Providing infrastructure
| by Michael Parry 02 Feb 2005 Topic: Public sector accounting |
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This is the second of two articles on the acquisition of an integrated financial management system in the public sector. The first article described the circumstances under which a procurement might take place, and the first three stages - planning, identifying funding and defining user requirements. This month, Michael Parry goes on to consider the next steps Stage 4 The bidding process Planning involves a high level design of the system, identification of surrounding changes required and actions to make the new system sustainable. The first stage of the bidding process is to decide who will be invited to tender. There are three options for selecting invitees:
The first two approaches are the most obviously transparent, but take additional time and effort. The limited tender approach is quick, and can be justified because there are relatively few software vendors with any experience of government integrated financial management system (IFMS) implementations; however, all stakeholders have to be satisfied that this is a sufficiently open process. A decision must also be made as to whether the bidder will be for a complete system - hardware and software - or just for the provision of the software. In the latter case, bidders will be required to specify the hardware they require for their system to operate. Whichever method is used to select bidders, bidding documents have to be prepared. Formats are normally prescribed by funding agencies, but all comprise standard elements:
Bids will be received, and there should be a formal process for controlling bid documents, restricting access and opening of bids. At this stage it is likely that some bids will be rejected because the bids do not in some way comply with the bid requirements. Those that are left will be evaluated as described below. The selection process may be single stage or two stage. In a single stage process all compliant bids are evaluated, usually with visit and demonstration by bidders, and a preferred bidder identified. Under a two stage process there is an initial evaluation, possibly with a demonstration, and then two or more preferred bidders are invited to demonstrate their system against the selection criteria and test scripts. A two stage process is obviously more thorough, but takes more time, increases costs for the bidder and government, and at the end may not result in a better decision. The whole bidding and selection process is a very sensitive area, especially if an external funding agency is involved. That agency will be very concerned to be able to audit the bid and selection process to ensure that it was open, fair, and free from any possibility of corruption. Furthermore, major software companies that bid for IFMS implementations are powerful organisations, and may complain if they consider the process has been unfair. This imposes a need for a bureaucratic process that provides documentary evidence all bid stages are properly carried out and can be demonstrated to be fair. Stage 5 The selection process The details of the evaluation process will vary between countries and the requirements of funding agencies, but there are always standard elements as described below. It is always preferable that an evaluation and scoring system is defined in advance, and essential that all information is properly documented. Some or all of the bidders may be invited to visit your country and demonstrate their systems. If some bidders are rejected even before this stage, it is essential the reasons for rejection are fully documented for the aforementioned reasons. The demonstrations should be more than a 'sales pitch' by the bidder. Rather, it should be a rigorous process with the bidders demonstrating their ability to comply with the user requirements using the test scripts. Users of the system should be actively involved in this evaluation, and the results recorded in detail. The results will be combined into a score, and bidders ranked according to their technical scores. Bidders will also be evaluated according to their financial proposals. It is important that all financial bids are evaluated equally, which will mean identifying additions, exclusions, etc, and adjusting bids to identify a final price, to which net present value techniques should be applied to future costs in order to establish a full current bid price. The financial evaluation should take account of all costs, including hardware, through life support of the system, training requirements, and what is included and excluded in the financial proposal. Other factors will also be taken into account, including the financial stability of the bidding organisations, their experience, the implementation team, hardware requirements, and other relevant factors. The scoring systems and specific procurement procedures being followed will determine how the final evaluation is conducted, but the outcome will be the identification of one preferred bidder who will then be invited to contract negotiation. Stage 6 Contract negotiation Contract negotiation requires careful management. Any changes should not move outside the bid requirements, otherwise the bid and evaluation process in invalidated. On the other hand, it is essential that all details and deliverables are specified. In particular, there must be defined and staged acceptance criteria and timetables, with payment linked to meeting these. Key persons and management structures on both sides must be defined, with clearly stated procedures for acceptance. It is common for changes to be made or requirements added during implementation. Such changes and additions may be necessary, but are also a frequent cause of delays and cost overruns. As such they need to be carefully controlled. The contract must specify procedures and documentation for any contract variations after the contract has been signed. The contracting process rarely fails, but it should lead to a tightly drawn and very clear contract that minimises the scope for later disputes. Finalisation can take some time. Stage 7 Implementation Last, but certainly not least, the selected system has to be implemented. This article does not go into the detail of how a particular system works, but there are some general points. Implementing an IFMS is a major project, and the agreed project management structure must be put in place before the implementation starts. This may involve institutional changes, appointing staff and actions to delegate authority. Furthermore, such organisational structures are likely to be specified in the contract, and so must be in place to avoid delays and cost overruns which the contractor can legitimately charge to the government. If the contract with the vendor does not include the provision of hardware and networks, then the requirements and responsibilities for such integration must have been specified in the appropriate contracts. It is essential that these are procured and implemented in accordance with the contractual requirements. This may in itself be a quite substantial procurement and implementation exercise, and needs to be built into the project plan. The implementation of the IFMS will be a major change for all users, and the users are likely to extend outside the economic ministries to other agencies of government. This is an exercise in change management. The new system must be seen to have high level political support, and all involved must be fully briefed on the changes. As far as feasible there needs to be broad support for the IFMS. What you do not want is a ministry or agency announcing it is in the middle of implementing its own system, and therefore cannot implement IFMS - this is where advance briefing and high level support become essential. The whole implementation process must be managed. The project and organisational structure referred to above should provide for such management, but it must be made to work. At all stages there must be detailed documentation, including acceptance procedures. Not only does this demonstrate proper management, but will be essential in the event of any dispute with the contractor. Conclusions This article has provided an overview of the steps and actions involved in the acquisition by a government of an integrated financial management system. It is clear that many of these are subjects in their own right - for example project management, change management - but what does become clear that this is a major and important change for any government, and as such does require strong management. Finally, it must be recognised that implementing an IFMS does not automatically lead to better financial management. What it does is to provide the financial information infrastructure on which reforms can be built. It is the beginning not the end of the process. References and sources A dedicated area of ACCA's website has now been established for the public sector - www.accaglobal.com/publicsector. In addition, ACCA has developed an International Public Sector Bulletin for its public sector members which is produced twice annually. To receive copies of this publication send your details to publicsector@accaglobal.com or fax +44 20 7396 5730. Michael Parry is chairman of International Management Consultants Limited (IMCL), responsible for supervising projects across four continents, as well as speaking regularly at international conferences. He has been financial management adviser to the Government of Nepal and participated in projects to improve financial management in countries in Europe, Asia, Africa and the Pacific. | |