DR. LAURENT M. SHIRIMA CHIEF EXECUTIVE OFFICER PPRA, TANZANIA COLLABORATIVE CROSS BORDER PUBLIC PROCUREMENT OPPORTUNITIES AND CHALLENGES DR. LAURENT M. SHIRIMA CHIEF EXECUTIVE OFFICER PPRA, TANZANIA

THE OUTLINE Introduction Types of regional arrangements Regional ccoperation for procurement Cross-boarder public procurement issues Scenarios for collaborative and cross border procurement Issues for public entities and private businesses in the region Challenges for collaborative cross border procurement Concluding remarks

INTRODUCTION (1) Single market (East Africa): Aggregation of demand: Opportunities for people and businesses; Cross border trade & higher competition; Aggregation of demand: Do member states have central procurement bodies? Strategic or innovative procurement? Standardization of procurement processes: Market insight Cross border collaboration: Regulatory bodies Central procurement institutions

INTRODUCTION (2) Economic goals: Creates economic savings; and Organisational efficiencies Furthering single market integration and upgrading: Getting PEs to think more “East African” than “local”; To approach PP in “East African” perspective

TYPES OF REGIONAL ARRANGEMENTS Trade and welfare effects Free Trade Area Trade restrictions among member countries are removed in full; Each country retains its own trade policy against third countries; Rules of origin becomes necessary – to establish conditions under which item qualifies for preferential access within the area; May include provisions to liberalize investment rules, services trade and public procurement Customs Union FTA + adopting a common external tariff against third countries (East Africa Customs Union – January 2005) Common Market Customs Union + allowing for free movement of factors of production (capital & labour) among member countries (Common Market Protocol was launched in July 2010) Monetary Union Common market with a single currency and monetary policy Economic Union Extends beyond common market by harmonization of some of the member countries’ policies, particularly macro-economic and regulatory policies

REGIONAL COOPERATION FOR PROCUREMENT Information Exchange for Procurement: Informed Procurement Member countries share information about prices and suppliers; Countries conduct procurement individually Coordinated Informed Procurement Member countries undertake joint market research, share supplier performance information, and monitor prices; Collaborative (Pooled) Procurement: Group contracting: Member countries jointly negotiate prices and select suppliers. Member countries agree to purchase from selected suppliers. Countries conduct purchasing individually Central contracting and purchasing: Member countries jointly conduct tenders and award contracts through an organization acting on their behalf; Central buying unit manages the purchase on behalf of countries

MISSION FOR COLLABORATIVE CROSS BORDER PUBLIC PROCUREMENT To create an environment within industry clusters that drives both collaborative and constructive competition to encourage innovation, competitiveness and to attract and stimulate new businesses in the region Collaborative procurement: To enhance transparency through better information sharing; To enable experience sharing through cross country learning; To strengthen bargaining power and mitigate against high transaction costs by pooling skills, capacities and through joint negotiations

DISCUSSION OF KEY ISSUES Consider a situation of 3 partner states (PS) in the region; Subject: Procurement of health sector goods (e.g. medical supplies) Two PS have central procurement bodies (MSD, KEMSA) for such items and procuring entities (PE); Potential suppliers available in all three PS; Framework agreements (FWA) with a single supplier Domestic procurement: Centralised procurement (Tz) vs joint procurement (Ke); Equal access for suppliers from all PS, except where reservation schemes apply

DISCUSSION OF KEY ISSUES Tanzania Uganda Kenya KEMSA-KE MSD-TZ PE1 TZ PE3 KE EO1 TZ EO3 UG EO2 KE PE4 KE PE2 TZ

PURELY DOMESTIC SCENARIO Tanzania Uganda Kenya KEMSA-KE MSD-TZ R1 R3 PE3 KE PE1 TZ EO1 TZ EO2 KE R5 EO3 UG In a purely domestic scenario: R2 R4 PE2 TZ FWA-1 PE4 KE FWA-2

DOMESTIC: CENTRALISED SCENARIO (1) Use of MSD-Tz (or GPSA) by PE1 & PE2 – compulsory; MSD-Tz provides services in establishing FWA; PE1 & PE2 use call offs orders; R1: public to public legal relationship regulated by the PPA (contracting out or delegation); R2: public to private contractual relationship between PE1/PE2 and supplier EO1-Tz included in the FWA PE1/PE2 issues call off orders to supplier EO1-Tz; and PE1/PE2 pays the supplier for each call off or on periodic basis

DOMESTIC: CENTRALISED SCENARIO (2) R3: contractual relationship between MSD-Tz and EO1-Tz, the FWA1 itself which: Sets the main terms and conditions of the agreement; May allow MSD-Tz to charge fees to EO1-Tz (is this proper?) If the supplier is from another PS (EO2-Ke or EO3-UG), FWA1 should resolve any cross border conflict of laws relating to R2 or R3 FWA1 should provide for submission to laws of Tanzania governing the tender and execution of the contract (FWA) All entities of the public side are in one PS (Tz); Legal and economic relationships in the framework of legal system and economic context of the PS (Tz)

DOMESTIC: COLLABORATIVE SCENARIO R4: public to public cooperation relationship between PE3 and PE4: Established before they can tender, enter into FWA2 with EO2-Ke and issue call off orders; Regulated by public law (e.g. PPA) rather than a contract; R5: FWA2 between PE3/PE4 and the supplier EO2-Ke; Will set out the main contractual relationship governing the FWA2; If the supplier is from another PS (EO1-Tz or EO3-UG), FWA2 should resolve any cross border conflict of laws relating to R4 or R5 FWA2 should provide for submission to laws of Kenya governing the tender and execution of the contract (FWA) All entities of the public side are in one PS (Ke); Legal and economic relationships in the framework of legal system and economic context of the PS (Ke)

CROSS BORDER COLLABORATIVE (1) Two PS agree on cross border collaborative procurement of specific health sector goods; MSD-Tz and KEMSA-Ke decide to collaborate for the cross border procurement; They establish FWA3 to be administered by MSD-Tz from which PEs in Kenya will be allowed to call off; For PEs and suppliers in Tanzania (EO1-TZ), the scheme remains domestic (FWA1); Sheer size of FWA3: Participation of more suppliers from the region; Large number of cross border issues; Suppliers from other PS to be subjected to laws of the country from which FWA3 is administered (acceptable?)

CROSS-BORDER COLLABORATIVE (2) Tanzania Uganda Kenya R6 MSD-TZ KEMSA-KE R3 R1 PE1 TZ PE3 KE EO2 KE EO3 UG R7 EO1 TZ PE2 TZ R7 PE4 KE FWA-3

CROSS BORDER COLLABORATIVE (3) R6: A cross border collaborative mechanism between MSD-Tz and Kemsa-Ke: Can be contractual or informal; Does it require international treaty? How will international public law, constitutional law and administrative law play out? Once R6 is established: PE3 and PE4 will have public-public or contractual relationship with KEMSA-Ke (just like R1); KEMSA-Ke will not administer FWA3; Communication between PE3/PE4 and MSD-Tz, either: Through the MSD-Tz KEMSA-Ke relationship (R6) or Direct relationship between PE3/PE4 and MSD-Tz

CROSS BORDER COLLABORATIVE (4) R7: PE3/PE4 in a contractual relationship through call off orders with suppliers under FWA3 If FWA3 includes provisions subjecting it to the laws of Tanzania: Will the contractual obligations derived from the call offs be subjected to the laws of Tanzania or the laws of Kenya? Are PE3/PE4 free to enter into choice of law decisions, or where compliance with domestic laws is a matter of public interest/policy? If MSD-Tz charges fees from suppliers included in FWA3? Will the revenue be shared with KEMSA? How about legal and political repercussions?

INFORMAL COLLABORATIVE (1) R6B: MSD-Tz and KEMSA-Ke cooperate in an informal way to allow MSD-Tz create FWA4 usable to PE3 & PE4; KEMSA-Ke will not be a party, possibly not mentioned in the FWA4; PE3/PE4 will establish a direct (international) relationship with MSD-Tz; If FWA4 generates revenue for MSD-Tz, expect the same challenges mentioned in the previous scenarios

CROSS-BORDER PUBLIC PROCUREMENT Tanzania Uganda Kenya R6B MSD-TZ KEMSA-KE R3 R1 PE1 TZ PE3 KE EO2 KE EO3 UG R7 EO1 TZ PE2 TZ R7 PE4 KE FWA-3 R1B

CROSS-BORDER PP ISSUES FOR BUSINESSES IN THE REGION (1) Need to analyse and equip for different ways of bidding: Bidding directly cross border; or Bidding indirectly cross border : Bidding through affiliate located abroad Including local foreign subcontractor(s) Including local foreign consortium partner(s) Acting as a subcontractor for a foreign lead contractor Selling through local wholesaler(s) Acting as a consortium partner for foreign consortium lead Some ways are more effective to SMEs while others are more suited to larger commercial entities Need to appreciate different bidding procedures (open, restricted, negotiated)

CROSS-BORDER PP ISSUES FOR BUSINESSES IN THE REGION (2) Cross-border procurement is higher in markets with a low number of competitors (negotiated procedure more likely) Potential obstacles: Lack of experience with doing business abroad; Language barriers; High extent of competition with national bidders; Legal requirements leading to market entry barriers in the awarding country; Special permits or procedures necessary for offering services abroad Perception that procuring entities prefer domestic bidders

CHALLENGES Political and institutional constraints; Size of the country & its economy, strength of its procurement institutions; Excessive aggregation for collaborative procurement vs. Negative impact on SMEs participation; Tension between centralization and devolution or empowerment e.g. LGAs; Allocation of costs and benefits of centralization and cross border collaboration; Legal uncertainties: lack of mechanisms to handle conflict of laws.

CONCLUDING REMARKS (1) EAC should develop a policy to facilitate and promote cross border collaborative public procurement in the region; There is need to make such public procurement more efficient and strategic; Improving transparency and competition will benefit both procuring entities and economic operators; Strong political commitment and mutual trust among purchasing partners in order to succeed; Conduct research in this important area; Adopt progressive approach: Starting with collaboration in information sharing and knowledge exchange before moving towards joint procurement activities

THANK YOU FOR YOUR ATTENTION ANY QUESTIONS