Wednesday, March 5, 2008

Concentration of Buying Power

Dear Colleagues

Olivia McDonald is the author of "Buying power: aid, governance and procurement", a report prepared for Christian Aid.

The Forum on the Future describes the report in the following way:
Strong rules for the contracting of goods, works and services are a cornerstone of a robust and accountable public budgeting system. It is important for donors to not only support the development of those systems but also to use them; this has been shown to be a more effective use of aid resources. Christian Aid welcomes donor commitments to improve the effectiveness of their 1aid in general and use recipient procurement systems in particular, but positive outcomes from these commitments are undermined by a reliance on imposing a standard procurement model that emphasises market opening over accountability to poor men and women.
From Tr-Ac-Net's perspective, the report is good because it takes a step towards asking the important questions about procurement in the international relief and development industry. But like most reports it does not go far enough ... perhaps because such a report is not the place.

President Eisenhower alerted the American people to the potential power of the military industry complex ... and it bears repeating that any concentration of buying power has large scale unintended and uncontrolled consequences. Eisenhower understood that the concentrated power of the military in the process of military procurement could have serious consequences, so also one should anticipate that the concentration of buying power control among a few majors donors and multilateral agencies is going to have also some unintended consequences.

In the relief and development sector the potential for buying power abuse has been accentuated by poor accounting, and especially very weak cost and performance accounting. While the corporate world has strong analytical accounting, the same cannot be said for the relief and development sector. In the corporate world there are strong expectations that money disbursed will result in tangible value for the enterprise ... and there are accounting systems so that the profit arising is captured for the benefit of the enterprise. Not so in the relief and development sector, and not so in most government accounting systems. In these systems there is a focus on getting "the voucher right" rather than getting the "value" right. Accordingly, when a voucher is completed correctly, but for the wrong reason, it is easy for corrupt procurement to take hold and become endemic.

And this is what has happened over and over again. It is easy to see ... it is, because of the voucher situation ... difficult to prove.

Though difficult to prove ... people are somewhat aware of the fact of this corruption in procurement, though, up to now, the people have little appreciation of how large is the scale of this corruption.

Hopefully this is going to change.


Peter Burgess
The Tr-Ac-Net Organization