80252 August 2013 - Number 103 INNOVATIVE PROCUREMENT PRACTICES IN IRAQ’S SOCIAL SAFETY NET PROGRAM Nazaneen Ismail Ali, Andrew Jacobs, Rachel Lipson, these practices to the local conditions played a Fabio Isoldi1 key role in the successful completion of the project. Rather than allowing inefficient bidding procedures to block successful implementation, the team at hand adjusted their approach, and adopted simplified, non-traditional methods: they tested the ability of the local market to supply equipment through numerous smaller- value contracts, and removed constraints that discouraged the participation of local Small and Medium Sized Enterprises (SMEs). In doing so, the Government of Iraq saved millions and was able to rededicate its conserved funds to improve the functionality of the IT system and support the expansion of the Social Safety Net program. This case has important lessons for the way we think about procurement procedures in states that are undergoing conflict and with A Fully Equipped SSN Center weak institutions. Introduction: Well-functioning institutions are Working in Fragile and Conflict States critical to reducing poverty and boosting Challenges in Procurement: After 30 years of growth. However, fragile and conflict-affected conflict and embargo, the Iraqi government states generally lack the political and sought to strengthen social protection for its institutional structures needed to address citizens by transforming what were traditionally pockets of poverty and promote development. subsidies into a targeted cash-based Social The challenges posed by the difficult context of Safety Net program. However, the current conflict zones may require creative solutions. iteration of the program was very ineffective in One relevant example where the World Bank reaching the poorest Iraqis: just 1.2% of the met this challenge was in the innovation of population was assisted through cash transfers. procurement procedures in a recent Social Under a US$ 8 million Iraq Emergency Social Safety Net (SSN) program in Iraq. Adapting Protection Project (ESPP), the World Bank and the Iraqi Government aimed to help reform the program by establishing a basic information 1 All the authors work in the Procurement unit of the World system within the Iraqi Ministry of Labor and Bank’s Middle East and North Africa Region (MNAPC). This Social Affairs (MOLSA) to record and process Quick Note was prepared under the general direction of, and cleared by, Yolanda Tayler, Manager, MNAPC. August 2013 · Number 103· 1 information on safety nets through accurate and Distressed that this would require a drastic timely data collection. reduction in the scope of the rollout and the desired efficiency of the cash transfer process, Doing so would require the establishment of the task team sought advice from the MENA functioning SSN centers in Baghdad and the Regional Procurement Manager who proposed regional governorates, and these centers would testing the ability of the local market to supply the equipment through numerous smaller-value need to be supplied with essential IT equipment. contracts. The total cost for the equipment, connectivity, and generators for all SSN centers was estimated Using SME-Friendly Procurement Practices: at US $5.2 million during the project’s appraisal. The new approach devised involved offering Given the large amount of money involved, multiple smaller-value contracts, while three international procurement processes were removing constraints such as bid guarantee planned for launch. This decision followed requirements and high financial capacity for firms which would have discouraged traditional thinking about procurement policies participation by local SMEs. at the Bank: international competition was thought to best capture economies of scale and value for money. But the reality in Iraq was quite different. In 2007, the first of these large procurement processes was floated with an estimated cost of US $830,000. Yet after an extended period of time to prepare bids, only one company had responded, and its $5 million price was over six times as expensive as the original estimate. SSN center in Muthana Governorate In order to encourage competition and ensure appropriate prices from SMEs, several important measures were taken:  Preparing and publicizing annual procurement plans for each procuring entity  Using simplified procedures and simple procurement packaging  Publicizing procurement opportunities IT Supply Market, Sina’a Stre et, Baghdad broadly (e.g., on the official Ministry’s website and local newspapers) even for The initial approach had not accounted for the lower value contracts unique institutional constraints of Iraq, particularly the difficulty of linking up with  Using simple but standard bidding outside firms and the weakened Iraqi private documents, request for quotations and sector. general conditions of contract August 2013 · Number 103· 2  Allowing alternative guarantees for security requirements  Streamlining and simplifying procurement and related administrative procedures  Applying advance payment to assist SMEs for contract implementation  Announcing award decisions on the Ministry’s bulletin board even for lower value contracts  Streamlining approvals processes for prompt payment of invoices Iraqis who live below the poverty line will The testing of the three smaller procurement benefit from an improved SSN program. contracts for IT equipment by SMEs was a resounding success in terms of costs and efficiency. It led to the re-structuring of all Conclusion: Challenges related to Iraq’s volatile contracts into the smaller sizes that local SMEs situation, including the lack of interest from could provide. international suppliers, encouraged the Bank to look for alternative solutions in the design of the In the end, the procurement from the local SME procurement process. The experience of market not only helped promote growth for working in a conflict-affected country led to SMEs, but also provided substantial cost savings smaller procurement packages and simplified for the country. By effectively responding to procedures. An unorthodox and riskier local market conditions, the project saved US approach at the outset ended up not only saving $1.4 million, or around 20% of the original costs but also strengthening the local private estimated cost of the contract. These savings sector and generating jobs in the country. allowed for the purchasing of additional equipment for disaster recovery, monitoring equipment, software, etc.—all which are Contact MNA K&L: Gerard A. Byam, Director, Strategy and necessary for proper functionality and Operations. MENA Region, The World Bank sustainability of the system in the long-term. Preeti S. Ahuja, Manager, MNADE Tangible Results: By adopting innovative Regional Quick Notes Team: solutions fit to local market conditions, the cash Omer Karasapan, and Roby Fields Tel #: (202) 473 8177 transfer program administered by MOLSA The MNA Quick Notes are intended to summarize could be scaled up. It now reaches nearly one lessons learned from MNA and other Bank million families, with a budget of about US$800 Knowledge and Learning activities. The Notes do not million. necessarily reflect the views of the World Bank, its board or its member countries. August 2013 · Number 103· 3