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Strengthening the demand-side for improved public investment


Kirsten Hommann, Sr. Economist …

Kirsten Hommann, Sr. Economist
ICGM Conference
December 6, 2011

Published in Economy & Finance , Business
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  • The country CoST Program aims to establish a public disclosure process for the construction sector which is viable and appropriate to country conditions, sustainable in the medium and long-term as a government system, and which has a credible and substantial level of compliance in the relevant sector entities. It also aims to ensure that the disclosure process is effective in stimulating an active demand for accountability of construction entities and that this results in improved performance in the entities and in public construction projects.The purpose of the global CoST program is to form a partnership for countries establishing processes that allow public access to reliable information on public construction projects, create a better understanding of issues affecting value for money, and encourage interaction with stakeholders that raises the accountability of public entities for performance and integrity in public construction. The global program will administer international funds to provide technical guidance and technical support to participating countries, provide a global forum for exchange of knowledge and experience, and run a framework for evaluating and recognizing the performance of participating countries.
  • CoSTprovides support to governments to put systems in place that allow public access to reliable and detailed construction project to multi-stakeholder groups to oversee the validation and interpretation of the information and to build the capacity of the target audiences to understand its implications. Empowered with information and understanding, stakeholders (citizens, media, parliament, oversight agencies) raise challenges over instances of poor performance, perceived mismanagement or corruption: where possible, they will demand better project outcomes, savings, and more effective and efficient governance systems for delivery.Government responds to the concerns by commissioning audits into specific projects or wider reviews into the performance of an agency or the sector as a whole: it will have information to investigate alleged incidents of mismanagement and corruption and subsequently act to sanction staff or prosecute offenders.Governments and agencies then improve corporate and project governance by building capacity in procuring entities to improve project outcomes and by improving operational procedures and regulations.These actions should encourage and enable positive changes in behaviour in procuring entities (better management and less corruption) and possibly attract new companies into the market (more genuine competition) leading to better use of public funds, lower costs, reduced time in delivery, better quality projects and improved certainty of outcomes.
  • CoST PrinciplesA multi-stakeholder initiative promoting transparency and accountability in publicly financed construction projects.Offering procedures that improve and broaden information disclosure .Expert verification and interpretation of information collected.Findings disseminated through public forums/channels.
  • Assurance team ‘assures’ ex post that project data and analysis - from the feasibility study through variation orders - are accurate, appropriate and justifiable. Ensuring that “must-have” ex post evaluation and review is present. ‘Institutional failure’ can be corrected and social trust garnered through CoST’s participatory framework.But this process must be internalized to ensure sustainability Enhances the credibility of “project preparation steps” by making info available across the full project cycle from design through implementationAdditional state-owned investigation is required to classify the ‘type’ of irregularity present
  • Baseline studies revealed that only half information required to be disclosed under current legislation is actually disclosed.Information on over 200 projects across 29 procuring entities was collected, verified and disclosed.Significant inefficiency and mismanagement identified throughout the construction cycle.Major causes of concern: unjustifiably long timeand high costs overruns; and low levels of competitive bidding.Current emphasis on procurement reform is a necessary but not a sufficient focus for improving efficiency and obtaining better value for money in public construction.


  • 1. STRENGTHENING THE DEMAND-SIDEFOR IMPROVED PUBLIC INVESTMENTKirsten Hommann, Sr. EconomistICGM ConferenceDecember 6, 2011
  • 2. RATIONALE OBI v. Credit Ratings (Hameed, 2010) Fundamental right Informs voice and political process 2 Enables accountability Improves performance in public sector (?) Reduces risk of OBI v. EMBI Sovereign Spreads (Hameed, 2010) corruption (?) Reduces price of borrowing
  • 3. OTHER SIMPLE LINKAGES: MEDIA AND OPEN BUDGET INDEX100 Number of obs = 93 South Africa New Zealand Adj R-squared = 0.3430 United Kingdom France Coefficient = -.6778005*** Sweden Norway United States Spearmans rho = -0.6065 80 Chile Korea, south Brazil Slovenia Germany India Sri Lanka Peru Poland Spain 60 Czech Republic Ukraine Colombia Mongolia Russia Romania Portugal Italy Slovakia Papua New Guinea Croatia Turkey Argentina Bulgaria Georgia Uganda Philippines Ghana Serbia Namibia Mexico Botswana Indonesia Guatemala Jordan Macedonia Kenya Egypt Bangladesh Costa Rica Malawi Tanzania Nepal Bosnia-Herzegovina Azerbaijan 40 Thailand Liberia Malaysia Kazakhstan Pakistan Nicaragua El Salvador Zambia Mali Timor-Leste Venezuela Trinidad and Tobago Albania Lebanon Ecuador Mozambique Morocco Angola Yemen 20 Afghanistan Nigeria Cambodia Kyrgyz republic Dominican Republic Vietnam Bolivia China Honduras Rwanda Sudan Congo, dem. Rep. Burkina Faso Senegal Niger Cameroon Algeria Saudi Arabia 0 Chad Iraq Fiji Equatorial Guinea 0 50 100 150 Press Freedom Rank (the lower the better)
  • 4. STARTING WITH SIMPLE CONCEPTS GovernmentElectoral Process Contestability of Markets Media Expertise Education Independence What are the Goods in Question and how are they ServiceCitizens provided? Delivery Agents
  • 5. BUDGET CYCLE: CREATING BETTER INCENTIVES THROUGH PARTICIPATORY MONITORING Budget Formulation Participatory Budget Planning Performance Civic Budget Review & Analysis Monitoring Engagement Participatory review: DoParticipatory Monitoring, allocations match announced Score Cards social commitments? Budget/Expenditure Tracking Participatory PETS
  • 6. IMPROVING PUBLIC SERVICE DELIVERY THOUGH PARTICIPATORY MEASURES: WHAT IS THE EVIDENCE? Olken (2007)  Community-Based Monitoring of rural roads in 600 villages in Indonesia  An average of 24 percent of road expenditure were estimated to be diverted, which were reduced by 8 percentage points where audits were pre-announced and with insignificant reductions where participation was carried out without the audit. Bjoerkman and Svensson (2007)  Community-Based Monitoring of Health Service Providers in 50 communities in Uganda  Quality and quantity of health service provision improved through Citizen Report Cards; 1.7 percent lower deaths of children under 5 in control group Luo, Zhang, Huang and Rozelle (2010)  Examined the relationship between direct elections and investments in public goods in 2450 villages in China  Directly elected village leaders implement more public goods projects compared to non-elected leaders
  • 7. IMPROVING SYSTEMS, PROCESSES AND PRACTICES IN PUBLIC CONSTRUCTION Value of global construction industry to increase to $12 trillion p.a. by 2020 (13.2 per cent of global GDP) - Global Construction 2020 Mismanagement, inefficiency and corruption can account for 10 - 30% of a construction projects value - OECD, TI Construction Sector Transparency Initiative (CoST) : A participatory, multi-stakeholder, multi-national framework to improve transparency and accountability in public construction  Hypothesis (similar to Bjoerkman and Svensson): lack of reliable and structured information and organizational capacity constrain service delivery improvements (here transparency in construction sector)  Pilot Phase: 2008 – early 2011  Country Participants: Ethiopia, Guatemala, Malawi, Philippines, Tanzania, UK, Vietnam and Zambia  Locally constituted multi-stakeholder group (MSG) oversees application of disclosure and assurance protocols
  • 8. BRINGING TOGETHER TRANSPARENCY AND ACCOUNTABILITYImprove transparency through Encourage informedpublic disclosure and reaction to createassurance of relevant demand for improvedinformation efficiency and quality Disclosure Informed Reaction Assurance Accountability
  • 9. COST PRINCIPLES Promote transparency and accountability in publicly financed construction projects Implement a multi-stakeholder approach that incorporates representatives from public and private sector as well as civil society Collect, verify and interpret disclosed project information along the full construction value-chain Disseminate information through public forums/channels Voluntary and flexible implementation of these principles
  • 10. COST PROCESS DISCLOSURE  Procuring entity regularly discloses “Material Project Information” (MPI). ASSURANCE  Assurance Team is responsible for assessing the adequacy and reliability of project information disclosures, and identifying “areas for concern” REPORTING  Assurance Team publishes reports to disclose to the wider public its main findings
  • 11. WORKING ACROSS THE VALUE-CHAIN Program & Completion &Identification Design Procurement Implementation Budget Operation Project Tender Contract Updates, Completion identification, request, award Variations detailsOwner, Budget, Design during Justification available construction Assurance Reports
  • 12. MATERIAL PROJECT INFORMATION Project purpose For Main Works Location of project  Name of main contractor Intended beneficiaries  Contract price Specifications  Contract scope of work Budget  Contract program Engineer’s estimate  Significant changes in contract (PS)Tender process (project supervision)  Significant changes in contract, price (MW) Tender procedure No. expressing interest  Significant changes in contract, program (MW) No. shortlisted  Details of any reward for main contract No. submitting tender  Actual contract priceTender process (main works) Tender procedure  Total payments made No. expressing interest  Actual contract scope of work No. shortlisted  Actual contract program No. submitting tender Other documentsFor Project Supervision  Feasibility Study Name of main consultant  Financing agreement Contract price  Tender evaluation report Contract scope of work  Project evaluation reports Contract program
  • 13. HOW CAN DISCLOSURE HELP? Detect possible collusive behavior  No. expressing interest  Participation of bidders  Names of winning bidders Compare construction costs across bidders/geographic areas Compare efficiency of construction (time/cost overruns) Deterrent effect
  • 14. WHICH CAN RESULT IN: Reduced corruption Reduced construction costs Improvement in quality A level playing field Increased competition (more participants) Boost in investor confidence Improved taxpayer satisfaction Reduced poverty through economic growth
  • 17. REASONS FOR TIME OVERRUNS Projects finishing No information in less time than returned, 17% contracted, 4% Projects finishing on time, 19%Projects finishingmore than 100% over time, 19% Projects finishing up to 100% over time , 40%
  • 18. CoST Implementation Path Implementation Project information & Preparation assurance findings Country CoST disclosed – on progressive program basis until sustainable as Engagement prepared and government system initiated Gaining awareness of CoST
  • 19. COST INTERNATIONAL GOVERNANCE STRUCTURE – REVISED NOV-2011 CoST Board International Secretariat Delegate Assembly Implementing International Countries Stakeholders