This review analyses public procurement policies and practices of ISSSTESON, the institution providing health and pension services to the workers of the State Government of Sonora, Mexico. It benchmarks ISSSTESON practices against the 2015 Recommendation of the Council on Public Procurement to help the institute upgrade its procurement operations and increase efficiency, in a difficult financial environment. It also examines the revenue structure of the Institute and suggests reforms for the pension scheme, which is too generous compared to national and international experience.
Reforming ISSSTESON’s Public Procurement for Sustainability
OECD Public Governance Reviews
Abstract
Executive Summary
The Institute of Security and Social Services for the Workers of the State of Sonora (ISSSTESON), which provides medical and social security services to state government employees, is in a difficult financial situation. Its deficit in 2017 was MXN 2 737 million, and its budget needs are increasing at rates that are almost twice as high as growth in income. This review supports public procurement reforms in order to maximise efficiency and safeguard the Institute’s long-term sustainability, while ensuring quality services for ISSSTESON’s 180 000 affiliates.
Key findings
One of the major challenges ISSSTESON faces is in the efficiency of its operations. Until recently, ISSSTESON’s General Procurement Office was integrated in the Administrative Services Deputy Directorate, which included both the Tenders Department and the Acquisitions Department. The Tenders Department responsible for handling public tenders, including restricted tenders, and the Acquisitions Department in charge of direct awards, were merged in March 2019. Nevertheless, each ISSSTESON hospital continues to have its own decentralised procurement responsibilities. This dispersion has created an array of problems related to co-ordination, consistency, and information sharing which ISSSTESON would like to address by consolidating the procurement process within its own central office.
ISSSTESON publishes procurement information in several electronic platforms. Although the introduction of the National Transparency Platform (PNT) has done much to help the Institute comply with the disclosure of the different information items required, some items continue to be difficult to find, in particular those relative to oversight mechanisms and completion agreements, and documents are often uploaded in formats that are not machine-readable. ISSSTESON does not have a single IT-based procurement platform. The Institute’s central administration and its decentralised units in hospitals use the state version of CompraNet for public tenders and restricted invitations and the Electronic Procurement System (SIEC) for direct awards.
At the same time, ISSSTESON has worked to improve their integrity standards and recently adopted several integrity measures to reinforce its commitment. It approved its Integrity Programme in December 2017 and established a Committee for Integrity, Ethical Practices, and Good Government in June 2018. As part of the Integrity Programme, in August 2017 the Institute published a Code of Ethics and Conduct and Integrity Rules.
There are approximately 30 ISSSTESON employees who work exclusively on procurement-related matters. However, ISSSTESON has not set any specific requirements for procurement officials to fulfil in terms of skills, competencies, or job profiles and there are no specific entry requisites that procurement employees must fulfil prior to recruitment.
Regarding the financial structure of the Institute, despite recent reforms, Sonora’s pension system is generous in terms of retirement age, years of contribution, and pension returns when compared to national and international practices. The system is under duress for several reasons, including: i) delays in the payment of contributions by the State of Sonora Ministry of Finance and other affiliated institutions; ii) increasing demand for the Institute’s services – it is expected that by 2057 the number of pensioners will have increased by 100%; iii) generous retirement conditions; and iv) the loss of all 129 lawsuits demanding pension readjustment for higher benefits. In this context, the political challenges to reforming Ley 38 – which regulates ISSSTESON – are clearly significant.
Key recommendations
The current financial shortcomings experienced by ISSSTESON hinder its efforts to develop and implement efficient procurement practices. Indeed, one of the consequences stemming from the lack of liquidity is the delay in payment to suppliers. This creates opportunities for inadequate behaviour, but also affects the potential interest of businesses to participate in ISSSTESON’s tender procedures and thus the Institute’s ability to access quality goods and services at competitive prices. The effectiveness of the following recommendations to improve the long-term sustainability of the Institute and to maximise efficiencies stemming from its procurement function are contingent on the extent to which present budgetary constraints are alleviated.
ISSSTESON could further integrate or co-ordinate its different procurement entities, establish better communication channels, improve information quality, and allow for aggregated purchases.
ISSSTESON could maximise the use of public tender procedures and limit exceptions as a means to increase efficiencies, boost competition, reduce corruption risks, and obtain better value for money.
ISSSTESON could obtain better value for money by issuing guidelines for the drafting of tender documents that define technical specifications for the award criteria. It could focus on the use of functional (generic) requirements and on the implementation of award criteria that rewards the reduction of total life-cycle costs.
Scaling up and integrating ISSSTESON’s electronic platforms for procurement would increase transparency and efficiency in its procurement operations.
Along with the development of a consolidated e-procurement system, ISSSTESON should work on the integration of this system with others (i.e. budget, stock) and the sharing of information between databases.
ISSSTESON should launch an effort to collect and systematise data on procurement performance to improve the decision-making process and realise the potential for greater efficiency.
ISSSTESON should explicitly state in its integrity rules and codes specific provisions and guidance for procurement officials, including in the codes developed by hospitals and clinics.
ISSSTESON should consider the development of a competency framework for its procurement officials, covering most aspects of the procurement cycle.
Reforming Ley 38 to increase the effective retirement age and the required years of contribution to better align them with national and international practices. Ideally, ISSSTESON should return to its core business: providing pensions and healthcare. Additionally, Sonora’s Ministry of Finance should abide by the payments established in the agreement to settle the outstanding debt. Settling this debt and avoiding future delays in payments are essential to provide the Institute with the necessary liquidity and certainty to finance its operations, including procurement.
