The World Bank notes 0 PUBLIC SECTOR Technological innovation in 21 71 0 public sector reform: Chile's public procurement e-system Chile's recently reformed public procurement system shows how information technology can make govemment more efficient, transparent, and accountable- beneflting citizens, businesses, and public agencies. Information technology is changing how efficiency and quality of public services, Information people think and perceive the world, fos- empowering the public, and putting the gov- tering innovation and contributing to eco- ernment at the service of the people. technology can nomic and social well-being. When used * The efficiency and effectiveness of services in the public sector, information technol- can be increased through the use of put government ogy can support democratization, make gov- e-government. Conducting public trans- ernment more accountable, and increase actions electronically makes it possible to at the service social equity by providing access to infor- eliminate the physical presence-waiting mation and technology. in line, going to multiple offices-often of the public Chile's government has used informa- required when filing paperwork. Elec- tion technology to achieve a customer-driven tronic transactions create a one-stop shop public sector that is more transparent, effi- for accessing the services of many agen- cient, and accountable. Chile wanted to put cies, reducing the time spent completing the government at the service of the peo- these transactions and the expense result- ple, and so pursued technological innova- ing from multiple layers of paperwork. tions that enable the government to meet This savings enables the government to citizens' needs simply, quickly, and effi- get better value for its money, because ciently. To that end, the government devel- money saved can be used for other pur- oped an information technology strategic poses to provide better services. plan for 1998-2000. * Transparency and probity are increased by publishing government transactions Information technology and online and providing access to them. This public sector reform reduces opportunities for discretionary Information technology does more than use of public funds, increasing the impar- just affect the public's expectations of and tiality and integrity of such operations. satisfaction with public sector performance. In addition, having a traceable electronic It also provides a way for the public sector record of transactions reduces opportu- to become more service-oriented and aug- nities for corruption and increases the ments its ability to meet those expectations. accountability of public officials. Information technology can facilitate the * E-government empowers people by allowing development and implementation of pub- wider participation. Information on the lic sector modernization-increasing the Internet is available to anyone, anywhere, FROM THE DEVELOPMENT ECONOMICS VICE PRESIDENCY AND POVERTY REDUCTION AND ECONOMIC MANAGEMENT NETWORK at any time. Portals that are open to the particularly successful is in pushing forward public provide easy access to government comprehensive reform of the public pro- agencies. This can help generate feed- curement system. In just a short period, back, foster participation in activities such reform has generated clear savings, created as bidding for contracts, and increase a better information market, and increased access to information-providing for a transparency and accountability in govern- better-informed public. ment procurement. * E-government can be used as a manage- ment tool in the public sector. It can be Elements of the e-system used to harmonize the rules and regu- The Inter-Ministries Committee for Public lations of different agencies, to better Management Modernization took several integrate public services, and to aggre- crucial steps to reform Chile's public pro- Broad gate the information held by all govern- curement system. ment agencies. In addition, the possibility political of developing intranets creates the oppor- Building support tunity for better coordination within and The first challenge for the committee was a n d p u b lic among agencies and increases ministries' coping with the political environment and ability to oversee public services. building support for the new system. The support committee faced several questions: How could The problem and the response it develop a system that accommodated the is crucial in Chile diversity of public agencies? How should it So how did information technology affect deal with resistance to change and the belief Chile's public procurement system? Before that computerization means privatization or the Public Procurement Information e-Sys- downsizing? How would it obtain the re- tem was established, the Direccion de Apro- sources needed to develop the system, when visionanmiento del Estado (DAE) was the this was not on the agenda? What should be main buyer for the public sector. The DAE done with the DAE? How could it build and had lost its legitimacy among public agen- maintain strong political support for an ini- cies, which started to develop their own pro- tiative seen as a technocratic solution with curement systems and procedures. It had almost no political benefits? weak controls, lacked a uniform legal frame- The committee presented its strategy in work, and was burdened with often con- terms of efficiency and showed the poten- flicting regulations linked to various agencies. tial savings for the government procurement This setup made it almost impossible for pri- reform program. These savings could ensure vate companies to know and sometimes even the overall development of the reform pro- fulfill different agencies' requirements. gram and gain the support of the budget Two studies overwhelmingly concluded office. The savings were projected to be at that the DAE should be abolished. But such least $200 million a year-equivalent to 1.4 a move carried political and social risks- percent of central government spending in including the potential for conflict between 1997, 26.2 percent of spending on public the government and unions. housing, or nearly 12 times spending on In 1997 the Inter-Ministries Committee for employment programs. Public Management Modernization pre- To ensure success, the committee sought sented a three-year strategic plan to guide the both political and public support. Through- public sector modernization process. The out the development of the e-system, there committee created the Communications and was a big effort to gain exposure in the press Information Technology Unit to coordinate, and to illustrate the benefits of the initia- promote, and advise the Chilean government tive in terms of transparency, efficiency, and on developing information technology for development of Chile's e-commerce capac- employment, information, and communi- ity. It was explained how the system would cations. One area in which the unit has been increase transparency and accountability PREMNOTE 50 JANUARY 2001 because information on procurement oper- tial way. With the e-system, this power was ations would be available online for anyone, given to citizens, politicians, and all the peo- at any time, from anywhere and without cen- ple involved in procurement. sorship, and transactions could be traced The design and development of the e-sys- to the officials responsible for them. tem produced very positive results. Public Support was also gained by lobbying polit- officials gave feedback and began to feel ical parties, interest groups, private sector comfortable with the system. Over time more advocates, and information technology com- changes and improvements were made. panies. In addition, the committee gained Finally, in August 1999 a pilot plan was the support of the Ministry of Foreign launched and the entirely Internet-based Affairs by emphasizing the importance of system went online at www. compraschile. cl government procurement in free trade (translated as Chile procurement). negotiations and the potential benefits of Even though the e-system's development The new approach e-commerce in Chile. To maintain political was straightforward, there were problems momentum, the committee created a board with the consortium in charge of its design. focuses on that included the director of the DAE and Most of these problems related to issues of representatives from each ministry and how to reconcile the possibilities of the Inter- transparency, agency involved in the reform program. net and the new technologies with the cul- tural and administrative realities of different accountability, Design and development public organizations and the Chilean gov- After gaining support for the e-system, the ernment as a whole. and outcomes next step was to forge a partnership with the In October 1999 President Eduardo Frei Corporaci6n de Fomento (CORFO), the signed the Government Procurement Act, agency responsible for encouraging com- which gave coherence to the system, allowed petition and investment in Chile through e-commerce transactions, created a new and technological development and modern- common legislative framework, and replaced ization efforts. The committee and CORFO's the DAE with a smaller agency. This agency Innovation Fund agreed to solicit bids for is not in charge of purchasing goods and ser- the design of the e-system. The contract was vices. Rather, it supervises the system, pro- awarded to a consortium made up of Chile's vides technical assistance, and negotiates largest telecommunications company, a well- contracts for some commodities. known consulting group, and the leading Chilean company for Internet applications. Functions and features Twelve public agencies were chosen to With the e-system, companies that want to participate in the design, development, and do business with the public sector do not testing process. The agencies were selected have to search newspapers or the World to represent the range of technologies being Wide Web for information on bidding used and administrative capacities in place, opportunities. They only have to register the diversity in amounts and kinds of pro- themselves in the areas-such as informa- curement operations being provided, and tion technology consulting, office furniture, the different stages of the modernization or construction services-where they do process. business. From the perspective of public officials, When a public agency needs to purchase the biggest change was a cultural switch a good or contract a service, it fills out a from an approach based on procedures and request in the e-system specifying the kind regulations to one more oriented toward of operation and including all the docu- transparency, accountability, and outcomes. mentation and information associated with Old rules and procedures had lost their the request. The system automatically sends legitimacy because they could not guaran- e-mail to all the companies registered in tee that the government was procuring that area, minimizing response times and goods and services in the best, most impar- providing equal opportunities for all firms. PREMNOTE 50 JANUARY 2001 J . Al nLejandto, GtJit i.(e.-r-ez 86354-0 1 me C3 - 30 1 The e-system also provides, online, all the best way possible: one dollar extra paid over information related to procurement oper- the lowest available price is one dollar less ations, including the public agency's pro- available for health care, social security, or file and the name, title, address, phone public housing. Chile's experience with its number, e-mail, and fax number of the pub- procurement information e-system shows lic officer in charge of the operation. Finally, the important role the Internet and infor- the system gives information on the results mation technology can play in public sector of the bidding: who participated, their eco- reforms. nomic and technical scores, their economic Information technology and the Internet proposals, who won the bid, and historical can offer interesting solutions when coun- information on the public agency's pur- tries-industrial or developing-are com- chases and contracts. bating corruption and citizens are calling for The potential The Government Procurement Act more and better control of their government. makes participation in the e-system manda- These tools can give more control to citizens, savings are tory for all public agencies over the medium increase the transparency and accountabil- term. The system will be incorporated grad- ity of government, and generate public value enormous ually, however, to allow for modifications in other areas given the enormous poten- resulting from lessons gathered during the tial savings. Technology also provides new pilot plan. ways to improve public sector management A private company will manage the e-system through better oversight of and coordination as a way to obtain its maximum efficiency and among agencies. Finally, information tech- dynamism, generate savings in public admin- nology allows the public sector to more effi- istrative costs, and encourage the growth and ciently and effectively serve its citizens' needs. development of e-commerce in Chile. Chile's government procurement e-system also adds transparency to business oppor- First results and next steps tunities with the Chilean government. It cults Between October 1999 and February 2000, firms' transaction costs. It increases possi- as part of the pilot plan, the e-system had bilities for feedback and cooperation between 454 suppliers in 75 areas and 16 public agen- firms and public agencies. It improves the cies registered. The increase in bidding information market. And it eliminates incen- requests posted in the first five months tives to corrupt or be corrupted. demonstrated confidence in the system. Rec- ognizing the initial success of the new pro- This note was written by Claudio Orrego (Mzn- curement system, in January 2000 the ister of Housing, Urbanism, and Public Lands, committee called for further development Chile), Carlos Osario (Research Assistant, Infor- to expand its e-commerce capacities. mation Technologies Group, Centerfor Inter- nationalDevelopment, Harvard University), and Enhancing public services with Rodrigo Mardones (Lecturer, Department of information technology Industrial Engineering, University of Chile). Governments are the biggest buyers in all If you are interested in similar topics, consider economies. They purchase goods and ser- joining the Public Expenditure Management The- vices to fulfill citizens' needs, and there are matic Group. Contact Vinaya Swaroop (x 37688) moral and political reasons to do so in the or click on Thematic Groups on PREMnet. This note series is intended to summarize good practice and key policy find- ' ings on PREM-related topics. The views expressed in these notes are those of the authors and do not necessarily reflect the views of the World Bank. PREM- notes are distributed widely to Bank staff and are also available on the PREM1 Web site (http://prem). If you are interested in writing a PREMnote, email lW%LIWu your idea to Sarah Nedolast. For additional copies of this PREMnote pleas,e PeRediaonmdECDo.micMangMerml contact the PREM Advisory Service at x87736. Prepared for World Bank staff