Curs

Investing in people!
EUROPEAN SOCIAL FUND

Sectoral Operational Programme for Human Resources Development 2007-2013

Narcis Eduard MITU

Finances of Public Institutions

Investing in people!

EUROPEAN SOCIAL FUND
Sectoral Operational Programme for Human Resources Development 2007-2013
Priority Axis 1 Education and training in support for growth and development of a knowledge based
society
Key area of intervention 1.2 - Quality in Higher Education
Project Title: "Quality and competence at european standards for teachers in higher
education to increase the competitiveness of economy school in Romania"
Contract code:SOP HRD/86/1.2/S/53365
Beneficiary: West University of Timisoara

Activity A11 Elaboration of didactic materials for the subjects that shall be included in the study
syllabus for the specializations in foreign languages

Narcis Eduard MITU


Craiova 2012


5

Contents

Course Description

1. Chapter 1: The Concept, the Place and Role of Public
Institutions
1.1 Overview of Puplic Institution
1.2 The Revenue and Expenditure Budgets of Public
Iinstitutions

2. Chapter 2: The Budgeting Process within Public Institution
2.1 General aspects regarding budgeting process
2.2 The elaboration and execution of income and
expenses budget
2.3 The budgetary classification
2.4 Classic and modern building public budget

3. Chapter 3: The Quantification of the Performances of Public
Institutions
3.1 Performance Measurement - Theoretical Concepts
3.2 Indicators of Performance
3.3 The Balanced Scorecard as a Public Sector
Performance Evaluation Method

4. Chapter 4: The Public Procurement
4.1 Parties in a public procurement contract
4.2 Value for Money
4.3 Basic principles of public procurements
4.4 Procedures for awarding public procurement contracts
4.5 Award documentation for public procurement

References


6

Course Description

Finances of public institutions deals with the allocation of
resources in accordance with the budget constraint of a public sector
organization. As the objective of the government is not profit
maximization but welfare so, it is usually noticed that government
expenditure exceeds the revenue. Hence a budget deficit is a
common phenomenon in government entities.
The contents of this course explaining the meaning of public
institutions as all entities belonging to central and local government
administration involved in the mechanism of the market and aimed at
obtaining profit; and the budget of these public institutions. We
explain how the revenues are formed and what the expenditure
includes.
The general objective of the course is the understanding and
assimilation by students of the main conceptual and practical
elements on the organization and operation of public institutions
finances, which will offer them the skills needed for the activities
within the financial and budgetary departments of the public
institutions. The specific objectives refer to the familiarization with the
fundamental language of public institutions finances, understanding
and application of some budgetary elements, public accounting,
investments or procurements in specific cases.
Given the foregoing, this undergraduate introductory course
aims to help the students:
The concept, the place and role of public institutions in the
constitution and using public funds;
Performance measurement framework;
Possibilities of dimensioning of revenues and expenditures of
public institutions;
Budget methods and practices
The components of the public procurement system;
Fundamental principles in public procurement;
Procurement process;
In developing this course, the major source of information was
the textbook: Finanele instituiilor publice, 2011, Universitaria
Publishing House, Craiova, Authors: Narcis Mitu, Roxana Ispas


7

Chapter 1

The Concept, the Place and Role of Public Institutions
1

Student Learning Outcomes
Students will be able to:
Understand levels of public institutions
Capture the characteristics of public institutions
Identyfy the types of public revenues and expenses
Describe forms of public revenues and expenses

Contents
1.2 The revenue and expenditure budgets of public institutions


Public institutions have an important role in the state, through them
as it fulfills its functions. Also, the economic processes in market economy
are influenced by the state through financial and economic levers at its
disposal, used to correct macroeconomic imbalances.
Public Finance Act and, respectively, local public finance law
defines the term of public institution listing examples, as follows:
By law - public finance - institutions include: ,,Parliament,
Presidential Administration, Ministries, other specialized agencies of
government, other public authorities, autonomous public institutions and
their subordinated institutions, irrespective of the their financing
2
.
Locally, as legislative regulations on local finances government,
public institutions are ,,generic name, which includes: villages, towns, cities,
sectors of Bucharest, counties, public institutions and their subordinated,
legal person, regardless of how their activities is financed
3
.
Therefore, in terms of subordination and the importance of their
tasks in general act of leadership and management, public institutions are
grouped into:
- Institutions of central public administration;

1
This chapter is based on: Mgur Cerasela, Boa Moisin Anton Florin The finance of
public institutions in Romania:
http://fse.tibiscus.ro/anale/Lucrari2010/029.%20Magura%20Cerasela.pdf
2
The Law no. 500/2002 regarding Public Finances, published in MO no. 597/2002.
3
The Law no. 273/2002 regarding Local Public Finances, published in MO no. 618/2006.

8

- Institutions of local public administration.

However, what is a public institution? In most cases are numerous
misunderstandings. For example, at the question which of the following
entities will be considered public institutions?; the answer will be mainly:
,,All!.
The argument that respondents are ,,all belong to the state. Where
to cause confusion? An explanation would be that it is not known very well
what the scope of the public sector is. According to International Monetary
Fund's vision, the public sector includes, first, entities belonging to central
and local government administration, and on the other hand, include
productive purpose entities, involved in the mechanism of the market and
aimed at obtaining profit
4
.

4
Finance Statistics Manual, International Monetary Fund, 2001.
LOCAL PUBLIC
ADMINISTRATION
Municipal and town councils
District councils
Mayors
Prefectures
Other institutions and public
services organized at this level
PARLIAMENT
CENTRAL PUBLIC
ADMINISTRATION
ROMANIAN PRESIDENCY
GOVERNMENT
LEGAL INSTITUTIONS
MINISTERIES
OTHER CENTRAL
AUTHORITIES

9

Therefore, as we refer to entities belonging to central and local
government administration as public institutions providing public goods to
meet the collective needs, aimed at social welfare, and no record profits,
which are financed mostly from public budget and are established by law
given in this regard.
A feature of public institutions is that they produce public goods that
are distributed mostly free
5
or at prices falling below cost. The services
offered by public institutions aimed at providing services to taxpayers that
would require high cost if they were produced by the private sector, and
ensure to meet the needs of the taxpayers.
Because it is focused on providing certain public goods, public
institutions, it is characteristic of specialization, they aimed for operating
purposes.
The areas in which the state institutions producing public goods
are
6
:
- social-cultural: education, health, social, sports and youth;
- national defense: military units, special schools;
- public order: unit of police, firefighters, police, the Romanian
Intelligence Service;
- area of public authority: Presidency, Senate, House of Deputies, the
Government, ministries, other central government bodies, local
Councils, mayors, prefects, bodies of local state administration,
judicial authorities, the Court of Auditors, the Constitutional Court
Board competition etc.
- the economy: institutions specialized in scientific research,
discovery research unit of deposits in November, environmental
institutions, water management.

1.2 The revenue and expenditure budgets of public
institutions

In the deployment proceeds and payments made by a public
institution lies the income and expenditure. The meaning of budget in public
finance law is ,,the document which are provided and approved annual
revenue and expenditure or, where appropriate, only the amount,
depending on the system of financing public institutions
7
. The revenue and
expenditure budgets of public institutions are included (in whole or in hip) in
the state budget or local budgets.

5
Moteanu Tatiana - Budget and Treasury, DuStyle Publishing House, Bucharest, 2000.
6
Moteanu Tatiana - Op. cit.
7

10

Background revenue of public institutions
Revenues of public institutions of central subordination are
provided:
8

- entirely from the state budget, social state insurance budget, the
budgets of special funds, as appropriate;
- from own revenues and subsidies from the state budget, state social
insurance budget, the budgets of special funds, as appropriate;
- full of their own income.
All local public institutions, current and capital expenditure funding
ensures:
- mixed, central and local budgets
- full local budget, according to subordination;
- from own revenues and subsidies from local budgets, according to
subordination;
- entirely from own revenues.
Both public institutions of central subordination and the local
subordinate may, for their activity, material goods and cash funds received
from legal and natural persons in the form of donations and sponsorships.
Own revenues of public institutions, financed by own revenues or
from own revenues and transfers from higher budgets come from rents,
organizing cultural events and sports, artistic competitions, publications,
editorial services, studies, recovery of products of their activities or
appendices, and other similar services.
Income categories that are included in the budgets of government
institutions are different depending on the subordination of the institution or
in relation to specific public institution. Thus, public institutions funded
wholly by the state budget or local budgets revenues consist of transfers to
these budgets. Public institutions are financed in whole or in part of their
income, because they are an income generating activity, obtained
according to the specific revenue activity.
Their income can be achieved based on forecasts of income
sources and their possible recovery.
To base revenue of public institutions should be considered a
number of criteria:
9

- There is legal basis to achieve revenue;
- Preliminary implementation of the base year, adjusted by any
influence set for the future;
- Analysis and comparative study of income and expenditure for the
total, the structure and dynamics.

8
Moteanu Tatiana - Budget and Treasury, DuStyle Publishing House, Bucharest, 2000.
9
Moteanu Tatiana, Vu Mariana, Cmpeanu Emilia - Budget and Treasury, Tribune
Publishing House, Bucharest, 2002.

11

Background expenditure of public institutions
Going on the economic classification of expenditure of public
institutions, thise can be: current expenses (operating) and capital
expenditure (investment nature).
10

According to the company's accounting statements to be filed by
public institutions, their expenditure pattern is as follows (this structure is
common to all public, so it has a broad scope of some categories of
expenditure are common to all public, others are, but specific to certain
public institutions only):
A. Current expenditure:
- Personnel costs;
- Material expenses and services;
- Grants;
- Raw;
- Transfers;
- Interest.
B. Capital expenditure:
- Capital expenditure.
C. Financial operations loans:
- Repayment of loans, interest payments, commissions on loans.

10
Iulian Vcrel and collaborators - Public finance, EDP Bucharest, 2002.

12

Chapter 2

The Budgeting Process within Public Institution

Understand budgeting process
Understand the elaboration and execution of income and
expenses budget
Identify the credit officers
Understanding the types of budgetary classification
Understanding the methods of foundation budget

Contents
2.1 General aspects regarding budgeting process
2.2 The elaboration and execution of income and expenses budget
2.4 Classic and modern building public budget

2.1 General aspects regardin budgeting process
11

The public institutions accountancy provides information to the
credit officers regarding the income and expenses budget execution, the
patrimony as well as for the establishment of the annual general account of
state budget execution, annual execution account of the state social
security budget, of special funds, as well as the annual execution accounts
of local budgets.
With respect to the legal provisions regarding the public finances,
there can be found in the accountancy of public institutions:
12

- budget accounts for revenue collection and payment costs
legislation and for the establishment of the budget outturn
(budgetary surplus or deficit);
- general accounts to reflect the institutions assets, debts and
capitals, the expenses and revenue for the year, whether the
revenue has been collected and expenses paid to generate the
economic result (patrimonial surplus/deficit).

11
This chapter is based on: Ciuhureanu Alina Teodora, Balte Nicolae Aspects regarding
the budgeting process within public institutions:
http://fse.tibiscus.ro/anale/Lucrari/079.pdf
12

13

In accrual accounting, the expenses reflect the amount of goods
and services used by the institution within one financial exercise, whether
they have been paid or not during that period. According to the accrual
accounting the results of the transactions and of other events are
recognized only when transactions and events occur (and not when the
cash or its equivalent is received or paid) and they are recorded in the
accounting records and posted on the financial statements of that particular
periods.
Another way to look at the public institutions expenses is through
the budgetary expenses, because the way they are done relies on a
budget. The budgetary expenses are defined as the expenses approved
and made (paid) from the state budget, the local budgets, the public
institutions budgets and local interest public services and from the budgets
of the activities integrally financed from extra-budgetary revenues, within
the limit and with the destinations stipulated in those budgets. They are
used to finance the functions of public administration, programmes, actions,
objectives and priority tasks according to the purposes stipulated in laws
and other regulations, and they will be employed and used in strict
correlation to the expected degree of budget revenue collection.
13

Similarly to expenses, the revenues are outlined in accounting
according to the accrual accountancy principle. According to the accrual
accounting the results of the transactions and of other events are
recognized when transactions and events occur (and not when the cash or
its equivalent is received or paid) and they are recorded in the accounting
records and posted on the financial statements of that particular periods.
14

This way of reflecting incomes into accountancy allows users of
accounting information to know the revenues that have been received and
the institutions debts that are to be received. As in the case of the public
institutions expenses, we can also find the budgetary income indicator in
public accountancy. The budgetary incomes are cash resources which are
due to: the state budget, the state social security budget, the special funds
budget, the institutions budgets etc., on the basis of certain legal
provisions, consisting of fees, taxes, contributions and other collected
payments. Any uncollected income and any due expense, liquidated and
authorized within the budgetary provisions, and unpaid until the 31st of
December will be received or paid, as appropriate, into the budget account

13
Tatiana Moteanu - Finane publice, Universitara Publishing House, Bucharest, 2006, pp.
56-57.
14
Alberta Gisberto Chiu, Saveta Tudorache; Cleopatra endroiu; Mariana Glvan;
Cosmina Pitulice - Contabilitatea instituiilor publice dup noul sistem contabil, Irecson

14

for the following year. The budgetary credits not used before the end of the
year are cancelled.
15

The budgetary income and expenses accounting is done with some
special accounts opened on the structure of budget classification. These
accounts provide the recording of received revenues and paid expenses,
on the sub-divisions of budget classification, according to the approved
budget and it gives the necessary information for the accomplishment of
the execution account. Considering the theme of the paper, the aspects
regarding the accountancy of budget revenues, budget expenses and of
the budgetary exercise result shall be analyzed in the following chapters.
The result of the financial exercise for public institutions is annually
determined by closing the accounts of real expenses and the sources
account of which these have been done, namely of the accounts of due
expenses and of the accounts of accomplished revenues. This result,
calculated at the end of the year is a patrimonial result, which also includes,
besides the received debts and the paid debts, ascertained rights and
unpaid obligations within the budgetary exercise and it may appear as
patrimonial surplus or deficit.
16

In market economies, budgets are decisional tools used to set up
and allocate the states financial resources in order to achieve certain
policies pursued by public authorities. Designed as a document approved
by law, the public budget is an essential element of both economic and
socio-political frameworks of the modern society. The budgeting process
seeks for the legal basis of budgetary expenditures, their opportunity,
proper sizing and the possibility to cover them from budgetary resources.
17

The budgets execution reflects a series of operations regarding the
collection of revenues and the payment of budgetary expenses. The result
of the budgetary execution can be found as budgetary surplus or deficit.
The budgetary surplus is part of the incomes which exceed expenses in a
budgetary exercise. The budgetary deficit reflects part of expenses which
exceed incomes in a budgetary exercise.
There is a difference between the patrimonial surplus/deficit and the
budgetary surplus/deficit determined by the indicators based on which each
of them is calculated.
If the patrimonial surplus/deficit is not interested whether the
incomes have been cashed or the expenses have been paid, the budgetary

15
Tatiana Moteanu & Attila Gyorgy - Buget i Trezorerie Public, Universitara Publishing
House, Bucharest, 2005, p.143.
16
Cosmina Pitulice Op. cit., p.80.
17
Imola Drig - Necesitatea utilizrii bugetelor plurianuale pe programe,Universitaria
ROPET 2003, Universitas Publishing House, Petroani, pp. 95-98.

15

surplus/deficit is determined as a difference between the received incomes
and the paid expenses, until the end of the budgetary exercise.
18

With the final surpluses which are determined after the closure of
the execution account, the deficits from the previous years are being
diminished. The budgetary surpluses of public institutions financed from
own incomes and subventions are equalized with the budget they are being
financed from. The annual surpluses followed from the public institutions
budget execution financed entirely from own incomes are carried forward to
the next year.

2.2 The elaboration and execution of income and expenses
budget
19

The budget is a document through which, each year, incomes and
expenses are stipulated and approved or, according to the case, only the
expenses are, depending on the institutions financing system. The
budgetary process is formed by consecutive budgets elaboration, approval,
execution and control stages, which end up with approving its general
execution account.
Therefore, the public financial resources are managed by means of
the budget, which has outlined three main approaches in the process of
elaborating and further functioning, namely:
20

- The judicial approach, according to it, the budget is a document
where the states possible incomes and expenses are written, for a
determined period of time, generally of one year. According to the
Law of public finances, it requires the preliminary approval of the
legislative power, since this implies the elaboration of the budget
law for each year by the Parliament. Being based on a law, the
budget has a compulsory character for the budgetary exercise it
refers to.
- The economic approach, from this point of view, the budget reflects
economic relations, determined in money, which appear in the
process of determining the national gross product for fulfilling the
states duties and tasks, in accordance with the objectives of the
economic, social or other policy, promoted for a particular period of
time.

18
19
20

16

- The financial approach, the budget is a financial plan at the
macroeconomic level which makes the short-term forecasting,
because it estimates the public incomes and expenses for one year;
the medium-term forecasting, by elaborating the program-budgets,
generally for the public investment field.

The public financial resources are made of and administrated
through a unitary budget systems formed of: the state budget; the state
social security budget; the special funds budgets; the states treasury
budget; the budgets of other public institutions with independent character;
the public institutions budgets financed integrally or partially from one of
the above mentioned budgets; the budget of the funds which come from
external credits concluded or guaranteed by the state and whose refunding,
interests and other costs are ensured from public funds; the budget of
external non-refundable funds.
The elaboration of annual budgets is made on the following
elements: the prognoses of macroeconomic and social indicators for the
budgetary year for which the budget statements for the next three years is
being elaborated; the fiscal and budgetary policies; the stipulations of
financing, agreements and other international conventions with the
international organisms and financial institutions, signed or ratified
memoranda; the departmental policies and strategies of the priorities
established in the forms of budget statements, presented by the main credit
officers; the proposals ofdetailed expenses of the main credit officers; the
programmes drawn up by the main credit officers with the purpose of
financing certain activities; the proposals of divided sums of some state
budget incomes as well as of achievable transfers for the local public
administrations; the financing possibilities of the budgetary deficit.
21

At the Ministry of Public Finances, the main credit officers shall
submit the proposals for the budget statement and the annexes to it, for the
following budgetary year by keeping within the limit of expenses. These
shall be accompanied by detailed documentation and substantiations.
The Ministry of Public Finances prepares the budgetary bills and the
budget statements, which are submitted to the Government. After their
acquisition by government, they shall be submitted for approval to the
Parliament by parts, chapters, subchapters, titles, articles and paragraphs
and by chief credit officers, for the budgetary year, as well as the credits for
multiannual activities.
22

21
House, Bucharest, 2005, pp.91-92.
22

17

In the elaboration of the budget the personnel costs shall be
established taking into account the resizing to the strictly necessary of the
personnel financed from the budget, in accordance to the programmes and
attributions that each institution has to accomplish. The amounts of
expenses on salaries are based on the salaries from December of the
current year and will be recalculated according to the policy established by
Government in this field. The expenses concerning the social contributions
shall be determined in the amounts and conditions stipulated by the
legislation. The sizing of expenses proposed for the payment of travels,
transfers etc. the limitation of proposals shall be taken into consideration
according to their necessity and opportunity. The expenses on goods and
services are determined based on own calculations and on the legislative
acts specific to each area of activity as well as based on expense
regulations. It will be taken into account the necessity, opportunity and
efficiency of each expense, ensuring normal running conditions for the
public institution.
The state budget execution begins after its passing by the
Parliament and it represents the process which aims at achieving the
revenues and making the expenses at the level stipulated by the annual
budgetary laws.
23
This is the most important stage, as it involves the actual
accomplishment of approved forecasting. The whole responsibility
regarding the accomplishment of parliamentary authorization of the
budgetary execution rests with the government which, through the
specialized institutions, ensures the accomplishment of revenues and
expenses, having to prove the ability to manage both the revenues
collection process and the process of efficiently using the budgetary
allocations. Moreover, with the budget execution, the efficient
accomplishment of expenses of budgetary allocations within the
established limits and conditions shall be pursued, as well as the avoidance
of fund defalcation from their legal budgetary destination, the prevention of
waste and abuse.
The accomplishment of revenues is an obligation, while, the
execution of budgetary expenses represents a right, until the approved
level. The execution of budgetary revenues is a different process from the
execution of budgetary expenses. The cash execution of budget is a
number of operations which refer to the collection, maintenance and
delivery of financial resources for the accomplishment of public
expenses.The following principles stand at the basis of cash execution: the
delimitation of powers of the people who use the financial resources from
the powers of those who produce their collection; the safe deposit unit,
according to which each budgets revenues are entirely concentrated into

23
Ioan Gheorghe ara - The relation between the preventive financial control and the
budgetary execution, Revista Tribuna Economic, no. 11/2008, p.57.

18

the account, from where financial resources to make expenses are being
released, payment from the received budgetary revenues being forbidden.
In order to ensure the execution of expense payment, the system of
credit officers has been established. The officer is a person who has the
right to divide the budgetary credits. At a central level, there are chief
officers, second officers and tertiary officers. Chief Officers are ministers for
all expenses when they fall into the responsibility of their ministries and
within the limit of the approved credits. The second officers are the
secretaries of state or general managers inside the ministries, central units
and their duty is to divide the budgetary credits on direct doers. The tertiary
officers are for example the rectors, the health service managers, the
cultural institutions managers etc. There are only chief and tertiary officers
for the local budgets. The officers are responsible for the state budget
execution in their field. The cash execution of budget represents the actual
collection of revenues and the payments in and from the state budget
account. This operation is done either by means of the banking system,
either by The Public Treasury, or by both.
24

The Public Treasury can be regarded as a bank of the Public
Finances and through it the cash execution of budget is made but it also
has the role to stimulate and maintain the available funds of all credit
officers, and also the revenues of the economic agents who wish to keep
their money here. The end of the budget execution is the stage following
revenues collection and the making of expenses for a budgetary year and it
consists of fulfilling a complete report on how revenues and expenses have
been made for the ended budgetary year. Characteristic of this stage is
drawing up of the closure account of budgetary execution, which allows
determining the results of the budgetary execution, namely the relation
between incomes and expenses. The budgetary execution closure account
is composed of all the accomplished revenues and made expenses and it
reflects the budgetary execution result which can be a budgetary deficit or
surplus.
The budgetary execution has the following stages:
- the distribution of budgetary incomes and expenses on trimesters is
made according to the incomes legal collection terms and to the
period in which the accomplishment of expenses is necessary. At
the distribution on trimesters, the activitys development rhythm is
had in view along the year and the characteristic of the respective
activity;
- the cash execution budget is mostly done through the states
Treasury and through banking institutions;

24

19

- the accomplishment of budgetary incomes represents the incomes
total collection and on the established terms;
- the accomplishment of budgetary expenses (expenses execution)
is done within the limit approved in budget (which is the maximum
limit) and only for the approved destination.

Respecting these two restrictions, the accomplishment of any public
expense supposes the following stages:
- the taking on of expenses, which means taking on a future payment
obligation in accordance to the fulfillment of tasks incumbent to the
officer. Practically, it means taking on the obligation to make a
payment in the future for the goods and services bought by the
public institutions. It must have a legal basis and it is made by
signing a contract, accepting an offer, sending an order etc.
- the liquidation, which supposes determining the deed based on
some documents to make certain operations previously begun, as
well as establishing the amount that has to be paid.
- the ordering consists of issuing the payment order in favour of the
rightful; the payment order has to wear the approval of preventive
control because the states money are affected;
- the payment, which represents the end of the obligation towards
institutions or companies.

The moments of taking on, liquidating and ordering are made by the
credit officers and the payment moment is made by the public
administrators or the accountants which pay the treasury.
25

By involving more people or responsibility factors in exercising the
preventive financial control, as well as by pursuing, inventorying and
reporting the liabilities, a real responsibility increase is made unto the public
funds spending.
26

27

From legal needs and the organization manner of accounting
information, incomes and expenses have to be included in the budget
according to a unitary scheme in a particular order and based on certain

25
House, Bucharest, 2005, pp.130-138.
26
Ioan Gheorghe ara - The relation between the preventive financial control and the
budgetary execution, Revista Tribuna Economic, no. 11/2008, p.57.
27

20

precisely determined criteria. This unitary scheme which establishes a
unique order of incomes according to the sources origin and the expenses
nature, according to precisely determined criteria, administrative, economic,
functional, financial etc. is called a budgetary classification.
The budgetary classification is the consequence of the operation
principle of budgetary specialization and it represents a technical
instrument of systematization, pursue and control of accomplishing the
incomes and making the expenses.
The budgetary classification is the grouping, in a compulsory order
and according to precisely determined unitary criteria, of incomes and
expenses included in the institutions and public services budgets and the
budgets of the activities financed from extra-budgetary incomes. These are
used both in the elaboration and approval stages of the respective budgets,
and in their execution, being useful for recording incomes in budgets
according to their nature and provenance and the expenses as compared
to the objective or the action to which these expenses are being destined.
The budgetary classification groups the incomes according to their
nature and provenance and the expenses according to their nature and
destination, which makes possible:
- the exact knowing of states incomes and expenses;
- the comparison in time of the budgets evolution, which allows the
dynamic analysis of the states incomes and expenses;
- the control exercise over the entire process of budgetary execution
and the ensuring of financial discipline;
- the organization of budgetary accounting, facilitating the data
registration and acquisition.

The elaboration of budgetary classification takes into account three
grouping criteria namely:
- the administrative or departmental criterion, according to which the
states incomes and expenses are grouped according to the
institutions that collect or accomplish them. This criterion is
generally doubled by other criteria which are based on the nature of
each element.
- the economic criterion, according to which the types of expenses
and incomes are presented separately as current operations and
capital operations.
- the functional criterion, which groups expenses according to the
interests had in view by the state, according to its tasks and
objectives.

The structure of budgetary classification includes chapters and
subchapters for incomes and parts, chapters, subchapters, titles, articles

21

and paragraphs for expenses.
28
The budgetary classification divides
incomes into current incomes (ordinary) and capital incomes
(extraordinary).
The current incomes are the incomes which are collected on a
regular basis, representing a permanent source of money resources.
According to the way they are perceived they can be:
- fiscal incomes, which represent the greatest part of budgetary
incomes and which take the shape of direct taxes (on profit, on
salaries etc.) and indirect taxes (the valued added tax, excises etc.).
- non-fiscal incomes as the takings collected during the primary
distribution stage of the national gross product. They are related to
the states quality of owner and organizer of the entire budgetary
activity. This category includes: collected payments from the
autonomous administrations, collected payments of the public
institutions, taxes for certificates and inventions, consular taxes,
fines, money from using the confiscated goods, etc.

Capital incomes are sources which the state uses if the current
incomes are insufficient. Into this category there are: the elimination of
foreign interests, sums that come from the usage of goods that belong to
the state etc.
In the budgetary classification, expenses are classified according to
the functional and economic criterion. The functional criterion takes into
consideration the separation of expenses on areas of activity where the
state has major implications: general public services; defense, public order
and national security; social-cultural expenses: education, health, culture,
religion, social assistance, allowances, pensions, aids and compensations;
economic activities which include expenses concerning the commercial
companies of national interest from industry, agriculture and forestry,
transport and telecommunication; other actions; transfers; offered loans:
payments on interests and other expenses; loan reimbursements; back-up
funds; surplus/deficit.
29

The economic classification divides expenses according to their
nature in the following categories:
- current expenses (ordinary) which are constantly made in any public
institution (costs with the personnel, material expenses, the services
etc.);
- capital expenses (extraordinary) are the ones made during certain
periods and they basically concern the institutions investments,

28
Cosmina Pitulice & Mariana Glvan - Contabilitatea instituiilor publice din Romnia,
Contaplus Publishing House, Ploieti, 2007, p.244.
29

22

those of the autonomous administrations and of the commercial
companies with integral or majority state capital.

Besides these two big categories of expenses, the economic
classification includes a particular title regarding the financial operations,
respectively various loans for financial recovery or the financing of certain
objectives approved through bilateral conventions or inter-governmental
agreements.
The classification criteria of the state budgets incomes are an
important codification mechanism of the financial-accounting information.
The classification of public incomes and expenses is very important for the
activity of the states treasury because the indicators classification
regarding the public finances shows basic elements for codifying the
accounts from the treasurys accounting system. Moreover, it is necessary
for it to ensure the funds outlining in a way which would allow the pursuing
of incomes according to their nature and provenance and of expenses
according to the destination established through budgets.

2.4. Classic and modern building public budget
30

Classical methods of foundation budget, although different methods,
all from the same premise, that revenue or expenditure budget for next year
can predict with regard to their level of performance in an earlier period,
which is usually the year preceding the current one which is based on
known execution data about revenue and expenditure.
Modern methods seek substantiation of revenue and expenditure
budgets starting from goals and programs to be achieved. The budget is
divided into sub-budgets on activities, following that for each sub-budget
take place a foundation of revenue and expenditure by type of revenue and
expenditure. By adding the sub-budgets, plus revenue and expenses of
general activities of the institution, carry out general budget.
It is apparent therefore that the difference between modern and
classical methods is in content.
Modern methods provides design philosophy about revenue and
expenditure budget of an institution for the establishment of objectives to be
achieved, possibly over several years, and having regard to the
establishment of indicators of efficiency, while traditional methods are

30
This chapter is based on: Creu Carmen, Gheonea Victoria, Talaghir Laureniu,
Manolache Gabriel, Iconomescu Teodora Budget Performance Tool in Public Sector:
http://www.wseas.us/e-library/conferences/2010/TimisoaraW/EMT/EMT1-58.pdf


23

providing resources, tools to substantiate revenue and expenditure from
program budgets.
31

2.4.1. Classical methods

Traditional methods of assessment of revenue and expenditures
has some limitations due to insufficient volume of information and the
impossibility of forecasting and quantifying the effects of factors that will
influence the real economy and financial of a public institution in the future.
Automated method is easiest, which do not require a large volume
of work. Ignorance of actual achievements of the current year, determines
the assessment next year draft budget based on the revenues and
expenses of previous year ended.
Difficulty, even impossibility, to maintain the same economic, social,
legislative and policy over a period of three years (previous year - year
ended, year - ongoing and next year - which is developing the draft budget)
is disadvantage to this method to present a real budget. Only by way of
exception, in a near-zero inflation, this automated method can be applied.
32

Method increase (or decrease) consists in determining the volume
and structure of the draft budget by calculating average annual rate of
increase (or decrease) of budget revenues and expenditures from analysis
of budget execution results from previous years (at least the past five
consecutive years). By extrapolation of past trends in the future, considered
the reference, are incorporated in the draft budget and influences of
negative economic phenomena occurred in the years formed the basis of
calculation (inflation, unemployment). Method characterized by automatism
implies the existence of stable or slightly growing economies.
33

Direct assessment method, the most used, sets the most realistic
needs and possibilities of purchasing of public resources by performing
calculations for each source of revenue and expenditure for each category.
The calculations take into account certain achievements in the months
already elapsed and forecasts for the coming months of this year and what
factors will make its mark on the macroeconomic context in the following
year.
Sizing budgetary indicators will reflect changes in key
macroeconomic aggregates: economic growth, consumer price index,

31
Iulian Vcrel (coordinator) - Finane Publice, VI Edition, Didactic and Pedagogic
32
Constantin Roman - Gestiunea financiar a instituiilor publice, Economic Publishing
House, Bucharest, 2000.
33
Cristinel Ichim Fundamentarea indicatorilor bugetari n cadrul procesului bugetar
local, Annals of University "Stefan cel Mare", Section Economics and Public
Administration, Suceava, 2005, p. 115-121.

24

unemployment rate, foreign exchange currency. How real economic
opportunities to support fixed revenue, public expenditure variables are low,
the method can not size the rigorous budgetary indicators. Occurs the
disadvantage frequent budget adjustments throughout the execution in the
sense adjustment expenditure to revenue level. An estimate of public
expenditure should not assume their automatically growth, but their optimal
sizing, so it is possible to sustain and support.
34

Incremental budgeting is the traditional budgeting method in which
the emphasis is on budget execution "correct" as planned on items
(salaries, supplies, postal services, etc.), without evaluating the results,
impact costs in terms objectives. For this reason, the incremental budget
seeks inputs (spending "proper" money) not outcomes; there is no a
necessary, documented as such between inputs (costs) and achieve goals;
information contained in the budget refers only to costs, not the
achievements, so that managers have not at hand the necessary
information for effective decision making (asymmetry of information is
encouraged). This disadvantage makes it stiff; allocation of expenditure
between budget items is strictly without allowing the manager to return,
except possibly the initial allocation. This leads to inefficiency because
amounts unspent to a specific article decrease the budget for that article for
the following year; there is no incentive for saving, but rather is encouraged
waste of resources, even if "correct" in legally. The key feature is the
orientation to the past with the previous year based, in which incremental
changes are made. Has the advantage that it is easy to achieve and
perform well in the short term (usually one year) and where there are highly
complex activities. Instead, the method makes no reference to notions of
efficiency, effectiveness, does not operate on larger time horizons and
show the nature and not the purpose of expenditures.
35

The main shortcomings of conventional methods for sizing
budgetary indicators are found in insufficient volume of used information,
impossibility of forecasting factors with direct influence on the real
economy, and do not take into account the efficiency of financial resources
allocated.
36
Classical methods of assessment of revenue and expenditures
aimed at quantifying the financial efforts necessary to achieve certain
objectives, without value judgments on the usefulness, appropriateness
and effectiveness of these objectives. For these reasons, many states have

34
Iosif Moldovan, Mihaela Herciu Finane Publice, University Lucian Blaga, Sibiu,
2009.
35
Luminia Popa - Performana n sistemul public - concept, modaliti de msurare,
evaluare si elaborare a bugetului instituiilor, Revista Profil: Concuren, No. 1, March
2006, journal published by the Competition Council, p. 11-15.
36
Iosif Moldovan, Mihaela Herciu Finane Publice, Universitatea Lucian Blaga, Sibiu,
2009.

25

abandoned traditional methods of evaluation of public expenditure in favor
of modern methods.
In international practice, two main methods were structured,
namely:
I. US-style methods: "Planned Programmed Budgeting System"
(PPBS), "Management by Objectives" (MBO) and "Zero Base Budgeting"
(ZBB), and
II. Methods of French inspiration: The programming of public
outlays "La Rationalisation des Choix Budgetaires" (RCB).
Based on these methods, other developed or developing countries
have developed their own methods to streamline the budget options
adapted to the socio - economic specific to each state.

2.4.2. Modern methods

Modern methods are based on cost-benefit analysis (or cost-
effectiveness), thus having a probability much higher in practice than
classical methods.
Cost-benefit analysis involves the efficient allocation of scarce
resources by measuring the costs and gains would evolve as a result of
alternative directions for action. Among several projects, the selection
criterion is to maximize utility, opting for those projects that maximize
results with a certain level of costs, or leading to the same effect with
minimum cost.
Recent reforms aimed at re-entry programme budgeting to
encourage accountability of managers toward outputs and not just inputs.
Success depends on establishing performance indicators and their
analysis in decision to continue funding programs and reallocate funds to
other priorities. Benefits programme budgeting concerns that allow
longterm budgetary planning, the foundation of decisions on objectives and
not just "correctness" execution of previous budget.
"Planned Programmed Budgeting System" (PPBS) - a method of
sizing the expenditure which was originally applied initially in military
spending (1961) and then extended to the federal government (1965).
Objective was that by collecting a large amount of information and
processing scientifically, to define rational criteria of public management
funds to ensure the allocation of budgetary appropriations by the returns
(benefits) offered different categories expenditure. The method consists in
identifying long-term objectives, quantifying costs and benefits of different

26

programs can be funded from the budget and establishes a ranking of the
indicators of their effectiveness.
37

It allows the identification of "vertical options" in the same ministry,
but does not allow the "horizontal options" formulation, that underpins the
allocation of budgetary appropriations between ministries. This implies a
common criterion of effectiveness for all ministries, which is difficult to find
and implement. The method was designed as a tool for allocating
resources among programs, but after six years of implementation, due to
discouraging results, it was abandoned. Although not led to expected
results, this method ensures the use of analytical methods, the use of
means according to the purposes and provides studies, forecasts and
benchmarking to establish and implement budgetary programs. Instead, as
budget decision is based technocratic rather than political criteria, the
method has been criticized in terms of risk of strengthening the technocratic
power and reducing policy-makers choice, the extent that accepting the
scientific criteria, is calling for alternative ranked first. Also, the method has
the disadvantage of being unable to clearly define targets, which give rise
to confusion between objectives and means of achieving them and the
difficulty of accurately calculating the direct costs and especially indirect
(including generated by externalities).
38
Budgetary programs are associated
with new public management and involve the shift from detailed regulation
of how public money is spent on the initiative and responsibility on
managers to achieve the targets; it links all the parties to whole and
connects present at the future.
"Management by Objectives" method (MBO) a consequence of
attempts to improve and adapt the method PPBS, resulting from the
requirements of time (1970-1975), the method was inspired by the
management policy pursued by major U.S. private companies (General
Motors) and subsequently adopted by the Federal Ministries. It involves
identifying the aims, targets for each area of activity. Unlike PPBS, to MBO
method, selection of targets is not the user decides, and allows the
"horizontal options" formulation. The method was conceived in the context
of overall planning in five years, to allow coordination of objectives between
ministries.
39

"Zero Base Budgeting" methode (ZBB) is practiced in the U.S.
since 1980 in order to prevent excessive growth of spending each year.

37
The Florida Office of Program Policy Analysis and Government Accountability
(OPPAGA), A Report on Performance Based Program Budgeting in Context: History
and Comparison, Report No. 96- 77A, April 1997.
38
Cristinel Ichim Fundamentarea indicatorilor bugetari n cadrul procesului bugetar local,
Annals of University "Stefan cel Mare", Section Economics and Public Administration,
Suceava, 2005, p. 115-121.
39
Peter F. Drucker - The Practice of Management, Harper&Row, New York, 1954.

27

The method consists of choosing combinations of programs to
minimize costs of achieving a particular goal, under conditions imposed by
the level of resources.
40
Unlike incremental budget model that starts from
the previous budget, at ZBB method previous budget can not be a
foundation for future budget, the latter needs to be justified in terms of
certain programs and estimating costs for these programs; basically, no
financing is not considered justified because it was already started, but
must always be reviewed in light current developments and needs. In its
modern form, the method has been developed by Peter A. Pyhrr, a staff
control manager at Texas Instruments in Dallas, starting from "zero base"
which means the lowest cost that can be achieved target.
41
Thus, costs are
reviewed periodically (annually), from the smallest decision unit (office), in
terms of hierarchy to the highest. It is supposed that each assumes that
there is no budget available for the current year and develop alternatives
for each funded program. For each program determines the minimum level
of effort, that "the zero base", and assessing the consequences of reducing
spending this minimum.
Using ZBB is based on identifying the present value of alternative
programs and their hierarchy in relation to the criterion of net profit and
benefit-cost ratio. Any project is eligible or if the net benefit is positive
(Benefit Cost > 0), or if the ratio advantage-cost is > 1 (Benefit Cost >
1). The primary credit holder takes over the budget figures corresponding to
the expenditure lower decision units for the previous year and examine
each program, in part, the usefulness and effectiveness. If a program is
observed that the yield is very low, then we are at level 0, which means a
cancellation of budget allocation for that program. If the yield program is
relatively low, compared to the amounts spent we stand next to a low level,
which means continued funding, but with lower resources. When we are in
the normal (expected return), then allocations remain unchanged and at
high level, increase funding for the program. The same process will be
conducted and the lower hierarchical level to basic, choosing which
projects should be funded from existing resources. After being shown
andassessed both costs and corresponding benefits it can proceed further
update net benefits. Future net benefits are reduced where there is a
positive real interest rates in the economy, which makes a monetary unit
gained in the future by way of profit to account for less than a monetary unit

40
Lawrence A. Gordon, Allen Schick - Executive Policy Making Authority and Using
Zero Base Budgeting for Allocating Resources, Policy Studies Journal, Vol. 7, Iss. 3,
1979, p. 554-568.
41
Peter A. Pyhrr - Zero Base Budgeting, Harvard Business Review, Vol. 48, Iss. 6, Nov.
Dec. 1970, p. 111-121.

28

gained in the present as benefit.
42
Obviously the method is based on the
ability of managers to plan their budgetary policy, to choose between
alternatives development and on the allocation of resources.
Conceptually, ZBB method is the most important model of
budgeting, because it is the only way to stimulate public institutions to be
effective (not to wasted public money), and effective (to meet the needs of
citizens). Method failure was due to the complexity of the phenomenon and
the time factor and hurry with which it was introduced and implemented; it
is difficult to identify and assess the overall results can be obtained at a
certain level of public spending.
43
In fact, the method has never been
satisfactorily implemented; the main problem concerns the workload in
compiling documentation to justify the budget and practical problems posed
by the discontinuity in funding programs.
Moreover, in many cases led to increased costs due to the large
number of employees assigned to develop supporting documentation,
without the need for justification to lead effectively and eliminating
redundant costs. Additional workload created so determined resistance
from employees for the method.
Streamlining budget options (RCB) - the method is a collaborative
effort French specialists adaptation and improvement of American PPBS
method.
44
Given limited resources, RCB method is to identify and study
aims to compare alternative solutions, decision analysis based on cost
benefits and permanent control of spending resources. It is a systemic
analysis that, by successive iterations, recasts objectives and means used
to achieve them, allowing a decision maker to choose a preferential action
of several possible alternatives. Ability of adaptability and reformulation
options that provide a self-regulating system is very original element of the
method. Holder program is free to managing the funds, so to achieve goals.
Selection of the objectives is made based on criteria established by
decider, according to priority and the hierarchy of objectives [19].
45
Most
important is to identify all solutions which enabling to achive the selected
objective. Most often, one and the same objective can be achieved in
several ways, for which reason it requires comparing alternatives and it is
necessary to determine the total cost of achieving the programs offered in
different versions based on decision based on cost-benefits, cost-

42
Peter C. Sarant - Zero Base Budgeting in the Public Sector: A Pragmatic Approach,
Addison-Westley Publishing, Massachusetts, 1978.
43
Virendra S. Sherlekar, Burton V Dean - An Evaluation of the Initial Year of Zero- Base
Budgeting in the Federal Government, Management Science Journal, No. 8, 1980, p. 750.
44
Ton Van der Eyden - Public management of society: Rediscovering french institutional
engineering in the european context, IOS Press, Amsterdam, 2003.
45
Premchand, A. - Government Budgeting and Expenditure Controls: Theory and Practice,
International Monetary Fund, Washington D.C., 1984.

29

effectiveness or multi-criterial analysis. Determining budget options based
on economic criteria has the advantage that it allows overall cost of
operations, whatever funding sources are, which means shift to budget
financing to public expenses covered only from multiple sources. Another
advantage of the method refers to the information provided about the cost
of a certain chapter of budgeted expenditure, whose elements are spread
out over several budgetary appropriations [11].
46

46
Hubert Lvy-Lambert - La Rationalisation des Choix Budgtaires; Techniques d'analyse,
Presses Universitaires de France, Paris, 1971.

30

Chapter 3

The Quantification of the Performances of Public Institutions

Understand the need to quantify the performance
Understand how to determine performance in public sector
Identify which are performance indicators
Describe caracteristics of performance indicators
Understanding how it works the Balanced Scorecard in public
sectors

Contents
3.1 Performance measurement - theoretical concepts
3.2 Indicators of performance
3.3 The Balanced Scorecard as a Public Sector Performance
Evaluation Method

3.1. Performance measurement - theoretical concepts

When we speak about the performances measure it can be
distinguished at least three distinctive notions:
1. Performances measure is a process through which is established
how close we are from the announced objectives, including the
information about the efficiency of the expenses of the resources,
the obtained results, the quality of these and the efficacy of the
operations;
2. A performances measure is a measurable indicator used to quantify
the efficiency and/or the efficacy of one action;
3. A system of the performances measure is a set of indicators of
performance, used to measure the efficiency and/or efficacy of the
actions of one organization.

Nowadays, the performance can be calculated, its measurement
getting more and more global dimensions. Countries from different parts of
the world, such as France, Great Britain, Germany, New Zeeland, United
States of America, Brazil, Japan, South Korea etc., indicate lately high
investments for the implementation of efficient systems meant to measure
the performance within the public sector. The international experience
concerning the measurement of the performance within the public sector

31

started in 1967, in France with the publishing of NORA Report. This report
sustained the need for the introduction of a management contract for the
state companies, able to cover certain elements and conditions for
obtaining the performance. Thus, in 1969 the first managerial contracts
were concluded and signed by the Socit Nationale des Chemins de Fer
(SNCF) (National Railway Company) and Electricit de France (EDF)
both being companies with state capital.

Performance measurement is a systematic process who affords
evaluation of the efficiency and effectiveness of an organization or a
program. It applies real information (quantitative and qualitative
characteristics) to help managers and customers (in our case, the citizens)
to determine whether the expected results are being achieved. Thence,
measuring process is a sequential action taken inside or outwards public
institution to establish performance standards, evaluate performance, and
take corrective action where indicated. The process involves the selection,
definition and application of performance indicators, which quantify the
efficiency and effectiveness of the institution, program or office analysed,
based on inputs, outputs and outcomes.
Input: measures of what a public institutions or managers have
available to carry out the program or activity. These can include: personnel
(office workers), funding equipment or facilities, supplies on hand, good or
services received, work processes or rules etc.
Output: a tabulation, calculation or recording of an activities the
program unfurled of a public institution or effort that can be expressed in a
quantitative manner such as, the total amount of building tax entered in the
debit register or the number of children who need to be vaccinated against
a certain disease during .... etc.
Outcome: an assessment of the results of a program compared to
its intended purpose, such as, the total amount of building tax debited and
collected; the number of children effective vaccinated etc.
Performance measurement and evaluation are different but
complementary.
The European Commission defines performance measurement as
a continual process carried out during the execution of the program, with
the intention of immediately correcting any deviation from operational
objectives. Evaluation, on the other hand, is specifically conducted at a
discrete point in time in the life cycle of a program, and consists of an in-
depth study. They differ by the natures of the questions: evaluation asks
the why and how questions, whereas performance measurement asks the
what, how much
47
.

47
Ian C. Davies - Evaluation and Performance Management in Government, SAGE
Publications, London, 1999, p.152.

32

The standard of performance (the objective of performance)
represents the value of the estimated performance or the purpose of the
performance expressed by means of a quantitative value or a rate (when
dealing with the comparison between the real level and the estimated one.
The established objectives should correspond to the purpose of the public
institution or of the program developed within this institution, and at the
same time they should be realistic, otherwise the presented results can
express a false reality. The organization is not motivated to try to reach
overestimated goals. Underestimated standards may give the false
impression that the organizational performance is better than it is in reality.
As important as the definition of performance standard is the
definition of the indicators of performance.

3.2. Indicators of performance

The indicators of performance are primary instruments used in the
process. They represent the way of quantifying the changes produced
within the standards of performance. Public sector performance indicators
provide information on the efficiency and effectiveness of government
programs. These programs are intended to address certain issues in the
public interest such as: the quality of our food, water and air; public safety
and health; and many other environmental, social and economic issues.
Performance indicators need to be presented in a manner and form that
enables program managers and external audiences to assess whether the
current level of performance is good or bad, and whether performance is
improving or worsening, and to what extent.
The performance indicator may be defined as a number (a
measure) measuring and then transmitting the information concerning a
certain aspect in the evolution of the public institution or of a program.
Thus, for using it in different analysis, the indicator should be compared
with standards or purposes previously established, or with the results
achieved by similar organizations.
In public sector, the performance indicators may consider making
one or more of the following types of comparisons:
48

- to levels of performance in previous years;
- against targets set by the public institutions;
- to similar programs in other public institutions;
- to similar programs in other states or countries;
- against commonly accepted professional or technical standards,
e.g. standards for building design, road maintenance, desired
reading skills for ten year olds, and so on;

48
Harry Hatry - Determining the Effectiveness of Government Services, in Handbook Of
Public Administration, ed J. Perry, Jossey-Bass, London, 1989.

33

- across geographical areas or between client groups within the one
district. For example, the level of performance in one district can be
used as a target level for other areas;
- across different work units within the one public institution.
Measures can be compared across different police, fire, or road
maintenance districts within the state for example; and
- finally, comparisons can be made of public sector costs and results
with similar private sector organizations. This type of comparison is
of limited value at present however, because many government
services have no private sector equivalent.

The works in the field use the term of benchmarking for the
comparative study with the best results achieved by other similar institution.
The benchmarking concept consists in taking over or creating a database
containing significant performances, made up of an analysis of similar
public organizations, similar activities of certain departments within the
same institution and a comparison of their efficiency to the range of
achieved experiences.
At national level (Romania), one may mention to this effect, starting
from the year 2003, the effort made by the Local Body Federation of
Romania (LBFR) together with the World Bank Institute in order to create a
database containing at present, 583 performance indicators. The following
classification of the 583 performance indicators is given: 48 financial
performance indicators (for example the revenue rate deriving from the
property tax within the total amount of revenues; revenues for investments
per inhabitant, staff costs distributed per inhabitant etc.); 38 general
indicators (for example the whole population, active population, the number
of school teachers in different educational stages, recipients of welfare
work etc.) and 497 essential indicators (for example the current revenues,
capital revenues, revenues with special destination, drawings from the state
budget etc.).
The creation of a performance indicator system depends on several
actions:
49

- definition of the vision and mission of the organization. The vision is
the image of the possible future concerning the institution the
long-term expectation of the party in power, of public managers and
office workers from the public institution. The mission is defining as
the purpose and the role played by the institution the mission
pulse is very important in order to create a relation based on trust
between the wage-earners (office workers). They must believe that
the organization exists just for achieving something important;

49
Adhemar Paladini Ghisi - Desempenho das Entidades Fiscalizadoras Superiores e
Indicadores de Rendimento, X Assemblia Geral OLACEFS, 2000, p.6.

34

- definition of the strategic objectives of the organization;
- understanding of the critical factors for the reach of those
objectives;
- elaboration of a map that contains the main products or services
rendered by the organization;
- selection of a group of indicators starting from the aspects
previously analyzed;
- fixation of goals related of each indicators.

Likewise, a criterion for a good set of performance measures is:
valid; reliable; understandable; resistant to perverse behavior;
comprehensive; non-redundant; accuracy; focused on performance.
50

In this context, the main attributes of the indicators are:
51

- Adaptability - capacity to answer to the changes of demands and
behavior of the customers. The indicators can become unnecessary
along the time and they must be eliminated immediately or
substituted by others that are more useful.
- Representation unnecessary data or inexistent data should not be
collected, these must be eliminated. In compensation, important
data should be necessary to reach the objectives and be obtained
from the correct source (reliable). This attribute deserves certain
attention, because indicators that are very representative tend to be
more difficult to be obtained. Therefore, there is a certain balance
between the representation and the availability for collection.
- Simplicity easily understood and applied by the executioners and
also, by the people that will receive their results. The names and
expressions should be known and understood by all involved on the
process in a homogeneous way, guaranteeing wide validity for all
the organization.
- Traceability easily identifying the origin of data, its registration and
maintenance. Whenever possible, it is interesting to have the
indicator presented in graphs, what allows the comparison with
previous actions.
- Availability easy access to collection data. The data must be
available on time, available for the right people and must be without
distortions. There is no use for information that is correct but late

50
Kim, J. S. and Kang, H. S. - Performance Measurement Initiative: A Status Report And
Reflection, KonKung University and Seoul Development Institute, Seoul, 2002, pp. 239-
267.
51
Paulo Peixoto - Desenvolvimento de Sistemas de Indicadores de Desempenho
Institucional para Organizaes Pblicas, IOC, 2004, p.15.

35

and not up-to-date. And also, there is no use for information that is
current and correct but available for the wrong person.
- Economy it is not appropriated to spend too much time seeking
data, much less researching or awaiting new collection methods.
The benefits brought with the indicators should be larger than the
costs for measuring. If not, in time the organization will be
measuring it own bankruptcy.
- Practicability - it guarantees that it really works in practices and it
supports the management decision process. In that, it should be
tested in the field and if necessary, modified or excluded.
- Stability - it guarantees that the indicator is generated in a routine
process and this process is not modified allowing the formation of
historical sequences.

Thence, a good indicator of the performance is due to is SMART.
S.M.A.R.T. describes nine qualities (S Specific, Sensible; M
Measurable; A Achievable; R Relevant, Reliable, Reportable; T
Timely, Time-based).

Performance measurement is one powerful tool available to be used
to improve management in public sector. There are many good reasons for
public organizations to measure performance. If this activity is well
performed, the measurement of the performance may lead to various
benefits, from which the organization as well as those outside it, may take
advantage. As follows, we shall present, the main arguments in support of
the performance measuring:

Provide accountability to the public and higher levels of authority. It
is the efficient way of communicating with the citizens (electors) involved in
a certain program. It helps demonstrate what works well and what does not.

Stimulate public interest. If measures of performance are
communicated to the public, many citizens will feel that they have a better
understanding in how government services are doing, and citizens may
become more involved as a consequence.

Improves the dialogue in order to clarify the logical character of the
programs developed by the public institutions. Achieving the performance
determines the program organizers, managers and the staff (wage earners
and public office workers) to ask themselves the following question why
doing a certain thing?, it sometimes may lead to a change of hypothesis
and traditional working methods. This benefit is often more valuable when
those who are outside the organization, less used with the program, take

36

part together with those who are involved in the elaboration of certain
corrective arrangements.

Help to motivate employees. Most people like to be part of a
winning team. But one can tell that the team is winning only if someone is
accurately keeping score. Even if the results are not as good as hoped (the
team is behind in the score), the team members are likely to be more
strongly motivated when they know where improvement is needed than if
this is unclear.

Focuses the political discourse upon the results. The political
discourse (for example, within the local councils) depends on the type, the
quality and the volume of the available information. When information
regarding the proportions of the performance lacks, there is the unfortunate
tendency that the discourse might relay on speculations and anecdotes. An
exact determination of the performance may orient the discussion to
questions and elevated observations concerning the execution of the
projects, their effects and efficiency.

Identify opportunities for improvement. If performance shortfalls are
identified early, the agency can take timely corrective actions and evaluate
the effect of the actions.

Directs the management for the allocation of resources. An
adequate measure of the performance may provide valuable entries, for the
process of budgetary planning as well as for the budget execution. Thus
the program organizers and the managers of the public institutions are able
to perform a better determination of the investment rate.

Builds the political support. It is perfectly legal and justified to use
the proportion of the performance for proving the favorable influence of
certain programs and political actions over the key electorate, in order to
obtain electoral support or the growth of funds allotted to those programs.

A system of the performances measure doesnt have any value if
the information which is provided by the system is not used for the
improvement for the function of the whole organization. Depending on
these data (but not only) it must be taken different decisions regarding the
developed activities. Also it can be decided the modification of the system
of the performances measure (and through the adding, the abandoning or
the modification of some indicators) and the effectuation of some complex
evaluations of some programs.

37

In the contribution of a system of performances measure we have
two axioms: It must be measured everything that has a connection with the
organizations objectives; the measures should be simple and cheap.
The two axioms seem to contradict one another. The first one tells
us that to have an efficient system of the performances measure we have
to take in account all the elements of relevant performance, while the
second one emphasizes the importance of the rapid measure and with
reduced costs, which is not possible in all cases. The system of the
performances measure should not become a charge too onerous, from
financial point of view and of the time. In case that happens this, its
efficiency will be reduced fairly much.
The problem appears when the measure of some performances is
not possible because of money or of time. In this case it can appear a
distortion of the organizations activity. Through the measure of some
indicators the organization (its members) concentrates only to fulfil these,
neglected other aspects. For example, if it puts the accent on the velocity
with which the officials of some public institutions resolve the peoples
demands, we might arrive to a superior velocity, but in the qualitys
prejudice. Because of this we have to measure also this aspect. The
fulfillment of these two axioms may be put in connection with the quality of
organizations members. The system of the performances measure must
be put in connection with the organization, and also with the external
environment. There are different components of the organization, which are
in connection one with another. A graphic representation of these
connections, under a holistic model, was proposed of Rouse and Putterill:
52

52
Paul Rouse, Martin Putterill - An integral framework for performance measurement,
Emerald Group Publishing, Management Decision, no.41/8, 2003, pp. 791-805.

38

This model contains from interior to exterior the elements of the
basis of the process, the system of the performances measure, planning-
utilization dimension of the resources, organizational structure, and the
connection with the external environment (under the term of beneficiary we
include to all that are interested of the organization - clients, partners,
community, etc.)
For applying a performance measuring system within a public
institution, there are four types of challenges for the managers:
communication, analysis, measurement and political
53

Communication. The managers responsible for implementing the
system must communicate clearly and frequently with all stakeholders

53
Kathryn Newcomer - Measuring Government Performance, George Washington
University, Washington, USA, 2003, p.330.

39

involved in the processes. The communication with the high administration
is necessary to keep the system correctly aligned with the strategic
objectives of the organization. Managers in each department (service,
office) involved in achieving the standards or the established objectives
need an adequate harmony of the indicators and of the way they are
affected by the activity developed. It is also necessary the existence of a
channel of communication between similar public institutions, having non-
governmental organisms or organizations etc., whose activity may affect
the planned objectives. In short, it necessary to owe a clear communication
with all those who contribute directly or indirectly to achieve the purposes or
the planned objectives.

Analysis. The analytical capacity to map program logic accurately
and to conceptualize appropriate outputs or outcomes to measure is a
second fundamental challenge for those charged with measuring
performance of public programs

(Newcomer, 2003, p.333). Only starting
from a necessary and systemic analysis of the organization, its mission and
objectives, is it possible to identify what should be measured. The
evaluation can concentrate on the inputs and outputs, or in the outcomes,
following a line guided for administration for results.

Measurement. The ability of designing, dimensioning and using
significant indicators sufficient to capture (illustrate, emphasize) the
achieved performance, depends on the analytical capacity of the persons
who are charged with it. But, to spread this responsibility related to the
performance to the entire personnel within a public institution supposes a
good knowledge of all the examination methods concerned with data
precision and security.

Political. Finally, the efforts made for proportioning the performance
will be successful if there is enough political capital in order to involve those
who detain a real or psychological position within the organization (office
workers, public managers, citizens, bankers etc.) and to convince the
leaders politically involved that the performance indicators, belonging to the
proposed system, may be used by those who adopt managerial status
within the public institutions.
Along these four types of influence factors, the researchers identify
a fifth one, namely the organizational culture. According to their research,
when the political system concerned with the use of performance indicators
comes from inside the organization as an internal requirement, there is a
greater chance to have this system of indicators implemented.

As a conclusion, experience in developing performance indicators
suggests that:

40

- to provide a credible basis for improving public service delivery,
program recipients (receptors) should be involved in identifying the
important aspects of service delivery;
- rarely will a single indicator adequately describe all aspects of
program performance. Usually a small set of critical key indicators is
necessary to provide a balanced perspective;
- in establishing performance indicators, public agencies should use
existing information sources to the greatest extent possible. This will
help to contain costs, and ensure that the data is easy to collect;
- meaningful reporting of performance requires the interpretation of
indicators through explanatory notes. As a part of this explanation,
outside influences on program performance need to be
acknowledged;
- performance information needs will evolve over time, as will
understanding about the service being delivered and its
performance. Measures of performance must be reviewed regularly,
and updated when necessary;
- developing performance indicators is an iterative process, and this
process requires considerable managerial skill and commitment;
and
- program managers must take the initiative in the development of
meaningful indicators, and own the process.
As another conclusion we may say that the implementation of the
performance indicators constitutes an indispensable instrument of
management in a modern public administration. The civil society solicits
more quality in performing the public services and a higher efficiency in
administrating the public resources. Thus the performance dimensioning is
necessary.
The process of performance quantification is not a form of forcing
people, but this important instrument of management used by the public
institution can convince and determine them to achieve performance, this
fact depends only on the honesty of the persons involved. All the principles
concerned with guiding the process and the rules must be put before,
discussed and agreed by all the persons living in the area where the public
institution carries on its activity
The performances measure is a process very complicated which
needs time, money, knowledge, and, why not, will. In the projection of a
system of the performances quantification it must be applied knowledge
from a multitude of domains: social sciences, management, sociology,
accounting, psychology, mathematics, technology of information, etc. For
every public institution there is a different set of the performances
indicators, a set which permanently must be modified depending of the
outputs changes, but also the extra-organizational.

41

More than this, the system of the performances measure must take
part in natural mode from the organization. The assessment of thus
systems against the organizational climate will give adverse results to the
discounting one. Today, almost everybody is implicated in different systems
of determination and performances measure, bur unfortunately, the
performance does not make part from each of us.

The most common types of performance indicators used in practice,
are:
- Productivity / Service Delivery Outcome;
- Cost / Efficiency;
- Quality;
- Customer Satisfaction.

Exemplifying, somewhat standardized and categorized by the policy
area in which they apply, the most commonly reported indicators appear
below:
Health
- Public health spending as a % of GDP;
- Public health spending per capita;
- Doctors per 1.000 inhabitants;
- Deaths per 1.000 inhabitants;
- Intensive care beds per 1.000 inhabitants;
- Average time spent in intensive care;
- Life expectancy at 65 years old;
- New births / deaths ratio.
Education
- Public spending for education as a % of GDP;
- Class hours per academic year;
- % of registered students per level;
- Personal computer per student;
- % of schools with internet access;
- % of citizens that have graduated from secondary education;
- Illiteracy ratio;
- Cost of university education per student.
Economy-Taxation
- % of Internal market directives adopted;
- % Increase in nominal labour cost per unit;
- % Annual change in labour productivity;
- Annual change in real labour cost per unit;
- GDP growth (%);
- % Annual increase in nominal wages;
- % Increase in real wages;
- Balance of payments to public debt;

42

- % of General Government net liabilities;
- % of General Government gross liabilities;
- Number of tax audits.
Public Employment
- People employed / population (%);
- People employed / population, by age (%);
- People employed / population, by sex (%);
- Long term unemployed to total unemployed by sex (%);
- Public spending to combat unemployment as % of GDP;
- Part-time employment by sex.

Profit is the business driver in the private sector and return on
investment (ROI), is the key measure of assets performance, which is the
ratio of financial gains or losses on capital asset investment, relative to the
amount of money invested. The public sector however is based on a
different exemplar, and the key driver for the ownership and management
of assets is the provision of service to the community. Unlike the private
sector, public sector organisations do not normally have an associated
income stream and are not intended to generate a profit. The private sector
is also affected by different asset management imperatives associated with
taxation and depreciation of assets. The application of private sector asset
performance measures that are based on the premise of income and profit,
for example Return on Assets, Revenue Ratio, Revenue per m etc., is
therefore not appropriate to the management of public sector assets.
Consequently there is a need to establish a suite of performance measures
for the effective and efficient management of public sector assets.

3.3. The Balanced Scorecard as a Public Sector Performance
Evaluation Method
54

The Balanced Scorecard is a technique developed by Kaplan and
Norton (1992)
55
that helps organisational decision makers to navigate the
organisation towards success.
The technique enables organisations to translate their mission and
strategy into a comprehensive set of performance measures that provide
the framework for a strategic performance measurement system.

54
This chapter is based on: Australian Asset Management Collaborative Group (AAMCoG)
Public Sector Asset Performance Measurement and Reporting, Brisbane, 2008, pp. 27-28.
55
Kaplan R. and Norton, D. P. - The Balanced Scorecard - Measures that Drive
Performance, Harvard Business Review, January-February, 1992

43

Organisations have used the Balanced Scorecard to (Kaplan and
Norton, 1992; 1996; 2000)
56
:
- clarify and translate vision and strategy;
- communicate and link strategic objectives and measures;
- plan, set targets and align strategic initiatives;
- enhance strategic feedback and learning;
- succeed in realising both tangible and intangible investment
benefits.
The Balanced Scorecard measures organisational performance,
with emphasis on financial objectives. But, it also includes the performance
drivers of these financial objectives, and measures performance across
four balanced perspectives:
- financial perspective;
- customer perspective;
- internal business processes;
- learning and growth.
Developers of the Balanced Scorecard argue that traditional
financial measures tell the story of the past
57
, and try to address this
inadequacy by complementing past performance measures (financial
measures) with the drivers of future performance indicators (customers,
suppliers, employees, processes, technologies and innovation). The
fundamental concept of the Balanced Scorecard is to derive the objectives
and measures from the overall corporate vision and strategy and to use the
four perspectives as a balanced framework to monitor and achieve these
objectives. A properly developed Balanced Scorecard should:
Represent financial and non-financial measures from all levels of
the organisation (front line to executives).
Maintain an equilibrium between:
- external measures (developed for the stakeholders and
customers);
- internal measures (developed for the bushiness processes,
innovation, learning and growth);
- outcome measures (results from the past) and measures that are
for future performance;

56
Kaplan R. and Norton, D. P. (1992), The Balanced Scorecard - Measures that Drive
Performance, Harvard Business Review, January-February.
Kaplan R. and Norton, D. P. (1996), The Balanced Scorecard: Translating Strategy into
Action, Harvard Business School Press, Boston, Massachusetts.
Kaplan R. and Norton D. P. (2000), Having Trouble with your Strategy? Then Map It,
Harvard Business Review, September-October.
57
Kaplan R. and Norton, D. P. - The Balanced Scorecard - Measures that Drive
Performance, Harvard Business Review, January-February, 1992


44

- objective (easily quantifiable outcome measures) and subjective
(judgmental performance drivers) outcome measures.
Include only measures that are elements in a chain of cause-and-
effect relationships that communicate the meaning of the organisations (or
business units) strategy.

A fundamental feature of the Balanced Scorecard, is that it requires
that each measure should relate to corporate strategies and to each other
in a cause and effect relationship. The individual measures at each
instance would be unique depending on corporate goals and strategies.
58

Thus, identifying corporate goals and strategies in relation to the core
perspectives is a critical preliminary step in a Balanced Scorecard
approach.
The Balanced Scorecard is applied in private and public sectors
from two different viewpoints. In the private sector, the main emphasis is on
financial indicators for managing the organisation. The private sector
responds to fluctuations in market share, share prices, dividend growth and
other changes in the financial perspective. In the public sector however,
entities must respond mainly to legislative acts and are responsible to
Government Agencies and Authorities.
The most common difference between a private sector Balanced
Scorecard and a public sector Balanced Scorecard lies in the purpose of
utilising the Balanced Scorecard.
Public sector focuses on cost reduction and customer satisfaction,
while private sector is mainly focused on revenue generation and
profitability.
For example, performance measurement in the Australian
Department of Primary Industries (DPI) includes evaluation of the
Departments outputs against State wide trends. This broad approach,
based on the Balanced Scorecard, takes both internal and external
perspectives of DPI into consideration in measuring performance. In this
way, the department can link their actual performance with the expectations
of stakeholders (DPI, 1999;
59
2000
60
). As in the standard Balanced
Scorecard, DPI uses the same four perspectives to measure performance
and seek improvements.
The Government approach is tightly integrated to its Managing for
Outcomes (MFO) budgetary system. The expected benefits from the
Balanced Scorecard are to:

58
Kaplan R. and Norton, D. P. - The Balanced Scorecard: Translating Strategy into Action,
Harvard Business School Press, Boston, Massachusetts, 1996.

59
DPI (1999), Operating Environment, Department of Primary Industries, Australia.
60
DPI (2000), Corporate Plan 2000, Department of Primary Industries, Australia.

45

- understand the management approach in a holistic manner;
- relate strategy to performance and action;
- set performance targets;
- focus, communicate and coordinate effort;
- reduce/eliminate blind spots;
- improve management and performance of the organisation.
The Government Benefits Realisation Plan consists of 6 main steps:
- specifying the appropriate business drivers;
- identifying key stakeholders;
- determining the Balanced Scorecard perspectives;
- identifying and applying method/s of measuring benefit;
- identifying initiative to achieve the recognised benefit;
- deploying a risk management strategy including potential risks,
constraints and dependencies.


46

Chapter 4

The Public Procurement

Understand what public procurement is
Understand how public procurement can be defined
Identify parties in a public procurement contract
Identify the objectives of all involved in public procurement
Understand what Value for Money is
Describe basic principles of public procurements
Understand procedures for awarding public procurement
contracts

Contents
4.1 Parties in a public procurement contract
4.2 Value for Money
4.3 Basic principles of public procurements
4.4 Procedures for awarding public procurement contracts
4.5 Award documentation for public procurement

Procurement of goods, works and services is sometimes portrayed
as the combinationof the three fundamentals:
(i) Quality
(ii) Time
(iii) Price.
Competition is an essential factor in achieving this objective and
promotes efficiency and effectiveness in procurement, discourages
monopoly situations and avoids favouritism. A balance needs to be
achieved when deciding on how many tenderers should be asked to
participate in the procurement process. If there are too many the process
becomes time-consuming for both the Contracting Authority and the
tenderers; if there are too few then competition suffers. Tenderers do incur
costs in preparing and submitting their tenders. Hence, an unnecessarily
large tender list will result in much wasted effort by tenderers, which could
be criticised. Generally, the higher the value and importance of
requirements, the more tenderers should be invited to tender.

Public procurement is the process by which government
departments or agencies purchase goods and services from the private

47

sector. It takes place at both a national and regional level. The procurement
process will usually be subject to specific rules and policies covering how
the relevant decisions are made.

Public procurement can be defined as the acquisition, of supplies,
services and works by any public body and ranges from the purchase of
routine supplies or services to formal tendering and placing contracts for
large infrastructural projects by a wide and diverse range of contracting
authorities. Public procurement involves the use of public money to
accomplish specified public purposes, beginning with the identification of a
need and ending with the completion of a contract.

Depending on the legal system, the relevant government officials
will have to follow a set system for public procurement. This system could
cover the way they advertise for suppliers, the grounds on which they
choose a supplier, and the way in which they measure and enforce the
requirements they put on the supplier. The usual aims of such a system will
be to take advantage of competition between suppliers and to reduce the
risk of corruption.
The public procurement system in Romania is similar to those in
other EU member states. That is because the EU legislation the
2004/18/CE and 2004/17/CE Directives of the European Parliament and
the European Union Council was rigorously transposed into the
Romanian one. Consequently, Romanian award procedures are governed
by the principles set by the European directives non-discrimination, equal
treatment, mutual recognition, transparency, proportionality, the efficient
use of public funds, accountability.
Besides G.E.O. 34/2006, which sits at the core of the public
procurement system in Romania, its enforcement norms and the secondary
legislation are also important.
The national legislation in terms of public procurement is intricate
and quite unstable. There are many pieces of law having changed
successively in the last years in order not only to comply with the EU
norms, but also to remedy deficiencies in the system. So the essential
prerequisite for taking part in award procedures organized by contracting
authorities in Romania is to possess good knowledge of the legislation in
force when the procedure is organized.

A potential Code of Ethics in public procurement identifies three
main categories as the follow:
a) Confidence in the public procurement process;
b) Professionalism of employees;
c) Quality of execution.

48

To accomplish these goals, the fundamental basic principles of
impartiality, independence and integrity apply, and should be followed at all
times. This means that:
(i) No suspicion of conflict of interest should be existent;
(ii) Corrupt practice should be immediately reported;
(iii) No impression should be given that actions will be influenced by
a gift or favour;
(iv) Dealings with tenderers must be honest, fair and even-handed.
All employees involved directly or indirectly in the procurement
process are subject to the following:
a) They shall not engage in personal, business or professional
activity nor hold a financial interest that conflict with the duties and
responsibilities of their position.
b) They shall not solicit, accept or agree to accept any gratuity for
themselves, their families or others, which results in personal gain, and
which may affect their impartiality in making decisions on the job.
c) They shall not directly or indirectly use, take, dispose of, nor allow
the use, taking or disposing of any property or resources belonging to any
Contracting Authority.

It is important that all public procurement across the different
contracting authorities reflects the latest and best practices in procurement
as compliance with the EU Directives and the EU Treaty principles on non-
discrimination, transparency, freedom of movement between member
states.


49

Key factors influencing the procurement strategy relate to the
degree of complexity, innovation and uncertainty about the requirement,
together with the time needed to achieve a successful outcome.

4.1. Parties in a public procurement contract

Public procurement represents the method via which the public
authorities or the entities controlled by these authorities (called contracting
authorities), obtain products, and engage works and services from private
or public persons, based on public procurement contracts. The following
are qualified as contracting authorities for the purposes of public
procurement:
Steps to be followed for the
formulation of Procurement Strategy


50

(i) any authority and public institution;
(ii) any legal entity performing non-commercial or non-industrial
activities of public interest, that has one of the following characteristics: (a)
is financed by an authority or a public institution or other public body; (b) is
subordinated/under the control of a public authority or institution or other
public body; (c) more than half of its board, management or supervising
members are appointed by a public authority or institution or other public
body;
(iii) any partnership made up of one or several contracting
authorities mentioned under items (i) or (ii);
(iv) any public company performing relevant activities in one of the
sectors of public utility water, energy, transports and postal services;
Mention should be made that the entity developing economic
activities and that is directly or indirectly under the dominant influence of
the entities mentioned under item (i), (ii) or (iii) above is considered as
public company.
(v) any subject of law performing relevant activities in one of the
sectors of public utility water, energy, transports and postal services and
benefits from special or exclusive rights to perform such activities.

In Romania, several institutions/stakeholders have relevant roles
and responsibilities in the field of public procurement. However, a
distinction should be made between institutions that have competencies
exclusively for the public procurement field (i.e. ANRMAP
61
, UCVAP
62
and
CNSC
63
) and those that intervene collaterally in regulating / controlling /
sanctioning / supporting different aspects of the public procurement system
(i.e. the National Management Centre for the Informational Society -
CNMSI, the Competition Council, ACIS, the Managing Authorities - MAs,
the Authority for Certifications and Payments - ACP, the Audit Authority, the
Department for Fight against Fraud DLAF, and the judiciary system).

The objectives of all involved in public procurement are to:
- Ensure an open, transparent and compliant process;
- Achieve continuous improvement on all categories of expenditure
through a transparent and fair procurement process;
- Achieve Value for Money in all procurement activities;
- Promote equality of opportunity for all businesses and in particular
SMEs and SEs;
- Work in partnership with the private sector and other organisations
to achieve value for money, quality and effective service delivery;

61
Autoritatea Naional pentru Reglementareea i Monitorizarea Achiziiilor Publice.
62
Unitatea pentru Coordonarea i Verificarea Achizitiilor Publice.
63
Consiliul Naional de Soluionarea a Contestaiilor.

51

- Promote innovation;
- Encourage environmental and social sustainability through effective
procurement policies and practices.

4.2. Value for Money
64

All procurement of goods, services and works must be based on
Value for Money (VFM), that is, to deliver:
- the right goods, services, and/or works
- of the right quality
- in the right quantity
- at the right time
- at the right price
- and delivered to the right place.

Value for Money is not just about price. Other factors that may also
need to be taken into account when assessing Value for Money, include:
Availability of suppliers - For example, if there are a large
number of suppliers in the market place it is likely that the cost of providing
supplies, services or works will be cheaper due to the higher level of
competition. In this case it is likely a contracting authority will receive better
value for money.
Additional costs (i.e. transport, postage and packing, storage)
These will vary according to the location of the supplier and the
requirements of the contracting authority.
Possible discounts for bulk purchases (although these may be
offset by interest charges and storage costs). Economies of scale can
reduce costs particularly if there is an aggregation of need across different
contracting authorities.
Objectives of the procurement. The objectives of the
procurement need to be tangible and measurable to be able to assess
value for money.
Environmental considerations and long term environmental
costs It is important that sustaining the environment is not always
thought of as an increase in costs. For example recycling of waste material
on a construction site may reduce clearing costs.
The cost of the procurement process itself. It is important that
the cost of the procurement process is not disproportionate to the costs of
the actual contract.
The location of the supplier. For example in an ICT
(INFORMATION AND COMMUNICATION TECHNOLOGY) service

64
This chapter is based on: PUBLIC PROCUREMENT BEST PRACTICE GUIDE, Version
1.1, 2008, Treasury of the Republic of Cyprus.

52

contract, contracting authorities may get a greater number of consultant
delivery days from a closer supplier than one who includes travel costs and
fewer delivery days.

The purpose of public procurement is to obtain the best VFM
(BVFM) and to do this it is important to consider the optimum combination
of whole life cost (i.e. acquisition cost, cost of maintenance and running
costs, disposal cost) of a purchase and its fitness for purpose (i.e. quality
and ability to meet the contracting authoritys requirements). This definition
enables contracting authorities to compile a procurement specification
which includes social, economic and environmental policy objectives (SEE
criteria) within the procurement process.
Whole life cost includes both quantifiable and non-quantifiable or
intangible costs and benefits.
Procurement processes within contracting authorities can only result
in best value for money when the following ten guiding principles governing
the administration of public procurement have been satisfied to an
acceptable extent:
The ten guiding Principles to achieve Best Value for money:
Competition - Competition among suppliers should be
encouraged in the most efficient and effective way.
Efficiency & Effectiveness - Efficiency and effectiveness should
be sought in the procurement process to secure value for money for the
contracting authority.
Fairness/ Non Discrimination Act fairly during the whole
procurement lifecycle without imposing unnecessary burdens or constraints
on suppliers or potential suppliers.
Avoid any favourably treatment to specific supplier or potential
supplier.
Objectivity/Integrity/ Honesty Declare any conflict of interest
that affects or appears to affect their judgment; Reject gifts, hospitality and
benefits of any kind from supplier or a potential supplier, which might be
reasonably seen to compromise their objectivity or integrity.
Transparency Ensure equal conditions and accessibility to all
economic operators, by informing them in an open and transparent way.
Accountability Be accountable for the responsibilities assigned
to them, as well as for the decisions made by them, keep the appropriate
records.
Confidentiality/ Accuracy of Information/ Protection of
Intellectual Property Respect the confidentially of information acquired
in the course of performing their duties and not disclose any such
information without having proper and legitimate authority to do so.
Conformity to the Laws Serving the Public Interest/
Responsiveness Conform to the national and EU legislation, as well as

53

to other requirements and commitments regarding public procurement.
Serve the public interest and act with responsiveness in using the
taxpayers money.
Professionalism Work to a high standard of professionalism by
complying with the legislation in force and applying the best practices.
Green purchasing- Exploit the opportunities to incorporate
environmental considerations and issues in each stage of the procurement
lifecycle.

How is Value for Money Achieved? Essentially, whole life costing,
(WLC), incorporating the acquisition, operation, maintenance and disposal
of the asset, is aimed at answering the question What is the minimum
WLC of achieving these business or policy objectives ? rather than the
more limited question What is the cost of buying this item? In deciding on
which option to select for meeting a need or providing a service, it is
essential to consider all the costs involved in each option.
Some of these costs will be incurred at the outset, when equipment
is bought or initial payments are made for service contracts. However,
many of the costs will only arise over the life of the option, for example, as
a result of operating the equipment, such as, energy costs, equipment
maintenance costs, staff training, and disposal costs, along with the
environmental impact of both the old equipment and the new equipment at
the end of its working life.
The cost of achieving an objective differs from the cost of buying an
item in two ways.
Firstly a purchase may not be necessary for the achievement of the
objectives identified. For example; there may be a number of different
options available such as hire, lease, and partnership along with outright
purchase. Second, the purchase price is unlikely to be the only cost
incurred as a result of the procurement. For example, there may be
operating costs including: fuel costs, maintenance and labour costs along
with disposal costs including recycling. Determining the full cost of meeting
a given requirement involves an understanding of how the eventual solution
will be operated over the whole life. It is always necessary to consider what
the procurement is supposed to provide, the cost options of each of the
solutions along with risks and the relative WLC of meeting the business or
policy requirements.
The WLC of using an item can be broadly divided into three
categories: acquisition, operating and disposal costs.
Acquisition costs are incurred before the solution is ready for
implementation.
Operating costs are incurred as a result of actually using it or
keeping it available (maintenance costs).

54

Disposal costs are incurred on disposal or when dealing with site
contamination or other harmful effects.
There may also be some income that will be realised on disposal if
there are assets with a resale or residual value. This and any rental income
when assets are not in use can be offset against the costs in determining
the whole life cost.
The following analysis of costs needs to be considered by
contracting authorities when considering the options of buy, lease, hire or
find an alternative.

Although whole life costing deals with the total cost of an asset over
its total life, it should be remembered that different solutions may have
different life spans. The cost of the chosen solution should therefore be
annualised to enable the costs of different solutions to be properly
compared (such issues can arise either at the initial business case or at the
evaluation stage provided that it has been stated in the tender documents
and broken down in the bidders proposals).

55

The following simple example gives an illustration of how to
annualise costs for comparative purposes: Electro Mechanical Services
requiring the supply and maintenance of 5 buses. A bus with automatic
transmission, which has a whole life cost of 270,000 euro and a life span
of 15 years, has an annual cost of 18,000 euro. A bus with manual
transmission, which has a whole life cost of 200,000 euro but a life span of
only 10 years, has an annual cost of 20,000 euro. The bus with the higher
whole life cost has the lower annual cost. The life span of a solution will, of
course, depend on the length of time the solution is needed as well as its
durability. In the above example, if the bus was only needed for 10 years
and the total cost of using the bus with automatic transmission for the first
10 years would be 180,000 euro, the bus with automatic transmission
would deliver better value for money.

4.3. Basic principles of public procurements

Due to diversity of living situations, legislation cannot establish
norms for each legal situation; hence knowledge of public procurement
basic principles is very important. It is necessary to understand legal
regulations through certain principles guiding the contracting authority in its
decision-making, and the tenderer in the assessment of its rights in public
procurement procedures. In the area of public procurement as well, it is
considered that, in addition to public procurement specific principles,
principles having become common value criteria of our civilization and
covering the whole legal system are to be taken into consideration
Public procurement system setup, development and implementation
must be based on the principle of free movement of goods, the principle of
freedom of establishment, and the principle of freedom to provide services,
all deriving from the Treaty establishing the European Community and on
the principles of economy, efficiency and effectiveness, of ensuring
competition among tenderers, of public procurement transparency, of equal
treatment of tenderers, and of proportionality.

It is important that all public procurement across the different
contracting authorities reflects the latest and best practices in procurement
as compliance with the EU Directives and the EU Treaty principles on non-
discrimination, transparency, freedom of movement between member
states.
The basic principles are specified in Article 2 of Directive
2004/18/EC, as follows:
- principle of equal treatment,
- non-discrimination and
- transparency.

56

From its origins, one of the main objectives of the EU has been to
create a common market that eliminates barriers to trade in goods and
services between EU Member States. Creating a common procurement
market means removing any barriers to trade arising from the procurement
context.
Barriers to trade can be erected by means of legislation or by the
actions of contracting authorities or economic operators. Legislation can
create barriers by imposing buy na-tional requirements. Contracting
authorities can impose barriers by making discrimina-tory award decisions.
Economic operators can also create barriers by colluding together to rig
tender prices. All of these barriers have the effect of distorting competi-tion
in the common procurement market. One of the primary purposes of public
pro-curement legislation is to eliminate existing barriers and prevent the
erection of new barriers. It does so by applying the basic principles flowing
through the legislation.
Whilst they are all inter-linked, these principles can be reduced to a
series of core prin-ciples:
Competition
From an economic perspective, competition operates as a
discovery procedure by allowing different economic operators to
communicate the prices at which goods and services are available on the
market. Those prices act as guideposts and reflect the demand and supply
conditions at any given moment. They also reflect the differences in quality
and in terms and conditions of sale of the differ-ent (non-homogenous)
products available.
This is why advertising is so important. Advertising guarantees the
widest pos-sible publicity and competition, enabling economic operators
from all over the Community to participate, thus ensuring the greatest
possible choice.
Keeping competition fair (or maintaining a level playing field) is a
key concern for achieving efficient and economic procurement results.
Procurement legisla-tion seeks to prevent any distortions or restrictions of
competition within the Community, and any attempt to prevent economic
operators from being able to tender will be prohibited.
Such attempts can take many forms and can affect the products or
services or the economic operator itself. As a result, the legislation prohibits
barriers to the free movement of goods such as import restrictions and buy
national policies and barriers to the freedom to provide services such as
attempts to restrict for-eign economic operators from tendering through the
use of local registration re-quirements.
Protecting competition is also a question of maintaining equality of
treatment, avoiding discrimination, applying mutual recognition principles

57

(of equivalent products and qualifications), and ensuring that any
exceptions are proportional.
Equal treatment and non-discrimination
The concepts of equal treatment and non-discrimination are not the
same. In general terms, all procurement legislation will seek to maintain
equality between economic operators. In the European context, however,
that equality will also be based on nationality.
Equal treatment is a concept that generally requires identical
situations to be treated in the same way or different situations not to be
treated in the same way, and it requires the identical treatment of identical
people. In a sense, it im-plies that contracting authorities will not take into
account the different abilities or difficulties faced by individual economic
operators but will judge them purely on the results of their efforts, i.e. on the
basis of the tenders they submit. It pro-vides for an objective assessment of
tender prices and tender qualities and ig-nores any considerations that are
not relevant to the discovery of the economically efficient tender.
In the European context, the concept of equal treatment requires yet
another definition since, in this context, the concept of equality is, in
addition, based on nationality or on the origin of goods, such that all
economic operators of Com-munity nationality and all bids including goods
of Community origin must be treated equally (this is the principle of non-
discrimination).
This is more than simply an extension of the concept of equal
treatment. It im-plies that any condition of eligibility or origin (based on
nationality or local provenance) will automatically give rise to unequal
treatment, since those condi-tions will, by definition, discriminate against a
certain group of (foreign) eco-nomic operators or favour another. However,
whilst discrimination in a given context will produce unequal treatment,
unequal treatment does not always give rise to discrimination.
Transparency
Transparency has only recently emerged as a principle in its own
right, al-though it is probably better to think of it as a tool to be used to
achieve other ob-jectives. For example:
- publication and accessibility of the legislation provides clarity and
cer-tainty for all stakeholders and enables contracting authorities
and eco-nomic operators to be aware of the rules of the game.
- requirements of advertising guarantee transparency in the discovery
process.
- publicising in advance the technical specifications and the selection
and award criteria permits stakeholders to check that these are fair
and non-discriminatory.
- recording and reporting requirements ensure that the actions of the
con-tracting authorities may be verified where appropriate.


58

The latter objectives are also a fundamental aspect of
accountability, i.e. hold-ing procurement officers accountable for their
decisions and actions. Account-ability is also often an explicit objective of
national procurement systems, and the transparency provisions reinforce
this accountability.
The importance of the principle of transparency in the EU context,
however, is that it applies independently of the legislation. So, if a particular
procurement contracts falls outside the scope of the Directives then it is
possible that the principle of transparency will continue to apply so as to
impose advertising re-quirements. The ECJ confirms that this is the case.
Some of the above principles are articulated differently or combined
in national legisla-tion. You might find, for example, principles stated in
legislation, such as: economy and efficiency, value for money and
probity or integrity.

4.4. Procedures for awarding public procurement contracts

Types of procedures
The national law regulates the following types of procedures:
a) Open public tender - any interested supplier, contractor or
provider is free to submit an offer;
b) Limited public tender - takes place in two distinct stages. Only
candidates selected by the contracting authority in the first stage will be
invited to make an offer in the second stage;
c) Competitive dialogue any interested supplier, contractor or
provider is free to submit an offer; the contracting authority may perform the
dialogue only with the accepted candidates. Only candidates selected by
the contracting authority (from the accepted candidates) are invited to make
the final offer.
Mention should be made that the competitive dialogue cannot be
used by entities operating in the water, energy, transport and postal
services sector.
d) Negotiation - the contracting authority discusses and negotiates
the contractual clauses, including the price, with the selected candidates
from suppliers, contractors and providers; the negotiation may be with or
without a prior publication of a participation notice.
e) Offer request - a simplified procedure according to which the
contracting authority requests offers from several suppliers, contractors and
providers;
f) Solutions contest permits the contracting authority to obtain,
especially in the territorial planning, urban and zoning field, a plan or a
project that was selected by a jury on a competitive basis.


59

As a rule, a public procurement contract is awarded pursuant to an
open or limited public tender. In case of contracts in sectors of water,
energy, transport, postal services or other relevant activities as defined by
GEO no. 34/2006, as a rule, a public procurement contract is awarded
pursuant to an open or limited public tender or negotiation with a prior
publication of a participation notice.
In case the contracting authority uses another procedure, it should
prepare a justification note in this respect. The offers request may be used
by the contracting party only in cases when the estimated value of the
public procurement contract, exclusive of VAT, is less than the RON
equivalent of EUR 125,000 for services or supply contracts, or EUR
4,845,000 for the construction works contracts.

Negotiation procedure
The negotiation procedure with a prior publication of a participation
notice may only be applied only in any of the cases below:
(i) as a result of an open or limited public tender, a competitive
dialogue or an offer request, no offer or only unacceptable or incompliant
offers have been submitted, and only if the contracting authority does not
substantially change the initial requirements, in the awarding
documentation;
(ii) in exceptional cases when the products/services/works do not
allow an initial global estimation of the contract price;
(iii) when the service types do not allow for an accurate preparation
of the terms of reference;
(iv) the contracting authority contract works that are to be
exclusively performed for scientific research, experimental purposes or
technological development..

The procedure of negotiation procedure without a prior publication
of a participation notice may be conducted in the following cases:
(i) when the products, works and services can be supplied,
performed or provided by a single contracting party out of technical or
artistic reasons, or of reasons related to the protection of an exclusive right
on the same;
(ii) due to exceptional reasons, when the time periods established
for open or limited public tender, negotiation with a prior publication of a
participation notice or offer request cannot be fulfilled;
(iii) the contracting authority purchases products (awarding of a
contract, in case of entities operating in the water, energy, transport and
postal services sector) that are (is) to be exclusively performed for scientific
research, experimental purposes or technological development;
(iv) when the authority decides to additionally purchase products for
partial replacement or extending the previously purchased equipment,

60

installations or other devices. The contracting party is entitled to enforce
this procedure in a period not exceeding 3 (three) years from the initial
contract award. In case of contracts in sectors of water, energy, transport,
postal services or other relevant activities as defined by GEO no. 34/2006
such limit of 3 (three) years is not applicable;
(v) when the products are purchased in very advantageous
conditions from an economic operator who closes his business or from a
syndic judge managing the business of a bankrupt entity;
(vi) when the purchase of supplementary/additional services or
works is contemplated that, although not included in the services/works
contract previously awarded to a contractor, become necessary for the
contract performance;
(vii) when, after a services or works contract is awarded, the
contracting authority intends to purchase new services or works, similar to
the services or works purchased based on the initial contract; Mention
should be made that such case is not applicable for services contract
awarded by entities operating in the water, energy, transport and postal
services sector;
(viii) when, as a result of a solutions contest, the contract must be
awarded to a competitor;
(ix) when a contracting authority purchases raw materials traded on
the commodity exchanges on the sport market;
(x) when a contracting authority acting in the public utilities sector
(water, energy, transportation and postal services) has the opportunity to
purchase the contemplated products for a lower price than the market
price.

Special methods for awarding public procurement contracts Besides
these procedures, GEO no. 34/2006 provides special methods for awarding
public procurement contracts:
(i) frame-agreement for a maximum period of 4 (four) years
concluded, customary, based on open or limited public tender procedure;
(ii) dynamic purchasing system for a maximum period of 4 (four)
years, in order to purchase products for ordinary use. In this case should be
fulfilled the rules of open public tender procedure. This procedure may be
used only by Electronic System of Public Procurement (Sistemul Electronic
de Achizitii Publice SEAP);
(iii) electronic public tender.

This last method is used in the following cases: (i) as a final stage of
an open or limited tender procedure, negotiation with a prior publication of a
participation notice or offer request; (ii) resuming of competition in case of
frame-agreement and (iii) at the submission of the final offers in order to
award a public procurement contract using the dynamic acquisition system.

61

4.5. Award documentation for public procurement

The awarding documentation includes all information related to the
object of the public procurement contract and the awarding procedure of
this object, including the terms of reference or, if case, the descriptive
documentation.
The contracting authority draws up the awarding documentation.
The documentation must contain at least: general information regarding the
contracting authority; minimal qualification requirements and the documents
that the bidder/candidate must submit; terms of reference or descriptive
documentation (used for competitive dialogue procedure or negotiation
procedure); instructions regarding the deadline that must be observed and
the formalities that must be met; the minimal qualification criteria, if
requested, and the proving documents; instructions regarding the
preparation and presentation of the financial and technical offer; detailed
and complete information regarding the criteria used for awarding the public
procurement contract; instructions for appeals; mandatory contractual
clauses.
Also, in case of works or services contracts, the contracting
authority has the obligation to provide either the mandatory rules for work
protection, either the relevant institutions entitled to provide such
information.
The final criterion may be either the most attractive technical-
economical offer, or the lowest offered price. The offer contents must be
firm and mandatory, for the whole period set by the contracting authority.
Suppliers, contractors and providers have the right to associate and
submit a common offer, without the obligation to present their association in
a legal form.
The basic offer is the only offer the bidder or the associated bidders
may submit, excepting the case when the criterion is the most attractive
technical-economical offer, when alternative offers are allowed. In order to
verify the candidatures and to assess the offers, individuals or legal entities
may be involved. For offers appraisal, a jury made up of individuals must
be appointed by the contracting authority.
The contracting authority is entitled to cancel the award procedure
for a public procurement contract before the date it sends out the result of
the award procedure and before the contract conclusion. National
legislation lists the situations that allow the contracting authority to do so.
The authority has the obligation to communicate in writing to all
participants, undertaken in maximum 3 business days time as of the
cancellation date, both the cessation of their obligations undertaken on the
offer and the reason for cancellation.

62

Anyone who may justify an interest in a public procurement contract
and that incurs, risks to incur, or was incurred a damage as a direct
consequence of an illegal act or an illegal decision of a conceding authority,
is entitled to use the following appeal means, set forth by the public
procurement law:
(i) administrative contestation in front of the National Council for
Settlement of Contestations before the conclusion of the public
procurement contract; The decision of the National Council for Settlement
of Contestations may be challenged in front of the Appeal Court;
(ii) legal action for compensation in front of the court or the Appeal
Court, depending on the contracting authority being a local or a central
public authority, in the jurisdiction of which the plaintiff or the contracting
authority has its seat. The Courts decision may be subject to a second
degree appeal with the Appeal Court or the High Court of Cassation and
Justice. The Court is only entitled to grant compensations.
The Court is the only one entitled to solve the disputes appeared
after the execution of the public procurement contract. The Court may only
be intimated after finalizing the administrative contestation. In case more
parties intimate both the National Council for Settlement of Contestations
and the Court, the Court shall suspend the trial until the finalization of the
administrative contestation.


63

References

1. Attila, G.; Tu, L.; Stoian, A. - Finanele instituiilor publice,
Publishing house Universitar, Bucureti, 2009;
2. Drcea M.; Mitu N.E. Buget i Trezorerie public, Publishing
house Universitaria, Craiova, 2010;
3. Mitu N.E.; Ispas R.M. - Finanele instituiilor publice,
Publishing house Universitaria, Craiova, 2011;
4. Nanu R.M.; Mitu N.E.; Buziernescu R. - Finanele instituiilor
publice, Publishing house Universitaria, Craiova, 2007;
5. Vcrel, I. - Bugetul pe programe multianual, Publishing house
Expert, Bucuresti, 2003.
6. Mgur Cerasela, Boa Moisin Anton Florin The finance of
public institutions in Romania:
http://fse.tibiscus.ro/anale/Lucrari2010/029.%20Magura%20C
erasela.pdf
7. Ciuhureanu Alina Teodora, Balte Nicolae Aspects
regarding the budgeting process within public institutions:
8. Creu Carmen, Gheonea Victoria, Talaghir Laureniu,
Manolache Gabriel, Iconomescu Teodora Budget
Performance Tool in Public Sector: http://www.wseas.us/e-
library/conferences/2010/TimisoaraW/EMT/EMT1-58.pdf
9. Australian Asset Management Collaborative Group (AAMCoG)
Public Sector Asset Performance Measurement and
Reporting, Brisbane, 2008: http://www.aamcog.com/wp-
content/uploads/2011/08/CIEAM-APCC-Assets-Performance-
Measure.pdf
10. Public Procurement Best Practice Guide, Version 1.1, 2008,
Treasury of the Republic of Cyprus:
http://www.cleanvehicle.eu/fileadmin/downloads/zypern/downl
oad/PUBLIC%20PROCUREMENT%20BEST%20PRACTICE
%20GUIDE%20-
%20CHAPTER%204%20EVALUATION%20AND%20CONTR
ACT%20AWARD.pdf
11. Muat & Associates, Public Procurement,
http://www.musat.ro/pdf/capitoleeng2012/30-Public-
Procurement.pdf

Project Title: "Quality and competence at european standards for teachers in
higher education to increase the competitiveness of economy school in
Romania"
Contract code: SOP HRD/86/1.2/S/53365

2012

The content of this material does not necessarily represent the official
position of the European Union or the Romanian Government

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