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Training: Donors Guidelines in Procurement 1 Ramesh Raj Bista The World Bank May 22, Training: Donors Guidelines in Procurement 1 Ramesh Raj Bista The World Bank May 22, 2017

2 Session Content 1 Loan Agreement & Legal Aspect 9 Procurement/ Selection Methods, Procedures 2 Session Content 1 Loan Agreement & Legal Aspect 9 Procurement/ Selection Methods, Procedures 2 Procurement Guidelines Followed in Nepal 10 Letter of Intent & Letter of Acceptance 3 Procurement Responsibility 11 Foreign Currency Aspects in Contracts 4 Core Procurement Principles 12 Cash Flow Forecasts 5 Eligibility, Retroactive Financing 13 Consultancy Services Methods of Selection 6 Procurement Planning, Prior/ Post Reviews 14 World Bank’s New Procurement Framework 7 Misprocurement 15, 16 Issues and Concerns in Procurement in Nepal

1. Loan Agreement & Legal Aspect 3 Hierarchy of legal documents 1. Constitution of 1. Loan Agreement & Legal Aspect 3 Hierarchy of legal documents 1. Constitution of the borrower’s country (BC) – It is above the loan agreement (LA). Therefore, while making loan agreement), a legal opinion is taken so that the LA does not contradict the Constitution. 1. Loan/ Financing Agreement – It is equivalent to international treaty. FA governs the legal relationships between the WB/ADB and the Borrower. Sometimes implementation manual also becomes the part of the LA. 2. Other Laws of the BC

4 2. Procurement Guidelines Followed in Nepal Applicable Proc. GLs is stated in the 4 2. Procurement Guidelines Followed in Nepal Applicable Proc. GLs is stated in the LA. For purely Go. N funded projects, applicable Proc. GLs is of the Go. N. 4 main Proc. GLs are in practice in Nepal: 1. Go. N – Public procurement Act, 2063 (revised 2073); Public procurement Regulations, 2064 (rev 2073) & SBDs issued by the PPMO. 2. World Bank (WB) – Procurement Guidelines & Consultant Guidelines. 3. Asian Development Bank (ADB) – Same 4. New procurement Framework with major policy changes to be effective from July 1, 2016

5 Procurement Responsibility for the implementation of the project, and therefore for the award 5 Procurement Responsibility for the implementation of the project, and therefore for the award and administration of contracts, rests with the Borrower ADB TA- selection/ administration of consultants by ADB Donor Banks have obligation to ensure that the proceeds of its financing are used with due considerations of economy and efficiency in transparent manner and that funds are used only for the intended purposes as per the respective charters of the Banks No party other than the parties to the Loan Agreement shall derive any rights therefrom or have any claim to loan proceeds

6 Core Procurement Principles ADB Economy Efficiency Fairness Transparency World Bank Economy Efficiency Fairness 6 Core Procurement Principles ADB Economy Efficiency Fairness Transparency World Bank Economy Efficiency Fairness Transparency New Procurement Framework- adds Value for Money (Vf. M) Integrity Fit-for-Purpose

7 Core Procurement Principles contd… Value for Money (Vf. M): Evaluation of relevant costs 7 Core Procurement Principles contd… Value for Money (Vf. M): Evaluation of relevant costs and benefits/ risk assessment/ non-price attributes and/ or life cycle costs; Integrity: Aligned with principles of good governance; Fit-for-Purpose: determining the most appropriate approach to meet development objectives and project outcomes, considering context and risk, value, and complexity of procurement

8 ELIGIBILITY ADB: World Bank: Firms and individuals from all member countries (eligible countries) 8 ELIGIBILITY ADB: World Bank: Firms and individuals from all member countries (eligible countries) Firms and individuals from all countries. Conditions for participation shall be limited to those that are essential to ensure the firm’s capability to fulfill the contract in question Exceptions: (i) BC prohibits commercial relations with the country, (ii) decision of the UN Security Council, (iii) SOEs, (iv) firm sanctioned by the Bank

9 Advance Contracting and Retroactive Financing For Contracts prior to loan becoming effective and 9 Advance Contracting and Retroactive Financing For Contracts prior to loan becoming effective and stated date in the loan agreement If agreed in the loan agreement, retroactive financing Procurement procedures, including advertising, to be in accordance with the Guidelines to be eligible for financing

10 Prior/ Post Review Depending the size, complexity, value, and procurement risk assessment of 10 Prior/ Post Review Depending the size, complexity, value, and procurement risk assessment of the implementing agency, Banks reviews Borrower’s procurement procedures, documents, evaluations, award recommendations, and contracts to ensure the procurement is carried out in accordance with the agreed procedures Depending the size, complexity, value, and procurement risk assessment of the implementing agency, such reviews may be at different stages of procurement or post reviewed on sample basis Prior/ post reviews are agreed in the procurement plan

11 Procurement Plan An initial procurement plan for the first 18 months before project 11 Procurement Plan An initial procurement plan for the first 18 months before project negotiations and thereafter updated annually – World Bank An initial procurement plan for the first 18 months before project negotiations and thereafter updated annually for 18 months– ADB Procurement Plan includes- procurement activities with proper packaging/ size, estimated value of contract, methods of procurement, prior or post review, planned dates of procurement processes Procurement plan must be realistic. All Procurement Plans and their updates are subject to Bank’s prior review. Agreed Procurement Plans are made public after no- objection.

12 MISPROCUREMENT Misprocurement may be declared if a contract Has not been awarded in 12 MISPROCUREMENT Misprocurement may be declared if a contract Has not been awarded in accordance with the agreed provisions of the Loan Agreement and further elaborated in the Procurement Plan; Could not be awarded to the bidder otherwise determined successful due to willful dilatory conduct or other actions of the Borrower resulting in unjustifiable delays, or wrongful rejection of any bid Fraud and corruption case Cancel that portion of the loan Exercise other remedies provided for in the Loan Agreement

13 Methods of procurement- Goods, Works and Non- Consulting Services ADB World Bank ICB- 13 Methods of procurement- Goods, Works and Non- Consulting Services ADB World Bank ICB- Single/ Two. Stage (one or twoenvelop) ICB- Single/ Two- Stage Limited International Bidding LIB NCB Shopping National Competitive Bidding Framework Agreements Shopping Procurement from UN Agencies Direct Contracting Performance- Based Direct Contracting Performance Based Procurement For NCB only, Government’s SBD may be used with caveats provided in the FA

14 Methods of Selection. Consulting Services QCBS QBS FBS LCS CQS SSS Individual Consultant 14 Methods of Selection. Consulting Services QCBS QBS FBS LCS CQS SSS Individual Consultant Selection All consulting services are required to follow the Consultant GLs and the Bank’s SRFP

15 Procurement Procedures. Goods, Works or NCS Procurement Plan General procurement Notice Preparation of 15 Procurement Procedures. Goods, Works or NCS Procurement Plan General procurement Notice Preparation of Bidding Documents including Specifications/ Design drawings/ cost estimates/ Qualification Criteria/ Domestic Preference Advertising- UNDB/ dg. Market/ National newspaper Bid validity/ bid security validity Bid preparation period Bid submission/ opening Bid Opening records- read-out prices, discounts, bid security

16 Procurement Procedures Bid Evaluation report- substantial responsiveness, price comparison, qualification requirements Letter of 16 Procurement Procedures Bid Evaluation report- substantial responsiveness, price comparison, qualification requirements Letter of acceptance Performance security Contract Publication of contract award Rejection of all bids Complaint handling- debriefing

17 Selection Procedures – Consulting Services GPN Preparation of TOR, Cost Estimates Advertising- REOI 17 Selection Procedures – Consulting Services GPN Preparation of TOR, Cost Estimates Advertising- REOI Preparation of Short-list and RFP Issue of RFP to short-listed consultants Proposal Preparation period Submission of Proposals/ Opening of Technical Proposals Technical Proposal Evaluation

18 Selection Procedures. Consulting Services Opening of Financial Proposals/ Opening Records Financial Evaluation, Combined 18 Selection Procedures. Consulting Services Opening of Financial Proposals/ Opening Records Financial Evaluation, Combined Evaluation Contract Negotiations with the highest ranked firm Contract Complaint handling

3. Comparison Between Procurement Guidelines 19 1. Negotiation for a reduction of bid price, 3. Comparison Between Procurement Guidelines 19 1. Negotiation for a reduction of bid price, if it exceeds the pre-bid estimate: Ø ADB permits (GL-2. 63) Ø WB does not permit (GL-2. 61) Ø Go. N Proc. Act/Reg. do not permit Ø JICA permits 2. Bid Security Ø ADB – more than 2% of the estimate - amount to be mentioned in the notice Ø WB – not less than 2. 5% of the estimate - amount to be mentioned in the notice Ø Go. N – 2 to 3 % of cost estimate Ø JICA – no need – high level of trust on the part of bidders?

5. Reference Documents for Procurement 20 We can’t expect good procurement if you don’t 5. Reference Documents for Procurement 20 We can’t expect good procurement if you don’t have following documents on your table: 1. Financing Agreement: …, PAD, Proj. Operational Manual 2. Procurement Guidelines: WB, ADB, JICA, Go. N, 3. Annual Program & Budget (AWPB) 4. Procurement Plans: Master Procurement Plan Annual Procurement Plan (PP)

6. Procurement Planning – benefits of slicing & 21 Packaging For large or multi-year 6. Procurement Planning – benefits of slicing & 21 Packaging For large or multi-year projects, both of master & annual proc. plans are prepared. Annual proc. plans are prepared as per annual program & budget, but within the framework of master proc. Plan. Slicing & Packaging arrangement Slicing: Large project is sliced into smaller ones. Benefits are (1) high competition as small contractors can participate, (2) chances for small local contractors to grow, (3) short project duration. Examples – long road projects, multi-dimensional projects like Melamchi. Packaging: Small jobs can be joined in appropriate package to attract big contractors to achieve economy. Note: NPF requires Borrowers to prepare a. PPSD (Project Procurement Strategy for Development) b. Procurement Plan online in STEP (Systematic Tracking of Exchanges in Procurement) including Contract Management and Monitoring

7. Project Negotiation & Contract Negotiation … 22 7. 2 Contract Negotiation • For 7. Project Negotiation & Contract Negotiation … 22 7. 2 Contract Negotiation • For Consulting Services • Tax provisions • Technical proposal • Staff availability • Price negotiations for QBS, CQS or SSS or other financially non-competitive method of selection

10. Letter of Intent & Letter of Acceptance 23 10. 2 Letter of Acceptance 10. Letter of Intent & Letter of Acceptance 23 10. 2 Letter of Acceptance (LOA) • Immediately issued to the successful bidder (L 1), if there is no need for clarification of the bid. • It should clearly mention: Ø the Contract Price Ø the dead line date for the submission of Performance Security (PS) • Issuing of Letter of Acceptance will constitute the formation of the Contract

10. Letter of Intent & Letter of Acceptance 24 10. 2 Letter of Acceptance 10. Letter of Intent & Letter of Acceptance 24 10. 2 Letter of Acceptance (LOA) contd… • Upon the submission of PS/Domestic Preference Security by the successful bidder, employer should promptly notify the other bidders that their bids have been unsuccessful. • If the L 1 bidder & subsequent L 2 & L 3 bidders fail to submit the PS or conclude the agreement, their bid security will be forfeited & re-bidding is done. Case: A successful bidder, after furnishing a PS, does not sign the agreement. What are the employer’s options, if any, & what would be his appropriate action?

11. Foreign Currency Aspect in Contracts 25 11. 1 Components • Contract Amount = 11. Foreign Currency Aspect in Contracts 25 11. 1 Components • Contract Amount = X% of Foreign Currency (FCR)+ (100 -X)% of Local Currency (LCR). • FCR => For imported goods/construction materials + Salary foreign personnel. • LCR => For local construction materials +Local transportation + Payment to local labors. • Bid amount with lower portion of FCR is encouraged (How? ) 11. 2 Benefits • Less bid amount - Materials or services are procured in the currency of primary seller – saving in currency exchange commission – bidders quote competitive bid price. • Saving in foreign currency for the borrower country as payment for local materials & labors is made in local currency.

12. Cash Flow Forecast 26 1. General • • 2. Cash flow forecast is 12. Cash Flow Forecast 26 1. General • • 2. Cash flow forecast is the way of cost planning. This is the process of allocation of funds for different stages of a project or for different projects to be drawn from the total allocated annual budget. Benefits of cash flow forecasts • • • 3. Constant flow of fund is maintained. The progress of work is not hampered. Ensures timely completion of the project. Ensures cost control & assists thereby to complete the project within the target cost. Provides project expenditure in regular intervals thereby provides feedback for planning new projects How to prepare? • • • Based on procurement plan (activities vs time) Based on work schedule (activities & quantities vs time) Based on trimester breakdown of budget

15. Consultancy Services 27 13. 1 Hiring Methods Quality-and Cost-Based Selection (QCBS) Method (GL: 15. Consultancy Services 27 13. 1 Hiring Methods Quality-and Cost-Based Selection (QCBS) Method (GL: 2. 1 -2. 35)> widely used > short listing + RFP with TP & FP+ Evaluation of Technical Proposal (TP) + Eval. of Financial Proposal (FP) + Calculation of Combined Score ([email protected]% & [email protected]%)+ Negotiation with highest-score-proposal + Contract sign. Negotiation (N-1): reducing/increasing scope, revising schedule, confirming taxes, etc. But NO change in remuneration rates. Quality-Based Selection (QBS) Method (GL: 3. 2)> used for complex/highly specialized assignments > short listing + RFP with TP & FP + Eval. Of TP + Negotiation with highestscored TP + Contract sign. Negotiation(N-2): N-1 plus negotiations on any type of costs including remuneration.

15. Consultancy Services 28 13. 1 Hiring Methods Selection under a Fixed Budget (FBS) 15. Consultancy Services 28 13. 1 Hiring Methods Selection under a Fixed Budget (FBS) Method > used for simple & precisely defined assignments > as QCBS > proposal with highest Tech. Score & Price within the predisclosed fixed budget selected + Contract sign. Negotiation: as in QCBS Least-Cost Selection (LCS) Method > used for standard/routine type assignments (audits, Engineering design of noncomplex works, etc) > as QCBS > proposal securing required minimum qualifying marks & quoting lowest price selected + Contract sign. Negotiation: as in QCBS

15. Consultancy Services 29 13. 1 Hiring Methods Selection Based on the Consultants’ Qualification 15. Consultancy Services 29 13. 1 Hiring Methods Selection Based on the Consultants’ Qualification (CQS) Method > used for small assignments/ emergency situations > Selection of the best consultant (only one) + RFP with TP & FP + Eval. Of TP + Negotiation on contract price + Contract sign. Negotiation: As in QBS. Single-Source Selection (SSS) Method > used in exceptional cases (natural continuation of the job/ in disaster/ if only one qualified/ small value > used for both consulting firm and individual consultants > appropriate consultant identified in the market + RFP (brief proposal) with TP & FP + Negotiation on contract price + Contract sign. Negotiation: As in QBS.

15. Consultancy Services … 30 13. 3 Responsibility/ Liability of Consultants Professional liability (PL) 15. Consultancy Services … 30 13. 3 Responsibility/ Liability of Consultants Professional liability (PL) > insurance on PL not available in Nepal, but available internationally They are more trusted than doubted No bid & performance securities are demanded. They are trusted for their job In case of loss/damage due to design defect, they may be charged not more than their consultancy fee However, in south Asian countries, consultants, in most cases, have not been able to prove themselves of expected qualities Sometimes they become burden to the employer rather than assisting Nevertheless, without their services development works cannot be run. Simply, we need to manage them wisely & skillfully.

15. Consultancy Services … 13. 4 Donor Agencies’ Requirement 31 Donors do not impose, 15. Consultancy Services … 13. 4 Donor Agencies’ Requirement 31 Donors do not impose, but suggest for or expect better outcome from their support Conditions they put are not with their bad intention, but are based on their experiences Borrower is the one responsible for scrutinising all aspects before signing the agreement 13. 5 Trend of Dependency on Consultants / Costbenefit Ratio of Outsourcing For large contracts there is no way out without consultants If sufficient manpower with required expertise is managed for in-house design, cost may go further high International experience shows that govt authority should be involved in monitoring & evaluation of the services for effectiveness

16. Table : Methods of Procurement Under Different Guidelines SN 32 Descri ption 1 16. Table : Methods of Procurement Under Different Guidelines SN 32 Descri ption 1 Works 2 Goods WB ADB Go. N - Proc Act/Reg 1. ICB (GL 2. 1 -2. 65) 2. NCB (GL 3. 3 -3. 4) 3. Shopping (GL 3. 5) 4. Direct Contracting (GL 3. 6 - 3. 7) 5. Force Account (GL 3. 8) 1. ICB (GL 2. 01 -2. 50) 2. International Shopping (GL 3. 023. 03) 3. LCB (GL 3. 04) 4. Direct Purchase/ Negotiation or Single Tender (GL 3. 05) 5. Force Account (GL 3. 07) 1. ICB 2. NCB 3. Sealed Quotation (A 40/R-84) 4. Direct Contracting (A 41/R-85) 5. Force Account (R-98) 6. Through I/NGOs 7. Through Users’ Committee 8. Design through Competition (R-87) 1. 2. ICB (GL 2. 1 -2. 65) Modified ICB (GL 2. 66 -2. 68) for large value contracts Limited International Bidding (GL 3. 2) NCB (GL 3. 3 -3. 4) Shopping (GL 3. 5) Direct Contracting (GL 3. 6 -3. 7) Procurement from UN Agencies (GL 3. 9) 1. ICB (GL 2. 01 -2. 50) 2. International Shopping (GL 3. 023. 03) 3. LCB (GL 3. 04) 4. Direct Purchase/ Negotiation (GL 3. 05) 5. Limited Tendering and Repeat Order (GL 3. 06) 1. ICB 2. NCB 3. Sealed Quotation ((R-84) 4. Direct Contracting (R-85) 1. QCBS (GL 2. 1 -2. 31) 2. QBS (GL 3. 2 -3. 4) 3. Selection Under a Fixed Budget (GL 3. 5) 4. Least Cost Selection (LCS)(GL 3. 6) 5. Selection Based on the Consultant’s Qualification (CQS) (GL 3. 7 -3. 8) 6. Single Source Selection(SSS) (3. 9 -3. 13) 7. Selection of Particular Types of Consultants (GL 3. 15 -3. 21) 1. QCBS (GL 6. 04 -6. 12) 2. QBS (GL 6. 01) 3. Individual Consultants (GL 8. 018. 07) 4. Special Selection Procedure (GL 6. 13) 1. QCBS (R-70) 2. QBS (R-70) 3. QCBS from Standing List (R-72) 4. Direct Selection (R-82) 5. Other Methods (R-83) 3. 4. 5. 6. 7. 3 Services

33 World Bank’s New Procurement Framework What is new? 1. New name - “WB 33 World Bank’s New Procurement Framework What is new? 1. New name - “WB Proc. Framework” & it contains following major documents: i. Procurement Policy (6 pages) – Core proc. ii. WBG Directive – It revises the existing “Corporate principles, Governance, Alternative proc. arrangement(APA), project proc. strategy & PP. To be approved by the Board. Proc. Policy”. iii. Procurement Procedure for Bank Staff iv. Procurement Regulations for Borrowers

34 World Bank’s New Procurement Framework… What is new? 2. Current Proc. GLS & 34 World Bank’s New Procurement Framework… What is new? 2. Current Proc. GLS & Consultant GLS (Red & Green Books) will be replaced by the new Framework. Procurement Regulations for Borrowers will cover proc. of G/W/NS & S. 3. Wide Methods of Selection and Market Approach

35 Selection Methods for Goods, Works and NCS Selection Methods: (i) Request for proposals; 35 Selection Methods for Goods, Works and NCS Selection Methods: (i) Request for proposals; (ii)Request for Bids; (iii)Request for Quotations; (iv)Direct Selection Particular Types of Selection Arrangements: (i) Competitive Dialogue; (ii) PPP; (iii) Commercial Practices; (iv) UN Agencies; (v) E-Auctions; (vi) Imports; (vii) Community Driven Development (CDD); (viii) Force Accounts Market Approach Options: (i) Open; (ii) Limited; (iii) Direct; (iv) International; (v) National; (vi) PQ; (vii) Initial Selection; (viii) Single Stage; (ix) Multi Stage; (x) BAFO; (xi)Negotiations; (xii) Rated Criteria

36 Selection Methods for Consulting Services Selection Methods: (i) QCBS; (ii) FBS; (iii) LCS; 36 Selection Methods for Consulting Services Selection Methods: (i) QCBS; (ii) FBS; (iii) LCS; (iv) QBS; (v) CQS; (vi) Direct Selection Particular Types of Selection Arrangements: (i) Commercial Practices; (ii) UN Agencies; (iii) No Profit Organizations (such as NGO); (iv) Banks; (v) Procurement Agents Market Approach: (i) Open; (ii) Limited; (iii) Direct; (iv) International; (v) National; (vi) Short List

37 World Bank’s New Procurement Framework… What is new? 4. Major changes at operational 37 World Bank’s New Procurement Framework… What is new? 4. Major changes at operational level: i. Project Proc. Strategy for Dev-nt (PPSD) (New) & Proc. Plan: Both needs to be prepared. ii. Contract Risk Rating (New): High value & high risks contracts will have separate risk assessment & rating in addition to the Proj. risk rating. iii. Alternative Procurement Arrangement (APA) (New): WB may delegate its proc. function, i. e. to ADB, Power. Grid, etc. iv. Core Procurement Principles: (1) Value for Money; (2) Economy; (3) Integrity; (4) Fit for Purpose; (5) Efficiency; (6) Transparency; (7)Fairness. v. Bank Roles & Responsibilities: Shift from “transaction based oversight” to “strategic planning, hands-on support in implementation, contract mgmt. , capacity building, …”

38 World Bank’s New Procurement Framework What is new? 4. Major changes at operational 38 World Bank’s New Procurement Framework What is new? 4. Major changes at operational level vi. Abnormally Low Bids (New): Clarification asked vii. Hiring of civil servants as an exception: More relaxed, removal of some constraints viii. Stand. Still Period & Notification of the Intent to Award a Contract(New): Now as in PPA. ix. Leased assets & Proc. of 2 nd hand Goods (New) x. New proc. Methods(New): market approach (complexity, risk, capacity), competitive dialogue, e -reverse auction, enhanced PPP & Framework Agreement

39 World Bank’s New Procurement Framework What is new? 4. Major changes at operational 39 World Bank’s New Procurement Framework What is new? 4. Major changes at operational level … xi. Hiring of project Impl. Support Staff (New): Recruitment as per Govt. process acceptable to the Bank. xii. Short List of consultants: 5 -8, selection methods & process more clarified/ simplified.

40 Systematic Tracking of Expenditures in Procurement - STEP • Accessible for both Clients 40 Systematic Tracking of Expenditures in Procurement - STEP • Accessible for both Clients and Bank. Document submission and no-objections will be channeled through the system – profiled in WBDOCS. • Current “stand alone” procurement systems like SEPA & ENO will be replaced by STEP. • First of its kind that enables tracking of procurement activities throughout its process i. e. from planning stage to contract award. • Great tool for monitoring and will make life easy as there will be alerts/notifications for upcoming events, pending activities/review delays etc. • Clients will need to submit procurement notices/contract award notices. • Procurement Plans can be approved in sections.

41 Issues and Concerns in Procurement Requiring unnecessary documents at the initial stage Not 41 Issues and Concerns in Procurement Requiring unnecessary documents at the initial stage Not following international practice, especially in consulting services Disqualifying at the initial stage for missing historical documents/ information No market study/ information prior to developing selection/ evaluation criteria Too restrictive or too lenient criteria Consultant selection criteria too mechanical

42 Issues and Concerns in Procurement Specifications not clear or restrictive Evaluation reports- narrative 42 Issues and Concerns in Procurement Specifications not clear or restrictive Evaluation reports- narrative analysis missing Technical evaluation by non-experts Rejection of all Bids for evaluated bid price being more than cost estimates Rejecting Consultant’ s proposal for Financial Proposal being higher than the cost estimates Weak Contract Negotiations and Minutes of Negotiations for financially non- competitive consultants selection including individual consultants

43 Thank You 43 Thank You