Fighting corruption through e-procurement regime

Transparency International (TI) — a global watchdog of corruption, ranks Pakistan at 29 out of 180 countries in its latest corruption perception index (CPI) of 2023. The rating has improved by two points from the last year but essentially changes nothing.

The CPI measures how citizens of a country view corruption in the public sector on a scale of 0 (highly corrupt) to 100 (very clean). Pakistan has always been rated as one of the most corrupt countries by the TI. Irregularities in public procurement processes are one of the key factors driving this public perception.

Public procurement refers to the purchase of goods and services by the public sector as a part of its normal operations. Governments worldwide spends about 10-20% of their GDP annually through public procurements of which 15-20% is at risk of being siphoned off because of flaws in the procurement process.

For countries like Pakistan where fiscal space is always limited, such leakages lead to higher fiscal deficits and lower economic growth. Procurement reforms can generate spending efficiency equivalent to 1% of GDP — which for Pakistan, works out to PKR 850 billion at current market prices.

Such a regime will also contribute towards improving the Ease of Doing Business (EODB) in Pakistan as 60% of the EODB index depends on “legal rights” issues, most of which arise due to inefficient public procurement and contract management processes. Thus, improving public procurement system will both enlarge fiscal space and contribute toward the country’s fight against corruption.

These considerations induce public procurement reforms worldwide. It may be worth noting that public procurement reforms are a relatively new phenomenon in that with the exception of Japan and the USA, most countries adopted procurement laws and regulations in the 1990s and 2000s.

Pakistan established a Public Procurement Regulatory Authority (PPRA) and notified related regulations in 2004 at the federal level to improve its public procurement processes. The provinces followed suit. The procurement regulations — including the standard bid documents notified for use at federal and provincial levels, were largely based on those used by leading donors, i.e., World Bank and Asian Development Bank (ADB).

The establishment of federal and provincial PPRAs was the first step toward the harmonization of procurement processes in Pakistan. However, many significant challenges remain to be addressed. First, procurement plans were not being integrated with relevant budget demands—thus compromising the integrity of budgeting.

Second, there were gaps in procurement rules and availability of standard bid documents (SBDs) that negatively impacted transparency and accountability of procurement processes. Third, despite the significance of procurement function, government agencies did not have trained/qualified procurement officials to manage this function which magnified inefficiencies in the procurement process while also enhancing corruption risks. And most importantly, the use of a manual provided incentives for government officials involved in procurement to abuse the system for personal gains.

The federal government was aware of these challenges and included the resolution of these challenges as agenda items in its National Procurement Strategy 2013-16, the National Procurement Strategy and Training Plan (2017-2021) and the PFM Reforms Strategy (2018-27). However, it was only under the World Bank funded Accountability for Service Delivery Program (2017-2023) that significant progress was achieved against these strategies.

The federal government introduced 25 amendments to simplify the public procurement regime and align it with the best international practices. “Coercive, collusive, obstructive practices” were included in the definition of corrupt and fraudulent practices (Rule 2-f).

Provisions were added for e-procurement (Rule 7A) and framework contracts (16 A) for multiple transactions under one award for routine items over multiple years. Bidders who are blacklisted/debarred by international organizations—were to be declared as ineligible now, and the concept of proportionate sanctions introduced (Rule 19); the concept of “reservations and preferences” in international bidding process was elaborated for clarity (Rule 24-2).

The PPRA also notified “Declaration of Beneficial Owners Information of Public Procurement Contract Award Regulations, 2022”, requiring procuring agencies to provide information on beneficial ownership while engaging in public procurement contracts.

The regulations would help in combating tax evasion, corruption, and more extensively curbing illicit financial flows through public procurements. SBDs for framework contracts, Information and Communication Technology, therapeutic goods/ pharmaceuticals were developed and notified.

An Appellate Committee of the federal PPRA under the Grievances Regulations 2021 is now properly functional to adjudicate on the appeals of bidders who are not happy with the decision of Grievance Redress Committees of procuring agencies.

This forum disposed of most of the appeals filed before it within 70 days of the filing of appeals. Before this arrangement, the aggrieved parties/bidders were forced to file appeals in the courts that used to take 2-3 years in deciding such cases. This used to discourage the aggrieved bidders from filing appeals against procurement decisions.

The federal PPRA has signed Memorandum of Understandings (MOUs) with provincial PPRAs and other autonomous bodies; NADRA, Security and Exchange Commission of Pakistan, Pakistan Engineering Council, Federal Board of Revenue (FBR), Accountant General Pakistan Revenue (AGPR), Drug Regulatory Authority of Pakistan (DRAP), and Press Information Department (PID), Punjab Revenue Authority ,etc., for verification of data, system integration and information exchange.

Of the reforms carried out by the federal PPRA, the development and rollout of E-Pakistan Acquisition and Disposal System (EPADS) at the federal level, and the efforts being made towards the adoption of this system across the country are most noteworthy.

EPADS has been rolled out in 37 Federal Ministries and 279 attached departments. Till the end of April 2024, public procurements amounting to PKR 1.4 trillion — or 10% of federal budget— have either been completed or are in the process in EPADS.

The provincial governments of Sindh and Punjab have adopted EPADS and all procurements there are being carried out through this system. The federal PPRA led a massive exercise in delivering trainings to the officials involved in public procurements at ministries/divisions and attached departments. More than 8,000 participants from various procuring agencies and suppliers from federal and provincial PPRAs were trained.

The use of EPADS involves less paperwork, which translates into fewer mistakes and a more efficient purchasing process. The e-procurement system virtually eliminates the risk of improper discretion being exercised by any procuring agency.

It makes relevant information available to potential bidders free of cost, thus creating the basis for a much wider competition in the bidding process. As a result, the average prices paid for goods and services tend to go down in the long run.

The e-procurement system increases “access to information” at no marginal cost and without any human interface, thus reducing corruption risk also. Informal discussions with government agencies for this paper indicate that some of these benefits are beginning to be visible. To consolidate progress and transform e-procurement system into a tool against corruption, the federal government needs to take the following steps:

First, the federal PPRA would need to maintain engagement with the political and bureaucratic leadership in KPK and Baluchistan to persuade them into adopting EPADS. Pakistan will benefit fully from EPADS if this is adopted by all provincial governments, AJK, GB and the PPRAs exchange information/data continuously.

Second, the federal PPRA needs to continue supporting government agencies and potential vendors/suppliers through helpdesk services; which is not an easy task considering that it has limited resources. The PPRA must obtain enough of a budget to cater to the needs of end-users in the next 3 to 5 years for travelling/ logistics, training and handholding.

It must augment its technical team and make it available—where needed, to ensure that the e-procurement system is embedded into the working of government agencies. All vendors/suppliers interested in participating in opportunities of public procurement will need to be taken on board and facilitated to register with EPADS to make the processes truly competitive and transparent.

Third, as time goes on, user requirements will evolve requiring customization or enhancement of the e-procurement system. A system of reviewing and prioritizing emerging needs and improving the system accordingly based on user feedback needs to be established. This will germinate a stronger internal ownership of EPADS within government agencies, and deepen ongoing reforms.

Fourth, EPADS—in addition to generating efficiency savings, could also help in digitizing the whole PFM cycle as envisaged in the PFM reforms strategy. Currently, the procurement process is not integrated with the government’s payment system.

There is an urgency to expedite the process of integrating e-procurement with the online payment process being implemented at federal and provincial levels as part of PFM reforms. This will make the payment process faster, allow governments to record and report on their financial commitments, and in turn, improve the credibility of cash forecasting and budget. There is a need for the federal PPRA and the AGPR to focus on completing this critical aspect of PFM reforms—leveraging the implementation of EPADS.

And finally, the federal government should ensure that the federal PPRA is led by a reform-oriented leadership until the transitioning toward the e-procurement system is complete. Changing the leadership at a time when the reforms are in infancy can be disruptive.

Copyright Business Recorder, 2024