Compliance means different things to different people but in essence it is following the procurement rules and norms. This includes trade agreements, directives, common law and ethics.
The benefit of compliance is that it provides legal protection, enhances an organization’s reputation, generates savings and provides a strategic advantage. It is not just about meeting regulatory requirements but also about trust, transparency, and efficiency.
Elements of Procurement Compliance
1. Policies and Procedures
Clear procurement policies ensure everyone involved knows the rules and processes which ranges from the simple, such as required procurement posting time to the more complex such as evaluation, contract award and supplier payment. Internal audit is an important partner in establishing and reviewing processes and mostly importantly detecting fraud.
2. Supplier Due Diligence
Assessing suppliers’ capabilities, financial stability, and reputation is critical. This can be done informally through a review of social media, canvassing your network and formally via compliance audits, credit checks, and reviewing financial statements for publicly traded companies. Supplier due diligence serves as the ‘canary-in-the-coal-mine’ and can help to avoid a host of problems by either avoiding or minimizing exposure to a supplier.
3. Contract Management
Comprehensive contracts minimize misunderstandings, define responsibilities, and protect against liabilities. Proper contract oversight ensures terms are followed. KPIs and quarterly meetings are important aspects of contract management. Such KPIs can include invoice accuracy, on time delivery / pick up etc
4. Transparency
The three public procurement tenets of open, fair and transparent are major compliance contributors. Is the procurement open to all, is the evaluation criteria fair (not bias in favour of the incumbent) and is it transparent (no hidden criteria)?
Benefits of Procurement Compliance
1. Legal Protection
One of the biggest benefits of following the rules is freedom from criminal and civil lawsuits. Lawsuits are costly in terms of time, money and reputational damage.
2. Trust
Compliance builds trust with customers, suppliers and regulators. This enhances an organization’s reputation and fosters long-term relations. Trust is hard to earn but can be destroyed quickly. For example, it takes ten positive actions to build trust but only one negative action to destroy it.
3. Financial Impact
Non-compliance can result in legal fees, fines, project delays, cost overruns and reduced competition. It can also lead to higher input costs due to a lack of vendors either willing to bid on procurements or bidders adding a ‘risk premium’ to their rates to compensate for anticipated evaluation issues, slow invoice payment or other costs.
3. Strategic Advantage
Compliance builds trust which is a competitive advantage as it can lead to an increased number of number of bidders who are interested in your business and possibly reduced supplier costs. Sometimes bidders may be willing to reduce their margins to be awarded a procurement with a well respected leading ethical company. They can then list the company as a client which has a positive spin off effect on them.
Challenges in Maintaining Procurement Compliance
1. Global Regulations
Operating internationally exposes businesses to varying laws and standards. Navigating in multi jurisdictions is difficult due to cultural and societal differences. Not all countries operate on the same level of ethics and compliance. A starting point is to check out the annual Corruption Perceptions Index that ranks countries based on their perceived levels of public sector corruption.
2. Supply Chain Complexity
A single product or service often involves multiple suppliers. Ensuring compliance across the supply chain is challenging, especially when dealing with different jurisdictions. Compliance tools include suppler audits and self reporting. The question is how far down the supply chains does one want to investigate? Is it Tier 1 and Tier 2 suppliers or is each supplier responsible for auditing its supplier. Where does the buyers’ responsibility stop and the suppliers start?
3. Changing Standards
Laws and industry standards change frequently and not keeping up can lead to non -compliance. A prime example is the current issue of tariffs, counter tariffs and retaliatory tariffs,
4. Resource Constraints
Limited resources, including staff or technology, can hinder an organization’s ability to monitor compliance effectively. Monitoring for compliance is a full time job.
Procurement Compliance Leading Practices
1. Develop Robust Policies
Ensure procurement policies are comprehensive, updated regularly, and align with organizational goals and legal requirements. The key priorities are ethics, sourcing criteria, and operational procedures. Public sector Procurement Directives are often criticized as being too restrictive, but they provide a common set of operating guidelines. Further public sector entities have very strict guidelines governing ethics such as the Public Service Act of Ontario. Similarly, many private sector companies and public agencies have a Code of Conduct governing ethics.
2. Invest in Technology
Deploy procurement tools and software to automate compliance checks, track supplier performance, and maintain detailed records. These systems minimize human error and improve efficiency. Automate the mundane, to reduce errors and create capacity to allow staff to focus on value added activities.
3. Conduct Regular Audits
Periodic audits of procurement processes and supplier performance can reveal irregularities but foster continuous improvement. Proactively addressing audit findings avoids future risks. A common failing is a lack of follow up on audit findings by not undertaking corrective action.
4. Hire and Train Procurement Teams
If you do not have the correct staff then training becomes difficult. Equip employees with the knowledge and skills needed to identify compliance issues. Training ensures staff understand regulations and ethical standards. Training can be formal (webinars, courses) or informal (lunch n’ learn). <A good spot for TPS to expand on training?>
5. Monitor Suppliers
Maintain active engagement with suppliers, ensuring adherence to contractual obligations, quality standards, and ethical practices. Tools like supplier scorecards can streamline performance evaluations.
6. Work Collaboratively across Functions
Compliance is a shared responsibility. Procurement teams should work closely with legal, finance, and operations departments to ensure policies are implemented effectively.
Procurement compliance is an important aspect of the procurement life cycle. While it may not be as exciting as supplier development, delving into category management or negotiating a new supplier contract it is key to minimizing risk, managing costs and enhancing an organization’s reputation. It is a key anchor into today’s choppy operating environment.
Public Procurement In Canada:
Procurement professionals play a pivotal role in the public procurement world. These experts are well-equipped with the knowledge and skills needed to navigate the intricacies of procurement processes. Whether you’re looking to enhance your procurement acumen through procurement management courses or seeking valuable insights through procurement webinars, the landscape for public procurement offers many opportunities to explore.
The Procurement School encompasses a wide range of activities aimed at achieving the best value for taxpayer money. Procurement service providers work closely with public sector procurement consultants to streamline processes, maintain transparency, and uphold ethical standards. This collaborative effort ensures that the procurement landscape remains fair, competitive, and cost-effective.
Obtaining a procurement certification or a purchasing certificate can be a wise decision for those aspiring to excel in public procurement. These certifications validate your expertise and demonstrate your commitment to professionalism in the procurement arena. Procurement professionals are highly regarded for their ability to make informed decisions that benefit both the public and the government agencies they serve.
Public procurement is not just about acquiring goods and services; it’s about contributing to the well-being of communities and the country. The individuals in this field understand the significance of their roles and strive to uphold the highest standards of ethics and accountability.
Whether you’re a seasoned procurement professional or just starting your journey, the public procurement landscape offers a wealth of opportunities for growth and development. From procurement management courses to ongoing procurement webinars, resources are available to help you stay informed and up-to-date with the ever-evolving world of procurement.
Written by: Graham Allen