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May 13, 2019

Open Contracting: Getting Better Value for Money

Open-contracting-h (002)
Posted by Lindsey Marchessault[1]

Every year governments spend an estimated US$ 9.5 trillion (15% of global GDP) through contracts on everything from pencils and paper to building major infrastructure projects. And every year, there are numerous cases where these contracts do not deliver good value for money. While the high-profile cases tend to make the news, there are often many more contracts that suffer from cost overruns, delays, poor quality, or corruption. In its recent Fiscal Monitor: Curbing Corruption, the IMF identifies the opportunities in putting an emphasis on procurement. This blog explores how open contracting can provide an innovative solution to the challenge of making procurement more effective, fairer and more transparent.    

The ‘black box’ of the PFM cycle

The public procurement stage is the critical point in the public financial management (PFM) cycle where challenges often arise. This stage is where government ministries and agencies plan specific contracting processes, award contracts, and manage private sector companies to deliver the budgeted goods, works, and services to citizens. Information about public contracting, however, is often shrouded in secrecy, either locked away in filing cabinets or siloed into different databases of varying quality. Contracting data are often not made available to the public. For these reasons, many regard procurement as the ‘black box’ of the PFM cycle where processes become opaque and public records are incomplete.

Opening up public contracting to get better value

Open contracting is a new approach that (1) transforms government contracting from secrecy to publishing open, accessible and timely contracting data, (2) engages citizens, businesses, and government to identify and fix problems, and (3) has already demonstrated substantial results in improved value for money, competition, and service delivery outcomes to governments that have adopted it.

At the core of open contracting is the Open Contracting Data Standard (OCDS), which is an internationally accepted standard with a growing community of users. This means that approaches to monitoring and measuring improvements can be shared across countries.

The OCDS provides shareable, reusable, and machine-readable open data on public contracting across the entire cycle of public procurement. It is also extensible, meaning that important information can be added for local context, trade agreements, or specific sectors (like infrastructure). For example, we have worked with CoST - the Infrastructure Transparency Initiative to develop a toolkit for publication of infrastructure project and contracting information. We have also worked with the Global Initiative for Fiscal Transparency (GIFT to develop links between contracting data and infrastructure, budget and treasury data (which can provide a more comprehensive view of fiscal transparency).

Currently, the OCDS is being implemented by national and subnational governments all over the world including: Australia, Colombia, Chile, France, the UK, Ukraine, Zambia, Scotland, and Buenos Aires. The EU is aligning with OCDS in their procurement notice publication system and promoting contract registers for member states.

In some countries, civil society organizations are leading open contracting efforts. In Nigeria, Uganda, and Ukraine, reforms actually began with civil society demonstrating to government the benefits of an open contracting approach.

The G7 and G20 have endorsed open contracting principles, and it has been included into the recently revised guidance by the OECD’s Methodology for Assessing Procurement Systems.

Country examples

Paraguay: After the government began publishing open contracting a few years ago, researchers estimated that late payments were causing delays and inflating costs by US$ 142 million USD per year. Now, the government is taking steps to improve both policy and payment systems to reduce these delays.

Colombia: A review of Bogota’s school meals program found evidence of collusion in the procurement of food, which drove prices far above market rates and led to chronic shortages of food for the school children. In response, the government redesigned its procurement processes, challenged the collusive companies in court, and were able to reduce prices and improve the quality of food to the students.

Ukraine: The government completely redesigned their procurement system in 2016 based on open contracting principles and the OCDS, and have achieved savings of nearly US$ 45 million in 1.6 million contracting processes. The impact on competition and increasing diversity of suppliers has been notable too.

Lessons learned

These reforms are not easy and take leadership, change management, and investments to improve publication and monitoring systems. The push towards greater government transparency can often encounter strong resistance. Open contracting is no different. Several myths keep government from making contracting more open and transparent. These include concerns about commercial confidentiality, impacts on competition, and potential risks of collusion from making more data available. However, over 70 experts from more than 20 countries have found surprisingly little evidence that supports keeping contracting information secret (see mythbusting.open-contracting.org).

Tools and Support

The good news is that reformers do not have to start from scratch. The Open Contracting Partnership maintains documentation, tools, guidance, and a free helpdesk service to support the growing field. We also provide capacity building and a platform for the field to connect and support each other as peers.

If you are interested in implementing open contracting or want to use OCDS data for research or analysis please get in touch with us at data@open-contracting.org

[1] Lindsey Marchessault is the Director of Data and Engagement at the Open Contracting Partnership.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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