Current Trends in International Public Sector Procurement and their impact on Financial Management - PowerPoint PPT Presentation


Title: Current Trends in International Public Sector Procurement and their impact on Financial Management


1
ICGFM forum - March, 6 2008
  • Current Trends in International Public Sector
    Procurement and their impact on Financial
    Management
  • Jorge Claro, President
  • Claro Associates, Inc.

2
Background
  • Reform of the State is one of the most important
    components of the International fight against
    corruption.
  • Recently, modernization of procurement systems
    has been an integral part of the reform of the
    State efforts in most countries. Such a
    modernization is difficult and there are many
    challenges in the road ahead.
  • New evaluation tools to assess capacity to
    tackle these challenges are being developed by
    the international and regional organizations such
    as OECD/DAC, MDBs and others.

3
Background
  • International studies indicate Public Sector
    Procurement accounts for approximately 15 to 20
    of GNP in many countries
  • Procurement has traditionally been poorly
    managed with inefficiencies adding anywhere
    between 15 to 20 to the cost of the works,
    goods and services being procured
  • Corrupt practices add an additional 15 to 20
    to the cost of those works, goods or services
  • In other words, inefficiency and corruption
    combined could account for 2.25 to 4 of GNP in
    most countries, thus negating growth

4
Background
  • There is a strong demand to increase
    transparency in public sector management and
    therefore
  • Electronic Government Procurement (e-GP) is being
    or has been introduced in most countries
  • Many countries have also introduced substantial
    reforms and new mechanisms for procurement
  • in the Americas, a Hemispheric Network of
    Procurement Officials has been established. The
    network is successfully exchanging ideas, sharing
    information and know-how on the reform of the
    procurement process
  • http//www.compraspublicas.org
  • Many donor-funded procurement reform projects
    require financial data and information that is
    not readily available in most countries

5
New Mechanisms
  • These mechanisms are at the core of the new
    trends and changes being introduced in Public
    Sector Procurement around the world
  • Framework Contracts
  • Lease Agreements
  • Reverse Auctions
  • Public-Private Partnerships
  • Countries that have introduced them or plan to
    do so are facing challenges and opportunities on
    institutional and legal reform as well as
    capacity building

6
New Mechanisms
  • The selection, incorporation and use of these
    new mechanisms will impact all the elements of an
    Integrated Financial Management System
  • Accounting
  • Budgeting
  • Cash Management
  • Credit Management

7
Framework Contracts
  • A contract that
  • Establishes terms and conditions under which
    subsequent contracts will be placed
  • Does not commit the purchaser to purchase
  • Requires the supplier to supply in accordance
    with the terms defined within the scope of the
    contract

8
Framework Contracts
  • Benefits
  • Reduced administration
  • Competitive pricing (aggregation of demand)
  • Assured quality
  • Legal protection against breach of contract
  • Assured delivery of goods
  • Planned supplier stock levels
  • Continuity of supply
  • Long-term working relationships
  • Improved flexibility and cooperation
  • Multiple awards

9
Framework Contracts
  • What countries need to do
  • Adapt Standard Contractual Terms
  • Determine what goods and services may be subject
    to open-ended contracts
  • Adapt standard competitive bidding processes.
  • Train personnel (drafting task orders, managing
    long-term relationships with awardees)
  • Improve coordination among agencies and entities

10
Framework Contracts
  • From a Financial Management perspective
  • Introduce systems that are capable of keeping
    track of multiple-awardee contracts and
    performance monitor
  • Encourage purchasing units to use them as
    contracting vehicles
  • Provide data to help negotiators determine
    acceptable prices
  • Put in place internal and external audits of
    procurement processes and subsequent awards
  • Budget for training and/or hiring personnel
  • Develop strong internal managerial controls

11
Lease Agreements
  • A distinct type of rent relationship
  • Governments may use lease agreements in order
    to
  • Acquire the use of buildings for administrative
    purposes, such as office space, or
  • Have access to the use but not the ownership of
    equipment such as computers, photocopiers, cars,
    machinery and others.

12
Lease Agreements
  • Benefits
  • Governments have access to state-of-the-art
    equipment without making substantial investments
  • Continuous access to cutting edge technology
  • Aggregated demand leading to better contractual
    terms
  • Defective equipment may be replaced or repaired
    on-demand

13
Lease Agreements
  • Most countries contemplate the use of Lease
    Agreements for Real Estate
  • Their use as a means to procure goods will
    require
  • In-house capacity to manage long term contracts
    that have an important service component
  • Trained personnel on new technologies and trends.
  • Knowledge and capacity to negotiate the best
    possible terms and prices
  • Provide effective remedies to lessors since the
    lessee is a sovereign entity.

14
Lease Agreements
  • From a Financial Management Perspective
  • Put in place systems to keep updated inventory of
    leased equipment
  • Carry out cost/benefit analysis to help determine
    if service agreements should be included in
    lease agreements
  • Determine the financial risk on leased equipment
    and the need for insurance (i.e. amount of
    deposits and damage or loss of equipment)
  • Put in place robust controls on the performance,
    not just the cost of the lease

15
Reverse Auctions
  • A reverse auction is a mechanisms where
    suppliers bid against each other for contracts
    against a set specification, pre-established
    criteria and price ceiling
  • The roles of the buyer and the seller are
    reversed
  • Its primary objective is to drive purchase prices
    down
  • This mechanism is particularly useful for
    purchasing off-the-shelve, generic items or
    commodities, where price is the only deciding
    factor to determine the winner

16
Reverse Auctions
  • In Brazil, the Pregao Eletronico, an Electronic
    Reverse Auction, has been in use since 2000,
    generating important savings to the country, both
    in price and time
  • Benefits
  • Reduction of paperwork
  • Streamlined processes
  • A shorter negotiation cycle
  • More competitive prices
  • Increased transparency in the award process
  • Faster development of Electronic Government
    Procurement systems

17
Reverse Auctions
  • Risks
  • The process may become cumbersome or complicated
  • The process may be used for items that are not
    susceptible to generating savings
  • Markets may be disrupted due to potential
    cartelization
  • Internal markets may be very small
  • There is a limited number of private sector
    entrepreneurs
  • The auctions may be susceptible to low-balling

18
Reverse Auctions
  • Countries contemplating adopting this mechanism
    should consider that
  • It will require specific changes to be introduced
    to national and local procurement laws
  • e-RAs need an e-commerce legal framework
  • The e-GP system must be sophisticated enough to
    support hosting e-RA sessions.

19
Reverse Auctions
  • From a financial management perspective
  • Put in place a system able to track transactions
    that do not have a paper trail
  • Ensure timely budgetary allocations and cash flow
  • Establish electronic payment systems
  • Put in place market intelligence mechanisms to
    ensure that the best products at the best prices
    are being procured, thus ensuring value for money

20
Public-Private Partnerships
  • A Public Private Partnership is a system in
    which a government service or private business
    venture is funded and operated through a
    partnership of government and one or more private
    sector companies that works to ensure the
    funding, construction, renovation, and management
    of an infrastructure or provision of a service
  • Contractually, a PPP is a legally binding
    instrument
  • Entered into by a government and a private party
    (usually a business)
  • With the objective of providing assets and
    delivering services
  • That organizes risks among the various partners

21
Public-Private Partnerships
  • Benefits
  • Create long-term investment opportunities for the
    private sector
  • Helps reduce capital investments or the national
    debt
  • Bridges the gap between the need for
    infrastructure and the countrys financial
    capabilities
  • Improve service delivery
  • Improve cost effectiveness (private partner
    wishes a return on investment)
  • Allow public projects to benefit from private
    sector innovation, experience and flexibility of
    services
  • Reduce public sector risk
  • Deliver capital projects faster
  • Improve budget certainty

22
Public-Private Partnerships
  • Countries must consider
  • PPP must be specifically regulated
  • Investment Laws, Commercial Codes, Procurement
    Laws
  • Differentiated from Concession Agreements of
    Parastatals .
  • PPP form long term working relationships that may
    present difficult scenarios in terms of power
    sharing and management
  • PPP require high-level management skills, as well
    as significant planning and strategizing.
  • Due to their nature, PPPs will be corporations
    subject to government regulation

23
Public-Private Partnerships
  • From a financial management perspective
  • Demand for interaction with private sector
    accounting practices and financial systems
  • Determination of the financial soundness of the
    project and its long-term performance
  • Determination of the overall financial framework
  • Attest to the legality and continuity of
    operations
  • Report and interpret the results of the
    activities undertaken by the PPP

24
Conclusions
The mechanisms are being introduced in many
countries at a very different pace and
corresponding to very different strategies
Procurement reform should not be undertaken in
isolation but rather in a broader and
participatory context and as an integral part of
the reform of the state process Reforms should
be guided by a national strategy that considers
the procedural, financial and managerial
dimensions of a reform Introducing these
mechanisms can have long-term effects on domestic
markets, with financial and administrative
implications
25
Conclusions
  • Financial management must provide inputs for
    decision-making
  • Sound financial management is key to reducing
    opportunities for fraud and corruption
  • There is a need for qualified professionals and
    redesigned systems in both the procurement and
    financial arenas
  • Capacity building and training still represent a
    challenge in these areas
  • The convergence between procurement and
    financial management needs to be emphasized and
    strengthened

26
Thanks
Many thanks for the opportunity to talk to
you today Jorge Claro President Claro
Associates, Inc. 10708 Lady Slipper
Terrace North Bethesda, MD 20852 Tel 301
230-9011 jclaro_at_claroassociates.com www.claroass
ociates.com
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Current Trends in International Public Sector Procurement and their impact on Financial Management

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Title: Current Trends in International Public Sector Procurement and their impact on Financial Management


1
ICGFM forum - March, 6 2008
  • Current Trends in International Public Sector
    Procurement and their impact on Financial
    Management
  • Jorge Claro, President
  • Claro Associates, Inc.

2
Background
  • Reform of the State is one of the most important
    components of the International fight against
    corruption.
  • Recently, modernization of procurement systems
    has been an integral part of the reform of the
    State efforts in most countries. Such a
    modernization is difficult and there are many
    challenges in the road ahead.
  • New evaluation tools to assess capacity to
    tackle these challenges are being developed by
    the international and regional organizations such
    as OECD/DAC, MDBs and others.

3
Background
  • International studies indicate Public Sector
    Procurement accounts for approximately 15 to 20
    of GNP in many countries
  • Procurement has traditionally been poorly
    managed with inefficiencies adding anywhere
    between 15 to 20 to the cost of the works,
    goods and services being procured
  • Corrupt practices add an additional 15 to 20
    to the cost of those works, goods or services
  • In other words, inefficiency and corruption
    combined could account for 2.25 to 4 of GNP in
    most countries, thus negating growth

4
Background
  • There is a strong demand to increase
    transparency in public sector management and
    therefore
  • Electronic Government Procurement (e-GP) is being
    or has been introduced in most countries
  • Many countries have also introduced substantial
    reforms and new mechanisms for procurement
  • in the Americas, a Hemispheric Network of
    Procurement Officials has been established. The
    network is successfully exchanging ideas, sharing
    information and know-how on the reform of the
    procurement process
  • http//www.compraspublicas.org
  • Many donor-funded procurement reform projects
    require financial data and information that is
    not readily available in most countries

5
New Mechanisms
  • These mechanisms are at the core of the new
    trends and changes being introduced in Public
    Sector Procurement around the world
  • Framework Contracts
  • Lease Agreements
  • Reverse Auctions
  • Public-Private Partnerships
  • Countries that have introduced them or plan to
    do so are facing challenges and opportunities on
    institutional and legal reform as well as
    capacity building

6
New Mechanisms
  • The selection, incorporation and use of these
    new mechanisms will impact all the elements of an
    Integrated Financial Management System
  • Accounting
  • Budgeting
  • Cash Management
  • Credit Management

7
Framework Contracts
  • A contract that
  • Establishes terms and conditions under which
    subsequent contracts will be placed
  • Does not commit the purchaser to purchase
  • Requires the supplier to supply in accordance
    with the terms defined within the scope of the
    contract

8
Framework Contracts
  • Benefits
  • Reduced administration
  • Competitive pricing (aggregation of demand)
  • Assured quality
  • Legal protection against breach of contract
  • Assured delivery of goods
  • Planned supplier stock levels
  • Continuity of supply
  • Long-term working relationships
  • Improved flexibility and cooperation
  • Multiple awards

9
Framework Contracts
  • What countries need to do
  • Adapt Standard Contractual Terms
  • Determine what goods and services may be subject
    to open-ended contracts
  • Adapt standard competitive bidding processes.
  • Train personnel (drafting task orders, managing
    long-term relationships with awardees)
  • Improve coordination among agencies and entities

10
Framework Contracts
  • From a Financial Management perspective
  • Introduce systems that are capable of keeping
    track of multiple-awardee contracts and
    performance monitor
  • Encourage purchasing units to use them as
    contracting vehicles
  • Provide data to help negotiators determine
    acceptable prices
  • Put in place internal and external audits of
    procurement processes and subsequent awards
  • Budget for training and/or hiring personnel
  • Develop strong internal managerial controls

11
Lease Agreements
  • A distinct type of rent relationship
  • Governments may use lease agreements in order
    to
  • Acquire the use of buildings for administrative
    purposes, such as office space, or
  • Have access to the use but not the ownership of
    equipment such as computers, photocopiers, cars,
    machinery and others.

12
Lease Agreements
  • Benefits
  • Governments have access to state-of-the-art
    equipment without making substantial investments
  • Continuous access to cutting edge technology
  • Aggregated demand leading to better contractual
    terms
  • Defective equipment may be replaced or repaired
    on-demand

13
Lease Agreements
  • Most countries contemplate the use of Lease
    Agreements for Real Estate
  • Their use as a means to procure goods will
    require
  • In-house capacity to manage long term contracts
    that have an important service component
  • Trained personnel on new technologies and trends.
  • Knowledge and capacity to negotiate the best
    possible terms and prices
  • Provide effective remedies to lessors since the
    lessee is a sovereign entity.

14
Lease Agreements
  • From a Financial Management Perspective
  • Put in place systems to keep updated inventory of
    leased equipment
  • Carry out cost/benefit analysis to help determine
    if service agreements should be included in
    lease agreements
  • Determine the financial risk on leased equipment
    and the need for insurance (i.e. amount of
    deposits and damage or loss of equipment)
  • Put in place robust controls on the performance,
    not just the cost of the lease

15
Reverse Auctions
  • A reverse auction is a mechanisms where
    suppliers bid against each other for contracts
    against a set specification, pre-established
    criteria and price ceiling
  • The roles of the buyer and the seller are
    reversed
  • Its primary objective is to drive purchase prices
    down
  • This mechanism is particularly useful for
    purchasing off-the-shelve, generic items or
    commodities, where price is the only deciding
    factor to determine the winner

16
Reverse Auctions
  • In Brazil, the Pregao Eletronico, an Electronic
    Reverse Auction, has been in use since 2000,
    generating important savings to the country, both
    in price and time
  • Benefits
  • Reduction of paperwork
  • Streamlined processes
  • A shorter negotiation cycle
  • More competitive prices
  • Increased transparency in the award process
  • Faster development of Electronic Government
    Procurement systems

17
Reverse Auctions
  • Risks
  • The process may become cumbersome or complicated
  • The process may be used for items that are not
    susceptible to generating savings
  • Markets may be disrupted due to potential
    cartelization
  • Internal markets may be very small
  • There is a limited number of private sector
    entrepreneurs
  • The auctions may be susceptible to low-balling

18
Reverse Auctions
  • Countries contemplating adopting this mechanism
    should consider that
  • It will require specific changes to be introduced
    to national and local procurement laws
  • e-RAs need an e-commerce legal framework
  • The e-GP system must be sophisticated enough to
    support hosting e-RA sessions.

19
Reverse Auctions
  • From a financial management perspective
  • Put in place a system able to track transactions
    that do not have a paper trail
  • Ensure timely budgetary allocations and cash flow
  • Establish electronic payment systems
  • Put in place market intelligence mechanisms to
    ensure that the best products at the best prices
    are being procured, thus ensuring value for money

20
Public-Private Partnerships
  • A Public Private Partnership is a system in
    which a government service or private business
    venture is funded and operated through a
    partnership of government and one or more private
    sector companies that works to ensure the
    funding, construction, renovation, and management
    of an infrastructure or provision of a service
  • Contractually, a PPP is a legally binding
    instrument
  • Entered into by a government and a private party
    (usually a business)
  • With the objective of providing assets and
    delivering services
  • That organizes risks among the various partners

21
Public-Private Partnerships
  • Benefits
  • Create long-term investment opportunities for the
    private sector
  • Helps reduce capital investments or the national
    debt
  • Bridges the gap between the need for
    infrastructure and the countrys financial
    capabilities
  • Improve service delivery
  • Improve cost effectiveness (private partner
    wishes a return on investment)
  • Allow public projects to benefit from private
    sector innovation, experience and flexibility of
    services
  • Reduce public sector risk
  • Deliver capital projects faster
  • Improve budget certainty

22
Public-Private Partnerships
  • Countries must consider
  • PPP must be specifically regulated
  • Investment Laws, Commercial Codes, Procurement
    Laws
  • Differentiated from Concession Agreements of
    Parastatals .
  • PPP form long term working relationships that may
    present difficult scenarios in terms of power
    sharing and management
  • PPP require high-level management skills, as well
    as significant planning and strategizing.
  • Due to their nature, PPPs will be corporations
    subject to government regulation

23
Public-Private Partnerships
  • From a financial management perspective
  • Demand for interaction with private sector
    accounting practices and financial systems
  • Determination of the financial soundness of the
    project and its long-term performance
  • Determination of the overall financial framework
  • Attest to the legality and continuity of
    operations
  • Report and interpret the results of the
    activities undertaken by the PPP

24
Conclusions
The mechanisms are being introduced in many
countries at a very different pace and
corresponding to very different strategies
Procurement reform should not be undertaken in
isolation but rather in a broader and
participatory context and as an integral part of
the reform of the state process Reforms should
be guided by a national strategy that considers
the procedural, financial and managerial
dimensions of a reform Introducing these
mechanisms can have long-term effects on domestic
markets, with financial and administrative
implications
25
Conclusions
  • Financial management must provide inputs for
    decision-making
  • Sound financial management is key to reducing
    opportunities for fraud and corruption
  • There is a need for qualified professionals and
    redesigned systems in both the procurement and
    financial arenas
  • Capacity building and training still represent a
    challenge in these areas
  • The convergence between procurement and
    financial management needs to be emphasized and
    strengthened

26
Thanks
Many thanks for the opportunity to talk to
you today Jorge Claro President Claro
Associates, Inc. 10708 Lady Slipper
Terrace North Bethesda, MD 20852 Tel 301
230-9011 jclaro_at_claroassociates.com www.claroass
ociates.com
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