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Focus: World Bank compares public procurement globally

12 January 2016

In brief: The World Bank has released its Benchmarking Public Procurement 2016 report, which provides comparable data on regulatory environments that affect the ability of private companies to do business with governments in 77 countries. Partner Leighton O'Brien* (who contributed to the report's analysis of Australia's public procurement practices) (view CV) and Lawyer Patrick Easton look at the report and the lessons it provides Australian procuring entities on global best practice in public procurement.

 
 

How does it affect you?

  • The World Bank's Benchmarking Public Procurement 2016 report (the Report) provides confidence to participants in public procurement that the Australian regulatory environment compares very favourably with its OECD peers.
  • The procurement practices of Australian public entities in procuring goods and services from the private sector are among the best in the world, however, there is room to improve on probity and in reducing transaction costs.
  • Conducting procurement by electronic means is now the norm and the expansion of electronic bidding across public procurement can be expected to continue. 

Background to the Report

The Report is an analysis of the issues affecting how the private sector does business with government in 77 economies, including Australia and many of its OECD peers. The Report applies to public procurement the approach of the World Bank to encouraging reform by developing comparative indicators of performance.

The Report is directed to two themes of procurement:

  • the public procurement life cycle (from preparation of bids to executing contracts); and
  • complaint and reporting mechanisms. These two areas are addressed in terms of regulatory characteristics and factual outcomes.

The risks associated with public procurement identified in the Report are as applicable to Australia as to the rest of the world. Public procurement is the government activity most vulnerable to corruption and fraud. In most high-income economies the purchase of goods and services accounts for a third of total public spending. The consequence is that poor public procurement imposes high costs on the public and, conversely, sound public procurement offers substantial benefits.

Key findings and trends

This Report is the first of its kind, following a pilot and other World Bank reports addressing comparative economic performance more broadly. The varied sophistication of procurement regulation and practice globally are compared and Australia performed strongly.

Transparency

Among the economies measured, the OECD economies do hold higher standards of transparency. However, the Report concludes there is room for improvement present in all economies. Transparency is a critical concern in all countries, not only for avoiding corruption, but improving competition, quality and value for public money.

Electronic means of conducting procurement

The increasingly common use of electronic means for conducting public procurement is heralded in the Report for the improvements obtainable in efficiency, enhanced transparency, lower transaction costs and access to the procurement market for small and medium enterprises. The Report notes that the option of electronic submission of bids is available in only 47 (including Australia) of the 77 countries assessed, and is the norm in only a few countries such as Chile and the Republic of Korea.

Implementation lags behind regulation

The Report found that modern and sound public procurement regulations were not always matched by satisfactory implementation. Additionally, regulatory requirements for particular stages of procurement in economies do not necessarily mean better performance by those economies.

Lessons for procurement in Australia

The principles of the Commonwealth Procurement Rules, the primary Australian regulatory instrument examined in the Report, are similar to those found in the state and territory procurement guidelines. The Report offers procuring entities, from the Commonwealth level and below, lessons in the best practices globally at a time when procuring entities are facing increased pressures.

The trend towards electronic procurement is exemplified by the conduct of particularly sophisticated economies that provide online publication of tender documents, facilitate electronic submission of bids and support the management of a contract through payment mechanisms.

The dispute avoidance mechanisms utilised globally are worth noting at this time of significant change for Australian procurement practices. The increased complexity of projects, limited balance sheet capacity of governments and the changing expectations of institutional investors are shaping public procurement practices. Additionally, the inflow of international participants for individual projects is tending towards increasing litigation as parties have less incentive to develop long-term commercial relationships.

Australian procuring entities are vigilant in respect of probity requirements, however, the Report notes that there is room to improve. For example, unlike many of its OECD peers, Australia does not prohibit the participation of public officials in charge of drafting technical specifications of a tender from the evaluation of bids, nor is there a requirement to advertise public consultation prior to the release of tender documents. Additionally, there is no mandatory requirement to publish decisions of complaints made to procuring entities.

On balance, the Report provides salutary advice on the lack of efficacy of regulation in certain circumstances. Specific regulatory overlay does not necessarily entail better outcomes. For example, Australia's procurement complaint review process lacks specific regulation on the provision of time limits to render review decisions, however, it is far more time efficient than many economies that do provide such time limits.

* Allens Partner Leighton O'Brien and Linklaters Counsel Julia Voskoboinikova were among the contributors to the World Bank Report. This involvement enhances Allens and Linklaters' ongoing leadership in improving public procurement in infrastructure delivery (see our discussion of the Thames Tideway Tunnel and the Regulated Asset Base Model).

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