1 / 16

Outsourcing Procurement in the Public Sector, A Case Study

Outsourcing Procurement in the Public Sector, A Case Study. Jeff Taylor Operations Services and Financial Management Department Asian Development Bank. Introduction. Project design will generally include procurement capacity and risk assessments

shasta
Download Presentation

Outsourcing Procurement in the Public Sector, A Case Study

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Outsourcing Procurement in the Public Sector, A Case Study Jeff TaylorOperations Services and Financial Management Department Asian Development Bank

  2. Introduction • Project design will generally include procurement capacity and risk assessments • Sizeable amounts of MDB lending has been dedicated to capacity development • Question 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/consultancy • Public procurement regulations (and MDB policies) can constrain the potential benefits • Shorter term relationships that deliver less value • Focus on the agents fee and not transactional benefits and value creation

  6. Procurement Agents in ADB Projects ADB Experience

  7. Procurement Agents in ADB Projects • ADB Experience • Weak procurement capacity harms projects

  8. Why Does East Asia Complete Evaluations twice as fast? • China’s Use of Procurement Agents • Functions 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 requirements Source: Foreign Capital & Technical Import Center, Ministry of Railways, PRC

  9. China’s Market-Based Model • Advantages of Procurement Agents: • Minimizes information asymmetry • Reduces legal risks • Professionalism • Contributes to advancement of new and international practices • Accreditation of Procurement Agents • Impact of a regulated fee structure (CBTA estimates) • Value of PRC’s tendering market (2012): US$2 Trillion • Gross procurement industry revenue 0.01% • Gross profit 11% of revenue

  10. Centralized Procurement Agency • Consip, Italy • From 50,000 purchasing entities to single a centralized agency • Public spend for goods/services accounts for 8% of GDP (US$162 billion) • 40% spent on generic goods • Public agencies that buy from Consip save around 28% of purchase price

  11. Centralized Procurement Agency • Korea’s Public Procurement Service Source: 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 Service Source: Public Procurement Service, Republic of Korea (2011)

  13. Centralized Procurement Agency • Philippines’ Procurement Service Source: Procurement Service, Department of Budget and Management, Philippines (2012)

  14. Philippines’ System • Agency-to-agency, like the centralized approach of PS-DBM • Outsourced procurement of non-commonly used goods and works to private or public agencies • Allowed by IRR of RA 9184. Guidelines to be issued • Procurement management

  15. Conclusion • Public procurement can: • Around 8-20% of GDP • As high as 30% of total public expenditure • Leakages 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: Source: National Audit Office, UK

  16. Conclusion • Advantage of Procurement Agent will depend heavily on reputation and ability to tap markets – increases confidence of market (esp. international firms) and competitiveness • Savings generated by successful procurement exercise increases impact of ODA projects • Use figure of 20% of spend lost through leakages, but assume conservative estimate of 15% potential savings • Juxtapose 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

More Related