Track, Analyze, Improve: Modernizing Public Financial Management through Open Contracting
A sound accounting system is key to the success of any organization, be it a small- or medium-sized enterprise or the federal government. An important part of any public financial management (PFM) system, accounting links information from budgeting to spending and helps analyze and visualize the government’s cash flow.
Public procurement is the single most important link in the PFM chain to achieving fiscal and economic sustainability as it is where the government converts its budget into goods and services for citizens and into business opportunities for companies. Public procurement is the bricks and mortar of public benefit.
Huge amounts of money are involved in public contracting—an estimated US $9.5 trillion per year, or 15% of global GDP. The PFM challenge is equally huge: procurement is government’s number one corruption risk, according to the Organisation for Economic Co-Operation and Development (OECD), UN Office of Drugs and Crime, and the World Economic Forum. Some 57% of foreign bribery cases prosecuted under the OECD Anti-Bribery Convention involved bribes to obtain public contracts. One of the key reasons public contracting is vulnerable to corruption and mismanagement is that it is often hidden from public view: the 2015 Open Data Barometer found that just 6% of countries publish open data on government contracts.
To address these challenges, Open Contracting works to improve the disclosure and use of public procurement data, as well as engagement of business and civil society across the whole chain of public procurement from planning to tender to contract to implementation. Opening up this data and linking it to other data sets, including budgeting, planning, and spending data, can help improve the ability of governments, businesses, and citizens to follow the government’s money and ensure it delivers on its promises to citizens.
This openness is not about transparency for transparency’s sake, and we at the Open Contracting Partnership work with local reformers to put data to use so that the money involved is spent more effectively, honestly, and fairly. Open Contracting is about targeted documentation, data, and analysis to address four key user needs that are integral to achieving fiscal and economic sustainability—each of which resonates with the goals outlined in International Framework: Good Governance in the Public Sector, by IFAC and the Chartered Institute of Public Finance and Accountancy.
These key user needs are:
- improving public integrity, including identifying red flags for corruption in procurement, and scrutinizing who wins and delivers contracts, when, for how much, and for what;
- tracking delivery and quality of goods and services, as well as milestones in contract implementation;
- promoting market opportunity, including empowering aspiring businesses to understand what the government buys and what past contracts look like, so that they can more effectively participate in the contracting system and win more bids; and
- improving value for money, including enabling government agencies to analyze key procurement indicators, such as awards, and connect these to budget and implementation data to ensure efficient spending of public money and find ways to save.
Open Contracting is guided by a set of global principles for improving disclosure, data, and engagement across the entire chain of public procurement around these user needs. This is operationalized by the Open Contracting Data Standard, a user-friendly open data schema that describes what, when, and how to publish information to make it useful and practical. It provides for structured, machine-readable information on documents and data like budgets, bid proposals, bidder information, contracts, and invoices. Its unique identifiers facilitate tracking and analysis—an important factor, as monitoring results and generating evidence of how open contracting reforms can best add value to public financial sustainability efforts is core to our approach.
We have seen rising demand for open contracting reforms from governments globally and endorsement of open contracting in global fora, such as the G-20 Principles for Integrity in Public Procurement, the G-20 Anti-Corruption Open Data Principles, and the G-20 Anti-Corruption Implementation Plan 2017-2018. There is rising engagement in open contracting by civil society, especially in Africa and Latin America, and strong sectoral interest in infrastructure, healthcare, public-private partnerships, and the oil and mining sector and emerging sectoral interests, such as climate finance and foreign aid.
The most notable story so far comes from Ukraine, where open contracting is at the heart of nation-wide public procurement reform. The government has saved an estimated 10% on the planned budget (over US $800m and counting) and has become smarter about their planned procurement spending. From January 2015 to March 2017, the average number of bids per tender rose by 15%, and the number of unique suppliers grew by 45%. Corruption has decreased. In turn, auditors, journalists, and civil society organizations are now able to actively investigate fraudulent contracts with greater ease. If these results could be replicated across other countries, the benefits would massively outweigh the investment required and help build a global field that could replicate this work elsewhere.
We believe that open contracting should be a priority given the inherent risks in procurement and, conversely, the high gains associated with improvements. More efficient spending of public funds through open contracting will contribute to improved fiscal sustainability.
As mentioned, open contracting fits well with International Framework: Good Governance in the Public Sector. The outlined Principles of Good Governance in the Public Sector resonate strongly with the open contracting global principles and our approach to implement them globally. Our Seven Steps Guide to Implementing Open Contracting also follows a similar line as the Framework’s guide to achieving the intended outcomes while acting in the public interest at all times.
We look forward to exploring specific ways we can work together with IFAC members and accountants around the world; please feel free to reach out to us at email@example.com or leave a comment for us below.