E-Procurement: Opportunities & Challenges

by Sanjay Pradhan, Vice President

World Bank Institute

Key Elements of Discussion:

Situate e-procurement reforms within a broader framework of governance: focus on supply and demand for reform

E-Procurement can provide significant benefits, but requires important conditions for success

Important to understand and manage political economy of reform

1. Situate reforms in a broader framework of governance and anticorruption: focus on supply and demand for reform

Political Governance• Political competition, broad-based political parties• Transparency & regulation of party financing

Formal Oversight Institutions

• Independent judiciary• Legislative oversight • Independent

oversight (SAI)• Global initiatives: UN,

OECD Convention, anti-money laundering

Citizen

s/Firm

s

Citizens/Firms

Cit

izen

s/F

irm

s

Citizens/Firms

Decentralization and Local Participation• Decentralization with downward accountability• Community Driven Development (CDD)• Oversight by parent-teacher associations & user groups

Civil Society & Media• Free press, FOI• Civil society watchdogs

Private Sector Interface• Streamlined regulation• Extractive Industry

Transparency Initiative• Collective business

associations

Public Sector Management

• Public finance management & procurement

• Civil service meritocracy & adequate pay

• Service delivery and regulatory agencies in sectors

Good Governance has many Good Governance has many dimensions …dimensions …

Outcomes: Services,

Regulations, Corruption

Strengthening Governance Systems: Strengthening Governance Systems: Balancing Supply & DemandBalancing Supply & Demand

Demand-sideDemand-side Strengthen accountability arrangements – elections, political parties, effective parliaments, independent judiciary, free press, vibrant civil society, accountable local governments – that enable citizens and firms to hold state institutions to account

Supply-sideSupply-side Strengthen the state’s bureaucratic capability – leadership, skills, human resource, financial management, information systems – to deliver public goods and services

Strengthening Demand for Public Strengthening Demand for Public Financial AccountabilityFinancial Accountability

Participatory Budgeting,

Puerto Alegra(Brazil)

Civil Society Oversight on procurement

(Slovakia)

Strengthening Supreme Audit Institutions

(Hungary)

Public Expenditure Tracking & Information Campaigns (Ghana, Madagascar, Mozambique, Peru, Senegal, Tanzania, Zambia)

Procurement oversight by

CSOs (Philippines)

Strengthening Public Accounts Committees of

Parliament(India)

Transparent, competitive e-procurement(Latin America)

Strengthening Public Accounts Committees

of Parliament (Kenya, Ghana, Zambia --

AFR)

Accountability, Transparency & Integrity

Project(Tanzania)

2. E-procurement can deliver substantial benefits but requires important conditions for success

E-Procurement & Citizen Oversight

E-Procurement: LACE-Procurement: LAC

All supplier companies register, indicating areas of business (e.g., IT, construction, furniture)

Public agencies submit tenders through internet

Automatic e-mail to all companies in selected area

Online information on name, position of official in-charge

Online information on results: who participated, proposals made, scores received, who won bid, historical record of agency’s purchases & contracts

Engaging CSOs: PhilippinesEngaging CSOs: Philippines

Legal foundation a mess with over 100 laws and regulations

New omnibus law needed for clarity and predictability in the process

New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests

For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO

Extensive training of CSOs now under way

Legal foundation a mess with over 100 laws and regulations

New omnibus law needed for clarity and predictability in the process

New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests

For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO

Extensive training of CSOs now under way

Impact of e-Procurement

Increased efficiency due to competition, transparency and lower transaction costs

Reduced opportunity for fraud & corruption due to automated procedures

Public procurement monitoring

Number of bidders has tripled

Example Korea

Enhanced Transparency of Public Procurement

Stimulated e-Commerce in the Private Sector

Real-time basisBidding info

No room for arbitrary decisions

Competitive biddings of micro-purchases

Diminished the possibility of corruption

Created the computer Business environment

Promoted an e-Commerce mindset

Enhanced the credibility of e-Commerce

Helped build the infrastructure

Use digital signiture to ensure security

Savings (Examples)

KOREA

ROMANIA

BRAZIL

INDIA

www.g2b.go.kr

www.e-licitatie.ro

www.bec.sp.gov.br

eprocurement.gov.in

Total volume of US$ 44 bn in 2006 with transaction cost

savings of US$ 4.5 bn (http://www.pps.go.kr/english/ )

650,000 electronic auctions between 3/2002 and 10/2006 with

savings of US$ 178 mn (http://www.mcti.ro/index.php?id=28&L=1&lege=1289)

From 2000 to 2006, 51% savings in transaction costs and

25.5% in price reductions (http://www.relogiodaeconomia.sp.gov.br/br/home_results.asp)

US$ 3.6 bn of transactions in 2005 with

savings of US$ 238.2 mn due to tender discounts in the same year(http://ccaharyana.gov.in/e-procurement.htm)

Conditions for Successful Implementation

Strong government leadership (e.g. Korea, Mexico at presidential level)

Appropriate implementation framework (e.g. procurement policy, legislation, capacity building, standards)

Infrastructure development (connectivity)

Complaints mechanism & resolution

Oversight over collusion & bid rigging

Managing political economy of reform

Bid Rigging Schemes & Red Flags

“Complementary” bidding

Round robinDivide the pieCoercionLow balling/

“Change orders”

Bidders have same address or bid price

Wide gap between winner & all others

Winning bidder subcontracts to losers

Qualified bidders do not bid

Lowest bidder later submits substantial change orders

3. Vested Interest

Focus on managing the political economy of reforms

The World BankSanjay Pradhan

PREM Public Sector GovernancePage 16

Media

Private Sector

Municipal Government

Military

State (Bureaucracy)Political Parties

Civil Society

International Legislative Branch

Judiciary

1

Entrenched Corruption Networks: Montesinos in Peru

Source: “Robust Web of Corruption: Peru’s Intelligence Chief Vladimiro Montesinos,” Kennedy School of Government Case Program, Case C14-04-1722.0, based on research by Professor Luis Moreno Ocampo; Peru: Resource Dependency Network, 2000

Vladimiro Montesinos

Alberto Fujimori

Philippines: Procurement Reform

Walang Ku-Corrupt Movement (Youth)

Philippine Contractors Association(private sector – main stakeholder)

Local chambers of Commerce (Private sector)

Procurement Watch:Drew other civil society groups into the advocacy efforts and

coordinated the activities

Forging Coalitions for Reform

CBCP(Church)

PAGBA & AGAP(w/in Gov’t)

Transparency and Accountability Network (20+ member groups)

Summary

Situate e-procurement reforms within a broader framework of governance: focus on supply and demand for reform

E-Procurement can provide significant benefits, but requires important conditions for success

Important to understand and manage political economy of reform

The End

Lessons learned: e-Government vs better government

Consider and promote e-government as a government-centered effort

Replace every paper-based process by an electronic process

Offer ‘ministry-specific’ e-solutions Focus primarily on first rate

technological systems

Focus the e-government process on users (citizens & businesses)

Use e-government as a tool to foster changes in attitudes and thinking, and as an instrument for reforms

Rally government-wide efforts, and an ‘all-of-government’ approach (front office)

Understand and tackle underlying political obstacles to reform

Ways to fail Ways to go

Examples of Broader E-Government Reforms

• Citizen Service Centers & One-Stop Shops (Bahia, Brazil; e-Seva in AP, India; online Motor Vehicles Departments)

• E-procurement (Brazil, Chile, India, Korea, Mexico, Philippines, Romania, others)

• Land titling (Karnataka, India: 18m titles issued)

• New Business Registration (Jamaica, Jordan, China)

• Online counseling for teacher transfer (Karnataka, India)

• Online customs (70 countries)

• Online municipal services (Seoul, Korea)

• Property registration (AP, Kanartaka, Maharastra, India)

• Railway reservations (India: 5 billion passengers/year)

• Tax payment (Mexico, Singapore, India, Chile)

• Trade facilitation (Tunisia)

• Treasury & integrated financial management systems (50 countries)

What is the mystery behind e-GP?

What is the impact of e-GP?

What is the best approach to successful e-GP implementation?

The Use of ICT in Procurement

… to publish and distribute public procurement information (online portal)

… to support public procurement transactions (e-Tendering, Purchasing from e-Catalogues, e-Reverse Auctions)

… to monitor and manage public procurement (PMIS linked to FMIS and other systems)