NWFP – Procurement Systems Performance Assessment

Report No.39760-PK

NWFPPROVINCE

PAKISTAN

Procurement Systems Performance Assessment

May 2007

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NWFP – Procurement Systems Performance Assessment

ACRONYMS AND ABBREVIATIONS

ACSAdditional Chief Secretary

ADBAsian Development Bank

BISBaseline Indicator System

BLIBaseline Indicator

CPICompliance Indicator

DACDevelopment Assistance Committee

DACDepartmental Accounting Committee

DCCDistrict Coordinating Committee

DCODistrict Coordinating Officer

EDOExecutive District Officer

EUEuropean Union

FHAFrontier Highways Authority

GDPGross Domestic Product

GFRGeneral Financial Rules

IDAInternational Development Association

IPDIrrigation and Power Department

NCBNational Competitive bidding

NWFPNorthWesternFrontierProvince

OECDOrganization for Economic Co-Operation and Development

P&DDPlanning and Development Department

PC-IPlanning Commission Proforma-I (Feasibility Report)

PC-IVPlanning Commission Proforma-IV (Completion Report)

PFMAAPublic Financial Management Assessment

PPRAPublic Procurement Regulatory Authority

PSCProvincial Steering Committee

TMATehsil Municipal Administration

W&SWorks and Services

CONTENTS

Procurement Assessment using OECD-DAC BIS

ABackground

BPlanning and Preparing for the Assessment

CTask Team

DAssessment Results

Pillar I. The Legislative and Regulatory Framework

Indicator 1. Public Procurement legislative and regulatory framework complies with applicable obligations with regard to national and international requirements.

Indicator 2.Existence of Implementing Regulations and Documentation

Pillar II. Institutional Framework and Management Capacity

Indicator 3.The public procurement system is mainstreamed and well integrated into the public sector governance system.

Indicator 4.The country has a functional normative/regulatory body.

Indicator 5.Existence of institutional development capacity.

Pillar III. Procurement Operations and Market Practices

Indicator 6.The country’s procurement operations and practices are efficient.

Indicator 7.Functionality of the public procurement market

Indicator 8.Existence of contract administration and dispute resolution provisions

Pillar IV. Integrity and Transparency of the Public Procurement System

Indicator 9.The country’s procurement operations and practices are efficient.

Indicator 10.Efficiency of appeals mechanism

Indicator 11.Degree of access to information

Indicator 12.The country has ethics and anticorruption measures in place.

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NWFP – Procurement Systems Performance Assessment

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NWFP – Procurement Systems Performance Assessment

Procurement Assessment using OECD-DAC BIS

Background

  1. The developing countries and bilateral and multilateral donors having a concern for increasing the effectiveness, efficiency and transparency of procurement systems, under the auspices of the joint World Bank and OECD Development Assistance Committee (DAC) Procurement Round Table initiative, worked together to develop a set of tools and standards that provide guidance for improvements in procurement systems and the results they produce. Among these tools are included: (i) Benchmarking for the assessment of the structure of the public procurement systems; and (ii) Monitoring and Evaluation of the public procurement systems. With regard to the first deliverable a tool comprising a set of baseline indicators for the assessment of a country system has been developed. This tool comprising four pillars explained through twelve (12) indicators is used to conduct this analysis.
  2. The tool helps identify when an element of the national public procurement system meets or exceeds the baseline or where it needs modification to meet the baseline.
  3. It is considered that the exercise of benchmarking NWFP in accordance with the baseline indicator system, would contribute in the following ways:
  • NWFP would be able to learn as to how much progress has been made by the Province towards creating procedures to make public procurement effective, efficient and transparent.
  • NWFP would be able to identify needed changes and contribute to the development and implementation of a prioritised capacity development and change management strategy.
  • NWFP would be able to coordinate, prioritise and focus donor assistance on supporting the strategy.
  • NWFP would be able to measure the impact of their strategy by comparing implementation progress against the results of the assessment.
  • The exercise will provide the supporters of reform in NWFP with clear arguments for the change, to focus political attention and mobilise commitment.
  • The exercise will support the needed harmonisation of public procurement rules and procedures around recognized standards.
  • As an integral part of the public financial management system, the output of the assessment exercise will provide valuable information to the overall assessment of the public finance system.
  • The exercise will provide information to support strategic policy decisions with regard to NWFP. Information on the structure of its procurement system should enable a determination of the level of reliance that donors would be expected to place on NWFP procurement system (in part or in its totality) to handle donor financing properly.
  1. The Baseline Indicator System (BIS) is based on a set of indicators that are intended to provide harmonized tools for use in the assessment of procurement systems. The scoring system for assessment ranges from 3 to 0. A score of 3 indicates full achievement of the stated standard. A score of 2 is given when the system exhibits less than full achievement and needs some improvements in the area being assessed and a score of 1 is for those areas where substantive work is needed for the system to meet the standard. A rating of 0 is the residual indicating a failure to meet the proposed standard. The details of the BIS and the methodology developed to use it are included in Annex I.

Planning and Preparing for the Assessment

  1. In order to collect the information required, the following key stakeholders were interviewed:
  • Special Secretary Finance;
  • Staff of NWFP’s Departments involved in procurement of goods, works and consulting services;
  • Staff of TMAs;
  • Consultants; and
  • Contractors
  1. DPC Coordinator assisted in arranging the requisite meetings and interviews with the relevant government staff, while the interviews with the representatives of consulting and contracting industries were arranged independent of the DPC Coordinator. The staff of FHA, W&S, Agriculture Engineering Department and IPD was met in groups while staff of TMA and Audit Department was met individually. The representative of the consultancy and contracting firms were met separately (not in the company of government officials).

Task Team

  1. The task team comprised Uzma Sadaf, Procurement Specialist, World Bank,, Ismaila B. Ceesay, Sr. Financial Management Specialist, World Bank, David Johnson, Sr. Governance Advisor, UK Department for International Development (DFID); Sandra Nicoll, Sr. Governance Specialist, Asian Development Bank (ADB); and Thorsten Bargfrede, Second Secretary, European Community (EC). Hanid Mukhar, Sr. Economist, World Bank, Waqas ul Hasan, Project Officer, Asian Development Bank (ADB), Furqan Ahmed Saleem, Financial Management Specialist, World Bank, and Muhammad Ehsan (National Consultant). Altaf Ahmad, SARFM Program Assistant, World Bank and Abid Hussain Chaudhry, SARPS Team Assistant, World Bank, provided the logistical and administrative support, and Professor Dr. Khawaja Amjad Saeed, carried out a review of the draft as well as served as a resource person at the stakeholders’ workshop in Peshawar.
  2. Maria V. Vannari, Sr. Procurement Specialist, World Bank and Peter Trepte (International Consultant) served as peer reviewer was.

Assessment Results

Pillar I. The Legislative and Regulatory Framework

  1. In order to regulate public procurement of goods, works, services, consulting services and other matters connected therewith or incidental thereto, to promote fair and open competition and to increase transparency, GO NWFP issued a Notification on 31st May 2002 promulgating the NWFP Ordinance No. XVIII of 2002 entitled “The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002”.
  2. In accordance with the provisions of section 45 of The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002, the Government of NWFP made rules for procuring consultancy services that are included in Notification No. S.O (DEV:I)FD/10-3702-03 of 4th November 2002. Similarly, in accordance with the provisions of section 45 of The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002, the Government of NWFP made rules for procuring goods, works and services that are included in Notification No. S.O (FR)/9-7/2002 of 29th December 2003.
  3. The aforementioned rules were designed and adopted by the officials of the Finance Department, without significant external assistance. Due to non-familiarity with the contemporary good modern practices for efficient and effective procurement, these rules were framed keeping in view the general procurement practices in NWFP. As a result these rules continue to retain quite a few aspects of the conventional procurement procedures, and fall short of introducing significant changes to align the procedures with the international good public procurement practices.

Score Awarded / 1.2
  1. The above assessment of the Pillar I is based on assessment of its 2 indicators as described below.

Indicator 1. Public Procurement legislative and regulatory framework complies with applicable obligations with regard to national and international requirements.

  1. The indicator covers the legal and regulatory instruments from the highest level (national law, act, regulation, decree, etc.) down to detailed regulation, procedures and bidding documents formally in use.

Score Awarded / 1.5
  1. The assessment of this indicator is based on the considerations described below.
Scope of application and coverage
  1. NWFP Ordinance No. XVIII of 2002 entitled “The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002” is clearly phrased and organized. All areas of procurement goods, works and services are covered under the Ordinance. In hierarchy this Ordinance has precedence over the rules that have been framed to procure goods, works and consulting services.
  2. The Ordinance and the rules apply widely to all ministries, attached departments, autonomous bodies, district governments and their subdivisions (TMAs and union councils), for use of all public funds.
  3. The exception to applicability of the rules is only the procurement of essential items and goods of immediate nature in national calamity and procurement of works of emergency nature. Emergency is defined as a condition requiring immediate action in cases of disasters and danger e.g. floods, breach of a canal etc to save human life and habitation.
  4. The Ordinance and rules are published by the Printing and Stationery department of NWFP. But these are available to public from the market on payment of nominal price. The copies of the NWFP Government Ordinances and Rules have been sent to the concerned entities of the government. However, most of the officers are still not aware that these documents exist. The representative of auditors had not heard of them and neither had the representatives of one of the largest private sector contractors.
Procurement methods
  1. The Rules provide conditions consistent with the internationally accepted procurement methods with the open tendering method being preferred. Alternative methods (restricted tendering, direct procurement, two-stage tendering and request for quotations) are given as methods to be used only under certain conditions which are defined in the rules. Two envelop tendering option is prescribed for situation where bidders are being post qualified.
  2. Direct contracting is allowed under Rule 4 contained in the Notification No. S.O (FR)/9-7/2002 of 29th December 2003. This rule gives the procedure of direct contracting in case of a calamity under sub-section b, however, under the same subsection, the concerned departmental Secretary is allowed to stop such works within seven days of the commencement of works and it is not mentioned, whether or not the expenses made thus far shall be paid to the contractor. Sub-section (c) includes all procurements as may be notified by government from time to time (to be direct contracts) without specifying the authority entitled to notify this; virtually making it an arbitrary decision. However, despite the exception of direct contracting, it was found through the interviews of the procurement related staff that the exception is rarely applied. And when applied is subject of vigorous scrutiny within the entity and by Audit department.
  3. Under Rule 6 departments are authorized to pre-register firms for two years, for goods contracts costing Rs. 1 million or more, and works contracts costing Rs. 5 million or more. Procuring entities are allowed to award developments works costing between Rs 40,000 to 10 million, without pre or post qualification, above which they ‘may follow’ pre or post qualification. For contracts other than development works (repairs, maintenance etc.) this limit is between Rs. 40,000 to Rs. 5 million. This stipulation essentially bars fair competition, as participation is limited to only pre-registered firms; and rules for process of pre-registration and its update are not defined. Although these provisions in the rules seem to vitiate the entire process of equal opportunity and dissemination of notice inviting bids. Although the staff of various departments and a large contracting firm claimed that should an unregistered firm desire to participate in an impending bidding process, the process allows such a firm to get itself registered in a short time. But in absence of any written procedure circumscribing benchmarking for registration in various categories of contracts, transparency of such a process is impossible.
  4. The given procurement procedures of Consulting Services Contracts, do not address the fundamental difference between procurement of consultancy services (intellectual/technical edge of competing firms) and works (cost offered by qualifying firms) worth). The rules do not mention evaluation of technical and financial proposals in that order, weightage of technical and financial aspects, and the various procedure of evaluation (quality, cost and combination) are not described.
  5. Prohibition of fractioning of contracts to limit competition is not addressed in the Rules.
Advertising rules and time limits
  1. As per Rule 13 contained in Notification No. S.O (FR)/9-7/2002 of 29th December 2003, the required publications for invitations for pre-qualification or bids are to be made in at least two (one Urdu and one English language) daily widely circulated newspapers. Wherever possible, advertisements are also required to be posted on the official website.
  2. In general the Rule 20 requires allowing adequate time for submission of tenders. The minimum time allowed for preparing and submission of tenders is 30 days for goods and works. This is sufficient for NCBs, but may not be adequate for international bidding. The minimum time of 15 days allowed for consulting services to respond to call for submitting proposals [Rule 5(a) contained in Notification No. S.O (DEV:I)FD/10-3702-03 of 4th November 2002] is inadequate. Further, the response time limit for goods and works may be reduced, without limit, by the head of the procuring agency for reasons which are to be recorded (Rule 20). Response times for procedures other than NCB are not given.
Rules on participation and qualitative selection
  1. Rules regarding pre-registration (without a defined and transparent process), ambiguous use of terms ‘pre-‘ and ‘post’ qualification, and absence of mandatory project specific qualification (prior or post) have made participation criteria nebulous.
  2. Debarment process is not well defined. As a minimum qualification requirement (section 29 of the NWFP Ordinance No. XVIII of 2002 dated 31st May 2002), the bidder is required not to be in litigation with the government. This pre-requisite curtails the right of the bidder to seek justice if s/he deems that it is denied to her/him.
  3. Appendix to the rules (principles for pre and post qualification) defines the public sector enterprise, and requires it to be commercially oriented legal entity, with financial and managerial independence. No preferential treatment is stipulated. However, the slackness of Rule 4(c) may provide opportunity for preferential treatment (explained in paragraph 19 above).
  4. Qualitative selection in case of consulting services contracts has not been addressed appropriately, though there is only a reference to the technical and financial proposals, which are ‘preferred’ to be called for separately. The sequence of opening, evaluation process and the methods of combining technical and financial scores is not given.
Tender documentation and technical specifications
  1. Rule 14 describes the contents of invitation to pre-qualification and tenders, but it is not adequate. Terms and conditions, technical specifications, BOQs, and contract documents are not mentioned.
  2. Rule 33 stipulates to limit the use of brand names and if used followed by “or equivalent”. The estimates of works are stipulated to be made on CSR which is outdated.
  3. Contents of tender documents are not described in detail.
Tender evaluation and award criteria
  1. The award criterion to be used is the lowest evaluated price (Rule 28). However, Rule 28 (b) stipulates that if there is a difference between words and figures, the lower will prevail. The rules do not put adequate emphasis on giving an elaborate qualification and responsiveness criteria.
  2. Rule 34(2) states that bids shall be evaluated only where a minimum of three bid have been received. In event of less that three bids, re-advertisement is required, and if that does not bring forth a different result, the bids can be considered for award after taking permission from the head of the procuring entity. Similar stipulations are made for consulting services contract under Rule 5(g) of Notification No. S.O (DEV:I)FD/10-3702-03 of 4th November 2002, although here re-advertisement is not mandatory.
  3. Clause 30(3) of the ordinance requires that the lowest responsive bid has to be in conformity with cost estimate, whereas the cost estimates have to be prepared based upon the CSR for works. The current CSR gives prices of 1999 with 90% premium, despite which, the official cost estimates are out of step with market prices.
  4. Clause 33 of the Ordinance does not permit post bid negotiation unless prescribed under exceptional circumstances, whereas, rule 37 allows post bid negotiation with approval of the head of the procuring entity to ‘safeguard against exorbitant prices’ and to ‘ensure reasonableness of prices’.
  5. Rule 25 gives 15 days and an additional 10 days for evaluation and award, upon expiry of which the tendering process shall become invalid, and the tenders shall have to be called afresh. This clause although might have been aimed at ensuring expeditious conclusion of bid evaluation, actually penalises the bidders for a delay caused by the evaluation committee.
  6. Rule 26 requires that confidentiality of the process of tender evaluation be maintained until decision to award is finalized.
Submission, receipt and opening of tenders
  1. Rule 21 and 22 describe the procedure for the tender opening in details. Public opening and recording of the proceedings is mandatory. Rule 18 provides for safe custody of bids prior to opening.
Complaint review procedures
  1. Complaint review is addressed in Rule 43. An aggrieved party can register a complaint with the relevant authority before the contract has been signed. The authorities to whom the complaint may be submitted are described in sub-sections 43(1)(a) and 43(1)(b). Sub rule 42(4) stipulates that the review authority shall not continue to review a complaint if the contract is signed. It is construed from this rule that the review authority is not authorized to stay the proceedings on the procurement, whereas it is required to give a written decision within 20 days of the receipt of the complaint as per sub-section 43(5).
  2. The mechanism of dealing with the complaint is such that the complainant has to file the complaint with the head of the procurement entity. There is not a fair chance that a head of an entity will be impartial in reviewing procurement process within his department. All concerned have been given the right to participate in a review proceeding, but no guidelines are given for the review proceeding itself. The review authority is not made responsible for announcing a review schedule or invite stakeholders for participation in a discussion.
  3. According to Rule 43(7) decision of review authority cannot be challenged in any court of law; the very legality of this rule is questionable.

Indicator 2.Existence of Implementing Regulations and Documentation

  1. This indicator verifies the existence, availability and quality of implementing regulations, operational procedures, handbooks, model tender documentation, and standard conditions of contract. Ideally the higher level legislation provides the framework of principles and policies that govern public procurement. Lower level regulations and more detailed instruments supplement the law, make it operational, and indicate how to apply the law to specific circumstances.