E-Procurement: Opportunities & Challenges by Sanjay Pradhan, Vice President World Bank Institute e-GP

Key Elements of Discussion: Situate e-procurement reforms within a broader framework of governance: focus on supply and demand for reform E-Procurement can provide significant benefits, but requires important conditions for success Important to understand and manage political economy of reform Importance of e-procurement for Governance. Recognize conditions in which public procurement may become vulnerable: to leakages (high public expenditure, high levels of bureucracy, high levels of discretion, dispersed regulatory framework). Context: An effective context for e-procurement depneds on a number of factors including (the supply and demand for reform, leadership and political will, feasibility of reforms, context and the cultural, legal and administrative environments at the local and national level. Also the context at the regional and global standars such as emerging standards in EU countries should be considered. Reform strategies for e-procurment: ie. Watch in the Phillipines; one stop shops in Brazil are examples of a reform strategy aimed at using technology to provide access to public procurement information. Implementation and change management: Simplification of laws and regulations, standardizing product documetns and issues of public tender. How might e-systems for procurement be anchored to existing regulations? Recognize that successful implementation requires changes in incentives and attitudes in addition to systems with a focus remaining on users. Oversight. Succesful oversight mechanism that ensure that e-procurement systesm are meaninguflly linked to procurement regulations and that both are aimed at improving transparency and governance Stakeholders involvement: Government, private sector, civil society nding and in particular, prior review ratios over time.

1. Situate reforms in a broader framework of governance and anticorruption: focus on supply and demand for reform

Good Governance has many dimensions … Citizens/Firms Political Governance Political competition, broad-based political parties Transparency & regulation of party financing Formal Oversight Institutions Independent judiciary Legislative oversight Independent oversight (SAI) Global initiatives: UN, OECD Convention, anti-money laundering Public Sector Management Public finance management & procurement Civil service meritocracy & adequate pay Service delivery and regulatory agencies in sectors Civil Society & Media Free press, FOI Civil society watchdogs Citizens/Firms Citizens/Firms Private Sector Interface Streamlined regulation Extractive Industry Transparency Initiative Collective business associations Outcomes: Services, Regulations, Corruption Decentralization and Local Participation Decentralization with downward accountability Community Driven Development (CDD) Oversight by parent-teacher associations & user groups Citizens/Firms

Strengthening Governance Systems: Balancing Supply & Demand Demand-side Strengthen accountability arrangements – elections, political parties, effective parliaments, independent judiciary, free press, vibrant civil society, accountable local governments – that enable citizens and firms to hold state institutions to account Supply-side Strengthen the state’s bureaucratic capability – leadership, skills, human resource, financial management, information systems – to deliver public goods and services

Strengthening Demand for Public Financial Accountability Transparent, competitive e-procurement (Latin America) Civil Society Oversight on procurement (Slovakia) Strengthening Supreme Audit Institutions (Hungary) Strengthening Public Accounts Committees of Parliament (Kenya, Ghana, Zambia -- AFR) Procurement oversight by CSOs (Philippines) Accountability, Transparency & Integrity Project (Tanzania) Strengthening Public Accounts Committees of Parliament (India) Participatory Budgeting, Puerto Alegra (Brazil) Public Expenditure Tracking & Information Campaigns (Ghana, Madagascar, Mozambique, Peru, Senegal, Tanzania, Zambia)

2. E-procurement can deliver substantial benefits but requires important conditions for success

E-Procurement & Citizen Oversight E-Procurement: LAC Engaging CSOs: Philippines All supplier companies register, indicating areas of business (e.g., IT, construction, furniture) Public agencies submit tenders through internet Automatic e-mail to all companies in selected area Online information on name, position of official in-charge Online information on results: who participated, proposals made, scores received, who won bid, historical record of agency’s purchases & contracts Legal foundation a mess with over 100 laws and regulations New omnibus law needed for clarity and predictability in the process New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO Extensive training of CSOs now under way

Impact of e-Procurement Increased efficiency due to competition, transparency and lower transaction costs Reduced opportunity for fraud & corruption due to automated procedures Public procurement monitoring The table above shows the high-level trends against total IBRD/IDA lending and in particular, prior review ratios over time.

Example Korea Enhanced Transparency of Public Procurement Real-time basis Bidding info No room for arbitrary decisions Competitive biddings of micro-purchases Number of bidders has tripled Diminished the possibility of corruption Stimulated e-Commerce in the Private Sector Enhanced Transparency of Public Procurement Announcing all bidding information on a real-time basis No room for arbitrary decisions Converting private contracts to competitive biddings of micro-purchases The number of bidders has tripled as a result of decreased transaction costs and increased opportunities of e-Procurement  Diminished the possibility of corruption due to online contact instead of direct interpersonal contact Stimulated e-Commerce in the Private Sector Promoted an e-Commerce mindset Accumulated business experiences of e-Procurement has enhanced the credibility of e-Commerce Helped build the infrastructure Created the computer environment such as the PC, and Internet connection Promoted the use of digital signatures as the best way to ensure security Promoted an e-Commerce mindset Enhanced the credibility of e-Commerce Helped build the infrastructure Created the computer Business environment Use digital signiture to ensure security

Savings (Examples) Total volume of US$ 44 bn in 2006 with transaction cost savings of US$ 4.5 bn (http://www.pps.go.kr/english/ ) 650,000 electronic auctions between 3/2002 and 10/2006 with savings of US$ 178 mn (http://www.mcti.ro/index.php?id=28&L=1&lege=1289) From 2000 to 2006, 51% savings in transaction costs and 25.5% in price reductions (http://www.relogiodaeconomia.sp.gov.br/br/home_results.asp) US$ 3.6 bn of transactions in 2005 with savings of US$ 238.2 mn due to tender discounts in the same year (http://ccaharyana.gov.in/e-procurement.htm) KOREA www.g2b.go.kr ROMANIA www.e-licitatie.ro BRAZIL Korea www.g2b.go.kr : Total volume of US$ 44 bn in 2006 with transaction cost savings of US$ 4.5 bn (http://www.pps.go.kr/english/ ) Romania: www.e-licitatie.ro : 650,000 electronic auctions between 3/2002 and 10/2006 with savings of US$ 178 mn (http://www.mcti.ro/index.php?id=28&L=1&lege=1289) Brazil: www.bec.sp.gov.br : From 2000 to 2006, 51% savings in transaction costs and 25.5% in price reductions (http://www.relogiodaeconomia.sp.gov.br/br/home_results.asp) India (AP): http://eprocurement.gov.in : US$ 3.6 bn of transactions in 2005 with savings of US$ 238.2 mn due to tender discounts in the same year (http://ccaharyana.gov.in/e-procurement.htm) www.bec.sp.gov.br INDIA eprocurement.gov.in

Potential Annual Savings of Introducing E-Tendering in EU Savings on purchasing price Savings on admin. costs (buyers) Total value of public procurement in the EU15: 1,500 Billion EUR Value of e-public procurement at a 25% level uptake in the public sector in EU15: 375 Billion EUR Range of savings realized today: Between 10% - 53% Conservative est. for savings on purchasing price: 5% Est. total savings calculation: 375 Billion EUR / 5% Total annual no. of public procurement transactions in the EU (above & below threshold): 665,000 Est. no. of e-public procurement transactions at a 25% level uptake: 166,000 Savings per invitation to tender: 31% realized (40 – 130 EUR per transaction) Est. for savings on administrative costs per transaction: 40 EUR Est. total savings on administrative costs: 166,000 X 40 EUR Estimated total savings: 19 Billion EUR per year (for EU15) 6.6 Million EUR per year (for EU15)

Conditions for Successful Implementation Strong government leadership (e.g. Korea, Mexico at presidential level) Appropriate implementation framework (e.g. procurement policy, legislation, capacity building, standards) Infrastructure development (connectivity) Complaints mechanism & resolution Oversight over collusion & bid rigging Managing political economy of reform The table above shows the high-level trends against total IBRD/IDA lending and in particular, prior review ratios over time.

Bid Rigging Schemes & Red Flags “Complementary” bidding Round robin Divide the pie Coercion Low balling/ “Change orders” Bidders have same address or bid price Wide gap between winner & all others Winning bidder subcontracts to losers Qualified bidders do not bid Lowest bidder later submits substantial change orders

3. Vested Interest Focus on managing the political economy of reforms

Entrenched Corruption Networks: Montesinos in Peru Judiciary Civil Society Legislative Branch International Alberto Fujimori State (Bureaucracy) Political Parties 1 Vladimiro Montesinos Media Military Municipal Government Private Sector Source: “Robust Web of Corruption: Peru’s Intelligence Chief Vladimiro Montesinos,” Kennedy School of Government Case Program, Case C14-04-1722.0, based on research by Professor Luis Moreno Ocampo; Peru: Resource Dependency Network, 2000

Philippines: Procurement Reform Forging Coalitions for Reform Philippines: Procurement Reform Transparency and Accountability Network (20+ member groups) Walang Ku-Corrupt Movement (Youth) Procurement Watch: Drew other civil society groups into the advocacy efforts and coordinated the activities PAGBA & AGAP (w/in Gov’t) CBCP (Church) Local chambers of Commerce (Private sector) Philippine Contractors Association (private sector – main stakeholder)

Summary Situate e-procurement reforms within a broader framework of governance: focus on supply and demand for reform E-Procurement can provide significant benefits, but requires important conditions for success Important to understand and manage political economy of reform Importance of e-procurement for Governance. Recognize conditions in which public procurement may become vulnerable: to leakages (high public expenditure, high levels of bureucracy, high levels of discretion, dispersed regulatory framework). Context: An effective context for e-procurement depneds on a number of factors including (the supply and demand for reform, leadership and political will, feasibility of reforms, context and the cultural, legal and administrative environments at the local and national level. Also the context at the regional and global standars such as emerging standards in EU countries should be considered. Reform strategies for e-procurment: ie. Watch in the Phillipines; one stop shops in Brazil are examples of a reform strategy aimed at using technology to provide access to public procurement information. Implementation and change management: Simplification of laws and regulations, standardizing product documetns and issues of public tender. How might e-systems for procurement be anchored to existing regulations? Recognize that successful implementation requires changes in incentives and attitudes in addition to systems with a focus remaining on users. Oversight. Succesful oversight mechanism that ensure that e-procurement systesm are meaninguflly linked to procurement regulations and that both are aimed at improving transparency and governance Stakeholders involvement: Government, private sector, civil society nding and in particular, prior review ratios over time.

The End

Lessons learned: e-Government vs better government Ways to fail Ways to go Consider and promote e-government as a government-centered effort Replace every paper-based process by an electronic process Offer ‘ministry-specific’ e-solutions Focus primarily on first rate technological systems Focus the e-government process on users (citizens & businesses) Use e-government as a tool to foster changes in attitudes and thinking, and as an instrument for reforms Rally government-wide efforts, and an ‘all-of-government’ approach (front office) Understand and tackle underlying political obstacles to reform

Examples of Broader E-Government Reforms Citizen Service Centers & One-Stop Shops (Bahia, Brazil; e-Seva in AP, India; online Motor Vehicles Departments) E-procurement (Brazil, Chile, India, Korea, Mexico, Philippines, Romania, others) Land titling (Karnataka, India: 18m titles issued) New Business Registration (Jamaica, Jordan, China) Online counseling for teacher transfer (Karnataka, India) Online customs (70 countries) Online municipal services (Seoul, Korea) Property registration (AP, Kanartaka, Maharastra, India) Railway reservations (India: 5 billion passengers/year) Tax payment (Mexico, Singapore, India, Chile) Trade facilitation (Tunisia) Treasury & integrated financial management systems (50 countries)

What is the mystery behind e-GP? What is the impact of e-GP? The table above shows the high-level trends against total IBRD/IDA lending and in particular, prior review ratios over time. What is the best approach to successful e-GP implementation?

The Use of ICT in Procurement … to publish and distribute public procurement information (online portal) … to support public procurement transactions (e-Tendering, Purchasing from e-Catalogues, e-Reverse Auctions) … to monitor and manage public procurement (PMIS linked to FMIS and other systems) The table above shows the high-level trends against total IBRD/IDA lending and in particular, prior review ratios over time.