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B OX 6 .8
Publishing cost estimates as best practice? Trade-offs between transparency and collusion
Transition opportunity: Pressure for speed of action in fragile situations
Key stakeholders: Government agency tendering, domestic citizens, domestic companies, international donors and companies
Key stresses: Perceptions of cronyism toward contractors from particular political, ethnic, regional groupings in contracting that can exacerbate risks of violence
Institutional challenges: High insecurity, low institutional capacity, shallow competition, legacy of past corrupt practice
Dual accountability dilemma: Conducting processes acceptable to international donors and investors while achieving speed and legitimacy in local context In its loan agreements, the World Bank often requires the publication of partner countries’ engineering estimates of the costs of building a road. When the market is competitive, publishing the estimates can produce lower bids. Such publication also ensures a procurement norm of transparency and equity—that all bidders are on equal footing and companies with close ties to the roads authority cannot obtain the estimates “under the table.” Set against these benefits is the risk that this procurement practice will facilitate the opposite of its intent—collusion. When firms are negotiating an agreement on a collusive price, the cost estimate provides a target or focal point for their agreement. This effect is dramatically illustrated in a World Bank Institutional Integrity comparison of the estimated price against the winning bid on 46 contracts for road construction and repair let during 2009 and 2010 under a Bank-financed project in an Eastern European country. The closeness of the two is inconceivable without collusion (see figure). As a result, a procurement norm has achieved neither the goal of quick support—delays are created in publishing the estimate, nor fostering a legitimate and transparent process—due to real or perceived collusion. F I G U R E A Closeness of bids inconceivable without collusion 5 4.5 4 Cost (US$ millions)
198
3.5 3 2.5 2 1.5 1 0.5 0 0
2
4
6
8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 Contract Number Estimated cost
Actual cost
Source: Adapted from discussion with the World Bank Integrity Vice Presidency in 2010.
fragile states’ Dili Declaration of May 2010 states: “Although we all accept international standards, the donor community must be aware of our conditions and needs. That is
why we must give ourselves a transitional period to reinforce our capabilities and systems and not have complex and slow procedural requirements and conditions imposed upon