In the countries of the former Soviet Union, CIPS and the European Bank for Reconstruction and Development are working with local organisations to transform procurement – and the wider economy
The European Bank for Reconstruction and Development (EBRD) is used to responding to momentous events in world history. It was established – in haste – in 1991 to help build a post-Cold War era in Central and Eastern Europe. With the collapse of communism, EBRD stepped in to aid the former countries of the Soviet Union in their progress towards ‘market-oriented economies and the promotion of private and entrepreneurial initiative’, mainly through financial investment.
Since then, its influence has grown. Today EBRD is active in more than 30 economies, moving beyond the countries of the former Eastern bloc and into markets including central Asia, in countries like Mongolia and Uzbekistan, and Balkan states such as Kosovo. What links the markets is they tend to have relatively low GDP.
The bank lends about €10bn-€12bn a year, between 70% and 80% of which goes to private companies. The remaining 20% to 30% goes to public sector projects, such as state-owned utilities or rail and road organisations. And this is where the importance of strong procurement comes in.
“Where we lend money to public sector organisations, they have to follow the procurement rules of the bank,” explains Richard Gargrave, associate director of the EBRD’s procurement policy department.
“The bank controls procurement quite tightly. We found that in most of those developing countries there’s no professional procurement qualifications, and it tends to be more of an admin function that doesn’t provide value for money. Corruption is a major problem in all of these countries, so we have a very strong emphasis on ethics.”
The bank has developed a procurement methodology structured along three main dimensions that emphasise the strengthening of market structures and participations; market supporting institutions and regulations, and the adoption of market-orientated behaviour, skills and standards.
To help deliver this improved procurement, EBRD partnered with CIPS in 2014 to develop a stronger corporate structure for procurement in these markets, making sure procurement was represented at company level and adding true value. CIPS in partnership with EBRD, developed the CIPS Primary Award to recognise robust procurement in organisations in order for them to meet donor funding criteria.
A pilot project with a group of Romanian water companies proved successful, with six companies so far being awarded the CIPS Primary Award. One was later disqualified when one of the MDs was indicted for corruption, says Gargrave.
Now the scheme has expanded, with CIPS and EBRD working with organisations including Kazakhstan Railways, Motorways of the Federation of Bosnia and Herzegovina and Macedonia’s road and rail projects.
They have also recently signed a deal with Ukrainian Rail, a monolithic organisation that until recently employed about 400,000 people, and yet had no formal CPO, says Will Beattie, head of international business development at CIPS.
Procurement will pay an integral role in the Ukraine’s rolling stock renewal programme to renovate an ageing fleet, which has become a bottleneck in the country’s transport system, due to shortages and the poor state of rail rolling stock. “Even if you manage to make a 5%-10% saving there, you’re talking hundreds of millions,” says Gargrave.
The value good procurement practices bring has been made clear in the projects so far. One of the biggest impacts has been reducing the number of complaints from unsuccessful suppliers. “It’s a really big problem for public sector procurement in the countries where we operate,” says Gargrave. “It’s standard contractor practice to complain when they don’t win. Even when there’s no smoke, people complain to delay the process or just to be a nuisance.”
Corruption and bribery is another big issue. A new business in Bosnia and Herzegovina in 2000 could expect to pay up to 30% of its expenses in bribes, according to a World Bank report. Transparency International found over a decade later that, despite reforms, corruption was still strong, and its most recent Corruption Perceptions Index placed Eastern Europe and Central Asia as two of the worst performing regions. Only Sub-Saharan Africa scored lower.
After going through the procurement process, two of the Romanian water companies reported receiving no complaints. According to one firm, Compania De Apa Oltenia: “Among the best measureable achievements since we obtained the CIPS Primary Award was we registered zero complaints about our procurement contracts.”
“That’s a cost saving, as they don’t have to go through the courts,” says Gargrave. “Encouraging an open tender ethos and transparency can make a substantial difference to that country.”
Another benefit is establishing stronger reporting lines into management, ensuring procurement is seen as more of a strategic function, and helping speed up decision-making. This also alleviates the issue of a procurement decision being overruled by senior management. “Getting procurement professionals more involved with the operation of the country or company makes work more fulfilling and gives them more authority within the organisation,” says Gargrave.
As in every other market around the world, digitisation is a key focus. “With procurement regulations still under the old Soviet system, it’s quite antiquated and there’s lots of paper,” says Beattie. “One company had two weeks where they couldn’t make any acquisitions because the person who looked after the company stamp was on holiday.”
“There’s room for improvement in terms of technology,” says Arman Kulmanov, group procurement director of Rompetrol, a privately owned Romanian oil group that has recently achieved the CIPS Procurement Excellence Programme Award (unconnected to the EBRD). “Everything used to be on paper, and we wanted to eliminate paper-based processes,” he adds. “We are an international company with offices in different regions. If you’re paper-based you have to get couriers, and it’s a nightmare to track documents.”
The company has implemented P2P and S2P systems and tools such as Docusign, to enable electronic signatures. Educating the supply base on such tools has been a slight challenge, Kulmanov says. “It’s not like you say P2P and everyone understands it. You have to explain it: what is a digital signature? What is the legality of it?”
The biggest improvement of doing the CIPS Procurement Excellence Programme Award has been obtaining a clear visibility on spend control, allowing procurement to act more as a business partner with internal and external stakeholders, “not just a service function”, believe Kulmanov and his colleague, procurement manager Natalya Tsoy.
“Even the smallest change [to procurement processes] can make a really big difference,” says Beattie. “With the state-owned organisations, it’s public money and they are under a huge amount of scrutiny and pressure. It’s such huge amounts of money that procurement has to be involved.”
Bosnia and Herzegovina
In 2017, the EBRD launched a programme to improve public procurement practices in Bosnia and Herzegovina. It focuses on strengthening the institutional capacity of the country’s Public Procurement Review Body (PPRB), an independent institution responsible for monitoring the application of the public procurement law, and guaranteeing the protection of tenderers’ rights.
Bosnia and Herzegovina adopted a new law on public procurement in 2014, which is being implemented to comply with EU directives (the country aims to join the EU). The EBRD project is particularly focused on dealing with complaints. According to ambassador Edward Ferguson: “Public procurement is a well-known problem area.”
With procurement in the national spotlight, public company Motorways of the Federation of Bosnia and Herzegovina recently completed the CIPS Primary Award. The organisation is currently undertaking the country’s largest transport infrastructure project, the construction of the motorway on Corridor 5C: a 335km motorway, part of a larger highway that runs from Kiev in the Ukraine to Slovakia and Hungary, through Bosnia to Croatia.
It took a year to go through the CIPS process, says Lejla Hodzic, senior expert associate for procurement. The three main areas for procurement were a code of ethics, risk management and contract management.
While getting the award wasn’t a quick process, she says it was worth it as it represents “the highest standard of integrity”, and allowed procurement to get a full insight of end-to-end processes.
Transparency needs to improve in the region. “Promoting anti-corruption measures is very important,” she says. “Procurement is the place where all eyes are. It’s where we need to go further in making the process open and fair.”
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