The Covid-19 crisis is challenging governments all over the world, who have had to take difficult decisions to balance two public interests: health and economic growth. Although containment measures taken by countries vary, it is clear that they will have a negative impact on growth. In fact, OECD estimates that the effect of the containment measures in Mexico is equivalent to 30% of GDP, while in a group of 47 economies the average effect is estimated at 25% of GDP (1). In light of this, countries have undertaken initiatives to cope with the economic impact of the containment measures and preserve business activity and employment. These initiatives usually include fiscal measures, tax holidays, transfers and credits to support SMEs.

 

Public procurement can be a powerful strategic tool for government, equivalent to 12% of GDP and 30% of government spending on average in OECD countries (2).  

 

As part of an economic recovery programme, public procurement can be used effectively to address both supply-side and demand-side factors in the current economic slowdown. On the one hand, business capacity and employment need to be sustained so that, when the health crisis has passed, businesses can once again supply goods and services, and stabilise supply chains. On the other hand, public procurement can make governments, at national and sub-national levels, the buyers of last resort to soften the impact on aggregate demand stemming from decreasing consumption and investment. 

 

Three immediate actions relative to public procurement could be taken to soften the economic impact of containment measures. First, it is publicly recognised that governments at different levels often have pending debts with their suppliers, some outstanding for a very long time. OECD, in reviewing the public procurement systems of national institutions and state governments, has found that payments to suppliers are a recurring issue. Now is the time to pay those outstanding debts and provide liquidity to the economy. In fact, public institutions are in a position to provide breathing room to their suppliers, particularly SMEs, by paying outstanding debts. This would allow businesses to strengthen their finances and retain jobs. 

 

Second, governments could buy in advance goods that they know will be required throughout the year or pay in advance for services already contracted. Governments could review and update their annual procurement plans to identify those goods and services needed in the coming months and move those purchases forward, ensuring streamlined and quick payments. 

 

Third, it is hard to conceive of any economic recovery plan, in Mexico or any other country, without a strong infrastructure component. An infrastructure programme would provide a much-needed stimulus, for example, for the construction industry to retain jobs and strengthen its contribution to the wider economy. Furthermore, infrastructure development would make Mexico more resilient to future crises and would help bring public services closer to vulnerable populations and those suffering as a result of the health crisis.  

 

Several OECD countries are already leveraging public procurement to support their economies. For example, the Covid-19 Emergency Procurement Guidance of the New Zealand Government calls on government institutions to consider that small businesses will likely be impacted the hardest by containment measures and to meet the 10-day payment target announced by the Prime Minister (3).

 

Likewise, the UK Cabinet Office issued guidelines to support government suppliers. For example, the Procurement Policy Note 02/20 (March 2020) establishes that all contracting units should:

 

• Urgently review their contract portfolios and inform suppliers who they believe are at risk that they will continue to be paid as normal, even if service delivery is disrupted, until at least the end of June;

• put in place the most appropriate payment measures to support supplier cash flow, including measures such as forward ordering, payment in advance or interim payments; and 

• ensure invoices submitted by suppliers are paid immediately on receipt in order to maintain cash flow in the supply chain and protect jobs (4). 

 

Evidently, the Cabinet Office also set some precautions, for example, carefully considering the extent of payments to be made to suppliers who are underperforming, and conditions, such as requiring beneficiary suppliers to operate on an “open book” basis, for example, providing evidence that staff have been paid the right amount and on time, and that cash continues to flow through the supply chain.

 

Last but not least, in order to ensure effectiveness, it is indispensable to ensure integrity in public procurement processes. Given the amount of resources devoted to it and the interaction between the public and private sectors, public procurement is one of the government activities with the highest risks of corruption. Indeed, the OECD Foreign Bribery Report found that 57% of the cases were related to public contracts (5). Furthermore, scarcity and high demand for some goods and services, for example, medical equipment, and the urgent need for governments to respond create conditions for disregarding integrity and facilitating corruption. For example, several countries are issuing guidelines to allow procurement by direct award to streamline processes and ensure the capacity to respond to the emergency. However, streamlined processes should not imply lack of controls and accountability mechanisms.  

 

Past global crises have taught us that corruption hinders the effectiveness of measures to mitigate them and hurts public trust in governments, which is much needed today to justify difficult decisions such as quarantines and pausing economic activities. In consequence, governments should incorporate anticorruption policies in their interventions, ideally from the design stage. Anticorruption institutions should state clearly that they will be scrutinising such interventions and engage citizens. Finally, it is critical to control corruption in service delivery, particularly, in health services, which are currently under intense pressure to deliver during the Covid-19 crisis. Integrity in service delivery will be therefore key to ensure access to health services and minimise the impact of the crisis on the most vulnerable.  

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References

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1. OECD (2020), Evaluating the initial impact of Covid-19 containment measures on economic activity, https://read.oecd-ilibrary.org/view/?ref=126_126496 evgsi2gmqj&title=Evaluating_the_initial_impact_of_COVID-19_containment_measures_on_economic_activity.

2. OECD.Stat.

3.   https://www.procurement.govt.nz/about-us/news/covid-19-emergency-procurement-guidance/. 

4. https://www.gov.uk/government/publications/procurement-policy-note-0220-supplier-relief-due-to-covid-19.

5. OECD (2015), Informe de la OCDE sobre Cohecho Internacional: Análisis del Delito de Cohecho de Servidores Públicos Extranjeros, https://www.oecd.org/publications/informe-de-la-ocde-sobre-el-soborno-internacional-9789264226654-es.htm.