This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide.
The World Bank’s November 2007 review of Mexico’s government procurement system, Mexico – The Federal Procurement System: Challenges and Opportunities, offers a clear warning to all jurisdictions that want to avoid red tape entanglements. In the report, the World Bank noted that Mexico’s government procurement system placed too much emphasis on outdated oversight and control processes that cause confusion and bureaucratic gridlock, while failing to add value, integrity, or transparency to government spending practices. To help modernize the procurement process, the World Bank recommended a culture shift away from control-focused processes towards a strategic procurement philosophy aimed at promoting fiscal management and supporting the government’s broader initiatives.
To properly leverage the strategic value of procurement, the World Bank recommended that procurement not be viewed as a process to be administered and controlled. Rather, it should be viewed more broadly as an integral part of an institution’s overall objectives:
A major transformation of the prevailing mindset on the nature of the procurement function is necessary. Decision makers have traditionally considered public procurement as an administrative and control function, but the modern concept is that procurement is a strategic function of the government used to promote better fiscal management and to support government development policies. As such, its key objective is not control, but the efficient and economical delivery of goods and services guided by a solid set of transparency, ethics, and accountability principles. Members of the Organization for Economic Cooperation and Development are increasingly recognizing that modern public procurement is more about information, coordination, analysis, and management than regulation. Without this conceptual transformation, any technical solutions are likely to fail. The Mexican system would benefit from a fresh and critical review if this modern conception of procurement was adopted. The old control approach resulted in rules and requirements that add processes, not commensurate value, integrity, or transparency.
In other words, the procurement function should not be seen as an end unto itself. Success should not be defined merely by procedural compliance with complex internal controls. Rather, government spending should be viewed within the context of overall institutional objectives with a view to ensuring compliance with procurement rules and the successful and timely acquisition of the goods and services required to fulfill institutional objectives.
The World Bank report noted duplication stemming from a lack of co-ordination in the creation of a procurement regulations, stating that the “present institutional structure for public procurement in Mexico permits various agencies to issue procurement regulations independently. This greatly increases the risk of inconsistencies, overlaps, or gaps, and no mechanism is available to coordinate the development of procurement regulations…so that all can be reconciled and better aligned with government policy.” To help modernize procurement practices, the World Bank called for the elimination of unnecessarily complex approval processes. It also placed a premium on co-ordination, consistency, and efficiency in public purchasing. The report also noted a lack of co-ordination between the budgeting and financial management systems and the procurement process, finding that “interfaces are missing that would allow both to share information needed for the procurement process and the budget and treasury management functions to operate smoothly. Currently, these processes do not interact adequately to support the effective management of fiscal resources.”
The report called for a systemic review of existing practices to bring them in line with the following objectives:
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the incorporation of a fresh approach guided by objectives of efficiency and better use of public resources, rather than by control objectives;
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the alignment of the system with the objectives of the government in relation to improving competitiveness and transparency;
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the streamlining of the system to provide for the necessary flexibility to adapt more easily to changing markets, procurement techniques, and needs;
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the elimination of unnecessary processes that do not add substantial value or integrity to the system;
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the promotion of the standardized processes and documentation throughout government agencies based on best practice;
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the removal of regulatory barriers to making use of the full potential of the government’s electronic procurement system; and
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the establishment of appropriate regulation for intellectual and professional services.
While focused on Mexico’s procurement practices, many of the observations in the World Bank’s report have universal resonance. Its above-noted recommendations should serve as guidelines for all purchasing institutions that are serious about modernizing their procurement practices.
