February 2011 Number 165 www.worldbank.org/enbreve A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank`s Latin America and Caribbean Region (LAC). A Lesson in Trust Yields Big Rewards 60355 in Panama Procurement: $20 Million Saved in One Contract in 2009 Alone The introduction of PanamaCompra, the public Procurement, the strategic function whereby e-procurement system, allowed an unprecedented the government delivers goods and services opportunity for transparency, speed and efficiency to its citizens, is an area traditionally fraught in the delivery of goods and services to the people with distrust and secrecy. of Panama. The PanamaCompra electronic system serves not only as an effective means to promote transparency in all government procurement, but Always a highly charged topic: where is the also as a business tool for companies interested money spent and how? Enter two procurement in competing. "The emergence of PanamaCompra officers from LAC, Joao Veiga Malta and Diomedes changed everything for procurement," states (Dio) Berroa, who have witnessed a sea change Gustavo A. Guzmán, Director de Políticas y Gestión in the public procurement system in Panama. By de Compras of the Republic of Panama. "Suddenly utilizing a consistent presence and steady provision we were able to keep up with today's trend for of technical expertise and assistance, a trust relationship has developed between the small team and the Government's Procurement Office that has had a powerful and lasting impact on the progress of procurement goals. The country management unit for Central America as well as LAC senior management have played an important role in this activity. "They identified investment instruments to directly finance the Panama procurement reform, monitoring its development through a set development policy lending loans. Furthermore, they trusted us managing non-lending technical assistance, through which we were able to provide just-in- time and demand-driven strategic policy advice on procurement," remarks Joao Veiga Malta, Senior Procurement Specialist, LAC. 1 improved value and faster program delivery. Our business base became responsive and demand driven, which was an innovation for us." However, the procurement office did not want to cast about for technical consultants to implement procurement solutions, they wanted to work with those they knew and trusted to do the job: the Bank's procurement team. "With the new e-platform, we worked closely in a technical advisory capacity with the procurement office," comments Diomedes Berroa, Senior Procure- ment Specialist. "Suddenly, they did not want to hire consultants to manage e-procurement ­ they wanted us, personally, to offer technical expertise." Joao and Dio were willing to comply in order to build a high level of capacity with the client. The two worked out a service-level agreement with the The team put together a better plan. With the Bank procurement office with the edict: You do your part procurement officers acting as technical advisors, and we will do ours. Together they built a partnership the country procurement office introduced a with agreed upon milestones. "This kind of just- different model: gas purchasing cards, called "fleet in-time technical assistance built on trust moves cards". By linking each car to a specific purchasing reform," observes Joao. card, the office developed a system of charging fuel for government-owned vehicles to specific cards, which tracked the usage, mileage and distance of each vehicle. Cards were issued to individuals assigned to the cars, which ratcheted up the accountability of usage. The results were outstanding. Panama was able to save $20 million in petrol in 2009, approximatively 50% of the fuel budget. Where 70 government agencies were previously consuming 100% of the budget, 280 agencies are now served while their total consumption has dropped by 10%. The increase in governance has been remarkable. A Bottom-Up Success Fuel for the Future It didn't take long for the word to spread on the It didn't take long for the partnership to yield team's achievements. "We got a request from astounding results. In its quest to reduce fuel General Comptroller Gioconda Torres de Bianchini charges on its fleet of vehicles, the government to meet with her senior staff regarding the success wanted to consolidate the buying of petrol by of the procurement office," remarks Joao. "The need using bulk purchase. This introduced the issues of for expertise is critical and it is an effective entry storage, price variations and corruption. point for frank and honest dialogue." He continues, 2 "The hands on assistance and expertise have offered cannot be efficient management, budget planning a value and reached areas where no other business or control. methods have succeeded, and as a result has given us access to high level decision makers." At one time, Government buying was simple, involving plain goods, a few services and Other countries in the LAC Region, such as Argentina warehousing. It has now moved from a back office and Guatemala, are taking note and sending letters function to a strategic management function with to the procurement officers with requests for the just-in-time purchasing which can involve high value same type of support. "It's truly humbling to know transactions with complex specifications. While this that there are so many procurement offices clamoring can involve greater risk, it can also generate higher for this kind of support," states Dio, "We appreciate efficiencies. their faith in us, and wish there were more assets to accommodate their needs." The strategic importance of the procurement process is being increasingly recognized by Several positive moves have been undertaken in governments around the world because weaknesses Panama to shore up the procurement process. One in the system undermine community and economic is the new procurement legislation accompanied benefits from the government. Significant trends by the creation of a separate procurement agency have included the integration of national and (DGCP), which has shifted procurement in Panama regional government strategic planning with the into an effective and strategic role with substantial budget development processes, which forms the benefits to productivity and governance. For the foundation for monitoring and evaluation of the first time, a central agency provides a mechanism budget. There has also been increasing attention to to standardize procurement processes, strengthen the methods and processes of delivery of budget procurement governance and engage in strategic objectives. procurement planning to support budget execution together with national and agency strategic Hand in hand with the PanamaCompra e-purchasing planning. The existence of a lead agency with the system, is the addition of framework contracts, a supporting legislation has provided the capacity new system of public contracts with one or more for the first time to lead reform for the effective proponents for the acquisition of products and application of information technology with the services with prices and terms determined for a potential to transform procurement, administration defined period of time. and budget execution. "Our clients are learning that procurement is largely a management function "People want results, and as a consequence there rather than regulatory function," observes Joao. has been a management trend away from process Procurement: Where the Rubber Hits the Road By converting government funds into goods and services which directly benefit citizens, public procurement is a strategic function which is the government's instrument for delivery of these goods and services to its citizens. When the procurement process is weak, political and community priorities are under-delivered, governance is poor and the public trust is eroded. Without procurement strategy and planning, there 3 and regulation and towards outcome performance," "Panama procurement is making a substantial states Diomedes. Even for the procurement of simple impact with real time, just in time deliverables," goods and single services there are requirements remarks Joao. "The reward is that procurement is for improved outcomes in terms of lower prices, moving from a transactional model to a systemic, better supplier performance and more flexibility in sustainable reform. Our trust relationship is delivery and product specifications. This in turn has becoming a legacy for the Bank, and as such, it is led to the development of framework contracts. trickling into other agencies. Goods and services are being delivered to the people. It's a good thing." Framework contracts require very significant monitoring and evaluation systems to support their management. This requirement for management information has led to greater application of information technology in this area, which has also strengthened governance by automating many of the more mechanical processes and allowed procurement expertise to focus more productively on management issues. Miles to Go While astounding progress has been made in Panama procurement in the last 5 years, there still remains a dearth of technological application which is reflected in a lack of timely and comprehensive management information about most components of procurement. This undermines monitoring and evaluation as well as the budget process. Also, insufficient advantage is taken of the capacity to leverage government buying to obtain better prices and to reduce the cost of processes and timelines, and to help offset the shortage of procurement capacity. With dedicated Senior Procurement Specialists Joao Veiga Malta and Diomedes Berroa on the case, Panama procurement is growing more secure in its technical abilities and is building capacity with confidence. Disclaimer: The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Directors of the International Bank for Reconstruction and Development / The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. About "en breve"... "en breve" is produced by the Knowledge and Learning Team of the Operations Services Department of the Latin America and the Caribbean Region of The World Bank ­ http://www.worldbank.org/lac. Visit the entire "en breve" 4 collection at: www.worldbank.org/enbreve.