Chile’s procurement monitoring system now open to the public

Chile’s public procurement agency, ChileCompra, created its “Public Contracting Observatory” service in 2012 to detect, prevent, and fix irregularities in government contracting procedures.  With the help of automated analytical tools, the agency has been able to focus its prevention and control efforts on transactions with the highest risk, and in turn, harness the power of data to institutionalize better purchasing practices among government entities that conduct procurement through the Mercado Publico online platform. 

For more than 12 years, the Observatory’s findings were only shared within government – with contracting units to notify them when their processes needed to be improved or corrected, and with regulatory and law enforcement bodies, depending on whether potential irregularities or crimes required further investigation or sanctions. 

But an amendment to the procurement law in December 2023 has paved the way to making the Observatory’s monitoring systems available to the public too. ChileCompra has not only established a formal channel for bidders and citizens to report questionable contracts to authorities for the first time, it has also published the Observatory’s investigation reports and statistics on complaints from the public, making oversight of the procurement system fully transparent. 

“[In the beginning], looking at and monitoring the processes was a voluntary initiative,” says ChileCompra’s Director, Verónica Valle. 

“We were doing something beyond our responsibilities to achieve greater probity in public spending, taking advantage of the immense amount of data that the [e-procurement] system produces. Today, this initiative is included in the new legislative reform and we have formally assumed the function of monitoring all procurement procedures.”

Transparency and access to information 

In late 2023, ChileCompra introduced a campaign called “Stop Corruption”, to promote the Observatory’s channels for citizens to submit confidential complaints. They publicized investigations conducted by the Observatory, to demonstrate how such procurement monitoring could contribute to improving integrity in spending taxpayers’ money.

The cases initially highlighted on the campaign website met certain criteria, explains the head of the Observatory, Juan Cristóbal Moreno. Each case emerged either from monitoring by the Observatory or citizen complaints. The contracting procedure had been analyzed to identify a potential irregularity or crime, then a report on those findings had been generated by the Observatory and sent to an oversight or prosecuting body, such as the Comptroller General or Public Prosecutors Office (Ministero Público). Finally, the case had been subject to some form of follow-up action by one of these bodies. Every step of this review process was published on the ChileCompra website.

For example, after analyzing spending related to child protection services in 2023, the Observatory released a report showing that the procuring entity made three purchase orders that lacked sufficient documentation to justify the use of a non-competitive, emergency procurement method. In addition, purchases issued through direct awards represented 46.7% of the entity’s total procurement expenditure, a share much higher than other public institutions on average. Subsequently, Chile’s Comptroller General instructed the entity to take corrective action and identify the responsible parties.

In early 2024, an access to information request by a member of the public allowed the entire procurement monitoring dataset to be published. This enabled the Observatory to expand its microsite to include all monitoring reports issued since 2023, as well as data dashboards tracking the results of investigations and statistics related to confidential complaints. Since updating the site in December 2023, visitors to the Observatory microsite have increased by more than 300%.

Oversight and recommendations to government bodies

The Observatory plays an educational role, demonstrating good practices to buyers and suppliers as well as strategies to prevent poor practices. This is particularly important as the new 2023 procurement law expands monitoring from only central government entities to local institutions as well.

“It’s different when I communicate with a ministry official in a highly regulated sector, where definitions and roles are highly standardized and specific, compared to when we make recommendations to municipal officials, for example, where the chain of command might be much more limited and decisions are made in a more vertical manner,” says Moreno.  

The Observatory is responsible for ensuring the design and execution of public procurement processes adhere to the appropriate rules, and for identifying indicators of omissions, anomalies or irregularities. 

“It’s not an easy task,” says Moreno. With just eight people, the Observatory team monitors a sample of about 4000 of the two million procurement processes that are carried out annually and published on the Mercado Publico e-procurement portal. 

The team’s monitoring work varies depending on the type of contracting process. For open tenders, monitoring has a preventive function, since the review is conducted from the moment the tender is announced, through to the awarding and issuing of purchase orders, including when the bidders submit their offers.

In contrast, the Observatory’s approach is reactive when monitoring direct awards and other procedures carried out by government entities, including ministries, municipalities, hospitals, defense, law enforcement and universities. Here the aim is to validate the documentation, particularly if the required supporting documents are not published on the Mercado Publico platform.

The Observatory also has a mandate to provide timely recommendations for improving efficiency and integrity so that procedures are corrected promptly. As a result, recommendations issued by Chilecompra have helped to improve contracting procedures worth well over US$250 million in 2023. Of these, US$19.5 million relates to open tendering processes that were awarded, US$17.7 million relates to open tendering processes that were withdrawn or canceled, and almost US$230 million relates to direct awards, where the Observatory’s intervention helped to complete, correct and/or support the documentation of awards.

Intelligent risk model

Prioritizing which procedures to include in the Observatory’s monitoring sample is done with the help of a business intelligence tool called the Observatory Risk Model. It works with data collected through tender forms and gives each procurement procedure an estimated risk rating at various stages of the contracting cycle, including tender, bid evaluation and award. The higher a procedure’s score, the more rules have potentially been broken. Established in 2015, the risk model was updated in 2022 to ensure local governments have the same probability of being selected for monitoring as that of central government agencies.

Interdisciplinary work

Once a procedure is flagged by the Observatory, it isn’t always a straightforward process to make sure mistakes are corrected. Often the Observatory’s recommendations are not taken up, which means escalating the case. If there is still no response from the responsible body, the case is referred to the control and oversight bodies such as the Comptroller General to trigger an investigation. 

Valle says: “It is very important to make bad practices transparent regardless of who is responsible for them. It doesn’t matter if it is a municipality or a central government body, Chilecompra is a technical body and we have a mandate to ensure transparency and probity to ensure public contracting is carried out objectively and responsibly by each public entity.”

When the Observatory team only monitored central government agencies, approximately 40% to 50% of the processes were corrected. After expanding to all entities that receive public funds, the share of processes corrected dropped to 25% and 35%. This happens because organizations that are decentralized tend to have less experience and training in complying with the regulations and navigating such monitoring reviews. 

Moreno emphasizes that even if a procuring entity fails to implement the recommended changes for the monitored public procurement process, the Observatory seeks to ensure they improve their behavior for future purchases. 

Modernization and innovation

Other measures are being introduced to adapt the Observatory’s work to the new public procurement law using information technologies, artificial intelligence and data science tools. Moreno says he assumes the large volume of structured data available from the Mercado Publico system is already being used with Robotic Process Automation (RPA) software to generate tender and purchase order forms. Another project is exploring using large language models (LLM) to identify potential irregularities through text analysis (for example, of bidding rules, administrative acts, and other supporting documents published on the e-procurement platform).  

Furthermore, the new law facilitates better data-sharing across government services (for example, beneficial ownership data) that will help to identify conflicts of interest between public officials and suppliers. 

ChileCompra’s Valle is optimistic about the potential of artificial intelligence to allow the Observatory to monitor not just some, but all procedures and take preventative actions against non-compliance. She believes early intervention is critical in setting an example for all buyers and suppliers to learn and improve their purchasing processes.

“We want ChileCompra to contribute not only to the correct and efficient administration of the platform. By taking advantage of all the information and great technological advances that we are implementing, we can improve public contracting for the benefit of the entire country.” 

Photo credit: xavierarnau (iStock)