Report No. 24144-BD Bangladesh Country Procurement Assessment Report May 11, 2002 Procurement Services South Asia Region Document of the World Bank Acronyms and Abbreviations APD Academy for Planning and Development APEC Asia Pacific Economic Cooperation CAG Comptroller and Auditor General CGFR Compilation of General Financial Rules CPFA Country Profile of Financial Accountability ERD External Relations Division (Ministry of Finance) GOB Government of Bangladesh ICB International Competitive Bidding IFI International financial institution IMED Implementation Monitoring and Evaluation Division (Ministry of Planning) ISO International Standards Organization NCB National Competitive Bidding PP Project Proforma PWD Public Works Department SBD Standard Bidding Documents TA Technical assistance TAPP Technical Assistance Project Proforna UNCITRAL United Nations Commission for International Trade Law UNDP United Nations Development Programme Vice President: Mieko Nishimizu, SARVP Country Director: Frederick Thomas Temple, SACBD Task Team Leader: Zafrul Islam, SARPS Table of Contents Acronyms and Abbreviations VOLUME I: SUMMARY AND RECOMMENDATIONS ........................................... 1 1. BANGLADESH AND ITS POLITICAL SYSTEM .................................................................. 3 2. THE PUBLIC PROCUREMENT REGIME ........................................................................... 3 2.1 Legal and Regulatory Framework ............................................................ 3 2.2 Volume and Handling of Public Procurement ...................................................... 3 2.3 Overview of Procedures and Practices ........................................................... 4 2.4 Issues and Possible Solutions .................... ........................................ 5 2.4.1 Delays .............................................................................. 5 2.4.2 Local Procurement of Works and Goods under Local Budget ........ .............. 6 2.4.3 Selection of Consultants .............................................................................. 7 2.4.4 Transparency and Public Confidence ......................... ................................... 7 2.4.5 Manpower and Skills ............................................................ 8 3. EXPENDITURE CONTROL AND STATUTORY AUDIT .................... ................................... 9 4. THE PRIVATE SECTOR AND THE BUSINESS COMMUNITY ............................................ 10 5. CORRUPTION .............................................................................. 10 6. RECOMMENDATIONS .............................................................................. 1l 6.1 Strategic Approach ........................................................... 11 6.2 Actions for the Government ................... ......................................... 11 6.3 Recommendations for the Bank, Other International Financial Institutions (IFIs), and Donors ........................................................... 12 6.4 Timetable ........................................................... 13 6.5 Technical Assistance by the World Bank and Other IFIs ................................... 13 6.6 Coordination with Other Donors ........................................................... 13 7. APPROVAL OF THE CPAR BY THE GOVERNMENT OF BANGLADESH ........................... 13 ATTACHMENT 1. ACCEPTABILITY CRITERIA FOR NATIONAL COMPETITIVE BIDDING .... 15 ATTACHMENT 2. RECOMMENDATIONS-PHASING OVER FIVE YEARS ......... .................. 17 ATTACHMENT 3. DETAILS OF RECOMMENDED TRAINING COURSES .......... .................... 18 VOLUME II: FINDINGS AND ANALYSES ............................................................ 19 THE COUNTRY, GOVERNMENT AND POLITICAL STRUCTURE ............ ............................. 21 LEGAL FRAMEWORK-AUTHORITY OF EXECUTIVE TO CONTRACT .......... ..................... 21 ALLOCATION OF FUNCTIONS TO MINISTRIES, DEPARTMENTS, AND AGENCIES HANDLING GOVERNMENT ........................................................................... 22 KEY MINISTRY RESPONSIBLE FOR MAKING POLICIES IN PROCUREMENT ....................... 23 THE MINISTRIES AND DIVISIONS THAT HANDLE CENTRALIZED PROCUREMENT ............ 23 PUBLIC UNDERTAKINGS ........................................................................... 24 THE CABINET COMMITTEE ON GOVERNMENT PURCHASE ............... ............................... 25 THE DELEGATION OF POWERS . ........................................................................... 26 VOLUME OF PROCUREMENT BUDGET ........................................................ 27 PROCUREMENT PROCEDURES AND PRACTICES OF MINISTRIES, PUBLIC SECTOR CORPORATIONS, AND BODIES ........................................................ 28 Procurement Planning ........................................................ 30 Import Policy ......................................................... 31 Bidding Document ........................................................ 31 Preparation of Technical Specifications ........................................................ 33 Types of Contracts ........................................................ 33 Price Adjustment ........................................................ 33 Notification and Advertisement ........................................................ 34 Prebid Conference ........................................................ 35 Submission and Opening of Bids ................. ....................................... 35 Preliminary Examination of Bids ........................................................ 35 Evaluation of Bids ........................................................ 36 Bid Security ........................................................ 36 Performance Security ........................................................ 37 Domestic and Regional Preference ..................... ................................... 37 Prequalifi cation of Bidders ........................................................ 37 Bid Validity ........................................................ 38 Approval of Bid Evaluation ........................................................ 38 Award of Contract ........................................................ 38 Opening of L/C ........................................................ 38 Insurance ........................................................ 38 Transportation ........................................................ 40 Inspection ........................................................ 40 Delivery and Completion ........................................................ 40 Two-Stage, Two-Envelope Bidding Procedure ........................................................ 41 Repeat Order ........................................................ 41 Settlement of Disputes ........................................................ 41 Time Limits ........................................................ 41 PROCUREMENT OF CIVIL WORKS ........................................................ 42 PUBLIC SECTOR APPOINTMENT OF CONSULTANT ........................................................ 43 PROCUREMENT PROCESS ........................................................ 46 ANALYSIS ........................................................ 48 DEFICIENCIES AND WEAKNESSES ........................................................ 50 ORGANIZATION AND RESOURCES ........................................................ 56 PUBLIC SECTOR MANAGEMENT PERFORMANCE ........................................................ 59 PERFORMANCE OF BANK-ASSISTED PROJECTS ........................................................ 61 COMMERCIAL REGULATIONS ........................................................ 63 Commercial Practices by Private Sector ........................................................ 63 Private Sector Industries ........................................................ 64 AUDIT AND ANTI CORRUPTION MEASURES .................................... .................... 65 Audit ........................................................ 65 Corruption ........................................................ 66 SUMMARY AND CONCLUSION ........................................................ 69 Volume I: Summary and Recommendations November 1999 (Revised June and September 2000, May 2001 and May 2002) 1 2 1. Bangladesh and Its Political System Bangladesh is a unitary democratic republic with a written constitution. The president is the head of state. The government is modeled on the British parliamentary system. The national assembly comprises elected representatives who in turn elect a president. The majority party elects a leader who is invited by the president to form the government under his or her prime ministership. The country follows the common law system, such as is found in Australia, Canada, India, and the United Kingdom. The major political parties are the Awami League, the Bangladesh National Party, the Jatiya Party, and the Jamal-e-Islami Party. Since 1996, the Awami league has been in power. The judiciary is independent of the executive branch of government. 2. The Public Procurement Regime 2.1 Legal and Regulatory Framework The constitution has no direct provision bearing on public procurement. Neither is there is any procurement law or decree. The public procurement procedures and practices have evolved over the years from the days of British and subsequently Pakistani rule. A Compilation of General Financial Rules (CGFR) originally issued under British rule was slightly revised in 1951 under Pakistani rule and was reissued in 1994 and again in June 1999 with very few changes. The CGFR, inter alia, outlines broad, general principles for government contracts to follow, leaving it to the departments to frame detailed rules and procedures for their respective procurements. It also refers to the Manual of Office Procedure (Purchase) compiled by the Department of Supply and Inspection as the guide for the purchase of goods and the Public Works Department (PWD) code as the guide for works. Both date back to the 1930s and have not undergone any revision worthy of mention. The CGFR also refers to the Economic Relations Division (ERD) Guidelines issued in 1992, modeled on World Bank Procurement Guidelines at the time, for procurement in externally funded projects, with the proviso that the loan conditions would prevail in case of conflict. Since independence in 1971, the public procurement practices have been influenced by the World Bank, the Asian Development Bank, and other donors since the bulk of public procurement is externally funded. Some departments, autonomous boards, and public undertakings have drafted their own set of procedures or a manual, and the rest follow the PWD code. 2.2 Volume and Handling of Public Procurement The annual volume of public procurement is around $3 billion, out of which about $2 billion is externally funded. The central ministries handle very little procurement, essentially foodstuffs, printing, and stationery. The departments under the ministries, such as the Public Works, Roads and Highways, and Local Government Engineering Departments, handle works in their respective sectors. The major share of public procurement is handled by the public sector corporations and semiautonomous bodies such as the Water Development Board, Rural Electrification Board, Dhaka Electric Supply Authority, Dhaka Water and Sewerage Authority (WASA), Port Authorities etc. The authority to award contracts delegated to them is very low, however; even the largest of them can approve only contracts under $2.0 million equivalent-the vast majority 3 under $1.0 million. For all larger contracts, the proposal must go to the ministry or, if the contract is worth more than $5.million equivalent, to the cabinet committee through the ministry for approval of contract award. A substantial amount of procurement is carried out by major Govermment Departments, such as, Roads and Highways Department, Bangladesh Railway, Local Government Engineering Department (LGED), Telephone and Telegraph (T&T) Board, Directorate of Health Services, Directorate of Education, etc. 2.3 Overview of Procedures and Practices Each government agency and public sector corporation or board has its own set of procedures. By and large, they follow the open bid system-which includes public advertisement in the press, prequalification if appropriate, formal bidding and contract documents, bid and performance securities, public bid opening, evaluation of bids, and award to the lowest (evaluated) bidder-generally along the lines of the World Bank Guidelines for International Competitive Bidding (ICB). No major conflict exists between the government procedures and Bank Procurement Guidelines. Besides, the majority of public procurement is, externally funded which follows the procedures mandated by the development partner. The actual implementation of the procurements is very uneven, however. Barring some exceptions, the process is far from satisfactory, and substantial delays occur in most of the procurements. Some of the unsatisfactory features include the following: * poor advertisement, * a short bidding period, * poor specifications, * nondisclosure of selection criteria, * award of contract by lottery, * one-sided contract documents, * negotiation with all bidders, * rebidding without adequate grounds, * other miscellaneous irregularities, and * corruption and outside influence. Procurement in Bank projects use Bank-mandated Standard Bidding Documents (SBDs) for ICB and Bank-cleared SBDs for National Competitive Bidding (NCB) and are closely supervised. The competition and quality of the procurement are superior. There is room for improvement, however, in technical specifications, the prequalification process, evaluation criteria, and so forth. The review and approval procedures within the government are the same, to which we have to add the Bank review procedures. Hence, the delays are not very different. In August 1998, the Country Director wrote to the government urging it to streamline the procurement process and to make the process more efficient. More recently, the Bank has introduced in its credit agreements, a set of requirements for acceptability of NCB procedures, to ensure that the unacceptable practices do not occur in Bank-funded procurements (see Attachment 1). 4 2.4 Issues and Possible Solutions 2.4.1 Delays The single most serious malady is the delay in the procurement process, which cuts across sectors, ministries, and parastatals, and which occurs in local and externally funded procurements (see box). Delays in procurement results in higher costs, delayed benefits, nonparticipation of good firms, and increased scope for corruption. Delays also generate more complaints, more contentions, and more points of view. Delays make decisions more difficult, which often causes rebidding and further delays. Delays are particularly acute in the selection of consultants. In many cases processing time exceeds two years. Elapsed number of days from bid invitation to contract award for 148 cases of procurement in fiscal 1997-98 as reported by IMED. The normal time allowed is 150 days. Number of contracts Elapsed days Goods Works Consultants Total 60 2 3 0 5 120 1 5 1 7 240 12 12 7 31 360 14 24 3 41 500 10 12 4 26 700 8 6 4 18 900 5 6 1 12 1,100 6 0 2 2 Total contracts 58 68 22 148 The Implementation Monitoring and Evaluation Division (IMED) of the Ministry of Planning in its annual reviews has repeatedly highlighted this problem of delays and made a number of recommendations some of which have been addressed. However the situation has not improved much. Delays continue to exist in the evaluation process and in the approval process.' Delays in evaluation within the department, autonomous bodies , or the corporation are caused by one or more of the following: * absence of planning, * poor technical specifications and consequent clarification process, * vague evaluation criteria, * poor bidding documents, * lack of professional competence in evaluation committees, * multiple committees, * layering of the review process, and * the requirement to revise the Project Proforma (PP) and the Technical Assistance Project Proforma (TAPP) if prices are above estimates. 5 The solutions are obvious. The staff needs training in writing specifications for competitive bidding, which is not taught in universities. Every department or parastatal should develop and publish standard specifications for repetitively purchased items in consultation with premier manufacturers. Only staff competent in the sector or item should be included in evaluation committee, besides the institutional representatives from Finance, Legal, and the like. There should be only one evaluation committee, and it should send its evaluation report straight to the approving authority or the head of department or board of directors, if the contract needs ministry or cabinet committee approval The rule that the awarded price cannot exceed the estimate stated in the PP or TAPP causes substantial delay. Some departments call the low bidder and force him to accept the PP price. Departments and corporations may be allowed to accept unit prices above the one stated in the PP, but should not exceed the overall budget for the project provided that good reasons exist and are explained in the evaluation report. The second part of the delay is in the approval process, which is primarily in the ministry, for contracts that are beyond the powers of the department, corporation, or autonomous board. Because of the poor delegation of authority ($2.0 million even for the largest autonomous corporation like Petrobangla), many contracts belong to this group. The papers pass through the assistant, deputy, joint, and additional and (principal) secretaries, and sometimes through interministerial committees. The process adds on average 6 to 12 months or more-without any value added in most cases. The very purpose of setting up a public corporation or autonomous board specialized in its field is lost by such poor delegation of authority to contract. First, there is an urgent need to revise the delegation of authority (an IMED recommendation) to the autonomous public corporations, as well as to department heads and project directors. Second, the proposal should go to the ministry only at the award stage and not at every step (for example, prequalification, bidding documents, and short list of consultants). Third, when a proposal has to go to the ministry, the ministry should be given, not more than 30 days to process the approval of the minister or the cabinet committee. Bureaucracy tends to take a decision only when it cannot be postponed any further. Keeping this in mind, the World Bank and other donor agencies should apply a time limit, that is, a cutoff date for award of each contract and for the project as a whole, failing which the funds should lapse. Such a step would automatically bring discipline and a sense of urgency to the process. 2.4.2 Local Procurement of Works and Goods under Local Budget The procedures and documents for the local procurement of small works are archaic. Though the invitation permits submission of bids until the closing date, in actual practice the contractor submits the bid only on the last day, a procedure acquiesced to by the contractors. Because local contractors forcibly prevent outsiders from submitting bids, 6 bids are accepted in multiple locations. The bids are then transported to one location for public opening attended by local bidders. Bidders are invited to quote a percentage over or under the predisclosed departmental estimate of unit prices with a proviso that bids less than minus 5 percent will be rejected outright. This results in every contractor quoting minus 5 percent and then the contract is awarded by lottery. The date of lottery is predisclosed in the bid invitation, which anticipates all of the above. On top of this, there is no verification of the capacity of the lottery winner to perform as long as the bidder is on the approved list, which is heavily subject to outside influence. The contract document used, form 2911, was initially drafted in 1932 or so. It has hardly undergone any improvement and is an anachronism. Similarly, the local procurement of goods under local budget follows form 2908, which dates back to the 1930s. These are the procedures and documents that are followed by all local administrations across the country. The whole system needs review and substantial improvement. In fact, the Roads and Highways Department and the Local Government Engineering Department (LGED) have taken the initiative to draft a new document. 2.4.3 Selection of Consultants The selection of consultants suffers the worst delays. The powers delegated to the departments and autonomous boards are very low, and most cases (any contract above $200,000.equivalent) must go to the ministry. Many committees exist within the department, as well as the ministry, and every step in the selection process must go through the whole route, each committee often overturning the lower committee's evaluation. Most committee members lack expertise in the sector and subject of the assignment, as well as an understanding of the selection process. It is reported that the process is subject to outside influence and pressure. The report on Government Malpractices makes special mention of extensive corruption in consultant hiring. Many even within the government suggest that the lender or donor select the consultant, which will eliminate the delays and corruption. This is contrary, however, to the current policy in which the Borrower is responsible. Even donors, such as the United Nations Development Programme (UNDP), wish to transfer responsibility for selection to the beneficiary to get ownership. The recommendations elsewhere to cut down on layers, nominate the right persons in committees, and delegate powers much more equally apply here. In addition, it is recommended that an outsider of technical proficiency and probity be included in the evaluation committee. This will restore confidence in the selection process, which is absent today. 2.4.4 Transparency and Public Confidence There is a general distrust of public procurement, which is the result of many factors. No central authority or document exists that lays down policy and procedures in public procurement. When the PWD, with the approval of its ministry, decides to award contracts by lottery, the contractors must accept the procedure without question. No procurement law or regulation states what the acceptable procedures are. Each department, public corporation, and board has its own internal documents outlining its procurement procedures or the archaic codes and procedures. 7 If a public procurement law were to be adopted along the lines of the model law issued by the United Nations Commission for International Trade Law (UNCITRAL) or a simplified one embodying the principles, supplemented by a set of public procurement regulations and standard bidding documents, it will eliminate ad hoc procedures and enhance the confidence of the business community and the public in public procurement.. The procurement law or, in its absence, the Public Procurement Rules should provide a credible review or challenge procedure to bidders who have a grievance on the contract award. Such a review authority should be an independent agency and not the next higher level or the secretary of the concerned ministry. The UNCITRAL model law provides guidance on setting up the review committee and review procedures. This step will encourage strict observance of the applicable rules by the evaluation committees and at the same time 1 contribute to public confidence, particularly of the business community, which will result in better competition and better prices. A central unit needs to be responsible for fonnulating the procurement law, policies, the public procurement rules and procedures, and standard bidding and contract documents. The Department of Supply and Inspection and the PWD, which at one time had a lead role, have lost their authority and clout as their own share of procurement has dwindled to insignificant levels. Besides, the central policy unit should only be a policy and oversight agency and should not have purchasing or contracting functions. The importance of creating such a central unit will be felt more as the country seeks membership in international agreements, such as the Government Procurement Agreement of the World Trade Organization and other trade groups similar to the Asia Pacific Economic Cooperation (APEC) group, which has adopted common guiding principles for government procurement. The unit may be located in an appropriate ministry such as Finance or Planning. 2.4.5 Manpower and Skills In general, the education level of public servants is high. Procurement, however, is not taught in universities; rather, it is learned mainly through experience or special training. By and large, the majority of working level staff lack training in national and international public procurement objectives, concepts, rationale for procedures, and ethics. Members of evaluation or selection committees and approving authorities equally lack exposure in this area. This has resulted in a system that has seen no improvement in the past five decades, which has manifested itself in the following: * poor documents, * mismanagement, * delays, * inappropriate procedures, * lack of efficiency, * reluctance to take decisions, * eagerness to syndicate decisions, and * whole set of aberrations. 8 Training at all levels will bring noticeable improvement to the quality of the process. In fact, training is essential for other reforms to succeed. Training should be tailored to different levels and sectors, not just in procurement procedures, but also in the writing of technical specifications, the development of evaluation criteria and methodology, and other related topics in commerce and law. It is necessary to go about this in a planned and systematic manner, for example, by selecting the right institutions, preparing curricula, and securing qualified trainers. Training should be a continuous process. Once established, procurement staff should be selected only from among trained personnel, and a procurement cadre should be built up. . These steps would boost their morale and elicit better performance. The curriculum of the foundation course for civil service should include "Public Procurement Rules and Procedures" to ensure that every administrative official has exposure and training in this vital area at the beginning of their service career. Universities should be persuaded to include subjects related to public procurement in commerce and business management, as well as engineering degree programs and, given the demand, even stand-alone programs. This will eventually raise the general skill levels, generate a professionally competent workforce, and contribute to the quality of public and private procurement. 3. Expenditure Control and Statutory Audit The institutional framework of internal financial control in Bangladesh is under the supervision of the Ministry of Finance and external audit under the independent Comptroller and Auditor General (CAG) who audits all government and public sector expenditures and submits annual and special reports to the Public Accounts Committee of the national assembly. According to the June 1998 Bank report on Country Profile of Financial Accountability (CPFA), however, neither the internal control nor the CAG's audit is very effective. . The audit and its submission to the parliament were in terrible arrears for a long time; this has only in recent years been corrected. At the same time implementation of the audit recommendations is equally unsatisfactory. Many initiatives are under way to improve matters. The Country Financial Accountability Report under preparation by the Bank will include specific recommendations in the area of financial management and audit. From the procurement point of view, the earlier audit reports have only reported minor procedural lapses and unauthorized expenditures-and not major irregularities, malpractice, or corruption in procurement The audit staff are not trained in public procurement concepts and procedures, and the requirements of development partners such as the World Bank whose guidelines apply to a large part of the procurement .Hence training of audit staff should be included in the action plan. Also, governnent should be required to respond to audit findings in a timely manner, failing which there should be some sanction, for example, withholding further loans to the sector by the IFIs. 9 4. The Private Sector and the Business Community The private sector in the manufacturing area is not well developed. The few large manufacturing industries that exist are in the public sector. The private sector comprises mostly commodity traders and local agents of foreign manufacturers. Barring a few, construction contractors are generally labor-intensive, they lack finance and equipment, and they depend mostly on government contracts. On the other hand, the consultant industry is reasonably well developed because of availability of good professionals. If public procurement is to work effectively and to the benefit of the people, the business community of suppliers, contractors, and consultants must be trained in the concepts of public procurement, made technically and professionally competent, given access to finance and construction equipment, made to adopt a strict code of ethics, and must complement the efforts of the public purchaser to make the whole process economic, efficient, transparent, and free of corruption. This is an aspect that is often, if not always, overlooked. 5. Corruption Corruption is a worldwide phenomenon, but it is especially widespread and destructive in developing countries. Bangladesh is no exception. As in many other developing countries, corruption pervades all walks of public activity in the country. In the words of the Country Profile of Financial Accountability (draft ) report of June 12, 1998, "corruption is an endemic problem." It is common knowledge that procurement is a prime area for corruption. The report on Government Malpractices in the early 1990s confirms extensive corruption in public procurement. Since then, the extent of corruption has, by all accounts, increased and spread to all levels of bureaucracy and politics. It is the universal view that unless corruption is addressed, other reforms can have only a marginal impact. This is not an easy or quick task, however. The effort to eliminate corruption must be coordinated across the board, in all sectors and branches of government. In the words of the President of the World Bank, corruption in any country can be dealt with only by a combination of forces within the country and with a strong commitment at the top. The reforms suggested in this report in the public procurement management area-such as a public procurement law and/or rules and procedures including an effective review/challenge procedure, national mandatory bidding and contract documents, reduction in the layering in the review and approval process, training at all levels, timely audit, enforcement of accountability, and establishment of a code of conduct for procurement staff-will substantially deter corrupt practices, although this will not be enough. Reforms are needed in other sectors such as financial management, audit, judicial systems public servant salaries etc in a concerted and coordinated manner to minimize incentives for corrupt practices. Also establishment of a national watch dog institution- an ombudsman - as indeed envisaged in the country's constitution, would contribute to 10 greater transparency, accountability and good governance This should be tackled on national basis covering all sectors of government activity and hopefully will be addressed in the Country Assistance Strategy Paper under "governance." Hence no separate recommendation is included in this report. 6. Recommendations 6.1 Strategic Approach The approach is a gradual improvement to the existing procurement regime by a set of actions that are feasible and practical. They are prioritized from the point of view of the impact they will have on the present regime (see Attachment 2). For instance, delays are the single most important problem that can be solved easily and hence given the first priority. The quality of procurement is the next, but results will appear slowly. The procurement law is deferred until the action on the urgently needed reforms is completed. The agreed recommendations need to be converted to a detailed action plan identifying the required resources, sources of funding, specific time frame for each action etc. 6.2 Actions for the Government 6.2.1 Create a Central Procurement Policy Unit in an appropriate ministry that will be responsible for Public Procurement Policy, Public Procurement Rules and Procedures, and Standard Bidding and Contract Documents, as well as oversight of public procurement. 6.2.2 Prepare and issue Public Procurement Rules and Procedures that should be a public document., covering procurement of goods, works and professional services that will apply to all ministries, departments and public bodies. 6.2.3 Prepare and issue a set Standard Bidding and Contract Documents for goods, works, and professional services that are applicable to all public procurement, using the World Bank and other similar documents as models. Any changes to suit unique requirements of specific sectors should be cleared by the concerned ministry in consultation with the central Procurement Policy Unit. 6.2.4 Review and revise delegation of powers to public sector corporations and autonomous bodies, as well as to department heads, chief engineers, and project directors. 6.2.5 Review and revise the layering in the approval process. 6.2.6 Introduce regular training in the Principles of Public Procurement, Government Procurement Rules and Procedures, Procurement Guidelines and Requirements of International Financial Institutions, and development .partners. Attachment 3 elaborates this recommendation. 11 6.2.7 Eliminate the requirement to send advertisements to the Ministry of Publications for publishing in the press, and authorize corporations and departments to deal directly with the press. 6.2.8 Publish contract awards above $200,000 (Taka 1 crore) in the press as a start. 6.2.9 Discontinue the practice of automatic rejection of bids below 5 percent of estimate, and award contract to the lowest evaluated bidder-but only after postqualification for capacity. 6.2.10 Prepare and publish a national list of approved contractors using very strict criteria and indicating the capacity for each at any time that may not be exceeded, to replace the current list of approved contractors maintained by each department. Inclusion in the national list should be equivalent to an International Standards Organization (ISO) certification i.e. by application of rigorous criteria. The list shall be regularly updated. 6.2.11 Consider inclusion of an outsider of known probity in evaluation committee for consultants. 6.2.12 Introduce a review or challenge mechanism .in the Public Procurement Rules and Procedures 6.2.13 Introduce a strict code of conduct and ethics for procurement staff or officials. 6.2.14 In regard to the issue of Public Procurement Law, the Government of Bangladesh was of the view that the introduction of a law may only contribute to further delay in the procurement process due to intervention of courts, without substantial benefits and unacceptably delay implementation of the other recommendations which are urgently needed, such as uniform procurement rules and procedures, standard documents etc. The Bank agreed that considering the urgency for implementing the other reforms, this issue may be deferred, until action on the rest of the recommendations is completed. 6.3 Recommendations for the Bank, Other International Financial Institutions (IFIs), and Donors 6.3.1 Introduce a provision in the loan or grant agreement that funds will lapse if the award of contract is not made within 12 months of receipt of bids or proposals and if all procurement commitments are not made by a specified date, to ensure implementation within the projected timetable. 6.3.2 The World Bank should continue to include in its credit agreements the acceptability criteria for National Competitive Bidding procedures until the recommendation in section 6.2.3 is implemented, incorporating these requirements. 12 6.4 Timetable The implementation of the recommendations is phased over three years, and the attached table provides the sequence of actions designed from the point of view of urgency, ease of implementation, and the expected benefits. 6.5 Technical Assistance by the World Bank and Other IFIs Assist the GOB by providing resources and experts in drafting the public procurement rules, standard bidding documents, and the public procurement law. Assist the GOB by providing resources to initiate training courses, prepare training material, provide trainers initially, train trainers, and initiate dialogue with local universities to include procurement topics in engineering, commerce, and business management courses. Conduct training courses for the business community in coordination with the GOB. 6.6 Coordination with Other Donors The local office of the Asian Development Bank was consulted. They are generally in agreement with the conclusions of the study. They are about to launch a technical assistance project in which they propose to provide funds for the training initiative according to details in Attachment 3 to this report. This will give a head start to the training initiative. Other donors were consulted during the collection of data and opinions, but they have not participated in developing these recommendations. 7. Approval of the CPAR by the Government of Bangladesh On February 6, 2001, the Executive Committee of National Economic Council (ECNEC) discussed the final draft of the CPAR reaching important decisions concerning the procurement function in Bangladesh. Recognizing that IMED's mandate includes monitoring of the procurement practices of the public sector, checking delays and corruption, and providing procurement training to government officials, a proposal was made to create and place the Central Procurement Policy Unit (CPPU) under IMED to implement the recommendations of this report. The following decision was made: * Agreement in principle with proposal of IMED, which included the recommendations of the CPAR * Set up a "Central Technical Assistance Unit" under IMED * Pursue obtaining Technical Assistance from the World Bank The Bank would have preferred the name CPPU because the name Central Technical Assistance Unit conveys a signal of non permanence and of non belonging to the core activities of the Government . But the Bank will be pleased to work with GoB on procurement reform, whatever may be the name of the unit. The GoB has requested for 1 3 the Bank's assistance to help implement public procurement reform in line with the recommendations of the CPAR. A Technical Assistance Credit for the Public Procurement Reform Project is now at the approval stage. To this end, GoB, as part of the reform program, will establish a Central Procurement Technical Unit (CPTU) in the Ministry of Planning, which will be a permanent institution of the Govemment funded under revenue budget. 14 Attachment 1. Acceptability Criteria for National Competitive Bidding In order to ensure economy, efficiency, transparency and broad consistency with the provisions of Section I of the Guidelines: (i) standard bidding documents approved by the Association shall be used; (ii) invitations to bids shall be advertised in at least one widely circulated national daily newspaper and bidding documents shall be made available to prospective bidders, at least 28 days prior to the deadline for the submission of bids; (iii) bids shall not be invited on the basis of percentage premium or discount over the estimated cost; (iv) bidding documents shall be made available, by mail or in person, to all who are willing to pay the required fee; (v) foreign bidders shall not be precluded from bidding and no preference of any kind shall be given to national bidders; (vi) qualification criteria (in case pre-qualifications were not carried out) shall be stated in the bidding documents, and if a registration process is required, a foreign firm determined to be the lowest evaluated bidder shall be given reasonable opportunity of registering, without any let or hindrance; (vii) bidders may deliver bids, at their option, either in person or by courier service or by mail; (viii) all bidders shall provide bid security as indicated in the bidding documents. A bidder's bid security shall apply only to a specific bid; (ix) bids shall be opened in public in one place immediately, but no later than one hour, after the deadline for submission of bids; (x) evaluation of bids shall be made in strict adherence to the criteria disclosed in the bidding documents, in a format and specified period agreed with the Association; (xi) bid shall not be rejected merely on the basis of a comparison with an official estimate without the prior concurrence of the Association; (xii) split award or lottery in award of contracts shall not be carried out. When two or more bidders quote the same lowest price, an investigation shall be made to determine any evidence of collusion, following which (A) if collusion is determined, the parties involved shall be disqualified and the award shall then be made to the next lowest evaluated and qualified bidder and (B) if no evidence of Attachment 1 15 collusion can be confirmed, then fresh bids shall be invited after receiving the concurrence of the Association; (xiii) contracts shall be awarded to the lowest evaluated bidders within the initial period of bid validity so that extensions are not necessary. Extension of bid validity may be sought only under exceptional circumstances; (xiv) extension of bid validity shall not be allowed without the prior concurrence of the Association (A) for the first request for extension if it is longer than eight weeks and (B) for all subsequent requests for extensions irrespective of the period; (xv) negotiations shall not be allowed with the lowest evaluated or any other bidders; (xvi) re-bidding shall not be carried out without the Association's prior concurrence; and (xvii) all contractors or suppliers shall provide performance security as indicated in the contract documents. A contractor's or a supplier's performance security shall apply to a specific contract under which it was furnished. 16 Attachment 1 Attachment 2. Recommendations-Phasing over Five Years Years Recommendation for the GOB 1 2 3 Set up a public procurement policy unit x Issue public procurement rules x x Issue SBDs x x x Revise delegation of powers x Revise approval process x Plan and initiate training courses x x x Simplify procedure for advertisements x Publish contract awards x x Revise works procurement procedures x x Prepare list of approved national contractors x x Consider inclusion of an outsider in consultant x evaluation committee Introduce appeal procedure in the rules x Introduce code of conduct x x Recommendation for the Bank Introduce cutoff date for contract award and x x full commitments in credit agreements Continue the side letter for NCB acceptability x x Attachment 2 17 Attachment 3. Details of Recommended Training Courses 1. Initially the following five courses are proposed in every academic year on a regular basis. 1.1 Course on public procurement for senior officials Number of courses Two Duration of course One week Target audience Senior government officials and senior managers from autonomous corporations and boards Content Public procurement policies, international best practices, requirements of lenders and donors and national policies and procedures 1.2 Course on national and international procurement of goods, works, and consultants for practitioners Number of courses Three Duration of course Three weeks Target audience Working-level staff and practitioners on policies, procedures, and documents covering each step of the bidding process, contract award, and contract execution for national and international procurements funded by government and external lenders and donors, one each for goods, works, and consultants 2. Prepare a procurement module to be included in undergraduate courses in engineering, commerce, and business management in selected universities on "national and international procurement and contracting in the public and private sector." 3. The following institutions are available to choose from for courses 1.1 and 1.2. Public Administration Training Center, Savar Academy for Planning and Development, Dhaka Government Officer Training Academy, Dhaka Bangladesh University of Engineering and Technology University of Dhaka 4. Technical assistance from the IFIs or donors The technical assistance will involve preparation of course content, logistics planning, development of teaching material, training of trainers, provision of trainers initially, evaluation of the courses, and modifications to the material. 18 Attachment 3 Volume II: Findings and Analyses November 1999 19 Public Sector The Country, Government and Political Structure 1.01 Bangladesh is officially called the Peoples Republic of Bangladesh and Government called "Government of the Peoples Republic of Bangladesh". The area now comprising Bangladesh was part of India and under British Rule up to 13.8.47 for about 200 years. It was part of Pakistan from 14.8.1947 to 25.3.1971. Bangladesh declared independence on 26th March, 1971 and was finally liberated from Pakistan, after a bloody war, on 16th December, 1971. After many trial and errors the country is practicing parliamentary form of Government of Westminster type since 1991. The Parliament consists of the President and one chamber "National Assembly". The Parliament at present is the source of all powers, laws, rules and regulations. The administration is run and executive decisions are taken by the Cabinet headed by the Prime Minister. In spite of a number of amendments, and changes of Government from Parliamentary to Presidential and again from Presidential to Parliamentary, and in spite of the fact that the Country was under martial law several times in between, Bangladesh is still upholding its constitution given by the Constituent Assembly in 1972. 1.02 Bangladesh is a Unitary Democratic Republic. The Administration is run in the name of the President who is a titular head. The Cabinet headed by Prime Minister runs the administration and takes all major policy decisions. The business of the Government is distributed among various Ministries and Divisions. 1.03 As already stated, Bangladesh is practicing Parliamentary form of Govermnent of Westminster type. There are a good no. of political parties in the country including more than two major ones. The Members of the Parliament are directly elected by the people. Parliamentary elections are held on party basis. Besides the heads and members of the local Government like City Corporations, Municipalities and Union Councils are also directly elected by the people. Most of the Cabinet Ministers are members of the Parliament. A few of them are taken in the Cabinet as technocrats (not elected by the people). The present finance Minister is not a Member of Parliament. Legal Framework-Authority of Executive to Contract 1.04 All executive actions of the government-order, instruments, agreements and contracts-shall expressed to be taken in the name of the President. All Ministers, Minister of State, Deputy Ministers and persons holding such status, and the officers named in scheduled II of Rules of Business, may authenticate by Signature, all orders and other instruments made and executed in the name of the President. Instructions for making the contract on behalf of the President execution of such contracts and all assurance of property shall be issued by the Ministry of Law, Justice and Parliamentary Affairs. 21 Allocation of Functions to Ministries, Departments, and Agencies Handling Government 1.05 As already stated the business of the Government is distributed among various Ministries and Divisions. Such distribution is shown in schedule I of the Rules of Business 1996. At present there are 42 Ministries and 12 Divisions. Each Ministry or Division or more than one Ministry or Division is headed by a Minister-in-charge. Some of the Ministers are also assisted by State Minister or Deputy Minister. State Ministers are also sometimes placed in charge of a ministry or Division. The Prime Minister determines whenever necessary creation of a Ministry or Division, allocation of business of governnent to a Ministry or Division and portfolio to be held by a particular Minister. All business allocated to a Ministry and Division under schedule I of Rules of Business are disposed of by or under general or special directions of Minister-in-charge. The Minister or Ministry, however, cannot take any important policy decision without the approval of the cabinet. 1.06 Each Ministry or Division is now headed by a Minister or State Minister who is responsible for the administration and discipline and proper Conduct of business assigned to a Ministry or Division. Under the Minister is the Secretary (Civil Servant) who is responsible for careful observance of rules of business assigned to the Ministry or Division and for keeping the Minister informed of the working of the Ministry or Division. Major rules of the Ministries or Divisions as per rules or Business 1996 are: a) policy formulation b) planning c) evaluation of execution of plans d) legislative measures e) assist the Minister in the discharge of his responsibility to the parliament f) personnel management at top level etc. 1.07 Most Ministries or Divisions have departments under them, like Public Works Departrnent (PWD) under Ministry of Housing and Works. There are also semi- autonomous corporations, Boards etc. under various Ministries or Divisions. As per IMED's record there are about 213 departments, corporations, boards or bodies etc. under 54 Ministries or Divisions as of 19.04.99. The semi-autonomous or semi-Government organizations are autonomous within a prescribed limit. They get allocations from GOB development budget. They prepare their own budgets, which are approved by Ministry of Finance through the line ministry. They have authority to spend funds at their discretion but within the delegation of financial authority. "Autonomous" and "Semi Autonomous" are not clearly defined. Corporations or Bodies like BADC, PDB, REB, or BWDB are called semi-autonomous or semi-Government organizations. Dhaka University or Engineering University (BUET) are treated as autonomous bodies. In practice there is hardly any autonomy. All the organizations are controlled by the line Ministries. 1.08 Other important agency of GOB is the local govermment under the Ministry of Local Government Rural Development and Co-operatives. These are City Corporations, Municipalities and Union Parishad (Councils). The head of these bodies and their members are directly elected by the people. Other two units of local government is 22 coming up-the Upazilla (Sub-District) Parishad and Gram Parishad (Village Council). The Upazilla Chairman will be directly elected in each (present) Thana by end '99. There was another tier of local government in the country, the District Board, which is almost non-functional at the moment. Key Ministry Responsible for Making Policies in Procurement 1.09 The following Ministries and Divisions are mainly responsible for making policies in the procurement area: i) Cabinet Division ii) Ministry of Finance iii) Ministry of Planning iv) IMED v) Economic Relation Divisions (ERD) vi) Ministry of Commerce vii) Ministry of Establishment 1.10 IMED: Implementation Monitoring and Evaluation Division (IMED) was created in 1975 on the recommendation of World Bank. IMED is a Division under the Ministry of Planning of GOB and headed by a Secretary. The main function and responsibilities of lIMED are monitoring and evaluation of development projects in the public sector including all procurement cases of Taka two crore and above. It monitors physical and financial performances of the development projects and prepares quarterly, annual and, in some cases, special reports for the policy makers. IMED is the main source of information about public procurements in the country. The Ministries and Divisions That Handle Centralized Procurement 1.11 Procurement is required for most of the Ministries or Divisions. Most of the Ministries or Divisions do not handle procurement directly or centrally. They do it through their departments or subordinate bodies, corporations etc. Ministry of Food, however, handles procurement of foodstuff centrally. As per schedule I of GOB Rules of Business the following business, among others, have allocated to Ministry of Food: i) Import and export of foodstuff and civil supplies. ii) Procurement and distribution of food grains and other food items including sugar, edible oil, salt etc. 1.12 Ministry of commerce also handles procurement centrally. Allocations of business for Ministry of commerce under GOB Rules of Business are, among others, as follows: i) Purchase and supply of internal and external stores ii) State Trading iii) International Commodity Agreements. 23 The Department of Supply and Inspection is the main organ for Ministry of Commerce in matters of Procurement of Stores. Earlier, Supply and Inspection Department of Ministry of Commerce used to handle procurement of stores for the entire public sector. Presently the Department procures stores for the following Ministries or Departments: a) Ministry of Establishment-Printings and Stationeries b) Ministry of Information's Mass Communications Press and Publications c) Ministry of Live Stock-other than Bank Financed Projects d) Department of Films and Archives Trading Corporation of Bangladesh (TCB) under MOC is mainly responsible for state trading (import, export, and distribution). Its functions are being squeezed. 1.13 Ministry of Disaster Management and Relief occasionally handles procurement directly for relief and rehabilitation items. Public Undertakings 1.14 As mentioned earlier, there are about 213 public units like Ministries or Divisions, Departrnents, Directorates, Corporations, and Boards as of 19.04.1999. Besides there are 4 City Corporations, 187 Municipalities, 463 Proposed Upazilla (Sub-Districts) and 4451 Union Parishad (Councils) as Local Governments. There are also 64 District Boards, which are not functioning at the moment. The IMED list of "Ministry/Agency Coded Name" is submitted to World Bank. 1.15 Besides Ministries, Divisions, Departments, and Directorates, there are Corporations, Bodies, and Boards under various Ministries like Chemical Industries, Corporations (BCIC), Agri Development Corporation (BADC), Water Board (BWDB), Power Development Board (PDB), etc. These are called Autonomous or Semi- Autonomous bodies. The current status is probably Semi-Government Organizations. The Corporations and Boards are autonomous within given limit. For example, the Corporation or Board can appoint or recruit officers or employees below Member of the Board. The Chairnan or Members of the Boards are appointed by GOB. In addition to their own income, if any, the Corporations or Boards get allocations from National Development Budget. For Procurements they have their prescribed powers and limits. These bodies are under the control of the respective Ministries and under GOB as a whole and answerable for their action to GOB, and to Parliament through respective Ministries. Their accounts are audited by CAG and funds released from National Budget allocations through normal GOB procedures. Although many of the Corporations or Boards have their own Manual for Procurement of Goods and Works, they are under obligation to follow GOB Guidelines, specially ERD's guidelines for Goods and Works under aided projects and for Consultancy Services. For Works, most of these bodies still follow (GOB) PWB codes. For aided projects they follow donor's guidelines. 1.16 NEC: The National Economic Council (NEC), now headed by the Prime Minister, is the highest body in respect of development projects. All Ministries are members of 24 NEC. There is an eleven member Executive Committee within NEC called ECNEC or Executive Committee of National Economic Council. The ECNEC is also headed by the Prime Minister. In the absence of the Prime Minister, the meeting of ECNEC is headed and presided over by the Finance Minister. The other ten members of ECNEC are Senior Cabinet Ministers which include Finance, Planning, Environment, LGRD, Agriculture, Home, Water Resources, Education, etc. NEC and ECNEC approve Project Papers (PP) above Taka ten crore. All PPs below Taka ten crore are, however, sent to NEC for infornation. 70% fund of development projects is for procurement and the PPs contain details of procurement of the particular project. So NEC and the PP preparation and approval are part of procurement process. Before placing any PP above Taka ten crore to ECNEC for approval, the same is scrutinized and recommended for approval by Pre-ECNEC Committee headed by the Member, Planning of the concerned sector. The Pre-ECNEC Committee consists representatives from the concerned organization and Ministry, IMED, Finance, Environment, ERD (if aided project), Education, etc. PPs and TAPPs are prepared by the organizations, departments, and corporations concerned and sent to the concerned Ministry for consideration of DPEC (Development Project Evaluation Committee). The DPEC is headed by the Secretary of the concerned Ministry. Other members of DPEC include representatives of the Ministries of Planning, IMED, Finance, Environment, Education, etc. The chain for preparation of PP (above Taka Ten crore) and amendment, if required, is presented below: Requiring Body (Department/Organization/Corporation) => DPEC = Pre-ECNEC . NEC 1.17 There is a Parliamentary Committee on Public Undertakings. All Public Undertakings are answerable to this committee. The Cabinet Committee on Government Purchase 1.18 The highest Purchase Committee in the country is "The Cabinet Committee on Government Purchase". The present formation of the committee is as follows: 1. Minister, Finance-Convenor 2. Minister, Education-Member 3. Minister, Water Resource-Member 4. Minister, Commerce and Industries-Member 5. Minister, Post and Telecommunications, Housing and Works-Member 6. Minister, without portfolio-Member 7. Minister, Civil Aviation and Tourism-Member 8. Minister, Concerned Ministry-Member 1.19 The members are appointed by name. This committee decides all procurement cases involving Taka above 25 (twenty-five) crore or about US$ 5.1 million (taking Taka 49 as US$ 1), for procurements other than consultancy service. The committee decides cases of consultancy services above Taka 5 crore or about US$ 1.02 million. The decision 25 or recommendation of the committee is subject to approval of the Prime Minister. The next committee or approving authority is the Ministry (at the level of Minister). Below the Ministry are the Purchase Committees of the departments or the Boards of the corporations or autonomous bodies. The Delegation of Powers 1.20 Delegation of powers are reviewed and updated time to time. As per circular number Ma, Pa, Kria-3 (3) 92/103 dated 4th May, 1994, the delegation of powers in respect of procurement of Goods, Works, and Consultancy Services in public sector are as follows: A. For Goods and Works: SI. No. Approving Authority Financial Power I Large Corporations or Autonomous Bodies e.g. Up to Taka 10 crore or BWDB, PDB, BCIC, Petrobangla, BPC, BSEC, about US$ 2.04 million BSFIC, BADC, BTMC 2 Small Corporations or Autonomous Bodies Up to Taka 5 crore or about i US$ 1.0f2 million 3 iMinistry or Division (at the level of Minister) Up'to Taka 25 crore or US$ 5.1 million 4 iCabinet Committee on Government Purchase I Above Taka 25 crores B. For Consultancy Service: SI. No. r Approving Authority Financial P,ower 1 ! Ministry or Division (at the level of Up to Taka 5 crore or about US$ 1.02 | Ministers) million 2 Cabinet Committee on Government Above Taka 5 crore Purchase A 3 Heads of Departments and i-Up'to Taka I crore Corporation Boards' 1.21 As per "Delegation of Financial Powers" of Ministry of Finance dated 12th April, 1994, power of Project Directors (PD) of projects above Taka ten crore to appoint consultant is Taka two hundred and fifty thousand (US$ 0.051 million). PDs for projects below Taka ten crore have no power to appoint consultant. 1 In the above delegation the power of the Corporations or the Departments in respect of Consultancy Services is not mentioned. According to N5ED this is an omission. The power for the Heads/Boards of autonomous bodies and Heads of Departments like Chief Engineer is said to be up to Taka I (one) crore or US$ 0.204 million. Project Director (PD)'s power to appoint consultant in not mentioned in this circular of May '94. 26 1.22 "Delegation of Financial Power for Development Projects" for GOB's Ministries, Divisions, Departments, and Projects are provided in the order of Ministry of Finance of 12th April, 1994. Similar delegation in most of the corporations and autonomous bodies is lacking. Moreover, most of the corporations and autonomous bodies did not re-delegate powers within the organizations, although the power of the Boards of such corporations were raised from Taka 5 crore to 7.5 crore, and lastly up to Taka 10 crore. Volume of Procurement Budget 1.23 Procurement Budget is not shown separately in the National Budget Documents. The following positions is gathered from the 1999-2000 "Budget in Brief' booklet. 1. Revenue Expenditure during 1998-1999 (revised) i) Goods and Services Taka 2,256 crore (US$ 460.40 million)2 ii) Expenditure for acquisition or purchase Taka 1,024 crore (US$ 208.98 of assets, land, construction of works million) Total Taka 3,280 crore (US$ 669.38 million) 2.a) Development Expenditure revived during Taka 14,000 crore (US$ 2857.14 1998-99 including external resources of million) Taka 8188 crore (US$ 1671.02 million) 2.b) As per IMED 70% of Development Expenditure are for procurement. 70% of 14,000 comes to Taka 9,800 crore (US$ 200 million) Possible Volume of Procurement Budget for 1998-1999 thus comes to (3280 + 9800) = Taka 13,080 crore (US$ 2,669.39 million) plus food procurement of Taka 1705 crore (US$ 348 million). 1.24 1998-99 (revised) allocation for development expenditure for some of the major procuring units is presented below (Source: Annual Development Program 19990-2000) 1) PWD Taka 35.56 crore (plus Taka 214.27 crore for revenue expenditure) 2) Roads and Highways (R&H) Taka 1472.11 crore 3) Petrobangla Taka 529.28 crore 4) Power Development Board Taka 416.53 crore (PDB) 5) Rural Electrification Board Taka 402.75 crore 2 Exchange rate: US$ 1.00 = Taka 49.00 27 (REB) 6) Dhaka Electric Supply (DESA) Taka 185.50 crore 7) LGED Taka 1042.73 crore 8) BADC Taka 52.63 crore 9) Water Development Board Taka 908.09 crore (WDB) Procurement Procedures and Practices of Ministries, Public Sector Corporations, and Bodies 1.25 (a) Government Department including Districts under Revenue Budget follow the Delegation of Administrative and Financial Powers (in Bengali and in two parts) issued by ministry of Establishment as guidelines for procurement matters. In those two small booklets only the powers of the Sectaries, Additional Secretaries, Joint Secretaries and Assistant Secretaries are there. There is no mention for the procedures normally followed by GOB department or Ministries. (b) GOB Departments and Ministries, however, follow the procedures laid down in the Manual of Supply and Inspection Department, the oldest organization rendering governmental procurements and Inspections (for goods) only since World War II. (c) There is the "Compilation of The General Financial Rules" (CGFR) issued by the Ministry of Finance. It was first published during British Rule. CGFR was first revised during Pakistan time in 1951. The exact translated reprint (in Bengali) was published in Bangladesh during December, 1994. CGFR was last published in English on 6th June, 1999 with little or no change. CGFR is a document of general financial rules. It contains a few chapters outlining general principles governing public procurements of supplies, services, stores, and works. It outlines generalized principles governing public contracts and agreements, such as importance of open tenders, financial liability of Government power of revocation of contract, audit of contract etc. CGFR however, stipulates, among others: (i) special rule applicable to particular department are contained in the Manuals, Codes, Departmental Regulations or Special Orders of the department concerned (ii) In cases of inconsistencies between the provisions of ERD Guidelines of May 1992 (mentioned in sub-paragraph "e" hereinafter) and those provided in the Aid Agreement or of the Development Partners the provisions of the latter will prevail unless modifies or relaxed. Very few of the organizations contacted are aware of the existence of CGFR, specially in respect of its Chapter relating to procurement of supply, service, stores and works. Copy of the CGFR provided to WB and should be treated as an enclosure to this Report. 28 (d) All GOB Departments and Ministries follow PWD codes as guidelines and procedures for civil works. This is also one of the oldest guidelines. Most of the Government organization like LGED, facilities Department etc. follow these guidelines and procedures for civil works. (e) GOB has separate guideline for aided projects and selection of consultants issued by ERD and Delegation of Financial Powers for Government Departments issue by Ministry of Finance for aided projects. ERD's Guideline of May 1992 is the most recent one. They are broadly compatible and broadly follow WB Guidelines. (f) The guidelines and procedures of Bangladesh form number 2908 are also used for procurement of goods under GOB guideline by some of the organizations like PWD, LGED, R&H, Facilities Department, etc. mostly for local goods in the field at the level of Executive Engineer. The form dates back to British Period and thoroughly in favor of the buyer. The title of the form reads: "Tender for Supply of Goods: Terms and Conditions of Contract" The four-page form (in Bengali) contains terms and conditions of supply, nine-column format for bids and quotations, and general instructions and rules to be followed by the contractor or supplier. The form itself becomes the contract after acceptance of the bid and signing by the employer or buyer in the specified place of the format before submitting the bid. 1.26 Procurement procedures of departments or organizations are normally codified in the form of a Guideline or Manual. Presented below is the position of the major Departments and Organizations contacted by the Consultant or his Associates in respect of having any Procurement Manual or not: Name of the Departments and Name of Organizations and Departments Organizations having Procurement having no Procurement Manual Manuals of its own PWD PDB R&H Titas LGED BARC PC Facilities Department Supply and Inspection Department DCC Districts (GOB) REB BWDB BCIC Petrobangla Municipality 1.27 PDB has no written manual for procurement. The Board has prepared detailed scheduled procedures for the Bidding Documents and follows that. Titas follows the Delegation of financial Powers of Petrobangla as guideline for procurement. BARC hitherto did not procure anything directly other than stationary, printing, furniture etc. The Council started procurement against ARMP under WB, following WB guidelines. 29 For lack of procurement knowledge and of procurement procedures the procurement schedule of BRAC was abnormally delayed and thereby delayed project implementation. BRAC has already set up a committee for preparation of Procurement Manual. The Facilities Department of Ministry of Education follows PWD codes for civil I works in the fields including District Headquarters even for the aided projects. Dhaka City corporation (DCC) the biggest city corporation in the country, has no procurement Manuals of its own, DCC has prepared schedules for Bidding Documents which are used for most procurements other than aided ones, In the absence of any written guidelines and procedures of its own the entire procurement process in DCC, specially for goods is in a mess. 1.28 Various types of procedures are followed and practiced in the country- GOB procedures, own procedures of the corporation or bodies and separate procedures of most of the development partners. Some of the GOB procedures and guidelines dates back to time when this area (Bangladesh) was under British Rule as part or India, Some of the Corporations Manual were prepared in the early days when Bangladesh was East Pakistan. Although some of these procedures and guidelines Manuals have been partially amended or updated, but many of them prepared during World War II still remaining the same. The Municipalities are still following the 1932 guideline with little or no amendment. The 'Manual for office procedure (Purchase) "of Supply and Inspection Department was compiled during World War II when the country was under British Rule. Some modifications were made in 1978 to make it look like a Manual of Bangladesh. The significant changes were inclusion of a new method of registration of firms and incorporation of opening of Letters of Credit (L/Cs). No printed copy is available in the market, although this is an important document for GOB's procurement. PWD and RHD and LGED are coming up with new books of guidelines, procedures and Specifications. But the old codes, which are still being followed, are out of print and not available in the market. Concerned people either borrow from those who have it or obtain photocopies which are no longer clear and are indistinct. All these require thorough modification and updating. Organization like REB, BWDB, BCIC, etc. have fairly developed Manuals, both for goods and works. 1.29 Most of the organization contacted are procuring goods and services using ICB, LCB or NCB, LIB, IS, NS etc. bidding procedures depending on the type and size of procurement. Direct contracting mostly for proprietary items is also used. There are stray cases of repair and maintenance by own sources and personnel through " force account". Procurement through Negotiation, the oldest method of procurement, especially for the private sector is still in use in public sector. 1.30 Since ERD's Guidelines of May 1992 are the most recent ones and are followed by most organizations and departments for externally funded projects as well as locally funded projects. Procurement procedures and practices are discussed in the following paragraphs based on ERD's guidelines. Procurement Planning 1.31 Procurement Planning as it is understood by WB or other Development Partner is a new concept in Bangladesh; it was not there two or three years back, nor included in the Loan or Credit Agreement. The new Loanor Credit agreements are having provisions for 30 procurement planning. Previously; some of the organizations (like BADC) used to prepare Annual Shopping List, which was hardly followed. ERD's 1992 guidelines contain provision for procurement planning, but very few organizations practice it. Some of the organizations still consider the procurement program included in the Annual Budget as the Procurements plan. IMED circulated a format for planning procurement in 1994. But only Petrobangla was found following it. Lack of adequate procurement planning is a major deficiency in public sector procurement. BARC was found preparing annual procurement plan in WB format for ARMP project and under the Bank's guidance. Most of the organizations contacted considered their personnel capable of preparing procurement plan as per requirement, but actually the position was otherwise. For efficient and timely implementation of procurement programs, procurement planning is considered essential. Since this is a new concept, training of concerned procurement personnel in procurement planning is required to be arranged. IMED or ERD may prepare an appropriate format for Procurement Planning embodying general requirements of donors. The Procurement Plan should, among others, indicate who will procure and who will evaluate the bids. Import Policy 1.32 Import Policy promulgated by the Ministry of Commerce (MOC), telecast and broadcast over television and radio, for a period of three years or more. All purchasers are to follow the procedures laid down in GOB's Import Policy for all procurements from abroad. The import policy contains, among others, eligible or ineligible items and countries and all public and private sector importers are required to follow that. For importing any ineligible or restricted item, necessary waiver is required to be obtained from MOC prior to invitation of bid. The policy contains ineligible or boycott countries, which required to be declared ineligible in the bidding documents. This sometimes leads to difference of opinion with some development partners. Some time back import form Taiwan was banned, ADB was not happy about such conditions and the terms of the bidding document had to be rephrased to satisfy ADB. As per Import Policy any item of import costing Taka 5 lakh or more should go through pre-shipment inspection. Bidding Document 1.33 The Procurement Agencies are to prepare separate and different Bidding Documents under different guidelines of funding authorities for goods, civil works and others, Most of the bidding documents contain invitation for birds, instruction to bidder, general conditions of contract, special conditions of contract, bid form and price schedule, Bid Security form, contract form, Performance Bond/Security/Guarantee form and specs. Most of the donors require bidding documents to be cleared by them when the procurement is above an agreed threshold. This clearance or prior review in most cases adds to the Lead-Time and delays Procurements. On the other hand for lack of knowledge and experience most organizations cannot prepare bidding documents in conformity with Loan or Credit agreements. The agencies face problem in preparing bidding documents under so many guidelines for lack of knowledge and understanding. The civil works of ARMP project was abnormally delayed for failure of the Agricultural Research Institutes (ARIs) to prepare the Draft Bidding Document as per WB guideline. 31 Since many of the agencies cannot prepare Bidding Document correctly, they fail to detect and identify the mistakes committed by the bidders in preparing the bid and price schedule. There is no uniform practice in respect of approval of Bidding Document (BD) or amendments and changes thereof. i) In BARC the BD and changes and amendments thereof are approved by Chairman. ii) In PDB the BD is approved by the offices as per delegation of financial power, i.e., if the officer is empowered to decide procurement cases up to Taka Fifty lakh, he will approve BD for procurements up to Taka Fifty lakh. Changes and amendment of BD in PDB is approved by an officer one step below as per delegation of financial power. The Ministry of Energy can decide Amendment and Changes in PDB BD for procurement up to Taka 25 crore. Amendment and Changes in PDB BD up to Taka 25 crore is approved by authority next below, i.e. PDB Board. iii) In Titas BD and amendments of BD are approved by Titas Board. iv) In REB BD (Commercial Side) is finalized and approved by Tender Document Finalization Committee (TDFC) headed by Member Finance. Changes and amendments are also approved by TDFC. Technical specifications and terms of a BD and amendments thereof is finalized and approved by a committee headed by REB chairman. v) R&H, PWD and LGED and similar department have standard Bidding Documents for local procurements. They use Bangladesh Form # 2911 for works and # 2908 for goods procurement under GOB funding. For ICB under aided projects the BD is approved by the Chief Engineer before it is sent for clearance by Development Partner. vi) The Dhaka City corporation has inherited Tender Documents for works. The Superintendent Engineer (SE) or Engineers below SE finalizes the BD or amendments thereof before inviting bids within their powers. Excepting REB, most of the departments and organizations have no set rules for approved of BD or amendments thereof. They just practice it. REB has set rules for preparation and approval of BD. vii) In the absence of standard Bidding Documents (SDBs) in some organizations serious delays occur in the preparation of Bidding Documents including specification drawings etc. viii) WB has introduced SBDs. Other donors like ADB are coming up with SBDs. Organizations like BWDB and REB have introduced SBDs. ix) WB has introduced SBDs. Other donors like ADB are coming up with SBDs. Organizations like BWDB and REB have introduced SBDs as well. 32 Preparation of Technical Specifications 1.34 Good number of agencies lack knowledge and experience in preparing technical specification. The specifications prepared are not always impartial and restrict wide participation. In REB specification are finalized by a committee headed by the Chairman. This vital area in other organization is not always manned by appropriate persons. Types of Contracts 1.35 Different types of contracts are followed in the country for procurement of goods and services. i) For procurement from abroad (import) is mostly done on Cost and Freight (CFR/C&F)) basis. As per GOB notification dated 11.08.84, procurement on Cost, Insurance and Freight (CIF) basis is not allowed normally for public sector organizations. This provision exists for safeguarding the interest of state owned Insurance Company "Sadharan Bima Corporation" (SBC). This provision is discussed in detail in paragraph 10.27 under Insurance. Imports are also made on CPT and FOB basis. ii) Local procurement of goods is made on Ex-Factory, Ex-Ware house or Delivery at designated destination basis. Contract can also be on Delivered Duty Paid (DDP) basis. iii) For procurement of civil works like roads, bridges, canals, buildings etc. the executing agencies either: a) Provide the design and specifications and the contractor provides all materials and supply to the contractor, or b) The executing agency procure some or all of the equipment and materials separately and supply to the contractor, or c) The executing agency makes a turnkey contract, provides design criteria to the contractor, the contractor prepares detailed design and specification, provides materials for the work, constructs and commissions. iv) Bidding in 90% of the procurement of works is on the basis of plus or minus percentage of estimated price of each item the bidders quote for. PWD, LGED and other organization practicing this system are not willing to change it. This practice is said to be for avoiding unworkable rates in certain items and heavy prices in some others. Price Adjustment 1.36 Provision for price adjustments are incorporated in the contract for the following types of works or goods or services. i) Items of civil works whose market prices may vary significantly, during contract period ii) Goods of special nature. 33 iii) Turnkey contract. iv) Long delivery items and spares. In most cases of local works procurement the Executive Engineers have the power to adjust quantity of works by plus or minus ten percent which also leads to price adjustment. But normally contracts for goods and works are made on fixed price with no provision for price adjustment or escalation. Notification and Advertisement 1.37 Below presented details of notification and advertisement procedures. a) As per rule for ICB, NCB and LCB invitations for bids are required to be published in two National Dailies on English and one Bengali for two consecutive days. Copies of ICB are sometimes required to be sent to the local Embassies or High Commissions of eligible source countries or published in Intemational journals, to fulfil the requirement of the donor. Procurement under EC requires Invitation to Bid to be published in European papers. For ICB bidding time allowed is 45 days normally. For large and complex items this time may be 90 days or more. For NCB or LCB Bidding allowed is 15 to 21 days. b) But the actual situation is otherwise. Existing practices are detailed below: i) Tender or Bid Invitations articles of public sector are to be sent to DFP (Department of Films and Publications) for publication in National Dailies as per order of Ministry of Information (MOD) dated 02.07.94. As per latest order of Ministry of Information dated 29.10.98 such notices are now to be sent first to Information Ministry. Copies of the two orders given to WB Dhaka office. This process requires a notice to be sent to DFP 15 days before it is published in a Daily newspaper and very few purchasers take this factor into consideration while sending the Bid Notification to DFP. As a result the notifications comes out in the press keeping very little bidding time. This is the status for most of the procurement cases under NCB. ii) Public Sector Purchasers is not allowed to go to press directly. If this is allowed the position may improve considerably. The corporations or autonomous bodies should have autonomy in this respect. iii) The agencies while calculating lead-time should also add 3 to 4 weeks for notification and advertisement. This will ensure normal bidding time but will increase lead-time. iv) Bid Invitation Notices are to be sent to Ministry of Information before 2 PM of working days (Five days a week). No such notice is received after 2 PM or during holidays. Newspapers come out seven days a week. 34 Prebid Conference 1.38 Pre-Bid conferences of expected bidders are held for clarification of requirement of the Bidding Documents including Technical specification. The scope of pre-bid conference required to he expanded. The bidders may he shown how to fill in the bidding documents and price schedule during pre-bid conference. The ultimate objective of pre- bid conference is to minimize time for evaluation. Submission and Opening of Bids 1.39 Below discussed are the ways and procedures of submission and opening of bids. a) Bids in sealed envelop are normally received and opened in the place and time stated in the Bidding Document. Bids received prior to closing date are kept in safe custody. BCIC keeps such Bids in the Locker of scheduled Bank. BCIC also keeps all bids after opening in Bank's locker and from there brings out daily for evaluation. For some cases of small deals for goods in the field and for almost all cases of civil works at the level of Executive Engineer all over the country, like those of PWD, LGED, Facilities Department of MOE etc., bids are received and opened in different places including other offices, head offices of the executing agencies and offices of Commissioner and Deputy Commissioner. Dhaka City Corporation also receives bids in different places especially for the petty items. Development Partners like EC requires bids to be received in the Delegation office at Dhaka in addition to the office of the Executing Agency. For big deals under EC financing, bids are also received and opened in EC Headquarter. b) Within the country although bids are received in different places, those are opened at the same time stated in the Bidding Document. But there are also few cases like R&H where bids are collected from different places unopened and opened after a day or two as stipulated in the Bid Document. This is considered to be risky. Receipt and opening of bids in different field offices including offices of Commissioners and Deputy Commissioners was decided by GOB after a series of untoward incidents throughout the country relating to submission of Bids in one fixed place or Box. Sometimes police protection is needed in the office receiving bids. Although bids are allowed to be received any time during the bidding period and up to the last day, the practice is otherwise. In a very few cases bids are received before the last and closing day. Tender Box is seldom placed before the closing date. If bids are received during the entire bidding time, the necessity for receiving and opening bids in other plaices for security reasons may not be there. c) Bids are normally opened in presence of the representatives of the bidders. The representatives sign a register evidencing their attendance. The bidder's name, bid prices, discount, if any, altemative bids(s), bid withdrawal if any, presence or absence of requisite Bid Security and modifications, if any, submitted before bid closing are read aloud, Some of the agencies prepare Bid opening statement an submits to concemed Development Partner. Preliminary Examination of Bids 1.40 The executing agencies at the time of opening of bids or after sometime later undertakes preliminary examination of bids to ascertain whether the bids. 35 a) meet the eligibility requirement b) have been properly signed c) are accompanied by required bid securities. d) are substantially responsive to the requirements of the bidding documents. e) have any material errors in computation, and f) are otherwise generally in order. In some cases the above information are made known to the representatives of the bidders present during opening of bids. Evaluation of Bids 1.41 Bids are normally evaluated by committee formed by executing agencies. Most of the organizations contacted have regular Tender Committees and in some cases Tender Evaluation Committees. For high risk and complicated items, experts are co-opted in Evaluation Committee. Evaluation Committees are there, but most members are not qualified, experienced and capable for the job. Specific training on Bid Evaluation for the member of the Evaluation committees is considered essential. 1.42 Bid Evaluation process is the most important area in the procurement process. Maximum time is lost in this area. Delay in decision for award is mostly form this area. Evaluation is hardly completed within bid validity. According to IMED such cases of delay are about 70%. This delay is due to following reasons: a) Lack of expertise of the Evaluation Committee b) All members of the Committee are not full-time members, works in addition to own duties c) Difference of opinion among the technical members leading to unpleasant situation d) Too many guidelines e) Under present system it is difficult to fix up responsibility for evaluation delays In this connection the opinion of Chairman of Petrobangla may be seen in Attachment- 1. Maximum attention requires to be given to this area for country procurement in Bangladesh. Evaluation process coupled with lengthy approval process contributes to the delay and this is a national problem. All monitoring including contract monitoring is still done manually. The earlier computer is used the better. Use of computer will help reduce delays in most stages. Bid Security 1.43 Bid Security is submitted by all bidders for ICB, NCB, or LCB normally in the form of Bank Guarantee (BG) as per format attached with Bidding Documents. Such securities are also taken by Pay Order, Demand Draft or even by cash in case of local procurements. The rate for Bid security varies from 1% to 2.5% of the bid price quoted by a bidder. It is forfeited by the executing agency in the following cases: i) if the bidder withdraw his bid during the validity period of the bid 36 ii) if the successful bidder fails to furnish Performance Security within given time, and iii) if the successful bidder fails to sign contract within given time as per terms and of the bid. The Bid security is required to be kept valid for 30 days beyond validity of bid. But this is not always done and many of the purchasers fail to identify this discrepancy. Validly of Bid is often extended without extending validity of Bid security. Performance Security 1.44 After notification of award from the executing agency the successful bidder is required to submit, as per terms of the Bidding Document, Performance Security within a given time. Such security is also given in the form of BG and in a format attached with Bidding Document. Performance Security is also taken by pay order, Demand Draft or even by cash for local procurements. Security is also taken by Pay order, Demand Draft or even cash for local-procurements. Rate of performance Security is normally 10%. Dhaka City Corporation has stipulated provision for Performance Security at 20% for procurement of some machinery. During the eighties construction of Fertilizer Godown under USAID, 2nd phase, the provision for Performance Security was 100%. The work was done by Korea Development Corporation (KDC) of South Korea. Procurement under EC funding has no provision for Bid or Performance security. Some of the state-owned enterprises are exempted from furnishing Bid and Performance Securities. Performance Security may be forfeited by the executing agencies for failure to perform by the contractor or supplier or for other reason stipulated in the contract. Domestic and Regional Preference 1.45 Multinational Lending Agencies like IDA and ADB allow domestic and regional preference for procurement under ICB for boosting up production of indigenous industries and promote the local industry. But even with 10 or 15% price preference for Bangladeshi goods and works, could not help develop Bangladesh industries. Prequalification of Bidders 1.46 Pre-qualification is done for large and complex works and, exceptionally for custom designed equipment and specialized services to ensure that invitation for bids are extended only to those who are capable. Pre-qualification is also done to meet the requirement of donors. The experience and past performance of the prospective bidders, their capabilities and plant and financial resources are reviewed and examined while pre- qualifying a party. In few cases post-qualification is also done. Scope for pre- qualification is required to be reviewed. Pre-qualification and/or short listing may be practiced in procurement cases where too many offers are expected. Training is required for enabling the procurement personnel to assess pre-qualification requirement for such cases. Too much interference from different levels including political pressure are there which makes it difficult to keep the pre-qualified contractors and bidders within a reasonable number. 37 Bid Validity 1.47 Bid validity, as specified in the Bidding Documents, varies widely. Wheat and rice had been procured by Ministry of Food with Bid Validity of 48 or 72 hours. Fertilizers had been procured (imported) in this country for 30 years with bid validity for one month. Procurement of cement also does not require a longer bid validity. Normally bid validity in this country varies between 3 to 6 months. The executing agencies are supposed to complete evaluation within bid validity period. But this is hardly done by most agencies. Bid validity had to be extended in huge number of cases by most agencies for non-completion of evaluation. Often Bid Validity is extended without proportionate extension of validity of Bid Security. Approval of Bid Evaluation 1.48 After completion of Bid Evaluation the recommendations and findings are approved by the respective Tender Committees or Boards depending on the size of the contract, The recommendation for award of contract is approved by the Government and/or by the Development partners. In the case of Development Partners the approval limit or prior review is spelt out in the respective aid agreements. The present GOB delegated authority for purchase or award of contract shown in paragraphs 7.01, 7.02, and 7.03. Approval of Development Partners taken in most case before approval by Ministry or Council Committee. In some cases donor's approval taken after completion of GOB approval process. Award of Contract 1.49 After completion of approval process and decision the executing agency issue notice (Letter of Intent) to the successful bidder for submission of Performance Security within a given time. On receipt of security, contract is signed and issued. Opening of L/C 1.50 The next step in the procedure for procurement is to open Letter of Credit (L/C) where necessary, but mostly for imports. Insurance 1.51 As per GOB rules and practices Public Sector buyer obtains Marine Insurance from the state-owned insurance company "Sadharan Bima Corporation" (SBC) covering 11 0% of C/F Value of all imported goods and cover all risks including war risks. Marine Insurance from private company is not allowed for public sector importer. As per Ordinance no Li dated 07.08.1984 appearing in Bangladesh Gazette Extraordinary issue of 11th August, 1984 all public properly to be insured with Sadharan Bima Corporation. The exact language in the ordinance is reproduced below: 38 "... Public properly to be insured with the Sadharan Bima Corporation only: (1) All insurance business relating to any public property or to any risk or liability apprehending to any public properly may be placed with the Sadharan Bima Corporation and with no other insurance. (2) Any policy of Insurance taken or issued in contravention of the subsection (1) shall be void. Provided that any claim for loss, damage, compensation, or refund of premium arising out of, or relating to, such policy shall be binding on the insurance. (3) In this section "Public Property" means - a) any property movable or immovable which belongs to or the protection of which is the legal responsibility of i. the Government or local authority; or 11. any company, firm, undertaking, institution, organization or other establishment which is managed or controlled by the Government or a local authority ...... iii. a project financed and of an external loan or with external aid The Ordinance also allowed Sadharan Bima Corporation to reinsure with any insurer required to be reinsured and which could not be fully reinsured locally. Sadharan Bima Corporation reinsures with foreign companies through Tyser and Company, the Broker for (international) reinsurance group, using various types and methods. Sometimes SBC reinsures under Excess Treaty taking liability of Taka 25 lakh for self and balance for the reinsurer. Sometimes it is on quota share basis wherein certain percentage of risk is taken by SBC and the rest by reinsurer. About 75% to 80% risk of SBC is reinsured. Claims setting clause normally stipulated by SBC are reproduced below. "Claims Settling Procedures Claims hereunder, if admissible, shall be settled in foreign currency as per rules, regulations and/or procedure as laid down by Garment of Bangladesh and Bangladesh Bank." Being a Government concern, it is difficult to realize claims for losses from SBC. Claim settlement takes time in SBC. Here are two examples from BADC: a) M. V. Eastern Marine with 10,000 MT DAP fertilizer sank on 16.02.1981. Clam lodged with SBC on 18.03.1991. Check (Taka 4.5 crore) was received on 17.02.92. b) M. V. Ionia with 25,000 MT TSP fertilizer burnt on 04.12.1990. Claim lodged with SBC on 09.12.1990. Claim settled on 17.02.1992 (Taka 15.67 Crore). The importers would have preferred CIF procurement in place of CFR, had there been no such restriction or embargo. The embargo is for the interest of SBC. The direct benefit for GOB is the employment provided by SBC. At a time when GOB is trying to help develop free economy and public sector, there is no reason why the marine insurance 39 coverage of public sector organizations should not be opened for private companies on competitive basis. Transportation 1.52 The suppliers are allowed to deploy any flag vessel from any eligible source country in case of CFR or CIF contracts. For FOB contracts buyers are restricted to use Bangladesh flag vessel. If Bangladesh flag vessel is not available, the buyer is to obtain waiver from the Director General Shipping. This provision is for protecting the interest of Bangladeshi Shipping Companies, especially the state owned Bangladesh Shipping Corporation. Inspection 1.53 The objective of inspection is to have the goods or works strictly as per specification, schedule of requirements-right quality and right quantity. As per GOB import policy and as per GOB guidelines all imported goods should go through inspection procedure. The provision for inspection is stipulated in the Bidding Documents. Good number of public sector organization like REB, BADC etc, appoint private parties for two or three years for conducting pre-shipment inspection. While other like PDB, DCC etc, arrange pre-shipment inspection abroad through their own team. Some of the organizations like BARC on the other hand arrange inspection on arrival. Post landing inspections are conducted on specific requirement. In some cases both pre- shipment and post landing inspections are conducted. Besides inspections, survey is conducted in destination ports or at delivery points for ascertaining quantity and damages. Pre-shipment inspection by a reputed third private party is an internationally accepted practice. Both public and private sector should follow this practice for all imports. GOB has made PSI mandatory in the budget for 1999-2000. Delivery and Completion 1.54 Delivery of goods and completion of works normally expected in accordance with time schedule stipulated in the contract. Delayed delivery of goods and completion of works are comparatively less after award of contract. Delay in the process from receipt of bids and awards of contract are several times more than that of after award of contract. In case of delayed delivery or completion, not for any force majeure condition liquidated damage (L/D) is realized at rates stipulated in the contract. There is, however, no provision for payment of compensation to the contractor or supplier for delay due to employer's fault. L/D imposed on suppliers and contractors are not realized in many cases and are waived on appeal from the suppliers. PDB and Titas claim that delivery completion data given by them in the contractor or supply order are reasonable and are mostly completed on schedule. According to PDB 50% supplies completed within scheduled date, 25% completed before scheduled date, and about 25% delayed slightly due to various reasons. Titas claims that normally their international procurement of goods are completed within scheduled date. Some of the works, like laying pipes, are delayed due to obstacles caused by miscreants. 40 Two-Stage, Two-Envelope Bidding Procedure 1.55 Procurement in the country is normally carried out through one stage (one envelop) bidding. In this case "technical and the price" bids are submitted in one envelop. However, in certain cases of complex plants and works a two-stage bidding or two envelop procedure is adopted. a) Under two-stage bidding procedure technical bids without prices are first received along with bid security of a fixed amount. The technical bids are first examined for substantive responsiveness. After evaluation and going through approval process of GOB and donors, where necessary, and considered technically responsive, the Technical responsive bidders are then asked to submit their price bid on a fixed date and time. Their bids are opened in the same date of receipts and in presence of the bidders. Contract is awarded to the lowest evaluated bid. b) Under two envelop bidding procedure bids along with bid securities are received from each bidder in two separate sealed envelops. One for technical bid is opened first and evaluated while the price bid is kept in safe custody. The technical bid is examined and evaluated for substantive responsiveness. After detailed evaluation, clarification from bidder, etc. and completing approval process including that of GOB and Development Partners, the price bids of technically responsive bidders are opened with prior notification to the concerned bidders. The contract then is awarded to the lowest evaluated bidder. The price bids of technically non-responsive bidders are returned unopened. Repeat Order 1.56 There is provision under different Manuals and Guidelines for repeat order for meeting additional requirement of goods. Such orders are given with concurrence of Development Partners, where necessary. Settlement of Disputes 1.57 Most of the Bidding Documents and Contracts have provision for settlement of disputes. The executing agency and the suppliers or contractors first try to resolve disputes by direct informal negotiation, failing which they opt for arbitration. For dispute with local parties, the dispute is referred to adjudication or arbitration as per Arbitration Act 1940 as amended. Disputes with foreign parties are settled in accordance with provisions of International Chamber of Commerce (ICC) Arbitration Rules or the United Nations Commissions on International Trade Law (UNCITRAL). The venue of Arbitration is generally Dhaka, Bangladesh. Time Limits 1.58 ERD's Guidelines and Procedures allows 192 days for ICB, 151 days for LIB and 126 days for LCB from the step submission of Draft Bidding Documents (DBD) to Development Partner to Commitment of L/C by Development Partner. But this timing is 41 hardly achieved. Delay occurs in about 70% cases. There are instances of delay for more than a year and two to three years. IMED has compiled 150 cases of delay under 9 Ministries. Procurement of Civil Works 1.59 All procurement of Civil Works are local. But it may be under foreign funding as well as under GOB funding and may involve foreign exchange. The bidding may be ICB or NCB. Foreign firms, contractors, and builders are working in a good number of civil works projects in the country. Guidelines of ERD and/or of the Donors are followed for these works. Some of the public enterprises follow their own works or constructions manual for procurement of civil works. 1.60 Most of the Government organizations like PWD, LGED, R&H, Facilities Department etc. follow PWD Codes or Codes of their own for local constructions works. But procurement of local works under GOB funding are conducted following Bangladesh Form # 2911. This form was devised during the British rule to cater the needs for colonial power. Before having their own Construction manual, most of the public sector organizations used this form for construction works. The form is still in use with little or no amendment by Government offices. Roads and Highways (R&H) has revised Form # 2911 and submitted to Ministry of Communication for approval. PWD, R&H and other organizations follow Central Public Works Account Code (CPWA), Central Public Works Departmental Code (CPWD), Roads and Highways Departmental (RHD) Manual, etc. for Works. 1.61 Form # 2911 is at the same time a bid document with schedule for quoting rates and prices and a contract document. In practice the Schedule of Works are given separately to the bidders. They quote rates and prices on the schedule. Rates and prices are quoted in plus or minus percentage or at par against estimated price shown in the schedule, although there is no such provision or stipulation in Form # 2911. This system of quoting price in plus or minus percentage or at par was introduced in mid-sixties after a series of cases of abandoning works by the contractors taking maximum payments against minimum works. The difference between payments received by contractors and actual works performed was so big that even forfeiture of Performance Security would not compensate GOB loss. The bidders sign Form 4 2911 and submit the same along with schedule with quoted rates as bid. After acceptance of the offer of the successful bidder the format 2911 is signed by the employer and the same becomes the contract along with the schedule. The estimated rates are mostly updated every two years. Separate schedules are prepared for each work. 1.62 Other salient features of Bangladesh Form # 2911 are listed below (other than common ones): (i) It requires Bid Invitation Notice to be placed in public place. (ii) The buyer is the President of the country or his authorized officers. It may be stated here that this format is used mostly by Government Offices. 42 (iii) In most matters relating to the work and payment the decision of the Divisional Engineer (normally an Executive Engineer) is final and binding on the contractor. (iv) Compensation or penalty realized from the contractor goes to Government Exchequer. The contractor has no right to question whether there was at all any loss or not. (v) Sub-contracting is not allowed without permission. In practice sub- contracting is there, but officially shown as done by the main contractor. (vi) LD at the rate of one percent per day with Superintendent Engineer having full power to decide amount of LD. There was little or no case of realization f LD at the rate of one percent per day. 1.63 Local industry for construction works has not so far developed to meet requirement of heavy construction works. For procurement of goods the country faces no problem in getting bids for big projects from local bidders. They do it either themselves or through their foreign counterparts and principals. But this is lacking in case of works. The local construction contractors lack training, experience, capital and equipment for big construction projects like Buriganga Bridge or proposed Padma and Rupsha Bridges. They need training in this field and assistance for mobilizing equipment and logistics for heavy construction works. By now, a few good local designers, architects, and contractors have come up and they have built some high-rise and architecturally beautiful buildings. Public Sector Appointment of Consultant Procurement of services of consultant for various areas is lengthy and complicated. Consultants are engaged and their services are utilized for some cases of procurement of goods, for many cases of procurement of works, for management, for training etc. Under all guidelines, selection and appointment of consultant is lengthy and difficult. In ERD's guideline on Employment of Consultants as many as 14 steps have been listed in the process of appointment of consultants. The steps are more or less in line with WB Guidelines. The terminology is slightly different. Expression of Interest (EOI), Request for Proposal (RFP), Letter of Invitation (LOI), Information to consultants (ITC) etc. are commonly used by most agencies. The steps along with maximum time-limits suggested in the guideline is reproduced in the next page. 1.64 It would appear from the table (presented in the next page) that for appointment of a consulting firm it requires about 35 weeks. For appointment of a short-term individual consultant it takes about 12 weeks and for long-term individual consultant it takes about 15 weeks. Even this time schedule is not maintained in most cases. Delayed appointment of consultant, specially Management Consultants, delays project and procurement of works and goods. There are instances of delay for about two years in appointment of consultants. Two such cases are the appointment of Research Management Expert (RME) and Training Contractor (Consultant) in BARC. Evaluation is never completed within the times originally required for the validly of proposals. Almost 100% of appointment of consultants are delayed, excepting those directly selected by Donors. 43 1.65 There is always difference of opinion between GOB and Development Partners on issues relating to selection of consultants. The question of income tax payment by consultants or Consulting Firm is a major area of difference. 1.66 There is practically no delegation for selection and appointment of consultant below Minister or Ministry. The Minister can decide cases up to Taka 5 (five) crore and the Cabinet Committee on Government Purchase above Taka Five Crore. It was gathered from IMED that the Board of the Corporations or Heads of Government Department like Chief Engineer can decide case of selection of consultant up to Taka 1 (one) Crore. There is hardly any official delegation below that. Steps in the Appointment of Consultants and Maximum Time Limits Individual Consultant Consultancy Short-term Long-term Firms Consultant Consultant 1. Preparation of Terms of Reference Two Weeks One Week One Week 2. Short-listing of consultants where Two Weeks ... ... necessary 3. Invitation for bids, circulation or Two Weeks Two Weeks Two Weeks advertisement 4. Submission of bids by consultants Six Weeks One Week Two Weeks 5. Evaluation of Technical and financial Four Weeks Two Weeks Two Weeks Proposal 6. Reference With Development Partner or Two Weeks One Week One Week Agency, where necessary 7. Clarification and Negotiation with bidders Two Weeks ... ... 8. Approval of the concerned agencies up to Two Weeks One Week One Week Tk. 1.00 crore 9. Reference to the Administrative ministry (i) Reference for clearance of Two Weeks ... ... consulting firms (ii) Reference of cases to the value of Two Weeks ... ... above Tk. 1.00 Crore to Tlc. 2.50 Crore (iii) Individual Consultant ... Two Weeks Four Weeks 10. Reference of cases to the Council Three Weeks ... ... Committee 11. Issuing letter of intent to the selected One Week ... ... consulting firm 12. Signing of the Contract One Week One Week One Week 13. Reference to the Ministry of Home Two Weeks One Week One Week 44 Affairs and the Ministry of Foreign Affairs for clearance by Administrative Ministry or executing agency. 14. Reference to NBR Two Week 1.67 The consultants Development Design Consultant Limited (DDC) has suggested six steps with timing for appointment of Technical Consultant .the total timing is five months. They have also suggested for certain cases to engage freelance consultant instead of Management Consultant. According to DDC, Public Sector selection of Consultant in the country is becoming tough day by day for the consulting firms, not only for competition but also for unfair means adopted by some of the employers, political pressure, and competition with locally registered foreign firms. 1.68 According to Chairman BWDB Consultants directly appointed by donors takes lesser timing. Many others hold similar views. 1.69 Award of contract for consultancy for development works is a very important source of corruption in the country as reported in the report "Government Malpractice" prepared by the committee headed (Convenor) by Mr. Burhanuddin Ahmed, former Secretary to GOB. The report further adds that much of the malpractice lies at the stage of evaluation of design, model, drawings, credentials, etc. In addition to direct intervention from the highest level, evaluations were rigged by corrupt official and outside professionals in the evaluation team, the report added. The rules for bidding should ensure fair competition, evaluation procedure should be fair and transparent to participants, credentials of experts should be open for examination by all contestants and must be verified by the employers. Professional evaluation should not be made by the highest authority in the country or bureaucrats, but done by a team of professionals drawn from different sources or bodies. The report suggested enactment of set of rules as Law by Parliament. The structure of fees for different items of professional service should be developed by professional bodies and approved by the Planning Commission. Special terms and condition as well as crash projects should require clearance of the Planning Commission. The last suggestion for clearance from Planning Commission does not appear to be rational. 1.70 Interference from top officials, politicians and others in matters of selection of consultants still continues. This is a chronic problem in Bangladesh and can be eliminated only by strong political commitment. 1.71 The procuring public sector entities are not generally well staffed, experienced and lack the capability for carrying out a Professional Selection Process of Consultant Services. Most of them do not or cannot administer consultant contracts effectively for the same deficiencies. 1.72 The Procedure for appointment of consultants is required to be simplified and shortened to avoid abnormal delay in procurement. The concerned staff requires to be trained in all stages relating to selection and appointment of consultant starting from preparation of terms of reference, and for effective administration of consultants. 45 Procurement Process For the purpose of having a full picture of procurement process from preparation of Bidding Documents up to approval of Cabinet Committee on Government Purchase the case of Procurement of Goods above Taka ten Crore of a big corporation under donor funding is presented hereinafter. 1.73 Bidding Document along with specification is prepared by appropriate person or committee. In REB Bidding Document is prepared by and approved by Tender Document Finalization Committee (TDFC) headed by Member Finance, while the technical specification is prepared and approved by Technical Committee headed by the Chairman. In PDB the Bidding Documents are approved by authorities as per volume (Value) of procurement based on delegation of powers and amendments, if any, are approved by next lower position. In BARC Bidding Documents and any amendment thereof are approved by the Chairman. 1.74 The Draft Bidding Document is then sent to Development Partner for review, clearance, and approval. After receiving the Document back from Development Partner the real process starts. 1.75 Bid Invitation Notice is sent to Ministry of Information for onward transmission to Department of Films and Publications (DFP) for publication of the Notice in Daily Newspapers. Such notices are to be sent at least 15 days before the expected date of publication. In most cases of NCB the Bid Invitation notices are not sent to DFP timely and the notices appear in the press keeping very little bidding time for the bidders. 1.76 Bids are received and opened on appointed time, date and venue. ICB tenders are mostly received and opened in one place. 1.77 On receipt of the Bids, these are given to the Evaluation Committees of the corporation for evaluation. Most of the organizations have separate Evaluation Committees. In some organizations like BADC, Commercial and Technical Evaluations are done separately and two separate Evaluation Reports are prepared. 1.78 After Evaluation the bids along with Evaluation Reports and/or working papers are placed before the Tender Committee or Board of the corporation for consideration. For procurement above Taka ten Crore, the Tender committee or Board recommends in favor of the acceptable bid. Minutes are prepared on the meeting of Tender Committee or Board. 1.79 The procurement case along with minutes of the meeting of the Tender Committee or Board then sent to Ministry for presenting the case before the Minister or before the Cabinet Committee on Government Purchase. The Procurement Division or Section within the corporation initiates and co-ordinates all the steps discussed above. 1.80 In the Ministry, the Procurement Proposal along with all relevant papers is received by the Secretary. The papers go down to the Assistant Secretary who is normally the desk officer. The Assistant Secretary puts up the paper in concerned file of the organization or in a new file. The Assistant Secretary is often found scrutinizing the papers and making queries from the organizations. He prepares a Summary of the case for the Minister or for the Cabinet Committee and puts up to Deputy Secretary. From Deputy Secretary it goes to Joint Secretary, then to Additional Secretary, and Secretary, 46 and finally to the Minister. The Minister approves the case if it is within Taka 25 crore. Otherwise he approves the Summary for the Cabinet Committee. After clearance and acceptance of the draft summary, the file goes down to the Assistant Secretary. The Summary is typed and again presented to Additional Secretary or Secretary for signature. Some of the organizations prepare the summary on behalf of the Ministry. 1.81 From the Ministry the procurement case along with summary and other papers goes to Cabinet Division. The Cabinet Secretary fixes dates for meeting of the Cabinet Committee on Government Purchase along with other procurement cases. The usual ups and downs of papers from Secretary to Assistant Secretary and back are also there in the Cabinet Division. 1.82 Final decision on the procurement above Taka ten Crore is taken by the cabinet committee with Minister Finance as the Convenor. After decision of the committee, minutes are prepared by Cabinet Division and sent to Prime Minister for approval. After approval and signature of Prime Minister, Cabinet Division conveys decision of the Cabinet Committee to the concerned Ministry and the organization. After receipt of decision of Cabinet Committee, the organization places order and signs contracts after observing other procurement formalities provided that the Development Partner has given "no objection" to the procurement decision. In a few cases earlier, the organizations were allowed to place order after decision of Cabinet Committee (called Council Committee earlier), pending signature and approval of the Prime Minister. 1.83 The process is lengthy and requires shortening. The recommendation of a Board or Department headed by an Additional Secretary (Chairman or Chief Engineer) is again scrutinized or reviewed by an Assistant Secretary. This practice should be changed. The other alternative is to enhance the power of the organization and of the Ministry. 1.84 The above process is equally applicable for goods and works. In case of appointment of consultant above Taka five Crore, the same process is involved after acceptance of the offer or bid by the organization and cleared by donor. 1.85 The procurement and approval process discussed above are listed below in chronological order: a) Preparation of Bidding Documents (BD) by the organization or buyer along with spec b) Approval of the BD by development partner where necessary c) Presentation of Bid Invitation Notice to Ministry of Information or Department of Films and Publications (DFP) for publication in daily newspaper d) Receipt and opening of bids at notified place, date, and time. e) Evaluation of Bids by the Evaluation Committee of the organization f) Presentation of Bid Evaluation results along with bids to appropriate Tender Committee or Board of the organization for decision and recommendation. g) "Approval" or "No Objection" of Development Partner on the decision or recommendation of the organization where necessary. 47 h) Placement of order or contract award (on receipt of clearance from the Development Partner) at this stage if the procurement is within the power of the organization. i) Presentation of the procurement case to Ministry for approval of the Minister or of Cabinet Committee on Government Purchase as the case may be. In the Ministry the case moves in the following order: Secretary =; Additional Secretary =; Joint Secretary => Deputy Secretary --;Assistant Secretary (the desk officer) The desk officer puts up the case for approval of the Ministry or for approval of Cabinet Committee as the case may be and the file again moves in the following order: Deputy Secretary => Joint Secretary => Additional Secretary > Secretary => Minister => Secretary => Additional Secretary => Joint Secretary r Deputy Secretary =>Assistant Secretary (the desk officer) j) Presentation of Procurement Case to Cabinet Division by the Ministry along with a summary for processing approval of Cabinet Committee on Government Purchase where the case moves in the same order as in the Ministry. k) Meeting of the Cabinet Committee on Government Purchase 1) Approval of the decision of Cabinet Committee by PM m) Communication of decision of Cabinet Committee to the Concerned Ministry and the organizations or buyers n) Placement of order and signing of contract after observing necessary formalities like receipt of Perfornance Security etc. 1.86 Reference to Ministry of law and NBR: As per GOB Rules of Business, the Ministry of law. Justice and parliamentary Affair is to be consulted for "Preparation of important contracts, international agreement..." On this basis, most of the Departments and Organizations get their Contracts vetted by the Law Ministry. It kills time and delays procurement. Contracts are also referred to National Board of Revenue (NBR) for ensuring proper stipulation of taxation clauses and for avoiding violation of revenue orders. Bidding Documents are not normally vetted by Law Ministry or NBR 1.87 Too many stages for approval: Discussed under procurement process, paragraphs 13.05 to 13.10. The approval process is unnecessarily lengthy. Why should a procurement proposal, examined and recommended by the Board of a Corporation, be processed and examined in the Ministry from Assistant Sectary and why it should not be handled at the level of Secretary or Additional Secretary only? Chairman Petrobangla is of the opinion that decision of the Evaluation and Tender committee should be final. Analysis The position based on available data and information have been analyzed considerably in the foregoing paragraphs. Further additional analysis placed hereinafter. 48 1.88 Non observance of Rules a) Adequate or inadequate, rules and regulations are there. What is lacking is sincerity and commitment for implementing and applying the same. There are enough safeguards for preventing and identifying overinvoicing and underinvoicing and other irregularities. But corrupt practices prevent the prevention. b) Provision for Pre-shipment contains in every import policy order. Still then, violations are there especially by private sector importers. c) Rules and regulations are there for detecting facilitation payments and payment of speed money. Anti-corruption Laws are not inadequate. It is inadequately implemented by taking different type of facilitation payment. d) Banks are fairly creditworthy. But the defaulting private sector makes the Banks short of liquidity. 1.89 Inadequate and Untrained Staff a) The procurement units in some of the organizations are either inadequate or not manned by appropriate persons. Contracting authority not reasonably delegated in line with GOB's latest delegations, Tk. 25 crore for Minister and above Taka 25 crore for Cabinet Committee on Government Purchase. b) Lack of training and absence of adequate training facilities hinder proper procurement professional career development. Most of the existing procurement personnel need training in all aspects of procurement. 1.90 Documents Some of the organizations like BARC, PDB etc. have no procurement manual or guideline of their own. Each agency should have manuals of its own. The documents and records maintained by agencies are not uniform. Training is, again, required for rationalization of record keeping. 1.91 Experience with World Bank Projects Experience with World Bank assisted project is more or less the same as of other donors or of GOB's. The same set of people is working for all projects are working for all projects funded by different donors. Most of organizations contacted and having IDA/WB projects requested for increasing the threshold for NCB or LCB. They requested for GOB's acceptance of single offer meeting all requirements. 1.92 Translation of guidelines in Bengali Too many and different guidelines from too many donors confuse the procurement agencies. By this time some of the executing agencies are more or less familiar with ADB and WB guideline. Time has come for translation of these guidelines in Bengali, as most of the personnel of procurement, for that matter public sector servants, are no longer proficient in English. Procurement under EC and DFID funding is more time consuming. Most of the organizations contacted raised the question of having uniform procurement guideline for all the donors. 1.93 Interference by CBA 49 CBA and trade union is said to be No. 1 problem for development activities, interfere with most activities of the concerned organization. Some of the organization stated that they face no problem from CBA in matters of procurement. Their statement was not the whole truth. They stated like that for fear of assault or otherwise from the political parties as they utilize the CBAs and Trade Unions which makes these organizations so powerful. Unless the activities of CBAs are kept within limit, procurement and other activities of public sector are bound to suffer. A strong political commitment will be required for curbing undue interference of CBAs and others. 1.94 Opinions The opinions of public sector officials, suppliers and contractors were obtained in respect of procurement. Deficiencies and Weaknesses 1.95 Salient deficiencies and weaknesses in procedures and practices in the country are shown below: a) Too Much Procedures and Guidelines: Most of the major buyers in public are to follow procurement Guidelines and procedures of their own or GOB's and of a Development Partners. By new Guidelines and procedures of WB of ADB are more or loss Familiar with some of the agencies. The same of other Development Partners are not yet familiar with most of the organizations. Too many Guidelines and Procedures confuses the buyer. Most of the organizations or departments contacted are in favor of a common Guideline or procedure. WB guidelines may be the basis for having a common one. b) Inadequate procurement Planning: It is observed in cases of 75% to 80% project that there is no time-bound procurement planning based on (i) implementation programs of the project (ii) completion time of the loan credit and (iii) guidelines of GOB and of the Development Partner. As a result, it is not possible to check (i) at what times which good or work is required (ii) what time is required for a particular bid invitation, and (iii) delays in different stages or to identify the same In the absence of tome bound procurement planning in loan Agreement, ambitious programs are being taken sowing implementable within a short period. As a result there is time overrun in most of the project. In the absence of proper planning it is some times observed that the good, arrived or contractor appointed at a time when it is rainy season, not working season and the same can neither be stored nor used in the project. 50 c) Preparation of Bidding Documents: Good number of agencies lack knowledge, training and experience in preparation of Standard Bidding Documents (SBD). Considerable time is lost in preparing the SBD by inexperienced personal and getting approval and clearance of Development partners. Under ARMP project, about two years were lost by the inexperienced Agricultural Research Institutes for procurement, like seed for agricultural production. By a letter of April 1999, WB has made it mandatory to use SBD. d) Frequent Extension of Bid Validity: GOB and Development partner normally allow 90 to 180 days bid validity. Within this time the agency should receive the bids, complete evaluation and approval formalities and issue work or supply order In about 70% cases this is not achieved and question of extension of bid validity arises. In some cases the bidder do not agree to extend bid validity or ask for price escalation. Frequent extension of bid validly creates a relaxing attitude both for the agency and for the bidder. Above all it delays procurement. 90 to 180 days is considered sufficient for completing all formalities and procedures from receiving bids to issuance of work order. e) Bidding Collusion: In cases of local procurement of departments like PWD, R&H, LGED. Facilities Department, etc, the bidders form a consortium and submits bid at a high and same rates by all of them. Award is made through lottery. This is another type of "(high handedness). This increase cost considerably and makes the agency helpless in accepting the bid. f) Re-Bidding without Valid Reason: Agency some times cancels bid, even after opening, without valid reason or justification. Most of the local bidding is cancelled if there is only one bid. There is no objection from Development partners to accept one offer if it meets all requirements and the price is reasonable. Re-tender delays procurement to great extent. g) Delay in Selection and Appointment of Consultants: Preparation of SBD, Drawing, Designing, etc. of some of the projects are required to be done by Consultants. It is observed in many of such cases that procurement is delayed for the delayed selection and appointment of consultants. In some cases it is a condition for effectiveness of Loan Agreement, e.g. 3rd RAMP of road under IDA project. Consultant could not be appointed within more then one year and as a result the Loan Agreement is not yet effective. h) Absence of Appropriate Tender Evaluation Committee: In cases Tender or Evaluation committees are not formed by appropriate, experienced and qualified personnel. Most of them are not full time and work in addition to their own duties. As a result they cannot render full time or are not always available for evaluation work after attending their own duties. As result shortfall remains in the evaluation work. There is no arrangement for training of members of Tender of Evaluation Committees. i) Delay in Revision of Project Paper (PP): In some cases accepted and recommended prices are above PP provision. Approval of such procurement 51 cases at different stages is to wait till revising of PP through a lengthy process is completed. j) Dispute Resolution: Unsuccessful bidders complain against or dispute process of bids very often, specially when they succeed in getting information through unfair means during processing of bids. Processing of procurement case remains suspended mostly until settlement of the disputes. It is not possible to stop lodging complaints or raising disputes. But this can be minimized if certain rules are followed. There may be a time bound arrangement of disputes. There may be a clause in the Bidding Document stipulating provision for additional provision for additional or extra Bid Security for lodging complaints or for raising dispute and that security shall be forfeited if the complaint or dispute is proved false. k) Delay in or lack of Taking Decision: This is a major in problem in procurement arena. Decision is delayed in most stages of procurement processing from evaluation to final work order. There is lack of commitment for decision and the same time lack of knowledge, experience and guts for taking decision. 1) Unfamiliarity with GOB or Donor's Rules: Not only the Project Director or procurement related personal, but also the top officials of the departments or corporations are not adequately acquainted with rules, regulations, and guidelines of procurement. This combined with rigid procedures causes major delay in different stages of processing procurement. As a result delay occur in different stages of processing of procurement. For this intensive training is required. Procurement Manual, Guidelines or Books are not available with most procuring agencies and they seldom consult these. They should be motivated through training to have GOB's and Donors' Guidelines and other related books and circulars and consult those in every stage of procurement. m) Inadequate Transparency: The entire procurement process lacks transparency. The bidders and others concerned are kept in dark about many of the information and position they should know. For example, the method of evaluation and marking criteria, if any, are not clearly stipulated in the Bidding Document. The bid evaluation process is shrouded in secrecy. But all or part of the evaluation documentation is available in the market at a cost. This partial data fuels a consequent spate of complaints against contract awards and a major cause of procurement delay, since GOB and the Donors are obliged to investigate the complains. n) Outside Influence and Lobby from Interest Groups and CBA: These are burning issues in the country and affecting entire society. The Interest Groups and CBA are politically backed and as such they are very powerful. They interfere in different stages of project implementation including procurement, especially in local funded works procurement. They enjoy undue privileges and extract money by force (Chandabaji). For these the concerned officers and contractors feel insecure. Only strong political will and commitment can solve 52 this problem. These influences and lobbing seriously delay procurement process. 1.96 In addition, some special deficiencies, weaknesses, and irregularities faced and detected by WB Official are discussed hereinafter: a) Inadequate Bidding Time: Discussed in paragraph 10.13. Due to delayed advertisement in the press, the bidders do not get adequate bidding time, specially for the NCBs. Either the agency should be allowed to go press direct or the agencies should add about three weeks for publication of Tender Notice. There should not be any conditional advertisement of Bid Invitation Notice. b) Incomplete Bid: The bidders do not read the bidding documents carefully and in many cases do not fill the Bidding Documents properly. The gaps and dates in Bid Security and other forms are not filled in. For lack of knowledge, experience and sometimes for carelessness the evaluator can not detect these mistakes. c) Subjective Evaluation: The Evaluation committee in many cases does not take into account the evaluation criteria. Technical and Commercial evaluation are not done clause by clause. The committee mainly considers the price element and does not scrutinize the bid properly. Bidders require training in respect of filling different documents. Training of procurement personnel should be on specific subjects like preparation of Bidding Documents, evaluation etc. d) Shopping Not Understood: The agencies in some cases confuse shopping with procurement through bidding. They price the shopping document making the same unnecessarily as big as Bidding Document. Instead of going to the shops or supplier, the buyer waits for the supplier in the office. The practice of going to the market, collecting three offers and buying at the lowest price from the shop is not understood by some other agencies or buyers. e) Irregularities in Quoting Price: i) Bidders make mistakes in quoting EXW price in standard forms of WB (A&B) for goods offered within purchaser's Country. They fail to differentiate price of previously importuned item, item to be imported after award or item to be supplied ex-factory and fail to fill in properly. The evaluators fail to identify the mistakes and thus make wrong evaluation. ii) The employer or buyer does not understand the formula for converting CFR price to CIF price. They unnecessarily add VAT or other taxes with CFR price. iii) Bidders quote different prices (CFR/CPT/CIP) in incorrect formats. iv) In the prices schedule A&B of WB, EXW price is not properly quoted by the bidder, making it difficult for the bank for making payment as per DCA. If it is EX- Factory, payment may be 100% and if it is EX- Shop or otherwise it may be 70%. The agencies fail 53 to pinpoint these irregularities during evaluation and submit wrong prepares to the Bank. Training of Bidders and Employer in this area is considered essential. These difficulties may be explained during pre-bid conference. v) Manufacturer's Authorization: Bidders or Employers does not attach importance to requirement of Manufacturer's Authorization for items requiring warranty. Many of them do not understand as to what would happen if any problem arises during warranty period in the absence of Manufacturer's. Authorization. Without authorization, the Manufacturer will not accepts any responsibility. vi) Incorrect Evaluation for Deliveries within a Given Range: For delivery within a given range, say 8 to 12 week, offer for delivery beyond the minimum time (8 weeks), penalty to be loaded with price. The bidders in many cases of delivery within a range writes "confirmed" instead of mentioning actual delivery time, say "eight weeks". But this factor is not reflected in the evaluation and such evaluation is not correct. vii) Wrong Identification of Bidder: The person or firm who furnish the Bid security and subsequently Performance Security is the Bidder. For example, offer for a car often comes from Mitsubishi. The Bid Security is furnished by Mitsubishi. Rangs submits the offer with their letterhead. In this case Mitsubishi is the Bidder and Rangs is an Agent of the bidder. The employers mistakenly declare Rangs as the bidder, which leads to various complications. viii) Validity of Bid Security: The validity of the Bid Security should be for additional thirty days beyond bid validity. Any extension of bid validity should be along with that of Bid Security. But in many cases these requirements are ignored. ix) Bidder's Qualification: Qualification of Bidders or Contractor in respect of experience, turn over, manpower and equipment, financial capability, liquidity and assets etc. are not evaluated item wise by the employer. x) Bid submission: As discussed earlier, bids are not submitted earlier to last date. The tender box is placed only on the last date. If bids are allowed to be submitted prior to closing date during the entire bidding period, the necessity of receiving and opening bids in different places may not be there. Submission of bids by mail, courier services and postal services are not allowed. This need be allowed. Tender Box should be available during period for bid dropping. xi) INCOTERMS: Most of the agencies have no idea about INCOTERMS. The book is not available with most of them. xii) Irrational Delegation of powers: Cabinet Division has increased power of big and small corporation to decide procurement of goods 54 and works up to Taka Ten crore and five crore respectively. But as per power delegated by Ministry of Finance such power for Chief Engineer or Head of the department is Taka Tow crore only. The Chief Engineer's power should have been up to Taka five crore. xiii) Sub-contracts: There is provision for sub-contracts in most of the works contracts. Certain formalities are to be completed and approval obtained for awarding sub-contracts. For avoiding the formalities, most of the contractors do not go for official use of subcontract. They engage sub-contractors but show it as done by the main contractors. It is difficult to assess the percentage of use of sub -contractors. The agencies do not maintain any such record. xiv) Use of Outdated Forms: Departments like PWD, LGED, R&H etc. use Bangladesh Form # 2908 and 2911 for procurement of goods and work under GOB funding. These forms are very old and outdated, one-sided, protect the interest of employer and should be discontinued. xv) One-sided Penalty: Penalties or L/Ds are realized from suppliers or contractors for their faults or delays. But the employer is not penalized for delays or for losses and damages sustained due to his faults. xvi) Poor Realization of L/Ds: For delayed deliveries of L/Ds are imposed in many cases. But position of realization of imposed of L/Ds is very poor. The contractors and suppliers in most cases get the L/D waived. xvii) Negotiation: Cases where the lowest bid is non-responsive, the buyers ask the second-lowest to accept the lowest price of the non- responsive bidder. In case of refusal, the buyer makes similar negotiation with the third-lowest and so on. This negotiation is not acceptable to the donors, but allowed under GOB rules. This is done to avoid audit objections. Audit raises objection stating why the first- lowest rate was not offered. This leads to difference of opinions with donors and the procurement is delayed. xviii) Inadequate Completion Time: Procurement is mainly delayed in the stages from receipt bids upped award of contract or supply order. Delay of procurement after award is comparatively far less. It was found difficult to assess position of contract completed within time schedule given in the contract and without any extension. The organizations are reluctant to share such information. Completion time given in the works contracts under GOB funds by PWB, R&H, or LGED are not inadequate. But most of these works are not completed within original completion time due to non-availability of GOB funds or delay in releasing such funds. Some information on the completion period were collected from BADC. During 1997 to 1998, there were 26 cases of Procurement of Goods-2 ICBs for procurement of Seed Potato and 24 NCBs for Procurement of items 55 like computer, air-conditioner, pick-ups, jute bags, photocopier, chemicals, spare-parts, etc. BADC has no longer any big procurement. Information of 26 cases are furnished below: (1) Award within Bid Validity - 17 Cases (2) Delivery Completed within original - 9 Cases date stipulated in the contract award (3) Completion or Delivery Date extended - 17cases (4) More than one extension of delivery - 6 cases date (5) Maximum extension of delivery date - 4 times (145 (and time) days) The extensions were allowed on the request of the supplier. Payment in the above cases of BADC were made within 7 to 30 days from the date of presentation of bills or invoices, excepting 2 cases of ICBs which went through L/C process. As per IMED, GOB is mostly concerned about the delay in the process up to contract award. Organization and Resources There are 42 Ministries and 12 Divisions in the country each headed by a Minister. Below the Ministries are the Departments, Directorates, Corporation or Autonomous Bodies or undertakings etc. Besides, there are Local Government Organization like City Corporation, Municipalities, District Board and Upazilla (sub-district) Parishad (council) and Union Councils. The Government Department are headed by Director Generals (Health Services, Family Welfare, etc.), Chief Engineers (PWB, R&H, LGED etc.) and the Corporations are headed by Chairmen (REB, BCIC BADC etc.) or Managing Director (WASA). The directorates are headed by Director or equivalents. City Corporations are headed by elected Mayor; Municipalities, Upazilla and Union Councils by elected Chairmen. District Boards are not fimctioning now. 1.97 In the big Organizations, Departments, Corporation or Bodies there are separate Procurement Division or Sections for procurement of goods and works. Divisions or Sections dealing with procurement of goods are called Procurement Division or Section; and Divisions or Sections dealing with procurement of works are called Construction Divisions, Project or by other names. Procurement of consultant or other services are dealt with by both sections or by some other sections. 1.98 There are a number of Tender Committees in most of the organizations based on financial limits of procurement. There are also separate evaluation committees in some organizations. Further more there are separate committee for technical evaluations (in BADC, REB, etc.). The highest authority for procurement decisions within the corporation is the Chairman or the Board and in the Departments or Directorates the Head of the Department or Directorate. The Minister of each Ministry is the next highest authority for procurement decision for the organizations under his Ministry. Cabinet 56 Committee on Government Purchase is the highest authority in the country for procurement decisions. In most of the organizations there are too many committees with too many stages for procurement processing and decisions. 1.99 There are good as well as bad organizations in the country. Within almost similar environment and conditions and human resources, REB is more or less functioning properly and efficiently, because of strong leadership, less interference from outside and absence of CBA. Some of the Government Organization like LGED are also successfully implementing the procurement programs and the projects more or less timely. Success in LGED is attributed to the leadership of the Chief Engineer. 1.100 Human resource is there, but there is lack of resource persons. The main problem identified from the organizations or bodies visited is the absence of trained procurement manpower and lack of knowledge and capability of the staff in procurement matters. Training facilities within the country is limited with no exclusive training center for procurement. The persons or officials who handle about 70% of national development budget have no adequate access to training, both at home and abroad. Foreign training is available only for the fortunate few. Some of the procurement officials sent abroad leam nothing because of their English language deficiency. 1.101 The major organizational, structural deficiencies, and weaknesses are listed below: a) Insufficient Delegation of Authority: The whole system runs on mistrust. The entire governmental approval process for decisions and recommendation at Board or Departmental level is mistrust. The delegation of financial authority is also based on mistrust. The present power of the Minister is Taka 25 crore, which is considered inadequate for Ministry like Energy and Mineral Resources. Power of the Boards of Petrobangla, PDB or Water Board to decide procurement cases is Taka Ten crore which is also too inadequate in relation to volume of procurement handled by these corporations or bodies. The power of the Project Director (PD), the key person for implementation of the project, is inadequate. The circular of Cabinet Division contains power of the Cabinet Committee on Government Purchase, the power of the big and small corporations or bodies and Heads of Departments. There is no mention of delegation of power to Members of the Boards. IMED, ADB and many other agencies have recommended increase of Minister's power for procurement to Taka 50 crore and for reasonable increase of PD's power. The Tender or Evaluation Committee should have full power. Divisions or organizations like IMED may overview the development as a safeguard against misuse of power. b) Inadequate Accountability: Accountability is not well defined. The PD or the procurement entity sometimes made accountable for any lapse. But the Ministry or others at top are hardly made accountable for delay or otherwise at their end. c) Delay in Appointment, Posting or Transfer of Project Director: This is a major Problem. Most of the PD's want to be stationed in the capital Dhaka even if it is not an umbrella project or project area too far from Dhaka. Full- time PDs are not there. Some work as PD in addition to other duties. There is 57 provision for appointment of PD right from the start of the project. As per approval of National Economic Council, full-time and able and experienced Project Directors are to be placed for all projects above Taka five crore. In many cases PDs are not appointed right from the start of the Project and as a result ownership for the project is not developed. In some other cases PDs are posted and appointed without verifying capability. There is provision for keeping the PD at least for three years during implementation of the project. But actually in many cases the PDs are transferred frequently which affect continuity of involvement in the project. d) Delay in appointment of appropriate PD: Right men are seldom in right place. Lot of interference in transfer and posting of PD are there. e) Lack of Co-ordination and Interaction: This is true in all areas, within the organization, organization with own Ministry and other concerned Ministries or between Ministry and donors. f) Lack of Training: As discussed in paragraphs 15.04 above. Training required in specific areas of procurement like preparation of Bidding Documents, Evaluation etc. 1.102 Most important resource is "human" and that is the most problem area in the procurement arena. As already discussed, they are not trained; they lack professionalism and adequate knowledge of procurement. Available resource persons and professionals are not always placed in the position they deserve. The existing guidelines and rules for procurements can probably run the show provided trained manpower is there. Having possibility of easy illegal incomes, there is always lobbing from CBA, politicians or high officials for posting in procurement divisions and sections. 1.103 Bengali is the official language. Available human resources have little or no proficiency in English. Most guidelines including ERD's are in English and are not understood by the lower level officials and staff. All GOB and Donors' Guidelines require to be translated from English for making these understandable to the available human resources. All out efforts required for ensuing best utilization of available human resources. 1.104 Entire procurement process is managed manually and as such dependent on human resources. The sooner it is computerized the better. Use of E-mail or the Intemet in addition to or in place of fax may improve dependence on human resource and expedite procurement process and thereby improve the efficiency of the organization. 1.105 GOB is aware of procurement related problems. ERD identified organizational deficiencies in respect of procurement as under: a) Preparation of Bid Document and Evaluation of Bids are not properly done because concerned Project Personnel of the respective Ministries are not acquainted with guidelines for the procurements. b) Absence of well-defined policy in selecting staff for training in procurement and disbursement affects proper training and service by the trained staff. c) Poor planning, inadequate monitoring and follow up action by Ministry and agency delays procurement and disbursement process. ERD suggested following actions for solution of the deficiencies: - 58 a) Strengthen the efficiency of the organizations of the concerned Ministry by imparting training to the officers associated with the procurement and disbursement. Such Training may be funded from Technical Assistance Program. b) Planning Academy, IMED, PATC will strengthen their training programs and impart basic knowledge in procurement programs. c) Use of advance procurement procedures for all civil works of most projects. Public Sector Management Performance 1.106 Overall management performance in Public Sector is not satisfactory and demands immediate attention for thorough change and improvement to meet the challenge of the day. However, some of the Public Sector Organizations like REB handle most of this procurement efficiently. A good number of the organizations have the procurement manual. Here are some of the major deficiencies and constraints in procurement area of public sector bodies: a) Delay in all stages leading to a total time overrun in almost 70% cases. The major delays are in the process from Bid opening to award of contract. Implementation delays after award of contract are also there mostly for cases of works and services. Energy and Communication (R&H) sectors are the major defaulters. b) Delegations of administrative and financial powers are not adequate and require to be raised. There are suggestions for raising power of the Minister from Tk. 25 crore to Taka 50 crore and powers of PDs adequately. c) GOB has delegated power for Government Officers in respect of Revenue and Development Projects. Similar Delegations is absent in the corporations and autonomous bodies. d) Problems surrounding PD-not adequate administrative and financial power. Problems relating to posting and transfer of PD and interference thereof, right man not in the right place including PD and lack of project implementation and supervisions capacity of the PDs and others concerned in the project. e) Responsibility of concerned officers in project implementation not clearly defined. Ministry's share of the responsibility for project implementation is also not clear. f) Tender Committees or Tender Evaluation Committees are not constituted with full-time, right and capable personnel and experts in most cases. Decision Process is lengthy. Discussed in detail in paragraph 16.05. g) Board Meetings for deciding Tenders are not held timely in many cases. In PDB, Board meeting is held once a week on a fixed date. If that date is missed, the case is delayed for another one week. Board Meetings can seldom be arranged as and when required. Similarly, meetings of the Cabinet Committee on Government Purchase, the highest Purchase Committee, cannot be arranged as and when required. 59 h) There are cases of differences of opinion between the Management and Evaluators leading to re-evaluation in certain cases. Some cases of differences of opinion between the donors and the agencies are also there. i) Sense of involvement in or commitment to the programs is lacking in most public sector management. 1.107 The financial performance of some of the public sector organizations (Sate Owned Enterprises) are not at all good and are running at loss. There are, however, some State Owned Enterprises that are either earning profit or are breaking even. Seven years statistics of profit and loss of some of the State Owned Enterprises are placed below: PROFIT AND Loss PERFORAMANCE OF STATE-OWNED ENTERPRISE sFY92 FY93 F94 FY95 FY961 FY97! FY98: Industry BTMC -554 -1447 -1539 -1170 -1344' -1633. -826, BSEC -1078, -12921 -1102 -6841 -645, -1033 -975 BSFIC -722 -862 -196 251 -3781 -653 -3981 BCIC -554 206 255. -7551 -1214 -2390 -1015 BFIDC ! -I5 -132; -51 121 30' 18 66 BIMC -3175i -5234 -641 i -314! -9621 -25171 -2246: Subioial' -6197' -87601 -3273 -2886 -4513, -8243: -5393 Utilities 1 FY92 FY93 FY94 FY95' FY96 FY97j FY981 BOGMC 510) 709: 986 11701 1436 12611 14801 BPDB -74821 -4262' -38921 -6469' -765 -32341 -1235 DESA -853' -1005 -18511 -1985I -1392i -14433 -1952 CWASA -57 -385 -27j -26, -33, -19i -34 DWASA 11 36, -29 -671 -34 7, Subtotal -'7878 -4585, -4748, -7339 -8211 -3469i -/733 Transportation I i BSC -5421 -172' -158 -129 -1471 -252, 24j BIWTC -69i -3QI -251 -7. 171 901 43, BBC 1 348' 679 7141 719 496 -5741, -28 BRTC 221.f -241 -1101 -88i -54! -471 -1lo! CPA 486' 441' 4841 6411 92 4 11101 636' MPA I 2301 220; 1541 203, 20 1711 114 Subtotall 232 897$ 1059, 1339. 14381 498i 689+' Commercial I I ; BPC 3512: 3801, 460Q 12641 757; -3778 -9171 BJC , 1675 -2038' 43 -63 -191 -141 -6 TCB F 221 -94, 1791 16; -13i -38j -sl Subtotal 1860 1669' 47361 1217. '25 -3849 -9271 Agriculture and Fisheries , I I BADC -10S 1131 30' -118: -134 -158i -257' BFDC(Fisheries) ! -9 111 -1F -91 10i -21 -25 Subtotal -114i -124,' -131' -127' -124' -160i -782' Construction ' I F RAJUK , 138' 143: 20, 192, 174 511 29, CDA 20 191 31 39' 381 38 201 KDA 7% 6 201 68F 42: 521 90' RDA F 3 2 2' 31 7i 14' 4; Subtotal, 169 170' 253' 301f 261 154i 143 Service and Others F F ' F 60 BFFWTC ' 5 -S 1 20j 25 99 851 BFDC (Films) -16 10 19 251 2 21 5' BPRC 9 19 19 24 17 12, 41: CAA 429 495 525 616. 718! 702 610, BIWTA 1 -6 -51 -166 -69 -194 -77: BSCIC -6 -41 -34 -7 -19 -38 -41 BEPZA -1 231 29 521 89 131, -30! BWDB -3 9: 31 93, 24 15 341 REB 'l 4 175 207 2231 260i 175 210 BTB 9, -7 -3 -6' 4 3 19 BHB -3 0 2 2 0 0 0' BSB 2 -2. 0 0 01 0: -4. Subtotall 505 666, 746 876. 1051' 925 852! Net Profit or Loss -11424 -10068 -1358 -6619 -1983 -14123. -6652 Net Profit or Loss (in -299 -257, -34 -/165 -48 -331! -146' US$) Gross Losses i 1724[ 17034, 9352 12025i 7257 18066 10170 Gross Losses (in USS) 452' 435 246 299 177 423 224' Source: WB Paper "Bangladesh, Key Challenges for the Next Millenium " based on position obtained (by WB) from Monitoring Cell, Autonomous wing, MOF, GOB. 1.108 The improvement in industrial sector was not due to any improvement of management performance, but due to disinvestment of some of the losing concerns. Performance of Bank-Assisted Projects 1.109 World Bank is the leader or Coordinator of Donor Agencies in Bangladesh. Each year the meeting of the consortium of aid giving agencies for Bangladesh is coordinated by the bank. One of the major donors for Bangladesh is the World Bank/IDA. The performance of bank assisted projects have a definite edge over projects funded by other donors. 1.110 IMED records and reviews make little or no difference in respect of performance of different development projects in procurement area funded by WB/IDA and other donor funded projects. Most of the deficiencies discussed earlier apply to Bank assisted projects. However, procurements funded by the Bank are comparatively better, cleaner, and more efficient. The Bank has a Standard Bidding Document (SBD) for goods, works, and services. The Standard Contract, Standard Request for Proposal (SRFP), etc. are incorporated as part of the SBD. This helps the buyer to a great extent. Following example of the Bank other donors, like ADB, are coming up with SBDs. The Bank- assisted projects are under close supervision and various periodical reviews by different missions of the Bank in addition to supervision or review by IMED. By now the procurement guidelines of the Bank are more or less familiar with most of the public sector organizations and departments and to GOB as a whole. Preparation of ERD's Guidelines for Procurement was greatly influenced by IDA/WB guidelines and comments and suggestions of Bank officials. 1.111 Here are some special problems for Bank Assisted projects. 61 a) GOB is allowing procurements using WB Guidelines, Bid Document etc. But these have not been formally accepted or approved. The agencies sometimes face audit objection on this issue. This is the view of D.G., Aided Audit. b) For lack of knowledge and professionalism the procurement personnel of the agencies fail to i. understand WB guideline ii. prepare Bidding Document as per guidelines iii. evaluate Bids iv. follow disbursement procedures etc. c) The Bank's supervision is disbursement oriented and not procurement oriented in many cases. d) Supervision in Missions mostly discuss with Secretaries and Head of the Organization and in very few cases with the PDs. e) Representative of the agency or the PD is not included in the team while finalizing terms of the Credit Agreements. Procurement details in the Loan or Credit Agreement are not adequate. This is the case with most aided projects. f) Most of the organizations contacted requested for raising the threshold for NCB or LCB under WB/IDA founding. 62 Private Sector Commercial Regulations 1.112 Excepting a few big companies and multinational ones, private sector in the country is not well developed. Private Sector companies are to follow all commercial and other regulation imposed by Ministry of Commerce, Bangladesh Bank, National Board of Revenue, Ministry of Shipping and other concerned. Some of them are recorded below: i. Trade License issued by City Corporation or Municipalities ii. Import Regulation Certificate (IRC) from Chief Controller of Import and Export (CCIE) iii. Vat Registration iv. Income Tax GIR Number v. Certificates of Indentors Association vi. Import and Export Regulations now issued every four years including ban on import of certain items and import form and export to certain countries vii. Custom Regulations and Special Revenue Orders (SRO) viii. Flag Restriction Order ix. Foreign Exchange Regulations x. Payment through Documentary Credit xi. Banks and Credit Giving Authorities' Requirement of Three Quotations 1.113 The trade License is issued for one year. There is no provision for long term Trade License. The private companies, who can afford, are ready to have the license for 5-10 or more years on payment of usual fees. But this is not allowed. The private sector companies are to provide facilitation payment for most of the regulations stated above. Commercial Practices by Private Sector 1.114 For procurement of goods, works and services Private Sector follows all methods of procurement including open bidding direct negotiation etc. Mostly they procure through negotiation checking local and international market price. Their lead-time is far less compared to public sector procurement. They also procure through Brokers. Some firms procure through negotiation with emphasis on quality and time schedule. Some maintain list of eligible approved suppliers, invite offers from them and award on competitive basis. Some do it on the basis of assessment of market price. The basic practices remain the same for goods and works. Only different is that for goods they deal with manufacturers or suppliers and for works with contractors. Private sector hardly goes for bidding preceded by advertisement. 1.115 Private Sector trades or imports using INCOTERMS. 1.116 The organized Private Sector plan procurement on yearly or more basis and monitor monthly or quarterly. But this is lacking in small companies. 1.117 Private Sector pre-qualifies and enlists suppliers in specific cases. A supplier is enlisted looking into its financial and technical capabilities in the concerned area. They also procure proprietary items from sole source. 63 1.118 Private Sector keeps their bidders informed about detailed specifications or quality of the goods, works, and services of regular use. For anything new in respect of speech, quality, quantity etc., they mention in the bidding document. They are obliged to procure three quotations to satisfy their loan giving authority like BSB, BSRS etc. Negotiation in private sector goes up to last minute. 1.119 The local developed private companies and the multinational companies monitor procurement using various in-house developed computer software. 1.120 In most of the local developed companies and in all the multinational companies the employees are required to follow corporate ethics. 1.121 The practice of honesty by the employees in private sector may be an example for public sector, even though the company itself may not be an honest enterprise. Private Sector Industries 1.122 Public Sector is still the biggest owner of industries in the country. The major big industries like jute mills, textile mills, steel mills, fertilizer factories etc. are still in public sector. But some of these are in the process of privatization. Some of the Private Sector jute mills, textile mills, cement factories etc. are running more or less efficiently. The pharmaceutical industries are already in the private sector and are running efficiently. The only multinational fertilizer factory in private sector, KAFCO, is a troublesome enterprise. The national and multinational industries for toiletries, cosmetics, electronics (assembling) have fairly developed and more or less running efficiently. The export- oriented garment factories in private sector are now the major foreign exchange earner for Bangladesh. A number of Export Processing Zones in the private sector are coming up. 1.123 The country is still far away from required industrialization in the private sector. Law and order situation is not favorable for industrial development. The earlier the public sector enterprises are privatized the better for the country. 1.124 Both public and private sector procurements are mostly dependent on private sector supplier and contractors. Suppliers for goods including imports are available in good number in the country. The local supplies or agents are capable of participating in any big ICB or NCB either by themselves or through their principals abroad. Most of the foreign firms participating in Bangladesh tenders have their local agents. The local supplier or agents got the opportunity to gather experience through working with their foreign principals. Three suppliers were interviewed: MWS. Geocon Limited , MIS Associated Engineers and Drillers, and Mr. M. R.. Chowdhury. 1.125 The situation in respect of development of contractors for works is not very encouraging. There is no construction contractor for big bridges or large construction projects in Bangladesh. The local contractors have not been trained so far for taking up large projects. The country is still dependent on foreign contractors and builders for big projects. The main reason for not having any local contractor for big projects are: (i) lack of opportunity to gather experience (ii) lack of training (iii) absence of heavy construction equipment and logistics 64 Proprietor of Geocon Limited suggested that GOB should ensure participation of local firms with foreign contractors working in the country for gathering experience. He also suggested that GOB should have an "Equipment Bank" to help develop local contractors for big projects. GOB should also make facilities for training of construction contractors. LGED has started training contractors for the rural programs of roads and buildings. GOB should start training in a bigger way. 1.126 Among the parties interviewed, M/S. Geocon Limited and M/S. Associated Engineers and Drillers are suppliers and construction contractors. Two consulting firms were interviewed as well: MIS. Kranti and DDC . Audit and Anti Corruption Measures Audit GOB has fairly developed audit organization. The Comptroller and Auditor General (C&AG) is the Head of Auditing and Accounting in the country. This is a constitutional post with the rank and status of a State Minister. There are various Audit Organizations- commercial audit, audit for aided projects, pre-audit, audit within the organization or department, post audit, etc. Besides, there are private audit farms run by Chartered Accountants, which are used by private sector and some of the public sector companies like Titas or donors like WB, EC etc. The Public Accounts Committee (PAC) of the Parliament is the highest body for settlement of audit objections. Besides, there are committees in each Ministry for settlement of audit objections. 1.127 GOB audit is conducted on yearly basis for all financial transactions in an organization or department including procurement of goods, works and services. This audit is more or less conducted on schedule. Internal audit in most organization is in arrears. 1.128 Audit detects irregularities including irregularities in procurement. Good number of cases come up making persons or organizations accountable for the detected irregularities. Many of the anti corruption cases are based on audit reports. 1.129 Audit sometimes raised some unreasonable objections. For example, some of the donors like WB earlier allowed payment as per exchange rate prevalent on the date of retirement of the L/C, or the bill. Because of devaluation of currency of payment (say Taka) the amount payable to the contractor suppler appreciates and the appreciated amount may be a big amount. Audit objects to this appreciated amount without considering the terms of payment in the contract. Audit wants to go by GOB rules as the Tender or Contract Document of the Donors have not been accepted or formally approved by GOB, as opined by DG, Audit for Aided Projects. 1.130 As per present practice, the Directorate of Audit-Foreign Aided Project undertakes the audit of development projects funded by GOB and donors. About 70% of these project activities are procurement. Audit of procurement and other financial transaction of parental public corporations and public enterprises are undertaken by Directorate of Commercial Audit. There are total nine Directorates of Audit, and all these directorates are under C&AG. The Directorates submit Audit Report to C&AG who in turn submits his findings in the forrn of audit and appropriation and finance accounts to the President and the Prime Minister. From there, the reports go to Parliament. Public 65 Accounts Committee of the Parliament is responsible for settlement of the audit objections. But the process is very slow. There are suggestions for placing the audit report directly by the C&AG to parliament. 1.131 The Bangladesh: Country Profile of Financial Accountability (CPFA) June 1998 is a detailed report on financial accountability including audit. It should be considered as an enclosure of this (CPAR) report. The CPFA has dealt with public sector budgeting, GOB budgeting, revenue budget, development budget, budget of Local Government, parental public corporations and public enterprises, accounting and auditing of these institutions. The CPFA has also dealt with corruption and accountability in Bangladesh- corruption of public servant and political parties. CPFA terms corruption as an endemic problem in Bangladesh. Some of the comments of CPFA on audit are presented below: a) The office of C&AG is responsible for audits of City Corporation and municipalities but the audits undertaken are generally considered ineffective. They have had no impact on improving the transparency of financial reporting or the accountability of these institutions. b) Private Auditors undertake financial audits of public enterprises. The audit fees paid to private auditors are generally set at very low levels by the appointing authorities, which results in poor quality audits. This is a serious problem inhibiting the development of the improvements to the quality of auditing in Bangladesh. Private sector auditors have started to apply international standards on auditing adopted by ICAB. c) Hearing of the public Accounts committee (PAC) is not open to public and the news media. As a result public knowledge and media scrutiny of PAC activities is very limited. d) It takes about 3 to 3.5 years for the office or C&AG to compile their audit observations. The delay in submitting audit reports to PAC for review is the inevitable result of the Government audit process that takes about 20 steps. The Audit Report of 1996-97 is said to be under print. e) There is little enforcement of accountability in the management of public sources in Bangladesh. 1.132 Procurement Activities in all steps should be open to audit for ensuring financial discipline and adherence to rules and regulations. But audit and anti-corruption should not haunt the procurement personal in taking decision and in implementing the procurement programs. Corruption 1.133 Corruption is not a new phenomena is this part of the globe. It has been inherited from the British Rule in India, nourished during Pakistan time and now it is a total social menace. The whole society is corrupt. In the Country Profile of Financial Accountability (CPFA), Bangladesh, June 98, corruption has been termed as "an endemic problem in Bangladesh". Standards of public accountability are not high. There is a noticeable lack of transparency and accountability for public expenditure incurred by GOB and generally in financial matters, CPFA reports. 66 1.134 There was a study after the fall of Government in 1990, the government which ruled Bangladesh for nine years, on "Government Malpractice", headed by Mr. Burhanuddin Ahmed, former Secretary, as the Convenor. Copy of the report is available with the WB office in Dhaka. In that report, public sector procurement of goods and services, including award of contracts both form home and abroad, has been listed as number one in the areas where corruption is more likely to manifest itself. Award of Contract for consultancy for development work has been shown as a very important source of corruption in the country. In addition to impact on economic performance of a country, the report lists consequence of corruption as under (the ones relating to procurement): (a) Corruption generates allocation inefficiency by permitting the least efficient contractor or most costly supplier with the higher ability to bribe those who award government contracts. (b) Bribes and pay-offs, instead of expediting decisions and facilitating movement of files do the opposite in an overwhelming number of cases because civil servants get into the habit of holding back all papers until some payment is made to them. (c) Once the system of bribery is well established, the income gained from the bribes is no longer a windfall but becomes a part of expected wages. (d) In addition to the award of contract for supplying, designing, and construction by the public sector, much of the corruption in Bangladesh takes place in the external trade sector leading to over-invoicing or under-invoicing of imports and exports, and smuggling, which in turn contributes to distortion in investment decision and to capital flight. 1.135 Anti-Corruption Bureau under the Prime Minister's office is responsible for eradicating corruption from areas involving public fund. Anti-Corruption Bureau is headed by a Director General (DG). Each District has one District Anti-Corruption Officer (DACO). Established under Anti-Corruption Act, 1957 the department is responsible for dealing with cases of bribery and corruption particularly among the public servants. The Act was amended a number of times. The last amendments were in 1992. It required DG Anti-Corruption to obtain permission from Prime Ministers office before starting a case against senior officers and others. 1.136 The present Anti-Corruption Department could not help check corruption in public sector rather it is increasing by leaps and bounds. The very department is not above corruption. Cases taken up by Anti-Corruption rarely end up with prosecution. Corruption is spreading unabated in procurement areas from top to bottom. It is probably not possible to help check corruption through this body. Corruption is rampant in the whole society. It can only be checked or eliminated by strong political will and well- organized coordinated efforts throughout the country. Procurement entities cannot be corruption-free keeping scope for others to remain corrupt. 1.137 Had the salary and emoluments of public sector procurement personnel been to the level as offered by big private sector companies and had the other Government and Semi-Government organizations been corruption-free, there would not have been so much corruption or malpractice in public sector procurement profession. 67 1.138 Government is aware of the problem. In response to WB's letter dated 26-08-98, ERD prepared a summary for the Prime Minister. The paper identified the problem as, among others, inability of the project personnel of respective Ministries to prepare Bidding Documents as they are not acquainted with guidelines of the procurements, absence of proper training and policy thereof, poor planning and inadequate monitoring. ERD suggested strengthening the efficiency of the organizations of concerned Ministry by imparting training to the procurement and disbursement officers under TAP. This proposal (Summary) of ERD has been approved by the Prime Minister and now being circulated to all ministries by IMED. Copy of the letter provided to Mr. Srinivasan. The paper contains suggestions for improvement of procedural personnel. There is no direct proposal or action for eradication of corruption from the procurement areas. 1.139 Private sector mostly pays higher salaries to procurement staff, which keeps them fairly honest within their respective company or firm. Private sector faces obstacles in every stages of their operations form Government Officials for "facilitation payment" on "speed money". Corruption of Government Officials is a major hindrance for private sector business development. The ultimate sufferer is the public as the money that private sector pays as "facilitation payment" and "speed money" to the public sector officials is realized by increasing the price of the product or service. 1.140 The Comptroller and Auditor General in an interview with Bangladesh Daily Pratham Alo, published on 09-05-99, remarked that the Anti-Corruption Bureau itself is corrupt. The C&AG considers absence of accountability of the public servant. There is hardly any organization which is above corruption, he maintains. According to him, no attempt was made for overall prevention of corruption. 68 Summary and Conclusion Procurement under GOB's own guidelines known as Delegations of Administrative and Financial powers at different levels by Establishment Ministry is limited to Government Departments and mostly to low cost items under revenue budget. Stationary, furniture repair, maintenance etc. are procured under these delegations either directly by the Government Departments or through Supply and Inspection Department. The GOB guideline needs updating modification and rationalization. Similarly manual of supply and inspections, PWB codes, RHD codes, and manuals of some of the organizations require updating and reprinting. 1.141 Even with limited facilities some arrangements for central monitoring of procurement under public sector is there. IMED is dong it but still manually. IMED is supposed to get progress reports in approved formats of all cases of procurement of Taka two core and above quarterly. But very few agencies submit that progress report to IEED. IMED can review cases of all big procurements if the progress report is regularly submitted by all of them. Cases of procurement below Taka two Crore are also required to be monitored by IMED. 1.142 IMED has considerable data on status of procurement including failure or delay at different stages, corruption at different level etc. For ensuring accountability for the delays IMED can render best services under present conditions. If a third party monitoring and supervisory authority is ever considered for procurement, the first choice is IMED. This can be a short-term solution of the present situation. The earlier IMED monitoring is done using modem computer the better. 1.143 Successful completion of procurements both in public and private sector, specially imports, demand active co-operation of all concerned agencies like MOC, CCIE, NBR, Customs, Ports etc., which is seriously lacking now. Coordinated efforts of these and other concerned organization are essential for successful completion of any procurement program. Procurement problems cannot be solved in isolation. The negative attitude of the entire society demands a dramatic change to make the people work and encourage successful implementation of any program including procurement. 1.144 Good number of organizations have no experience and expertise in procurement. The services of a Procurement Agent for such organization deserve consideration. IMED has already prepared a paper on that. The proposed agent may help, among others, preparations of Bidding Documents, evaluation of bids, use of computer in every stage of procurement, especially for monitoring. This is in addition to the extensive and specific training to be imparted to all concerned procurement personnel. 1.145 Strong political commitment ensures project success. The Jamuna Multipurpose Bridge is the best example in this regard. Solution of procurement problem, eradication of corruption, or checking undue interference of CBA and others can easily be achieved through strong political commitment following the example of Jamuna Bridge. 69