Mexico Moves to Results-based Procurement System

Challenge

Despite having the world’s 11th largest economy, Mexico has a difficult history in the disbursement of public works and services to its citizens. In 2009, the procurement system was overregulated, focused heavily on the administrative function, and based primarily on legal regulations. Public procurement accounted for 40 percent of the federal budget (around 10 percent of gross domestic product, GDP), and the cost of inefficiency was estimated at between 10 and 14 percent per year. Lack of transparency also allowed corruption to flourish.  Additionally, the electronic procurement system was outdated and incapable of improving transparency, generating competition, or streamlining processes. Procurement staff lacked both knowledge and professionalism. 

Solution

In 2007, a procurement report by the Bank provided an in-depth assessment of Mexico’s procurement system and offered critical recommendations. Since 2011, a dedicated team of policy analysts in the Bank’s procurement unit used a combination of knowledge and convening services to play a key role in the reform process.  Through a number of conferences, closed events, and dedicated access to global expertise, the Bank acted as a partner of choice in providing specialized advisory services on cost saving strategies (framework agreements), in developing procurement performance indices, and in designing a professionalization program. Close attention to meeting the client’s needs was critical.

Results

Mexico has undergone transformational reforms in its federal public procurement system, re-orienting it around principles of delivery for results and focus on outcomes, and away from overarching processes and compliance procedures. Costs saving strategies and e-procurement systems have generated significant results and savings of US$1 billion in three years (Dec. 2009 – Dec. 2012, based on audited expenditures). Included were: 

• Eliminated 586 procurement regulations.
• Rationalized application of excessive and complex laws.
• Fostered competition and promoted governance.
• Applied framework agreements, consolidated purchases and reverse auctions.
• Introduced global best practices into Mexico’s procurement system.
• Implemented a robust transaction based e-procurement platform.
• Boosted processing to more than 70,000 electronic transactions in 2012, from 30,000 in 2010.
• Increased the number of private sector users from 10,000 in Dec. 2009 to more than 85,000 in Dec. 2012.
• Established the procurement intelligence unit, a strong skills development and certification program.
• Strengthened of the capabilities and reputation of the Ministry of Public Administration.
• Standardized procurement procedures.
• Improved clarity to the sanctions regime and dispute resolution frameworks.
• Increased participation of small and medium enterprises (SMEs) in the federal procurement system, with a growth of 36 percent in contracts awarded to SMEs between 2010 and 2011 (US$10 billion in contracts).
• Included social witnessing practiced in all large procurement contracts.
• Increased the number of  governmental entities with a certified procurement department, organized to support performance budgeting in the future, from none in 2010 to 322 in January 2013.

Bank Group Contribution

These just-in-time and strategic advisory services have been provided in Mexico through an innovative combination of knowledge and convening services.

This project included Bank expertise, international consultants and knowledge exchange partnerships among countries. The Bank facilitated an exchange program between Mexico and the Government of Western Australia. A similar program between Mexico and Colombia is in progress. 

The policy work also enhanced the Bank’s internal procurement unit’s interaction with other sectors (Poverty Reduction and Economic Management Network and the financial sector), and improved the impact of the Bank’s engagement in public procurement reform in Mexico. This project was an important input in the preparation of a Development Policy Loan, Strengthening the Business Environment for Enhanced Economic Growth, and for the implementation of an investment program.

Partners

The Bank has a long-standing engagement with the Government of Mexico in support of public sector reforms, including bringing the federal procurement system into a world-class results-based procurement system. The relationship between Mexico, the Bank, and the Inter-American Development Bank (IADB) has evolved in recent years and has become characterized by more intense dialogue on institutional and capacity strengthening and by an increased demand on the part of the Government for non-lending services.

The Country Procurement Assessment Review of 2007 was an example of such collaboration. This evolution has also led to an interest on the part of the World Bank and IADB to move toward greater reliance on the use of Mexican federal processes (harmonization strategy) and control systems to verify compliance with the Banks’ safeguard and fiduciary policies. This is part of a gradual process of devolving fiduciary responsibility to Mexico while supporting the Government in its efforts to strengthen capacity and reduce transaction costs.

Moving Forward

Improving the efficiency of delivery of goods and services requires continuing the procurement system reform that began in 2009, and the Bank is interested in continuing to support Mexico in this reform. In particular, the Bank would like to support Mexico’s objectives to align its public procurement system more closely with expenditure policy to generate value for money, ensure transparency and efficiency, and improve the quality of the works, goods and services procured.

Beneficiaries

The procurement reform has also supported other key Government policies. For example, this reform has contributed to the strengthening of small and medium enterprises, which account for over 95 percent of firms, and generate between 60 and 70 percent of employment.