This research focuses on the e-procurement implementation in Colombia due to the open contracting policies adopted. Based in this topic the research question and the purpose are formulated. Consequently, reviewing other related research is conducted in order to achieve a better comprehension to determine solution alternatives for the formulated question. Then, the methodology and research model are designed explaining each process stage followed in conducting this study. This research employs secondary data from governments institutions in charge of the e-procurement process and from international institutions such as The World Bank.
The public data used consist of more than 1 million record transactions between public entities and suppliers. The analysis and evaluation of this data collection is done through a specialize software to execute the appropriate data mining model. Finally, the finding and results will be exposed, followed by conclusions. The fig.1 shows the research procedure of the thesis.
Figure 1: Research process
Source: Author, adapted from A structured approach to presenting research thesis (Perry,1998)
5 1.4 Thesis Overview
This five major chapters of this thesis are:
Chapter One: Introduction. This chapter includes three main sections: The topic background, followed by the thesis purpose and objectives which guide the thesis statement, and lastly, a schematic outline of the thesis remainder
Chapter Two: Literature review. In this section a reviewed of the most relevant and significant studies and publications regarding to the topic is provided, including the main contributions and its authors in order to achieve a comprehensive look and conceptual framework about the topic to support the theoretical bases of this study.
Chapter Three: Research Method. This Chapter explains the research methods and design that were used to conducted the study, including the data sources, data gathering procedure, data analysis, statistical treatments and research instruments.
Chapter Four: Analysis Results and Discussion. This section presented the findings of the study, its analysis and interpretation.
Chapter Five Conclusions: In this last part the summarized of the major research findings, its implications, the contribution and suggestions for future research directions are displayed.
6
Chapter 2 Literature Review
2.1 Open Contracting
In order to understand the definition of open contracting, it is necessary to clarify how its arises and explain its theoretical bases, which have been developing with the evolution of open data and open government initiatives. Firstly, public sector procurement refers to the government activities of purchasing goods, works and services, which it needs in order to carry out its main functions (Arrowsmith, 2010). Public contracting is an essential part of the public financial management cycle. Public contracts generate revenues through the issuance of licenses to operate public services, concessions for the extraction of natural resources, and the sale of public property.
These public contracts cover all economic sectors and types of agreements, ranging from the small procurement of goods to large capital spending for development of major infrastructure projects.
That means public procurement refers to the acquisition of goods, services and works by a procuring entity using public funds in a country and concerns contracts between the government and the private entity in many different areas such as health services, the military and construction.
Throughout the world, public procurement is a big business. Public entities have always been big purchasers, dealing with huge budgets. Public procurement is an area of interest, since it contributes between 16% and 18% to a country’s GDP (Rolfstam, 2013). All governments worldwide spend approximately 9.5 trillion USD every year on public procurement (Estefan, 2014), which can be very vulnerable to corruption, inefficiency and mismanagement. Despite the procurement system will be subject to the constitutional outcomes of fairness, equitability, transparency, competitiveness and cost-effectiveness, according to the OECD Anti-Bribery Convention 57% of cases of corruption prosecuted are bribes to get public contracts (OECD, 2016), in both wealthy and developing countries around the world, public contracting has been identified as the government activity most vulnerable to wastefulness, mismanagement, inefficiency, and corruption.
7
The above is partly due to there is limited information in the public record about (a) the planning of public contracts, (b) how public contracts are formed, (c) the content of the agreements; (d) the progress of their performance or (e) the government supervision procedures. This lack of information can make difficult to assess whether the government is getting good value for money or whether the parties to the contract are fully complying with their obligations. As a result of the growing recognition of these issues, as well as emerging norms related to access to information and collaborative governance, there has been a recent avowal of increased disclosure and participation practices in public contracting around the world.
Therefore, the Open Contracting concept appear to develop open data standards for disclosure of public contracting information. In short, Open Contracting basically refers to the pro-active publication of government contracts. At its core, open contracting consists of: 1) the affirmative disclosure of information; and 2) participation, monitoring, and oversight. According to the Open Contracting Partnership (OCP), “open contracting is about publishing and using open, accessible, and timely information on government contracting to engage citizens and businesses in identifying and fixing problems.” (OCP, 2018) Most importantly, open contracting consists of disclosure and engagement throughout the entire chain of procurement, including planning, tendering, awarding, and implementation (See Fig 2.)
Figure 2: Open contracting and the procurement chain Source: Author, adapted from Open Contracting Partnership
8
The information that must be publish in an open contracting policy regarding to the stage of the contracting process its summarize in the Table 1. It is important to emphasis that this information should ideally be published in open and machine-readable formats, and in a manner which is easily searchable and accessible.
Table 1: Publications categories for a Strong Open Contracting System Publications categories for a Strong Open Contracting System Stage of the process Information to Publish
For The general process
• Procuring entity and buyer (name, identifier, address, contact) [depends of the stage bidder of supplier]
Planning Phase • Contracting process Identifier (ID)
• Procurement rationale
• List of milestones in the planning stage
• Budget reserved for the contracting process
• Project the contracting process forms part of
• Link to further information on the budget for the contracting process
• Documents relating to the planning process
• Tender identifier
• Description of the tender
• Status of the tender
• Items to be procured
• Classifications for the items to be procured
• Estimated tender value
• Procurement method
• Rationale for the procurement method
• Category of the object of the procurement
• Award criteria
• Submission method for bids
• Tend period
• Inquiry period
• Eligibility criteria for the tender
9
• Evaluation and award period
• Estimated contract period
• List of other key milestones for the tender stage
• Documents and attachments related to the tender Tender Phase • Contracting process identifier
• Tender identifier
• Description of the tender
• Status of the tender
• Items to be procured
• Classifications for the items to be procured
• Estimated tender value
• Procurement method
• Rationale for the procurement method
• Category of the object of the procurement
• Award criteria
• Submission method for bids
• Tender period
• Enquiry period
• Whether enquiries were received
• Eligibility criteria for the tender
• Evaluation and award period
• Estimated contract period
• List of other key milestones for the tender stage
• Documents and attachments related to the tender
• Amendments to the tender Awards Phase • Contracting process identifier
• Bidder identifiers and bid prices for winning bidder/s &
• losing bidders.
10
• Classifications for the items awarded
• Period of the contract
• Documents and attachments related to the award
• Amendments to the award of the contract Contracts Phase • Contracting process identifier
• Contract identifier
• Identifier for the award which resulted in the contract
• Description of contract
• Contract status
• Contract period
• Contract value
• Contracted items
• Classifications for the items in the contract
• Date the contract was signed
• List of other key milestones for the contract
• Documents and attachments related to the contract
• List of key milestones for contract implementation Implementation
Phase
• Contracting process identifier
• Date and value of spending transactions against the contract
• Payer and payee for spending transactions against the contract
• Links to further information on spending transactions against the contract
• List of key milestones for contract implementation
• Status of contract implementation milestones
• Documents and reports that are part of the implementation phase
• Rationale for amendments to the contract
• Amendments to the contract period
• Amendments to the contract value
• Amendments to contract items or terms
Source: Guide to Defining Open Contracting Data Standard Functional Requirements for Electronic Government Procurement Systems,2016.
11
However, the publishers will need to decide the extent of the data that will be published and also determine their technical approach from among the basic, intermediate, and advanced data and documents levels that governments are able to publish along with the below five-star framework for the technical approach (See Fig 3.)
Figure 3: Five-star framework for the technical approach in open contracting Source: Standard Open Contracting org
In short, open contracting goes well beyond anticorruption, improving value for money, efficiency, competition, quality of services, and public integrity. Open contracting data can enable efficient oversight of government services by revealing who is getting paid how much to deliver what, as well as how they were selected, and whether they delivered on time and with quality. This can expose anomalies that alert the public and government officials to procurement processes that are inefficient or uncompetitive, delivered the wrong results, delivered them late, or are too expensive (OGP, 2019). In addition, the transparency of the announcement and awarding of tenders can encourage new, often smaller, companies to participate in public procurement, and clarify demographic differences in who is applying. This, in turn, can promote sustainable development and higher-quality goods and services derived from a greater offer.
For the reasons mentioned above Open Contracting is an emerging global movement which is increasingly adopted by more countries around the world. In 2015, the G20 recognized openness in contracting as a key element in its Anti-Corruption Open Data Principles and Principles for Promoting Integrity in Public Procurement. Some empirical evidence as the 2017 World Bank
12
study covering 34,000 firms in 88 countries found that greater transparency in the contracting process leads to greater competition–particularly from smaller firms–and fewer kickbacks to officials. Afterward, at the 2016 OGP Global Summit, the governments of Colombia, France, Mexico, the United Kingdom, and Ukraine founded the Contracting 5 to advance open contracting.
The Paris Declaration on Open Government, signed by all members of OGP in 2016, pledged to promote open procurement as its first “collective action.” At the same time, the Open Contracting Data Standard (OCDS) has become a global standard for open contracting. As a global, non-proprietary standard, the OCDS defines a common data model for disclosing data and documents at all stages of the contracting process.
Currently, 23 countries are disclosing procurement data in OCDS format, and more than 60 countries are pursuing open contracting more broadly and each time more countries are working towards publishing open contracting data on business and civic engagement. For other side, the Open Contracting Partnership, founded in 2012, develops and promotes the implementation of the later-stated Open Contracting global principles supports practitioners with training, resources, seed funding, coaching, coalition and network building, builds evidence for Open Contracting through research, monitoring and evaluation and finally, communicates and advocates the importance of Open Contracting (Stephan, 2014)
2.2 E- procurement
E-procurement is one of the most powerful tools to carry out open contracting policies. The concept of E-procurement has many different meaning ranging from shopping on the internet through reverse auction to collaborative initiatives taking place in virtual meeting, but one of the definition most accepted is from Van Weele (2010), who considers that “E-procurement includes web technology-based purchasing solutions aimed at simplifying commercial transactions within and between organizations and information technology solutions for ordering, logistics and handling systems as well as for payment systems”. E- procurement is defined also by Boer, Hanrink and Heijboer (2012) as “using internet technology in the purchasing process”.
In short according to the literature, e-procurement refers to the implementation of electronic
13
methods, commonly internet to conduct transactions between awarding authorities and suppliers.
E-procurement systems represent a major e-business innovation that is used within supply chains.
They rely on the internet and capitalize the novelty of web-based technologies to automate and streamline procurement process. This process covers every stage of purchasing, from the demand estimation and the needs identification, through the tendering process, to the payment and potentially the contract management. When successfully implemented, these systems can offer many benefits including cost savings, buying reduction, greater accuracy, timely information, transparency and reduction in process complexity (Eassig and Amann, 2013).
There are various models of E-procurement, these has been classified depends on the model bases, as follow:
1) Indirect Procurement System (IPS):In the IPS model, the contracting unit estimates the demand, defines the budget and notifies the needs. The sourcing activity is handled by a different subject that does not coincide with the ordering one. In the IPS model the ordering subject can be a corporate body, which can be both public and private. The other phases of the e-Procurement process are managed by the contracting unit.
2) DirectProcurement System (DPS):in the DPS model the contracting unit coincides with the ordering subject: the public administration that purchases good or services manages the relative procedure of sourcing.
In short, the difference between IPS and DPS is that in the IPS model the ordering unity does not manage the sourcing phase, which is managed by a different subject, whereas, in the DPS model, the sourcing phase is managed by the ordering unit.
The growing interest regarding the introduction of systems of e-Procurement in the public contracts sector to offered by these instruments, of rendering the provisioning procedures more efficient. In fact, experience already gained in the use of these tools reveal how the use of advanced technological systems for the purchase of goods and services brings with it savings which stem from a reduction of costs relative to product research on the administrations side, and a reduction of spending for commercial transactions.
14
More specifically, e-Procurement technologies realize a virtual market, open to qualified suppliers (and goods) according to not particularly restrictive selection criteria, in which public administrations can select goods and services offered by several suppliers. The entire process is digital, using digital signature in order to guarantee transactions legally.
Among the major advantages that a public administration can obtain through a e-procurement system there are (Corsi, Gumina and Ciriaci, 2016):
- costs and process cutting,
- potential broadening of suppliers base,
- easy access to selected goods (pre-defined quality standards), - information transparency and ease of comparison among goods, - purchases logging and subsequent expenditure monitoring,
while, from the suppliers side advantages are:
- selling cost reduction (due to broadening of potential customers base and lower intermediation cost),
- major visibility,
- more competitiveness especially in local markets (for small and medium sized enterprises), - B2G introduction, especially for large sized enterprises, in addition to existing B2B and
B2C.
The development of information technology, in terms of internet, resulted in remarkable changes for enterprise supply chain strategies and practices over the last several years back. Fraser Johanson and Robert Klassen (2005) states that e-procurement and its core role in supply chain management revolutionized in helping business to business practices and enhancing the flow of information along the supply chain network.
By taking into account the holistic and tangible advantages, aspects and efficiency of E-procurement, organizations and government sectors in many countries(CIPS) tended to start adoption of e-procurement along with the introduction and development of electronic data
15
interchange (EDI) and it has been increasingly improving and being adopted since internet and world wide web came into being. E-procurement technology and also some other sophisticated technologies in the area of e-procurement and electronic transactions are giving procurement managers and professionals this capability and opportunity to turn into real supply managers.
Today the role of procurement is shifting from cost reduction to value creation within the supply chain for the organization, some direct and indirect effects of E-procurement Implementations are showed in the Figure 4.
Figure 4: Direct and Indirect effects of E-procurement
Source: Adapted from The role of the E-procurement in the purchasing process (Meier, 2016)
The Stages of the E-procurement are: a) Strategic procurement, b) Tactical Procurement and c) Operative Procurement how is detailed in the Figure 5
16
Figure 5: Stages of E-procurement
Source: Adapted from E-Procurement (Meier and Teran, 2015)
As is described in the Figure 6, there are three different E-procurement solutions model: 1) Sell side Market model, b) Buy-side Market Model and c) Market Place Model
Figure 6: Overview of E-procurement solutions Source: Adapted from E-Procurement (Meier and Teran, 2015)
17
Nevertheless, in E-procurement platforms for public contracting the most similar Model is Market place. Some components of the procurement model are Catalog of products and services, Definition of user profiles, Content management system conformed by Content, search engines, Basket, ePayment, Reports and the Interface to ERP system. This model is operated by an intermediary. Offers product descriptions and comparisons, reduces the search expenditures of market participants and more entities could participate to get the contract. This model is described in a general way in the Figure 7.
Figure 7: Overview of E-procurement solutions Source: Adapted from E-Procurement (Meier and Teran, 2015)
2.3 Open Contracting and E-procurement in Colombia
Based on the recommendations of the Organization for Economic Cooperation and Development (OECD) which highlighted the need to adopt information technologies to make public management open, increasing the availability of data in open formats (MinTic, 2016) along with the commitments made with the Open Government alliance to facilitate openness in government, promoting innovation, are implemented in 2014 the guidelines for the strategy of online government stipulated in the decree 2573. Nevertheless, the online Government is a strategy
18
disposed in the law 1450 of 2011, which define the framework for the development of the Data Model Open for Colombia.
Since 2011 Colombia has implemented regulations guided by the open government initiatives, in 2012 the guidelines for the implementation of open data in Colombia, which presents an Open Data Model adjusted to The Online Government Strategy, allows, operating and managing the supply and demand of the public access data currently owned by the entities of the Colombian State (MinTic, 2014) in December of the same year the Ministry of Information Technologies (MinTic) established by Decree 2693 of 2012 the general guidelines for the online government strategy of the Republic of Colombia, subsequently repealed by Decree 2573 of 2014
Regarding to transparency, the Law on Transparency and the Right of Access to National Public Information - Law 1712 of 2014 - establishes the procedures to guarantee the right of access to public information, along with exceptions referring to information that is classified public or reserved public information - Decree 1078 of 2015 -.
Colombia is also member of the Open Government partnership since 2012, and together with other countries concerned as Georgia, Korea, Slovakia, and the United Kingdom are innovatively using technology to increase the transparency and effectiveness of procurement processes through online platforms, other commitments on beneficial ownership transparency at anti-corruption summit in Colombia are mentioned in the Table 2.
Table 2: Colombia Commitments on beneficial ownership transparency at anti-corruption summit
Overview Commitment
Beneficial Ownership Registers
Colombia commits to create a Central Registry of Beneficial Ownership of
Colombia commits to create a Central Registry of Beneficial Ownership of