PROCUREMENT SYSTEMS ASSESSMENT FOR THE …



Report No. 39760-PK

NWFP PROVINCE

PAKISTAN

Procurement Systems Performance Assessment

May 2007

ACRONYMS AND ABBREVIATIONS

ACS Additional Chief Secretary

ADB Asian Development Bank

BIS Baseline Indicator System

BLI Baseline Indicator

CPI Compliance Indicator

DAC Development Assistance Committee

DAC Departmental Accounting Committee

DCC District Coordinating Committee

DCO District Coordinating Officer

EDO Executive District Officer

EU European Union

FHA Frontier Highways Authority

GDP Gross Domestic Product

GFR General Financial Rules

IDA International Development Association

IPD Irrigation and Power Department

NCB National Competitive bidding

NWFP North Western Frontier Province

OECD Organization for Economic Co-Operation and Development

P&DD Planning and Development Department

PC-I Planning Commission Proforma-I (Feasibility Report)

PC-IV Planning Commission Proforma-IV (Completion Report)

PFMAA Public Financial Management Assessment

PPRA Public Procurement Regulatory Authority

PSC Provincial Steering Committee

TMA Tehsil Municipal Administration

W&S Works and Services

CONTENTS

Procurement Assessment using OECD-DAC BIS 1

A Background 1

B Planning and Preparing for the Assessment 2

C Task Team 2

D Assessment Results 2

Pillar I. The Legislative and Regulatory Framework 2

Indicator 1. Public Procurement legislative and regulatory framework complies with applicable obligations with regard to national and international requirements. 3

Indicator 2.Existence of Implementing Regulations and Documentation 6

Pillar II. Institutional Framework and Management Capacity 8

Indicator 3. The public procurement system is mainstreamed and well integrated into the public sector governance system. 8

Indicator 4. The country has a functional normative/regulatory body. 9

Indicator 5. Existence of institutional development capacity. 10

Pillar III. Procurement Operations and Market Practices 11

Indicator 6. The country’s procurement operations and practices are efficient. 11

Indicator 7. Functionality of the public procurement market 12

Indicator 8. Existence of contract administration and dispute resolution provisions 13

Pillar IV. Integrity and Transparency of the Public Procurement System 14

Indicator 9. The country’s procurement operations and practices are efficient. 14

Indicator 10. Efficiency of appeals mechanism 15

Indicator 11. Degree of access to information 16

Indicator 12. The country has ethics and anticorruption measures in place. 17

Procurement Assessment using OECD-DAC BIS

Background

The developing countries and bilateral and multilateral donors having a concern for increasing the effectiveness, efficiency and transparency of procurement systems, under the auspices of the joint World Bank and OECD Development Assistance Committee (DAC) Procurement Round Table initiative, worked together to develop a set of tools and standards that provide guidance for improvements in procurement systems and the results they produce. Among these tools are included: (i) Benchmarking for the assessment of the structure of the public procurement systems; and (ii) Monitoring and Evaluation of the public procurement systems. With regard to the first deliverable a tool comprising a set of baseline indicators for the assessment of a country system has been developed. This tool comprising four pillars explained through twelve (12) indicators is used to conduct this analysis.

The tool helps identify when an element of the national public procurement system meets or exceeds the baseline or where it needs modification to meet the baseline.

It is considered that the exercise of benchmarking NWFP in accordance with the baseline indicator system, would contribute in the following ways:

• NWFP would be able to learn as to how much progress has been made by the Province towards creating procedures to make public procurement effective, efficient and transparent.

• NWFP would be able to identify needed changes and contribute to the development and implementation of a prioritised capacity development and change management strategy.

• NWFP would be able to coordinate, prioritise and focus donor assistance on supporting the strategy.

• NWFP would be able to measure the impact of their strategy by comparing implementation progress against the results of the assessment.

• The exercise will provide the supporters of reform in NWFP with clear arguments for the change, to focus political attention and mobilise commitment.

• The exercise will support the needed harmonisation of public procurement rules and procedures around recognized standards.

• As an integral part of the public financial management system, the output of the assessment exercise will provide valuable information to the overall assessment of the public finance system.

• The exercise will provide information to support strategic policy decisions with regard to NWFP. Information on the structure of its procurement system should enable a determination of the level of reliance that donors would be expected to place on NWFP procurement system (in part or in its totality) to handle donor financing properly.

The Baseline Indicator System (BIS) is based on a set of indicators that are intended to provide harmonized tools for use in the assessment of procurement systems. The scoring system for assessment ranges from 3 to 0. A score of 3 indicates full achievement of the stated standard. A score of 2 is given when the system exhibits less than full achievement and needs some improvements in the area being assessed and a score of 1 is for those areas where substantive work is needed for the system to meet the standard. A rating of 0 is the residual indicating a failure to meet the proposed standard. The details of the BIS and the methodology developed to use it are included in Annex I.

Planning and Preparing for the Assessment

In order to collect the information required, the following key stakeholders were interviewed:

• Special Secretary Finance;

• Staff of NWFP’s Departments involved in procurement of goods, works and consulting services;

• Staff of TMAs;

• Consultants; and

• Contractors

DPC Coordinator assisted in arranging the requisite meetings and interviews with the relevant government staff, while the interviews with the representatives of consulting and contracting industries were arranged independent of the DPC Coordinator. The staff of FHA, W&S, Agriculture Engineering Department and IPD was met in groups while staff of TMA and Audit Department was met individually. The representative of the consultancy and contracting firms were met separately (not in the company of government officials).

Task Team

The task team comprised Uzma Sadaf, Procurement Specialist, World Bank,, Ismaila B. Ceesay, Sr. Financial Management Specialist, World Bank, David Johnson, Sr. Governance Advisor, UK Department for International Development (DFID); Sandra Nicoll, Sr. Governance Specialist, Asian Development Bank (ADB); and Thorsten Bargfrede, Second Secretary, European Community (EC). Hanid Mukhar, Sr. Economist, World Bank, Waqas ul Hasan, Project Officer, Asian Development Bank (ADB), Furqan Ahmed Saleem, Financial Management Specialist, World Bank, and Muhammad Ehsan (National Consultant). Altaf Ahmad, SARFM Program Assistant, World Bank and Abid Hussain Chaudhry, SARPS Team Assistant, World Bank, provided the logistical and administrative support, and Professor Dr. Khawaja Amjad Saeed, carried out a review of the draft as well as served as a resource person at the stakeholders’ workshop in Peshawar.

Maria V. Vannari, Sr. Procurement Specialist, World Bank and Peter Trepte (International Consultant) served as peer reviewer was.

Assessment Results

Pillar I. The Legislative and Regulatory Framework

In order to regulate public procurement of goods, works, services, consulting services and other matters connected therewith or incidental thereto, to promote fair and open competition and to increase transparency, GO NWFP issued a Notification on 31st May 2002 promulgating the NWFP Ordinance No. XVIII of 2002 entitled “The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002”.

In accordance with the provisions of section 45 of The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002, the Government of NWFP made rules for procuring consultancy services that are included in Notification No. S.O (DEV:I)FD/10-3702-03 of 4th November 2002. Similarly, in accordance with the provisions of section 45 of The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002, the Government of NWFP made rules for procuring goods, works and services that are included in Notification No. S.O (FR)/9-7/2002 of 29th December 2003.

The aforementioned rules were designed and adopted by the officials of the Finance Department, without significant external assistance. Due to non-familiarity with the contemporary good modern practices for efficient and effective procurement, these rules were framed keeping in view the general procurement practices in NWFP. As a result these rules continue to retain quite a few aspects of the conventional procurement procedures, and fall short of introducing significant changes to align the procedures with the international good public procurement practices.

|Score Awarded |1.2 |

The above assessment of the Pillar I is based on assessment of its 2 indicators as described below.

Indicator 1. Public Procurement legislative and regulatory framework complies with applicable obligations with regard to national and international requirements.

The indicator covers the legal and regulatory instruments from the highest level (national law, act, regulation, decree, etc.) down to detailed regulation, procedures and bidding documents formally in use.

|Score Awarded |1.5 |

The assessment of this indicator is based on the considerations described below.

Scope of application and coverage

NWFP Ordinance No. XVIII of 2002 entitled “The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002” is clearly phrased and organized. All areas of procurement goods, works and services are covered under the Ordinance. In hierarchy this Ordinance has precedence over the rules that have been framed to procure goods, works and consulting services.

The Ordinance and the rules apply widely to all ministries, attached departments, autonomous bodies, district governments and their subdivisions (TMAs and union councils), for use of all public funds.

The exception to applicability of the rules is only the procurement of essential items and goods of immediate nature in national calamity and procurement of works of emergency nature. Emergency is defined as a condition requiring immediate action in cases of disasters and danger e.g. floods, breach of a canal etc to save human life and habitation.

The Ordinance and rules are published by the Printing and Stationery department of NWFP. But these are available to public from the market on payment of nominal price. The copies of the NWFP Government Ordinances and Rules have been sent to the concerned entities of the government. However, most of the officers are still not aware that these documents exist. The representative of auditors had not heard of them and neither had the representatives of one of the largest private sector contractors.

Procurement methods

The Rules provide conditions consistent with the internationally accepted procurement methods with the open tendering method being preferred. Alternative methods (restricted tendering, direct procurement, two-stage tendering and request for quotations) are given as methods to be used only under certain conditions which are defined in the rules. Two envelop tendering option is prescribed for situation where bidders are being post qualified.

Direct contracting is allowed under Rule 4 contained in the Notification No. S.O (FR)/9-7/2002 of 29th December 2003. This rule gives the procedure of direct contracting in case of a calamity under sub-section b, however, under the same subsection, the concerned departmental Secretary is allowed to stop such works within seven days of the commencement of works and it is not mentioned, whether or not the expenses made thus far shall be paid to the contractor. Sub-section (c) includes all procurements as may be notified by government from time to time (to be direct contracts) without specifying the authority entitled to notify this; virtually making it an arbitrary decision. However, despite the exception of direct contracting, it was found through the interviews of the procurement related staff that the exception is rarely applied. And when applied is subject of vigorous scrutiny within the entity and by Audit department.

Under Rule 6 departments are authorized to pre-register firms for two years, for goods contracts costing Rs. 1 million or more, and works contracts costing Rs. 5 million or more. Procuring entities are allowed to award developments works costing between Rs 40,000 to 10 million, without pre or post qualification, above which they ‘may follow’ pre or post qualification. For contracts other than development works (repairs, maintenance etc.) this limit is between Rs. 40,000 to Rs. 5 million. This stipulation essentially bars fair competition, as participation is limited to only pre-registered firms; and rules for process of pre-registration and its update are not defined. Although these provisions in the rules seem to vitiate the entire process of equal opportunity and dissemination of notice inviting bids. Although the staff of various departments and a large contracting firm claimed that should an unregistered firm desire to participate in an impending bidding process, the process allows such a firm to get itself registered in a short time. But in absence of any written procedure circumscribing benchmarking for registration in various categories of contracts, transparency of such a process is impossible.

The given procurement procedures of Consulting Services Contracts, do not address the fundamental difference between procurement of consultancy services (intellectual/technical edge of competing firms) and works (cost offered by qualifying firms) worth). The rules do not mention evaluation of technical and financial proposals in that order, weightage of technical and financial aspects, and the various procedure of evaluation (quality, cost and combination) are not described.

Prohibition of fractioning of contracts to limit competition is not addressed in the Rules.

Advertising rules and time limits

As per Rule 13 contained in Notification No. S.O (FR)/9-7/2002 of 29th December 2003, the required publications for invitations for pre-qualification or bids are to be made in at least two (one Urdu and one English language) daily widely circulated newspapers. Wherever possible, advertisements are also required to be posted on the official website.

In general the Rule 20 requires allowing adequate time for submission of tenders. The minimum time allowed for preparing and submission of tenders is 30 days for goods and works. This is sufficient for NCBs, but may not be adequate for international bidding. The minimum time of 15 days allowed for consulting services to respond to call for submitting proposals [Rule 5(a) contained in Notification No. S.O (DEV:I)FD/10-3702-03 of 4th November 2002] is inadequate. Further, the response time limit for goods and works may be reduced, without limit, by the head of the procuring agency for reasons which are to be recorded (Rule 20). Response times for procedures other than NCB are not given.

Rules on participation and qualitative selection

Rules regarding pre-registration (without a defined and transparent process), ambiguous use of terms ‘pre-‘ and ‘post’ qualification, and absence of mandatory project specific qualification (prior or post) have made participation criteria nebulous.

Debarment process is not well defined. As a minimum qualification requirement (section 29 of the NWFP Ordinance No. XVIII of 2002 dated 31st May 2002), the bidder is required not to be in litigation with the government. This pre-requisite curtails the right of the bidder to seek justice if s/he deems that it is denied to her/him.

Appendix to the rules (principles for pre and post qualification) defines the public sector enterprise, and requires it to be commercially oriented legal entity, with financial and managerial independence. No preferential treatment is stipulated. However, the slackness of Rule 4(c) may provide opportunity for preferential treatment (explained in paragraph 19 above).

Qualitative selection in case of consulting services contracts has not been addressed appropriately, though there is only a reference to the technical and financial proposals, which are ‘preferred’ to be called for separately. The sequence of opening, evaluation process and the methods of combining technical and financial scores is not given.

Tender documentation and technical specifications

Rule 14 describes the contents of invitation to pre-qualification and tenders, but it is not adequate. Terms and conditions, technical specifications, BOQs, and contract documents are not mentioned.

Rule 33 stipulates to limit the use of brand names and if used followed by “or equivalent”. The estimates of works are stipulated to be made on CSR which is outdated.

Contents of tender documents are not described in detail.

Tender evaluation and award criteria

The award criterion to be used is the lowest evaluated price (Rule 28). However, Rule 28 (b) stipulates that if there is a difference between words and figures, the lower will prevail. The rules do not put adequate emphasis on giving an elaborate qualification and responsiveness criteria.

Rule 34(2) states that bids shall be evaluated only where a minimum of three bid have been received. In event of less that three bids, re-advertisement is required, and if that does not bring forth a different result, the bids can be considered for award after taking permission from the head of the procuring entity. Similar stipulations are made for consulting services contract under Rule 5(g) of Notification No. S.O (DEV:I)FD/10-3702-03 of 4th November 2002, although here re-advertisement is not mandatory.

Clause 30(3) of the ordinance requires that the lowest responsive bid has to be in conformity with cost estimate, whereas the cost estimates have to be prepared based upon the CSR for works. The current CSR gives prices of 1999 with 90% premium, despite which, the official cost estimates are out of step with market prices.

Clause 33 of the Ordinance does not permit post bid negotiation unless prescribed under exceptional circumstances, whereas, rule 37 allows post bid negotiation with approval of the head of the procuring entity to ‘safeguard against exorbitant prices’ and to ‘ensure reasonableness of prices’.

Rule 25 gives 15 days and an additional 10 days for evaluation and award, upon expiry of which the tendering process shall become invalid, and the tenders shall have to be called afresh. This clause although might have been aimed at ensuring expeditious conclusion of bid evaluation, actually penalises the bidders for a delay caused by the evaluation committee.

Rule 26 requires that confidentiality of the process of tender evaluation be maintained until decision to award is finalized.

Submission, receipt and opening of tenders

Rule 21 and 22 describe the procedure for the tender opening in details. Public opening and recording of the proceedings is mandatory. Rule 18 provides for safe custody of bids prior to opening.

Complaint review procedures

Complaint review is addressed in Rule 43. An aggrieved party can register a complaint with the relevant authority before the contract has been signed. The authorities to whom the complaint may be submitted are described in sub-sections 43(1)(a) and 43(1)(b). Sub rule 42(4) stipulates that the review authority shall not continue to review a complaint if the contract is signed. It is construed from this rule that the review authority is not authorized to stay the proceedings on the procurement, whereas it is required to give a written decision within 20 days of the receipt of the complaint as per sub-section 43(5).

The mechanism of dealing with the complaint is such that the complainant has to file the complaint with the head of the procurement entity. There is not a fair chance that a head of an entity will be impartial in reviewing procurement process within his department. All concerned have been given the right to participate in a review proceeding, but no guidelines are given for the review proceeding itself. The review authority is not made responsible for announcing a review schedule or invite stakeholders for participation in a discussion.

According to Rule 43(7) decision of review authority cannot be challenged in any court of law; the very legality of this rule is questionable.

Indicator 2. Existence of Implementing Regulations and Documentation

This indicator verifies the existence, availability and quality of implementing regulations, operational procedures, handbooks, model tender documentation, and standard conditions of contract. Ideally the higher level legislation provides the framework of principles and policies that govern public procurement. Lower level regulations and more detailed instruments supplement the law, make it operational, and indicate how to apply the law to specific circumstances.

|Standard Achieved |1 |

The assessment of this indicator is based on the considerations described below.

Implementing regulation that provide defined processes and procedures not included in higher-level legislation

The Procurement Law is contained in the NWFP Ordinance No. XVIII of 2002 entitled “The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002”. All areas of procurement goods, works and services are covered under the Ordinance. In hierarchy this Ordinance has precedence over the rules that have been framed to procure goods, works and consulting services.

In accordance with the provisions of section 45 of The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002, the Government of NWFP made rules for procuring consultancy services that are included in Notification No. S.O (DEV:I)FD/10-3702-03 of 4th November 2002.

Similarly, in accordance with the provisions of section 45 of The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002, the Government of NWFP made rules for procuring goods, works and services that are included in Notification No. S.O (FR)/9-7/2002 of 29th December 2003

No updating of the rules mentioned in paragraphs 49 and 50 above has been carried out as yet.

Model tender documents for goods, works, and services

There exist model tender document in the Pakistan in the shape of standard tender documents produced by Pakistan Engineering Council (PEC). Under a directive from the federal government, all projects financed by the federal funds are required to be contracted using the PEC bidding documents. However, line departments had some reservations on use of these documents. For example, departments were not willing to commit to pay interest to the contractors in case of delayed payments, as under the procedures, adequate funds are not transferred to line departments by Finance in a timely manner. In most of the procurements through provincial financing, very brief tender documents, and tender agreement forms are being used.

As yet, there was no standard RFP for procuring consulting services in the province. The procuring entities develop their own RFP keeping in view their specific needs, and using guidelines of PEC and/or various donor agencies.

Procedures for pre-qualification

Procedure (Rule 7) defines the conditions where pre-qualification is required. Appendix to the Ordinance gives three-stage process for prequalification. Use of pass/fail application of qualification criteria is prescribed in the process. However this pre-qualification is also limited to the pre-registered firms.

Procedures suitable for contracting for services or other requirements in which technical capacity is a key criterion.

The legal framework and the rules do not specifically include conditions under which selection can exclusively be based on technical capacity. Rule 36 does talk about the single-source procurement. Sub-rules 36(a), 36(b) and 36(c) describe the conditions whereby procurement entity can procure goods, equipment, technology or services on single source.

One large (semi-government ) consulting firm has obtained a number of contracts on single source basis, due to the firms qualification and experience.

Rule 39 provides the possibility of use of technical capacity in selection but it does not elaborate on the procedure.

User’s guide or manual for contracting entities

There in no mention of any procurement manual in the law or rules.

General Conditions of Contracts (GCC) for public sector contracts covering goods, works and services consistent with national requirements and, when applicable, international requirements

The Pakistan Engineering Council (PEC) tender documents (goods and works and RFP for consultancy services) contain GCC. Extent of use of these documents has been described above. The generally used ‘departmental contract document’ is a brief (6-paged) tender document (containing GCC), and tender agreement form. Contractors for smaller contracts are accustomed to use this document, which is heavily client oriented. International requirements are not addressed in these documents.

Pillar II. Institutional Framework and Management Capacity

Pillar II looks at how the procurement system as defined by the legal and regulatory framework in a country is operating in practice through the institutions and management systems that are part of the overall public sector governance in the country.

|Score Awarded |1 |

The above assessment of the Pillar II is based on assessment of its 3 indicators as described below.

Indicator 3. The public procurement system is mainstreamed and well integrated into the public sector governance system.

This indicator looks at the procurement system to: a) determine its suitability to discharge the obligations prescribed in the law without gaps or overlaps; b) whether the necessary links with other sectors of government affecting procurement exist; c) whether procurement operations are constrained by other external institutional factors; and d) whether the managerial and technical capacity of the system are adequate to do procurement without unnecessary cost or delay. It deals with the degree of integration of the procurement system with other parts of government and particularly with the financial management system given the direct interaction between the two, from budget preparation and planning to treasury operations for payments.

|Standard Achieved |2 |

The assessment of this indicator is based on the considerations described below.

Procurement planning and associated expenditures are part of the budget formulation process and contribute to multiyear planning

The budget proposals of NWFP are prepared keeping in view the multiyear development plans for developmental works, and recurrent expenditure to operate and maintain public services and utilities. Allocations in the budget proposal also take into account the fiscal space available for sectors. These budgets are approved by the Provincial Assembly.

There is no formal link with the budget planning and the procurement plan. Conversely, the procurement plans follow the budget allocations, and are revised to meet the budget estimates.

Budget law and financial procedures support timely procurement, contract execution, and payment

In actual fact, no contract can be entered into by any procurement entity unless the budget contains the allocation for the procurement and the expenditure is sanctioned by the Governor or an authority to which powers have been delegated under NWFP Delegation of Powers under the Financial Rules and Powers of Re-Appropriation Rules 2001(Rule 3 of NWFP Ordinance No. XVIII of 2002 entitled “The North West Frontier Province Procurement of Goods, Works, Services and Consulting Services Ordinance 2002”).

Authorization of payments is generally made without delays.

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

The approved budget is published on the basis of which the allocated amounts are released to the procuring entities. The heads of the procuring entities distribute funds among the lower tiers through written instructions.

Systematic completion reports are prepared for certification of budget execution and for reconciliation of delivery with budget programming.

Only for large developmental project for which specific PC-I Proforma (Feasibility Report) is prepared, the procedures of the Planning Commission require preparation of PC-IV Proforma, which is a completion report. PC-IVs (Completion Reports) are seldom prepared, and if prepared those are belated. Hence, there are no lessons learnt from the completed projects and no wisdom gained for future procurement (budget) planning.

Indicator 4. The country has a functional normative/regulatory body.

Although this indicator refers to a normative/regulatory body, what matters most is not the existence of a body but the existence of the functions within the public sector and the proper discharge and coordination of them (i.e. one agency may be responsible for policy while another can be doing the staff training and another might be taking care of the statistics). When the assessment criteria below refers to the “regulatory body” this may be read to refer to the “regulatory function” if applicable to the particular assessment. The assessment of the indicator focuses on the existence of the functions, the independence of the regulatory function, the effectiveness of performance and the degree of coordination between responsible organizations.

|Standard Achieved |0.5 |

The assessment of this indicator is based on the considerations described below.

No normative or regulatory body exists to regulate procurement system in NWFP, though such a body (PPRA) exists at Pakistan (country) level. Part of the functions expected of such a body is assigned to the various procurement entities. These entities through designated officers, such as heads of departments (Finance and P&D) generally carry out only the monitoring of procurements.

It is understood from the procurement staff of various entities that P&D and Finance generally monitor the procurements carried out by them. Status reports as required are sent to these two departments.

The assignment of tasks is carried out within the procurement entities using the existing staff without any specific positions available in the departments for the intended purpose.

Indicator 5. Existence of institutional development capacity.

The objective of this indicator is to assess the extent to which the country or agency has systems to support and monitor the performance of the entire system, and to formulate and implement improvement plans. This requires among other things the availability of information systems, a capacity for analysis, feedback mechanisms and planning capacity for implementation of improvements. It is very important that responsibilities are clearly assigned and are being performed.

|Standard Achieved |0.5 |

The assessment of this indicator is based on the considerations described below.

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

There is no specific procurement information system. As an irregular and rather rare practice, procurement notices (Invitation to Bids) of large contracts are placed on the NWFP Government website.

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

There is statistical data collection system in the NWFP but no information is collected and complied on the public procurements, identifying procurement specific information.

A sustainable strategy and training capacity exists to provide training, advice and assistance to develop the capacity of government and private sector participants to understand the rules and regulations and how they should be implemented.

The score awarded is based on the consideration that no formal training or help desk programs exist in the NWFP for the new and existing staff. It was learnt from the interviews of various staff, particularly the staff of IPD and W&S Department that the new entrants that have to carry out procurements in their career are given hands-on training in a departmental unit. These officers have to pass a departmental examination before their formal postings. The awareness of procurement rules among the staff was however disappointingly low.

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

No formal quality assurance standard exists but the compliance to rules and regulation is strictly expected.

Operational audit is carried out regularly on annual basis. Although this audit is meant primarily for checking compliance of financial rules but the compliance to procurement rules and regulation (various sets of notifications and directives is also checked. In case of irregularity noticed the disciplinary actions against the concerned staff are taken. However, the audit staff was unaware of the procurement Ordinance and Rules.

Pillar III. Procurement Operations and Market Practices

This Pillar looks at the operational effectiveness and efficiency of the procurement system at the level of the implementing entity responsible for issuing individual procurement actions. It looks at the market as one of the means of judging the quality and effectiveness of the system when putting procurement procedures into practice. This Pillar is distinguished from Pillars I and II in that it is not looking at the legal/regulatory or institutional systems in a country but more at how they operate.

|Score Awarded |1.7 |

The above assessment of the Pillar III is based on assessment of its 3 indicators as described below.

Indicator 6. The country’s procurement operations and practices are efficient.

This indicator looks at the efficiency of the operations and operational practices as implemented by the procuring agencies. Efficiency is considered to mean that the operational practices result in timely award of contracts at competitive market prices as determined by effective and fair implementation of procurement procedures. There are four sub-indicators (a-d) to be rated under this indicator.

|Standard Achieved |2 |

The assessment of this indicator is based on the considerations described below.

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

As mentioned above in sub-indicator 5(c), although no formal training or help desk programs exist in the NWFP for the new and existing staff but particularly new entrants of IPD and W&S Department (major procurement entities in NWFP), expected to carry out procurements in their careers are given hands-on training in a departmental unit. These officers have to pass a departmental examination before their formal postings. The hands-on training provides the skill and knowledge necessary to carry out procurement on the basis of the conventional departmental procedures. Awareness of the Ordinance and the Rules is rare and recent.

Additionally, the senior staff is also available to guide and help.

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

Except for the hands-on training available to government officers no systematic training or information program is available by which public or private sector participants can benefit.

There are established norms for the safekeeping of records and documents related to transactions and contract management.

As per section 15 (1) of the Ordinance, the procuring entity is required to; (i) maintain detailed records of all their proceedings in the manner described; and (ii) preserve, maintain and safeguard all relevant documents issued and received as set out in the rules. Generally the record keeping/ file maintaining practices are acceptable.

As per section 15 (2) of the Ordinance, the records of procurement process of a procuring entity is open to inspection for internal and external audit.

Rule 31(1) included in the Notification No. S.O (FR)/9-7/2002 of 29th December 2003 describes the details of the record to be maintained by the Tender Inviting Authority, which details more or less is similar to the record mentioned in the criteria for scoring (above). Rule 31(2) and 31(3) also gives the description of the record that can be made available to any person, contractors or suppliers who participated in bidding.

Generally, record of procurement proceedings is kept in a separate file for each contract awarded. Invariably, this record is particularly scrutinized for compliance with the relevant rules by the Accountant General’s auditors on annual basis.

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

According to departmental rules, there is delegation of decision making to the lowest competent levels along with the accountability for the decisions made. For example, an Executive Engineer of IPD or a Deputy Director in TMAs has the powers to invite bids and award the contracts amounting to respectively authorized financial power to them.

Rules 5(1) and 5(2) included in the Notification No. S.O (FR)/9-7/2002 of 29th December 2003 define the Tender Inviting and Tender accepting authority.

Indicator 7. Functionality of the public procurement market

The objective of this indicator is primarily to assess the market response to public procurement solicitations. This response may be influenced by many factors such as the general economic climate, the private sector development environment and policies, the existence of strong financial institutions, the attractiveness of the public system as a good reliable client, the kind of goods or services being demanded, etc. There are three sub indicators (a-c) to be scored.

|Standard Achieved |1 |

The assessment of this indicator is based on the considerations described below.

There are effective mechanisms for partnerships between the public and private sector.

There are no known formal mechanisms for dialogue or partnership between the public and private sector pertaining to procurement.

Private sector institutions are well organized and able to facilitate access to the market.

The adopted procurement processes are not based on principles of equal opportunity and transparency. Hence, the private sector is not given the opportunity of encouraged to widen the available market base.

There are no major systemic constraints (e.g. inadequate access to credit, contracting practices, etc.) inhibiting the private sector’s capacity to access the procurement market.

Price of bidding documents is unreasonably high. An interest is charged on the mobilization advance which is paid to the contractors against a bank guarantee. Whereas, the financial climate is such that banks generally provide guarantees only against substantial deposits. Price adjustment clause is generally not included in the contract. Construction work, which constitutes major share of procurement in NWFP was not recognized as an Industry until recently. The credit virtually is not available to the contractors, consultants and suppliers.

Indicator 8. Existence of contract administration and dispute resolution provisions

This indicator’s objective is to assess the quality of contract administration practices which begin after contract award and continue to acceptance and final payments. This is an area that many procurement systems fail to consider. It is also a period where many issues arise that can affect the performance of the contract and impact on service delivery.

|Standard Achieved |2 |

The assessment of this indicator is based on the considerations described below.

Procedures are clearly defined for undertaking contract administration responsibilities that include inspection and acceptance procedures, quality control procedures, and methods to review and issue contract amendments in a timely manner.

Procedures are reasonably defined in the contract documents for administering the contracts, inspections and acceptance procedures, quality control procedures and methods review and issue contract amendments (change orders).

Except for the old six page contract form used by IPD and W&S department for smaller (yet numerous) contracts, clauses in the PEC standard contracts are generally consistent with internationally accepted practices.

Contracts include dispute resolution procedures that provide for an efficient and fair process to resolve disputes arising during the performance of the contract.

There is an Arbitration law in the country. The law is consistent with generally accepted practices for neutrality of arbitrators, due process, expediency and enforceability. The country accepts as a matter of course, international arbitration for international competitive bidding. However, provisions for Alternative Dispute Resolution (ADR) are not standard in contracts.

Procedures exist to enforce the outcome of the dispute resolution process.

Pakistan is member of the New York Convention on enforcement of international arbitration awards.

Contractors can go to seek redressing of their grievance or enforcement of arbitration award. The representatives of the contracting firm interviewed informed that the contractors do go to courts to seek redressing of their grievances.

Pillar IV. Integrity and Transparency of the Public Procurement System

Pillar IV covers four indicators that are considered necessary to provide for a system that operates with integrity, has appropriate controls that support the implementation of the system in accordance with the legal and regulatory framework and has appropriate measures in place to address the potential for corruption in the system. It also covers important aspects of the procurement system that include stakeholders as part of the control system. This Pillar takes aspects of the procurement system and governance environment and seeks to ensure that they are defined and structured to contribute to integrity and transparency.

|Score Awarded |1.4 |

The above assessment of the Pillar IV is based on assessment of its 4 indicators as described below.

Indicator 9. The country’s procurement operations and practices are efficient.

|Standard Achieved |2 |

The assessment of this indicator is based on the considerations described below.

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.

Both internal and external audit mechanisms exist. External audit of each procurement unit of an entity is carried out once a year on ex post basis. The timing of which is not fixed but the audit is carried out in accordance with the schedule prepared by Accountant General’s Office which is mandated to perform this audit. Accountant General’s Office does not carry out the audit of city governments (TMA’s). This is done by regional audit directorates in NWFP. The audit is done on the basis of sampling and generally focuses on compliance of rules and regulations. The auditors are not specially trained for acquiring procurement skills. They have only hands-on training. The external audit initially prepares an audit observation and seeks explanation from the procuring units in their wrap-up meetings. If not resolved, the audit observations are discussed in Departmental Accounts Committee (DAC). If still unresolved, the observation is labelled as ‘audit para’ that is taken to Pubic Accounts Committee (PAC) for recommending the further action(s). These actions can be recovery of loss sustained by government from defaulting staff or criminal proceedings for punitive actions.

All the procuring entities have internal audit staff as well. This staff performs pre-audit every time a payment invoice is processed in respect of a procurement. Nevertheless, as far as the internal audit of procurement process is concerned it is ex post.

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

The score awarded is based on the considerations that the external audit is carried on annual basis. without exception The response to audit observations is a continuously on-going process. Generally the response to the audit observations is prompt. However, resolution of audit observations at DAC level or audit paras at PAC level, and implementation of auditor’s recommendation some times may take more time than 6 months.

The internal control system provides timely information on compliance to enable management action.

The internal audit is not detested by the procuring units or the contractors and goes on smoothly.

The internal control systems are sufficiently defined to allow performance audits to be conducted.

Internal auditors are the staff of Accountant General’s Office that is deployed on secondment to procuring units. This staff is fully aware with financial management rules and regulations. They follow the established procedures competently. However, no internal control procedures manual is known to exist.

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

No formal training arrangements exist to impart skills related good procurement practice to auditors. External auditors are the staff of Accountant General’s Office who is fully aware of rules and regulations related to financial management and are experiences in dealing with matters related to procurement process as explained under the GFR.

Indicator 10. Efficiency of appeals mechanism

The appeals mechanism was covered under Pillar I with regard to its creation and coverage by the legal regulatory framework. It is further assessed under this indicator for a range of specific issues regarding efficiency in contributing to the compliance environment in the country and the integrity of the public procurement system.

|Standard Achieved |1.8 |

The assessment of this indicator is based on the considerations described below.

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

No appeals body exists, and according to Rule 43(7) decision of review authority cannot be challenged in any court of law. The legal worth of this rule is questionable.

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

Complaint review is addressed in Rule 43. An aggrieved party can register a complaint with the relevant authority before the contract has been signed. The authorities to whom the complaint may be submitted are described in sub-sections 43(1)(a) and 43(1)(b). Sub rule 42(4) stipulates that the review authority shall not continue to review a complaint if the contract is signed. It is construed from this rule that the review authority is not authorized to stay the proceedings on the procurement, whereas it should give a written decision within 20 days of the receipt of the complaint as per sub-section 43(5).

The mechanism of dealing with the complaint is such that the complainant has to file the complaint with the head of the procurement entity. Head of an entity is not perceived to impartially review the complaint. All concerned have been given the right to participate in a review proceeding, but no guidelines are given for the review proceeding itself. The review authority is not made responsible for announcing a review schedule or invite stakeholders for participation in a discussion.

The system operates in a fair manner, with outcomes of decisions balanced and justified on the basis of available information.

Private sector generally has low confidence in fair hearing of their complaints. However, at some occasions the complaints were reportedly.

Decisions are published and made available to all interested parties and to the public

Publication is not mandatory and publication is left to the discretion of the review bodies making access difficult.

The system ensures that the complaint review body has full authority and independence for resolution of complaints.

There is no single body for addressing the grievances about procurement process but different ex officio personnel. Owing to their ex-officio status they are not perceived to be independent.

Indicator 11. Degree of access to information

This indicator deals with the quality, relevance, ease of access and comprehensiveness of information on the public procurement system.

|Standard Achieved |0 |

The assessment is based on the following consideration.

Information is published and distributed through available media with support from information technology when feasible.

There is no formal system of publishing the information for the public. Though in the case of large contracts the Invitation to Bids may be placed on NWFP Government website. Although, the record (information) about the procurement process, that can be made available to any person, contractors or suppliers who participated in bidding, is described in Rule 31(2) and 31(3). Such a system is not in place yet.

Indicator 12. The country has ethics and anticorruption measures in place.

This indicator assesses the nature and scope of the anticorruption provisions in the procurement system. There are seven sub indicators (a-g) contributing to this indicator.

|Standard Achieved |1.8 |

The assessment of this indicator is based on the considerations described below.

The legal and regulatory framework for procurement, including tender and contract documents, includes provisions addressing corruption, fraud, conflict of interest, and unethical behaviour and sets out (either directly or by reference to other laws) the actions that can be taken with regard to such behavior.

There is no mention of the requirement in the law or regulations that makes it mandatory to contain provisions addressing corruption, fraud, conflict of interest, and unethical behaviour in the tender documents.

Section 42 of the law (NWFP Ordinance No. XVIII of 2002) contains code of conducts whereby public officials, experts engaged to deliver specific services or evaluation of bids and providers of works, goods and services are required to sign a code of ethical conduct. A schedule entitled “Code Of Ethical Conduct in Business” is attached to the Notification as its part.

The legal system defines responsibilities, accountabilities, and penalties for individuals and firms found to have engaged in fraudulent or corrupt practices.

The rules 9 and 10 contained in the Notification No. S.O (FR)/9-7/2002 of 29th December 2003 talk only about the inducements by the bidders which if discovered may lead to disqualification and disbarment of a contractor or supplier, and rejection of tender in case it has already been submitted. There is no mention of consequences to a government official.

Evidence of enforcement of rulings and penalties exists.

The country and in turn NWFP has anti corruption laws along with the penalties.

Special measures exist to prevent and detect fraud and corruption in public procurement.

National Accountability Board (NAB) has been established to deal with corruption in the country.

Stakeholders (private sector, civil society, and ultimate beneficiaries of procurement/end-users) support the creation of a procurement market known for its integrity and ethical behaviors.

Only a few organizations such as regional contractors association and chambers of commerce exist. There is no representation of consulting firm, engaged in dialogue with the government to promote improvements.

The country should have in place a secure mechanism for reporting fraudulent, corrupt, or unethical behavior.

There is annual external audit which provides a mechanism to detect fraudulent, corrupt, or unethical behavior of personnel involved in procurement in NWFP. Not as a mechanism but on adhoc basis the individuals and the newspapers point out suspected corruption.

Existence of Codes of Conduct/Codes of Ethics for participants that are involved in aspects of the public financial management systems that also provide for disclosure for those in decision making positions.

As mentioned above, Section 42 of the law (NWFP Ordinance No. XVIII of 2002) contains code of conducts whereby public officials, experts engaged to deliver specific services or evaluation of bids and providers of works, goods and services are required to sign a code of ethical conduct. A schedule entitled “Code of Ethical Conduct in Business” is attached to the Notification as its part.

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