Examining the World Bank’s radical procurement overhaul

Article published by the Chartered Institute of Procurement & Supply (CIPS) magazine Supply Management on September 8, 2015.

Will Green looks at how the World Bank’s radical overhaul of its procurement processes will affect the organisation and its clients.

Construction works for the Panama Canal expansion project – one of the infrastructure projects financed by the World Bank. © Gerardo Pesantex/World Bank

Construction works for the Panama Canal expansion project – one of the infrastructure projects financed by the World Bank. © Gerardo Pesantex/World Bank

How many organisations spend $44 billion each year in 178 countries, including the most war-torn nations, finance enormous infrastructure projects such as the Panama Canal expansion scheme and support social development in the poorest countries?

Then ask, how would you go about developing a procurement strategy for such an organisation? This is the challenge the World Bank faced as it set about reforming a procurement system unchanged since the 1970s.

Back then, it was decided the way to produce the certainty firms needed to bid for work in an uncertain world was a procurement system that would be the same wherever you were. The evaluation process was the same and the lowest bid always won.

“With globalisation, speed of information exchange and general modernisation of procurement, we’ve had to change that,” says World Bank CPO Christopher Browne.

Browne says 5,000 people were consulted during the three-year process to overhaul the bank’s procurement framework, which he describes as “a huge step forward”. The changes were approved by the Bank’s executive board in July.

Central to the overhaul is that a procurement strategy will be developed for each project by the client country, with support from bank staff, taking into account factors including risks, potential bidders, value for money and sustainability.

Browne says many in the developing world view the World Bank as the “gold standard” of purchasing and the changes will help promote modernisation of public procurement around the globe.

Lillian Karuri-Magero, chief of staff for a leading bank and chairwoman of the CIPS Gauteng branch in South Africa, says the changes “have significant implications for public procurement, especially in developing countries.”

“The World Bank’s recent announcement raises the bar for procurement integrity and accountability, as well as sustainable procurement practices globally,” she says.

Karuri-Magero says it is “heartening” it supports the professionalisation of procurement by organisations such as CIPS.

Funding squeeze

However, the new framework has raised concerns about funding. In 2013 World Bank Group president Jim Yong Kim announced “no more business as usual”, along with a reduction in administration costs of at least $400 million over the following three years.

Jeroen Kwakkenbos, policy and advocacy manager at the European Network on Debt and Development (Eurodad), which represents NGOs working on poverty reduction and development, says: “At a time when the World Bank is going through downsizing to try to become more efficient, they seem to have created a framework that is more expensive and complex. Costs are going to go up in the short term with the hope they go down in the long term.”

That reduction in costs is expected to come from the way projects are monitored by bank staff, with those deemed low risk needing less scrutiny.

“In some ways we are making things more complicated because we are asking for a strategy to be developed up front,” says Browne. “Our argument would be we are putting more work in at the beginning which should mean the procurement works a lot more successfully afterwards.”

This extra complication will require additional skills, both for the client countries drawing up procurement strategies and the bank staff supporting them.

Daniel Dudis, senior policy director at Transparency International USA, says: “Recognising procurement is a critical component of the bank’s governance agenda, the framework commits the bank to building borrower procurement capacity.

“Unfortunately, the bank has not committed to increase funding for capacity building, but instead wants shareholders to create a separate fund for this. This could be a stumbling block.”

Kwakkenbos says: “Procurers have a tough enough job as it is and now they have to be sustainability experts and environmental experts; they are going to need such a huge skill-set. The amount of training that will need to be taken into account for bank staff is going to be Herculean.”

The new framework says funding to support capacity-building work in client countries will not increase. Instead the bank will establish a “multi donor trust fund to which shareholders will be asked to contribute”, though this position will be reviewed if necessary.

Browne says: “I am more than comfortable that we have the funding and support to get the programme off the ground. There is a regular reporting and checks and balances have been put in place to make sure things are delivering, and if it’s not then we’ll recalibrate as we go.”

Transparency test

Could the new flexibility open the door to more corruption? Browne says no, because more complex procurements will be subject to “continuous probity auditing”. “We will have people who will sit in on evaluations to make sure things are being done fairly,” he says.

Alison Geary, a senior associate at law firm WilmerHale who specialises in advising firms on fraud in relation to World Bank contracts, agrees. “The scope for corruption is probably the same,” she says.

However, she does feel the bank should be reviewing its sanctions programme in terms of its aggressiveness, activity levels and the amount of publicity it receives.
“They do need to take note that when they were consulting with stakeholders over the procurement guidelines people were coming back and saying fraud and corruption is an issue, it is a problem, which says to me people are saying: ‘We are struggling to win contracts because of fraud and corruption’,” she says.

However, Geary says a commitment by the bank to increase transparency in the ownership of bidding firms would be positive for companies acting in consortia.

“I think that’s a really good thing because it protects you from corruption and other types of financial risk,” she says.

And attracting more bidders is a key aim. “In certain places and certain types of projects we’re struggling to get really good companies,” says Browne. He believes the consideration of quality issues rather than just cost will change that. “We will get better participation in our projects, by allowing things other than cost to be taken into account, particularly on the big complex infrastructure projects we do, I think we’ll get better designs, and I think we’ll get better whole-life costs over the longer term,” he says.

Info: Planning ahead

At the heart of the World Bank’s new procurement framework is a Project Procurement Strategy for Development (PPSD), which is a document that will be drawn up by borrower countries.

The PPSD will be a “critical document that justifies the right procurement method informed by the identified risks” and for low to moderate-risk projects it is expected to be “short, focused and quick to complete”, maybe shorter than two pages.

For more complex schemes “it will be much more comprehensive”. For the first time quality and sustainability criteria can be used, though sustainability is an option for borrowers rather than a bank requirement. Alternative procurement arrangements can also be used if approved by the bank.

While the greater transparency offered by the new framework has been welcomed, there have been calls for documents such as bids, contracts and audits to be published as part of efforts to tackle corruption.

World Bank CPO Christopher Browne says it will take five years to phase in the changes, as projects procured under the old system run their course, and there will be regular progress reviews about funding and other issues.

• See Procurement in World Bank Investment Financing, Phase II: The Procurement Framework

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