Public Procurement and PFM Mark Silins PEMPAL Treasury COP Advisor June 2019 Budapest, Hungary

What is Government Procurement? The process through which government engages with suppliers for the acquisition of goods, services and works, including capital acquisitions and capital formation required by the public sector Hire of a Venue for a conference Building an airport Office supplies Consultancy Services International Travel Services Computers Advertising campaign

Stages in the Budget Execution Process Requisition Stage- Likely to involve tendering processes based on the value of goods and services to be purchased Stage 1 Decision to Purchase- Pre-commitment Stage 2 Purchase Order (legal obligation) Funds Control/Budget Commitment- Sets aside funds so that money can not be spent for other purposes Stage 3 Goods or Services Delivered Liability Recognized- (financial obligation) Accrual - Accounts payable - Invoice matched to purchase order/commitment Stage 4 Correctly Rendered Invoice received Payment made on due date recognized both on an accrual and cash basis Stage 5 Payment Pending in Accounting Systems based on Due date Stage 6 Payment Made on the Due Date Yes (Possible) Stage 7 Budget Arrears Payments are overdue No

Where does Procurement Fit into the Budget Process? Budget Preparation and Approval Upstream Procurement Process Budget Execution Downstream

Major Procurement Stages MDA Submission of Procurement/ Cash Plans Plans maybe integrated or separate and submitted to the MoF and/or to the Procurement Agency Preparations of Procurement Requests and documents Depending on type and value - for small procurements it may simply be an internal request (requisition). For large procurement projects this would include very detailed specifications of requirements Invitation to bid Depending on type and value - for lower values may just invite three vendors to quote a price – for higher values the a public tender notice maybe issued nationally or even internationally Selection of Supplier Depending on type and value- . Lower value may be just lowest price. Higher values will require a predetermined assessment of value for money” which includes a risk assessment This is where procurement overlaps with budget execution. Commitment (legal obligation) should be recorded in IFMIS Acceptance of offer/contract signing

Procurement and Risk Management Governance over procurement is a critical process as contractual arrangements involve considerable risk for government : Corruption Nepotism Vendor Risk – unable to deliver, bankruptcy, substandard products, delays Financial Risk Perception of Bias Government’s have become more concerned with these risks and so have developed laws, regulations and usually professionally qualified functions in government for oversight of government procurement- (although the Procurement Profession is not a recent development)

Examples of how Governments Mitigate Risk in Procurement By Value (Threshold e.g. Above one million). Approaches vary – examples include: low value – three quotes Medium value – limited tender (national) High value – open tender evaluated by a tender board with external officials involved (international) Preferred suppliers - Procurement Board evaluates market suppliers and creates a preferred supplier list where certain goods/services must be acquired from the list and the price is already predetermined (South Korea) E-Procurement – Business to Government. The scope in countries varies but in general the focus is on four aspects: value for money process efficiency mitigation of risk transparency

Preconditions for Modern Procurement A suitable public procurement legal framework: Procurement laws should adopt best practice standards on public procurement, while regulations should be regularly reviewed in order to fine-tune rules, processes, and organizational aspects to construct a complete legislative framework that supports healthy and transparent procurement processes A capable national procurement agency: Among others roles, the national procurement agency should function both as an expertise center to provide guidance/assistance to public procuring entities so that the public procurement rules are adopted as well as a regulatory body to identify irregularities and contribute to enforcing compliance E-Procurement, although this comes in many shapes and forms

Modern E-Procurement and the PFM Framework