The concept of ‘centralized procurement’
due to its topicality and relevance to the modern procurement law, has become a byword that has fuelled the public and legal debate; this is in particular on the analysis of its merits and demerits of centralized versus decentralized and the assessment over whether one of this system can prevail over the other are issues that may go beyond the scope of this blog.
The challenges posed by greater supplier competition, the ever-increasing need for transparency, the demand for faster turnaround times, all underpinned by robust legal oversight have made public procurement complex, high stakes field’.
In the present blog discussion herein, we shall be focusing on some of the main advantages of centralized procurement, the key disadvantages, a comparison between centralized and decentralized procurement, case studies, recommendation then finally I will draw out my conclusion.
Definition
Procurement originated from is the Latin word procurare, meaning to manage, obtain or recruit. Kennedy, Lysons and Farrington expresses that it is the management function that ensures identification, sourcing, access and management of external resources of an organization needs. The United Nations Development Program Annual Report 2017 on Buying for a better future view procurement as an ‘overall process of acquiring goods, civil works and services which includes the identification of needs, selection and solicitation of sources, preparation and award of contract’, and all phases of contract administration till the end of a services.
The UNCITRAL Model law on Procurement, (article 2 (e, j)) aver that it’s the acquisition of goods, services or construction by a procuring entity that may be an agency, organ, or other unit.
Public procurement law is based on a body of International, Regional, National laws and directives of jurisprudence. In a simple definition, it sought to ask the prime question of :-
- How to go about with contacts?
- How to deal with suppliers?
- How to award public contracts?
The key objective here is to open a market for government assignments to be accessible to all providers and suppliers regardless their nationality.
Constitution of Kenya on (article 227)Matters procurement law are governed by the Constitution of Kenya on (article 227) Procurement of goods and services by the state affirm that it should abide with the following system; fairness (article 10-National Values), equity and equitable distribution (article 27), transparent and competitive and cost-effective system, affirmative action (article 55 and 56) and principles of public finance (article 201).
Public Procurement Asset and Disposal Act No 33 of 2015
In addition, the Public Procurement Asset and Disposal Act No 33 of 2015, ensures that (article 227, (2) on allocation of contracts and the protection of persons, groups from unfair competition and discrimination. The Leadership and Integrity Act No 19 of 201-(section 3) on Guiding values and principles are adhered to. The Public Finance Management Act (section 30) 
Centralization
Is derived from the word ‘central’, means midpoint or focus point. It is a situation in procurement when all rights, powers, duties and authority is vested in a central procurement authority's central authority delegates some of these powers to others. The central authority delegates some of this power to others with the status of its public figure. This process is governed by a regulatory legal framework.
Decentralization
Occurs when procurement personnel's or bodies from other functional areas can decide unilaterally on sources of supply or negotiate with suppliers directly, thus localized in other words the activities done by office or department, managers or divisions, contracting agencies, or bodies that are guided by a relevant authority
In Kenya, we are guided by the Centralized system of procurement. The Public Procurement and Disposal Act cap 412C (section 8) establishes a Public Procurement Oversight Authority to monitor, assess and review the public procurement and Asset Disposal system to ensure they respect the National values and other provisions including Article 227 of the constitution on public procurement.Paul Ogemba,Tricks State officers, cartels use to loot billions in the name of tenders,(2018)
Why a central procurement is the best.
1.Cost reduction through ‘Economies of scales’
Impact to the Market
Centralized procurement or purchasing, enables an organization to leverage its high purchasing power, that is the centralized agency procuring products and services in large quantitates volumes. Competition is intensified among the firms bidding an put the agency in a better position for price negotiations.A case example the Kenya-Chinese SGR project railway government to government project,
financed by loans and grants from foreign investors.This type of centralization affects the market dynamics and structure, the firm selected as the winner of a public tender, will have a legal duty to supply products, services or deliverables to the government agencies, which may be duo beneficial, to the person in term of business growth and profit margins and to even to the country's economic growth. Another case example was the Kenya Primary School Laptop Project which the president declared that the procurement will be rigorous, cost effective, and accountable in his agenda to realize a digital literacy-based curriculum.
Impact on price
Economic capability in the price market may rise in the following ways; It may reflect reduction in prices of goods and services at lower cost, secondly it ensures a proper layout when it comes to the purchase of quantities of an item needed by the government, costs and the specific period, thus the purchasing power. in KEMSA case, county governments were facing delay of procurement of drugs since the . In.In return this has contributed greatly to the basic for negotiations, rebates and drawing out of the curves of economic potentials in terms of growth and the reductions.
Human Resource Specialization/Professionals
Finally, it permits the employment of professionals in a way that can be locally listed who can be an expert in the procurement of special classes of materials or products, in addition the costs of training of employees is leverage thus better use of human resource. Small-scale public bodies may adversely follow the market trends and the development to ensure a reliable and economic supply sources or of import and export procedures where there is substantial global sourcing.
2.Central coordination of activity
The aspect of central purchasing has a greater strategic focus than divisionalization procurement due to the availability of key decision makers in Kenya. Once there is a central unit, this accumulates certain benefits such as Budget control. Objectives hereby are set and monitored, evaluated, compared and the actual results are realized and with quality and predetermined standards. Example the function of the Kenya procurement authority is encapsulated under (section 9)
Uniform policies and prices obtained by centralized purchasing are adopted as a single procurement. The competitiveness and buying between other bodies for example in the case for decentralization is eliminated completely thus promoting a transparent network. Example is the ICT Ministry made a move to centralize government procurement to handle all goods and services within its ministry to avoid duplication of ICT projects and wastage of resources and more likely to promote technical standardization.
3.Financial Independence of the Authority
Another reason to count on this central system is already a provision for incentive prescribed by the authority administrative work and all undertakings. Under the Public Procurement and Assets Disposal Act, (section 18(5a-d)) money is appropriated by the parliament for running the authority.Other incentives and receivables in terms of loans and grants, revenue and fees collected, and the capacity building levy.
4.Litigation Benefits
Significantly, another benefits that litigations may be limited in a number of courts. Public Procurement Review Board establish under (section 27) of the Act and grounds for appeal to the High Court under (section 100.Penalties and sanctions are found under (section 45) of the Anti-Corruption and Economic Crimes Act which criminalizes all breaches related to public procurement.
5.Sustainable Procurement
‘Green procurement’ is the purchasing of products or services which have a lower impact on the environment over their whole life cycle than the standard equivalent. It involves the integration of environmental issues into purchasing decisions based on price, performance and quality. According to CIPS (2011), Sustainable procurement isn’t simply about being “green” but it’s also about; stakeholders acting socially and ethically responsible purchasing, minimizing environmental impact through the supply chain. A recent example is the Plastic Paper ban from procurement suppliers in order to accommodate green procurement.
On the centralization of purchases of a green procurement strategy, the reason why it’s the best it’s because the authority has due-diligence in ensuring the large-scale purchase of environmentally friendly sustainable items. Certain laws are put into place such as The Constitution of Kenya 2010, The Environmental Management and Coordination Act (EMCA) 2012 Cap 387, Kenya Solid Waste Management Strategy, The Factories Act (Cap 514 of the Laws of Kenya).
Limitation of centralized procurement
Corruption and Fraud in award of tenders,
In Kenya loses 30 Billion out of 124 Billion which is the budgetary allocation of procurement in a year. Asides,30% are also the grabbed stakes by the procurement officers all his has burgeoned out of the transparency gaps. Corruption activities include the process of awarding public contracts, bidding, and tendering. The NYS Saga marks the procurement where 791 million were stolen out of procuring youth due to procurement. In Vulcan Lab Equipment Limited v School Equipment Production Unit& another, The plaintiff was awarded a tender of ksh .261,326,532 from the Ministry of Education for the purpose of procuring science equipment for schools, the plaintiff and the defendant entered into a contract for supply of the said equipment and that the defendant made a prepayment of kshs.75,086,880/=.and pocketed the rest, It was positioned that the plaintiff from the unlawful acts and was punitively punished and was accorded a punitive fine.
Fraud is the next growing economic crime in Kenya: One in every three companies reports experience fraud in procurement during the past two years. Disposal Act, Ethics and Anti-Corruption Act (article 45 2b), and Anti-Corruption and Economic Crimes Act prohibits corruption under and they may face disqualification. This can only be corrected if the principles of a good public procurement are accorded such as transparency and feasibility. Disposal Act, Ethics and Anti-Corruption Act (article 45 2b), and Anti-Corruption and Economic Crimes Act prohibits corruption under and they may face disqualification. This can only be corrected if the principles of a good public procurement are accorded such as transparency and fishability.
Differences between centralized & decentralized procurement
Generally, the advantages of one approach is the disadvantage of another approach, notwithstanding there is an existence of a hybrid approach of both.
Autonomy
Under the decentralization method, procurement will tend to report at a much lower level hence complete decentralization will allow full autonomy of each unit.
For centralization there is complete avoidance of price anomalies between the group units and competition between then for materials in short supply. In the contrary, decentralization may at points record double or multiple transaction at each stage reason based on its divisions.
Reduced leverage
This exists with the consultation of services; the cost of procurement is relatively high. Best overall stock management and material utilization. However, the considerable advantage of centralizing procurement is dependent on the executive authority to have that ability of being entrusted with his work to produce the most effective results. Thisan effective flow of information, communication both external and internal to enable the principle objectives are met.an effective flow of information, communication both external and internal to enable the principle objectives are met.
Recommendation
In order to make centralized procurement more efficient, in the long run, public tenders should be awarded more periodically and natural persons or corporations should avoid double or multiple application to such tenders, creating more chances for others to apply and avoid monopoly. States authorities should ensure that public procurement should be insulated from political interests and private interests. Improvements such as timely internal and external communication between the Ministry of planning, Budget and management should be a widely consulted in order to avoid certain delays in public tenders.
Conclusion
In summary, to centralize or decentralize depends on many variables in an organization or a country, some organization may adopt a hybrid system that combines both the two systems, but the bottom-line is that centralized procurement is very suitable in large organization which have wide contracts that cuts the current sphere.
Books
Khi.V.Thai,International Handbook of Public Procurement 2009
Lysons Kenneth and Brian Farryington, Purchasing and Supply Chain Management 7th edition
Lysons Kenneth and Brian Farryington ,Procurement and Supply Chain Management 9th edition
Van Weele Arjan J.Purchasing & Supply Chain Mangagement;Analysis,Strategy,Planning and practice 5th edition
Peter Baily, David Farmer,Barry Crocker,David Jessop,David Jones, Procurement Priniciples and Management, (10th edition Pearson’s 2008)
Arjan J.van Weele , Purchasing and Supply Chain Management,5th ed
Legislations
Constitution of Kenya 2010
Public Procurement Assets and Disposal Act 2015
Integrity Act 2015
Environmental Management and Coordination Act 2015
Public Finance and Management Act 2012
Journals
Klaus Scwab, ’’Insight Report ;Global Competitiveness‘‘ (2014) <http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdf>
Dan Ware, ’’Sustainable Procurement; Principle and Practice’’ (2011) https://www.cips.org/documents/membership/branch%20event%20uploads/nt%20procurement%20-%20cspg%20-%20sept%202011.
Jackie Kagume,Noar Wamwala ‘’Public Procurement in Kenya; Analysis of the Auditor Generals Report’’( 2018) institute of Economic Affairs
Waldemiro Fransixco Sorte Junior, 'Assessing the Efficiency of Centralized Public Procurement in the Brazilian ICT Sector (2013) DOI:10.1504/IJPM <https://www.researchgate.net/publication/233945608_Assessing_the_efficiency_of_centralised_public_procurement_in_the_Brazilian_ICT_sector>
Articles
https://citizentv.co.ke/business/ict-ministry-to-centralize-govt-tech-procurement-200790/ Published on: May 18, 2018
Interesting read
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