carried out in the economy (Wong et al., 2013).
The huge funds also magnify the effect of these fraudulent dealings within the economy so that nearly each sector feels the impact. The United States government shares in this fate of fraudulent dealings during procurement in its public sector.
This issue of fraud needs to be addressed early enough if the government is to avoid a significant negative impact it has on procurement performance on the public sector.
Although the amount spent on public expenditure may seem a lot, the funds are insufficient in most cases upon considering the size of the economy and the various needs that are to be fulfilled. Fraudulent procurement deals usually squander these limited resources.
Such deals also put the country’s security at risk by making it vulnerable to external attacks, especially where substandard military tools are acquired through wrong procurement procedures that tend to favor certain suppliers over the more genuine ones.
Fraudulent dealings also amount to cheating of taxpayers who work so hard to ensure that the government gets enough revenue to carry out its functions. As a result, the government is unable to acquire the goods and services that are necessary for it to accomplish its goals and objectives.
The cost of rogue procurement deals spreads to the public in different forms such as the chance rate, difficulty on the side of clients, unreasonably elevated charges, and deceptive ways that result from illegal actions.
The major global bodies such as the IMF and the World Bank together with opinionated dealers and legislators concur in terms of the impact of fraudulent procurement deals on the growth and development of the US economy. They recognize that it derails the process of development. It leads to economic stagnation.
The political field suffers a tainted image with achievement of individual political milestones based on one’s extent of involvement in fraudulent practices. Such a scenario will influence negatively any decision-making processes regarding resource allocation (personnel, goods, and services).
The relationship between corruption and development is a negative one. Fraud reduces the level of trust that individuals have on each other. With time, they may start viewing each other with suspicion. The long-run effect of this situation is instability in America’s economic and political institutions. Such volatility slows its economic progress (Wong et al., 2013).
Tainted Country’s Image
When procurement fraud becomes rampant, it may also have serious ramifications on the relation between the US and other countries. This case may certainly affect negatively the performance of the United States economy. Some tenders are usually government-oriented.
Therefore, government enterprises from other countries also participate in the bidding processes of the American tenders (Cockrell & Stone, 2011.). When the government of a given country participates in the bidding process for American tenders, it expects transparency at all stages of the tendering process.
Any feeling of discrimination or favoritism of a specific party is bound to damage the dependence it may have on the US. This scenario will affect the good relations subsisting between the two countries. Economic partnership between the two countries will probably experience an irreparable damage.
Efforts by the US to revive the economic ties between it and other countries may be viewed with suspicion. This circumstance will set a bad precedence that may affect future engagements with other countries.
America’s future generations will be forced to bear the risks associated with a tainted image of the procurement procedures. Such a situation will be a great disservice to such innocent persons as it denies them the opportunity to determine their own fate.
The effects of tainted image may also come to haunt the American government when applying for tenders in some of these countries. This drawback will serve to limit its national income while at the same time impeding its economic prospects.
The population is also likely to suffer in equal measure (Zahra, Priem, & Rasheed, 2007). Individual who seeks to live and work in some of these countries may be discriminated by virtue of their nationality. The feeling of hatred towards Americans by some countries is on the rise in some countries.
For this reason, the country cannot afford to let the lack of transparency in its procurement process heighten this problem any further. Moreover, it is only fair that all stakeholders work towards eliminating this vice to improve the country’s image.
Tight Regulatory environment as a Promoter of Fraud
Influential thugs in the public segment maximize their gains by using the perceptible authenticity of their workplace to carry out fraudulent procurement affairs by misusing their supremacy.
They shamelessly extract corrupt deals in different forms or unswerving some of the government tenders to companies that they, or their close family and friends, manage and from which they get profits (Green & Reinstein, 2004).
They may control the environment by shaping it to suit their interests by influencing the regulatory framework. They may increase the regulations governing various procurement and business processes.
This situation will certainly lead to a higher number of defaulters since not so many people will be able to meet the minimum requirements contracts.
Elites in the private sector also have ingenious ways of ensuring that they make illegal gains from procurement deals. They are able to benefit by bribing public officials into instituting some modifications to the procurement environment to secure their private interests.
For instance, a private party may collude with public officials to have single-source or no-bid contract (Petty, 2013).
Private sector elites influence the environment in a way that safeguards their interests in three traditional and apparently legal ways, which include lobbying, political action committee, and campaign contributions.
Bearers of elective positions are usually left at the mercy of their financiers who require their demands to be met.
As a result, their firms may be given undeserving advantage over their more genuine competitors despite the fact that they may have inflated their prices or that they deal in substandard goods that do not meet the minimum threshold (Cockrell & Stone, 2011).
The effect of this case is misuse of taxpayers’ money. The malpractice impedes the achievement of the national economic goals and objectives.
Recommendations
To combat fraud, several key areas are of concern to the US government. They include heightened political accountability, creation of a competitive private sector, strengthening the participation of the civil society, and institutional means of restraining power.
Achieving accountability will be possible if institutions are put in place bearing the authority to impose sanctions to restrain the conduct of public officials.
Increased accountability will deter misconduct since officials fear public embarrassment and/or an irreparable tainted public image that may make other people shun them.
There is also a need for greater scrutiny of financing that is accorded to political parties. Each applicant who is aspiring to run for an electoral position should find the involved procedure reachable and inexpensive to him or her.
This strategy will curb biased financing in which some financiers avail conditional funds to candidates of their choice. Inability to stop illegal candidate financing should be compensated by close monitoring of donor activities to ensure that transparency exists (Best, Ladewig, & Wong, 2013).
The public also needs to be motivated to ensure that public officials give an account of their actions. There is a need for greater media liberty and admission to information under the supervision of the authority. This move will bring about a vibrant and motivated civil and public society.
Competition in the private sector needs enhancement through lowering or removing some of the entry barriers to encourage more firms into the market. In the process, this tactic will discourage monopolies that make wrong use of their dominance.
There should be transparency in the ownership structure (Mohd-Sanusi, Mohamed, Omar, & Mohd-Nassir, 2013). This will open people up to any undisclosed agendas.
Dealing with corruption effectively will require stakeholders in the private sector, especially those in the banking sector, to ensure that money from fraudulent procurement deals is not stashed in overseas bank accounts, as is usually the case.
Another key factor will be the independence of the judiciary, which should also be effective. Nevertheless, judges need to portray integrity and adherence to work ethics. Legislation that is intended to punish those implicated in corrupt practices should be timely.
It should take immediate effect without favoring any specific individuals. Blacklisting of firms that are found participating in procurement malpractice may also work to discourage and deter other potential lawbreakers.
Conclusion
Corruption is rife in both the private and public sector. There is a great worry in terms of its impact on the global status of administrative units. In the US, fraudulent dealings take place in both high and low offices in secret meetings that are conducted behind closed doors. The vice is still rampant.
Only its form has changed to become more multifaceted, especially with the amplified status of knowledge. The various reforms that are carried out by the government in conjunction with the private sector seem not to have borne fruits due to the changing forms and channels of fraud.
This research paper has been geared towards providing a theoretical understanding of the relationship between procurement fraud and the performance of America’s economy.
Limitations
This research, just like many other studies of its kind, has several worth mentioning shortcomings. Firstly, literature review forms the main basis of this research, thus making it more of a theory as opposed to an empirical study.
This means that most of the content presented herein may not have been empirically tested to ascertain the relationship between the various mentioned variables.
Future study calls for experiential examination that will focus on determining the potency and the state of the association between bribery in public procurement process and the status of the national financial system.
Further investigation or study into this issue should also give priority to ways of developing mechanisms that are practical, focused on minimizing, or possibly doing away totally with fraud when it comes to procurement practices.
Considering the contribution of technology to the complexity of fraud in the modern times, future researchers into this issue will need to look at the most appropriate ways of approaching the issue of corruption in the process of procurement in both the private and public sector due to the negative impact it has on the economy.
Reference List
Best, S. J., Ladewig, J. W., & Wong, D. C. (2013). Owning Valence Issues: The Impact of a Culture of Corruption on the 2006 Midterm Elections. Congress & The Presidency, 40(2), 129-151.
Cockrell, C., & Stone, D. N. (2011). Team discourse explains media richness and anonymity effects in audit fraud cue brainstorming. International Journal of Accounting Information Systems, 12(3), 225-242.
Green, B. P., & Reinstein, A. (2004). Banking Industry Financial Statement Fraud And The Effects Of Regulation Enforcement And Increased Public Scrutiny. Research in Accounting Regulation, 17(1), 87-106.
Mohd-Sanusi, Z., Mohamed, N., Omar, N., & Mohd-Nassir, M. (2013). Effects of Internal Controls, Fraud Motives and Experience in Assessing Likelihood of Fraud Risk. Journal of Economics, Business and Management, 3(2), 194-200.
Persons, O. S. (2006). The Effects Of Fraud And Lawsuit Revelation On U.S. Executive Turnover And Compensation. Journal of Business Ethics, 64(4), 405-419.
Reffett, A. B. (2011). No Good Deed Goes Unpunished? Recent Evidence on the Effects of Identifying and Investigating Fraud Risks on Auditors’ Litigation Exposure. Current Issues in Auditing, 5(2), 1-8.
Zahra, S. A., Priem, R. L., & Rasheed, A. A. (2007). Understanding the Causes and Effects of Top Management Fraud. Organizational Dynamics, 36(2), 122-139.
The article “Strategic Procurement in Textile and Apparel Sourcing Companies in Hong Kong: A Practitioner’s Perspective” identifies different elements of procurement and strategic sourcing. According to the authors, the apparel and textile sourcing firms in Honk Kong have always experienced numerous challenges such as turbulent markets and intensive competition. The study identified “how top managers were committed to the strategic procurement process and information sharing with their suppliers” (Yuen and Cheng 1154).
Some practices are also critical towards the success of every apparel company. Such practices “include continued commitment to information sharing, long-term interaction with different suppliers, supplier capability auditing (SCA), and establishment of supplier base optimization” (Yuen and Cheng 1148). Such practices have continued to determine the success of different apparel companies in the region. Such ideas are relevant because they can help newcomers develop the best sourcing and procurement strategies. The practices will “make it easier for the companies to achieve their competitive advantages and eventually emerge successful” (Yuen and Cheng 1153). The timely article also examines the major issues affecting every textile and apparel company in Hong Kong.
From a personal perspective, I believe that it would be a good idea to do business in China. The country is one of the emerging economies in the world. China’s huge population creates the best market for many apparel companies. The important thing is embracing most of the ideas presented in this article. The approach will ensure every foreign company develops the best corporate sourcing and procurement strategies (Yuen and Cheng 1156). These strategies will ensure every company achieves its competitive advantage. The country economic policies and structures will also support a new business in the apparel industry. Entrepreneurs should also examine the macroeconomic issues associated with the apparel industry.
The Corruption Risk Index (CRI) is an important measure that is used to understand the level of corruption in the concrete country. The CRI is allowed to measure the corruption level with the focus on public procurement in the state. The goal of this report is to measure the CRI with references to the identified risk indicators associated with public procurement in the Czech Republic during the period of 2008-2015.
The CRI is measured with the focus on analyzing the procurement contracts observed during the set period of time. While referring to the ‘Big’ Public Procurement Data related to the Czech Republic, it is possible to analyze the probability of corruption in the country’s public procurement sector. The available data allow identifying the following corruption risk indicators:
The number of offers that is used to examine the limits of the competition in the state;
The competition type that is used to identify possible signs of the unfair and restricted competition;
The decision or evaluation criteria that influence the choice of the supplier.
Figure 1. The number of offers received in the Czech Republic during the period of 2012-2015.
According to Figure 1, the number of offers increased significantly during the months of 2014 and 2015 years. These data indicate that the assumed level of corruption associated with the availability of bids in the sector is low, but this factor is significantly influenced by the type and number of suppliers winning offers. This number of offers is meaningful while comparing it to the data of 2008 when the highest number of offers was 13 in comparison to the current 33 offers (Figure 2).
Figure 2. The number of offers received in the Czech Republic during the period of 2008.
The comparison of the data for different years is important to understand the trends in the public procurement sector. Such an approach to analyzing the situation can be discussed as an indirect indicator of the observed corruption because the conclusions that the level of corruption was higher in 2008 in comparison to the 2012-2015 period should be supported with more quantitative data. In this case, the quantitative data depend on the procedure of measuring the CRI in the Czech Republic during the set period of time.
The CRI is measured as 0 ≤ CRIt ≤ 1, and this indicator is calculated according to the formula CRIt = Σj wj * CIjt, where the focus is on the number of components or risk indicators and their weights. In order to determine the actual CRI for the Czech Republic during the period of 2008-2015, the scores were added to variables, and the binary logistic regression was conducted with the focus on the number of offers as the dependent variable. As a result of the regression analysis, the component weights were added to the most influential indicators, where 1 meant the highest level of influence and 0 – the lowest one. Coefficient sizes were determined with the focus on the level of prediction among variables. It was found that negotiation with the publication is associated with the higher probability of receiving one offer, and the opened competition has the lowest impact. In addition, it was found that the best price criterion was most associated with the probability to sign the single bidder contract in comparison with the mixed criteria. The component weights were assigned according to these data analysis (Table 1).
Table 1. Component weights of CRI presenting the variables
Variable
Component weight
Single Bidder Contract
0.80
1 = 1 offer received
0.80
0 = more than 1 received offers
0.50
Competition Type
0 = opened competition
0.00
1 = negotiated with publication
0.70
2 = negotiated without publication
0.50
Evaluation Criteria
0 = Mixed criteria
0.5
1 = Best price
0.7
The next step was the identification of the CRI distribution in order to conclude the corruption rate in the Czech Republic. After the application of the component weights, the CRI formula was used. The frequency distribution was used for the data analysis. It was found that the largest number of firms (25%) participated in relations characterized by the CRI 0.2-0.3. During the period of 2008-2015, only 3% of firms were characterized by the CRI in 0.6-0.9 (Figure 3).
Figure 3. Average CRI during the period of 2008-2015 focusing on firms.
The results of the binary logistic regression and the frequency distribution analyses used for measuring the CRI indicate that the level of corruption in the Czech Republic is rather low while assessing the measures focusing on the public procurement. It is possible to state that the distribution of the CRI is normal for the selected period of time. In order to measure the level of corruption more appropriately, it is necessary to refer to the larger number of CRI indicators. For this analysis, the limited number of variables was selected; as a result, the data can have significant limitations. The focus on additional components of CRI variables is important in order to achieve integrity regarding data analysis and results.
