Policy Briefing - Public Procurement

Why is this a hot topic?

A Public Procurement and Disposal of Public Assets Bill was posted to the Pyidaungsu Hluttaw website on 29th October 2019, and The Ananda published a Bill Summary, Backgrounder, and Bill Analysis.

Whilst the media does not appear to have picked up on the Bill itself, issues surrounding public procurement frequently feature in the news. For example, in Yangon, the recent debacle over the late release of an audit report highlighted questions about the procedures followed on major public contracts including the Yangon Bus Service and Yangon New City.

What is public procurement?

‘Public procurement refers to the purchase by governments and state-owned enterprises of goods, services and works. As public procurement accounts for a substantial portion of the taxpayers’ money, governments are expected to carry it out efficiently and with high standards of conduct in order to ensure high quality of service delivery and safeguard the public interest’ (OECD, 2019). According to World Bank statistics, government procurement accounts for 10 to 20% of GDP, a substantial part of the global economy (PIIE, 2016).

In Myanmar, in 2019, government capital expenditure (investments in creating and maintaining assets such as vehicles, buildings and infrastructure) – amounted to over 7,587 billion kyats (over US$5 billion). These assets, equivalent to nearly 8% of Myanmar’s GDP, will more often than not be purchased (procured) from a private company (Ananda, 2019). For example, in 2013 Asia World was controversially awarded a US$660 million contract to build a new Yangon Airport terminal (Myanmar Times, 2016). More recently, amidst confusion, delays and allegations of improper procedures, the Ministry of Energy and Electricity has awarded a range of contracts for liquified natural gas power stations in Yangon, Ayerwaddy and Rakhine (The Irrawaddy, 2019).

What are the benefits, and who are the beneficiaries?

Well-managed and efficient government procurement will deliver higher quality public services that represent better value for money for the taxpayer (European Commission, 2020). Fair and open tenders for public contracts leads companies to compete to offer the best product for the best price.

Well-designed public procurement systems also contribute to achieving pressing policy goals such as environmental protection, innovation, job creation and the development of small and medium enterprises’ (OECD, 2019). Environmental protection and positive social impacts can be encouraged by including them as part of the assessment of bids from private sector companies. A level playing field for tenders can encourage smaller businesses to come forward with innovative new ideas, who in the past may have been reluctant to bid if there has been a tendency for government to look favourably only on business who are friendly with the ruling government.
By improving public procurement, governments demonstrate to their constituents their commitment to transparency and accountability, demonstrating their trustworthiness and electability.

What are the risks?

Most of the well-established principles and procedures for managing public procurement are concenred with reducing the risk of corruption. ‘Government procurement involves a high risk of corruption because of the great size of financial turnover and the complexity of many procurement processes in which businesses interact very closely with politicians and civil servants. Often the personal interests of the public officials are not the same as the interests of the public. According to OECD, the highest percentage of bribery cases occur in the area of public procurement to influence the awarding of public contracts. Corruption in public procurement causes inefficiencies and high costs to the public’ (OECD, 2019).

‘Corruption in procurement can impede economic development, distort market mechanisms and create inefficiencies reducing competitiveness, trade and foreign direct investment. Corruption can occur through violations of procurement rules or through legitimate deviations from the rules. Other findings include:

• The quality of public goods is affected as goods and services are purchased from the best briber.
• Corruption can cause state capture, whereby bribing firms begin to determine the policy process.
• The risk of corruption depends on the amount of money and complexity of technology involved, the urgency to acquire the goods and the level of discretionary authority among public officials.
• Procurement rules can be violated by limiting the call for bids, or designing tenders and providing confidential information to favour the bribing company.
• There are some legitimate reasons for evading the rules, such as the need for speed during emergencies, but these reasons can be misused to obtain bribes.

Important strategies for reducing corruption include changes in the organisation of public procurement, greater transparency and addressing the supply side of corruption. However, political commitment is a necessary condition for each of these strategies to be successful’ (GSDRC, 2002).

Recommendations for policy-makers

‘The core principles of the European Union’s public procurement directives are transparency, equal treatment, open competition, and sound procedural management. They are designed to achieve a procurement market that is competitive, open, and well-regulated. This is essential for putting public funds to good use. These directives also ensure EU companies have access to rapid and effective review’ (European Commission, 2020) – that is, a clear independent mechanism for citizens or businesses to challenge procurement decisions and enforcement actions taken where necessary. The OECD countries have also agreed to a comprehensive set of principles underpinning their approach to procurement (see below), which provide a strong checklist of things to ensure are delivered in any public procurement system. It is also a good framework against which to assess Myanmar’s new Public Procurement and Disposal of Public Assets Bill.

OECD public procurement recommendation principles:

Transparency in all stages of the procurement cycle, and the fair and equitable treatment for potential suppliers including free access, through an online portal, for all stakeholders, including potential domestic and foreign suppliers, civil society and the general public, to public procurement information notably related to the public procurement system.

Integrity, such as through codes of conduct applicable to public sector employees (such as on managing conflict of interest, disclosure of information or other standards of professional behaviour). Training programmes can raise awareness about integrity risks, such as corruption, fraud, collusion and discrimination. Internal controls, compliance measures and anticorruption programmes for suppliers, including appropriate monitoring, should be in place.

Access to procurement opportunities for potential competitors of all sizes, encouraged through coherent and stable institutional, legal and regulatory frameworks that avoid requirements which duplicate or conflict with other legislation; and treat bidders, including foreign suppliers, in a fair, transparent and equitable manner.

Policy objectives (eg environmental protection) should be balanced against the primary procurement objective.

Stakeholder participation should include public consultations, comments from the private sector and civil society, publication of consultation results and explanation of options chosen.

Efficiency throughout the public procurement cycle to be achieved through streamlined public procurement systems to avoid functional overlap, inefficient silos and other causes of waste.

Digital technologies to support e-procurement throughout the procurement cycle, to ensure transparency and access to public tenders, increasing competition and simplifying processes for contract award and management.

Procurement workforce supported to develop high professional standards for knowledge, practical implementation and integrity.

Routine evaluation of the effectiveness of the public procurement system.

Risk management strategies for mapping, detection and mitigation throughout the public procurement cycle. Including systems of red flags or whistle-blower programmes.

Oversight and control mechanisms to support accountability throughout the public procurement cycle, including appropriate complaint and sanctions processes.

Integration of public procurement into overall public finance management, including combing procurement processes with public finance management to develop a better understanding of the spending dedicated to public procurement; and encouraging multi-year budgeting and financing to optimise the design and planning of the public procurement cycle.

Related

Bill Analysis: Public Procurement and Disposal of Fixed Assets Bill

Bill Summary: Public Procurement and Disposal of Public Assets Bill

Backgrounder: Public Procurement and Disposal of Public Assets Bill