Abstract Recognizing the potential benefits of IT, the Chilean Government established a Communications and Information Technology Unit (UTIC) in 1998. The UTIC was given the mandate of coordinating, promoting, and advising the Chilean Government on the development of IT in the areas of employment, information and communications. One area of reform in which the UTIC was particularly successful was in pushing forward a comprehensive reform of its procurement system. Chile's experience with e-procurement has made busineess opportunities with the Chilean Government more transparent, reduced firms' transaction costs, increased opportunities for feedback and cooperation between firms and public agencies, and sharply reduced opportunities for corruption. Application context Before the Chilean Public Procurement Information E-system was established, the main purchaser for the public sector was the Direccion de Aprovisionanmiento del Estado (DAE). The DAE possessed weak control mechanisms, lacked a uniform legal framework, and was burdened by the varied regulations of different government agencies. Two separate studies concluded that the DAE should be abolished. Yet, this action carried with it political and social risks, including the potential for a conflict between the government and the unions. Public agencies began to develop their own procurement systems and procedures. But it became nearly impossible for a private company to know and fulfill the different agencies' requirements. A New Approach Under the government procurement e-system, companies that wish to do business with the public sector do not need to search through newspapers or the Web for information about bidding opportunities. Instead, they need only to register a single time in the areas in which they do business (e.g., office furniture, constuction services, IT consulting, etc.). Whenever a public agency needs to purchase goods or contract a service, it will fill out a request in the electronic system, specifying the kind of operation and including all the documentation and information associated with the request. Automatically, the system sends an e-mail to all the private companies registered in that selected area, minimizing response time and providing an equal opportunity for all firms. The system also provides, on-line, all the information related to procurement operations, including the public organization's name, address, phone, e-mail, fax and position of the public officer in charge of the operation. Finally, at the conclusion of the bidding process, the e-system provides the results: who participated, the proposals, the economic and technical scores, and, lastly, who won the bid or obtained the contract. Historical information about the public organization's purchases and contracts is also made available. In accordance with the Presidential Executive Order 1.312 of 1999, participation in the e-system will be mandatory for all public organizations in the medium-term; but its incorporation will be gradual to allow for modifications based on the lessons of the pilot. A private company will manage the e-system. Implementation Challenges The Committee that crafted the new e-procurement system was confronted with a number of troubling questions: How to develop a system that would account for the diversity of public agencies? How to obtain the resources to develop the system? How to build and maintain strong political support for an initiative that was seen as a technocratic solution, with little political payoff? How to deal with the resistance to change, and the belief that computerization means privatization or downsizing? What to do with the DAE? The Committee prepared a study that showed the efficiency gains of the new system would reach (at a minimum) $200 million per year, which is equivalent to 1.38% of the central government's total expenditures; 26.18% of 1997's Public Housing expenditure; or 11.94 times the total expenditure on employment programs in 1997. This finding was sufficient to gain the support of the Budget Office. The Committee also sought political and public support through exposure in the press outlining the benefits of the initiative in terms of transparency, efficiency, and development of the country's e-commerce capacity. It was pointed out repeatedly that information about procurement operations would be available on-line for everyone, at any time, from anywhere, and without censorship. Transactions also could be traced to the political officials responsible for them. Support was deepened by lobbying political parties, interest groups, private sector advocates, and information technology companies. In order to maintain the political momentum and avoid political and bureaucratic resistance to the initiative, the Committee created a board, which included the director of the DAE, and representatives from each of the ministries and government agencies involved in the reform Program. Twelve public agencies were chosen to participate in the design, development and testing process. After gaining support for the new system, the next step was to create a partnership with the Corporación de Fomento (CORFO), the agency responsible for encouraging competitiveness and investment in Chile through technological development and modernization efforts. The Committee and CORFO's Innovation Fund agreed to call a bid for the design of the e-system. This bid was granted to a consortium made up of the largest Chilean telecommunications company, a well-known consulting group, and the leading Chilean company in Internet-based applications. Although the e-system's development was relatively straightforward, there were some problems with the consortium in charge of its design. These problems mostly were related to issues of how to reconcile the opportunities and possibilities of the Internet and related new technologies with the cultural and administrative realities of different public organizations and the Chilean Government as a whole. Finally, in August 1999 a pilot program was initiated. The e-system, entirely Internet based, was launched at www.compraschile.cl. In October 1999, President Eduardo Frei signed the Government Procurement Act, which strengthened the new system by allowing e-commerce transactions, creating a new and common legislative framework, and replacing the DAE with a smaller agency. This new agency is no longer in charge of purchasing goods and services, but supervises the system, provides technical assistance and, for some commodities, negotiates aggregated contracts. Benefits and Costs Between October 7, 1999 and February 15, 2000, 454 suppliers (in 75 different business areas) and 16 public agencies were registered in the e-system. The growing number of requests posted for bidding in the first five months demonstrated confidence in the new procurement system, and due to the initial success, in January 2000 the Committee called for further development of the e-systems administration and development to expand its electronic commerce capacities. In the relatively short period that e-procurement system has been established in Chile, substantial savings, creation of a more perfect information market, and increased transparency and accountability are all evident. Key Lessons The impact of IT not only affects the public's expectations and satisfaction levels with the way the public sector accomplishes its tasks, but also provides an avenue through which the public sector can become more service oriented and improve its ability to meet these heightened expectations. By conducting public transactions electronically through portals, it is possible to eliminate the physical presence (waiting in line, going to multiple offices) that is often required when conducting business with government. On-line transactions reduce the amount of time needed to complete these transactions and the expenses incurred. These savings allow the government to get better value for its money. Transparency and probity are increased by publishing government transactions on-line, thereby providing access to anyone, anywhere, at any time. This reduces opportunities for discretionary use of public funds, increasing the impartiality and integrity of such operations. Additionally, having a traceable electronic record of transactions reduces the opportunities for corrupt practices and increases the accountability of public officials. Case study author: Claudio Orrego, with Carlos Osorio and Rodrigo Mardones
Information used to develop the case: This story has also been written up in a PREM Note, which you may access on-line by clicking here.
Date submitted: December 14, 2000 |
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