Streamlining public works procurement

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BosioDjankov.pngBy Erica Bosio, Programme Manager: Growth Analytics, Development Economics Vice Presidency at the World Bank, and
Simeon Djankov, Director, World Development Report 2019

Seventeen years ago, in the inaugural Doing Business 2004 study, our team found that it took as few as 18 procedures to start a business in Algeria, Bolivia and Paraguay, or 19 in Belarus, Chad and Colombia. The same process required as many as 152 days in Brazil, 168 days in Indonesia, or 215 days in the Democratic Republic of the Congo. We argued that it should be possible to reduce the number of procedures and the time required to start a business.

We suggested at the time that this could be done in one step online, from anywhere. Today, this is exactly what entrepreneurs in Tbilisi, Georgia, or Auckland, New Zealand, can do.

Some interactions with government are more complicated, however, the process for procuring public works serves as an example. In ongoing research conducted with Professors Edward Glaeser and Andrei Shleifer of Harvard University, we show that a public works procurement can be accomplished in as few as nine administrative steps.

At a minimum, governments need to take the following six steps to award a public contract:
1. Communicate the opportunity to the private sector
2. Collect the bids
3. Open all bids received
4. Evaluate the bids and award the contract
5. Sign the contract, and
6. Authorise the beginning of the work

Depending on how efficiently these measures are performed, and whether any additional steps are required, delays and overruns can occur. For example, bids received may be opened immediately after the submission deadline, as occurs in Belgium and South Africa, or take 20 days, as it does in Tunisia. Evaluating all of the bids and choosing a winner can take 30 days in China, Georgia or Norway, or can last more than six months in the Kyrgyz Republic or Lebanon.

Once the public works begin, three further steps are necessary:
7. The contractor lets the procuring entity know that the works are complete
8. The procuring entity confirms that the works are indeed complete
9. The contractor receives payment

Here, too, the time it takes to carry out these steps varies from one country to another. Issuing a certificate of completion report takes two weeks or less in Australia, Canada, Denmark, Finland, Hungary, the Netherlands or Malaysia, but contractors are left waiting for more than six months in Italy. Disagreements between the procuring entity and the contractor on whether the works were properly performed or not may significantly delay this approval (it can do so by as much as 320 days in Mongolia or 455 days in Venezuela, for example). The process does not end there. Even though there may be agreement among the parties that the project has been satisfactorily completed, contractors may have to wait months to get paid. In Lebanon, Mali or Panama, for example, obtaining payment takes more than six months on average.

Beyond these nine steps, additional procedures are associated with delays (see the image below), just as they are in starting a business.

[insert article 4 - image 1]
[image caption] A higher number of procedures is associated with delays and overruns

In practice, no government has cut public procurement requirements to as few as nine steps. Singapore currently requires the fewest procedures to complete a public procurement: 12, three more than the hypothetical minimum. Australia (13) and France (14) are next most-streamlined. Iran and Hungary, among others, call for the most procedures: 21.

High-income and high-accountability countries have only one less procedure than low-income and low-accountability countries, on average 17 vs. 18 procedures, respectively. While statistically significant, this difference is very small, meaning that all countries have room for improvement. New technology can help expedite the process since much can be done online nowadays. Let us not wait another fifteen years to get this right.

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