Critical Issues in Procurement in Europe and Central Asia World Bank Perspective Devesh C. Mishra Regional Procurement Manager Europe and Central Asia Region/The World Bank Seventh Regional Public Procurement Forum Tbilisi: May 16-19, 2011

Introduction Strengthening country procurement systems is core to improving the development effectiveness of public expenditure Topics covered:Critical issues in public procurementLatest developments in Use of Country System, 2

Topics Covered Dialogue with EC on Procurement Harmonization Progress on public procurement in client countries,Procurement issues in Bank- funded projects and Issues and way forward 3

Critical Issues in Public Procurement Transparency of budget and linkage with procurement planningCoverage of public procurement and exclusionsCapacity and independence of institutions on public procurementCivil service reform, remuneration for public procurement officialsRules for Conflict of Interest for public officials Fraud and Corruption clauses in public procurement laws and tender documents 4

Bank’s Experience in Europe and Central Asia on Use of Country System Several countries in pilot for all the regions in the Bank did not meet minimum requirements and no specific mitigating measures were agreed with the government. The review process is on. This exercise has established basis for continued dialogue, capacity development initiatives and harmonization with other donors In Europe and Central Asia, UCS pilot started with Turkey as “pilot” of pilots in Turkey opted out due to review in legislation based on EC requirements Extensive work done for Stage I and II of the assessment on Poland and FYR Macedonia. Need for further dialogue. 5

Bank’s Experience in Europe and Central Asia on Use of Country System In general Bank-wide as also in ECA need for improvement seen in several areas. Weak complaint handling mechanisms Lack of full range of model bidding documents, general conditions of contracts and user’s guide Unclear dispute resolution procedures Procurement is not seen as a profession and need for civil service reforms 6

Recent Developments in World Bank’s (WB) Dialogue with European Commission (EC) Discussions held in the context of UCS for Poland and FYR Macedonia EU directives apply above defined thresholds Review of EC Directives planned 7

Recent Developments in World Bank’s (WB) Dialogue with European Commission (EC) Issues where differences between the World Bank and EC continues relates to: Eligibility: In WB all countries are eligible Use of procurement methods (Open Competitive Bidding vs. Restricted Procedure) Evaluation of Bids WB: Award to the lowest evaluated substantially responsive bidder, no merit point evaluation, bid evaluation by excluding import duty and taxes. EU: Use of price and non-price criteria in evaluation, bid evaluation by including all taxes and duties. 8

Recent Developments In WB & EC Dialogue Procurement Procedures for Consulting Services: WB: Separate methods for consulting services. EU: Three methods (Open, Restricted and Negotiated Procedures) apply Two-Stage Bidding vs. Competitive Dialogue: These are similar but different in approach. Negotiated Procedure: WB: Negotiations are not permitted, except under certain circumstances 9

Central and Eastern European Countries WB, EBRD, EIB, EC supported the public procurement reform through technical assistance, grants and several diagnostic studies Discussions held with Public Procurement Officials in May to August 2010 on UCS for Poland Issues in Poland include: (i) lack of rules for participation of State- Owned Enterprises(SOEs);(ii) use of merit point system in bid evaluation; (iii) lack of first level of complaint review mechanism;(iv) lack of standard bidding document; (v) lack of provisions addressing fraud, corruption, conflict of interest, unethical behavior etc. 10

South Eastern European Countries / Balkans EU Accession is a very important incentive for all of these countries to improve their legislation and align with EC Directives. Even though there are several improvements, many challenges still remain. WB, EBRD, EIB, EC supported the public procurement reform through technical assistance, grants and several diagnostic studies. Albania: First country in the region to carry out OECD-DAC benchmarking in 2006 and has implemented several procurement reforms including on e-procurement. Law amended to prevent overuse of direct contracting. 11

South Eastern European Countries / Balkans Kosovo: Bank is conducting Country Fiduciary Assessment in May OECD-SIGMA involved in assessment. FYR Macedonia: PPL aligned with EC Directives. One of the Countries as pilot for Use of Country System. Issues relate to:(i) Use of General Conditions of Contract; (ii) provisions on fraud and corruption; (iii) registration and licensing requirements 12

Turkey 13 Current PPL enacted in 2002.The Public Procurement Law No.4734(PPL) establishes the principles and procurement procedure to be applied by all public entities and institutions governed by public law or under public control or using public funds. Allows use of IFI’s procurement procedures. Moving towards compliance with EU Directives Debarment provisions for national firms: Firms debarred by government authorities and appearing on PPL web-site may not appear on IFI’s list and therefore eligible for participation in Bank-funded projects.

Ukraine: Bank and EC involved in providing advice. Public procurement essentially privatized during New Framework law adopted in June Situation not stable. Negative campaign on PPL by vested interest who do not support improvements in PPL. Existing PPL does not provide legal basis for the implementation of e-procurement, which is one of the requirements for enhancing transparency Moldova: CPAR 2010 done using OECD-DAC benchmarking Belarus: Procurement was regulated by a Presidential decree and other decrees and resolution on supplies of goods for state needs. The procurement was centralized and ministries were required to procure through central enterprises. Recently adopted a PPL which is prepared as part of trade agreement among Belarus, Russia and Kazakhstan 14 Ukraine, Moldova, Belarus

Russian Federation WB, EBRD, EIB, EC supported the public procurement reform through technical assistance, grants and several diagnostic studies Current public procurement law dated 2005 While there are several improvements in the public procurement area, there are many deficiencies and negative aspects of the laws yet to be addressed Recently a “Department on Federal contact system development” created. This Department will be responsible for state procurement system, further improvement of FZ94 (on state procurement) or development of its new version, etc. Lots of public debates and consultations in progress to amend the law. 15

Caucasus Bank has recently carried out CPAR for all the three countries using OECD-DAC Benchmarking tool. In active dialogue with the government to implement CPAR recommendations. More required on enforcement of legislation Azerbaijan: has an advanced Public Procurement Law. Action initiated on e-procurement and on complaints review. Lot of improvements in handling complaint. Last year business outreach was done by PPA in collaboration with Bank. Armenia: a new PPL of adopted in 2010( effective January 2011). e-Tendering system being developed. Procurement activities decentralized.SPA converted to Procurement Support Center. Procurement appeals council established, In December 2010 Armenia became forty-second WTO GPA member. In Georgia capacity of State Procurement Agency strengthened. More transparency and e- procurement introduced. Several innovative provisions in the current practices 16

Central Asian Countries 17 Weak capacity and widespread implementation issues exist Current public procurement laws dated late 2000s and mostly in line with internationally accepted standards, but still some countries do not have any public procurement law at all. Weak capacity and widespread implementation issues exist

Central Asian Countries Kazakhstan: New Public Procurement Law introduced in on July 21, 2007 and put into force on January 1, 2008 with amendments on February 18, Implementation issues on use of direct contracting and complaints review body. New developments on e-procurement Tajikistan: Current PPL of March 2006 more aligned with international standards. Law provides for decentralized procurement, PPA still performs the purchase function for most of the government agencies. PPA was reestablished in May 2010 under the Presidential administration Turkmenistan: No PPL. Procedure on holding tenders for selection of suppliers or contractors issued by resolution of the President on March 05, Kyrgyz Republic: The current/applicable PPL dated July 2008 is substantially in line with international standards. Procuring entities at governmental level poorly organized, internal and external controls weak. New e-procurement initiatives Uzbekistan: There is a draft PPL. Improvement in dialogue with the government. Multiple bodies on public procurement control, issues of import contract, Country Fiduciary Assessment was done in

Procurement Issues in Bank Portfolio in ECA Low disbursement in certain countries due to lack of project preparation: need for procurement readiness Size of contracts (local vs. international firms)Cases of misprocurement increasingTreatment of abnormally low bid prices 19

Procurement Issues in Bank Portfolio in ECA Situations of Conflict of Interest Country Fiduciary reviews examplesMonitoring tools like SEPA e- procurement initiatives 20

Issues and way forward How we as donor and Bank in particular are helping the countries to improve public procurement system and provide value for money in donor- funded operations ? Is there an evidence that in the last decade we have made a difference( towards better or worse) in ECA client countries ( from Poland to Kazakhstan) Are we taking into account ground realities and need for differentiated approach based on client needs and their established practices 21

Issues and way forward How different funding agencies and client countries work together to improve the public procurement system in ECA region ? Is there a duplication of efforts? Need to share knowledge on a continuous basis, all for the benefit of the Client counties. 22

MANY THANKS FOR YOUR ATTENTION 23