India is the fastest-growing major economy in the world with significant Government investments in infrastructure. According to estimates by WTO and OECD, as quoted in a report from the United Nations Office on Drugs and Crime, India: Probity in Public Procurement, the estimated public procurement in India is between 20 and 30 percent of GDP.
This translates to Indian government agencies issuing contracts worth an estimated US$ 419 billion to US$ 628 billion each year for various aspects of infrastructure projects. Ideally, in contractual agreements no disputes would arise and both sides would benefit from the outcome. However, unexpected events occur and many contracts end in dispute. Contractual legal disputes devoid project benefits to the public as time and resources are spent in expensive arbitration and litigation. As a result, India’s development goals are impacted.
Many Bank-financed projects, especially those implementing large and complex contracts continually face high risk of implementation delays, and procurement is the most frequently used scapegoat.
What has gone wrong in those cases?
At the onset, borrowers are requested to prepare a detailed procurement plan for the first 18 months of project implementation, which is carefully reviewed and approved by the Bank before loan negotiations and the projects are then declared "good to go."
But the reality is almost never that rosy.
One challenge that many countries face along the way is that their procurement procedures are misaligned with what industry is able to provide, and with how industry is able to provide it. Technology changes quickly, and procurement guidelines originally designed to meet the needs of 20th century schooling (with a focus on school construction, for example, and the procurement of textbooks) may be inadequate when trying to operate in today's fast-changing technology environments. Indeed, in education as in other sectors, technological innovations typically far outpace the ability of policymakers to keep up.
Faced with considering the use of new, 'innovative' tools and approaches that hadn't been tried before at any large scale within its country's schools, education policymakers may reflexively turn to precedent and 'old' practices to guide their decisions, especially when it comes to procurement. This is usually seen within government ministries as a prudent course of action, given that such an approach is consistent with the status quo, and that related safeguards are (hopefully) in place. As a result, however, they may end up driving forward into the future primarily by looking in the rear view mirror.
When considering the scope for introducing various types of technology-enabled 'innovations' (however one might like to define that term) into their education systems, many governments face some fundamental challenges:
- They don't know exactly what they want.
- They don't have the in-house experience or expertise to determine if what they want is practical, or even feasible, nor do they know what everything should cost.
In such circumstances:
- What is a ministry of education to do?
- How can it explore innovative approaches to the procurement of 'innovative' large scale educational technology programs in ways that are practical, appropriate, cost-effective, likely to yield good results, informed by research and international 'good practice', and transparent?
By the end of FY16, China National Audit Office (CNAO), the SAI in China, had successfully completed its third year of integrated financial and procurement audits for 27 Bank financed projects and accounting for 28% of the total active portfolio of China. This is a big leap from only 3 projects in the first year of FY14.
Rome was not built in a day. CNAO has been the external auditor of all Bank-financed projects in China since 1984. It conducts project audits in accordance with the Government Auditing Standards of the P.R. China and the International Standards on Auditing. The Foreign Funds Application Audit Department and the Audit Service Center of CNAO, and the Provincial Audit Institutions conduct audits on Bank financed projects and issue the audit reports in their names. There are about 120-130 financial audit reports submitted to the Bank every year. CNAO's audit reports not only include the auditor's opinion on project financial statements, they also include opinions on procurement compliance as this is an important aspect of the review of the eligibility of expenditures. This procedure is in full compliance with the Audit Law of P. R. China, which requires auditing of authenticity, legality and beneficial results of the budgetary revenues and expenditures or financial revenues and expenditures of public funds. It was under this context that in FY 14, we started piloting the use of CNAO for integrated financial and procurement audits in some Bank-financed projects.
When you think of Bhutan, you typically think of the tall mountains of the Himalayas, or you think of this nation adding the ‘Gross National Happiness’, or GNH indicator onto the global development agenda. Well, from now on, you can also think of Bhutan as the first country in the world to have one of their agencies approved to apply “alternative procurement arrangements” or APAs. This may sound trivial in comparison to 7,500 meter high peaks or collective happiness in the Dragon Kingdom. But for the way we do procurement at the World Bank, it’s a real breakthrough and an important step towards becoming a better Bank.
Of the 56 poorest countries, over half had no private investment in infrastructure in the past five years. And in 2015, only 14 energy, transport and water projects involving private investment were concluded in that whole group of 56 countries—with all of them occurring in just eight of the countries. In the past five years, only one country – Bangladesh – has seen private investment in infrastructure each year. Given that well-structured private infrastructure projects can bring a useful infusion of management (and sometimes money) to help provide better quality and access to infrastructure services, this seems like a missed opportunity. Here are five suggestions for actions that governments can take immediately to improve their chances of attracting good quality private management and financing for some infrastructure services.
It’s widely acknowledged that how well governments prepare, procure and implement public-private partnership (PPP) projects is important both in bringing in private finance and/or expertise and ensuring these projects deliver value-for-money.
However, up until now there has been no systematic data to measure those capabilities in governments. This has changed with the release of the World Bank Group’s Benchmarking PPP Procurement 2017, which collects and presents comparable and actionable data on PPP procurement on a large scale by providing an assessment of the regulatory frameworks that govern PPP procurement across 82 economies. It presents an analysis of practices in four areas: preparation, procurement, contract management of PPPs, and management of unsolicited proposals (USPs). Using a highway transport project as a case study to ensure cross-comparability, it analyzes the national regulatory frameworks and presents a picture of the procurement landscape at the end of March 2016 by scoring each of the four areas.
Students in public schools without textbooks at the start of the year. Health centers in villages without even the most basic medications. Oftentimes procurement is to blame.
An efficient procurement system isn't just a good idea, it's a necessary tool for all governments (local and national) to function properly and deliver public services.
Keeping pace with global trends, on July 1 the World Bank will roll out the new Procurement Framework for countries that procure goods and services under Bank-finance projects. The new framework will be implemented for all investment projects with a Project Concept Note on or after July 1, 2016. Led by the Global Governance Practice (GGP) with support from Operations Policy and Country Services (OPCS), the framework is designed to increase flexibility, efficiency, and transparency of procurement process, to better meet the needs of client countries.
In keeping with recent global trends in the procurement arena, the World Bank is transforming and modernizing its procurement framework.
In the private sector, companies have long viewed maximizing of supply chains as key to healthier bottom lines. In the public sector, many governments have been moving from overly rule-based procurement systems to systems that focus on performance and achievement of development goals.
In many countries Government is the biggest procurer of goods and services, which makes them an attractive client for small and medium scale enterprises (SMEs) seeking to get a leg up in business.
Recognizing the important role that the public sector plays as a purchaser of goods and services, as well as the critical role SMEs have for the economy, Governments frequently use Public Procurement to incentivize, support and otherwise sustain local SMEs.
Also, as in many of our client countries, where the vast majority of SMEs are informal, the lure of a significant Government contract can serve as a strong motivator to register and formalize – bringing these companies in from the shadows.
But there is also a significant downside in many countries. Cash-strapped governments frequently don't pay their bills on time and, in some countries, payment delays of 12 months or even two years are not uncommon. Such delays can seriously compromise the position of a small scale enterprise which – with limited access to formal bank financing – relies critically on cash flow from its clients to sustain its business. A six month delay in receiving payment on a contract can easily put a small firm out of business.