World Bank working to define 'value for money' in procurement

World Bank President Jim Yong Kim speaks with a local expert of the bank’s project in India. The financial institution wants to move away from lowest price as the single criteria in procurement. Photo by: Graham Crouch / World Bank / CC BY-NC-ND As the World Bank moves ahead with President Jim Kim’s ambitious reform agenda, the bank’s procurement team is working to articulate specific policies to move away from simple cost considerations towards a broader definition of “value for money” — a term creating buzz among the development community. The change has been a high priority for contractors and vendors that do business with the Washington, D.C.-based institution, who see the bank’s current policies as biased towards low-priced bidders to the detriment of quality and other non-price factors. “What we hear from the business community is that they are reticent to be innovative or put the higher quality proposals through to the World Bank, because their view is that people will buy based on lowest price,” Chief Procurement Officer Christopher Browne told Devex. Browne — who is overseeing the policy review — explained that the current policies for buying goods, works and services with bank-financed loans do technically take non-price factors into consideration. However, those factors are translated into dollar amounts, he said, meaning the lowest-evaluated bidder generally wins. “I think what we envisage here is that everything doesn't need to boil down to a dollar value, there are qualitative factors that can be used in terms of determining the best offer,” he said. Those criteria would include total life-cycle costs, warranty periods, maintenance, training, energy efficiency, disposal costs and other factors. In a sign of where the World Bank could be moving, the European Union’s new guidelines to achieve value for money in procurement take into account factors such as quality, technical merit, and aesthetic and environmental characteristics. Currently, the World Bank uses non-price factors for hiring consultants — and those procedures could also be applied to goods, works and services. Working out the details What specific non-price factors the World Bank will ultimately use — and how they would be weighted and justified in procurement decisions, as well as explained to bidders — will be hashed out over the next few months as the organization finalizes its policy reforms pushed by the president. The bank’s broad vision for a new procurement policy was outlined in a document approved by the board in late 2013. According to Browne, the more detailed policy articulation will likely be submitted for approval in June, which will be followed by further consultations before final approval in the third quarter of 2014. In certain scenarios, such as projects with very tight specifications and reliable vendors, lowest price could be the best factor to determine who wins the contract. But the goal, Browne stressed, is to tailor procurement approaches to different situations, align the bank with best practices in public procurement around the world, and make it clear to the business community that the institution is moving away from lowest price as the single criteria. The language in the policy framework, the chief procurement officer noted, is the “clearest signal there could be” that the bank had gotten the message. “It says ‘value for money’ it doesn't say ‘lowest price’ … so our issue now is how that cascades through the whole decision-making process,” Browne said. Local vs. international bidding Beyond implications for the business community, the new policy will also have implications for the bank’s client countries. Projects are funded through loans to client country governments, and those governments are involved to varying degrees in the procurement process for each project. The World Bank is currently debating whether to require client countries to take non-price factors into consideration when their contracts are bid for locally — a process known as national competitive bidding. Meanwhile, the bank’s large, internationally-bid contracts will be tailored depending on the specific situation, which could require substantial efforts to train and develop procurement officers in client countries for procurement mechanisms that require more judgement and expertise. “This [type of contract] is more complex. It requires technical knowledge, more time, more analysis, more judgement, more justification. So what will go hand-in-hand with this is capacity building and — particularly in low-capacity environments — more hands-on support from the bank,” Browne explained. Ultimately, he said, the goal is to encourage vendors to bring their best resources, talent and ideas to the table — and therefore help to ensure better development outcomes for countries. Read more development aid news online, and subscribe to The Development Newswire to receive top international development headlines from the world’s leading donors, news sources and opinion leaders — emailed to you FREE every business day. See more: 'New norm' key to World Bank procurement reform Where should procurement fit into new World Bank 'global practices?' World Bank procurement team to join governance 'global practice' World Bank procurement reform: From one-size-fits-all to country-specific Procurement ‘not sexy, boring’