1 Procurement and Contracting System Suitable to Infrastructure Procurement Dinker Sharma November 6, 2008 Presentation to the World Bank Washinton DC

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Procurement and Contracting System

Suitable to Infrastructure Procurement

Dinker SharmaNovember 6, 2008

Presentation to the World BankWashinton DC

Transparency in ProcurementTransparency in Procurement

Public Procurement very large portion of the national budget Public Procurement very large portion of the national budget is spent for acquisition of goods and servicesis spent for acquisition of goods and servicesPublic Procurement is one important activity of governance Public Procurement is one important activity of governance with high potential for corruption with high potential for corruption Includes large chunk of moneyIncludes large chunk of moneyIncludes large contractsIncludes large contracts15 to 70% of the budget ( 66% in case of Nepal)15 to 70% of the budget ( 66% in case of Nepal)Necessity of Transparency and CompetitionNecessity of Transparency and CompetitionIs tax payers moneyIs tax payers moneyThe image of any government , particularly in developing The image of any government , particularly in developing world, is largely influenced by the quality and integrity of world, is largely influenced by the quality and integrity of public procurement.public procurement.

Legal Framework Legal Framework (Background)(Background)

Procurement in Nepal was framed underProcurement in Nepal was framed under

Financial Procedure ActFinancial Procedure Act

Financial Administration Regulation (FAR)Financial Administration Regulation (FAR)

Other Relevant ActOther Relevant Act

Revenue and Government Contract Act, Revenue and Government Contract Act, 1963 amended in 19681963 amended in 1968

Construction Enterprise Act 1999 Construction Enterprise Act 1999

Other Applicable LawsOther Applicable Laws

TaxesTaxes

CustomsCustoms

InsuranceInsurance

LaborLabor

BankingBanking

Export and importExport and import

Foreign exchangeForeign exchange

EnvironmentEnvironment

Absence of an applicable law under one umbrella made procurement process nontransparent. Public Works Directive (PWD) was framed under these different applicable Laws. PWD relates to different contractual and procurement matters.

Public Procurement Act ( PPA)Public Procurement Act ( PPA)

Public Procurement Regulations ( PPR)Public Procurement Regulations ( PPR)

Delegation of financial powersDelegation of financial powers

Set of Standard Bidding DocumentsSet of Standard Bidding Documents

Technical Notes and GuidelinesTechnical Notes and Guidelines

Regular Training and education Regular Training and education programprogram

Proposed Framework in NepalProposed Framework in Nepal

Principles of Public ProcurementPrinciples of Public Procurement

Value for moneyValue for money

Transparency of process and decisionsTransparency of process and decisions

Non discrimination of treatment of vendorsNon discrimination of treatment of vendors

Accountability of public officialsAccountability of public officials

Quality of works, goods and servicesQuality of works, goods and services

Integrity in use of public moneyIntegrity in use of public money

Support to public policiesSupport to public policies

Responsiveness and efficiencyResponsiveness and efficiency

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Public Procurement in PPA

It is acquisition of Goods, Works and It is acquisition of Goods, Works and Services, through expending from Services, through expending from public purse by allpublic purse by all– Govt. OfficesGovt. Offices– Constitutional BodiesConstitutional Bodies– Statutory bodiesStatutory bodies– Public Enterprises – Majority owned by Public Enterprises – Majority owned by

the Govt.the Govt.– Local GovernmentLocal Government

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Procurement Entity

– All Govt. Ministries, Departments, Projects All Govt. Ministries, Departments, Projects and Officesand Offices

– Constitutional BodiesConstitutional Bodies

– Statutory bodiesStatutory bodies

– Public Enterprises – Majority owned by the Public Enterprises – Majority owned by the Govt.Govt.

– Local GovernmentLocal Government

– HMG Grant or Loan funded InstitutionsHMG Grant or Loan funded Institutions

– Any other institutions specified by Govt. of Any other institutions specified by Govt. of NepalNepal

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Standard Framework for Public Standard Framework for Public Procurement SystemProcurement System

Procurement Law and RegulationsProcurement Law and Regulations

Policy, Oversight or Regulatory AgencyPolicy, Oversight or Regulatory Agency

Independent Review Body (Appeal Independent Review Body (Appeal Body)Body)

Set of Standard bidding DocumentsSet of Standard bidding Documents

Manual and DirectivesManual and Directives

Education and TrainingEducation and Training

(These requirements are incorporated in (These requirements are incorporated in the Procurement Act and Regulation)the Procurement Act and Regulation)

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BASIC STRUCTURE OF PROPOSED ACTBASIC STRUCTURE OF PROPOSED ACT

PREAMBLEPREAMBLEPRELIMINARYPRELIMINARYINSTITUTIONAL ARRANGEMENTSINSTITUTIONAL ARRANGEMENTSMETHOD OF PROCUREMENT METHOD OF PROCUREMENT BIDDING PROCEDURES BIDDING PROCEDURES PROCEDURES FOR CONSULTING PROCEDURES FOR CONSULTING SERVICES SERVICES OTHER METHODS OF PROCUREMENT OTHER METHODS OF PROCUREMENT MANAGEMENT OF CONDUCT MANAGEMENT OF CONDUCT REVIEWS REVIEWS CONTRACT ADMINISTRATION CONTRACT ADMINISTRATION OTHERS OTHERS

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Institutional ArrangementsInstitutional Arrangements

Procuring EntityProcuring EntityProcurement Unit Procurement Unit Bid Evaluation Committee Bid Evaluation Committee Public Procurement Monitoring Public Procurement Monitoring Office (PPMO) Office (PPMO) Independent Review Board/ Independent Review Board/ Independent Appeal BoardIndependent Appeal BoardAppellate court Appellate court

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Project CycleProject Cycle

National or Local level

needs

Project Identification

Project Preparation

Project Appraisal

Project Funding

Donor AppraisalLoan or Grant Negotiations

Procurement of Goods, Services

and Works

Project Implementation

Operation and Maintenance

Benefit Monitoring and Evaluation

GON

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Actors in ProcurementActors in Procurement

Users(Stakeholders)

Client (GoN)

Consultant Constructors

Donors Financing Agencies

Equipment Management

Equipment Suppliers, Manufacturers,Subcontractors,

Financers, Labors

Training facility, HRD needs

Insurance,Statutes and Regulations

Foreign Consultant

CANSCAEF

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Highlights of Procurement Act And Regulation

HighlightsHighlights

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Works Goods

Services Other Services

Procurement Types

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Procurement under Procurement under Works and GoodsWorks and Goods

Open bid - Single/Two Stage Bidding Open bid - Single/Two Stage Bidding

Limited Bidding/ Shopping or Direct Limited Bidding/ Shopping or Direct ProcurementProcurement

Sealed QuotationsSealed Quotations

Community Participation Community Participation (User’s (User’s Committee, Labor Based Approaches)Committee, Labor Based Approaches)

Force AccountForce Account

Petty ProcurementPetty Procurement

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Procurement under Consulting Procurement under Consulting ServicesServices

Quality and Cost based SelectionQuality and Cost based Selection

Quality based SelectionQuality based Selection

Quality and Fixed Budget SelectionQuality and Fixed Budget Selection

Quality and Least Cost SelectionQuality and Least Cost Selection

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Procurements G/W/S

Frequently Used Methods

Other Specific Methods

ICB

NCB

Shopping

Direct Purchase

Sealed Quotation

Community Participation in Procurement

Force Account

Single/Double stage, single/two envelop

Procurement Under BOO/BOT/BOOT

Performance-based ProcurementNote:ICB: International Contract BiddingNCB: National Contract Bidding


Bidding ProcessBidding Process

Bids to be purchased at two or more places and Bids to be purchased at two or more places and dropped and opened at one placedropped and opened at one place

Modification and withdrawal provisionsModification and withdrawal provisions

Contract is evaluated by a team consisting of an Contract is evaluated by a team consisting of an Evaluation Committee.Evaluation Committee.

Bidder can be requested to deposit additional Security Bidder can be requested to deposit additional Security if the price are unbalanced and unreasonable.if the price are unbalanced and unreasonable.

Award of the Contract to a Substantially responsive Award of the Contract to a Substantially responsive lowest evaluated bidder rather than to the lowest lowest evaluated bidder rather than to the lowest bidder, even if one bid is submitted.bidder, even if one bid is submitted.

Provision of Appeal before the award of BidProvision of Appeal before the award of Bid1919


Bidding ProcessBidding ProcessBidder’s right to obtain bidding documents by Bidder’s right to obtain bidding documents by mail or in personmail or in personEvaluation practices of bids according to the Evaluation practices of bids according to the pre-disclosed criteriapre-disclosed criteria

No post bidding negotiation on price with the No post bidding negotiation on price with the lowest or any other bidderlowest or any other bidder

Extension of Validity of Bids with due Extension of Validity of Bids with due concurrence of the Bidderconcurrence of the Bidder

Special privileges to PEs for securitiesSpecial privileges to PEs for securities

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HighlightsHighlightsBidding ProcessBidding Process

All Bids to undergo Pre or Post All Bids to undergo Pre or Post Qualification Bidding ProcedureQualification Bidding Procedure

However, eligibility and registration status However, eligibility and registration status is necessary for Bids amounting to less is necessary for Bids amounting to less than NRs 6 millionthan NRs 6 million

Removal of restricted Bidding systemRemoval of restricted Bidding system

Issue of survival of Construction IndustryIssue of survival of Construction Industry

Small Contractors to be protected - Small Contractors to be protected - still still under discussion. Preparation of Standard Bidding under discussion. Preparation of Standard Bidding Documents are underway.Documents are underway.

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Types of Standard Bidding Documents Types of Standard Bidding Documents – – necessary necessary (still under consideration)(still under consideration)

Sealed Quotation for value NRs 0.15~1 mSealed Quotation for value NRs 0.15~1 m

Small Contract I for value NRs 1~6 mSmall Contract I for value NRs 1~6 m

Small Contract II for value NRs 6~30 m Small Contract II for value NRs 6~30 m

Medium Contract for value NRs Medium Contract for value NRs 30~100 m30~100 m

Large Contract for value > NRs 100 m Large Contract for value > NRs 100 m

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Risk Sharing ProvisionsRisk Sharing Provisions

Securities : Bid or Performance securities in Securities : Bid or Performance securities in the form of Bank Guarantee or cash.the form of Bank Guarantee or cash.

Additional Guarantee for advance Additional Guarantee for advance mobilization. mobilization.

Provision of additional performance security Provision of additional performance security for unbalanced and unreasonable bidding.for unbalanced and unreasonable bidding.

Insurance : Insurance is mandatory for Insurance : Insurance is mandatory for amount exceeding NRs 1 millionamount exceeding NRs 1 million

Delay Damage or Liquidated Damage for Delay Damage or Liquidated Damage for DelayDelay 2323

HighlightsHighlightsRisk Sharing ProvisionsRisk Sharing Provisions

Price AdjustmentsPrice Adjustments

Variations : Variations : variationvariation issue is under debateissue is under debate

Extension of TimeExtension of Time

Termination of ContractTermination of Contract

Settlement of DisputeSettlement of Dispute

Provision of DebarmentProvision of Debarment– Conduct of public entityConduct of public entity– Conduct of Contractors/ ConsultantsConduct of Contractors/ Consultants– Debarment by Authorized Body, Period of Debarment by Authorized Body, Period of

Debarment, Opportunity of Bidder for appeal Debarment, Opportunity of Bidder for appeal and clearanceand clearance 2424


Dispute SettlementDispute Settlement

Arbitration Act allows contract to make Arbitration Act allows contract to make provisions for Dispute Settlementprovisions for Dispute Settlement

Dispute Settlement at different LevelsDispute Settlement at different Levels

Adjudication for value less than NRS 100 Adjudication for value less than NRS 100 m or Dispute Review Board for value more m or Dispute Review Board for value more than NRs 100 mthan NRs 100 m

Arbitration Arbitration

Litigation beyond arbitrationLitigation beyond arbitration2525


Provision for Provision for e-procuremente-procurement

-- some success some success

-- e-bidding achievede-bidding achieved

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Contract Experiences

– Contractor does not understand the Contractor does not understand the measurement rules despite explaining in the pre-measurement rules despite explaining in the pre-bid meeting.bid meeting.

– Contractor does not read Bid documentContractor does not read Bid document– Lack of record keeping and substantiation in Lack of record keeping and substantiation in

genuine dispute casesgenuine dispute cases– Contractors depend on sub contractors or petty Contractors depend on sub contractors or petty

contractors without notifying the Engineercontractors without notifying the Engineer– Contractor lacks confidence in BoQ rate Contractor lacks confidence in BoQ rate

preparation.preparation.– Contractors submit claims with no contractual Contractors submit claims with no contractual

basis and with insufficient back up information.basis and with insufficient back up information.

Comments from the Engineer

– Small contractors never make claims, only Small contractors never make claims, only large contractors dolarge contractors do

– Some contractors deliberately go to arbitration Some contractors deliberately go to arbitration than amicable settlement as they make more than amicable settlement as they make more money out of it.money out of it.

– Some contractors engage specialist (dispute Some contractors engage specialist (dispute experts) from the onset with intention to seek experts) from the onset with intention to seek extra payment.extra payment.

– Dispute experts are more keen on Contractors Dispute experts are more keen on Contractors claim success than on the Employers.claim success than on the Employers.

– Some contractors will not undertake works until Some contractors will not undertake works until payment is agreed or made.payment is agreed or made.

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Comments from the Employer

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“My biggest mistake was running this job like a Construction Project instead of a lawsuit”

A contractor lamented about his project which was doomed from the beginning – incomplete and uncoordinated plans, late access to site, disruption to works, delayed payment, and exceptional escalation.

Comments from the Contractor

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You recognize that your strength are in doing the job you were hired to do.

But suddenly you find yourself in the burden of world of notices and a high stake financial losses.

The only way is to find out some other ways to come out of the situation.

Comments from ContractorComments from Contractor

– Late payment by Engineer/ Employer.Late payment by Engineer/ Employer.

– Denial by Employer to pay interest on late Denial by Employer to pay interest on late payment even if provided in Contract.payment even if provided in Contract.

– Non payment of work executed as per the Non payment of work executed as per the instruction.instruction.

– Instructions given to Contractors are either Instructions given to Contractors are either unclear or not understood.unclear or not understood.

– Delay in providing design drawing and Delay in providing design drawing and subsequent. This has resulted in Project delay subsequent. This has resulted in Project delay and increase in overhead costs plus equipment and increase in overhead costs plus equipment idle charges.idle charges.

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Comments from ContractorComments from Contractor

– Late handover of site by the Late handover of site by the Employer.Employer.

– Verbal instruction not substantiated Verbal instruction not substantiated in writing.in writing.

– Employer lack adequate knowledge Employer lack adequate knowledge of Contract.of Contract.

– Employer does not take dispute Employer does not take dispute seriously.seriously.

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TO FEEL THAT YOU ARE IN CONTROL, BE SURE THAT YOU HAVE

UNDERSTOOD YOUR CONTRACT

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Thank You