83728 December 2013 – Number 113 Public Procurement Reform in Iraq: A Long and Difficult Road Nazaneen Ismail Ali, Andrew Jacobs, Rachel Lipson, Fabio Isoldi Introduction: Over the course of a six-year period from 2006-2011, the Government of Iraq (GOI), with support from the World Bank, undertook an ambitious effort to reform its public procurement system and legal framework. Among other actions, an Inter- Ministerial Task Force (IMTF) was created, consultations were held with civil society and the private sector, and a comprehensive new law was drafted based on international best practices. Yet, after years of work, change and implementation have proven elusive. This Quick Note aims to analyze why progress was limited in Iraq, and to offer recommendations for how the approach to procurement reform Erbil - Consultation Workshop, Jan 2007 in Iraq, as well as in other challenging situations, can be adapted moving forward. and weak capacity. The future success of public procurement reforms in Iraq (and other Preface: In some ways, the challenges to conflict states) will depend on the country’s reforming Iraq’s public procurement system willingness to build a foundation for change mirror the usual obstacles in implementing that addresses each of these factors in the public sector reforms. However, given the governance environment. country context, this case also presents unique and important lessons that helped inform A second lesson from Iraq was the critical role future-decision making on public and influence of change agents. Subsequent procurement reform in other conflict states. reform efforts will benefit immensely from having a detailed stakeholder analysis, to help One key takeaway from the World Bank’s identify reform champions to guide reforms early engagement in Iraq was the difficulty of through the process from beginning to end. trying to address public procurement reform in isolation. The experience showed that a Finally, the Iraqi experience showed the complete reform and overhaul of a country’s importance of adapting gradual fixes in procurement function is unlikely without tackling institution building. While engaging issues of instability, corruption, maintaining a long-term vision is important, it becomes critical in a post-conflict environment to demonstrate early results. Iraq’s experience illustrates that the initial the public procurement system. With Iraq’s pursuit of smaller (and often easier) reforms projected GDP valued at US$221.8 billion for like issuing new bidding documents is often September 2013, public procurement is more impactful than attempting to fix the expected to represent about 23% of GDP for whole system at once. This kind of measured the year. As a rough proxy for the current approach, which prioritizes and highlights magnitude of public procurement in the early successes, can help create broader country, this figure shows the scope and demand for services over the long term that power of procurement in the Iraqi economy. would facilitate larger reforms Doing business with the GOI presents Country Context: Home to the world’s third- considerable challenges and high fiduciary largest oil reserves, Iraq has a rich natural risks. Issues with corruption and transparency endowment and the potential to finance in Iraq, as evidenced by the country’s ample infrastructure, improve services, and consistently low rankings in international promote shared prosperity. Yet, as numerous surveys1have exacerbated these challenges. studies have found, poorly managed natural Existing institutional weaknesses have resources can actually hamper development manifested themselves in particular in the by contributing to corruption, conflict, and governance and performance of the country’s poor governance. In Iraq, these kinds of public procurement system. A 2012 World challenges exist but are also compounded by Bank report on Oil Revenue Management for over thirty years of war, sanctions, and Economic Diversification and Public instability. Expenditure Review cited unsatisfactory procurement procedures as one of the main It was within this challenging context that bottlenecks in budget execution in Iraq. The GOI found itself tasked with a massive 2012 Investment Climate Assessment (ICA) reconstruction effort in 2003-2004. To ensure for the country confirmed a similar finding, that the incoming aid and funds were spent citing the widespread corruption in public effectively and efficiently, GOI needed to contracting as a major contributor to the reform decades-old systems of service perceived weakness of Iraq’s business climate. delivery, public contracting, and public This is why the reform of the Iraqi public financial management. Additionally, procurement system is especially needed and implementation of these reforms would relevant, but it is also quite challenging. require substantial enhancements in the capacity of public officials to both manage The World Bank’s Engagement in and oversee billions of dollars in Procurement Reform in Iraq: World Bank reconstruction and development projects. engagement in public procurement in Iraq Faced with these challenges, GOI reached out began in 2006 with a request from GOI to to the World Bank to reform the legal assist in reforming the legal framework framework governing public procurement. governing public contracts. At the time of this request, public procurement in Iraq was Public Procurement in Iraq: Public based on outdated and sometimes procurement in Iraq is a major component of contradictory rules. The procurement process the national economy, cutting across nearly was subject to vast discretion by procuring every area of planning, program entities. The issuing of waivers and use of management, and budgeting. In 2013, Iraq’s direct contracting were commonplace. approved budget was valued at US$118.3 billion, in addition to an expected US$10 1 In its 2011 report on the Corruption Perception Index, billion in supplementary budget items. Out Transparency International ranked Iraq 175th out of 182 of this total of nearly US$ 130 billion, over countries. In 2010, Iraq was ranked 203rd out of 213 countries on the Control of Corruption Index. 40% (or US$51 billion) is to be spent through December 2013 · Number 113·2 Recognizing the negative effects of these poor In October 2011, the Council of Ministers practices, the Government solicited Bank decided to delay the approval of the new support for a new law based on draft law in favor of a set of regulations. internationally recognized best principles, i.e. During the same year, the Council of transparency, value for money, efficiency, Ministers recommended abolishing the competition, equity and accountability. existing legal framework (i.e., CPA Order 87 of 2004) without passing any other law to To manage the reform of the public replace it. procurement legal framework GOI formed a 25-member Inter-Ministerial Task Force These decisions would create a legal vacuum (IMTF) including key ministries and in public procurement. With no legal representatives from the Kurdistan Regional foundation for procurement decisions, a Government (KRG), the Shura Council, 2the highly disorganized system emerged where Council of Ministers’ (COM) Economic exceptions were encouraged. This left Iraqi Committee, the Integrity Commission, the procurement open to abuse, waste, and Board of Supreme Audit, and academia. In corruption. Efficiency of public expenditures 2006, a team of international and local and effective resource management suffered. procurement lawyers were hired to assist the IMTF in drafting the law. Workshops were Prominent examples of bad practices include: held in Baghdad, Erbil, Beirut, and Amman with participants from the public and private  An overreliance on uncompetitive sectors with civil society representatives to procurement methods raise awareness and discuss the process.  Waivers from the COM for procurement Incorporating inputs from all stakeholders, processes and contracts the drafting of the new procurement law was  An administrative procurement completed in late 2007. The Shura Council complaints system established under the approved it in December 2009, and submitted Ministry of Planning that is not it to the COM for approval. operational nor independent  Increased allegations of fraud and Stalled Progress: However, after these corruption cases positive developments, progress stalled. The  The use of deferred payment methods draft law remained in internal review with a that are not internationally recognized Committee of the Council of Ministers  Collusion of bidders (COM), for almost two years. Concerns were  Illegal contract selling through 100% sub- raised internally about the perceived lack of contracting. flexibility in the new law. Though the law had been drafted to allow officials the proper For the Iraqi public, these poor practices had amount of flexibility, some policymakers tangible consequences. The system was in were not satisfied since the new law did not clear tension with the public’s expectations explicitly authorize all of the “exceptions” for transparency, accountability, and that had been previously commonplace. efficiency. The lack of a clear legal framework Rather, some feared that the law would tie for public procurement also discouraged their hands and prevent the awarding of foreign investment, since foreign investors contracts on an exceptional basis. were uninterested in coming to invest in Iraq if they had no type of legal assurance that bidding would be competitive, and that their 2 The Shura Council in Iraq is an administrative court bids would be treated equally and fairly. which vets legislation to ensure constitutionality and conformity with the Iraqi legal system prior to the draft being passed to the Council of Representatives. The Gradual Approach: After the COM’s decisions, the country went through several December 2013 · Number 113·3 conflicting and incompatible attempts by and the announcement of bidding awards. different stakeholders to develop different While these reforms, with a focus on capacity legal instruments. With an unclear legal building and transparency, are certainly not framework, the reform strategy needed to be all-encompassing, they represent a viable path adapted to better fit the conditions on the forward under difficult circumstances. ground. While the World Bank remained committed to the same goals of modernizing Concluding Thoughts: This case study public procurement in Iraq, to succeed in its illustrates the nature and complexity of objectives, there was a need to adopt a more procurement reform, particularly in a post- gradual approach. With this mindset, conflict state. Iraq will face serious challenges progress on other aspects of the reform has due to its political environment, conflicting been achieved. vested interests in the executive branch, and weak credibility. These are compounded by a In 2010, the Government of Iraq developed lack of top-level support for reforms. standard bidding documents that were piloted in five ministries, and disseminated Procurement reform also becomes among all implementing agencies on the particularly challenging since public Ministry of Planning website in 2012. They procurement reform means tackling also developed new sector bidding corruption. Thus, it is no surprise that documents, aimed at ensuring fair, non- procurement reform in Iraq require patience, restrictive, clear and comprehensive bidding deliberativeness, and tolerance. Prioritizing requirements. In 2013, a national interventions, managing the political implementation manual and a national economy of reform with a focus on training strategy were developed, and stakeholder analysis (who to engage in capacity building efforts in procurement reform) will be key to success. Most ramped up. Further training and professional prominently, reform will require strong development were initiated to enhance political leadership and robust decision- performance through capacity building. making structures for policymaking, oversight and guidance. Reforms tend to take Recent reform efforts in Iraq have also time in any environment (though especially in featured a renewed focus on transparency. this one). There is a need to prioritize Iraq’s Governance Action Plan for 2013-2014 interventions, look for opportunities for calls for the creation of one single success, and adopt gradual fixes. It is likely portal/gateway for procurement notices. The impossible to fix the whole system at once. portal will enhance transparency in the Instead of trying for a one-stop fix, government procurement system by stakeholders should focus on translating providing more public information, both reform’s priorities into actionable through the publication of bidding notices implementation. Contact MNA K&L: Gerard A. Byam, Director, Strategy and Operations. MENA Region, The World Bank Preeti S. Ahuja, Manager, MNADE Regional Quick Notes Team: . Omer Karasapan and Mark Volk Tel #: (202) 473 8177 The MNA Quick Notes are to summarize lessons learned from MNA and other Bank Knowledge and Learning activities. The Notes do not necessarily reflect the views of the World Bank, its board or its member countries. December 2013 · Number 113·4