ADBs Project Cycle Managing Procurement Risks and Governance

ADB’s Project Cycle: Managing Procurement Risks and Governance

What are the implications of a risky procurement environment?

Value of Public Procurement § Public procurement can cost: § § Around 8 -20% of GDP As high as 30% of total public expenditure § Leakages through fraud, abuse and waste can be 20% to 70% of spending (if we estimate that 15% of GDP is spent on public procurement) § Implication: conservative estimate of 3% of GDP is lost through public procurement corruption and waste (Source : WB and OECD)

Estimated Cost Implications for ADB Country 2009 GDP (Mn US$)* Est. Public Procurement (Mn US$) (15% of GDP) Est. loss to corruption / waste (Mn USD) (20% of Procurement Budget) 14, 177 2, 126 425 Million 89, 360 13, 404 2. 7 Billion 1, 259 189 37 Million 1, 310, 170 196, 525 39 Billion 1, 473 221 44 Million 12, 531 1, 880 376 Million 161, 990 24, 298 4. 8 Billion 41, 979 6, 297 1. 2 Billion TOTAL * Based on World Bank/ADB figures 48 Billion

Net effect: Unfinished and substandard projects Procurement corruption and waste undermines aid effectiveness PHOTO CREDITS: Philippine Center for Investigative Journalism

Managing procurement risks in ADB’s project cycle: 10 Point Action Plan

Overview: Past Procurement Governance in ADB’s Project Cycle § Generally no in-depth procurement involvement during project preparation, as approach of ADB’s is basically reactive § § § Country level procurement assessments seldom conducted Country risk assessments are rarely updated Procurement method and review thresholds are not linked to country risks § Most CPSs do not have country action plans to mitigate risks

Overview: Past Procurement Governance in ADB’s Project Cycle § Procurement Capacity Assessments completed by project preparation consultants, and viewed by procurement specialist during the review of entire RRP (Report & Recommendation of the President) § Procurement Capacity Assessments tend to be accomplished perfunctorily

Overview: Past Procurement Governance in ADB’s Project Cycle § Desk review of procurement arrangements and Procurement Plan § Procurement Plans and review thresholds are rarely linked with actual country and project risk assessments § Since prior and post review thresholds are pre-determined and based on contract value rather than risk, these are not sensitive to the actual capacity of executing agency

10 Point Action Plan 1 New Procurement Risk Assessments 2 New ICB Thresholds 3 New Prior Review Limits 4 New Procurement Committee Level and Decision Authorities Project Procurement Classification at Concept Clearance Launch Procurement Review System or PRS 5 6 8 Agree Master Bid Document(s) during Project Preparation New Streamlined PC Process 9 New Procurement Approval Form 7 10 End-to-end Consulting Services Process Review

ADB’s Improved Procurement Governance and Risk Management and Project Implementation Efficiency – Action Plan 1. Country Partnership Strategy (CPS) 1 Mid-term review of procuremen t outcomes 6. Evaluation 5. Implementation Delegated reviews for low risk projects 2. Concept 6 2 5 3 4 4. Loan Negotiation& Board Approval More responsive Procurement Plans Country level risk assessment with linked thresholds 3. Preparation Proactive participation of OSFMD for complex projects Sector Procureme nt Capacity Assessme nt

Improved Procurement Governance at CPS Stage § CPS will be informed by robust multi-level procurement risk assessments § There will be country specific thresholds for ICB based on market capacity. Reviews within ADB and the level at which they occur will be determined by the risk level

Concept of Risk-Based Procurement Approach at National & Project Levels Level When Objectives Step 1: Risk Assessment at National Level Step 2: Risk Assessment at Project Level With CPS Preparation Project Processing To consider the country systems & procurement capacity To decide PC, NCB and Shopping thresholds at national level Categorize Low or High Risk Low Risk: Delegation of procurement decisions to regional depts. with thresholds, with proper risk management High Risk: OSFMD and OGC’s active engagement

Overview: Present Procurement Governance in ADB’s Project Cycle Country Risk Assessment & Management Plan (including Procurement) 1. Country Partnership Strategy (CPS) 1 6. Evaluation 5. Implementation Prior and Post Reviews 2. Concept 6 2 5 3 4 Procureme nt Capacity Assessme nt 3. Preparation 4. Loan Negotiation& Board Approval Finalization of Procurement Plan – with risk based thresholds Desk review of Project documents (RRP & PP)

Improved Procurement Governance at CPS Stage Country Procurement Profile (CPP): § § A consolidated platform that generates and presents information on selected procurement-related indicators for a country, focusing on priority sectors Gathers data from various sources: § § National level procurement assessments – CPAR and OECDDAC BLI Agency level risk assessments – Project-related Procurement Capacity Assessments and mid-term assessments from earlier projects Interviews with local industries and CSOs Matches policy achievements with actual practices

Improved Procurement Governance at CPS Stage Purpose: § Identify country and sector level procurement capacity gaps that can inform sector road map and related CPS processes § To frame procurement issues that, if addressed at CPS stage, can improve project implementation § To facilitate informed dialogue on procurement issues as part of setting overall country strategic priorities for ADB interventions

Pa rt III Pa rt 1 Indicator 9 -Debarment Mechanism Indicator 8 -External Audit Indicator 7 -Internal Audit and Control Indicator 6 -Effectiveness Indicator 5 -Efficiency Indicator 4 -Transparency Indicator 3 -Procurement Market and Operations Indicator 2 -Institutional Framework Indicator 1 -Legal and Regulatory Framework Improved Procurement Governance at CPS Stage Example of Country Procurement Profile showing Written Rules v. Actual Practices: 3. 00 2. 50 2. 00 1. 50 1. 00 0. 50 Written Rules Procurement in Practice

Improved Procurement Governance at Project Preparation Stage Through enhanced agency procurement capacity Assessments: § § § § Identify capacity, procedural and organizational constraints in executing/implementing agency Determine overall procurement risk Consider procurement by regular line units of executing/implementing agency (capacity strengthening extends beyond project life) Identify levels of reputational risks to ADB and DMC Identify implementation risks – resources, structure and process Leverage on or consider existing knowledge base, legislative environment and processes Agree on Action Plan to strengthen capacity and lessen risks

How ADB Assesses Risks at the Project Level Procurement Capacity Dev’t & Risk Mitigating Measures Procurement Plan Procurement Capacity Assessment Executing Agency PREI

Improved Procurement Governance at Project Preparation Stage Regional departments will categorize procurement risk for each project as “high risk” or “low risk” § High risk projects will require more upstream OSFMD involvement on procurement reviews, plus risk mitigating measures § For low risk projects, reviews and approval authority will be delegated to regional departments, plus adequate risk mitigating measures (Action 4)

Improved Procurement Governance at Project Preparation Stage Informed by the results of the assessments at the country, sector and agency levels, a more responsive Procurement Plan should identify: § Procurement/consulting methods and thresholds (Action 2) § Prior/Post review arrangements (Action 3) § Goods/Works/Services Packages and advertising dates § Efficient, economical and effective procurement packages § Agreement with the Government on Master Bid documents (Action 7)

Improved Procurement Governance at Implementation Stage § Review by Procurement Committee more streamlined with parallel reviews to be conducted internally in ADB (Action 8) § Regular assessments of procurement processes and documentation (for both executing agencies and ADB) will be conducted to verify that the desired procurement objectives & outcomes are being achieved § A central system to compile data on all procurement activities (e. g. Procurement Review System PRS) - Action 9 follows

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