Ensuring Integrity in Public Procurement through a Proactive Review

Procurement is the process through which governments buy goods and services, and build infrastructure, such as roads and hospitals. The extensive volume of transactions between private and public sectors creates opportunities for corruption, typically during procurement. Corruption and other integrity risks often increase, as projects grow larger in scale and complexity.

In a study by the World Bank (2015), the funds spent on procurement alone account for about 15% to 20% of the gross domestic product in developing countries. However, a huge chunk— studies estimate 20% to 25%— of the public contracts’ value may be lost through corruption and other integrity vulnerabilities.

ADB recognizes that effective procurement is vital to the delivery of public services and the attainment of the SDGs. Through the integrity review process, corruption risks are tackled and mitigating measures are put in place to ensure an effective and corruption-free procurement.

In 2016, ADB’s Office of Anticorruption and Integrity (OAI) led the project procurement-related review of a $38.38 million initiative to upgrade Mongolia’s life-saving facilities with state-of-the-art technology and modern laboratories. Projects subject to this review tend to be complex or implemented in a difficult environment, which increases the risk of exposure to fraud and corruption.

OAI identified project vulnerabilities on reviewed contracts that value $5.58 million. The main findings were related to unclear bidding documents, inconsistent evaluation of bids, and inadequate monitoring of contracts—all of which could lead to the misuse of project funds.

If not addressed in an adequate and timely manner, the vulnerabilities could also directly impede progress toward improving patients' and health workers' safety in hospitals in Mongolia, and undermine the outputs of the project.

Procurement is the process through which governments buy goods and services, and build infrastructure, such as roads and hospitals. The extensive volume of transactions between private and public sectors creates opportunities for corruption, typically during procurement. Corruption and other integrity risks often increase, as projects grow larger in scale and complexity.

It must be noted that the Health Sector Development Program is composed of several phases; the current project is its fifth iteration. In sum, there have been three project procurement-related reviews and one follow-up review of recommendations for the entire duration of the program.

Key lessons learned from the project procurement-related reviews of the Second and Third Health Sector Development Projects (conducted in 2008 and 2009 respectively) were applied in the fifth project. This enhanced preventive capability through better transparency in the consultant recruitment process and improved management of procurement and financial records.

Collaboration is key to the success of the project procurement-related review. Engagement with the Ministry of Health and Project Implementation Unit was integrated throughout the review process, especially during the fieldwork and reporting phase.  

“The project procurement-related review is a collaborative process. We engage with stakeholders at all stages of the review. From the input of stakeholders, we develop mitigating measures that address the root causes of these findings and hopefully build better defenses to fight against fraud and corruption,” says Rona Marie P. Yngson, ADB Integrity Officer.

In fact, the implementation of the review’s recommendations is in large part determined by the eagerness and commitment of those who will be leading the enforcement. In this instance, key individuals took the spirit of the recommendations and ran them to their full course. Project analyst Bayarmaa Tsetsgee prepared an extensive review of contracts that went beyond the scope of the project procurement-related review in 2016. With the coordination of senior procurement officer Battsengel Jamsranjav, multiple procurement trainings for the Ministry of Health and the Project Implementation Unit staff were conducted to bolster local capacities.

Additionally, ADB’s Mongolia Resident Mission agreed to enhance its supervision to ensure that the review findings are effectively addressed. The resident mission also worked closely with the Ministry of Health to improve the overall project management. ADB’s East Asia Department indicated that it “will continue collaborating with the government, through MNRM, to strengthen its commitment to promote transparency, fairness, and accountability in ADB-funded projects in Mongolia.”

Without an all-encompassing approach toward the implementation, the review’s recommendations cannot be fully realized.

Building on the findings of the project procurement-related review, ADB made further efforts to help the Ministry of Health improve its procurement process and contract oversight, as well as its financial and asset management processes. Strengthening the capacity of all stakeholders involved in procurement was prioritized to implement a robust system effectively.

“Lessons learned from this inspection, like proper servicing and maintenance of equipment, will help protect and improve our operations,” says Dr. Shinebayar Davaajav, director of Baganuur District Hospital in Mongolia.

“The written recommendation was very useful for me especially when the government is changing so fast. [The project procurement-related review showed that] these were our lessons learned; we made these mistakes before and we cannot do it again,” said Dr. Munkhtaivan Adya, project coordinator of the Project Implementation Unit.

In 2018, ADB carried out a second review to check whether the recommendations have indeed been implemented. The follow-up review confirmed the efforts of the Ministry of Health and Project Implementation Unit, particularly in the following: 

• training all bid evaluation committee members on ADB procurement guidelines;
• developing an annual monitoring plan;
• conducting routine monitoring visits to project sites; and
• closely working with project hospitals.

There was one issue that the project procurement-related review already identified but was not sufficiently fixed: the lapse of advance payment securities before the delivery of the relevant goods. This could expose the project to potential losses. As a remedy, the Ministry of Health committed to extend payment securities in all ongoing and future contracts.

The follow-up review confirmed the implementation of 10 out of the 11 recommendations. The Ministry of Health improved its procurement process and contract oversight, as well as its financial and asset management processes.

This is no easy task because of Mongolia’s frequent changes in government and leadership styles. The Mongolia Resident Mission organized capacity-building trainings, workshops, and coordination meetings with the Ministry of Health and Project Implementation Unit to ensure the faithful application of recommendations. Over the years, the resident mission nurtured good relationships with them, which contributed to positive project outcomes.

Perhaps the most important feedback came from the project beneficiaries themselves who shared how happy they were with the project outcomes. For example, before the project, hospitals would use domestic refrigerators to store blood. This meant that blood was only safe to use for 3 days. With the new industrial refrigeration units provided by the project, blood can now be safely stored for 1 year.

“In the past, the hospitals did not have sufficient blood reserves for emergency cases. Today, all hospitals have sufficient supply,” says Sarangerel Davaanjantsan, Mongolia’s Minister of Health. All 26 blood banks in the country’s 21 provinces now have enhanced collection and supply, and the availability of blood products increased five-fold at the national level.

The success of this project is a testament to the strong, collective efforts by all stakeholders to protect assets and finances from integrity violations.

“The monitoring and evaluation conducted by ADB was necessary and helpful in ensuring that project outputs continuously benefit the citizens,” says Davaanjantsan.

• Lessons from the project procurement-related review are built into project documents and operations procedures.
• Project funds are safeguarded from corruption and other integrity violations.

• Collaboration between main actors—ADB (OAI, East Asia Regional Department, and Mongolia Resident Mission) and Mongolia’s Ministry of Health and its Project Implementation Unit—led to a stronger anticorruption response.