OECS

COUNTRY PROCUREMENT ASSESSMENT REPORT

(Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines)

VOLUME I. FINDINGS AND RECOMMENDATIONS

VOLUME II. DATA AND ANALYSIS

April 2003

CURRENCY EQUIVALENTS

Currency Unit = East Caribbean Dollar (EC Dollar) US$1 = 2.70 EC Dollars

ABBREVIATIONS AND ACRONYMS

AO Accounting Officer BOO Build, Own and Operate BOOT Build, Own, Operate and Transfer BOT Build, Operate and Transfer CDB Caribbean Development Bank CEO Chief Executive Officer CSSO Civil Service Staff orders CSTB Central Supplies Tender Board, St. Vincent and the Grenadines. CTB Central Tender Boards of Dominica, St. Lucia and/or Public Tenders Board of

Grenada and/or Central Supplies Tender Board, St. Vincent and the Grenadines, Tender Board of St. Kitts

DOA Director of Audit DTB Departmental Tender Board EC$ East Caribbean Dollars ECDS Eastern Caribbean Drug Service FAA Finance Act, Dominica, Grenada and/or the Finance Administration Act, St. Lucia,

Finance Act, St. Kitts and Nevis, and Financial and Audit Act, St. Vincent and the Grenadines.

FR Financial Regulations ICR Implementation Completion Reports LCB Local Competitive Bidding LIB Limited International Bidding MOCW Ministry of Communication and Works or the Ministry of Communication, Works

and Public Utilities or the Ministry of Communication, Works and Transport MOCWT Ministry of Communications, Works and Transport MOH Ministry of Health MOW Ministry of Water NBP No Bribery Pledge NCB National Competitive Bidding NS National Shopping OECS Organization of Eastern Caribbean States PAC Public Accounts Committee PAR Performance Audit Reports PIU Project Implementation Unit PMU Project Management Units PPS Pharmaceutical Procurement Services of the OECS PS Permanent Secretary to the Government PSR Procurement and Stores Regulations PTB Public Tenders Board, Grenada (designated term for the CTB)

QCBS Quality- and Cost-based Selection Method RFP Request for Proposals SBD Standard Bidding Documents TA Technical Assistance UK United Kingdom UNCITRAL United Nations Committee on International Trade and Laws WTO World Trade Organization

OECS

COUNTRY PROCUREMENT ASSESSMENT REPORT

VOLUME I. FINDINGS AND RECOMMENDATIONS Preface Executive Summary Summary of Findings: Strengths and Weaknesses of Present Procurement System 1. Legal and Regulatory Frameworks 1 A. Existing Legal and Regulatory Framework 1 B. Findings on the Existing Legal and Regulatory Framework 4 C. Recommendations on the Legal and Regulatory Framework 5 (i) Short Term Actions 5 (ii) Medium Term Actions

2. Procedures and Practices 8

A. Findings on Procurement Planning and Annual Updating of Procurement Plans 8 B. Findings on Eligibility and Process 8

C. Findings on Methods of Procurement 10 D. Findings on Monitoring and Contract Management 14 E. Recommendations on Procedures and Practices 15 (i) Short Term Actions 15 (ii) Medium Term Actions 16

3. Organization and Resources 17 A. Organizations – Tender Boards, Ministries/Departments, Parastatals and Local Governments 17 (i) Findings 17 (ii) Recommendations: Short Term Actions 17

(iii) Recommendations: Medium Term Actions 18 B. Resources 19 (i) Findings 19 (ii) Recommendations: Short Term Actions 20

(ii) Recommendations: Medium Term Actions 21 4. Audit and Anti-Corruption Measures 22 A. Audit 22

(i) Findings 22 (ii) Recommendations: Short Term Action 25

(ii) Recommendations: Medium Term Action 25

B. Anti-Corruption Measures 26 (i) Findings 26

(ii) Recommendations 28 5. Performance on Bank-assisted Projects 29 6. General Risk Assessment 31 7. Private Sector A. Commercial Regulations 32 B. Commercial Practices 32

8. Recommended Action Plan 34 Annex 1: Recommended Action Plan 35 Annex 2: Technical Assistance 38 List of Tables

OECS COUNTRY PROCUREMENT ASSESSMENT REPORT

(Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines)

PREFACE

Date of the Report: 1. This report was completed in June 2001, and revised in April 2003. Basis of the Report 2. As part of the preparation of the World Bank’s three-year Country Assistance Strategy (CAS), it was agreed with the Governments of Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines (hereinafter called the “OECS group”), that a Country Procurement Assessment Report (CPAR) would be prepared. In consultation with the Ministries of Finance of the OECS Countries (MOF), the CPAR Mission comprising of Mr. Vladimir T. Jadrijevic, Senior Procurement Specialist and Task Manager, and Mr. Narayanaswami Viswanathan, Procurement and Project Management Consultant, visited the OECS countries from October 18 to 28, 2000 to conduct the procurement review. This was followed by another visit by Mr. N. Viswanathan to the OECS group from November 20 to December 12, 2000 to complete the outstanding work in the field. 3. This report reflects the joint efforts of the OECS group and the Bank, is based on the work of Mr. Viswanathan, and has been prepared under the general guidance of Messrs. Armando Araujo (Regional Procurement Advisor) and Vladimir T. Jadrijevic (Task Manager) of LCOPR. The mission received valuable inputs during the preparation of this report from many senior government officials including Ambrose V. George, Minister of Finance and Economic Planning, Dominica, Hon. Anthony Boatswain, Minister of Finance, Grenada, Hon. Denzil Douglas, Prime Minister and Minister of Finance, St. Kitts and Nevis, and Messrs /Mesdames. Joseph Banis, Acting Financial Secretary, Dominica, Timothy Antoine, Acting Permanent Secretary, Ministry of Finance and Chairperson of the Central Tender Board, Wendell Lawrence, Financial Secretary, St. Kitts and Nevis, Zenith James, Director of Finance, Ministry of Finance and Chairperson of the Central Tender Board, St. Lucia, Mr. Maurice Edwards, Director General, Ministry of Finance and Planning and Chairperson of the Central Tender Board 1and Laura Browne, Director of Planning, Ministry of Finance and Planning of St. Vincent and the Grenadines and officials of the ministries, departments and agencies involved in public sector procurement of goods and services. This report also includes inputs from the OECS Country Team, and Task Team Leaders associated with ongoing projects in the OECS countries. The report follows the format outlined in the World Bank’s interim instructions dated June 1, 1998. The list of documents used in

1 For ease of reading, the term “Central Tender Board” or abbreviation “CTB” is used through out this document to refer to the “Public Tenders Board” (PTB) of Grenada, “Tender Board” of St. Kitts and Nevis and “Central Supplies Tenders Board” (CSTB) of St. Vincent and the Grenadines.

preparation of this report appears in Annex 1 of Volume II of the CPAR and the list of persons met in Annex 2 of Volume II of CPAR. 4. A stand-alone report for Dominica in support of a World Bank’s proposed structural adjustment operation to that country is currently being prepared. References to Dominica will be updated in the final draft of the OECS CPAR on the basis of the findings of the stand-alone Dominica exercise and discussions with that Government, scheduled to be completed shortly. Acknowledgements 5. The mission wishes to acknowledge the extensive cooperation, assistance and valuable advice received from various government, parastatals, and private sector officials, contractor representatives and consulting engineers as well as donors. Particular thanks are due to the Ministries of Finance, the Ministries of Planning, the Ministries of Agriculture, the Ministries of Communication and Works, the Ministries of Education, the Ministries of Health, the Ministries of Legal Affairs and/or Attorney General, the Ministries of Local Government, the Departments of Transport, Office of the Prime Minister, Customs Departments, the Accountant Generals, the Directors of Audit, etc., the Chamber of Industry and Commerce, the Association of Consulting Engineers (ACE), the Construction Contractor’s Association, and the European Union.

OECS EXECUTIVE SUMMARY

Strategy and Objectives of the OECS CPAR 1. The World Bank’s 2001 Country Assistance Strategy (CAS) for the OECS group1 included a focus on institutional development in the public expenditure management area by providing for the preparation of a Country Assessment Procurement Report (CPAR), a Country Financial Accountability Assessment (CFAA), and an Institutional and Organizational Capacity Review (IOCR). In October 2000, the Bank and the OECS member countries agreed to the prepare a Country Procurement Assessment Report (CPAR) which would review public sector procurement systems in the sub-region and include an action plan for reform formulated in terms of regional approaches. Agreed procurement reform actions would be part of an integrated regional agenda for comprehensive public sector reform resulting from the Bank analytical work in the various areas and the ensuing discussions with the countries. 2. A separate CPAR is currently being prepared for Dominica, as background work for the type of World Bank’s financial support and public expenditure management reform currently envisaged for that country. However, the two reports are fully consistent in their finding and recommendations. While a number of short-term recommendations can be implemented independently in each country, both CPARs focus primarily on the benefits of regional harmonization of procurement policy and the advantages and challenges of joint public procurement at the regional level for selected goods. Key Findings and Policy Recommendations The regulatory framework is outdated and requires substantial revision. Significant gaps in the framework contribute to distorting practices and the widespread perception that the system lacks transparency. A sound, harmonized regime for public sector procurement would unify and strengthen the OECS countries’ position in external trade fora and enhance regional trade in good and services, and would be consistent with other regional initiatives. 3. None of the OECS member countries has adopted laws which set forth clear and comprehensive frameworks for public sector procurement. The Ministry of Finance (MOF) of each country2 is empowered by the Finance and Audit Act (FAA)3 to regulate

1 In this report, the term “OECS group” refers to Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines. Antigua and Barbuda, also part of the OECS group is not included in this report since it is not a borrowing member of the World Bank. 2 Designated as Ministry of Finance and Economic Planning in the Commonwealth of Dominica. Designated as Ministry of Finance in Grenada, St. Kitts and Nevis and St. Lucia. Designated as the Ministry of Finance and Planning in St. Vincent and the Grenadines 3 Commonwealth of Dominica: (i) Finance and Audit Act 1965 (act No. 8 of 1965) date of commencement 15 September 1966; Grenada: Finance and Audit Act 1964: and Finance and Audit Amendment Act 1998 (Act No. 25 of 1998); St. Kitts and Nevis: Finance Act 1990 (Act no. 9 of 1990); Saint Lucia: Finance Administration Act 1997 (Act No. 3 of 1997); and St. Vincent and the Grenadines: Financial and Audit Act 1964.

procurement. MOF issues Financial Regulations (FR) and Procurement and Stores Regulations (PSR)4. As executive acts, these rules can be easily changed by the Minister of Finance and do not reflect established government procurement principles and practices. Existing rules promote selective bidding, excessive discretion in decision making, and do not address issues and aspects which are key to efficiency, fairness, transparency and accountability, such as, for example:

• public bid opening; • qualifications on suppliers and contractors; • award to the lowest evaluated bidder; • bid protests; • debarment of bidders; • disclosure of procurement rules; and • and maintenance of procurement records.

In addition, conditions for use of various procurement methods are not defined and there are no separate rules for procurement of consulting services. 4. In general, private sector, civil society, and many public officials perceive public sector procurement practices as non-transparent. The legal framework does not contain specific provisions, either in procurement rules or other legal texts, which may faciliate the identification, prevention and investigation of corrupt or fraudulent procurement practices. No reference to corrupt practices is included in bidding documents. In addition, there is little protection of whistleblowers, and no formal mechanism or channel to report instances of corruption. A sound regulatory framework would help reduce many opportunities for corrupt practices currently facilitated by gaps and inconsistencies in the system and engender confidence in the business community and civil society that procurement practices are fair and transparent. Additional measures designed to prevent and combat corruption should be incorporated in the overall regulatory framework. These may include, for example, specific anticorruption legislation which, inter alia, establishes an anti-corruption body, freedom of information and whistleblower protection legislation, a corruption reporting hot line, and training for appropriate public officials in forensic auditing and other relevant techniques to uncover and investigate corruption cases.

4 Commonwealth of Dominica: (i) Financial Regulations 1976 made under Section 16(1) of the Finance and Audit Act 1965; and (ii) Financial (Stores) Regulations effective 1 November 1980. Grenada: (i) The Financial Rules, 1998 [First Schedule] and (ii) The Stores Rules 1998 [Second Schedule] of the Finance and Audit Amendment Act 1998 (Act No. 25 of 1998). St. Kitts and Nevis (i) Financial Instructions 1983 (issued under Section 53 of the Constitution); and (ii) Stores Rules of St. Christopher and Nevis (effective 19 September 1983). Saint Lucia: (i) Financial Regulations (Statutory Instruments, 1997 No. 36); and (ii) Procurement and Stores Regulations (Statutory Instruments, 1997 No. 37). St. Vincent and the Grenadines: (i) Financial and Stores Rules of the Windward Islands 1952; (ii) Manual of Tender Procedures (issued on November 21, 1967 as Statutory Rules No. 101-114).

5. The regulatory framework for public sector procurement should be harmonized at the regional level and cover all relevant principles and procedures as well as institutional and organizational aspects. The framework should be consistent with ongoing regional efforts to create a common procurement regime, particularly in the context of CARICOM, the Free Trade Area of the Americas (FTAA) process, and the establishment of the Caribbean Single Market and Economy (CSME). In addition, as signatories to the World Trade Organization (WTO) Agreement, OECS countries have committed themselves to enter into negotiations leading to the adoption of a multilateral procurement regime. A harmonized procurement framework would increase procurement efficiency and economies of scale, and substantially enhance the OECS countries’ negotiating position in all regional as well as plurilateral external fora, such as the WTO Government Procurement Agreement (GPA). 6. The Inter-American Development Bank (IADB) recently approved a technical assistance project to review procurement systems in CARICOM countries (including the OECS countries reviewed in this CPAR), ensure greater availability of government procurement statistics for national and regional policy makers, and provide recommendations on the formulation and implementation of a regional government procurement framework that would facilitate the establishment of the CSME and help strengthen CARICOM’s external economic relations. Further synergies between the Bank’s analytical work in the fiduciary area and the IADB’s project are being explored to maximize results and avoid overlaps. Additional previous reviews of procurement harmonization options include model legislation for financial administration prepared in 1995 with the assistance of the Canadian Government, which has not been adopted. The harmonized framework proposed under that exercise included a set of individual domestic laws rather than uniform legislation for the region. Alternative harmonization options, which should be further assessed, include the adoption of regional directives or a regional agreement including all relevant principles and basic features of acceptable procedures and requiring member countries to adopt consistent national legislation. There are no effective institutional arrangements for policy oversight. In addition to national authorities, appropriate arrangements at the regional level are desirable to promote harmonization, coordinate capacity building efforts, and carry out a policy dialogue on procurement with external partners. 7. The Director of Audit (DOA) is empowered by the Constitution and the FAA Act/Audit Act to oversee government accounts and report annually or more often, if necessary, to the Parliament. However, the DOA does not monitor implementation of procurement rules or has any policy generation or coordination function. There is no other body with such functions or authority which is critical to promote and oversee the modernization and harmonization of procurement rules. 8. At the regional level, ideally within the OECS Secretariat, these responsibilities should include maintaining an ongoing policy dialogue with the countries and external partners, including the donor community, providing technical assistance to the countries in reforming and maintaining their national legislations up to date, monitoring and evaluating the impact of the reforms and the continued efficiency of the national and regional systems,

coordinating capacity building, publishing a procurement bulleting or otherwise disseminating information on procurement, and developing harmonized tools (e.g. bidding documents, e-procurement, manuals, etc.) to facilitate the efficient implementation of the regional procurement system. 9. At the national level, an appropriate authority should be designated as official interlocutor of the regional policy/oversight body. The national authority should be responsible for overseeing implementation of the regional approach within the domestic system. An viable option could be converting the Central Tender Board (CTB), where it exists, into a policy making and regulatory body, provided that its operational involvement in the procurement process ceases and has staff with adequate capacity and authority to promote the changes at the highest levels of government. The current procurement organization and resources are not efficient. Procurement decision-making authority should be decentralized to procuring entities, except for selected items for which better economies of scales could be achieved at the national or regional level, and a comprehensive capacity-building program should be implemented to create a competent corps of procurement professionals. 10. The CTB, Minister of Finance, or Cabinet, depending on applicable thresholds which are, generally, very low, approve most contracts. This approach causes delays and reduces the procuring entities’ ownership of the procurement process and accountability. The procuring entities, in turn, have little opportunity or incentives to build procurement capacity. While a CTB is legally required for all OECS countries, St. Kitts and Nevis and Dominica never established one. In these countries the contracts are approved by the Minister of Finance and the Minister of Works if involving construction. A Departmental Tender Board is required only in Grenada, for contract below the specified threshold, and may be appointed ad hoc in St. Lucia. 11. Procurement decision-making authority should be delegated to line ministries and other procuring entities in the public sector by substantially raising current contracting powers thresholds and revising them upwardly every year, as appropriate. It is also recommended that the CTB (or Ministers of Finance and Works in the cases of Dominica and St. Kitts) and Cabinet have no role in approving contracts. As a minimum, their current role should be gradually phased out, as the procuring entities’ capacity increases and internal controls are strengthened, and limited by law to a strictly formal review (i.e. only to ensure the legality of the process), subject to stringent time limits (i.e. approval would be implicit when the time has elapsed), and on the basis of a streamlined bid evaluation report designed for this purpose. 12. The option of procuring in bulk certain goods needed on a recurrent basis by all public sector organizations (e.g. paper, spare parts) should be further considered. Procuring units could be established for this purpose in the Ministries of Finance and carry out bulk procurement for all government organizations by consolidating annual procurement plans prepared by each entity. The heads of these centralized units should be experienced procurement professionals authorized to sign all contracts without requiring further

approvals. In addition, better economies of scale and bargaining positions could be achieved by pulling requirements for selected items (e.g. construction materials, diesel fuel for electricity generation) and procuring them on a regional basis under the umbrella of the OECS Secretariat. Such regional procurement approach should build on the experience of the joint procurement of pharmaceuticals carried out by the OECS Secretariat’s Pharmaceutical Procurement Services (PPS) Unit following further review and improvement of the procurement practices presently utilized by the PPS. 13. Procurement is not considered a professional expertise with specific entry requirements and a career path in the civil service system based on qualifications and performance. While levels of capacity vary form country to country, overall, in the region there are few capable procurement officers and very little training opportunities are available. An in-depth skills inventory and training needs assessment should be prepared and a comprehensive regional capacity development strategy developed. The assessment and strategy should include private and public training institutions and universities. The development of a post graduate program on government contracts or the inclusion of relevant courses in the main universities’ curricula should be considered. A procurement career should be designed to be consistent with wider public service reforms. Practices of application are poor and procedures for planning, carrying out and monitoring procurement inefficient and often non-transparent. Controls should be strengthened, effective planning, monitoring and contract administration tools adopted, and a strategy to incorporate new efficiencies such as e-procurement developed. 14. With very few exceptions, procuring entities do not prepare procurement plans, typically invite bids from a short-list of bidders, do not specify evaluation or qualification criteria in the bidding documents, have no established systems and limited capacity for contract administration, and often pay suppliers and contractors with substantial delays. In addition, there is no pre-qualification for major contracts, and no post qualification is conducted with resulting serious contract implementation problems, there are no standard bidding documents, invitation for bids are usually not advertised, and, in many cases, contracts are inappropriately split among different bidders. Even where rules designed to enhance transparency exist (e.g. publication of contract awards), they are generally not applied. Finally, contracts are often not fully funded through their completion due to inadequate budgeting. 15. There are significant arrears on submission of audit reports to the Parliament in several of the countries. The Directors of Audits have severely limited financial resources, staff and training, and their approach is excessively bureaucratic. Consequently, the control function is ineffective and is generally held in low regard. In addition, there is no code of ethics defining responsibilities of public employees involved in the procurement function, roles and responsibilities are not clearly defined in writing, there are few technical and administrative controls and procurement records are generally poorly maintained. 16. Pending the harmonized revision of the legal framework, the following remedial actions should be implemented by each country OECS countries in the short-term:

• prepare appropriate procurement plans; • adopt realistic annual budgets; • use open bidding with clear post-qualification requirements; • advertise contracts on a regional basis; • adopt standard bidding documents for the main types of procurement which include

appropriate evaluation criteria; • publish contract awards on a regional basis; • issue procedures and instructions to implementing and control agencies; • require that suppliers and contractors be paid more promptly; and • ensure that evaluation committees comprise only technically qualified staff.

17. Specific Guidelines on how to implement and monitor these actions should be issued by the Ministries of Finance. Appropriate instruments with force of law should also be considered to support enforcement in the interim period until a comprehensive legal reform is designed and implemented. The revised regulatory framework, which requires a concerted medium-term effort on a regional basis, should mandate regional competitive bidding for contracts above an appropriate threshold and address other relevant procedures and tools, as appropriate. Among other initiatives which could significantly enhance efficiency and transparency is the development of a regional e-procurement strategy including actions easily achievable in the short-term such as electronic advertisement of procurement information (e.g. bid notices, documents, laws and regulations, guidelines for bidders, and awards) and actions requiring medium-term efforts to establish appropriate regulatory, control, infrastructure and institutional frameworks, and capacity to implement a fully electronic public procurement system. Both sets of actions should be spearheaded and coordinated by the proposed regional policy unit (see para. 8) in coordination with their national counterparts. Consultation and Next Steps 18. Following data collection and analysis and discussions in each member countries, preliminary findings and recommendations for reform were presented to the countries by the Bank on May 25, 2001 during the “Meeting on External Assistance to the OECS” in Saint Lucia. A regional workshop is currently planned for May 29 and 30, 2003 to gain agreement from a broad group of stakeholders at the technical and policy level on a Regional Fiduciary (i.e. procurement and financial management) Action Plan for the OECS. The workshop will present the key policy recommendations of the CPAR and CFAA and further explore the need for a regional oversight framework for public expenditure and public sector issues, taking into account lessons learned from past experience about the challenges of regional cooperation. 19. The workshop’ s main objective is to produce an action plan agreed upon by the participants. The action plan would be incorporated in the final version of the CPAR and forwarded to the OECS and national authorities for endorsement. Individual sessions with each country team will also be held to confirm country-specific recommendations included in the two reports.

SUMMARY OF FINDINGS: STRENGTHS AND WEAKNESSES OF THE PRESENT PROCUREMENT SYSTEM

1. LEGAL AND REGULATORY FRAMEWORKS

A. Existing Legal and Regulatory Frameworks 1.1 The national constitutions of the OECS group were reviewed for differences and similarities in legal and regulatory frameworks. Grenada, St. Lucia and St. Vincent and the Grenadines (hereinafter referred to as the OECS Group for purposes of this report) have representative and unitary governments with several local administrative units. St. Kitts and Nevis, on the other hand, has a federal form of government, and the island of Nevis has its own administration. The OECS group recognizes Queen Elizabeth II as the Head of State, represented by a Governor-General. The exception is Dominica, which is an independent republic within the British Commonwealth. In each country, the Constitution provides for: (i) withdrawals from a Consolidated Fund or other public funds; (ii) authorization of expenditure from Consolidated Funds by appropriation law; (iii) authorization of expenditure in advance of the appropriation law; and (iv) requirements for proper accounting and audit of funds. The Constitution also permits government to collect and spend money in specific ways under the Finance Act, which is ratified annually. Regulation of public expenditures for procuring agencies is done through parliamentary appropriations.1 1.2 The Financial Regulations/Instructions and the Stores Rules and Regulations made under the Finance Administration Act govern the public sector procurement of goods, works and services. These regulations provide that government departments may enter into contracts, subject to Stores Rules and Regulations. Through regulatory and subsequent administrative arrangements, the processing of all procurement contracts for all major works became the responsibility of the Ministry of Communication and Works (MOCW). 1.3 The Director of Audit (DOA) is empowered by the Constitution and the Audit Act to carry out an independent audit of the accounts and operations of government departments and public entities. DOA’s responsibilities include oversight of government accounts and those of public entities, and annually reporting irregularities, such as improper vouchers, to the Parliament. It also is empowered to prepare special reports for

1 The basic legislation in each country is: Commonwealth of Dominica: (i) The Constitution of the Commonwealth of Dominica 1978 (amended by Act 9 of 1983; Act No. 21 of 1984; Act No. 22 of 1984); (ii) Finance and Audit Act 1965 (act No. 8 of 1965) date of commencement 15 September 1966; (iii) Financial Regulations 1976 made under Section 16(1) of the Finance and Audit Act 1965; (iv) Financial (Stores) Regulations effective 1 November 1980. Grenada: (i) Grenada Constitution Order 1973; (ii) Finance and Audit Act 1964: (iii) Finance and Audit Amendment Act 1998 (Act No. 25 of 1998) contains (a) The Financial Rules, 1998 [First Schedule] and (b) The Stores Rules 1998 [Second Schedule]. St. Kitts and Nevis (i) Constitution of 1983; (ii) Audit Act 1990 (Act 8 of 1990); (ii) Finance Act 1990 (Act no. 9 of 1990); (iii) Financial Instructions 1983 (issued under Section 53 of the Constitution); (iv) Stores Rules of St. Christopher and Nevis (effective 19 September 1983.Saint Lucia: (i) The Saint Lucia Constitution Order 1978: (ii) Finance Administration Act 1997 (Act No. 3 of 1997); (iii) Audit Act 1988 (Act No. 26 of 1988); (iii) Financial Regulations (Statutory Instruments, 1997 No. 36); (iv) Procurement and Stores Regulations (Statutory Instruments , 1997 No. 37). St. Vincent and the Grenadines: (i) The Constitution of St. Vincent and the Grenadines; (ii) Financial and Stores Rules of the Windward Islands 1952; (iii) Financial and Audit Act 1964; (iv) Manual of Tender Procedures (issued on November 21, 1967 as Statutory Rules No. 101-114).

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Parliament. DOA’s audit of accounts determines whether, in its opinion, all funds expended and charged to appropriation accounts were applied according to the provision made by Parliament, and that payments of public money conform to the authority that governs it, and was incurred with appropriate regard for avoiding waste and extravagance. 1.4 The Minister of Finance (MOF) prepares Financial Regulations as well as Procurement and Stores Regulations. The MOF is operationally involved in procurement, by virtue of having the authority to issue directions for the procurement of goods and services by tender or direct purchase, and for the sale of stores by tender or direct sale. The Financial Regulations and/or the Stores Regulations or Rules require the establishment of a Central Tender Board (CTB)2 in the OECS group, which functions as an oversight body. However, the CTB operates only in Grenada, St. Lucia, and St. Vincent and the Grenadines, with the Ministry of Finance taking the lead role. In Dominica and St. Kitts, MOF and MOCW exercise oversight responsibility for procurement of goods and works, respectively. For Nevis, MOF alone assumes the oversight responsibility. 1.5 Procurement entities do their own planning, prepare bid documents, issue invitations for bids, evaluate bids and make recommendation for contract award. Most procurement of works and goods, not involving donor funds, is done through selective tendering. This is usually by invitation to three firms from: (i) the approved register of contractors for works classified into large, medium and small lots; and (ii) past experience or knowledge of the goods procuring entity. For major works, using prescribed pre-qualification criteria, the MOCW reviews the list of large contractors and normally selects three considered competent enough to meet the requirements. On the other hand, decision-making is not decentralized. This is because: (i) there is a Central Tender Board (CTB) responsible for processing procurement of goods, works and services for the Government Ministries and Departments in Grenada, St. Lucia, and St. Vincent and the Grenadines; and (ii) though there is no functioning CTB in St. Kitts and Nevis, decision making is centralized in MOF and MOCW for goods and works, respectively. In the case of Dominica: (i) all contracts for works require the approval of PS of the MOCW and their Minister, with separate clearance from the MOF about availability of funds for each contract; and (ii) for goods, the approval of the PS of MOF is required. In the cases of St. Kitts and the island of Nevis, the approval of their respective Ministries of Finance is required for all contracts of significant value. 1.6 For St. Lucia, and St. Vincent and the Grenadines, the decision of the CTB is final and thus not formally subject to consideration and approval by the Cabinet. In Grenada, all contracts for goods, works, and services must be approved by the Cabinet. In Dominica and St. Kitts and Nevis, the Minister decides whether the approval of the Cabinet is needed before contract award; however, in most cases the Cabinet’s approval is obtained. Table 1 delineates procurement contract decision-making arrangements in

2For ease of reading the terms “Central Tender Board” or abbreviation “CTB” are used through out this document to refer to the “Public Tenders Board”, the “Tender Board” and the “Central Supplies Tenders Board” of Grenada, St. Kitts and Nevis and St. Vincent and the Grenadines respectively.

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the OECS group: Table 1. Procurement Decision Making in the OECS Group

OECS Country

Existence of a CTB

DTB Approval Required

CTB Approval Required

Remarks

Dominica.3 Yes. CTB in Regulations but in reality does not exist.

Not applicable. There is no Departmental Tender Board (DTB). This is a statutory requirement.

The stores regulations require that contracts for goods exceeding the value of EC$5,000 and for common-user supplies involving more than one ministry the matter must be considered by CTB. Not being done in practice.

Contracts for goods are entered into after obtaining the approval of MOF. All works exceeding EC$ 10,000 processed by MOCW; approvals of PS/MOCW and Minister for Communication and Works required. The Minister refers to Cabinet generally for cases exceeding EC$50,000.

Grenada4 Yes. Called the Public Tenders Board (PTB).

Works contracts exceeding EC$10,000 but not exceeding EC$100,000 require the approval of the DTB.

Contracts for goods and works exceeding EC$10,000 and EC$100,000, respectively, require the approval of the PTB.

If the contract value exceeds EC$100,000, the approval of the Cabinet is required.

St. Kitts and Nevis5

Yes. Called Tenders Board under the Financial Instructions. Not in existence.

Not Applicable. There is no Departmental Tender Board (DTB), as this is not a statutory requirement

The Financial Instructions and the Stores rules require that contracts for works exceeding EC$3,000 and goods exceeding EC$300 (except for stationery) must be considered by the Tenders Board. (This is the CTB). Not being done in practice.

Works contracts exceeding EC$3,000 require approval of the PS and the Minister of MOCW. The approval of Cabinet is obtained if the value exceeds EC$50,000. With regard to contracts for goods exceeding the value of EC$300,000 MOF approval is required. Stationery items are procured by the Office of the Prime Minister.

St. Lucia6 Yes, called CTB

Goods and works contracts valued at EC$20,000 or more, but not exceeding EC$100,000, require the approval of the Departmental Tender Board. Its decision is final.

For goods and works contracts exceeding EC$100,000

CTB decision is final.

St. Vincent and the Grenadines7

Yes. Called Central Supply Tenders Board (CSTB)

Goods and works contracts valued at EC$20,000 or more, but not exceeding EC$250,000, must be ratified by CSTB

Goods and works contracts valued at EC$250,000 or more

CSTB decision is final.

3 Regulations 280 to 286 of the Financial (Stores) Regulations, 1980 of Dominica 4 Section 7 of the Stores Rules, 1998 of Grenada 5 Section 24 of the Financial Instructions of St. Kitts and Nevis dated 1983. 6 Regulations 11, 12 and 16 of the Procurement and Stores Regulations, 1997 of St. Lucia 7 Rule 7 of the Manual of Tender Procedures (issued on November 21, 1967 as Statutory Rules No. 101-114).

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1.7 In all countries reviewed, procurement for common user office supplies and materials is centralized in the MOF or the office of the Prime Minister. 1.8 Guidance for the current public procurement system is scattered among various outdated procurement regulations and procedures. Responsibility for review and monitoring is similarly dispersed. There are many players in the procurement system and interventions in selecting the short list of three contractors/suppliers. As a result, little action is taken to ensure the procurement process compliance with established regulations and procedures.

B. Findings on the Existing Legal and Regulatory Framework

1.9 The existing procurement regimes in the OECS group--the Financial Regulations/Instructions, Stores Regulations/Rules and/or the Manual of Tender Procedures--made under the Finance Administration Act essentially are internal rules for financial and economic control of government administration. As such, they lack the status needed for an effective procurement law. As administrative documents, they can be amended by the MOF with no regard for the rights of suppliers-contractors. Open advertisement, competitive bidding and contract award criteria, for example, depend on the approach taken by the Government in power at any given time. 1.10 The Regulations are not enacted by parliament, and so lack adequate legal standing either to command the respect of public administration officials or inspire the confidence of the private sector. Even these rules are not complied with fully during the procurement process, e.g., advertisement, competitive tendering, and establishment and use of a Central Tender Board in the cases of Dominica, St. Kitts and Nevis. 1.11 The Regulations /Rules do not really regulate the actual procurement process from the viewpoint of economy, efficiency, competition, and transparency. The content concerned with procurement process, including methods and contract award, are not complete and frequently ambiguous. This leads to arbitrary decisions that result in inefficiency and lack of transparency. Further, these Regulations/Rules do not include the details of a public procurement law. As an example, the UNCITRAL Model Law on Procurement of Goods, Construction and Services sets forth simple rules which are key to benchmark procurement principles such as transparency, efficiency, and accountability. The Regulations/Rules promote the use of shopping or selective tendering involving solicitation of bids from at least three suppliers and contractors from a pre-approved list. Furthermore, the choice of procurement process and evaluation criteria, including the qualification and experience required of the bidder, are highly dependent on the discretion of the head of the procuring entity, namely, MOCW, MOF, or CTB. 1.12 Advertising of bidding opportunities is rarely done by the procuring entity for contracts financed by the local budget--though this is often required by the procurement

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rules. Advertisement of the bidding opportunity is done only where it is required by an external funding agency. 1.13 Under the existing procurement regime, there is no independent permanent body to which contractors-suppliers can file complaints. A supplier-contractor maltreated by a public entity must file the complaint with the entity accused of wrongdoing. Also, complaining contractors-suppliers have no guarantees or legal assurance of transparency or equality when they seek remedies. The system of control is entirely internal; for example, many public entities have internal audit sections but lack a formal protocol for dealing with contractor complaints.

1.14 The present system does not cater: (i) either to complaints relating to crude dealings of corruption and/ or (ii) to sophisticated practices by procurement entities misdirecting procurement contract awards to favor clients. Without credible complaint paths, especially when technical merit is challenged--with clear implications for economy, efficiency, competition, and transparency--suppliers and contractors will be discouraged from lodging reasonable complaints. Thus, violation of procurement rules and regulations goes unchecked, which further erodes public confidence in the system. 1.15 Under the existing Procurement regime, bidders can take their complaints to courts of law under normal civil procedures. From a purely practical standpoint, this is not a procedure bidders would pursue, given the cost and time involved, as well as the uncertainty about whether they will receive fair treatment.

C. Recommendations on Legal and Regulatory Framework

Short-term Actions

1.16 As the proposed procurement actions will encompass the operations of the OECS group as a whole, attention should be given to developing a dialogue between the MOF of all members of the OECS group in the short-term to harmonize procedures in the medium-term on a regional basis. 1.17 MOF should conduct workshops to discuss the main legal and regulatory procurement issues with key stakeholders, and promote dialogue and discussions among those most knowledgeable about procurement issues in OECS, including representatives from the government, business community, and civil society. The Bank could provide technical assistance for these workshops. Medium-term Actions 1.18 The United Nations Commission on International Trade Law (UNCITRAL) model law on procurement of goods, construction and services (hereinafter called the “Model Law”) can been used as a reference document and basis for the development of a transparent and efficient Government Procurement regulatory framework. Various provisions similar to those of the Model Law would help address many of the specific

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problems identified, provided that modifications are made which are appropriate to the domestic legal and administrative systems and traditions. Clearly, not all the provisions included in the Model Law would necessarily be applicable or desirable in the OECS context. Among other aspects which would require substantial tailoring, is the inclusion of separate chapters for procurement of consulting services, bid protest, and debarment, and articles on e-procurement and procurement through community participation. In addition, some of the provisions of the Model Law do not address adequately aspects which are important for transparency (e.g. maximum amount of domestic preference, conditions under which foreign bidders can be excluded). Finally, the Model Law also includes provisions which are not recommended by the Bank or would require substantial modifications (e.g. provisions on alternative procurement methods). National procurement legislations should be fully consistent in order to establish a harmonized framework for the OECS community. A harmonized regional procurement regime would substantially strengthen the OECS negotiating position in regional and external fora, such CARICOM, the Free Trade Area of the Americas and the WTO. Different options such as OECS directives or a regional agreement on public sector procurement should be further assessed as a starting point for the reform implementation phase. 1.19 Appropriate institutional arrangements should be established at the regional and national levels to promote harmonization and coordinate all capacity building activities ensuring a consistent approach and maximizing results. The national procurement oversight authority could be an independent arm of the executive outside the framework of the Ministries/Departments, reporting to the Parliament and informing the Cabinet annually, or on an ad-hoc basis when the need arises. In the alternative, the current CTBs, where they exist could be converted into policy making and regulatory bodies, provided that they are no longer operationally involved in procurement and have appropriate capacity and authority. 1.20 The procurement oversight authorities would also be responsible for providing procurement policy coordination and guidance, etc., to the Department/Ministerial tender boards as well as the parastatal tender boards. Their functions would be to develop implementing regulations, consistent with the regional and national frameworks and monitor the overall implementation of the revised regulatory framework. The oversight authorities would also collect statistics on public procurement, prepare standard bidding documents, maintain a dialogue with stakeholders (including business and civil society), provide training for procurement staff, and publish an annual report. This range of functions encompasses both policy and regulatory duties. These institutional arrangements are as important as a sound regulatory framework for the establishment and well functioning of a modern, harmonized procurement regime in the OECS. 1.21 The regional and nationals oversight authorities should include representatives from the private sector and civil society. The representatives from the private sector and civil society would be selected by their respective organizations. 1.22 The procurement law should include the establishment of an independent review system (including from the policy/oversight authorities) to address complaints from

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aggrieved bidders and provide remedies against breaches of the legislation. 1.23 The institutional relationships and levels of authority in the procurement framework should be elaborated more precisely in the proposed public procurement legislation and accompanying regulations.

1.24 The Regulations for recruitment of consultants should be substantially different from those for goods and works. Therefore two separate sets of Regulations should be issued under the proposed procurement legislation: one dealing with bidding procedures for goods and works and the other dealing with Requests for Proposals for selection, hiring, and use of consultants. 1.25 The proposed procurement reform would encompass public sector procurement operations of all members of the OECS group. Harmonization of procurement laws, rules and regulations of each member of the OECS group becomes more important as regional procurement, as envisaged, would be done by bulking items commonly procured by the public sector with a view to increasing contract size to make it sufficiently attractive to prospective bidders and to achieve economy of scale. Action should be taken to facilitate the necessary harmonization of legal instruments. 1.26 There is little value added by referring bids to the Cabinet for approval of individual contract awards exceeding (i) EC$100,000 (i.e. US$ 37,037 equivalent) in the case of Grenada; and (ii) EC$50,000 (US$ 18,519 equivalent) in the case of Dominica, and St. Kitts and Nevis -which adds about two to six weeks to the processing time. For this reason, immediate consideration should be given to abolishing this requirement. The Cabinet instead could obtain a statement periodically of all contracts exceeding specified thresholds. As a minimum, the role of Cabinet should be gradually phased out and limited to very large contracts. Until phased out, Cabinet’s review should be strictly formal (i.e. only violations of the law), conducted on the basis of an evaluation report developed for this purpose, and completed within a very short time period. 1.27 In the medium term, individual procuring entities should be given authority to undertake procurement of goods, works, and services required to meet their operational needs with the funds appropriated for them. They should be held accountable for public procurement decisions taken by them, as they cannot hold accountable any outside agencies (e.g., CTB or MOF) for causing delays by protracted decision-making.

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2. PROCEDURES AND PRACTICES

A. Findings on Procurement Planning and Annual Updating of Procurement Plans 2.1 A major weakness in Ministries/Departments and parastatals is the lack of a proper procurement plan containing bid packages prepared with consideration of economy and efficiency, and scheduled properly to meet project implementation needs. Furthermore, these plans, even if they exist in some form, are not updated on a semi-annual basis. 2.2 Lack of planning often creates conditions favorable to ad hoc or unwarranted emergency procurement, so that obtaining goods becomes urgent and standard rules are waived. In addition, if the issue of planning is not adequately addressed, it would be difficult to embark on regional or joint procurement of common items. B. Findings on Eligibility and Process 2.3 In the OECS group, the statutory requirements for competitive bidding and advertisement vary from country to country. Further, there is inconsistency between the statutory requirements and the practice followed, as reflected in Table 2, below.

Table 2. Statutory requirements and practice followed for competitive tendering

and advertising for procurement of works. OECS Group Statutory Requirements--

competitive tendering and advertising for works contracts

Actual Practice under local funding

Dominica8 Not required. Advertisement is not done. Selective tender procedure is followed by soliciting bids from three or more firms.

Grenada 9 Not required. Advertisement is not done. On occasion the MOCW places the invitation for bid on their notice board. Selective tender procedure is followed by soliciting bids from three or more firms.

St. Kitts and Nevis10 Required for contracts exceeding EC$3,000 (US$1,111 equivalent).

Advertisement is not done. Selective tender procedure is followed by soliciting bids from three or more firms.

St. Lucia11 Required for contracts exceeding EC$100,000 (US$37,037 equivalent).

Advertisement is not done. Selective tender procedure is followed by soliciting bids from three or more firms.

St. Vincent and the Grenadines12

Required for contracts exceeding EC$250,000 (US$92,593 equivalent)

Most ministries advertise bidding opportunities for contracts exceeding EC$250,000 (US$92,593 equivalent), unless they obtain a waiver from CTB.

2.4 In the OECS group, except Grenada, prospective bidders for works are expected 8 Regulation 173 of the Dominica Financial Regulations, 1976. 9 Rule 117 of Grenada Financial Rules 1998. 10 Instruction 318 read with Instruction 334 of the St. Kitts and Nevis Financial Instructions 1983. 11 Regulation 13 read with Regulation 16 of the St. Lucia, the Procurement and Stores Regulations 1997. 12 Rules 6 and 7 read with Rule 2 of the St. Vincent and the Grenadines, the Purchases and Tenders Procedure issued in 21 November 1967 under circular No. 32/67.

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to register with the Ministry of Communication and Works (MOCW). No procedures are prescribed for renewal or review of registration on a periodic basis. A contractor may be removed for gross delinquency but this seldom happens. In Grenada, there is no official list of pre-approved contractors; instead there is an internal list; based on previous knowledge and experience (including MOCW institutional memory). Under existing procurement regimes, the bidder must be registered and appear on an approved list of contractors (or be known to MOCW, in the case of Grenada), which also applies to foreign firms. Unregistered potential bidders must apply to MOCW and obtain their registration before they will be considered for inclusion in the short list of three or more firms for selective tendering. 2.5 For works contracts, countries in the OECS group use an approved list of contractors, classified into “large,” “medium,” and “small.” Grenada has its own internal classification system (see para 2.19 for details). It is clearly not in the best interest of a public procuring entity from the standpoint of competitiveness and transparency to use a short list of contractors for selective tendering. 2.6 Countries in the OECS group prepare a short list of usually three or more contractors who are asked to bid for a particular contract. Interviews with procurement technical staff indicate the short list generally comprises people whom they know and whose capabilities they are familiar with. This is the “pre-qualification of contractor” procedure, again clearly not in the best interest of transparency and competitiveness for public procurement entities. 2.7 For locally funded works contracts, the contractor association and Chambers of Industry and Commerce have criticized current procedures for selective tendering as being nontransparent and crony-based. While foreign firms are not asked either directly or indirectly to register, they are not prohibited from applying. Sometimes foreign firms are included on the short list for submitting tenders under works contracts. 2.8 There is no formal pre-qualification procedure for locally funded contracts, but the selection of a shortlist of bidders is made from a pre-existing list of contractors, so the question of using standard pre-qualification documents does not arise. Financial information is not requested or evaluated to determine bidders’ financial capacity to carry out a contract. 2.9 Countries in the OECS group do not undertake a post-qualification check on the lowest evaluated, substantively responsive bidder/proposed contract awardee for works (subject to one observation explained below). In the case of Grenada, the MOCW posts the qualifications of the proposed contract awardee on a selective basis “based on personal knowledge and experience.” 2.10 Externally funded contracts are subject to the funding agencies’ standard prequalification documents or a modified version of the World Bank’s Standard Prequalification document. Further, they may conduct a post-qualification of the lowest

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evaluated, substantively responsive bidder following funding agency requirements. 2.11 For contracts for goods, advertisement and competitive tendering is required in all countries of the OECS group following the provisions contained in the Regulations/Rules; however, the practice followed is completely different (see Table 3 below).

Table 3. Statutory requirements and practice in competitive tendering and

advertising for procurement of goods.

OECS Group Statutory Requirements – competitive tendering and advertising required for all contracts valued at

Actual Practice under local funding

Dominica EC$5,000 (US$1,852 equivalent) or more;13.

Advertisement is not done.

Grenada EC$100,000 (US$37,037 equivalent) or more14

Advertisement is not done unless the value of the procurement is in the range of EC$500,000 (US$185,185 equivalent);

St. Kitts and Nevis Exceeding EC$30,000 (US$11,000 equivalent)15

Advertisement is not done except for large value contracts, like the procurement of “fuels and lubricants” (approximate annual value of EC$12 million); in this case, the MOF issues the advertisement.

St. Lucia Exceeding EC$100,000 (US$37,037 equivalent) 16

Advertisement is not done.

St. Vincent and the Grenadines Tenders issued by the CSTB should be advertised, i.e. individual contracts exceeding EC$250,000 (US$92,593 equivalent) 17

Advertisement of bidding opportunities is done by some ministries but not by others (e.g. Ministry of Health, Ministry of Education).

2.12 The normal medium of publicity for tender notices is prescribed in the Gazette, the local press, and radio announcements. 2.13 Externally funded contracts for goods and works in the OECS group follow the funding agency’s rules for advertisement and notification. C. Findings on Methods of Procurement 2.14 There is no explicit requirement that open competitive bidding is the preferred, or even the default method of procurement under the existing procurement Regulations/Rules in the OECS group, although as already stated in the Tables 2 and 3

13 Regulations 282 and 286 read with Regulations 278 and 280 of the Dominica Financial (Stores) Regulations, 1980. 14 Rule 109 read with Rules 108 and 109 of the Grenada Stores Rules 1998. 15 Rule 205 read with Rule 206 and Rule 200(3) of the Stores Rules of St. Kitts and Nevis. 16 Regulation 13 read with Regulation 16 of the St. Lucia, the Procurement and Stores Regulations 1997 17 Rules 6 and 7 read with Rule 2 of the St. Vincent and the Grenadines, the Purchases and Tenders Procedure issued in 21 November 1967 under circular No. 32/67.

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above, “competitive tendering and advertisement “ are required for (i) all contracts for goods in all the OECS group beyond certain thresholds and (ii) all contracts for works in the OECS group except Grenada. (See paras 2.3 and 2.11 above). 2.15 Only one requirement for bidding is provided for, that is tenders are received in sealed envelopes. The rules deal with “small or local purchases” and “bigger sized” or “overseas contracts”. It does not detail the different methods of procurement and the criteria for their use. The procuring entities (subject to an exception discussed below) use a de jure or de facto approved list of contractors and suppliers and solicit bids from three or more firms. Most procurement falls under the category of selective tendering or shopping depending on the estimated contract value. However, if the contracts involve financing by an external funding agency, the agency’s procurement rules are followed. 2.16 Additionally, in regard to St. Lucia, individual contracts not exceeding EC$100,000 are awarded on the basis that there should be reasonable spread of contracts amongst several competing contractors. Often, jobs may be divided to give several contractors a piece of the work. For example, a single wall may be constructed under several contracts. The objective appears to be to share the pie among as many contractors as possible. 2.17 There are no statutory requirements related to public bid opening. The bidding documents usually prescribe the bid closing date. For externally funded contracts, the OECS group prescribes the bid opening date and time required by the funding agencies’ rules, but there are variations in practice, described below. Often bid opening does not occur on the same date as bid closing, but is done on the following day, and even a few days or a week later. The date of bid opening is the date the CTB meets, and in St. Lucia this is once a month. In Grenada, bid opening is a few days after bid submission deadline, even in the case of donor funded contracts (including those funded by the Bank). For locally funded contracts: (i) in Dominica, there is no public bid opening for “restricted tenders,” and if there is public bid opening, they would ensure that there is one bidder present; (ii) there is no public bid opening in the case of Grenada and St. Kitts and Nevis; and (iii) in St. Lucia, many bidders are unaware of bid opening, as they take place on the same day and are not called when their bids are opened due to various constraints. In St. Vincent and the Grenadines, public bid opening takes place as specified in government contracts, but for statutory bodies there is no public bid opening, with bids opened only when necessary to evaluate them. 2.18 Most Ministries and agencies of OECS use standard bidding documentation (SBD) of CDB, FIDIC, and the World Bank for most procurement of goods and works financed by external agencies. For most works financed by other (including local) resources, they use either a modified version of the CDB and the World Bank documentation or their own (i.e., department) standard bidding document, which follows generally the FIDIC Conditions of Contract for Works of Civil Engineering Construction, with certain modifications. For goods financed by other resources there are no Standard bidding documents used.

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2.19 There is no prescribed list of qualifications for contractors, but the procuring entities in the OECS group use a de facto or de jure list of contractors classified into large, medium and small contractors using rule-of-thumb qualifications for equipment, personnel, and financial capability. There is a universal practice of classifying/registering contractors in all countries except Grenada, where they use a list of contractors based on their experience and information available. Selective tendering is conducted by choosing a shortlist of firms from an “approved” list. This applies to both national and international bidders. Bidder’s qualifications are not usually prescribed in the “Instructions to Bidders” for procurement of equipment or goods and works, as procuring entitles the solicitation bids on the basis of a short list prepared for the occasion. (See also para 2.6 above). 2.20 There are no statutory rules specifying the need to include evaluation criteria in bidding documents. In the OECS group, the bid evaluation and contract award criteria for locally funded contracts are not fully published for the bidders. In many bidding documents for works, the desired completion date is not specified, as the bidder is asked to specify his/her completion period for the works tendered--the reason being that the bidder is in the best position to know when the works will be completed. Further the bid evaluation might take into account past relationship with the contractor, the past performance of the bidder, and the procuring entity’s assessment of “quality of the bid/bidder,” meaning completion date and price (i.e. if the bid price is too low below engineer’s estimate, the bid is rejected), and other factors. For contracts funded externally, the evaluation criteria for bid examination and evaluation is provided but the details are not always complete. 2.21 There are no specific instructions on how bid evaluation should be organized and carried out in the OECS group. In the case of Dominica, St. Lucia and St. Vincent and the Grenadines, evaluation committees are appointed on an ad-hoc basis for major procurements. In the case of Grenada and St. Kitts and Nevis, a qualified engineer of the procuring entity, or a technically capable person in the case of MOF, does the evaluation of bids. In the OECS group, if consultants are employed for the project, they carry out the evaluation of bids. In Grenada, if the value of the works contract exceeds EC$1 million (US$370,370 equivalent), evaluation is generally done by consultants. 2.22 Negotiations after bid opening or award selection are generally not forbidden under the Regulations/Rules. In practice, negotiations are undertaken after bid opening or award selection to obtain lower prices or to change the scope of work in the OECS group. 2.23 Although negotiations always occur either to obtain lower prices or when the lowest evaluated bid exceeds the engineer’s estimate, there are no rules governing negotiations under normal contracting. 2.24 Conditions for obtaining “bid” and “performance” securities in the OECS group are varied for locally funded contracts (see Tables 4 and 5).

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Table 4. Provisions relating to Bid Security in OECS group OECS Group Statutory Requirements

for Bid Security Actual Practice followed for locally and externally funded contracts.

Dominica Not required Not required Grenada Not required. Not required. St. Kitts and Nevis18 Not required. Mostly for works contracts exceeding

EC$1million (US$370,370 equivalent) and at 1% of bid price.

St. Lucia19 Not required. Generally not required; but occasionally may be a requirement.

St. Vincent and the Grenadines20 Not required. Required for contracts exceeding EC$20,000 (US$7,407 equivalent)

Table 5. Provisions relating to Performance Security in OECS group

OECS Country Format of

Performance security

Locally funded contracts Externally funded contracts

Goods Works Goods Works Dominica Bank guarantee Not required. Required only

for major contracts.

Required only for major contracts. 5 to 10% of contract price.

Required only for major contracts. 5 to 10% of contract price.

Grenada Bank guarantee Not required. Not required. 10 % of contract price

10% of contract price.

St. Kitts and Nevis Bank guarantee 10% of contract price.

10% of contract price.

10 % of contract price

10% of contract price.

St. Lucia Bank guarantee Not required. Not required. 5% of contract price

5 to 10% of contract price.

St. Vincent and the Grenadines

Bank guarantee or cash deposit

Not required. Not required. Not always required.

Not always required.

2.25 If advance payments are made as per terms of the contract, a Bank guarantee is obtained from suppliers and contractors, who experience no difficulty obtaining this guarantee. 2.26 In the case of Dominica, St. Kitts and Nevis, regulations provide for the publication of contract award information in the Gazette; however, in practice this is not being followed. In Grenada and St. Lucia, there are no legal requirements for publication of contract award information and so in practice it is not done. Further, throughout the OECS group, unsuccessful bidders are informed they had not succeeded, but they are not provided with information about the name of the winning bidder or contract price. The general public is not notified of the description and amount of the contract, or the name of the successful bidder. There also is no requirement for publication of summary

18 Instruction 318 read with Instruction 334 of the St. Kitts and Nevis Financial Instructions 1983. 19 Regulation 13 read with Regulation 16 of the St. Lucia, the Procurement and Stores Regulations 1997. 20 Rules 6 and 7 read with Rule 2 of the St. Vincent and the Grenadines, the Purchases and Tenders Procedure issued in 21 November 1967 under circular No. 32/67.

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information relating to public procurement. Further, in actual practice, no information relating to public procurement is published. (See also paras 2.48, 3.14 and 3.25 below.) D. Findings on Monitoring and Contract Management 2.27 Contract monitoring practice is based on contract type and varies by institution. It is not based on professionally developed protocols and does not follow best international practice. 2.28 Countries in the OECS group, have no guidelines or instructions requiring that procurement tenders be based on detailed or even preliminary engineering design of project components, use of a price adjustment clause in bidding documents where appropriate, and how to deal with requests for contract extension. Also there are no guidelines covering when and how price variation should be determined. The lack of such guidelines often leads to unnecessary contract amendments and expenditures, with unwarranted costs, frequently in the form of additional compensation to the contractors. The following statements apply to the OECS group: 2.29 Poor quality contract management and “on-site” monitoring contributes to cost overruns and substantial project implementation delays. 2.30 Lack of appropriate link between budget and updated annual procurement plan and financial resource planning has caused delayed payments to contractors and suppliers. 2.31 Untimely release of counterpart funds has caused project implementation delays and delayed payments to contractors and suppliers. 2.32 Delayed payments to the contractors and suppliers by the government often happen. This results in suppliers-contractors adjusting prices upward in their bids to cover the cost of delays. 2.33 In reality no contractor complains about the procurement process for fear of informal sanctions resulting in no future contract awards. 2.34 Contractors are not held accountable for implementing and delivering based on terms stipulated in the contract. Contract clauses are not duly enforced. E. Recommendations on Procedures and Practices Short-term Actions

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2.35 The practice of using registration lists (or informal lists in Grenada), as eligibility for tendering should be discontinued to encourage open competition and transparency. Bidding should be open to all eligible bidders with due post-qualification. Wherever appropriate, pre-qualification could be carried out to ensure that only qualified bidders are permitted to submit bids. 2.36 All tenders valued at more than EC$250,000 (US$92,593 equivalent) should be advertised in at least two national newspapers of wide circulation as well as in the Government Gazette of the OECS country. The advertisement should be issued at least four weeks before the deadline for submitting bids for goods and works, with at least one-month’s notice for consultant services. All other tenders should be posted on Notice Boards of procuring entities and other public places, and advertised in the Government Gazette as well as in a specialized web-site to advertise bidding opportunities and results. 2.37 Standard Bidding Documents (including detailed evaluation criteria) and Standard Pre-Qualification Documents for procurement of goods and works under NCB and ICB procedures, as well as Standard Requests for Proposals for selecting and contracting consultants to meet international standards, should be developed as a priority. 2.38 Procedures that administratively separate contracting, monitoring, and auditing should be prepared for accounting officers of procuring entities to follow to ensure public accountability. 2.39 Bid evaluation for procurement of goods should explicitly incorporate the policy of “lowest evaluated cost.” The use of a merit point system in bid evaluation should be prescribed only for exceptional cases. 2.40 Evaluation committees should evaluate all tenders. The Committee (or Tender Boards) should include representatives from the legal, financial, procurement, and technical/engineering communities. Negotiations with the lowest evaluated, substantially responsive bidder should be forbidden. 2.41 The method for determining price adjustment during contract execution should be incorporated in the contract based on provisions in the bidding documents. The formula method is preferable to documentary evidence. 2.42 The Government should consider contracting international procurement agents of high reputation to assist in medium- and large-scale contracting until sufficient capacity is built to carry out this function. 2.43 The Government should require all project implementing authorities to prepare proper procurement plans, linked to financial planning and budget processes. Medium Term Actions

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2.44 Detailed procedures for monitoring contract execution should be developed that include all stakeholders, especially the beneficiary communities. 2.45 The effectiveness of the current procurement filing system in all public entities needs to be reviewed and restructured to ensure transparency and accountability, drawing on international best practice, including development of a new filing system for all procurement activities. This should include a basic procurement-training program that includes records management. 2.46 The Government should ensure that Project Implementation Units (PIUs) enforce performance security and collect liquidated damages from delinquent supplier-contractors. The Government also should issue detailed procedures about what actions procuring entities should take against delinquent supplier-contractors. 2.47 A procurement manual should be developed delineating the evaluation criteria philosophy. Evaluation criteria should be clearly spelled out in the bidding documents and bid evaluation and contract award should strictly comply with them. Bid evaluation for works should only be expressed in economic terms. If time is a critical factor, the value of early completion to the employer should be taken into account using criteria expressed in the bidding documents, provided the contract conditions include commensurate penalties for noncompliance. 2.48 The Government should create a website, open to the public, for advertising all public bidding and posting results of every contract signed by public sector entities. (See also para 2.26 supra and paras 3.14 and 3.25 infra.) 2.49 The Government should ensure that Registration of Assets in the accounting system is up-to-date. This would facilitate “End-Use Audit” of goods and works to ensure assets are used for the purposes specified. 2.50 Countries in OECS group should harmonize their procurement procedures and, if possible utilize the same standard bidding documents (SDB) 2.51 Countries in OECS group should create an Electronic Procurement system to speed-up and open opportunities to a broader number of suppliers resulting in better economy. Such system could cover all countries in a joint effort, working as a common market place for procuring goods, works and services that do not require submission of a signed technical proposal.

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3. ORGANIZATIONS AND RESOURCES

A. Organizations: Tender Boards, Ministries/Departments, Parastatals and Local Governments Findings 3.1 Generally, procurement decision-making responsibility does not reside with the government ministries, departments, or agencies in countries of the OECS group. This is because all contracts for goods and works beyond small monetary thresholds require the approval of the Central Tender Board (CTB) or the Minister and/or Cabinet based on Regulations and Rules. While current practice differs considerably, there is still no significant administrative autonomy in procurement decisions assigned to individual ministries. (See Table 1. Procurement Decision Making in the OECS Group below para 1.6 supra).

3.2 Many levels of bid examination are required and procedures for contract award are cumbersome. Approvals for nearly all contract awards are required from the Minister/Cabinet if contracts exceed low thresholds, ranging from EC$50,000 (US$18,518 equivalent) in the case of Dominica, to EC$100,000 (US$37,037 equivalent) in the case of Grenada and St. Kitts and Nevis. For St. Lucia and St. Vincent and the Grenadines, the approval of the CTB is required for contracts exceeding EC$100,000 (US$37,037 equivalent) and EC$250,000 (US$92,593 equivalent), respectively. More devolution of procurement decision-making and accountability to career professionals seems desirable in Dominica, Grenada and St. Kitts and Nevis. In addition, AOs in each ministry should have the authority to give final approval for contract award. 3.3 There are no mechanisms for periodic review of procurement thresholds. In fact, threshold revisions apparently are ad-hoc, at no prescribed intervals, with current thresholds established years ago. 3.4 The ministries, departments, and agencies play a number of procurement roles. First, they are responsible for their own procurement planning--though this is not done in practice. They also prepare bidding documents, issue invitations, receive and evaluate bids, and submit recommendations to the ministry or agency contract committee. Finally, they have full procurement authority below designated thresholds; however, the thresholds are low.

Recommendations: Short-term Actions

3.5 MOF should raise the threshold for referrals to the CTB/Minister and the Cabinet, and delegate more procurement decision-making authority to project executing agencies (ministries, statutory bodies, and others). 3.6 MOF should prepare and provide training in procurement planning and subsequent control and monitoring of procurement actions based on a pre-approved

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procurement plan. Training specifically should include workshops for procurement personnel. Bank technical assistance (TA) could be sought for this training. 3.7 MOF should reconsider the budget process for allocation and timely release of counterpart funds in amounts adequate to meet contractual obligations with contractors, suppliers, and consultants to ensure efficient and economic project implementation and to avoid generating claims. Recommendations: Medium-term Actions

3.8 The OECS member countries should adopt a procurement organization which balances the need for greater decentralization of decision-making authority with the benefits, particularly obvious in small countries, of bulk procurement for selected items. Clearly, this approach would need to be tailored to reflect the different sizes of the countries’ economies and governments. Generally, procurement authority should not rest with the CTB, the Minister of Finance, or Cabinet, but should be delegated to line ministries and other public sector procuring entities. Ministerial/departmental tender boards should be established (or strengthened, where they already exist) and formally delegated the authority to approve contracts awards without referral to any other authority. A full delegation of responsibility should be supported by a sound regulatory framework, standard documents, strong internal controls, and appropriate capacity, as discussed above. 3.9 At the same time, the OECS countries should consider establishing in the Ministries of Finance appropriately staffed units responsible for carrying out procurement of certain goods such as, for example, paper, printing services, spare parts, and other items required by all government entities on a recurrent basis. The heads of these units should be experienced procurement professionals responsible for the entire contracting process on the basis of annual procurement plans prepared by the government entities, without requiring further authorization. The centralized units could also be utilized as a service to public sector entities to procure large contracts for other items, when the beneficiary has no in-house capacity (e.g. for exceptional needs of ministries which typically carry out very limited procurement). In addition, these units could be responsible for managing donor-financed procurement, provided they develop appropriate capacity. Other goods such as, for example, diesel fuel for electricity generation, construction materials, and text books could instead be procured by appropriate specialized regional units operating under the OECS umbrella. This approach would likely strengthen the OECS group’s collective bargaining position with international suppliers, increase efficiency of procurement, and improve economies of scale. 3.10 It would be essential that the DOAs conduct regular audits to ensure that resources were used properly, procedures followed, and the Government receives value for money.

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3.11 The Cabinet should not be involved in the procurement process except for politically sensitive contracts (e.g. involving national security matters), or contracts for very high amounts. As a minimum, its role should be phased out in the medium-term and strictly limited, in the interim, to a review of the legality of the process based on a standard evaluation report. The Cabinet’s opinion should be rendered within a very short time period after which its concurrence should be assumed as implicit. These matters should be addressed in the revised regulatory framework which should provide for a clear phase out strategy (e.g. thresholds would be revised upwardly every year until the Cabinet ceases to exercise the role). 3.12 The revised regulatory framework should include secondary sources of procurement rules as administrative regulations and guidelines for establishment and operation of the ministerial/departmental tender boards. 3.13 The oversight/policy authority should play no role in administrative review of the decisions made by the ministerial/departmental tender boards or in adjudicating complaints from bidders. The new procurement legislation should provide an independent appeals system that would address complaints from bidders and provide remedies against actions counter to the new legislation. 3.14 A public information system should be established to ensure that, inter alia: (i) bidding opportunities are advertised at the beginning of the fiscal year, with periodic updates; (ii) bidders are kept up-to-date on the status of their bids or if delays are expected; (iii) results of contract awards are publicly announced (name and amount of contract); (iv) announcements of future public bids (short and medium term); (v) historical data about contract awards; and (vi) legal requirements for presentation of bids. The Compranet system, established by the Government of Mexico, is a working example of this type of system. (Website: http://www.compranet.gob.mx/). (See also paras. 2.26, and 2.48 supra and paras. 3.25 infra.) B. Resources Findings 3.15 Procurement is not treated as a profession on a level with accounting and banking in the OECS group. For example, there is no professional degree in procurement available in OECS universities. For this reason, there are no professional standards, expectations, or associations specifically for procurement specialists. In government ministries, departments and parastatals, the procurement profession is not held in high regard, instead is being treated as equivalent to a position like administrative assistant; and occasionally an engineer is assigned the procurement function as an adjunct to his/her normal duties. 3.16 Most procurement officials gained their procurement skills on the job, though some have had training of a few weeks or months in seminars organized by CDB, EU, and the World Bank, among others. There is a shortage of qualified and well-trained staff

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in procurement in ministries, departments, and parastatals. They are limited in number and most of them lack minimum required training and experience. 3.17 One of the basic reasons for the low quality of public sector procurement knowledge is the low state of civil service training in public procurement procedures. Two compelling reasons are inadequate funding and the scarcity of qualified trainers. 3.18 Salary and emoluments of procurement professionals are the same as other civil servants and depend on grade level. In most agencies, pay levels of top procurement officers are lower than professionals involved in project execution. 3.19 Finally, career advancement is not sufficiently related to performance or qualifications but instead is a matter of seniority. The promotion system as it stands appears highly discretionary to many civil servants. 3.20 There also is no code of ethics for government employees or for that matter for procurement personnel. However, the Civil Service Staff Orders include guidelines pertaining to conduct and discipline of public officers. These include prohibitions against: (i) providing unauthorized information, divulgence of confidential and secret correspondence; (ii) accepting gifts and gratuities of any kind and taking bribes; and (iii) engaging in private commercial activity or work, trade, investment, and other non-government related work, except with the specific approval of the Establishment Division of the Government. These do not deal with disclosure of conflicts of interest, and if the employee becomes aware of it at the beginning of the procurement process, immediately disqualifying himself/herself from participation in the procurement process. 3.21 During the last 14 years, some member states of the OECS have been consolidating their common requirements for pharmaceuticals and medical supplies, procuring them through an administrative unit of the OECS, known as the Eastern Caribbean Drug Service (ECDS) (see Volume II, Annex 3). The objective is economy and efficiency - i.e. economy of scale and service - to improve their leverage as a buyer on a bulk basis. The ECDS has been reorganized as Pharmaceutical Procurement Services Unit (PPS) of the umbrella organization, OECS, since July 2000. Based on the participating states’ perception, it has provided fairly reliable supplies, though there are occasional lapses, however the ECDS/PPS arrangement has serious shortcomings from the point of view of economy, efficiency and transparency (see Annex 3). Recommendations: Short-term Actions 3.22 An assessment of the human resource base of procurement professionals in the ministries, departments, and agencies should be undertaken. This assessment should cover and anticipate needs arising from reorganizing and streamlining purchasing and contracting divisions as well as project implementation units (PIUs). 3.23 Measures should be taken to create and strengthen professional procurement by restructuring pay scales in tandem with recruitment and hiring of qualified, motivated

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personnel of high integrity, in the interest of fostering professionalism and curbing corruption. 3.24 It also would be beneficial to: (i) improve the existing PPS arrangements for procurement of drug and medical supplies using internationally-accepted bidding documents and processes to promote transparency and competition; (ii) assign procurement agents (ECDS/PPS) responsibility to not only collect service charges but also to undertake the role of intermediary by making payment to the supplier, as the contract is between ECDS and the suppliers (currently payments are made by the participating country on receipt and acceptance of goods to PPS’s account in the East Caribbean Central Bank, the payment received being passed on by PPS to the supplier); and (iii) expand it to other commodities, such as office supplies and equipment. The experience of the PPS should be further assessed to determine whether better economies of scales and bargaining positions could be achieved by centralizing bulk procurement of some items such as, for example oil and construction materials. Recommendations: Medium-term Actions 3.25 The regional and national policy authorities should establish helpdesks using various media, i.e., e-mail, telephone, and Internet web site, containing all documents and guidelines from the Procurement Manual. (See also paras. 2.26, 2.48 and 3.14 supra.) 3.26 There should be formal recognition and rewards, both monetary and symbolic (e.g., certificates and plaques) to formally recognize meritorious service on an annual basis and enhance the status and self-esteem of procurement professionals. 3.27 Training resources should be increased for public procurement staff along with the introduction of a procurement professional certification program. This will require a new career path at an appropriate professional grade level for civil servants who obtain professional certification.

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4. AUDIT AND ANTI-CORRUPTION MEASURES

A. Audit Findings 4.1 Under the Constitution as well as the Audit Act of each OECS country reviewed, the Director of Audit (DOA) is required to conduct independent audits of the accounts and effectiveness of programs to ensure that: (i) Government accounts are being faithfully and properly kept; (ii) rules and procedures framed and applied are sufficient to provide an effective check on the assessment, collection, and proper allocation of revenues and receipts of the Government; (iii) all monies expended and charged to an appropriation account have been used strictly according to the provision made by Parliament, and that any payment of public money conforms to the authority that governs it, and was incurred with due regard to avoiding waste and extravagance; (iv) essential records are maintained and rules and procedures framed and applied sufficiently to safeguard the control of government property; and (v) satisfactory procedures have been established to measure and report on the effectiveness of programs and services. The DOA oversees the accounts of the Government and the public entities, reports irregularities and defective vouchers to the Parliament annually, and is empowered to make special reports to the Parliament when needed. 4.2 Based on their Constitution, the Finance Administration Act, and the Audit Act, the Accountant-General prepares, certifies, and submits to the Director of the Audit (DOA) the accounts of the Government for that financial year within six months of the close of the financial year (three months in the case of Dominica and St. Lucia). The Minister of Finance, by written direction, may extend the period within which the accounts are submitted, with any direction given provided to the House of Assembly within 30 days of issuance. If the House Assembly is not in session, any direction given shall be presented within 14 days of the beginning of the next session. The DOA must submit to the Minister of Finance, no later than three months from the date of receipt of the financial statements from the Accountant General, certified copies of those statements. The Director of Audit shall submit to the Minister of Finance, no later than three months from the date of receipt of the financial statements from the Accountant General, certified copies of those statements 21. 4.3 The DOA of each OECS member country also is required to submit a report22 at least once a year on work, findings, and any other matter pertaining to the accounts. This

21 Commonwealth of Dominica: Article 72 of the Constitution 1978; Section 17 of the Finance Administration Act 1984 and Section 6 of the Audit Act 1994; Grenada: Article 82 of the Constitution Order 1973, Sections 9 and 10 of the Finance and Audit Act 1964; St. Lucia: Article 84 of the Constitution, Section 16 of the Finance Administration Act 1997 and Sections 6 and 7 of the Audit Act 1988; St. Kitts and Nevis: Article 76 of the Constitution order 1983: Section 15 of the Finance Act 1990; and Sections 6, 7 and 11 of the Audit Act 1990. Section 17 of the Finance Administration Act 1984 and Section 6 of the Audit Act Audit Act 22 The DOA’s report is to the House Assembly and it is not a DOA’s submission to the Minister of Finance. The Minister of Finance submits the report to the Speaker of the House Assembly, who shall then lay it on the Table of the House Assembly. At this stage, the roles of the Minister of Finance and the Speaker are purely that of a conduit.

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report is to be provided to the House by the Ministry of Finance seven days after receiving it. If the Minister of Finance fails to do this, the DOA is expected to transmit copies to the Speaker, who in turn would present them to the House. 4.4 The Governments of Grenada, St. Lucia, and St. Vincent and the Grenadines are considerably behind in the preparation, certification, and submission of annual financial accounts and audit reports to the House Assembly (see Table 6). Table 6. OECS Group: Status of Preparation and Submission of Government Financial Accounts and Audit Reports. OECS Group Annual Financial

Accounts of the Government for Fiscal Year ending:

Date corrected/ certified accounts submitted by Accountant General /MOF to DOA

Date of submission by DOA to MOF with certification

Date of transmittal by Minister of Finance to House Assembly for consideration

Dominica June 30, 1999 September 30, 1999/ February 2000

March 29, 2000 April 2000

Grenada (i) Dec. 31, 1992 (ii) Dec 31, 1993 (iii) Dec 31, 1994

(i) Nov. 1997 (ii) Dec.1997 (iii) Mar. 1999 (iv) Special Audit Report on Ministry of Works, Communications and Public Utilities

(i) Nov. 30, 1997 (ii) Dec. 31, 1997 (iii) March 31, 1999 (iv) March 31, 1999

(i) Sept. 22, 1998 (ii) Sept. 22, 1998 (iii), and (iv) Status of Action not known to DOA

St. Kitts and Nevis Dec. 31, 1999

Submission date not available

Sept. 29, 2000 October 2000

St. Lucia (i) Mar. 31, 1996 (ii) Mar. 31, 1997

(i) Around Nov. 1998 (ii) Not completed as of Nov. 2000

(i) Nov. 18, 1998 (ii) Not applicable as DOA has not received certified accounts from the Accountant General.

(i) On the table of the House – date not available (ii) Not Applicable

St. Vincent and the Grenadines

(i) Dec. 31, 1995 (ii) Dec. 31, 1996 (iii) Dec. 31, 1997

(i) October 1999 (ii) June 1999 (iii) June 1999

(i) Nov. 3, 1999 (ii) June 30, 2000 (iii) June 30, 2000

(i) June 2000 (ii), and (iii) December 2000

4.5 Until 1986, the Grenada accounts were 20 years behind. In 1983, the Interim Government took the decision to bring the Government accounts up-to-date. Profiting from Technical Assistance from the UK to the Accountant-General and the Director of Audit government accounts were completed to 1992, and now are current through 1994. The 1994 Audit Report and the Statement of Accounts was submitted to the Finance Minister on March 31, 1999 for tabling in the House Assembly, but with no response as

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of December 1, 2000. 4.6 In St. Lucia, the Accountant General has not submitted audit reports since 1996 (i.e., April 1996 to March 1997). 4.7 In St. Vincent and the Grenadines, the Audit Report is an integral part of the Accounts documents and must be submitted to the House Assembly together. Over the years, the audit has been 5 or 6 years behind schedule. 4.8 Based on information provided by Grenada, St. Lucia and St. Vincent and the Grenadines, their respective Ministers of Finance have not extended the period for submitting government accounts; and such instructions, if any, were not tabled in the House. Further, if Ministers of Finance fail to table reports submitted by the DOA in the House within the specified time, the DOA must discharge a statutory responsibility by sending the reports to the Speaker of the House for presentation.23 The DOAs have not done this in Grenada, St. Lucia, and St. Vincent and the Grenadines (see end para. 4.3). 4.9 Under the Standing Orders of the House Assembly (or Representatives), a Select Committee of Parliament, the Public Accounts Committee (PAC), with no less than three and no more than five members, is elected by the House. The role of the PAC is to examine the audited accounts of the State as well those of corporations, Boards, and other bodies appointed by the Government, and prepare a report for the House. Under the parliamentary system of government, any questions about whether public expenditures meet generally accepted standards of financial prudence and propriety are settled through deliberations by the PAC. The financial accountability of public servants and Ministers also are enforced through the PAC. Thus, a well functioning PAC is needed to enforce financial accountability of civil servants and Ministers of State. 4.10 In Grenada, the PAC examined the Statements of Accounts for 1991 and the DOA’s report. Accounting officers were summoned to explain matters pertaining to their Ministry/Department. Subsequently, the report was put before the House. The 1992 Audit Report was referred to the PAC but not dealt with. The 1993 report was not referred to the PAC, though it was put before the House on September 22, 1998. 4.11 In St. Lucia, the PAC, which comprises five members, does not function. Of the 16 members of Parliament, until recently, all belonged to the ruling party. Now one member has become leader of the opposition party who is also the chairperson of PAC. . 4.12 In St. Vincent and the Grenadines, the PAC comprises seven members [four from Government (three Senators and one Minister) and three from the Opposition, including the Chairman]. The PAC does discuss the Audit Report; however, the number of PAC meetings has been declining over the last three years: FY 1998, three meetings; FY 1999, two meetings; and FY 2000 one meeting.

23 This could be one of several kinds of reports, namely certified accounts of the Government, audit reports on the annual accounts of the Government, special audit reports, or special reports on any matter with which he is concerned.

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4.13 In St. Kitts and Nevis, the PAC was established for the first time in 1997. According to available information, it has yet to meet. The DOA appealed to the Parliament in his Audit Report, dated September 30, 1999, asking for a meeting on the subject. 4.14 In Dominica, the PAC last met in November 1999 . According to available information, the PAC so far has not been effective in carrying out its role as a watchdog over parliamentary financial control. 4.15 The DOA is the only formal institution that verifies whether the procurement authority, expressed in monetary terms in the Procurement and Stores Regulations (PSR), is being adhered to, regardless of whether the procurement is locally or externally funded. DOAs do not go into the procurement process, but request copies of contracts relative to expenditures; and inquire whether Government Ministries and agencies make payments according to the terms of the contract. DOA checks on cost overruns, time overruns, and variations in orders, and then decides whether to audit an item. Audits are invariably done on expenditures under procurement contracts involving a number of contract variation orders. All DOAs have expressed concern that there is a major problem with the procuring entities adhering to the tendering process prescribed under the Regulations/Rules. The procurement processes generally are not conducted as described under the Regulations/Rules. Contracts are awarded without due process for all non-external as well as external/donor-funded projects where such agencies are not vigilant as to compliance with their guidelines. 4.16 The DOAs lack the staff and resources to pursue compelling or blatant procurement problems. DOAs are fully aware of these constraints. While they have the authority to request more resources, there is no political interest or motivation to meet such requests. Only in St. Vincent and the Grenadines is there a public debate in Parliament on DOA’s reports; however, in general, there are no mechanisms for follow–up action. Recommendations - Short-term Action 4.17 The Governments of Grenada and St. Lucia should take action to put on the Tables of their respective House Assemblies (or House of Representatives) the reports already submitted by the DOA to their respective Ministers of Finance. Recommendations – Medium -term Action 4.18. Adequate training should be provided to staff of the Accountants-General and the DOAs to strengthen the accounting and auditing functions. Furthermore, the capability of the Accounts and Audit functions should be augmented through the purchase of technology (e.g., computers, networks, computerization of functions), in addition to additional trained staff.

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B. Anti-Corruption Measures Findings 4.19 There are no special laws relating to prevention of corruption in public procurement, except, for example, criminal laws and procedures act, and the criminal code. Consequently, an aggrieved party who alleges that public officials resorted to acts of bribery or corruption in the award of procurement contracts, and/or allegedly suffers from denial of award of procurement contract regarding bidding documents issued to bidders, should make a complaint under the applicable law/regulations to the police, or take up the matter with the Public Service Commission for disciplinary action by the responsible public official(s). 4.20 Discussions held with several Ministers of the OECS group, the Chambers of Industry and Commerce, the Association of Consulting Engineers, and individual consulting firms revealed a consensus of opinion. All expressed their concerns as to bribery, corruption, and fraud involving public exchequer in procurement contracts. As most procurement is done on a selective-tendering basis obtaining three quotations, there could be collaboration: (i) among the short-listed contractors/suppliers and/or (ii) between contractors/suppliers and public officers and politicians to defraud the government. 4.21 Some of the PSs complained that procurement rules were outdated24 and, in any case, have not been followed for years. From a purely operational standpoint, there are no written rules on how to organize and conduct public procurement. 4.22 Almost all contracts under local funding and, if possible, external funds are diverted to selective tendering procurement. Some PSs of Ministries have alleged that there is interference in the short-listing of the final three contractors. Moreover, a few senior staff stated that often the PSs are told who will receive the contracts. 4.23 In Dominica and St. Kitts and Nevis, the CTB is not functioning, as required under the regulations and rules, to approve contracts for goods and works above prescribed thresholds. (See paras 1.4 and 1.5 and para 1.6 supra for details.) 4.24 In St. Kitts and Nevis, even for major procurement of fuels and lubricants (estimated cost of EC$12 million per year) there was no formal meeting of the CTB. The technical officer from MOF prepared the comparative table of bid prices and the bid evaluation report. Thereafter, the officer interacts informally with the PS/MOF, PS/MOCWT, the Accountant General, and the Director of Works, obtaining their comments informally. (It should be noted that PS/MOF, PS/MOCWT, the Accountant General, and the Director of Works would be members of a normally constituted CTB, had such a CTB been constituted and its meeting organized.). Thereafter, the officer sends the recommendation for contract award to the Cabinet via the Ministry of

24 The revisions made in 1997/1998 to the Procurement and Stores Rules in Grenada and St. Lucia do not have significant departures from the very old system according to the Directors of Audit.

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Communications, Works, and Transport. Not convening a formal meeting of the CTB--with a structured agenda, discussion, evaluation, and recommendation based on open deliberations on all aspects of the proposal, and open voting based on each person’s/department‘s functional responsibilities and professional capabilities--is a shortcoming in terms of transparency, and “rule of law.”25 4.25 The Attorney General in two of these countries expressed concern and decried corruption in public procurement. They stated that to avoid corruption proper monitoring and pluralistic control mechanisms would be required given the inherent power of the Government to affect the outcome of all procurement decisions. 4.26 Concerns also were voiced by Chambers of Commerce about the void in legislation and legislative proposals with respect to: (i) a Corruption Prevention Act; (ii) the establishment of a Commission for Prevention of Corruption in countries of the OECS group reporting directly to Parliament; and (iii) a Freedom of Information Act. Such actions, if taken, would promote three fundamental anti-corruption measures: accountability, openness, and public participation in procurement. 4.27 The introduction and enactment of new legislation in the three areas cited in the above paragraph would help promote the climate for economy, efficiency, competition and transparency in procurement and help eliminate the breeding ground for corruption and enable the Government to obtain value for money in procurement. Although there have been no tangible initiatives in this direction, there is broad evidence from segments of civil society as well as from some of the highest political bureaus of government that there is a general desire for good governance. 4.28 Bidding documents contain no provisions against fraud and corruption--with the notable exception of a few multilateral-financed procurement contracts. No action has yet been taken by the governments to add clauses to the bidding documents that specifically prohibit bribery. 4.29 It is not easy for bidders to report solicitation of bribes or extortion attempts by government officials. The Financial Regulations have no provisions on how aggrieved bidders can ventilate their grievances. Generally, bidders do not complain for fear that even if the case is won, they might never again be permitted to bid on a project in that agency. 4.30 The existing procurement regime contains no code of ethics governing the behavior of public employees. None of the agencies visited had a formal written code of ethics dealing with matters such as disclosure of conflict of interest, and withdrawal from participation from particular procurement process where they had a personal or pecuniary conflict. Only the Civil Service Staff Orders (CSSO) in each OECS group contains prohibitions against: (i) receiving “corrupt gifts and payments of commission” by contractors, and (ii) accepting gifts or other favors of any kind by public officers. These

25 Rule of law requires absence of informality.

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Orders focus on disciplinary action, suspension, removal, dismissal, and other penalties, but do not include anything resembling a code of procurement conduct or public ethics. Unfortunately, even these provisions are not always judicially enforced. Reportedly, no one has been charged and found guilty of such offenses and punished. Recommendations 4.31 To respond to the general public expectation for good governance, the introduction and enactment of a new legislation relating to Prevention of Corruption and the Freedom of Information, as well as the establishment of the Commission for Prevention of Corruption would help promote the climate for economy, efficiency, competition and transparency in procurement, eliminate the breeding ground for corruption, and enable the Government to obtain value for money in the procurement process. The creation of a reporting system (like a hot-line) with open access for reporting cases of corruption to be investigated is also highly recommended.

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5. PERFORMANCE ON BANK-ASSISTED PROJECTS

5.1 The review of 62 loans extended by IBRD/IDA for projects in the OECS revealed that 31 loans were closed, leaving 31 loans covering 17 active projects in multiple countries as of April 13, 2003. The active portfolio comprise the following: OECS Telecommunications Reform Project (five OECS countries), Disaster Management Project (four OECS countries – except Dominica), Emergency Recovery Project (five OECS countries), OECS Waste Management Project (five OECS countries - St. Lucia national component & regional component still active), HIV/AIDS Prevention and Control Project (Grenada and St. Kitts and Nevis), Education Project (St. Kitts and Nevis and St. Lucia), Poverty Reduction Fund Project (St. Lucia), and Water Sector Reform Project (St. Lucia). The total commitment of the portfolio is of US$147.4 million, of which US$75.4 million was disbursed.26 The current active portfolio has total commitment of $98.6million, of which $61.6million is undisbursed.27 5.2 The OECS Country Assistance Strategy (CAS) notes that the Bank’s portfolio in the OECS is fairly young, with an average implementation age of 2.3 years as of end-June 2002 (FY02).28 The portfolio, in terms of net commitments, increased twofold, from its end-FY98 level of US$41 million to US$78 million by end-FY02. Despite adequate government ownership of many Bank-supported initiatives, systemic problems, such as lack of counterpart funding, understaffed Project Management Units (PMU), weak procurement practices, and slow coordination among the OECS countries have affected portfolio performance. These challenges notwithstanding, recent solutions to problems of coordination and more effective Bank supervision have led to steadily increasing disbursements, i.e., an increase of the disbursement ratio from 6% at end-FY97 to 25% in FY02. Further, in terms of lending, the Bank is moving towards grouping similar operations under sub-regional umbrella mechanisms, while still shaping projects to meet the special needs of each country (e.g., the existing Disaster Mitigation program, the Caribbean HIV/AIDS Prevention and Control Program, already negotiated and the Education Reform program now under preparation). Implementing projects in this way is cost effective and promotes sub-regional integration, which ultimately pools resources from the member countries and allows them to reach national and sub-regional priorities. 5.3 Project supervision reports indicate inadequacy (or lack) of procurement records and lack of procurement capacity in various projects subject to project supervision, and a few projects where post review was conducted. As a result of the recent post reviews conducted between August 14 and 18, 2000, there was one case of misprocurement,

26 Comprising of (i) 24 IDA credits for a principal amount of XDR 52.35 million of which XDR 36.77 million has been disbursed; and (ii) 38 IBRD loans for a total principal amount of US$75.49 million of which US$24.92 million has been disbursed as of February 19, 2003. Converted to US$ equivalent at exchange of 1 XDR = US$ 1.373000. 27 Comprising of (i) 13 IDA credits for a principal amount of XDR 18.50 million of which XDR 7.30 million has been disbursed; and (ii) 18 IBRD loans for a total principal amount of US$50.70 million of which US$9.32 million has been disbursed as of February 19, 2003. Converted to US$ equivalent at exchange of 1 XDR = US$ 1.373000. 28 World Bank fiscal years (FY) run from July 1 to June 30. For instance, the current fiscal year 2003 (FY03) runs from July 1, 2002 to June 30, 2003.

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detailed below. OECS Ship-Generated Waste Management Project, Regional component TF 028600. In regard to the Global Environment Trust Fund Grant Agreement for the Ship-Generated Waste Management Project (the Regional GEF Grant Agreement) among Antigua and Barbuda, the Commonwealths of Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines (collectively the recipients) and the Bank as the trustee (the Trustee) of grant funds, a Bank Mission conducted financial and procurement post-review in August 2000. As a result of this Mission, the Trustee concluded that the procurement procedures specified in the grant agreement were violated in regard to the procurement of computers, computer peripherals, communication equipment, office equipment, etc. valued at US$37,919.23. Accordingly, the recipients were required to refund the Trustee for deposit into the GEF trust account the amount of US$37,919.23 by November 1, 2000. 5.4 The Implementation Completion Reports (ICR), the Performance Audit Reports (PAR), and the Project Supervision Reports highlight important procurement performance concerns as:

(a) lack of inappropriate planning has lead to uneconomic procurement in nearly all projects. (b) limited institutional capacity of implementing agencies coupled with lack of adequate organizational arrangements for implementing projects, (c) poor contractor performance, (d) lack of technical skill in areas of procurement planning and internal control,

(e) unsatisfactory record keeping, with incomplete files and improperly organized correspondence,

(f) cost overruns of up to 30%, in some cases coupled with minor time overruns, and

(g) inadequate design and under-preparation leading to delays in project implementation.

5.5 In the agencies reviewed, there were hardly any cases where project management took measures against a delinquent contractor or supplier by enforcing the performance security or collecting liquidated damages for delayed contract completion.

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6. GENERAL RISK ASSESSMENT

6.1 There are serious risk issues in the current procurement systems in the OECS countries. Guidance under procurement systems is scattered among numerous and various outdated procurement regulations and procedures. There is lack of appropriate legislation, shortage of basic skills, and inadequate organization. Also, there is no appropriate legislative framework, a shortage of required basic procurement skills, and inadequate organizational administration. The existing procurement regimes, in the form of regulations and rules emanating from the Minister of Finance, do not have the status of law, and as administrative instruments can easily be superseded without regard to: (i) the concerns of economy, efficiency, competition, and transparency in procurement, and (ii) the rights of suppliers/contractors. They contain no standard provisions normally included in a standard procurement law similar to the UNCITRAL model. (See para 1.18 for details). For example, under government-funded projects, the existing procurement procedures (e.g., approved list of suppliers, contractors and consultants, the general use of selective tendering as the default procurement method) are not conducive to the procurement of goods, works, and services, with due regard for competition and transparency. 6.2 There are also delays in project execution because of lack of proper project design and detailed engineering design before tendering for procurement contracts, lack of adequately trained professionals, and weak project management in terms of procurement planning, managing the bidding process, contract award and contract administration. There is also untimely release of funds against allocations already made in the budget. ICRs, Performance Audit Reports (PAR), and Project Supervision Reports (PSRs) have confirmed these observations. Training of existing staff will need to receive top priority in the areas of procurement, project planning, and project and contract management. If this does not occur, needless delays and additional costs will doubtless result. Equally important is that procurement should be recognized as a profession and compensated accordingly to reduce, if not eliminate, turnover of key professionals to the private sector, which generally provides higher salaries. 6.3 The appropriate solution would be to decentralize procurement functions to the ministries, departments, and agencies, reduce the associated bureaucracy, and curtail inefficiencies, with procurement oversight left to autonomous policy and regulatory bodies. It is also important for the Government to take appropriate action to ensure this takes place, as timely availability of budget, and payment of consultants, contractors, and suppliers are essential for efficient and economic procurement. The overall assessment of risk to implement procurement is rated “high.”

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7. PRIVATE SECTOR

A. Commercial Regulations.

7.1 In the OECS group contract law is based on common law. Also, there is no commercial code consolidating existing commercial laws to regulate the establishment and activities of business organizations.

7.2 Trade under the OECS group is not yet liberalized, and there is need to obtain import or export licenses for many items. The extent of foreign exchange control varies from none to limited control. Persons are free to maintain their foreign exchange resources abroad with no restrictions on its use.

7.3 In 2001, private consumption as a percent of GDP was 66% (i.e. about US$1159 million) and imports of goods and services were US$1,138 million. Exports of goods and services were US$876 million. Goods exported from the OECS group include bananas, beverages, clothing, cocoa, flour, fresh fruits, mace, manufactures, nutmegs, soap, sugar, tobacco and vegetables. There is no legal requirement for pre-shipment inspection of goods imported into the OECS group. 7.4 Generally, imported goods are not subject to quantitative restrictions, but import duties are payable for all goods, except those specifically exempted by legislation. There is a General Consumption Tax (GCT) and service charge across-the-board, with some goods subject to an additional excise tax and environmental levy.

B. Commercial Practices

7.5 In the OECS group, the main importers of raw materials and finished goods are private firms - raw materials are mostly imported by manufacturers, while retail outlets, supermarkets, and trading companies import finished goods. There also are accredited dealers for raw materials. Generally, there are no licensing requirements for importing raw materials; they are imported on the basis of INCOTERMS, with payments through letters of credit. 7.6 Private sector industries and firms use commercial procedures by placing orders with known suppliers, with whom they have had previous and/or established relationships, or by direct contracting or negotiations. 7.7 Most of the works contracts are selectively tendered based on detailed specifications, bill of quantities, and the like. Three or four quotes are obtained and a final decision to award contract is made based mostly on the track record of the firm. 7.8 The Eastern Caribbean Central Bank (ECCB) is in charge of regulating and assessing the creditworthiness of banks and provision of foreign currency for import transactions. Merchant banks usually issue letters of credit in US dollars. The merchant

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banks purchase foreign currency from the ECCB. The importer pays for the foreign exchange in Eastern Caribbean dollars at the applicable market rate, plus the bank commission and service charge.

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8. RECOMMENDED ACTION PLAN 8.1 Action Plan: The main deficiencies identified and subsequent recommendations made in this report, will require development of both a short- and medium-term strategy and action plan. A recommended Action Plan for the implementation of these recommendations is delineated in Annex 1. Short-term actions are geared to improve the legal and regulatory framework of the existing procurement systems in the OECS group. The medium-term actions are intended to improve the overall procurement system, with deeper changes in the legal and regulatory framework based on the issuance of a new Procurement Law in each OECS group. This law would ultimately replace the existing Regulations/Rules governing procurement by Government and its agencies.

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Annex 1

Action Plan for Improving Public Procurement System in OECS group

Major Issue

Recommended Action

Date

Agency in

charge 1. Outdated regulatory framework and inefficient institutional arrangements for policy oversight and coordination of capacity building initiatives .

Legal and Regulatory Framework Short Term Actions 1. Establish a high level task force to carry out policy dialogue between the MOFs and other key stakeholders on viable options for regional harmonization. Medium Term Actions 1. Adopt harmonized regulatory framework 2. Adopt consistent national laws and implementing regulations (as applicable) 3. Establish regional policy oversight body 4. Establish national policy bodies to serve as counterparts to the regional authority (e.g. convert CTB, which should cease current functions) 5. Implement institutional arrangements required by bid protest system established by the law

2. Current Procedures and Practices are not conducive to efficient and transparent procurement.

Procedures and Practices Short Term Actions 1. Issue guidelines requiring:

• preparation of appropriate procurement plans

• adoption of realistic budgets • use of bidding documents with clear

post qualification requirements • advertisement of contracts on a

regional basis • prompt payment to contractors and

suppliers • inclusion of technically competent staff

in evaluation committees 2. Adopt executive orders to support enforcement of these actions Medium Term Actions 1. Implement efficient, secure and transparent procurement record management systems. 2. Develop a comprehensive set of tools to facilitate implementation of revised procurement

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Major Issue

Recommended Action

Date

Agency in

charge system (e.g. standard bidding documents, manuals, e-procurement strategy, etc.) 3. Develop contract administration tools and capacity

3. Organization and Resources are not adequate to perform procurement in a satisfactory manner.

Organization and Resources Short Term Actions 1. Raise substantially the thresholds for reference to CTB and /or the Minister and/or MOF should be substantially increased. 3. Eliminate or phase out role of Cabinet 4. Carry out a skill inventory exercise and a training needs assessment 5. Assess feasibility of centralized bulk procurement of selected items at the national and regional level (the latter under the OECS umbrella following further review of the PPS Unit’s experience) Medium Term Actions 1. Fully decentralize decision making to procuring entities. 2. Develop and implement a comprehensive regional capacity building strategy including coordinated training programs, and development of post-graduate studies in public sector procurement 3. Develop a procurement career path in coordination with wider civil service reform 4. Adopt code of ethics for procurement professionals 5. Implement centralized procurement at the national (as appropriate in each country) and regional level for selected items

4. Backlog in submitting Government Financial Accounts and Audit Reports.

Audit and Anti-Corruption Measures Short Term 1. DOAs’ reports should be promptly presented to Parliaments. 2. Clear work programs should be adopted to clear any backlog in the preparation of annual financial accounts of the Government and the related audit reports and ensure prompt presentation to the Parliaments.

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Major Issue

Recommended Action

Date

Agency in

charge Medium Term 1. Train staff of the Accountants-General and the DOAs to strengthen the accounting and auditing functions. Furthermore, the capability of the Accounts and Audit functions should be enhanced through the purchase of technology (e.g., computers, networks, computerization of functions), in addition to additional trained staff. 2. Introduce legislation relating to Prevention of Corruption, whistleblower protection and freedom of information 4. Establish appropriate anti-corruption authorities 5. Train appropriate staff (including public prosecutors) in anti-corruption investigative techniques 5. Establish a reporting system (e.g. a hot-line) with open access for reporting cases of corruption to be investigated.

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Annex 2

Technical Assistance 1. Implementation of new procurement legislation would require significant technical assistance to draft model legislation, design institutional arrangements, establish management information systems, carry out training needs assessment and develop training programs, prepare a complete set of administrative tools for application of the new legislation, such as SBDs, contract and evaluation forms, procurement manuals, guidelines and procedures, carry out initial training, and related activities. 2. The following estimated costs of implementing the Action Plan are purely indicative and will be discussed with the countries and the donors during the regional workshop.

Activity

Estimated Cost US$

Funding Agency/Remarks

Procurement Law, and definition and structure of the regulatory authority, management information system, its dissemination and training

300,000

Analysis for decentralization and concentrated procurement training of key staff

150,000

Organizational structure for procurement staff 40,000

Training assessment, preparation of procurement modules, and Standard Bidding Documents

250,000

Preparation of training module for audit and training of audit staff

150,000

Improvement of budgetary approval and release system, including testing a pilot system

60,000

Cost of steering committee and technical assistance 75,000

Sub Total 1,025,000

Contingencies 100,000

Grand Total 1,125,000