adb’s project cycle: managing procurement risks and governance

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


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


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)


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


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


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


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)


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

THANK YOU!

adb’s project cycle: managing procurement risks and governance

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