Presentation on theme: "Outsourcing Procurement in the Public Sector, A Case Study"— Presentation transcript:
1 Outsourcing Procurement in the Public Sector, A Case Study The Asian Development Bank aims for an Asia and Pacific free from poverty. Approximately 1.8 billion people in the region are poor and unable to access essential goods, services, assets and opportunities to which every human is entitled.Established in 1966, we are a major source of development financing for the Asia and Pacific region. With more than $17.5 billion in approved financing, and 2,800 employees from 59 countries, ADB - in partnership with member governments, independent specialists and other financial institutions - is focused on delivering projects that create economic and development impact. Whether it be through investment in infrastructure, health care services, financial and public administration systems, or helping nations prepare for the impact of climate change or better manage their natural resources, ADB is committed to helping developing member countries evolve into thriving, modern economies that are well integrated with each other and the world. Jeff Taylor Operations Services and Financial Management DepartmentAsian Development Bank
2 IntroductionProject design will generally include procurement capacity and risk assessmentsSizeable amounts of MDB lending has been dedicated to capacity developmentQuestion to consider:Do executing agencies have the capacity to manage procurement?Can the private sector undertake procurement?
3 Do executing agencies have the capacity to manage procurement? Is actual capacity insufficient to meet procurement needs?What are the costs of maintaining or building procurement capacity?Does the agency have the financial resources to invest in the procurement function?Is delivery of procurement a core mandate?Are the transactions repeatable?
4 Can the private sector undertake procurement? Does the law allow it?Is there an existing domestic market?Long term or transactional agreements?Full outsourcing (Agency) or partial?Costs and fee structure (percentage; target pricing; success fees etc.)Risks – dependency; lack of control; quality etc.
5 Procurement Agents in the Public Sector Less of an agency (outsourced role) more advisory/consultancyPublic procurement regulations (and MDB policies) can constrain the potential benefitsShorter term relationships that deliver less valueFocus on the agents fee and not transactional benefits and value creation
6 Procurement Agents in ADB Projects ADB Experience
8 Why Does East Asia Complete Evaluations twice as fast? China’s Use of Procurement AgentsFunctions of PAs:a. Decision making and consultation. PAs provide professional advice on the relevant laws, the market and suppliers b. Coordination. PAs coordinate the transactions and relations among all involved c. Administrative function. PAs handle all the administrative tasks involved in the public procurement activity, including importation and tax relief requirementsSource: Foreign Capital & Technical Import Center, Ministry of Railways, PRC
9 China’s Market-Based Model Advantages of Procurement Agents:Minimizes information asymmetryReduces legal risksProfessionalismContributes to advancement of new and international practicesAccreditation of Procurement AgentsImpact of a regulated fee structure (CBTA estimates)Value of PRC’s tendering market (2012): US$2 TrillionGross procurement industry revenue 0.01%Gross profit 11% of revenue
10 Centralized Procurement Agency Consip, ItalyFrom 50,000 purchasing entities to single a centralized agencyPublic spend for goods/services accounts for 8% of GDP (US$162 billion)40% spent on generic goodsPublic agencies that buy from Consip save around 28% of purchase price
11 Centralized Procurement Agency Korea’s Public Procurement ServiceSource: Ministry of Strategy and Finance, Republic of Korea (2011)Source: Public Procurement Service, Republic of Korea (2011)
12 Centralized Procurement Agency Korea’s Public Procurement ServiceAdvantagesDisadvantagesCentralized ProcurementEconomies of scaleAccumulated expertise and dataFocused monitoring for transparency and traceabilityEffective use of government procurement as economic policy toolComplex and longer procurement processesLimited choices for the procuring entityDecentralized ProcurementFreer choices for the procuring entityShorter process timeLower professionalizationLesser standardizationLoose monitoring – risk of moral hazardSource: Public Procurement Service, Republic of Korea (2011)
13 Centralized Procurement Agency Philippines’ Procurement ServiceSource: Procurement Service, Department of Budget and Management, Philippines (2012)
14 Philippines’ SystemAgency-to-agency, like the centralized approach of PS-DBMOutsourced procurement of non-commonly used goods and works to private or public agenciesAllowed by IRR of RA Guidelines to be issuedProcurement management
15 Conclusion Public procurement can: Around 8-20% of GDPAs high as 30% of total public expenditureLeakages through fraud, abuse and waste can be 20-50% of spending (WB and OECD)Ex.: Percentage of difference between highest and lowest prices of similar goods in UK:Price Range% VariationToner Cartridge (per cartridge)£41 to £89117Electricity (day rate kWh)4.8p to 8.3p73Box of 5x500 sheet A4 (80 g/m²)£6.95 to £14.95115Post-it notes (pack of 12)£4.41 to £10.55139Source: National Audit Office, UK
16 ConclusionAdvantage of Procurement Agent will depend heavily on reputation and ability to tap markets – increases confidence of market (esp. international firms) and competitivenessSavings generated by successful procurement exercise increases impact of ODA projectsUse figure of 20% of spend lost through leakages, but assume conservative estimate of 15% potential savingsJuxtapose with ADB’s 2011 procurement portfolio of around US$10.7 B: estimated savings of US$1.6 B (roughly ADB’s annual lending program for East Asia region