Chiles Government Procurement E-System by tyndale


									                  Chile's Government Procurement E-System


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

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 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

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