63662 June 2011 Number 168 A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank‘s Latin America and Caribbean Region (LAC). With support from the Spanish Fund for Latin America and the construction project cycle. An assurance process the Caribbean (SFLAC), in 2009, Guatemala became the complements the disclosure by verifying information and first Latin American country to join the global Construction highlighting issues in language that allows citizens and Sector Transparency Initiative (CoST). Since then, it has seen oversight agencies to hold government entities accountable.2 the fastest implementation pace at the lowest cost. This is all the more suprising as the Initiative’s multi-stakeholder To enhance the effectiveness of disclosure and assurance, approach runs counter to the country’s historical legacy a multi-stakeholder group (MSG), with participation from of inter-sectoral conflict. To inform future engagement the public, private, and civil society sectors, oversees the with multi-stakeholder transparency initiatives in sectors national implementation of the CoST initiative. A CoST vulnerable to corruption, this note draws out key success champion facilitates the MSG’s work by providing high- factors of the CoST initiative in Guatemala as well as caveats level political advocacy. A national Secretariat implements to keep in mind when implementing similar initiatives. the MSG’s directives and oversees the consultants tasked with disclosure and assurance. Supported by the United Kingdom’s Department for International Development and the World Bank, CoST completed its pilot phase in early 2011 in seven countries: Ethiopia, Malawi, the Philippines, Tanzania, the United Kingdom, Vietnam, and Zambia. An International Secretariat Publicly financed construction is a key driver for economic in London provided technical and financial assistance to the growth and poverty reduction worldwide. At the same time, it pilot countries while an international advisory group provides is a sector unusually prone to corruption, not least due to large guidance regarding CoST’s current and future design. opportunities for rent extraction and the technical complexity of infrastructure investments. Transparency International’s Bribe Payer’s Index ranks construction as the sector most likely to bribe public officials and seek state capture, and an Guatemala joined CoST as an associate country with support estimated 10-30 percent of the US$5 trillion spent annually on from the World Bank in November 2009. As such, it differed construction worldwide is lost to corruption.1 from pilot countries in two respects. First, Guatemala was in the fortunate position to draw on lessons from the To address these downside risks, the Construction Sector pilot phase to inform its own efforts. And, second, its Transparency Initiative (CoST) was launched in 2008 with a view implementation model differed in that the World Bank, with towards fostering transparency and accountability in public financing from the Spanish Fund for Latin America and the construction projects. CoST seeks to achieve transparency Caribbean (SFLAC), provided technical assistance, acted as via the public disclosure of key information throughout an observer in the MSG and executed the funds. As such, 1 the Guatemalan experience provides a useful comparative in pilot countries, CoST Guatemala was fortunate to count case to the pilot implementation model and this note a on (1) fundamentals in place, (2) high-level political support, complement to the CoST Briefing Notes centered on the (3) a governance structure tailored to address key political pilot countries’ experience.3 economy constraints, and (4) a technical and financial assistance arrangement aligned with local needs. Since the launch of the initiative by President Colom, Guatemala has seen an extraordinarily rapid progression Fundamentals in place. CoST Figure 2. Legal Requirements for of implementation steps. The MSG met for the first time Guatemala built on a number Information Disclosure* in December 2009. In February 2010, a work plan was of recent advances in the legal approved—also based on South-South learning events with and information systems bases 100% pilot countries. In July 2010, pilot procurement entities had for disclosure. In particular, the 80% been selected and the Secretariat began its work. In October country has developed, withWorld 60% 2010, a baseline study was completed and work on the Bank support, an e-procurement 40% assurance process of ongoing projects began. During the system, Guatecompras, through 20% CoST annual meeting in December 2010, the MSG delivered which all of the information to 0% the baseline study to President Colom and signed a formal, be disclosed under CoST may Guatemala Pilot Countries multi-sectoral convention for the further implementation of be published. Moreover, as the the initiative. As illustrated in Figure 1, this implementation Guatemalan baseline study * Percentage of project information pace exceeded, on average, that of the pilot countries by more found, the country has a strong whose disclosure is required by CoST is required by domestic legislation to than a factor of two. Guatemala, for instance, completed its legal framework for information be disclosed. baseline study—as well as all required prior steps—within a disclosure, which requires the Figure 3. Actual year; pilots took on average 26 months. Guatemala thereby publication of 87 percent of Disclosure of Key counted on the smallest budget worldwide.4 the information demanded by Project Information** CoST. This compares favorably to Figure 1. Chronology of Implementation Milestones pilot countries, where domestic 100% regulations require, on average, 80% 30 less than half of the information 60% Baseline disclosure demanded by Guate- 40% Completed malan law (Figure 2). Despite 20% 25 this strong legal backing, actual Assurance Process 0% Started disclosure practices lag behind Guatemala Pilot Countries the average pilot country (Figure 20 Projects Months Since Launch 3). Compared to its domestic legal ** Percentage of project information Selected whose disclosure is required by CoST requirements, Guatemala exhibits is disclosed in practice by procuring Baseline Survey the second lowest percentage of entities. 15 Started information disclosed of all CoST Figure 4. Information countries (Figure 4); information Disclosure Compared to MSG Staff disclosure is particularly lacking Legal Requirements*** 10 in Place in the design, execution, and supervision stages.5 As such, CoST 100% Work Plan Approved Guatemala complements well 80% 5 previous advances in ‘access to 60% MSG information’ systems and laws by 40% Established focusing on disclosure practice. 20% 0 Pilot Guatemala CoST Guatemala’s potential 0% Countries added value includes, therefore, Guatemala Pilot Countries closing the gap between legal requirements and practice *** Percentage of project information Source: Authors‘ own elaboration, with data from GHK Consulting whose disclosure is required by (2010) The Construction Sector Transparency Initiative (CoST) – through the use of existing domestic legislation is disclosed in Evaluation of the CoST Pilot Project. Final Evaluation Report: Volume II information systems. practice by procuring entities. High-level political support. As administrative and legal constraints are less binding than in pilot countries, CoST Guatemala revolves primarily around addressing political What accounts for this differential pace at lower cost? impediments to disclosure. The initial impetus of the Reflecting lessons learned from implementation bottlenecks initiative, in particular, benefited strongly from high-level 2 political ownership. The Minister of Finance specifically of MSG members has avoided the institutional memory requested Bank support to implement CoST Guatemala, loss that impairs the implementation of single-stakeholder convened the MSG, and participated in initial meetings. initiatives. The small size of the MSG (six members compared The president launched the initiative and presided over its to an average of over ten in the pilots) has encouraged annual meeting in the Presidential Palace. For initiatives such ownership by members and mitigated one of the major as CoST, these signs of high-level political commitment serve risks associated with multi-stakeholder initiatives—lengthy an important dual purpose. They signal to non-governmental consensus-finding among the many actors involved. members of the MSG that the initiative is a government priority. This, in turn, feeds back into their performance as CoST Guatemala Assurance Team Field Visit MSG members, as they attach more value to an initiative to which they contribute ad honorem. Moreover, signs of high-level commitment signal the political importance attached to compliance with CoST requests to procurement entities, which, ultimately, need to disclose the information demanded by CoST. The necessity of high-level political backing and ad honorem participation of non-governmental members, in turn, underscores the importance of seeking out opportunities to reward engagement with the initiative. In Guatemala, this took the form of (1) staging events with significant media coverage of the initiative’s launch and its annual meeting, (2) MSG member participation in TV talk shows and press interviews, and (3) presentations of the initiative at, for instance, annual meetings of MSG members’ associations. Source: CoST Guatemala (2011) President Colom and the CoST MSG Addressing the Technical and financial assistance arrangement aligned Public at the 2010 CoST Guatemala Annual Meeting with local needs. Three features of the support arrangement for CoST Guatemala proved particularly helpful in accelerating implementation. First, as in the pilot countries, the initiative could count on a credible international methodology. This methodology provided orientation to the MSG as to the objectives and course for collaboration. As evidenced by the fate of less successful multi-stakeholder initiatives in the country, collaboration is often complicated by disputes over how to address challenges in a sector without such a clear methodological template. Second, and complementing CoST International’s technical assistance in this methodology, support from the World Bank facilitated the adaptation of the methodology to the country context and local needs. In addition, the local World Bank presence allowed for participation as a neutral observer in MSG meetings; this was Source: CoST Guatemala (2010) key to, for instance, understand MSG dynamics, encourage participation and facilitate trust among members. Finally, Governance structure tailored to address key political implementation could be accelerated as a local third-party economy constraints. Reform initiatives in Guatemala entity, in this case the World Bank Country Office, managed have historically been impaired by frequent turnover of the CoST Guatemala finances and took over the functions of government officials at all levels. To illustrate, since the launch the local secretariat until recruitment was completed. The of CoST Guatemala, the country has seen three ministers of institutionalization of CoST requires the creation of a legally finance and two ministers of public works. An MSG with parity incorporated administrative host, such as a foundation. among the three sectors—public, private and civil society— This process is currently being finalized in Guatemala. As has been a particularly useful governance arrangement the legal incorporation of such entities tends to be time- to keep implementation on track. Private and civil society consuming, however, interim fund management by a trusted sector representatives, who constitute two-thirds of MSG local third party may speed up implementation, for instance, membership, fostered the sustainability of CoST in times by facilitating the timely recruitment of local secretariat staff of turnover by demanding its continuation from newly- with strong expertise in the vulnerable public construction appointed officials. Moreover, the permanence of two-thirds sector and suitability for a transparency initiative. 3 follows, which underscores the importance of an interim third-party entity to manage the initiative’s funds. With information disclosure on pilot projects underway after 3. MSGs offer particular advantages as a governance fourteen months, CoST Guatemala has witnessed the fastest arrangement in environments marked by high levels implementation pace to-date among all CoST countries. Three of public official turnover. The permanence of non- lessons for multi-stakeholder transparency initiatives may be governmental MSG members in times of turnover facilitates tentatively drawn from the aforementioned success factors: both continued demand for reform implementation and preservation of institutional memory. While MSGs carry 1. Information disclosure initiatives may add more important downside risks, such as lengthy consensus- value when addressing binding constraints to the building processes, these risks may in part be mitigated accountability-through-transparency mechanism in a by limiting the size of the MSG and including a neutral sequence that focuses initial efforts on fundamentals—a observer fomenting trust among stakeholders. legal basis and information systems capacity. Subsequent efforts may then focus on information disclosure The MSG approach has been effective despite the “least likely practices and enhanced accountability through civil case” Guatemala presents, with its history of conflict and society involvement. Paying attention to the sequence distrust among the public, private, and civil society sectors. implies that the country’s adaptation of templates put Against this backdrop, CoST Guatemala’s most significant forward by international initiatives should usefully start, contribution may well have been its demonstration effect after the analysis of the local political economy, with an regarding the feasibility and importance of multi-stakeholder examination of the legal and information systems basis cooperation to advance sectoral reforms. As CoST Guatemala for disclosure. A concomitant benefit of this approach moves from pilot to expansion in July 2011, it is hoped that is the ability to draw on electronic platforms and a legal the aforementioned success factors will allow the initiative to mandate, once in place, to ensure information disclosure amplify this effect—and further enhance transparency in a practice. To illustrate, the Ministry of Finance has agreed sector so crucial to the country’s development. to proceed with a modification of its e-procurement system, Guatecompras, to introduce filters which require 1 Transparency International (2008) Bribe Payers Index. Berlin: Transparency the disclosure of CoST information for procurement International; Kenny, Charles (2008) Publishing Construction Contracts and Outcome Details. World Bank Policy Research Working Paper 5247; CoST (2011) transactions of public construction projects to go forward. Briefing Note 3 – Transparency and accountability in the construction sector. Retrieved April 8, 2011 from http://www.constructiontransparency.org/view/ 2. Implementation of multi-stakeholder initiatives may document.shtml?f83001-tvifxos be accelerated if an ad honorem MSG can count on 2 See, for instance, CoST (2011) Briefing Note 1 – Overview. Retrieved April 8, 2011 from http://www.constructiontransparency.org/view/document.shtml?l46598- a local, trusted, and independent interim third-party uenjqfg. The CoST initiative should be perceived as addressing only those administrative host, such as a development partner. governance challenges in the public construction sector that may be overcome Substantial assistance by an administrative host through enhanced accountability through information disclosure. allows the MSG to focus on policymaking rather than 3 For briefing notes on the seven pilot countries, see: http://www. administrative tasks and may thus enhance the pace of constructiontransparency.org/TechnicalFinancialAssistance/CoSTBriefingNotes/ 4 implementation. For instance, the recruitment of capable Other pilot countries exceeded Guatemala’s budget by 20% to 85%. See coun- try allocation data in GHK Consulting (2010) The Construction Sector Transparency staff for the secretariat is time-consuming, and places a Initiative (CoST) – Evaluation of the CoST Pilot Project. Final Evaluation Report: Vol- premium on a neutral and trusted local third-party entity ume I. In terms of funds disbursed, Guatemala is estimated to complete the pilot both to facilitate the recruitment process and take on the phase at 60% the average cost of pilot countries, the lowest figure next to Ethio- pia. See CoST (2011) Briefing Note 8 – The cost of CoST. Retrieved April 8, 2011 from role of interim secretariat until the process is completed. http://www.constructiontransparency.org/view/document.shtml?x27597-fgtvzgb In addition, once the secretariat is in place, an often 5 Data aggregated from CoST (2011) Report on Baseline Studies: International lengthy process of legal incorporation of the initiative Comparison. Draft Report. Christian Schuster is an Economist in the World Bank’s Guatemala Country Office and Anabela Abreu is the Country Manager of the World Bank’s Guatemala Country Office. 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