- In theory, moving government procurement processes online can save costs by curbing collusive practices amongst bidders and increasing honest competition for contracts.
- This project evaluated the actual effects of the introduction of e-procurement in a government department in Bangladesh.
- The researcher found that e-procurement has a significant impact on decreasing contracts prices paid by the department – by more than 10%.
- A subsequent cost-benefit analysis carried out by the researcher showed that a wider rollout of e-procurement to the rest of the Bangladeshi civil service could be one of the most cost-efficient investments made by the government. The system is now fully operational.
In 2011, the Bangladeshi government began the roll out of an e-procurement system in a number of departments. The traditional procurement system, which required bidders to visit government offices to submit a bid, was subject to various collusive and corrupt practices from those who engaged in the bidding processes. For example, politically-connected bidders for local government contracts could physically stop non-collusive bidders from submitting documents by having them stolen – known as “tender snatching”.
In theory, an e-procurement system can curb such malpractices and promote more honest competition from both local and national bidders. By opening up the procurement process to anyone who has access to internet connection, the e-procurement process may avoid the local political capture that defines the traditional process and increase competition for bids. The overall effect is that the increased competition for contracts will result in lower prices for the government. But is this the case in practice?
In this project, the researcher, Wahid Abdallah, evaluated the actual effects of the introduction of an e-GP system in one public agency in Bangladesh – the Local Government Engineering Department (LGED). The variation in timing of adoption of the e-GP system at various offices of the department around the country provided a quasi-experimental design that helps identify the effects of e-GP.
As theorised, e-procurement’s effect on contract prices for LGED was significant. It turns out that adoption of e-GP reduces the price to cost ratio of contracts by at least 10.25%, and in the most robust estimate, by 11.85%. To put this in perspective, in 2013 alone LGED procured 1,845 items at the average price of 3,911,064 takas (around $50,000). With a price reduction of 11.85% per item, the total cost savings for the department due to the e-GP system amounts to 855,085,700 takas (nearly $11 million).
Based on the data collected in the IGC project, Wahid Abdallah conducted a formal cost-benefit analysis of scaling-up e-procurement to include more government agencies in Bangladesh. Estimates suggest that for every taka spent on the e-GP transition, 663 takas would be saved, making it one of the most cost-efficient investments that the Bangladeshi government could carry out.
In May 2016, the government decided to proceed with the scale-up of e-procurement and the initiative was documented in the budget speech of fiscal year 2016-17. In addition, the e-procurement paper has been used in pilot training at the local level to train citizen committees to monitor public procurement practices. The e-procurement system is now fully operational on one web portal – you can look at the latest tendered contracts here.