About The Observatory

On Public Procurement

Public Procurement or Government Procurement is the process of buying goods, works and services by the government entities to fulfill their objectives, for which they are created or they exist. Public Procurement is a very important function of the government and it accounts for a large share of public expenditure. Procurement can be of materials, services and processes (outsourced business processes, transportation, logistics etc.) and Intangibles (Intellectual Property, Goodwill etc.). It may range from procurement of stationery, furniture, construction, defence equipments etc. to procurement of services through private and NGO sectors for direct delivery of services to citizens like providing education, health care etc.

Procurement cycle is similar to supply management covering the entire process of acquisition through contractual arrangement starting from identification of need, sourcing, till completion of the contract;  in adherence with the objectives of the organization and its stakeholders and the interest of the society at large. Public Procurement covers acquisition through public funds and other sources of funds like grants, gifts etc. The entities which come under the purview of Public Procurement are broadly the Central and State Governments, public sector undertakings, autonomous and statutory bodies etc.

Thus, Public Procurement or Government procurement can be defined as the procurement activities undertaken by a public authority using public funds to obtain goods, services and technologies essential for it to carry out its business (Source: Govt. Procurement in India, Domestic regulations and trade prospects).

The magnitude of resources involved in public expenditure is sizable and has been conservatively estimated at 8-12% of GDP depending on the country. The prevalence of inefficient or corrupt practices leads to significant additional cost resulting in decreased delivery of services, infrastructure and public goods. Public procurement policies and practices are very important for good governance. Good practices reduce costs and produce timely results. It helps in preventing time and cost overrun in projects. Poor practices of procurement is mainly attributed to allegations of corruption and government inefficiency.

Being a developmental organization, The World Bank   has taken some measures to ensure that sound principles and practices are followed in projects that it finances. The Bank requires that borrowers adhere to its procurement guidelines and to that extent the bank supervise project implementation. The procurement related practices in Bank assisted projects can and should be extended to all public sector procurement. The World Bank has taken some initiatives to assist borrower member countries to analyse their present procurement policies, organisation and procedures; and to help them develop or modify their systems to:

a)  Increase their capacity to plan, manage and monitor the procurement process effectively;

b)  Improve the accountability, integrity and transparency of the process and reduce the scope for corruption; and

c)  Be consistent with internationally accepted principles and practices.

Procurement practices may differ from country to country. In order to find out the strengths and weaknesses of procurement systems,  the following aspects need to be probed:

a) The existing legal framework, organisational responsibilities and control, present procedures and how well all these work in practice.

b)  Plans and measures taken to bring about institutional improvement;

c) Assess the competitiveness and performance of local private industry with regard to participation in public procurement

The procurement and disbursement performance, the frequency and nature of substantial complaints and past failures and inadequacies in procurement, the existence of any major procurement related problems need to be studied. These will help in providing input for the capacity assessment of implementing agencies. A country’s procurement system is the composite of the following main factors:

a) Legal framework

b) Procurement system organizational framework

c)  Procurement capacity building system

d)  Procurement procedure/tools

e) Decision-making and control system

f)  Anti corruption initiatives and programmes

g)  Private sector participation in the system

h) Contract administration and management

i) System for addressing complaints.

How well or how poorly the factors as mentioned above works need to be probed. At the same time, we need to understand the similarities and dissimilarities in procurement practices in respect of goods, works and services. Poor dissemination of rules, inadequate training of procurement practitioners, lack of enforcement of provisions, failure to maintain good records, widespread corruption and a variety of other factors create risks that can undermine an otherwise seemingly adequate system of procurement.When a procuring organisation conducts its own solicitations, it needs to be guided by the best value philosophy. There are many factors to be considered while selecting a supplier. Important criteria not only include price, but also fostering competition, transparency of the solicitation process, the quality and value of the resulting contract and the performance of the awarded supplier.

There are many factors which are responsible for poor quality of procurement in an organization.  Many of these factors are  inherent in the organisation carrying out procurement.  The factors responsible for poor quality of procurement include the following:

a) The degree to which government promote a culture of accountability

b) The salary and status of staff responsible for procurement

c) The degree to which agencies responsible for procurement are free from political interference

d) The existence of honest, capable and motivated procurement staff

e) The presence of clear written standards, procedures and delegation of authority and responsibility.

The key barriers to good quality procurement having a direct bearing on risk associated with the public procurement needs to be removed. Identification of risk factors facilitates development of an action plan.

Following are the risks which need to be managed

i)  Loss of economy and inefficiency in procurement

ii) Unfair and inequitable treatment of suppliers and contractors

iii) Exclusion of certain eligible bidders from competing for bids

iv)  Lack of integrity, fairness and public confidence

v)  Tenders are not awarded to the lowest responsive bidder

vi)  The tenders received/awarded do not represent best value for money

vii) Time taken to solicit and award tenders is excessive.

All these things happen mainly for the following:-

i)  Lack of competition and capacity to understand market

ii)  Poor contracting strategies

iii)Procurement documents which place excessive and unnecessary risks on bidders

iv) Overlooking quality in selection of consultants

v) Lack of procedures

vi) Excessive control

vii) Shortage of experienced and trained staff

viii) Weak procurement planning

ix) Uncompetitive procedures for selection and employment of consultants.

Funds are to be used both efficiently and transparently for the purpose intended. Data on practical implementation needs to be collected. A good risk assessment needs to be based on empirical data to the extent it is available. The, use of ex-post procurement reviews will provide the essential inputs. A strong analytical framework supported by sound empirical data is a prerequisite. Then only conclusion and recommendation can be made finally leading to the development of a specific action plan.

Some important areas which would be helpful in preparation of Procurement Plan

a)    Use of quantitative information: Ex-post procurement reviews and corruption perception surveys

b)    Analysis of key government institutions and ministries assigned with public procurement responsibilities, capacity building needs, the environment in which they operate and measures required to improve performance.

c)    Records Management: Good record keeping is a necessary condition for transparent and fair procurement. This involves setting up an efficient and dependable information management system that not only keeps records of important bidding and contract documents but also provides accurate information on the current status of individual bidding processes. The availability and completeness of procurement records is very important. Timely completion of the procurement cycle is an important indicator of the efficiency of a procurement system. A system of electronic monitoring is useful. E-procurement and use of technology is required to increase competition and improve transparency in the public procurement system.

d)    Environmentally and socially responsible procurement or green procurement is another requirement.

e)    Contract administration implies a review of a number of indicators that cover payments, performance of suppliers, extent of price increases and contract amendments, dispute resolutions, arbitrations, quality control, etc. The system should help detect weaknesses in the applications of the procurement regulations and procedures

f)    A wide range of interested stakeholders should be made involved. They should include development partners, professional bodies, civil society and private sector representatives, as well as academics.

g)    Action plans should have a time frame for implementation, responsibilities for coordination and execution of agreed action programmes. Designing a monitoring and evaluation system with appropriate benchmark indicators is essential to tracking progress during the implementation of the agreed action plan. The indicators might measure –

i)   The timeliness with which procurement decisions, i.e., awards, contract registration, contract payment is taken.

ii)  The frequency with which contract award decisions are protested or overturned

iii)  The effectiveness with which complaints are handled.

iv) Reliability of records management system

v)  Putting in place an electronic monitoring system which is accessible outside of the implementing agencies is an effective way to monitor improvements in benchmark indicators.

h)    Provisions should be there for procurement reform. Areas of improvement include strengthening of institutions overseeing procurement, the organisation of a procurement monitoring system and the training of procurement staff in enforcing new rules, preparing standard procurement documentation and recording procurement data.

Elements that constitute a well functioning public procurement system

A public procurement system can be said to be well-functioning if it achieves the objectives of transparency, competition, economy and efficiency, fairness and accountability. The following are among the key elements that can be used in determining to what extent a particular system meets these objectives.

1)       A clear, comprehensive and transparent legal framework which may be characterized by

a)    The presence of legal rules that are easily identifiable and govern all aspect of the procurement process.

The rules should provide for

i)   Wide advertising of bidding opportunities

ii)  Maintenance of records related to the procurement process

iii)  Pre-disclosure of all criteria for contract award based on objective criteria to the lowest evaluated bidder, public bid opening, access to bidder complaints review mechanism and disclosure of the results of the procurement process.

2)       Clarity on functional responsibilities and accountabilities for the procurement function that may be characterized by a definition of

a)    Those who have responsibilities for implementing procurement including preparation of bid documents and the decision on contract of award

b)    Who in the buying entities bears primary accountability for proper application of the procurement rules

c)    Means of enforcing these responsibilities and accountabilities including the application of appropriate sanction.

d)    Institutional framework that differentiates between those who carry out the procurement function and those who have oversight responsibilities.

e)    Existence of well trained procurement staff having continuous, focused, targeted training to have technical proficiency.

What is a Procurement Observatory?

As an observatory means a place which provides an extensive view of its surroundings, likewise, a Procurement Observatory aims to provide insights on government procurement function.

About the Assam Procurement Observatory

India, being a welfare oriented country; Government Procurement represents a significant portion of the country’s spending and is a key determinant of budget execution outturns. It also makes significant impacts on the quality of public service delivery and therefore it has key importance in public life. Moreover, considering the benefits to domestic and foreign stakeholders, procurement also has importance in international trade. Indian Public procurement is estimated to be more than US$ 300 bn-Rs. 15 Lakh Crore (approx)-25 to 30 percent of its GDP (Consumer Unity & Trust Society-CUTS International study).  In the year 2008-09, about 12 lakh crore was spent by the Govt. and PSUs on public procurement out of the GDP of 47 lakh crore during that period.

Unlike private procurement, public procurement should be governed by more rules and regulations, more transparency and integrity, as it is accountable to a large number of stakeholders- the beneficiaries and other public, taxpayers, vendors, legislators etc.  But the institutional framework of public procurement suffers from lack of efficiency, transparency, accountability, professionalism, economy and competition. Some of the general areas of concern of the public procurement system in India and also in Assam are:

·          Insufficient funding for procurement,

·          Gaps between budget estimates, approved budgets and actual budgets,

·          Differences in procurement and distribution effectiveness (with respect to PDS),

·          Inefficiency of the process leading to delay in decisions and wastage of resources like funds, materials, manpower etc.,

·          Need for more transparency in the process-evaluating criteria, information sharing etc.,

·          Need for more accountability-clarity of roles and responsibilities,

·          Need for equity and justice,

·          Prevalence of weak oversight,

·          Inadequate regulations to check conflict of interest,

·          Unethical practices-scope of corruption,

·          Lack of independent grievance redressal system.

India topped the list of countries receiving remittances, followed by China ($60 billion), the Philippines ($24 billion), Mexico ($23 billion) and Nigeria and Egypt ($21 billion each) (source: PTI Washington, April 20, 2013). Despite India’s impressive economic growth and remarkable progress made in many domains, a large portion of population concentrated in the low income states (LIS) is still left behind and have not benefited from these achievements. India is the largest recipient of remittances in the world, receiving $69 billion in 2012. Only a few of these funds reach LIS and also funds available under centrally sponsored schemes are underutilized or used inefficiently due to limited implementation capacity of some of the weaker states like Assam. In view of the huge amount of World Bank funding to India, procurement capacity building of its borrower country is an important concern for the World Bank. Moreover, good governance in the public procurement system will also help in the economic growth of the country. The procurement observatory has been established with this objective to improve the procurement system in Assam and in India as a whole.

The observatory will focus on collection and analysis of procurement related data and monitoring the procurement policies implementation of the same in addition to exploring benchmarking prospects and idea sharing exercises.

The Procurement Observatory aims at accomplishing the following objectives:

i)    Collection and analysis of procurement (including contract implementation) related data in the state of Assam. This may lead to development of a few procurement performance indicators which could be useful for benchmarking.

ii)    Monitoring and documenting the procurement policies, rules etc. in the state and if possible, the actual implementation of the same.

iii)   Share the best global practices (from other states in India and abroad) in procurement cycle management with the Assam Government through workshop, seminars and other means.

iv)  Put in best efforts to develop network of procurement practitioners in the state.

In collaboration with the commissioning agency (the Bank), our multi-disciplinary team will carry out collection, collation and analysis of the useful data for the purpose of this study. We will study and analyze these data using appropriate established methods. Our study would lead to recommendations and action plan including a road map for improved procurement procedures and ICT enabled procurement management.