Claro: Decentralize purchasing, but centralize information
(Photo: Willie Heinz - IDB)

Jorge Claro de la Maza, recently retired chief of the IDB’s Procurement Policy and Coordination Office, has played a central role in both modernizing the Bank’s internal procurement procedures and designing programs to assist procurement reform in Latin American and Caribbean governments.
Prior to joining the IDB in 1992, Claro established and managed a United Nations-sponsored procurement agency for Bolivia during the governments of Jaime Paz Zamora and Gonzalo Sánchez de Lozada. His staff oversaw the awarding of government contracts worth more than $1 billion and generated millions of dollars in savings. Before that, Claro served in various management positions with the United Nations.

IDBAmérica: Procurement used to be an obscure subject. Why is it so much in the news these days?

Because corruption in general is the subject of discussion in the world today. Open a newspaper and you’ll almost always find an accusation of corruption in government. And where does corruption happen in most cases? It happens within fiscal affairs, customs or government procurement.
Procurement represents a huge amount of money—between 10 and 15 percent of gnp in many countries. And while in the past it took months or even years to find out what was going on with a government contract, today you know almost instantaneously, because of the explosion of communications and the constant scrutiny of government affairs. Whatever happens in the public sector is now in public domain.

IDBAmérica: Why is public procurement so prone to abuse?

First, because procurement is not treated as a public policy issue. It is perceived merely as a purchasing process, and therefore it is not given priority as a policy issue, as a problem of governance. In most industrialized countries procurement is very high on the policy agenda, but in most Latin American and Caribbean countries it is not. Few countries have a senior government official with overall responsibility for procurement, and the people assigned to manage procurement have very little training or professional prestige. Most of them have just learned on the job.
Second, there are problems with the procurement laws, which tend to be outdated, overly specific, and not in tune with modern business practices. Many countries have not even published regulations that determine how the procurement law is to be applied. So each government ministry tends to handle purchases more or less as it sees fit. And also in many countries you have a very cumbersome process, full of bottlenecks. So if you’re a contractor and you’re trying to move your papers along, you have to grease the machine. Although a number of countries have passed new procurement laws in recent years, most of them don’t address these issues.
Third, in most countries there is no accurate database to tell us what’s being procured, at what price, from what sources. It’s very difficult to get precise figures or to exercise effective control during the procurement process.
Put all these elements together, and you have a system that is going to give you problems.

IDBAmérica: Can’t you compensate for these weaknesses by giving auditors and controllers more authority?

Auditors are an essential element, but the problem is that in most cases the control mechanisms are put into operation ex-post. In most countries you audit what has happened, so basically you have a dead patient and you’re trying to determine how he died and who’s responsible for the death. There is very little concurrent audit, although that is beginning to change.
In my opinion the weakest link here is the lack of capacity of the executing entities, and therefore I think we need to concentrate our efforts on increasing the ability of the ministry of public works, of health, or of education to do things properly. And then we can audit them. Because if you just audit you’ll keep finding that things are done wrong, and then what will we do? Throw people in jail and try to recover the funds?

IDBAmérica: Many people think this kind of corruption happens because too much discretion is given to the central government. Can procurement be improved by decentralizing it to lower levels of government?

It depends on what you are decentralizing. Most countries decentralize political power and money. They don’t decentralize procedures and controls. So the question is, are we decentralizing opportunities for corruption and mismanagement?
If you have a ministry of health that is inefficient and that purchases medicines poorly and pays too high a price, and then you decentralize that to the regional hospitals, the mere fact that you have decentralized doesn’t mean that you have improved anything. On the contrary, you might have atomized the process and therefore end up paying more because you have less volume, and you’ve probably increased the opportunities for mismanagement and fraud.

The challenge for us is to empower people to do things right. There’s no point in decentralizing purchasing capacity to a municipality if you don’t empower that municipality with the money, the human resources, and the training that’s required to do it properly. Otherwise, you’re going to end up sending in your auditor and he’ll probably find that the decentralization process only resulted in their paying higher prices for your products.

IDBAmérica:: How can information technology improve the way procurement is done?

I’ll give you a simple example. If your government was to create a procurement database that was connected directly to its integrated financial management system, and you were the minister in charge of public works, then you’d be able to decentralize all procurement within your ministry. Your only requirement could be that whoever buys something would have to submit a request to the database. Only then would the money be disbursed. They would also have to give information on every contract signed. Any contract that is, say, 2 or 3 percent above the average price for a particular good or service would be detected by the system, and whoever signed it would have to explain why they’re paying the surcharge.
This is a relatively simple thing to do with today’s technology. If we had that, then the decentralization process would not have to become a corruption process. You don’t have to procure centrally; you just have to have information.
The next step is to immediately publish all contracts signed, which some countries are beginning to do on the Internet. Now, if I’m the minister and I’m awarding a contract to my brother, for example, it will show up immediately, and people will start asking questions.

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