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

2. 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

3. 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

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

5. 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

6. 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)

7. 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

8. 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

9. Modern E-Procurement and the PFM Framework