Access the article online at the Globe and Mail from Friday July 22, 2016, or read the entire text below.
Britain’s recent vote to exit the European Union and Donald Trump’s protectionist posturing are generating a lot of discussion about trade agreements these days.
One troubling aspect of the Trans-Pacific Partnership is how our government procurement practices may determine Canada’s success or failure within the pending deal – especially for procurement related to professional services companies, such as engineering and architecture firms, that design and build our critical infrastructure.
On the upside, the TPP should make it easier for Canadian firms to compete for projects in 11 other countries – billions of dollars worth of new opportunities each year. The downside is that firms in those 11 other countries will also have easier access to our country.
So the question is whether Canadian professional services firms will win more than they lose. The answer relies partly on whether or not Canadian governments change their procurement practices to focus on the highest value instead of the lowest price.
With few exceptions, the existing Canadian standard for government departments hiring professional services firms is to use a price-based “request for proposal” (RFP) process.
It has been well documented internationally that RFP wastes public money, both in the inefficiency of the process and in the low quality of solutions the bidders are forced to offer and implement.
Indeed, the process is so wasteful that in 1972, the U.S. federal government made it illegal to use a price-based RFP when hiring certain professionals. Since then, 46 states have followed suit with similar legislation.
Instead of low pricing, U.S. governments require that professional services firms be hired based on their qualifications to do the job.
This procurement process is called qualifications-based selection (QBS), and the National Institute of Governmental Purchasing has identified it as the “global best practice for contracting architectural and engineering services.”
QBS has growing support in Canada from organizations including the Federation of Canadian Municipalities and virtually every national professional services association, along with hundreds of thousands of members.
However, while a few governments have adopted it (including the city of Calgary and the province of Quebec), the spread of QBS is still very slow.
What’s the connection between the procurement process and the TPP?
Right now, U.S. (and other) firms are skilled at competing to offer high value under the QBS system, while Canadian governments have forced Canadian firms to compete within a low-price RFP system.
This means that Canadian firms with new access to international markets under the TPP will be at a disadvantage against these international firms already trained to win on quality.
It also means that Canadian governments at all levels that are used to buying primarily on low price will be attracted to firms from TPP countries such as Vietnam that have significant labour-cost advantages and can offer lower prices – without being able to properly evaluate whether these firms are providing greater or lesser value.
The risk is that Canadian governments will award infrastructure projects, for example, to this new pool of firms that may have limited or no expertise designing and building projects in a Canadian climate, to Canadian standards, using Canadian construction materials and processes.
Let me be clear: If a foreign firm can provide greater value, then we should hire them ahead of a Canadian firm. My point is that current low-price RFP procurement processes are not able to accurately determine value, only low price. This will always favour a lower-priced firm over a highly qualified and fairly priced firm.
Unless Canadian governments stop hiring professional services firms based primarily on price, the TPP will begin a race to the bottom, favouring firms from countries with significantly lower labour costs and continuing the delivery of low value to tax-paying Canadians.
By shifting to QBS, Canadian governments can ensure the most efficient use of taxpayer money in Canada, protect against the hiring of lesser-qualified international firms simply because they are cheaper and help Canadian firms increase exports of their services into new markets around the globe.
Regardless of the recent headlines, Canada’s future lies in global trade. It makes sense that government procurement in Canada should align with that instead of handicapping it.
Order Cal’s newest how-to manual “Buying Professional Services: Replacing the Price-Based Request for Proposal with Qualifications Based Selection”
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"This should be required reading for consultants AND their clients - especially the part about RFPs." - Blair Enns, Win Without Pitching