40515 PROCUREMENT UNDER WORLD BANK-FINANCED PROJECTS: FY06 ANNUAL REPORT August 2007 Operations Policy and Country Services ii ABBREVIATIONS AND ACRONYMS ACS Administrative and Client Support (staff) ADB Asian Development Bank AfDB African Development Bank AFR Africa Region AML/CFT Anti-money laundering/combating the financing of terrorism AMS Administrative Manual Statement BEEPS Business Environment and Enterprise Performance Survey BIS Baseline indicator system BP Bank Procedure CAS Country Assistance Strategy CDB Caribbean Development Bank CDD Community-driven development CFAA Country Financial Accountability Assessment CO Country office CPAR Country Procurement Assessment Report CPS Country Partnership Strategy CSA Country Consulting Services Assessment CSRVP Controllers Strategy Resource Management Vice Presidency DFID Department for International Development (U.K.) DPL Development policy lending/loan EAP East Asia and Pacific Region ECA Europe and Central Asia Region EC European Commission e-GP Electronic government procurement ESRP Environmentally and socially responsible procurement ESW Economic and sector work EU European Union FIDIC International Federation of Consulting Engineers FM Financial management FY Fiscal year GAC Governance and anticorruption GPM Generic Procurement Manual HD Human Development HOP Heads of Procurement IADB Inter-American Development Bank IBRD International Bank for Reconstruction and Development ICB International competitive bidding ICT Information and communication technology IDA International Development Association IDF Institutional Development Fund iii IFA Integrative Fiduciary Assessment IFI International financial institution INT Department of Institutional Integrity IMF International Monetary Fund IPR Independent Procurement Review IRS Internationally recruited staff IsDB Islamic Development Bank ISG Information Solutions Group JBIC Japan Bank for International Cooperation K&L Knowledge and leaning LCR Latin America and Caribbean Region LICUS Low-income country under stress LOA Loan Department LEGPR Central Procurement Legal Team MBD Master bidding document MDB Multilateral development bank MNA Middle East and North Africa Region NCB National competitive bidding OECD-DAC Organisation for Economic Co-Operation and Development-Development Assistance Committee OPCPR Procurement Policy and Services Group OPCS Operations Policy and Country Services (Network) OPRC Operations Procurement Review Committee PAD Project Appraisal Document PEFA Public Expenditure and Financial Accountability (initiative) PPR Procurement Post Review PREM Poverty Reduction and Economic Management (Network) PRSC Poverty reduction support credit PSB Procurement Sector Board PSLO Private Sector Liaison Officers QAG Quality Assurance Group RFP Request for Proposals RPM Regional Procurement Manager QEA Quality-at-Entry Assessment QSA Quality of Supervision Assessment SAP Systems, Applications & Products system SAR South Asia Region SBD Standard bidding document SWAp Sectorwide approach UN United Nations WB World Bank PROCUREMENT UNDER WORLD BANK-FINANCED PROJECTS: FY06 ANNUAL REPORT Contents Executive Summary.............................................................................................................. vii I. Introduction.....................................................................................................................1 II. Fiduciary Oversight and Compliance...........................................................................1 III. Country Services...........................................................................................................11 IV. Procurement Policy, Tools, and Institutional Initiatives...........................................20 V. Staffing...........................................................................................................................22 VI. New Initiatives...............................................................................................................23 Annex A. FY06 Fiduciary Compliance...............................................................................27 Annex B. FY06 Misprocurement Cases..............................................................................31 Annex C. Complaints............................................................................................................33 Annex D. FY06 ESW Reports..............................................................................................35 Annex E. Procurement Staff Trends...................................................................................37 Tables Table 1. Procurement Decentralization Trends ....................................................................... 2 Table 2. FY06 Prior Review Contracts by Region and Category............................................ 4 Table 3. FY06 Procurement Post Review by Region .............................................................. 5 Table 4. FY04-06 Misprocurement Trends ............................................................................. 6 Table 5. FY06 Procurement Staffing by Grade and Region/Unit.......................................... 22 Table A1. FY06 Ten Largest IBRD/IDA Borrowers............................................................. 27 Table A2. Top Ten Supplier Countries by Major Bank-Financed Contracts, 2002 to 2006. 28 Table A3. Independent Procurement Review Trends, FY02-06............................................ 29 Table A4. Procurement Post-Review Trends by Region, FY02-06....................................... 29 Table B1. Misprocurement Declared (July 1, 2005 - June 30, 2006)..................................... 31 Table C1. FY06 Complaints by Nature and Rank................................................................. 33 Table C2. FY06 Complaints Resolution................................................................................ 33 Table C3. FY06 Complaints Forwarded to INT.................................................................... 34 Table E1. Procurement Resources by Region and Location, FY04-06................................. 37 Figures Figure 1. Regional Prior Review Contracts vs. Disbursements............................................... 3 Figure 2. FY02-06 Regional OPRC Review Trend................................................................. 4 Figure 3. FY02-06 Procurement Complaints Trend ................................................................ 7 Figure 4. QSA/QEA Ratings FY01-06.................................................................................... 8 Figure A1. FY06 Lending Volume by Region ...................................................................... 27 Figure A2. FY02-FY06 Bankwide Prior Review Contracts.................................................. 27 Figure A3. FY02-FY06 Prior Review Contract Awards by Region...................................... 28 Figure A4. OPRC Cases by Contract Type, FY03-06........................................................... 29 Figure E1. Procurement Staff Trends by Location................................................................ 37 PROCUREMENT UNDER WORLD BANK-FINANCED PROJECTS: FY06 ANNUAL REPORT EXECUTIVE SUMMARY 1. The Audit Committee's response to the FY05 Procurement Sector Annual Report provided a very clear message that has set the framework for FY06 Annual Report. The Audit Committee challenged the Sector to focus less on presenting data and to provide greater analysis of what the data indicates, including the response of the Sector to issues signaled by the information being collected on a regular basis. This report covers the activities in FY06 only and is focused on the Sector's responsibilities and contributions to the work of the World Bank and includes the information tracked by the Sector to underpin the key messages. A final section summarizes key issues that are contributing to an emerging strategy for the future and discusses some of the initiatives the sector has been working on since FY06. 2. Fiduciary Oversight and Compliance. The core of procurement work in the Bank continues to be fiduciary oversight and compliance activities to ensure that Bank funds are used for the purposes intended. In FY06, procurement staff worked on 286 new operations in 89 countries, with a total commitment of $23.6 billion. This represented the highest IBRD/IDA lending levels for the past five years (FY01-06) and resulted in increased fiduciary oversight and compliance monitoring for Regional procurement staff. In addition, procurement staff provided continued technical support for 1,345 existing projects with total commitments of $94.9 billion and disbursements of $12.3 billion. The year also saw an increase in the delegation of procurement decision authority to staff in country offices, from 64 percent in FY04 to 77 percent in FY06. 3. Review of Contracts. The Procurement Sector's fiduciary oversight work at the project level is a blend of prior review, which involves a step-by-step review of pre-award actions focused on high value procurement; and post review, a risk based sampling of contracts reviewed after award. An estimated 6,760 contracts at a total value of $7.5 billion were subject to procurement prior review in FY06. Although the number of prior review contracts declined from FY05, the number of contracts presented to the Operations Procurement Review Committee,1 which reviews the highest value contracts, rose by 53 percent compared to FY05. 4. Post-Review Trends. Post review of projects in FY06 increased 18 percent over FY05, with 78 percent of active projects subject to post review. Post review is a key supervision activity and contributes to capacity development at the country level. Post-review reports identify weaknesses noted in the project's implementation procedures and provide an action plan to correct deficiencies. Another key result of post review is the identification of misprocurement, which is declared when it has been determined that the borrower has failed 1 The OPRC is chaired by the Chief Procurement Technical Advisor and includes the relevant Regional Procurement Manager, a legal representative, and the task team leader for the process under review. Transactions projected to result in contracts above $25 million for goods and works and $10 million for consulting services are required to be reviewed by the OPRC. viii to follow the Bank's procurement guidelines and procedures as specified in the Loan/Credit Agreement. In FY06, 153 cases of misprocurement relating to projects in nine countries were identified for a total value of $71 million. Post review is supplemented in most Regions by independent procurement reviews (IPRs), which are contracted out to firms or individuals. IPRs are generally undertaken in high-risk countries and involve a more intensive review of procurement under a selected number of active projects in the country. Twenty-four countries were covered by IPRs in FY06, an increase of 70 percent. 5. Complaints. An important area monitored by the Bank is complaints issued against borrowers during the implementation of procurement under Bank-financed projects. In FY06, the Procurement Sector continued to upgrade its Complaints monitoring database. The upgrade in the complaints monitoring system resulted in the capture of more data (an increase of 37 percent over FY05) and enabled the Bank to determine patterns in the type of actions resulting in complaints. As a result, the Bank is able to develop focused training for borrowers or take other actions to improve the implementation of procurement under projects. Monitoring of the handling of complaints also ensures that the complaints are addressed in a timely manner and result in a fair resolution process consistent with the Bank's guidelines. Key data drawn from the Complaints database are covered in this report in response to the Audit Committee's specific requests for greater disaggregation of data in this area. 6. Anticorruption Efforts. The Procurement Sector's fiduciary and compliance work contributes to the identification of noncompliance, which is referred to the Bank's Department of Institutional Integrity (INT) when fraud or corruption is suspected. Most of these referrals result from the post review of contracts or from complaints. However, INT also has continued to conduct intensive reviews of projects in high-risk countries in cooperation with the country teams and with the support of procurement staff. The results of these reviews are shared with the country teams and the borrower, leading to corrective actions and to an improvement in the design of projects to include more effective anticorruption measures. In FY05, the Procurement Sector worked closely with INT, Legal, and other representatives in the Bank to begin the process of reforming the Bank's sanctions procedures and expanding the definitions of fraud and corruption. This work was largely completed in FY06 and produced a sanctions reform package that the Board approved in August 2006. All projects scheduled for negotiation after October 2006 are subject to the new sanctions reform process. The major changes resulting from the reform initiative included adding "obstructive practices" to the fraud and corruption provisions of the Bank, a harmonization of definitions with other multilateral development banks (MDBs), and a broadening of the scope of the fraud and corruption provision beyond the procurement process. 7. Country Services. Several changes introduced in FY06 had an impact on the Bank's procurement and other financial management work at the country level. On July 25, 2005, the Vice Presidents of Operations Policy and Country Services (OPCS) and Poverty Reduction and Economic Management (PREM) Networks jointly issued a note2 to staff 2 "Strengthening the Bank's Public Financial Management Work," issued July 25, 2005, by James W. Adams, OPCS, and Danny Leipziger, PREM. ix supporting the introduction of the Public Expenditure and Financial Accountability (PEFA) indicators and a strengthened approach to how the Bank should engage at the country level to improve the overall effectiveness of work on public financial management systems. This note was the culmination of several years of joint work involving the Procurement Sector, the Financial Management Sector, and the Public Management/Governance Sector in the Bank, together with the PEFA partnership that includes the International Monetary Fund (IMF), the European Commission (EC), and a group of bilateral donors. This note led to significant increase in integrated economic and sector work conducted at the country level that included the integration of procurement into broader public financial management assessments. Procurement aspects of public financial management assessment are still guided by the Country Procurement Assessment Report process, but much more flexibility has been employed in the type of procurement assessments conducted at the country level. Key accomplishments that demonstrate the coordination of work with other donors active in the country and the introduction of a more demand-driven and flexible approach to this work include the following. · In the Latin America and Caribbean Region (LCR), an agreement was signed with the Inter-American Development Bank to conduct economic and sector work on a coordinated and integrated basis. · The South Asia Region (SAR) used the increased flexibility to expand the review of states in India to support expanded lending directly to programs managed by the states. · In the Europe and Central Asia Region (ECA), the new flexibility led to closer cooperation with the EC on assessing and addressing procurement reform activities, and to the use of a specialized form of integrated fiduciary assessment to support the expanding use of sectorwide approaches. · The Africa Region (AFR) focused on follow-up work to assess the progress of countries in implementing agreed procurement reforms, and it continued to work in close partnership with the African Development Bank. · The Middle East and North Africa Region (MNA) and East Asia Region (EAP) expanded the use of new tools and increased their coordination with donors, with a heightened focus on integrated products with demonstrated results in Morocco, Philippines, and Vietnam. In Morocco, Phase I of the analysis of the quality of the public procurement systems was completed and work on Phase II was initiated. 8. Joint Venture for Procurement. The joint work with the Development Assistance Committee of the Organization for Economic Co-Operation and Development (OECD-DAC) that began as part of the Procurement Roundtable Initiative was continued in FY06 under the guidance of the Joint Venture for Procurement, a subcommittee of the OECD-DAC Working Party on Aid Effectiveness which is co-chaired by the World Bank. A key element of the Joint Venture's work program was the development of a more robust set of procurement benchmarks and performance indicators, with scoring criteria and implementation guidance. The Bank has used various versions of benchmarking indicators of procurement institutional and legal frameworks as part of its dialogue with partner countries when conducting CPARs. The experience gained from more than 20 such exercises conducted was a key contribution to refining these indicators. In June 2006, after consultations with the broad membership of the x OECD-DAC Joint Venture for Procurement, a country-based assessment methodology ("Methodology for the Assessment of National Procurement Systems (version 4.0)" was adopted for testing purposes with partner countries under the Paris Aid Effectiveness declaration that have volunteered to test the methodology. Regional events have been planned for three Regions (Africa, East Asia and Pacific, and Latin America and the Caribbean) to discuss the methodology and provide guidance on how it should be used. The rollout exercise to test the methodology has also started, and it is expected that the results will be reviewed at the next annual meeting of the JV to be held in Copenhagen in September 2007. 9. Electronic Government Procurement (e-GP). As part of the Bank's strategy for improving the effectiveness of our country-based work, the Procurement Sector further emphasized helping client countries develop and use e-GP as a vehicle of improving the transparency and efficiency of all public procurement. The Bank was instrumental in fostering the use of e-GP in various client countries, including through e-GP readiness assessments, assessments of existing e-GP systems, and implementation of e-GP programs in 11 client countries. An implementation guide, including a readiness assessment tool, is part of the harmonized toolkit provided for country use by the Working Group on e-GP.3 This group also produced guidance notes on e-bidding and e-reverse auctions. Much of this work is guided by the experience of several client countries that have successfully introduced these capacities into their national procurement systems, notably Brazil, Chile, and Mexico. 10. Heads of Procurement (HoP). In FY06, the MDB Heads of Procurement made further advancements, and many aspects of procurement are now substantially harmonized between the major MDBs. Considerable progress was made in the harmonization of procurement policy; following the revision of the World Bank (WB) Guidelines in 2004, Inter-American Development Bank (IADB), Islamic Development Bank (IsDB), Caribbean Development Bank (CDB), and Asian Development Bank (ADB) issued their new Guidelines, which are substantially harmonized with those of the Bank. As this significant progress was made in the harmonization of procurement policy, the HoP's emphasis shifted to the harmonized implementation of these shared policies. Environmentally and socially responsible procurement remained an important issue, and significant gains were made regarding core labor standards and incorporation of new provisions in the bidding documents that build health care and aids prevention and awareness measures into large civil works contracts. Work on expanding the range of available harmonized bidding documents continues. 11. Procurement Policy, Tools, and Institutional Initiatives. A key aspect of the work program for the Procurement Anchor is the maintenance of policy, policy-related documents, and tools. During FY06, a number of policy-related documents were updated or issued to reflect the May 2004 changes to the Procurement Guidelines and the Selection of Consultants Guidelines. This work included reissuing the Bank Consulting Services Manual and updating the standard request for proposal document. Work begun in FY05 on updating the full range of standard bidding documents to reflect the May 2004 changes was completed in FY06. 3 The Working Group on e-GP is one of the working groups created under the Heads of Procurement of the multilateral development banks. xi 12. Systems Enhancements. The Procurement Anchor is responsible for the design, development, and upgrading of a range of systems to facilitate capture and publication of data and the monitoring of procurement actions. This work involves coordination with the Information Solutions Group (ISG), which supports the technical aspects of systems development and works with a network of staff in the Regions to introduce and train staff on use of the systems. In FY06, the team in the Procurement Anchor developed the Module for Publication of Procurement Notices, Contract Awards Module, and Private Sector Liaison Officers website. In FY06, the Procurement Anchor was asked by the Controllers, Strategy, and Resource Management Vice Presidency (CSRVP) to develop an anti-money laundering/combating the financing of terrorism (AML/CFT) screening system that would allow task teams to run a cross-reference check of the supplier list in the SAP 384 module against available sanctions lists before issuing their no-objections to contract awards. 13. Procurement Staffing. In FY06, the Procurement Sector lost a significant number of senior and experienced procurement staff due to retirement and this trend is expected to somehow continue in the coming years. The Procurement Anchor was particularly affected in this regard in FY06. This placed additional strain on the Procurement Sector in meeting increasing client demands but also brought opportunities. The Sector focused in particular on enhancing its presence in the field and hiring local staff and/or decentralizing the HQ staff. This effort in FY06 resulted in 53 percent of professional level (GE+) procurement staff stationed in Country Offices (COs)4 including 22 percent of the senior Internationally Recruited Staff (IRS). The continued high level of demand for procurement support in COs was further met by an increase in CO delegation of procurement clearance authority. 14. Procurement staff continued to perform well in supporting projects, as indicated by the high ratings in the Quality at Entry (100 percent satisfactory or better) and Quality of Supervision (97 percent satisfactory or better) reviews undertaken by the Quality Assurance Group (QAG). However, staff skills and a certain dearth of qualified staff able to work both on operational procurement and policy reforms remain a concern. The Procurement Sector Board is working with Human Resources to agree on a sectorwide strategy for management of staff and for a longer-term strategy for identification of a pipeline of staff with potential and adequate skills to cover the broad range of activities. In this regard, one consideration is the use of the Bank's Young Professionals program. Work has also begun on defining an intensive capacity development program for procurement staff. This program will focus not only on basic skills improvement, but will also address skills needed to implement the Sector's emerging strategy and deliver on new initiatives. 15. Emerging Strategy. Many of the issues seen in FY05 and FY06 led to new initiatives that will form the core of the Procurement Sector strategy for the coming years. The Procurement Anchor discussed defining a new strategy in a retreat held at the end of FY06 and agreed that this should be the subject of a Procurement Sector Board retreat in FY07. Although this new strategy is just emerging, the following paragraphs summarize some elements that are currently recognized as being of importance. 479 GE+ staff stationed in Washington and 90 in country offices (COs). xii 16. Identifying Risk. With regard to fiduciary and compliance work in the Bank, much more attention needs to be given to the identification of risk, especially with regard to including improved anticorruption measures in project design. Under the guidance of SAR, the Procurement Sector also worked on development of a dynamic risk model system and started to pilot the model prepared by the working group initially set up by the Anchor. The system would measure projects' risk levels based on a combination of factors, including previous Bank work in the sector and country. It will draw on methods that are being employed in several of the Regions, including ECA and LCR. 17. Rapid Response. During FY06, work began on development of a new rapid response policy. The Procurement Sector contributed to the development of this new policy, which has many implications for the Sector in supporting rapid response to critical situations in our client countries. The Procurement Sector will work to prepare implementation guidance for staff, develop new procurement tools to support the policy, and work with other contributing units in the Bank to ensure that this new policy will provide the flexible and timely procurement services required. 18. Governance. The Bank has embarked on an aggressive program to further strengthen its governance and anticorruption work.5 Procurement is a key element in the Bank's ability to impact governance and anticorruption at the project level. Procurement staff are actively involved at the project, country, and Regional levels to design and implement measures that will help improve governance and reduce the potential for corruption, as a contribution to implementation of the recently approved Bankwide governance and anticorruption strategy. 19. Payments. The Procurement Sector is working closely with the Financial Management Sector to identify issues related to poor payment practices under Bank-financed projects. This initiative will involve an increased assessment of country financial management systems and analysis of the country's record with regard to payment. This new emphasis on payments is a result of a growing awareness that payment issues increase the cost of doing business in a country and can have a negative impact on competition and business relations. 20. Country Services. With regard to country services, the Procurement Sector will continue to foster more flexible responses to a demand-driven approach to economic and sector work and to support client country systems in meeting the core principles of transparency, accountability, and fairness. This will involve revising the current Country Procurement Assessment Report (CPAR) guidance and providing additional focus on capturing and sharing of knowledge with staff on new tools and methods being employed at the country level to improve effectiveness. Of particular importance is the growing use of the OECD-DAC benchmarking indicators. These internationally agreed benchmarks provide a tool to help client countries determine their public procurement systems' relative strengths and weaknesses, and they provide the means for measuring progress on reforms. In the coming years, the Sector will expand its use of the OECD-DAC indicators for assessment and measurement of progress on reforms in client countries. Another key element of the 5 Strengthening World Bank Group Engagement on Governance and Anticorruption (R2007-0036), March 20, 2007 xiii strategy at the country level is to continue to encourage the expanded use of technology to support procurement. This will involve continued support to developing e-GP systems and the sharing of cross-country experiences. 21. Country Systems. As the Bank moves toward reaching a decision on an increased reliance on country systems, including in procurement, the above-captioned areas are critical to implementing the Bank's initiative and these efforts will take center stage. The assessment of country procurement systems on the basis of an analysis of institutional and legal framework and procedures, the monitoring of performance indicators, and equivalence with Bank standards were key elements of the Bank's initial proposal to the Board in March 2005 for increasing reliance on country procurement systems6. At the request of the Board, this paper was posted on an external website for a period of six weeks to encourage submission of comments by interested stakeholders. The Bank held subsequent consultations throughout FY06 with stakeholders that expressed concern about the methodology defined in the paper, including a tour of European countries and several meetings with the US industry. As a result of those extensive consultations and remaining concerns by some stakeholders, the paper was withdrawn in May 2006. 22. Electronic Government Procurement. Another key element of the strategy at the country level is to continue to encourage the expanded use of technology to support procurement. This will involve continued support to developing e-GP systems and the sharing of cross-country experiences. These areas are critical to implementing the Bank's initiative to increase its reliance on country systems, including procurement systems. 23. Trust Fund Partnerships. The Bank is responding to the growing demand for harmonization at the country level and for providing good service in countries with difficult working environments by participating in a growing number of trust funds with other donors. These funds vary in nature, but all require a solid fiduciary framework. The Procurement Sector will work closely with development partners, including the United Nations, to provide a procurement umbrella framework agreement that will be coupled with the existing financial management umbrella agreement to simplify working with a broad number of partners and ensure a continuation of strong fiduciary coverage for these trust funds. 24. System Development: Post Reviews. The Procurement Anchor has established a working group that is developing the template for a system to capture data from post-review reports. This information will enable the Sector to learn from good practices and to design capacity development activities that will help staff and client countries implement better procurement practices. 6 Increasing the Use of Country Systems in Procurement (R2004-0206), March 8, 2005. Subsequent to this report, taking into account the input received from the various stakeholders, a new initiative on use of country systems was developed by the management in FY07 (outside the reporting period for this Report). The revised paper was discussed by CODE on May 14, 2007, and by the Board on June 7, 2007. PROCUREMENT UNDER WORLD BANK-FINANCED PROJECTS: FY06 ANNUAL REPORT I. INTRODUCTION 1. World Bank operational procurement work in FY06 comprised fiduciary oversight and compliance, country services, and client capacity building, as discussed in this report. In the context of the increase in the Bank's investment portfolio to the highest level for the past five years (resulting in increased fiduciary oversight and compliance monitoring for Regional procurement teams), the Procurement Sector with reduced resources worked to advance its impact and effectiveness in client countries and improve fiduciary compliance through greater focus on governance and anticorruption-related activities1. 2. Organization of the FY06 Annual Report. Following this introduction, Section II discusses FY06 fiduciary oversight and compliance across the Bank's six Regions--Africa (AFR), East Asia and Pacific (EAP), Europe and Central Asia (ECA), Latin America and the Caribbean (LCR), Middle East and North Africa (MNA), and South Asia (SAR)--and governance and anticorruption-related activities. Section III examines country services activities, underscoring the changing role of procurement teams and their support for reforms of country systems, harmonization, government e-procurement, and client capacity building. Section IV discusses procurement policies, tools, and institutional initiatives. Section V provides an overview of procurement staff in FY06 and staffing trends during the past three years. Section VI outlines initiatives for the coming years. II. FIDUCIARY OVERSIGHT AND COMPLIANCE 3. In FY06, Regional procurement teams continued their focus on procurement oversight and compliance through support to operations teams and client countries. This work included procurement document reviews, post reviews, and provision of technical advice to the operations teams on project design and supervision and to client countries on their project procurement activities. 4. Lending Portfolio. In FY06, 286 new operations (113 IBRD and 173 IDA) in 89 borrower countries were approved, with a total commitment of $23.6 billion. Of this total, 235, or 82 percent, were investment projects, with commitments of $16.3 billion. This represented the highest annual IBRD/IDA lending level in the FY01-06 period, with the trend showing continuing growth of about 8 percent over the past three years. Mexico and Brazil were the leading FY06 borrowers; together they accounted for 15 percent of the total new commitments. The supervision portfolio included 1,345 operations with a total commitment value of $94.9 billion. The distribution of the FY06 lending activities by Region and of lending portfolio by top leading borrowers are depicted in Figure A1 and Table A1 in Annex A. 1 The delay in submission of the FY06 report is due to the limited staffing resources in OPCPR during FY06 and FY07. The request for delayed submission of the FY06 report was agreed to by the audit Committee. 2 5. Work Program Impact. The growth in the Bank's portfolio had a significant impact on the Procurement work program, and required a balancing between the demands of additional procurement input to operations teams and clients on the one hand and the increasing work on country systems and reforms on the other. It also required Regional adjustments in decentralization of Procurement staff, and delegation of procurement authority. 6. Procurement Decentralization. The focus of Regional procurement decentralization strategies has been on better service, increased client access, and maintenance of current knowledge of the country's governance system. Under the guidance of the Operations Procurement Review Committee (OPRC), the Regions have been increasing the recruitment of country-based staff and the delegation of the procurement authority below the Regional Procurement Manager (RPM) threshold to country offices (COs). This trend continued in FY06: the decentralization of procurement authority reached 77 percent compared to 64 percent in FY04. The positive impact of the Regional decentralization strategies was noted in FY06 by the Quality Assurance Group (QAG) in its seventh Quality of Supervision Assessment (QSA7), which identified the involvement of the country-based procurement staff as one of the main elements responsible for improved "Satisfactory" ratings for Procurement supervision. Table 1 below shows the FY06 levels of Regional procurement decentralization and the trend since FY04. Table 1. Procurement Decentralization Trends Procurement Decentralization Indicators, FY04-06 Decentralization Data AFR EAP ECA LCR MNA SAR Bankwide FY04 Decentralization Percentage 50 70 58 71 54 97 64 Active Projects 343 214 285 265 99 146 1,352 Delegated to COs 173 150 164 189 53 141 870 FY05 Decentralization Percentage 85 85 51 65 34 99 72 Active Projects 371 246 324 291 118 167 1,517 Delegated to COs 317 210 165 190 40 165 1,087 FY06 Decentralization Percentage 92 87 56 65 56 98 77 Active Projects 416 268 326 291 113 187 1,601 Delegated to COs 384 232 184 190 63 183 1,236 7. Project Preparation and Supervision. Regional procurement teams took part as members of operations teams for the 286 new lending operations, providing advice on project designs, conducting procurement capacity assessments, preparing the required procurement procedures and schedules in the Project Appraisal Documents (PAD) and Loan/Credit Agreements, and participating in final Loan/Credit negotiations. At project launch, the teams also conducted procurement capacity-building workshops for client staff. 8. Follow-Up to Risk Assessments. In FY06, Regional procurement teams increased their focus on follow-up measures of procurement risk assessments for new projects, incorporating mitigation measures in project design. Under the guidance of the SAR team, 3 work also started on development and piloting of a dynamic risk model system to measure project risk levels on the basis of a combination of factors, including previous Bank work in the sector and country. Plans for the risk model system include its connection to the Project Portal, Complaints database, Misprocurement database, Department of Institutional Integrity (INT) cases, latest assessment reports, Country Procurement Assessment Reports (CPARs), and results of procurement post reviews. 9. Prior Reviews. With 1,345 active projects, fiduciary oversight and compliance once again occupied the greater part of the work programs of Regional procurement teams. An estimated 6,760 contracts, with a total value of $7.5 billion, were subject to procurement prior review2 in FY06, compared to 8,145 contracts in FY05, with a value of $8,964 billion (a 17 percent decline in volume). This represented 61 percent of total FY06 disbursements, and followed the declining trend line of the past four years in the number of the prior review contracts relative to the increased lending portfolio. The decrease in prior review contracts is compensated by the increase in Procurement Post Reviews (PPRs) of projects; the number of FY06 PPRs rose by 18 percent compared to FY05. Figure 1 below shows the FY06 Regional prior review contracts in relation to total disbursements. Figure 1. Regional Prior Review Contracts vs. Disbursements FY06 Prior Review Contract Value and Project Disbursement Amount (US$ M) 4,000 n iolli 3,000 M 2,000 $SU 1,000 0 AFR EAP ECA LCR MNA SAR Disb in FY06 2,571 1,845 1,685 2,344 948 2,884 Prior review contract value 1,833 1,368 1,290 961 699 1,328 % reviewed contract value / 71% 74% 77% 41% 74% 46% disbursement Region Disb in FY06 Prior review contract value % reviewed contract value / disbursement 10. Regional Trends. Analysis of FY02-06 contract awards by the 10 leading borrowers shows that India and China have the largest value contracts, followed by Brazil; a similar distribution applies to countries that supply Bank-financed contracts. Table 2 below presents the FY06 prior review contracts by Region and Procurement category and Annex "A" presents the FY02-06 Bankwide trend in prior review contracts (Figure A2), FY02-06 trend of Regional prior review contract awards (Figure A3), and the FY06 list of leading suppliers (Table A2). 2 Per the Loan/Credit Agreements, certain procurement actions taken by the borrower--for example, issuing bidding documents, evaluating bids, and recommending contract awards--must be reviewed by the Bank and a written "no-objection" provided before the borrower may proceed to each next stage of the procurement process. This "prior-review" process usually applies to procurement actions for contracts involving international competitive bidding and those above a certain dollar threshold. Prior review thresholds are set as a function of the procurement risk for a given project or country, based on the assessment of the capacity of the executing agency to implement procurement activities. 4 Table 2. FY06 Prior Review Contracts by Region and Category FY06 Prior Review Contracts by Region and Procurement Category Proc Categ \ Region AFR EAP ECA LCR MNA SAR Bank-wide % Amount (US$ Million) Civil Works 1,127 894 263 619 315 968 4,187 56% Goods 338 339 687 138 320 250 2,071 28% Services 9 1 35 32 5 1 83 1% Consultant Services 358 134 305 172 59 108 1,137 15% Total 1,833 1,368 1,290 961 699 1,328 7,478 100% Number of Contract Civil Works 207 307 335 158 126 183 1,316 19% Goods 522 432 534 270 175 204 2,136 32% Services 17 8 45 52 1 3 126 2% Consultant Services 956 380 725 736 165 216 3,178 47% Total 1,702 1,127 1,639 1,216 467 606 6,757 100% 11. Operations Procurement Review Committee. The Operations Procurement Review Committee (OPRC) provides an important contribution to the fiduciary oversight role of the procurement function through review and clearance of the highest value and most complex contracts financed through Bank loans.3 During FY06, OPRC reviewed 89 cases, valued at $4.9 billion. This was the highest number of cases reviewed during the past five years and a 53 percent increase over FY05, reflecting the Bank's general shift to larger infrastructure- type lending projects. An analysis of FY06 cases shows that India, Ethiopia, and China had the highest number of cases reviewed while India and China had the highest value contracts reviewed. In Annex A, Figure A4 depicts the overall weight of cases by contract type from FY03 to FY06. Figure 2 below shows the FY02-06 Regional trend of OPRC reviews. Figure 2. FY02-06 Regional OPRC Review Trend Trends of OPRC Review -- Contract Value by Region FY02 - FY06 2,500 2,000 ion ill 1,500 M $SU1,000 500 0 FY02 FY03 FY04 FY05 FY06 AFR EAP ECA LAC MNA SAR 12. Independent Procurement Reviews (IPRs). As a part of monitoring project fiduciary compliance, IPRs complement the prior review and regular post review procedures, and inform Regional management of the quality of the Region's fiduciary work on procurement. 3 This includes clearances for (a) contracts for procurement of goods, works, and services (other than consulting services) costing $25 million or more, (b) consulting contracts costing $10 million or more equivalent, (c) single-source selection of consulting services contracts costing $5 million or more equivalent, and (d) other cases at the request of the RPMs. 5 During FY06, IPRs were conducted in 24 countries,4 covering 70 lending projects and 1,385 contracts. In comparison to FY05, the country coverage of IPR in FY06 increased from 14 to 24, an increase of 71 percent, and the number of reviewed projects increased from 50 to 70, a 40 percent increase. Table A3 in Annex A presents the IPR coverage for the period FY02-06. 13. Procurement Post Reviews (PPRs). During the fiscal year, PPRs were carried out for 693 projects, or 78 percent of the total projects subject to post review. PPRs are an integral part of Regional teams' work programs and they are having a significant impact on the procurement approach to projects in terms of follow-up work, client capacity building, and identification of cases requiring the Bank's attention. Accordingly, the Regions strengthened their efforts to follow-up on the findings of the PPR/IPR reports and, where applicable, used the PPR/IPR results to expand and further improve borrower capacity building. Another important outcome of these reports is the identification of misprocurement cases. Table 3 below show the FY06 post-review monitoring and status by Region and Table A4 in Annex A depict the trends of post-review coverage by Regions over the past five fiscal years. Table 3. FY06 Procurement Post Review by Region Procurement Post Review (Jul. 1, 2005 - Jun. 30, 2006) Item\Region AFR EAP ECA LCR MNA SAR1 Bankwide Projects in Portfolio* 416 268 334 310 126 156 1484 Projects not subject to post 206 119 178 103 38 73 717 review** Projects Subject to post review 210 149 156 207 88 83 893 Projects post reviewed *** 166 81 116 203 47 80 693 (accumulated) Projects post reviewed 79% 54% 74% 98% 53% 96% 78% (accumulated %) Notes * Total number of active projects in portfolio, including PE (IBRD&IDA), GEF, MT, SF, and TF if being post reviewed. ** Projects 100% subject prior review, and projects with insufficient contracts for post review. *** Data including projects under independent procurement review. 1. Data excludes Nepal and Sri Lanka due to the country conditions in which reviews could not be carried out. 14. Misprocurement. Bank policy is to cancel any portion of the loan allocated to the goods, works, and services that has not been procured in accordance with the procedures set out in the Loan Agreement (misprocurement). In FY06, 153 cases of misprocurement relating to nine countries were identified, for a total value of $71 million. Compared to the last three years, this was a significant increase in misprocurement cases, reflecting a heightened focus on governance and anticorruption efforts. An analysis of the FY06 misprocurement cases showed that 55 percent were identified as a result of the post reviews (PPRs or IPRs), while 40 percent were based on complaints submitted by bidders and consultants and subsequent INT investigations. The remaining 5 percent were based on prior review process and government reviews. This distribution underscores the degree to which follow-up to PPRs and complaints are taken seriously. Annex B presents the details of the FY06 misprocurement cases, including how they were identified and Table 4 below presents the misprocurement trends during the past three years. 4 These included Argentina, Azerbaijan, Bolivia, Brazil, Chad, Chili, Columbia, Democratic Republic of Congo, Dominican Republic, Egypt, Ethiopia, Honduras, Jordan, Madagascar, Mexico, Moldova, Nicaragua, Paraguay, Peru, Rwanda, Senegal, St. Lucia, and West Bank and Gaza. 6 Table 4. FY04-06 Misprocurement Trends Contract FY No. of No. of No. of Countries Projects Contract Value How Identified ($M) FY04 5 N/A 9 17.6 M Complaints, Post Review FY05 6 N/A 22 1.2 M Post Review FY06 9 24 153 71.0 M Supervision, Prior Review, IPR, Complaints, Review, INT 15. Complaints. An important part of ensuring compliance with the procurement process is the ability of bidders and consultants to submit formal complaints. In FY06, the Procurement Anchor worked with the Regions to improve the complaints data-capturing process and developed a new Bankwide Complaints database. This system has improved the quality of the information and has provided a means for better analysis of the data. During FY06, 388 complaints were registered, involving 220 projects in 73 borrower countries (17 projects received more than one complaint). This was an increase of 105 projects, or 37 percent, compared to FY05. The number of complaints rose in AFR, EAP, ECA, and LCR while declining in MNA and SAR. 16. Complaint Trends. In FY06, the seven countries with the highest number of registered complaints (India, China, the United States, Nigeria, Bangladesh, Vietnam, and Germany, respectively) represented 43 percent of the total complaints. India and China both registered and received the highest number of complaints. Excepting the United States and Germany, most of the complaints were from local companies: 100 percent of the complaint cases originated locally in Nigeria, Bangladesh, and Vietnam; 93 and 76 percent of cases in India and China, respectively, related to projects in their own countries. The three leading reasons for FY06 complaints were the qualification of other firms, disqualification of bid, and application of evaluation criteria. This was followed by allegations of fraud and corruption. The Bank's review of the FY06 complaints resulted in upholding the borrowers' decision in 30 percent of the cases, validating the complaints in 8 percent of cases, and invaliding the complaints in 14 percent of cases. A total of 19 cases (5 percent) were forwarded to INT. (The resolution of the remaining cases is presented in Table C2). Figure 3 below shows the FY02-06 procurement complaints trend and Annex C shows the FY06 complaints by their nature and rank (Table C1), FY06 complaints by their resolution (Table C2), and the number of cases forwarded to INT by country (Table C3). 7 Figure 3. FY02-06 Procurement Complaints Trend Trend of Procurement Complaints in the Past Five Fiscal Years (FY02 - FY06) 300 250 foreb ts in 200 lap 150 m Nu moC100 50 0 02 03 04 05 06 Fiscal Year AFR EAP ECA LCR MNA SAR 17. Responsiveness to Clients. The Bank standard response time to clients on procurement-related documents is seven business days. Recognizing the importance of this performance indicator and its use in EAP, ECA, and MNA, during FY06, the rest of the Regions worked toward developing fully functional Regional monitoring systems. Since these systems were not operational by the end of the fiscal year, the Bankwide data on procurement response time was not available for reporting in FY06. However, the FY06 data collected from the three Regions with operating systems showed that the average response time in MNA was 1.53 days and that the Region met the seven-day standard 97.2 percent of the time; the corresponding figures for ECA and EAP were 1.54 days and 95.7 percent and 3.8 days and 89.7 percent, respectively. The differences among the Regions can be attributed to Regional factors including resources, complexity, and volume. 18. Quality Assessment. The positive impact of the Regional procurement teams' work was demonstrated in the Quality Assurance Group's (QAG's) "Seventh Quality of Supervision Assessment (QSA7)," which evaluated the quality of procurement supervision in a random sample of 127 FY05-06 projects and found that 97 percent of the projects had a "Satisfactory" or better rating on procurement supervision aspects. This result shows the steady improvement against the QSA4 (85 percent), QSA5 (91 percent), and QSA6 (95 percent) assessments. Significantly, while in the recent past, procurement specialized reviews were only conducted on a case-by-case basis rather than on the full sample of projects under review, the heightened concern about corruption under Bank-financed projects, resulted in the specialized review being applied to all QSA7 projects.5 The positive procurement performance trend in the QAG results for "Quality at Entry" (QEA) and "Quality at Supervision" since FY01 can be seen in Figure 4. 5 Excepting Development Policy Loans (DPLs), which do not apply the same requirements for procurement supervision as investment loans. 8 Figure 4. QSA/QEA Ratings FY01-06 QEA vs. QSA Procurement Results Over Time % Marginally Satisfactory or Better 105% 100% 95% QSA 90% QEA 85% 80% 75% QEA/QSA4 QEA5/QSA5 QEA6/QSA6 QEA7/QSA7 19. Factors of Quality. The factors QAG noted as contributing to Satisfactory or better procurement supervision included coverage--procurement staff participation as part of supervision teams--and follow-up to address procurement problems noted during supervision. Other factors included decentralization, solid documentation, proper procurement planning, and the integration of procurement staff into project teams. Projects rated more highly for procurement supervision further demonstrated good coordination and communication among the procurement specialist, the task team leader, and other members of the team, including the Financial Management Specialist. The absence of the same attributes was cited for the projects with lower ratings. The main recommendation of QSA7 for the Procurement Sector was to apply the lessons learned from the key characteristics of highly rated versus poorly rated procurement supervision to strengthen performance. 20. Governance and Anticorruption (GAC). As the Bank continues to enhance its fight against fraud and corruption under Bank-financed projects, the Regions introduced governance and anticorruption measures in new projects and worked with the clients to enhance their governance and anticorruption agendas. A key pillar of the GAC strategy is that the Bank must remain committed to improving country systems and increasing its reliance on such systems. 21. AFR GAC. During FY06, AFR issued a policy note on "Managing High-Risk Operations" to enhance risk management screening at both the country and project levels. This was part of the overall Regional effort to heighten staff attention on fighting corruption. Operations located in countries with "High Systemic Corruption Risk" and/or political governance issues, or projects with "High Specific Fiduciary Risks" were classified as high- risk operations. To ensure upstream review of high-risk operations, AFR staff were instructed to introduce a new review process at the Project Concept Note and Decision Meeting stages, requiring mandatory reviews by the RPM Office, with a copy to OPCS. In addition, review by the Regional Operations Committee meeting was made mandatory for decision meetings involving high-risk operations. Sign-off provided by the AFTQK Director in consultation with the RPM remained unchanged. AFR procurement staff were requested to ensure that the project documentation address all governance and corruption issues. For projects in countries with "High Systemic Corruption Risk," they were requested to prepare a frank write-up describing the state of governance in the country, recent developments, and issues that could impact the successful implementation of the project. Clearance of the Board package for high-risk projects by the AFRVP was made mandatory, because of the sensitivities of governance issues. In addition to the normal review and guidance function from procurement staff, the documentation for projects with "High Specific Fiduciary Risks" became subject to 9 a formal sign-off on the procurement issues by the Director of AFTQK, in consultation with the RPM. 22. EAP GAC. In FY06, the EAP procurement team through an IDF grant supported Indonesia's anticorruption initiatives by assisting the Government to develop a framework for its disclosure policy to be adopted by local governments. The team also included a anticorruption action plan related to procurement in all new projects; conducted a study on the effectiveness of the implementation of anticorruption action plans in selected pilot projects; and initiated pilot involvement of civil society oversight to procurement audit work. In Vietnam, the team strengthened measures for reducing fiduciary risks to the Bank's portfolio through increased attention to procurement-related governance issues; the measures were incorporated into project design and supervision. It also worked on the development and implementation of an interim strategy for addressing collusion. 23. ECA GAC. Building on analytic and advisory work already done by the Bank, and taking account of the Business Environment and Enterprise Performance Survey (BEEPS)6 indicators and other international indicators, a Corruption Vulnerability Scan was commissioned for Ukraine aimed at (a) providing a better understanding of the Bank's vulnerability in extending assistance to Ukraine; and (b) making suggestions as to how to reduce the risks concerning the use of Bank funds, while improving results on the ground. In collaboration with the financial management (FM) team, ECA developed a new "Corruption Risk Assessment Module" (as an element of the RAPMAN application) to capture "real- time" corruption risk assessments, and it developed a set of indicators that were based on a distilled subset of measures from the OECD-DAC/World Bank Working Group paper "Methodology for Assessment of National Procurement Systems."7 The module, which was completed at the end of the fiscal year, provides for each operation to be assessed at the Project Concept Note stage, appraisal stage, and each subsequent supervision mission. 24. LCR GAC. During FY06, the LCR procurement team participated in the design of the Regional Governance and Anticorruption strategy and actively participated in country consultations and initial implementation of the strategy. It also participated in a governance workshop in Brazil sponsored by the Human Development (HD) Network and prepared a chapter of the analytic work on governance of road contracts in Brazil. Other activities included participation in drafting a pilot governance annex of the Honduras Country Assistance Strategy (CAS) and contributing to the Country Partnership Strategy (CPS), and contributing to the first of a DPL series in Panama (which drew from the joint CPAR/CFAA conducted in Panama) that provided additional financing for procurement reform. The LCR team also started work on development of a toolkit on corruption red flags in procurement, which when completed will be shared and harmonized with the IADB. 25. MNA GAC. During FY06, MNA developed and disseminated a procurement-focused anticorruption assessment tool that used the "red flags" approach, and it systematically included the GAC agenda in training seminars for both internal and external clients. In Iraq, 6 The BEEPS survey is a joint effort between the Bank and the European Bank for Reconstruction and Development (EBRD) that conducted research and compiled questionnaires from over 4,000 firms in 22 transition countries on issues relating to corruption. 7 http://www.oecd.org/dataoecd/1/36/37130136.pdf. 10 the first-ever workshop organized for Iraq private sector contractors, suppliers, and consultants included a full session devoted to GAC, assisted by an INT representative. 26. SAR GAC. As noted earlier, under the guidance of the SAR procurement team, the Procurement Sector developed and started to pilot a dynamic risk model, which is now being refined. The model would assess risks at various stages of project preparation and supervision, drawing in part on input from various Bank fiduciary and economic and sector work (ESW) or other analytic work, including CPARs, PPRs, and IPRs. The system will draw on methods that are being employed in several Regions, including ECA and LCR. The team also developed an automated post-review strategy based on projects' risk ratings. This system/tool links the post-review strategy with the procurement plans of all Regional projects and, based on the project's risk rating, develops its annual post-review requirement. This initiative has had successful results, including capture of significant procurement deficiencies and cases for misprocurement 27. Procurement Anchor: Sanctions. In furtherance of its fiduciary duty to safeguard loan proceeds, the Procurement Anchor in FY06 worked with Management to review and revise the Bank policy on sanctions8. The Bank Procurement and Consultants Guidelines provide for sanctioning firms and individuals that engage in fraud and corruption in the context of Bank-financed procurement actions and the execution of their resulting contracts. However, the policy lacked the means to sanction firms and individuals that engage in fraud and corruption outside this context; it also had no provision for a separate sanction for obstruction of Bank investigation, which enabled firms involved in fraud and corruption to impede the Bank's investigation to the point that the Bank was unable to gather sufficient evidence to prove the underlying allegation of fraud and corruption. This work resulted in preparation of a Sanctions Reform proposal to strengthen the Bank's ability to prevent and combat fraud and corruption through (a) expansion of the sanctions regime beyond procurement through, among other things, the adoption of new definitions of corrupt, fraudulent, collusive, and coercive practices; and (b) adoption of "obstructive practices" as a separate sanction offense, covering both noncompliance with the Bank's third-party audit rights (or rights of access to information) and deliberate obstruction of Bank investigations into fraud and corruption. This paper was endorsed by the Audit Committee on June 28, 2006 and approved by the Board in August 2006. 28. Procurement Anchor: GAC. Under the leadership of Poverty Reduction and Economic Management Network (PREM), World Bank Institute (WBI), and OPCS, the Procurement Anchor also worked on the preparation of a Governance and Anticorruption strategy paper9 in 2006 and provided a compendium of activities undertaken by the Procurement Sector that contributed to fighting corruption in Bank-financed projects and client countries. A key pillar of the GAC strategy is that the Bank must remain committed to improving country systems and increasing its reliance on such systems. 8 Sanctions Reform: Expansion of Sanctions Beyond procurement and Sanctioning of Obstructive Practices, July 11, 2006 9 Strengthening World Bank Group Engagement on Governance and Anticorruption (R2007-0036), March 20, 2007 11 29. Procurement Anchor: PPRs. As noted earlier, PPRs play an increasingly important role in anticorruption measures. To this end, the Procurement Anchor worked on development of a central automated system to capture more data from the post-review reports and use them to analyze trends that can help staff improve the efficiency of the process and the follow-up. 30. Compliance Monitoring. Further to the monitoring of fiduciary compliance through OPRC, procurement prior reviews, and post reviews, in FY06 the RPM offices continued their working relationship with INT, providing close technical support to INT on the procurement-related cases and investigations. While in FY06 there were a number of referrals to INT from within and outside the Bank, this information was not made available to the Procurement Sector and therefore the number of investigations that were opened as a result of the referrals and the number of procurement cases under investigation is not provided in this report. However, on the basis of information provided by Procurement and Consultants Services Legal Unit (LEGPR), in FY06 three sanctions cases from previous years, all from ECA and involving multiple respondents, went through a hearing before the Sanctions Committee and resulted in the debarment of entities involved. III. COUNTRY SERVICES 31. Several changes introduced in FY06 had an impact on the Bank's work at the country level. On July 25, 2005, the Vice Presidents of OPCS and PREM jointly issued a note to staff supporting the introduction of the Public Expenditure and Financial Accountability (PEFA) indicators and a strengthened approach to how the Bank should engage at the country level to improve the overall effectiveness of work on public financial management systems.10 This note was the culmination of several years of joint work involving the Procurement Sector, the Financial Management Sector, and the Public Management/Governance Sector in the Bank, together with the PEFA partnership that includes the IMF, the European Commission, and a group of bilateral donors. It led to a significant increase in integrated ESW conducted at the country level that included the integration of procurement into broader public financial management assessments. Procurement aspects of public financial management assessment are still guided by the CPAR process, but much more flexibility has been employed in the type of procurement assessments conducted at the country level. 32. Assessment Tools. As CPARs have been completed for the majority of the client countries, the assessments in FY06 for the most part covered Integrative Fiduciary Assessments (IFAs) and specialized/sector-specific work. Hence, most of the Regions worked closely with other units, including PREM and FM, on integrated ESW products. Annex D presents the ESW reports produced in FY06. In FY06, a new assessment tool developed by the Procurement Anchor was the Country Consulting Services Assessment (CSA), which focuses on government performance in the selection and management of professional consultants, and on fostering sustainable conditions for the development of national consulting firms. In FY06, CSAs were completed for Pakistan and Turkey. 10 "Strengthening the Bank's Public Financial Management Work," issued July 25, 2005, by James W. Adams, OPCS, and Danny Leipziger, PREM. 12 33. CPAR-Stimulated Reforms. In FY06, supporting client countries in public procurement reform was a priority agenda for the Procurement Sector, and was typically approached through CPAR action plans. Utilizing the results of the completed CPARs and the agreed action plans; Institutional Development Fund (IDF) grants, poverty reduction support credits (PRSCs), DPLs, and investment projects were used by Regional procurement teams to introduce and/or continue work with client countries in their efforts to overhaul their public procurement systems to improve transparency and accountability. In FY06, there was also an increasing tendency to work in an integrative manner with FM and PREM, resulting in the design of procurement reforms that are increasingly anchored in the public financial management agenda of the country. 34. AFR. Through the use of Bank IDF grants, PRSCs, Low-Income Countries Under Stress (LICUS) Trust Funds, DPLs, and investment projects, 20 African countries11 with ongoing procurement reforms showed signs of progress in establishing sound legal and regulatory frameworks. AFR utilized the "Observatory of Procurement Reforms in Sub- Saharan Africa" as the tool for measuring the main strengths and weaknesses of national procurement system, with a focus on prioritized capacity-building programs. This tool is based on the four pillars of a sound procurement system, as defined by the OECD-DAC working group.12 In FY06, the OECD-DAC methodology to support the analytic work was used in Burkina Faso, Central African Republic (CAR), Cameroon, Congo, and Sao Tome & Principe. 35. EAP. Through IDF grants and investment projects, the Regional procurement team supported procurement reforms in eight countries,13 where new public procurement laws were enacted and work on development of procurement guidelines, standard bidding documents (SBDs), and procurement manuals continued. This support included capacity building for the concerned officials in the new laws and procedures. Monitoring and evaluation was another important agenda for the EAP team: in the Mongolia, Philippines, and Vietnam, OECD-DAC indicators were utilized for this purpose, and through IDF grant support in Lao PDR, the Government developed a performance measurement tool and applied it to selected agencies on a pilot basis, setting the foundations of the national procurement monitoring system. 36. ECA. Driven by recommendations made in completed CPARs, the ECA procurement team worked on procurement reforms in seven countries,14 using DPLs and IDF grants with a focus on procurement capacity-building efforts as a key element in the operations. The activities covered included legislation reform and/or large-scale training of procurement cadre in some of the weaker performing countries. The procurement-related aspects of the DPLs were further reflected in the CPSs and CASs. 11 Angola, Benin, Burkina Faso, Burundi, Cape Verde, Chad, Congo, DRC, Ethiopia, Ghana, Guinea, Kenya, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, and Nigeria. 12 These include the (a) existing legal framework that regulates procurement in the country, (b) institutional architecture of the system, (c) operation of the system and competitiveness of the national market, and (d) integrity of the procurement system. 13 Cambodia, Indonesia, Lao PDR, Mongolia, Samoa, Timor Leste, Tonga, and Vietnam. 14 Armenia, Azerbaijan, Kyrgyz Republic, Macedonia, Serbia & Montenegro, Tajikistan, and Ukraine. 13 37. LCR. The procurement team carried out a fast response mission requested by the President of Peru to advise on a short-term strategy to implement an emergency investment program and medium-term reforms reflecting the recent CPAR, and it provided an IDF grant to modernize procurement systems in the State of Minas Gerais in Brazil. During the year, work also started on a new broad governance project in Brazil, with a procurement component that will focus on procurement reforms, including e-invoicing. 38. MNA. Through the use of IDF grants in FY06, MNA continued working on public procurement reforms in six countries.15 In Morocco, Phase I of the analysis of the quality of the public procurement systems was completed and work on Phase II was initiated. In Yemen, the six-month policy reform agenda agreed with key donors in mid-FY06, known as the National Reform Agenda, included at its core reforms to Yemen's public procurement system. The team also started work on utilizing an Iraq trust fund for capacity building and public procurement reforms. 39. SAR. Based on the results of Integrative Fiduciary Assessments, in FY06 the procurement team worked on the public procurement reforms using IDF grants, PRSCs, and investment projects. Procurement reforms were either initiated or continued in six client countries.16 The Bank's involvement in India included support to five local governments17 in their efforts on public procurement reforms. In Pakistan, after a two-year silence, the government at the federal and provincial levels initiated a dialogue with the Bank on inclusion of procurement reforms in the upcoming PRSC project. Afghanistan adopted a Public Procurement Law, becoming the first country in SAR to do so. A Procurement Policy Unit was also established in Afghanistan in FY06, and took the lead in advancing the procurement reform agenda in the country. A Public Procurement Law was also adopted in Bangladesh. The Bank and other donors engaged in constructive dialogue with the government of Bhutan on public procurement reforms and established an action plan for the necessary reforms and an assistance strategy for the ensuing fiscal years. 40. Next Steps. Setting up a modern legal, regulatory, and institutional procurement framework is the first step of the reform process that many client countries have been addressing. Reforms by nature are long-term commitments requiring client countries' commitment and political will. Although a lot has been achieved in terms of changes to the public procurement laws and regulations in client countries, the proper implementation of these changes--including building the local capacity for implementation--remains a challenge. The next stage for the Bank is to support the efforts of institutions created by the new procurement legislation to become fully operational and to manage, execute, and oversee public procurement operations efficiently. To this end, improving capacity within the procuring entities and the private sector that benefit from the opportunities offered by public procurement takes center stage for the countries that have already established the required legal and institutional framework. The Bank's long-term technical and financial commitment plays an integral part in helping client countries achieve the principles of transparency, accountability, and fairness in their public procurement systems while enhancing their capacity in procurement. 15 Algeria, Djibouti, Morocco, Tunisia, Yemen, and West Bank & Gaza. 16 Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. 17 Andra Pradesh, Karnataka, Orissa, Rajasthan, and West Bengal. 14 41. Electronic Government Procurement. The Bank advocates meeting internationally recognized standards in terms of governance, performance, and quality in client e-GP systems. Bank policy further requires that the e-GP systems meet the principles of transparency, open and fair competition, equal access, no discrimination, and security of confidential data.18 From a strategic perspective, the Bank puts growing emphasis on helping client countries to implement and use e-GP as a vehicle of improving the transparency and efficiency of all public procurement, rather than limiting their efforts to Bank-funded operations. Following this principle, the Procurement Sector's e-GP strategy of policy and country-based work has been instrumental in expanding e-GP use in various client countries. During the fiscal year, the Procurement Sector continued to providing assistance and support to client countries in developing and fine-tuning their e-GP systems. Through IDF and other grants19 and projects with components for design and implementation of e-GP programs, 11 client countries20 received support on their public sector modernization and development agenda. 42. Procurement Anchor. In FY06, the Procurement Anchor reviewed e-GP systems in Brazil and Chile for Bank-funded operations, with a view to assessing their reliability for Bank use, and led or contributed to the assessment of Indonesia's e-GP system and those of several states in India. It further assisted in preparing, designing, and implementing e-GP programs, including e-GP readiness assessments and strategy developments, in Armenia, Azerbaijan, China, and Georgia, and in developing an electronic bulletin in Vietnam. Under the MDB e-GP harmonization initiative, the Sector organized e-GP learning workshops with the Bank's counterparts in China and India, in collaboration with ADB. In Bangladesh, an e- GP readiness assessment was carried out that resulted in the preparation of an e-GP implementation strategy. The Anchor also provided advice to WBI on the design and implementation of an e-GP training program for Kazakhstan. 43. Harmonization. The work on harmonization covers several fronts of internal and external collaboration with other sectors, MDBs, and bilateral donors on project- and country-level work, on global work with all MDBs on harmonization of donor policies and tools, and with the OECD-DAC Joint Venture on Procurement. In FY06, Regional procurement teams worked with internal partners (FM, PREM, and other sectors, including HD) on ESW products and assessments and continued working with external partners on the harmonization agenda. 44. AFR. In FY06, the procurement team continued working with the African Development Bank (AfDB) and other donors on procurement harmonization, and implementation of OECD-DAC baseline and compliance indicators. Donors' joint work in public procurement reforms has also been intensified in the Region (Mozambique, Senegal, Tanzania, and Uganda) and, with the support of the Bank and other donors, regional 18 The two guidance notes e-Tendering Requirements for MDB Financed Procurement and e-Reverse Auction Guidelines for MDB-Financed Procurement, jointly developed by OPCPR, the Asian Development Bank, and the Inter-American Development Bank, provide a minimum set of standards for e-GP systems to be approved for the use under Bank-funded operations. 19 In Morocco and Tunisia, support to e-GP comes from two grants from the Development Gateway Foundation. 20 Armenia, Azerbaijan, Brazil, China, Georgia, Indonesia, Lao PDR, Morocco, Philippines, Tunisia, and Vietnam. 15 organizations21 have adopted common procurement directives. AFR, which has the largest portfolio of regional projects in the Bank, also contributed to the adoption of streamlined and harmonized procedures across countries, and it increasingly worked with bilateral donors in design of new projects with a shared basket funds for implementation of investment and sectorwide programs. 45. EAP. In FY06, the procurement team worked on harmonization agenda in Cambodia, Philippines, and Vietnam. In Vietnam, as Donor Co-Chair of the Procurement Thematic Sub-Group within the Partnership Group on Aid Effectiveness, the team provided leading support to the efforts for harmonizing donor-government procurement procedures and systems, with notable success.22 It also played a key role in the development of a strategic action plan for further harmonization, which would consider use of the government's competitive procurement procedures in lieu of the Shopping method, use of the government's procurement bulletin/website for advertising bidding opportunities, and publication of contract award information. It was further agreed to use the results of the Baseline Indicator System (BIS) assessment and apply the performance measurement tool to identify and bridge the remaining gaps between Vietnamese regulations and international best practices. In Cambodia, the Bank provided IDF grant support and extensive technical advice for the development of World Bank/ADB harmonized procurement procedures for use on externally financed projects. This resulted in Government adoption of the requirement to use the Standard Procurement Manual and Harmonized SBDs for externally financed projects. The Manual introduced sound measures for increasing competition, transparency, and accountability. In the Philippines, the harmonized Generic Procurement Manual (GPM) as endorsed by the ADB, Japan Bank for International Cooperation (JBIC), and the World Bank, was issued by the Government Public Procurement Board. The manual defines the organizational set up, administrative processes, and roles and accountabilities within the procuring entity and is used by both internal and external auditors to review the adequacy and operation of procurement internal controls. 46. ECA. Coordination of work with other donors active in Regional countries and the introduction of a more demand-driven and flexible approach to country work in ECA led to closer cooperation with the European Commission. This included coordinated procurement reform activities and conduct of a specialized form of integrated fiduciary assessment to support the expanding use of sectorwide approaches. 47. LCR. The LCR procurement team held a regional OECD workshop in Peru and World Bank /IADB harmonized SBDs were prepared in Chile, Colombia, and Peru. 48. MNA. In MNA, through the use of an IDF grant, work continued on the harmonization of public procurement reforms in Maghreb countries (Algeria, Morocco, and Tunisia). The procurement team also worked with other bilateral partners, including United States Agency for International Development (USAID), United Kingdom's Department of 21 WAEMU (West African Economic and Monetary Union) and COMESA (Common Market for Eastern and Southern Africa). 22 This included development and adoption of a common progress reporting tool, improved national procurement legislation bringing it closer to international practices, and standard procurement documents with structure and format similar to those of the Bank's SBDs. 16 International Development (DfID), and the European Union (EU) on country procurement initiatives in Djibouti, Morocco, Yemen, and West Bank & Gaza. 49. SAR. Harmonization activities in SAR included work in Bangladesh, where a number of collaborative efforts among donors took place in the field of public financial management within the overall framework of governance improvement. The key efforts included ADB, DfID, and Japanese contributions to the detailed framework of the governance-centered CAS in Bangladesh, with the Bank and DfID jointly preparing a strategic note on procurement and developing an overarching public financial management strategy with input from ADB and other key donors. The team also worked closely with DfID in Afghanistan and India on public procurement reforms and new projects. DfID collaborated closely in the development of a Governance and Accountability Action Plan under a health project in India, which was agreed to by the Ministry of Health, Government of India, and the World Bank. Furthermore, the procurement chapters of public financial management studies in Afghanistan, Bangladesh, and Nepal were based on OECD-DAC indicators. 50. Heads of Procurement (HoP). The harmonization efforts of the HoP of various international financial institutions (IFIs), including MDBs, has over the last several years resulted in significant progress toward harmonization of IFI-funded procurement. In FY06, further advancements were made, with many aspects of procurement now substantially harmonized between the major MDBs. The development and use of these harmonized documents presents a single best practice model that is instrumental in reducing the work load and learning curve of executing agencies while reducing the numbers of errors made by suppliers, contractors, and bidders when completing bids and performing contracts. In addition to HoP-agreed master documents for Goods, Works and Pre-qualification, and Consultants Request for Proposals, in FY06 the final draft of the master bidding document for "Plant, Design, Supply, Install" was reviewed by the HoP membership. 51. Harmonization. The HOP harmonization working group also focused on developing a master document for small works and updating the master documents already issued. Considerable progress was also made in the harmonization of procurement policy; following the revision of the World Bank Guidelines in 2004, IADB, Islamic Development Bank (IsDB), Caribbean Development Bank (CDB), and ADB issued their new Guidelines, which are substantially harmonized23 with the Bank's Guidelines. The few areas in which the policies are not harmonized are primarily as a result of each individual IFI's charter, which cannot be reconciled through HoP efforts, only through decisions by the shareholders. The main issue is that of eligibility, and this has been brought to the attention of the shareholders through the senior management of each MDB. 52. HoP Emphasis. Given the significant achievements in terms of policy harmonization and adoption of harmonized master procurement documents, the HoPs emphasis is now on the harmonized implementation of these shared policies. Furthermore, all of the MDBs have committed to increasing their participation in the country procurement assessment process, intended to lead to a more consistent approach to HoP-funded procurement within a national context. 23 The AfDB is working toward issuing its updated guidelines. 17 53. Environmentally and Socially Responsible Procurement (ESRP). ESRP remains an important issue in terms of the HoP members' internal and external operations. In the areas over which the members exercise direct control--internal procedures and polices-- significant gains was made on this front, including the granting and revalidating of ISO 14001 accreditation at a number of facilities. Ways of building greater levels of ESRP into external operations were also actively pursued by the HoP, and new provisions in master and standard bidding documents that build health care and aids prevention and awareness measures into large civil works contracts were incorporated. 54. E-Procurement. In FY06, the HoP continued to develop guidance for its members on e-procurement and prepared internal guidance notes on e-bidding and e-reverse auctions. A study was also commissioned to review 14 national e-procurement systems' investment costs, ownership costs, management, and governance. 55. Governance and Anti-corruption. While each MDB's anticorruption policy remains its own, considerable progress was achieved on agreeing on common definitions of fraud and corrupt practices and draft investigative guidelines. Work continues both within the HoP and outside to bring greater levels of harmonization to this critical aspect of the procurement function. 56. OECD-DAC Joint Venture. Since 2003, the Bank, through the Procurement Anchor, has been an active participant and a co-chair of a joint initiative with the Development Assistance Committee of the Organization for Economic Co-Operation and Development (OECD-DAC) to support development of properly functioning public procurement systems in client countries. This initiative began as the Procurement Roundtable and concluded in 2005 with the delivery of a three-part good practice paper24. In 2006, the Procurement Roundtable initiative was transformed into the Joint Venture for Procurement, which is co- chaired by the Bank. Membership of the Joint Venture for Procurement includes all OECD- DAC member countries, all the MDBs, the United Nations Development Programme (UNDP), the European Commission, and a growing list of partner countries. The first meeting of the Joint Venture for Procurement was held in Manila in February 2006 and resulted in the development of a work program, with the first deliverable being the development of a more robust set of procurement benchmarks and performance indicators, with scoring criteria and implementation guidance. This work was undertaken by a small committee consisting of the OECD-DAC representative, the co-chairs of the Joint Venture, and core staff from the Bank and IADB. 57. The Bank has used various versions of benchmarking indicators of procurement institutional and legal frameworks as part of its dialogue with partner countries when conducting CPARs. The experience gained from more than 20 such exercises conducted was a key contribution to refining these indicators. In June 2006, after consultations with the 24 The paper covered internationally agreed benchmarks for public procurement systems in the areas of capacity development and procurement mainstreaming, and set base-line indicators and compliance/performance indicators to help countries gauge their relative strengths and weaknesses. One key objective was to demonstrate progress of countries in improving their public procurement systems as measured by the benchmarking tool. Following the Paris High-Level Forum and Aid Effectiveness declaration, it was agreed that a procurement benchmarking tool would be developed to help monitor progress against target 2B of the Paris Declaration. 18 broad membership of the OECD-DAC Joint Venture for Procurement, a country-based assessment methodology ("Methodology for the Assessment of National Procurement Systems (version 4.0)" was adopted for testing purposes with partner countries under the Paris Aid Effectiveness declaration that have volunteered to test the methodology. Regional events have been planned for three Regions (Africa, East Asia and Pacific, and Latin America and the Caribbean) to discuss the methodology and provide guidance on how it should be used. The rollout exercise to test the methodology has also started, and it is expected that the results will be reviewed at the next annual meeting of the JV to be held in Copenhagen in September 2007. 58. Capacity Building. The Procurement Sector in FY06 remained very active in capacity-building activities at the project and country levels, focusing on improving client countries' procurement capacity. This work covered both Bank-financed procurement and country public procurement, and was managed through a combination of events and means as described below. 59. AFR. The AFR team regularly conducted procurement clinics and workshops for clients, focusing on investment operations, sector-specific procurement issues, and issues identified through PPRs. Other activities included regional training on the procurement of health goods and contract management. The Bank also offered procurement of goods, works, and consultant services training for client countries through two Anglophone and two Francophone centers,25 with more than 260 participants trained in FY06. 60. EAP. The EAP procurement team in FY06 conducted training programs in Cambodia, China, Indonesia, Lao PDR, Philippines, and Vietnam, ranging from Bank-related procurement to public procurement reforms. In China, for example, through the use of an IDF grant, a complete set of procurement modules was developed based on the Bank's Procurement Policies and Procedures and 11 professors in five local universities were trained to carry out the training programs. This resulted in 10 workshops organized by these institutes for some 500 participants, from the government and private sectors, interested in donor-funded contracts. In Mongolia, an IDF grant was also used for a nationwide training on the country's new procurement laws. 61. ECA. In addition to project-specific training activities, ECA conducted formal training sessions for client officials and Bank operations staff in COs, inviting borrowers and staff from surrounding countries to attend a week-long session covering the basics of training on goods, works, and consultant procurement as well more specific subjects such as information and communications technology (ICT) procurement or Community-Driven Development (CDD) contracting. In FY06, these training sessions were conducted in seven countries.26 In addition, the ECA procurement team conducted four "Business Briefings" in Greece, New York, and Turkey targeting private sector groups that expressed interest in learning more about contracting opportunities in Bank-financed projects in the Region. 25 GIMPA (Ghana Institute of Management and Public Administration) and ESAMI (Eastern and Southern African Management Institute), and CESAG (Centre Africain d'Etudes Supérieures en Gestion) and ISADE (African Institute for Enterprise Development). 26 Armenia, Croatia, Georgia, Kazakhstan, Kyrgyz Republic, Macedonia, and Ukraine. 19 62. LCR. During FY06 in every client country, the LCR procurement team carried out at least one major procurement training event for country officials. Other capacity-related work included a workshop on governance focusing mostly on procurement in Colombia, and workshops on the OECD Baseline Indicator System (BIS) in Bolivia, Chile, Guyana, Mexico, and Paraguay. 63. MNA. The procurement team in MNA provided capacity-building workshops and seminars in Egypt, Iraq, Iran, Lebanon, Morocco, Tunisia, Yemen, and West Bank & Gaza on a range of procurement topics, including Bank- and sector-specific procurement, public procurement reforms, and training of trainers. Furthermore, in close coordination with the Private Sector Development Portal (PSLO) Network, a number of "Business Briefings" were conducted for the private sector parties interested in Bank-financed work. 64. SAR. During the year, the SAR procurement team carried out capacity-building workshops in Afghanistan, Bangladesh, India, Nepal, Pakistan, and Sri Lanka on a range of procurement-related topics, including Client Connection. In Afghanistan, the Government agreed to an extensive capacity-building strategy that would institutionalize a sustainable procurement training system in the country in collaboration with an international training institute, and the Bank conducted training for United Nations Office for Project Services staff on procurement in Bank-financed projects, with special emphasis on procurement of civil works. In India, the Bank supported the creation of an Empowered Procurement Wing of the Ministry of Health and Family Welfare as a capacity-building measure, and the procurement team initiated a dialogue with the National Institute of Financial Management (Faridabad) on creating a national strategy for capacity building. In Pakistan, the Bank initiated consultations with the Chartered Institute of Purchase and Supplies and the Lahore University of Management Sciences to deliver best practice procurement training to government beneficiaries; and in Nepal there was a twinning arrangement between the Nepal National Institute of Financial Management and the Administrative Staff College of India supported by an IDF grant. In Sri Lanka, with support from the Bank, the National Procurement Agency carried out many training programs, including a diploma program in public procurement and contract administration as well as numerous short-term programs for all levels of government officials. 65. Procurement Anchor. The Anchor in FY06 continued its provision of procurement training to Bank operations staff, offering courses in basic and advanced procurement as well as procurement of Goods, Works, and Consulting Services. The Anchor team also participated in the delivery of procurement modules that are included in other training provided for Bank staff, including the Introduction to Bank Operations course. 66. Form 384 Certification. In FY05, Form 384 Certification for staff responsible for operational procurement data entry became a requirement, and in FY06 the success of this initiative became evident with data entry error rates in the 384 Forms dropping to less than 3 percent a month. To this end, during FY06, the Procurement Anchor continued delivering 384 Certification training to Washington-based and country operations staff and assisted the Regional trainers in delivering their own Regional programs. 67. Other Training. Further to the general procurement training program, training materials on e-procurement systems, good procurement practices for health sector goods, and 20 procurement as part of public financial management and good governance were developed. The Anchor also supported the training of clients through cooperation and collaboration with a global network of partner institutions that includes UN and private sector and public sector organizations. This area of support included provision of technical input for the development of training materials and delivery of course modules by staff. 68. Fiduciary Forum. Biennially since FY02, the Financial Management and Procurement Sectors have organized a Fiduciary Forum, an integrated sectorwide event that is followed by an associated learning week. The FY06 Fiduciary Forum was held in November 2005, with the overall theme of Public Financial Management for Greater Development Effectiveness. This event was attended by over 450 participants, including procurement and FM staff from both country offices and Washington, and staff from partner countries and institutions worldwide. The main objectives of the learning week were to provide staff with the latest information in the various spheres of procurement work, including changes in Bank policy, and to enhance the staff skills in their evolving roles on the fiduciary front. IV. PROCUREMENT POLICY, TOOLS, AND INSTITUTIONAL INITIATIVES 69. A key aspect of the work program for the Procurement Anchor is the maintenance of policy, policy-related documents, and tools. During FY06, a number of policy-related documents were updated or issued to reflect the May 2004 changes to the Procurement Guidelines and the Selection of Consultants Guidelines. These included the (a) Sample Bidding Document for Output- and Performance-Based Road Contracts; (b) Master Harmonized Document for Procurement of Plant Design, Supply, and Installation; (c) Draft Master Harmonized Document for Procurement of Small Works; (d) Sample Bidding Document for "Design, Build, Operate" of a Solid Waste Facility; (e) Draft Sample Bidding Document for the Procurement of Management Services; and (f) Operations Memorandum on application of Procurement Guidelines, paragraph 3.13, for cases involving incumbent concessionaires. In addition, the Consulting Services Manual was updated, incorporating the May 2004 changes to the Consultant Guidelines and introducing additional topics including transparency, capacity building, conflict of interest, and emerging practices. 70. Study on Consultants Policy. The Procurement Anchor also initiated a study on the "Effectiveness of Bank Policy on Selection of Consultants," covering a random sample of 120 Bank-funded, borrower-executed consulting contracts that were individually analyzed over the entire selection process. The focus of the study was to prepare guidelines on ways to prevent corruption and promote integrity in the selection and employment of consultants. 71. Procurement Tools. The Procurement Anchor is also responsible for the design, development, and upgrading of a range of systems to facilitate capture and publication of data and monitoring of procurement actions. This work involves coordination with Information Solutions Group (ISG), which supports the technical aspects of systems development and works with a network of staff in the Regions to introduce and train staff on use of the systems. During the fiscal year the following products were developed. · Procurement complaints web-based application. This system was developed and launched Bankwide in November of 2005 and serves as a tracking, monitoring, 21 analyzing, and reporting tool for the whole Procurement Sector and management. The new system is integrated with other systems in the Bank, such as SAP27 and Lotus Notes, and is much more stable, user-friendly, and efficient. New features include documentation to the Bank's IRIS4 system, and predefined reports. The application is consistently being enhanced to address more demands and requirements of fiduciary analysis and reporting. · Module for publication of procurement notices. The module was developed and implemented in FY06. This system gives clients and Bank staff the ability to prepare, manage, and publish procurement notices online at the United Nations Development Business (UNDB) and Development Gateway (dgMarket) sites. This service was initially offered only by dgMarket, but server and customer support issues created demand for a Bank-driven solution. · Contract Awards Module. As an extension of the Client Connection suite of services, work started on the Contract Awards Module and business requirements analysis was completed during FY06. This Module will provide clients secure online tools for publishing contract awards automatically to UNDB and dgMarket. · Private Sector Liaison Officers (PSLO) website. Launched in Europe in 1999, the PSLO is a network of business intermediary organizations (chambers of commerce and industry, business and trade associations, investment promotion agencies) working to foster trade and investment between countries with the support of the Bank's products and services.28 During FY06, the Procurement Anchor designed and implemented a website for the PSLO network,29 where contract award information is made available through a variety of summary and detailed reports for each country with a PSLO representative. · Simplification of Form-384. In an effort to speed up the overall processing of contracts above the prior review threshold, by close of FY06 the simplification of the Form 384 module was completed. Although the business requirements and system programming were completed, deployment has been delayed because of issues in the Anti-Money Laundering (AML) system. Since the AML module is a subsystem of the 384, both applications must be deployed concurrently. · Client Connection procurement pilot. The pilot program provided for online bid creation and administration process and was successfully implemented across all Regions. However, the survey results showed that because of a series of issues with the use of the system (mainly the speed of connectivity, reliability, and problems with intra-system compatibility), borrowers and Bank staff have little or no interest in using the system as is. 27 Systems, Applications, and Products. 28 The network facilitates local companies' access to Bank business opportunities, services, and knowledge, and acts as the voice of their national private sector in advising the Bank on how to better engage companies on development issues. 29 The site is also available to the public. 22 · Red Book. During FY06, the yearly contract award publication (Red Book) was transferred online with a revised format and its paper publication was discontinued. 72. Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT). In reference to sanction control for operational procurement, in FY06 OPCS was asked by the Controllers, Strategy, Resource Management Vice Presidency (CSRVP) to develop a screening system that would give task teams a cross-reference check of the supplier list in the SAP 384 module against the UN Security Council Resolution 1267 and other available AML/CFT lists before issuing their no-objections to contract awards30. Under the current Bank procurement policy a firm may be ineligible and excluded from Bank-financed operations either as part of compliance with a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations, or if the client country's laws prohibits trade with the firm's country. V. STAFFING 73. Overall, the Procurement Sector staff resources in FY06 numbered 195 (two fewer than in FY05), with 92 staff stationed in Washington and 103 in country offices. This distribution represents an increase in the decentralization, with 53 percent of procurement staff now stationed in COs. The high level of procurement demands in COs was also addressed through further delegation of procurement authority to COs and decentralization of 4 internationally recruited staff (IRS). This represented 22 percent of total IRS procurement staff and an overall increase of 4 percent compared to FY05. There also was a change in composition of the staff: the percentage of female senior staff (GG/GH level) increased from 42 percent in FY04 to 53 percent in FY06. Table 5 below presents the FY06 procurement staff by Unit and Grade. Table 5. FY06 Procurement Staffing by Grade and Region/Unit Grade\Region AFR EAP ECA LCR LEG MNA OPC SAR Total GD 7 7 6 1 - 1 - 2 24 GE 13 5 8 10 - 1 2 6 45 GF 11 9 7 5 - 4 1 2 39 GG 14 14 11 5 1 7 2 13 67 GH 2 3 3 2 1 2 3 2 18 GI 1 1 UC 1 1 Total 47 38 35 23 2 15 10 25 195 74. Balancing Needs and Resources. In FY06, the Procurement Sector lost four additional GH level senior and experienced procurement staff due to retirement and this trend is expected to somehow continue in the coming years. The Procurement Anchor was particularly affected in this regard in FY06. This placed additional strain on the Procurement 30 An AML check through the SAP testing platform that included checking all 118,151 suppliers and firms in the Bank databases resulted in 147 AML alerts, of which only 4 required due diligence to determine ineligibility. These 4 alerts were mostly associated with older contracts, dating as far back as 1991. 23 Sector in meeting increasing client demands but also brought opportunities. The Sector focused in particular on enhancing its presence in the field and hiring local staff and/or decentralizing the HQ staff. This effort in FY06 resulted in 53 percent of professional level (GE+) procurement staff stationed in Country Offices (COs)31 including 22 percent of the senior Internationally Recruited Staff (IRS). The continued high level of demand for procurement support in COs was further met by an increase in CO delegation of procurement clearance authority. With continued loss of senior staff, enhancement of the skills of new procurement staff is a high priority for the Sector; however, the high work volume, shortage of resources, and the quality of courses for procurement staff have caused shortcomings in this area that require further attention. 75. With the addition of new staff to the Procurement Anchor, work has begun on defining an intensive capacity-development program for procurement staff. This program will focus not only on basic skill improvement and maintenance, but importantly, will address skills needed to implement the sector's emerging strategy. The Procurement Sector is also working with the HR support team to agree on a sectorwide strategy for management of staff and for a longer-term strategy for identification of a pipeline of staff with potential and adequate skills to cover the broad range of activities. In this regard, one consideration is the use of the Bank's Young Professionals program to bring new staff into the Sector. VI. NEW INITIATIVES 76. Many of the issues seen in FY05 and FY06 have led to new initiatives that will form the core of the Procurement Sector strategy for the coming years. The Procurement Anchor discussed defining a new strategy in a retreat held at the end of FY06, and agreed that this should be the subject of a Procurement Sector Board retreat in FY07. Although this new strategy is just emerging, the following paragraphs summarize some elements that are currently recognized as being of importance. 77. Identifying Risk. With regard to fiduciary and compliance work in the Bank, much more attention needs to be given to the identification of risk, especially with regard to including improved anticorruption measures in project design. Under the guidance of SAR, the Procurement Sector also worked on development of a dynamic risk model system and started to pilot the model prepared by the working group initially set up by the Anchor. The system would measure projects' risk levels based on a combination of factors, including previous Bank work in the sector and country. It will draw on methods that are being employed in several of the Regions, including ECA and LCR. 78. Rapid Response. During FY06, work begun on development of a new rapid response policy. The Procurement Sector contributed to the development of this new policy, which has many implications for the Sector in supporting rapid response to critical situations in our client countries. The Procurement Sector will work to prepare implementation guidance for staff, develop new procurement tools to support the policy, and work with other contributing 3179 GE+ staff stationed in Washington and 90 in country offices (COs). 24 units in the Bank to ensure that this new policy will provide the flexible and timely procurement services required. 79. Governance. The Bank has embarked on an aggressive program to further strengthen its governance and anticorruption work. Procurement is a key element in the Bank's ability to impact governance and anticorruption at the project level. Procurement staff are actively involved at the project, country, and Regional levels to design and implement measures that will help improve governance and reduce the potential for corruption, as a contribution to implementation of the recently approved Bankwide governance and anticorruption strategy. 80. Payments. The Procurement Sector is working closely with the Financial Management Sector to identify issues related to poor payment practices under Bank-financed projects. This initiative will involve an increased assessment of country financial management systems and analysis of the country's record with regard to payment. This new emphasis on payments is a result of a growing awareness that payment issues increase the cost of doing business in a country and can have a negative impact on competition and business relations. 81. Country Services. With regard to country services, the Procurement Sector will continue to foster more flexible responses to a demand-driven approach to economic and sector work and to support client country systems in meeting the core principles of transparency, accountability, and fairness. This will involve revising the current Country Procurement Assessment Report (CPAR) guidance and providing additional focus on capturing and sharing of knowledge with staff on new tools and methods being employed at the country level to improve effectiveness. Of particular importance is the growing use of the OECD-DAC benchmarking indicators. These internationally agreed benchmarks provide a tool to help client countries determine their public procurement systems' relative strengths and weaknesses, and they provide the means for measuring progress on reforms. In the coming years, the Sector will expand its use of the OECD-DAC indicators for assessment and measurement of progress on reforms in client countries. Another key element of the strategy at the country level is to continue to encourage the expanded use of technology to support procurement. This will involve continued support to developing e-GP systems and the sharing of cross-country experiences. 82. Country Systems. As the Bank moves toward reaching a decision on an increased reliance on country systems, including in procurement, the above-captioned areas are critical to implementing the Bank's initiative and these efforts will take center stage. The assessment of country procurement systems on the basis of an analysis of institutional and legal framework and procedures, the monitoring of performance indicators, and equivalence with Bank standards were key elements of the Bank's initial proposal to the Board in March 2005 for increasing reliance on country procurement systems. At the request of the Board, this paper was posted on an external website for a period of six weeks to encourage submission of comments by interested stakeholders. The Bank held subsequent consultations throughout FY06 with stakeholders that expressed concern about the methodology defined in the paper, including a tour of European countries and several meetings with the US industry. 25 As a result of those extensive consultations and remaining concerns by some stakeholders, the paper was withdrawn in May 200632. 83. Electronic Government Procurement. Another key element of the strategy at the country level is to continue to encourage the expanded use of technology to support procurement. This will involve continued support to developing e-GP systems and the sharing of cross-country experiences. These areas are critical to implementing the Bank's initiative to increase its reliance on country systems, including procurement systems. 84. Trust Fund Partnerships. The Bank is responding to the growing demand for harmonization at the country level and for providing good service in countries with difficult working environments by participating in a growing number of trust funds with other donors. These funds vary in nature, but all require a solid fiduciary framework. The Procurement Sector will work closely with development partners, including the United Nations, to provide a procurement umbrella framework agreement that will be coupled with the existing financial management umbrella agreement to simplify working with a broad number of partners and ensure a continuation of strong fiduciary coverage for these trust funds. 85. System Development: Post Reviews. The Procurement Anchor has established a working group that is developing the template for a system to capture data from post-review reports. This information will enable the Sector to learn from good practices and to design capacity development activities that will help staff and client countries implement better procurement practices. 32 Subsequent to this report, taking into account the input received from the various stakeholders, a new initiative was developed by the management in FY07. Annex A FY06 FIDUCIARY COMPLIANCE Figure A1. FY06 Lending Volume by Region SAR MNA 10% 6% AFR 26% EAP 13% LCR ECA 23% 22% AFR ECA LCR EAP SAR MNA Table A1. FY06 Ten Largest IBRD/IDA Borrowers IBRD / IDA Share of Total Country Commitment IBRD / IDA Amount ($M) Commitments Mexico 1,793 7.6% Brazil 1,676 7.1% Turkey 1,526 6.5% Pakistan 1,498 6.4% China 1,454 6.2% India 1,416 6.0% Argentina 785 3.3% Egypt, Arab Rep 780 3.3% Vietnam 768 3.3% Tanzania 751 3.2% Total 12,446 52.8% Figure A2. FY02-FY06 Bankwide Prior Review Contracts Procurement Prior Review Contracts by Number and Amount FY02 - FY06 9,500 9,000 8,000 9,000 7,000 n actr 8,500 6,000 illio M$ 5,000 8,000 4,000 ntoCfo US 7,500 3,000 ber 2,000 m 7,000 Nu 1,000 6,500 0 2002 2003 2004 2005 2006 Amount (US$ M) 7,548 7,578 8,481 8,964 7,478 Number 8,025 8,233 8,301 8,145 6,757 Annex A 28 Figure A3. FY02-FY06 Prior Review Contract Awards by Region Prior Review Contract Awards Amount by Region (FY02 - FY06) 10,000 9,000 8,000 1,896 1,579 7,000 1,660 1,328 1,625 SAR n 817 989 6,000 MNA 413 408 699 illioM 1,277 5,000 1,157 856 1,712 961 LCR 1,014 1,155 US$ 4,000 1,090 1,080 1,290 ECA 3,000 2,238 1,565 1,807 1,368 EAP 2,000 2,333 1,000 1,729 1,839 AFR 895 1,436 1,833 0 2002 2003 2004 2005 2006 Fiscal Year AFR EAP ECA LCR MNA SAR Table A2. Top Ten Supplier Countries by Major Bank-Financed Contracts, 2002 to 2006 2002 2003 2004 2005 2006 China China China China China India India India India India Brazil Germany Brazil Argentina Brazil UN France Organizations Lebanon Egypt Germany UN UN UN Organizations Turkey Organizations Organizations Russia Germany Brazil Argentina France France United Kingdom Bangladesh Germany Germany Denmark United Vietnam Kingdom France Russia Pakistan Russia France Mexico Mexico Turkey United United States United States Kingdom Brazil Vietnam Percentage of Total 59 57 56 60 56 29 Annex A Figure A4. OPRC Cases by Contract Type, FY03-06 OPRC Review Cases by Contract Type FY03 - FY06 Consultants, 14, 6% Other, 15, 6% Goods, 16, 6% Works, 138, Supply & 55% Installation, 56, 22% Table A3. Independent Procurement Review Trends, FY02-06 Comparison of Independent Procurement Review Coverage (FY02 -- FY06) Item \ Fiscal Year FY02 FY03 FY04 FY05 FY06 Number of Countries in portfolio 133 133 133 129 125 Number of Countries reviewed 15 17 14 14 24 Number of projects reviewed 94 83 45 50 70 Number of contracts reviewed 1485 1563 n/a n/a 1385 Coverage (Percentage of number of reviewed country by number of country in portfolio) 11% 13% 11% 11% 19% Table A4. Procurement Post-Review Trends by Region, FY02-06 Percentage of Procurement Post Review FY02 - FY06 FY\Region AFR EAP ECA LCR MNA SAR Bank-wide FY02 45% 75% 74% 45% 50% 65% 57% FY03 49% 88% 59% 33% 25% 63% 53% FY04 53% 88% 79% 62% 57% 37% 63% FY05 41% 86% 93% 47% 54% 36% 60% FY06 79% 54% 74% 98% 53% 96% 78% Annex B FY06 MISPROCUREMENT CASES Table B1. Misprocurement Declared (July 1, 2005 - June 30, 2006) Contract Region Country Project Name No. of Value How Contract (USD Identified* equivalent) AFR Madagascar Transport Sector Reform and Rehabilitation 4 $131,150 IPR Madagascar Rural Transport Project 5 $134,951 IPR Madagascar Transport Infrastructure Investment Project 3 $58,000 IPR Rwanda Human Resources Post Review and Development Credit 21 $1,557,049 Supervision Competitiveness and Rwanda Enterprise Development 2 $120,045 IPR Project EAP Cambodia Rural Investment and Local Governance 6 $36,853 Post Review Forest Concession Cambodia Management and Control 1 $147,168 Complaint/ INT Pilot Project Investigation Cambodia Flood Emergency Review, INT Rehabilitation 9 $2,083,855 Investigation Cambodia Provincial and Peri-Urban Review, INT Water and Sanitation 7 $1,849,248 Investigation Cambodia Land Management and Review, INT Administration 17 $761,799 Investigation Cambodia Provincial and Rural Review, INT Infrastructure 6 $5,638,913 Investigation Cambodia Agriculture Productivity Review, INT Improvement 4 $1,846,474 Investigation Indonesia Sumatra Region Roads Project 32 $6,216,542 Post Review Indonesia Proposed Strategic Road Complaint/ INT Infrastructure 1 $2,046,156 Investigation Indonesia TF52415 1 $1,124,594 Complaint/ INT Investigation Indonesia EIRTP (LN4643) 2 $3,137,913 INT ECA Poland Poland: Hard Coal Mine Closure Project 1 $4,533,901 Supervision LCR Nicaragua Rural Electrification 1 $2,050,500 Supervision MNA No misprocurement n/a n/a n/a SAR Bangladesh Municipal Service Project 8 $500,776 IPR Prior Review of Bangladesh Municipal Service Project 1 $172,569 Bid evaluation report Prior review Bangladesh Private Sector Infra. Dev. following Project 14 $36,400,000 complaint and INT investigation. Annex B 32 Contract Region Country Project Name No. of Value How Contract (USD Identified* equivalent) Bangladesh Health & Population Program Project 3 $38,275 IPR Government Bangladesh National Nutrition Project 3 $311,060 Audit & Bank Review SriLanka Tsunbamani Emergency Reconstruction Project 1 $150,000 Post review Total 9 24 153 $71,047,791 Annex C COMPLAINTS Table C1. FY06 Complaints by Nature and Rank Nature of Complaints Number Percent of of Cases Total Qualification of Other Firm 47 12 Disqualification of Bid 43 11 Application of Evaluation Criteria 41 11 Allegation of Fraud and Corruption 37 10 Quality of Bidding Document 32 8 Technical Evaluation 31 8 Irregularity before Bid Opening 19 5 Payment 19 5 Combined Financial and Technical Rating 17 4 Contract Administration 17 4 Eligibility 9 2 Irregularity in the evaluation/selection process 9 2 Prequalification 8 2 Short List 7 2 Bid Security 5 1 Late Bid Submission 4 1 Own qualification issue 4 1 Cancellation of tender 4 1 Disagree with evaluation result 4 1 Conflict of interest 3 1 Irregularity in contract award 3 1 non-complaint 2 1 Domestic Preference 2 1 Issue involving Bank staff 1 0 Irregularity in the procurement procedure 1 0 Other 3 1 unclear explanation 16 5 Total 388 100 Table C2. FY06 Complaints Resolution Resolution Number of Percent of Cases Total Bank Upheld Borrower's Decision 115 30 Complaint Invalidated 60 15 Bank Validated Complaint ­ Borrower Agreed 34 9 Complaint Dropped by Complainant 26 7 Case forwarded to INT 19 5 Case Inactivated 12 3 Cancellation 10 3 Annex C 34 Resolution Number of Percent of Cases Total Re-bidding 10 3 Contract administration 3 1 Bank Validated Complaint ­ Borrower Disagreed 2 1 Bank Validated Complaint ­ No response from the Borrower 1 0 Case was re-opened 1 0 Contract Terminated 1 0 Non-complaint 1 0 Payment Issue Resolved 1 0 Post review contract* 21 5 Other 23 5 Pending cases 48 12 Total 388 100 *SAR did not record the resolution of complaints related to post reviews. Table C3. FY06 Complaints Forwarded to INT Complaints Forwarded to INT in FY06 Borrower Country Number India 8 Vietnam 3 China 2 Nigeria 2 Bangladesh 1 Cameroon 1 Chad 1 El Salvador 1 Total 19 Annex D FY06 ESW REPORTS Table D1. Procurement ESW Report Delivered in FY06 Date Region Country Project Name Report Type Delivered to Client Country Financial Guinea- Accountability 29-Jun- AFR Bissau GW-CFAA (FY06) Assessment (CFAA) 06 PEIR/CPAR & FLWP Integrative Fiduciary 30-Nov- ECA Kazakhstan (JERP) Assessment (IFA) 05 State Level.-Improve. Fiscal Transport &Admin. Integrative Fiduciary 31-Mar- LCR Mexico Performance Assessment (IFA) 06 PANAMA Integrative Fiduciary 31-Mar- Panama CFAA/CPAR (joint) Assessment (IFA) 06 Country Procurement 30-Dec- Uruguay UY CPAR Assessment (CPAR) 05 Operation 19-Jun- MNA Lebanon Lebanon OPR Procurement Review 06 AF Public Finance Integrative Fiduciary 28-Nov- SAR Afghanistan Management Review Assessment (IFA) 05 Bangladesh Public 23-Jun- Bangladesh Expenditure Policy Notes PFM 06 16-Dec- India India ­ Rajasthan FAA FAA 05 Annex E PROCUREMENT STAFF TRENDS Table E1. Procurement Resources by Region and Location, FY04-06 Procurement Staffing by Appointment Type Fiscal Year FY04 FY05 FY06 CO HQ CO HQ CO HQ Region\Location Appt Appt Appt Appt Appt Appt AFR 29 18 28 17 31 16 EAP 23 9 27 11 26 12 ECA 13 27 13 24 13 22 LCR 8 21 10 16 9 14 LEG - 2 - 2 - 2 MNA 2 10 5 10 5 10 OPC - 12 - 12 - 10 SAR 16 3 18 4 19 6 Total 91 102 101 96 103 92 Grant Total 193 197 195 Figure E1. Procurement Staff Trends by Location Trends of Procurement Staff by Appointment Type f 105 103 af 102 101 St 100 of 95 96 erb 91 muN 90 92 85 FY04 FY05 FY06 CO Appt HQ Appt