Mexico: the federal procurement system saves money for social projects

Mexico City, May 7th 2012 – The ongoing modernization of the procurement system in Mexico could save up to MXN$100 billion pesos (about US$7.6 billion dollars) – 15% of the total procurement budget – and could mean a better supply of services like health, education and housing to citizens, according to government civil servants and international experts.

Poor procurement systems are not only inefficient, costly and make the risk of corruption greater, but they also prevent that the services go to those who need them the most. In order to help the Mexican government to keep these risks in check, the World Bank works with the authorities on the implementation of reforms to its procurement system.

This is an example of the long-standing partnership with Mexico that the World Bank has: beyond traditional lending services, the World Bank’s engagement focuses on comprehensive development solution packages tailored to the specific needs of the countries. This goes from offering technical assistance like in this specific case, to bringing key stakeholder together on an important issue, or helping to exchange knowledge with other countries.

In Mexico, public purchases represent about a third of the federal government’s budget and 8% to 10% of the country’s GDP, and therefore constitute the government activity with the most impact on the economy, according to Rafael Morgan Ríos, the Mexican Public Administration Minister. The procurement level in Mexico amounts to about US$55 billion in average per year, said the Minister. That means that saving a mere 1% would already represent saving US$550 million – money better employed in necessary social or infrastructure projects, for example.

To give an idea of how much a more efficient procurement system can benefit the population, authorities pointed out that 1% of savings could be equal to:

• 15 housing units of 192 apartments each;
• 2,000 cargo vehicles;
• 20 units of general practitioners and 10 general hospitals;
• 50,000 personal computers;
• 15 public libraries;
• 60 bridges;
• 40 schools of technological education;

Modernization of the procurement system

Mexico has gone forward in modernizing its procurement system to make it more transparent and efficient. The changes in the system were part of the agenda in an international conference on integrity in procurement, in Mexico City, March 27th to 28th, in which representatives of the World Bank, the Inter-American Development Bank, the Inter-American procurement network, as well as academics and representatives from Australia, Italy, Canada, US, Brazil, Paraguay, Chile and Panama participated, among others.

“The Bank has a long partnership with the government of Mexico on procurement, but more recently we have worked with them precisely to help implement this agenda of second generation reform, where the focus shifted more on performance outcome,” said Enzo de Laurentiis, World Bank Procurement Manager of the Latin America and Caribbean Region.

“ How the procurement system actually can deliver results and outcomes that are exactly matching the needs, in an efficient, economic and transparent way. The government, under the leadership of the Ministry of Public Administration has done an amazing job in developing this agenda, and is now beginning to implement it and actually achieving measurable results,” he added.

Results of the reforms

Rafael Morgan Ríos said for example at the conference that the Mexican government had saved about 4,670 million pesos in 2011 and more than MXN$8 billion pesos in the last two years taken together thanks to reforms in the procurement system. He added that international experience showed that saving up to 10% to 15% of the procurement budget can be expected from an efficient reform. This would represent an amount between MXN$ 70 billion pesos and MXN$100 billion pesos for Mexico, according to the Minister.

“Today we can announce that the establishment of the procurement systems reforms have made the coordinated establishment of procurement strategies possible,” he said.

Here are some of the results of procurement reforms in Mexico:

• The strategic use of framework contracts (sp) that put a price limit on tenders for certain goods, like plane tickets or work clothes.
• The standardization of processes through general manuals of public purchases and works. About 400 norms regarding public purchases were eliminated, simplifying the system and increasing its efficiency.
• The strategic use of CompraNet, the Mexican e-procurement system. This electronic system not only makes procedures more transparent, homogenous and easier to track down anomalies, it also promotes the participation of a higher number of companies in public tenders. Being more transparent and more efficient in data gathering, the electronic system also helps to establish informed procurement strategies.

During the conference in Mexico City, international best practices in procurement were discussed, with panelists from Mexico, the United States and Australia, among other countries. One important topic was how procurement is a tool to promote economic growth of a country. Paul Schapper, World Bank consultant, ended his presentation with a proverb: “If we continue on the same path, we will end up exactly where we are going.”