The Logic of Modern Public Procurement
Modern public sector procurement is a key instrument for galvanizing the market to develop technology-driven solutions with far wider applications than public services delivery. It is also an important driver of market competitiveness, resource efficiency, and responsible industry practices. The breadth and amount of public sector procurement is the influencing factor; it affects a substantial share of world trade flows; represents a significant part of national economies, estimated at 10-25 percent of gross domestic product; and accounts for a considerable share of total government expenditure, averaging 30 percent in OECD countries.
The World Bank generates up to US$20 billion per year in the public procurement market with approximately 100,000 contracts awarded annually in 132 countries. This level of procurement expenditure provides the World Bank with a unique opportunity to positively impact development outcomes and market performances, and to see the effects of modernization.
Functional performance is more important than ever to extract best value from increasingly limited public financial resources. To this end, public procurement has evolved into a key public sector function to help reduce waste, improve services and delivery, and stimulate growth. Public procurement can be a powerful tool in the pursuit of development objectives such as driving environmental and social best practices by promoting green economies, sustainable consumption, and resource efficiency; or providing the critical mass necessary for new market entrants or innovative, promotable technology such as electric vehicle use.
Principles like value for money and fit for purpose establish the basis for results-driven, decision-making, accountability, and performance assessment
Sustainable procurement— now more commonly referred to as “smart procurement”—is the key to implementing every aspect of sustainable infrastructures and communities, from smart government that promotes public safety and social care, to smart transportation, smart buildings, and smart energy and water. Smart procurement makes good financial sense. Its objectives encompass reducing total operating costs and developing the market’s capacity to deliver sustainable solutions. It can ensure that social and environmental risks are managed proactively, engendering trust in citizens, markets, and investor-boosting labor markets. Smart procurement is critical in helping reduce poverty and inequality and delivering results on the United Nations’ Sustainable Development Goals.
To achieve the objectives of smart procurement, policy and practice have a fundamental role in ensuring that conditions are in place to harness market innovation in a manner that secures the best value for money for taxpayers. World Bank support of reforms in more than 60 countries helps create an enabling environment for investment and innovation. Modern procurement leaders scan the horizon consistently to identify emerging developments requiring a policy response and new ideas so that public procurement can be leveraged as a mechanism to match unrealized market innovation with unmet service needs.
Through public procurement, governments can influence industry’s investments in new skills, equipment, and research and development (R&D). In many cases, smart procurement is a stronger driver of innovation than R&D subsidies. Governments play an increasing role in leveraging strategic technology in the market. The United Kingdom Government’s strategy for IT service procurement, for example, moved away from large outsourced deals in favor of smaller, short-term deals where small and medium-size enterprises are encouraged to bid and innovate. This move ushered in a new agile approach to procuring these services where software provision is written in open source and hosting in the internet cloud is now the default solution. Industry dynamics have witnessed fundamental change in risk allocation, costing models, software solutions, contracting, and the project management approach used by suppliers.
Principles like value for money and fit for purpose establish the basis for results-driven, decision-making, accountability, and performance assessment. Measuring outcomes in terms of value for money and quality of services is critical to addressing the root causes of performance bottlenecks. Consequently, one of the most important tools for improving procurement outcomes is a comprehensive data consumption strategy, including a performance measurement framework to translate raw data into structured inputs for procurement policy-making and management.
As a game changer for government, e-procurement systems contributed significantly to the transparency of bidding processes, allowed governments to reach a wider group of prospective bidders, and reduced administrative costs. Equally important has been the ability to collect, store, and mine massive amounts of procurement data with far-reaching impact on business decisions.
Methodologies to measure procurement performance are inherently complex because of the significant dispersion in datasets reflecting the array of goods and services that governments purchase. Minimum data points require integration of e-procurement systems with supply chain and contract management systems as well as financial management and complaints management systems.
The evolution of procurement at the World Bank mirrors these new government and market realities. The Bank’s Procurement Framework is a catalyst for change, driving new ways of thinking and working that will deliver improved development outcomes. Promoting innovation, sustainable procurement, strategic use of technology, and expanding the data analytics frontier are at the core of the Procurement Framework’s value proposition. Consistent engagement with suppliers is used to test ideas, discuss risks, and partner in ways that achieve greater competition, efficiency, and value for money for World Bank clients.