The Second Meeting of the OECD DAC Task Force on Procurement

The Second Meeting of the OECD DAC Task Force on Procurement May 4-6 2011- Cusco, Peru Summary of meeting by the UN Procurement Capacity Development Centre Task Force on Procurement representatives including, partner countries, development partners, civil society and academia met in Cusco, Peru as a stop on the road to the 4th High Level Forum (HLF-4) in Busan, Korea in November/December 2011. In preparation for the meeting there was a focus on the importance of public procurement as a strategic government function, critical to successfully implementing development agendas. The broad agenda for the meeting had been set at the first Task Force meeting in Nairobi May 2010 and included: i) the Strengthening Procurement Systems Compendium Volume II; ii) discussions on a number of policy notes; iii) procurement capacity development; and iv) the progression from aid effectiveness to development effectiveness. The Working Group meeting in Paris October 2010 identified: i) the need to raise political awareness of the strategic value of public procurement; ii) that procurement is a tool for the improvement of the performance of the public sector; and iii) the importance of sending clear messages to Busan. Setting the scene and proving direction for the Task Force meeting In setting the scene it was seen as important to start with the significant progress that has been made including Methodology for Assessment of Public Procurement Systems (MAPS), procurement reform and Communities of Practice of which the Task Force is a good example. The progress of partner countries that are going through first and second level generations of reform that have led to improved capacity, is being measured by indicators. In a more complex world there is now a demand for more concrete results from development partners and partner countries. There is an important role for civil society to help increase accountability and monitor progress. Public Procurement is increasingly seen a key policy tool and function and in addition improves development effectiveness. It plays a critical role in the management of public expenditures and there are good examples of fiscal savings. Efficient and transparent procurement plays an important role in the delivery of services. The Task Force meeting in Cusco was an opportunity for reviewing progress on the Paris Declaration. In particular, to consider the use of country systems, this can be a sensitive topic with challenges that include balancing ownership and risk management. A lot has happened since Paris and there are good stories to tell and the Task Force meeting provided a forum to share experiences and identify lessons learned. Visit the UN Procurement Capacity Development Centre on: www.unpcdc.org 1

Public procurement is central to public sector management. Its profile needs to be raised and linked to other parts of the governance framework. Central to effective and credible procurement is accountability. Countries that have established legal and regulatory reform now want to move to a new generation of reform. Guidance on capacity development is needed for strengthening the functions of procurement and creating an enabling environment for sustainable reforms. There is now a strong focus on information management, achieving results and performance management. The objectives of the Paris Declaration (PD) remain relevant, but there is the need to change strategy to achieve objectives. This strategy should focus on the outcomes of the procurement system, with procedures and controls to help the achievement of development results. Capacity development guidance will be important in achieving this. The Task Force meeting goals were to summarize the work to date and how the Task Force has helped strengthen procurement capacity. To question what is missing and what will be needed, together with challenges, so that the Task Force can be clear on the way forward. Aid Effectiveness the Road to Busan The 4th High Level Forum in Busan, Korea (HLF-4) is the conclusion of the Paris and Accra process and provides an opportunity to reaffirm and further commit. In doing so, it will be important to consider the impact and role of aid in the broader development agenda. Drawing on evidence, HLF-4 provides an opportunity to propose an aid framework for 2015. Although aid levels are likely to decline, $120 billion is still a significant resource. It is important to get an agreement in Busan that all parties can sign up to. The aid effectiveness principles do still matter and can influence and strengthen public expenditure. The next important step road to Busan is the next Working Party on Aid Effectiveness meeting that will consider the agenda for Busan. This discussion will be evidence based and will consider how to make key political decisions at the HLF-4 and one sensitive topic will be the approach to risk. The evidence will be consolidated into one report drawing on the evidence from a number of sources including: the Paris Declaration (PD) monitoring survey; the work of the Task Force; and country level discussions. The work of the Task Force on Procurement feeds into the road to Busan through: i) the PD monitoring survey, ii) the Strengthening Procurement Systems Compendium Volume II, which provides evidence of what works and doesn t work; and iii) the messages emerging from the Task Force, e.g. that strengthening country systems is beneficial for public expenditure in general and not just for aid. At the time of the meeting current PD survey has had a low response on PD indicator 2B on strengthening procurement country systems. The PD survey will show there is still a lack of response on use of country systems by development partners, taking into account the progress on strengthening these systems. One of the reasons is the different perceptions of risks by development partners. Another emerging message is that effective procurement systems are a key part of development. There is concern that moving to better use of country systems could increase donor costs, but this should be Visit the UN Procurement Capacity Development Centre on: www.unpcdc.org 2

offset by reduced transaction costs for development partners and efficiencies in new funding mechanisms for climate change adaptation. Some of the themes considered in Cusco on the road to Busan included: i) that the use of country systems remain a priority for Partner Countries; ii) that use of country systems is not just about budget support, but relates to programs and projects as well; iii) that it was not all or nothing there were examples where different components of country systems were being used; iv) how to reduce the resistance of partner countries to using country systems; v) partner country priority for stronger alignment could be enhanced by using country systems; vi) that the PD was not a blue print and there is a need for diversity to reflect the needs of SIDS, Fragile States, and LDCs; and vii) that aid leveraged partly through the use of country systems can enhance domestic resource mobilization by increasing tax revenues. 1 st and 2 nd Generation of Reform First generation reform has been tackling institutional and legislative issues. There is an increasing need for second generation reform if the concept of value for money is to progress. The private sector perspective with a focus on financial sector and market development becomes more important. This is different to the public sector perspective which places importance on social development and protecting vulnerable groups and minorities. The approach to value for money is country specific. There are a number of drivers of procurement reforms including: i) the changing nature of procurement it is no longer just a transaction, rather it is becoming a policy tool; and ii) trading agreements lead to recognition that other countries do not have compatible systems and economic unions are important drivers in the standardization of systems. Achievements of the first generation reform have focused mainly on legal and institutional issues (MAPS pillars 1 and 2). The first generation reforms were necessary, but not sufficient. In addition to legislation and having institutions in place, other reforms are progressing at different rates including: i) standard bidding documents; ii) anti-corruption agencies and legislation; iii) establishing National Procurement Agencies; and iv) the use of electronic approaches to publish key documents, undertake bidding, etc. (e- Procurement). Procurement capacity development has been adding value, but needs to go further. MAPS pillars 3 and 4 now require a stronger focus to address the following challenges: i) the difficulty in attracting and retaining trained and competent procurement staff, this is the case in LDCs, MICs and Developed countries where better salaries and conditions are available in the private sector; ii) insufficient oversight mechanisms; iii) lack of prosecution of corruption cases; iv) the recommendations of audit reports not being followed through; v) the lack of an effective complaints mechanism; vi) the lack of statistical information making it hard to measure performance; and vii) late payments and the lack of access to credit by the private sector. Harmonizing the reforms and responding to different demands such as completion generates conflicting forces. Developing the capacity to address the challenges in pillars 3 & 4 depends on other sectors and goes beyond procurement. The second generation reforms needs political engagement and support and will Visit the UN Procurement Capacity Development Centre on: www.unpcdc.org 3

need prioritization and sequencing of reform efforts in: i) civil service reform to attract and retain competent staff; ii) professionalization of procurement specialists; iii) providing whistle blower protection; and iv) stronger and more independent institutions, e.g. the audit function not being part of the Ministry of Finance. This will need to be conducted in parallel with judicial and legal reforms that have clear sanctions and enforcement, as well as boosting the financial sector and private sector so that money can be borrowed more cheaply and easily. The second generation reforms provide a number of opportunities including: i) generate internal and external controls; ii) a stronger role for the private sector and CSOs in delivery, regulatory and control mechanisms; and iii) a move to holistic reforms supported by capacity development plans that are prioritized and sequenced. This will require: i) sufficient financial support for public procurement reform; and ii) that the OECD/DAC Task Force and partners can ensure that complimentary capacity development approaches and guidance is in place. One of the principles going forward is that strengthening procurement country systems has to be based on trust, which can be built by engagement and involvement of stakeholders. Use of Country Systems The concept of using country systems is based on the principle of country ownership and the need to reduce transaction costs on partners. Harmonization was seen as a way to reduce the burden on country partners having to deal with specific procurement rules of each donor in parallel with their own country systems. If countries own a set of procurement rules and procedures that would satisfy all donors, the system could then be used to administer donor-financed procurement as well. This approach promised to have the added benefit of making it easier for donors to co-finance operations and to supervise procurement activities thus reducing transaction costs in the long run. Most importantly, it appeared to provide a strong incentive for countries to bring their systems to an acceptable international standard and thus scale up development by improving all government expenditures not just those funded by donors. The OECD has led the efforts for this initiative with the cooperation of the IFIs, recipients and donor countries. The Task Force discussed the issues of using country systems and considered these from both partner country and development partner perspectives and drew the following conclusions: The decision to use country systems by development partners was primarily a political decision; Where partner countries were aiming for 100% use of country systems, development partners needed to harmonize their requirements. There is a need for second generation reforms to allow country partners to strengthen controls, and ensure integrity of the procurement process; Fragile and small states and might have to rely on using development partner systems or only use country systems for certain transactions; There was a need to harmonize the assessment tools for procurement systems, with clear and universal definitions of compliance; Visit the UN Procurement Capacity Development Centre on: www.unpcdc.org 4

Declaration Where there is an assessment tool, it would need to be clear on who would conduct the assessment and who would vet if the compliance level had been reached. It would be important for capacity development responses to be able to address the identified gaps; Different perceptions of the use country systems make harmonization and 100% use difficult to achieve; Developing international standards for country systems should be given consideration, this would need to be supported by capacity development aligned to the international standards. The meeting culminated with the preparation of the Cusco Declaration, which recognizes the importance of good governance of which procurement is a fundamental component. It also recognized that critical elements for procurement reform are country ownership and leadership in the design and implementation. To progress on the procurement reforms since the Paris Declaration and to accelerate and sustain achievements eight recommendations were made including to strengthen capacity development resulting in well preforming procurement systems. One of the actions of the Task Force going forward on the Road to Busan is to develop a Procurement Capacity Development Guidelines by the OECD/DAC Procurement Task Force. The draft TOR can be found by following this link. An annotated table of contents will be shared for information and comment in July 2011. Visit the UN Procurement Capacity Development Centre on: www.unpcdc.org 5