UN's Procurement Business is Managerial Disaster, Report Reveals

EXCLUSIVE: The United Nations' $10 billion procurement business-the buying of goods and services for its operations worldwide-is a managerial disaster, in which its own procedures are not followed, documentation is often missing and the total amount spent on consultants is unknown, according to a damning report now being quietly circulated at the world body.

Moreover, the U.N.'s top managers have apparently been failing to meet requests from the U.N. General Assembly to fix the situation since at least 2001.

The conclusions appear in a sharply-worded, 40-page note to the U.N.'s top managers that was delivered in early December. The note, obtained by FOX News, appears to confirm a dismal portrait of the U.N.'s major money-spending activities that the organization has often vehemently denied.

The inspectors who prepared the latest management report work for a specialized, Geneva-based watchdog of the world organization known as the Joint Inspection Unit (JIU). The JIU's job is to assess and improve the efficiency and coordination of the U.N. worldwide through its inspection and recommendation process.

Its prescriptions for improving management, however, only have the force of recommendations --and in this case, the inspectors note, they made some of the same suggestions as far back as 1999, with little apparent effect.

The new document bears the numbing title of "Corporate Consultancies in United Nations System Organizations," and for its first 13 pages is mainly a highly-critical examination of U.N. usage of consultants for such things as information management, management restructuring and internal analysis.

Click here to read the report.

When it comes to hiring consultants, the inspectors also find the U.N. as a whole badly wanting -- starting with the fact that, as the report notes, "in the United Nations system, there is no definition of corporate consultancy," and the organization apparently doesn't even know how much money it is spending on the service.

Only 15 of the U.N.'s roughly 35 funds, programs and agencies, plus the U.N. Secretariat, provided any statistics at all for the JIU inspectors-most of the rest, the report says, didn't know how to get the information from their own records.

Even so, the total came to a whopping $318 million, with the U.N. headquarters, the United Nations Development Program, and the Rome-based Food and Agriculture Program spending 89% of the total.

The numbers do not include such high-spending U.N. agencies as the World Health Organization and the World Food Program, nor such exotic but important outliers as the World Intellectual Property Organization. (The total may, or may not, include $5 million worth of consultancy contracts that the U.N. Secretariat discovered it had failed to include on the initial list, as the report relates.)

But when it turns to the actual bidding, oversight and evaluation process for hiring consultants, the report says, the problems discussed "are related to the procurement policy, procedure and practices of the organization" as a whole.

And there, U.N. spending is of a different order of magnitude entirely. In 2007, the last year when statistics are available, the U.N. spent just over $10 billion on procurement-or double what it spent five years earlier. Of that $5 billion increase, some $3.2 billion, or 64%, came from an increase in purchasing of services-like corporate consultancy.

Click here to view the procurement chart.

As the inspection report reveals, there is really no telling for certain what that money was spent on, what the U.N. got for its outlay, or whether unscrupulous, incompetent or criminal vendors have been weeded out of the system. In the careful prose of the inspectors: "The lack of monitoring and reporting mechanisms and absence of analytical statistics post a significant risk for accountability, efficiency, transparency and integrity in the procurement process."

With understatement, the report declares, "Overall, there is great scope for improvement."

Indeed, the report is studded with references to systematic management failings and lack of vital paperwork, and interspersed with 22 recommendations for making things better that sometimes sounds shockingly rudimentary for an organization as huge and ostensibly sophisticated as the U.N.

One of them is an admonition that the heads of the U.N.'s sprawling federation of agencies, funds and programs, plus the U.N. Secretariat, "should ensure that adequate policies and guidelines exist for effective contract management." Among other things, the inspectors note, the "quality and scope" of existing procedures is "uneven, insufficient and fragmented."

Another recommendation is that the U.N. organizations "establish a vendor performance database to be utilized in the procurement process"-in other words, keep a systematic record of how well the companies that sell goods and services to the U.N. are actually performing. The absence of such a database, the inspectors point out, "practically renders evaluations useless."

The same lack of organized record-keeping, the inspectors note, can result in embarrassing waste, duplication, and sometimes expensive stupidity. In a number of interviews with U.N. bureaucrats, the inspectors noted, they were told that "without it being noticed, one consultancy report was sold to two different units of the same organization."

In other cases, similar jobs would be ordered up the U.N. departments with only a few years of interval between requisitions. One reason: "staff did not have the ability to search for and retrieve previous documents."

One of the most striking findings in the report is the high level of U.N. goods and services that are sold without competitive bidding, supposedly a bedrock procedure in U.N. rules and regulations. According to those rules, waivers of the competitive process are supposedly only allowed "in exceptional circumstances," the report states.

But in examining consultancy procurements, the inspectors declare, the 11 organizations that provided documentation for tenders worth more than $30,000 managed to suspend competition requirements 60% of the time. At U.N. headquarters, the ratio rose to 73.9%, and at the U.N.'s other main regional headquarters in Geneva and Nairobi, the percentage where competition was suspended rose to 80% and nearly 86% respectively.

Moreover, in attempting to obtain broader statistics, the inspectors ran into a wall. As they drily put it: "The United Nations system organizations do not have adequate reporting and monitoring mechanisms for the solicitation methods used in procurement, in particular for waivers of competition. Statistics and more detailed information in this area can only be retrieved by going through case files manually."

The flagship United Nations Development Program (UNDP), which spent nearly $3.2 billion of the procurement total in 2007, is apparently one of the few agencies where competitive suspensions are added up-and there, 689 or 850 waiver requests, or 81% were approved. The report does not provide their value.

Justification for the suspension of competitive bidding across the U.N. system was "poor and not properly documented," the inspectors noted-and that was the kindest thing they had to say. "Some of the files reviewed gave the impression that the justification for waivers was not taken seriously," they also concluded.

On consultancy contracts, bureaucrats often told the inspectors in interviews that competitive bidding was too time-consuming, vendor evaluations were an addition to the normal staff work load, some consultants were known to them already and it was a risk to take on new ones. "Since those reasons could not actually be used as the sole formal reason for waiver," the inspectors noted, "justification remained weak in the files."

The reasons offered by officials for failing to hold competitive bids create another problem: "they are not in line with the principles of competition, fairness and transparency," the report says. "Moreover, many of these concerns would be solved with better work and procurement planning, which was generally lacking."

Apparently, even negotiating a deal with a single non-competitive bidder was also too much work in many cases that the inspectors reviewed. Where there was no competitive bidding, the report notes, a review of a number of case files showed there was also no "research or negotiation" before settling on a contract. "Only in a few cases were there some previous consultancy rates to justify the price."

Moreover, contracts with favored contractors tended to expand after the bidding was over, which meant the lucky companies were getting more work automatically. "This situation reflects a lack of planning, and poses risks for the transparency, fairness and integrity of the process," the inspectors noted. "Nor did the case files reflect a clear justification of pricing in these cases."

The inspectors also noted that in some cases, procurement was done "retroactively"-in other words, the work was done before the need for it was even announced.

The sloppiness and lack of record-keeping, the inspectors said, meant that in some cases, the company that was supposedly bidding for the job actually dominated the contract process. And when it came to follow-through, bad contractors actually had an even bigger advantage, since little, if any, organized attention was paid to the quality of their work, an area that the inspectors discussed under the heading of "contract management."

It was another task that the U.N.'s procurement officials apparently failed to do well. As the report put it: "The review of case files within the same United Nations organization and among different organizations showed an inconsistent, uneven and relatively poor quality of implementation." Most of the files the inspectors examined in a sampling lacked such "essential" documents as progress reports, interim and final evaluations, or even verifications that the projects had been completed.

The same lack of record-keeping applied to handing out money. "In some cases," the report says, "payments were made on the basis of invoices; in some other cases, there were emails, or forms, or nothing."

Among other things, the harsh judgments in the inspection report confirmed a large number of findings that FOX News has made in investigative reports over the past several years-which in many cases, U.N. organizations went to great lengths to deny.

Last April, for example, FOX News revealed that the United Nations Development Program had overridden its rules on competitive bidding for more than half of $1.5 billion in goods and services it had paid for over the previous three years-a ratio that ranged from 50% to 66%. UNDP rebutted that true exceptions to competitive bidding happened just 20% of the time, and only then, in the words of the UNDP spokesman "for reasons outside of UNDP's control."

Click here to read FOX News' report from April.

A FOX News report last May revealed that UNDP's own auditors found the organization overwhelmed by its case load, its staff untrained, and lacking in expertise to evaluate hundreds of millions of dollars worth of its most expensive purchases-or even to cross-check with the U.N.'s own terrorist listings to see if terrorist front companies were on their supplier lists.

Click here to read FOX News' report from May.

As far back as 2006, U.N. investigators charged that nearly one-third of $1 billion in major U.N. procurement contracts that they examined involved waste, corruption or other irregularities, wrapped in what they called "systematic abuse," "a pattern of corrupt practices," and "a culture of impunity."

Click here to read FOX News' previous procurement report.

A similar sense of the U.N.'s imperviousness to demands for reform of its slipshod, wasteful and unjustified buying practices, even by the nations paying its bills, is another theme in the latest inspection report.

On multiple occasions, the inspectors refer to a 2001 resolution of the General Assembly calling on the organization to change its procurement ways. As the report puts it in one reference: "Despite the resolution, there has been no implementation of this recommendation."

In other questionable procurement cases, the report notes that U.N. bureaucrats simply did not consult with "oversight bodies" composed of U.N. member states, even where that approval, as the report delicately puts it, "might be needed."

In fairness, the report also notes that several U.N. organizations, led by the Secretariat, are now putting in place computerized systems, often called "enterprise resource management" systems, that could eventually solve some of their procurement problems.

But the irony is that much of the $318-plus million that U.N. organizations are currently spending on consultancies-the organizations, that is, that even know what they are spending-is going for exactly the same kind of procurement that the inspectors start out criticizing in their report. Indeed, "consultancies" involving the profound overhaul of U.N. management and financial software, makes up nearly 40% of that total

How much of the total is justified, the inspectors make clear, is questionable. Among other things, the inspectors note, the organizations are dependent on outside consultants for information management "at very expensive rates," and none had done any cost-benefit analysis to consider alternatives.

"A review of case files did not provide much evidence that any systematic research or inquiries were made to justify the need for consultancies," they add.

U.N. organizations "do not track and consolidate the reasons for resorting to consultancy," and "do not have monitoring, tracking and follow-up mechanisms" for judging the work. (This is another area where the U.N. apparently ignored General Assembly instructions in 2001 to do better, the report declares.)

Indeed, the spectacular disasters that can result from the U.N. system's inattention to such basics have been dramatically demonstrated in just the past few months.

On January 12, FOX News reported that the World Bank, the U.N.'s most important anti-poverty institution, had failed to tell the rest of the world organization that it had banned one such consultant-Satyam Computer Services Ltd-nearly a year earlier after a corruption probe. That act of neglect led other U.N. agencies to do at least $6 million in new business with Satyam last July, plus whatever else they may have already had on their books.

Click here to read FOX News' January's report.

Satyam has been deeply involved in the customizing and installation of financial and management software at, among other places, U.N. headquarters, the U.N. Development Program, and at the World Health Organization, where it is involved in creation of a $55.5 million global business management system that is far behind schedule.

Click here to read FOX News' report on Satyam.

Satyam imploded last December in a $1 billion fraud case that earned the company the nickname of India's Enron.

A spokesman for the U.N. Secretariat told FOX News on Friday, March 6, that the one "direct" contract it had with Satyam "is to be terminated." And, "in light of the developments with Satyam," the U.N. has also asked that a little-known U.N. agency called the International Computer Centre, which has served as an intermediary in hiring Satyam indirectly, "replace its contract with Satyam as soon as possible."

Whether the JIU's inspectors would approve of the methods that the U.N. will use to evaluate and choose Satyam's successor is, of course, not yet known.

George Russell is executive editor of FOX News