Kirsten Hommann, Sr. Economist ICGM Conference December 6, 2011

1. STRENGTHENING THE DEMAND-SIDE
FOR IMPROVED PUBLIC INVESTMENT
Kirsten Hommann, Sr. Economist
ICGM Conference
December 6, 2011

2. RATIONALE
OBI v. Credit Ratings (Hameed, 2010)
 Fundamental right
 Informs voice and
political process
2
 Enables accountability
 Improves performance
in public sector (?)
 Reduces risk of OBI v. EMBI Sovereign Spreads (Hameed, 2010)
corruption (?)
 Reduces price of
borrowing

3. OTHER SIMPLE LINKAGES: MEDIA AND OPEN
BUDGET INDEX
100
Number of obs = 93
South Africa
New Zealand
Adj R-squared = 0.3430
United Kingdom
France
Coefficient = -.6778005***
Sweden
Norway
United States
Spearman's rho = -0.6065
80
Chile
Korea, south
Brazil
Slovenia
Germany
India Sri Lanka
Peru
Poland
Spain
60
Czech Republic Ukraine
Colombia
Mongolia Russia
Romania
Portugal
Italy
Slovakia
Papua New Guinea
Croatia Turkey
Argentina
Bulgaria
Georgia
Uganda Philippines
Ghana Serbia
Namibia
Mexico
Botswana Indonesia
Guatemala
Jordan
Macedonia Kenya Egypt
Bangladesh
Costa Rica Malawi
Tanzania Nepal
Bosnia-Herzegovina
Azerbaijan
40
Thailand
Liberia
Malaysia
Kazakhstan Pakistan
Nicaragua
El Salvador
Zambia
Mali
Timor-Leste Venezuela
Trinidad and Tobago Albania
Lebanon
Ecuador
Mozambique Morocco
Angola
Yemen
20
Afghanistan
Nigeria
Cambodia
Kyrgyz republic
Dominican Republic Vietnam
Bolivia China
Honduras Rwanda
Sudan
Congo, dem. Rep.
Burkina Faso
Senegal Niger
Cameroon
Algeria Saudi Arabia
0
Chad Iraq Fiji Equatorial Guinea
0 50 100 150
Press Freedom Rank (the lower the better)

4. STARTING WITH SIMPLE CONCEPTS
Government
Electoral Process Contestability of Markets
Media Expertise
Education Independence
What are the Goods in
Question and how are they Service
Citizens provided? Delivery
Agents

5. BUDGET CYCLE: CREATING BETTER INCENTIVES
THROUGH PARTICIPATORY MONITORING
Budget Formulation
Participatory Budget Planning
Performance Civic Budget Review & Analysis
Monitoring
Engagement Participatory review: Do
Participatory Monitoring, allocations match announced
Score Cards social commitments?
Budget/Expenditure
Tracking
Participatory PETS

6. IMPROVING PUBLIC SERVICE DELIVERY
THOUGH PARTICIPATORY MEASURES:
WHAT IS THE EVIDENCE?
 Olken (2007)
 Community-Based Monitoring of rural roads in 600 villages in Indonesia
 An average of 24 percent of road expenditure were estimated to be diverted, which
were reduced by 8 percentage points where audits were pre-announced and with
insignificant reductions where participation was carried out without the audit.
 Bjoerkman and Svensson (2007)
 Community-Based Monitoring of Health Service Providers in 50 communities in
Uganda
 Quality and quantity of health service provision improved through Citizen Report
Cards; 1.7 percent lower deaths of children under 5 in control group
 Luo, Zhang, Huang and Rozelle (2010)
 Examined the relationship between direct elections and investments in public
goods in 2450 villages in China
 Directly elected village leaders implement more public goods projects compared
to non-elected leaders

7. IMPROVING SYSTEMS, PROCESSES AND
PRACTICES IN PUBLIC CONSTRUCTION
 Value of global construction industry to increase to $12 trillion p.a. by
2020 (13.2 per cent of global GDP) - Global Construction 2020
 Mismanagement, inefficiency and corruption can account for 10 -
30% of a construction project's value - OECD, TI
 Construction Sector Transparency Initiative (CoST) : A participatory,
multi-stakeholder, multi-national framework to improve transparency and
accountability in public construction
 Hypothesis (similar to Bjoerkman and Svensson): lack of reliable
and structured information and organizational capacity constrain
service delivery improvements (here transparency in construction
sector)
 Pilot Phase: 2008 – early 2011
 Country Participants: Ethiopia, Guatemala, Malawi, Philippines,
Tanzania, UK, Vietnam and Zambia
 Locally constituted multi-stakeholder group (MSG)
oversees application of disclosure and assurance protocols

8. BRINGING TOGETHER TRANSPARENCY AND
ACCOUNTABILITY
Improve transparency through Encourage informed
public disclosure and reaction to create
assurance of relevant demand for improved
information efficiency and quality
Disclosure
Informed Reaction
Assurance
Accountability

9. COST PRINCIPLES
 Promote transparency and accountability in publicly
financed construction projects
 Implement a multi-stakeholder approach that incorporates
representatives from public and private sector as well as civil
society
 Collect, verify and interpret disclosed project information
along the full construction value-chain
 Disseminate information through public forums/channels
 Voluntary and flexible implementation of these principles

10. COST PROCESS
 DISCLOSURE
 Procuring entity regularly discloses “Material
Project Information” (MPI).
 ASSURANCE
 Assurance Team is responsible for assessing the
adequacy and reliability of project information
disclosures, and identifying “areas for concern”
 REPORTING
 Assurance Team publishes reports to disclose to
the wider public its main findings

11. WORKING ACROSS THE VALUE-CHAIN
Program & Completion &
Identification Design Procurement Implementation
Budget Operation
Project Tender Contract Updates, Completion
identification, request, award Variations details
Owner, Budget, Design during
Justification available construction
Assurance
Reports

12. MATERIAL PROJECT INFORMATION
 Project purpose For Main Works
 Location of project  Name of main contractor
 Intended beneficiaries
 Contract price
 Specifications
 Contract scope of work
 Budget
 Contract program
 Engineer’s estimate
 Significant changes in contract (PS)
Tender process (project supervision)
 Significant changes in contract, price (MW)
 Tender procedure
 No. expressing interest
 Significant changes in contract, program
(MW)
 No. shortlisted
 Details of any reward for main contract
 No. submitting tender
 Actual contract price
Tender process (main works)
 Tender procedure
 Total payments made
 No. expressing interest  Actual contract scope of work
 No. shortlisted  Actual contract program
 No. submitting tender Other documents
For Project Supervision  Feasibility Study
 Name of main consultant  Financing agreement
 Contract price  Tender evaluation report
 Contract scope of work
 Project evaluation reports
 Contract program

13. HOW CAN DISCLOSURE HELP?
 Detect possible collusive behavior
 No. expressing interest
 Participation of bidders
 Names of winning bidders
 Compare construction costs across bidders/geographic
areas
 Compare efficiency of construction (time/cost overruns)
 Deterrent effect

14. WHICH CAN RESULT IN:
 Reduced corruption
 Reduced construction costs
 Improvement in quality
 A level playing field
 Increased competition (more participants)
 Boost in investor confidence
 Improved taxpayer satisfaction
 Reduced poverty through economic growth

15. AVERAGE TIME AND COST OVERRUNS

16. ASSURANCE PROCESS IN PILOT -
TYPICAL ISSUES HIGHLIGHTED FOR ATTENTION BY
ASSURANCE REPORTS

17. REASONS FOR TIME OVERRUNS
Projects finishing
No information in less time than
returned, 17% contracted, 4%
Projects finishing
on time, 19%
Projects finishing
more than 100%
over time, 19% Projects finishing
up to 100% over
time , 40%

18. CoST Implementation Path
Implementation
Project information &
Preparation assurance findings
Country CoST disclosed – on progressive
program basis until sustainable as
Engagement prepared and government system
initiated
Gaining
awareness of
CoST

19. COST INTERNATIONAL GOVERNANCE STRUCTURE
– REVISED NOV-2011
CoST Board
International
Secretariat
Delegate Assembly
Implementing International
Countries Stakeholders