Blockchain Lessons for Procurement

By Joseph Huntington La Cascia, Sr. Procurement Specialist, World Bank

In the age of blockchain hype, this is the first story you will hear about failure and lessons learned. A few colleagues and I put together a Trust Fund project to build a Global Public Procurement Database (GPPD). Our idea was simple - to capture all the aggregate information about public procurement at the country level, such as the percentage of public spending per country, the number of bids per tender and statistics on e-procurement implementation (~14,000 data points). Our hope was providing this information would identify best practices and areas of improvement leading to consistent procurement reform globally.

Then along comes blockchain - a distributed digital ledger technology where transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly.  Perhaps blockchain could be used for the global public procurement database?

So, we decided to find out if using blockchain for the database would be a feasible technology solution. Unfortunately, after consulting industry groups and the World Bank's own ITS Technology & Innovation Lab, it turns out that aggregate "macro" data for our database doesn't fit the blockchain paradigm.

Disappointed with this news, we had hoped that by implementing the database using blockchain our project would garner greater visibility and relevance for public procurement.

So, lesson learned.  We are now moving forward with the project using a combination of traditional (desk research) an disruptive (Artificial Intelligence) technologies.

This endeavor got us thinking. After all the research and consultations, we learned quite a bit about blockchain. There are many features that we as technology procurement professionals find quite useful.

For one, blockchain provides a form of digital trust.  Digital trust, for those unfamiliar with the term, underpins every digital interaction by measuring and quantifying the expectation that an entity is who or what it claims to be and that it will behave in an expected manner. One of the duties of both procurement specialists and contract officers is to provide the fiduciary review of procurement transaction and contract management. This translates to long and tedious reviews of procurement documents and bidder qualifications, which often rely on trust verification. Using blockchain could modernize the review process.

Improved transparency is another blockchain feature.   A common complaint among civil society organizations, non-governmental organizations and stakeholders is the lack of public procurement transparency, especially in many of our client countries.

The implications are huge for e-procurement systems, as the best information systems are generally those which are interoperable and integrated with many other systems.

This got us thinking about potential ideas of how blockchain could be used in public procurement where there is so little trust, not a lot of transparency and notably slow procurement transactions.

One of the big issues we face when supporting World Bank-financed projects in client countries is that generally the e-procurement systems do not support bid securities – a financial instrument to insure the contracting authority should a winning bidder not accept the contract. There are ways around using bid securities in e-procurement systems such as bid security declarations and even using credit cards for low-value transactions.  Wouldn't it be great to have bid securities in an electronic format which would be included in the electronic bid submission? Blockchain could be used to provide this trust between the commercial bank, the bidder and client country to validate the bid security in an electronic format.

Another idea is to create a global database of vendors which provide qualification information. The United Nations Global Marketplace (ungm.org) provides this functionality for United Nations organizations and agencies. Wouldn't it be great if there was a one-stop shop for validating all vendor qualification information? Having such a feature would streamline the evaluation of the commercial responsiveness. For a hefty fee, large firms such as Dun & Bradstreet already provide such information.  Eventually all this commercial information about firms will be publicly available on a blockchain which e-procurement systems can access via smart contracts, which allows for the validation of credible transactions without third parties.

How about e-procurement systems themselves? Every procurement transaction is on a ledger. The distributed nature of blockchain would provide the trust and security which many stakeholders desire. Furthermore, blockchain can streamline the process by integrating with other systems more easily through smart contracts. Furthermore, building e-procurement systems on blockchain would provide the desirable transparency for both CSOs and NGOs.

In summary, there needs to be more research and pilots to better understand where the World Bank and its clients can be fully utilized the benefits of blockchain in procurement.

Have you had other experiences - positive or negative - with blockchain in procurement? Any other ideas of how we could use blockchain in procurement systems?