A Sourcebook - UN-Water

8.5 Promoting Probity in Procuring Private Participation
A special case of procurement involves the procurement not just of particular project-related works or
advisory services, but of operators or managers for entire water service systems—that is, the introduction
of PSP in service provision. The number of possible PSP arrangements is large: different models may
be used in different countries to address specific, local problems in public provision. Regardless of the
type of private participation chosen, a general approach likely to promote probity would go as follows:
• Be clear about the objectives for private participation. This involves identifying what public
sector problem the transaction is expected to solve, what services the private firm would be
expected to provide, and what outcome these services should achieve. If these objectives are
clear from the outset, it is easier for the government to be held accountable for ensuring that
objectives are met, and in turn to design mechanisms for holding the private firm accountable
for achieving them
• Design a transaction and regulatory arrangement that achieves those objectives. An effective
transaction design and regulatory arrangement is conceptually sound and sufficiently detailed
in order to set the right incentives for the private contractor to meet the government’s objectives.
Making well-informed decisions about contract type and risk allocation and enabling
transparent and open feedback from the private sector to develop workable contract terms
are techniques that help to ensure that a competitive number of well-qualified private firms
are interested in the PSP opportunity, and are transparently involved in shaping its design
• R un a transparent and competitive process to select the contracting partner. Many of the
techniques described for general procurement (see Section 8.2) are relevant for this process,
although the larger size of the contract means that more stringent rules and oversight may be
required in order to reduce the opportunities for bid-rigging, bribery, fraud, and other forms of
corrupt activity.
Once a private sector contract is awarded, regulation becomes a key sector governance concern.
Good practice in regulation is discussed further in Section 10.3.
Box 8.10 Output-Based Aid Water Project in Guanajuato, Mexico
The Guanajuato output-based disbursement scheme is an effective and practical way in which transfers—whether
they be from the Federal government, the State, or a loan program (such as the IBRD loan for Guanajuato)—can be
linked to explicit outputs. Under this scheme, specific payments are made against number of inhabitants connected
to safe and reliable service, the utility’s improved financial standing and treatment of wastewater. Payments are
linked to clearly defined outputs achieved: cubic meters of treated waste water, and number of household connections
to a water network. The Government supervises output delivery by reviewing the output indicators on a preagreed,
periodic basis.
The project has successfully increased the sustainability of services, improved water resources management, and
improved access to services for the poor. In addition, the OBA approach led to the development of a clear results
framework for capital projects, improving transparency and accountability.
Source: International Development Association (2006). “A Review of the Use of Output-Based Aid Approaches”. World Bank.
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