Question Tag: Public Sector Management

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  • 8 Marks

PSAF – Nov 2019 – L2 – Q3a -Public procurement

Identify and explain four mechanisms to achieve value for money in public sector management.

a) Value for Money (VFM) is derived from the optimal balance of benefits and costs on the basis of total cost of ownership. The nature of public financial management is such that it involves discretionary decision taking on behalf of government at all levels. Value for Money is therefore not a choice of goods or services which is based on the lowest bid price but a choice based on the whole life costs of the project or service.

Required:
Identify and explain FOUR (4) mechanisms that can be used to achieve “value for money” in public sector management. (8 marks)

 

Value for Money is concerned with obtaining the best possible combination of services from the least resources. It is thus, the pursuit of economy, efficiency and effectiveness.

Below are the mechanisms used to achieve value for money.

  • Economy
    Economy is the term and condition under which an organization acquires human and material resources of the appropriate quality and standard at the lowest cost. From this procurement will be a purchasing activity whose purpose is to give the purchaser best value for money and that for complex purchases, value may imply more than just price since quality issues also need to be addressed.
  • Efficiency
    Efficiency as the relationship between goods and services produced and resources used to produce them. An efficient operation produces the maximum output for any given set of resource inputs; or, it has a minimum input for any given quantity and quality of services provided. In addition, efficiency implies practicality, especially in terms of compatibility with the government’s administrative resources and professionalism.
  • Transparency & Accountability (Ethical Standards)
    Good procurement holds its practitioners responsible for enforcing and obeying the rules. It makes them subject to challenge and to sanction, if appropriate, for neglecting or bending those rules. Accountability is at once a key inducement to individual and institutional probity, a key deterrent to collusion and corruption, and a key pre-requisite for procurement credibility.
  • Accountability and fairness in public procurement
    Accountability and fairness are three cardinal pillars that procurement reforms seek to achieve in that a very fair and accountable procurement system helps in the efficient utilization of the state resources judiciously. Procurement practitioners need to be very fair in their day-to-day dealings with their suppliers and potential bidders and the public at large in order to earn the trust of the various actors within the procurement system. Accountability refers to the process of holding an individual or an organization fully responsible for actions and functions they are engaged in and over which they have authority to exercise those functions.
  • Competition
    Competition has been regarded as one of the most important factors in attaining value for money in the public sector. This is on the premise that competition amongst bidders can lead to improvements in pricing and alternative means of delivering VFM. Competition can either be for the market (i.e. in the bidding process) or competition/contestability in the market which occurs after the contract is concluded and is in operation. On the contrary, the absence of competition or potential entry would lead to difficulties in attaining higher efficiency and value for money.

(4 points well explained @ 2 marks each = 8 marks)

NB: The emphasis of the question is not on elements of value for money (economy, efficiency, effectiveness and equity) but ways by which value for money could be attained.

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