Issues Pertaining to the Engagement of Consultants in Bank Loan Projects and Their Effect on Project Performance

8/3/2019 Issues Pertaining to the Engagement of Consultants in Bank Loan Projects and Their Effect on Project Performance

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B O A R DO F

D I R E C T O R SASIAN DEVELOPMENT BANK

------~~-.I ~ A S I [ R C C P 'f 1

IN.2-986 January 1998

SPECIAL STUDY

The following Special Study prepared by the Post-Evaluation Office isattached for information:

Issues Pertaining to the Engagement of Consultantsin Bank Loan Projects and Their Effect on ProjectPerformance


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ASIAN DEVELOPMENT BANK SST: REG 97038l ~ f A S T [ R e n p Y I

(Special Study Series Number 27)

SPECIAL STUDY ON

ISSUES PERTAINING TO THE ENGAGEMENT OF CONSULTANTS

IN BANK LOAN PROJECTS

AND THEIR EFFECT ON PROJECT PERFORMANCE

December 1997


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ABBREVIATIONS

COSOCPRMCSCDMCEAEIRRLOIPAlPAMPEACPMUPRCRETARMTATOR

Central Operations Services OfficeCountry Portfolio Review Mission'Consultants Selection CommitteeDeveloping Member CountryExecuting AgencyEconomic Internal Rate of ReturnLetter of InvitationProject Administration InstructionProject Administration MemorandumPrequalification, Evaluation, and Awards CommitteeProject Management UnitPeople's Republic of ChinaRegional Technical AssistanceResident MissionTechnical AssistanceTerms of Reference

NOTEIn this Report, "$" refers to US dollars.

SS - 27


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EXECUTIVE SUMMARYConsultants play an important role in implementing development projects in theBank's developing member countries (DMCs), and their timely engagement is thereforecritically important. To facilitate such engagement, the Bank has issued Guidelines on the Use

of Consultants by the Asian Development Bank and Its Borrowers to assist its DMCs in theselection and engagement of consultants. Project administration instructions (PAis) are alsoissued to guide appraisal missions and executing agencies (EAs) in the timely engagement ofconsultants. Furthermore, the Bank regularly conducts regional and country-specific trainingprograms on the use of consulting services and on project implementation arrangements.Despite all these efforts, the Bank's experience indicates that delay in the engagement ofconsultants is a serious problem hindering the smooth implementation of many projects acrosscountries and sectors.

This study identifies the underlying factors contributing to this problem,examines their implications, and proposes measures for timely engagement and effective useof consultants. The study, carried out under a regional technical assistance (RETA), covers sixDMCs-Bangladesh, the People's Republic of China (PRC), Indonesia, Pakistan, Philippines,and Viet Nam. The countries selected for the study reflect a regional balance, large extent ofBank operations, and varying levels of expertise in project management. Country profiles wereprepared based on a detailed review of four to five delayed projects representing varioussectors in each of the RETA countries. The findings discussed in the study are based on thecountry profiles; documents provided by the Projects departments; field interviews with theEAs and government officials; the World Bank Group's resident mission representatives ofRETA countries, as well as individual international consultants and representatives ofconsulting firms engaged by the DMCs for the Bank-financed projects covered by this study.

The selection and engagement of consultants in Bank-financed projects involvethe following steps: (i) developing the terms of reference (TOR); (ii) longlisting of consultants;(iii) shortlisting of consultants; (iv) preparing the letter of invitation (LOI); (v) developing a set ofevaluation criteria; (vi) inviting proposals and evaluation and ranking of proposals; (vii) draftingthe consultant's contract; and (viii) negotiating the contract with the first-ranked consultant/firmand signing a contract. Delays have been experienced in the engagement of consultants in allthe RETA countries at virtually every stage of the process. The degree of delay varies fromcountry to country with the PRC experiencing less of it compared with Bangladesh andPakistan where delays were found to slow down projects by up to two to three years, andIndonesia, Philippines, and Viet Nam somewhere in between.

The most common reasons for delays in engaging consultants include (i) lack offamiliarity with the Bank's Guidelines and procedures and, in some cases, nonadherence tothem; (ii) inadequate delegation of authority and highly centralized cumbersome decision-making procedures at various stages of selecting and engaging consultants; (iii) unwillingnessby the EAs to exercise the available authority; (iv) frequent transfer of project directors andmanagers; and (v) lobbying and political interference.

The study found that apart from the EAs' unfamiliarity with the Bank'sGuidelines and procedures, layered committee setups for checking/reviewing/approving theEAs' proposals were a major cause of delay. In many cases, all matters relating to therecruitment of consultants had to be approved by a minister and, in some extreme cases, even


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by the head of the government. Such approval requirements for documents, like the TOR,shortlist, draft contract, and evaluation criteria, is an unhealthy practice. The EAs in somecountries were also found to be extremely cautious in taking initiatives, avoiding responsibilitiesby seeking approval of their higher authorities at every step of the selection process. Severalprojects reviewed point out the frequent replacement of project directors as a contributoryfactor to delays in the recruitment of consultants.' Such frequent changes have in fact resultedin the reevaluation of proposals, in effect repeating the recruitment process. There were caseswhere the substitution of key personnel by consulting firms without compelling reasons led tounnecessary delays in the finalization of the engagement process.

In most of the RETA countries, it appears that the selection of consultants takesplace in an environment that is not transparent. Lobbying takes place in different ways and isoften resorted to by interested parties who wish to be included in the shortlist and then to winthe award of contracts. In several projects, the delays in the engagement of consultants atvarious stages (but mostly in the shortlisting and evaluation of proposals) were attributed tosome forms of lobbying. It appears that there are ways of getting around the restrictions of theGuidelines without violating formal procedures, and thus influencing the evaluation andranking. Even the individual international consultants and consulting firms interviewed for thisstudy admitted to the preponderance of influence peddling.

Factors contributing to delays on the Bank's side include insufficient attentionpaid to the institutional strength and weaknesses of the EAs by project appraisal missionsresulting in unrealistic timetables for the recruitment of consultants and consequently delays inthe actual engagement of consultants. Also, the DMCs' domestic procedures and practices inthe loan process are not always examined by the Bank, resulting in unnecessarymisunderstanding of the procedures involved. In fact, under the PAis issued by the Bank,appraisal mission leaders are supposed to have the project administration memorandum, TOR,evaluation criteria, and draft contract, all agreed upon with the EA at appraisal. Typically,however, the TOR of the consultants are discussed only in outline form at the appraisal stageand are firmed up at a much later stage leading to delays in the engagement of consultants.

With a view to addressing this issue, the Bank has taken a number of initiatives.It is giVing increased attention to its training activities to familiarize the EAs with Bankprocedures, guidelines, and requirements. The Bank also allows the DMCs to take advanceaction for the recruitment of consultants where up-front activities, e.g., TOR, draft LOI, shortlistof consultants, etc., are allowed and encouraged prior to loan approval. Resident missions arecontinuously being strengthened with increased delegation of authority and a greater numberof projects are being placed under their direct supervision. Coordination with! other multilateraldevelopment banks is being carried out to jointly address the issue.This study indicates that there is no system to monitor when the process ofselection of consultants is delayed. In most cases, the Bank expresses its concern to the EAofficials, copied to or through the resident missions. When delays get longer, the information isforwarded to the head of the ministry. There were a few cases where pressure from the Bankin the form of possible loan cancellation facilitated the recruitment process with the requireddecisions on various stages being arrived at in one day. While discretionary actions like these

The exception among the countries reviewed was the PRC where project directors once appointed serveuntil the completion of the project. In general, project directors in the PRC are also accountable for theproject's performance.


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have helped specific projects, they have not been able to bring significant impact on improvingthe system. The Bank's resident missions, given appropriate authority and accountability, canplaya powerful role in effecting an early warning system for monitoring delays.In conclusion, experience with the engagement of consultants was generallyunsatisfactory in most of the projects reviewed. Some contributing factors are Bank-led andrelatively easy to address, while others are viewed as internal matters and prerogatives of theDMCs. Given the complexity of the issue, it is important that the Bank engages in a seriouspolicy dialogue with the DMCs. Considering that the issue pervades all sectors and is closelyrelated to good governance and transparency, such dialogue should be carried out byPrograms Departments and should include the need for (i) making the process of consultantselection more transparent, (ii) providing the EAs with increased authority and responsibility inthe selection process and encouraging them to exercise such authority by creating an enablingenvironment, (iii) allowing efficient project directors to serve for longer periods, and (iv) settingup an early warning system to detect delays. The Bank must show preparedness to assist theEAs by directly participating in the consultant selection process when requested by the

EA/government, particularly in those cases where consultancy services are required up-front inproject implementation. The Bank must also not hesitate to carry out loan cancellation in casesof excessive delay, and to undertake an audit of the consultants' contracts when evidencewarrants.Apart from its policy dialogue with the DMCs, several more recommendationsare proposed to address the issue. The Bank should consider making available simplifiedtechnical proposal procedures for the engagement of consultants for contracts of limitedamounts, particularly to those EAs that have established transparency in consultant selection.The Bank must require appraisal missions to rigorously follow all relevant PAis to enable theEAs to complete most of the process of consultant selection by the appraisal stage. As a nextstep, the Bank may consider making the submission of the shortlist of consultants by the

DMCs a condition for loan negotiation. The advance action facility provided by the Bank for therecruitment of consultants has worked well in some of the DMCs, and this facility should beretained. Appraisal missions, however, must put additional efforts into making it more effective.To avoid delays resulting from the practice of substituting key personnel by some consultingfirms for noncompelling reasons, the Bank should consider making such firms ineligible forfuture bidding for a given period. In addressing the issue of consultant delays, the support ofthe Central Operations Services Office to appraisal missions needs to be further strengthened.Staff from the Office should, where warranted, participate as a member in loan negotiations onthe Bank side, and project director from the DMC side.

As a long-term solution, the Bank must continue its efforts to promote the use ofthe domestic consulting industry through systematic planning of its technical assistanceactivities. Finally, a working group committee headed by a senior staff may be constituted withrepresentatives from Projects/Programs departments, the Central Operations Services Office,the Post-Evaluation Office, and other concerned departments/offices to study the proposedrecommendations prior to their implementation.


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I. INTRODUCTIONA. Background1. Consultancy services play an important role in planning, design, andimplementation of development projects. Their services are used to assist the Bank in carryingout its operations, and the developing member countries (DMCs), through their executingagencies (EAs), in carrying out Bank-financed projects. The assistance of consultants isneeded by the Bank and its DMCs to ensure quality and provide least-cost designs in thepreparation, construction, and operation of projects, and in undertaking related activities. Thus,the timely engagement of competent consultants is important in the smooth implementation ofprojects. Consultants can either be domestic or international, and individual or a firm.2. The Bank uses consultants for technical assistance (TA) activities that itfinances from its own resources or that are executed by the Bank on behalf of anotherinstitution. The Bank also uses consultants to supplement its own staff in carrying out its ownoperations. In these cases, the consultants are selected and engaged by the Bank. When theDMCs use consultants in carrying out projects financed by the Bank, they are responsible forthe selection, engagement, and supervision of the consultants. The Bank, however, has to besatisfied that the functions and responsibilities to be assigned to the consultants areadequately defined, that the consultants are competent for the assignment, that the conditionsof their contract are satisfactory, and that the contract is duly performed.3. To help the DMCs in this, Guidelines on the Use of Consultants by the AsianDevelopment Bank and Its Borrowers' provide the general principles and proceduresgoverning the selection and engagement of consultants by both the Bank and the DMCs.Under the Guidelines, the Bank adopts a quality-based approach to inviting proposals fromconsulting firms, i.e., selection of firms is made on the basis of qualifications to perform work,and financial terms are discussed only at the time of contract negotiations with the selectedfirm. The Guidelines allow the borrower, if it so prefers, to invite financial proposals togetherwith technical proposals by utilizing a two-envelope system." For countries where provisions oftheir existing domestic guidelines are consistent with the Bank's Guidelines, both guidelinescan be adopted with the Bank's Guidelines prevailing in cases of inconsistencies.4. As part of familiarizing the EAs with the Bank's Guidelines, the Bank regularlyconducts regional and country-specific training programs on the use of consultant services andon project implementation arrangements. Such programs cover various aspects of consultancyselection and engagement with a particular focus on the documents required for submission bythe DMCs to the Bank for the timely engagement of consultants. About two regional workshopsand five to seven workshops on the use of consultancy services and project implementationarrangements are conducted by the Bank each year across the DMCs. The Bank alsoconducts three to four seminars every year on development of domestic consultants in variousDMCs where the target participants are domestic consulting firms and individual consultants.

2Guidelines on the Use of Consultants by the Asian Development Bank and its Borrowers. AsianDevelopment Bank. 1994.Under the two-envelope system, the technical and financial proposals are obtained simultaneously but inseparate envelopes from each of the shortlisted firms. The financial proposal, which should be submittedin a sealed envelope, will only be opened during contract negotiations with the first-ranked firm. When acontract has been successfully negotiated, the financial envelopes of the remaining firms must be returnedto them unopened.


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5. Despite all these efforts, Bank experience indicates that in cases of Bank-financed projects where the DMCs engage consultants, delay has become a serious problemhindering the smooth implementation of projects. This problem is underscored in a number ofproject performance audit reports and in several Annual Reviews of the Post-Evaluation Office.Country portfolio review missions (CPRMs) to most DMCs also have identified this as a seriousimpediment. In fact, the CPRMs regularly identify recruitment as a leading generic issue. Areport prepared by the Central Operations Services Office (COSO) on project administrationshows this to be a persisting problem across the DMCs and in virtually all sectors.' More thanhalf of the ongoing Bank-financed projects were found to have experienced difficulties and/ordelays2 in the engagement of consultants, Of the 73 ongoing loan projects with significantrequirements for consultants in the Agriculture Department, West alone, consultants wereengaged on time only 15 percent of the time. During 85 percent of the time, there were delaysranging from 6 to 12 months and, in several cases, delays were more than 18 months. OtherProjects departments also have similar experience, although in varying degrees.6. Since consultants are usually required up-front for starting activities in projectimplementation, e.g., design work, prequalification of contractors, and preparation of tenderdocuments, any delay in the recruitment of consultants automatically delays overall projectimplementation resulting in increased project costs, deferred project benefits and, in a numberof cases, hindrance to project success. Delays could also impact on the Bank's disbursementof funds, the recurrent budget estimation and disbursement processes of the DMCs, and insome cases, the absorptive capacity of development assistance by the DMCs. In severalprojects in Bangladesh, the delays were for over two years, some projects in Pakistan fornearly three years, several projects in Indonesia, Philippines, and Viet Nam ranging from sixmonths to about one year or more. The present study was initiated against this background.The study aims to identify the underlying factors, examine their implications, and proposemeasures for the timely engagement and effective use of consultants in Bank-financedprojects" in the DMCs.B. Scope and Methodology7. This study on the Issues Pertaining to the Engagement of Consultants in BankLoan Projects and Their Effect on Project Performance is one of the five special studies beingcarried out under regional technical assistance (RETA) 5734.4 The present study covers sixDMCs-three in the West region Bangladesh, Pakistan, and Viet Nam and three in the Eastregion People's Republic of China (PRC), Indonesia, and the Philippines. The countriesselected for the study (RETA countries) have relatively large Bank operations and requirevarying levels of expertise in project management.8. To generate Bank-wide views and insights on the issue of the delayedengagement of consultants in Bank loan projects, (i) an interdepartmental review committeeconsisting of representatives from the Projects departments, COSO, and Post-Evaluation

2SEC.M51-97: Semiannual Report on Project Administration and Technical Assistance Implementation forthe Period Ending 30 June 1997, dated 22 September 1997.Delays are measured from the time consultants were scheduled to be engaged as indicated in theappraisal reports.Projects are defined in a broader context to include program loans and sector loans.RETA 5734: Impact Evaluation and Special Studies on Issues of Operational Importance. for $600,000.approved on 15 April 1997.

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Office was formed; (ii) an inception workshop was carried out in the Bank, attended by officersfrom the Projects and Programs departments and from other offices, as well as by six domesticand two international consultants engaged for this study; and (iii) further discussions were heldwith Bank staff across the various departments/offices.9. The approach in carrying out the study entailed a review of the ongoing projectsexperiencing implementation delays resulting from, among others, delays in the engagementof consultants, as provided by the Projects departments. Six country profiles were preparedbased on a detailed review of four to five projects representing various sectors with delays inconsultant recruitment of six months or more in each of the RETA countries. The findingsdiscussed in this study are based on the country profiles, the project documents provided bythe Projects departments, field interviews with the EAs and government officials,representatives of other lending institutions, i.e., World Bank, and individual consultants andrepresentatives of consulting firms engaged by the borrowers for the Bank-financed projectscovered by the RETA. Appendix 1 provides the list of projects covered in the study for each ofthe six countries under the RETA.10. The study is arranged as follows: Chapter II provides the experience of RETAcountries in the engagement of consultants highlighting at which stage of the project cycle thedelays mostly occurred and the underlying factors behind such delays, their effects on projectperformance, and the efforts initiated by the Bank to address them; Chapter III highlights someof the major issues shared by the RETA countries; and Chapter IV provides some suggestionsand recommendations for consideration by the Bank and the DMCs.

II. COUNTRY EXPERIENCES11. The Bank has been lending to all of the RETA countries for a long period. Theaverage percentage of loan amounts allocated for consultants ranged from about 4 to 12percent. All these countries generally agree with the important role played by consultants inhelping design and implement development projects, and in bringing new technology andinternational management and business practices into the country. In all these countries,delays were experienced in the engagement of consultants. The degree of delay has variedfrom country to country with the PRC experiencing less of this problem vis-a-vis Bangladeshand Pakistan where this issue has slowed projects by two to three years and other RETAcountries somewhere in between.12. The selection and engagement of consultants in Bank projects involve thefollowing major steps: developing the terms of reference (TOR), longlisting of consultants,shortlisting of consultants, preparing the letter of invitation (LOI), developing evaluation criteria,evaluation and ranking of proposals, drafting the consultant's contract and finally, contractnegotiations with the first-ranked firm. Cumulatively among the RETA countries every kind ofpossible difficulty has been encountered at virtually every stage of the engagement ofconsultants-some are more country-specific and others more generic. While the details of thecountry profiles with project-specific details are provided in Appendix 2, the common factors inthe RETA countries resulting in consultant engagement delays are presented here.


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A. Common Factors Resulting in Delays in the Engagement of Consultants13. The most common reasons for delays in engaging consultants under the loan-financed projects in many of the RETA countries include (i) lack of familiarity with Bankguidelines and procedures, in some cases nonadherence to them, e.g., Bangladesh,"Pakistan, Viet Nam2; (ii) inadequate delegation of authority and highly centralized cumbersomedecision-making procedures at various stages of the selection and recruitment of consultants,e.g., Bangladesh, Indonesia, Pakistan, Philippines, and Viet Nam; (iii) EAs' unwillingness toexercise their authority, e.g., Bangladesh, Indonesia, Pakistan; (iv) lobbying, interference, andrepresentation in most RETA countries perhaps with the exception of the PRC; and (v)frequent transfer of project directors and project managers, e.g., Banqladesh," Indonesia, andPakistan.14. Overall, the Bank's Guidelines together with the Project administrationinstructions (PAI),4 issued by the Bank and updated from time to time, are clear about thesteps to be taken in the engagement of consultants. The documents to be submitted aredefined in the PAl; there are even sample documents and a checklist of activities to beundertaken. However, the provisions in both the Guidelines and existing Bank documents donot always appear to be enforced properly. Contrary to the Guidelines, when documents atvarious stages of the selection process (e.g., shortlist, invitation documents, draft evaluationcriteria, and draft contract) are to be sent to the Bank for approval, most of the EAs do it ininstallments even though approval for all of them should be obtained at one time. Suchpractice, resulting from inadequate knowledge of Bank procedures, clearly leads to moredelays. On the part of the Bank, a review of projects covered under the study indicate thatappraisal missions have not always fully taken into account the institutional capacity of theEAs, nor have the domestic procedures and practices been clarified. Furthermore, while Bankmission leaders are supposed to have time schedules, selection criteria, draft contracts, andinvitation documents all agreed upon at appraisal, these are not adhered to in most cases. Forexample, even the TORs of the consultants are typically discussed only in an outline form atthe appraisal stage; they are to be firmed up later. The Guidelines are quite clear that all therequirements for the engagement of consultants should be available for approval by theBank's Consultants Selection Committee during loan negotiations, at the latest. This was notdone for all of the projects covered by this study.15. Furthermore, in many cases, the schedule for the appointment of consultants isnot realistic, considering the limited institutional capacity of the EAs or the project implementingunits, the cumbersome domestic procedures for approval, and the varying needs of the

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In Loan No. 1478-BAN(SF):Jamuna Bridge Access Roads, for $72 million, approved on 5 November 1996,the proposals submitted were ranked three times by the EA with the first-ranked firm being different ineach of the three evaluations.For instance, in Loan 1358-VIE: Power Distribution Rehabilitation, for $79.98 million, approved on 8 June1995, the team leader of the first-ranked firm was from a nonmember of the Bank.In Loan No. 1074-BAN: Second Health and Family Planning Services, for $51 million, approved on 10January 1991, there were five project directors in less than four years.PAl No. 1.01 Initial Project Administration Activities June 1997; PAl No. 1.05 Preparatory SupervisionActions: Project Administration Memorandum revised on 1 July 1996; PAl No. 3.01 Consultants: Instructionon the Selection and Engagement of Consulienis by the Bank last revised on 4 August 1997; PAl No. 3.02Consultants: Preparatory Work During Appraisal and Loan Negotiations by the Bank last revised on 1 June1995.PAl No. 3.02 Consultants: Preparatory Work During Appraisal and Loan Negotiations by the Bank lastrevised on 1 June 1995. This, however, may not be possible in case of sector loans and program loans.

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projects. In some projects, the risk of delay appears to have been underestimated, althoughlessons from earlier projects would indicate caution. In some other projects, the EA wasrequired to appoint several groups of consultants within the same time frame, which washardly realistic considering the EAs' capacity.16. Of the six RETA countries, three (Bangladesh, Indonesia and the Philippines)have well-articulated official guidelines on the selection and engagement of consultants. Theseofficial guidelines are adopted by the Government for application by all government agencies.The PRe has no official guidelines of its own yet and, therefore, follows those of the lendinginstitutions; Viet Nam is in the process of developing its own guidelines; and Pakistan generallydraws from the provisions of guidelines of lending institutions. But, every province in Pakistanhas formed a consultants selection committee that gives the necessary approvals at majorstages of the selection process. In 1994, the Government of Punjab issued guidelines for theselection of consultants. Overall, the lack of any official guidelines on the use of consultancyservices results in nonuniformity in application and/or misinterpretation of procedures amongthe EAs, thus resulting in delays.17. In some countries, e.g., Bangladesh and the Philippines, the guidelines are welldeveloped and even specify a time frame for each stage of the consultant selection process.They provide a broad evaluation criteria and empower the concerned department secretariesto approve all consultancy contracts of the agency, together with the sanctioning authority.However, the guidelines are not enforced rigorously and, in the case of Bangladesh, rarelyadhered to. In other countries, the authority delegated to the EAs in the Guidelines is verylimited. In Indonesia, the authority for approving contracts by the EAs is limited to Rp2 billion,up to RpS.O billion by the director general, up to Rp10 billion by the minister, and above Rp10billion by the central procurement team. Similar limited ceilings exist in Bangladesh, Pakistan,and Viet Nam (even though the latter two do not have formal guidelines). In the PRe, on theother hand, the EAs are given full administrative and financial authority at all the stages ofconsultant selection.18. While inadequate delegation of authority to the EAs in most of the RETAcountries comes out as a predominant factor causing delays in the engagement of consultants,the study has found that in some countries (Pakistan and, to a certain extent, the Philippines),the EAs are reluctant to exercise the authority available to them. These EAs send intermediatedocuments (e.g., shortlisting, TOR, LOI, evaluation criteria, etc.) to senior officials in the lineministry for their approval even though this is not required. This arises either because theministry has unwritten instructions due to personal interest in the selection, or because the EAswant to play safe and avoid responsibility for any possible future problem. In the process, theengagement of consultants takes much more time than what is prescribed in the guidelines.Merely empowering the EAs with increased authority in such a context thus mayor may notgive the desired results.'19. The heavy lobbying and political pressure resulting in nontransparency in theprocess of consultant selection is another factor causing delays in the engagement ofconsultants.i With the exception of the PRe, lobbying and interference even beforeshortlisting, and particularly from the stage of ranking of proposals onward, was evident in all

2Some of the DMCs feel that given the great capability variance from one EA to another, increaseddelegation of authority to them in a nondiscriminating way may not be advisable.Observations on this aspect are admittedly and understandably somewhat impressionistic.


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other RETA countries. The worst scenario is presented by a project in Bangladesh 1 where thedelay in the selection of consultants was nearly three years and another project in Pakistanwhere the delay was over two years." In both cases, heavy lobbying and political pressurewere cited as the major contributing factors. The frustration of the EA staff resulting from thepressure was vivid when in one of these countries, a suggestion was made for the Bank totake charge of engaging consultants in loan projects (like in TA projects)." The rationale forsuch a radical proposal was expressed in terms of (i) expediency, if the Bank takes over thefunction; (ii) technical efficiency, as the Bank tends to have more information about theconsulting firms; (iii) neutrality, free of biases and pressures existing in the country; and (iv)transparency.20. Lobbying seems to exist in many forms-either directed toward internationalconsultants, or initiated by international consultants, or in terms of pressure on staff of theEAs. In Bangladesh, it is a widely held view among the international consultants that there is alack of sufficient confidentiality in the evaluation of technical proposals by the Government." InViet Nam, the international consultants were found attempting to influence the ranking ofproposals by offering some key officials of the EAs and Central Government international visitsto their head offices. In Pakistan, some international consultants were able to earn favor fromkey Government officials and offering full scholarships to foreign schools, in terms of gaininginformation about the evaluation, and successfully influencing some members of theevaluation committee. This aspect of lobbying also needs to be addressed by the Bank intrying to maintain transparency in the process of consultant selection.21. In Bangladesh and Pakistan, delays were experienced in virtually all stages ofthe engagement process of consultants implying systemic weakness in the institutions apartfrom the elements of lobbying and poor governance. In other countries (Indonesia, Philippines,and Viet Nam), the delays were mostly experienced during and after the ranking of theproposals, thus clearly indicating lobbying and pressures at work.22. Another unhealthy practice noticed in some of the RETA countries (e.g., thePhilippines and Viet Nam) is that of consulting firms nominating personnel with impressivequalifications in the technical proposals but replacing them later. While the Guidelines providethat the EAs may allow the first-ranked firm to replace proposed personnel for unavoidablevalid reasons (e.g., death, long-term illness), a review of the projects across countries revealedthat substitution of personnel, even team leaders, by consulting firms is widely practiced fornoncompelling reasons. Personnel with attractive curriculum vitae are included in thesubmission of the proposals and then are replaced upon winning the contract. This leads tounnecessary delays in the finalization of the engagement process because the new

2Loan No. 1291-BAN: Southwest Area Water Resources Development, for $3.15 million, approved on 16December 1993.Loan No. 1297-PAK: Third Punjab On-Farm Water Management, for $62.16 million, approved on 8 March1994.Observation was made in one of the RETA countries of the need for the Bank to engage consultants onbehalf of the Government at least in those cases where such services are critically required up-front inproject implementation.The situation in this country had gone so bad that one international consulting firm had reportedly made apolicy decision not to bid for any work.

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7submissions have to be reviewed again by the EAs and the Bank. Moreover, the quality of thefinal work is no longer ensured.'23. Apart from the above common problems, some country-specific or situation-specific aspects that resulted in the delays in consultants' engagement include: (i) lack ofresponse from shortlisted firms due to small volume and value of work," (ii) deviation from theTOR in the last stage of contract neqotlations," (iii) an EA with limited institutional strengthhaving to engage several groups of consultants within a given time-frame," and (iv) suddendeterioration in the law and order situatlon."24. Another somewhat different factor but one that could delay the process ofengaging consultants is the view widely held in all the RETA countries that internationalconsultants are imposed on the DMCs in greater numbers than needed. Some countries evenperceived that Bank approval of loans hinged on the DMCs' acceptance of the internationalconsultants. These countries also consider that for many routine types of projects financed bythe Bank requiring standard skills and services, the competence level of their domesticconsultants should be sufficient. However, given the relatively low performance level of Bankprojects in most of the RETA countries, such view that international consultants areunnecessary is debatable. Regardless of which view is more accurate, such perceptionsamong the EAs generate feelings of nonownership of, and noncommitment to, the projects (orat least toward the international consultants). The timely engagement of consultants undersuch circumstances becomes most difficult, and even after their engagement, theireffectiveness becomes questionable. This perception was particularly strong in the PRC andIndonesia." Such an impression prevailed even in Viet Narn' where Bank operations resumedonly recently, and in Bangladesh where the scope for institutional improvement is visiblyevident. Bearing in mind the DMCs' tendency to overestimate the capability of domesticconsulting firms on the one hand, and the uncompromising need for quality on the other, theBank may need to address this widely felt perception. At the same time, the Bank needs toundertake organized efforts to help promote the domestic consulting industry in the medium tolong term by working out explicit and effective arrangements for the transfer of technologyfrom international consultants financed under the loans and TAs. Such an approach will alsocomplement the Bank's Guidelines, which give importance to helping promote domesticconsulting capability. This will call for Bank missions to make a better assessment of thedomestic consulting industry during project appraisal than currently done prior to assigning

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In one project in Viet Nam Loan No. 1272-VIE: Road Improvement Project, for $120 million, approved on29 November 1993, the consulting firm suggested, soon after contract signing, a series of changesincluding that of the team leader and several experts on the team. In another case in the same country,there was 100 percent substitution after contract signing. Such practices by consulting firms, when notjustified, destroy the very foundation of the bidding process.Loan No. 1270-PRC:Tangshan and Chengde Environmental Improvement, for $140 million, approved on25 November 1993.Loan No. 1259-VIE: Irrigation and Flood Protection Rehabilitation, for $76.5 million, approved on 26October 1993.Loan No. 1111-INO: Bogor and Palembang Urban Development, for $140 million, approved on 31 October1991.Loan No. 1332-PHI(SF):Rurallnfrastructure, for $17.5 million, approved on 10 November 1994.While Indonesia makes the case for more domestic consultants, it is also one of the few DMCs found tohave interest in accepting international consultants for formulating follow-up projects from many ongoingprojects. There were cases where the implementation pace of the main project was delayed on account ofdelays in the engagement of consultants who were to design/formulate the fol low-up projects.In one case in Viet Nam, the EA, at a later stage, requested the Bank to strengthen the internationalconsultants' inputs because its own staff could not effectively handle the internat ional contractors.

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international consultancy inputs in Bank projects. This might also entail longer appraisalmission duration and larger mission composition (with suitable skills).25. None of the RETA countries has a system Of rating the performance ofconsultants. As a result, in some RETA countries, e.g., Indonesia, a poor-performingconsultant could still get an assignment in a different agency. The Bank should encourageDMCs to adopt systems to rate the performance of consultants and require that suchinformation be shared among different agencies in the government, the Bank, and otherlending institutions. Information on both good performers and poor performers may be set upat the planning office or equivalent. Indeed, the database could gradually be expanded toinclude consultancy-related additional information, e.g., number of personnel replacements,number of contract variations.B. Impact of Delays26. Since the selection and engagement of consultants is one of the major up-frontactivities of the project cycle, any delay in the consultant selection process would inevitablydelay subsequent activities. For example, the delayed appointment of engineering consultantswill slow down preliminary activities such as field surveys, detailed design, and preparation ofbid documents. The delay of more than two years in the engagement of the engineeringconsultants for design and supervision of rural roads under the Barani Area DevelopmentProject in Pakistan 1 can be expected to contribute to a lower than expected project benefitstream. In the Jamuna Bridge Access Road Project in Banpladesh' the delay in theengagement of supervision consultants also delayed the start of other activities such asSigning of the civil works contracts because these consultants had to first review thecontractor's work plan. This would delay the construction of the critical approach road by twoyears. Furthermore, working seasons would also be lost and the full benefit of the Projectwould not be realized for at least two years.27. Such findings clearly establish that delays in implementation can result insubstantial economic and social costs, deferred benefits, or the partial rather than fullrealization of intended benefits or even the nonaccrual of benefits. In other words, quality ofproject performance (assessed in terms of economic and financial results and costs)deteriorates. For instance, the sensitivity analysis in the appraisal reports of the projectscovered in this study show that relative to the base case, a delay of one year inimplementation would result in a reduction in the economic internal rates of return (EIRR). Ofthe 15 study projects that analyzed the sensitivity of the EIRR to such a delay, nine showed anaverage reduction in EIRR of 9 percent, and six projects had an average reduction of 20percent. These findings are confirmed by the postevaluation experience of several projectsacross countries and sectors where delay in implementation was cited as one of the majorreasons for the decline in the EIRR estimate from appraisal to postevaluation. Also, delaysnormally compound the effect of inflation leading to cost overruns. Long delay and substantialcost overrun may render the EIRR of certain projects below viable levels. Furthermore, forprojects in countries that receive loans with ordinary capital resource funding, there areincreased costs in terms of additional commitment charges that these DMCs are required topay on account of project delays.

'2

Loan No. 1012-PAK(SF): Second Barani Area Development, for $25 million. approved on 20 February1990.Loan No. 147B-BAN(SF): Jamuna Bridge Access Road, for $72 million. approved on 5 November 1996


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9

c. Bank Initiatives to Address the Delays28. Considering that the problem of delays in engaging consultants has been apersistent problem for so long, the Bank has taken initiatives to address the issue from time totime. As emphasized earlier, delays are encountered at virtually every stage of the consultantselection process in many of the RETA countries. The major remedy is to get as many steps ofconsultant selection accomplished as possible during loan appraisal or loan negotiation.Accordingly, since 1994 the Bank has required Bank staff to prepare, in close consultation withthe EA, a project administration memorandum (PAM), that shows each step of the consultantrecruitment process and its tirninq.' The Bank also issues various PAls2 requiring staff to assistthe EAs to undertake preparatory work on the engagement of consultants prior to or duringproject appraisal, and provide the concerned EAs and the government department with themost relevant project data to facilitate and monitor project implementation. Appraisal missionsare also required to furnish the EAs with a number of documents, including, among others, atime schedule form for the recruitment of consultants, longlist of consultants (if requested bythe borrower), sample draft invitation document, sample form evaluation of proposals, samplecontract for consultants, and Bank Guidelines on the Use of Consultants. The EAs arerequired to finalize and submit to the Bank, among others, a shortlist of consultants, invitationdocuments (LOI, TOR, etc.), evaluation criteria, and draft contract before or during loannegotiations, and have them approved by the Bank before the loan is approved. The completelist of actions to be taken by the mission leader with regard to the recruitment of consultants isgiven in Appendix 3. The PAis, when effectively enforced, can be expected to significantlyshorten the delays currently being experienced."29. The Bank is also giving increased attention to its training activities to helpfamiliarize the EAs with Bank procedures, guidelines, and requirements. Over the past decadethe Bank has carried out, in the RETA countries, 28 seminars on the use of consultants and 21on project implementation arrangements in RETA countrles."

2 See PAl No. 1.05.PAl No. 1.01 Ini tial Project Administration Activities June 1997; PAl No. 1.05 Preparatory SupervisionActions: Project Administration Memorandum revised on 01 July 1996; PAl No. 3.01 Consultants:Instruction on the Selection and Engagement of Consultants by the Bank last revised on 4 August 1997;PAl No. 3.02 Consultants: Preparatory Work During Appraisal and Loan Negotiations by the Bank lastrevised on 1 June 1995.Most of the projects covered under the study were processed around the time the PAM was firstintroduced.This seminar typically focuses on aspects of consultant engagement particularly on documents requiredfor submission by the EAs to the Bank. The seminar usually lasts for four days for an audience of about 30to 35 EA staff.

4


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10

Seminars Carried out by COSO1986-1997Country Seminar on the Use ofConsultant Services Seminar on ProjectImplementation ArrangementsBangladeshChina, Peoples' Republic ofIndonesiaPakistanPhilippinesViet Nam

Source: COSO.Total

56653328

34552221

The effectiveness of these seminars, however, has been somewhat mixed. The principal factorlimiting their effectiveness is the inability to secure the right audience, i.e., the staff from theEA who are directly involved in executing Bank projects and who could directly benefit andmake use of the skills imparted in the training programs. Ironically, the pecuniary incentivesprovided to the participants in the program seem to attract officials who may not have directinvolvement with the subject matter. There are also cases where the holding of trainingprograms in another country seem to attract the wrong officials even more. This confirms theexperience of the World Bank Group. It is recognized that there is a need for furtherimprovement of COSO's training programs. The seminars carried out by the Bank for domesticconsultants was suspended in 1990, but it was revived in 1997 with about three to fourseminars scheduled annually.30. Another initiative of the Bank to address the issue is to allow the DMCs to takeadvance action for the recruitment of consultants. Under this facility, the up-front activitiesrequired of the EAs, such as preparing a shortlist, an invitation letter (including TOR), theevaluation criteria, draft contract, and timetable for consultants recruitment activities, etc. willbe facilitated. The use of advance action is encouraged and, indeed, in the case of advanceaction not being envisaged, the Project Brief of the Management Review Meeting or theappraisal mission's back-to-office report are required to provide the reasons for not proposingadvance action for the recruitment of consultants.'31. The Bank has also strengthened its resident missions (RMs), increasing thedelegation of authority and placing a greater number of projects under their direct supervision.The Indonesia RM, for instance, was able to expedite, in several cases, the EAs' consultantselection process by seeking and obtaining approval from Bank headquarters over thetelephone. All the RETA countries with RMs have suggested that the upgrading/strengtheningof RMs will greatly facilitate tackling the consultancy and other implementation issues whenthey arise.32. The recent increased importance accorded by the Bank to the CPRMemphasizes its seriousness in monitoring project adrnlnistratlon.? Admittedly, the CPRM aimsat the much broader goals of overall project implementation. Such initiatives, however, willhave an inevitable positive effect in alleviating consultancy-related problems as well. The

2 See PAl No. 3.02 August 1997.With a view to strengthening country portfolio review, efforts are underway to intensify the CPRM to be ledby the vice presidents as far as possible. New guidelines were also developed by the Bank in June 1997 tostrengthen the country portfolio review.


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recent agreement between the Bank's RM and the World Bank's RM in Jakarta to carry outseparate CPRMs but with mutual participation in alternate years is expected to yield positiveresults. Given both agencies' similar experience in consultancy and other implementationissues, such sharing of CPRM findings will provide a better forum for policy dialogue with theGovernment. Based on the results, the possibility of such a joint exercise may also be exploredby the RMs in other countries. In Bangladesh, for instance, the World Bank and the Bankshare CPRM findings. In addition, a domestic consultancy group chaired by the BangladeshRM was formed by all of the funding bodies to address project implementation issues,including consultancy recruitment.33. Despite the above initiatives taken by the Bank, the Bank needs to continuouslymake new efforts to address the problem. Some of the major continuing issues and theproposed recommendations are the themes of the subsequent sections.

III. MAJOR ISSUESA. Cumbersome Procedures and Lack of Delegation of Authority34. The degree of delegation of authority and administrative capacity of the EAsvary from country to country and among EAs within the same country. Except in the PRC,where all the EAs have the final authority (and it is actually exercised) for approval at all stagesof the selection process, the EAs in the other five countries have limited authority in theprocess of consultant selection. Lack of authority of the EAs and the bureaucratic system ofapproving the recruitment of consultants has delayed matters in most of the DMCs most of thetime. Even within the same country, the delegation of authority to EAs is not uniform. Some ofthe EAs have a status and standing that is unclear and undefined in respect of its decision-making authority and do not enjoy the authority delegated to other EAs.35. Multilayered approval requirements and multilayered committee setups forchecking/reviewing/approving EAs' proposals have been a major cause of delay. In manycases, all matters relating to the recruitment of consultants has to be approved by a ministerand, in some extreme cases (depending on the value of the consulting services), by the headof the government. While the need for approval of a contract at a senior level may bereasonable when the sums committed are high, approval requirements for documents like theTOR, shortlist, draft contract, and evaluation criteria, is an unhealthy practice. In fact, such arequirement is not even written in any of the guidelines or regulations issued by governments.The EAs in several countries (e.g., Bangladesh, Indonesia, and Pakistan) were found to beextremely cautious in taking initiatives; they seek approval of their higher authorities at everystep of the selection process to avoid taking responsibility. Such practice opens up the processto more interference.B. Frequent Change in Project Directors36. A review of the projects covered by this study point to the frequent replacementof the project directors as a contributing factor to delays in the recruitment of consultants inmany cases. Various project directors come to the projects with various degrees of familiaritywith Bank procedures. Such frequent changes also resulted in the reevaluation of proposals


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12ultimately resulting in unnecessary delays in the engagement of consultants.' It is thereforedesirable that project directors are not frequently changed. The PRC is the exception amongthe countries reviewed because project directors in the PRC are appointed at an early stageand serve continuously from the beginning to the completion of the project. At the otherextreme are some Bank projects in Bangladesh where project directors were changed quitefrequently."c. Difficulties in the Use of Advance Action37. The Bank encourages the use of advance action to reduce the time required forthe engagement of consultants, thereby minimizing delays in project implementation. However,the study found that in several cases where advance action was agreed with the EA, it couldnot be pursued because of formal rules and or informal practices in the concerned DMC. Theagreement of the advance action could not be put into effect because of the need for priorapproval of the project by planning or other higher authorities in many of the RETA countries,lack of explicit budget provision for the activities it entails, or, as experienced in all thecountries, the need for the loan to be effective first. The provision of advance action in severalprojects covered by this review (except in the PRC) was found to be less effective in fieldingthe consultants soon after loan effectivity. In Viet Nam, where advance action was taken formost of the projects, with the technical proposals in fact being received before loan approval,the EAs felt that they could only proceed with evaluation of the proposals after the loans weresigned. While the facility of advance action for consultant recruitment was somewhat lesseffective, the potential gains from it in terms of shortened time in consultant engagementremain valid. To materialize such gains, the appraisal missions need to examine any factorsthat may inhibit the EAs from such gains and accordingly make appropriate arrangements sothat a number of up-front activities relating to consultant engagement can be undertaken, thusfacilitating expeditious project implementation.D. Lack of Transparency of the Selection Process38. In many cases, the selection of consultants takes place in an environment thatis not transparent. Consultancy contracts are considered lucrative in many quarters, oftenbecause they can be springboards for downstream benefits. Except in the PRC, by and largethe responses betrayed existence of lobbying and malpractices to influence the selection ofconsultants, in many cases at different levels-starting from the project office, through the EA,and the ministry with active involvement of domestic and international consultants.Nonetheless, it was implied that lobbying takes place in different manners. Consultants resortto lobbying to be included in the shortlist and then for winning the award of contracts. In mostRETA countries, it appeared that some consulting firms, through their connections at variouslevels of the government, were able to influence the formulation of the TOR and even the LOIin their favor. In several of the projects reviewed for this study, the delays in the engagementof consultants at various stages (but mostly in the shortlisting and evaluation of proposals)were attributed to some forms of lobbying. It appears that there are ways of getting around the

2

It is difficult to ascertain the real motive of such repeated evaluations, whether to get the desired ranking orto promote fairness by undoing the possible and perceived unfairness in the earlier evaluation. Irrespect iveof the motive, the result is inevitable delays and the avoidable costs associated with them.Recently, the Bangladesh CPRM and the local aid consultancy group recommended that key ministries (i)retain project directors for the project life with provision of career development and (ii) that they recruit andtrain procurement specialists for civil works, equipment, and consultancy recruitments, and that theseexperts be assigned to the EA evaluat ion committees.


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strictures of the Guidelines without violating formal procedures, and thus influencing theevaluation and ranking. Even the individual international consultants and consulting firmsinterviewed for this study admitted the preponderance of influence peddling. In somecountries, certain favored firms were able to gain access to information that is kept fromothers. The extreme case was that of one country where the winning firm even got hold of theproposals of the other shortlisted firms. While it is extremely difficult to pinpoint when it ishappening, certain measures may have to be taken by the Bank (including the possibleprovision against fraudulent practices in the Bank's Guidelines) with the cooperation of theborrowers to limit, if not to totally eliminate, lobbyinq.'E. Delays on the Bank Side39. The Bank's insufficient attention to the institutional strength and weaknesses ofthe EAs during project appraisal and fixing unrealistic timetables for the recruitment ofconsulting services are important factors that cause delays in consultant engagement. TheEAs for two projects in the Philippines and Indonesia were required to accomplish therecruitment of several consultants from multiple disciplines simultaneously. Such anarrangement displayed either overestimation of the EA's organizational capability orinadequate appreciation of their limitations-either way leading to delays.40. While many RETA countries took more time to obtain clearance at variousstages in the consultant selection process, the Bank itself was not totally immune fromshortcomings albeit to a lesser degree. For instance, in the Second Health and FamilyPlanning Services Project in Bangladesh, it took 2.5 months for the EA to obtain Bankconcurrence for its evaluation of proposals. In another project in Indonesia e.g., Bogor-Palembang Urban Development Project, the EA submitted the TOR and other documents tothe Bank for approval soon after the loan was declared effective. The Bank, however, tookmore than one year to give its approval. Apparently, this took place at a time when the Bankwas going through a significant organizational change. The fact, however, remains that projectimplementation suffered on account of the Bank's tardy response.41. Under PAl 1.01 (since 1994), the appraisal missions are required to accomplisha PAM2 for every project. However, a number of projects during this period did not have aPAM. Indeed, in one of the projects in the PRC,3 despite repeated requests, the Bank did notprovide the EA with a PAM. Providing the EAs with a PAM would assist them in recruiting

2

It may be observed that many of the RETA countries also brought out the issue of apparent occasionallobbying by some Bank staff during the project processing/implementation stages. As emphasized in theWorking Paper on the Bank's Anticorruption Policy (November 1997), if the Bank's efforts to reduce illicitbehavior among the DMCs are to be credible, it is essential that such a perception among the DMCs istotally erased, the Bank staff remain beyond reproach, and the Bank's internal regulations and proceduressupport the highest ethical standards. The Bank should consider issuing appropriate staff instructionsprecluding them from any explicit or implicit lobbying during project processing and implementat ion stage.The preparation and discussion of the PAM during appraisal is mandatory and must support the appraisalmemorandum of understanding (MOU). The PAM includes an implementation schedule that takes intoconsideration all the critical activities, the time required to complete them, and their relationship with otheractivities. Specifically, the PAM should describe the consultant posit ions required to be recruited along withthe TOR, and make reference to the implementation schedule where each step of the recruitment processand its timing are shown, e.g., TOR, shortlist, evaluation criteria, draft contract, Bankapproval/concurrence, invitation letter, proposed submission, evaluat ion, Bank concurrence, negotiation,and mobilization.Loan No. 1387-PRC:Hebei Expressway Project, for $220 million, approved on 28 September 1995.


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consultants within the time-frame set and agreed upon for each activity. This is of particularimportance to the relatively weak and inexperienced EAs.F. Absence of a System for Monitoring Delays42. The study indicates that in most of the countries covered, there is no system formonitoring, or of whistleblowing when the selection of consultants is delayed. In most cases,the Bank expresses its concern to the EA officials (copied or through its RM). When delays getlonger, information is sent to the department or ministry head. These have not had anysignificant impact on the reduction of delays. In some cases, the Bank has put pressure,pointing out the possibility of loan cancellation (of the consultancy component) if delayspersisted. In only one case in Pakistan where the delays were nearly three years did the Bankcancel part of the loan. In the same country (Pakistan), in another project, when the Bankthreatened the cancellation of the loan, several important decisions were made in one singleday, helping facilitate the consultants' recruitment. In another case, the Bank informed the EAthat the follow-up project for Board consideration could be delayed unless the consultantrecruitment process was speeded up. While discretionary actions like these have helpedspecific projects, they have not been able to bring significant impact in improving the system.The Bank's RMs could playa powerful role in effecting such early warning systems. Toachieve this, the RMs need to be strengthened in various aspects of project implementation byproviding them with the authority and making them accountable for the output.

IV. CONCLUSIONS AND RECOMMENDATIONS43. Experience with the engagement of consultants is particularly unsatisfactory inmost of the projects covered by the review. Some contributing factors are Bank-related andare, therefore, easier to address, while others are viewed as internal matters to the DMCs and,hence, their prerogative. Aspects under the control of the Bank can be addressed throughenforcing project administration instructions already issued. For those factors considered thegovernments' prerogative, it is imperative that the Bank enter into a serious policy dialoguewith the DMCs.44. Some of the recommendations are proposed for immediate implementation,while others are for the medium term. There are divergent views expressed in certainrecommendations proposed. Given the complexity, sensitivity, and perennial nature of theissue, a working group headed by a senior staff may be constituted with representatives fromProjects/Programs Departments and from COSO, PEO and other concerneddepartments/offices to study these recommendations prior to their implementation.

A. Recommendations for Immediate Considerationllmplementation1. Areas of Policy Dialogue with the DMCs

45. The timely engagement of consultants contributes to expeditious projectimplementation, but this also calls for good governance and increased transparency in theprocess of consultant selection in the DMCs. Furthermore, certain improvements in thegovernments' administrative procedures could also potentially improve such processes.Understandably, the solution to these issues can come only from the DMCs; the Bank hasobvious limitations on its capacity to bring about changes in these areas directly.


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46. The issue of delay in the engagement of consultants pervades most projectsacross sectors in most of the borrowing countries and hence should be taken up by the Bankin its policy dialogue with the DMCs. Given its country focus, the Programs departments(assisted by the Projects departments for specific details) should raise the issue during cross-sectoral policy discussions such as the programming mission and the CPRM. Areas ofdiscussion could include (i) making the process of consultant selection in the DMCs moretransparent; 1 (ii) providing the EAs with increased authority and responsibility in the selectionprocess and encouraging them to exercise their authority by creating an enabling environment;(iii) allowing efficient project directors to continue with minimum disruption and dislocationduring the life of the project:" (iv) setting an early warning system to detect delays, e.g., 50percent time overrun in each stage of consultant selection could trigger such warning forimmediate action by the governments and the Bank; (v) advising the DMCs of the Bank'swillingness to assist them by directly participating in the consultant selection process whenrequested by the EA/government, particularly in those cases where consultant services arerequired up-front in project tmplernentatlon:" (vi) alerting the DMCs of the Bank's readiness andseriousness in canceling loans (the amount depending on specific situations) when satisfactoryprogress is not demonstrated," and (vii) forewarning the DMCs that the Bank will auditconsultant's contracts when evidence warrants. 5 To make policy dialogue more effective, theBank may also explore the possibility of raising these issues with the DMCs jointly with otherbilateral and multilateral lending institutions in the country as already being practiced by theBank's RMs in Jakarta and Dhaka.47. The success of policy dialogue will hinge on the Bank's own preparedness inpursing the issues raised and initiating actions when mutually reached understandings are notobserved. In instances of disregard for transparency and occurrences of fraudulent practices(with demonstrable evidence), the Bank should be prepared to audit such cases as a deterrentto further similar practices elsewhere in the future.

2

While procedural improvements on the part of the DMCs will help to keep the consultant selection processtransparent, the Bank may also require (or provide option to DMCs) to seek a written integrity pledge fromthe consulting firms (including individuals) that they would not resort to unethical practices as they bid forprequalification, shortlisting or contract awarding. In the event of the Bank finding conclusive evidence ofsuch cases, the firm (or individual) will be barred from competing on future Bank-assisted projects for, say,two years.Until at least project implementation is well underway, thereby avoiding the need to rebid/rerank that hasresulted in certain cases due to the frequent turnover of project directors.Such sentiments on the useful role that could be played by donors in the consultant selection process wasexpressly stated in Pakistan. It is the EA's concern over the project for timely implementation thatmotivates it to approach the donor for direct participation in the selection process, not its sense ofnonownership over the project. Clearly this will exert an additional workload on Bank staff. However,considering that it helps promote good governance, transparency, and expeditious engagement ofconsultants, the efforts may be worth carrying out.Currently loan cancellations are practiced on an ad hoc basis. To be an effective deterrent to excessivedelays in consultant selection, a more institutional procedure for loan cancellation needs to be worked outand enforced.There are cases where consultants' contracts seem to be padded to provide room for payoffs. In one casein Pakistan, the Bank was able to lower the contract by about 50 percent without changing the TOR. Yet inanother case in Bangladesh, the Bank has required the EA to renegotiate the contract to remove about 30percent of the contract amount. An audit of such consultants' contracts (before Bank approval) will alsosend a strong signal of the Bank's seriousness on this issue.

3

4

5


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2. Selective Provision of Simplified Technical Proposal to the DMCs48. In streamlining the procedures, the Bank recently adopted a simplified technicalproposal procedure in the engagement of TA consultants. In cases where the Bank is satisfiedwith the EAs' transparent approach to consultant selection, the Bank may consider allowingthem to use the simplified technical proposal procedure for contracts of a limited amount, e.g.,$1 million or less.1 Once the recommendation is accepted, the indicators to measure theeligibility of the EAs can be worked out.

3. Rigorous Enforcement of PAMand PAis49. The Bank issued important instructions in PAl 1.01, 1.05, 3.01, and 3.02 relatingto the preparation of the PAM and the engagement of consultants, including the preparatorywork during or prior to project appraisal. However, these instructions are not followed in mostof the projects. Now the Bank must ensure that these instructions are effectively carried out byits staff. These consist of (i) preparation of the PAM

2by mission leaders during or prior toproject appraisal; (ii) provision of various documents as elaborated in a checklist to the EAs

with model forms and discussion of such documents with them during appraisal; and (iii)encouragement of EAs to submit all documents requiring Bank concurrence during loannegotiations at the latest." As a next step, the Bank should require the DMCs to submit aconsultants' shortlist as a condition for loan negotiation. Such a requirement, which is alreadybeing done in a number of projects, can be expected to greatly reduce the scope for undueinterference that takes place in the process of shortlisting. While argument can be made thatthis would simply advance the interference/lobbying to an earlier phase of project processing,such interference, even if it continues, will be more brief because of the imposed condition.Furthermore, delays resulting from such interference after loans have been declared effectivecarry additional costs to DMCs in terms of interest costs and/or commitment charge payments(apart from deferred project benefits). However, in imposing such a condition, the Bank has tobe prepared for the potential risk of some loans slipping to the following year on account ofsome DMCs not being able to comply on time.

4. Advance Action Facility50. In providing for advanced action, an appraisal mission must review the existingdomestic guidelines and practices in the DMC that may hinder the successful use of thisfacility. Where advanced action is hindered by the nonavailability of funds in the DMC prior totheir governments' approval and/or allocation of budget for the project, the borrowing DMCmust be advised to make a lump provision budget from which financing for such expenditurescan be drawn. In any case, the mixed performance of this facility should not be the reason todiscard it, but actually to improve it to make it more effective. This facility has helped expediteproject implementation in some of the DMCs, e.g., the PRC, and this should continue to remainas a facility available for DMCs.

2Such an approach of selective rather than blanket provision of the simplified technical proposal will act asan incentive to other EAs and DMCs to maintain transparency in their process of consultant selection.PAl No. 1.05 Project Administration Memorandum (July 1996).Responding to the Bank and the World Bank Group, consideration is being given by BAPPENAS (BadanPerencanaan Pembangunan Nasional, or the National Development Planning Agency) in Indonesia tomandate the EAs to complete all of the up-front activities required in the engagement of consultants priorto loan negotiations.

3


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5. Substitution of Experts by Consulting Firms51. The substitution or replacement of experts under consultancy contracts must bemore firmly discouraged except in the case of excessive delays in the selection process(outside the control of the consulting firms) or in case of force majeure. As a deterrent, the LOIshould incorporate a clause for a locked-in period that, except in the above cases, nosubstitute proposals (particularly for the team leader and other key personnel) will beentertained for a minimum of say, nine months and that, if the firm is not able to meet therequirement, it will be made ineligible to bid for Bank projects for the succeeding 12 monthperiod.'

6. Increased Role of COSO and Improvement of Its Training Programs52. COSO should carry out familiarization seminars for Bank mission chiefs as therequirements in various Bank PAis are enforced. COSO's role and support to appraisalmissions need to be further encouraged (either before the mission or, where possible, byproviding mission members). Apart from assisting the project appraisal, the participation ofCOSO staff in the such missions will enable COSO to establish rapport with EAs. In case ofconsultancy problems at a later stage, such rapport will facilitate addressing the issue.Considering that a number of consultancy-related documents are required to be submitted bythe DMCs during loan negotiations, the Bank should also involve COSO staff in suchnegotiations. On the DMC side, the participation of project directors in negotiations should bemade obligatory.53. COSO also needs to improve the training programs it carries out in the DMCs interms of (i) the professional skill of resource speakers, (ii) the content of training proqrarns, and(iii) the method of conducting programs. Such proposals were also made earlier by the trainingdivision of the Budget, Personnel and Management Systems Department. 2 COSO should alsolay down appropriate criteria for the selection of the DMC participants in its seminars, andrigorously enforce these to capture the right kind of participants.B. Recommendations for the Medium Term

1. Enhancing Domestic Consulting Capability54. The Bank's Guidelines encourage enhancing the DMCs' domestic consultingcapability to the extent where such domestic expertise could diminish and eventually replacethe need for international consulting services. To support this, the Bank has provided severalTAs and conducted a number of seminars in various DMCs. The impact of such efforts,however, has been mixed. As a medium-term solution to the consultancy issue, the Bank, byway of capacity-building efforts, may carry out surveys of the domestic consultancy industry inthe DMCs. Based on the findings, the Bank may take measures through systematic planning of

Some of the comments received even propose "financial penalties on consulting firms, large enough toexercise a deterrent impact." The current Bank Guidelines make only vague provision that "the CSC willdetermine what course of action, if any, should be taken" in the event of substitution for uncompellingreasons.See the evaluation by BPTD of COSO's seminars on the Use of Consultants Services in India (August1996), and the seminar on Project Implementation Arrangements in Sri Lanka, April 1995.2


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its TA facilities and other methods, for helping build up the domestic consulting capacity invarious DMCs.

2. Monitoring Delays and the Performance of Consultants55. A structured system should be designed for close supervision and effectivemonitoring of delays as well as the performance of consultants by the EAs. This can be a jointregular exercise by the EA and, if present, the Bank's RM. Such monitoring should also coverthe effectiveness of the transfer of technology, wherever appropriate. This will also helpidentify non performing consultants who could be excluded from consideration for selection infuture projects.'

3. Increased Role for the EAs During the PPTA Stage56. It was noted that the inputs from the EAs (i) in the selection and engagement ofproject preparatory TA consultants, and (ii) in the preparation of feasibility studies are toominimal to give them any sense of ownership over projects. The study found a convergence ofviews among the RET A countries that allowing a bigger role to the EAs at the projectpreparatory TA stage including in the engagement of consultants will help generate their senseof ownership and acceptance of the proposed consultants' inputs into projects and expeditethe process.

Some DMCs have suggested that the Bank should consider instituting a mechanism whereby payments ofconsultants will be based on their satisfactory output as determined jointly by the governments and theBank.


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APPENDIXES

Number Title Page Cited On(page, para. )

1 List of Projects for the Study 20 3,92 Country Profiles 21 3, 123 Checklist of Actions to be Takenby the Mission Leader During theAppraisal Mission and Loan Negotiations withRegard to the Recruitment of Consultants 41 9,28


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20 Appendix 1

LIST OF PROJECTS SELECTED FOR THE STUDYProject Name Loan No. Loan Amount Date of

($ million) Approval1. Rural Infrastructure Development 908-BAN(SF) 99.80 13 Oct 19882. Second Health and Family Planning Services 1074-BAN(SF) 51.00 10Jan19913. Second Water Supply and Sanitation 1264-BAN(SF) 31.00 16 Nov 19934. Southwest Area Water Resources Development 1291-BAN(SF) 3.15 16 Dec 19935. Coastal Greenbelt 1353-BAN(SF) 23.40 2 Mar 19956. Jamuna Bridge Access Roads 1478-BAN(SF) 72.00 5 Nov 19967. Tangshan and Chengde Environmental Improvement 1270-PRC 140.00 25 Nov 19938. Yunnan-Simao Forestation and Sustainable

Wood Utilization 1304-PRC 77.00 30 Jun 19949. Hunan Lingjintan Hydropower 1318-PRC 116.00 27 Sep 199410. Hebei Expressway 1387-PRC 220.00 28 Sep 199511. Inland Waterways 1089-INO 45.00 18 Jul19S112. Power XXI 1092-INO 300.00 25 Jul199113. Bogor and Palembang Urban Development 1111-INO 140.00 31 Oct 199114. North Java Road Improvement 1428-INO 150.00 23 Jan 199615. North-West Frontier Province Area Development 1179-PAK(SF) 32.80 24 Sep 199216. Third Punjab On-Farm Water Management 1297-PAK(SF) 62.16 8 Mar 199417. Punjab Rural Water Supply and Sanitation (Sector) 1349-PAK(SF) 46.00 31 Jan 199518. Fourteenth Power (Sector) 914-PHI 120.00 27 Oct 198819. Power Transmission 1288-PHI 164.00 14 Dec 199320. Fourth Road Improvement (Supplementary) 1322-PHI 23.50 29 Sep 199421. Rural Infrastructure Development 1332-PHI 17.50 10 Nov 199422. Airport Development 1333-PHI 41.00 24 Nov 199423. Irrigation and Flood Protection Rehabilitation 1259-VIE(SF) 76.50 26 Oct 199324. Ho Chi Minh City Water Supply & Sanitation

Rehabilitation 1273-VIE(SF) 65.00 29 Nov 199325. Power Distribution Rehabilitation 1358-VIE(SF) 79.98 8 Jun 199526. Provincial Towns Water Supply and Sanitation 1361-VIE(SF) 66.00 17 Aug 199527. Second Road Improvement 1487-VIE(SF) 120.00 21 Nov 1996Source: Loan, TA and Private Sector Approvals, ADB.


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21 Appendix 2, page 1

COUNTRY PROFILES

A. Bangladesh

1. Bangladesh has been a recipient of development assistance from the Banksince 1973. The Government has well-articulated guidelines and instructions on planning,processing, and implementing technical assistance. The current guidelines and instructionswere issued by the Economic Relations Division (ERD) in 1992, following a high-level expertreview in 1991 and approval of the Executive Committee of the National Economic Council.The guidelines recognize that the appointment of consultants is a crucial element in the projectcycle, but that they should not be appointed if there is no felt need. International consultantsneed not be appointed when domestic expertise is available.2. The shortlist is prepared by the executing agency (EA) on the basis of a detailedexamination of the experience and capabilities of the firms from a longer list that may beobtained from the ERD roster of consulting firms, advertisements in local and internationalnewspapers, journals, or by circulating copies of notices for consultancy services to embassiesof aid-sponsoring countries in Bangladesh and international Bangladesh embassies,depending on the importance of the work. The detailed evaluation of the technical andfinancial proposals of the firms is made by a standing evaluation committee within the EA,which may consist of three to five members with provision for co-option. If the financial cost ofthe consultancy is within the limit of the financial powers of the EA (Tk10 million), theimplementing agency can take the final decision. If the cost is above the limit, therecommendations of the standing committee are forwarded to their Administrative Ministry (upto Tk25 million) for approval by the minister. Consultancy services costing more than Tk25million are referred to the Council Committee on Government Purchase. The entire process isexpected to be completed within seven months. The actual experience shows that thisschedule is met for small and simple projects. For large and complex projects, such as thosefunded by the Bank, the process takes more than seven months, even up to two years.3. In preparing the profile for Bangladesh, six projects, five OIngoing and onecompleted, were examined. These were Loan No. 908: Rural Infrastructure (Completed); LoanNo. 1074: Second Health and Family Planning Service; Loan No. 1264: Second Water Supplyand Sanitation; Loan No. 1291: Southwest Area Water Resources Development; Loan No.1353: Coastal Greenbelt; and Loan No. 1478: Jamuna Bridge Access Road (Table 1). 1Interestingly, for the projects covered by the review, the provisions of the Sank's ProjectAdministration Instructions (PAl) as it applies to the engagement of consultants werediscussed with the EA staff concerned. They were even provided with the draft letter ofinvitation (LOI), draft evaluation criteria, and longlist of consultants. Yet, unusual delays wereexperienced in various stages of the process. It took the Rural Infrastructure Project 20 monthsto complete the engagement of consultants because of the long time it took the Governmentauthorities to give their approvals. This delay in the engagement of consultants combined with

Loan No. 908-BAN(SF): Rural Infrastructure Development, for $99.8 million, approved on 13 October1988; Loan No.1 074-BAN(SF): Second Health and Family Planning Service, for $51 million, approved on10 January 1991; Loan No. 1264-BAN(SF) Second Water Supply and Sanitation. for $31 million, approvedon 16 November 1993; Loan No. 1291-BAN(SF): Southwest Area Water Resources Development. for$3.15 million, approved on 16 December 1993; Loan No. 1353-BAN(SF): Coastal Greenbelt, for $23.4million, approved on 2 March 1995; Loan No. 1478-BAN(SF): Jamuna Bridge Access Roads, for $72million, approved on 5 November 1996.


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Table 1. Bank Loan Projects Studied, BangladeshActual Dates of Selection Procedures

Loan No.908(SF):Rural InfrastructureDevelopment Project

Loan No.1478(SF):JamunaBridge Access Roads

ProjectLoan No.1074(SF):SecondHealth and Family Planning

Services ProjectLoan No.1264(SF):SecondWater Supply and Sanitation

ProjectLoan No. 1291(SF): Southwest Loan No. 1353(SF):Coastal

AreaWater Resources Greenbelt ProjectDevelopment Project

rovaligningffectivenessmount ($ million)tancy Services ($ m;lIion)ing Agency

13Oc t 198823 Nov 198801 Feb 1989

99.805.82

Local GovernmentEngineering Department

on ProceduresAdvance Action/Retroactive FinancingPro ject Admin is tr at ion Memorandum (PAM)

WONR

Submi ssi on o f TOR . d ra ft LO I, a ndEvaluation CriteriaBan k App ro va l o fTOR, LOISubmiss ion of Short listBank Approva l o f Short li stI ss uance o f LOISubmiss ion of ProposalsEvaluation/RankingBank Approva l o f RankingContract NegotiationContrac t Signing

10Jan 199125 J"1199128 Oc t 1 991

51.004.15

Min is tr y o f Hea lt h andFamily Planning

WNR

January 1992 b

March 199225 J un 199203 May 199324 May 1993

16Nov 199310Dec 199322 Jun 1994

31.002.51

Depar tment of PublicHealth Engineering

1 6Dec 199323 Dec 199322 Mar 1 994

3.150.744

Bangladesh WaterDevelopment Board

02 Mar 1995 05 Nov 199618 Apr 1995 09 Jan 199728 Jul1995 01 Apr 1997

23.40 12.000.47 6.98

Forest Department Roads and HighwaysDepartment

W WW WO

July 1995 Prior to loan approval

January 1997"Augus t 199631Aug 199631 Oct 199624Aug 1997

28 Jan 1997

24 J un 1997

WNR

WONR

; wo:;: without, NR : ;: not r equi red: TOR = t er ms o f reference; lOI ;; leUer of invitation.T he p ro ce ss o f e ng ag in g c on su lt an ts t oo k 2 0 mon th sRefers to the architectural and engineering consu ltancy ser vices.The rec rtMt~nt o f the hospi ta l planning consUltant took eight months, while the engagement o f o f the med ical p rocu rement consu ltan ts took more than three yea rs .In July 1994, the execu t ing agency (EA) p ro po se d t o r es or t t o s al e s ou rc in g o f c on su lt an ts , w hi ch t he Ban k d id n ot a gr ee t o. Sho rt li st in g t oo k 16 mon th s f rom l oa n a pp ro va l t o t he s ubmi ss io n o f t he l is t, ' Nh il e r an ki ng t oo k e ig ht mon th sf rom submiss ion o f p roposa l to Ban i( approval o f r an ki ng . T he Ban k h ad t o r ed uc e the project scope in February 1 99 6 t o mee t t he c ompl et io n

Documents

Issues Pertaining to the Engagement of Consultants in Bank Loan Projects and Their Effect on Project Performance