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Technical Assistance Report

Project Number: 39177 April 2006

Supporting the Use of Country Procurement Systems

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature.

ABBREVIATIONS

ADB COSO CPAR DAC DMC EA ICB MDB NCB OECD TA

– – – – – – – – – – –

Asian Development Bank Central Operations Services Office country procurement assessment report Development Assistance Committee developing member country executing agency international competitive bidding multilateral development bank national competitive bidding Organisation for Economic Co-operation and Development technical assistance

TECHNICAL ASSISTANCE CLASSIFICATION

Targeting Classification – Targeted intervention Sector – Law, economic management, and public policy Subsectors – National government administration, public finance and expenditure

management Themes – Governance, capacity development Subthemes – Public governance, anticorruption, institutional development

NOTE

In this report, "$" refers to US dollars. Vice President C.L. Greenwood, Jr., Operations 2 Principal Director P. Daltrop, Central Operations Services Office (COSO) Director R. Marshall, Central Operations Services Division 1, COSO Team leader R. Rothery, Principal Procurement Specialist, COSO Team member B. Byambasaikhan, Young Professional, COSO

I. INTRODUCTION

1. Strengthening the development capacity of developing member countries (DMCs) is a major part of the Asian Development Bank’s (ADB) efforts on harmonization, alignment, and managing for development results. In the Paris Declaration on Aid Effectiveness,1 ADB and other multilateral development banks (MDBs) agreed to work together with partner governments on strengthening the use of country systems and institutions. This regional technical assistance (TA)2 supports these efforts. 2. The use of well-designed country systems has significant potential to improve development impact, increase country ownership, facilitate harmonization, simplify processes, and reduce costs. The concept of country systems suggests a move away from the traditional model in which ADB’s financial management, procurement, and safeguard policies are applied only to ADB-financed activities. The country systems approach supports the development and implementation of effective government policies across a range of government activity. Country systems and procedures typically include, but are not restricted to, national arrangements and procedures for public financial management, accounting, auditing, procurement, results frameworks, and monitoring. Applying country procurement systems3 in MDB- and donor-financed projects gives DMCs greater flexibility in their choice of procurement methods. It also recognizes that there are country-specific needs that should be accommodated, especially for middle-income countries.

II. ISSUES

3. The quality of country systems varies widely, and it will be essential to ensure that procurement systems proposed for use in ADB-financed projects promote economy and efficiency in a transparent and nondiscriminatory environment. Just as different countries may have different performance levels, different sectors and different levels of government may also have varying performance levels. The use of country systems for ADB-financed operations may therefore be limited—by agreement with DMCs—to certain sectors and executing agencies that have demonstrated strong capacity and performance. ADB will follow a step-by-step approach in using country procurement systems that are justified by the anticipated benefits in project administration outcomes. This will be done in consultation with DMCs and other development partners, particularly the World Bank. ADB’s commitment to streamlining procurement processes, harmonizing with the regulations of other multilateral institutions, enhancing transparency, strengthening and allowing greater flexibility and innovation in the procurement procedures of DMCs is reflected in the Innovation and Efficiency Initiative; and in the updating of ADB’s guidelines for consulting services and procurement, approved by the ADB Board of Directors in February 2006. 4. Procurement outcomes will be improved by active and determined collaboration within the international community. Moving forward on the agenda outlined in the Paris Declaration requires support at the highest political levels in both donor and client countries. This ensures that procurement reform is integrated into efforts to improve public sector performance, that it is

1 High Level Forum. 2005. Paris Declaration on Aid Effectiveness: Ownership, Harmonization, Alignment, Results

and Mutual Accountability. Paris. 2 The TA first appeared in ADB Business Opportunities on 8 June 2005. 3 Country procurement systems refer to the legislative and regulatory framework and implementing regulations,

documentation, and tools for procurement; the institutional framework and capacity for procurement; and the procurement procedures.

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provided with sufficient human and financial resources, and that progress in improving procurement outcomes is actively monitored. 5. Traditional efforts to strengthen procurement systems have followed a relatively standard sequence. Initial efforts seek to introduce changes in legislation. The passage of legislation sets off a second stage of reform, which features the creation of a process for managing reform as well as the drafting of additional regulations and standard documents. This stage is complemented or followed by programs to train procurement officials in new procedures. However, these efforts have largely been designed as a stand-alone process of improving the techniques of procurement, often with little connection to other reforms. This approach to reform has placed the burden of improving overall performance exclusively on the shoulders of procurement officials presiding over systems that have few resources, limited capacity, and are within weak governance environments. 6. The conventional approach to strengthening procurement may have a relatively limited chance of improving outcomes. In all countries, procurement practices, especially those that are inefficient and unfair, are fiercely defended by the entrenched and powerful forces they benefit. In the face of determined opposition, effective adoption of necessary legal changes to procurement practices can only be secured through an international partnership involving the active support of top leaders from the public and private sectors. 7. Good procurement enables public spending to develop the private sector A government’s most direct impact on the private sector is through its procurement behavior. The government is often the largest investor and purchaser of services, especially in DMCs. The way it manages its commercial relations with the business community profoundly influences the dynamism of the private sector, and whether acceptable business practices will evolve or not. Procurement systems can promote competitiveness and improve the local market’s ability to survive in international markets by awarding contracts on an economic basis, just as they can promote inefficiency and corruption by awarding contracts on the basis of personal relations or private negotiations. In this manner, a country’s procurement system has a significant impact on national investment rates and long-term growth rates. 8. A DMC’s procurement system must be assessed for suitability in ADB-financed projects before it can be applied. In many cases, this will involve training and capacity building to bring them to international standards. Initial work in this area has developed a baseline indicator system for measuring the quality of procurement policies and institutions.4 It offers an assessment mechanism that is sufficiently flexible to be applied to differing capacity levels of national, subnational, and local systems in different countries. DMCs require substantial technical guidance and support to sustain their medium- and long-term procurement system reforms. In many cases, this still requires the development of policy and regulatory frameworks, and institutional capacity building. ADB will work together with the World Bank to assess appropriate DMCs and sectors, and identify and close the gaps before applying country procurement systems in selected projects.

4 OECD/DAC Roundtable on Procurement. 2005. DAC Guidelines and Reference Series–Harmonizing Donor

Practices for Effective Aid Delivery, Volume 3. Strengthening Procurement Capacities in Developing Countries. Paris.

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III. THE TECHNICAL ASSISTANCE

A. Impact and Outcome

9. The TA will enable specific sector executing agencies (EAs) in selected DMCs to use a country procurement system in ADB-financed projects. The use of a well-designed country procurement system has significant potential to increase country ownership of development projects. It also improves development impact, facilitates harmonization, simplifies processes, and reduces project costs. Procurement systems will be assessed in cooperation with selected DMC governments. After mutually agreed standards, processes and monitoring, and safeguard measures are in effect; and EAs in selected sectors are properly trained, a country procurement system will be applied and tested on specific ADB-financed projects. The design and monitoring framework is provided in Appendix 1. B. Methodology and Key Activities

10. The TA will undertake the following key activities: (i) Conduct a diagnostics review of country procurement systems in three selected

DMCs. (ii) Develop specific policy and capacity improvement recommendations, and

implementing an action plan for selected DMCs and EAs on the use of country procurement systems.

(iii) Develop ADB procedures on the use of country procurement systems. (iv) Train selected EAs to apply country procurement systems for ADB-financed

projects. (v) Pilot-test country procurement systems for one or two projects in each of the

three selected countries, and monitoring the implementation in the initial stages. 11. The three DMCs will be selected after careful consideration of the joint capacity assessment efforts between ADB and the World Bank, each country’s commitment to improve its procurement system, and its willingness to fully support and cooperate with ADB under the scope of this project. The Central Operations Services Office (COSO) will coordinate with the regional departments and the World Bank on the detailed selection criteria.

1. Diagnostics Review

12. Before deciding whether to use a DMC’s procurement system, the country procurement assessment report (CPAR)5 will first be used to assess the extent to which the system is equivalent to that of ADB. This refers to the extent to which the country’s system achieves the objectives of ADB’s procurement and consultant guidelines and adheres to the operational principles that underlie them. In addition to the CPAR, ADB will use two systems of baseline indicators: a country system covering the quality of the procurement system, and a project system covering the procurement performance of the EA. An additional set of benchmarks will cover the country’s standards for international competitive bidding (ICB).

a. Baseline Indicators

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature. 13. The joint World Bank and Organisation for Economic Co-operation and Development (OECD)/Development Assistance Committee (DAC) procurement roundtable has developed a 5 A CPAR is an analytical assessment of public procurement systems of borrowing countries. A CPAR is led by the

World Bank, and in the past 4 years ADB has participated in 15 CPARs.

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system of baseline indicators for measuring the quality of the borrower’s procurement policies and institutional capacity. This new tool defines 12 baseline indicators, which are organized into four groupings called pillars (Appendix 4). The tool is flexible enough to be applied in the very diverse conditions and varying capacity levels of national, subnational, and local systems in different countries. The indicators being refined as various stakeholders propose improvements. Meetings of the harmonization joint venture on procurement and the MDB Heads of Procurement both held in Manila in February 2006, discussed the indicators and their application. 14. The indicators are intended to give a broad overview of the comparative strengths and weaknesses of a country’s procurement system. They are complex, and require professional judgment in arriving at a fair and objective assessment of a country procurement system. ADB, working jointly with the DMC and the World Bank, will assess each indicator by comparing the country procurement system against the subindicators of the baseline. Each indicator will be assigned one of three ratings: not achieved, substantially achieved, and fully achieved. A DMC’s system will need a “substantially achieved” rating on every baseline indicator for ADB to rely on it. However, depending on the severity and importance of identified gaps, staff could propose the use of the country’s system if the rating lower than substantially achieved is not an area covered by a mandatory subindicator, and ADB and DMC agree on measures to fill the gap.

b. Performance Assessment

15. In a country where the baseline indicators on policy and institutional framework are satisfactory, it is still necessary to examine the implementation practices, track record, and capacity. Because there is already a widely accepted body of good practices in procurement, it is possible to identify specific data that should be generated and can be measured and monitored to determine aspects of performance. The proposed performance indicators are shown in Appendix 5. During preparation of each proposed project, ADB will examine the EAs’ procurement track record. The assessment shall focus on a significant sample of contracts covering bidding processes for ICB, national competitive bidding (NCB), and other less competitive procurement methods. Overall record management, level of advertisement and publication of results, competitiveness of the processes, quality of the bidding process, use of contract dispute resolution methods, and comparison of costs with private sector norms shall be evaluated. Finally, ADB will survey contractors and suppliers to determine their perception of the system’s transparency and fairness. For each indicator ADB will assign a pass or fail rating and then make an overall recommendation on the acceptability of the procurement system.

c. ICB Assessment

16. Most aspects of a country procurement system’s quality and performance assessment apply to both ICB and NCB. However, for ICB a few additional issues are considered to be of prime importance in creating a reasonably level playing field and ensuring the procurement of goods and services on the basis of economy, efficiency, equal opportunity, and transparency. In considering whether to rely on a country’s system for ICB, ADB will assess whether the domestic regulatory framework includes ICB provisions, and whether the provisions have been followed in a sample of contracts. ADB assigns a rating of “satisfactory” or “not satisfactory” for each ICB indicator, based on the minimum standard shown in Appendix 5.

2. Addressing Gaps

17. If the results of the diagnostic review show that a country’s procurement system does not fully meet ADB’s requirements, the review should also indicate the areas that need to be

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improved and the specific gaps that need to be filled. ADB should then develop specific recommendations to help the country fill these gaps. The recommendations will be followed up with an actual implementation plan, indicating that ADB will monitor its implementation and whether additional ADB engagement is necessary for its implementation. Any recommendation report will include the analysis of the extent a DMC’s procurement system meets ADB requirements, assessment, and recommendations on the level of acceptability of the system. If a DMC’s procurement system meets ADB’s requirements, then ADB will develop and implement a training program for selected EAs in applying the country procurement system for ADB-financed projects. The training will be designed in close coordination with the responsible procurement agencies.

3. ADB Procedures and Pilot-Testing

18. After mutually agreed standards and processes have been implemented, ADB will develop internal procedures on the use of country procurement systems in its financed projects. This must first be accomplished before the testing and use of a DMC’s procurement system is allowed. After these procedures are approved, staff in regional departments shall work closely with COSO in identifying specific projects that can apply, and test the country system during procurement. Following the TA completion, the procedures shall be carried out in projects where ADB considers using the country procurement system. ADB shall retain responsibility for project appraisal and supervision in any project that uses a country procurement system. The decision on the appropriate level of ADB supervision for each project shall continue to be based on a comprehensive assessment that combines country, agency, and inherent project risk. Pilot-test projects shall be selected based on the above assessments, as well as solid professional judgment on the quality and efficiency of the procurement procedures and practices. C. Cost and Financing

19. The total cost of the TA is estimated at $700,000 equivalent, $600,000 of which will be financed on a grant basis by ADB’s TA funding program. Participating governments will finance the remaining $100,000. The detailed cost estimates are shown in Appendix 2. D. Implementation Arrangements

20. COSO will implement the TA in consultation with relevant procurement and sector agencies of selected DMCs. The TA will be implemented over 33 months beginning July 2006, and will require 43 person-months (16 international and 27 domestic) of consultant inputs in public procurement policy, management, and capacity improvement. The consultants will be selected as a firm or as individuals in accordance with ADB’s Guidelines on the Use of Consultants. In addition to the scheduled reporting requirements, the consultant will submit a comprehensive diagnostics report as well as country-specific recommendations for filling gaps. The outline terms of reference for consultants are in Appendix 3.

IV. THE PRESIDENT'S DECISION

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s member

21. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $600,000 on a grant basis for Supporting the Use of Country Procurement Systems, and hereby reports this action to the Board. s, Board of Directors, Management, or staff, and may be preliminary in nature.

6 Appendix 2

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

Impact Increased country ownership of development projects and procurement of goods and services therein

Streamlined procurement procedures and reduced transaction costs in project implementation

Selected DMC CPAR MDB procurement roundtable reports Paris Declaration progress reports

Assumptions • MDBs exhibit acceptance

of country priorities and procurement practices

• DMC governments continually enforce their fiduciary role through proper quality-monitoring systems.

Risk • Projects fail due to weak

fiduciary oversight in project implementation

Outcome EAs in three DMCs are enabled to use country procurement systems in ADB-financed projects

By June 2008, one or two EAs in each of the three DMCs are trained to apply country procurement systems for ADB-financed projects By December 2008, country procurement systems are adopted and pilot-tested for 1–2 projects in each of the three selected countries

Selected DMC CPAR Pilot-testing approval and reports

Assumptions • DMC government creates

an internally controlled process for managing reform

• DMC government establishes a procurement forum for dialogue with donors

• MDBs continually support the use of country procurement systems

• Donors harmonize procurement rules and requirements

Risk • Governments and/or

individuals misapply country procurement systems in ADB-financed projects

Appendix 1 7

Design Summary Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

Outputs Mutually agreed standards, processes, and monitoring and safeguard measures for using country procurement systems are in place EAs in selected sectors have the skills and knowledge to apply country procurement systems Country procurement systems pilot-tested on specific ADB-financed projects

By April 2007, selected sector EAs in three DMCs have undergone a diagnostics review of country procurement systems By April 2008, approved ADB procedures on the use of country procurement systems

Diagnostic review report ADB procedure on the use of country procurement systems Recommendations on the use of country procurement systems

Assumptions • DMC governments

demonstrate leadership in assessments and diagnostics

• DMC governments affirm clear commitment and support to strengthen national procurement systems

• DMC governments make required policy, legal, and institutional changes

Risk • Governments and/or

individuals misinterpret the concept and benefits of using country procurement systems in ADB-financed projects

Activities with Milestones 1. Selection of three DMCs that agree to collaborate with ADB on

developing procedures for using country procurement systems (July 2007)

2. Country procurement systems diagnostics review (April 2007) 3. Development of specific policy and capacity improvement

recommendations, and implementation action plan for selected countries and EAs (November 2008)

4. Development of ADB procedures for using country procurement systems (April 2008)

5. Training of selected EAs in using country procurement systems (June 2008)

6. Pilot-testing of country procurement systems on one or two ADB-financed projects in the selected DMCs (December 2008)

Inputs • ADB $600,000 • Selected DMC

governments $100,000

ADB = Asian Development Bank, CPAR = country procurement assessment report, DMC = developing member ountry, EA = executing agency, MDB = multilateral development bank. c

--------------------------------- ---------------------------------- Philip Daltrop Richard Marshall Principal Director, COSO Director, COS1

8 Appendix 3

COST ESTIMATES AND FINANCING PLAN ($’000)

Total Item Cost A. Asian Development Bank (ADB) Financinga

1. Consultants a. Remuneration and Per Diem i. International Consultants 272.0 ii. Domestic Consultants 80.0 b. International and Local Travel 100.0 c. Reports and Communications 8.0 2. Equipment 13.0 3. Training, Seminars, and Conferences a. Facilitators 5.0 b. Training Program 40.0 4. Surveys 10.0 5. Miscellaneous Administration and Support Costs 12.0 6. Contingencies 60.0 Subtotal (A) 600.0 B. Government Financing 1. Office Accommodation and Transport 30.0 2. Remuneration and Per Diem of Counterpart Staff 55.0 3. Others 15.0 Subtotal (B) 100.0 Total 700.0

a Financed by ADB’s technical assistance funding program. Source: ADB estimates.

Appendix 4 9

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS A. General

1. Consultants will be selected as a firm or as individuals to provide all the international and domestic consulting services. The consultant will be responsible for the overall planning and implementation of the technical assistance (TA). This responsibility will be carried out under the guidance of the Central Operations Services Office of the Asian Development Bank (ADB), and in close collaboration with the selected government procurement agencies and the World Bank’s Procurement Policy and Services Group. The consultant will ensure close and effective collaboration with the government and other donor representatives. 2. The consultant will be responsible for organizing a cohesive team of international and domestic consultants. A total of 16 person-months of international and 27 person-months of domestic consultant inputs will be required to undertake the following TA activities:

(i) Conduct a diagnostics review of country procurement systems in three selected countries using indicators described in Appendix 5.

(ii) Develop specific recommendations for policy and capacity improvement, and an action plan for selected countries and executing agencies (EAs) on the use of country procurement systems.

(iii) Develop training manuals and training selected EAs to apply country procurement systems to ADB-financed projects.

B. Inputs

3. Table A3 shows the expected consultant inputs.

Table A3: Consulting Services Inputs

Expertise Person-Months

A. International 1. Public procurement management specialist and team leader 2. Procurement legal/policy specialist 3. Procurement capacity development specialist Subtotal (A) B. Domestic 1. Procurement legal/policy specialists (3) 2. Procurement management specialists (3) Subtotal (B) Total

8 5 3

16

9 18 27

43

Source: Asian Development Bank. C. Reports

4. The consultant will be responsible for submitting the following reports to ADB based on a schedule that has been agreed upon before mobilization:

10 Appendix 4

(i) An inception report containing a methodology tailored to a country procurement

system diagnostics review and developed based on Table A4.1 in Appendix 4, and Tables A5.1 and A5.2 in Appendix 5.

(ii) A comprehensive diagnostics review report for each country assessed. (iii) A report stating whether a country’s procurement system can be applied to ADB-

financed projects, and recommending ways to fill the gaps found during the assessment.

(iv) A report on the training methodology developed based on the assessment’s outcomes and recommendations.

(v) A final report that also includes the results of the training.

Appendix 5 11

BASELINE INDICATORS

A. Objectives 1. The conceptual approach and basic assumptions on what should constitute a sound public procurement system are as follows:

(i) The overriding objective of a country procurement system is to achieve economy and efficiency in the use of public funds while adhering to the fundamental principles of nondiscrimination and equal treatment, due process, access to information, and transparency. Performance and efficiency in procurement are ultimately measured in transactions between public purchasers and suppliers; and in the delivery of the required goods, works, and services to meet the government’s obligations to the citizens.

(ii) The legal and institutional frameworks set the basic conditions for the procurement procedures, the results that can be expected, and the potential efficiency that can be achieved. Within this environment, the commitment of public sector staff in managing the process, adhering to its requirements, and taking advantage of the competition in the market is essential to achieve the overriding objectives of economy, efficiency, nondiscrimination, equal treatment, and transparency.

(iii) The legal and institutional development of any public procurement system is formed by the prerequisites, and guided by a genuine understanding of the conditions for creating a system that is efficient, transparent, and credible. Such a system can generate efficient and cost-effective procurement in the best interests of the contracting entities and of the country.

B. Coverage of the System 2. The following four key areas, or pillars, have been identified as the basic elements of a national public procurement system. Each pillar has several indicators.

Table A4.1: Baseline Indicators of Procurement Policies and Institutions

Pillar I. Legislative and Regulatory Framework 1. The country’s procurement legislative and regulatory framework complies with applicable

obligations deriving from national and international requirements. 2. The country has appropriate regulations, documentation, and tools to support implementation of

its framework.

Pillar II. Institutional Framework and Management Capacity 3. The public procurement system is mainstreamed and well integrated into the public sector

governance system. 4. The country has a functional normative/regulatory body. 5. The country has institutional development capacity.

Pillar III. Procurement Operations and Market Practices 6. The country’s procurement operations and practices are efficient.

7. The country’s public procurement market functions well. 8. The country has contract administration and dispute resolution provisions.

Pillar IV. Integrity of the Public Procurement System 9. The country has effective control and audit systems.

12 Appendix 5

10. The country has an efficient appeals mechanism. 11. The public has broad access to information. 12. The country has ethics and anticorruption measures in place.

Source: Organisation for Economic Co-operation and Development/Development Assistance Committee.

C. Methodological Basis for the System of Indicators 3. The indicators are intended to evaluate a procurement system at a macro level, giving a broad overview of its comparative strengths and weaknesses. A simple “yes” or “no” cannot answer most of the questions, which are complex. Professional judgment is generally required to give an answer that assesses the national procurement system fairly and objectively against the baseline.

4. The following sections provide details on the structure of a public procurement system, the 12 indicators, baselines for the indicators, and methodology for using the system of indicators. It is anticipated that refinements will be made to the methodological basis as experience is gained.

D. System of Indicators 5. Twelve indicators, grouped under the four pillars, represent the core components of a public procurement system. They are divided into subindicators for better assessment. Staff will assess the procurement system’s achievements against the baseline for each subindicator, then combine the subindicator ratings to yield the indicator rating. There are two kinds of subindicators:

(i) Mandatory subindicators, which cover areas of such critical importance that satisfactory compliance is always required ex ante.

(ii) Standard subindicators, which cover areas where compliance is required. A country system that receives a lower rating in these areas could still be used if the borrower and the Asian Development Bank (ADB) agree on measures to fill the gap.

E. Pillar I. Legislative and Regulatory Framework 6. The legal and regulatory framework is often seen as the starting point for the development of a governance system. It sets the rules of the procurement process and provides the legal basis for ensuring participants’ rights and establishing their responsibilities. It is a fundamental element that links the procurement process to the overall governance structures within the country and defines the government’s obligations in complying with internal and external requirements.

7. Indicator 1. The country’s procurement legislative and regulatory framework complies with applicable obligations deriving from national and international standards. The baseline is defined by the following subindicators:

(i) Legislative and regulatory framework. The legislative and regulatory

framework is structured, consistent, and accessible to users and all interested stakeholders. It applies to and covers the following: (a) contracting entities at all

Appendix 5 13

levels, including government authorities, municipalities, regional authorities, and utilities/state-owned enterprises (standard subindicator); (b) areas of procurement, which cover works, goods, and consulting services (mandatory subindicator); and (c) all procurement using public funds, irrespective of contract value (mandatory subindicator).

(ii) Procurement methods. These are (a) open, competitive procurement of goods, works, and services is used except in well-justified cases clearly defined in the legislative and regulatory framework (mandatory subindicator); (b) international competitive tendering methods that are consistent with international standards are defined for specified contracts (e.g., where monetary thresholds exist) and are compatible with overall economy gains that can still be achieved by the public (mandatory subindicator); and (c) negotiated procedures and direct purchasing are permitted only under well-defined and well-justified circumstances, and are subject to controls (mandatory subindicator).

(iii) Advertising rules and time limits. These are (a) accessible publication of opportunities for competitive procurement is required (mandatory subindicator); (b) publication of the results of contract awards based on defined thresholds is required (mandatory subindicator); and (c) minimum time limits for submission of tenders and applications are consistent with method of procurement, national conditions, and, when applicable, international requirements (mandatory subindicator).

(iv) Rules on participation and qualitative selection. These are (a) fair, predictable, and defined rules for participation rely on qualifications and the ability to perform the requirement (mandatory subindicator); (b) use of price preferential clauses is limited and controlled. (mandatory subindicator); (c) if a debarment process is provided, it allows due process and appeal (standard subindicator); and (d) rules for participation of government-owned enterprises provide equal treatment in competitive procurement (standard subindicator).

(v) Tender documentation and technical specifications. (a) the minimum content of the tender documentation is specified (standard subindicator); (b) where possible, technical specifications are neutral with reference to international standards (mandatory subindicator); and (c) the content of the tender documentation is relevant to meeting requirements and process implementation (mandatory subindicator).

(vi) Submission, receipt, and opening of tenders. (a) Tenders are opened in public in a defined way that ensures the regularity of the proceedings (mandatory subindicator). (b) There is a clear requirement to maintain records of the proceedings and process, and to make them available for review or audit (mandatory subindicator). (c) Maintenance of security and confidentiality of tenders before bid opening is required (mandatory subindicator). (d) Modalities for submitting and receiving tender documents are well defined (mandatory subindicator).

(vii) Tender evaluation and award criteria. These are (a) objective, fair, and predisclosed criteria for evaluation and award of contracts (mandatory subindicator); (b) a clear methodology for evaluating tenders based on price and other fully disclosed factors expressed in monetary terms or pass/fail criteria (mandatory subindicator); (c) evaluators’ maintenance of confidentiality during the evaluation process (mandatory subindicator); and (d) complaint review procedures that provide fair, independent, and timely implementation, and allow the award to be redirected, if necessary (standard subindicator).

14 Appendix 5

8. Indicator 2. The country has appropriate regulations, documentation, and tools to support implementation of its framework. 9. Implementing procurement regulations must be available, including operational procedures, handbooks, model tender documentation, and standard conditions of contract. They facilitate correct and consistent application of the legislative and regulatory framework as well as effective procurement.

10. The baseline is defined by the following standard subindicators:

(i) Implementation of regulations that provides defined processes and procedures not included in higher-level legislation.

(ii) Model tender documents for goods, works, and services. (iii) Procedures for prequalification. (iv) Procedures suitable for contracting services or other requirements in which

technical capacity is a key criterion. (v) User’s guide or manual for contracting entities. (vi) General conditions of public sector contracts covering goods, works, and

services consistent with national requirements and, when applicable, international requirements.

F. Pillar II. Institutional Framework and Management Capacity

11. Modernizing and maintaining a country’s public procurement system is an ongoing and complicated process. It benefits strongly from the existence of focal points within the government administration that have sufficient capacity and qualifications to manage the procurement system and monitor public procurement. All bodies with legitimate interest in public procurement, such as contracting entities, private sector entities, the government, and the judicial system, benefit from varying kinds of support. This pillar examines the institutional capacity to oversee, manage, and support efficient implementation as well as to provide leadership in maintaining and modernizing the public procurement system. It can be used at the level of the central government but can also be adapted to look at other levels of government.

12. Indicator 3. The public procurement system is mainstreamed and well integrated into the public sector governance system. 13. Public procurement should be integral to a country’s overall public financial management and public sector governance system. A well-functioning procurement system provides information to support budget development and execution. It benefits from the public financial management system with regard to timely appropriations and the availability of funds to support the award and payments of contracts. Lack of integration between budgeting and procurement can cause cancellations or render funds insufficient to make timely payments. These result in increased costs and inefficiencies in the use of public funds.


(i) Procurement planning and data on costing are part of the budget formulation process and contribute to multiyear planning.

(ii) Budget law and financial procedures support timely procurement, contract execution, and payment.

Appendix 5 15

(iii) Procurement actions are not initiated until budget appropriations have been made.

(iv) Contract execution is subject to budgetary controls to ensure sufficient funding. (v) The budgeting system allows the timely release of funds to make payments

against contractual obligations. 15. Indicator 4. The country has a functional normative/regulatory body. 16. In most countries, normative bodies within the central government provide a range of functions that support the consistent development, maintenance, and application of the legislative and regulatory requirements of a procurement system. Such bodies provide guidance on the interpretation of rules, support training, and develop capacity. They also develop and oversee the use of technology to support procurement, including e-procurement. Such bodies and their capacity are especially important in decentralized governments.


(i) The status and basis for the normative/regulatory body is covered in the legislative and regulatory framework.

(ii) The body has a defined set of responsibilities that include at least the following: advising contracting entities; drafting amendments to the legislative and regulatory framework, and implementing regulations; monitoring public procurement; providing procurement information; managing statistical databases; reporting on procurement to other parts of government; developing and supporting initiatives to improve the public procurement system; and providing implementing tools and documents to support training and capacity development of implementing staff. The responsibilities should be separate and clear to avoid conflict of interest and direct involvement in the execution of procurement transactions.

(iii) The body’s organization, funding, staffing, and level of independence and authority, or formal power, to exercise its duties should be sufficient and consistent with the responsibilities.

18. Indicator 5. The country has institutional development capacity. 19. The public procurement system is defined by a legislative and regulatory framework that can be complex. It often requires the exercise of judgment in the application of the appropriate procedures. The performance of the system relies heavily on the capacity of the participants, from the public and private sector, to understand and implement the procedures. Performance also depends on the capacity of the various stakeholders who interact with the system.


(i) The country has a system for collecting and disseminating procurement information, including tender invitations, requests for proposals, and contract award information.

(ii) The country should have a sustainable strategy to provide training, advice, and assistance to help the government and private sector participants understand what the rules and regulations are and how they should be implemented.

(iii) The country has systems and procedures for collecting and monitoring national procurement statistics.

16 Appendix 5

(iv) Quality control standards are disseminated and used to evaluate staff performance and address capacity development issues.

G. Pillar III. Procurement Operations and Market Practices 21. In a well-functioning system, an efficient and competitive private sector market is a key partner of the public procurement system. If the private sector market is to be effective, it must have confidence in the competence of the contracting authorities at all levels to implement and administer the public procurement system in accordance with the legislative and regulatory framework.

22. Indicator 6. The country’s procurement operations and practices are efficient. 23. Procurement operations capacity and practices, which are at the core of a well-functioning procurement system, depend on the staffing, knowledge, skills, and capabilities of the human resources. They also rely on the system incentives and controls that influence human behavior and institutional performance.

24. The baseline is defined by the following standard subindicators for contracting agencies:

(i) The level of procurement competence among government officials within the entity is consistent with their procurement responsibilities.

(ii) The procurement training and information programs for government officials and for private sector participants are consistent with demand.

(iii) There are appropriate administrative systems for public procurement operations and information databases to support performance monitoring and reporting, and to respond to the information needs of other related government systems.

(iv) The entity has internal control mechanisms governing procurement operations at the contracting level, including a code of conduct, separation of responsibilities as a check/balance mechanism, and oversight/control of signature/approval authority.

(v) There are established norms for safekeeping records and documents related to transactions and contract management.

(vi) There are provisions for delegating authority to others who have the capacity to exercise responsibilities.

25. Indicator 7. The country’s public procurement market functions well. 26. Market performance depends on the capacity and depth of the country’s market.


(i) The country’s public procurement market has enough participants to provide domestic competition.

(ii) The public sector pays prices for goods, works, and services that are comparable to prices paid for similar requirements in the domestic markets.

(iii) The quality and consistency of the private sector’s submissions to the government should be sufficient to allow the award and completion of contracts.

(iv) Bidders participate in response to competitive tender invitations at a rate that is consistent with marketplace capacity.

Appendix 5 17

(v) The private sector demonstrates confidence in the legal and regulatory framework governing the procurement process by participating in it and using its complaint or protest mechanisms.

28. Indicator 8. The country has contract administration and dispute resolution provisions. 29. Contract administration, a key element in managing the outputs of a public sector procurement system, oversees quality and timely performance and provides early access to information that is needed for good management. Contract administration is critical to the successful implementation of major public investment projects and to the fair and timely resolution of disputes.


(i) Clear procedures for contract administration include efficient and streamlined inspection and acceptance procedures, quality control procedures, and methods to review and issue contract amendments on time.

(ii) Contracts include dispute resolution procedures that provide an efficient and fair process to resolve disputes that arise during the performance of the contract.

(iii) Procedures exist to enforce the outcome of dispute resolution. H. Pillar IV. Integrity of the Public Procurement System 31. A fair, transparent, and credible public procurement system has mechanisms and the capacity for independent control and audit of procurement operations to provide accountability and compliance. Similarly, there must be a system for participants to lodge complaints and challenge decisions with administrative and judicial review bodies, which have the independence and legal power to impose corrective measures and remedies against contracting entities in breach of the legal and regulatory framework. To create a sound and fair environment for public procurement operations, legislation and special measures should address the issues of fraud and corruption, including conflict of interest.

32. Indicator 9. The country has effective control and audit systems. 33. Internal and external controls in implementing agencies and an effective external audit system are key elements of a governance and public financial management system. They are particularly important to the effective and efficient operations of the public procurement system.

34. The baseline is defined by the following subindicators:

(i) A legal framework, organization, policy, and procedures for internal and external control and audit of public procurement operations are in place to provide a functioning control framework (mandatory).

(ii) Enforcement and follow-up on findings and recommendations of the control framework provide an environment that fosters compliance (mandatory).

(iii) The internal control system provides timely information on compliance to enable management action (mandatory).

(iv) The internal control systems are sufficiently defined to allow performance audits to be conducted (standard).

(v) Auditors are sufficiently informed about procurement requirements and control systems to conduct quality audits that contribute to compliance (standard).

18 Appendix 5

35. Indicator 10. The country has an efficient appeals mechanism. 36. The appeals mechanism, which includes a complaint review and remedy system, contributes to the compliance environment and integrity of the public procurement system when it operates efficiently and provides unbiased decisions.


(i) An independent complaint review system gives participants in the public procurement process the right to file a complaint within the framework of an administrative and judicial review procedure.

(ii) Decisions are deliberated on the basis of available information, and the final decision can be reviewed and ruled upon by an authority with enforcement capacity under the law.

(iii) The complaint review system has the capacity to handle complaints efficiently and has the means to enforce the remedy imposed.

(iv) The system operates fairly. Outcomes of decisions are balanced and justified on the basis of available information, and with decisions aimed at correcting the procurement process rather than compensating for a loss of contracting opportunity.

(v) Decisions are published and made available to all interested parties and the public.

(vi) The administrative review body or authority is independent from the regulatory body, executing agency, and audit/control agency.

38. Indicator 11. The public has broad access to information. 39. In procurement, particularly in e-procurement, access to information is critical to the many stakeholders in the system. Although access to information is covered under various baselines, the importance of this element justifies a dedicated indicator.


(i) Information must be published and distributed through available media with support from information technology, when feasible (mandatory).

(ii) Systems to collect key data related to performance of the procurement system and to report regularly are in place (standard).

(iii) Records must be maintained to validate data (mandatory). 41. Indicator 12. The country has ethics and anticorruption measures in place. 42. The procurement system should be perceived to operate with integrity. It must clearly define unacceptable practices and state the consequences of engaging in fraudulent, corrupt, or unethical behavior.


(i) The legal and regulatory framework for procurement, including tender and contract documents, must include provisions addressing corruption, fraud, conflict of interest, and unethical behavior and set out (either directly or with

Appendix 5 19

reference to other laws) the actions that can be taken regarding such behavior (mandatory).

(ii) The legal system must define responsibilities, accountabilities, and penalties for individuals and firms found to have engaged in fraudulent or corrupt practices (mandatory).

(iii) Rulings and penalties must be perceived as being enforced (mandatory). (iv) The government has an anticorruption program that provides and enforces

special measures to prevent and detect potential fraud and corruption in public procurement in accordance with criminal laws (standard).

(v) Stakeholders (the private sector, civil society, and ultimate beneficiaries of procurement or end users) support the creation of a procurement market known for its integrity and ethical behavior (standard).

(vi) The country has a secure mechanism in place for reporting fraudulent, corrupt, or unethical behavior (standard).

(vii) Codes of conduct or codes of ethics for participants in the public financial management system provide a system for indicating who is accountable for specific decisions (standard).

I. Assessment Ratings of Baseline Indicators 44. For each subindicator, the baseline represents a desirable good-practice standard. Comparing actual conditions and practices against this standard provides a profile of the system that identifies strengths and weaknesses, along with a descriptive analysis that includes details such as methodology and rationale.

1. Proposed Levels of Achievement a. For Rating the Subindicators 45. The assessment team compares the borrower’s procurement system with each subindicator and assigns one of the following ratings: (i) satisfactory, if the borrower’s system satisfactorily meets all the baseline requirements for the subindicator; and (ii) not satisfactory, if the borrower’s system does not satisfactorily meet all the baseline requirements of the subindicator.

b. For Rating the Indicators 46. The subindicator ratings for each indicator are combined to yield a rating for that indicator, which is determined according to the following criteria:

Table A4.2: Rating Criteria

Indicator Rating Assessment key Fully Achieved (FA)

All subindicators forming this indicator are rated satisfactory.

Substantially Achieved (SA)

All mandatory subindicators included in this indicator are rated satisfactory, and at least 70% of all subindicators included in this indicator are rated satisfactory.

Not Achieved (NA)

Any mandatory subindicator included in this indicator is rated not satisfactory, or less than 70% of all subindicators included in this indicator are rated satisfactory.


20 Appendix 5

c. For Rating the System (Group of Indicators) 47. The overall rating of the borrower’s procurement system is based on the collective assessment of the 12 baseline indicators. A borrower’s system needs a “Fully Achieved” or “Substantially Achieved” rating on every baseline indicator for ADB to rely on it. However, depending on the severity and importance of identified gaps, staff members may propose the use of the borrower’s systems if (i) the ratings that are lower than “Substantially Achieved” are in areas not covered by mandatory subindicators, and (ii) ADB and the borrower agree on measures to fill the gap.

Appendix 6 21

PERFORMANCE AND INTERNATIONAL COMPETITIVE BIDDING INDICATORS

Table A5.1: Performance Indicators

Indicator Name Indicates Measured by Satisfactory Threshold A. Advertisement of bids and publication of awards

Transparency and openness of system

Number of bids (in %) for which invitation to bid and contract award results are publicly advertised

95% or more

B. Time for preparation of bids

Real opportunity for bidders to submit bids

Number of days between invitation to bid and bid opening

21 days or more for open bidding, 10 days or more for restricted bidding, and 3 days or more for shopping

C. Time for bid evaluation

Efficiency of bidding process

Number of days between bid opening and publication of award

90 days or less

D. Bidders participation

Level of confidence of private sector in the process

Average number of bidders submitting bid in each bid process

5 bids or more (calculated as the average for the sample of transactions)

E. Method of procurement used

Level of competition

Number of bidding processes using a method less competitive than the process recommended for the estimated contract amount

1% or less

F. Direct contracting

Transparency and level of competition

Percent of contracts (by number and value) awarded on a sole-source basis

10% or less of number of contracts and 5% or less of total value of contracts

G. Processes cancelled

Quality of bidding process

Percent of bid processes declared null before contract signature

5% or less

H. Number of protests

Quality and fairness of process

Ratio (in %) between the number of protests posted and the number of bids submitted

Not less than 10% and not more than 50%

I. Time to answer protests

Efficiency and fairness of protest system

Number of days between submission and final response to protests

21 days or less

J. Protest results Effectiveness of protest system

Percent of contracts with award recommendation modified because of a protest

5% or less

K. Late payments Quality and consistency of payment process

Percent of payments made more than 45 days late

10% or less

L. Contract amount increase

Quality of bidding and contract management

Percentage increase of final contract amount due to changes and amendments

15% or less (calculated as the average for the sample of transactions)

M. Restricted competition for consultants

Quality of advice Percent of processes for the selection of consultants using open competition instead of a restricted competition or shortlist methodology

5% or less

N. Selection method for consultants

Weight of quality to price ratio used in selection

Percent of processes for the selection of consultants having price weighted more than 20% of the total scoring points

15% or less


22 Appendix 6

Table A5.2: International Competitive Bidding Indicators

Issue Minimum Standard to be Used Advertisement Newspaper or publication of wide international circulation, or openly accessible electronic

bulletin. Contract notices as well as awards shall be published. Language English, in addition to the national language of the country. Currency Bids may be submitted in one international currency in addition to local currency, and the

conversion mechanism shall be stated. Time for bid preparation

Generally, 30 days shall be acceptable for consultant services and procurement of goods and small works, and 60 days for larger works (above $10 million).

Evaluation and comparison of bids for goods

Shall not include customs duties and import taxes.

Domestic preference Maximum amount shall be stated in the law (up to 15% maximum). Criteria for its use shall be clearly described in the regulations, and shall be applied to locally manufactured goods.

Joint ventures Not mandatory. Protests Bid protest submission procedures shall be in writing and easily available (preferably in

bidding documents) to foreign bidders. The publication of award shall specify that bidders have the right to be debriefed. The borrower shall provide such debriefings in writing or in a meeting, as requested.

Contract dispute resolution (including arbitration)

Alternative methods for resolution of disputes should be used for large or complex contracts, and supply, installation, works, and consultant contracts. International arbitration should be the preferred method for final resolution of disputes.

Selection of consultants

The system should include restricted tendering procedures for preparing shortlists of consultants, and selection methods that are based primarily on quality considerations and have cost considerations as a subsidiary aspect.

Payment Payment shall be in the currency of bid or the equivalent in local currency, using the exchange rate for conversion to avoid transfer of exchange rate risk to bidders.


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