How can technology in public procurement bring about improved governance?

-Jointly submitted by Kashmira Daruwalla and Tanya Gupta

Experts have identified procurement as one of the areas most prone to corruption in the public sector.  Corruption in public contracting can take many forms, including bribery, deception (fraud) or simple abuse, affects the efficiency of public spending and donors' resources and creates waste.  Corruption is widespread in public procurement and service delivery programs.  In a study in Uganda, Reinikka and Svensson compared central government data on public grants to schools from a survey of school officials to find what fraction of grants were ultimately received by schools.  They found that schools received only 13 percent of central government spending on the program, over the period 1991–1995.  Most schools received nothing and the evidence suggested that most of the funds leaked out of the public system through procurement fraud.

In a different randomized field experiment in Indonesia, Olken found that 24% of the funds for a road project had been stolen, after comparing reported expenditure and actual expenditure. 

Similar studies have also been done in hospital procurement and other areas. Di Tella and Schargrodsky cited a focused survey conducted among 360 doctors and nurses in Buenos Aires.  They found that the perception of corruption in input purchases in public hospitals was considered moderate to high.  Going beyond perception-based data, when they looked at hospital inputs prices in Buenos Aires during 1996-97, they found an 18% fall in prices in the first six months that followed the introduction of a monitoring program.  They attributed most of this drop to corruption (the quality was constant and hence not responsible for the fall).

 Even in non-system based re-distribution programs, which do not involve procurement of goods per-se, but rather the utilization of distribution channels for goods re-distribution, there are often significant losses due to corruption.  Another study by Olken found that 18% of the subsidized rice in an Indonesian re-distribution program was stolen.

It is possible to combat and prevent corruption in public contracting.  There is now a global consensus on the need to curb corruption that encompasses companies, governments, donors and credit agencies and civil society organizations around the world.  E-government procurement (e-GP) can potentially bring in substantial benefits including greater transparency, efficiency, accountability and fiduciary compliance, while reducing transaction costs and achieving substantial savings to government.  Transparent procurement systems can go a long way in improving governance through increased transparency.  The use of technology in building procurement systems can bring about this transparency.  Of course, using technology in procurement is not a magic bullet for procurement corruption.  However, it can make theft and corruption much more difficult. 

e-GP, at a minimum refers to the use of technology in the procurement process, including request, requisitioning, authorizing, ordering, receipt, payment and processing, between consumers, government and the private sector.  At its fullest implementation, e-GP could mean transforming the way government interacts with citizens and the private sector in the area of procurement.  The e-GP website of the World Bank adds that successful e-GP implementation and also serves as a vehicle for procurement reforms and yield sustainable short to long term benefits to the government.  These include improved efficiency in government spending (some estimate that government procurement accounts for as much as 15% of GDP, and that about 20% in savings can result from e-GP), improved governance, and through this, public confidence in government spending, leading to better policy development and overall economic growth. 

It has also been estimated that e-GP resulted in savings of 23% in the state of Andhra Pradesh in India, and 7 to 10% in Chile.  The payback period for investments in e-GP in the case of Sao Paulo was as low as 2 days, while it was 10 days in the case of South Korea.  These savings typically result from increased competition, lower processing time and reduced corruption.  e-GP can also become a key driver for incentivizing the use of ICTs in companies, such as SMEs.

There is general agreement on what the key factors are for successful e-GP.  These include institutional factors (such as legal framework, technology, infrastructure and standards), private sector involvement and support, and change management.  Successful management of these factors, however, is much more complicated than it sounds.  The factors behind the few successes in e-GP have been quite varied, and depend on the country context.  Recent e-GP implementation has taken place in three states in India Karnataka, Punjab, and Uttar Pradesh.  One of the most successful e-GP implementation has taken place in Andhra Pradesh.  In the blog entries that follow, we will discuss the stages involved and the success factors behind some of the most successful implementation of e-GP, as well as the reasons for failure in some others.

Stay tuned…