reforming public procurement in emerging market...

Reforming Public Procurement in Emerging Market Countries

MAY 2007

This publication was produced for review by the United States Agency for International Development. It was prepared by Development Alternatives, Inc. under contract No. GEG-I-06-04-00001-00.

Reforming Public Procurement -- Syquia

Fiscal Reform and Economic Governance Project

Reforming Public Procurement in Emerging Market Countries BY JOSE LUIS C. SYQUIA

The authors’ views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.



TABLE OF CONTENTS

LIST OF TABLES ...............................................................................................................................II ACKNOWLEDGEMENTS .............................................................................................................. III LIST OF ACRONYMS ..................................................................................................................... IV EXECUTIVE SUMMARY .................................................................................................................V 1 INTRODUCTION .......................................................................................................................1 2 APPROACHING PUBLIC PROCUREMENT POLICY REFORMS IN THE

CONTEXT OF DEVELOPING COUNTRIES ........................................................................1 3 STEP ONE: ASSESS THE NATIONAL PUBLIC PROCUREMENT

SYSTEM AND PRACTICES, DEVELOP THE STRATEGY AND PLAN THE APPROACH .......................................................................................................................2 3.1 USING THE BASELINE INDICATORS SYSTEM (BIS) TO ASSESS NATIONAL PUBLIC

PROCUREMENT SYSTEMS ........................................................................................................ 2 3.2 DEVELOP A STRATEGY ........................................................................................................... 5

4 STEP TWO: DEVELOP OR IMPROVE THE LEGAL FRAMEWORK.............................5 4.1 IDENTIFY CHAMPIONS AND BUILD SUPPORT ......................................................................... 5 4.2 DRAFTING THE REFORM MEASURES ...................................................................................... 6 4.3 GUIDELINES FOR A GOOD OMNIBUS PROCUREMENT LAW .................................................... 7 4.4 RESOURCES TO ASSIST WITH LEGAL DRAFTING .................................................................... 8 4.5 E-PROCUREMENT.................................................................................................................... 9

The notion of “electronic” means and the use of electronic communications in the procurement process .............................................................................................10

Single or Multiple Portals and Private Sector-Provided Portals.........................................11 On-line Registry Requirement ..............................................................................................12 The Use of Dynamic Bidding or “Reverse Auction”............................................................12

5 STEP THREE: DEVELOP THE OVERSIGHT AND INSTITUTIONAL FRAMEWORK .........................................................................................................................13

6 STEP FOUR: CAPACITY BUILDING ..................................................................................14 6.1 DEVELOPING A PROCUREMENT TRAINING PROGRAM.......................................................... 15 6.2 THE TRAINERS...................................................................................................................... 16 6.3 THE PROFESSIONALIZATION PROGRAM ............................................................................... 17

Improving Human Capital....................................................................................................17 Improving Information Capital ............................................................................................18 Creating a Climate for Positive Action ................................................................................18

7 STEP FIVE: ASSESS THE IMPACT OF REFORMS AT BOTH THE CENTRAL AND LOCAL LEVELS ........................................................................................19

8 CONCLUDING REMARKS ....................................................................................................24 NOTES.................................................................................................................................................25



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List of tables

Table 1. Linking the BIS and APPI ...................................................................................................... 21 Table 2: Procurement Reform Rating System ...................................................................................... 23 Table 3. Illustrative Procurement Reform Timeframe.......................................................................... 24



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Acknowledgements On April 9t,2007, USAID/EGAT and the Fiscal Reform and Economic Governance Project hosted a seminar in Washington, DC where the author presented this study’s preliminary findings, followed by remarks from two distinguished experts on procurement reform, Peter P. Pease and João Veiga Malta. The author would like to extend special thanks to Mr. Pease and Mr. Veiga-Malta, both of whom provided useful comments that helped in the finalization of this paper. Thanks also go to those in attendance on April 9th who offered helpful comments and suggestions. Of course, none of them is to blame for any errors that may remain. Steve Rozner and Mark Gallagher made final edits and formatting to the paper.



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List of Acronyms APPI Agency Procurement Performance Indicators BIS Baseline Indicators System CPI Compliance/Performance Indicators DAC Development Assistance Committee of the OECD DBM Department of Budget Management (Philippines) ERA Electronic Reverse Auction GPPB Government Procurement Policy Board (Philippines) IBRD International Bank for Reconstruction and Development (World Bank) IDA International Development Agency (World Bank) OECD Organization of Economic Cooperation and Development PDR People’s Democratic Republic (Laos) PhilGEPRS Philippine Government’s E-Procurement System PrMO Procurement Monitoring Office (Lao PDR) UNCITRAL United Nations Commission on International Trade Law WTO World Trade Organization WTO GPA WTO’s Agreement on Government Procurement



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Executive Summary Corruption in public procurement is just one of the many forms of corrupt practices that may occur in the public sector. However, it is one of the most critical barriers to development, because it creates leakages in a government’s financial and budgetary systems that directly lessen the impact of much needed health, education, infrastructure and other investment programs and projects. In addition to reducing the effectiveness of public services and diluting the benefits of growth, the natural uncertainty that is fostered by a state’s perceived lack of moral fiber can also negatively impact the investment climate. This study looks at the procurement reform process as comprising five basic steps:

Step 1: Assessing the national public procurement system and practices, developing the strategy and planning the approach;

Step 2: Developing or improving the legal framework;

Step 3: Developing the oversight and institutional framework;

Step 4: Building capacity; and

Step 5: Assessing the impact of reforms at both the central and local levels.

These steps are roughly sequential but not strictly consecutive, and they are designed to ensure a proper fit between international best practices and the developing country context. This entire process may take from four to six years to complete, and should be viewed not so much as a one-time event, but rather as a continuous cycle: Each step feeds into the next, and as each cycle ends with an impact assessment, the results of that assessment similarly feed into the next national public procurement assessment, identifying gaps that have not been addressed, and informing a new strategy and approach to guide the next round of reforms. Step 1 involves a macro-level assessment of the quality of a country’s procurement policies and institutional capacity through the Baseline Indicators System (BIS), a framework that was introduced by the Procurement Roundtable, a joint initiative of the World Bank and the Organization for Economic Co-operation and Development’s Development Assistance Committee (OECD-DAC). The BIS evaluates a country’s legislative and regulatory framework, its institutional framework and management capacity, procurement operations and market practices, and the integrity of its public procurement system. In this way, the core elements of a well-functioning public procurement system are identified and then utilized as the measuring stick to determine how well a country’s procurement framework integrates these elements, or how close it comes to established international principles and practices. It should be noted that the overall objective of the assessment is formative in that it aims to improve the procurement policies, systems and practices of the government. Furthermore, the BIS should be regarded more as a self-assessment tool through which a government is able to rate itself in light of international standards and “good practices” and then determine the appropriate strategy to improve its procurement system and outcomes. The assessment is not a fiduciary tool through which external stakeholders—such as multilateral institutions or donors—can assess and draw conclusions about a country’s procurement system. This self-assessment approach increases the likelihood that government will take ownership of the procurement reform and increases the responsiveness of the reform agenda to the country’s social, political, cultural and economic context. After identifying the gaps and weaknesses in a country’s public procurement system in Step 1, the next logical step (Step 2) is to draft the legal framework to address these problems. Depending on the political structure of the country and the state of the existing legal framework for public procurement, this activity may range from the issuance of executive orders or implementing rules and regulations to



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the actual legislation of an omnibus procurement reform law. For purposes of broader coverage, this paper focuses on the latter scenario. This is especially relevant when public procurement reform is introduced under the auspices of a broader anti-corruption program, given the fact that informal institutions are often strong when formal institutions are weak. However, it should be kept in mind that a full-blown effort to advocate and enact an omnibus procurement reform law is generally a long-term process and could take years. Therefore, there may be a need for short-term measures to address more pressing procurement challenges while the law is being developed. Even in countries with highly centralized government and decision-making processes, extensive efforts must go into legitimizing policy reforms and securing broad-based support for policy or systemic reform. Policy champions at the highest levels of government need to be identified—key decision makers with sufficient credibility, political resources and the willingness to risk political capital in support of the reforms. At the same time, garnering support from a wider array of constituents both within and outside the government is critical to ensuring that the reforms are truly embraced and implemented. Clearly, then, legislating an omnibus public procurement law requires advocacy efforts that reach out to various groups and individuals throughout government, the private sector and civil society. In drafting the legal framework, there is no “one-size-fits-all” model law that can be applied to every situation. In fact, reforming public procurement should not begin with drafting the law, but rather with an analysis of the problems in the current legal framework that give rise to corruption and inefficiency. Generally speaking, however, the legal framework for public procurement should provide for the following:

1. open and competitive bidding; 2. mandatory publication of tenders and awards; 3. clear and simple procedures for the various types of procurements; 4. the minimum content of tender documents; 5. mechanisms and procedures for independent review and appeal of procurement decisions; 6. an independent oversight body to monitor and regulate compliance with procurement laws; 7. an integrated information system that gives buyers and sellers easy access to procurement

plans, notices and awards, and procurement rules and regulations, at no or minimum cost; 8. clear procedures for managing and monitoring awarded contracts, to ensure that contracts are

performed strictly according to specifications; 9. development of a human resource strategy to ensure permanent training and capacity building

programs are in place; and 10. penalties and criminal sanctions for misconduct.

Step 3 focuses on creating a central body that is impartial, transparent and effective. This body has to have moral ascendancy over the entire bureaucracy; otherwise, it may only be regarded as a superficial body that churns out policy with neither the field information to support its issuances nor the power and credibility to enforce it. The term “body” is used, because the powers and responsibilities that it carries obviously cannot be placed in the hands of a single individual, but rather upon a group of persons representing both the public and private sectors, acting by consensus. This would ensure that issues and matters are properly discussed and debated before they are transformed into policies. It has to be an inter-agency body with effective private sector representation so that both sides of the procurement contract are adequately represented in policy development, and undue external and political influences are avoided. Needless to say, if the oversight body takes the form of a board and is appropriately composed of high-ranking government officers, these officers should not be expected to perform technical work. As such, there would also be a need for an office that would function as the secretariat and administrative group of the oversight body that would be tasked to undertake the much needed research and technical work. Even if substantial efforts are undertaken during the initial advocacy stage to sell the reforms to, and consult with, both top-level and mid-level champions, if no equivalent amount of effort is taken to



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communicate these to the implementers in the field and train them on the new procedures, the overall effort may fail. For this reason, capacity building should not only be seen as training, but also as a communication tool. In the latter sense, capacity building should push the advocacy efforts undertaken in Step 2 further, so that knowledge and ownership of the reforms are further cascaded from the central government and its line agencies, down to the various local government offices and agencies. Considering that the procurement practitioners in a procuring agency are really the enablers of the procurement reforms, the overall impact of these reforms depends upon the level of professionalism present within the respective agency. As such, capacity building should eventually lead to a fuller professionalization program for procurement officials in government, covering three major areas, namely:

1. Human capital (skills development through short certificate courses); 2. Information capital (e.g., accessible and comprehensive information systems); and 3. A climate for positive action (which basically covers employee motivation and satisfaction).

After evaluating the country’s procurement environment, developing a strategy to push for reforms, establishing the legal and institutional frameworks, and then training the enablers in the line agencies and local offices, the next step (Step 5) is to assess how effectively the strategy has been undertaken, how much of the reform agenda was actually implemented in the field, and the overall impact of the procurement reforms in the country. As the BIS is predominantly based on macro indicators, it is not intended to measure performance and must be coupled with other management tools, like a performance measurement framework, to guide actions on what and where changes need to be made in a particular agency. Determinations as to whether better performance outcomes are achieved as a result of policy reforms need to be based on, among other things, collection and analysis of actual performance data. Therefore, the Agency Procurement Performance Indicators (APPI), more recently referred to as the Compliance/Performance Indicators (CPI) by the OECD-DAC, complements the BIS, providing an effective tool for monitoring and evaluating implementation at the agency or micro level. This tool would have to be linked to the elements of the national procurement system in order to demonstrate how such a system is actually cascaded down to the agency and local levels. To create such a linkage between the national procurement system and the agency-level procurement system, one should consider take into account:

1. Whether the subject agency has a strategy for achieving an effective procurement program, and whether this strategy is in line with the national procurement reform policy;

2. Whether the organizational structure and employee capacity of the subject agency supports a strategy that is in line with the national procurement reform policy;

3. Whether the internal procurement processes of the subject agency support a strategy that is in line with the national procurement reform policy and is in accord with its organizational setup; and

4. Whether the subject agency is able to undertake its procurement in a transparent and accountable manner, supported by sufficient records and documentation.

Based on the above findings, policy makers may then make further changes or refinements to the strategy for improving the public procurement regime, or use those findings to develop a new strategy to address unresolved needs, gaps and emerging issues.



1 Introduction It is now widely accepted that corruption in public procurement systems impedes the ability of both government and foreign aid institutions to achieve sustainable development in a country. It is also generally recognized that corruption breeds in an environment characterized by poor governance and weak rule of law. In the Philippines, for example, the World Bank observed that poor long-term economic performance reflects flaws in public sector governance, and that these failings are rooted in weaknesses in the structure of public administration and in features of the broader political economy within which such structures function.i

Corruption in public procurement is particularly debilitating because it creates leakages in a government’s financial and budget systems that lessen the impact of much needed spending on health, education, infrastructure, agriculture and other programs. In addition to reducing the effectiveness of public service delivery, it may also negatively impact the investment climate. Grand scale corruption is often associated with major government projects and programs, because corrupt actors frequently transfer large financial benefits to private firms through procurement contracts and the award of concessions. Furthermore, a share is always allotted to the corrupt official, so that in total, these cases have a staggering impact on the government’s budget and, in turn, the country’s growth prospects.ii A 1998 study on Philippine projects funded from congressional initiatives provides a clear picture of the leakages created by corruption in public procurement, how the pie is divided up among the numerous actors, and how much remains for the benefit of society.iii For public works projects, the study estimated that, on average, 12 to 20 percent of the budgeted funds went to lawmakers, one to two percent went to Department of Budget and Management (DBM) personnel responsible for releasing the funds, 10 percent went to the head of the implementing agency. In addition, seven percent went to the mayor, and three percent went to the local community leader—leaving roughly 63 percent for project implementation.iv For procurement of medical supplies and educational materials, 40 to 50 percent of budgeted funds went to lawmakers, one to two percent went to DBM personnel, and 10 percent went to the head of the implementing agency—leaving between 40 and 50 percent for the supplier.v Indeed, even conservative estimates in the Philippines suggest that as much as 20 percent of government funds budgeted for procurement is lost to corrupt practices.vi The situation in Vietnam is similar: last year, the State Auditing Agency reported that the Vietnamese Government wasted VND 4.5 trillion (US$281 million), nearly one percent of GDP in 2005, on inappropriate spending decisions and misconduct at various stages in the procurement cycle.vii While there are various other reasons to reform public procurement systems in developing countries (e.g., opening domestic procurement to international competition), approaching procurement reform as an anti-corruption measure has not only proven to be practical, but also quite effective, because it forces policy makers to focus on internal issues, and not merely upon external pressures. 2 Approaching public procurement policy reforms in the context of developing countries Although developing countries have much to gain from global approaches and “best practices” principles, experience has continuously shown that if policy or systemic reforms are to gain any real foothold in a country beyond laws that exist only on paper, external and internal working environments must be given serious consideration. Public procurement reform is no exception to this rule. While the basic principles of transparency, competition, accountability, equity, efficiency, economy and effectiveness still hold in any country—developing or otherwise—the real challenge is in adapting these principles to local circumstances. Throughout the reform process, careful attention must be paid to the concerns of central decision makers, the demands on implementing agencies, political uncertainties, changes in the focus and policies of government, and the concerns of the private sector, civil society, and the general public.



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Foreign aid institutions that encourage legislative and institutional changes in developing countries may face obstacles in gaining the confidence of the central government, and even greater difficulty in garnering support from local governments and their constituents. Or, they may encounter governments that readily pass reform laws and regulations, but then fail to implement them because there was never true local ownership of the reforms. In approaching reform of public procurement policies, systems and practices, avoiding these situations requires careful planning, sound advice and constant attention to the needs and interests of various stakeholders at the national and local level, and of the private sector and civil society. This study looks at the procurement reform process as comprising five basic steps:

Step 1: Assessing the national public procurement system and practices, developing the strategy and planning the approach

Step 2: Developing or improving the legal framework

Step 3: Developing the oversight and institutional framework Step 4: Conducting capacity building programs Step 5: Assessing the impact of reforms at both the central and local levels

These steps are roughly sequential but not strictly consecutive, and they are designed to ensure a proper fit between international best practices and the developing country context. The entire process may take from four to six years to complete, and should be viewed not so much as a one-time event, but rather as a continuous cycle: Each step feeds into the next, and as each cycle ends with an impact assessment, the results of that assessment similarly feed into the next national public procurement assessment, identifying gaps that have not been addressed, and informing a new strategy and approach to guide the next round of reforms. The following sections are based on real case examples from the Philippines, Lao DPR, Vietnam and Ghana, as well as on a wide review of literature and international documentation. These sections describe this procurement reform cycle in detail and provide insight into how these steps have been or could be implemented. The concluding section brings together the five-step process, discussing its implementation and timeframes. 3 Step One: Assess the national public procurement system and practices, develop the

strategy and plan the approach 3.1 Using the Baseline Indicators System (BIS) to assess national public procurement systems The Round Table on Strengthening Procurement Capacities in Developing Countries, a joint initiative of the World Bank and of the Organization for Economic Co-operation and Development’s Development Assistance Group (OECD-DAC), recently introduced the Baseline Indicators System (BIS). The BIS measures the quality of a country’s procurement policies, systems and institutional capacity based on several core indicators.viii In December 2004, representatives from developing countries, multilateral and bilateral development institutions and other participants in the Round Table signed the “Johannesburg Declaration,” which committed participants to adopt the BIS as the agreed international standards for assessment of national procurement systems.



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The BIS helps identify when an element of the national public procurement system meets or exceeds the baseline and where it needs improvement or modification in order to meet the baseline. It is intended to help managers identify where to make changes in order to achieve better performance outcomes, and identify potential risk areas inherent in the existing system by identifying variances from the baseline. On July 17, 2006, OECD-DAC issued a User’s Guide (Version 4) for the BIS, now commonly known as the “BLI,” or “Baseline Indicators”. The BIS divides the key areas of a national public procurement system thematically into four “Pillars” comprising twelve “Indicators.” Each Indicator, in turn, consists of several baselines, or “Sub-Indicators,” that are considered desirable or “good practice” in public procurement. The BIS assessment, thus, takes the form of a checklist, organized as follows: Pillar I – Legislative and Regulatory Framework

Indicator 1 – The public procurement legislative and regulatory framework achieves the agreed standards and complies with applicable obligations

Indicator 2 – Existence of Implementing Regulations and Documentation

Pillar II – The Institutional Framework and Management Capacity

Indicator 3 – Public Procurement legislative and regulatory framework achieves the agreed standards and complies with applicable obligations

Indicator 4 – The country has a functional normative/regulatory body Indicator 5 – The country has institutional development capacity

Pillar III – The Procurement Operations and Market Practices Indicator 6 – The country’s procurement operations and practices are efficient Indicator 7 – Functionality of the public procurement market Indicator 8 – Existence of contract administration and dispute resolution provisions Pillar IV – The Integrity of the Public Procurement System Indicator 9 – The country has effective control and audit systems Indicator 10 – Efficiency of appeals mechanism Indicator 11 – Degree of access to information Indicator 12 – The country has ethics and anti-corruption measures in place The BIS Indicators are premised on the assumption that a good and effective procurement system has the following components:

1. A high-level, omnibus law that establishes the legal foundations for a transparent, competitive, efficient, economical, equitable, accountable and effective public procurement system, applicable to all public procuring agencies, and which provides a single official channel for all forms of procurement, whether for goods, services, civil works or consulting services.

2. Implementing rules and regulations that provide clear guidance and instructions on

implementing the omnibus law.

3. A generic procurement manual that serves as a guide for public officials engaged in procurement operations, and a set of standard bidding and contract documents that provides formats for ready application.



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4. Sufficient integration between the procurement system and the financial management system so that economy and discipline is fostered, from planning and budget preparation, to procurement and treasury operations for payments – normally characterized by annual and project procurement plans, supported by reliable cost data and timetables.

5. A high-level normative/regulatory body that is responsible for continuous policy

formulation that monitors and evaluates the effectiveness of the reforms, and is supported by a technical group or office that is capable of undertaking grounded research that, in turn, provides the inputs for the policies to be generated by the body. Although the OECD-DAC User’s Guide states that what matters most is not the existence of a body itself, but the existence of the functions within the public sector, this paper emphasizes the need for a high-level body (preferably an inter-agency board), because this would ensure a strong institutionalized champion to push reforms along and follow through in a consistent manner. (See Step 3)

6. An information system through which statistics and data on procurement are readily

available for monitoring and evaluating performance and outcomes. For such a system to exist and function effectively, there has to be a strong link between the national normative/regulatory body and the procuring agencies, so that data are routinely collected, filed, analyzed and fed back into the system. This, in turn, requires a certain level of transparency, reliable data, and effective data/records management within each of the procuring entities.

7. A professionalization program that ensures three things: (i) that government

procurement officers and staff are adequately and continuously trained on procurement matters; (ii) that they have ready access to relevant information, such as current prices and the latest applicable technical specifications, at least for regularly procured goods and services; and (iii) that a positive environment in government exists for the continuous development of motivated procurement officers and staff.

8. A partnership between the public and private sector, wherein the government is the

buyer and the private sector is the supplier, and there is continuous dialogue between these parties so that the private sector can voice its concerns when faced with government practices that undermine fair competition, and so that private sector institutions are well prepared and have easy access to the public procurement market.

9. Strong policies and practices for contract administration and dispute resolution,

including inspection and acceptance procedures, quality control procedures, capacity to review and issue contract amendments in a timely manner, and an efficient and fair process for resolving disputes that arise during the performance of the contract.

10. Effective internal and external controls. Procuring entities should have internal

control and management procedures that provide the checks and balances necessary to ensure procurement transactions are conducted effectively and efficiently. The procuring entity’s internal audit function can complement the work of external auditors so that audits look both at the individual procurement transactions, as well as the measures needed to ensure effective internal control.

11. Strong ethics and anti-corruption measures that address issues of corruption, fraud,

conflicts of interest and unethical behavior, so that all actors within the system are held accountable for their actions and, when appropriate, penalized accordingly. These measures should apply to all stakeholders in the system.



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12. An e-procurement system that complements the reform process by enhancing transparency, accountability, data management and efficiency of the public procurement process.

Through the BIS, the core elements of a well-functioning public procurement system are identified and then utilized as the measuring stick to determine how well a country meets these elements. The BIS captures a snapshot of the current state of a country’s procurement system, serves as the basis for dialogue between the government and its development partners. The BIS should be conducted not only at the ministerial level, but also with the technical staff of key procuring agencies, local governments or offices, the private sector and, to the extent possible, with civil society. All of these actors will be critical stakeholders in Step 2 below. 3.2 Develop a Strategy Based on the BIS assessment, the government can then identify priorities and establish a strategy for improvement or broader procurement reform. The BIS is not, however, intended to be used as a fiduciary tool by external stakeholders—such as a donor institutions—to draw conclusions about a country’s procurement system, or to evaluate the impact of donor assistance programs. This distinction is important: The BIS assessment, whether done independently by the government or with assistance from aid institutions, should be driven by local stakeholders and should engage those involved in the actual implementation of the projects or programs being evaluated. Using the BIS as a self-assessment tool helps ensure ownership on the part of the government and other local stakeholders. If the BIS is being applied for the first time in a country, its implementers need to be aware of existing procurement reform strategies and activities. If the BIS has been used previously in the country, a subsequent application would evaluate how well the country has performed against the objectives set following the previous assessment, and then establish new targets or priorities to fill any gaps and advance the reforms. For example, if a government has been focusing on enacting an omnibus procurement reform law for the last three years, and has succeeded in doing so only recently, a BIS assessment would help shift the reform focus from advocacy and legislation to rollout of the reforms and capacity building. 4 Step Two: Develop or improve the legal framework After analyzing the gaps and weaknesses in a country’s public procurement system, the next step is to draft or improve the legal framework to address these problems. Depending on the political structure of the country and the state of the existing legal framework for public procurement, this activity may range from the issuance of executive orders or implementing rules and regulations to the actual legislation of an omnibus procurement reform law. For purposes of broader coverage, this paper will focus on the latter scenario. This is especially relevant when public procurement reform is introduced under the auspices of a broader anti-corruption program, given the fact that informal institutions are often strong when formal institutions are weak. However, it should be kept in mind that a full-blown effort to advocate and enact an omnibus procurement reform law is generally a long-term process and could take years. Therefore, there may be a need for short-term measures to address more pressing procurement challenges while the law is being developed. 4.1 Identify Champions and Build Support Even in countries with highly centralized government and decision-making processes, extensive efforts must go into legitimizing policy reforms and securing broad-based support for policy or systemic reform. Policy champions at the highest levels of government need to be identified—key decision makers with sufficient credibility, political resources and the willingness to risk political



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capital in support of the reforms. At the same time, garnering support from a wider array of constituents both within and outside the government is critical to ensuring that the reforms are truly embraced and implemented. Clearly, then, legislating an omnibus public procurement law requires advocacy efforts that reach out to various groups and individuals throughout government, the private sector and civil society. Furthermore, while politicians and external interest groups may play a lead role in initiating change, those most actively involved in the formulation of the policy changes tend to be technocrats who generally operate under a different decisional calculus than that of either the political or the administrative leadership. Identifying and working with these technocrats is critical to effective implementation of the reforms, because: they are usually not elected but are members of a civil service ; they tend to remain in their respective agencies long after politically appointed or elected leaders move on; and they may be more concerned with technical solutions and maximizing outputs than with political trade-offs. This means that policy advocates have to seek out champions horizontally by cutting across various sectors of society, and vertically by working with politicians and technocrats at both central and local levels of government. Brinkerhoff and Crosby (2002) provide ample guidance for consulting with stakeholders and building support for important policy and institutional reforms.ix Whichever participation mechanisms are used, the policy reformers should be guided by the findings, recommendations and strategy of the BIS assessment. While any gathering of various stakeholder and interest groups has the potential of galvanizing new ideas and approaches, it can easily turn into an amalgamation of fragmented and conflicting recommendations and initiatives if these are not limited to key discussion areas and guided by a common objective. This is the purpose of the BIS assessment exercise, as it provides hard evidence of the weaknesses and gaps that need to be addressed, and a set of recommendations based on these findings. 4.2 Drafting the Reform Measures The person or group tasked with drafting the reform measures has the difficult task of considering the ideas gathered from all the workshops, consultations and technical discussions and—guided by the original strategy, action plan and international best practices—developing the appropriate provisions that would serve as the legal framework for the reforms. In developing the legal framework, there is no “one-size-fits-all,” model law that can be applied to every situation. (This approach would run counter to the idea of consultative and ownership-building efforts discussed above.) In fact, reforming public procurement should not begin with drafting the law, but rather with an analysis of the problems in the current legal framework that give rise to corruption and inefficiency. In addressing these problems, there are both procedural issues and human capital issues. The human capital issues are discussed in depth under Step 4 (“Capacity Building”). Addressing the procedural issues requires changes in procurement laws, rules, regulations and processes that reduce operational inefficiencies and lessen opportunities for corruption. For example, East Asian countries such as the Philippines, Vietnam and Lao PDR have had common loopholes in procurement procedures that were subject to abuse and which are addressed through recent legislative enactments. These included:

1. Overlapping regulations and multiple laws governing public procurement and contract performance, resulting in confusion in the application of these laws;

2. Excessive discretion or lack of formalities either in the selection of the winning bidder or the choice of procurement method;

3. The allowance of unnecessary delays;



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4. Inadequate competition, creating opportunities for collusion; 5. Lack of transparency; and 6. Inadequate procurement audit and control.

In Vietnam, the decision to develop a new omnibus procurement law was seen as an important step toward eliminating this legal confusion.x The justification for reforming the legal framework was similar in the Philippines.xi 4.3 Guidelines for a Good Omnibus Procurement Law An omnibus public procurement law should be enacted by the highest law-making body of the State, such as its National Assembly or Congress, and should be supported by implementing regulations issued at the appropriate level. Some of the more important elements of an omnibus law are that it:

1. Provides for open, competitive bidding as the preferred mode of procurement;

2. Requires publication of bid opportunities and awards in media that are easily and nationally accessible;

3. Provides appropriate procedures for special types of procurements and situations,

such as highly specialized or technical projects;

4. Provides for the minimum content of the tender documents, requires that the content be relevant and sufficient for bidders to be able to respond to the requirement, and requires the development of standard bidding documents and a procurement manual;

5. Provides participants with the right to have decisions in a procurement process

reviewed, has provisions to respond to a request for review at the procuring entity level, with administrative review by another body independent from the procuring entity that has the authority to grant remedies, including the right for judicial review;

6. Institutes a regular planning exercise that starts with the preparation of multiyear

plans for government agencies, from which annual operating plans are derived, followed by annual procurement plans and estimation of the associated expenditures, and culminates in the annual budget formulation;

7. Establishes a normative, regulatory or oversight body at an adequate level in

government and secures it in terms of financing, or at least provides functions that are clearly assigned to various units within the government, without gaps or overlaps;

8. Establishes an integrated information system that provides, at a minimum, up-to-date

information on procurement plans, specific advertisements or notices of procurement opportunities, publication of contract awards, and rules/regulations on procurement, and is easily accessible to all interested parties at no or minimum cost – supported by a requirement for agencies to create sufficient records management systems;

9. Provides for public monitoring of the procurement process and the implementation of

awarded contracts, guaranteeing that these contracts are awarded pursuant to the provisions of the law, and that they are performed strictly according to specifications;

10. Requires the development of a training and capacity building strategy that provides

substantive permanent training programs for the needs of the procurement system;

11. Has clearly defined procedures for contract administration responsibilities, including inspection and acceptance procedures, quality control procedures, and procedures for



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reviewing and issuing contract amendments in a timely manner, and provides for dispute settlement; and

12. Has measures that promote integrity and accountability within the procurement

system, such as blacklisting, administrative penalties, and even criminal sanctions. 4.4 Resources to Assist with Legal Drafting Drafters are encouraged to make reference to several documents, all publicly available, that provide guidance on international best practices in public procurement law. These documents include:

1. The United Nations Commission on International Trade Law (UNCITRAL) Model Law on Procurement of Goods, Construction and Services (the “UNCITRAL Model Law on Procurement”), adopted by the UNCITRAL at its twenty-sixth session in Vienna, July 5 to 23, 1993;

2. The World Trade Organization (WTO) Agreement on Government Procurement (the

“WTO GPA”), which is a multilateral agreement that took effect on January 1, 1996; and

3. The World Bank Guidelines on Procurement under IBRD Loans and IDA Credits

(May 2004) and on Selection and Employment of Consultants by World Bank Borrowers (May 2004) (the “World Bank Procurement Guidelines”).

Together, these provide for the following general principles of public procurement that may be incorporated in drafting a country’s omnibus procurement law:

1. Transparency in the procurement process and in the implementation of procurement contracts;

2. Competitiveness by extending equal opportunity to enable private contracting parties

who are eligible and qualified to participate in public bidding, complemented by a fair and equitable treatment of all suppliers and contractors;

3. A maximization of economy and efficiency in public procurement, supported by a

streamlined procurement process that will uniformly apply to all government procurement;

4. Adaptability to advances in modern technology in order to ensure an effective and

efficient method; and

5. Mechanisms for ensuring integrity and accountability within the public procurement system, thus fostering public confidence in the system.

The UNCITRAL Model Law on Procurement in particular has influenced legislation in a large number of jurisdictions, and its use has contributed to increasing harmonization of procurement rules and procedures worldwide. However, these documents all have their shortcomings as well. The UNCITRAL law, for example, focuses narrowly on review procedures, and does not address contract performance and implementation issues, such as contract administration, resolution of performance disputes or contract termination.xii The World Bank Procurement Guidelines provide excellent guidance on public bidding and evaluation procedures, alternative methods of procurement, and international best practices in public and private procurement. However, these are still crafted in light of World Bank’s own institutional



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and operational policies for the use of its loans and for supervising the execution of projects it helps to finance. They provide no special focus on such matters as:

1. A national regulatory and oversight body; 2. Institutional frameworks and budget linkages; 3. Procurement organizational structures within implementing agencies; 4. Administrative and/or judicial review by the State; 5. Administrative, civil and/or criminal sanctions; and 6. A professionalization program.

The WTO GPA’sstructure is similar to an international treaty that aims to establish an agreed framework of rights and obligations among its parties with respect to their national laws, regulations, procedures and practices in the area of government procurement. However, it is also basically a trade instrument that aims to promote fair competition in domestic procurement and prevent undue protection of domestic products or suppliers or discrimination against foreign products or suppliers. In addition to consulting the above documents, it is advisable for drafters to review the omnibus laws of other countries, such as Ghana’s Public Procurement Act (2003) and Lao PDR’s Decree of the Prime Minister on Government Procurement of Goods, Construction, Maintenance and Service (2004). 4.5 E-procurement Electronic procurement (e-procurement) is becoming increasingly relevant in the design of public procurement reforms. In Ghana, for example, the Public Procurement Board has a website that features a compilation of procurement regulations and commentaries (including the new public procurement law), frequently asked questions, and a tender board listing all government tenders, offers and awards. The Philippine Government’s E-Procurement System (PhilGEPS), meanwhile, features an internet-based public tender board, a database of registered suppliers, and an electronic catalogue for purchase of common use goods and supplies. The Multilateral Development Banks’ Electronic Government Procurement Portal at http://www.mdb-egp.org/ui/english/pages/toolKit_std.aspx provides several documents intended to help governments develop the institutional foundations for e-government procurement (e-GP), diagnose the existing procurement environment, articulate a strategic plan, select the right standards, and develop a roadmap for the implementation of e-GP. UNCITRAL recently observed that two main technological developments in the last ten years have changed the manner in which procurement is conducted. First, the use of electronic means of communication has become widespread. Second, many governments have begun to manage certain parts of the procurement process electronically.xiii For this reason, at its 37th session in 2004, UNCITRAL tasked the Working Group on the revision of its Model Law on Procurement with considering issues arising from the increasing use of electronic communications and technologies in public procurement, including the use of internet-based procurement methods.xiv At that session, the Working Group noted that the use of e-procurement offered many potential benefits, including improved value for money and enhanced transparency in the procurement process, and that these were consistent with the main aims and objectives of the Model Law. The Working Group further identified key principles that should form part of the basis for accommodating the use of electronic communications and technologies in the Model Law on Procurement. These include the following:

1. The model law should encourage the use of electronic communications and technologies in public procurement;

2. It should make appropriate provisions for that purpose in a technologically neutral

manner; and



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3. Any advice to be provided should cover all means of communication and offer

guidance on the controls that are needed for their use. Introducing e-procurement in government should not be a goal in itself, but should be seen as a tool to achieve the objective of efficient and effective procurement. E-procurement should be seen as part of a larger reform package that addresses the legal and institutional framework, as well as the processes and procedures that will reduce operational inefficiencies and lessen opportunities for corruption in public procurement. The following sections address some of the critical issues that may have to be faced when developing an e-procurement program. The discussion relies heavily on the experience of the Philippines PhilGEPS project and the work of the UNCITRAL Working Group on Procurement.

The notion of “electronic” means and the use of electronic communications in the procurement process

In view of the procedural nature of public procurement, laws, rules, regulations and bidding instructions should indicate clearly the manner in which documents are to be submitted and the form that they should take. To avoid confusion or uncertainty, the legal framework should include definitions and explanations of certain terms that are linked to advances in technology. For example, the UNCITRAL Secretariat has noted the importance of clearly defining the word “electronic” in connection with the form of communications provided in the law. The term commonly refers to any information that is not contained in a tangible medium, such as electrical impulses, but may not necessarily cover such recent “electronic” techniques as data imaging, which relies on optical storage. UNCITRAL, therefore, recommended the use of a general definition of “electronic,” which could be used to qualify both the medium used to store the information (for instance, “electronic document”) and the means for transmitting the information (for instance, “publication by electronic means”). With respect to the use of electronic communications in the procurement process, the UNCITRAL Working Group on Procurement noted that the main policy issues included the following:

1. Whether the law should permit or require procuring entities to use electronic communications by consent with suppliers or authorize either party to require electronic communications; and

2. Whether those rules should attach conditions to the use of electronic means to

safeguard the objectives of the procurement law, so as to prevent the electronic means chosen from operating as a barrier to access, to secure confidentiality, to ensure authenticity and security of transactions and the integrity of data.xv

According to the UNCITRAL Working Group, as regards the extent to which electronic communications (including the electronic submission of tenders) could be required or made mandatory, it is more desirable to approach the issue in a flexible manner. On the other hand, as regards the procuring entity’s right to require electronic communications, it was generally felt that it would be unwise to craft a rule that contemplated that possibility for all cases and circumstances. After all, imposing such a requirement might inadvertently prevent suppliers with limited or no internet connectivity from participating in public tenders. This consideration is particularly relevant in the case of developing countries, where connectivity rates are generally not very high. For instance, the 2003 CPAR for the Philippines made the following observations with respect to the e-procurement program:

While the system has great potential for improving the transparency and efficiency of procurement, the [Government of the Philippines] had noted the



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implementation challenges early and is taking steps to address them. For example, even with high interest and support for the [E-Procurement System], its initial implementation was relatively slow. The reasons were numerous – agencies did not have the same resources or capacity for supporting the EPS, only about 25 percent of agencies trained in the EPS were ready for internet access, only about 8 percent of Filipinos were using the Internet in 1999, there was resistance to change from employees who thought the EPS would lead to a loss of jobs…xvi

The UNCITRAL Working Group also observed that in practice there might be situations in which electronic communications did not function properly, for instance, because of limitations in the capacity of the systems used, such as insufficient bandwidth for the transmission of large electronic files, technical failure or other external circumstances such as a power cut or a natural disaster. The Working Group concluded, therefore, that the mandatory use of electronic communications should not be imposed as a general requirement.xvii

Single or Multiple Portals and Private Sector-Provided Portals In the Philippines, an issue arose regarding the authority of the various agencies of government to develop their own e-bidding systems or outsource on-line bidding to commercial e-procurement service providers. In short, although private sector participation in the development of a government e-procurement system has never been a matter of debate, the government had to resolve one basic issue: Whether or not it should have a single and centralized electronic portal for all its procurement activities. While this issue remained unresolved, several commercial providers took the opportunity to offer their facilities to the various agencies of government, some even offering their portals free of charge (shifting the charges instead on to the suppliers in the form of registration fees). While some considered this healthy competition, several concerns were raised with the prospect of a multiple portal system. For instance, multiple portals or exchanges could result in higher costs to bidders and ultimately the government. They could also make monitoring of government procurements by NGOs and others more complicated and costly. To avoid some of these problems the Philippines’ procurement regulations stipulated that there would be a single portal that would serve as the primary source of information on all government procurement.” The DBM’s Procurement Service had already been operating a centralized procurement system for the government’s common-use supplies (ballpoint pens, pencils, paper, etc.) since 1978. Therefore, the implementing rules provided that, to take advantage of the significant built-in efficiencies of the PhilGEPS and the volume discounts inherent in bulk purchasing, all procuring entities would be required to use the PhilGEPS for the procurement of common-use supplies in accordance with the rules and procedures to be established by the oversight and policy making body, the Government Procurement Policy Board (GPPB).xviii With regard to the procurement of non-common use items, infrastructure projects and consulting services, the implementing rules further provided that procuring agencies would be permitted to contract with service providers through competitive bidding to undertake their electronic procurement—provided, among others, that their systems:

1. Are linked to the PhilGEPS; 2. Allow parallel manual submission of bids to the procuring entity; 3. Ensure that the bidding or tendering committee has complete control of the bidding

process, and that the committee’s sole authority over open bids is strictly observed; 4. Are virus-protected and provide sufficient security that is at least equivalent to that

provided by the PhilGEPS, such as firewalls and encryption devices; 5. Allow electronic signatures and other current electronic authentication devices; 6. Have sufficient redundant back-up facilities; and



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7. Provide linkage to the procuring entity’s financial management information system, logistics management systems, and other internal information systems that may interact with the procurement process; and

8. If providing electronic payment facilities, comply with all laws, rules and regulations issued by the government.

A noteworthy concern with allowing government agencies to contract with commercial e-procurement service providers is the fact that the procurement process in the private sector is based on a different set of rules and principles from that of the public sector, and the optimal IT design for private sector procurement may not be optimal for government procurement. Private sector e-procurement systems, therefore, have to be carefully adapted to suit government procurement rules and procedures.

On-line Registry Requirement Supplier registration is an important aspect of any e-procurement system to protect the system from unauthorized access or tampering. A suppliers’ registry allows an agency to:

1. Build a database of suppliers authorized to access government procurement opportunities;

2. Build a list of “blacklisted” suppliers; 3. Track supplier activity and performance; 4. Develop a rating system; and 5. Publish an electronic catalogue and price list.

One issue with the on-line registry featured in all e-procurement facilities reviewed by the Philippine government, including the PhilGEPS itself, was compliance with the legal requirement of “open” bidding for government procurement. A system cannot claim to be fully “open” to all suppliers or contractors if it limits participation to only those included in its list of registered suppliers. The principle of openness is undermined even more if suppliers are required to pay registration fees. To address this, the PhilGEPS system was set up with minimal registration requirements and access offered free of charge to suppliers.

The Use of Dynamic Bidding or “Reverse Auction” UNCITRAL defines electronic reverse auction (ERA) as an on-line, real-time dynamic auction between a buying organization and a number of suppliers who compete against each other to win the contract by submitting successively lower priced bids during a scheduled time period.xix ERAs are used in both public and private procurement. However, with the exception of the European Union (EU) directives, dated March 31, 2004, there are limited international guidelines on ERAs. At the national level, moreover, only a few countries are regulating the use of ERAs in public procurement, including: Australia, Brazil, Canada, France, Singapore, Thailand, the United Kingdom, and the United States. ERAs may be used either as a stand-alone method of procurement or as an optional phase in other methods of procurement. Moreover, depending on which evaluation criteria are assessed and when, there are different ways of conducting ERAs. Generally though, if properly used, the potential benefits of ERAs, according to UNCITRAL, include:

1. Improved value for money, as suppliers are pressured to offer their lowest possible prices;

2. Efficient allocation of resources, as it speeds up the tendering process and reduces transaction costs through the use of electronic technologies;

3. Transparency in the process of awarding contracts, in that information on other tenders is available and the outcome of the procedure is visible to participants;



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4. They can make governmental systems more accessible and user-friendly, and allow governments to keep up with changes in technology, business practices and market prices;

5. Government bidding markets are opened to suppliers who had not enjoyed access to them previously; and

6. The potential of having a positive effect on competition, in particular by dismantling the preferential purchasing patterns in some countries.

However, UNCITRAL also reported the following issues and concerns with ERAs:

1. They do not guarantee the lowest responsible and responsive price and continued savings in subsequent ERAs as, unlike in traditional sealed bids where competitors have only one opportunity to bid, each bidder recognizes that it will have the option to provide successive bids and therefore has little incentive to offer its best price and subsequently may never offer its best price;

2. There may be hidden costs that negate any savings realized from the auction process; 3. They may encourage imprudent bidding and thus create a higher risk of abnormally

low bids; 4. They do not adequately handle non-price factors, such as quality of performance and

buyer-supplier relationships; 5. ERAs are more vulnerable than traditional bidding processes to collusive behavior by

bidders, especially in projects characterized by a small number of bidders, or in repeated bidding in which the same group of bidders participate;

6. ERAs may have negative effects on the market, including an anti-competitive and a negative impact on technical innovations and innovative practices; and

7. Some analysts question the legality of such a technique in light of the conflict of its inherent features with traditional procurement principles and practices, such as rules forbidding the disclosure of information on other bids.

ERAs are reportedly more successful for goods and services that can be clearly specified, whose non-price criteria can be quantified, and for which a competitive market exists. When quality is more important than price, and when supplier relationships are critical, ERAs may not be as suitable. Finally, the government has to ensure that complex technology, operating capabilities, legal and regulatory infrastructure, and systems that allow the submission and opening of bids electronically are in place, and that there is security, reliability and accessibility throughout the process. 5 Step Three: Develop the oversight and institutional framework Aside from the need to strengthen the legal and policy framework for government procurement, it is necessary to develop and establish an independent body that provides policy guidance and leadership on matters related to public procurement. This must be a central body that operates impartially and transparently, and it must have clear authority over government-wide procurement; otherwise, it may only be regarded as a superficial body that churns out policy with neither the field information to support its issuances nor the power to enforce them. Furthermore, it should be an inter-agency body with effective private sector representation, so that both sides of a procurement contract are adequately represented in policy development, and undue external and political influences are avoided. Such a body would be responsible for, inter alia:

1. Formulating procurement policy, rules and procedures; 2. Ensuring that these issuances are disseminated to and understood by implementing

agencies; 3. Monitoring and evaluating compliance; 4. Providing tools to achieve efficiency, accountability and economy; and



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5. Building capacity and increasing the level of professionalism in the procurement function.”

The oversight body should be established with a sufficient level of authority within the government bureaucracy, so that it is able to exercise effective authority over procuring entities and tendering committees with respect to decision-making, administrative review and, if needed, regulatory functions. Care should be taken, however, not to overburden this body with responsibilities beyond its core purpose or the capacity of its staff resources. For instance, it is important to maintain the distinction between policy and operational matters in defining the functions of the oversight body. Lao PDR’s oversight body, the Procurement Monitoring Office (PrMO), encountered this very problem following its establishment in 2004. The government’s new procurement decree, its implementing rules and the PrMO’s founding charter detail the body’s responsibilities. Accordingly, the PrMO is not only responsible for regulation and policy formulation, but also for operational matters such as review and approval of tender modifications and bid evaluations. As a policy making body, attaching additional operational responsibilities to the PrMO exposes the oversight body to potential conflicts. Operational issues may also end up taking much of the oversight agency’s time and resources away from its primary goal of policy development.xx Certainly, an effective procurement system requires an active oversight body to ensure that all procuring entities properly implement the law and all aspects of the country’s procurement reform program. However, if the oversight body takes the form of a board and is appropriately composed of high-ranking government officers, these officers should not be expected to perform technical work. As such, there would be a need for an office that would not only function as the secretariat and administrative corps of the oversight body, but would also provide it with much needed research and technical capacity. In the Philippines, for example, the Government Procurement Policy Board (GPPB) relies heavily on the legwork of its Technical Support Office (TSO), which performs the following functions: 1. Research-based procurement policy recommendations and rule-drafting;

2. Evaluates the effectiveness of the government procurement system and procurement reform program, and conducts studies to improve and develop the system, coverage and procedures;

3. Monitors and ensures compliance by procuring entities with all procurement laws, rules and regulations, and assists agencies in their procurement activities;

4. Professionalizes government procurement practitioners through the development and implementation of regular nationwide procurement training programs and the establishment of a procurement course and certificate program;

5. Develops and updates the generic procurement manuals and standard bidding documents;

6. Monitors the implementation and effectiveness of the PhilGEPS e-procurement system; and

7. Administrative and secretariat work.

6 Step Four: Capacity Building Even if substantial efforts are undertaken during the initial advocacy stage to sell the reforms to, and consult with, both top-level and mid-level champions, if no equivalent amount of effort is taken to communicate these to the implementers in the field and train them on the new procedures, the overall effort may fail. As the implementers of any procurement policy or process, the procurement practitioners in each of the procuring agencies and local government units are really the “enablers” of the reforms. Therefore, a well-functioning procurement system depends on how well these “enablers” understand and apply the law.



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Capacity building is not only training, but also is a communication tool. In the latter sense, capacity building should push the advocacy efforts undertaken in Step 2 further, so that knowledge and ownership of the reforms are cascaded from the central government, down to the various local government offices. In some countries, so much effort is spent selling the reforms to national level institutions, that the local government units are not sufficiently consulted in the process. Involving all stakeholders in articulating the reform strategy is critical, because a lack of support from one stakeholder group can easily undermine the entire reform program. The capacity building process provides an opportunity to solidify the support of all these stakeholders. First and foremost, capacity building involves training programs that are intended to broaden knowledge of the new law and its procedures, and thus increase its application. If the training programs can be properly adapted to suit the situation of the provinces and localities, these trainings may also be effective communication tools to demonstrate the position of local governments as important stakeholders in the entire reform process. In the larger scheme of the reforms, an ideal capacity building program should first take the form of short training programs, leading up to a full-blown professionalization program for procurement officials in government. There are a few reasons for this:

1. A short training program can be developed immediately and be used to rapidly educate procuring agencies and key private sector associations on the new procedures;

2. A full-fledged professionalization program would involve substantive certificate

courses composed of in-depth modules on procurement and related topics, which take more time to develop and implement than do short courses; and

3. A short training program will fill the void and, in a limited way, address the

immediate demand for knowledge about the new procedures while the professionalization program is being developed.

Although a professionalization program is recommended as a longer term measure for creating a permanent cadre of procurement professionals, it may not necessarily be as effective as shorter training courses in terms of spreading information about the law and in gathering support from the local communities and regional offices, especially during the early stages of the reform. As an interim measure, the government may find it more effective to implement a regional procurement training program and an information campaign on the new procurement law, rules and regulations, for both national and local government agencies. 6.1 Developing a Procurement Training Program The objectives of a regional procurement training program are to:

1. Provide an initial step towards the full professionalization of government procurement;

2. Train procurement officials on the new procedures; 3. Ensure compliance with the new procurement law; and 4. Introduce e-procurement, if this is part of the reform program.

The target audience for this program includes members of the tendering or bids and awards committees in the line agencies, the tendering committee secretariat, members of technical working groups for the tendering committees (if any), supply and budget officers of the line agencies, and project management officers. Special attention should also be given to the heads of the procuring



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agencies, as well as internal auditors and the state auditors, to ensure that both the procurement practitioners and those in the management and control aspects of the system speak the same language. The regional procurement training program should be managed or overseen by the national oversight body (see Step 3). The oversight body will see to it that all regions are revisited periodically to ensure skill retention, and to give new agency staff the opportunity to attend subsequent training programs. For these reasons, it is important to keep the regional training programs short and manageable – not more than three days each if possible. If there is a new procurement law, the training program should include a focus on the provisions of this new law, primarily on the following major topics:

1. General Provisions; 2. Procurement of Goods; 3. Procurement of Infrastructure Projects; 4. Procurement of Consulting Services; and 5. The benefits and operational aspects of e-procurement, if this has been established as

part of the reforms. Since a primary outcome of the regional training program may be to push policy reforms to the provinces and cascade these to the local governments, it may be useful to tap the Human Resources or Personnel divisions of the participating agencies to institute internal training and skills development programs to supplement the regional training program. 6.2 The Trainers In the early stages of the capacity building process, it will be necessary to create a team of dedicated and technically competent procurement trainers who can be counted on to run the initial training programs for key procuring entities. Over time, additional trainers should be trained through a comprehensive “Training of Trainers” program, so that these additional trainers can be fielded to educate the broader stakeholder population. In selecting the trainers, emphasis should not only be given to whether an individual possesses technical knowledge on procurement, but also to whether s/he is a good communicator, since, in effect, it will be his/her responsibility to sell the law and the reforms to the audience. While a technical expert with an operational background may know the rigors of public procurement, s/he may not have the ability to manage audience participation and consider an issue with a broad policy perspective. Trainers should, therefore, possess the mentality of strategic managers, rather than traditional managers. The latter are internally focused, prioritize technicalities and administrative requirements over substance, are overly concerned with day-to-day bureaucratic routines, and may generally suffer from tunnel vision. The former are outwardly focused, able to adapt to external environments, even when circumstances are unpredictable and processes nonlinear, and are able to step out of the box to see the broader implications of an issue. Strategic managers do not find it difficult to accept other points of view and tend to see opportunities for improvements in what may otherwise be seen as mistakes. In procurement reform, it is much harder to build support and promote implementation once lines are drawn. On the other hand, even if the trainer has the characteristics of a strategic manager, s/he would find it extremely difficult to instruct and sell the reforms if s/he does not appreciate the technical realities and difficulties surrounding procurement operations. As such, in the same way that a technical expert would not necessarily be a good trainer for a capacity building program that doubles as a communication tool, an experienced teacher or manager would also not be an effective communicator to an audience composed of seasoned field officers and implementers. Therefore, it is important to identify both characteristics from the beginning, as a failure to consider these could easily lead to the failure of the entire capacity building phase of the procurement reform program.



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The regional training programs would also have to be regularly monitored and evaluated, to determine the effectiveness of both the trainings conducted and the trainers themselves. 6.3 The Professionalization Program Professionalism within any procuring agency is fostered by strengthening human capital, information capital, and bringing about a climate for positive action.

Improving Human Capital Human capital refers to employee skill levels, and this is influenced by formal education and training. In the field of procurement, specific duties and technical competencies are attached to each job function. Therefore, the professionalization program would involve a certificate course that caters to the needs of each function, e.g., top-management concerns, bidding and contracting procedures, contract administration and monitoring concerns, budget concerns, internal audit and control concerns. It is also important to include the private sector and external auditors, to ensure that all the stakeholders have the same understanding and interpretation of the law, and regular training needs assessments for all stakeholders. The frequency, scope and content of the certificate course would have to be based upon, and may subsequently have to be refined or revised depending on, the results of the training needs assessments. These assessments may be conducted in line with the Agency Procurement Performance Indicators exercise, which is discussed below (Step 5) Armed with a needs assessment, once the government gains sufficient experience in its regional procurement training program, it can then take steps to develop this into a certificate program. All public procurement officers would need a certificate issued by a credible institution certifying that s/he has successfully completed a government accredited procurement course before being authorized to perform public sector procurement. This certificate course would cover more subjects than the regional procurement training program, and would thus take longer – with a course timeframe ranging from two to four weeks. Although the primary targeted participants for the certificate course would be mid-level public procurement officers and staff, the course can also be expanded to cover the top management and executives of an agency so that they are aware of the reforms, as well as the private sector. With respect to the latter, it should be noted that the success of every procurement transaction depends not only on the competence and expertise of the procurement staff involved, but also on the confidence of the bidders to participate in the activity and their knowledge of the rules. Obviously, the certificate requirement would only apply to the mid-level procurement officers and staff in government. As the program is intended to address various types of audiences, three custom-tailored programs may be developed:

1. The first is a short (one week or less) course to familiarize top management and executives in national and local in institutions with the general principles of project and procurement management and operations, the new procurement law and subsequent updates. The course should focus more on the salient features of the law, and on the critical elements of procurement decision making, such as project planning and budgeting, and on monitoring and evaluating procurement performance.

2. The second is a longer course for mid-level officers engaged in procurement operations and

related tasks—such as members of bidding committees, the staff of procuring units, buyers, engineers, internal auditors, accountants and budget officers, as well as external auditors—covering the principles of project and procurement operations and management, including the methods of procurement, the basic elements of sound technical specifications, bid opening and evaluation, contract administration, the hiring of consultants, and anti-corruption, among others.



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3. The third is a short (one week or less) orientation course for the private sector on the new law,

including the elements of developing a sound bid and aspects of effective project implementation and contract management, from the perspective of a supplier or contractor. If an e-procurement system has been developed in the country, a module that explains the general features and operational aspects of such a system would be helpful for all three groups of participants, especially for the procurement staff of the agencies and for the private sector. With respect to the latter, the module will focus on how to access and use the system.

In addition to the regular PowerPoint presentations and exercises, the certificate course should also involve presentation of a generic procurement operations manual, with case studies. The operations manual should also include standard bidding and contracting documents. The general manual would provide a more detailed explanation on how to perform and comply with the provisions of the procurement law and its implementing rules and regulations, while the standard documents would make it easier for procurement officers and staff to perform their work by providing bidding and contract formats. The primary objective of the certificate course is to provide in-depth and advanced training on public procurement, as opposed to a mere orientation on the new law. Given the academic rigor of the curriculum, and the importance placed on certification, certificates should be issued by a credible and established body. The implementers of this course, therefore, would ideally be accredited domestic academic institutions, with regular monitoring by the government oversight body. Over time, these academic institutions will develop their own cadre of professors who specialize in teaching procurement operations and management, which may then lead to the creation of degree programs for public procurement and project management—well beyond the scope of the certificate course contemplated in this paper, but a positive step toward the goal of professionalizing public procurement.

Improving Information Capital It is necessary to equip procurement officers and staff with updated information and to maintain a positive working environment Information capital refers to the development of information systems, such as an online price reference lists, so that the management and procurement staff in procuring agencies are able to arrive at sound decisions on specifications, acceptable quality and cost estimates, supported by real and current data. More than just utilizing the latest information technology, this involves access to relevant information, such as information about products, pricing, unit costs, technical specifications of goods and equipment that are regularly procured by an agency, suppliers, contractors, blacklisted firms, and the like.

Creating a Climate for Positive Action A “climate for positive action” basically refers to the conditions in place to motivate employees and reward good performance. Performance incentives, or at least employee recognition awards, may be useful tools for motivating procurement staff. Incentives may take the form of additional allowances for procurement staff who perform procurement functions in addition to their regular workload, or cash incentives for those who are able to complete a procurement in an efficient and effective manner, resulting in substantial savings for the agency. Establishing a legal assistance program for procurement staff may also prove effective in attracting and retaining employees. Lawsuits are often brought against procurement officers, whether with legal basis or simply as a means to intimidate. Whatever the purpose, this risk tends to drive well-qualified and competent individuals away from the procurement function. A legal assistance program may be developed for procurement officers and staff who are the subject of unsubstantiated lawsuits.



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Another way of fostering climate for positive action is to create a higher pay scale for procurement practitioners (provided that the certificate program is in place) or to provide a clear career path for those in the field of procurement. These may be useful in jurisdictions where procurement is regarded as a purely routine and mundane task, or even as a “dead-end” assignment. 7 Step Five: Assess the impact of reforms at both the central and local levels After evaluating the country’s procurement environment, developing a strategy for reform, establishing the legal and institutional frameworks, and then training the enablers in the procuring entities, the next step is to assess how effectively the strategy has been undertaken, how much of the reform agenda was actually implemented in the field, and the overall impact of the procurement reforms. The BIS focuses predominantly on macro indicators and is not intended to measure agency-level performance. The BIS assessment, therefore, must be coupled with other management tools, like a performance measurement framework, to guide actions on what and where changes need to be made in a particular agency. Determinations as to whether better performance outcomes are achieved as a result of policy reforms need to be based on collection and analysis of actual performance data. The Agency Procurement Performance Indicators (APPI), more recently referred to as the Compliance/Performance Indicators (CPI) by the OECD-DAC, complements the BIS, providing an effective tool for monitoring and evaluating implementation at the agency level. To effectively link the agency level performance to the goals and objectives of the national procurement system, the assessment should consider the following:

1. Whether the subject agency has a strategy for achieving an effective procurement program, and whether this strategy is in line with the national procurement reform policy.

2. Whether the organizational structure and employee capacity of the subject agency supports a strategy that is in line with the national procurement reform policy.

3. Whether the internal procurement processes of the subject agency support a strategy that is in line with the national procurement reform policy and is in accord with its organizational setup.

4. Whether the subject agency is able to undertake its procurement in an effective and accountable manner, supported by sufficient records and documentation.

The following major criteria are suggested for the APPI assessment:

1. Strategy 2. Data Collection and Monitoring System 3. Agency Professionalization Measures 4. Organizational Structure 5. Agency Procurement Process 6. Effectiveness 7. Accountability Measures

These major criteria would then have to be broken down into several Indicators. To be meaningful, both the major criteria and the Indicators should be structured to tell a complete story of how procurement is undertaken within the subject agency and how the outcomes—desirable or not—are achieved. The assessment is intended to show whether an agency has actually developed a strategy to implement procurement reforms, and whether this strategy is effectively being pursued to meet its objectives. At the very least, the assessment should show how well an agency’s procurement system applies the principles and practices of the national procurement system, regardless of whether it has an agency-level strategy.



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The illustration below (Figure 1) shows the “cause and effect” linkage among the major criteria in a roughly sequential manner. Effectiveness is located at the top to stress that the ultimate objective of any procurement reform program is that agencies are able to acquire the best value for money. To attain this, the process has to begin with the development of an appropriate records management and data collection system, because a successful operation is one that proceeds in an informed manner. Without information, no judgment can be made regarding the inputs, outputs and outcomes of an agency’s system and operations. Accountability measures immediately follow data collection and monitoring, because the quality of data gathered and information generated directly affects the quality and reliability of the evidence and other indications of fraud or wrongdoing, and it allows one to identify areas of vulnerability within the system that require attention. It may be that these vulnerabilities exist by reason of an organizational structure that lends itself to non-transparent or collusive behavior, e.g., there are no internal audit units or decision-making is highly centralized, so that the basic structure of an agency may have to be addressed even before considering implementing a professionalization program within the agency. Indeed, a professionalization program can only work if it operates in a properly structured environment, where each individual and office performs tasks that appropriately feed into the work of another individual and/or office—all within an atmosphere where each individual is held accountable for his/her responsibilities. The next step is to consider the state of the agency’s human capital, i.e. the procurement officers and staff. As mentioned above, these personnel are the enablers of any procurement reform program, because they are ultimately the ones responsible for implementing the law in their respective agencies. As such, internal procurement processes can function properly only when these enablers amply perform their tasks in a proper working environment. In turn, when the procurement process incorporates the reform measures and reflects the principles of transparency, efficiency and economy, the agency should be able to procure goods and services effectively, i.e. with the desired quality and at the most reasonable cost. If, after the entire cycle, certain gaps and weaknesses still exist, these should be identified through the agency’s data collection and monitoring system so that the appropriate adjustments can be made, whether in the accountability measures, the organizational structure, the human capital element or in the manner in which the process is implemented. Finally, strategy is located in the middle of the cycle, because it provides the approach for implementation of the reforms within the agency, and it identifies the efforts that need to be prioritized during the current cycle, as well as those that may have to wait until the next cycle.



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Figure 1. The APPI “Cycle” The major criteria for the APPI are linked to the BIS through the latter’s four “Pillars,” described earlier under Step 1:

Pillar I – The Legislative and Regulatory Framework Pillar II – The Institutional Framework and Management Capacity Pillar III – The Procurement Operations and Market Practices Pillar IV – The Integrity of the Public Procurement System

As the APPI is developed within the context of the BIS Pillars, an APPI assessment can gauge how closely an agency’s procurement performance follows and is integrated with the national procurement system. The table below shows the four BIS Pillars and its Indicators, the APPI Major Criteria that correspond to each, and an explanation for their linkage. Table 1, below, links the BIS pillars and indicators with the APPI major criteria. This can serve as a handy tool in conducting the Step 5 impact assessment process. Table 1. Linking the BIS and APPI

BIS Pillars and Indicators APPI Major Criteria Explanation

Pillar I - The Legislative and Regulatory Framework Ind. 1 – Procurement legislative and regulatory framework achieves the agreed standards and complies with applicable obligations Ind. 2 – Existence of

• Strategy

This will show whether the subject agency has developed a strategy that is linked with the national policy expressed in the legal and regulatory framework, and whether the initiatives it adopts under that strategy are aligned with the national policy.

Internal Procurement

Process

Internal Professionaliza-tion Measures

Accountability Measures

STRATEGY

Data Collection and Monitoring

Organizational Structure

Effective Procurement



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Implementing Rules and Regulations Pillar II – The Institutional Framework and Management Capacity Ind. 3 – The public procurement system is mainstreamed and well integrated into the public sector governance system Ind. 4 – The country has a functional normative/ regulatory framework Ind. 5 – The country has institutional development capacity

• Data Collection and Monitoring System

• Agency

Professionalization Measures

This will show whether the country’s oversight/regulatory body is able to effectively monitor public procurement – both in terms of supporting the implementation of the law and in support of its crucial role in policy development – by determining the amount of data that is available and the level of accessibility and cooperation at the agency level. This will also support any findings on whether the country has systems and procedures for collecting and monitoring national procurement information and statistics. Furthermore, this will show whether the subject agency gives importance to employee skills, dedication and proper alignment of its staff to achieve the objectives laid out in its strategy and the national policy, and whether any capacity building initiative is linked to the national development capacity program. This will also show the degree of professionalism and knowledge of those responsible for performing procurement activities at the agency level, so that specialized procurement jobs have defined skills and knowledge profiles, continuous efforts are undertaken to improve the quality of outputs, and constant monitoring is undertaken to track efficiency in the performance of standardized duties.

Pillar III - The Procurement Operations and Market Practices Ind. 6 – The country’s procurement operations and practices are efficient Ind. 7 – Functionality of the public procurement market Ind. 8 – Existence of contract administration and dispute resolution provisions

• Organizational Structure

• Agency Procurement

Process • Effectiveness

This will show whether the organizational structure and the internal procurement processes of the subject agency are adequate to apply the rules and procedures embodied in the national procurement reform program, and whether these result in genuine competition and cost-effective procurement.

Pillar IV - The Integrity of the Public Procurement System Ind. 9 – The country has effective control and audit systems Ind. 10 – The country has an efficient appeals mechanism

• Accountability Measures

This will show whether the subject agency adopts accountability measures that include an internal audit and control system, a protest and appeals mechanism, and open access to information; and whether procurement activities are regularly monitored by the state auditing agency.



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Ind. 11 – The public has broad access to information Ind. 12 – The country has ethics and anti-corruption measures in place

Evaluation is an instrument for learning. The information it generates, if used effectively, can greatly enhance the operation of an organization.xxi Evaluation is also a primary mechanism for ensuring accountability, providing a basis for correcting operational problems and informing sound management decision making.xxii In this light, the purpose of the APPI is to identify and describe the strengths and weaknesses of the agency with respect to its personnel’s understanding of and compliance with the current public procurement legal framework. It is also intended to identify general and specific procurement practices that may affect the manner in which the basic principles of a sound procurement system are observed, namely transparency, competition, accountability, efficiency, equity, economy and effectiveness. Through the APPI, the procurement environment of an agency is presented by outlining gaps in critical areas of procurement processes and practices, including organizational matters. As such, it may be said that, as with the BIS, the ultimate purpose of the APPI is formative. General and specific recommendations may be made to the head of the subject agency to assist it in improving its evaluation ratings vis-à-vis the national procurement agenda and the BIS evaluation. These agency ratings would have to be given within the parameters of an assessment of the general level of assistance or intervention required for the subject agency. The APPI must include a rating sheet to compute the scores given by the subject agency for each Major Criterion, and also to determine its overall score, to provide an indicator of the level of assistance or intervention required to remedy identified problems. For example, if an agency gets a very low rating of 20% in the assessment, this may be an indication that the agency needs substantial assistance, to ensure that its internal regulations are consistent with the national procurement law. It will likely also need in-depth capacity building and monitoring activities, to ensure that once its internal policies are sufficiently established it would be able to translate these into actual practice that leads to improved outcomes. Conversely, a high rating of 90% may indicate that the subject agency merely requires monitoring activities to ensure that positive performance is sustained. The rating system shown below can also be used to grade an agency’s performance against each major criterion. Using such a rating system, the assessor may then make recommendations on priority interventions, grouped into short, medium and longer-term actions. Table 2: Procurement Reform Rating System

0 – 19% of Major Criteria




NA PA SA FA Where: NA = Not Achieved (Less than 20% rating on the Indicators) PA = Partially Achieved (At least 20% but less than 70% rating on the Indicators) SA = Substantially achieved (At least 70% but less than 90% rating on the Indicators) FA = Fully Achieved (90% to 100% rating on the Indicators)



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8 Concluding Remarks The APPI should be carried out in selected key line agencies—particularly those that are most heavily involved in procurement and that represent key sectors of the government, such as health, education and infrastructure—and, where applicable, at least one local government and one state-owned enterprise. In fact, during the early stages of procurement reform, the APPI may have to be pilot tested in these key agencies, in preparation for a full implementation in the coming years. Armed with the BIS assessment and the APPI for the aforementioned key line agencies, the national policy makers can then capture a broad picture of the following: 1. Progress in the implementation of the strategy that was developed through the BIS

assessment, as well as difficulties encountered; 2. How much of the national public procurement reform program has been rolled out to the line

agencies, local government offices and other parts of the public sector; 3. The impact of the reforms; and 4. The strengths, weaknesses, opportunities and threats present in the public procurement

system. Based on the above findings, policy makers can proceed with appropriate measures to improve the public procurement regime, and/or develop a new strategy to address unresolved needs, gaps and emerging issues. For example, if the BIS reveals that the legal and institutional frameworks are now strong, but the APPI shows that transparency and accountability in key line agencies remain weak, then the next round of reforms may focus on creation of internal audit units and the development of records management systems within those agencies. While technical assistance may be required in the initial pilot phases of the BIS and the APPI, it will ultimately be the responsibility of the central oversight body to use these tools, so that all future policy decisions and recommendations are sufficiently grounded in field data and substantiated information. As such, the central oversight body must learn to use these tools as part of its standard operating procedures, so that it has the necessary capacity to use them without further external technical assistance. On a final note, it may not be advisable to put a time frame on each of the steps in the process of reforming public procurement policies, systems and practices, because the length of time and the depth of intervention may vary greatly from country to country and depend on a variety of factors. However, based on experience, the following periods may be indicative, but should not be controlling: Table 3. Illustrative Procurement Reform Timeframe

Step Period Step 1: Assess the national public procurement system and practices, develop the strategy and plan the approach

2 – 3 months

Step 2: Develop or improve the legal framework 2 – 3 years Step 3: Develop the regulatory and institutional framework 1 – 2 years Step 4: Conduct capacity building programs 1 year, and continuous

thereafter Step 5: Assess the impact of reforms at both the central and local levels

1 month per agency



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Notes i The World Bank Group, Philippines: From Short-term Growth to Sustained Development, p. 11 (2005). ii Susan Rose-Ackerman, Corruption and Government: Causes, Consequences and Reform, p. 27 (Cambridge University Press 1999). iii The initiatives included, inter alia: the Countrywide Development Fund, Congressional Initiative Allocations, the Public Works Fund and the School Building Fund—otherwise known as “pork barrel” projects— iv Sheila S. Coronel, Ed., Pork and Other Perks: Corruption and Governance in the Philippines, pp. 38-43 (PCIJ 1998). v See id. vi Jose Luis C. Syquia, The Legislative History of Republic Act No. 9184, and the Policies and Principles Behind Procurement Reform in the Philippines, 11 THE LAWYERS REVIEW 5 (November 30, 2003), citing the Sponsorship Speech delivered by Senator Edgardo J. Angara for the Procurement Reform Bill, entitled “Building Honest Roads to Progress” (October 24, 2002). vii See Vietnam Financial Times, Shocking Losses: Interview with Mr. Mai Vinh, Deputy Director of the State Budget Audit Department II, at 17 (September – October 2006). viii The World Bank (Operations and Country Services), Increasing the Use of Country Systems in Procurement, p. 5 (March 2005). ix See Derick W. Brinkerhoff and Benjamin L. Crosby, Managing Policy Reform: Concepts and Tools for Decision-Makers In Developing and Transitioning Countries, at 25 (Kumarian Press, Inc. 2002). x The World Bank’s 2002 Country Procurement Assessment Report (CPAR) for Vietnam praised the move to prepare and enact a new Procurement Ordinance to replace a piecemeal and scattered legal framework for public procurement. See World Bank Vietnam, Vietnam Transforming Public Procurement: Country Procurement Assessment Report, p. 9 (October 2002). xi The World Bank’s 2003 CPAR for the Philippines identified an urgent need to review and revise the country’s procurement laws and regulations to eliminate problems crated by a fragmented and outdated legal framework. See World Bank Office Manila, Philippines: Country Procurement Assessment Report, p. 10 (March 2003). xii See UNCITRAL, Guide to Enactment of UNCITRAL Model Law on Procurement of Goods, Construction and Services <www.uncitral.org>. xiii See UNCITRAL, 38th Session, Report of Working Group I (Procurement) on the work of its sixth session, p. 5 (Vienna, August 30 – September 3, 2004). xiv See UNCITRAL Working Group I (Procurement), Seventh Session, Note by the Secretariat: Possible revisions to the UNCITRAL Model LAW on Procurement of Good, Construction and Services – issues arising form the use of electronic communications in public procurement, p. 2 (New York: April 4-8, 2005). xv UNCITRAL, Thirty-eighth Session, Report of Working Group I (Procurement) on the work of its sixth session, p. 8 (Vienna: July 4-222, 2005). xvi The World Bank Office Manila, supra note xi, at 23. xvii UNCITRAL, supra note xv, at 9. xviii R.A. 9184, IRR, Sec. 8.1.2. xix UNCITRAL Working Group I (Procurement), Note by the Secretariat: Possible revisions to the UNCITRAL Model Law on Procurement of Goods, Construction and Services – issues arising from the use of electronic communications in public procurement, Comparative study of practical experience with the use of electronic (reverse) auctions in public procurement, p. 3 (New York: April 4-8, 2005). xx For a contrasting case to the PrMO of Lao PDR, see Appendix 1 for a case study on Ghana’s Public Procurement Board. xxi Joseph J. Norton, International Financial Institutions and the Movement toward Greater Accountability and Transparency: The Case of Legal Reform Programmes and the Problem of Evaluation, 35 THE INTERNATIONAL LAWYER 1443, 1447 (2001), citing Michael Patton, Practical Evaluation, 33-37 (1982). xxii Id, at 1448.

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