ADB’s Project Cycle: Managing Procurement Risks
and Governance
What are the implications of a risky procurement
environment?
Value of Public Procurement
Public procurement can cost: Around 8-20% of GDP As high as 30% of total public expenditure
Leakages through fraud, abuse and waste can be 20% to 70% of spending (if we estimate that 15% of GDP is spent on public procurement)
Implication: conservative estimate of 3% of GDP is lost through public procurement corruption and waste (Source : WB and OECD)
Estimated Cost Implications for ADB
Country 2009 GDP (Mn US$)*
Est. Public Procurement (Mn US$) (15% of GDP)
Est. loss to corruption / waste (Mn USD) (20% of
Procurement Budget)
14,177 2,126 425 Million
89,360 13,404 2.7 Billion
1,259 189 37 Million
1,310,170 196,525 39 Billion
1,473 221 44 Million
12,531 1,880 376 Million
161,990 24,298 4.8 Billion
41,979 6,297 1.2 Billion
TOTAL 48 Billion
* Based on World Bank/ADB figures
Net effect:Unfinished and
substandard projects
PHOTO CREDITS: Philippine Center for Investigative Journalism
Procurement corruption and waste
undermines aid effectiveness
Managing procurement
risks in ADB’s project cycle:
10 Point Action Plan
Overview: Past Procurement Governance in ADB’s Project Cycle
Generally no in-depth procurement involvement during project
preparation, as approach of ADB’s is basically reactive
Country level procurement assessments seldom conducted
Country risk assessments are rarely updated
Procurement method and review thresholds are not linked to country
risks
Most CPSs do not have country action plans to mitigate risks
Overview: Past Procurement Governance in ADB’s Project Cycle
Procurement Capacity Assessments completed by project
preparation consultants, and viewed by procurement specialist
during the review of entire RRP (Report & Recommendation of
the President)
Procurement Capacity Assessments tend to be accomplished
perfunctorily
Overview: Past Procurement Governance in ADB’s Project Cycle
Desk review of procurement arrangements and Procurement
Plan
Procurement Plans and review thresholds are rarely linked with
actual country and project risk assessments
Since prior and post review thresholds are pre-determined and
based on contract value rather than risk, these are not sensitive
to the actual capacity of executing agency
10 Point Action Plan
1 New Procurement Risk Assessments
2 New ICB Thresholds
3 New Prior Review Limits
4 New Procurement Committee Level and Decision Authorities
5 Project Procurement Classification at Concept Clearance
6 Launch Procurement Review System or PRS
7 Agree Master Bid Document(s) during Project Preparation
8 New Streamlined PC Process
9 New Procurement Approval Form
10 End-to-end Consulting Services Process Review
ADB’s Improved Procurement Governance and Risk Management and Project Implementation Efficiency – Action Plan
1. Country Partnership
Strategy (CPS)
1 6.
Evaluation
6 2 2. Concept
44. Loan
Negotiation& Board Approval
55.
Implementation
3 3. Preparatio
n
Country level risk assessment
with linked thresholds
Country level risk assessment
with linked thresholds
Delegated reviews
for low risk
projects
Delegated reviews
for low risk
projects
Mid-term review of procurem
ent outcomes
Mid-term review of procurem
ent outcomes
More responsive
Procurement Plans
More responsive
Procurement Plans
Sector Procurem
ent Capacity Assessme
nt
Sector Procurem
ent Capacity Assessme
nt
Proactive participatio
n of OSFMD for complex projects
Proactive participatio
n of OSFMD for complex projects
Improved Procurement Governance at CPS Stage
CPS will be informed by robust multi-level procurement risk assessments
There will be country specific thresholds for ICB based on market capacity . Reviews within ADB and the level at which they occur will be determined by the risk level
Concept of Risk-Based Procurement Approach at National & Project Levels
Level
When
Objectives
Step 1: Risk Assessment at National LevelWith CPS Preparation
To consider the country systems & procurement capacity
To decide PC, NCB and Shopping thresholds at national level
Step 2: Risk Assessment at Project Level
Project Processing
Categorize Low or High Risk
Low Risk: Delegation of procurement decisions to regional depts. with thresholds, with proper risk management
High Risk: OSFMD and OGC’s active engagement
Overview: Present Procurement Governance in ADB’s Project Cycle
1. Country Partnership
Strategy (CPS)
1 6.
Evaluation
6 2 2. Concept
44. Loan
Negotiation& Board Approval
55.
Implementation
3 3. Preparatio
n
Procurement
Capacity Assessme
nt
Procurement
Capacity Assessme
nt
Prior and Post
Reviews
Prior and Post
Reviews
Desk review of Project
documents (RRP &
PP)
Desk review of Project
documents (RRP &
PP)Finalization of Procurement
Plan – with risk based
thresholds
Finalization of Procurement
Plan – with risk based
thresholds
Country Risk Assessment &
Management Plan (including
Procurement)
Country Risk Assessment &
Management Plan (including
Procurement)
Improved Procurement Governance at CPS Stage
Country Procurement Profile (CPP): A consolidated platform that generates and presents
information on selected procurement-related indicators for a country, focusing on priority sectors
Gathers data from various sources: National level procurement assessments – CPAR and OECD-
DAC BLI Agency level risk assessments – Project-related Procurement
Capacity Assessments and mid-term assessments from earlier projects
Interviews with local industries and CSOs
Matches policy achievements with actual practices
Improved Procurement Governance at CPS Stage
Purpose:
Identify country and sector level procurement capacity gaps that can inform sector road map and related CPS processes
To frame procurement issues that, if addressed at CPS stage, can improve project implementation
To facilitate informed dialogue on procurement issues as part of setting overall country strategic priorities for ADB interventions
Improved Procurement Governance at CPS Stage
Example of Country Procurement Profile showing Written Rules v. Actual Practices:
Improved Procurement Governance at Project Preparation Stage
Through enhanced agency procurement capacity Assessments:
Identify capacity, procedural and organizational constraints in executing/implementing agencyDetermine overall procurement riskConsider procurement by regular line units of executing/implementing agency (capacity strengthening extends beyond project life)Identify levels of reputational risks to ADB and DMCIdentify implementation risks – resources, structure and processLeverage on or consider existing knowledge base, legislative environment and processesAgree on Action Plan to strengthen capacity and lessen risks
How ADB Assesses Risks at the Project Level
PREI
Executing Agency
ProcurementCapacity
Assessment
ProcurementPlan
ProcurementCapacity Dev’t
&Risk Mitigating
Measures
Improved Procurement Governance at Project Preparation Stage
Regional departments will categorize procurement risk for each project as “high risk” or “low risk”
High risk projects will require more upstream OSFMD involvement on procurement reviews, plus risk mitigating measures
For low risk projects, reviews and approval authority will be delegated to regional departments, plus adequate risk mitigating measures (Action 4)
Improved Procurement Governance at Project Preparation Stage
Informed by the results of the assessments at the country, sector and agency levels, a more responsive Procurement Plan should identify:
Procurement/consulting methods and thresholds (Action 2)
Prior/Post review arrangements (Action 3)
Goods/Works/Services Packages and advertising dates
Efficient, economical and effective procurement packages
Agreement with the Government on Master Bid documents (Action 7)
Improved Procurement Governance at Implementation Stage
Review by Procurement Committee more streamlined with parallel reviews to be conducted internally in ADB (Action 8)
Regular assessments of procurement processes and documentation (for both executing agencies and ADB) will be conducted to verify that the desired procurement objectives & outcomes are being achieved
A central system to compile data on all procurement activities (e.g. Procurement Review System PRS) - Action 9 follows
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