Sergii Dovgalenko is CPO of JSC (joint stock company) Ukrainian Railways. He is an experienced procurement strategist with proven transformation expertise and was previously head of procurement for Etihad Airways in the UAE, where he headed up indirect procurement and P2P operations. In his current position he is responsible for the strategic turnaround of the legacy procurement and supply management of the state railway, with a procurement spend of over $1.2 billion. Read his discussion on ‘Procurement in Practice’ here where he shares his experiences and lessons learned.
He is also a licensed tutor and author, his latest book tackles the critical elements of technology procurement, explaining the vital links between technology, finance, strategic sourcing and programme management.
In this article, he explores best-practice governance around public procurement savings, gives a reality check on reported savings, explains why we should take announcements on cost savings with a pinch of salt and suggests that citizens should rather judge public procurement officers on their effectiveness.
On savings, we should be asking the following questions to avoid inflated claims and manipulated numbers:
- What is the basis of savings calculations? Is it simply historical or a budgeted price minus the actual price?
- Who verified the savings reports? Was there a robust finance control process to acknowledge the claimed amounts?
- Are there methods and means of controlling the actual savings delivery on a purchase order or invoice basis?
- How effective are the controls of the contract price and scope changes?
- Was there any analysis of the value-for-money obtained for the final price?
- What happens to declared savings?
A reality check
He uses an example:
MTender, an electronic public procurement system supported by the EBRD and the European Union (EU), has helped Moldova save €25 million since it was launched in late 2018. The savings represent the difference between the budgeted value of procurement and the value paid for contracts awarded using MTender.
“The savings estimate is overwhelming for the small economy of Moldova,” he says, “however, there is no mention of:
- Pre-MTender savings calculated similarly, i.e. a benchmark
- Improvement of the tender cycle time due to automation
- Tangible transactional savings due to a ‘zero-paper’ solution
- Improvement of the competition rate (number of suppliers per tender) which translates into a more competitive procurement environment overall
- Improved supplier satisfaction metrics, etc.”
Government strategy on public spending
“Perhaps,” he says, “the critical task of the state is to ensure that public funds transform into social value by:
- Providing a satisfactory level of public services
- Fulfilling the sustainability agenda
- Supporting local communities, SMEs, minorities
- Delivering innovative solutions to public needs”
In terms of public procurement efficiency, we should consider the correlation between inputs (cost estimates, transactional procurement costs, sourcing strategy) and outputs (actual contract conditions, compliance, and fulfilment of a public authority needs). Public procurement officers should not cherry-pick from cost estimates and contract prices.
In terms of effectiveness, many governments adopt a “let’s spend less” culture but don’t speak to how effectively they buy and the value to citizens of that spend.
His whole argument on how we should be assessing public agencies and authorities can be read here.