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Procurement and delivery

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 Linking procurement to socio-economic objectives to achieve MDGs
Project procurement – finance
Integrating sustainability into procurement
Small & Medium Enterprises (SMEs) participation in infrastructure
Programme definition and monitoring
Attracting investment for infrastructure

•  Linking procurement to socio-economic objectives to achieve MDGs

  Card 39
  Topic: Procurement and delivery
  

  • How can infrastructure delivery be used to improve socio-economic conditions for the poor?

    • Effective infrastructure delivery should not only achieve the intended physical infrastructure needs (primary objective) but can also achieve improvements in the socio-economic conditions (secondary objectives).
      
      Secondary objectives can include:
      ■ Reduce poverty by engaging communities to construct, operate or maintain their local infrastructure
      ■ Promote construction technologies that increase local employment
      ■ Promote participation of indigenous small businesses to keep more wealth in the local community
      ■ Promote capacity building by including training in project execution
      Secondary objectives can best be promoted by considering them at the project scoping stage, when structuring the infrastructure procurement strategy.
      
      Reference:
      Watermeyer (1997) Job Creation in Public Sector Engineering and Construction: Why, What & How
       
    • In choosing the right procurement strategy, it is important to strike the right balance between primary and secondary objectives.
      
      
      
      
      
      
      These must also be integrated so that inclusion of the secondary objectives matches the need for the primary ones. This can often use an innovative combination of low technology, high technology and local components.
       

  • Use targeted procurement strategies that require participation of end users/communities

    • Development efforts are more effective when communities are engaged to construct their own infrastructure. Targeted procurement can be a significant vehicle to increase local participation in infrastructure delivery.
      
      
      
      Targeted procurement
      Process used to create a demand for the services and supplies (or both), or to secure the participation of, targeted enterprises and targeted labour in contracts in response to the objectives of a secondary procurement policy (ISO 10845-1, Construction Procurement – processes, procedures and methods)
      
      
      
      
      
       
    • Case study: Zibambele Labour-based Construction & Maintenance Programme, South Africa
      
      This is a poverty alleviation programme, creating sustainable jobs for poor rural families, by maintaining rural roads using labour intensive methods. It provides only a small income but is enough to get children into school. The scheme has a target of 40,000 renewable, annual contracts.
      
      A part-time contract is awarded to a woman who heads a household (these are the majority of the poorest of the poor), as identified and selected by their own community.
      
      Contracts require them to maintain a length, often steep, of rural road near to their house, clearing mud, opening up drainage and cutting back vegetation.
      
      This very local approach matches the need to clean up between rainstorms. Managing very large numbers of individual contracts is made possible by extensive use of mobile phones and the internet.
      
      References
      Second ICE Middle East and Africa Conference (2010) Accelerating infrastructure delivery – improving the quality of life
      Zibambele programme
       

•  Project procurement – finance

  Card 21
  Topic: Procurement and delivery
  

  • Does finance = funding?

    • Funding and cash flow are only part of it…
      
      
      The Finance Officer’s many roles in capital projects...
      
      
      
      
      
      
      
      Source of picture: “The Finance Officer’s Role in Capital Projects” by Joseph P. Casey, June 2008
      
      
      Reference:
      Presentation by Ian McAulay, Mark Wilson & Daressa Frodsham. London (2009)
      
       
    • Funding
      Funding is controlled and determined by the type and nature of the project and the main risks. Questions to ask include:
      ■ Can sufficient funding be secured at attractive rates?
      ■ Are there any government or international grants or low cost loans that could be used?
      ■ Is the budget available to achieve the required programme of work?
      ■ How much confidence (certainty) is there in the estimation of the programme cost? Is there any contingency money and if so, how much?
      ■ Are there robust governance and checking processes in place to prevent escalation of costs?
      ■ Are social objectives priced in budgets?
      ■ Is there adequate budget for operation and maintenance?
       
      
      
      Cash flow
      Accurate prediction of future cash flow could be a challenge. Donors and clients often expect the asset/service to generate revenue to pay for maintenance via user charges. However, the revenue might be inadequate, used on other initiatives or siphoned off by corrupt practices. Questions to ask:
      ■ Is the revenue sufficient for repayment of the loan?
      ■ Has long-term finance for the operation and maintenance been considered? Is the revenue going towards maintaining the assets? Is the amount sufficient to cover the costs?
      ■ How are risks shared?
      ■ Does the depreciation assumed in the financial modelling reflect the realistic life expectancy of the project assets?

  • Look at efficiency and benefits realisation

    • Beyond the basics:
      
      
      
      
      Figure 1 Example of where efficiency savings can be made
      
      Source of picture: OGC, UK (2009) Procurement Efficiency and Value for Money Measurement
      
      
      Further references:
      Merna, T and Njiru, C (2002) Financing Infrastructure Projects
      Hawkins, J, Herd, C and Wells, J (2006) Modifying Infrastructure Procurement to Enhance Social Development
      London Centre of Excellence (2006) Procurement Performance Measurement
       
    • Efficiency
      Bureaucracy and corruption could be significant obstructions. Questions to ask include:
      ■ Who are the major players?
      ■ Who is best placed to deliver the programme? Negotiate an optimum deal?
      ■ Is there appropriate governance in place? How to ensure transparency of process and accounting?
      ■ Who has the skills to perform due diligence?
      ■ Consider use of framework contract / standardised contract?
      ■ Consider use of e-procurement systems and spend analysis?
      ■ How to identify and address the external factors that may affect the efficiency and profitability of the project?
      
      
      Benefits
      Institution capacity building should not be neglected. Questions to ask include:
      ■ Have objectives been fulfilled? Value added?
      ■ Are there areas of improvement? Particularly around cashable savings and improved quality of services.
      ■ Has delivery of political related priorities been considered?
      ■ Has improved corporate/government knowledge been achieved?
      ■ Assess strategic, operational and external indicators
       

•  Integrating sustainability into procurement

  Card 29
  Topic: Procurement and delivery
  

  • How can sustainability objectives be built into procurement?

    • Secondary objectives
      
      Although the aim of procurement is the achievement of value for money, and not the delivery of sustainable development policy, there is much that can be done to address sustainability issues by building relevant sustainability objectives (or ‘secondary’ objectives’) into contracts. Examples of ‘secondary’ objectives include the following:
      
      
      
      
       
    • There are a number of different strategies for integrating secondary objectives into procurement. A summary is given in the following table with an assessment of the perceived concerns, risk and performance of each:
      
      
      
      Source: after Watermeyer (2004)
       

  • Target procurement for achievement of secondary objectives

    • Targeted procurement
      
      ■ One method that has proven successful in integrating and subsequently achieving secondary objectives is ‘Targeted Procurement’ whereby a demand is created for the services and supplies of, or to secure the participation of, targeted enterprises and targeted labour in contracts, in direct response to the objectives of an overarching policy (see ISO 10845-1)
      
      ■ By incentivising the active engagement of tenderers through demonstrating and quantifying the benefits achievable in their proposal against carefully designed criteria, chances of successful implementation are enhanced
      
      ■ Contract participation goals may focus on targets for labour (i.e. amounts spent on wages and allowances paid to specified labour types) and/or targets for enterprise involvement as sub-contractors, or in joint-ventures (receipts for work or services performed or for the provision of goods for a contract)
      
      ■ Goals may also be extended to apply for environmental objectives, though the predominant agenda of socio-economic development in less-industrialised countries means that most examples fall under this category
       
    • Case Studies
      ■ Soweto's Contractor Development Programme
      
      ■ International Labour Organisation – Labour-based road construction manual
      
      ■ Smallholder Enterprise Development and Marketing Programme (SHEMP), Zambia
      
      
      Further reading
      ■ Watermeyer, R (2004) Unpacking Transparency in Government Procurement – Rethinking WTO Government Procurement Agreements
      
      ■ Traidcraft Exchange (2007) Taking the Lead: A guide to more responsible procurement practices, Chartered Institute of Purchasing and Supply
      
      ■ EAP/ ICE (2006) Modifying infrastructure procurement to enhance social development
      
      ■ Sustainability Action Group of the Government Construction Clients’ Panel (GCCP) (2000) Achieving Sustainability in Construction Procurement, Sustainability Action Plan
      
      ■ EAP (2008) Increasing local content in the procurement of infrastructure projects in low income countries
      
      ■ ISO 10845-1, Construction Procurement – Part 1: Processes, procedures and methods
       

•  Small & Medium Enterprises (SMEs) participation in infrastructure

  Card 35
  Topic: Procurement and delivery
  

  • Why engage SMEs in the delivery and maintenance of infrastructure?

    

    
    Source: Creating A Conducive Legal & Regulatory Framework for Small and Medium Enterprise Development in Russia: A Policy Dialogue Workshop (2003)
    
    What are SMEs?
    Small and medium enterprises and businesses (SMEs, SMBs) are companies whose headcount or turnover falls below certain limits. There are different definitions among different organisations and countries.

  • Create an enabling environment for SME participation

    

    
    Source:
    Soweto's Contractor Development Programme: 1988-1998 (1999)
    An evaluation of projects within Soweto's contractor development programme (1995)
     

•  Programme definition and monitoring

  Card 43
  Topic: Procurement and delivery
  

  • Development projects: where to begin with the programme?

    • Introduction
      A programme of works arises from a set of overarching objectives and aims. The overall strategy will dictate what projects are undertaken within the programme and how, as well as what outcomes will constitute success.
      
      The key in programme definition begins with a strategic vision and set of objectives.
      
      As part of the overall strategy, a second key element is defining a framework for monitoring programme progress and success
      (UNFPA, 2004).
      
      
      “Programme planning is not simply project planning on a larger scale, it involves planning the overall coordination of project delivery, quality, risk, communications and benefits whilst reconciling project objectives with overall project goals” (Office of Government Commerce (OGC) UK 2010)
       
    • Programme definition
      
      The definition of the programme will relate to the identified goals and objectives. Although the terminology may vary by organisation or framework use, generally programme definition will involve (OGC UK 2010):
      ■ Programme vision
      ■ Outcome statement of programme or “blueprint”
      ■ List of projects and activities required within the programme to achieve the vision
      ■ Business case – at programme level this sums up the business cases at project level
      ■ Organisation and structure
      ■ Profile of benefits – description of each benefit that the programme will deliver
      ■ Stakeholder schedule or map – containing a list of stakeholders and their interest in the programme
       

  • Define the programme, define and measure success

    • Programme monitoring and measuring
      
      
      Why?
      “You can’t manage what you can’t measure” (Peter Drucker). Measuring outcomes and processes is necessary to:
      ■ Ensure adherence to brief and compliance to regulations and standards
      ■ Monitor risks, variations and finances
      ■ Plan and forecast, and
      ■ Demonstrate value to stakeholders and financiers in a transparent manner
      
      
      How?
      Measurement includes
      ■ Indentifying and setting targets
      ■ Identifying metrics (what will be measured as indicators) e.g key performance indicators (KPI’s) and critical success factors (CSF’s)
      ■ Tools for measuring and recording
      ■ Testing measurement framework/tools to ensure robustness
      ■ Balanced measurement e.g. Can you interpret measurement of overall spend without understanding progress towards completion?
      
      And then?
      …Keep measuring, identifying corrective actions and improvements throughout the programme cycle (World Bank, 2010).
      
       
    • Case Study: monitoring and evaluation of local projects in the Philippines (Kaplan, 2007)
      ■ 133 proposed local infrastructure projects involving over 1,000 municipalities
      ■ $60M dollars in funding to be distributed and managed
      
      How did the Local Government oversee?
      ■ Integrated approach to monitoring and evaluation which provided both project level and consolidated programme detail
      ■ Separate units were established for evaluating relevant aspects of each project (e.g. financial, management, engineering, social etc.)
      ■ Each unit submitted regular reports following inspections
      ■ Findings were consolidated into spreadsheet database to track each project’s progress and achievement of overall objectives
      
      References/further reading
      1. UNFPA (2004) Programme Manager’s Planning, Monitoring and Evaluation Toolkit
      2. Overview to Managing Successful Programmes, Office of Government and Commerce
      3. World Bank Knowledge Learning and Outreach Committee (2010) Financial Management in Action, 2010 Fiduciary Form
      4. Harvard Manage Mentor: Performance Measurement, Robert S. Kaplan, Harvard Business Publishing (v1.0.1120, 2007)
      5. UNDP (2009) Handbook on Planning, Monitoring and Evaluating For Development Results
       

•  Attracting investment for infrastructure

  Card 45
  Topic: Procurement and delivery
  

  • How does good governance impact on the delivery of capital infrastructure projects?

    • Facts and trends
      ■ There has been increasing concern about governance issues in the development debate, with the most consistent recommendation of UN world conferences being that countries must take full responsibility for their development
      ■ The capacity of the institutional environment, in which citizens interact among themselves and with government, is becoming important in determining the impact of capital projects
      ■ Irrespective of the precise set of economic policies that find favour with a government, good governance is required to ensure that capital projects are delivered with low transactional costs and contribute to the local, social and development agenda
      ■ The inability of governments of developing states to transform radically their procurement strategies, both at the national and sector levels, is impeding their ability to deliver projects that have fitness of purpose and which are fit for purpose
       
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      Measures aimed at removing corruption and providing policy certainty at the macroeconomic level will go a long way to removing perceived constraints to investment.
      
      
      Reference:
      Asian Development Bank. (1995). Governance: Sound Development Management. Manila: Asian Development Bank.
       

  • Create an enabling environment that is conducive to investment

    • ■ Design the right policy and institutional framework, to create conducive conditions for private investments that support the development of infrastructure, ensuring political stability and absence of violence
      ■ Ensure accountability. This means creating mechanisms that ensure that people to whom responsibility and authority for service delivery has been given can actually be held accountable for performance
      ■ Use targeted procurement in the delivery of capital infrastructure projects to ensure that the benefits of economic growth are equitably distributed across the society
      
      For next steps, see: Watermeyer R (2000): The use of targeted procurement as an instrument of poverty alleviation and job creation in Infrastructure projects. Public Procurement Law Review, No. 5,pp 201-266
      
      References:
      Wiafe K (2007) Promoting Private Sector Investment in Energy through Regional Cooperation: The Case of West Africa
       
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      References:
      Kaufman et al (2007) Governance Matters VI: Governance Indicators for 1996-2006, Washington: World Bank.