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The Pitfalls Of Public Procurement In 2016

When the World Bank first began publishing its “Benchmarking Public Procurement” report last year, the organization looked at just 11 economies and their procurement activities. This month, the World Bank Group released the 2016 edition of the report, which examines the states of procurement across 77 jurisdictions.

The increased breadth of the report means the WBG can uncover emerging trends in the world of public procurement, a capability crucial to helping economies drive growth. Across the globe, public procurement is a multibillion dollar industry, valued at $820 billion in developing economies alone. In many of these markets, public procurement can account for up to half of government spend.

“As a critical element of good governance, public procurement plays a fundamental role in achieving the twin goals of ending poverty and boosting shared prosperity,” the report stated.

[bctt tweet=”Public procurement plays a role in ending poverty and boosting shared prosperity”]

With so much money on the line, the WBG zeroed in on several weaknesses among public procurement policy that may be stunting the growth not only of the companies looking to conduct business with governments, but also of the economy as a whole.

The Many Paths To E-Procurement

According to the World Bank Group, the majority of economies surveyed impressively have a website dedicated to public procurement (73 out of 77). However, each of these websites exist with a variety of sophistication, analysts said, and each is used for different parts of the public procurement process.

For example, some streamline the bidding process, while others manage contracts and supplier payments.

While the WBG found a “clear move” toward the electrification of public procurement activity, researchers discovered several shortfalls. In 17 economies, suppliers still cannot access tender documents from these online portals. However, in 31 nations, suppliers can submit their bids online. In some countries, e-bidding is mandatory; in others, suppliers can only do so with special authorization.

The statistics highlight the varying degree of sophistication among governments’ digital procurement efforts, and that can be a problem, the reports said, especially when it comes to combating government corruption.

“The many benefits of e-procurement have been widely recognized,” the report concluded. “They include equal market access and competition, enhanced transparency and integrity, and lower transaction costs. The digitization of procurement can reduce in-person interactions that offer opportunities for corruption.”

Despite this corruption-fighting potential, the WBG concluded that “the transparency of public procurement regulations is far from optimal,” adding that the majority of the 77 economics examined suffer from at least one deficiency when it relates to transparency – a finding likely due, in part, to inadequacies in e-procurement efforts.

Enforcing The Rules

Just as the level of procurement policy sophistication wavers from economy to economy, so does the level of implementation of those rules. For those jurisdictions that have not enforced public procurement policy adequately, some businesses have struggled to get paid or manage cash flow as a result, the World Bank Group said.

According to researchers, while law in 32 of the economies assessed requires payment processing within 30 days, only 14 of these economies see their suppliers paid within that time frame.

[bctt tweet=”32 economies requires payment within 30 days; only 14 see their suppliers paid on time”]

Further, the World Bank Group found that across the board, transaction costs are high – especially for SMEs bidding on government contracts. For example, the cost of hiring a lawyer to file a complaint can lead to significant cash flow challenges for smaller businesses without the necessary resources.

Why It Matters

The World Bank Group made note of the implications public procurement policy – and lack of adequate policy – can have on these markets.

“This edition of the ‘Benchmarking Public Procurement’ 2016 report aims to support evidence-based decision making on procurement policies and reforms by providing comparable data on regulatory environments that affect the ability of private companies to do business with governments in 77 economies,” said the WBG’s Director of Public Integrity and Openness Robert Hunja and the Director of the Global Indicators Group Augusto Lopez-Claros in a signed statement introducing the report.

Robust initiatives can “improve public sector performance, promote national competitiveness and drive domestic economic growth,” the report said. “And it can boost economic development.” And while there are financial benefits to public procurement, the space can also promote social causes like clean energy or the promotion of disadvantage groups.

It is, however, the area of government most vulnerable to fraud and corruption, the World Bank Group said. In highlighting the lapses in adequate regulatory enforcement as well as sophisticated e-procurement efforts, the World Bank Group said it hopes to guide the development of procurement policy moving forward.

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