Alternative procurement agencies to facilitate infrastructure investment

Photo Credit: Myxi via Flickr Creative Commons License

In our last post, we highlighted a few examples of the innovative organizational structures that institutional investors have created to more efficiently invest in public infrastructure assets, but that is just one side of the equation. We also study programs and policies put in place by governments to more efficiently facilitate investment in the right projects and on the right terms for their constituents. That research encompasses several different topics, including enabling legislation, project risk allocation, stakeholder engagement and management, assessment frameworks for determining whether a Public-Private Partnership (P3) makes sense for a given project and others.

Those are all critical topics for P3 programs for infrastructure development, but in order to implement those policies and best practices, governments need to develop the organizational capacity and allocate the authority necessary to do so. One solution to do that is to develop special procurement agencies to assess, implement, monitor, and manage P3’s and other alternative procurements for infrastructure.
 

Why would a government create a Special Procurement Agency for Infrastructure?

P3’s and other performance-based or life-cycle based procurements for infrastructure naturally require very different skill sets and competencies than those that are required for traditional infrastructure delivery. Specifications are often made via performance standards, as opposed to specific design criteria. Significantly more legal structuring is required, and the procurement timeline and key steps are often significantly different than those for a traditional procurement, with more activity in early project development to allocate risk and foster a competitive procurement.

Furthermore, many agencies for the procurement of infrastructure via traditional delivery are highly fragmented geographically and by sector, with decision making authority for procurement management disseminated to the lowest level possible. This doesn’t work well for P3 procurements, which in many cases are significantly larger in scale ($100 million plus) than the vast majority of infrastructure projects.

Thus, for a traditional, local infrastructure agency (say a water district), procuring a P3 would not only be confronting a procurement process and delivery model that it was not designed to implement, but it would also likely be the only P3 that local agency would procure for some time. That prevents the institutional learning necessary to develop an effective procurement program, and the standardization necessary for a project pipeline to foster increased global competition.

Finally, other characteristics of most P3 projects – complex, larger projects that often cross the boundaries between traditional, local infrastructure procurement agencies – create a cross-organizational management problem if left to be implemented by the local agencies themselves. A special agency with an overarching mandate is in a better position to take a holistic perspective on the project.

Key decisions in designing special infrastructure procurement agencies

These considerations and others have driven special procurement agencies to some prevalence in national and regional governments with P3 initiatives. A 2016 survey of 82 such economies funded by the World Bank’s Public-Private Infrastructure Advisory Facility (PPIAF) found that most economies fall short of good practice and that a significant number of economies have particularly low scores in two areas: project preparation and contract management. These findings drive home the dire need for special infrastructure procurement agencies. While 85% of those programs included some form of a special procurement agency, the decision to create a special procurement agency is only the first step. There are many other decisions that go into the creation of a special procurement agency for infrastructure. These include:

Authority: The specific authorities of the special procurement agency during the project development process is a primary consideration in its design. Some agencies, such as the Project Finance Unit in Italy or the federal infrastructure agency in Australia, have more limited authorities – publishing guides or best practices and offering advisory services to traditional agencies on request. Others, such as Partnerships BC in Canada, have a much more active role in the procurement process and also in contract oversight and monitoring. Some agencies also have a lending or grant making appropriation to support alternative procurements managed by traditional agencies.

Finally, some agencies are given project assessment and approval authority to determine whether a project should be developed via alternative procurement. The Treasury P3 unit in South Africa is a good example of that model. Potential conflicts of interest are important to consider here. Units with a significant role in managing alternative procurements perhaps should not also retain approval authority over which projects will be delivered via their model.

Location: Where the organization sits within government will drive many other aspects of the agency. Globally, many agencies are located within the treasury or finance department, while some are formed as a special group within a traditional procurement agency, such as a transportation department or other planning agency. One consideration here is certainly the quantity of potential projects the agency will be supporting – a cross-sectoral agency at the Treasury may be more appropriate at the state/provincial level or in smaller nations without a large project pipeline. Political constraints may also be a consideration, especially when designing an agency with approval authority over project delivery models. In that case, agency independence is a key consideration.

Funding: How the agency is funded will naturally impact results. A simple solution would be an annual funding appropriation. However, many agencies that exist currently bill their services to the traditional agencies they support, or receive compensation fees from successful procurements. Budgetary constraints may be the deciding factor here, but the incentives of the agency will also be impacted. A hybrid approach may also be effective – Partnerships BC, for instance, was originally funded via appropriation but transitioned to a fee-based model over time.

There are many other considerations to account for in designing a special infrastructure procurement agency, including the skill sets that it will develop in-house vs. those it will hire for externally, and whether the agency will be funded via an appropriation or via fees from their transaction services. Governments globally have also experimented with the legal form of the agency – while many are traditional government agencies, some have been formed as joint ventures with private entities. Several state-level agencies in India have been structured that way.

In the end, no two special agencies will, or should be the same, as each is adapted to its local political and economic context. Helping governments find innovative solutions for achieving their wider development and infrastructure objectives is central to our work, and understanding the design of alternative procurement agencies is a crucial part of this.

 

Related Links:

Measure it to improve it: How benchmarking government capability for PPPs can help improve infrastructure delivery

 
Editor's Note

Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.