ࡱ> egdM 0wbjbj== )WW-kl.$8$8,p:$ @&&&l_,_d ӯ '__<0_2'|2_&&&&OBSTACLES TO PUBLIC PROCUREMENT REFORM IN DEVELOPING COUNTRIES Robert R Hunja* In many developing countries, public procurement has not been viewed as having a strategic impact in the management of public resources. It was largely treated as a process-oriented, back- office support function often implemented by non-professional staff of the buying agencies. Consequently, little effort was expended to ensure that the policies and rules and the institutional framework governing the procurement system were maintained in a manner that ensured that public funds were used in the most efficient and economic way and that the system delivered the best value for money. Recently, however, this has been changing. In the face of shrinking budgets and the need to fight corruption, governments are realizing that significant savings can be gained by a well-organized procurement system. Many developing countries have also realized that a well-organized procurement system contributes to good governance by increasing confidence that public funds are well spent. Many developing countries have therefore instituted reforms aimed at making the procurement system more transparent and efficient and increasing the accountability of public officials. Reforming public procurement systems has, however, proven to be quite difficult. This paper discusses some of the major issues developing countries who are considering or who are faced by in the process of carrying out procurement reform. After a brief discussion of the countries who are reforming their systems and the impetus for reforms, the paper thus discusses the key indicators of a weak procurement system, and the obstacles that developing countries face in reforming weak systems. The paper then suggests some of the strategies that can be employed in overcoming such obstacles. Which countries are reforming procurement? Countries that are reforming procurement systems can be divided into four general categories characterized by their stage of economic development and the issues driving the reform efforts. One category consists of those countries whose economies are in transition from planned/socialist economies to market-based systems. These countries have no recent history of competitive public procurement as government essentially supplied to itself through bater or other trading mechanisms between public entities. They therefore have had to design and implement new procurement systems to provide mechanisms for the government to buy from the private sector on an open, competitive basis. The second group of countries could be described as the middle income countries. Many of these countries have had market-based procurement systems in place but are in the process of modernizing such systems. The push towards modernizing their procurement systems is motivated by a number of factors, most of which can be traced to the need to satisfy the demands of a more enlightened citizenry for more efficient and transparent systems of service delivery by government and for greater accountability in the management of public expenditures. The third group of countries could be described as developing countries. In many of these countries, the procurement systems differ very little from those that were put in place during the colonial era. Acceptance of the importance of proper management of public expenditures, including the fight against corruption have motivated such countries to modernize their procurement systems. Influence from the donor community has also been a factor in urging and providing resources to support the reforms. Reform of public procurement systems is also taking place in the industrialized economies. The motivation to reform in these countries is largely driven by the fact that governments are significantly changing the profiles of what and how they are buying (e.g., moving away from goods and works into buying services, and using private financing for delivery of public services including infrastructure), the need to use new information and communication technologies throughout the procurement process and the introduction of new concepts of public sector management which establish value for money as a goal of the procurement process, leaving agencies with a fair amount of discretion on how to achieve this goal. (This paper does not deal with this latter group of countries but mainly focuses on issues facing developing countries.) What are developing countries reforming? A strong and well-functioning procurement system would be one that is governed by a clear legal framework establishing the rules for transparency, efficiency and mechanisms of enforcement, coupled with an institutional arrangement that ensures consistency in overall policy formulation and implementation. A professional cadre of staff that implements and manages the procurement function is also necessary. Studies and assessments of procurement systems in many developing countries, however, have consistently indicated weaknesses in most if not all of these areas. With regard to the legal framework, reviewers have found that developing countries often dont have a generic procurement law or that, where a procurement code exists, the procedures are non-transparent or are vaguely defined. Another typical finding in many jurisdictions is the existence of a multiplicity of legal texts governing procurement that are often contradictory. Reforms of the legal framework will therefore be aimed at providing a regime that is clearly identifiable and that has a high enough juridical level to make it easily enforceable. Furthermore, such a regime should also establish the basis for a competitive and transparent procurement process with strong self-reinforcing mechanisms. The minimum elements of such a process should include the following requirements (i) effective and wide advertising of upcoming procurement opportunities, (ii) public opening of bids, (iii) pre-disclosure of all relevant information including transparent and clear bid evaluation and contract award procedures (iv) clear accountabilities for decision making, and (v) bidders enforceable right of review when public entities breach the rules. (The latter is particularly important because experience has shown that the most successful procurement systems are those that provide bidders a legal basis to challenge the actions of procurement officials when they breach the rules.) With regard to the institutional arrangements, one consistent weakness in most developing countries is the lack of an entity within government that is charged with overall responsibility for formulation of procurement policy and to ensure that the system is functioning properly. This normally leads to diverse interpretations and implementation of existing rules across various public agencies and even within some of the agencies. More seriously, the lack of an entity that has oversight responsibilities for the proper functioning of the procurement system creates serious gaps in the enforcement of rules. The combination of lack of predictability in application of existing rules and weak enforcement creates enormous opportunities for abuse of the system often with total impunity. Institutional reforms have therefore been aimed at creating entities that are empowered to formulate policy, assist in enforcement of the new legal framework and provide tools for the buying agencies to carry out their functions properly. The other aspect in which developing countries are reforming the way in which procurement is carried out is by bringing professionalism to those who carry out and manage the procurement function. Raising the strategic profile of procurement by making it core to good service delivery necessitates the formation of a professional cadre of public officials to implement this function. Instituting ongoing training programs and having a scheme within the public service that enables procurement professionals to gain seniority commensurate to their expertise and experience have been the cornerstones of reforms in this area. With what measure of success? A review of countries involved in procurement reform efforts indicates that, so far, comprehensive procurement reforms have largely been successful only in those countries in East and Central Europe that have been implementing a transition from socialist, planned economies to open, competitive market-based economies. The results in those countries that have had existing (albeit weak) competitive procurement systems is at best mixed. Only a few successfully implemented full-fledged reforms in the three areas mentioned above. Success in the transition economies can, however, be explained by the fact that governments did not have a public procurement system based on open competition, transparency and market principles. In the period of transition, these countries have had to implement market-based systems including those governing public procurement. They have done so by enacting substantive procurement legislation normally based on the UNCITRAL Model Law on Procurement of Goods, Works and Services. Most of them have also established entities whose role is procurement policy formulation and general oversight over the procurement system. They have also attempted to professionalize the procurement function by instituting continuous training programs for those carrying out procurement. Outside the transition economies, success in achieving comprehensive procurement reforms has proven more difficult. While many countries have attempted to implement fundamental changes to procurement systems, there isnt much evidence of these efforts achieving full fledged, fundamental reforms. Most post-colonial states, for example, have maintained procurement systems that largely resemble pre-independence regimes. Where attempts have been made to bring about significant changes, these have essentially amounted to marginal tinkering with some of the rules while leaving the general framework intact. Why this lack of success? Reasons for this lack of success in implementing reforms are varied but also interlinked. The most difficult obstacle is the lack of political will at the highest levels of Government to significantly overhaul an existing system. The underlying reasons for this may be many. The following are the most apparent: Deeply vested interests and lack of political will: Public procurement is the process by which large amounts of public funds are utilized by public entities to purchase goods and services from the private sector. Vast amounts of money are therefore expended through the public procurement system. A procurement system that has loose or opaque rules and which are also poorly enforced provides opportunities for misuse of the contract award process through corruption or other patronage arrangements. Those in the private sector and their collaborators in the public institutions who benefit from such flawed systems have a very deep vested interest in the maintenance of the status quo. Vested interests in such systems can also manifest themselves in various other ways. They could, for example, include local business cartels who may have an interest in maintaining a legal framework that prohibits competition from foreign suppliers. In many developing countries, access to public contracts also serves as a means to reward political supporters and of financing political parties. Fundamental reforms to a system in which some or all of those vested interests exist calls for the dismantling of entrenched practices and institutions (both formal and informal) with a view to injecting greater transparency and competition to the system and increasing the accountability of public officials. However, those wishing to maintain the status quo resist change quite strongly because such reforms will normally involve the loss of direct economic and/or political benefits. Furthermore, the political leadership often lacks the will to expend the political capital necessary to overcome the resistance of often powerful economic forces. Further, while the opposition to reform will rarely be public or overt, it is also evident that it is much more difficult to achieve significant changes in those countries where the system has been identified as seriously flawed. The experience in a number of those countries is that despite many attempts at implementing change and the use of significant resources to bring about reforms. In many cases achievements are limited, funds may be used in preparation of reports, recommendations and position papers, draft laws and other instruments may be discussed but no action is taken to implement the proposed changes. Another group with a vested interest in maintaining the status quo is often the individuals or entities managing the reform process. Whoever drives the process essentially determines the outcomes. However, the government officials who are in charge of overseeing or managing the flawed system that needs to be fundamentally reformed are often put in charge of the reform effort or have some control over how the process proceeds. Management of the reform process by those in the bureaucracy who have a stake in the maintenance of the status quo leads to inaction and lack of implementation even where there is no discernable public opposition to reforms.. Inability to overcome the resistance of those with vested interests can manifest itself in many ways. For example, even where the government may have publicly committed itself to reforms, endless and circular discussions on what the reforms should constitute (including such issues as the type of legal instrument that should be prepared and the manner of administrative arrangements to put in place) are used as a means of forestalling progress. As these discussions continue, no actual steps are taken to change the existing structures. Paucity of technical knowledge and capacity: In addition to the problems associated with resistance of vested interests and lack of political will is the paucity of technical knowledge on the key ingredients of a well-functioning, modern legal and institutional public procurement framework. This is further compounded by the lack of knowledge on how to marshal reforms through the political and bureaucratic processes and on how to manage change. Preparation of a proper and comprehensive procurement legal framework demands that those undertaking the work possess a combination of good legal skills and substantial knowledge of good procurement practices and procedures including related institutional issues. Ideally, the team managing the reforms should also be well versed in overcoming the challenges inherent in implementing reforms in an environment that may not be fully supportive of such reforms. However, most procurement practitioners in developing countries posses only some technical procurement skills but normally lack knowledge the larger policy and other issues necessary to plan, manage and implement wide-ranging reform efforts. It is even more difficult to find local lawyers who are technically proficient on procurement matters. This paucity of technical skills locally necessitates the use of foreign consultants in drafting of laws and other legal instruments. And while access to foreign skills can be very useful in transferring knowledge, such consultants need to take great care to ensure that proposed legislation corresponds to the local legal structures and traditions. Drafting of such texts by foreign consultants without strong input from local lawyers may also contribute to a lack of buy-in by those who should be managing the reforms locally. Complexity of substantive issues involved: An added complication to the dearth of technical skills and knowledge is the fact that some of the issues that have to be considered in the context of implementing fundamental reforms are quite complex and often require innovative thinking and some hard decisions. Some of the more difficult issues that reformers have to tackle include the type of legal instrument to be used, how to optimally organize the procurement function and what kind of institutional arrangements to put in place. What type of legal instrument? One question that causes a fair amount of debate in a number of common law-countries who have inherited a procurement system based on the United Kingdom (UK) model is the type of juridical form or instrument that the reforms should put in place to regulate public procurement. Historically, the UK did not regulate the manner in which public procurement was implemented through substantive legislation but by means of a set of regulations issued by the Department of the Treasury instructing Her Majestys civil servants on the procedures to use when using public monies. Even though this has changed in the UK (most of the procurement in the UK is now governed by the European Union Directives on Procurement), most of the developing countries that have the UK-based model have maintained this basic legal structure. Thus, in most of these countries, procurement is regulated by policies issued by the minister responsible for budget matters under some generic statute such as the Exchequer and Audit Act supplemented by various manuals and other ministerial instructions. Over time, this has proven to be problematic for a number of reasons. One is that such regulations are then subject to amendments and changes without a systematic effort to ensure consistency and coherence. Furthermore, because such regulations are essentially directed at public servants, the business community is usually not aware of the legal rules that govern the procurement system, thus contributing to the opaqueness of the legal framework. The other significant problem is that such regulations usually only apply to central government entities, leaving other public entities (e.g., local authorities and state-owned enterprises) to issue their own rules and to create their own procurement systems. Reforms in such countries should therefore include the enactment of a comprehensive legal instrument at a high enough juridical level that makes the rules easily identifiable and enforceable and that would govern all entities that use public funds. However, attempts to enact a such a substantive statute have often met resistance partly because it doesnt correspond to the legal tradition of such countries, since procurement was not historically governed by legislative instruments. A complication that is found even in countries where public procurement was normally regulated by way of a code (as is the case in most countries with a civil law tradition) is the division between what should be contained in the code and what should be provided for by way of subsidiary legislation in the form of implementing regulations. It is generally recognized that a comprehensive legal framework should provide for all the procedures that a public entity should follow in carrying out procurement. However, since most of these may be rather detailed procedures, the basic legislative instrument should only contain the essential procedures and principles leaving matters of procedural detail to be issued in the form of regulations or other subsidiary texts. It is often difficult to gauge where the division between what the law should contain and what should be in the underlying regulations. More importantly, careful consideration in drafting should be given to ensure that such regulations do not contradict, dilute or compromise the policy objectives provided for in the law itself. How to organize the procurement function One issue that raises difficulties in implementing procurement reform is the extent to which the procurement function should be decentralized. Although the organizational arrangements may differ significantly between different countries, many developing countries have generally maintained elements of a centralized procurement system. This normally includes mandatory prior review of all contracts above a certain threshold by a central tender board, centralized purchasing of common user items and little delegation of authority to the user agencies. Problems of inefficiency and lack of accountability associated with such a centralized system has, however, led many countries to move towards a more decentralized arrangement where the user agencies manage all the procurement for their own needs. One of the key benefits of a centralized arrangement is that it removes the diffusion of accountability for procurement decisions by placing this within the agency that holds the funds. It also enables capacity to be built in the user agencies where there is a greater need. However, in contemplating the move to such a decentralized system, a number of difficult issues have to be tackled. These include the manner in which oversight over the decentralized system should be managed, how to leverage the buying power that comes with centralized purchasing especially of common user items and how to create adequate capacity in the buying agencies to tackle types of procurement they had no responsibility over before. In dealing with the oversight problem, many countries have coupled decentralization of the procurement function with the creation of central entities with oversight and enforcement responsibility. However, in countries without the history of such an agency, vigorous debates can occur regarding the powers and responsibilities that such an entity should have, the extent to which it should be endowed with operational independence and where such an entity should be placed within existing government structures. While the answers to many of these issues depends largely on how the government fiduciary arrangements are organized, the principle should be to vest such an entity with adequate authority and independence to enable it vigorously enforce the procurement rules across all public agencies. Enforcement In carrying out assessments of existing procurement systems, one constantly finds that abuse of the procurement system arises largely due to weak or inconsistent enforcement of the prevailing rules. This is clearly reflected by the dissonance between the prevailing (formal) rules (in whichever juridical form these may be) and what actually takes place in practice during the procurement process. Public entities will go to lengths to create a semblance of formal compliance with procedural and other requirements while seriously compromising the intent and spirit of such rules. In severely compromised systems, even this veneer of formal compliance is not observed mainly because public officials and their private sector accomplices have no fear of retribution. Ambiguities and gaps in the rules also lead to different interpretations and practices that are mainstreamed. And, when the problem is framed as one of lack of enforcement, doubt is often expressed as to whether replacing existing rules with a new legal framework will, result in any radical improvements. This can be a difficult question because, while the lack of enforcement can partly be traced to the weakness in the rules themselves, a solution will require a multi-faceted approach. It will include for example, strengthening the right of bidders to obtain redress when the public entities breach the rules, forcing greater transparency into the decision-making process (including public notification of contract awards) coupled with other institutional oversight mechanisms such as procurement audits. The challenge lies in achieving proper balance so that mechanisms of enforcement do not become so heavy as to make the system inefficient and costly. OVERCOMING OBSTACLES Develop a Strategy: The most important step towards overcoming obstacles to fundamental reforms of the public procurement system is an analysis of where the problems with the system lie, what solutions would be needed to solve the identified problems and the obstacles that would be faced in trying to achieve those solutions. Once the assessment indicates that significant problems with the procurement system are of a systemic nature, it is crucial to formulate strategies aimed at diffusing obstacles to the far-reaching reforms that are needed. The strategy must include a realistic analysis of such obstacles to reform and the means of managing them. Evidence from countries where reform efforts have stalled for a long time indicates that it is very difficult to achieve wholesale, systemic changes to the legal framework in the absence of consistent political commitment and support from within the highest levels of government. Only support at such levels can overcome the process and substantive obstacles to reform. However, even where there is a lack of high level political support, it should be possible to explore ways in which different aspects of reforms can be entertained. Thus, rather than abandon reform efforts because it is not possible to achieve dramatic results, the strategy may involve introducing intermediate mechanisms that can be introduced in the interim and specifically at dealing with one or two of the more serious problems. For example, if one of the problems is the lack of predictability or uniformity in the rules that public entities will apply, it may be useful to explore whether the introduction of standard bidding documents including standard forms of contract may help in establishing some uniformity to the bidding process. Another example of a mechanism that can greatly increase transparency is to have upcoming procurement opportunities (and contract awards) announced electronically. Computer connectivity is increasing in the major public entities even in developing countries, and the use of such systems can have a significant impact on transparency and efficiency. Thus, in crafting strategies for reform, it would be necessary to aim at that which is achievable in each specific context. Leverage Because efforts to bring about fundamental changes to a flawed system may attract direct opposition if implemented by as a self-standing program, one way to increase the possibility of success is to implement such reforms within the context of an existing package of reforms aimed at increasing the overall efficiency of the public sector. Since procurement is the means by which public resources are spent, improvements to the procurement system will have a developmental impact from many perspectives. Many countries are in the process of improving their systems of governance (of which management of public resources is a key aspect) and in implementing anti-corruption measures. Procurement reform fits well into any such programs and is bound to attract less direct opposition if it is part of a large reform effort. Furthermore, many developing countries are implementing governance reform efforts with the support of the donor community who can also be useful in leveraging support for reforms politically and in providing resources.  USERNAME \* MERGEFORMAT WB94726  FILENAME \p \* MERGEFORMAT A:\sue's paper 4.doc  INFO SaveDate \* MERGEFORMAT November 19, 2001 10:35 AM * Senior Procurement Specialist, Procurement Policy and Services Group, The World Bank, Washington DC. The views expressed in this article are those of the author and do not necessarily reflect the views of the World Bank.  Examples of such countries where reform is taking place would include Argentina, India, Indonesia, Chile.  For example, The World Bank has been an active supporter of procurement reform efforts in almost all of the countries where it lends. These efforts and the Banks support will increase as the centrality of good procurement system to proper service delivery becomes a more generally accepted fact.  The World Bank regularly carries out assessments of procurement systems in the countries where it lends, aimed at identifying strengths and weakness of the entire public procurement sector. The United Nations Commission on International Trade Law (UNCITRAL) also carried out a study of procurement laws in many developing countries (U.N. DOC. A/CN.9/WG.V/WP22 quoted in UNCITRAL yearbook, Vol. XX: 1989 pages 118-143.)  The UNCITRAL Model Law on Procurement of Goods, Works and Services was prepared by the Commission and adopted by the UN General Assembly in 1994. It has been used by many states who have or are in the process of preparing procurement legislation.  A common example of this is the requirement for advertising that is found in most countries. Findings, however, indicate that in practice, this is normally abused by advertising bids for extremely short periods and doing so in a medium that reaches as few potential bidders as possible (the intent being to limit competition to a favored few).  For example, one practice that some developing countries use as a means of ensuring that the rules are being followed is to institute ex-ante audits of the procurement process. However, this normally translates to giving the auditors a veto before any procurement decision can be made which in itself can lead to serious bureaucratic inefficiencies. -  PAGE 9 - OPQR> ? i jk78a##]'`''')++, - - --::::AAC DJQtQuQZZZ]]jakaaaaZjcjfjnnnnnnnnnnnnnnoo+oCJmHnHuCJ jCJU] 56>*\KHaJ6 56\j0JCJU 5CJ\CJ j0JU 5>*\5\0JG?AQRS> ? j k `a####&&))d$a$d-owww)++++,, --11336688::::`>a>AAAACCCCCDDEHFHLLIQJQtQuQkWlWZZZZ]]lamanaaaaaddddeeYjZjfjgj}n~nnnnnnnnnnnnnnnnnnnndnnnnnnnnn-opzpqNsHtuwwwwwwwwww$a$+o,o-o.oppzp{pqqNsOsHtItuu w wwwwwwww0J j0JU j0JU0JCJ jCJU' 0&P1h/ =!"#$% i8@8 NormalCJ_HaJmH sH tH :: Heading 1$$@&a$CJaJ8@8 Heading 2$d@&5\6@6 Heading 3$@& 56\<A@< Default Paragraph Font.O. 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