Reforming the Chilean Public Procurement System A public management reform Felipe Goya - RPM South Asia

Chile’s basic information OCDE member Transparency International (2012): 21st GDP: USD Per capita (ppp): USD Inhabitants: Public Employees : Central Government: (health care ) Public Procurement : USD MM (goods, services and some works) (approx. figures)

Why we reformed procurement? Inefficient public marketplace High transaction costs High asymmetries of information Limited transparency – High risk environment 2003 corruption scandal Reform found it opportunity into the government’s agenda

Concept Central Agency’s Role Solution

Elements of the reform National scope reaching every procurement process above USD 200 One single and simple procurement law based on a decentralized model One strong and fully independent central procurement agency responsible for the whole system Heavy reliance on outsourcings and private partners Independent dispute resolution mechanism

Every process was massively supported by ITCs It is possible to track every transaction, every contracting officer, every vendor, to produce indicators, look for behavioral patterns, integrate with other systems, etc …

E procurement Tax authority Labor authority Competition authority Electronic suppliers registry (fully outsourced) BI & reporting E Marketplace Databases Under procurement policy Government agencies

Contracting officers are always the most important part of the equation. System deters misbehaviors but they are not human proof. A poorly designed process and badly executed will affect negatively transaction costs and vendors' transparency perception. Contracting officers development

Contracting officers’ basic demographics Gobierno de Chile | Ministerio de Hacienda | Dirección ChileCompra contracting officers

Training system structure

Performance Monitoring Written test + ACREDITATION every 2 years

Despite the certification process and the available training, tenders are not always done with the expected quality. Investing in the contracting work force is never enough

Lessons learned on capacity building Mistakes in tendering processes are not always because the lack contracting officers knowledge. Tenders involve much more people than the contracting officer. If contracting officers or any other stakeholder have a poor or inappropriate background, training will not solve this problem. Focusing training on decision making is more important than knowing the rules or procedures. Training programs must be open to non contracting officers as well. Including private sector professionals. Training programs should be designed as life learning programs.

Results

Integrity CPAR BID 2009 Metodología OCDE/DAC |ChileCompra 2010

Increased efficiency Savings 2009 – 2010 USD 3% a 5% Bids per tender 4,3 a 6.4

Transactions 2012 USD 10 BB Savings 2012 USD 280 MM

Subprime Crisis vendors tendering per year

SME in the system 18% 23,8% 33,1%37% 38,1%40,1%

Net satisfaction Vendors Contracting officials

Other relevant indicators  Tenders awarded with more than 3 bids : 70,1%  Non awarded tenders: 12%  Suppliers registered in the suppliers registry:  purchasing orders per year  tenders per year

Lesson learned: Measuring every relevant variable is fundamental

More Lessons learned

Cierre 2010 Gobierno de Chile | Ministerio de Hacienda | Dirección ChileCompra TIC Institutions HR Strategic Management Participation Quality Transparency State reform Procurement reform should be part of a wider reform

Politics Solutions Problems Reach the political agenda is fundamental Kingdon (1995) Problem: “Despite the level of development public procurement is risky” (Thai, 2001). Politics: Corruption scandale in Solutions

Political support from the Chilean’s President downward Reform under the Ministry of Finance No resources restrictions “Stick and carrots” to bring transactions inside the system Constant, clear and shared objectives Professional teams leading the reform are well paid Leveraging public resources with private’s Top down implementation

It is relevant to manage vendors perceptions 2.Perception of transparency 1.Transaction costs Win rate: Proxy for frustration

Teaming with others helps a lot

Without transaction any reform is meaningless

Without a strong central agency, the reform will not work as expected

Leaders’ role Waissbluth, 2006, “La Reforma del Estado en Chile ”

Reforming the Chilean Public Procurement System A public management reform Felipe Goya - RPM South Asia