International development procurement: 7 things you need to know

Procurement makes for big business in international development. Each year, funding agencies award tens of thousands of contracts amounting to billions of dollars: The United Nations in 2012 alone reported more than 15,000 transactions for goods and services valued at $15.4 billion. It’s also a complex business. Even for industry veterans, navigating through the procurement process can be tricky especially as donors, faced with tighter budgets, constantly scrutinize their practices and introduce changes to how they acquire goods, works and services. Thus, knowing in-depth not just the basics, but also the trends in procurement can spell success for those engaged in the business of development. Here are seven things you need to know about procurement in international development: 1. When it comes to procurement, there’s no one-size-fits-all Procurements in international development are delivered in a variety of ways depending on the amount and types of the required goods and services. They generally entail a competitive process, which some donors forego if there’s only a single source for a certain product or service. In recent years, there’s a growing preference by funding agencies to employing a method that allows more flexibility than other contracting mechanisms. These are called framework agreements. The World Bank recommends framework agreements for off-the-shelf goods (or commonly used products with standard specifications), nonconsulting services “that are of a simple and non-complex nature and may be required from time to time” by the same or multiple agencies in borrower countries, and small-value contracts for works in emergency operations. EuropeAid uses framework contracts for engaging short-term experts. These contracts cover services worth between 20,000 and 300,000 euros ($28,000 to $418,000), comprise several lots focused on certain themes like rural development and food security, and are implemented by consortia. Among its array of contracting mechanisms, the U.S. Agency for International Development opts for framework-like arrangements in cases where it can’t determine at the time when the contracts were signed the exact quantities of supplies or services it will need during a specific period. Usually amounting to several millions of dollars, indefinite quantity contracts may be awarded to either consulting firms or nongovernmental organizations. Australia has a similar procurement vehicle known as standing offers, but the Australian Department for Foreign Affairs and Trade makes no guarantee of work to contractors. Although most contracts go to organizations, individuals can also compete for procurement opportunities. 2. A single contract may result in multiple business opportunities The procurement process doesn’t necessarily end when a funding agency signs the contract with an implementing partner. Winners of large contracts, such as USAID’s indefinite quantity contracts, oftentimes carry out their own contracting for goods, works and services needed under the project. To win subcontracts, interested consultants need to build relationships with prime contractors. Check out our list of top contractors for the U.S., U.K., EU and Australian aid programs and visit the Devex organization database to find out who to contact for subcontract solicitations. Some prime contractors also have dedicated pages on their websites for subcontracting opportunities. Many of them are Devex members and also use our platform to list these opportunities. 3. With some donors, nationality may not matter While many traditional donors still favor awarding contracts to firms headquartered in the donor country, “tied” aid is no longer the norm. For example, most bilateral European donors, the Millennium Challenge Corp., Saudi Fund for Development and Australian DFAT have opened the competition to bidders from anywhere around the globe. Devex and the Organization for Economic Cooperation and Development list these untied aid opportunities. Among multilateral banks, the Inter-American Development Bank and the Islamic Development Bank restrict eligibility for competition to member countries. The African Development Bank does not restrict bidding for projects that will be financed by the African Development Fund. But bidding for contracts related to the operations of the AfDB or financed by the Nigerian Trust Fund are limited to member countries. Procurement opportunities with the Asian Development Bank, European Investment Bank, European Bank for Reconstruction and Development and World Bank are largely open to international bidders. 4. Technological advancement has led to innovations in procurement The Internet has spawned tools that are making information on procurements in international development widely available and the process more efficient. Most procurement notices are now published online, with financing groups typically having dedicated websites for procurement opportunities. Here at Devex, we track solicitations from more than 350 agencies and foundations as well as exclusive tender notices from implementing organizations. Learn more about our tender tracking service. With these online portals, it’s also becoming easier for financing agencies to collaborate on procurements. For instance, World Bank borrower countries can source reproductive health supplies through the U.N. Population Fund’s online store. 5. Increasingly, procurements are ‘going local’ Amid growing emphasis on country-led development, some funding agencies are looking to partner more with local organizations in implementing projects. USAID targets channeling 30 percent of its funds to local groups by 2015. This has led to large contractors seeking more local partners but has many U.S. small businesses reportedly struggling to secure subcontracts. Also, starting Feb. 6, 2012, USAID can procure from recipient and low-income countries, a rule put in place by Congress in 1993, but was not applied because the agency “self-imposed a policy to continue to follow the same limits on procurement in the recipient and developing countries as if the 1993 statutory amendments had not occurred.” An overwhelming positive response to a call for comments to the rule change helped pave the way for its implementation. Some multilateral donors favor using in-country systems to administer procurements, albeit with guidance and oversight from the donor. IDB is ahead of the curve, accepting the use of national procurement practices so long as they meet its guidelines. The World Bank may soon do the same: Under the ambitious reform agenda of President Jim Kim, the bank plans to shift toward a more country- and context-specific approach by 2015. Save for framework agreements, the World Bank and ADB use similar procurement methods. Their procurement guidelines encourage participation of local communities and NGOs in certain procurements to ensure the sustainability or attain specific social objectives of the project. These may cover civil works and nonconsulting services and involve using local know-how, goods and materials. For more about the implications of localization to procurements, check out this Google Hangout hosted by Devex Director of Global Advisory and Analysis Pete Troilo. Check out the conversations from our first-ever International Development Partnership Forum in Nairobi, Kenya. We’ll be hosting more of these partnership forums — one is scheduled for June 2014 in Manila and another in Nairobi come October — to keep implementers abreast of the latest procurement trends such as aid localization. 6. Global and domestic trends drive procurement reforms Recent economic crises and the rise of former aid recipients as economic powers have intensified public scrutiny of foreign aid spending, pressuring some donor governments to cut official development assistance and reform the way their aid agencies do business. In general, they seek the best value for money, where they award contracts that offer the best combination of cost and capacity to meet the requirements of the project. Having long been the target of budget cuts by lawmakers, USAID is implementing procurement reforms that revolve around tapping local solutions and awarding smaller contracts. Check out this analysis by Devex President and Editor-in-Chief Raj Kumar USAID Forward’s impact on NGOs and development consultancies that partner with the agency. In addition, USAID, like other donors, look to reduce costs linked to procurements. But a recent attempt to award a contract for what was to be a $2 billion, five-year work to a bidder that could offer the lowest price and technically acceptable tender backfired. USAID canceled the solicitation, following a protest arguing that it would invite bidders proposing unrealistically low projected labor costs and consultants with less-than-desirable qualifications, thus undermining the quality of project outcomes. Unlike USAID, the U.K. Department for International Development’s budget is ring-fenced and designed to meet the 2015 goal of bringing foreign aid spending to 0.7 percent of the gross national income. To assuage the public outcry at a time the country is going through domestic challenges, the department commits to getting better results and value for money. It has developed a tighter set of criteria for awarding grants and issued a code of conduct for contractors. AfDB is also pursuing better value for money for its procurements, on top of sustainability and proportionality, which one official told Devex “means that complex things would need to be procured differently from not so complex things,” as part of an ongoing reform initiative. Slated to be completed by end-2014, the procurement review and reform drive recognizes that given the current trends — the bank now works in more varied contexts, including low- and middle-income economies, as well as stable and post-conflict nations, and the development landscape has embraced new players, thus requiring new ways of doing business — AfDB needs to have greater flexibility in its contracting, by focusing on long-term costs of acquired goods and services and “best value” instead of the lowest possible cost at the time of purchase. As part of the effort, the bank is helping partner countries have the capacity to meet the new procurement standards. At the Global Fund to Fight AIDS, Tuberculosis and Malaria, allegations of funding misuse have led to a restructuring of the organization and its activities, including its procurement approach. Instead of spot tendering — where beneficiary countries would lodge separate, individual orders — it now pools procurements for lifesaving tools aimed at combating the three diseases. The contracts span two years, during which the fund will monitor supplier performance based on pricing, product quality and innovation, among others. Procurement is just under-recognized, it’s ignored, it is generally considered not sexy and boring, and it’s often underfunded. --— Jean-Marie Meyer, senior director of program procurement policy at MCC 7. Donors are ramping up efforts against procurement fraud Because procurements in international development are publicly funded, bilateral and multilateral donors are obligated to prevent wrongdoings in these activities. Recent years have seen a wave of actions to improve procurement accountability, amid a 24-hour news cycle that makes information about irregularities involving contractors easily known to the broader public. DfID’s supplier code of conduct, for instance, requires contractors to commit to a zero tolerance approach to corruption and fraud. The AfDB Group, ADB, EBRD, IDB and World Bank Group, meanwhile, have agreed to mutually debar a person or entity found to have committed corruption, fraud, coercion and collusion in their funded projects. More than 400 firms and individuals have been prohibited to do business with EBRD indefinitely or for a specific period following debarment decisions by other multilateral development banks. Since the launch of its reform agenda in 2010, USAID has taken a string of actions against its erring implementing partners: As of December 2013, the agency had suspended, debarred or proposed for debarment 80 individuals and organizations. It is also enjoining contractors to bear more of the responsibility to prevent corruption in procurements. Noting that implementers are to blame for the vast majority of procurement irregularities, USAID’s inspector general has called on these organizations to make spot inspections of bidding proceedings a common practice so that the prescribed contracting competitions actually happen. Stay tuned to Devex for the latest news and in-depth analysis on procurement in international development.