Smarter buyer Iceland Gudrun Ogmundsdottir 15 May 2017

Key statistics about Iceland Population of 330,000 (2 million tourist per year) Area of 103,000 km2  Capital: Reykjavík Currency: Icelandic Króna Language: Icelandic Industry: Tourism, fishery, geothermal power and aluminum

How the Icelandic gov. became better informed buyer Governmental sector in Iceland and its challenges Why public procurement is important Why there was a need for structural and organizational change in the procurement system What we did The results The way forward What we learned and why it worked

Smarter buyer – joining forces and breaking silos in public procurement delivers better performance Joining forces with the private sector Developing procurement policy Implementing the best practices and knowledge of the private sector Improve procurement processes and deliver savings. Benefit for private sector – more transparency Breaking silos and joining forces across all government organizations in public procurement Delivers better products/services at lower cost. All agencies needed to take part

Governmental sector in Iceland Governmental sector is organized on two levels – central and local 8 Ministries 160 Agencies linked to the Ministries´ 74 municipalities Challenges Small population in large geographic area Number of gov. agencies and municipalities Fragmentation and lack of perspective

Procurement is an important tool governmental operation To promote effective competition in the market and ensure efficiency in governmental operations. Key role in shaping the business environment of companies in the private sector. Significant impact on the market through the purchase of goods and services. Communications between the government and the market Segja svo bara þetta í strike through

Public procurement -large portion of governmental expenditure Procurement expenditure Governmental expenditure 44% of GDP Public procurement 18% of GDP 50/50 central/local government 30% of governmental expenditure

Platform for effective procurement system was in place Clear legal framework established Central public procurement agency operating Procurement policy defined Mandatory framework agreements All agencies leagally obliged Green Procurement policy Procurement used for other social purposes Ethical codes for procurement officers in place     

Why was smarter buyer important Awareness that there were flaws in the procurement system and changes were needed Agencies were not complying to the framework agreements Not many tenders Believed that the gov. was paying higher prices than other private sectors. Increased media attention

Improving the procurement cycle Workgroup appointed by the Minister of Finance 2015 Interdisciplinary Experience from the public and private sector Led by ED from private sector The Assignment Increase efficiency in public procurement Analyze how procurement was conducted - study Formulate a policy on how to improve current procurement method Savings recommendations by using procurement Look for best practices

Workgroup´s Key Findings The government had limited information about its purchases in many categories and little overview of purchasing prices and savings opportunities. Framework agreements did not provide the government the lowest possible price. The procurement policy had only been written but not fully implemented. Lack of tools to exploit the full benefit of the procurement policy. Opportunities in place to acquire significant savings by using new “methods” in purchasing goods and services. Er þessi setning kannski ný setning Lack of tools to exploit the full benefit of the procurement policy.?

Agencies allocated variable funds to buy the same inputs and there were no criteria defined for price or guidance on what requirements should be made to goods and services procured +113% 787 440 369 Lowest Average Highest

Same product sold to agencies at different prices by the same supplier. Highest 8.000 9.000 10.000 11.000 12.000 13.000 Avarage Highest +97% TEXT +68%

Study – agencies performance Agencies do not always buy in the most efficient manner despite following the rules. Agencies purchase the same product at different prices within the framework. Agencies allocate varied funds for the purchase of the same input. No one responsible for checking the criteria Frameworks do not guarantee the lowest possible price but certain discount terms. No encouragement for suppliers to go to the value chain and offer better prices. Segja

Why need for structural and organizational change? Challenges Solution Taks Accountability. Agencies responsible for its procurement. 190 purchasing managers Lack of discipline and rules not followed Authority and lack of follow up Clear responsibility Fewer purchasing managers Clear authority Effective follow-up IT-system developed E-/On-line shopping Contract management Lack of information - what is the gov. buying No system The cost of procurement not visible. No measurement Better management No procurement plans made No prioritization No standards and requirements Benefit of joint procurement not visible. Long term planning Economy of scale Define requirements and standards - initiatives Planning and prioritization Effective use of procurement tools Fewer suppliers Inform suppliers about procurement plans Discount negotiate Suppliers have no guarantee Suppliers value chain not exploited Commitment

The results confirmed that measures needed to be taken to increase efficiency. Get better results by: Standardize more goods and services procured Make long term procurement plans Define requirements Decrease number of good procured in specific categories Decrease number of suppliers if possible Joint procurement across agencies Increase commitment

Work group recommendations Implementation of long term procurement plans Within all 160 agencies Connect them with the implementation of the budget Use strategicaly by informing the market well in advance about the State´s future needs. Procurement procedures applied in a targeted manner by a joint procurement, mini tendering and making agreements with fewer suppliers. Improve IT-solutions for better overview of purchases and defining goals for optimization. By optimizing the purchasing process, in line with private sector best practice, will lead to more efficient sourcing – quality goods and services delivered on time. Create incentive programmes for agencies and suppliers

Implementation process defined in phases Proof of project Structural organizational changes implemented at central procurement New framework agreement. Full roll-out e-procurement Tasks force set-up within ministry Greater steering + standards and requirement defined Procurement officers across the system + private market Joint procurement Strategic use of procurement plans Link budget to procurement plans Set up procurement plans E-procurement system pilot More joint procurement Need analysis e-procurement system Comply or explain Rautt alltof langt

Pilot project – joint procurement. Lap-top computers Monitors Paper -40% -56% -35% 151.042 48.379 113.042 37.736 -55% -49% -65% 67.969 16.700 Reg. Price Best price Joint procurement Reg. price Best price Joint procurement Reg. price Best price Joint procurement

Monitoring results are important Joint procurement Comply or explain Law on public finances Collect statistics E-procurement – buy through contracts

The Way Forward E-tendering Greater steering Reduce the cost, time-to-procure, automate process, gain full audit trail and process intelligence Greater steering Use e-procurement system Central contracts (framework agreements) Procurement plan part of agencies financial planning Joint procurement – other countries as well Open date Open invoices More transparency - Follow the money

Major challenges Lack of information IT solutions Capacity and culture in central procurement agency Mobilize support across all 160 agencies

Main lessons learned. Implement changes with pilot projects Importance of high level political engagement by minister Policy was improved and co-developed by experts from the public and private sector Private sector best practices can be beneficial in the public sector. Easier to mobilize support for changes by focusing on low hanging fruits. Benefits implemented early in the process – short time span from policy change is announced and results are visible.

Thank You Guðrún Ögmundsdóttir Ministry of Finance and Economic Affairs Icleand