Key Issues in the Procurement Phase
The New Royal Adelaide Hospital (RAH) is the largest social infrastructure project by South Australian Government. The main purpose of building ROH is to provide non-medical service and equipments to hospitals. The key features of RAH is that it will provides 800 beds, standardized single inpatient rooms, 40 technical suites, electronically tagged biomedical equipments and leading technology. Currently, the design work for the project has been completed and construction work is progressing towards completion. External works related to planning, transport and infrastructure is also going on. The total estimated cost of the project is projected to be $2.3 billion.
Key issues:
The procurement phase of the New RAH hospital was challenged by many issues. The Project Co did not agreed to scope, timing and cost of many procurement bundles. The reporting process related to the status of clinical equipment procurement program was not appropriate and this led to lack of clarity regarding the progress in installing clinical equipment bundles. Hence, the completion of working in relation to set time frame could not be tracked.
Another challenge during the procurement phase was that the probity assurance service did not provided adequate information regarding extent of service provided and key deliverables provided. A major issue was found in the reporting process as status and key risk during procurement and installation was not given the Committee. The RAH project also included the Information and Communication Technology (ICT) program to identify plan, however procuring of the ICT service was inconsistent (New Royal Adelaide Hospital report: November 2015, 2017). This indicates that the procurement process lacked transparency and efficiency with regard to effective use of resources.
Project environment:
The RAH project has been planned to be delivered according to the serviced infrastructure PPP model. According to this arrangement, private sector is responsible for design and finance management; state is responsible for clinical service and equipment managements for the hospital. By the this project, the aim was to create an environment that encourages staffs to utilize new organizational values and provide care to patient according to South Australia’s Health Care Plan. Hence, the hospital environment embraces innovation in health care delivery through modern technology, ICT and international design (New Royal Adelaide Hospital report: November 2015, 2017).
The key advantage of such environment in hospital was that it increased the scope of value for money through sophisticated risk management approach and adapting environmentally sustainable approach to minimize the carbon foot print of the hospital. To achieve such environment in hospital, the manner of procurement process of medical equipment is important. This will have an impact on clinical practice and health outcomes. Procurement decision should focus on having standard quality of medical equipment to maintain positive clinical result (Lingg, Wyss, & Durán-Arenas, 2016).
Leadership and governance has also influenced the progress of the procurement process at the New RAH. The aim was to establish robust government for the successful delivery of the project. They help to ensure that all activities are aligned according to the key principles in the procurement cycles. The key principles include value-for-money, risk management, open and fair competition, transparency, probity and ethical behavior (Chiarini, Opoku, & Vagnoni, 2017). However, in the context of procurement process at New RAH, transparency and probity was not found in the reporting phase. This was identified by the Governance Committee.
Project Environment
Although the South Australia Health has implemented a governance structure at the start to review the progress of the project, the governance structure has not remained the same. This has occurred after advice from several engaged assurance services. The review of the project also revealed that many area of program governance required improvement. In response to this issue, several changes in process of the RAH was changes too (New Royal Adelaide Hospital report: November 2015, 2017).
While reviewing the progress made in the procurement process of the New RAH, many risk was identified in the process. Firstly, transparency in reporting the progress of the project was missing. This occurred because the hospital had not completed a formal robust process to monitor progress against business. Hence, identification of this risk during the procurement and contract process gives an opportunity for learning and wider implications in the procurement process. In the context of the lack of transparency issue in procurement process, it is in violation of the core principle of recruitment.
This is because the transparency principle of procurement mentions that record keeping is a critical part of the procurement process and this also ensure that probity standards are met. This eventually helps in the fulfillment of value-for-money standards on business (Procurement Practices in the Health Sector, 2017). This can be explained with example from a situation. For instance, if a potential supplier finds the procurement process impartial or unfair, then less competitive bids will be received. Hence, identification of the transparency issue in the procurement process revealed that maintaining adequate reporting is critical throughout the procurement phase (Decarolis & Giorgiantonio, 2015).
The review of the New RAH practices also revealed risk related to many disputes during the completion of the project. This was seen because program governance structure changed midway during the process. This led to the rise of key project risk and challenges in achieving intended benefits of the project. Therefore, this issue in the procurement process led to many risk and according to procurement practice, management of risk is crucial in all aspect of the process. Hence, the new learning related to this issue is that success of procurement is dependent of effective risk management.
This is important because procurement done to embrace innovation in organization and presence of risk leads to governance challenges in successfully completing the procuring process (Pritchard, & PMP, 2014). . Therefore, it is essential for leaders to characterize risk on the basis of nature, origin, likelihood of occurrence and potential consequences. This will ensure that risk is managed in specific areas to mitigate the negative effect and determine the absolute benefits in the context of environment and key people involved.
Another identified risk in the New RAH project is that finance projects provided to the Committee was not appropriate in relation to actual budget forecast and documenting process. Although Project Co took the responsibility to share 50% of the finance delay cost, however the revised contractual agreement will lead to additional cost. This will have a total impact on the budget of the project. To mitigate this risk, revision of anticipate cost and amendment of the ICT system implementation plan will become significant. This provides learning related to financial risk in the procurement process. This is part of the procurement cycle and financial risk occurs due to uncertainty in target cost and inability to secure needed funds. In such case, organization and leaders will have to play a role in securing funds and managing financial target and budget related to the project (Georghiou et al., 2014).
Leadership and Governance
In relation to the organizational environment at RAH during the procurement cycle, there are also chances of technological, organizational, financial and turbulence risk. Technological risk is related to non-completion of the procured medical equipment due to technical characteristics of service. Secondly, market risk may arise due to demand and supply imbalance. Finally, turbulence risk are related uncertainties that are hard to predict and which has an impact on large scale-projects (Mena, Christopher, & van Hoek, 2014). . Therefore, the implication from this learning is that continuous assessment and monitoring of risk is important to change priorities and change expectation.
The review of the New RAH procurement report summarized the procurement cycle and life context of the hospital. The RAH was aimed to provided core clinical equipments and non-medical service to the hospital. It gave the organizational context related to key objectives and goal of value added service and improved health outcome for patient.
However, the analysis of the procurement phase also revealed many risk during the progress of the project. Some of the risk included lack of effective reporting on progress of the project, change in governance structures, lack of transparency and inappropriate management of finance and budget due to certain uncertainties midway between the project. Therefore, the main area of improvement in relation to the procurement process at RAH was project governance, reporting arrangement, budgetary and financial management, risk management and contract management.
To make the process smooth and eliminate potential risk in the process, it is proposed to identify best practice for procurement and contract management. The best practice for procurement and contract management includes the following:
- Firstly, managing existing funds and budget is extremely critical to the successful completion of the project. Financial risk can be managed by prioritization of saving opportunities and improvement initiative at the organization. In relation to contract management, there is a need to consistently identify improvement areas.
- Secondly, as majority of risk arise when the alignment process to set process get imbalances. Hence, organizational alignment and integration is another safe practice for procurement management.
- The principle of procurement focuses on value-based care approach and this can be achieved by the focusing on optimum quality, quantity, timeliness and cost of contract and procured equipment. Therefore, the best practice to deliver value-for-money includes better use of ICT to encourage bottom line saving, reducing contractual risk, improving tracking and control process, enhancing performance management and aligning business needs according to operational and legal structure of business (Wells & Hawkins, 2014).
- Sustainable practice related to procurement process is also part of best practice. This can be done with the help of top management support. It is effective in eliminating risk because it reduces negative environment influences on production and procurement process. The degree of sustainable procurement is dependent on organizational factors such as top management support, expertise and commitment of the organization. Individual actors particularly determine the degree of sustainable procurement and increased commitment in co-workers facilitates this process.
All the above mentioned best practice in procurement process can be possible only when the project managers are efficient and skilled enough to manage all those aspects in a project. Their expertise and commitment would help to effectively manage procurement and accurately maintain delivery schedules. Their insight to prepare for uncertainties and continuously track and control changes will help in management of risk.
Such project managers are beneficial for an organization as they not only save cost associated with a project, they also maintain continuity of the supply chain (Edler & Yeow, 2016). They also play the crucial role in project planning and managing expectations throughout the project. Good project managers ensures that they set and communicate key responsibilities to all people. This ensure smooth running of the procurement initiative and delivering high quality procured products according to the nature of business. Hence, a good project manager can overcome all project cost, schedule and quality risk related challenges in the procurement process and consolidate the purpose of project.
Reviewing and analyzing the procurement process at New Royal Adelaide Hospital was a useful learning experience for me as I got to learn many new things. Firstly, I became aware of how such procurement process comes up amidst organizational work process. In all organization, procurement has some purpose. In case of New Royal Adelaide Hospital, clinical equipment procurement process was planned as the hospital was coming up to provide non-medical service and equipments to hospitals.
Risk Identification and Management
I came to learn about the life cycle journey of procurement process starting from identification of requirement, to deciding on source of supply, vendor selection, order processing, reporting of progress and payment processing. The life cycle may vary according to different organizational context. For New RAH, the procurement process included project delivery arrangements, contractors of the project, key contractual terms and conditions, key obligations relating to the projects, recent developments related to procuremet and provision of revised contractual arrangements. Hence, by engaging in the case study review, I came to learn how hospital administrators make purchase and procurement decision related to clinical equipments and products.
Another task that I had to do while reviewing the case study was related to identifying key risk and complexities during the procurement process. I became amazed to know that how hospital administrators faced challenges during the process. It is not about just contractual agreement and getting supplies, many more process goes on in between where conflict occurs. This was evident during the contractual arrangement for New RAH. The key issues facing New RAH administrators included inappropriate reporting process and no updates regarding installation of clinical equipments. I learnt that this inefficiency might led to error in tracking supplies and the hospital may be ill-equipped during most vital times. From my own judgment, I also feel that this inefficiency might affect utilization of resource. Hence, monitoring and keeping track of supplies is critical to successful procurement process.
Leadership and governance also in smoothly procuring supplied in an organization. I came to realize the importance of leaders in this process after doing the task of identifying and mitigating risk in procurement. Their role was found to be influential in successful delivery of procured products. This is dependent on alignment of key principles in the procurement cycle. This starts from considering about value-for-money aspects in procurement and taking all necessary steps to ensure the same in hospital. Secondly, leaders were involved in maintaining transparency and ethical behavior in organization by taking smart risk management approaches.
The task related to mitigation of risk during procurement process at New RAH was also an important exercise for me because I developed better understanding regarding critical thinking process to overcome risk and conflict during procurement. For instance, transparency is an important criteria in procurement and risk can be eliminated by regular record keeping process. If I am engaged in managing procurement process in the future, I would take all innovative strategy to maintain transparency. The advantage of this approach is that it will enable value-for-money in procurement process too. I also came to learn that learning the skills and knowledge related to risk management will be most important for leaders involved in procurement process.
The key areas of accountability for project managers during procurement process include reporting and risk mitigation areas. From the task, the important learning and inference for me from the task was that successful procurement process is also dependent on managing group behavior. This is because many unethical behavior is also seen during the procurement process. Hence, enforcement of moral standards might help to mitigate such risk (Chen & Baddam, 2015).
Reference
Chiarini, A., Opoku, A., & Vagnoni, E. (2017). Public healthcare practices and criteria for a sustainable procurement: A comparative study between UK and Italy. Journal of Cleaner Production.
Chen, J. Y., & Baddam, S. R. (2015). The effect of unethical behavior and learning on strategic supplier selection. International Journal of Production Economics, 167, 74-87.
Decarolis, F., & Giorgiantonio, C. (2015). Public Procurement of Healthcare in Europe: The Case of Medical Devices. Rivista di Politica Economica, 7-36.
Edler, J., & Yeow, J. (2016). Connecting demand and supply: The role of intermediation in public procurement of innovation. Research Policy, 45(2), 414-426.
Georghiou, L., Edler, J., Uyarra, E., & Yeow, J. (2014). Policy instruments for public procurement of innovation: Choice, design and assessment. Technological Forecasting and Social Change, 86, 1-12.
Grandia, J., Groeneveld, S., Kuipers, B., & Steijn, B. (2013). Sustainable procurement in practice: Explaining the degree of sustainable procurement from an organisational perspective.
Lingg, M., Wyss, K., & Durán-Arenas, L. (2016). Effects of procurement practices on quality of medical device or service received: a qualitative study comparing countries. BMC health services research, 16(1), 362.
Mena, C., Christopher, M., & van Hoek, R. (2014). Leading Procurement Strategy: Driving Value Through the Supply Chain. Kogan Page Publishers.
New Royal Adelaide Hospital report: November 2015. (2017). Retrieved 3 July 2017, from https://file:///C:/Users/admin/Downloads/1527447_1470322934_NewRoyalAdelaideHospitalReport.pdf
Pritchard, C. L., & PMP, P. R. (2014). Risk management: concepts and guidance. CRC Press.
Procurement Practices in the Health Sector. (2017). Audit.vic.gov.au. Retrieved 3 July 2017, from https://www.audit.vic.gov.au/publications/20111026-Health-Procurement/20111026-Health-Procurement.html#s12
Wells, J., & Hawkins, J. (2014). Promoting Construction Health and Safety through Procurement: A briefing note for developing countries. Engineers Against Poverty, London.
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