amina: episode 002.
basics of e-procurement.
one solution to remove corruption from local governments can be via electronic procurement systems.
granted, it won’t eliminate corruption. let’s be honest.
but accountability for one’s actions will make anybody afraid of failing to deliver on one’s promises.
corruption is a human-incentive problem.
all one needs to ask is: “what are the incentives of ‘x’ action and who will favor because of ‘x’ decision?”
the answer will seal the fate of the village and its constituents.
… and what if you could see it publicly? on your phone?…
whenever you want to? in real time?
the economics 📊
p.s. — thx to copenhagen consensus for the detailed outline. legends, you are.
first of all: what is procurement?
procurement is large-scale purchasing from governments.
this can be anything miniscule as paper and markers.
then it could be trucks and computers.
all the way up to cement, tanks, nuclear weapons, etc.
and yes, even shady things.
but nobody knows what your government is buying right this instant.
and perhaps they don’t want you to know.
there’s bribes going on.
maybe priority attention from the government to specific members/corporations to get their materials first.
that is known as corruption.
in developing countries, particularily, here’s the process:
- the tender preparation and advertising phase: the procuring entity* identifies its needs, budget, application and submission procedures, and evaluation criteria for bidders, and publishes the tender.**
- the bid evaluation and contract award phase: this is where the reception, handling, and processing of bids according to pre-specified procedures and the negotiation and signing of the contract.
- the contract execution phase: this is a calendar of payments and delivery of service as well as any contract amendments.
tldr; this is e-bay, but for governments.
definitions:
procuring entity → the organization purchasing the goods/resources under the special conditions of contract.
tender → a written offer in the form in response to an invitation to provide goods or services through price quotations. (“tender” can be synonymous with ‘bid’.)
and this is where corruption can occur.
where there are incentives by individuals with higher power, society will pay the price for their actions.
a candidate for corruption is when the contracts are re-negotiated.
incentives from a specific party can influence who will have the longer end of the stick.
a lack of transparency and accountability results in inferior quality of:
- service provision
- barriers for small firms to bid
- avoidance of environmental regulations
- low innovation uptake
- state capture by large companies who can influence legislation and processes in their favor.
it also undermines wider public trust...
and this will have knock-on effects on government interventions.
since most governments are politically devolved*…
transparency and accountability also become harder to trace at local government levels.
- copenhagen consensus
devolve → transfer or delegate (power) to a lower level, especially from central government to local or regional administration.
another form of corruption can be found in southeast asia.
the east asia and pacific and south asia regions registered the highest percentage of firms that expect to give a gift to secure a government contract: 40.1 and 45.5%, respectively.
but what happens when a global crisis hits?
how will governments continue purchasing?
this is when procurement will fail and expose the dark truths.
in 2020, the world bank found that the lack of an e-procurement system was reported as a critical constraint to adapt under COVID-19 for 59% of the 103 countries surveyed.
SO WHAT?
yes, there are ways to eliminate such waste of money.
and the way to go is…
transparency.
the more transparent and accountable the procurement process, the more likely firms were to participate in bidding for tenders.
additionally…
after analysis of more than 3.5 million government contracts across europe: publishing more information about contracts decreases the risk of single bid tenders.
this matters because single bid contracts are both a governance risk and are, on average, 7% more expensive.
increasing transparency by five items, on average, (out of ten items considered) could decrease single bidding by 2.5 to 6 percentage points.
this translates into into 0.18 to 0.43 percent cheaper contracts… equaling about USD 4.93–11.93 billion savings per year across the european union.
AND!…
ex ante transparency has a stronger effect on corruption risks than ex post transparency.
ex-ante → transparency before the contract is awarded
ex-post → the availability of information after the contract has been awarded
horizontal transparency is the main condition to secure fair competition.
horizontal → transparency that provides information primarily to the parties involved in the bidding process rather than to outside observers.
public service provision, transparency, accountability in public administration, and the use of public resources are critical for a world to obtain prosperity.
so critical, it’s SDG #16.
in fact, targeting SDG #16 will have ripple effects on all other SDGs.
example:
of the world health organization’s ten leading causes of inefficiency in the health sector… four are procurement-related. (link)
what’s the advantage? ➕
governments must seek to increase efficiency and reduce financial waste and leakages.
aka → seek to achieve agreed upon policy objectives at the least cost.
why?
the government is the biggest spender or purchasing agent in a countries’ economy.
but off the bat, here are the top four:
- increased transparency: publishing five more pieces of information about each tender would save europe up to 3.6 billion euros. (the key is to disclose the information proactively rather than retroactively.)
- an increase in the number of bidders: information and transaction costs in traditional paper-based procurement processes are more burdensome for smaller firms. but electronic procurement systems; which reduce such costs, attract greater participation.
ex: in ukraine, 2021, e-GP (e-government procurement) reforms from 2021 shows that a remarkable 97.7% of businesses (some 64,801 by number) bidding in “prozorro” are SMEs. (SME → small & medium-sized enterprises).
‘prozorro’ is the e-GP platform to bid for materials and purchasing of resources for ukraine.
in 2021, ukraine SME’s won 395,271 contracts for $16.6 billion, while large companies (some 1524 entities) won 20,249 contracts for $5.99 billion.
boom. 💥
- implementation of red flags to detect and act on corruption and other risks: availability of standardized, structured, machine-readable data in e-GP systems allows for proactive monitoring and identification of corruption, collusion, and other behaviors that disrupt the process of awarding contracts.
CJ
© 2023–2100 by Carlos Manuel Jarquín Sánchez. All Rights Reserved.
