Integrity Dividends: Procurement in the Water and Sanitation Sector in Latin America and the Caribbean

Adam, I.,  Fazekas, M., Hernandez Sanchez, A., Horn, P. and Regös, N. (2023). Integrity Dividends: Procurement in the Water and Sanitation Sector in Latin America and the Caribbean. Technical Note No 2608. Inter-American Development Bank, Washington, DC.

Public procurement represents a large portion of government expenditure, more so in developing economies. Inefficiencies in public expenditures thus place a heavy burden on society. The Water and Sanitation (W&S) sector is especially vulnerable to public procurement inefficiencies due to the capital-intensive and complex nature of large-scale projects such as sewage, pipelines, and general maintenance. Recent studies have found that quality of corporate governance and transparency of water utilities as well as regulatory and supervisory agencies are key drivers of the sector’s performance.

To support better policies in the W&S sector, this report conducts a sectoral measurement of public procurement integrity using government administrative data and identifies effective interventions for improving the performance of utilities. The following questions are explored:
Which types of integrity risk carry the highest economic costs?
• What are effective policy solutions? Which address the most impactful risks
• What are the price savings and project-delay-reducing impacts of such solutions?

To this effect, the study analyzes data for six countries in the Latin American & Caribbean (LAC) region: Chile, Colombia, the Dominican Republic, Paraguay, Peru, and Uruguay. These cases were selected based on a) the scope and quality of data available, b) the coverage of water sector data in the country, and c) regional balance. To measure W&S procurement integrity in the selected countries, the study collected data from publicly available sources such as national procurement portals. Several regression models were run to assess which indicators of integrity are good predictors of improved outcomes in terms of price (unit or relative) and quality (delays) of public purchases in the sector.

A total of 12 integrity indicators were considered and validity tested based on their availability within each country-level dataset. Each of them assumes a value between 0 and 100, where 0 represents risky behavior, 50 indicates medium integrity (where applicable) and 100 signals high integrity. Nine indicators were related to the tendering process, and three were based on information about organizations. Based on pooled regression models in the procurement dataset, the study finds that several indicators of integrity predict a reduction in relative prices, unit prices and contract delays. Specific attributes of tenders such as multiple bidders and open procedure types are thus associated with better outcomes in W&S public procurement.

On this evidence, the report outlines seven policy recommendations and implementation strategies based on state-of-the-art research in the field of public procurement integrity to further improve these pricing and quality outcomes.

Read the full report