Table of Contents
1) Current procurement policy framework of Northern Territory Australia.
a) Explanation of processes.
i) Procurement Framework.
ii) Procurement Principles.
iii) Procurement Lifecycle.
iv) Procurement Governance Model
b) Identification of points of tension.
2) Importance of public procurement policy for the businesses and the community.
3) Innovation in procurement policy.
a) Doblin Model of innovation and NTG procurement policy.
4) Literature review..
a) Government procurement policy.
i) Public procurement as a developmental tool
ii) Public procurement leads to sustainable development
iii) Public procurement issues.
b) Public procurement process.
c) Innovation in procurement policy.
5) Drawbacks of NT current procurement process limiting innovation.
The government procurement is also called as the government purchasing. It is the procurement of goods and services by the agencies of the government. The government agencies are soliciting the public business sector for the services and goods provided by them. It is a very formal process which is under the law and the government agencies issue bid proposals for seeking responses from the companies in the business sector. The responses submitted by the companies are accepted until the last date and the bidder with the lowest cost is accepted for contract. The whole process is extremely standardized across the country and amongst its most agencies however it is imperative to understand these process so as to point out the drawbacks.
Northern Territory Government (NTG) have a procurement process which has to be followed by the agencies when doing purchase of the services and goods. The procurement activities are divided into different tiers based on their estimation of the total value. This helps in the determination of the appropriate procurement procedure. The governance policy of procurement gives guidance for all the procurement processes undertaken by the government agencies of this state.
The policy includes the following:
The procurement framework
Procurement lifecycle approach
Procurement governance model.
The policy was known as the procurement direction earlier.
i) Procurement Framework
An overview of the NTG Procurement Framework is shown in Figure 1 below. This figure is illustrating the relationship between the guidance components, procurement legislation, and directions.
Figure- procurement framework
Source- NTG, Department of Trade and Business, (2019).
As pert he procurement framework, the directions and the Legislation establish the mandatory requirements. These requirement have to be followed by all government agencies when undertaking procurement. There are documents for guidance and this is inclusive of the lifecycle guides, templates and tools. These provide extra information to the government agencies for the recommended approaches which may be adhered to when doing any procurement activities. It is not a mandatory requirement to follow the guidance documentation and these may establish processes which are agency specific within the directions and the legislations.
ii) Procurement Principles
There are five Procurement Principles for the government procurement activities. These have to be followed irrespective of risk and value. These are explained in the section below with examples to illustrate what these principles mean in actual practice.
PRINCIPLE 1: Value for Territory
This principle provides that all the procurement activities and the expenditures that is being incurred by the government agencies must have value for the state. This establishes that the cost spent on the procurement must deliver the procurement outcomes and simultaneously it has to meet the economic, environmental, cultural and social objectives.
In order to fulfil the social objectives, the procurement processes are kept fair and objective so that all the responses by the companies are judged appropriately as suggested by Furneaux, Brown, and Allan, (2008). Both the price and the non-price consideration are balanced.
PRINCIPLE 2: Ethical Behavior and Fair Dealing
This principle is focused on instilling confidence in the public, industry and the business about the accountability, efficacy and probity of the NTG activities in the procurement.
PRINCIPLE 3: Open and Effective Competition
This principle aims at fostering the competitive and innovative environment in business for the procurement activities which is able to develop opportunities for the NT.
PRINCIPLE 4: Enhancing the capabilities of enterprises and industries in the state
This principle is established with the objective for the procurement activities in supporting the sustainability, development and growth of the industries and enterprises in the state.
PRINCIPLE 5: Environmental Protection
This principle maintains that the procurement activities are promoting the environmental protection through the adoption of sustainable practices and harm minimization. The Procurement Governance Policy describes the Procurement Framework which includes the Procurement Principles, Procurement Lifecycle approach, Procurement Governance Model and terminology that governs and guides NTG procurement activities.
iii) Procurement Lifecycle
The Procurement Lifecycle has been distinctly segregated into three stages and accompanying activities. This is shown as below:
Planning – at this stage of the lifecycle, the specific procurement needs are defined, approaches for the specific procurement are planned and planning is done for agency strategic procurement.
Sourcing- it is the process of inviting industry and businesses to give their offers. This is then accompanied by assessment, negotiation and finally contracts are awarded.
Contract management- with this step the contracts which are awarded by the government are effectively and systematically managed for establishing and executing and closing it. The performance of the contractor is also reviewed at this stage and the lessons learnt are recorded.
Figure - Procurement Lifecycle
Source- NTG, Department of Trade and Business, (2019).
iv) Procurement Governance Model
A high-level overview of the NTG Procurement Governance Model is show in Figure 3 below, illustrating the key decision making and advisory roles and bodies, and their associated relationships.
Figure - Procurement Governance Model of the NTG
Source- NTG, Department of Trade and Business, (2019).
The governance model for the procurement policy has the policy makers, the executioners and finally the businesses and industry suppliers with whom the government collaborates. The development and regulation of the policy is checked by the ministerial board. There is an accountable officer for the agency responsbile for the procurement act.
The governments across the world spend a large sum of money to deliver services to citizens. With the procurement activities the governments make investment in the infrastructure and ensure that the essential services are supplied. This expenditure on public procurement is nearly 12 of the GDP as per the reports of Deloitte Access Economics, (DAE) (2015). The procurement policy of the governments not only aim to rendering services and infrastructure to the citizens but these also target to achieve regional development and align with the environmental goal so as to promote equality and sustainability.
The objective to achieving value for territory as per the NTG procurement policy focusses at social and economic value for all. However, there occurs a point of tension when the local and regional suppliers are given preferential treatment over others as suggested by Bourne, (2018). This leads to violation of international and local trade agreement as the best suppliers irrespective of their region wins the contract. On the flip side the promotion of the local and regional suppliers is essential for encouraging the regional development. In NT particularly there are many indigenous suppliers who can be made part of the procurement process however, with the current fair and open competition these groups remain neglected as they are here at a disadvantageous position which makes them unable to compete with the large corporates.
The current procurement policy of NT does not consider the acquisition of goods with respect to its decent price. It also does not take into account of employing locals in the process of procurement through direct and objective instructions. These elements make the procurement policy prone of points of tension and hence inefficiencies creep and this leads to cost burden on the infrastructure development. In many cases it has been noted that the government clients have project objectives which are not clear and select inappropriate models for project delivery. Further, the government officials have also been found to fail in guaranteeing the accuracy of information in the project briefs and passing on the uncontrollable risks through the varying clauses in the contract according to the report of DAE, (2015). These points of tensions are inherent in the procurement framework and governance model as the government officials need to have market orientation as well for the procurement activities.
During the bidding phase also there are points of tensions as the businesses respond to these practices in many ways. There are incidences of charging additional price premiums, acceptance of the uninsurable risks, limiting the competition and recouping the costs of the bids. These have negative economic impacts as with this there is hike in prices, delays in project completion and lower quality infrastructure. This impacts the supply side of the wider economy, constraint the employment and the GDP by giving a reduced rate of return on capital invested. Additionally, there are longer term impacts on the procurement decision for the public infrastructure. The longer term viability of industry is impacted when the costs of the businesses adds up with the absorption of the poor procurement. This also leads to unnecessary reduction in the competition. Therefore, there occurs a point of tension where the procurement policy of the government aims at achieving value for money on a project-by-project basis while also recognizing the importance of fostering competition on a longer term basis.
The procurement policy of the government allows for the growth in the business and provide the goods and services to the communities at reduced prices in an environmentally sustainable manner. The procurement function is based on the general principles of transparency, cost-effectiveness, competitiveness, fairness and equitability. This function of the government allows for undertaking of different projects like the infrastructure development wherein the taxpayer’s money is invested for building public infrastructure. A good infrastructure like roads and highway network is necessary for the businesses. There is also special focus on social equity and thereby the local business enterprises are encouraged to enter into competition on an equal platform as suggested by Lindskog, Brege, andBrehmer, (2012).
All the members of the communities in a country are benefitted by the public procurement as they can easily avail the public goods and services that are given in the form of educational systems, medical services, transportation systems and public utilities and facilities among others according to Lynch, and Angel, (2013). In addition to it, the public procurement ensures that ethical practices are prevailing and as such the goods and services rendered to the citizens remains socially and environmentally responsible. Public procurement activities also delivers return on the invested capital in the form of goods and services hence the invested taxpayer’s money is utilized effectively. Hence, the public procurement activities lead to national economic contributions according to Choi, (2010, August). Further, the public procurement also leads to employment generation which is also benefits the communities. Public procurement also helps in the promotion of the industrial strategies as it allows for equal allocation of resources within a country have leads to the development of smaller as well as large businesses in different industries as pointed out by Dawar, and Oh, (2017).
Many countries are using new and innovative procurement procedures to make their processes more transparent and environmentally sustainable so that the businesses and communities derive the maximum benefit. These are also aimed primarily to reduce cost. The countries have moved from the traditional methods of procurement to innovative ones. For instance, there has been an increasing use of e-procurement platforms to bring in more transparency and minimize costs of administration. There is pre-qualification systems and the electronic reverse auctions as well. The use of information and communication technologies (ICTs) in public procurement processes is termed as e-procurement. Additionally, the tools of e-procurement help in the cost reduction for the government by reducing the administrative burdens, increasing compliance levels and shortening the cycles of procurement contract (Lewis-Faupel, et al 2016).
Doblin model for innovating comprises of ten ways of innovating as pointed out by Jasieński, andRzeźnik, (2016). This is a useful tool which can be employed for diagnosis as well as enrich the innovation for any organization or for analysing any existing competition. This model is structured into three colour-coded segments as shown in the figure below. The left side of the framework have innovation types which are focussed on the internal processes and are distant from the customers. On the right side of the framework there are innovation types which are more focussed on the end users.
Figure – ten innovation model of Doblin
Source- Brenton, (November 28, 2018).
Profit- the first type of innovation is the profit model. This is where the organization turns its value into more profit.
Network- with this innovation model the value is created by working with others in network. This helps in leveraging of skills and the expertise of people related to the organization according to Khandelwal, (February 6, 2016).
Structure- this innovation model describes the way in which the human resources and other assets are organized with the organization. For instance, the hierarchical organizational structure has been increasingly discarded for the flat structure for fostering a culture of innovation.
Process – it is the innovation of the operations of the company and how it is producing services or products from the raw materials.
Product performance- this innovation type deals with the capability, feature set and the quality of the company’s product. This is more concerned with the research and development of a product or service.
Product system – this innovation model deals with creation of additional value by the addition of the products and services of two companies or this is the combination of multiple products for creating significantly more value.
Service- this innovation type deals with making the products easier to use, get more value and more enjoyable for the customers. Typically, this is about the customer service rendered by a company as suggested by Woods, (December 7, 2015).
Channel- this innovation is about the manner in which the company is connecting to its customers.
Brand – this is powerful innovation as it is representing the values for which the company is standing or and the big idea which is resonating with the customers.
Customer engagement - this innovation types deals with the way in which the company understands the customers and then leverage their needs and desire. This typically deals with how to connect with the customers and delight them.
This model can be used for innovating the NTG procurement policy. This can be done by focussing on the left side of this framework where stress is given on the internal processes and procedures. The state has an objective and highly formal processes for procurement and this is limiting the innovation for improving these processes. Therefore, there is a need to incorporate the profit type of innovation whereby costs incurred on procurement can be reduced by easing out the procedures for procurement.
Although the policy is stressing on the communicating between the stakeholders on a regular basis, this communication is not effective for the generation of new ideas. This is because the skills and expertise of the different people involved in the procurement procedures are not networked so that the government as a whole can benefit from the procurement processes. Therefore, a network model for innovation can be adopted in the NTG procurement policy.
Further, innovation can be brought in the processes so that the procurement processes are able to respond to the social issues like incorporating the regional indigenous and small business suppliers in the procurement processes. This will lead to the regional development as well as it will help in responding the environmental sustainable issues as suggested by Hawkins, Gravier, and Randall, (2018).
Additionally, the NTG procurement policy can innovate its channel through which it is connecting with its main customers which are the citizens of the state. Further, it also needs to work on the customer engagement innovation so as to involve the customers’ chief desires and needs which are concerning the regional development and environmentally sustainability so that the economic benefits from the procurement processes can be enjoyed by all the people including the indigenous communities as well.
a) Government Procurement Policy
The government procurement policy is a business area of the government which is quantitatively substantial and is thus assumed to offer many important opportunities. This can potentially generate consequential positive economic impacts in relation to monetary flows and its circulation. This allow to foster the targeted businesses and also to ensure participation of specific types of participants in the national economy. Thereby, the government procurement policy is extending to all the supply chains including the overall government services and goods market.
i) Public Procurement as A Developmental Tool
The literature review of the government procurement policy has shown that most of the work is based on a limited array of sources of information like the policy documents, evidences surrounding the implementation and outcomes and the procedures according to Tremblay, and Boyle, (2018). There has been limited research on the issues whether the public procurement is more effective tool at different government levels like the local, regional and national or its effectiveness to the particular industries or whether it is helping in achieving the socio-economic objectives as also pointed out by Reed, Luna, and Pike, (2005).
Public procurement is regarded as that section of the economy which performs in direct public control. This can be used as a policy means for attaining developmental goals in the countries if used wisely as mentioned by Aigheyisi, and Edore, (2015). This is owing to the fact the public sector is the largest buyer of all the national markets. Therefore, the public procurement plays a large part in the economy of any country and this is independent of the geographic location, development level and political inclination.
The majority of the public procurement deals with the construction of schools, universities, purchasing of healthcare supplies, building roads etc as suggested by Lindskog, Brege, and Brehmer, (2012). When there is a well-functioning systems of public procurement then it provides benefits to all the stakeholders. These are citizens, private enterprises and governments. An important source of business for the private sector becomes the government which in turn leads to the creation of more jobs for the citizens.
An effective public procurement can help the government in achieving a better value for the money and reduce the pressure on the public budgets according to Dimitri, (2013). This leaves the agencies being better prepared for sourcing from the private investment. The value for money is an important principle of public procurement as the public funds are scarce and governments have to make best use of them so that maximum benefits can be derived. Aigheyisi, and Edore, (2015) noted that governments by working on the improvement of the public procurement systems in terms of its governance and effective impliementation, the government contributes to the development of the private sector which in turn supports growth. Further, the public procurement also supports the economic engines which are the small and medium sized enterprises.
The economic impact of the public procurement is encompassing the savings accruing from the effective and efficient procedures. When the public procurement is used strategically it leads to improvements in healthcare, innovation, education, social inclusion, quality, integrity of the public institutions, job opportunities and firm-level growth.
ii) Public Procurement Leads to Sustainable Development
Public procurement can help both the public and private sector to build sustainable business frameworks according to Witjes, and Lozano, (2016). Sustainable procurement is the procurement which is done by taking into consideration the environmental and social factors in addition to the financial factors while making decisions of procurement. Such decisions translates into a sustainable economic and human development. Public procurement is seen as strategic policy tool for advancing environmental and socioeconomic goals. Green procurement by government can help in sustainable consumption and hence it can lead to sustainable development as suggested by Pacheco-Blanco, and Bastante-Ceca, (2016). For achieving sustainable and inclusive growth, the public procurement can potentially create synergies between market growth, environmental protection and innovation according to Gurría, (2016).
The strategic government expenditure can help in triggering the market demand for the goods and services which are produced in a sustainable manner. Public procurement has a role in the promotion of innovation according to Aigheyisi, and Edore, (2015). Government can influence innovation and sustainable development positively by its procurement policies. This can be done by again investing in the research and development for innovations leading to sustainability in the generation of goods and services procured by the government.
iii) Public Procurement Issues
It has been advocated by Kaspar and Puddephatt (2012) that the government can help the SMEs in attaining their full potential by the use of their public procurement policies. However, they have noted that the SMEs are not able derive maximum benefit from such policies owing to red tapism, a lacking transparency in the process of tendering, corruption, inadequately competent procurement personnel etc. These factor impede the compliance as well as implementation of the public procurement regulations in a country.
The link between the public procurement and the potential for corruption has been widely acknowledged according to Neupane, et al (2012). However, the corruption in the public procurement has also not been widely explored in the research work owing to the fact that the systems and procedures are largely concealed by the government officials according to Tremblay, and Boyle, (2018).
The public procurement in the functional terms is tasked with the establishment of a bridge between the community objectives for providing goods and services with high quality, adequate quantity and delivery as well as right timing and recipients. The other task is of the private industry suppliers who themselves are engaged in the market transactions with different clients as pointed out by the Tremblay, and Boyle, (2018).
The adoption of the economic concepts, held the procurement functions is chiefly concerned with the efficient administration for driving the profits. Thereby, this implies that the private suppliers giving highest value on the investment is awarded the procurement contract. This economic concept for the public procurement function also entails that the costs in the processes are reduced like the supply-delivery costs and the bureaucratic costs provided the red tapism translates into a higher service delivery charges which is in turn paid by the community using the services.
Therefore, it is necessary that the public procurement policies and processes have to be free from corruption and red tapism and must have adequate transparency. This will allow for achieving the best outcomes in terms of social and economic development of a region by the collaboration of the public and the private firms in the procurement activities. Further, this will allow for deriving the best value for the taxpayers’ money which shall be in benefit for all the stakeholders.
b) Public Procurement Process
The public procurement consists of the series of steps which are ranging from the needs of the formulation, advertisement, appropriate regulated communication, production of documents, bids acceptance, selection of the suitable suppliers, method of selection, negotiations, contracts awarding with the related legal and other backup processes. These are in the initial set up phase. Then the next phase is of the monitoring, evaluation, mechanisms for compliance and the audit for quality. These are put in place during and after the award of the procurement contract.
This perspective might be considered as not so mechanistic or complicated for a pre-determined and narrow domain however it is quite extensive and there are a wide range of government functions which have important role to play in the above listed steps. It is therefore critical to not ignore the major tensions which arise between the cost-minimization challenges, the management of the risk associated with the public projects and the good governance.
c) Innovation in Procurement Policy
The public procurement is seen as having the potential for innovation as it is evidenced from its effectiveness in bringing out socio-economic benefits. The use of public procurement as an instrument of innovation policy has also created challenges to the policymakers. It is imperative to understand that the innovation is an interactive process rather than a linear one. In this there is a role of both the push and pull force of the market and the technology. This implies the government to dissuade from the traditional neoclassical economics and apply more of near market strategies where the customers are able interact with the suppliers.
For innovation in the procurement policy, the customers should be aware of their needs and the competition which is needed to satisfy those needs and these should drive the best solution. The procurement related innovation are also driven by the gaps in the capabilities and the resources which are the significant in the procurement process. However, the public procurement innovation implies that the government must work on the demand side of the interventions that it has to incentivize the firms to do innovation. This can be done by giving higher returns to the firms which are innovating and thus they remain motivated for supplying innovation. The government also has to work on the supply side of the procurement by making the customers more willing and able to demand as well as absorb the innovation in the procurement processes.
There are drawbacks in NT current procurement process that are limiting innovation in procurement process. Innovation in the procurement procedure of the government is essential for solving the tensions of the cost-minimization, overall socio-economic benefits for the non-indigenous and the indigenous population as well as addressing the risk management in the public procurement. However, the innovation is limited by the inherent processes of the procurement policy of NTG.
The public procurement policies are owned by the ministers or the government agencies which are based on the formal governance terms. They are responsible for innovation policy however the successful implementation of the innovation requires the budget and these may be stopped at the sub-national level. The government agencies may not have the same commitment and understanding of the innovation. This creates a greater hurdle for ensuring the policy diffusion and effective implementation as suggested by Georghiou, et al (2014).
An additional concern for the innovation in the public procurement of the NTG policy is that in spite of the benefits of the innovation in the procurement policy, there are austerity budgets which might halt some of the measures. There are preferential treatment given to the national suppliers over the ones which are innovative in developed nations like UK according to Georghiou, et al (2014). Therefore, such preferential treatment in NT State also demotivates the firms to innovate the procurement procedures.
The innovation in the policy instrument is mainly concerned with the act of procurement and does not engage in the whole cycle of the procurement like the need for adoption and diffusion of the innovation. There are many stakeholders and budget constraint which impedes the implementation of the innovation in the procurement policy according to Appelt, and Galindo-Rueda, (2016). Further, there is a wider cultural problem within the government procurement sector which seeks to have a wider governance in areas like audit frameworks for achieving the risk/reward ratio and the new innovations are generally regarded as risky and hence these are not effectively implemented.
It is thereby concluded that in order to have the benefits from the adoption of innovation in the procurement policy the budgets for the procurement has to be in the direction of innovation. This requires to have a systematic approach for policy of innovation and its implementation. There are three areas which needs to be addressed. These are extension of the timeframe so that entire cycle of need and its satisfaction is addressed and hence it is ensured that a future vision is built-in. there is a need to extend the reach of the policy to all the stakeholder and to overcome all the deficiencies in the comprehension of the innovation amongst the officials of the ministry and government agencies. Further, there is a need to deepen the measures for addressing the underlying cultural practices in the public sector like the red tapism and corruption to ensure that the innovation is adopted and implemented and the risks are managed.
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