Sweeping changes to the World Bank’s policies and procedures are afoot that will make the procurement process more consistent, transparent, and streamlined for companies that bid on bank-funded contracts. A big focus: how to reduce bribery and corruption in the procurement process.
The new procurement framework is the first comprehensive review of the World Bank’s procurement policy and procedures in its history. When the bank first established its procurement guidelines in the 1960s, the evaluation process was the same no matter the country and, generally, award criteria were based on the lowest bid price.
Much has changed since that time, including globalization and the World Bank’s growing client capacity, with each project bringing along different needs and market risks, as well as opportunities. Today the World Bank funds more than 1,800 procurement projects in 172 countries at a price tag of $42 billion.
The goal now is to modernize the procurement process from a “one-size-fits-all policy to a fit-for-purpose policy,” says Enzo de Laurentis, procurement manager at the World Bank. The new Framework provides increased flexibility to tailor the procurement strategy to specific development objectives and a broader menu of options. These include the possibility of using other criteria in addition to price to select the most advantageous bid, when appropriate, to achieve value for money.
In addition, an enhanced risk-based approach will be introduced in the Bank’s prior review of procurement processes, sustainable procurement criteria may be used at the Borrower’s requests, and integrity will be strengthened. The World Bank referred to the development of the framework as a “once-in-a-generation systemic reform and culture change.”
The push to reform its procurement standards started to take shape in 2012, when the World Bank first started a dialogue with shareholders and stakeholders. In total, the World Bank received input from about 5,000 stakeholders in nearly 100 countries, representing government, the private sector, academia, and civil society.
According to the World Bank, stakeholders saw fraud and corruption as one of the major problems facing procurement globally. To address that concern and enhance the integrity of the procurement process, the World Bank said its Anti-Corruption Guidelines and sanctions procedure will continue to apply and the Bank will tailor enhanced integrity measures specific to the particular procurement. For example, a continuous probity assurance mechanism might be used when a negotiated approach is considered optimal to achieve maximum development outcomes. Among other aspects related to integrity management, the Bank is examining options to collect and make available “beneficial ownership” information—that is, who really controls a company or related bank accounts—for bidders participating in World Bank-funded contracts.
“These are all discussions that are still ongoing, and we are consulting with a wide range of stakeholders and learning from good practices, but we’re looking for an as wide as possible range of information that can be disclosed,” de Laurentis says. The idea is to put as much information in the public domain as possible, so long as those details don’t interfere with or violate our disclosure policy or the propriety rights of the bidder, he says.
“Any time that you’re increasing the information that you’re providing to the World Bank, you’re increasing the compliance risks.”
Tracye Howard, Partner, Wiley Rein
That’s welcome news for compliance officers, since collecting and publishing beneficial ownership information can seal up bribery and corruption holes and reduce conflicts of interest. “Often, government contracts are awarded to family members or associates of the public officials overseeing them,” Transparency International (and 107 other civil society organizations) wrote in a letter to the World Bank. “By requiring that all legal entity bidders disclose information on the real people who own or control them and then publishing this information, the Bank would be foreclosing one of the most common corruption schemes that enables bidders to hide their conflicts of interest.”
The World Bank is not the only organization weighing transparency in beneficial ownership; the European Union and the G-20 countries have also endorsed such an idea. “This is an opportunity for the bank to take a leadership role by influencing this kind of policy around the world,” says Vincent Napoleon, a partner at law firm Nixon Peabody.
Now the Bad News
Assuming those new disclosures do come to pass, they could place new burdens on compliance officers to implement processes and procedures to make sure they’re producing the necessary documentation. “Any time that you’re increasing the information that you’re providing to the World Bank, you’re increasing the compliance risks,” says Tracye Howard, a partner at law firm Wiley Rein.
“The World Bank defines any sort of misrepresentation as fraud,” Howard adds. “That’s one of the biggest areas they’ve been going after in the sanctions process.”
The World Bank already has a “very strong integrity department where we carefully review all the allegations of corruption and conduct many full investigations, where warranted,” de Laurentis says. The Bank’s Vice Presidency for Integrity investigates all allegations of fraud, corruption, coercion, collusion, and obstructive practices related to World Bank Group-financed projects. The results of the investigations where allegations are substantiated are referred to the Suspension and Debarment Officer, and for contested cases, to a second level of review by the World Bank Group Sanctions Board, an independent body with a majority of external members.
The World Bank said it may even use tools such as geo-tagging “to pinpoint significant procurements so that they can be assessed later during contract management. Using geo-tagging means simply having a precise location that enables accurate monitoring of physical implementation—an important way to mitigate fraud,” the World Bank stated in its framework.
The bank will also try to clarify inconsistencies in how its policies define corrupt practices. Under current procurement guidelines, the definition of corrupt acts is described in a set of footnotes and restricts bribery and corrupt acts to include only public officials acting in relation to the procurement process or contract execution. The new regulations would cut that language to prevent a narrow interpretation of the World Bank’s anti-corruption measures in the context of procurement.
COLLABORATING WITH MULTILATERAL DEVELOPMENT BANKS
Below, the World Bank describes how it intends to facilitate co-financing and support harmonization with other Multilateral Development Banks (MDBs) through its new Procurement Framework.
The Bank’s proposed framework is a significant shift from current practice and may impact other MDBs, in particular wider application of value for money, hands-on expanded implementation support, complaints handling, etc. Listening and acting on MDB feedback, the Bank has revised its proposed terminology to ensure continued harmonization where it makes sense to do so. Further, when the Bank negotiates agreements with other development banks/agencies/organizations it will ensure the Core Procurement Principles in the Bank’s Procurement Policy, the Bank’s sanctions procedure, and the Anti-Corruption Guidelines apply. In seeking agreement with other development banks/agencies/organizations, the Bank would not demand precise mirroring of every granular detail of the directive, procedure and regulations. As drafted, the proposed policy should facilitate bilateral/co-financing agreements with other parties that have similar core procurement principles.
Source: World Bank.
The World Bank said it also expects to make further changes to its Anti-Corruption Guidelines but has described these changes as “technical” and “non-substantive” in nature. “Those are discussions we are having almost on a daily basis with our legal department and with our integrity department on the most effective ways to ensure consistency and strengthen integrity in the new Framework,” de Laurentis says. “It’s primarily a matter of drafting the right language in the documents.” He declined to provide any further details.
In response to feedback from the private sector, de Laurentis says the World Bank is also “significantly strengthening” its approach to procurement-related complaints. Numerous voices argued that stronger bank involvement in procurement-related complaints “would inspire trust in companies, which would in turn be more encouraged to bid on bank-financed procurements.”
Those improvements might include dedicated senior World Bank staff, assigned to “process, support, and expedite” procurement-related complaints for both borrowers and bidders, the framework stated. Complaints will be centrally monitored, tracked, and expedited, and progress will be reported by the World Bank. As another way to improve the integrity of the procurement process, the Bank said that an outside audit institution or independent third-party monitor (such as Transparency International) could be engaged in the review process.
A stand-still period of 10 calendar days will be introduced after all bidders are notified of the intention to award, so that bidders have time to raise procurement-related complaints and request a debrief by the borrowing government before a contract is completed.
Additionally, in specific circumstances and with approval from the World Bank, borrower countries will be able to use the procurement arrangements of other multilateral development partners or of national agencies: the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank.
“It’s an advantage to contractors who are already familiar with those systems,” Howard says. “It’s also a bit of a burden, because contractors, instead of dealing with one system from the World Bank, now need to familiarize themselves with a whole host of different systems worldwide.”
For the first time, too, the World Bank said it will allow any contract award decisions to be based on criteria other than lowest price, including quality and sustainability. That effectively means that contractors “will need to put more work into their proposals to ensure that the proposals highlight what that specific procurement is looking for—whether that’s sustainment or experience or some other factor,” Howard says.
“This also increases the compliance costs and risks for contractors, because they will have to familiarize themselves with different procurement procedures in different countries and set up internal processes to ensure that they are compliant with all of them,” Howard adds.
So what’s next?
De Laurentis says the World Bank will complete all readiness actions on a rolling basis during the course of the current fiscal year (July 2015-June 2016). As soon as these critical actions are finalized, “the Bank will declare the new framework effective,” he says.
“The transition will take time,” says Napoleon from Nixon Peabody. “This is not something that’s going to happen overnight.”