Companies have a groundbreaking new benchmark report by which to navigate public procurement regulatory systems country-by-country. It also happens to provide some telltale signs as to where corruption and collusion risk may lurk in the public procurement process in certain regions around the world.
The World Bank Group last month published its 2017 Benchmarking Public Procurement report, which is the first of its kind to provide a detailed scorecard of public procurement laws and regulations in 180 countries across seven regions: East Asia and Pacific, Europe and Central Asia, Latin America and Caribbean, Middle East and North Africa, OECD high-income, South Asia, and Sub-Saharan Africa.
“The Benchmarking Public Procurement report is the first of its type,” says Federica Saliola, program manager at the World Bank and lead author of the report. “Despite its strategic importance, there is still a lack of comparative global statistics on public procurement systems. Initiatives have been undertaken largely at the micro-economic level, but there is no single body of data assessing performance of public procurement systems globally.”
The report fills this gap by scoring each country across eight key indicators based on the affect that their legal and regulatory environments have on the ability of private-sector companies to participate in procurement activities. It explored two main themes: the procurement process lifecycle and complaint review mechanisms available in each country.
Overall, the report confirms that “there is still a significant need for greater levels of trust and integrity regarding procurement processes in over two-thirds of the world,” says Don Fancher, Deloitte’s U.S. and global forensic leader. From a practical standpoint, that means being vigilant about fraud, corruption, and collusion “adds to the overall cost of doing business in the majority of global economies and must be considered when entering into procurement or bidding processes in developing nations,” he says.
E-procurement. The good news is that a vast majority of economies around the world have adopted, or are moving to adopt, an electronic procurement (e-procurement) system as a national policy, building transparency and fairness into the procurement process and reducing transaction costs for bidders.
“E-procurement provides a systematic approach that has the potential to limit individual decision-making due to the level of transparency that is inevitably created,” Fancher says. Without that transparency and a systematic procurement approach, more people can become involved in the bidding and approval processes, creating more opportunity for bribery and corruption, he says.
The use of an e-procurement system also helps prevent corruption by reducing face-to-face interactions between suppliers and government officials. According to the OECD’s guide, “Curbing Corruption in Public Procurement,” electronic bidding, for example, helps reduce the risk of collusion by preventing last-minute communication and deal-making among firms during the tender process.
“Transparency builds trust and evens the playing field between bidders,” Fancher says. “There is a greater level of trust that bids will be considered on the merit of pricing and delivery, with less risk of corruption influencing the process.”
Some economies, however, still have a long way to go. Twenty-six of the 180 economies scored by the World Bank don’t yet have a procurement portal dedicated to public procurement, including Belize in the Latin America region; Chad, Equatorial Guinea, Malawi, and Zimbabwe in Sub-Saharan Africa; Marshall Islands and Myanmar in East Asia and Pacific; Sri Lanka in South Asia; and West Bank and Gaza in the Middle East and Africa region.
The World Bank also assessed how advanced each economy’s e-procurement system is by exploring what services suppliers can perform online—such as whether bids can be submitted through an e-mail or e-platform, whether award contractors can be signed online, and whether payments may be requested online. In the 154 economies where procurement portals have been developed, the services offered range from providing basic information on procurement laws, for example, to supporting interactions between suppliers and procuring entities during the various stages of the tendering process, the World Bank procurement report states.
Beyond the public sector, the adoption of e-procurement systems is gaining a foothold in the private sector, as well, as it helps establish credibility for the procurement function. In addition to allowing for the simplification, standardization, and automation of the procurement process, e-procurement also improves the integrity of the procurement process by increasing transparency, says Samir Khushalani, procurement and supply chain leader for KPMG.
“The Benchmarking Public Procurement report is the first of its type. Despite its strategic importance, there is still a lack of comparative global statistics on public procurement systems. Initiatives have been undertaken largely at the micro-economic level, but there is no single body of data assessing performance of public procurement systems globally.”
Federica Saliola, Program Manager, World Bank
“What you get is much better spend visibility,” Khushalani says. Without an e-procurement system, companies don’t have a holistic, comprehensive view of their third-party spend, he says.
That lack of visibility creates several unknown variables critical to the procurement function: What are we buying? From whom are we buying? For what price? Are there variations in prices from one department to the other, or from one region to another? Are we buying the same products from multiple vendors?
“You’re effectively flying blind when you don’t have that transactional data,” Khushalani says. Using an e-procurement system—whether in the public or private sector—gives you that visibility to consolidate spend, which, in turn, allows you to negotiate better contracts with strategic suppliers and drive down costs, he says.
Payment delays. Receiving payments in a timely manner can be a significant obstacle for companies engaging in the public procurement process, especially for small and medium enterprises (SMEs) with limited cash flows. Best practice is for suppliers to be paid within 30 days following the performance of a contract, and yet payment delays remain widespread in practice, according to the benchmarking public procurement report.
Suppliers receive timely payments within 30 days after submitting an invoice in only 53 economies, the report stated. These economies include Bhutan, Hong Kong SAR, China, Iceland, Kosovo, Georgia, and Gambia.
The higher the income level, the fewer the number of days that suppliers had to wait to get paid, the report stated. Payment delays average 30 to 60 days in nine of the 32 high-income economies, while the remaining 23 high-income economies ensure timely payments to suppliers.
EIGHT KEY INDICATORS
The eight key indicators examined in the Benchmarking Public Procurement Report are discussed below.
Needs assessment, call for tender, and bid preparation: The quality, adequacy, and transparency of the information provided by the procuring entity to prospective bidders.
Bid submission phase: The requirements that suppliers must meet in order to bid effectively and avoid having their bid rejected.
Bid opening, evaluation, and contract award phase: The extent to which the regulatory framework and procedures provide a fair and transparent bid opening and evaluation process, as well as whether, once the best bid has been identified, the contract is awarded transparently and the losing bidders.
Content and management of the procurement contract: Several aspects during the contract execution phase related to the modification and termination of the procurement contract, and the procedure for accepting the completion of works.
Performance guarantee: The existence and requirements of the performance guarantee.
Payment of suppliers: The time and procedure needed for suppliers to receive payment during the contract execution phase.
Complaints submitted to the first-tier review body: The process and characteristics of filing a complaint before the first-tier review body.
Complaints submitted to the second-tier review body: Whether the complaining party can appeal a decision before a second-tier review body and, if so, the cost and time spent and characteristics for such a review.
Source: World Bank Benchmarking Public Procurement Report.
In other regions, suppliers must wait more than six months to receive payment from purchasing entities. These economies include the Dominican Republic, Equatorial Guinea, Gabon, Guinea-Bissau, Iraq, Trinidad and Tobago, and Vanuatu.
In 26 other economies, delays often range between 91 and 180 days. These economies include Bangladesh, Qatar, Sri Lanka, Sudan, Thailand, Tunisia, Venezuela, and more.
There does not appear to be any correlation, however, between payment delays and each country’s level of corruption risk, based on Transparency International’s Corruption 2015 Perceptions Index (TI CPI). Gambia, for example, which makes timely payments, ranked 123rd out of 163 countries in the TI CPI, indicating a high-level of corruption.
Some countries where payment delays range between 91 and 180 days, however, received mediocre corruption scores. Thailand and Tunisia, for example, both ranked 76th with a score of 38. Venezuela, Bangladesh, and Sudan all received scores indicating a high corruption risk.
Complaints resolution. In situations where bidders are dissatisfied with the acts or outcomes of the procuring entity, having a fair and transparent complaints mechanism helps ensure that bidders can count on transparency and accountability from the procuring entity, the World Bank procurement report states.
Bidders don’t always have the right to file a complaint at just any stage of the procurement process. In economies like Antigua and Barbuda, El Salvador, and Iraq, for example, the legal framework doesn’t even contemplate the possibility of filing a complaint before a contract is awarded. Instead, bidders must wait until the tendering process is concluded to protest any irregularity, potentially limiting the effectiveness of a review body’s corrective measures.
“A good complaint mechanism guarantees suppliers the possibility of requesting corrective measures when the procurement process if flawed or when they have been treated unfairly,” the World Bank said. “These corrective measures should be granted in a timely and affordable manner and should be available at any stage of the process.”
For example, potential bidders should be able to contest the process when they believe that the tender documents contain clauses that could strongly orient the award toward one bidder, the World Bank said. “In these cases, potential bidders should be able to file a complaint, because these actions might have unfairly barred several suppliers from competing.”
The type of body in charge of conducting a review of complaints may affect the timeliness of the decisions, as well as the corrective measures that can be granted.
There are three main types of review bodies that can address bidders’ complaints: procuring entities, independent administrative review bodies, and courts.
In nearly half of the countries, complaints are submitted to a procuring entity.
“Given the complexity of procurement contracts, especially when it comes to the procurement of works and infrastructure, it is important that the people reviewing the complaint have sufficient knowledge and expertise in the type of procurement conducted. However, the challenge remains of securing the impartiality of the reviewing body.”
In 64 of the 100 economies where the first-tier review body is the procuring entity, complaints are reviewed by the same people whose action is being challenged, such as in Argentina, Lithuania, Israel, Mongolia, and Senegal.
Sixteen of these economies give the complaining party the choice to resort to an alternative review body to file a complaint. In Brazil and Finland, for example, a complaining party may directly seek judicial review. In Hong Kong SAR, China, and the Republic of Yemen, the complaint may be filed before an independent administrative review body.
“Another option to ensure more independence and impartiality in the review conducted by the procuring entity is to permit a complaint to be filed before a hierarchical superior. This is the recourse offered to complaining parties in economies such as Australia, The Gambia, Mauritania, and Nepal. Some economies like Greece and Pakistan have gone one step further by establishing specialized units within the procuring entity merely for the function of reviewing procurement complaints.”
While improvements in the public procurement process have been tangible in some economies, governments around the world have more work to do. “The data reveal the magnitude of the challenge that many countries still face in establishing legal and regulatory environments that enhance efficient and transparent public procurement markets,” Augusto Lopez-Claros, director of Global Indicators Group at the World Bank Group, said in a statement.
By informing policy discussions and research, Lopez-Claros added, the benchmarking public procurement report “aims to strengthen the role of public procurement as a stimulus for economic growth and private-sector development.”