Bedrock for better public infrastructure in Honduras
How open contracting is driving more powerful controls — from spot checks to analyzing sector trends
A story by the Open Contracting Partnership.
Few people know as much about Comayagua as Walter Ulloa. The self-taught historian has written eleven books about the region he calls home in the rugged highlands of central Honduras. He left school after the 10th grade and has had to learn several trades to support his family, but that hasn’t stopped him from becoming a passionate and vocal advocate for citizens of the region.
In his spare time, he is one of more than 500 volunteer citizen monitors nationwide who keep track of public projects in their communities.
“We look at those projects that are of interest locally. This can be a new main road or a new hospital. For example, the new Polyclinic in Siguatepeque is going to be the first hospital in the city. We had a local health care center, but for anything bigger, we had to travel to the next city,” Ulloa says, referring to his hometown, Siguatepeque, which is halfway between the Honduran capital, Tegucigalpa, and the Caribbean Sea to the north, making it a common rest stop for travellers driving across the country.
“It is important to follow public works up close,” he adds.
Empowering citizens by opening up infrastructure projects
Local infrastructure can dramatically improve people’s lives and provide economic opportunities. But when oversight is poor, these projects are vulnerable to influence peddling and major delays in the execution of the works. With the federal government far away, local administrators can be indifferent.
“Capacity to monitor public projects is low,” says Ulloa. That’s why he and other citizens have been working with representatives from government and business through CoST — the Infrastructure Transparency Initiative (CoST) to keep track of the information public bodies are publishing about their infrastructure projects and whether that information reflects the reality on the ground.
“Now, at a local level, there is a higher degree of transparency,” comments Ulloa. In fact, most of the information on the country’s infrastructure projects is now published, compared to 2015, when information disclosed on the average project accounted for less than a third of that required by law.
In an effort to boost development, vast sums of money from public funds, multilateral banks, and private companies are being poured into infrastructure projects in Honduras. But the rapid growth in investment in large-scale infrastructure in recent years has made the sector an attractive target for the corruption and organized crime that are both causes and consequences of the country’s problems with violence and poverty. Even when corruption isn’t to blame, worryingly low levels of transparency on infrastructure projects has made earning the trust of investors and communities a challenge. Poor planning and an absence of dialogue among those responsible for infrastructure projects, and those affected by them, have often pushed tensions with local populations to breaking point, leading to major delays to infrastructure projects and public protests — in the worst cases, these have turned deadly.
As a starting point to tackle these issues, the government has taken steps to increase transparency and accountability in the infrastructure sector. In the last four years, through CoST, the amount and quality of information on public infrastructure has improved dramatically, and the involvement of communities in decisions about public deals has increased.
From this, the government has introduced new policies to improve infrastructure procurement and revamped public entities responsible for building and running major projects in transport and others sectors, such as road networks, hospitals, and a new airport. These policies are designed to address common problems in the procurement cycle, like cost and time overruns.
For the first time, the government is publishing enough data for monitors to identify cost overruns. They can now calculate estimated or real cost overruns on a large subset of contracts — 95% of around 1,000 infrastructure contracts from the three main agencies, compared to 40% in 2015. Similarly, 44% of contracts have data to calculate time overruns, up from 10%.
Honduras now has its sights set on expanding the reach of these transparency reforms by improving the quality and range of information published and expanding the use of global best practice to share data, such as the Open Contracting Data Standard (OCDS) — a schema that is already being applied to publish data on public-private partnerships. This will make it easier for public entities beyond infrastructure to improve the quality of goods and services and ensure that government funds and investments are spent wisely.
This is important progress. But the systemic impact will come when data-supported evidence acts as a basis to inspire broad reforms and is used by all actors to ensure projects are managed to best serve the community.
Early markers of success: How more openness throughout the procurement process has led to reforms
We have seen promising cases and results that show how more transparency and openness throughout the procurement process is beginning to drive change.
- Roads: Procurement data leads to complete overhaul of road maintenance agency
When the road maintenance agency consistently failed to publish information about its projects and contracts, the authorities decided to investigate. In multiple cases, they discovered organized crime groups owned the companies who won the deals. The agency has been dismantled and is being rebuilt to be more transparent. READ MORE
- Tourist corridor: Data reveals exorbitant public purse liability in public-private partnership (PPP) project
The construction of a toll road along a popular tourism route has been marred by controversy that culminated in angry citizens burning down toll booths. Data and documents about the project revealed unrealistically high traffic estimates and other planning errors, which have left the government liable to pay its consortium of private sector contractors five times the amount that was initially invested in the project. Open contracting data has informed this reporting, highlighting shortcomings in the process. READ MORE
- Project design: Policy and regulatory reforms address outdated designs
The CoST assurance process, which highlights the accuracy and completeness of infrastructure data, was carried out on a sample of General Roads Directorate projects, revealing that 60% were based on outdated designs. Some designs were over 14 years old. This led to excessive cost overruns, ranging from 157% to 197%, and time delays of 18 to 60 months. The government has since introduced new policies that require all projects to provide up-to-date designs before construction can start. READ MORE
- Participation: Policy and regulatory reforms mandate community engagement early on
Many of the sample projects reviewed by CoST either lacked or ignored community consultations. One project, approved without a feasibility study or community resettlement plan, was delayed by seven years and cost an extra US$5 million, or 120% more, with bulldozers turning up on residents’ doorsteps. In response, the government has made it mandatory for all community resettlement needs to be expressly declared, and contracts must include clauses to promote community engagement to increase social accountability and citizen participation. READ MORE
The road to improving Honduras’ infrastructure data
Thanks to legislative reforms, public entities are obliged to publish information about their infrastructure contracts. Since 2015, this is done through a centralized database accessed on a platform called SISOCS, which was developed by CoST Honduras and the World Bank. The public portal contains data and documents on more than 1,000 projects from nine public entities that represent a total investment of 20,471 million lempiras (around US$855 million).
In principle, the information made available should cover all stages of the procurement process from planning through to award to implementation. But in practice, public entities don’t always publish all the information they’re supposed to or do so accurately. Research conducted by a local anti-corruption watchdog found there was a severe lack of oversight in Honduras’ infrastructure sector, with five key agencies only complying with 42% of procurement laws and 21% of transparency laws — a gap that reflects a significant corruption risk, according to the group, Asociación para una Sociedad Más Justa (ASJ), the national chapter of Transparency International.
Tracking trends, such as monitoring spending and analyzing efficiency, remains a challenge. To refine the quality and completeness of their data, the government has adopted a new standard as a guide for publishing relevant information: an open source, open data schema called the Open Contracting Data Standard (OCDS). The standard, which was developed by the Open Contracting Partnership, will make it easier for citizens, businesses and other organizations to use infrastructure data and develop their own purpose-built tools. In early 2018, the government started piloting the standard with public-private partnerships and is working towards universal adoption on all infrastructure projects as well as broader procurement.
More than a dozen countries are already using the OCDS as part of an innovative approach to procurement, known as open contracting, although Honduras is one of the first countries to use a data specification tailored for the infrastructure sector. An international best practice, it merges the CoST Infrastructure Data Standard, the World Bank’s PPP Framework and the OCDS.
Data publication increases dramatically, from 27% to 95%
To improve the quality and amount of information, trained citizen volunteers and professional observers review the information in the SISOCS system and verify its accuracy by reviewing original documents, and conducting interviews and physical site visits. CoST Honduras sends monthly reports to all public entities on their performance and publishes regular, comprehensive assurance reports that review a sample selection of projects from several agencies in detail and provide recommendations for improvement. To date, 67 public infrastructure projects have been reviewed (out of around 1,000 included in the SISOCS database). As part of the review, any information missing from the SISOCS database is requested from the public entity who respond publicly through SISOCS. This has improved access to the information dramatically. In the four years since these transparency reforms were introduced, agencies included in CoST’s assurance reports, on average, now disclose 95% of the information they are supposed to by law, compared to just 27% in 2014.
Non-government actors have become a unique resource for authorities, providing independent advice on how to improve public procurement processes and projects. Through CoST’s locally-led decision-making body, the Multi-Stakeholder Group (MSG), which consists of representatives from civil society, industry and different government agencies, those affected by infrastructure projects have an active role in monitoring the way the projects are procured and delivered. The group also leads the assurance process, which involves identifying what projects to include, making recommendations to the government, tracking how those recommendations are adopted, and ensuring that public entities and the private firms they work with are held accountable.
Alfredo Cantero, the Minister for Transparency and founding member of CoST Honduras, highlights the importance of involving all stakeholders. “The MSG has managed to develop a truly candid level of dialogue where civil society, private sector, and government, can convey opinions with respect but also honesty; it is always our opinion. That situation has ensured a lively initiative built on mutual respect; we share a common vision for the greater good of the country, and also how to treat and relate to each other.”
As of July 2018, CoST Honduras has monitoring agreements with community groups in around 250 municipalities across 14 of Honduras’s 18 regions (or “departments”), compared to 90 municipalities in 2016. They have also trained 175 civilian monitors in using the SISOCS system, and more than 500 in general project monitoring.
Increasing data, trust and impact towards a new culture of public spending in the public eye
For the first time, there is starting to be enough data about contracting processes to alert authorities to possible trends in particular agencies and across the sector, that they can follow up and verify with other investigative methods, controls, and citizen feedback.
SISOCS now includes project performance indicators that measure the efficiency and openness of processes, considering different aspects of the disclosed information. For example, in cases where the original value has changed or been modified, projects are penalized with a low-performance score in the public entities’ monthly reports, indicating that it may require greater scrutiny.
A comparison of estimated values with financial implementation data helps flag where there might be possible cost overruns. A rough preliminary analysis of publicly-available SISOCS data for three agencies suggests about 95% of contracts had enough data to calculate real or estimated cost overruns in 2017, compared with just 40% in 2015.
Similarly, 44% of those contracts had enough data to calculate real or estimated time overruns in 2017, compared with 10% in 2015.
It’s still early days, but confidence from businesses and investors seems to be growing.
“It has definitely had a positive impact because we have seen increased interest from both national and international investors in the construction sector in Honduras,” says Miriam Varela from the Chamber of Construction Industry (CHICO).
“A lot of this confidence has come about because the country is taking important steps in disseminating information on public works contracts which has strengthened transparency.”
She notes that there has been an increase in complaints since CoST was established, which she views as a good thing: more complaints from bidders means more oversight of the projects.
But the work of citizen monitors isn’t free of risk, despite an executive decree making community monitoring of projects mandatory, says Walter Ulloa from the civil society group in Siguatepeque. Ulloa, who hosts a local television program says municipal authorities put strong pressure on the owner of the channel to cancel his show and on his advertisers to pull out. He also felt his life was in danger after receiving anonymous, threatening calls. But these threats haven’t deterred him from continuing his monitoring work.
“I believe that if I did [stop], I would be encouraging my adversaries and that it would put my life at greater risk because I would be showing signs of fear or that they have the power to curtail the freedom that I have, as a journalist and as a citizen, to demand transparency and accountability,” Ulloa said.
The challenge now is to establish a culture in Honduras where citizens and businesses actively report problems, says Yahaira Velásquez, a specialist in purchasing and contracting at the civil society watchdog ASJ.
“We must aspire to civil society reporting systems as in other countries, where, for example, the same people who travel on roads, observe a fault or anomaly … and they proactively take photos and publish them on the information portals or systems, so that they are active participants. Or with construction signs, where they point out that the work should have been completed in eight months but it was not finished in that period, so they take photos of the ongoing work and send it to to those systems. The entire population feels that it is their obligation to report to contribute to transparency and efficiency in the management of public institutions.”
With more information available as open data, in real-time and in better quality, a first, important step has been made in Honduras. To take its ambitions to scale, citizens and business will have to be co-drivers to ensure public infrastructure can deliver.
Case study 1
Road Fund: Procurement data leads to complete overhaul of road maintenance agency
A severe lack of transparency in the transport network in Honduras has been a particular cause for concern. Most roads are poorly maintained and lack sufficient signage and lighting. Highways usually have a single lane in each direction, and secondary roads are mostly unpaved. Roads in the mountains are steep and winding, while seasonal storms cause flooding and landslides. Road accidents are one of the leading causes of death, with six times the number of traffic-related deaths in Honduras compared to the UK, according to World Health Organization statistics.
The Road Fund (Fondo Vial), the public entity responsible for maintaining a 14,000-kilometer network of paved and unpaved roads, has been plagued with problems.
Established in 1999, the Fund was once a well-managed institution, but over the past ten years, it has been “politicized”, [with funds being allocated based on political allegiances rather than community needs], the Honduran Chamber of Construction Industry’s director, Silvio Larios, told a local newspaper last year. Links to organized crime have long been rumored and recently investigated, with a leader of the notorious Los Cachiros gang claiming the group paid bribes to win Fondo Vial and other public works contracts.
Some 2,700 million lempiras (around US$112 million) were invested in the Road Fund from 2014 to July 2017, during which time it consistently underperformed in the reviews of CoST — the Infrastructure Transparency Initiative (CoST). On eight infrastructure projects included within the CoST Honduras assurance process, only about 60% of the required information was available in the SISOCS database. The missing data and documents — especially details of modifications, transactions and other data about the management (19% disclosed) and execution (35% disclosed) phases of the contracts — offered clues as to where possible problems or even crimes might have been concealed. In mid-2017, the president issued an executive decree to dismiss the Fund’s directors and investigate potential corruption. The Fund, which had ongoing contracts with around 70 companies, was dismantled in January 2018 and data published on the SISOCS system is assisting the Intervention Commission (Comisión Interventora del Fondo Vial) in understanding what went wrong and deciding what the new agency should look like.
The commission is headed by Marco Bogran, who is CEO of INVEST-H, a public entity perceived as highly transparent and which consistently performs well in CoST Honduras assurance reports. A multidisciplinary team including lawyers, financiers, and auditors, the commission reviewed all the contracts implemented by the Road Fund to identify contracts with problems and anomalies. The contractors and supervisors of the active Road Fund contracts, where work was progressing, were kept on and paid to complete the contracts. Contracts with contractors that didn’t have the capacity to complete the work were suspended or cancelled.
“The SISOCS tool helped us identify what was and was not disclosed. As a result, we focussed on those opaque projects and contracts to find out what was going on. The recommendations from this commission helped determine which contracts should continue and which had to be cancelled,” Bogran said.
A new agency, the Directorate of Road Heritage Conservation, was created in June 2018 and will operate within INVEST-H.
Case study 2
Tourist corridor: Data reveals exorbitant public liability on Public-Private Partnership project
To help bridge the gap between Honduras’ infrastructure needs and the public funds available, the country has turned to public-private partnerships (PPPs). These large projects can be risky and are often complex, involving many different stakeholders and consortia of companies. They last decades and the planning phase alone can take years. This high level of complexity makes it essential to provide transparency throughout the process as well as mechanisms for effectively tracking progress to ensure citizens benefit from these investments.
In practice, this can be very difficult. CoST Honduras implemented an effective system for tracking PPPs. At the heart of it is a user-friendly online portal specifically for data and documents related to PPP projects, which Honduras launched in early 2018 using the CoST Infrastructure Data Standard and the World Bank PPP Disclosure Framework. The data is published in a standardized format built on the global best practice schema Open Contracting Data Standard. Unique IDs are assigned for each project, making it easier to keep track of the complicated network of stakeholders involved and the multitude of documents, from socioeconomic impact studies to bank guarantees.The platform covers all PPPs in Honduras — all 21 projects worth more than US$1.469 billion as of November 2018. In comparison, the total value of the 1,000 or so regular public infrastructure projects on the general SISOCS platform is around US$878 million — or 60% that of PPPs.
SISOCS data and documents — such as estimated contract value, community resettlement plans, modifications, and financial implementation — as well as the regular review of selected projects through the CoST assurance process, haves revealed that weaknesses in the planning of PPPs and contracts are a common problem.
One of the most explosive cases involved a PPP to build the Corredor Turístico El Progreso, a toll road on a popular tourist route. The project was designed to improve safety, cut travel times, and improve economic opportunities for local businesses. It’s had the opposite effect so far.
The review process uncovered serious discrepancies in the 2015 agreement between the public entity COALIANZA and the consortium of companies, ADASA. A feasibility study grossly overestimated the traffic and thus, potential revenue from the road’s toll booths. CoST Honduras found this would leave the government paying off a total of US$517 million over the next 15 years to meet the consortium’s guaranteed minimum income. In contrast, the private sector only invested US$162 million (3,900 million lempiras) on the original contract. CoST Honduras’s Multi-Stakeholder Group also raised concerns about the suspicious hiring of staff from the public entity by the business consortium after the PPP agreement was signed.
Journalists, who received training from CoST Honduras, also exposed the impact that the poorly planned deal was having on the community. Josué Quintana, the winner of CoST Honduras’s transparency award, reported on the Tourist Corridor after completing the organization’s diploma in journalism on infrastructure. He decided to write about the project because of the community’s clear opposition to it.
“The uneasiness and uncertainty of the population were evident because from the beginning of the project very little was disclosed about what terms the State had negotiated with the consortium,” Quintana said.
Small business owners told Quintana the toll was unfair because it taxed traders from one town on a common merchant route more than those from other towns. Other drivers objected to tolls being introduced before the new road was complete. They started a boycott, with around 8,000 cars a day passing through toll booths without paying. Drivers argued that it violated their constitutional right to freedom of movement because there was no alternative, toll-free route. Police told Quintana there were more accidents on the road because of roadworks and that traffic delays were a problem. Not only did the PPP agreement overestimate the value of the toll revenues, there were also discrepancies to the rates and charges imposed. Around 59% of the revenue was projected to come from one toll booth in an area where most residents are classified as low income, with average monthly earnings below US$288. Construction even had to be halted after protesters set toll booths on fire.
Quintana used CoST’s assurance reports and the SISOCS database to write the story.
“In compiling the information, I started by documenting the published reports of CoST Honduras, but additionally, I also looked for information on SISOCS. I knew how to do this because I was taught on the Diploma for Journalists course and later I resorted to a lot of field interviews with experts on the subject linked to this process,” said Quintana.
Soon after CoST published its findings on the project in 2018, the government followed its recommendation to begin re-negotiating the contract and to commission a new study to assess traffic levels and costs more accurately. After several months of deliberations, they were unable to come to an agreement and the project continues to hang in the air. Nevertheless, the government is reviewing their processes to ensure similar deals are handled better in the future.
Case study 3
Project design: Policy and regulatory reforms address outdated designs
As part of its efforts to increase transparency, Honduras has introduced key regulatory changes designed to improve the long-term management and efficiency of the infrastructure sector.
These changes focus on common problems, such as the use of outdated designs. When CoST reviewed projects suffering from the greatest delays, they found 60% of General Roads Directorate projects (16 out of 27) were based on old and outdated designs. The project with the biggest delay had a 14-year gap between the design and the bidding phase. The outdated designs meant multiple modifications had to be made after the contracts had been awarded, which in turn, led to excessive cost overruns within the range of 157% to 197%, and time delays of 18 months up to 60 months.
Based on the recommendations of CoST’s assurance process, the General Directorate of Public Investment issued a guideline for public entities to present up-to-date design documents before gaining approval to start the bidding process.
Case study 4
Participation: Policy and regulatory reforms embed social impact and community engagement at the earliest stages
Community engagement and monitoring are now an essential part of the procurement process. Since 2016, professional auditors for CoST along with members of the community from the Citizen Transparency Commissions have been conducting field visits to project sites.
Despite these visits confirming a high level of interest among local civil society organizations to participate in the monitoring process, there had been no prior community consultation on any of the 19 General Directorate of Roads and Road Fund projects reviewed by CoST that year.
The ministry of finance introduced new regulations requiring resettlement plans and costs to be disclosed at the project proposal stage after the CoST Honduras assurance team raised concerns about a road paving project from Las Crucitas to Teupasenti. The roadworks were expected to benefit more than 50,000 people and create 500 jobs in an area known for growing corn, beans, vegetables, and other produce. But the road was set to cut through communities, and no efforts had been made to consider their needs. The project plans did not contain a feasibility study, nor resettlement plans. Bulldozers arriving suddenly on their doorsteps caused serious distress to residents and delayed the work by seven years while adding an extra US$5 million or 120% to the total cost.
Based on the recommendations of the CoST Honduras Multi-Stakeholder Group, in addition to the requirement to declare resettlement needs, all government contracts must now also include two explicit clauses to promote community engagement in projects and facilitate social audits to increase accountability and citizen participation in demanding transparency. These mandatory social audits have helped to expose environmental, health and safety concerns.
All images courtesy of CoST Honduras unless stated otherwise.