Technology & Tools
Purchasing Cards – Why 50K Feels Different To Different Public Organisations

The US website Government Executive reported last week that the US military “wants to accelerate procurements by raising the “micro-purchase threshold” for using a government credit card from the current $3,000 maximum to $10,000 as part of the fiscal 2017 Defense authorization act.

The proposed language, first reported by the nonprofit Project on Government Oversight, would also require the Office of Management and Budget to update its guidance to help ensure that agencies follow “sound acquisition practices when using the government purchase card” and “maintain internal controls that reduce the risk of fraud, waste and abuse.”

Whilst the increase in the spend limit to $10,000 has not actually been approved, this interested us on several counts. My personal experience as a CPO in three large organisations, one of them a UK government department, was that Purchasing Cards were a useful tool for low-value procurement, and I certainly pushed their usage further in two of my three CPO roles. However, the aspect of potential fraud through the use of Cards – whether personal travel-type cards or corporate purchasing cards – is one that plays particularly strongly in the government (public) sector. Indeed, that has become even more of an issue since greater spend transparency has led to more detailed card spend information being put into the public domain.

So my personal view on Cards as a procurement and payment mechanism is cautiously positive, but our point today is not particularly about whether Cards are a good idea or whether their use should be extended. It is about the psychology of public spending.

When I took on my role as Procurement Director for the UK’s Department of Social Security back in the 1990s, it was a big step up for me in terms of the sheer size of the organisation and level of spend compared to my previous roles. Suddenly I was looking at spend in billions in total, and individual contracts that could be tens or even hundreds of £M. Still small in comparison to the US Department of Defence (DoD), or even P&G or Ford, but bigger than I had experienced.

It wasn’t long until I was in a meeting, and a procurement manager, commenting on some point about a tender, said “oh, it’s hardly worth bothering about, it’s only £50,000 or so”.

OK, I said, getting genuinely annoyed, if £50,000 is not worth bothering about, how about you write me a cheque for it now? Or perhaps I will get £50K in £20 notes and put it in a briefcase so we can all look at it regularly and remember that actually, it is quite a lot of money!

But the mentality that things only matter when you get into the millions.is hard to escape in large organisations. Yet if you go to a small public sector organisation, like many I worked with as a consultant, £50,000 really matters. For a town council, it might be enough to keep a voluntary group funded for a year to provide a drop-in center for vulnerable people. For a small health body, it is salary for a senior nurse. A procurement with a value of £50K in that sort of organisation will probably be taken really seriously. It may not be approached in quite the same manner in the DSS (as was) or the DoD.

Yet their £50K comes from exactly the same “pot” of taxpayer money as the £50K that is part of some huge DSS or DoD project. Every £50K has the same “value” to the taxpayer and therefore should be equally valued by the organisation that spends it – yet this is clearly not the case.  Which takes us back to more use of purchasing cards. The key point is that of course they should be used if the business case for doing so makes sense, in terms of overall value i.e. taking speed, convenience and transaction costs and similar issues into account as well as basic cost of what is purchased.

Yet at the same time, we would like to make sure the mentality across everyone who spends public money is the same and they all show the same care about what they’re doing (whether or not they are using Cards) as folk generally do in the smaller organisations. It is not easy getting that mentality into the giant public sector bodies and we don’t have any “magic wand” answers to that conundrum. But we have to try, as we strive to ensure that taxpayers and citizens get the best value from public procurement.

Voices (2)

  1. Les Mosco says:

    This is an interesting dilemna. Of course £50,000 of taxpayers money is £50,000, whether in a small or big department, but on a Pareto analysis, in a large spending department it will inevitably be a lower priority, handled by less senior staff, and correctly deserving less attention than the bigger numbers. Given that all staff effort is finite so everything is a relative priority, it’s correct that in a large spending department £50,000 gets less attention. But, maintaining sufficient attention remains critical: I can recall being rightly reprimanded when in a £6Bn program I described £200M as a minor potential overspend; now that was me getting too lax!!

  2. Bertrand Maltaverne says:

    Interesting post and comment.

    Yes, attention goes to the big things, finite capacity makes so that organizations (public or private) focus on the “big stuff” first.

    Nevertheless, as described in the post, there is a difference btw private and public that should impact what gets attention.

    Public orgs are funded by taxpayers, that is true. So, there is a duty of transparency and “frugality”. Especially if you consider that, taxpayers who fund all public organizations, have almost no words to say on how their money is spent. Yes, elections serve that purpose but at a much higher level: priority given to education or defense or… Never (or almost never) has a taxpayer anything to say about expenses at a project level. Then, on top, you have to consider all the public orgs and bodies…
    In the private sector, each organization has its stakeholders and annual stakeholder meeting. They, the stakeholders, have a more direct means of saying something as expenses are funded on the capital / cash of the organization.

    In addition, if a company makes a wrong / poor usage of its “money”, it primarily impacts that company (if we forget catastrophic situations where it would lead to bankruptcy and impact the value-chain).
    In the public sector, all organizations are funded via a same bucket, the money collected via taxes. Therefore, if one organization makes poor usage of what it has, it impacts all others as this is money they did not get and could have been distributed to them.

    This is why I believe that
    – thresholds and what gets attention should be different btw the private and public sector
    – sizing requirements should also be different (as how large your staff is drives how much “attention” an organization can allocate)