How to reform procurement so it’s too successful to kill

This article was written by Eliza Niewiadomska, senior counsel for public procurement at the European Bank for Reconstruction and Development as part of our Apolitical series to think different about public procurement.

Last year, my nephew turned seven. I accompanied him to his first day of school. I saw his school and I compared it to mine as a seven-year-old growing up in Poland in the late 80s. A photo of the classroom in the village school serves as a reminder: Soviet-style uniforms, linoleum floors, oil-painted walls, grey kids and even greyer teachers.

It’s changes like these — and memories of being a law student amid Poland’s dramatic upheaval in the 90s — that motivate me to work for the European Bank for Reconstruction and Development (EBRD), where I advise transition economies on creating policies that will build thriving societies.

I know that my work has a direct impact on people’s lives. Public policies tell parents how their children will be educated, how they will spend their days in hospitals when they are sick and whether they can spend an enjoyable day at the seaside or will be delayed by horrible roads and traffic on their way there.

For a very long time, it was so difficult to achieve transparency in public procurement, and so costly to achieve accountability, that work in this area had a bad reputation for being prone to corruption and boring.

Procurement was compliance-oriented because this was what was important. Governments had to deliver on that and compromise on efficiency and any other values that mattered to them.

Thanks to technological developments over the last decade, procurement is no longer just about ticking the boxes of government compliance. For the people who work with it, it’s much more about having an understanding of the market and the policy.

This is allowing us to make procurement easier for users, delivering transparency and improving the process in terms of efficiency and economy. So we have an opportunity to look at procurement from a strategic perspective and what the government can achieve with it.

I work with Ukraine, Moldova, the Kyrgyz Republic and Tunisia. In these countries and elsewhere, I have seen people take to the streets in protest because the government was failing.

Governments can fail because they’re in so much debt that people don’t receive their salaries and because there are no schools, no healthcare and no future. This is what happened in Tunisia in 2011, and the same happened in Ukraine in 2014.

Too successful to kill

I’m now working with Moldova, an Eastern European country and former Soviet republic, where billions were stolen from the banking system in 2014, bringing the country to the brink of default, which it would have crossed if not for the help of international organisations.

When the International Monetary Fund (IMF) and other international financial institutions started to talk to the Moldovan government, we asked: “What can you fix?”

The new minister of finance said he would like very much to make sure that the money in the budget is actually spent on what it was allocated and contracted to, but that the government didn’t have the means to enforce it. We started on the procurement reform project with them, realising that the government had an absolutely unique political opportunity.

The procurement system had been in such a bad state for so many years that any changes whatsoever would have an impact. The minister was sceptical that open government thinking would work in Moldova, arguing that there was no market, they had budget spending restrictions and that corruption was so ingrained it would be impossible to change.

But we knew that they did have a market; it was only that people were prevented from participating in the market because they didn’t want to pay bribes.

We agreed to test out the open government concept in micro-scale and it worked. And, last October, about 30% of the state budget for procurement was exposed to digital competition. That 30% was all conducted via electronic bidding. The process was super-transparent and super-accountable, with lots of automation, minimum human intervention and rules applied by algorithms on the electronic procurement system.

On this fraction of the state budget, a 35% jump in the number of suppliers was recorded and half were small businesses. Imagine: these small companies now have a real business opportunity that doesn’t require paying a bribe to win a public contract.

On the other hand, look at the government: you might think they aren’t saving that much money by getting small businesses to deliver public contracts because small business is inefficient. But the reality is the opposite: on this 30% of the budget, the government saved on average between 9% and 12% of the estimated value of procurement, or €25 million ($27.5 million) over one year.

Doing this pilot, electronic procurement earned the trust of suppliers and a good number of public buyers, proving that change is possible. It’s very hard to reverse a reform once it has shifted people’s expectations of what is possible.

“Of course, there are people who want to shut it down, but it is very hard to shut down a system that has saved €25 million”

Of course, there are people who want to shut it down, but it is very hard to shut down a system that has saved €25 million.

This is what we call “too successful to kill”. We’ve learned that if you can start with a small test project, and if you can create a real online marketplace business would trust, it will grow into something big. Then it becomes so big that no one in the most corrupt government ever could easily make a decision to kill it.

Yes, politicians with vested interests will sabotage it, dissolve it or water it down, but they wouldn’t dare to kill it.

A crisis is a reformer’s best friend

A lot of the more developed, market-oriented economies in Europe struggle to win the political battle to adopt these radically transparent procurement reforms. There is a very simple reason for this.

In my line of work, my best friend is a crisis. And this is the problem for the EU member states. They have a public administration that is not exactly modern, and not exactly efficient, but generally doing OK, with a small number of corruption scandals, so who would care? No one, unless you become Portugal or Greece or Cyprus and you have to act.

“In my line of work, my best friend is a crisis”

If that happens, you have two choices: either clean up procurement or cut jobs from the bloated public sector.

Portugal cleaned up procurement and kept people employed in the public sector, but pushed them to do better jobs and more interesting jobs, and adopted more user-oriented services. They sought to achieve compliance supported by technology and public servants were told to focus on whether their purchases were delivering what they were supposed to.

With this approach, within five years, the Portuguese ended up with the most advanced procurement system in Western Europe.

They did exactly what we are preaching now as a digital transformation model: beginning in 2007, they promoted open data, they opened their contracting information and they pushed all procurement to digital tools.

The only difference from the model we advocate is that Portugal had to put a lot of effort into creating the procurement data collection process and using it for data-driven analysis, because they didn’t have an international schema to standardise the data, such as the Open Contracting Data Standard (OCDS); it simply didn’t exist until 2014, seven years after Portugal started its procurement reform.

But guess what? The Portuguese are now working to upgrade their system with the OCDS.

Having a global, non-proprietary data standard like the OCDS that structures data across the complete contracting cycle has been a blessing because it makes digital reforms easier to deliver. For the first time globally, we can have cost-effective market intelligence about a country’s entire procurement sector.

What the digital revolution and OCDS did was make it possible to digitalise procurement process for government and introduce data-driven management and oversight of the public procurement market very cheaply, using very advanced but open-source technologies.

In Ukraine, for example, to run any public procurement market analytics now takes 20 minutes, using an analytics tool based on business intelligence technologies that everyone can operate.

The pilot system that we set up in Moldova cost the EBRD around €700,000 ($770.000). Fully fledged digital procurement is estimated at €1,500,000. With this price tag, an OCDS digital procurement system should be the default solution for any government these days.

Say goodbye to procurement as we know it

In 10 years, procurement as we know it now will disappear.

It will be done for the benefit of all citizens by a very small bunch of people in government, who spend their time trying to work the market using digital tools and to get the best deal.

We will have public buyers, market strategists and data scientists trying to model the demand and the purchase, and how the purchasing power of their government is used on the market. It will be their job to make sure that what they want to achieve in terms of policy, whether it be development, environmental protection or social justice, is achievable.

It will be very plain policymaking, delivering on policies and measuring their delivery in money. As long as we have taxes, as long as we have a public service, we will have public procurement, but this procurement will disappear into a much wider job description than it is today.

We have all sorts of tools to do this already. It’s time to start using them.

Picture credit: Zenon Zyburtowicz/EastNews