West Bank and Gaza Country Procurement Assessment Reportsiteresources.worldbank.org/.../Resources/WBG_CPAR.pdf · West Bank and Gaza Country Procurement Assessment Report ... the

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Document of

The World Bank

West Bank and Gaza Country Procurement Assessment Report

December 2004

Operational Core Services Middle East and North Africa Region

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CURRENCY EQUIVALENTS As of December 22, 2004

Currency Unit = ILS 1 = 0.230 US$ US$1 = 4.339 New Israeli Shakel (NIS)

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Review CPPR Country Portfolio Performance Review DFID Department for International Development DOP Declaration of Principles EC European Commission FIDIC Fédération Internationale des Ingénieurs-Conseils GPA Agreement on Government Procurement (WTO) GCI General Control Institute ICB International Competitive Bidding ICR Implementation Completion Report IDA International Development Association IDF Institutional Development Fund IMF International Monetary Fund MONET Ministry of National Economy and Trade MOF Ministry of Finance MOLG Ministry of Local Government MOP Ministry of Planning MOPWH Ministry of Public Works and Housing

NCB National Competitive Bidding NGO Non-Governmental Organization PA Palestinian Authority PECDAR Palestinian Economic Council for Reconstruction and Development PER Public Expenditure Review PLC Palestinian Legislative Council PLO Palestine Liberation Organization PIU Project Implementation Unit PPA Public Procurement Authority PSR Project Status Report PWA Palestinian Water Authority SBD Standard Bidding Documents TFGWB Trust Fund for Gaza and West Bank UNCITRAL United Nations Commission on International Trade Law UNDP United Nations Development Programme UNRWA United Nations for Relief and

Works Agency USAID United States Agency for International Development VAT Value Added Tax WB World Bank WB&G West Bank and Gaza WTO World Trade Organization

Regional Vice-President: Christiaan J. Poortman, MNAVP Country Director: Nigel Roberts, MNC04 Director: Hasan Tuluy, MNACS Regional Procurement Manager: Nadjib Sefta, MNACS Task Team Leader: Majed M. El-Bayya, MNACS

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CONTENTS

ABBREVIATIONS AND ACRONYMS..............................................................................................................II PREFACE...................................................................................................................................................................IV EXECUTIVE SUMMARY ................................................................................................................................... VII

A. BACKGROUND.......................................................................................................................................................1 A.1 COUNTRY ECONOMIC CONTEXT ................................................................................................................ 1 A. 2 THE POLITICAL SYSTEM.............................................................................................................................. 2 A.3 PUBLIC SECTOR PROCUREMENT................................................................................................................. 3 A.4 THE DONOR COMMUNITY........................................................................................................................... 4 A.5 NON-GOVERNMENTAL ORGANIZATIONS.................................................................................................. 5 A.6 IMPORT AND CLOSURE RESTRICTION........................................................................................................ 6

B. FINDINGS ..................................................................................................................................................................7 PUBLIC SECTOR ..................................................................................................................................................... 7 B. 1 LEGAL AND REGULATORY FRAMEWORK.................................................................................................. 7

B. 1. 1 Legal Instruments ....................................................................................................................7 B. 1.2 Arbitration.................................................................................................................................9 B.1.3 Corruption...............................................................................................................................10

B.2 INSTITUTIONAL AND ORGANIZATIONAL ROLES .................................................................. 11 B.2.1 Ministry of Finance..............................................................................................................12 B.2.2 Ministry of Public Works and Housing..............................................................................12 B.2.3 Line Ministries and Departments........................................................................................12 B.2.4 Ministry of Planning..............................................................................................................13 B.2.5 PEDCAR..................................................................................................................................13 B.2.6 Ministry of Local Government.............................................................................................14

B.3 PROCEDURES AND PRACTICES ...................................................................................................... 15 B.3.1 Procurement Procedures......................................................................................................15 B.3.2 Procurement Practices..........................................................................................................22 B.3.3 Professional Capacity for Public Procurement...............................................................27 B.3.4 External/Internal Audit and Oversight...............................................................................28

PRIVATE SECTOR ................................................................................................................................................ 30 B.4 PRIVATE SECTOR CAPACITY..................................................................................................................... 30

B.4.1 Framework for Private-Sector Operations.......................................................................30 B.4.2 Small- and Medium-Size Enterprises.................................................................................30 B.4.3 Banking Sector.......................................................................................................................30 B.4.4 Construction Contractors.....................................................................................................31 B.4.5 Manufacturers and Suppliers...............................................................................................32 B.4.6 Consultants .............................................................................................................................33

C. SUMMARY OF PROCUR EMENT PERFORMANCE IN WB-FINANCED PROJECTS ..............35 D: RECOMMENDATIONS AND ACTION PLANS ........................................................................................36

ANNEX 1: QUESTIONNAIRE ON PUBLIC PROCUREMENT .................................................................40 ANNEX 2: SUPPORTING MATERIALS FOR THE TEAM’S FINDINGS (ON FILE) .......................66 ANNEX 3: LIST OF COUNTERPART TEAM MEMBERS AND OTHER PERSONS MET.............68 ANNEX 4: DETAILED REVIEW OF LEGAL FRAMEW ORK..................................................................73 ANNEX 5: ESTABLISHMENT OF A PUBLIC PROCUREMENT AUTHORITY................................77 ANNEX 6: PROVISIONS FOR NATIONAL COMPETITIVE BIDDING IN WB-FINANCED PROJECTS ...................................................................................................................................................................80 ANNEX 7: PROCUREMENT IN WORLD BANK-FINANCED PROJECTS ..........................................82

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PREFACE

Basis of the Report

This Country Procurement Assessment Report (CPAR) was prepared on the basis of findings from two World Bank (WB) missions that visited the West Bank and Gaza (WB&G) in February and May 2004. The work was carried out by a task team led by Mr. Majed M. El-Bayya (Sr. Procurement Specialist) and composed of Mr. David Hauting, Public Management Procurement Specialist, UK Department for International Development (Consultant); Mr. Christian Walser, International Procurement Lawyer (Consultant); Mr. George Awwad, Procurement Officer (Consultant in the field); and Ms. Hiba Hussieni, Attorney (Consultant in the field).

Although the Bank has been assisting the Palestinian Authority since 1994, this CPAR is the first report for WB&G. The CPAR was conducted under very difficult working conditions. Following an initial scoping mission in July 2003 by Regional Procurement Manager Nadjib Sefta and Majed M. El-Bayya, planned missions to WB&G were twice postponed because of a travel ban to Israel and security conditions in WB&G. These postponements also delayed the finalization of the report for several months. The team was eventually able to conduct the two missions in WB&G but faced difficulties with restrictions in their movements. The CPAR report was finalized in December 2004.

Objectives and Scope

The WB has been assisting the Palestinian Authority (PA) since 1994. In 2002, the PA, with assistance from donors, began preparation and implementation of major reform programs in areas of governance, financial management, and procurement. Notable progress today has been made in the area of financial accountability, including consolidation of all PA revenues into a Single Treasury Account under the clear control of the Minister of Finance, the gradual elimination of cash-based transactions, and the prompt posting of monthly fiscal results on the Ministry of Finance website. Other important reforms involve public administration and civil service—a pilot restructuring exercise covering five ministries has been launched—and political and judicial reform, under which the upcoming elections have been planned and a constitution is being drafted.

Beginning in 2003, the WB undertook a major suite of Economic and Sector Work for WB&G. In lieu of a Country Assistance Strategy, the WB prepared in November 2003 a strategy report in connection with a request for replenishment of the WB&G trust fund.1 The first Country Portfolio Performance Review (CPPR) was carried out during June 2003. This first CPAR for the West Bank and Gaza and the first Country Financial Accountability Assessment (CFAA) were prepared in parallel during 2003/04, with the two teams in constant contact. The CFAA was finalized in April 2004.

1 Trust Fund for Gaza and West Bank: Status, Strategy and Request for Replenishment, World Bank, October 2003.

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The role of the CPAR is to identify strengths and weaknesses in existing public procurement systems. Sound public procurement policies and practices are among the essential elements of good governance.

This first CPAR for WB&G analyzes the current public procurement system, including its policies, organization, procedures, and practices, and is intended to assist the PA to develop its capacity to plan, manage and monitor the procurement process effectively; improve the accountability, integrity, and transparency of the procedures and processes; reduce the scope for corruption; and harmonize the procurement rules and regulations in accordance with internationally accepted principles and practices. The scope of the CPAR encompasses procurement by central and local authorities, with the exception of parastatals. Parastatals are not covered under the existing framework for public procurement, and due to insufficient information, it was not possible to assess their procurement performance. It is recommended that such analysis of parastatals be undertaken soon.

Together with the CFAA, the CPAR process initiates the Public Expenditure Review dialogue between the PA and the WB through its (a) analysis of the existing legal framework, organizational responsibilities, control and oversight capability, regulations and procedures, and how well these work in practice; (b) assessment of the institutional, organizational and other risks associated with the procurement process, including identification of procurement practices unacceptable for use in WB-financed projects, and (c) identification of needed reforms in key areas and, where possible in the foreseeable future, recommendations for addressing these reforms with an action plan agreed with the PA. This action plan would be monitored jointly by the PA and the WB to measure achievements. The CPAR also addresses procurement issues of concern in management of WB-financed projects. It will provide input that will benefit the preparation and supervision of WB-funded projects, particularly when National Competitive Bidding procedures are being used and when procurement is subject to post-review under Credit/Grant Agreements.

CPAR Process

To achieve these objectives, the PA and the WB joined forces in the diagnostic effort. The WB team worked in close collaboration with a PA counterpart team led by Mr. Mazen Jaddallah, Director General of International Relations and Projects Development Department, Ministry of Finance (MOF) and composed of Messrs. Mousa El-Wazeer and Salem Al-Qudwah (MOF); Ali Shaheen and Fayeq El-Deek, Ministry of Public Works and Housing; Sofian Abu Samrah and Hani Kayed, Ministry of Local Government; and Kamal Awad and Harbi Daraghmah, Ministry of Planning.

The counterpart team organized discussion groups within their ministries to prepare responses to the WB questionnaire on procurement practices and procedures, which were then discussed and reviewed with the WB team. A copy of the questionnaire can be found in Annex 1. In addition to the questionnaire process, the CPAR team based their work on a review of all relevant legislation, workshops with key institutions, interviews with

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decision-makers in public and private sectors, review of relevant Bank reports, discussion of Bank staff in the field, and consultation with active donors in WB&G through a donor discussion group. The donors who actively participated in the donor discussion group were UK’s Department of International Development (DFID), the European Commission (EC), France, Denmark, Norway, Italy, and Belgium. Documents reviewed are listed in Annex 2 and a list of persons met during the missions is provided in Annex 3.

The final CPAR report, including the action plan, will be discussed in a general dissemination workshop that would include representatives of the PA, NGOs, private sector, and the donors. Implementation of the main recommendations in the CPAR action plan are being supported by a WB Institutional Development Fund (IDF) grant of $US385,000 that was approved in July 2004, and implementation would start by January 2005.

Acknowledgements

The WB team would like to express its full appreciation and thanks to H.E. Dr. Salam Fayyad, Minister of Finance for his strong leadership and support to the preparation of the CPAR. The WB team also wished to acknowledge the extensive cooperation of Mr. Mazen Jaddallah and his team for their hard work and facilitation of the mission work, various government officials and private sector representatives, and all donor representatives who participated in the discussion workshops or meetings. Counterpart team members are included in list of persons met in Annex 3.

The team would also like to thank Ms. Huda Skaik, Program Assistant, who provided mission support to the CPAR team from the field; Ms. Afifa Alia Achsien, Sr. Program Assistant, who provided research support to the CPAR team and assisted in putting together the report; Ms. Suzanne Snell (WB Consultant), who assisted in the editing of the report; and Mr. Ayed Abu Ramadan, WB procurement consultant, who provided assistance to the TTL in gathering information and fo llow up with the counterpart team.

Mr. Nigel Roberts, West Bank and Gaza WB Country Director, provided solid guidance throughout the process of this assessment. The Regional Procurement Manager, Mr. Nadjib Sefta, provided useful advices during the CPAR preparation process. The team is very grateful to the peer reviewers for their valuable comments. The peer reviewers were Messrs. George Jadoun, Head, Regional Programmes and Management of Development Group, International Training Centre of the ILO, Italy; David Shand, Financial Management Advisor, WB; Shaun Moss, Regional Procurement Manager (EAPCO); and Fred Kranz, Procurement Specialist/WB Consultant (MNACS).

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EXECUTIVE SUMMARY

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The public procurement system in the WB&G faces many problems, but currently manages to function in a reasonably organized and acceptable manner, mainly because much of government procurement for capital investment is financed by donors. Donors are insisting on using sound procurement procedures in line with their own procurement guidelines, and much of the government procurement activity makes use of donor standard document formats and procedures. While in general, the existing public procurement system in WB&G could be rated as reasonably fair, there are a number of flaws in the legal framework which would certainly become problematic for a normal government in non-crisis mode. The estimated annual value of public procurement funded through the Palestinian Authority annual budget for WB&G is US$70 million for goods, US$242 million for works and US$8 million for consultant services.

International donors provide substantial support to the Palestinian Authority, including the funding of almost all capital expenditures. An estimated 50 percent of goods procurement is donor financed and 85 percent of works and almost all consultant services are donor financed. Donor assistance has increased substantially since the outbreak of the intifada in 2000, and many of the major donors have also moved to provide direct budgetary support to the PA, as well as continuing regular project-based support. The Central Treasury Account, also referred to as the Single Treasury Account, has sub-accounts through which donors can fund their projects.

Direct budgetary support by donors during the period January to June 2003 totaled US$114.4 million, according to the Ministry of Finance. Given this trend to budget support, donors have a key interest in the quality of the public procurement system through which much of these funds are utilized.

The MOF should be commended for its efforts to collect information from all ministries and public authorities on public procurement in projects financed by the government and by some donors, and has generated so far three procurement reports. However, provision of comprehensive information on all donor-financed procurement for projects and programs still needs improvement. The MOF has also taken over the responsibility of procurement of food for the Palestinian general security apparatus from Al Sakhra company.

Key Findings of Strengths and Weaknesses

Legal and Institutional Framework

Public procurement in WB&G is currently subject to two principal laws (Law No. 9 of 1998 on General Supplies, and Law No. 6 of 1999 on Procurement of Public Works). However, there are also laws still in force left over from the former British and Egyptian Mandates in respect of Local Government within Gaza which have not been consolidated

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or updated. Public procurement is not supervised by one central authority; instead, procurement under each of the two principal laws is supervised by a different ministry.

Formal regulations exist for the procurement of General Supplies (Decree No. 1 of 1999) and Procurement and Execution of Public Works in Local Government (Decree No. 1 of 1998). However, considerable gaps and fragmentation are apparent in the existing legal framework, including the absence of any rules (in a law or in regulations) governing the procurement of consulting services as well as procurement carried out by publicly owned enterprises, and the absence of regulations supporting the Law on Procurement of Public Works..

When the WB approved financing for the first investment project in 1994, no existing structure agency in WB&G could implement projects in a number of sectors and throughout the territories. The establishment of the Palestinian Economic Council for Development and Reconstruction (PECDAR) was critical to project implementation. From the beginning, it was envisaged as transitional, until the PA could establish technical ministries capable of taking over. Ten years later, PECDAR is still implementing donor-funded investment projects because the PA did not take a decision on the role of PECDAR and some donors would find PECDAR more reliable than some PA institutions to implement projects due to its accumulated experience in project implementation and reporting. Meanwhile, line ministries have increased their own capacity and this would lead naturally to revisiting the role initially given to PECDAR. Currently, PECDAR does not report to any administrative authority, apart from the donors, on procurement activities, nor is it audited by the MOF or the General Control Institute. It reports only to the President of the Palestinian Authority and provides audit reports only to concerned donors on their financed projects.

Procedures and Practices

Procurement laws and regulations are fragmented and sometimes incomprehensive but are generally in line with accepted procurement practices. However, the implementation of these laws and regulations is inconsistent, as a result of varying interpretations and inefficient implementation processes. In the absence of common regulations, guidelines and standards and in the absence of a central Public Procurement Authority, which would regulate and supervise public procurement by all public entities, those implementing the procurement process will inevitably lapse into individual styles and preferences.

No national Standard Bidding Documents (SBDs) are established, with the result that a mixture of donor-based SBDs are currently used as the basis for government procurement, adding an extra administrative burden on implementing agencies.

Oversight of procurement processes is currently exercised by internal and external audit functions. In general, these examinations concentrate on the financial aspects of procurement, and to a much lesser extent on the compliance with laws, regulations and standards.

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Government-funded procurement is a mixture of centralized and decentralized activities. According to the two principle laws (works law and supply law), the procurement of works above the value of US$150,000 should be centralized at the Ministry of Public Works and Housing (MOPWH), however, this is not the case in practice. For example, the Ministry of Education and Higher Education, PWA and many other ministries are implementing their own works projects directly. Also, the procurement of supplies above the value of US$15,000 is supposed to be centralized within the MOF, and below these limits, procurement may be delegated according to the authority thresholds as specified in the procurement laws. These provisions are not followed in practice either, nor are the thresholds respected, especially if projects are donor financed.

The Annual Report of the General Control Institute (GCI) is currently submitted only to the President. Although the CGI reports that no cases of misprocurement were found during the 2003 audit process, consideration should be given to wider circulation or publication of the Annual Report to reassure the public and donors of transparency.

There is no routine reporting of procurement activities to a central authority and no external body with specific responsibility to investigate complaints by bidders on the procurement process.

Petty corruption, for example, the need to make payments to secure government services, or bribery of lower- level officials, is reported to be virtually non-existent in WB&G. No evidence of such petty corruption in the procurement process was indicated or reported during the CPAR missions.

Outside of the Ministries of Finance, Public Works, Health and Education, and PECDAR, the general procurement capacity of staff for government-funded procurement is reported to be very limited. There is a growing need to improve the quality and training of staff and to raise the general status and professionalism of purchase officers within the civil service.

Many routine problems such as having more than one place for bid submission and bid opening, extension of bid submission date, delays in contracts completion and high prices of construction materials arise in the procurement processes and contract management activities as a result of restrictions on movement imposed by the Israeli authorities at military checkpoints, and through the restrictions on travel and transportation of materials between the West Bank and Gaza as well as on trade restriction between the West Bank and Gaza and other countries.

Private Sector

The private sector has suffered a severe decline since the start of the second intifada in September 2000. The private sector has absorbed much of the shock to the economy, and its share of GDP declined from 88 percent to 69 percent during the period from September 2000 to February 2003.

The impact of closures and other restrictions imposed by the Israeli Authorities remain the biggest factors in the decline of the private sector within WB&G. In particular, the

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restricted access to external markets means that the Palestinian economy is increasingly reliant on the small interna l market. Closures and the off- loading and re-loading of goods at crossing points create both delays and inevitably increase the cost of Palestinian goods even within the internal market between the West Bank and Gaza. Palestinian contractors and consultants are not actively participating in the procurement process for projects and services outside the areas where they are located, due to the extreme difficulty of movement due to restrictions and closures. Security issues also increase the cost of doing business by international contractors and consultants in WB&G, which makes them shy away from participating in public procurement.

The internal market is supported to a considerable extent by the donor community through both direct budgetary support to the Palestinian Authority, and specific projects and programs. This support not only benefits private firms directly but also helps to maintain the wider private sector through employment and income to wage earners in both the public and private sectors.

The lack of availability of funds for capital investment has only a limited impact on the private sector during the current crisis, as most firms are operating at levels well below their potential capacity. Little use is made of formal credit markets and most firms rely on internally generated funds and funds provided by friends and family to finance capital investments. Shortage of operating capital is a more serious constraint for the private sector, and the high cost and low availability of commercial credit, and payment delays by the Palestinian Authority are issues which need to be addressed.

Confidence in the future is essential for investment in any new business venture, and a vibrant private sector will not return until political uncertainties are resolved and a wider external market can be reached.

Reclaiming Value Added Tax (VAT) reimbursement by contractors, suppliers, consultants and NGOs on donor-funded procurements remains a problem despite the zero-rating of these supplies. Discussions with suppliers indicate that their VAT-exclusive prices are often raised in order to reflect the risk of not being able to obtain a refund for input VAT already paid.

Summary of Key Recommendations

• A single unified Public Procurement Law and Regulations should be developed, governing all types of public procurement by public entities at all levels of government, including rules about ethical behavior and avoidance of conflicts of interest by procurement officials, together with the issuance of Guidelines to develop the practical procedures arising from the Law and Regulations.

• A set of standard bidding document for National Competitive Bidding (NCB) should be developed, and Standard Forms and document formats should be introduced for use in procurement throughout the Palestinian Authority.

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• Establishment of a small independent Public Procurement Authority (PPA) to oversee all public procurement activities is strongly recommended to monitor and ensure compliance with public procurement law and regulations. The language for the establishment of the PPA would be included in the unified Public Procurement Law. The PPA would report to the highest possible level in the government structure, such as the Cabinet; in no case should they report to a ministry. The CPAR strongly recommends that the PPA be established as soon as the unified procurement law is approved. The Authority would also be responsible for development of procurement systems, procurement documentation, guidelines and manuals, training courses and public awareness campaigns. Similar central agencies now exist or are being established in many developing countries to ensure the development of good procurement practices and to ensure transparency in public procurement activities.

• Monitoring of the procurement process should be undertaken as a routine procedure by the new Public Procurement Authority through reporting by tender committees of all procurement actions. Both procurement processes and contracts management activities should be subject to specialist audit programs initiated by the PPA.

• Maintenance of a comprehensive record of each procurement process including copies of all related documents should be required from all procuring entities and implementing agencies. In the interests of transparency and accountability, the Annual Report of the General Control Institute should be formally published each year.

• A public procurement bulletin should be routinely published to disseminate information on public procurement, provide advance information on upcoming procurement, advertise all specific procurement opportunities above an appropriate threshold, and the results of bidding processes. Sanctions against bidders and officials who have been determined to have engaged in fraud and corrupt practices should also be included.

• The donor discussion group that was formed during the CPAR process for the discussion of the CPAR findings, recommendations, and action plan, should be continued in order to help in following up on the implementation of the action plan and in discussing harmonization of donor procurement procedures and standard documentation.

• With so many donors involved in supporting the Palestinian Authority, there is a need for much greater consultation among donors on the harmonization of procurement documentation and procedures. Harmonization of donor procurement procedures is an important and necessary step that the donors need to take towards improving the public procurement system in the WB&G.

• The status and operations of PECDAR in relation to the line ministries and the Ministry of Planning and the MOPWH should be clarified. PECDAR is a

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competent and reliable agency, and its accumulated experience should be transferred to other ministries and local authorities.

• A practical method of VAT treatment for donor-funded procurements needs to be developed to ensure that contractors can easily reclaim input VAT and do not inflate their bid prices.

Short-Term Priorities

• The need for information on procurement activity is a priority which should be addressed without delay. Pending the establishment of the PPA, the Ministry of Finance should introduce a requirement for maintenance of detailed procurement records by all procuring entities and submission of a monthly report of procurement procedures commenced, contracts awarded and contracts completed. The MOF has already initiated this process and has generated so far three procurement reports, and this good work needs to be followed through and improved. A Management Information System for the WB&G on procurement activities should be developed and it should be coordinated with the budget cycle.

• Improvement of the MOF Supplies Catalogue (the only catalogue of its kind in the Middle East) bidding documents, in line with recommendations discussed with the CPAR team, would allow use of the Catalogue for WB-financed projects and programs. The use of the Supply Catalogue for the purchase of general supplies under other donor-financed projects is also strongly recommended.

• With the impact of closures and other measures during the current emergency situation in the WB&G, discussions should be held with the donor discussion group to agree on simplification of their procurement regulations and procedures in order to reduce processing time and resulting delays caused by the use of multiple forms and procedures.

West Bank and Gaza CPAR Background

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A. BACKGROUND

A.1 COUNTRY ECONOMIC CONTEXT

1. The West Bank and Gaza (WB&G) are two separate areas that cover a total area of 6,020 sq. km at the east end of the Mediterranean Sea. The West Bank (5,655 sq. km) is located between Jordan and Israel with the Dead Sea on its eastern flank. Gaza is a 365 sq. km strip of coastline lying between Egypt and Israel. The southern part of the West Bank is about 35 km east of northeastern tip of Gaza. The total population of WB&G was estimated at 3.83 million in July 2004, growing at an annual rate of about 3.45 percent 2.

2. With the launching of the Israeli-Palestinian Peace Process in September 1993, the hope of resolving one of the past century’s most intractable conflicts was set in motion. An ambitious reconstruction effort for WB&G was initiated with broad donor economic support to underpin the political process and jump-start the Palestinian economy. Because of its still unresolved political status, however, the Palestinian governance framework remains undetermined, allowing for very limited Palestinian control of land, and no control over water, transport of goods and people, or access to external markets. Since the 1994 Oslo agreements, the Palestinian Authority (PA) has begun to acquire jurisdiction—to varying degrees, and only in the small areas under its control—for law enforcement and legislative power. It has not, on the other hand, acquired the full attributes of a state and is limited in its ability to authoritatively allocate or mobilize resources.

3. The outbreak of the second Palestinian intifada in September 2000 and the subsequent imposition of closures and curfews by the Government of Israel (GOI) have led to the reversal of many of the development gains that had been achieved in WB&G over recent years. The Palestinian economic recovery that began in 1998 came to an abrupt halt with the outbreak of violence, as political instability and security concerns have driven investors away, while closures and curfews have separated workers from their jobs, students from their schools, farmers from their fields; imposed significant transaction costs on Palestinian businesses that have eroded their competitiveness, and led to unemployment and a downward spiral of demand.

4. As a result, Palestinian incomes have witnessed a sharp decline, especially during the 2001-02 recession, one of the deepest in modern history. Average personal incomes have declined by more than a third since September 2000, and nearly half of Palestinians now live below the poverty line. The decline in real per capita GDP reached almost 40 percent by the end of 2002, exceeding the scale of economic losses suffered by the US in the Great Depression, or Argentina during the recent financial collapse.3 Unemployment increased from 10 percent of the overall WB&G workforce to an average of 41 percent during 2002, and the number of the poor rose from 20 percent to over 63 percent of the population during July-September 2004. In Gaza, unemployment exceeded 46 percent of

2 Palestinian Central Bureau of Statistics, www.pcbs.org/populati/est_n1.aspx, December 28, 2004. 3 Disengagement, the Palestinian Economy and the Settlements, June 23, 2004


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the workforce, and the poverty level rose to 82 percent.4 Private investment and trade fell dramatically through 2001 and 2002.

5. Since September 2000, PA fiscal accounts have deteriorated markedly, causing a severe fiscal crisis. The crisis directly impacts procurement because potential suppliers have hesitated to bid on contracts financed directly from the PA budget due to the long delays in receiving payment. PA tax revenues are directly linked to the level of economic activity, with more than 80 percent derived from taxes on consumption (VAT, import duties, and excise tax). Almost two-thirds of these taxes are collected by GOI on the PA’s behalf—and were withheld by GOI during 2001 and 2002. The PA’s fiscal situation eased slightly following GOI’s decision in December 2002 to resume transfers of tax revenue, and suppliers received their overdue payments, but the liquidity problem resurfaced in 2003 because of low tax revenues and declining emergency budget support. Donor budget support averaged US$46 million per month between November 2000 and June 2002; in 2003, such budget support averaged less than half of this, and domestic tax revenues remain severely depressed. The unfunded PA budget gap at the end of year 2003 was about US$300 million. 5

A. 2 THE POLITICAL SYSTEM

6. In 1993, GOI and the Palestinian Liberation Organization entered into the Declaration of Principals (DOP) on Interim Self-Government Arrangement. The DOP provided the Palestinians with the parameters for the transitional and permanent status. The DOP left aside six issues—borders, refugees, Jerusalem, external relations, settlements, and security—to be finalized at some future date. The DOP was immediately followed by the Interim Agreement signed in 1995. It provided the Palestinian Authority (PA), created by operation of this Agreement, with a transitional five-year period of self-government in parts of WB&G.

7. The Palestinian Authority consists of executive, legislative, and judicial. branches. An elected president heads the executive and serves a term consistent with the duration of interim status. The legislature is the Palestinian Legislative Council (PLC), consisting of 88 elected members whose term is the duration of the interim period. The PLC is vested with the power to enact legislation, review and approve the national budget, and monitor activities of the executive branch. The judicial authority is an independent branch of government that establishes courts of various jurisdictions, including a constitutional court, appoints judges and the General Prosecutor.

8. Responsibility in civil matters such as education, health, local government, tourism, finance, and labor were vested with the PA. Security in a large portion of WB&G territories remained in the hands of the GOI, including border and air security, external trade with other countries, cross-border movement of people and goods, internal

4 Palestinian Central Bureau of Statistics, 2004 Impact of Israeli Measures on the Economic Conditions of Palestinian Households, 11th Round, (July-September 2004), Ramallah, Palestine. 5 October 2003 strategy document for the WB&G Trust Fund (Trust Fund for Gaza and West Bank: Status, Strategy and Request for Replenishment, October 2003).


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movement within the West Bank and within Gaza, movement between the West Bank and Gaza. Trade relations between the PLO and GOI were articulated in the Paris Protocol signed in 1994, which created a customs union on trade matters between the GOI and WB&G.

9. The PLC and the President of the PA were elected in 1996 but no subsequent elections have been held, due to the political instability that characterized the relations between GOI and WB&G. In 2000, the PA enacted the Basic Law, which. enumerates the powers vested with the President, including issuing laws, presiding over the opening session of the PLC, and issuing decrees in emergency situations. In 2003, the Basic Law was amended to provide for a Prime Minister to be appointed by the President. The Prime Minister selects, appoints, and presides over the Cabinet. The Cabinet is vested with the power to set public policies, implement approved policies, prepare the national budget for submission to the PLC, monitor the implementation of laws, create and abolish government agencies, and set the mandates of the ministries. The Basic Law also created an independent Higher Judicial Council concerned with the appointment and discipline of judges.

10. Between 1994, when the PA was established, and the end of 2002, the government changed several times. Since the creation of the premiership in 2003, two prime ministers have occupied the post. While the PA was preparing for presidential, parliamentary (PLC), and municipal elections, president Araft died and presidential election to select a successor is planned in January 9, 2005. The current head of the PLC is the interim president of the PA for 60 days after the death of president Araft.

A.3 PUBLIC SECTOR PROCUREMENT

11. The PA spends about 10 percent of GDP on public works, goods and services. This estimated percentage could be translated into an annual procurement volume of US$320 million including donor-financed procurement. The approximate annual value of public procurement of goods is US$70 million, and US$250 million for works and consultant services (consultant services constitute only 3 percent of this figure). The PA procures about 50 percent of goods under donor-financed projects, and the other 50 percent from its own budget. Some 85 percent of works and consulting services is donor financed. About 95 percent of public procurement follows competitive bidding procedures, including shopping and NCB. In a few cases direct contracting is used. The MOF relies on its own supplies catalogue in purchasing general supplies for the MOF and other ministries. It is estimated that about US$2 million of goods was procured using the MOF supplies catalogue during the first half of 2004. This number is very low and it seems that the MOF supplies catalogue is not used effectively by all ministries. Most funding received by ministries is from donors and donors in many cases request using shopping procedures instead of relying on the supplies catalogue. Another main reason of not using the supply catalogue by ministries effectively is that the relative high prices of certain materials listed in the catalogue and the limited number of suppliers who submitted quotations due to delay in payment to suppliers by the MOF. Suppliers would quote better prices if they know donors are financing and the payment is not from the MOF budget.


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A.4 THE DONOR COMMUNITY

12. International donors have made an extraordinary financial effort in WB&G, signifying both the importance to the world community of resolving the Israeli-Palestinian conflict, and a belief that peace-building requires a viable economic future for the Palestinian people.6 Donor contributions led to the creation of a functioning PA and contributed to economic growth. Since the outbreak of the intifada, far from being deterred, donor tenacity has increased: disbursements have effectively doubled, and priorities have shifted from development and state-building to preserving the gains of the 1990s. In the four years of intifada, donors have disbursed nearly US$3 billion, equivalent to almost US$300 per capita per year. This level of donor assistance is thought to be the highest sustained rate of per capita disbursement to any aid recipient anywhere since World War II. However, donors’ direct budget support to the PA declined dramatically in 2003.

13. According to data from the Ministry of Planning, 33 bilateral donors provided support to WB&G in 2003, along with many UN agencies. The three largest donors were USAID, the EC, and Saudi Arabia, who together accounted for over half of donor disbursements in 2003 (US$488 million out of US$883 million). Most donors have a local presence in the West Bank and Gaza, with the exception of the Arab states. A significant share of donor support during the intifada has been in the form of budget support (US$229 million in 2003). Emergency and humanitarian assistance accounted for US$264 million in 2003, and an equivalent amount was disbursed for conventional development expenditures.

14. The WB has played a leadership role in shaping donor efforts in WB&G, issuing a document at the signing of the DOP that provided the blueprint for initial donor engagement. During the late 1990s, the WB was at the forefront of efforts to reform the PA and in 2002 led the initial donor response to the PA’s current reform program. It has also played an important role as financial contributor and manager of other donors’ funds, disbursing about US$720 million from 1994 to October 2003 through the WB Trust Fund for WB&G (US$312 million) and other sources, or some 12 percent of total donor outlays. The Trust Fund was created in 1993 to overcome legal and practical obstacles in channeling financing to WB&G, which is not a sovereign state and as such is not eligible for membership in the International Monetary Fund or WB, nor for financing normally available to member countries.

15. The PA (including municipalities) is the main conduit for support from donors, with the notable exception of USAID, which channels funds through NGOs or direct local contracts. Donors such as the World Bank, EC, Islamic Bank, USAID, and others often request their Palestinian counterparts to apply donor procurement rules and use donors’ bidding documents, which are different from one donor to another. While some donors have accepted WB Procurement Guidelines and Standard Bidding Documents, others have their own rules and documents.

6 October 2003 strategy document for the WB&G Trust Fund (Trust Fund for Gaza and West Bank: Status, Strategy and Request for Replenishment, October 2003).


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16. The varying donor documentation needs have imposed a great burden on the Palestinian counterparts. Long bidding documents in English language are often required even for small contracts tendered locally, and these documents are not always readable or well understood by local firms, resulting in bids being submitted with important documents missing, such as bid forms and manufacturer’s authorization to bid. In addition, donors often also request PA authorities to use the donors’ own reporting and auditing formats and procedures, which requires the PA counterpart to produce several separate reports rather than a single comprehensive report on the use of donor funds.

17. During the February 2004 CPAR mission, both the PA counterpart team and private sector suppliers and contractors flagged as a priority, the need for simplification of donor procurement guidelines and regulations. In particular, simplification was desirable in the contents of bidding documents and in the time allowed to submit bids, especially for small contracts.

A.5 NON-GOVERNMENTAL ORGANIZATIONS

18. According to the latest mapping available (2000), there are cur rently 926 active Palestinian NGOs working in the West Bank and Gaza. In 1999, a Ministry of NGO Affairs was established and the NGO law enacted. Since then, NGOs have had to register at the Ministry of Interior and the Ministry of NGO Affairs (as part of a governmental restructuring process, in 2003 the Ministry of NGO Affairs was made a Commission). The largest number of NGOs is concentrated in urban areas, and an estimated 75 percent of those are working in the West Bank. According to the 2000 survey, the largest group of NGOs provide youth and sports services (youth clubs), followed by those providing childhood services, welfare and cultural/scientific services. Other services widely covered by NGOs include rehabilitation of handicapped, health services, rural development, educational services, and human rights. The NGO sector is largely dependent on donor financing and very few NGOs rely on service fees to cover the cost of their programs. Roughly 32 percent of donor financing to NGOs goes to the health sector, 17 percent to childhood development, 13 percent to welfare and charity programs, and 6 percent to educational services.

19. The WB has been providing NGOs with grants aimed at building NGO capacity to provide and sustain essential social services to marginalized Palestinian communities since 1997 through its Palestinian NGO Project (Phases I and II). Both projects have been implemented through a consortium of NGOs (Welfare Association Consortium). Over the seven years it has been involved in implementing these projects, the consortium has acquired considerable experience in WB procurement procedures and it was able to transfer this experience to its beneficiary NGOs. However, procurement capacity still varies considerably (from weak to fair) between NGOs depending on their size, level of institutional development and experience. Capacity building in procurement is still much needed for all NGOs. Other donors providing support to NGOs include USAID, Canadian International Development Agency, and a number of European donors.


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A.6 IMPORT AND CLOSURE RESTRICTION

20. Due to the current crisis in the WB&G, the Israeli Authorities impose closures on the movement of Palestinians and commodities from the West Bank to Israel and from Gaza to Israel, as well as from one city/village to another within the West Bank and Gaza. At the Karni border crossing between Gaza and Israel, for example, trucks have waited for several days for their turn to cross the security area. These closures, and the unloading and reloading of goods at Israeli checkpoints for security checks, are viewed as essential by the Government of Israel to protect its citizens from violence. For days or weeks at a time, Gaza is split into three or four separate areas and the West Bank is split into several isolated areas.

21. Also during closure, no commodities may enter the West Bank and Gaza from any neighboring country. This type of closure has created major delays in the procurement process and in project completion. In many cases, implementing agencies extended the submission date and changed the submission address because bidders could not reach the specified address by the specified date and time. The MOH, for example would list in the bidding documents two addresses for receiving and opening bids, in order to mitigate the extreme difficulty of moving between the West Bank and Gaza.

22. International bidders are shying away from bidding on projects in the West Bank and Gaza due to security issues that increase costs and risks. Prices for timely delivery of materials like cement, base course and aggregates can triple at a time of closure, especially if closure lasts for longer periods. Increased costs of materials have forced contractors to suspend work on their projects and fail to meet the completion date.

23. Closures, movement restrictions, and periodic violence have impeded the implementation of donor-financed operation in WB&G during the intifada, and have substantially increased project-specific risks. Project implementation has been affected by price rises, shortages of goods and materials, and increased commercial risk (discouraging private investment and cross-border partnership). For example, during closures, prices of aggregates and base course material could reach 120 NIS per ton against a 40-45 NIS per ton before closure; cement would increase to about 600 NIS per ton compared to about 380 NIS before closures; asphalt materials and certain diameter sizes and lengths of pipes may not be found at any price in Gaza. Soaring insurance premiums, insecure working conditions, restriction on movement of people, and visa restrictions have made it increasingly difficult to attract international consultants to WB&G, limiting implementation of more complex project activities.

West Bank and Gaza CPAR Findings: Public Sector

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B. FINDINGS

PUBLIC SECTOR

B. 1 LEGAL AND REGULATORY FRAMEWORK

B. 1. 1 Legal Instruments

24. The legal framework for public procurement in WB&G consists of two principal laws—the general supplies law (Law No. 9 of 1998) and the public works law (Law No. 6 of 1999)—plus an arbitration law (Law No. 3 of 2000) and three sets of regulations: those concerning the procurement of general supplies (No. 1 of 1999); those concerning procurement and execution of public works in local government (No. 1 of 1998), and financial regulations issued under laws from the mid-1960s on contracting, tendering and purchasing by municipal and rural councils in Gaza. Civil Service Law No. 4 of 1998 prohibits civil servants from using their official position for personal gain, and draft legislation on illegal profit deals with illegal gain by civil servants, their spouses, and entities belonging to civil servants.

25. Annex 4, a review of public procurement framework, explains in greater detail some of the major ways in which the existing legal framework differs from internationally accepted best practice, and how this framework could be improved, particularly through the introduction of a unified public procurement law covering the procurement of goods, works and consulting services, preferably based on the United Nations Commission on International Trade Law (UNCITRAL) model law for the procurement of goods, construction and services of 1995. The mission identified six major issues in the public procurement framework: (i) instead of having a unified procurement law for all types of public procurement, and all kinds of public entities, there are separate laws for goods and works procurement, and separate laws for central government entities and municipalities; (ii) instead of having one central public procurement agency supervising all procurement at all levels, there are separate supervisory entities for goods procurement, for works procurement, and for procurement by municipalities; (iii) procurement by publicly owned enterprises is not regulated at all, nor is the procurement of consulting services; there are no supplemental regulations for the public works law; (v) neither the general supplies law nor the public works law includes any review procedures allowing an aggrieved bidder to complain about alleged violations of these laws by procuring entities; and (vi) the public works law allows the tender committee to negotiate with the lowest bidder to make him drop reservations or reduce his bid price to the level of the market price.

26. Nevertheless, the legal framework, in particular the supplies law and the works law, may be seen as a commendable effort to deal with some of the major issues of public procurement in the WB&G.


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27. As part of Phase III of an Economic Policy Program (EEP), the London School of Economics has recently carried out a review of the Palestinian public procurement laws under an initiative launched in 1996 as part of the European Commission's program of assistance to the Palestinian Population of the West Bank and Gaza Strip.7 A draft Report prepared as a result of this review concludes that the two main laws "are likely to [be] seen as technically incompatible with the World Trade Organization’s (WTO) Government Procurement Agreement (GPA), since inter alia preferences are conferred on local suppliers and key procedural safeguards found in Articles IX and XI of the GPA are missing.”

28. Problem to be Resolved:

With no unified procurement law, and no central policy and supervisory agency, it is difficult if not impossible to ensure overall procurement performance, and to avoid the risk of misuse of public funds.

29. Recommended Action:

The CPAR strongly recommends that a uniform and comprehensive law on public procurement be enacted that will supersede all existing laws, decrees and regulations, and contain in one place, in clear and unequivocal language, the essential policies and procedures governing all public procurement of goods, works and consulting services at all levels of government, including parastatals. Together with the substantial experience gained in WB&G in preparing the existing procurement regulations, the UNCITRAL model law could provide the basis for preparing a sound public procurement law that would serve the needs of the public authorities, the donors, the contractors, suppliers and consultants, and the final users of public services and facilities. The law should also provide bidders with the legal means to raise complaints if they feel that procurement officials are not applying the procurement law properly, including eventual recourse to courts.

The drafting of such a unified public procurement law for goods, works and services, based on the UNCITRAL model law, will be supported under the IDF grant approved in July 2004. An international legal consultant, supported by a local legal consultant, would draft the law in close cooperation with a professional committee formed by the PA. The draft law would also include clauses on the establishment of the PPA. The draft law would then be discussed in a workshop before it is finalized and submitted to the Palestinian Legislative Council for

7 The first two phases of the EPP were funded by the European Commission and the UK's Department of International Development. During the preparation of the first two Phases, the Palestinian Ministry of National Economy and Trade (MONET) " focused on the development of trade relations with Israel, technical preparation for the conclusion of trade agreements with third parties and for a Palestinian application for WTO observership”. Phase III, funded by DFID, was meant to continue the work of Phase II, i.e. assist the MONET's "activities in relation to forging an independent trade regime - elaborating domestic laws and regulations, consolidating the building blocks for future trade relations with Israel and third parties, and advancing progress on WTO issues."


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review and approval. Once the draft law is approved in the third reading, it would need approval and signature of the President of the PA.

B. 1.2 Arbitration

30. If a commercial contract includes no disputes settlement clause, then any dispute between the parties will have to be submitted to whatever court has jurisdiction over that dispute. However, parties often prefer submitting their disputes not to a regular court but rather to one or more arbitrators, because while they cannot select judges, they are free to select the arbitrators, the proceedings may be faster and cheaper, and the proceedings may be kept confidential (court proceedings are normally public).

31. Parties wishing to submit disputes to arbitration under their contract will normally include an arbitration clause in their contract in which they agree that disputes shall be settled by arbitration. They will also agree on a number of related issues, such as how arbitrators will be appointed and who will appoint them if the parties cannot agree, the place and language of arbitration, and most importantly, they will specify what rules shall govern the arbitration proceedings. Since parties of contracts the WB finances are most often of different nationality, it strongly recommends that for contracts between parties of different nationalities, the parties agree on international arbitration under rules of one of the many institutions (e.g. UNCITRAL, the International Chamber of Commerce, the Stockholm Chamber of Commerce) which provide rules for that purpose.

32. Where parties to a contract are of the same nationality, there is no need to choose international arbitration. Instead, the parties will provide for arbitration under whatever local arbitration rules that are available to them. Thus, many countries have introduced an arbitration law, which makes it possible for domestic parties to agree to submit their disputes to arbitration under the rules of the domestic arbitration law. WB&G recently passed such a law, Arbitration Law no. 3, 2000, and parties to a contract can therefore agree in their contract that disputes will be settled by arbitration under the rules provided in that law. The Ministry of Justice is establishing a roster of qualified arbitrators and has liaised with regional arbitration centers to prepare rules and procedures.

33. Furthermore, parties often agree to what is called “administered arbitration.” What this means is that they agree that arbitration shall be carried out under the rules of a specific, specialized institution that will assist the parties and the arbitrators with very helpful administrative services. They may, for example, help the parties find suitable arbitrators, serve as appointing authority if parties cannot agree on the appointment of arbitrators, and provide support services for the actual conduct of the arbitral proceedings.

34. Until very recently, no such arbitration center existed in WB&G. 8 In 2002, the Tahkeem Center for the Settlement of Commercial Disputes was established in WB&G,

8 In fact, two arbitration centers established under a WB-financed legal development project in WB&G were terminated by the project administration at the beginning of 2000 because the work done by them “fell


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with offices in both Ramallah and Gaza. The center has issued its own rules of arbitral procedures (not reviewed by the CPAR mission) and states that it is modeled on similar centers in Lebanon and Egypt, that it has been approved for membership by the Arab Federation for International Commercial Arbitration (AFICA), and that it plans to sign a cooperation agreement with the Cairo Center For International Commercial Arbitration, a very reputable institution that is well known to the WB. For parties wishing to avail themselves of the service of the Tahkeem center, the center recommends the introduction into commercial contracts of the following clause:

“All disputes and claims arising out of or in connection with this contract, or the breach thereof, its nullity or its termination shall be finally settled under the rules of arbitration of the Tahkeem Center for Settlement of Commercial Disputes, in Ramallah/Gaza in accordance with the said rules. The contracting parties declare accepting the provisions of the said rules and undertake to abide by them.”

35. Local lawyers often include arbitration clauses in contracts they draft for their clients and then refer to arbitration under the local Arbitration Law. It is felt by some that the Tahkeem Center has not yet earned the objective reputation required because it is associated with a local management consulting firm. If parties do not refer to the Tahkeem Center, they will not at this time be able to provide for arbitration administered by a local center; they could, however, choose to provide for arbitration by regional arbitration centers, like the one in Cairo.

36. Where the WB’s Standard Bidding Documents for Works are used, disputes between the contractor and the owner must be submitted to a Disputes Review Board or an Adjudicator before either party, if it disagrees with the recommendation of the Board or of the Adjudicator, can submit the matter to arbitration. In this context, the engineering syndicate in Gaza or the West Bank is often selected as adjudicator and an appointing authority.

B.1.3 Corruption

37. A May 2001 report on governance and business environment in WB&G9 reported, based on a survey conducted in mid 2000, that most survey respondents thought that corruption was a moderate to major constraint on business. This may have reflected anecdotal evidence of potential corruption at high levels arising from the previous diversion of significant amounts of PA revenue, and the non-transparent operations of the Palestine Commercial Services Corporation (PCSC) and the petroleum and cement monopolies.

38. Today, however, under the leadership of the Ministry of Finance, these operations have been consolidated into the operations of the Palestine Investment Fund, chaired by

short of the expectations.” See Implementation Completion Report [TF-26063 TF-23757], June 9, 2004, p. 19. 9 Governance and Business Environment in West Bank and Gaza, WB, May 2001.


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the Minister of Finance and managed by an independent board, with regularly published audited financial and management reports. Petty corruption ( payments made to secure government services or bribery of lower level officials) is now reported to be virtually non-existent in WB&G. No evidence of such petty corruption in the public procurement process was indicated or reported during the CPAR missions. This view was also supported by the report on Governance and Business Environment in WB&G. However, in 2004 the press continues to report a widespread public perception that some senior officers within the PA may be corrupt.

39. The CPAR reviewed the Palestinian laws and regulations that deal with corruption in public service in general and procurement in particular (see Annex 4). There are no courts or administrative decis ions dealing with the subject of corruption. The only direct reference contained in the legal framework for procurement occurs in MOLG regulations on works procurement by local governments, which expressly prohibits local government employees or their rela tives from taking several kinds of actions leading to personal gain. In contrast, both the Works Law and Supplies Law are silent on such matters, but Art. 51 of the Supplies Law states that violations of the law are subject to sanctions provided in prevailing laws, and this would appear to imply that civil service law sanctions would apply. The Civil Service Law No. 4 of 1998 expressly prohibits a civil servant from using his official position for personal interest and prohibits accepting gifts while in public service, without making specific reference to procurement. This law also covers the investigatory process and procedures for sanction.

40. There is also a new law in draft that defines illegal profit to encompass financial gain by a civil servant or spouse, or by a legal entity that belongs to a civil servant. The law is in the final stages of review at the Palestinian Legislative Council.

B.2 INSTITUTIONAL AND ORGANIZATIONAL ROLES

41. The public procurement system within the West Bank and Gaza is a mixture of centralized and decentralized systems. There is no single government entity with oversight of procurement, but legislation gives the Ministry of Finance (MOF) and the Ministry of Public Works and Housing (MOPWH centralized oversight roles for supplies and works procurement, respectively; these laws are not enforced.

42. When the WB approved financing for the first investment project for WB&G in 1994, no existing structure or agency in WB&G could implement projects in a number of sectors and throughout the territory. The establishment of the Palestinian Economic Council for Development and Reconstruction (PECDAR) was critical to project implementation. From the beginning, it was envisaged as transitional, until the PA could establish technical ministries capable of taking over. Ten years later, PECDAR is still implementing donor-funded investment projects because the PA did not take a decision on the role of PECDAR and some donors would find PECDAR more reliable than some PA institutions to implement projects due to its accumulated experience in project implementation and reporting. Meanwhile, line ministries have increased their own


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capacity in project implementation and this would lead naturally to revisiting the role initially given to PECDAR.

B.2.1 Ministry of Finance

43. MOF is responsible for concluding all financial support agreements with the donor community. Tendering for the procurement of common use supplies is centralized within the MOF-Department of Supplies, which purchases supplies in bulk two to four times a year. The results are compiled in a Supplies Catalogue that can be used to quickly purchase common use supplies, considered the first of its kind in the Middle East. While legislation requires this catalogue to be used by all Palestinian ministrie s and departments for all supplies listed in the catalogue; this rule is not enforced. The MOF department of supply prepares lists of common supplies often needed by ministries and prepares simple bidding document with simple specifications and bill of quantities and tender it using an NCB procedure. Supplies not listed in the catalogue may be purchased by the line ministries and departments up to a US$15,000 threshold. The procurement of non-catalogue supplies costing more than US$15,000 is to be conducted by a Central Tenders Committee within the MOF.

B.2.2 Ministry of Public Works and Housing

44. The Ministry of Public Works and Housing procures construction projects in the public, housing and roads sectors. Law No. 6 of 1999 on procurement of public works states that the MOPWH is the coordinating authority for the procurement and supervision of public works for all other line ministries. However, this provision is not enforced. Contracts may be tendered by line ministries and departments up to US$150,000 for works and US$7,000 for engineering services. The Central Tender Committees within the MOPHW is supposed to undertake all tendering above these thresholds.

Procurement

Method Type Threshold Authority Required From:

Shopping/Direct Contracting Works US$150,000 - US$400,000 equivalent The Ministerial Cabinet Shopping/Direct Contracting Works Less than US$150,000 equivalent The Minister of Public Works

Services US$75,000 – US$250,000 equivalent The Ministerial Cabinet

Services Less than US$75,000 equivalent The Minister of Public Works

Services Less than US$25,000 equivalent A designated "responsible" Officer

Services Less than US$7,000 equivalent Deputy Line Ministers

B.2.3 Line Ministries and Departments

45. The line ministries and departments are in charge of conducting procurement tenders for supplies, works and engineering services up to the approved thresholds. The


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Ministry of Education has a technical department that procures construction of schools and sector-specific supplies, and the same is true of the Ministry of Health. The Palestinian Water Authority also carries out its own procurement for water sector-specific works, goods and services. Line ministries and departments are required to use the Ministry of Finance Supplies Catalogue for the purchase of common use items, but have delegated authority from the Ministry of Finance for the tendering and procurement of other supplies up to a value of US$15,000. Since the supply law is not fully enforced, line ministries receiving donor financing may also conduct supplies procurement without using the MOF catalogue.

B.2.4 Ministry of Planning

46. In spring 2003, the Ministry of Planning (MOP) was separated from the Ministry of Foreign Affairs. The MOP is responsible for the coordination of all development activities, monitoring of project implementation, compiling the development budget, the prioritizing and matching of development project requirements to specific donors, and for assisting in the negotiation of agreements with international donors. However, the Palestinian Economic Council for Development and Reconstruction (PECDAR) coordinates the implementation of some donor-funded development and reconstruction projects, and there is considerable fragmentation, with some donors preferring to work directly with specific line ministries and departments. Some ministries, and especially the Ministries of Health, Education, Local Government, and Water Authorities, coordinate the implementation of some donor-funded projects directly, through internal Project Implementation Units (PIUs) that are also largely funded by donors.

B.2.5 PEDCAR

47. The Palestinian Economic Council for Development and Reconstruction (PECDAR) is an implementing agency for donor-funded projects that was formed in 1993 by decree of the President to coordinate the implementation of donor-funded development and reconstruction, at a time when the current structure of government ministries and departments did not exist. PECDAR commenced operations before any viable structure of ministries existed in WB&G, and with a long and successful operating record, remains by far the largest procuring entity within the Palestinian Authority. However, it was initially intended to function only for a transition period, with the understanding that its experience would be integrated within PA institutions once these were established. Ten years later, PECDAR still coordinates the implementation of some donor-funded development and reconstruction projects.

48. Operationally, PECDAR has six district branch offices, and some 90 engineering staff, in addition to head office and administrative staff resources. The staff are skilled in complying with the regulations and procurement documentation of many different donors, and with access to donor funding, PECDAR is able to recruit, train, and retain skilled staff more easily than other PA organizations. PEDCAR’s operation is financed mostly through management fees and partly from the MOF. PECDAR receives some MOF budget support for its staff salaries in the West Bank, currently amounting to about


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NIS320,000 a month. PEDCAR reports to a Board of Governors and is not audited by the MOF or the GCI. Only audit reports specific to projects financed by donors are conducted by independent auditors and these reports are provided to donors. PECDAR procure according to procurement guidelines of donors as agreed in credit or grant agreements and not follow the PA’s two principle procurement Laws. In 2001, PECADR developed its own general and special conditions for contract for works, based mainly on FIDIC and benefiting from Jordanian, Egyptian and World Bank procurement guidelines.

49. With the growing capability of PA ministries and other authorities and institutions, and especially the MOP, MOLG, and the MOPWH, the future role of PECDAR will require some redefinition. PECDAR receives some 100 project applications a month from PA organizations, determines the project viability, and recommends the matching of projects to donor and NGO funding. PECDAR management believes that the full extent of this role should be transferred to the new MOP to allow PECDAR to concentrate on project implementation. The MOPWH also undertakes a growing number of donor-funded projects and programs. With the development of capacity within MOPWH, a practical legal and working agreement between MOPWH and PECDAR needs to be defined to avoid any duplication of resources, activities and roles. Similar arrangements would be necessary with other ministries that receive direct donor funding such as the Ministries of Education, Health, and Natural Energy Resources, and the Palestinian Water Authority.

B.2.6 Ministry of Local Government

50. The Ministry of Local Government (MOLG)/Local Councils is responsible for the oversight of procurement processes in the 650 Municipal and Rural District Councils. In practice, the day-to-day control is limited to a review of tender award decisions before purchase orders and contracts are issued, and MOLG plays very little role in procurement by large municipalities. The individual Councils are legally independent and have considerable autonomy due to their own sources of revenue collection, and do not generally use the MOF Supplies Catalogue system for the purchase of goods. Works projects estimated to cost above US$25,000 are, however, to be referred to the Central Tenders Committee at the MOPWH. However, this is not happening in practice, especially with donor financing.

51. Problems to be Resolved:

The absence of a single central authority to oversee all government procurement has resulted in fragmentation of authority.

Current difficulties for MOP arise from the shortage of information received from some donors. Collection of information regarding donor funding and projects should be rationalized, and information should be shared with other stakeholders.

There is a continuing tendency by donors and project originators to approach PECDAR directly rather than the Ministry of Planning and the MOF. The


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practical responsibilities, authority and reporting activities of MOLG, MOF, MOP and PECDAR on donor-funded programs need to be discussed and clarified.

52. Recommended Actions:

The need for procurement policy formation at a national level, coupled with regulatory and oversight responsibilities, cannot be overstated. A central procurement policy entity established by law with a clearly set mandate and staffed by a competent nucleus of professional staff is key to a sustainable and comprehensive public procurement system including the legal, policy and human resource capacity, and to develop the public procurement regime in the West Bank and Gaza. Such a Public Procurement Authority (PPA) would provide a focus for the formulation of procurement policy, maintenance of procurement laws and regulations consistent with internationally accepted public procurement principles, and provide oversight to ensure compliance with the law, transparency in procurement activities, and a reduction in opportunities for fraud, corruption and collusion. The CPAR’s suggestions for the functions, status, and staffing of such an authority in WB&G are presented in Annex 5. This activity will be supported under the IDF grant approved in July 2004.

Development of an effective reporting system to ensure the prompt exchange of information on donor-funded programs between MOF, MOP and PECDAR. Consider the appointment of a small unit within MOF to coordinate the collection of data and distribution of reports in respect of donor-funded programs. This Unit would need to work closely with MOP and PECDAR, and, once it is established, with the new Public Procurement Authority.

The CPAR recommends that the PA take the initiative to discuss internally and define the role of PECDAR, and to disclose this role clearly to all ministries and public institutions. Regardless of the decision taken with regard to its role, PEDCAR should follow the public procurement law and should be subject to government auditing and to oversight by the newly created PPA, once it is established.

B.3 PROCEDURES AND PRACTICES

B.3.1 Procurement Procedures

Due to the current crisis in the West Bank and Gaza, the need for simplified procurement guidelines and regulations, and for quick response by the donor community when it comes to procurement, was flagged as a priority by PA implementing agencies, potential suppliers, and contractors.


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Procurement Planning

53. Improvement and development of the budgeting system has received intensive donor support since 2000, but some weaknesses still remain to be addressed, according to the CFAA Report 2004. Basic information provided by the line ministries and departments for the annual budget includes a schedule of quantities of common use supplies required for the year. This information is used by the Ministry of Finance in compiling the twice-yearly tender for the Supplies Catalogue items. Procurements for specialist items, works and services are priced and scheduled for inclusion in the budget.

54. Detailed procurement planning is a difficult task under the current institutional structure and procurement capacity of PA institutions. In addition, current conditions of the WB&G do not facilitate timely bid submission and project completion. This is due to the deficit in the PA budget and due to the current crisis in the WB&G, when the Israeli Authorities impose closures on the movement of Palestinians and commodities from the West Bank to Israel and from Gaza to Israel, as well as from one city/village to another. Also during closure, no commodities may enter the West Bank and Gaza from any neighboring country. International bidders are shying away from bidding on projects in WB&G due to security issues.

Commitment of Procurement Expenditure

55. Article 5 of the Works Law requires that availability of funding must be confirmed before placing of any tender advertisement, but the law does not specify the creation of any formal commitment document. Article 5 of the Supplies Law, and Article 4 of the Regulations on Materials Procurement and Works Execution at the Palestinian Local Authorities, only require confirmation of the availability of funds before entering into the actual contract.


There is a potential wastage of time in preparation of tender documentation and conducting procurement before the availability of funds is confirmed.


A formal provisional certification of the current availability of funds should be obtained before any procurement process is commenced. This should not mean that advanced procurement action is not allowed. The availability of funds should be formally reconfirmed by approval and registration of the commitment (Financial Liability Bond) against the budget, after the selection of a supplier or contractor, but before any contract is signed or issued.

General Public Tender

58. Both the Works Law and the Supplies Law provide for one preferred procurement method, and that is the general public tender. Under a general public tender process, if


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during the evaluation of bids the prices are considered high or the lowest bidder has imposed conditions in his bid or his bid is not complete, the entity that would endorse the recommendation of the Evaluation Committee will decide whether to re-tender or negotiate with the lowest bidder.

59. Tender Committees. The MOF has a formally appointed a Central Tender Committee for procurement of supplies and may appoint a Special Tender Committee if necessary for a specific purchase. A Purchase Committee may be appointed by a Minister to purchase supplies up to a value of US$15,000. A Purchase Committee may be appointed by an Undersecretary to purchase supplies up to a value of US$5,000. Purchase Committees are formed in the Local Authorities on an ad hoc basis for separate procurements. There is no requirement in the Supplies Law for a representative of the General Control Institute to participate in the meetings of the Central Tender Committee or of the Purchase Committees.

60. The Works Law calls for the establishment of four separate committees with responsibility for: (i) government buildings; (ii) water, irrigation, sewage and dams; (iii) roads, transportation and mining; and (iv) electro-mechanics and telecommunications. However, these individual committees have not yet been formed, and instead, the following entities have been charged with specific responsibilities:

• A Temporary Central Tender Committee is currently used for all procurement of works above US$150,000.

• Department Tender Committees are used in “any ministry, council, authority or official public institution” for the procurement of works under US$150,000 and for “technical services” of less than US$7,000.

• Governorate Tender Committees are formed in each Governorate for the procurement of works up to a value of US$25,000.

61. A representative of the General Control Institute is required to attend as an observer at the meetings of all tender committees for the procurement of works.

62. The Works Law requires the MOPWH to establish a Central Tender Department to assist the Central Tender Committees with secretariat support. In addition to secretarial support to the Central Tender Committee, the Central Tender Department is responsible for supervising the classification of contractors, providing technical support, maintaining procurement records, issuing periodic bulletins on the construction sector and materials prices, ensuring the use of standard conditions of contract, and ensuring consistence with laws and regulations. This department is only partially operational at present; a director general for this department was appointed while the CPAR was being prepared.

63. Ad hoc procurement committees may also be formed fo r different instances. For example, Tender Opening Committees are formed for individual tenders. Technical Committees may be formed to study tenders from the technical perspective. Evaluation (Resolution) Committees are formed in all bodies on an ad hoc basis for individual


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procurements. Technical Committees may be formed to assist a Tender Committee in specification and to advice on technical issues. Goods Receiving Committees (and Certification Committees for works) will be used to verify supplier/contractor performance in accordance with the contract. Asset Disposal Committees may be formed to supervise the sale/disposal of surplus items.

64. Bid Split. While Law No. 9 of 1998 (Article 33) provides for awarding a bid in parts among several bidders as the default, unless mentioned otherwise in the bidding document, Law No. 6 of 1999 (Article 28) permits awarding the bid in parts only if it is stated explicitly in the bidding document.


Negotiation with the lowest evaluated bidder is currently a standard practice.

A representative of the General Control Institute participates in the meetings of the Tender Committees.

Bid split is inconsistently treated in the supply law and the works law.


It is recommended that these problems be addressed in the proposed unified public procurement law and regulations.

There shall be no negotiations with the lowest or any other bidder.

The GCI shall not have their representatives attending any tender committee meeting to maintain their role as a monitoring agency.

Bidding document shall spell out clearly whether the bid would be awarded in parts or not.

Bidding Process

67. While regulations are missing in the Works Law, the Supplies Law provides for general practice in general public tendering as follows:

Preparation of Bidding Documents and Advertisement. The Works Law states that, once budget is secured for the project either from the MOF or through financing by donors, bidding documents are prepared and advertisement in two local newspapers is placed for more than one day. Ministries and other implementing agencies, including Project Implementation Units (PIUs), use different bidding documents depending on the donor financing the project. In most cases, they use WB-standard bidding documents (SBDs) for WB-financed projects, with modifications for other donor-financed projects. But some PA institutions use bidding documents that they have created themselves. For example, PECDAR has prepared its own bidding documents for NCB which mainly follow WB standard bidding document, and MOPWH has just prepared a draft bidding


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document for the procurement of works, based mainly on the Jordanian national SBD for works. The multiplicity of bidding documents creates additional work and complications during tender and bid preparation. There are several widely distributed local newspapers in the WB&G, such as Al-Quds, Al-Ayam and Al-Hayat. There is also an official gazette, but it is restricted to official publications such as new laws and decrees, appointment and registration of companies, and trademarks. In the advertisement, the address, date and time for bid submission are listed, as well as the project name and number, name of implementing agency, and name of financing agency, if any.

Bid Submission and Validity. There is no clear statement in the laws on the minimum time period bidders would be given to submit their bids. Bids should be valid for 30 days from the submission date. However, due to closure restrictions as mentioned above, in many cases, implementing agencies will extend the submission date and change the submission address because bidders could not reach the specified address by the specified date and time. The MOH, for example would list in the bidding documents two/three addresses for purchasing tender document and/or receiving bids to mitigate the extreme difficulty of moving between the West Bank and Gaza.

Bid Opening. Once bids are received, they are usually placed in a closed box specially made for tenders, and are opened in public immediately after the stated time by the Tender Committee in full or by a quorum of its members. The name of bidders and prices are read aloud, along with information about bid security, and any other information noted in the bid opening minutes. If the Tender Committee finds that there are less than three (or the number expected) bids in the box, the Committee may decide to extend the bid submission date or recommend using shopping instead of using general public tender. Due to closure, bids may be opened at more than one place, as is the case with the MOH procurement of drugs and medical supplies.

Bid Evaluation. Bid Opening Committee members sign the bid opening minutes and the bids are taken to a Technical Evaluation Committee which has normally a different staff composition to the Bid Opening Committee. The Evaluation Committee evaluates the bids and sends its evaluation report with recommendations to the Tender Committee for recommendation to the concerned official for award of the contract.

Announcement of Contract Award. As stated in the Supplies Law, the Secretariat of the Tender Committee is supposed to post the recommendations to award on the Ministry or Department notice board for four working days (in exceptional cases it could be reduced to 48 hours), for any objections by the bidders. However, in practice, the Secretariat simply sends a letter to the winning bidder and no bid results are made public through posting or publication. The Tender Committee is also supposed to study any objections on the awards and take its decision to award for endorsement by the concerned official.

Signing of the Contract. If no complaints were submitted, the winner would then be invited to sign a contract.



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There is no standard NCB, shopping and Request for Proposal package (bidding document and operation manual) endorsed by the PA that is used by all the government agencies.

The laws and regulations do not mention any minimum period required for bid preparation and submission.

The current practice of using more than one address for bids submission and bids opening may create confusion for bidders and lead to a lack of transparency in bid opening.

Posting of the recommendations to award for objections by the bidders may lead to serious delay of the bidding process.

Beyond advertisement for tendering, there is presently no disclosure of the results of the bidding processes.


To ensure transparency and efficiency, the adoption and promotion of a set of standard bidding documents is strongly recommended as a priority. In the meantime, the CPAR recommends that the NCB rules drawn from the list usually used in Schedule 3 to Trust Fund Agreements for projects in the WB&G, as amended and supplemented in Annex 6 be included in the Procurement Schedule to the Trust Fund Agreements, once the changes proposed in Annex 6 have been approved.

Some standard forms (e.g., a financial liability bill or a purchase warrant) are referred to in the Law and Instructions for the procurement of General Supplies. These documents need to be assembled, reviewed, added to if necessary, and all users need to be notified of the need for compliance to ensure consistent standards and usage of forms throughout Government.

The proposed unified public procurement law should specify the minimum period required to be provided to bidders for bid preparation and submission (not less than 30 days).

It is strongly recommended that one address be used for bids submission and bid opening. However, in very exceptional security conditions such as those currently prevailing in the WB&G, more than one address could be used. However, the deadline for bid submission and bid opening must be the same.

The CPAR strongly recommend against posting of the recommendations to award for objections by the bidders because this practice can delay contract award. The committee shall take a decision to award, sign a contract, and publish the results. Any bidder who wishes to complain shall be free to do so.


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A procurement bulletin should be published by the proposed new PPA (both on paper and electronically) for (i) dissemination of advance information on future upcoming procurement (based on annual procurement plans for all projects which should be regularly updated); (ii) mandatory advertisement of all specific procurement opportunities above an appropriate threshold, throughout the PA; (iii) publishing results of the bidding processes (including identification of contract winners and the winning bids); (iv) publishing sanctions against bidders and officials who have been found to have engaged in fraud and corrupt practices; and (v) dissemination of information on public procurement.

Contract Management

70. Payments. Failure to pay suppliers and contractors promptly is reported to have been a major problem in the past. Until reforms were commenced in 2002, significant expenditures were undertaken with little regard to budget appropriations, and this created serious difficulties. The ongoing reform process supported by donors (USA, Russia, EC, Japan, WB, and the IMF) has addressed the structural weaknesses in the budgeting, expenditure commitment and payment systems. However, payment delays still arise due to lower revenue receipts since the intifada commenced, and due to continuing problems of VAT, customs and excise revenues not being remitted to the PA by the Israeli Authorities. Bidders are hesitating to bid on contracts financed directly from the PA budget because of the known history of very long delays in paying suppliers by the MOF due to liquidity problems within the PA. On the other hand, some of those limited number of bidders who do still bid on projects financed by the PA budget may have increased their prices to compensate for possible long delays in payment.

71. Until recently, bidders gained some comfort with the MOF when the MOF started releasing their overdue checks, but lost the comfort again when the liquidity problem resurfaced. Furthermore, the current practice at the MOF is that MOF issues checks without referring to the invoice number the supplier is submitting. This creates confusion for the suppliers, since it will not be clear to them to which invoice and which project the payment corresponds.

72. In the past, line ministries would send paid invoices to MOF to be checked, but in some cases these checks were too late to prevent irregularities. Under new arrangements put into effect by the Minister of Finance in response to recommendations of the 2004 CFAA, financial controllers appointed by the Ministry of Finance are being attached to the ministries to undertake pre-payment audit and certification for payment. Half of all ministries (including all large ministries) now have financial controllers and this will be extended to all ministries in due course.

73. Value Added Tax. The problem of reclaiming Value Added Tax (VAT) reimbursement by contractors, supplier, consultants and NGOs on donor-funded procurements remains a problem despite the zero-rating of these supplies. Discussions with suppliers indicate that they often inflate their VAT-exclusive prices to reflect the risk of not being able to obtain a refund for input VAT already paid. The suppliers say that each individual invoice has to be taken to the MOF to ensure that VAT can be


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reclaimed. The current practice is that for donor-financed projects, the MOF issues an exemption of the VAT. Contractors and suppliers get zero-percent invoices for the projects which are exempted. If suppliers are importing goods from outside the country, the zero-percent invoices will have no impact on the cost because no VAT was paid. However, if the supplier is using goods that have already been imported into the country, the VAT would already have been paid, and issuing a zero-percent invoice for the supplier will not help much because the PA is not paying back in a timely manner the balance of VAT that is due to contractors, suppliers and consultants due to its current deficit situation. Thus, during the bidding process, bidders are including some cover for the risk that they cannot reclaim some or all the VAT which has already been paid. This risk varies from one bidder to another.

74. Contractors, suppliers and consultants as well as beneficiary agencies requested that the VAT be included in the bidders’ prices and that a reliable mechanism be provided, other than issuing a VAT exemption, for reclaiming VAT payment when dealing with donor projects.


Payments to contractors, suppliers and consultants are often delayed.

Current practice of granting VAT exemptions in bidding document under donor-financed projects is not working.


It is recommended that implementing agencies as well as the MOF establish a monitoring system for the timeliness of payment to contractors, suppliers and consultants. If payment is delayed for any reason beyond the specified period in the contract, the implementing agency would automatically add to the invoice amount, the interest incurred for the period of delay. This practice will increase the trust of the contractors, suppliers and consultants in the system.

It is recommended that national bidding documents include a separate line item for the VAT and that the MOF establish a workable system for payment of the unfinanced portion of contracts under donor-financed projects .

B.3.2 Procurement Practices

Supplies

77. Common Use Supplies: The Ministry of Finance (MOF) is the coordinating authority for the procurement of supplies and for management of general stores. All ministries, institutions and authorities are required to submit their quantity requirement for common use supplies as an integral part of the annual budget process to the Department of Supplies (DOS) within the MOF. The DOS then conducts a bi-annual tendering exercise for all common use items to identify suppliers for each item or group


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of items. This information is distributed to all ministries in the form of a Supplies Catalogue. Following approval of the statement of annual needs and budgetary approval, these items may be purchased directly from the supplier nominated in the catalogue at the stated price by issue of a Purchase Order.

78. Central Tender Committee-MOF conducts procurement of supplies valued above US$15,000 and line ministries and departments conduct procurement of supplies valued US$15,000 and below. 10 Line ministries and departments are then required to purchase these supplies from the selected supplier at the agreed prices. All procurement of supplies above US$5,000 is subject to open tender. Direct procurement may be undertaken under emergency, sole-source or copyright conditions, or when open tender has failed to bring suitable bids. All procurement of supplies above US$15,000 should be referred to the Central Tender Committee.

79. Comments received from the Ministries and Authorities interviewed indicate that the catalogue system works well, and enables rapid procurement and price certainty, without the administrative burden of separate tendering processes. However, Local Authorities do not necessary use the MOF catalogue. They usually use separate tendering and in some cases get lower prices, especially if suppliers know that funding is coming from donors.

80. The extension of use of the MOF supplies catalogue to other government institutions and authorities was not verified during the mission, but it appears not to be used by parastatals (partly or wholly government-owned companies) such as the Gaza Electricity Distribution Corporation (partly government-owned). Also, there is little practical reference within the Law and Regulations to the use of standard forms, and no guidance as to the use of standard bidding documents and forms of contract.


Bidding documents used by the MOF for the procurement of Supply Catalogue items need improvement to meet minimum requirement in an NCB document.

Local Authorities do not necessarily use the MOF catalogue but instead use shopping or NCB procedures for procurement of common supplies.


An improved version of bidding documents used by MOF for the procurement of supplies should be developed for use until SBDs are developed. Comments have already been provided to the DOS at the MOF on the existing bidding documents.

10 Article 14 of the Supply Law defines a Central Tenders Committee to conduct procurement of supplies valued above US$15,000. Article 13 Provides thresholds for purchase by Line Ministries and Departments below this value, and exemptions for specialized educational and cultural services, copyrights, and for Diplomatic Missions. Article 3 of the Supplies Law establishes a Department of Supplies within the MOF to determine general policy and implementation methods.


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The use of the MOF Supplies Catalogue should be extended to Local Government organizations and it should also be used for general supplies under donor-financed projects.

Shopping and Direct Purchase

83. Shopping and direct purchase methods are also allowed and are governed by the following thresholds and conditions (Supplies Law, Art. 12).

SHOPPING DIRECT PURCHASE

1 Goods are costing less than US$5,000 or equivalent in local currency

1 In emergency situations with approval of the Cabinet of Ministers

2 For spare parts and other materials that are only sold by one supplier.

3 For educational materials. 2

If there are insufficient bids or no acceptable bids received from a public tender and the implementing agency decides that shopping is the best method to be used. 4

When there are no acceptable quotation offers or bids, or prices are not acceptable when using other procurement methods.

84. Shopping and direct purchasing may also be used in the following exceptional cases (Works Law, Arts. 4, 16, 17 and 18): (i) emergency situations, (ii) when tendering is not possible, (iii) in order to achieve standardization of equipment for easy maintenance, (iv) for consultancy services, (v) if the contract is with a governmental or an education institution, and (vi) if the prices are controlled by the government.

Public Works

85. The Ministry of Public Works and Housing (MOPWH) is the coordinating authority for the procurement of public works. The Works Law provides for three levels of tender committees (Arts. 6 to 9):

(i) Central tenders committees for government buildings, water, irrigation, sewage and dams; roads, transportation and mining; and electromechanics and telecommunications;

(ii) Department Tenders Committees for works values up to US$150,000 and engineering supervision services up to US$7,000; and

(iii) Governorate Tenders Committees for works values up to US$25,000.

86. At present, these separate committees are not yet operational, and a single Central Tenders Committee currently conducts all tenders which relate only to the MOPWH. It is


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supported by a Central Tenders Department, called for in Articles 2 and 3 of the Works Law and assigned responsibility for: (i) supervising the classification and qualification of contractors and supervising engineers; (ii) examining and analyzing tenders and maintenance of tender records; (iii) developing and adopting unified conditions for contracting and tendering; (iv) issuing bulletins on the building construction sector, building material prices and on works clauses and items; and (v) providing secretariat services to the Central Tenders Committees. The Central Tenders Department is not yet fully staffed or fully functional, but manages to discharge the above functions, apart from the issue of periodic bulletins.

87. Article 12 of the Works Law calls for the publication of detailed regulations for the procurement of works. These regulations are currently under preparation within the Ministry. There is no clear reference within the law to the use of standard forms or bidding documents and contract formats.


There are no detailed regulations for the procurement of works.

There are no standard document forms to be used for committee meetings, commitment, bid opening, evaluation, contract award, and contract monitoring. There are no standard bidding documents or contract formats.


The proposed unified public procurement law would address all deficiencies in the current public procurement laws and regulations.

Standard forms, bidding documents and contract formats should be developed.

Guidelines and user manuals should be developed and issued to ensure efficient common procurement practices throughout the PA and compliance with the laws and regulations.

Local Government

90. Local government procurement in the village councils and municipalities is subject to regulations issued in April 1999 pursuant to the Local Organizations Law No. 1 of 1997. Standing or ad hoc Tender Committees are specified for each local organization to supervise the procurement process, subject to the approval of the head of the local organization or his nominee. Art. 10 states that the Minister of Local Government may require Ministry staff to attend bid opening and evaluation committee meetings to ensure that correct procedures are followed. All decisions of the Evaluation Committee must be notified to the Ministry of Local Government within one working day, and the local organization may not award the tender until approved by the Ministry, or three working days have elapsed after the decision was received by the Ministry (Article 12). In general, a local authority would prepare the relevant bidding documents,


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advertise in local news papers, receive bids, evaluate bids, award and sign contracts with winners.

91. The Regulations also include a code of ethics (Art. 44) and penalties which may be applied to staff in breach of this code (Art. 45). Although municipal councils are reported to be generally well organized, many smaller rural councils have few paid staff, and very limited financial resources for procurement. Most rural council procurement is reported to be by use of a three quotations system (termed as “local practice” in the Regulations). There is no clear reference within the law or regulations to the use of standard forms nor to bidding document and contract formats. Large municipalities generally do not report procurement actions to the MOLG because they consider them selves some how independent and more capable than the MOLG.


Large municipalities generally do not report procurement actions to the MOLG.


All municipalities and village councils shall report all procurement activities to the MOLG so that the MOLG can report back to the MOF and the PPA once established.

Classification of Contractors and Engineers

94. The National Committee for Classification of Contractors is headed by the MOPWH representative and consists of eight members from several ministries, including MOPWH and the Contractors Union. To be considered for classification, a contractor must be a member of the Contractors Union, and the contractor’s key engineering staff must be registered by the Engineers Syndicate. Contracting firms which are a joint venture between Palestinian contractors and Arab or international contractors need to meet certain requirements in order to be considered for classification. 11 Only contractors who have passed the registration process for the private sector Contractors Union are considered. Other factors are also required, among them: (i) Palestinian nationality; (ii) never having declared bankruptcy; (iii) registered at the Ministry of National Economy and Trade as a contracting company; and (iv) all engineering staff registered at the engineering syndicate. Although new contractors may be added at any time, the Committee only re-classifies existing contractors every two years. Arab and foreign contractors may only be classified if within a formal partnership with a Palestinian and subject to additional financial and experience requirements.

11 The Palestinian partner must provide at least 40 percent of the required expertise, any Arab partner must be staffed with double the expertise required for a Palestinian firm in the classification requested, and any international partner must be staffed with at least three times the expertise required for the classification requested. The non-Palestinian partners must transfer their financial shares in hard currency through a local commercial bank. The staff of international partners must also be present in the country throughout the period for which the classification is granted, and all his engineers must be registered at the engineering syndicate.


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95. The classification of contractors is governed by the 1994 Instructions on the Classification of Contractors. The system is administered by the MOPWH but relies heavily on inputs from the Contractors Union and the Engineers Syndicate. The Contractors Classification Committee has eight members headed by the Chairman of the Central Tenders Department in the MOPWH. The Contractors Union is directly represented in the membership of the Committee. New contractors are assessed and classified according to their specializations within the following main categories: (i) roads; (ii) buildings; (iii) electro mechanics; (iv) water and sewerage; and (v) public works and maintenance. Within each specialization the contractor is classified from grade one down to grade five, with grade one being the highest grade, based on the quality of technical staff, office facilities, plant and equipment, previous experience, and financial capability. Classification is granted for a maximum of three years and existing contractors are reassessed every two years.

96. Art. 47 of the Regulations on Materials Procurement and Works Execution at the Palestinian Local Organizations April 1999 entitles the Minister of Local Government to enact special regulations to govern the classification of contractors. Although such special regulations do not appear to exist, there is a potential for duplication of classification systems, and only the MOPWH ranking system should be used.

97. For procurement of works financed under the PA budget, bidding is usually restricted to certain classes of contractors which may restrict competition. The CPAR mission did not look in detail at the actual evaluation process of contractors for classification. In WB-financed projects, subject to procurement post-review, classification of contractors is sometimes mentioned in the invitation to bid as a requirement for contractors to bid under NCB procedures.


The instructions on classifications of contractors are issued by private sector and not issued by the PA. These instructions have some deficiencies such as the classification for joint ventures.


The PA should review the instructions for contractors’ classifications and revise these instructions to be in line with international practice in order to provide fairness, transparency and efficiency in the process of classification of contractors. Once the system of classifications of contractors is satisfactory to the WB, the WB would allow using the classification system for projects tendered under NCB procedures.

B.3.3 Professional Capacity for Public Procurement

100. The procurement profession seems to be not widely regarded as a valued professional discipline within the Palestinian civil service. Apart from the MOF Department of General Supplies, staff engaged in the procurement of supplies are often a


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minor part of the administration or finance department and on low civil service grades. Only a very limited degree of responsibility and initiative is allowed to these Purchase Officers, in keeping with their low status. The duties assigned involve compiling specifications and assembling bidding documents, record-keeping, obtaining quotations, and correspondence. Due to the twin constraints of finance and lack of direct access to international borders, ports and airports, relatively few procurement staff are skilled in the practice of international procurement. There is no obvious career structure for Purchase Officers within the civil service, and currently no institutional training available.

101. Staff directly involved in and financed by donor projects are normally of a much higher educational standard and have the benefit of access to the training resources of the donor and also of routine exposure to international procurement requirements. In the MOPWH and PECDAR, procurement responsibilities are undertaken mainly by skilled engineers and technical staff. Given the high professional standing of engineers, and the specialist nature of works procurement, there is no obvious shortage of skilled technical staff with exposure to advanced procurement practices. There is currently no professional association in WB&G to support the development of procurement skills, nor the availability of standard training and professional development courses.


Many procurement staff have low skill levels


A Public Procurement Authority should be established with responsibility for professional development and procurement training (see Annex 5).

A study on the training needs of procurement staff is strongly recommended. Based on the results of this study, a training action plan would need to be established by the PA and followed up. Under the IDF grant, provision is made to support the preparation of this study.

Local institutions and/or universities should be identified that could work together with the PA in delivering training to PA procurement staff.

B.3.4 External/Internal Audit and Oversight

104. The General Control Institute (GCI) currently has a responsibility for external audit of all government entities, including limited companies that are wholly or partly owned by Government.12 The President of the PA appoints the head of the GCI. The law establishing GCI confirms that its audit should cover the procurement process. However, 12 A new audit law approved by the Palestinian Legislative Council calls for a new agency with the role of external government audit. This law has not yet endorsed the PA president and the new audit agency is not yet established.


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there is no apparent requirement for reporting procurement activity to any higher administrative authority; the annual report of the GCI is submitted directly to the PA President and is not made available to the public. The head of GCI, interviewed during the February 2004 mission, informed the CPAR team that no cases of misprocurement were found during the recently completed annua l Audit Report. Control and internal auditing appears to rest exclusively on financial aspects rather than assessing the efficiency of procurement and the compliance with laws and regulations. The general focus of both internal and external audit is on the verification of income and expenditure.

105. The MOF has a responsibility for internal audit of all ministries and departments. Internal auditing of procurement is largely restricted to auditing of payments to ensure that: (i) the relevant budget heading account has sufficient funds to cover the expenditure; (ii) the payment request is backed by correct documentation including all necessary authorizations; (iii) the sums involved have been correctly calculated, classified and described; and (iv) the proposed expenditure does not violate the law, directives in force, etc. Until recently these checks were only undertaken as a post-review on paid invoices submitted to MOF by the ministries and departments. Under the new arrangements, MOF is allocating financial controllers to each ministry and department so that a full pre-payment audit of all expenditure can be conducted.

106. The MOF is represented on tender committees established under the Public Works Tenders and the General Supplies Laws. The GCI also attends these meetings in the capacity of an observer. This attendance at tender committees, and participation in, or awareness of, procurement decisions may compromise the independence of any subsequent audit of the procurement process by the MOF or GCI.


Actual procurement and contracts management processes are not currently subject to any visible routine internal or external audit.

The annual report of the GCI is not published.


Monitoring of the procurement process should be undertaken as a routine procedure by a new Public Procurement Authority (PPA) through reporting by tender committees of all procurement action (see discussion of PPA in B.2. Institutional and Organizational Framework). Both procurement processes and contracts management activities should be subject to specialist audit programs initiated by the Authority.

In the interests of transparency and accountability, the GCI Annual Report should be formally published each year.

West Bank and Gaza CPAR Findings: Private Sector

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PRIVATE SECTOR

B.4 PRIVATE SECTOR CAPACITY

109. This section reviews the capacity of the domestic private sector to participate in the public procurement of works, goods and services. It examines the conditions under which the private sector conducts business with Government from bidding to contract implementation.

B.4.1 Framework for Private-Sector Operations

110. Over the period from September 2000 to February 2003, the private sector share of GDP declined from 88 percent to 69 percent, with employment losses estimated to be as high as 140,000 workers. In the manufacturing sector alone, employment in the West Bank has declined by 32 percent, while in Gaza manufacturers have downsized by nearly 60 percent. A Palestinian Central Bureau of Statistics survey of 924 establishments indicates that only 11 percent of companies were operating at full capacity in January 2002, with nearly one-third of firms engaged in downsizing operations and 15 percent reporting their intention of eliminating at least one production line in order to reduce operating costs.13

B.4.2 Small- and Medium-Size Enterprises

111. The Small Enterprise Fund (SEF), supported through the IFC Extended Reach Program, established an agency line between IFC and Cairo Amman Bank (CAB) in the amount of US$4.5 million to support Palestinian priva te small- and medium-scale enterprises in the WB&G by providing them with medium- and long-term loans. CAB is the third largest bank in Jordan with total assets over US$1.2 billion equivalent as of December 31, 1998. CAB started its operations in the WB&G in 1986 and has a strong management team and a competitive advantage gained from its extensive branch network, comprising 19 branches in WB&G. The US$4.5 million agency line (to be administered by CAB) was funded by US$3.0 million from IFC and US$1.5 million from CAB. In addition, Banca Popolare Vicentina (BPV) established a US$3.0 million agency line with CAB that involves partnership with Italian businesses.

B.4.3 Banking Sector

112. There are 21 local commercial banks in WB&G (10 Palestinians, 8 Jordanians, 2 Egyptians and 1 international). Almost all banks have branches in both the West Bank and in Gaza. The Palestinian banking sector continues to try to manage the current economic crisis by maintaining the conservative investment positions taken over the years. Banks remain very liquid, with placements in the West Bank and Gaza and, more significantly, overseas, and have continued to increase their liquidity ratios since

13 WB Implementation Completion Report, Microenterprise Project, p. 13.


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September 2000—by end-August 2003, 22.7 percent of the combined assets of commercial banks operating in the West Bank and Gaza were held in cash or deposits with other local banks; a further 49.1 percent of assets were held as deposits in foreign banks. These represent significant shifts in asset allocation compared to September 2000, when 14.3 percent of total assets were maintained in cash and local bank deposits and a 47.6 percent were in deposits with foreign banks.

113. Along with this increase in liquid assets is the decline in bank lending activity. Through the intifada, the volume of credit extended to the private sector continued to decline, reflecting both lower demand on the part of borrowers and greater risk aversion on the part of bankers during a period of economic downturn and political uncertainty. In such a climate, the granting of new credits is scaled back and existing lending and overdraft facilities are rolled over less automatically.

114. During the intifada, credit to the resident private sector fell—by US$91 million, or 7.2 percent in the first month, October 2000. By August 2003, private sector credit extended had reached US$794 million, a total decline of US$270 million (a 25.3 percent decline) from the September 2000 level. Expressed as a share of total bank assets, private sector credit has declined from 22.1 percent in September 2000 to 17.0 percent by end August 2003. Although the quality of bank loan portfolios has suffered (non-performing loans have increased and some collateral destroyed as the result of military operations), the low percentage of loans to total assets mitigates solvency concerns thus far for most banks.

115. At early stages of the intifada, local banks were reluctant to provide suppliers and contractors with bank guarantees to enter into bidding without having the full value of the guarantee in the bank issuing the guarantees. This created a problem with some contractors and supplies who already suffer cash liquidity problems, and has forced some bidders to refrain from bidding. Under WB-financed projects, the requirement for bid security was released for very small job creation projects, which helped to increase competition among bidders. Local banks would issue performance guarantees to contractors and suppliers.

B.4.4 Construction Contractors

116. There are about 980 contractors registered at the contractors union in the West Bank and Gaza. About 27 percent of this number are located in Gaza. Contractors are be classified in different classes and categories. The classification ranges from grade one (there is also grade “one A” and “one B”—grade one A is the highest rank of all classes) to five. There are about 143 contractors classified grade one. Construction contractors are experienced in several areas, mainly in building construction. They gained this experience from working inside Israel during the time when such work was possible, prior to the establishment of the PA. Construction is one area of the private sector which has managed to avoid many of the worst effects resulting from the violence in the WB&G. With the frequent destruction of infrastructure and buildings by Israeli security forces, the construction industry has a stable or growing market for its services. The


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industry also benefits greatly from participation in donor-funded construction and rehabilitation contracts.

117. Most current construction works are being implemented by local contractors, as international contractors are shying away from working in WB&G, due to security issues and the risks of not being able to complete projects on time and of possible injury to their staff if project sites are close to hot security areas. Even before the intifada and under calm conditions, local contractors acted as sub-contractors to international contractors, since some donors restricted bidding to donor-country contractors.

118. Contractors face direct problems from crossing areas under closures and the requirement for unloading and reloading onto different vehicles at crossing points. Movement of skilled labor between the West Bank and Gaza also presents difficulties. This has resulted in increase of prices of certain raw materials and in restrictions on who could bid on projects in closed areas. Before the recent intifada and the imposed closure on the WB&G, contractors from Gaza competed for projects in the West Bank and had implemented several infrastructure projects (water supply, roads). However, under the closure, they have chosen not to bid because they can not be sure of being able to enter the site and get the materials to the site.

119. The limited availability of funds for capital investment has an impact on the construction industry, as contractors need to maintain adequate levels of plant and equipment to perform contracts and to maintain their Contractor Classification status. Shortage of operating capital is a more serious constraint for contractors, due to the high cost and low availability of commercial credit, and slow payment processes by the Palestinian Authority and donors.

B.4.5 Manufacturers and Suppliers

120. Manufacturers and suppliers suffer considerable constraints on every front, including rules and regulations imposed by the Israeli Authorities; physical damage to agricultural and commercial assets; lack of access to markets; the impact of closures at crossing points; the requirement for off- loading and reloading of goods at checkpoints when leaving or entering Israeli-held territory; low availability and high cost of credit from commercial banks; delayed payment of bills and invoices by the Palestinian Authority; under-capitalization, and low capital/labor ratios which limit productivity gains.

121. Many aspects of Palestinian private sector activities are subject to rules and regulations by the Israeli Authorities. This runs from the requirement for approval of investment proposals, to import controls, export quotas, access to external markets, and restrictions on and testing of Palestinian products. The Palestinian Authority itself has little or no control over the range of restrictions imposed.

122. Access to all external markets is controlled by the Government of Israel, and the internal domestic market is small and split between the West Bank and Gaza. Business activity is therefore constrained and a firm cannot expand effectively except at the


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expense of reducing the market share of a local competitor. The internal domestic market is supported to a considerable extent by the donor community through both direct budgetary support to the Palestinian Authority, and specific projects and programs. This support not only benefits private firms directly but also helps to maintain the wider private sector through employment and income to wage earners in both the public and private sectors

123. Private agricultural and commercial assets have suffered over a half of all physical damage caused by Israeli security operations since the commencement of the intifada. This is in addition to the general damage caused to the infrastructure and the continuing impact of the construction of the Israeli security fence around the West Bank.

124. Closures of crossing points between WB&G and Israel are a routine response by the Israeli forces to any action or potential threat from Palestinian militants. This inevitably disrupts external trade with Israel and movement of supplies between the West Bank and Gaza. The requirement for off- loading and reloading of goods onto a different vehicle at crossing points creates delays under normal circumstances, and inevitably increases the cost of Palestinian products, and the risk of spoilage of perishable goods, even within the internal market between the West Bank and Gaza.

125. The lack of availability of funds for capital investment has only a limited impact on manufacturers and suppliers during the current crisis, as most firms are operating at levels well below their optimum capacity. Many businesses in WB&G are under-capitalized with low capital/labor ratios that limit the potential for benefiting from gains in productivity. Although financing for investment in new technologies is limited, increased use of the plentiful supply of labor using available technologies may perhaps produce a desirable social benefit, once the market for Palestinian products improves. Shortage of operating capital is a more serious constraint for the private sector, along with the high cost and low availability of commercial credit and payment delays by the Palestinian Authority.

126. Confidence in the future is essential for investment in any new business venture, and a vibrant manufacturing sector will not return until political uncertainties are resolved and a wider external market can be reached.

B.4.6 Consultants

127. There are about 469 engineering consulting firms in the WB&G, of which about 97 are located in Gaza. There are some 10 accounting and financial management firms with qualification at international standard and some 35 IT consulting firms in the WB&G. Apart from the services of architects and engineering consultants engaged in design and supervision of works contracts, and private sector auditing and accounting services, there are only limited opportunities for general consultancy services within WB&G. Neither the private sector nor the Palestinian Authority have the financial resources for general consultancy services, and most consultancy studies and support services are directly funded by the donor community. There are no specialized procurement consulting firms in the WB&G.


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Payments to contractors, suppliers and consultants are often delayed.

Movement of goods and people in and out the WB&G is restricted by the Israeli Authority and these restrictions impact negatively on the principle of economy in procurement.

129. Recommendations:

An emphasis must be placed on prompt payment of invoices by the Palestinian Authority, in order to reduce the operating capital required by the private sector. The 2004 CFAA report further emphasizes that expenditure should not be incurred without certainty of the availability of funds, that payment orders should not be issued when funds are not available in the bank account, and that officials should release payment orders immediately.

The GOI should facilitate the movement of goods into the WB&G. This would encourage international suppliers and contractors and consultants to participate in procurement process directly in the WB&G, which may result in lower prices of goods and services provided to the Palestinian people.

West Bank and Gaza CPAR Recommendations & Action Plan

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C. SUMMARY OF PROCUREMENT PERFORMANCE IN WB-FINANCED PROJECTS

This section summarizes the Government’s performance of procurement in accordance with WB procurement guidelines. More detailed review is presented in Annex 7.

130. In 1993, the WB established a special IDA-administered Trust Fund for WB&G from which monies could be lent to the PLO for the benefit of the Palestinian Authority. Under the resolutions governing the Trust Fund, the WB Board approves the terms of assistance on a case-by-case basis. Before the second intifada, all WB&G projects were provided on IDA terms, with one exception (a 1997 grant for an NGO project). By October 2003, as the PA’s fiscal situation deteriorated and the WB reoriented its strategy more towards meeting emergency needs, the WB Board has approved five projects on grant terms. The WB&G portfolio records a total of 15 on-going projects with a total WB commitment of US$208.80 million, one of the largest in the MENA region.

In general, procurement processes were implemented in accordance with WB procedures and the provisions of Trust Fund Credit Agreements. However, the capacity of various PA implementing agencies in conducting procurement ranges from satisfactory, as in the case of PECDAR, to unsatisfactory, as in the case of MOH. For this reason, the CPAR team highly recommends that implementing entities dealing with procurement receive further training in procurement.


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D: RECOMMENDATIONS AND ACTION PLANS

131. This section summarizes the recommendations of the CPAR team for the reform in the Palestinian Authority public procurement system under four headings: Legal and Regulatory Framework, Procurement Practices and Procedures, Institutional Framework and Capacity Building. These are the four pillars for building procurement reform. In the table below, the most critical, high-priority items for the reform of the public procurement system are those that need to be implemented within less than a year after agreement has been reached on this action plan. Other medium-priority items should be addressed within the second and the third years.

132. Legal And Regulatory Framework : A clear, comprehensive and transparent unified procurement law needs to be drafted, enacted and applied by all public institutions, such law to regulate the procurement of goods, works and consulting services.

133. Procurement Procedures and Practices: National standard bidding documents for works, goods and services as well as standards documents for all other procurement requirements of the WB&G should be developed.

134. Institutional Framework : There is a need for an institutional framework that differentiates between those who carry out the procurement function and those who have oversight responsibilities. In this regard, an independent public procurement authority (PPA) would be established that has responsibility for overall procurement policy formulation and the authority to exercise oversight regarding proper application of the procurement rules and regulations. The PPA would have the responsibility for reporting on all procurement activities in the PA. In addition, the responsibilities of all procuring entities and those involved in the procurement process should be clarified. All these responsibilities would be governed by the new procurement law.

135. Capacity Building : A well- trained procurement staff is critical in ensuring proper application of the procurement rules and regulations. A cadre of staff should possess the technical proficiency to apply the rules in a proper and timely manner. The implementation of a continuous, focused, and targeted training program should be a priority.

136. In response to the PA request for a grant to address CPAR recommendation, in July 2004 the WB approved an Institutional Development Fund grant (IDF) in the amount of US$385,000 to MOF for addressing the most critical recommendations of the CPAR. The implementation of the Grant is expected to start in January 2005. The IDF grant will finance the following activities: (a) reform of the public procurement legal framework through assisting the PA in drafting a unified procurement law; (b) development of national standard documents for procurement of works, goods and services; and (c) strengthening the capacity of key PA implementing institutions, NGO, private sector and parastatals in procurement through conducting training on procurement.


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Action Plan: Recommendations for Change in Public Procurement

Areas of Reforms

Recommended Actions Timetable Responsible Entities

Technical assistance

Pillar 1: Legal and Regulatory Framework

Development of a single unified Procurement Law based on the UNCITRAL Law, together with specific regulations for goods, works and services.

1st year MOF Supported under IDF

Develop standard NCB bidding documents and standard contract formats for goods and works.

2nd year MOF Supported under IDF

Develop standard Request for Proposals and standard contract formats for selection of consultants.

2nd year MOF Supported under IDF

Develop manual of procedures Develop and issue guidelines and user manuals to ensure efficient common procurement practices throughout the PA and compliance with the laws and regulations.

3rd year

MOF

Supported under IDF

VAT treatment: Development of a practical method of VAT treatment other than the zero exemption of VAT for donor-funded procurements to ensure contractors/suppliers/consultants can easily reclaim input VAT and do not inflate their bid prices.

1st year MOF

Pillar 2: Procurement Procedures and Practices

Revise the MOF Supplies Catalogue bidding documents according to the CPAR team comments so that it could be used for WB-financed projects.

1st year MOF


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Areas of Reforms



Extending the use of the MOF Supplies Catalogue to Local Government organizations.

2nd year Ministers Cabinet. MOF and MOLG to facilitate the issue of a decree.

Filing: Procurement documents covering all stages of procurement process should be complete and be kept in once place within each implementing agency.

1st year and continuing

All PA institutions. MOF to coordinate.

Record-keeping: Until the PPA is established, collect procurement information on all projects financed under the PA budget as well as all donor financed projects to the PA regardless of whether grants, credits or loans.


MOF; once PPA is established PPA takes over.

In the interests of transparency and accountability, the GCI Annual Report should be formally published each year.

PA Ministers Cabinet and GCI

Ensure availability of funds in the budget: A formal provisional certification of the current availability of funds should be obtained before any procurement process is commenced.


MOF

Decide where the Public Procurement Authority (PPA) should be located.

1st three months

The PA ministers cabinet

Pillar 3: Improve the institutional framework

Establish an Independent Public Procurement Authority (PPA).

Once the law enacted

The PA ministers cabinet


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Areas of Reforms



Clarify the status of PECDAR in relationship with other line ministries and the MOP and the MOPWH in particular and establish a reporting mechanism between PECDAR, MOF, MOP, GCI and the PPA once established.

1st year The PA ministers cabinet

Conduct a procurement training needs assessment.


Establishment of a partnership between the Public Procurement Authority and other training and academic institutions to develop a training program on procurement and project management.

3rd year PPA

Training staff of ministries on basic procurement


Pillar 4 : Develop procurement capacity of Government staff

Follow up on the recommendations of the procurement training needs assessment.

2nd year and continuing

PPA

West Bank & Gaza CPAR Annexes

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Annex 1: Questionnaire on Public Procurement

Section A - Legal Framework

GENERAL FEATURES

1. Identify predominant legal system (i.e. Common/Civil Law; Socialist; other)

The Palestinian legal system is a mixture of common law and civil law, both are applied in Gaza and West Bank.

2.Identify form of government (i.e. federal or centralized)

Centralized.

3. Does the Constitution (if there is one) contain any provision directly bearing on public sector procurement? (If so, describe)

No, the Basic Law does not contain any such provisions.

4. Is the country a signatory (or planning to become one) to the Agreement on Government Procurement of the World Trade Organization?

No, it is not. Once the PA attains statehood, it intends to accede to the WTO. It will be some years.

5. Does the basic contract law contain any provision directly bearing on public sector procurement? (If so, describe)

No, the contract law does not contain any provisions directly bearing on public sector procurement. The Ministry of National Economy is currently reviewing procurement laws for compliance with WTO requirements under a project funded by DFID.

6. Is there a separate body of law which regulates public sector procurement, or is it governed by regulations issued under an organic finance act?

There is no one separate body of law which regulates public sector procurement and no one organic finance act.

The following Laws, Regulations and Orders are currently being used by the various government agencies:.

1. Public Procurement Law No. 9 of 1998.

2. Public Works Tenders Law No. 6 of 1999.

3. Local Government Law No. 1 of 1997.

4. Order No. 10 of 1965, Financia l Regulations for Contracting and Purchases for Municipal and Village Councils.

5. Order No. 3 of 1967, regarding Financial Regulations for Contracting, Tendering and Purchases for Village Councils.


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7. Is the system clear, comprehensive and consistent? Does it cover all essential aspects with no unduly complicated, unnecessary, conflicting or outdated regulations? Are rules found in various distinct sources or within a well coordinated legal framework?

There is no clear, comprehensive and consistent system in place. Reference in Law No. 6 of 1999 Article 17, is made regarding employment of Technical Services, however, it is not clear and comprehensive. Methods for the Selection and Employment of Consultants are not well established under the Law.

Rules are found in various distinct sources and not within a well coordinated legal framework. There is a need to modify, update and unify these Laws into a clear, comprehensive and consistent system.

8. Is the hierarchy of the sources of procurement rules well established?

No hierarchy, sources of procurement rules are vertically applied.

9. What is the scope of coverage for the procurement legal framework? Does it cover sub-national government? Does it include coverage of all government procurement including security and military procurement?

The legal framework for procurement covers all government procurement including sub national government and security forces. There is no military procurement. Government (who in the government-is it the Ministry of Finance?0conducts procurement of food items (produce and groceries) and other civil needs for the security forces. Recently, the President issued a decree stipulating that government procurement shall include security forces procurement as well. It should be implemented soon.

10. Are there separate procurement rules established for parastatals? Describe.

There are no separate procurement rules established for parastatals.

11. Is the procurement function decentralized? If so, describe basic structure, name the main decentralized procuring entities and indicate their role, rights, and responsibilities.

Yes, the procurement function is decentralized. The Government has decentralized the procurement function to all government bodies, i. e. ministries, and to sub national government entities, i.e. municipalities and village councils and all local government. Under Law No. 9 of 1998 and Law No. 6 of 1999, there are clear thresholds stipulated for the various procurement methods and responsible person, i. e. minister, deputy minister and so on.

The Ministry of Finance implements a General Tender for the recurrent procured items on behalf of the Government agencies. The MOF publishes a catalogue and distributes it to these agencies for their own use and to save on resources.

12. Is there an entity(ies) with oversight responsibilities for procurement functions throughout public administration (e.g., with primary regulatory powers, responsible for harmonization of rules and monitoring of compliance)? If so, identify and describe responsibilities and structure.

The Ministry of Finance assumes the function of primary regulatory. However, there is no single entity with oversight responsibilities for procurement functions. With respect to monitoring of compliance, this is vested with the following entities: a) the internal control department within each ministry; b) the General Audit Institute; and c) the Palestinian Legislative Council.

13. Is there a Central Tender Board or a similar institution? What are its duties and responsibilities?

Public Works Tenders Law No. 6 of 1999 calls for the establishment of a Central Tenders Directorate. This Directorate would be part of the Ministry of Housing and Public Works as an independent body. The said


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Directorate when established, would have the following duties and responsibilities:

1.Monitor and follow up on Contractors, consultants registration and classification in liaison with the relevant unions. It would also keep records of contracts awarded to them for future use, inside the country or outside;

2. Evaluate works and technical services tenders and maintain all related information;

3. Unify the general conditions and procurement procedures and update these in accordance with current rules and regulations;

4. Issue periodicals regarding construction sector, construction material prices and items of works; and

5. Act as secretariat for Central Tenders Committees.

There is a General Supplies Department, for the supply of Goods, within the Ministry of Finance. The said department was established as per the General Supplies Law No. 9 of 1998. Its roles and responsibilities are:

1. Draft general policy for goods administration and means for implementation;

2. Procure all needed goods in accordance with the rules of the law;

3. Maintain all common and extra goods in central stores and distribute those to departments as per needs; and

4. Conduct necessary studies to develop the department.

14. Does the system allow/facilitate the introduction of new and innovative techniques and contracting practices without compromising basic principles?

No, the system does not allow/facilitate the introduction of new and innovative techniques and contracting practices. There may be in practice certain leeway and flexibility.

15. Are there rules/procedures regarding bidder suspension and debarment?

Yes, there are rules/procedures regarding bidder suspension and debarment.

16. Is the country a member of regional trade/customs agreements? (If so, specify)

No, but intends to in due political course.

17. Are there primary/secondary boycotts? (Specify)

No, there are no primary/secondary boycotts.

18. Are there provisions regarding preferences for particular categories of suppliers of goods, works and services? (Specify)

There are no provisions regarding preferences for particular categories of suppliers of goods, works and services. Preferences are made to local suppliers, contractors and service providers. However, foreign

companies can participate as long as they comply with local laws and regulations.

19. Are there arbitration rules applicable to procurement contracts? Are they consistent with international rules such as those embodied in the UNCITRAL Model Law on Arbitration? (Highlight major differences)


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There are no arbitration rules applicable to procurement contracts. However, there is Arbitration Law No. 3 of 2000 that applies to arbitration to private parties and covers all necessary aspects for arbitration, but it does not specifically address contracts where government is a party to the contract. Furthermore, there are

no arbitration clauses included in government contracts.

20. Are there laws or regulations governing policies and procedures for awarding concessions/contracts for private sector provision/operation of power, water or other infrastructure facilit ies? (BOO, BOT, etc.) Do any general conditions of contract apply as a matter of law or regulation?

No, there are no laws or regulations governing policies and procedures for awarding concessions/contracts for private sector provision/operation of power, water or other infrastructure facilities.

BASIS OF TRANSPARENCY

1. Is there a legal or regulatory requirement for public disclosure of procurement legal texts?

There is no legal or regulatory requirement for public disclosure of procurement legal texts.

2. Are there mandatory requirements for maintaining written records of procurement? To what extent are they available to the general public?

There are mandatory requirements for maintaining written records of procurement. Records of procurement are not available to the public. With respect to records of each contract, these are available with the implementing agency.

3. Are requirements for advertisement of contracting opportunities adequate? Does the country have a national gazette (or other similar publication) published in a timely fashion? Is it easily available to the general public?

Yes, requirements for advertisement of contracting opportunities are adequate; advertising should be in local news papers for two consecutive days. There is an official Gazette published in a timely fashion, and easily available to the public but there is procurement advertisement in it.

4. Are requirements regarding public bid opening, if any, appropriate?

Yes, requirements regarding public bid opening are appropriate.

5. Are negotiations after bid opening or award selection allowed? Do the rules on negotiated procurement, if any, provide the basis for a fair and transparent process?

Article 25, of the Public Works Tenders Law No. 6, 1999, prohibits negotiations after bid opening or award selection. However, the same Article allows negotiations only under the following circumstances:

1. If the bidder included reservations in his bid, the client can negotiate these reservations in order to make the offer in agreement with the conditions of the tender.; and

2. If the lowest bid price, without reservations, is higher than the market price, negotiation is permissible to reduce the price to the level of market price.

In both cases, negotiations can commence only after a decision from the responsible person to do so.


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The General Supplies Law No. 9 of 1998, Article 12 (b) allows purchase through Direct Purchase with sellers, producers or suppliers under the following circumstances:

1. public emergency situation;

2. purchase of spare parts that are available from one source only;

3. purchase of scientific materials; and

4. when offers are not reasonable and when offers do not cover the requires quantities and items.

However, in the cases mentioned above, the law does not provide for transparent and fair process.

6. Are conditions for use of various procurement methods clearly established? Is there an explicit requirement that open competitive bidding is the preferred or default method?

There are various methods referred to in Article 4 of Law 6, of 1999: a) Open National Competitive Bidding; b) National Shopping; c) Direct Contracting; and d) Direct Execution. There are conditions for the use of various procurement methods, but they are not clearly established, in particular, direct execution and selection and employment of consultant. There is a requirement for open competitive bidding. However, there is no reference that it is the preferred or default method.

Yes there is explicit requirement that open competitive bidding is the preferred method.

7. Is there a requirement for public notice of contract awards?

No, there is no requirement for public notice of contract awards. However, it is required under item 61 of Regulation no. 1 of 1999 of Law no. 9 of 1998 that the tender committee advertises the names of the winners on a special bulletin board for not less than 48 hours and not more 4 days for the participating bidders to complain on the award.

8. Are there clear and appropriate requirements for bid and contract securities?

The Public Procurement Works Law No.6 of 1999, Article (35) made a requirement regarding the values of securities , but not regarding the type and the party issuing these securities.

9. Are qualification requirements for bidders, if any, fair and appropriate for the purpose of the contract?

Qualification requirements for bidders for the purpose of the contract are fair and appropriate. However, some agencies require in the advertisement a certain class of contractors, this limits the competition.

10. Do requirements for bid examination and evaluation provide the basis for a rational and fair process?

There are no requirements for bid examination and evaluation in Public Procurement Works Law 6, 1999, and General Supplies Law No. 9, 1998. However, there are detailed requirement for bid examination and evaluation in Local Government Law No. 1 of 1997. These requirements provide the basis for a rational and fair process.

11. Are summaries of information about public procurement published (e.g. number of bids received, number of contracts awarded, and names of successful bidders)? If so, describe scope and frequency.

Summaries of information about public procurement are not published.


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12. Does government hold regular meetings with the business community to discuss public procurement issues?

The government does not hold regular meetings with the business community to discuss public procurement issues.

13. Is there a conflict of interest policy in effect? (If so, describe its essential features).

Yes, there is conflict of interest policy in effect, Civil Service Law 1998. Government employees can not use their positions to influence the course of public procurement. Also, government employees can not be involved in private business.

14. Are there laws on bribery of government officials and are they enforced? Do government bidding documents and contracts contain anti-bribery and anti-corruption conditions?

Yes, there are laws on bribery of government officials and they are enforced. Government bidding documents and contracts contain anti-bribery and anti-corruption conditions.

BASIS OF ACCOUNTABILITY

1. Are government employees expected to follow a published code of ethics? If so, describe its basic features.

Government employees are expected to follow a published code of ethics as defined . There is no published code of ethics yet.

2. Is there an accessible and secure process for bidders to report bribes by others and solicitation/extortion of bribes by government officials?

The Law punishes violators of the law but it does not expressly state bribery.

3. Do bidders have adequate access to administrative or judicial review/appeal?

According to the Ministry of Finance, there is a process. The Law does not provide such a review process.

4. Are there measures/initiatives to curb/control corruption, e.g. anti-corruption statutes and/or bodies, whistle-blower statutes, comprehensive reforms of the civil service/judiciary, regional initiatives, provisions in the criminal law, anti-bribery provisions, etc.? (If so, describe)

Anti-corruption statute was drafted and is being discussed at the Palestinian Legislative Council.

Section B - Trade/Customs Practices

1. Are foreign firms engaged in trade with the country required to use a local agent?

Foreign firms engaged in trade with the country are not required to use a local agent.

2. Is there evidence of any trade malpractice affecting public sector procurement?

No evidence of any trade malpractice affecting public sector procurement. However, there is monopoly on some goods, i.e. cement and fuel. Also, boarder closure affect the prices of materials and it could triple under extended closures. Also, it is not easy to import goods from outside the west bank and Gaza directly and in many cases it has to go through an Israeli agent as the case of drugs manufacturing.


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3. Is inspection conducted according to generally established procedures? Are there indications that the inspection is not effective?

Inspection is conducted according to generally established procedures Article 28, 29 & 30 of the General Supplies Law. There are no indications that the inspection is not effective

4. Do pre-shipment/post-shipment inspection, if any, unduly increase the procurement lead time?

Pre-shipment/post-shipment inspection does not unduly increase the procurement lead time.

5. Is counter-trade used? Barter agreements? For what percentage of the country’s total trade?

No, counter-trade and Barter agreements are not used.

6. Are the ICC’s INCOTERMS generally understood and commonly used in the Country? Are other trade terms used?

Not at the public level. To a very limited extent by the private sector. INCOTERMS have been adopted locally and used in Bank- financed projects.

7. Are licensing and customs procedures generally transparent and efficient?

The process is entirely controlled by Israel and is neither transparent nor efficient.

8. Are “facilitation” payments normally necessary to clear goods through customs, obtain work permits for expatriate labor, process monthly payment certificates/invoices?

This is not applicable in the present context because Trade/Customs practices are subject to Israeli control and procedures.

9. Is staff familiar with shipping and other trade documents? With documentary credits?

Some, not all. Only those who worked on Bank financed projects and used ICB.

Section C - Financial/Budgetary Framework

1. Are banks capable of issuing Letters of Credit?

Yes, banks are capable of issuing Letters of Credit.

2. Are banks generally creditworthy?

Yes, banks are generally creditworthy.

3. Can bid, performance and advance payment securities be obtained easily? What formats are permitted? Bank guarantees? Bonds? Other? Provide details on cost, if available.

Bid, performance and advance payment securities can be easily obtained. Normally, the unconditional Bank guarantee form as well as certified bank checks are used.

4. Are the requirements for issuance of bid, performance, and other securities to suppliers/contractors reasonable?

Yes, the requirements for issuance of bid, performance, and other securities to suppliers/contractors are reasonable


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5. Do suppliers/contractors have reasonable access to credit?

Yes, suppliers/contractors have reasonable access to credit.

6. Do implementing agencies obtain budgetary authorizations for contract payments falling due beyond the current financial year?

Yes, they do.

7. Are major projects or programs clearly identified in government budget estimates?

Yes, it is required by Law. 8. What procedures are followed to ensure the procuring entity obtains budget authorization prior to

inviting bids?

It must list its requirements in its budget when submitted to the national budget in accordance with the National Budget Law. Confirmation of Budget availability is required by Article 5 of Law No. 9 of 1998 on General Supplies.

9. Do procuring entities reliably receive the monies authorized? Or is the budget subject to revision during the year by a restrictive cash release system?

Yes, procuring entities reliably receive the monies authorized.

Section D - Public Sector Procurement of Goods/Works

GENERAL RISK ASSESSMENT

1. Is staff working in public sector procurement area held in high regard?

Yes, generally. Procurement is not recognized as a profession in the West Bank and Gaza and Purchase Officers outside major ministries are generally of a low status.

2. Are pay levels for staff working on procurement comparable to that for other public and

private sector technical specialists? Pay levels for staff working on procurement are comparable to that for other public, but not

comparable to that for private sector technical specialists.

3. Does a code of ethics exist that staff working in procurement is expected to follow?

No written code exists, but staff working in procurement usually follows good ethics in practice,

pursuant to Civil Service Law of 1998.

4. Are the authorities relating to procurement clearly delegated to the entities carrying out the process? Are the applicable procedures clearly defined?

The delegation is there, but it is not formalized by rules and clearly defined written procedures.


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5. Are procurement decisions overridden by higher governmental agencies? If so, by whom? To what degree is the procurement decision-making process independent and based on transparent criteria?

Normally, procurement decisions are not overridden by higher governmental agencies. However, if the decision is not taken in accordance with the criteria stipulated in the documents, it is overridden by the Internal Control Department of the Ministry and that of MOF. The procurement decision-

making process is independent and based on transparent criteria which is stated in the bidding

documents.

6. Does the highest level of government encourage/support/enforce compliance with existing procurement regulations? Are violations investigated and procurement/other responsible officials held accountable?

Yes, in theory violators are held accountable. No such cases have been recorded.

7. Are there indications suggesting price-fixing in open bidding?

No, bids are open price.

ORGANIZATION

1. Is appropriate information on procurement adequately disseminated (i.e. procurement staff are aware of updated rules and thresholds, and other issues relevant to their assigned responsibilities)?

Yes, to the extent they are advised by seniors; the rules are not written.

2. Are the procurement and supply management functions clearly distinguished?

Yes, the procurement and supply management functions are clearly distinguished.

3. Is contracting authority reasonably delegated (i.e. there are no unnecessary levels of approvals or cumbersome procedures)?

Contracting authority reasonably delegated.

4. Are the thresholds for contracting authorities regularly updated?

The thresholds for contracting authorities are not regularly updated. The procurement of Works Law is not fully enforced.

5. Do procuring entities have internal quality and control mechanisms? Are they regularly audited?

Procuring entities have internal quality and control mechanisms, and are regularly audited but mainly from the financial point of view.


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6. Is procurement staff experienced in international procurement?

Some, not all.

7. Do adequate formal and on-the-job training programs exist for entry- and higher-level staff that contributes to proper professional career development? Does knowledge of procurement lead to career advancement?

Adequate formal and on-the-job training programs do not exist for entry- and higher-level staff. Knowledge of procurement does not lead to career advancement.

8. Are there additional training resources in the country that are currently utilized or that could be utilized to complement Government/donor-administered programs (e.g. universities and private institutions)?

There are universities and other institutions that could be utilized as training resources in the West Bank and Gaza. Some of these institutions did provide limited training on construction management and other related courses.

9. Did previous training programs (if any) lead to an obvious improvement in the quality/productivity of procurement work?

Donors such as the Bank have provided several training seminars and workshops to some of PA staff. These training seminars and workshops provided to be useful for the implementation of Bank financed as well as donors financed projects. The improvement in the quality/productivity of procurement work in some of the government agencies who implemented donors financed projects took place as a result of these training seminars and workshops and practice.

10. Does procurement staff have adequate project/contract management capabilities?

Not all procurement staff has adequate project/contract management capabilities.

11. Are procurement agents used? Under what circumstances? How are they selected? Describe normal basis for compensation and contract duration

Procurement agents are not used.

12. Is procurement monitoring and administration computerized? How adequately do procurement entities track the key steps in the procurement process and collect appropriate project-related cost and schedule information?

In general procurement monitoring and administration is not computerized. The Ministry of Finance, recently, started collecting procurement related information from all PA institutions including PECDAR. Tracking the key steps in the procurement process and collecting appropriate project-related cost and schedule information is only done under Donor-financed projects because it is a requirement of the donor.

PROCUREMENT PLANNING

1. Are project implementation units adequately staffed with trained procurement, planning, scheduling, expediting and cost estimating personnel?

Not all project implementation units are adequately staffed with trained procurement, planning, scheduling, expediting and cost estimating personnel.


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2. Is overall planning for complex goods, works and other contracts done in sufficient detail to produce realistic project definition, achievable completion schedules, and accurate cost estimates?

No, experience so far with complex contracts. One case was the Airport; here the Government was assisted by foreign consultants.

3. Is the early technical and financial planning well coordinated so that projects are fully funded when work needs to begin, based on accurate cost estimates?

Yes, to a certain extent but not systematically.

4. Are appropriate methodologies used to plan multiple inter-related procurement activities on large projects (e.g. the critical path method)?

Microsoft project software is used to plan multiple inter-related procurement activities on large projects.

5. Are project components appropriately packaged for procurement purposes?

Project components are appropriately packaged for procurement purposes.

6. Are completion schedules generally met for goods, works and consultant services contracts? If not, what is the major cause for slippage? Is sufficient time generally allowed for external reviews/clearances?

Yes, completion schedules are generally met for goods, works and consultant services contracts, except when closure is imposed by Israeli Authorities on the movement of goods, construction material and personal. Sufficient time is generally allowed for external reviews/clearances.

7. Do procurement units regularly conduct market surveys to update their knowledge of prevailing prices for goods and works?

Ministry of Finance does this bi annually through the Government General Tender. Other procurement units do not conduct market surveys to update their knowledge of prevailing prices for goods and works.

8. Are procedures and methodologies for planning procurement of recurrent items (i.e. inventory control, forecasting of future requirements, classification, coding, accounting/financial management, spare parts management, and delivery systems) adequate?

Yes, procedures and methodologies for planning procurement of recurrent items are adequate.

DOCUMENT PREPARATION

1. Do standard documents exist for goods, works and other types of contract? List. Are other international contract formats used? If so, identify.

Bidding documents exist but not unified. International contract formats of some donor agencies are used only.

2. Are these documents, if any, readily adaptable to specific contract situations (i.e. by modifications made through a Bid Data Sheet, Special Conditions of Contract or similar)?

Yes, special conditions are added to each tender reflecting particular aspect. However, each institution may use different documents.


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3. Are there separate documents for international and national competitive bidding not financed by the Bank?

There are no separate documents for international and national competitive bidding not financed by the Bank.

4. Do Instructions to Bidders (ITBs) contain all information necessary to prepare responsive bids and clearly understand evaluation criteria and their method of application?

Since most of the projects are financed by donors, bidding documents of the donors are used and thus Instructions to Bidders (ITBs) contain all information necessary to prepare responsive bids and clearly understand evaluation criteria and their method of application.

5. Do they contain other necessary information, such as eligibility requirements, basis of bid, language and currency of bids, common currency for purposes of evaluation, source and date of the exchange rate, etc.? Are sample forms and other appropriate sections of the documents provided?

Yes, they contain other necessary information, such as eligibility requirements, basis of bid, language and currency of bids, common currency for purposes of evaluation. Sample forms and other appropriate sections of the documents are provided.

6. Are bidders required to provide bid security in an appropriate amount as a condition of responsiveness of their bid?

Yes, bidders are required to provide bid security in an appropriate amount as a condition of responsiveness of their bid.

7. Is pre- or post-qualification provided for?

Government agencies use the prequalification of the Contractors Classification Committee for Works contractors. Post Qualification is not specifically provided for, but it is uncertain if provided for consulting services.

8. Are qualification criteria appropriate and clearly described?

Most government agencies refer to the prequalification and classification of the National Committee and that of the Ministry of National Economy. Bidders are required to include copies of their registration and classification in their bids. Other detailed and specific criteria, liquid assets and credit facilities, is not normally included in the bidding documents.

9. Are conditions of contract equitable? Do they provide adequate coverage for most important commercial and legal issues (for the method of procurement, size, nature and type of contract used) and provide adequate protection to the Government, without putting undue risk on bidders?

Yes.

10. Are standard purchase orders used for shopping?

Yes, standard purchase orders are used for shopping.

PREQUALIFICATION

1. Is prequalification carried out when appropriate? What types of contracts is it used for? Works? Goods? Other?

Classification of works contracts is conducted by the National Committee. Works contractors are classified into


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five disciplines: 1) roads; 2) buildings; 3) elect mechanical; 4) water and sanitation; and 5) general works.

Classifications and update of qualification is carried out once every two years. Contractors are not allowed to register/update registration by mail.

Suppliers of goods must be registered at the Ministry of Trade and Commerce. Suppliers for drugs are registered by the Ministry of Health.

The Engineering Syndicate carries out registration and classification for consulting engineering offices.

Classifications is usually used as Prequalification. Prequalification of contracts, if used, is only used in under donors financed projects where prequalification forms are used.

2. Is the prequalification process fair and transparent? Are decisions made promptly? Are foreign firms allowed to apply?

Yes, prequalification process is fair and transparent. Decisions are made promptly. Foreign firms are allowed to apply.

3. Are standard prequalification documents used? Do they clearly and completely describe all the prerequisites for submitting responsive applications for prequalification? Is financial information routinely requested and critically evaluated to assess an applicant’s financial capacity to perform?

For new comers, standard classifications documents are used, they are clear and complete describing all the prerequisites for submitting responsive applications for classifications.

No, financial information is not routinely requested and not critically evaluated to assess an applicant’s financial capacity to perform.

4. Do procuring entities verify prior to contract award if a successful bidder continues to meet prequalification requirements?

Not all the times, some procuring entities do verify, some do not. There are no routine procedures for that.

5. Are suppliers required to have a local agent in order to qualify to bid for goods or services?

Suppliers may be required to have local agents in order to qualify to bid for goods or services, reason for that is the after sales services that are usually required.

6. Do procuring entities maintain updated lists of qualified suppliers and contractors and updated market information on commonly procured goods, including spares and consumables? Is supplier and contractor performance routinely evaluated and is any standing lists of pre-qualified suppliers and contractors updated and modified based on this information. Can newcomers readily apply and be qualified?

Procuring entities do not maintain updated lists of qualified suppliers and contractors, these lists are maintained by the National Committee for contractors registration and with the Ministry of National Economy for registration of suppliers. Procuring entities do keep market information on commonly procured goods, including spare parts and consumables through the tenders it perform. But no special market surveys.

The contractors and suppliers registration entities routinely evaluate suppliers and contractors performance based on information reviewed from implementing agencies and lists are updated and modified based on the information.

Yes, they do. Newcomers can readily apply and be qualified.


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7. Is the procedure for registration of domestic contractors’ fair, providing timely access to the bidding process to all potentially qualified bidders? Are bidders allowed to register by mail and, if the conditions in the country allow, through the internet?

Yes, The procedure for registration of domestic contractors is fair. No registration by mail or internet.

Is registration permanently opened to bidders for registration or update, is there a deadline imposed in relation to a specific bidding process? Is the time taken for registration reasonable?

No, registration is not permanently opened for registration and update, there is no deadline imposed for specific bidding process. Yes the time taken for registration is reasonable.

ADVERTISEMENT

1. Are contracts to be awarded by competitive bidding publicly advertised?

Contracts to be awarded by competitive bidding are publicly advertised.

2. Is sufficient time allowed to obtain documents and prepare bids?

Yes, sufficient time is allowed to obtain documents and prepare bids.

3. Do the requirements specify use of publications or websites that are readily available to the public and are known to the private sector as sources of information on public procurement opportunities?

Requirements specify use of local newspapers that are readily available to the public and are known to the private sector as sources of information on public procurement opportunities.

COMMUNICATIONS BETWEEN BIDDERS AND THE PROCURING AGENCY

1. Are requests for clarifications answered promptly and completely in a written form?

Yes, requests for clarifications are answered promptly and completely in a written form.

2. Are clarifications, minutes of the pre-bid conference, if any, and modifications of the documents promptly communicated to all prospective bidders?

Yes, clarifications, minutes of the pre-bid conference and modifications of the documents are promptly communicated to all prospective bidders.

3. Are bidders afforded sufficient times to revise their bids following a modification of the documents?

Yes, bidders are afforded sufficient times to revise their bids following a modification of the documents.

4. Do procuring entities maintain accurate records of all communications with the bidders (before and after the deadline for submission)?

Yes, procuring entities maintain accurate records of all communications with the bidders (before and after the deadline for submission).

RECEIPT OF BIDS AND OPENING


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1. Are bids received prior to the deadline securely stored?

Yes, bids received prior to the deadline are securely stored.

2. Are public bid openings conducted?

Yes, public bid openings are conducted.

3. If so, are they conducted at a specified place closely following the deadline for submission?

Yes, they are conducted at a specified place closely following the deadline for submission.

4. What information is read out at the opening ceremony? Are minutes kept?

The following information is read out at the bid opening ceremony: a) the name of the bidder; b) bid price; c) discounts, if any; and c) the value and date of the bid security. Minutes of bid opening are kept.

5. Do bid opening procedures differ for goods, works or other types of contracts? If so, how?

Bid opening procedures do not differ for goods, works or other types of contracts.

BID EXAMINATION AND EVALUATION

1. Are evaluations conducted by qualified evaluating committees?

Yes, evaluations are conducted by qualified evaluating committees.

2. Are evaluating committees appointed ad hoc for each evaluation?

In some agencies, evaluating committees are appointed ad hoc for each evaluation, in some agencies, evaluating committees are appointed for each sector for a year.

3. Is responsiveness determined on the basis of the documentary requirements described in the documents and according to established practice?

Yes, responsiveness is determined on the basis of the documentary requirements described in the documents and according to established practice.

4. Are bid evaluations carried out thoroughly and on the basis of the criteria specified in the documents?

Yes, bid evaluations are carried out thoroughly and on the basis of the criteria specified in the documents.

5. Is the successful bidder’s qualification to perform the contract determined solely on the basis of the criteria stated in the documents? (See above) If not, what other criteria are considered?

Yes, the successful bidder’s qualification to perform the contract is determined solely on the basis of the criteria stated in the documents.

6. Are evaluations normally completed within the original bid valid ity period?

Yes, evaluations are normally completed within the original bid validity period.

7. Are bid evaluation reports prepared containing all essential information (i.e. a clear and complete description of the evaluation process, including the reasons for rejecting any bid as non-responsive, how the stated evaluation criteria


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were applied, and how the successful bidder’s qualifications were verified)?

Yes, but not all agencies produce comprehensive report as described above.

8. Describe any significant differences between goods and works procurement relating to the above.

There are no significant differences between goods and works procurement relating to the above.

CONTRACT AWARD AND EFFECTIVENESS

1. Are contracts required to be awarded to the lowest evaluated responsive bidder who has been determined to be qualified to perform the contract satisfactorily?

Yes, contracts are required to be awarded to the lowest evaluated responsive bidder who has been determined to be qualified to perform the contract satisfactorily. Normally, most government agencies open the tender for one or two classes of contractors who are prequalified and classified by the National Committee.

2. Are negotiations conducted with bidders, before or after selection?



2. If the lowest bid price, without reservations, is higher that the market price, negotiation is permissible to reduce the price to the level of market price.

In both cases, negotiations can commence only after a decision from the responsible person to do so.

3. Are additional Government approvals required before contracts can be made effective?

No additional Government approvals are required before contracts can be made effective.

4. Is performance security required in a reasonable amount and in a reasonable format?

Performance security is normally 10% of contract value and in the format of unconditional Bank Guarantee.

5. Describe any differences between goods and works relating to the above.

There are no differences between goods and works related to the above.

CONTRACT ADMINISTRATION

1. Are there manual or computerized procurement and/or contract monitoring systems?

There are no computerized procurement and contract monitoring, it is manual.

2. Are suppliers and contractors generally paid on time? What is the normal time lapse from invoice submission to final payment?

Not always. This depends on the availability of funds, i.e. if funds are available, normal time lapse is 45 days. But if funds are not available, time lapse is six months.

3. Are there appropriate procedures to monitor delivery of goods and services to verify quantity, quality and timeliness?


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The normal practice here is establishment of a committee composed of three persons from financial department, beneficiary department (specialist) and stores.

4. Are contract changes or variations handled promptly in accordance with the contract conditions and established practice (i.e. change/variation orders are given and/or confirmed in writing, constructive change orders are avoided, unit rates in the contract are honored but the supplier or contractor is allowed to agree to any new unit rates introduced and the completion schedule for each change or variation, etc.)?

Generally speaking, yes.

5. Do procuring entities normally make a good faith attempt to resolve disagreements through informal negotiations?

Procuring entities normally make a good faith attempt to resolve disagreements through informal negotiations.

6. If this fails, are the resulting disputes handled in accordance with the contract conditions?

Only in case where the implementing agency uses donor of other international contract documents, i. e. FIDIC.

7. Are supplier and contractor claims handled fairly based on a clear recognition of both parties’ obligations under the contract?

Yes, supplier and contractor claims are handled fairly based on a clear recognition of both parties’ obligations under the contract.

8. Are contract managers/administrators skilled in resolving problems in a timely manner and dealing with unforeseen circumstances arising during the life of the contract? Do they adequately document all actions of contractual import taken by the purchase/employer during implementation?

To some extent yes, contract managers/administrators are skilled in resolving problems in a timely manner and dealing with unforeseen circumstances arising during the life of the contract. They adequately document all actions of contractual import taken by the purchase/employer during implementation.

9. Are contractual remedies utilized only when appropriate and in accordance with the contract conditions?

Yes, contractual remedies are utilized only when appropriate and in accordance with the contract conditions.

10. Are contracts generally completed on schedule and within the originally approved contract price? Or is cost and time overruns frequent? If so, in which sectors and for which particular kinds of contracts? Are fair final acceptance procedures used and certificates issued in a timely fashion?

The political situation affects contracts’ completion (all sectors, and all kinds of contracts), resulting in both cost and time overrun. Liquidated damages clause is not applied, as the delay is a result of Force Majeure, suppliers/contractors are granted extension of time to enable contract completion.

Regarding final acceptance, fair procedures are adopted, suppliers/contractors are given enough time to remedy deficiencies identified and certificates are issued in a timely fashion.

11. Are contracts generally administered in a fair and equitable manner (e.g. the purchaser/employer grants extensions of time when delays are attributable to its untimely action, fair compensation is provided to offset additional costs caused by its mistakes, etc.)

Generally speaking yes, contracts generally administered in a fair and equitable manner.

12. Are under-inspection, over-inspection and/or improper rejection of goods, materials or methods of carrying out the


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works a common problem?

Inspection of goods and works is not a problem. There are well established procedures. In the case of goods, suppliers are required to submit samples, these are inspected in accordance with specifications, and reasons for rejection are recorded in an inspection minutes of meeting.

Inspection of works is done by a committee, who prepares a snag list of deficiencies; contractors are given two weeks to rectify these deficiencies.

13. Are disruptions of the supplier’s or contractor’s orderly performance common?

Disruptions of the supplier’s or contractor’s orderly performance are not common. However, closures and movement restrictions of personal and materials imposed by the Israeli Army negatively impact contractors’ and suppliers’ performance.

14. Can any of the improper contract administrative practices identified above, be attributable to a problem identified in the local procurement environment? Specify

No.

15. Are procurement evaluations/audits conducted? If so, describe scope, frequency, which carries them out, etc.

Procurement evaluations/audits are not conducted.

RECORD KEEPING

1. For contracts to be awarded on the basis of competitive bidding, does the procuring entity maintain a complete record of the process? This would include e.g. copies of all public advertisements, prequalification documents (if used), the prequalification evaluation report documenting any decisions not to pre-qualify certain potential bidders, the bidding documents and any addenda, a record of any pre-bid meetings, the bid opening minutes, the final bid evaluation report (including a detailed record of the reasons used to accept or reject each bid, copies of bids, appeals against procedures or award recommendations, a signed copy of the final contract and any performance and advance payment securities issued, etc.

In some ministries, the procuring entity maintains a complete record of the process in one place, other ministries do not maintain records in one place, parts with finance, parts with procurement unit, and parts with stores department.

2. Are adequate contract administration records maintained? (These would include contractual notices issued by the supplier, contractor, purchaser or employer; a detailed record of all change or variation orders issued affecting the scope, quantities, timing or price of the contract; records of invoices and payments; certificates of inspection, acceptance and completion; records of claims and disputes and their outcome; etc.)

Yes, adequate contract administration records are maintained.

3. For small contracts or purchase orders for goods procured using shopping procedures, is a database maintained showing the current market price for commonly needed items?

There is no data base maintained showing the current market price for commonly needed items. However, the Ministry of Finance implements procurement for the purchase of computers every three months.


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4. Are periodic reports prepared on overall procurement activities? By and for whom?

The Department of Supplies and Tenders in the Ministry of Finance has a full jurisdiction over all purchases made by PA ministries and agencies, including the Security Financial Administration. The Ministry of Finance developed and disseminated the first of a series of regular reports on public procurement operations, with a view to ensuring transparency and competitiveness as required by the General Procurement Law. First Procurement Report covering the period January-May 2004 was submitted to the World Bank on last July 2004. Second Procurement Report covering the period 1 May-31 July 2004 is ready. Both reports will be displayed at the MOF web site.

Section E - Public Sector Selection of Consultants

( There are no rules and regulations in any of the local laws regarding the selection and employment of consultants/consulting firms. Therefore answers under this section are based on implementation according to donors’

procedures)

1. Are procuring entities capable of carrying out a professional selection process for consultant services? Do they administer consultant contracts effectively?

In general yes, some procuring entities are capable, some are not. Some procuring entities administer consultant contracts effectively, some do not.

2. Is the winning consultant firm normally chosen by comparing competitive proposals submitted by a list of qualified firms? Where do implementing agencies obtain the information necessary to develop lists? Specify what other methods are used and when they are used.

Yes, the winning consultant firm is normally chosen by comparing competitive proposals submitted by a list of qualified firms. Implementing agencies obtain the information necessary to develop lists from the Engineering Syndicate who is responsible for consulting firms’ registration and classification, normally for works. However, when the implementing agency requires a consultant to perform special assignment, i. e. develop computerized financial management system, it advertises in local newspapers for Expressions of Interest for the assignment.

3. Do requests for proposals clearly describe the selection process and evaluation criteria?

Requests for proposals clearly describe the selection process and evaluation criteria.

4. Do the Terms of Reference describe the requirements of the assignment clearly and completely, including background, scope and objectives, deliverables, time frame, anticipated staff-time, and government contributions?

Yes, the Terms of Reference describe the requirements of the assignment clearly and completely.

5. Is selection based only on technical considerations or also on price?

The selection is based on both technical and financial considerations.

6. Are technical criteria detailed and appropriate and their relative weights reasonable?

Technical criteria are detailed and appropriate and their relative weights are reasonable.

7. If price is also a selection factor, are technical evaluations completed before opening and consideration of price proposals? Are the relative weights chosen for each factor appropriate?

Yes, technical evaluations are completed before opening and consideration of price proposals, and the relative


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weights chosen for each factor are appropriate.

8. Are there standard conditions of contract? Are they fair and equitable to the consultant? Do they adequately protect the interests of the client?

Yes, there standard conditions of contract, they are fair and equitable to the consultant and they adequately protect the interests of the client.

9. What form of compensation is used? Unit rates? Lump sum based on milestones? Other?

Form of compensates depends on the type of assignment and deliverables. In case of design assignment, compensation is a Lump Sum based on milestones. In case of supervision, it is based on monthly unit rate for the engineers and office support.

10. Are consultants required to submit proposal, performance and/or advance payment securities?

Consultants are required to submit proposal. With respect to securities, in the past, consultants were not required to submit performance securities, but if the consultant wants an advance payment, he is required to provide an advance payment guarantee in similar amount. Recently, some of the implementing agencies are requiring the consultants to provide bid security, performance security and professional liability insurance.

11. Is there a conflict of interest policy provision included in the conditions of contract? (If so, describe)

Yes, there is conflict of interest policy provision included in the conditions of contract. The main features are: a) consultants involved in an assignment are not to accept any commissions or payments, other that remunerations as per the contract, for any works or services related to the contract; b) during the execution of this contract, consultants shall not provide goods, works or services to any project that results from the contract; and c) during the execution of the contracts, consultants shall not be involved in any activities that contradict the outcome of this contract.

12. Are evaluations conducted by committees with appropriate expertise?

Yes, evaluations are conducted by committees with appropriate expertise.

13. Are general criteria broken down into appropriate detailed criteria agreed by the evaluating committee before conducting the evaluation?

Yes, general criteria are broken down into appropriate detailed criteria agreed by the evaluating committee before conducting the evaluation.

14. Are all criteria applied consistently, fairly and impartially by the evaluators? Are the individual score sheets kept as part of the procurement record?

Yes, all criteria are applied consistently, fairly and impartially by the evaluators. The individual score sheets are kept as part of the procurement record.

15. Are evaluations conducted individually by each member of the committee and the results averaged?

Yes, evaluations are conducted individually by each member of the committee and the results averaged.

16. Are new factors or weights added after the issuance of the request for proposals which are considered during the evaluation?

No, new factors or weights are not added after the issuance of the request for proposals which are considered during the evaluation.


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17. Are evaluation reports prepared containing essential details of the process, results, and matters to be taken up during contract negotiations?

Yes, evaluation reports are prepared containing essential details of the process, results, and matters to be taken up during contract negotiations.

18. Are evaluations normally completed within the time originally requested for the validity of proposals?

Yes, evaluations are normally completed within the time originally requested for the validity of proposals.

Section F - Procurement Performance

STATISTICS

1. What are the approximate annual values of public procurement for goods, works, and consultant services, respectively? If possible, distinguish between procurement for projects and ongoing programs.

The approximate annual values of public procurement for goods are US$70-75million, for works and consultant services it is US$250million (consultant services constitute 3% of this figures).

2. What are the approximate percentages of goods, works, and consultant services financed by external donors?

The approximate percentages of goods are 50% donor financed, 50 % government, for works and consultant services it is 85% donor financed.

3. What percentage of public procurement follows competitive bidding procedures? Other methods?

Percentage of public procurement follows competitive bidding procedures is about 95%. In few cases direct contracting is used.

4. What percentage of competitively bid procurement is donor financed?

Percentage of competitively bid procurement is donor financed is about 100%, in few cases direct contracting is used.

GENERAL EXPERIENCE

1. Are government organizations generally perceived by suppliers/contractors/consultants/the public as fair and efficient in their procurement practices?

Government organizations are generally perceived by suppliers/contractors/consultants/the public as fair and efficient in their procurement practices.

2. Which of the following factors are considered to be problems by persons familiar with public procurement in the country?

Yes No

Inappropriate or outdated laws and regulations *

Poor compliance with and enforcement of existing laws *

Poor information about procurement needs *


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Shortage of experienced professional staff *

Poor training of procurement staff *

Low pay for procurement staff *

Poor procurement training *

Weak procurement planning *

Poor procurement methods and procedures *

Lack of good standard procurement documents *

Poor technical specifications (Goods only? Works?) *

Cumbersome contract approval procedures *

Lack of clear delegation of contracting authority *

Interference by higher level officials *

Inadequate appeals mechanism *

Lack of anti-corruption measures and enforcement *

EXPERIENCE WITH WORLD BANK-ASSISTED PROJECTS

1. How many Bank projects have been completed in the country? Are now underway? In which sectors?

Twelve Bank projects have been completed. Fifteen Bank projects are underway. Roads, Water and Sanitation, Education, Health, Social, Environment, Electricity, Housing, Community Development.

2. Which organizations have been responsible for procurement on these projects?

The various PA agencies (PECDAR, Ministry of Health, Local Government, Water Authority, Ministry of Finance, Ministry of Education, Ministry of Housing and public Works, Ministry of Social Affairs) have been responsible for procurement on these projects.

3. What thresholds for ICB, IS, NS, and prior review for goods, works, and consultant services are currently in effect for ongoing projects? Are they the same for all projects? How long have they been in effect?

There are different values for threshold for these procurement methods. These differ from one project to another. The threshold for each project are in effect for the duration of the project.

4. Do project audits/completion reports/supervision reports indicate significant procurement problems? Have any cases of miss-procurement occurred? Describe.

Project audits/completion reports/supervision reports indicate significant procurement problems, mainly the capacity to implement procurement in terms of knowledge and staffing. There have been no cases of miss-procurement.


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5. Have procurement issues caused serious implementation delays, cost overruns, disbursement delays? Describe.

Procurement issues have caused serious implementation delays, cost overruns, disbursement delays; these issues are: a) inadequate procurement planning and monitoring; b) wrong choice of the appropriate procurement method; c) incomplete bidding documents; and d) lack of communication skills of the implementing agencies. Procurement issues did not cause such serious implementation delays.

6. Does the Bank receive a large number of complaints about procurement procedures, selection decisions in the country?

The Bank receives limited number of complaints about procurement procedures, selection decisions in the country, mainly in the health sector; though nothing serious.

7. Are contracts generally awarded within the planned, usual time frame that would be required for similar operations by other experienced and efficient organizations?

No, contracts are not generally awarded within the planned, usual time frame that would be required for similar operations by other experienced and efficient organizations.

8. Are there serious problems or conflicts between national and/or local practices and World Bank guidelines which should be addressed on an interim basis pending implementation of recommended long-term action plans?

In the national rules/practices there are no provisions for: a) procurement planning ; b) International Competitive Bidding and International Shopping; c) apart from supervising and design engineering services, there are no regulations or standard methods for the selection and employment of consultants; d) award contract to the lowest responsive bidder.



2. If the lowest bid price, without reservations, is higher than the market price, negotiation is permissible to reduce the price to the level of market price.

Furthermore, pharmaceutical registration procedures are rigid and length, there is also the problem of lack of coordination between the various departments, of the same agency, that are implementing the same project.

Section G - Private Sector Procurement

1. Is there a reasonably well-developed private sector which freely trades goods and procures works and other services?

Yes, there is a reasonably well-developed private sector which freely trades goods and procures works and other services. However, under the current security conditions in the Palestinian Areas, there is restriction on movement of personnel and goods within the West Bank and Gaza due to the frequent closures of the Palestinian cities by the Israeli Authorities. This restricts competition as contractors would shy away from bidding in areas away from their local area (i.e. contracts from Gaza do not bid on projects in the West Bank and vice versa).

2. Does the private sector compete actively in opportunities advertised by the government? Is this evidenced by number of bids/proposals received when open competition is sought?


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Yes, the private sector competes actively in opportunities advertised by the government. This is evidenced by number of bids/proposals received when open competition is sought, some times ten bids are received. However, if bidders know that the budget is from the government (i.e. not donors financed) competition is less because of the fear of delay of payments due to the deficit in PA budget.

3. Do private sector companies feel comfortable in exercising their right to complain or seek remedies under the public procurement system (to the extent the system provides for this right)?

To some degree, yes, private sector companies feel comfortable in exercising their right to complain or seek remedies under the public procurement system (to the extent the system provides for this right).

4. What is the performance record of private sector companies on government contracts? (Is there evidence of deliberate under pricing, poor performance on government contracts or excessive price increases after contract award during performance)?

Generally speaking the performance record of the private sector companies on government contracts is fair. With very few exceptions, there is no evidence of deliberate under pricing, poor performance, excessive price increase after contract award during performance. Under pricing has been noticed during the Intifada were contractors were competing with each other just to get contracts to keep working and keep their staff with their firms. The same applies to consulting firms. This is mainly due to the high unemployment rate at the current time.

5. Is there evidence that private sector companies are aware of requirements and have the capacity to submit acceptable bids/proposals (i.e. understand the system)? Are many bids/proposals rejected for procedural reasons?

The private sector companies are aware of requirements and have the capacity to submit acceptable bids/proposals, this is evident from the evaluation reports that are reviewed by the Bank. Not many bids/proposals are rejected for procedural reasons.

6. Has there been any experience with private sector contracts for the provision, operation, maintenance of infrastructure for various public services (BOO/BOT/BOOT/etc.)? Describe

There has been no experience with private sector contracts for the provision, operation, maintenance of infrastructure for various public services (BOO/BOT/BOOT/etc.).

7. Do private sector companies have access to commercial loans at a reasonable interest rate?

Generally, yes but it is very limited at these days due to the security conditions in the WBG.

8. Are bonds commonly used? Is so, is there a regulatory authority overseeing the activities of bonding companies? Is there a mechanism to suspend companies that have not honored their obligations to pay or execute bonds? Is there a satisfactory track record of calling of bonds?

Bonds are not commonly used

SECTION H - EMERGING AREAS OF INTEREST

1. Is military expenditure covered by the public procurement systems laws and regulations? Briefly describe coverage and exceptions.

Expenditures for the Ministry of Interior follow the public procurement systems, laws and regulations. With respect to the Military (security forces), there are clear instruction from the President that security expenditures follow the public procurement systems, laws and regulations. As informed by the MOF, actions are underway to be


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implemented.

2. Does the public procurement system and accompanying control environment (including the financial accountability system) control the flow of funds so as to ensure that funds budgeted for valid expenditures are not diverted to finance illicit activities (e.g. money laundering, terrorism)?

Yes, the public procurement system and accompanying control environment (including the financial accountability system) control the flow of funds so as to ensure that funds budgeted for valid expenditures are not diverted to finance illicit activities (e.g. money laundering, terrorism).

If an agency needs to divert/reallocate funds to another source or item other that what has been agreed, it must seek the prior written approval from the Ministry of Finance prior to the execution of the reallocation.

3. Does the country have policies aimed at promoting environmentally and socially responsible procurement? Briefly describe coverage or initiatives that will contribute to such procurement practices.

The country has a policy to encourage local products, but there are no provisions regarding the environmental aspect of procurement.

Checklist comparing National Competitive Bidding Procedures and World Bank Policy

Yes No Bank Policy

1. Are there eligibility restrictions based on nationality of bidder and/or origin of goods (other than primary boycotts)?

* Not allowed

2. Are there primary boycotts which are established by law? * Only primary boycotts are acceptable

3. Are bidding opportunities advertised in the local press? * Required

4. Are prospective bidders allowed at least 30 days for bid preparation (except for commodities/small goods contracts)?

* Required

5. Are contractors/suppliers prequalified for large/specialized contracts?

* Required

6. Are minimum experience, technical and financial requirements (for pre- or post-qualification) explicitly stated in the documents?

Registration should not be used as a substitute for advertisement when open competition is required. However, when advertising for civil works, borrowers could indicate the required minimum category of contractor specified in the registration system.

* Required

7. Is an invitation to prequalify advertised for each procurement * Required


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Checklist comparing National Competitive Bidding Procedures and World Bank Policy

involving large or complex potential contracts?

8. Are joint ventures with local firms required for foreign firms’ eligibility? * Not allowed

9. Are joint venture partners jointly and severally liable? * Required

10. Are there set limitations to the number of firms who can bid for a contract?

* Not allowed

11. Are parastatals allowed to bid? Acceptable only if they (i) are financially autonomous, (ii) operate under commercial law, and (iii) are independent from borrower and its purchasing/contracting authority.

12. Are bidders required to register with a local or federal authority as a prior condition for bidding?

* Should be discouraged. Acceptable only if registration criteria, process and cost reasonable/efficient and qualified foreign firms are not precluded from competing.

13. Are extensions to bid validity allowed? * Acceptable only if justified by exceptional circumstances.

14. Are there restrictions on the means of delivery of bids?

* Not allowed, except when bidders

have to submit physical samples. Then they can be required to deliver bids by mail, by courier, by hand, etc.

15. Is preference given to suppliers or contractors based on region or locality of registration, small size, ethnic ownership, etc.?

* Not allowed


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Annex 2: Supporting Materials for the Team’s Findings (On File)

World Bank (WB) Project Documents - Staff Appraisal Report (SARs) - Project Appraisal Documents (PADs) - Memorandum of the Presidents (MOPs) and their Technical Annexes - Implementation Completion Reports (ICRs) - Ex-Post Review Reports - Project Status Reports (PSRs) Other WB Documents

- Public Financial Management Reform, MOP, May 11, 2004. - Country Financial Accountability Assessment (CFAA), Final Draft, May 2004. - The Trust Fund for Gaza and West Bank: Status, Strategy and Request for Replenishment, November

5, 2003. - West Bank and Gaza: Country Portfolio Performance Review (CPPR), June 2003.

- Financing and Aid Management Arrangements in Post-Conflict Situations, CPR Working Papers no. 6, June 2003.

- Long-Term Policy Options for the Palestinian Economy, World Bank, July 2002. - West Bank and Gaza: An Evaluation of Bank Assistance, Operations Evaluation Department, March

2002.

- Revised CPAR Procedures, World Bank, OPCPR memo dated May 23, 2002. - Twenty-Seven Months – Intifada, Closures and Palestinian Economic Crisis, WB, September 2003 - Economic Assessment Report, February 2003. - Governance and the Business Environment in West Bank/Gaza, Social and Economic Dev. Group,

April 2001. Documents from Other Sources - Development under Adversity: The Palestinian Economy in Transition, MAS and the WB - Law No. 9 of 1998 on General Supplies - Law No. 6 of 1999 on Procurement of Public Works - Law No. 3 of 2000 on Arbitration - Regulation No. 1 of 1999 issued by the Minister of Finance on General Supplies - Regulation No. 1 of 1998 issued by the Ministry of Local Government concerning

Procurement and Execution of Public Works in Local Government pursuant to Law No. 1 of 1997.

- Financia l Regulation issued under Law No. 10 of 1965 on Contracting, Tendering und Purchasing by Municipal Councils (applicable in Gaza Municipalities)

- Financial Regulations issued under Law No. 3 of 1967 on Contracting, Tendering and Purchasing by Rural Councils (applicable in Gaza Municipalities).


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- Instructions on the Classification of Palestinian Contractors, 1994. - Civil Service Law no. 4 of 1998. - Amended Basic Law, March 18, 2003. - The general Control Institute law no. 17 of 1995. - Regulations No. 2 of 1994, By-law of the Syndicate of Engineers, Jerusalem Center. - Review of the Palestinian public procurement laws, the London School of Economics, 2004.


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Annex 3: List of Counterpart Team Members and Other Persons Met

NAME TITLE

PALESTINIAN AUTHORITY

Ministry Of Finance

H.E. Dr. Salam Fayyad Minister of Finance Mr. Farid Ghannam Director General of Budget Dept. Mr. Mazen Jadallah Director General of International Relations

Dept./ Counterpart Team Leader Mr. Mousa El-Wazeer Director General of Supply Dept./ Counterpart

team member Mr. Salem Al-Qudwah Projects Coordinator, Projects Development

Dept. Gaza / Counterpart team member Mr. Moa’awya Al-Qawasmi Deputy Director, Inter. Relations Dept. GZ Mr. Fady Hamad Manager & Coordinator, International

Relations Dept. WB Mr. Ayman Al-Basha Computer Programmer, Supply Dept.

Ministry Of Planning

Dr. Jihad El-Wazeer Assistant Deputy Minister Dr. Sameh Al Abed Deputy Minister Mr. Harbi H. Daraghmeh Director of Procurement Dept. /Counterpart

team member Er. Kamal Awad Director of Cross Sector Dept. / Counterpart

team member Dr. Emad Lubad Director of Research Dept. Ms. Aida Ayesh Director of Personnel Dept.

Ministry Of Justice

Mr. Ibrahim Al-Daghmah Director of Bureau of Fatwa & Legislation Mr. Omar Ebaid Legal Consultant / Counterpart team member Mr. Mohammed Dahdouh Legal Consultant & Deputy Director Mr. Khalid Habeeb Director General for International Relations &

Projects Dept.

Ministry Of Health

Dr. Mahmoud El-Wali Director General of Procurement Dept. Dr. Najy Abu Shahla Head of Pharmaceutical Drugs Dept.,

Procurement Dept. Mr. Samy Shalayel Head of Labs & Blood Bank, Procurement

Dept. Ms. Lina Abu Daf Assistant, Procurement Dept. Ms. Najah Hanoush Head of Pharmaceutical Disposables,

Procurement Dept. Mr. Salem El-Aryan Procurement Specialist , Project

Implementation Unit, HSDP Dr. Fathi Abu Moghli Ex-Project Coordinator of Project


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Implementation Unit, HSDP

Ministry Of Public Works and Housing

Mr. Ali Shaheen Deputy Director of Central Tender Dept. / Counterpart team member

Mr. Fayeq El-Deek Director of Scientific Research Dept. / Counterpart team member

Mr. Maher Ghunaim Assistant Deputy Minister Mr. Ahmad Al-Najjar Director General of Roads Dept.

Ministry Of Local Government

Mr. Sufian Abu samrah Director of Projects Dept. Gaza / Counterpart team member

Mr. Ramez Abdo Administrative Assistant Mr. Ayed Abu Ramadan Ex-Manager of Gaza Branch, Project

Coordination Unit Mr. Nihad Hussieni Manager of West Bank Branch,

Project Coordination Unit Mr. Naim Noubani Deputy Manager, West Bank, Project

Coordination Unit

Ministry Of Social Affairs

Mr. Mofeed Jnaina Director General of Procurement Dept.

Ministry Of Education And Higher Education

Ms. Samar El-Shurafa Director of Accounting Dept. Ms. Nisreen Al-Najjar Engineer

Ministry Of Trade And Economy

Mr. Saeb Bamya Director General of International Relations Dept. West Bank

Palestinian Legislative Council Mr. Nafez Al-Madhoun Legal Dept. Member, PLC Mr. Darweesh Al-Shanty Legal Dept. Member, PLC Mr. Suliman Al-Roomy Legal Dept. Member, PLC Mr. Rasmy Al-Khaldy Legal Dept. Member, PLC Mr. Nasrallah Nasr Legal Dept. Member, PLC Palestinian Economic Council for Reconstruction and Development

Dr. Hisham Shkoukani Director of Projects Department Mr. Raed Anabtawi Procurement Manager Mr. Ali Abu Zummar Head of Gaza Office Mr. Ali Abu Marasah Deputy PMO Director Mr. Wael Salah Community Development Projects

Coordinator Mr. Saeed Abu Zaid Project Coordinator Mr. Samer Kharouf Project Coordinator


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General Control Institute

Mr. Jarar Al-Qudwah Chairman Mr. Hasan Abu Wardah Legal Assistant

Palestinian Water Authority

Mr. Munther Shoublaq Gaza Water and Sanitation Improvement Project Director, PIU

Mr. Mamdouh Ghazali Accountant, PIU Mr. Mahmoud Ibrahim Director, Tender Dept. Mr. Mohammed Al-Shuaibi Director, Finance Dept. Environmental Quality Authority

Mr. Ahmed Abu Thaher Project Coordinator Palestinian Industrial & Free Zones Authority

Mr. Baker Thabet Procurement Specialist

Joint Service Council

Mr. Hani Shawahneh Project Director-SWEMP

MUNICIPALITIES

Mr. Fathi Hmaida Director of Financial Dept., Nusseirat Municipality

Mr. Ibrahim Abu Sultan Director of Projects Dept., Nusseirat Municipality

Mr. Shady Azarah Accountant, Joint Venture Council, Nusseirat Municipality

Mr. Mohammad Moghary Engineer, Maghazy Municipality Mr. Mousa Abu Me’ileq Director of Accounting Dept.,

Maghazy Municipality Mr. Ahmad Saeed Director of Projects Dept., Deir El-

Balah Municipality Ms. Khawla Teena Director of Accounting Dept., Deir El-

Balah Municipality Mr. Sofian Mos’ad Director, Beit Hanoun Municipality Mr. Khaleel Mattar Director of Engineering Dept., Beit

Lahia Municipality Mr. Khaleel Samara Mayor, Jabalia Municipality Mr. Rabee’ Ali Director of Projects Dept., Jabalia

Municipality Mr. Sa’d Eldeen Kharma Deputy, Gaza Municipality Mr. Mohammad Zein Eldeen Director of Financial Dept., Gaza

Municipality Mr. Ahmad Ya’qoub Accountant, Tulkarem Municipality Mr. Omar Saeed Director of Computer Dept. Tulkarem

Municipality


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Mr. Abdel R. Hassan Engineer, Tulkarem Municipality Mr. Mahmoud Al-Nimry Engineer, Tender Dept., Jericho

Municipality Mr. Haitham Abbass Financial Manager, Jenin Municipality Mr. Baher Marzouqa Engineer, Projects & Tender Dept.

Bethlehem Municipality Mr. Judeh Morqos Civilian Engineer, Bethlehem

Municipality Mr. Nadim Hadweh Civilian Engineer, Beit Jala

Municipality Mr. Elias Qumseyeh Civilian Engineer, Beit Sahour

Municipality Mr. Nabil Abraham Studies & Planning Dept. Engineer,

Qalqilia Municipality Mr. Abdel Ma’moun Afana Water Engineer, Qalqilia Municipality

DRUGS MANUFACTURERS

Mr. Khamis Idkaik Marketing Manager, Medipharm Co. Mr. Ziad Nusseibeh Pharmacist, International Drugs Stores Mr. Waleed Obeidallah Marketing Manager, MSS Co. Mr. Farouk Ashi General Manager, Nobel Co. Mr. Majed Nazzal Executive Director, UPPM Co. Mr. Hamed Touri Marketing Representative, JCL Co.

DONORS

European Commission

Mr. Francois Osetete First Secretary, Head of Finance & Contracts Section

Mr. Nadim Karkutli Second Secretary, Head of Economic, Financial Cooperation & Institutional Reform Section

Mr. Alfonso De La Fuente Garrigosa Second Secretary Mr. Richard Guilford Economist, Development &

Cooperation Section Ms. Zografia Pyloridou Financial Specialist Ms. Rasha Daibas Financial Assistant

Italian Cooperation Office

Dr. Antonio Aloi Director Mr. Daniele Musso Ex-Accountant Mr. Ibrahim Matar Project Liaison Officer

Agence Française de Developement

Mr. Martin Foeth Deputy Director

Representative Office of Norway

Ms. Hind Khoury Project Advisor Mr. Emad Eldeen Abdallah Financial & Administration Advisor


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Commercial Office of Spain

Mr. Jesus Tome Domenech Market Analyst

Belgium Technical Cooperation Office

Mr. Yves Couvreur Resident Representative Mr. Marwan Carmi Administration & Finance Officer Ms. Mona Matta Sr. Program Officer Mr. Laurent Khair Project Engineer

US Agency For International Development

Ms. Margot Biegelson Ellis Deputy Mr. Peter Sullivan Regional Legal Advisor Mr. Leonel T. Pizarro Contracting Officer

United Nations Relief and Works Agency

Mr. Olof Molander Field Procurement & Logistics Officer Mr. Mamad El Nabahin Procurement Officer Mr. Sam Musomba Kyuma Procurement Officer

United Nations Development Program

Ms. Iman Al-Wazir Project Management Officer

Danish Representative Office, WBG

Ms. Bodil Kuhn Project Coordinator The World Bank office in the WB&G Mr. Nigel Roberts Country Director Ms. Sima Kanaan Private sector specialist Mr. John wetter Sr. Economist Mr. Hisham Labadi Procurement Consultant Mr. Husam Abu Dagga Operations Officer Ms. Samira Hillis Operations Analyst Mr. Khairy El-Jammal Sr. Operations Officer


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Annex 4: Detailed Review of Legal Framework

A. Legal Framework for Public Procurement

1. The legal framework governing public procurement in the West Bank and Gaza (WB&G) consists of the following laws and regulations:

a) Law No. 9 of 1998 on General Supplies

b) Law No. 8 of 1999 on Procurement of Public Works

c) Law No. 3 of 2000 on Arbitration

d) Regulation No. 1 of 1999 issued by the Minister of Finance on General Supplies

e) Regulation No. 1 of 1998 issued by the Ministry of Local Government concerning Procurement and Execution of Public Works in Local Government pursuant to Law No. 1 of 1997

f) Financial Regulation issued under Law No. 10 of 1965 on Contracting, Tendering und Purchasing by Municipal Councils (applicable in Gaza Municipalities)

g) Financial Regulations issued under Law No. 3 of 1967 on Contracting, Tendering and Purchasing by Rural Councils (applicable in Gaza Municipalities)

2. This framework, and in particular Law No. 9 of 1998 on General Supplies (hereinafter called the Supplies Law) and Law No. 8 of 1999 on Procurement of Public Works (hereinafter called the Works Law), represents a commendable effort to deal with some of the major issues of public procurement. In view of the long-standing long-term goal of the Palestinian Authority (PA) and its predecessor administrations to attain full statehood, it would be desirable to revise this framework to be consistent with internationally accepted best practice in public procurement. This practice seeks to introduce principles of clarity, transparency, and competition into public procurement, thereby assisting governments both in obtaining best value for money and fighting corruption in procurement. It is best represented by the United Nations Commission on International Trade Law (UNCITRAL) 1995 Model Law, available in all official languages of the United Nations (including Arabic) on the UNCITRAL website.

Major Issues

4. It is internationally accepted best practice in public procurement that public procurement in any particular country should be regulated by one public procurement law. Such a law should govern the procurement by all types of public entities—ministries, departments and agencies of the central government and of any provinces or states within that country, municipalities, and publicly owned enterprises—in essence, any entity that is using public funds to pay for its purchases. This single law should regulate all types of public purchases, i.e., purchases of goods, works, and consulting services, and should provide that all these public procurement activities be supervised by one central public procurement agency. The procurement agency should be responsible for setting procurement policy and for supervision of procurement carried out by the


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procuring entities, but should not itself carry out procurement activities, nor approve award decisions by procuring entities. Such a procurement law normally also includes detailed rules allowing bidders to complain when they feel that the procuring entities have not followed the rules of the applicable laws and regulations. Also, such a procurement law is normally supplemented by detailed regulations governing the carrying out of the various procurement activities by procuring entities.

5. Compared with this international best practice, the current legal framework for procurement in West Bank & Gaza provides for a quite different system. Specifically,

a) There are separate laws for the public procurement by ministries and other parts of the Palestinian Authority (the Supplies Law and the Works Law), and for the public procurement by local governments (the Regulations listed as (e), (f) and (g) in para. 1 above).

b) There are two separate laws for the procurement of the two major types of public contracts by the Palestinian Authority, namely the Supplies Law for the procurement of goods, and the Works Law for the procurement of works.

c) The procurement activities carried out under these various laws are supervised not by one agency but by three different agencies: the procurement activities under the Supplies Law by the Directorate of General Supplies; the procurement activities under the Works Law by the Ministry of Public Works; and the procurement activities under Regulations (e), (f) and (g) by the Ministry of Local Government. There is no central public procurement agency setting public procurement policy and supervising the procurement activities by all procuring entities.

d) Procurement by publicly owned enterprises (parastatals) is not regulated at all by the laws and regulation listed in paragraph 1 above..

e) The procurement of consulting services (with the exception of engineering and other technical services) is not covered.

f) The Works Law is not supplemented by implementing regulations that would deal in detail with the carrying out of the procurement activities by the various procuring entities.

g) Neither the Supplies Law nor the Works Law includes review procedures that would allow an aggrieved bidder to complain about alleged violations of the procurement law by the procuring entity (as covered in Chapter VI, Review, of the UNCITRAL Model Law).

6. None of the laws and regulations includes a provision stating that, in case the law or regulation is in conflict with an obligation of the Palestinian Authority arising out of a treaty with another State, or out of an agreement entered into with an international financing institution such as the World Bank), then the requirements of the treaty or the international agreement shall prevail (as covered in Art. 3 of the UNCITRAL Model Law). While under generally accepted rules of public international law, such international obligations take precedence over local law, it


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is still useful having such a provision in a public procurement law because it helps domestic procurement staff to decide which rule to follow in case of a conflict.

7. None of the laws or regulations includes any rule about fraud and corruption in public procurement (e.g., penalties for public officials, or penalties/blacklisting for fraudulent or corrupt bidders or contractors), nor about conflict of interest rules prohibiting public officials from being involved in a procurement proceeding in which a close relative of theirs is appearing as a bidder. There are some other laws regarding ethics for public officials in general (see B. Laws on Corruption below), but it is also important to have very specific rules about conflicts of interest in public procurement within the procurement law itself.

Minor Issues Regarding Specific Provisions

8. Local Preference. Art. 9 of The Supplies Law states that priority shall be given to local supplies and local bidders, but does not specify how this should be done. This could be very expensive for the purchaser, since it would seem to protect local bidders from competition from elsewhere in the regional or world market. Instead the World Bank’s Procurement Guidelines (Appendix 2) limits the price advantage a local bidder can demand without losing the competition to a lower foreign bid. A similar comment applies to Art.11 about Purchase from Abroad.

9. Regulations Implementing Supplies Law. While under Articles 19 and 52 of the Supplies Law, the Council of Ministers was to issue regulations to implement this Law, these Instructions (No. 1 of 1999) seem to have been issued instead by the Minister of Finance. They refer to the Supplies Law but carry no date, and it is unclear whether they were ever issued.

10. Contractor Classifications. Under Art. 3 of the Works Law, it is not clear whether contractors classified in any class higher than the lowest class are also allowed to bid for contracts offered to contractors in lower classes. In order not to limit competition without need, they should be allowed to do so, or else the lower-class contractors will only have competition from their own class, which is likely to lead to higher prices.

11. Bidder Qualification. Art. 5(3) of the Works Law talks extremely vaguely about evaluation and qualification. It would have to be redrafted, taking into account the principles enunciated in paragraphs 5 and 6 of the draft Provisions for NCB (Annex 5).

12. Negotiating with Bidder. Art. 25 of the Works Law includes provisions that allow the tender committee to negotiate with the lowest bidder to make him drop any reservations he might have included in his bid, or to make him reduce his bid price “to the level of the market price.” This is totally against the principles of transparent, competitive bidding, and it will only encourage corruption.

13. Municipal Procurement Regulations. From two long and fascinating meetings with municipal majors, one in Gaza City with representatives from Gaza, and the other in the WB’s Office with representatives from the West Bank, it appeared that there was very substantial confusion, and lack of agreement, among the municipalities about which regulations they were supposed to use. Thus, some used the 1998 Regulations, as presumably all municipalities should, but many others claimed they had never heard of them. Others followed earlier regulations, those


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of 1965/1967, or even a law of 1936. Some municipalities indeed claimed that the Ministry of Local Government was doing procurement auditing on the basis of the 1936 law.

B. Legal Framework for Preventing Corruption

14. There are no court or administrative decisions dealing with the subject of corruption.

15. There are three Laws/regulations dealing with corruption in public procurement:

a) Regulation no. 1 of 1998 issued by the Ministry of Local Government concerning procurement and execution of public works in local government pursuant to Law no. 1 of 1997. Artic le 44 in express language prohibits any action by local government employees and their relatives up to the fourth degree from using for personal or commercial gain, whether tangible or intangible. The type of conduct is specified in paragraphs 1-9 and focuses mainly on disclosing confidential bidding information, receiving money, altering records, or withholding critical information from the local government. Articles 45-46 address the procedures in investigation and the sanctions.

b) Financial regulations issued under Law no. 3 of 1967 on contracting, tendering and purchasing by village councils (applicable in Gaza municipalities). Article 16 prohibits disclosure of information concerning a bid by employees of village councils to third parties.

c) Law no. 9 of 1998 on general supplies is generally silent on matters of corruption but states in Article 51 that violations of the law will be subject to sanctions provided in prevailing laws and regulations. It may be assumed that the civil service law sanctions would apply, since the general supplies law is implemented by civil servants.

16. There is one Law dealing with corruption in general and legislation has been drafted to cover illegal profit:

d) Civil Service Law no. 4 of 1998, Article 67(3), expressly prohibits a civil servant from using his official position for personal interest and prohibits the receipt of any personal profit, gift, reward, scholarship, or commission, either directly or indirectly, while in public service. Articles 68-74 specify the procedures for treating violations, including warnings, censure, forced retirement and termination. These articles also regulate the process of investigation.

e) The draft legislation defining illegal profit to encompass financial gain by a civil servant or his spouse, or by a legal entity that belongs to the civil servant. The law proposes the creation of a department on illegal profit at the ministry of justice which will review and investigate complaints received from the public or concerned parties, and can refer the matter to the courts for sanctions. There are monetary penalties and jail sentences for convicted civil servants. The legislation is in the final stages of review at the Palestinian legislative council. It will go into effect after signature by the President and one month after publication in the official gazette.


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Annex 5: Establishment of a Public Procurement Authority

Functions

1. The proposed Public Procurement Authority (PPA) would have the following functions.

(1) Procurement policy: Develop new procurement policies and submit them to the PA for introduction.

(2) Regulations: Develop procurement regulations as required and propose them to the PA for introduction. These could be minimal if the proposed new procurement law follows closely the UNCITRAL Model Law, since the Model Law itself is very detailed. Ensure the issue of procurement regulations to all procuring entities.

(3) Standard Bidding Documents: Develop standard bidding documents for all major types of public procurement, for the mandatory use by all procuring entities (please refer to Annex 5 for the proposed rules of NCB).

(4) Guidelines and Manuals: Prepare, maintain and issue Guidelines and Manuals to assist procuring entities in the practical implementation of procurement activities.

(5) Standard Forms: Develop, maintain and issue Standard Forms for the control and reporting of procurement activities.

(6) Collection and dissemination of procurement information: Require procuring entities to provide all information on procurement opportunities (invitations to prequalify, to bid, to submit proposals, method of procurement) as soon as it has been decided to undertake a procurement proceeding, and on contract awards (contract number, contract name, value, contractor/supplier/consultant name, start date and planned completion date) as soon as they have been made. Publish such information as required by the law.

(7) Procurement training: Coordinate the development of course materials and the provision of procurement training for civil service staff. Procurement officials at all levels should be trained, and preferably without charge. Participation in such training should be made mandatory by procuring entities for their procurement staff. Coordinate and provide procurement workshops for suppliers, consultants and contractors.

(7) Public Awareness: Develop and promote public awareness campaigns.

(8) Professional Recognition: Promote the procurement as a recognized and respected professional discipline.

(9) Procurement audits: The new Procurement Law should state that random audits of procurement activities by the procuring entities would be carried out by the PPA, and that procurement audits would no longer be carried out by the General Control Institute. In the WB's experience in other countries, authorizing the general auditing office to carry out such audits has the disadvantage that a procuring audit is not a financial audit of the kind that a general auditing office is normally responsible for, and that therefore audits


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prepared by such an office frequently misinterpret the applicable procurement rules and include very serious mistakes.

(10) Blacklists: Maintain central blacklists of suppliers and contractors who are debarred from public contracts for fraud or corrupt practices, or for persistent failure to provide satisfactory service under government contracts.

(11) Bidder Complaints: Decide about complaints of bidders against actions of procuring entities. The UNCITRAL Model Law includes, in its Chapter VI, Review, provisions that have been included in many recently introduced procurement laws in other countries, under which complaints by bidders claiming that the procuring entity has not properly applied the law, will first have to go to the procuring entity itself and may then be appealed by the bidder to an agency like the PPA (and then sometimes to court). The UNCITRAL model law provides guidance on setting up the review committee and the review procedure. Setting up such a system and mandating the PPA in the procurement law to facilitate and oversee the process will encourage strict observance of the applicable rules by the tender committees and project managers, and reduce outside influence. At the same time, it will contribute to public confidence, in particular of the business community, which will result in better competition and better prices.

(12) Routine Reporting By Procuring Entities: Maintain records of all public procurement through routine reporting of procurement decisions from each procuring entity.

(13) Annual Reporting by the PPA: Compile and issue an annual report covering all public procurement activities.

2. Other responsibilities which may be considered for the Authority are

(14) Oversight of all Asset Disposal activities, and

(15) Co-ordination of specialist external Procurement Audit activities.

Status

3. The PPA with its oversight role should be independent. The PPA should be financed out of budgetary contributions and none other. The PPA should be a totally independent oversight entity and should not exercise any functions that are not included in its oversight activities. Procuring entities should not be required to pay for the PPA's assistance because if they are, they might well decide to do without that assistance in the first place. It should not have any purchasing or contracting function, and it should not be a layer in the procurement processes of the executing agencies.

4. In the WB's view, as reflected under the UNCITRAL Model Law, the PPA should have absolutely no authority to take or to approve any procurement award decisions. First, there is no need to introduce another decision-making layer into the procuring proceeding, and second, there would be a clear conflict of interest if the PPA, which is supposed to carry out oversight over all public procurement, were at the same time allowed to carry out, or to approve, public procurement itself. Were it allowed to do so it would, in effect, have to control itself.


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Reporting

In order to protect the PPA against all manner of undue influence, the WB regula rly advises that the PPA should report to the highest possible level in the government--in WB&G, this could be the Prime Minister or the Cabinet of Ministers, which might provide even more protection. In order to protect its independence, the head of the PPA should be appointed by the Prime Minister or the President, should have a fixed term (e.g., 3 years), and should not be subject to dismissal except by the official who appointed him, and then only for serious malfeasance. The PPA should submit an annual report about its activities to the Prime Minister or the Cabinet, and/or the Parliament, which subsequently should be published.

5. Arguments raised during the CPAR mission's discussions with public officials against having the PPA report to the Prime Minister were in particular that the highest officials of the government were already overloaded with decisions that they had to take or to approve, and that it made no sense to add to that burden by forcing them to also approve decisions of the PPA. The response to this argument is that, unlike in the case of ministries or agencies, the PPA would rarely if ever be in the position of having to ask its supervisory body to take a decision about the PPA's activities, or to approve such a decision, and that the ma in reason for having the PPA report to the highest level was not because its decisions would frequently require high- level approval, but because this arrangement would give it the required protection against influence that might otherwise be exerted on it from a lower level.

6. If it should nevertheless be decided to have the PPA not report to the highest level of government, one of the existing ministries of the PA could be chosen instead. Among those that come to mind for this purpose are Economy, Finance, Justice, or the General Control Institute.

7. How and when should the PPA be established? In the WB's experience, PPAs are regularly established in the text of the Public Procurement Law whose implementation they are mandated to administer and control. Thus, it would seem to be the best approach to provide in the proposed new law on procurement in WB&G for the establishment of the PPA, the description of its duties and responsibilities, and, most importantly, for the financing of its operations in a way that will guarantee its independence. It would not be advisable to try to establish the PPA before the new procurement law is enacted because the PPA's responsibilities would have to cut right across existing legislation, which in any case would be abolished by the new procurement law.

Staffing

8. The PPA should be led by professional staff of the highest integrity and probity, and with a commitment to bringing sustainable and comprehensive improvements in the procurement regime in WB&G. They should have the confidence of the various stakeholders (PA agencies, bidders, contractors, suppliers, consulting industry, and civil society). The staffing structure of the Authority would include a Head of Authority, a Legal and Regulatory Specialist, a Procurement Training Specialist, a General Procurement Specialist for compliance, an Administrative Specialist for database and records, and general office support staff.


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Annex 6: Provisions for National Competitive Bidding in WB-Financed Projects 1. World Bank (WB) Loan and Credit Agreements, and in the case of the West Bank and Gaza (WB&G), the Trust Fund Grant Agreement, almost always provide for certain contracts estimated to cost less than a stated amount to be procured on the basis of national competitive bidding (NCB) procedures normally used for public procurement by the Borrower, to the extent that these rules are acceptable to the WB. Most Loan, Credit, and Trust Fund Agreements include a mandatory list of specific rules that must be followed in order to make the local NCB procedures acceptable to the WB. This mandatory list is sometimes set forth in a Supplemental Letter to the Loan/Credit/Trust Fund Agreement, and in other cases is included in the Procurement Schedule to these Agreements.

2. In a recent Trust Fund Agreement (TF052627), dated September 27, 2003, the NCB rules were included in the Procurement Schedule (Schedule 3). The CPAR recommends that such a list, once it has been reviewed/amended/supplemented by regional staff, and approved by the Country Lawyer, continue to be included in that Schedule, as is indeed mandated now by the new Procurement Guidelines, dated May 2004. The CPAR further suggests that the lists should be amended/expanded to read as follows (each specific Trust Fund Agreement will determine to which specific contracts financed by the agreement these rules will have to be applied).

National Competitive Bidding:

3. Goods estimated to cost less than $----- per contract, and works estimated to cost less than $------ per contract may be procured under contracts awarded on the basis of national competitive bidding in accordance with procedures acceptable to the Administrator which shall inter alia ensure the following:

Participation in bidding:

4. Government-owned enterprises in the West Bank and Gaza shall be eligible to participate in bidding only if they can establish that they are legally and financially autonomous, operate under commercial law, and are not a dependent agency of the Palestinian Authority.

5. Foreign bidders shall be elig ible to participate under the same conditions as local bidders. In particular, no preference over foreign bidders shall be granted to local bidders in bid evaluation.

Advertising; time for bid preparation

6. Invitations to bid shall be advertised on at least two (2) consecutive days in a local newspaper of wide circulation, and prospective bidders shall be allowed a minimum of thirty (30) days between the date on which the notification appears for the first time and the deadline for bid submission. With the specific approval of the Administrator, this minimum period of 30 days may be reduced to a minimum period of 10 days in the case of emergency operations.

Standard bidding documents

7. Until standard bidding documents acceptable to the Administrator have been introduced by the Recipient, the standard bidding documents of the Administrator shall be used..

Qualification criteria and evaluation criteria

8. Qualification criteria shall be clearly specified in the bidding documents, and all criteria so specified, and only criteria so specified, shall be used to determine whether a bidder is qualified. Bids of bidders not meeting such criteria shall be rejected as non-qualified. The fact that a bidder meets or


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surpasses the specified qualification criteria shall not be taken into account in the evaluation of such bidder’s bid.

9. Evaluation criteria shall be clearly specified in the bidding documents, and all evaluation criteria other than price shall be quantified in monetary terms. All evaluation criteria so specified, and only criteria so specified, shall be used in bid evaluation. Merit points shall not be used in bid evaluation.

Classification of contractors

10. If classification of contractors is required, contractors that have not yet been classified but meet the required qualifications shall be enabled to obtain the necessary classification during the bidding procedure. Any contractor that has been classified in a class higher than the lowest class shall not be restricted to bidding in his own class but shall be eligible also to bid in any lower class.

Bid submission

11. Bids shall be submitted in sealed envelopes and shall be accepted whether mailed or hand-carried.

Bid opening

12. Bids shall be opened in the presence of bidders who wish to attend, and immediately after the deadline for bid submission. Said deadline, and the place of bid opening, shall be announced in the invitation to bid. The name of each bidder, and the amount of his bid, shall be read aloud and recorded when opened in the minutes of bid opening. The minutes of bid opening shall be signed by the members of the bid opening committee immediately after bid opening.

13. Bids received after the deadline for bid submission shall be returned to the bidders unopened.

Bid evaluation and award of contracts

14. A bid containing material deviations from or reservations to the terms, conditions and specifications of the bidding documents shall be rejected as not substantially responsive. A bidder shall not be permitted to withdraw material deviations or reservations once bids have been opened.

15. The bid evaluation shall be carried out in strict adherence to the criteria specified in the bidding documents, and the contract shall be awarded to the qualified bidder offering the lowest evaluated and substantially responsive bid.

16. A bidder shall not be required, as a condition for award, to undertake obligations not specified in the bidding documents or otherwise to modify his bid as originally submitted.

17. There shall be no post-bidding negotiations with the lowest or any other bidder.


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Annex 7: Procurement In World Bank-Financed Projects

1. This annex reviews the experience of the Government’s performance of procurement in accordance with WB procurement guidelines on WB-financed projects in general, and in particular the National Competitive Bidding (NCB) provisions in the procurement schedules of Trust Fund Grant Agreements.

1 BACKGROUND

2. Following the signing of the historic September 1993 Declaration of Principles (DOP) between Israel and the Palestine Liberation Organization (PLO), a donor conference was held in Washington, D.C. At this conference, the donors expressed the view that unless the Agreement was followed by rapid economic and social improvement for broad segments of the Palestinian population political support for the Agreement might wither, undermining the entire peace process. Consequently, the WB was asked to take the lead in developing a program of support.

3. In December 1993, the WB responded by developing the US$1.2 billion Emergency Assistance Program for the Occupied Territories, which later was designated West Bank and Gaza (WB&G). In further support of this program, the WB itself contributed US$50 million from its net income to establish a special IDA-administered Trust Fund for WB&G from which monies could be lent to the PLO for the benefit of the Palestinian Authority. The Emergency Rehabilitation Project was the first project to be funded from the Trust Fund, and thus became the first program of assistance to the Palestinian people. At the time of ERP-1 appraisal (October 1993), WB&G was not, and is still not, a member country of the WB and IMF, and hence the WB could not lend to it directly. The TFGWB was established as a vehicle for WB lending. The Holst Fund Employment Generation Program, which is a multi-donor program, was administered by the WB and managed by PECDAR.

4. As of October 2003, the Trust Fund had been replenished by IDA four times for a total allocation of US$380 million. An additional US$67.2 million had accrued to the Trust Fund from investment income and from service and commitment fees on outstanding Credits, bringing the total resources of the Trust Fund to US$447.2 million. As of September 2003, US$414.8 million of this had been committed to 28 projects, leaving an uncommitted balance of US$32.4 million. Total disbursements from the Trust Fund in October 2003 amounted to US$311.8 million, or 75 percent of commitments.14

5. Under the resolutions governing the Trust Fund, the WB Board approves the terms of assistance on a case-by-case basis. Before the intifada, all WB&G projects were provided on IDA terms, with one exception (a 1997 grant for an NGO project). By October 2003, as the PA’s fiscal situation deteriorated and the WB reoriented its strategy more towards meeting emergency needs, the WB Board has approved five projects on grant terms.

6. Given the current volatile political situation in the WB&G which entail greater needs and access to the benefits of the projects by beneficiaries, the designs of WB-financed projects in

14 This paragraph and the next one are drawn from the October 2003 Trust Fund strategy paper.


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all sectors such as infrastructure, health, education, and social protection are characterized by the following elements:

• employment generation;

• institutional support, capacity building and project management to all key players, including municipalities, local government units, and villages;

• flexibility in its designs, during implementation, including the restructuring of key components, if necessary so that funds could be reallocated (with the approval of the WB) to meet the demands of the unexpected priorities for the benefit of the people of the WB&G; and

• simplified procurement and disbursement procedures are introduced into the Trust Fund Credit Agreement.

7. The WB’s role in donor coordination and flexibility in reallocating project funds in response to changing circumstances was acknowledged with appreciation by stakeholders during the June 2003 CPPR workshop.

2 ONGOING PROJECTS AND PROJECTS IN THE PIPELINE

2. 1 Portfolio

8. The WB&G portfolio records a total of 15 on-going projects with a total WB commitment of US$208.80 million, one of the largest in the MENA region. On average, these projects became effective four and a half months after they were approved by the WB Board of Directors (see Table 1). Three of these projects (Housing, Microenterprise and Gaza Industrial Estate) are co-financed by the WB and International Finance Corporation (IFC). IFC’s strategy in WB&G is focused on: (i) creating private sector employment; (ii) investing in projects that generate foreign exchange; (iii) institution building, particularly in the financial sector; and (iv) stimulating private sector development through improvements to the legal and regulatory framework.

9. There are 8 projects in the pipeline (see Table 2). Twelve projects with a total of WB disbursement of US$207.68 million were already closed by 2003. Procurement method by ICB and NCB accounted for 10.5 percent and 55.3 percent, respectively of the total disbursement of US$318.78 (see Table 3).

10. The performance of the WB&G portfolio has been good, particularly when the difficult operating environment is taken into account. At 23.3 percent in FY01, 18.9 percent in FY02, and 46.7 percent in FY03, WB&G disbursement ratios have generally exceeded regional and WB averages during the last three years.15 The exceptionally high disbursement ratio in FY03 is partly explained by fast-disbursing emergency interventions of simple design. A recent Country Portfolio Performance Review (CPPR) pointed to several factors that account for the good performance of the WB&G portfolio, including: (i) strong commitment and ownership by 15 Disbursements ratios for Middle East and North Africa Region were 14.6 percent in FY01 13.8 percent in FY02, and 16.9 percent in FY03. The WB-wide averages were 20.5, 20.7, 20.7 percent, respectively.


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the PA and the competence of the WB’s counterparts; (ii) outsourcing infrastructure project implementation to the private sector; and (iii) the hands-on approach to supervision by WB task teams in the decentralized Country Office.

2.2. Procurement Methods

11. The most used procurement methods for works and goods are National Competitive Bidding (NCB) and Shopping and for consultancy services, Quality and Cost Based Selection method (QCBS) (see Tables 4 and 5).

12. For procurement of pharmaceuticals and medical supplies, ICB is the most used method based on item-by- item selection. Direct contracting is also used.

2.3 Procurement Risk Assessment

13. During preparation and appraisal of the project, the WB assessed the capacity of the implementing agencies in conducting procurement. The procurement risk rating of these assessment for projects in the WB&G was average with only one project which deals with local authorities (municipalities and village councils) was rated as high.

2.4 Decentralization of Procurement Fiduciary Functions

14. WB&G was the first program to be decentralized to the field in 1994, before the practice was mainstreamed throughout the WB. It provided a model for transferring decision-making and accountability to the field. Having a local and decentralized presence both within the implementing and donor agencies contributes to efficiency and empowerment, particularly in a conflict environment. It was reported that under WB financed projects where procurement decisions are to be taken in Washington, some delay was experienced. Under emergency operations, procurement decisions in the field proved to be quicker and provided timely advice to client. The presence of WB country offices in both the West Bank and in Gaza with local project coordinators, greatly enhanced the supervision and advisory role provided by the WB to the Client.

15. There are three procurement consultants working for the WB in the WB&G office (one in Gaza and two in the West Bank). These procurement consultants closely coordinate with procurement specialists in Washington. Beginning in July 2004, a new arrangement was put in place in MENA as in other regions in the Bank, whereby a country procurement coordinator is assigned for each country, including the WB&G, to facilitate procurement work in the field and provide procurement advice to procurement specialists and consultants in the field.

2.5 Capacity of the Implementing Entities

16. Based on the review of 12 Implementation Completion Reports, there is a general concurrence that the commitment and performance of the implementing agencies (IAs) to the project development objectives is high, to which is attributed the satisfactory performance ratings given by the WB management (see Table 3). The capacity of various PA implementing agencies in conducting procurement ranges from satisfactory as the case of PECDAR to unsatisfactory as the case of MOH. The following is a general overview summarizing the commitment by various IAs.


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Ministry of Finance

17. MOF has recently got involved deeply in donor-financed projects and has recently assumed coordination responsibility for WB-financed projects ESSP I and II and other donor-financed projects. The MOF has shown weakness in project implementation including procurement but performance has improved under the new leadership. The MOF for the first time has prepared two reports on procurement activities financed directly from the PA budget, including activities performed by PECDAR. This is a significant achievement in the effort to establish recordkeeping on all PA procurement. With close guidance from donors and capacity building for procurement, the MOF should be able to improve its performance. However, more effort is needed to improve the handling of VAT refunds due to contractors.

PECDAR

18. PECDAR staff are well versed in WB procurement procedures and have handled procurement well by following the WB guidelines. PECDAR has performed very well in keeping accounts, managing funds, and producing useful if not always timely reports.16 In the Emergency Response Project, PECDAR also streamlined its procedures to cope with the required fast disbursement and the accelerated payments to LGUs, contractors and consultants during the later stages of the project. PECDAR still implements some donor-financed projects, including job creation projects under the PEACE facility administrated by the WB. PECDAR has conducted workshops on project implementation for other implementing agencies in the PA, including local authorities.

Local Government Units

19. Selected large municipalities such as Gaza, Nablus, and Hebron municipalities have shown noticeable implementation capacity through their involvement in WB-financed projects such as MIDP I, MIDP II, ERSP, and EMSRP. Other small LGUs have shown that they could implement small infrastructure projects with some training on procurement and close supervision from MOLG. Since the WB involvement in the WB&G, LGUs have accumulated experience on WB procurement guidelines. With adequate technical support, large LGUs have demonstrated that they were quite capable of undertaking small to medium-sized subprojects (US$2 million) on their own. The smaller municipalities were quite capable of undertaking projects in the US$0.1-0.5 million range.17 In the Emergency Response project, larges municipalities were able to streamline their procedures to speed up approvals for contractor payments. Other donors such as France, Norway, Netherlands, and DANIDA have worked directly with municipalities, including medium-sized ones. However, municipalities struggle in implementation of consultancy assignments, as do the ministries.

The Palestinian Water Authority

20. PWA has completed implementation of Gaza Water and Sanitation Project, which was rated highly satisfactory. Other WB-financed projects are under implementation, two in the West Bank plus a third just approved by the WB Board; a fourth is under preparation for Gaza. Projects in the West Bank have experienced implementation delays as well as procurement 16 WB Implementation Completion Report for the first Municipal Infrastructure Development Project (MIDP I), page 10. 17 First Municipal Infrastructure Development Project (MIDP I), page 18.


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delays, due in part to weaknesses within PWA. PWA has also engaged in implementation of other projects financed by USAID, Sweden, German Technical Assistance (KfW), and Japan. PWA still needs capacity building in procurement.

Key Line Ministries

21. Key line ministries involved in WB-financed projects include Ministries of Health, Education and Higher Education, Public Works and Housing, Local Government, Natural Resources and Social Affairs. Each one of these ministries has at least a procurement officer on staff, however, their procurement experience is limited. The capacity of these key ministries in implementing procurement ranges from average to weak, as in the case of the Ministry of Social Affairs. During the stakeholders’ workshop conducted by the Country Portfolio Performance Review (CPPR) in June 2003, the weak capacity of line ministries and municipal staff was acknowledged and a request was made for support from the WB and other donor partners to address this concern. 18

NGOs

22. Local NGOs in the WB&G have been involved in project implementation under WB-financed projects PNGO I and II as well as under the PEACE facility for job creation. NGOs with training in procurement have gained some experience with WB procurement guidelines, however, they still considered weak compared to other line ministries and PECDAR.


Procurement staff at PA institutions have low skill levels.


Systematic training of procurement staff needs to be conducted with the assistance of donors to improve project implementation and increase procurement skills. As part of the approved IDF, an assessment of training needs will be conducted in order for the PA to prioritize staff training needs for procurement and project implementation. Basic procurement training will be delivered to procurement staff from public institutions, NGOs, and the private sector.

2.6 Common Procurement Problems

Implementation Delay

25. It has been recorded in the 12 closed WB projects that border closures and the continuing restrictions on movement were the main factors causing delay in implementation. In addition to these factors, the PA staff weak capacity in conducting procurement as well as delays contributed to review of procurement decisions of projects subject to WB prior review would contribute to implementation delay. Border closure with Israel was an especially critical factor for the implementation of projects in Gaza, as it prevented raw materials from being delivered to project sites. As import procedures between Gaza and Israel become more difficult, shortages of building materials occurred and prices of some building materials increased. Furthermore, 18 CPPR, June 2003.


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MOLG also noted that after the intifada, only a limited number of contractors could actually reach new project sites.

26. In certain projects like the ESRP, subprojects have to be redesigned because the required raw materials were not allowed into Gaza due to closure and security measures. As a consequence, credit closing dates of 9 out of the 12 closed projects and 5 out of the 15 ongoing projects have had to be extended so that the development objectives could be met. The average extension times of credits and Grants range from one to three years. However, it has been demonstrated in many projects that with a committed implementing agency and staff, close supervision and timely guidance from WB staff in the field, and WB flexibility, it was possible to achieve most of project development objectives despite the political challenges and the time constraints.

Taxes

27. The PA imposes a VAT of 17 percent on goods, works and services in the WB&G. In the case of the education and health rehabilitation project, as an example, the project ran into funding shortages because of the assumption of zero taxes, and the failure to anticipate tha t the MOF would introduce a VAT during project implementation. In subsequent projects, and mainly under the emergency situation in the WB&G, MOF allowed WB-financed and -administrated grants a zero percentage VAT on an exceptional basis. Contractors and suppliers interviewed during the CPAR missions expressed their dissatisfaction with the implementation of the zero VAT exemption. In fact, where goods for which the VAT had already been paid were purchased locally for use in exempt projects, the suppliers could not actually get the VAT refunded. As a result, bidders began to imbed some percentage of the VAT in their prices. Unfair treatment resulted from the fact that some bidders who have connections with MOF were able to obtain the tax refunds, while others could not. This led some bidders to use the VAT as a tool for winning bids, on the assumption that they would be able to get their VAT refunds.

Drugs and Medical Supplies

28. MOH is in urgent need of drugs, with drugs expenditure accounting for about US$20 million a year (1999-2002), about 25 percent of MOH’s total budget. However, MOH pays higher prices than UNRWA because of the limited competition and the security conditions in the WB&G.

29. There is little interest by international providers to bid on supply of drugs and medical disposables because of the duplication of registration, difficulty of entering the drugs through the Israeli borders and using item by item basis for contract award. The Israeli MOH requires that imported drugs be registered with them (except for donations). The WB&G MOH also requires that drugs be registered with them as a condition for signing a contract. Also, the WB&G drugs warehouses are not computerized and drugs inventory is conducted manually, making it difficult to track reserves and distribution.

2.7 Ex-Post Review

30. An ex-post procurement review of nine ongoing and three closed projects was conducted from August 2001 to March 2004 by WB staff in the WB&G offices. Ongoing projects included (i)ESSP I; (ii) ESSP II; (iii) Southern Area WSIP; (iv) First Health System


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Development; (v) Solid Waste and Environmental Management; (vi) Emergency Municipal Services Rehab.; (vii) Gaza Industrial Estate; (viii) Education Action; (ix) PNGO II. Closed projects included (i) Emergency Response; (ii) MIDP I; (iii) Water Sanitation Services in Gaza.

31. In general, procurement processes were implemented in accordance with WB procedures and the provisions of the Trust Fund Credit Agreement. However, the findings of the ex-post review lead the CPAR to highly recommend that implementing entities dealing with procurement take further training in procurement.

Planning and Recordkeeping

32. In many cases, procurement plans were not updated regularly. Some entities have adequate filing systems and others have poor filing systems. Some of the issues found during post reviews were records that were kept in scattered locations and incomplete records, missing such required items as solicitation letters, evaluation quotation reports, copies of payments, variation orders, contracts, amendments to contracts, performance guarantees, and no objection letters from the WB. Solicitation letters were missing key information, such as submission date of quotation, source of funding, goods delivery time, and payment schedule.

Procurement Practices: Non-Compliance with WB Guidelines

33. The CPAR highlights the following kinds of non-compliance with the WB’s procurement guidelines and procedures.

In some projects, where more than one subproject was tendered at the same time, interested bidders were not allowed to purchase more than one bidding document.

In some projects, the sub-grant recipients split the work they wished to utilize the grant for, resulting in many small contracts that required a lot of administrative effort.

National Shopping (NS). In many cases under ESSP I and EMSRP: (i) municipalities did not use written invitations in soliciting quotations; (ii) local governments did not prepare quotation evaluation reports and did not issue purchase orders, relying instead on the quotations opening minutes and committee decisions; (iii) the value of some contracts were above the NS thresholds.

National competitive bidding (NCB), (i) In most projects and during the intifada period, the time allowed to bidders to submit bids was much less than the 30 days required under the Trust Fund Agreement; and (ii) in ESSP I and II, ministry of health component, more than one bid submission place address and bid opening address were listed in bidding documents.

Sole Source (Direct Contracting): Direct contracting was used although the Trust Fund Agreement does not stipulate its use and WB no-objections were not sought.

Procurement documents: It was noted that in many cases, key information was missing in various procurement documents.

34. Recommendations:


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Procurement documents covering all stages of procurement process should be complete and be kept in one place. Documents should be filed in chronological order (in accordance with the stages of the process), based on the projects or subprojects as appropriate.

Procurement plans should be updated regularly as they are becoming more important being part of the grants/credit agreements.

Advertisement should include relevant key information in compliance with the WB's procurement guidelines, e.g., location and time for bid opening, bid validity requirement, invitation to bidders or their representatives to attend the bid opening if they wish to do so.

Sufficient time should be allowed for bidders to prepare bids taking into account the requirement as stipulated in the Trust Fund Agreement.

All procurement entities should use SBDs, including a solicitation letter, quotation evaluation report, minutes of quotation opening and bid evaluation report, and purchase order/contract documents. All documents should include relevant key information in compliance with the WB's procurement guidelines. For example, the request for quotation should be prepared according to Clause 3.5 of the Procurement Guidelines ("Request for quotation shall indicate the description and quantity of the goods, as well as the desired delivery time and place”). Bid evaluation reports should record all key relevant factors leading to strong justification in awarding the contract to the winner and in determining non-responsiveness of other bidders.

Technical specifications should promote the broadest possible competition, while assuring the critical performance or other requirements for the goods, and/or works under procurement (Clause 2.19 of WB Procurement Guidelines). In the absence of performance and technical specifications, a proper and fair evaluation process can not be conducted.

It is recommended that VAT be added as a separate item in the bidding document and not be imbedded in the total bid price.

For the procurement of drugs and medical supplies by the MOH, it is recommended that an analysis of the prices and practices currently used, based on item-by- item contracts, be conducted. Based on the results of this analysis, a decision would be taken whether MOH would continue awarding contracts on an item-by- item basis or move to contracting by lots.

MOH also needs to request drugs registration at the time of contract signature rather than making it a condition of contract award, develop bidding documents and contracts for annual procurement of drugs and medical supplies in order to attract international bidders, consult with UN organizations about getting better prices, computerize their warehouse operations, and build staff procurement capacity. The Israeli MOH also needs to facilitate the entry of pharmaceuticals and medical supplies into WB&G.


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It is recommended that a single address be mentioned in bidding documents for bid submission and a single address for bid opening. However, until closure of cities in WB&G becomes a non-issue and people can move freely inside the WB&G, more than one address may be used for bid submission and bid opening.


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Table 1: West Bank and Gaza - Commitment and Disbursement for 15 Ongoing WB Projects Financing Disbursed 3/

World Bank Others Total World

Bank Others Total No. FY ID Project Names Primary Sector Implementing Agency Procurement Risk Assessment */

Approval Date Effectiveness Date Closing Date

US$ M US$ M

1 97 P043338 Palestinian Housing Project 1/ Urban Dev. MOH, Secondary Mortgage Facility

NA April 8, 1997 March 27, 1998 March 31, 2005 17.40 4.00 21.40 7.66 0.00 7.66

2 98 P049708 Palestinian Expatriate Professional Program PS Governance PA NA June 5, 1997 Oct. 24, 1997 Dec. 31, 2004 3.00 0.30 3.30 2.02 0.32 2.34

3 98 P040503 Gaza Industrial Estate Energy MOI, PIFZA NA Jan 20, 1998 June 25, 1998 June 30, 2005 10.00 15.00 25.00 5.02 0.00 5.02

4 99 P051564 Southern Area Water and Sanitation project Water Supply PWA Average May 27, 1999 Aug. 23, 1999 June 30, 2005 21.00 0.00 21.00 18.99 0.00 18.99

5 00 P040506 Electric Sector Investment and Management Project

Energy PEA, HEPCo, JDECo, SELCo

NA Aug. 31, 1999 March 30, 2000 Dec. 31, 2005 15.00 76.00 91.00 10.94 0.00 10.94

6 00 P053892 Health System Development Project Health MOH Low Dec. 9, 1999 April 27, 2000 April 30, 2005 7.90 0.00 7.90 7.52 0.00 7.52

7 00 P058683 Municipal Infrastructure and Development Project II

Urban Dev. MOPW, MOLG, PWA Average June 20, 2000 Dec. 19, 2000 June. 30, 2005 7.50 5.00 12.50 4.34 0.00 4.34

8 01 P054051 Solid Waste and Environmental Management Project

Environment MOLG, MOEA Average Oct. 10, 2000 Dec. 11, 2000 Dec. 31, 2005 9.50 0.00 9.50 3.15 0.00 3.15

9 01 P071040 Palestinian NGO II Project Social Protection WAC Low June 21, 2001 Nov. 1 4, 2001 Feb. 15, 2005 8.00 10.20 18.20 4.54 1.10 5.64

10 02 P065567 Education Action Project Education Low May 31, 2001 Nov. 21, 2001 Sept. 30, 2004 7.00 0.63 7.63 4.70 0.00 4.70

11 02 P075984 Emergency Services Support Project I

Social Protection MOF, MOH, MOEHE, MOSA, LGUs

Average Feb. 28, 2002 March 1, 2002 June 30, 2004 20.00 37.90 57.90 20.00 30.17 50.17

12 02 P069986 Integrated Community Development Project Social Protection MOLG Average May 23, 2002 Aug. 23, 2002 June 30, 2006 10.00 0.00 10.00 2.00 0.00 2.00

13 03 P078136 Emergency Services Support Project II 2/

Social Protection MOF, MOH, MOEHE, MOSA, LGUs

Average Dec. 17, 2002 Jan. 13, 2003 Dec. 31, 2004 40.00 27.70 67.70 28.28 0.00 28.28

14 03 P078212 Emergency Municipal Services Rehabilitation Project Urban Dev. MOLG, LGUs High Dec. 17, 2002 Jan. 22, 2003 June 30, 2005 20.00 45.70 65.70 7.31 0.00 7.31

15 04 P065921 Emergency Water Project Water Supply Average July 29, 2003 Feb. 10, 2004 June 30, 2006 12.50 0.00 12.50 0.00 0.00 0.00

*/ Procurement risk assessment made during the preparation/appraisal of the project and is recorded in the Procurement Annex of the PAD Total 208.80 222.43 431.23 126.47 31.59 158.06

Source: West Bank and Gaza Quarterly Update, March 2004 and PSRs

Others: Final financing from various donors.

1/ WB original financing is US$25.0 million (US$7.6 was cancelled)

2/ WB financing: Includes supplemental WBTF of US$15 million approved in FY2004

3/ As of March 2004


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Table 2: West Bank and Gaza – WB Pipeline Projects for FY04 to FY06

FY Project ID Sector Appraisal Negotiations Board

P081477 Social Safety Net Reform Social Protection 02/28/2004 04/12/2004 Approved 2004

P074595 North Gaza Emergency Sewage Treatment Water Supply and Sanitation 05/02/2004 07/06/2004 Approved

P065920 Gaza Emergency Water Project II Water Supply and Sanitation 10/04/2004 10/25/2004 4/28/2005 2005

P080892 Land Administration Project Urban Development 09/01/2004 09/13/2004 3/29/2005

P083767 Higher Education Project Education 07/05/2004 10/04/2004 4/21/2005

2006 P064988 Health System Development Project II Health, Nutrition and Population 04/01/2005 07/15/2005 09/30/2005

P074594 Emergency Municipal Rehabilitation Services II Urban Development 05/15/2005 06/30/2005 09/27/2005

P082230 Pension Reform Project Public Sector Governance 05/05/2005 06/20/2005 07/19/2005


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Table 3: West Bank and Gaza - Estimated and Actual Financing for 12 Closed WB Projects

Financing at Appraisal Actual Financing

Bank Others Total Bank Others TotalNo. Project ID PROJECTS Loan Closing Date

--------------------------- US$ Million ----------------------------

Implementing Entities/ Partners Overall

Procurement Risk Assessment 1/

Performance Rating of the

IA/Partners 3/

1 P034112 FIRST Emergency Rehabilitation Project Dec. 31, 1998 30.00 98.00 128.00 30.00 63.50 93.50 PECDAR NA S

2 P045576 SECOND Emergency Rehabilitation Project June 30,1999 20.00 0.00 20.00 20.00 3.49 23.49 PECDAR NA S

3 P047110 Community Development Project I Dec. 31, 1999 10.00 20.00 30.00 10.00 10.20 20.20 PECDAR/MOLG, LGU NA HS

4 P035996 Education and Health Rehabilitation Project June 30, 2001 20.00 0.00 20.00 20.00 0.00 20.00 PECDAR, MEHE, MOH NA S

5 P073538 Emergency Response Program Aug. 31, 2001 11.61 0.00 11.61 11.61 0.00 11.61 PECDAR/MOLG, LGU NA S

6 P058684 Community Development Project II Oct. 31, 2002 8.00 7.00 15.00 8.00 12.82 20.82 PLO, PECDAR/MOLG and DORA AVERAGE HS

7 P047065 Micro-enterprise project July 31, 2002 5.00 18.00 23.00 2.19 12.54 14.73 PA/IFC, Gov. of Netherlands NA S

8 P040505 Water and Sanitation Services Project Dec. 31, 2002 31.00 3.80 34.80 31.00 0.00 31.00 PLO, PWA, LEKA (consulting firm) NA HS

9 P043339 First Municipal Infrastructure Development Project June 30, 2003 40.00 0.00 40.00 40.00 0.00 40.00 PECDAR, SMs (five) and LGUs NA HS

10 P047067 Palestinian NGO Project I June 30, 2003 10.00 7.00 17.00 10.00 5.10 15.10 PMO/Welfare Association NA S

11 P053985 Bethlehem 2000 Project Dec. 31, 2003 25.00 0.00 25.00 24.88 3.45 28.33

PLO, Bethlehem 2000 Project Authority, MOLG, MOTA,

MOC/Bethlehem Area Municipalities

NA HS

12 P047111 Legal Development Program Dec. 31, 2003 2.80 0.00 2.80 2.80 0.00 0.00 PA/Ministry of Justice NA U

Total 213.41 153.80 367.21 210.48 111.10 318.78

1/ As recorded in the Staff Appraisal Report (SAR), Project Appraisal Document (PAD) and Memorandum and Recommendation of the President 2/ As recorded in the World Bank Project Status Report (PSR).

3/ As recorded in the World Bank Implementation Completion Report (ICR). IA: Implementing Agency H: Satisfactory NA: Not available HS: Highly Satisfactory U: Unsatisfactory


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Table 4: WB Project Cost by Procurement Method (15 Ongoing projects) Procurement Method

ICB N CB Other NBF Total Financing

Type

US$ million

Works 9.80 29.29 8.81 0.00 47.90

Goods 23.04 20.79 24.58 0.00 68.41

Services 11.50 0.00 37.65 0.00 49.15

Miscellaneous 0.00 0.00 50.94 0.00 50.94

Total 44.34 50.08 121.98 0.00 216.40

Table 5: WB Project Cost by Procurement Method (12 closed projects)

Procurement Method

ICB N CB Other NBF

Total Financing Type

US$ million 12.60 170.24 50.98 1.17 234.99

Works 0.00 103.31 41.37 0.00 144.68

9.37 2.67 5.59 0.16 17.79 Goods

4.37 1.57 6.96 0.00 12.90

11.52 0.60 9.49 2.53 24.14 Services

10.52 0.60 8.50 0.00 19.62

0.00 2.63 29.34 9.89 41.86 Miscellaneous

0.00 2.63 27.85 0.00 30.48

33.49 176.14 95.40 13.75 318.78 Total

14.89 108.11 84.68 0.00 207.68

Notes: the figures in bold are WB commitment.