January 2013

ADB Procurement Governance Review

ABBREVIATIONS

ADB – Asian Development Bank AGC – Assistant General Counsel BER – bid evaluation report BPDB – Staff Development and Benefits Division BPMSD – Budget, Personnel and Management Systems Department COSO Central Operations Services Office CPS – country partnership strategy DMC – developing member country EA – executing agency FAM – facility administration manual IADB – Inter-American Development Bank ICB – international competitive bidding MDB – multilateral development bank MRM – management review meeting NCB – national competitive bidding OAG – Office of the Auditor General OAI – Office of Anticorruption and Integrity OGC OSFMD

– –

Office of the General Counsel Operations Services and Financial Management Department

PAI – project administration instruction PAM – project administration manual PASS – procurement accreditation skills scheme PAU – project administration unit PCR – project completion report PPRR – project procurement-related review PPTA – project preparatory technical assistance PRC – People’s Republic of China RRP – report and recommendation of the President RSDD – Regional and Sustainable Development Department SPD – Strategy and Policy Department SRM – staff review meeting

NOTE

In this report, "$" refers to US dollars.

.

Director General K. Sakai, Strategy and Policy Department (SPD)

Chair of Oversight Committee

I. Bhushan, Deputy Director General, SPD

Oversight Committee

H. Carlsson, Advisor and Head, Portfolio, Results and Quality Control Unit, South Asia Department E. A. Cua, Deputy Director General, East Asia Department R. Guild, Director, Transport, Energy, and Natural Resources, Pacific Department A. Mohammed, Assistant General Counsel, Office of the General Counsel J. Nugent, Deputy Director General, Southeast Department R. Teng, Advisor and Head, Portfolio, Results, Safeguards and Social Sector, Central and West Asia Department

Secretariat

K. Nakamitsu, Senior Planning and Policy Specialist, SPD O. Tiwana, Lead Procurement Specialist, Operations Services and Financial Management Department (OSFMD) G. Jorge, Senior Administrative Assistant, SPD

Observer

K. Moktan, Senior Advisor (Financial Management), OSFMD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

I.  SUMMARY 1 

II.  KEY RECOMMENDATIONS 1 

A.  Country Partnership Strategy 1 B.  Project Planning and Processing 1 C.  Procurement Review Processes 1 D.  Risk Management 2 E.  Capacity Development 2 F.  Way Forward 2 

III.  INTRODUCTION 3 

A.  Background 3 B.  Procurement Governance Review 4 

IV.  ADB PROCUREMENT GOVERNANCE 5 

A.  Overview 5 B.  Country Partnership Strategy 6 C.  Project Planning and Processing 7 D.  Procurement Review Processes 13 E.  Risk Management 25 F.  Executing Agency and ADB Procurement Capacity 26 

V.  IMPLEMENTING PROCUREMENT GOVERNANCE REFORMS 29 

A.  Background 29 B.  Findings 29 C.  Recommendations 30 

VI.  RECOMMENDATIONS 34 

  

 

APPENDIXES 1. Current ADB Procurement Portfolio 36 2. Terms of Reference 42 3. Survey Respondents and Questionnaires 48 4. Capacity Building Initiatives of ADB 47 5. Procurement Fiduciary Framework of Multilateral Banks 49 6. Preparing for Strategy 2020 51 

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I. SUMMARY

1. The procurement governance review was tasked to examine the existing governance structure of procurement decisions, covering the oversight function, procedural efficiency, packaging policy, thresholds, and accreditation, and develop recommendations to reduce project delay, increase economy, and the quality of results. A summary of key findings and recommendations is set forth below.

II. KEY RECOMMENDATIONS

A. Country Partnership Strategy

2. Establish procurement thresholds for each DMC. Procurement capacity assessments prepared as part of country partnership strategies (CPS) of developing member countries (DMCs) will determine the procurement parameters to be used in the country. Such assessments will help establish thresholds and limits for direct shopping, national competitive bidding (NCB), international competitive bidding (ICB), procurement committee review, and include policy options to mitigate associated procurement risks. Based on these assessments, the CPS should also recommend whether or not ADB should use country systems for procurement. B. Project Planning and Processing

3. Introduce risk-based procurement procedures. Current procurement procedures are value-based rather than risk-based. Similar to Asian Development Bank (ADB) safeguard risk categorization, procurement risk categorization will be the first step to streamline risk-based procurement procedures. Different kinds of risks (procurement capacity, packaging, etc.) will be assessed in determining the risk classification. Procurement decisions related to low-risk projects will be delegated to regional departments with adequate staff capacity and fiduciary controls. High-risk projects will be proactively supported by the Operations Services and Financial Management Department (OSFMD),1 including during project processing (see Figure 2 and Table 1). 4. Improve cost estimations and procurement plans during project preparation. Project cost-estimates are often unrealistic, with major implications for procurement. A majority of projects do not have robust procurement plans nor include the number of procurement packages. OSFMD will update tools and guidelines for estimating project costs and regional departments and OSFMD will pay greater attention to the preparation and review of procurement plans during project processing. C. Procurement Review Processes

5. Streamline procurement review processes. There are redundancies in internal processes, bid approval documents, and bid evaluation reports. Where procurement committee consideration is required, OSFMD provides comments and suggestions at each stage of document preparation. There is scope for streamlining these processes while maintaining appropriate checks and balances. Below the Procurement Committee threshold, regional

1 Operations Services and Financial Management Department (OSFMD) was formally called the Central Operations Services Office (COSO).

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departments will be responsible for improving accountability for procurement governance through various means identified in this review (see Figures 3, 4 and 12, 13). 6. Promote seamless interaction between OSFMD and regional departments. For “complex” procurement, more upstream involvement of OSFMD staff in loan processing and procurement review is needed. OSFMD and regional departments will work together as “one ADB.” Measures that will be undertaken include out posting of OSFMD staff to regional departments to support procurement review and supervision and staff exchange programs. D. Risk Management

7. Regularly assess ADB procurement practice. While the risk based procurement procedures and streamlined procurement review processes should improve procurement efficiency, it is important that ADB regularly assesses ADB procurement practice. Given the high stakes for ADB in improving procurement governance and ensuring quality through appropriate project oversight and monitoring pursuant to ADB’s results framework, staff roles and responsibilities will be clarified on an ongoing basis and their actions reviewed. 8. Establish a comprehensive system to manage procurement complaints. ADB has the fiduciary duty to ensure that any loans, grants and technical assistances are used only for the purposes for which they were provided. Many bidders, contractors and other stakeholders, including the public, are not aware of ADB’s role in procurement governance and direct complaints to executing agencies (EAs), who may refer them to regional department staff, who in turn may forward to OSFMD or the Office of Anticorruption and Integrity (OAI), where appropriate. A uniform approach will be introduced to enhance transparency and accountability in the processing of these complaints. E. Capacity Development

9. Accelerate and expand the procurement accreditation skills scheme and include advanced accreditation in specialized areas. Key areas not extensively covered in existing ADB capacity development programs for procurement, the Procurement Accreditation Skills Scheme (PASS), include (i) procurement packaging strategy, (ii) procurement planning and pricing, and (iii) private sector and public–private partnership procurement. PASS will be expanded to provide more advanced and specialized levels of procurement accreditation for staff. PASS will be reviewed on an ongoing basis to confirm its continued effectiveness and relevance. F. Way Forward

10. Upon management approval of this report, ADB will implement the 16 recommendations (Chapter VI) in a phased manner. Under OSFMD’s lead, all ADB offices will support the implementation of the recommended reforms as “one ADB.”

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III. INTRODUCTION A. Background 11. Effective and efficient procurement governance is essential for the success of ADB operations. From 2009 to 2011, 94%– 95% of approved project loans and grants were delivered through procurement of goods, works, turnkey projects, or consulting services.2 The quality of procurement processes thus has a major impact on ADB efficiency (project implementation timing), economy (value for money), and effectiveness (quality of results). Comprehensive data and the profile of ADB procurement3 activities are available in Appendix 1. 12. Working group formed to improve project implementation performance. While recent ADB development effectiveness reviews found continued improvement in many aspects of operational and organizational effectiveness, they also confirmed a declining trend in project implementation performance. Of the projects completed in 2009 and 2010, 57% and 67% were rated “successful” or “highly successful,” respectively. 4 In response to these findings, management established a Project Implementation Working Group (working group) to highlight good project implementation practices and identify key issues. The working group defined good practices5 for regional departments in three broad areas: (i) achieving total project readiness, (ii) enhancing organization, staff skills, and incentives, and (iii) ensuring effective project implementation. 13. The working group highlighted the following issues:

(i) The time it takes ADB to complete procurement governance actions and extent to which this contributes to delayed project implementation;

(ii) The extent to which procurement packages prepared by regional departments ensure efficiency and economy;

(iii) Effectiveness of procurement governance action in adding value to fiduciary risk management;

(iv) Effectiveness of the current transaction value approach, compared to a risk based approach to procurement governance;

(v) Effectiveness of procurement capacity assessments in defining project procurement governance strategy.

14. Comprehensive review of procurement governance undertaken to develop recommendations on the way forward. To examine these issues, the working group recommended a comprehensive review of procurement governance. The working group specified that the review should examine the “existing governance structure of procurement decisions, covering the oversight function, procedural efficiency, packaging policy, thresholds, and accreditation.” With support from the OSFMD,6 the SPD initiated this review in January 2012. An oversight committee was established with SPD and OSFMD as the secretariat, and the Office of the Auditor General (OAG) as an observer. The oversight committee comprised senior staff from five regional departments and the Office of the General Counsel (OGC). The

2 Data from OSFMD, not including policy-based loans. 3 The data was as of May 2012 based on inputs from OSFMD. 4 ADB. 2011. Project Performance Monitoring. Project Administration Instructions. PAI 5.08. Manila. For a highly

satisfactory rating, the project or program is expected to exceed most of its major immediate development objectives; For a satisfactory rating, the project or program is expected to meet most of its major immediate development objectives. 2010 data is based on Table A 8.2 of 2011 Development Effectiveness Review Report.

5 ADB. 2010. Good Project Implementation Practice: Report of the Project Implementation Working Group. Manila. 6 OSFMD was previously named COSO. See footnote 1.

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oversight committee also consulted with the Budget, Personnel and Management Systems Department (BPMSD), Regional and Sustainable Development Department (RSDD) and the Office of Anticorruption and Integrity (OAI) in preparing the review. SPD provided overall guidance for the review. Appendix 2 includes the terms of reference. B. Procurement Governance Review

1. Purpose and Expected Outcomes

15. The purpose of the review was to recommend improvements in procurement governance to reduce project delays, and to increase the economy and quality of results. The expected outcome of the review are recommendations to improve procurement governance, and client servicing, while maintaining adequate fiduciary oversight.

2. Scope and Limitations

16. The review focused on procurement in relation to goods and works under sovereign loan and grant financing. Procurement undertaken by ADB for its administrative requirements was excluded. The review was tasked with assessing and analyzing the following:

(i) current governance structure and processes; (ii) quality and timeliness of responses; (iii) effectiveness of the approval process through regional departments and the

Procurement Committee; (iv) past cases of procurement problems and their causes; (v) current method of assessing procurement capacity; (vi) procurement packaging policy; (vii) staff capacity and the procurement accreditation system; (viii) comparisons with procurement governance procedures in ADB comparator

agencies; and (ix) comparisons with past governance structures.

17. The review covered the years 2010 and 2011. In some cases, the trend analysis looked at information from 2009 to 2011. Comparisons with past procurement governance structures (from before 2004, when procurement committee thresholds were $3 million) were limited to recall methods in survey questionnaires.

3. Approach and Methodology

18. The review’s analytical framework was derived from the ADB definition of four elements of good governance: accountability, transparency, predictability, and participation. These are closely linked and mutually reinforcing. The review applied criteria based on these concepts to assess and analyze ADB procedures, processes, and capacity for procurement, with a view to reducing project delays, and increasing the economy and the quality of results.

(i) Accountability. Using the ADB definition of accountability,7 the review examined procurement-related oversight mechanisms, the application of standards and

7 ADB defines accountability in terms of: the performance of public and private sector officials; oversight

mechanisms to ensure that standards are met; the effectiveness of policy formulation and implementation; the efficiency of resources used (economic accountability); accounting systems for expenditure control; and internal and external audits (financial accountability) (see ADB. 2010. Governance. Operations Manual. OM C4. Manila.).

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policies, the efficiency of processes relating to procurement, and the use of resources.

(ii) Transparency. The review looked at clarity and transparency in the implementation of the procurement process—whether procedures were simple, straightforward, and easy to apply, or whether there were elements susceptible to different interpretations.

(iii) Predictability. The review examined whether procurement-related policies and procedures were clearly defined, fairly and consistently applied, and whether greater variation in specific cases was needed.

(iv) Participation. The review analyzed roles, responsibilities, and decision-making processes in procurement, as well as the extent to which the procurement governance structure offers stakeholders the opportunity to improve the process.

19. The methodology comprised a mix of quantitative and qualitative methods:

(i) Quantitative and qualitative analyses of e-surveys. E-Surveys were conducted among the heads of project administration units (PAUs), OSFMD procurement specialists, OGC project counsel, representatives from a sample of EAs with long-term partnerships with ADB and agencies selected from approved projects (Appendix 3).

(ii) Secondary data review and analyses. These included reviews of procurement documents and files,8 procurement-related policies—such as the Procurement Guidelines (2010, as amended), project administration instructions (PAIs), standard bidding documents, procurement plans, project administration manuals (PAMs), facility administration manuals (FAMs), and reports and recommendations of the President (RRPs). The review examined a total of 100 samples of RRPs, PAMs, and FAMs.

(iii) Consultations with key departments and stakeholders. These included BPMSD, OAG, OAI, OGC, OSFMD, RSDD, the World Bank's procurement hub team, and the Inter-American Development Bank (IADB).

20. Because sample sizes were smaller than optimal due to time and resource limitations, efforts were made to ensure the robustness of the findings by triangulating different sources and types of data. For example, the analysis of procurement plans found in the OSFMD database was compared against the responses on procurement packaging from the surveys of PAU heads. Having a broad base of key stakeholders added to the robustness of conclusions.

IV. ADB PROCUREMENT GOVERNANCE

A. Overview 21. ADB has a broad range of fiduciary duties with regard to procurement governance. These duties include assessing the procurement capacity of EAs; scrutinizing cost estimates and processes for bid packaging, bid evaluations, and contract awards; reviewing physical progress; and assessing compliance with loan covenants and quality assurance standards. All

8 Documents relevant to the procurement process include (i) GACAP report (see ADB. 2006. Second Governance

and Anticorruption Action Plan [GACAP II]. Manila.); (ii) CPS and COBP reports (see www.adb.org); (iii) World Bank country procurement assessment reports (see www.worldbank.org); (iv) executing agency procurement capacity assessment reports; and (v) documents in the file submitted to the Procurement Committee, including bid evaluation documents and other related procurement documentation.

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projects are prone to risk and uncertainty. Meeting fiduciary requirements in procurement processes will minimize risk, improve project implementation and performance, and contribute to development effectiveness. The question is to what extent ADB applies resources and skills to this oversight and whether ADB’s procurement governance meets effectiveness, efficiency, and economy criteria. 22. The framework for procurement governance is largely based on the assessment of an EA’s procurement capacity in the project processing phase. The assessment analyzes procurement risks and defines mitigation measures for a specific project. This should inform decisions on procurement packaging, procurement management, and capacity building that is needed. Each project procurement plan sets out governance arrangements for procurement transactions, including thresholds for procurement procedures such as ICB, NCB, and direct shopping. At predetermined points, the EA submits agreed documentation for ADB review to enable proceeding to the next governance gateway. B. Country Partnership Strategy

1. Background

23. Country procurement risk assessments are needed to identify implementation risks and mitigation measures. During preparation of a country program strategy (CPS), the revised guidelines for implementing ADB’s Second Governance and Anticorruption Action Plan (GACAP II) require country-specific procurement risk assessments. Under the section on Result Management, a CPS needs to identify the major risks that could affect implementation of the strategy, as well as mitigation measures.

2. Findings

24. ADB rarely undertakes country procurement risk assessments. Notwithstanding that country procurement risk assessments are required (para. 23), ADB rarely undertakes them. A review of 2011 CPSs and country operations business plans (COBPs) shows that country procurement risk assessments9 are seldom updated, although such updates are needed for ADB to manage risks. Instead ADB relies on assessments of other multilateral development banks (MDBs). However, the sector assessments of other MDBS may not be useful for ADB, as these are specific to each MDB’s operations, staff capacity and due diligence needs in a given country. 25. ADB procurement thresholds do not reflect country procurement risk. Because ADB does not undertake a procurement risk assessment during the CPS preparation, ADB is burdened with unnecessarily stringent procurement procedures. While ADB thresholds are roughly comparable to those of the World Bank, neither ADB nor World Bank has updated thresholds for years. 26. CPSs lack strategies to mitigate procurement risks. Most CPSs and COBPs lack time-bound action plans and resource allocations to minimize procurement-related risks. Most refer to related actions to address risks only in a general way, e.g. “The government will be encouraged to intensify procurement reforms;” and “Capacity building initiatives will be initiated.”

9 Country procurement risk assessments are usually led by the World Bank.

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3. Recommendations

27. Conduct more robust country, sector and industry specific procurement risks assessments. Country procurement risk assessments need to be prepared as part of CPS preparation.10 In addition, sector and industry risk assessments, while not generally performed, will help gauge the maturity and competitiveness of specific sectors and domestic markets,11 and guide decisions on procurement committee review, ICB, NCB, and shopping thresholds. Market research is needed to gain a firm understanding and set these thresholds.12 OSFMD will develop guidelines for preparing national level procurement risk assessments. 28. Introduce more practical procurement thresholds for each DMC. More practical procurement thresholds are needed in relation to particular country procurement environments. OSFMD should develop criteria for determining country specific thresholds for procurement committee reviews, ICB, NCB and shopping. Based on procurement risk assessments, the CPS should recommend appropriate thresholds for the country and whether or not ADB should use country systems for procurement.

C. Project Planning and Processing

1. Background

29. Project Administration Manual (PAM) preparation and review processes constitute crucial steps to assure the quality of procurement governance during project processing. The new business process adopted in 2010 made the PAM13 the main document for setting out arrangements for project implementation, financing, cost estimates, risks, procurement, including procurement plans, and safeguard requirements.

2. General Findings

30. EA procurement capacity action plans are insufficient. OSFMD guidelines provide that procurement capacity assessments14 should result in an action plan to manage risks, with sufficient resources for monitoring and follow-up. Only one or two of the PAMs reviewed mention plans for rectifying insufficient procurement capacity. Some PAMs mention training for EA staff or recruitment of implementation consultants for procurement functions, but not as part of a targeted action plan.

31. OSFMD participation in loan processing missions is limited. In 2011, more than half OSFMD international staff were not involved in loan processing missions. This is not consistent with the OSFMD Procurement Plan Guide. 15 In sharp contrast, OGC

10 For countries that have a current CPS, such assessments can be done at any time but should be updated during

the processing of the next CPS. Sector and industry assessments should be updated as part of project processing. 11 The World Bank conducts sector-specific assessments to determine local market competitiveness. See Appendix 5. 12 See Appendix 1, Section E, which compares thresholds between ADB and the World Bank. 13 ADB. 2010. Project Administration Manual. Project Administration Instructions. PAI 1.05. Manila. The project

administration manual (PAM) serves as the main document describing implementation details. http://www2.adb.org/Documents/Manuals/PAI/pai-1.05-23Apr2010.pdf

14 Operations Services and Financial Management Department. Learning and Capacity Building: Guide to EA Procurement Capacity Assessment. COSOpedia; ADB. 2010. Initial Project Administration Activities. Project Administration Instructions. PAI 1.01. Manila; and ADB. 2012. Preparatory Work and Procurement Supervision. Project Administration Instructions. PAI 3.01. Manila.

15 The Procurement Plan Guide (OSFMD) in para. 17 indicates that OSFMD will facilitate the preparation or update of the procurement plan while the regional department is responsible for completing the processes.

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staff16 participated in loan missions at least once. OGC staff participation by project is also relatively high.17 The impediment appears to be a lack of resources for OSFMD participation (see also Chapter V). It is difficult for OSFMD to facilitate the preparation of a procurement plan without participating in the loan processing mission.

3. Specific Findings—Cost Estimates

32. Cost estimates are unreliable. Cost estimates do not go through a quality assurance process. In sampled 2010–2011 project completion reports (PCRs), there are significant differences between cost estimates and actual costs. Poor cost estimates are likely one of the major causes of these differences, although inflation and price increases appear to play a big part in cost overruns. Accurate and comprehensive analyses of project costs are rare. While most project estimates were prepared by EAs or project preparatory technical assistance (PPTA) consultants, ADB has a fiduciary responsibility, which it can discharge only if its staff is sufficiently skilled to recognize incorrect estimates. 18 33. Poor project cost estimates result in major project cost overruns or under-runs in a majority of cases.19 The Independent Evaluation Department’s (IED) evaluation in 2004 showed that 56% of actual project costs were within 20% of appraised costs and 44% of projects differed from actual costs by more than 20%, i.e., 9% of project appraisals produced underestimates and 35% of project appraisals produced overestimates of more than 20% from actual costs. The evaluation found larger project costs were estimated less precisely than smaller projects. Staff indicated inaccurate cost estimates were due to: difficulty in collecting information in DMCs, inadequate time and resources (especially resources for PPTAs), pressure to meet targets, inadequate knowledge or use of tools for cost estimation, underlying economic conditions, inadequate knowledge of physical and price contingencies, and inadequate ADB guidelines for project cost estimation. 34. Poor cost estimates result in delays in procurement. Poor cost estimates have major implications for procurement. Cost estimates set too high prevent bidders from complying with the evaluation and qualification criteria in the bidding documents. Cost estimates that are far too low result in bids received that exceed the EA’s budget. This results in delays due to requests for approval of price negotiations. Respondents emphasized the need for allocating adequate resources for project preparatory instruments that allows ADB to improve cost estimates. Regional departments also welcome OSFMD to become more involved in the project processing (see also Chapter V). 35. ADB lacks ready access to tools for checking or developing cost estimates. Some United Nations agencies have developed reference lists for international comparisons and standard costs (including unit costs) for country specific sectors, and where there is

16 More than 70% of OGC respondents and all OSFMD respondents replied to the question. OGC responses relate to

2010–2011 projects to which they had been assigned. This specification became necessary because of the very high number of loan processing missions involving the OGC respondents.

17 In a survey conducted under the review, seven OGC respondents had participated in loan or grant processing missions for 39 of 68 assigned projects.

18 Examples of deliberate underestimation include efforts to make costs fit into government budgets. One field office reported deliberate overestimation by an EA artificially increasing project cost estimates. The literature deals with the many reasons for overestimation (e.g., contingency planning, poor governance and corruption) and under-estimation (e.g., optimism bias). See also Chapter V of the report.

19 ADB. 2004. Special Evaluation Study: Project Cost Estimates. Manila. ADB has not conducted a similar study since 2004 which would be useful for assessing the nature of cost estimate variation. RSDD has suggested that such a study should be planned to assess how endogenous and exogenous factors contribute to cost over- or under-runs.

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considerable decentralization, standard costs for individual provinces. Examples include the cost per household for connecting to a city water supply system, unit costs for training by level (national and sub-national) and by hierarchy of civil servants involved in that training.20 36. OSFMD is collecting cost data for a range of goods and services procured with ADB financing. Regional departments are also collecting such data. Some guidance on cost estimates is currently provided under Guidelines on the Financial Management and Analysis of Projects21 and the technical note on preparation of cost estimates.22 However, ADB’s approach to improving costs estimates remains insufficient.

4. Specific Findings—Procurement Packaging

37. Procurement packaging should promote efficiency, economy and effectiveness, while meeting fiduciary requirements. Based on efficiency concerns, each project procurement plan should have a small number of large packages, rather than a large number of small packages. For economy (value for money) and effectiveness (quality of results), procurement packaging and oversight arrangements should be based on a sound assessment of domestic capacity and the EA’s procurement capacity. As contracts vary by sector in size, type and technology, it may be appropriate for some sectors and projects to divide project components into smaller contracts. Determining optimal design in procurement packaging requires sound assessments of agency and sector specific procurement capacity. 38. Several considerations affect procurement packaging. Using large-value procurement packages generally implies greater efficiency. On the other hand, using a large number of smaller-value contracts has the effect of either (i) lowering the threshold below that required for ICB, thereby allowing NCB; or (ii) lowering the threshold below that required for procurement committee approval, thereby speeding the procurement process. Sound assessments of country situations and the agency procurement capacity may justify one or the other approach. An analysis of packaging should consider the country, sector, and EA context. The latest data show that 57% of procurement plans approved in 2010–2011 did not specify all the contracts for the duration of the project (since only the first 18 months is mandated). Note, ADB Guidelines on procurement packaging and plans are available on OSFMD’s website. 39. Procurement packaging currently favors small value contracts.23 In a sample of 2,500 contracts, those above $10 million accounted for 3% of total contracts, those from $1 million–$10 million accounted for 11%, and those below $1 million accounted for 87% (Figure 1). 40. Analysis by sector showed a marked split into two groups. In the first group of plans—representing education, health, multi-sector (such as rural development and community participation), agriculture and natural resources—contracts under $1 million dominate (84% to 97%). In the second group—representing transport, energy, water, urban infrastructure and services—contracts of $1 million–$10 million predominate. Contracts under $1 million comprise only 13% to 44% of the total. In energy and transport, contracts above $10 million are more prominent (20% of the total). Such differences may be attributed to the nature of the sector, the interventions required, and different types of EAs operating in different ways. For instance,

20 Some governments require their senior civil servants to be paid more in terms of per diem and travel. 21 ADB. 2005. Financial Management and Analysis of Projects. Manila. 22 ADB. 2008. Preparation and Presentation of Cost Estimates for Projects Financed by the Asian Development Bank.

Manila. 23 OSFMD database.

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Figure 1: Procurement Plan Packaging in 2011— 2,500 Contracts by Contract Value ($ million)

Source: Operations Services and Financial Management Department, Asian Development Bank.

≥20(1.0%)

≥10<20

(1.2%)≥1

<10(10.7%)

<1(87.2%)

those involved in rural development may operate differently from those involved in road or power plant construction (see Appendix 1 for details).

41. Quality of procurement plans is generally poor. Many procurement plans were incomplete or out of date. A majority of OSFMD respondents stated that procurement plans were not regularly updated. Thus, the potential of procurement plans is not being fully realized.

5. Recommendations

42. Introduce procurement risk categorization at concept clearance. Procurement risks should be categorized at ADB intervention entry points to determine the extent to which staff resources will be deployed and the nature and intensity of their involvement in addressing procurement issues (see Figure 2). Such categorization should be based on the level of procurement complexity, risk, and readiness—similar to the ADB project classification system. OSFMD should develop guidelines for determining procurement risk categorization as being “complex” or “low risk” in consultation with relevant departments. Unless the procurement is designated as "low risk" it will be considered "complex" and will require closer scrutiny and a more intensive quality assurance process. Based on these guidelines, for each project, regional departments should categorize procurement risk as “complex” or low”. See Table 1 for proposed categorization criteria. OSFMD should clear the proposed categorization prior to ADB management clearance of the concept paper. Regional departments with adequate capacity and risk mitigation measures should be delegated procurement decision authority for low risk projects.

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Figure 2: Concept of Risk-based Procurement

Key Features: Delegation to regional departments based on procurement risk assessment.

For high risk projects prioritization of OSFMD/OGC involvement on procurement management.

Risk management with enhanced EA capacity development/OSFMD staff outposting.

Step 1: Risk Assessment National Level

Step 2: Risk Assessment Project Level

With CPS PreparationProject/TA/MFF/MFF-T Processing

To Consider the Country Systems and Procurement Capacity

To Decide Procurement Committee, ICB, NCB, Shopping Thresholds at National Level

RDs to "Propose" and OSFMD to "Endorse"

Categorize "Low Risk" or "Complex"

Low Risk: Complete Delegation of Procurement Decisions to RDs Regardless of PC, ICB, NCB, Shopping Thresholds with Proper Risk Mmanagement

High Risk: OSFMD and OGC's Active Engagement

Level

When

Objectives

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Table 1: Procurement Risk Categorization during Project Processing—Indicative Approach Categorization Indicative Criteria Required Due Diligence

Low Risk

Indicative Criteria Appropriate domestic procurement law

and procedures acceptable to ADB Comprehensive processing procedures

acceptable to ADB Audit system well established Absence of a record of procurement

related corruption EAs with considerable previous ADB

experience, and package sizes less than $20 million or

other agreed threshold

OSFMD Review bidding documents only

as necessary Review procurement plans only

as necessary Processing Divisions Confirm procurement capacity Review and approve bidding

documents Provide procurement

management assistance to the EA as appropriate

Complex

Indicative Criteria Inadequate domestic laws Inadequate NCB procedures EA has inadequate procurement

capacity. Insufficient ADB/ WB procurement

experience in the sector Insufficient checks and audit process Lack of appropriate documentation and

record maintenance Package size of more than $20 million

or other agreed threshold

OSFMD Participate in processing

mission(s) to help the project team to prepare PAM/FAM

Approve procurement plans Provide basic procurement

training to EAs Indicate appropriate prior review

thresholds Processing Divisions Seek OSFMD prior approval on

procurement plans Allocate resources for EA

training Provide procurement

management assistance to the EA acceptable to OSFMD

43. Develop a quality assurance process, including guidelines and e-solutions, to improve cost estimates. OSFMD should update tools and guidelines based on international good practices for cost estimation and make this information available to project staff. OSFMD should consider reintroducing e-solutions such as COSTAB or MS Excel Tool. 44. Improve efficiency in procurement packaging through increased guidance and better quality control. Procurement packaging with a large number of small-value contracts is not efficient. In order to determine the optimal packaging, it is important to assess the sector's competitiveness, agency capacities, impact of decentralization in countries where applicable, and options for structuring procurement packaging in a different way. Such structuring should also reflect the project’s procurement risk categorization. OSFMD should update Procurement Plan Guidelines and the quality of draft procurement plans should be assessed pursuant to the guidelines prior to MRM/SRM. During project processing regional departments should review a draft ICB/NCB document and approve a master bidding document before project approval. 45. Improve quality of procurement plans through quality control procedures. OSFMD will review the current procurement plan procedures as the current format does not require

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regular updates. Improving the quality of procurement plans will require improving the procurement planning process. Currently, there is no provision for scheduling and monitoring procurement processes. Project and EA staff should be strongly encouraged to use procurement plans as analytical tools and not as mere forms to be filled. D. Procurement Review Processes

1. Background

46. This section examines (i) the procurement review process below and above the $10 million threshold; and (ii) the rigor, efficiency, and effectiveness of the process; and provides recommendations to further improve procurement governance. The analysis reflects different viewpoints of OSFMD procurement specialists, regional departments, OGC counsels, and EA representatives.

2. General Findings

47. The procurement review process is rigorous in principle, with significant issues of efficacy and quality. The process involves several reviews by regional departments and, for procurement values of $10 million and more, additional reviews by OGC, OSFMD, and the Procurement Committee. Each year, about 5,400 contracts24 go through this process, including 130–170 large contracts that also undergo Procurement Committee scrutiny (Figures 3 and 4). There are three main reasons for procurement review inefficiency: (i) complex procurement review processes, (ii) weak EA capacity, and (iii) inadequate ADB staff capacity.25 48. Regional departments indicate that the review process may not always meet quality criteria or fully acknowledge risks. Influencing factors include: pressures on project officers to “deliver”; inadequate procurement capacity in regional departments; and over-reliance on national staff for proper procurement oversight, which may expose them to undue pressure.

24 The average annual number of contracts for works, goods, and turnkey projects was 5,483 from 2010 to 2011. 25 See Section F on EA and ADB Staff Capacity.

Figure 3: Current ADB Procurement Review Practice (Above $10 Million)

ADB = Asian Development Bank, BER = bid evaluation report, DG = director general, EA= executing agency, IFB = invitation for bids, OGC = Office of the General Counsel, OSFMD = Operations Services and Financial Management Department, PC = Procurement Committee, RD = regional department. Source: Asian Development Bank.

IFB (EA) BER (EA)Customized Bidding Document by using ADB template (EA) PC Paper (ADB‐RD)Newspaper Advertisement (EA) ADB Line Director's No Objection to BER (ADB)ADB Website (ADB)

OGC

OSFMD

Documents Requirement

Stage 2: Bid Evaluation Report/Procurement Committee Paper ClearanceStage & Dept. Stage 1: Bidding Document & Invitation for Bids Preparation

EA

RD

STEP 1: Prepare draft IFB document and bidding

document

STEP 15: Award of contract to be

issued

STEP 3A: OGC to review

STEP 3B:OSFMD to endorse bidding

document & upload IFB in ADB website

STEP 5: Bidders submission of

bids

STEP 6: BER preparation

STEP 7: ADB reviews BER & prepares draft PC

paper

STEP 2: ADB (RD) reviews

Step 8A: Comments to BER and PC

paper

Step 8B:Comments to BER

and PC paper

STEP 9: Approval of PC paper by authorized

RD director - PC

Step 10: Approval of PC paper by OGC

Step 11: Clearance of PC paper by OSFMD

procurement specialist/unit head

Step 12:Clearance of PC paper by OSFMD

PC secretary/director

Step 13:Approval of PC

paper by OSFMD DG

With Possible Streamlining under PROPOSED

Step 14: ADB's no objection

STEP 3C: Convey ADB

approval

STEP 4: Bid commencement

14

Figure 4: Current ADB Procurement Review Practice (Below $10 Million)

ADB = Asian Development Bank, BER = bid evaluation report, EA= executing agency, HQ = headquarters, IFB = invitation for bids, OGC = Office of the General Counsel, OSFMD = Operations Services and Financial Management Department, PC = Procurement Committee, RD = regional department, RM = resident mission. Source: Asian Development Bank.

IFB (EA) BER (EA) Letter of Award to Bid Winner (EA)

Customized Bidding Document by using ADB template (EA) Project Team Leader Assessment of BER to Line RD Director (ADB)

Newspaper Advertisement (EA) ADB Line Director's No Objection to BER (ADB)

ADB Website (ADB)

Documents Requirement

Stage 1: Bidding Document & Invitation for Bids Preparation

Stage & Dept. Stage 2: Bidding and Bid Evaluation Report Stage 3: Award of Contract

EA

RD (RM)

RD (HQ)

OSFMD

STEP 1: Prepare draft IFB document and bidding document

STEP 8: Preparation of award of contract

STEP 9: Award of contract

(i) IFB

RD to clear IFB (also seek OSFMD's

endorsement to upload IFB in

www.ADB.org)

STEP 3:OSFMD to endorse

uploading IFB in ADB website

STEP 5: Bidders submission of

bids

STEP 6: Preparation of BER

STEP 7: ADB (RD's)

concurrence to BER

OSFMD (and OGC) to give

"informal"advice

Within 30/42 days

STEP 4: Bid commencement

STEP 2: ADB (RD) clearance

Inform

al

OSFMD to give"informal"

advice

Inform

al

(ii) BiddingDocument

RD to clear bidding

document

15

16

49. Staff capacity in regional departments determines the quality of the review process and needs significant improvement. Over 97% of contracts are below the Procurement Committee threshold and are processed within regional departments without going through the Procurement Committee process. Some of these contracts are prepared in local languages and need to be translated, relying on the skills of local translators for accuracy and adding additional time to the process. PAU heads believe that 45%–51% of their international staff and 22%–26% of their national staff lack adequate experience in the review of bidding documents and bid evaluation reports (BERs) (Figures 5 and 6).

Note: Average across 33 regional departments at ADB resident missions and headquarters. Source: Surveys of heads of project administration units in regional departments. Asian Development Bank.

55%

55%

57%

67%

30%

58%

74%

51%

49%

42%

49%

23%

62%

64%

0% 20% 40% 60% 80%

Bidding documents

Bid Evaluation Reports

Procurement Plans

Contract variations

Procurement Capacity Assessments

Request For Proposals for Consultant Recruitment

Evaluation of Expressions of Interest & submissions

D Resident Missions Headquarters.

Figure 5: Percentage of IS PAU Staff Reported as Having Experience in Procurement Functions

Note: Average across 33 regional departments at ADB resident missions and headquarters. Source: Surveys of heads of project administration units in regional departments. Asian Development Bank.

84%

81%

79%

87%

33%

83%

84%

78%

76%

76%

83%

31%

77%

78%

0% 20% 40% 60% 80% 100%

Bidding documents

Bid Evaluation Reports

Procurement Plans

Contract variations

Procurement Capacity Assessments

Request For Proposals for Consultant Recruitment

Evaluation of Expressions of Interest & submissions

D Resident Missions Headquarters

Figure 6: Percentage of National Project Administration Unit Staff Reported as Having Experience in Procurement Functions

17

3. Specific Findings: Above $10 million Threshold

50. For contracts above $10 million, it normally takes an average of 83 days from the submission of the BER by the EA to ADB approval of the recommendations (Figure 7 and Table 2). The longest time is taken by regional departments in their interactions with EAs—60 days on average. Reviews by OGC add an average of 10 days, those by OSFMD an additional average of 14 days. This analysis is based on Procurement Committee submission data. Each time the quality of the BERs or the quality of comments are not acceptable, or not in accordance with the Procurement Guidelines or bidding document provisions, ADB must undertake extensive, time consuming correspondence with the EA to resolve outstanding issues.

Table 2: Time Taken from First Bid Submission to Final Approval of the

Procurement Committee Paper

Number of Days Averaged across 350 Submissions in 2010 and 2011

1. Executing agency: from first bid submission to BER submission 89

2. Regional department: from BER receipt to draft procurement committee paper submission to OGC/OSFMD

37

3. OGC: from draft procurement committee paper receipt to feedback 7

4. OSFMD: from draft procurement committee paper receipt to feedback 7

5. Regional department: from receipt of OSFMD feedback to submission of final procurement committee paper to OGC

25

6. OGC: from receipt of procurement committee paper to its approval 3

7. OSFMD: from OGC approval to OSFMD approval of procurement committee paper 4 Average total number of days from step 2 to procurement committee approval 83 Source: Operations Services and Financial Management Department, Asian Development Bank.

*Notes: 1. Days taken from first bid submission and ADB receipt of the bid evaluation report to final approval of the

Procurement Committee papers, averaged across 2010 and 2011 submissions. 2. The review time attributed to the regional departments may include the time taken by executing agencies to

respond to requests for clarification or reevaluation. Source: Operations Services and Financial Management Department, Asian Development Bank.

EA

EA

RD

RD

OGC

OGC

OSFMD

OSFMD

RD

RD

OGC

OGC

OSFMD

OSFMD

0 days 50 days 100 days 150 days 200 days

2010

2011

Figure 7: Average Number of Days Taken by theProcurement Process to Approve Contracts Above $10 Million*

18

ADB = Asian Development Bank. Notes: 1. There were 21 respondents to question 1, and 23 respondents to question 2. 2. Percentages refer to the number of respondents and not to the number of submissions. Source: Survey of executing agencies.

<1 month

<1 month

1-2 months

1-2 months

>2 months

>2 months

0% 20% 40% 60% 80%

(2) respond tobid evaluation report

(1) comment on bidding documents

Average time for ADB to:

51. EA perceptions generally support these time analyses. Interpreting the results from the survey of EAs requires consideration of two opposing factors. First, about 97% of EA submissions are small-value contracts and are approved by regional departments. This could influence the EA’s opinion. Second, EAs that responded to the survey include those working in the energy, transport, and water infrastructure sectors, which tend to have large-value contracts that go to the procurement committee. The majority of respondents stated that ADB responded within 1 month (Figure 8). A few others, however, made highly critical remarks about delays in specific cases.

52. Procurement review includes duplicate and redundant tasks. The procurement review process contains duplicate tasks (Figure 3). Several staff within regional departments review the entire bidding document, OSFMD reviews the commercial sections, and OGC reviews the section on particular contract conditions. Under the Procurement Committee review process, several staff in OSFMD review the BER and Procurement Committee paper after the regional department director and the Assistant General Counsel (AGC) have signed off in their roles as Procurement Committee members. 53. OSFMD’s limited role on project teams contributes to procurement delays. The absence of OSFMD in loan processing missions and project teams contributes to delays and misunderstandings in the procurement review process. The survey showed that insufficient OSFMD involvement and opportunities to gain insight and knowledge of specific project characteristics made it difficult for them to have an operational perspective during the Procurement Committee review process. Some regional departments worked closely with OSFMD, enabling a more cohesive approach to tackling procurement and related issues. The survey revealed the need to improve OSFMD technical sector expertise for reviewing bidding documents and BERs. Survey feedback from OSFMD indicates that inadequate understanding of sector related technical issues sometimes made appropriate OSFMD decisions difficult.

Figure 8: Responses from Executing Agencies on the Time Taken by ADB in the Procurement Review Process

19

54. A notable proportion of OSFMD staff reported “frequent” difficulty due to disagreements with regional departments in procurement cases that went through the Procurement Committee process. The disagreements arose mainly from different interpretations of guidelines and a tendency of regional departments to support the EA’s position (Figure 9).

ADB = Asian Development Bank, , EA = executing agency, OGC = Office of the General Counsel, OSFMD = Operations Services and Financial Management Department, PC = procurement committee, RD = regional department.

Note: The multiple-choice question allowed the responses “never”, “sometimes”, and “frequently.”

Source: Survey of Operations Services and Financial Management Department procurement specialists (21 respondents) and Office of the General Counsel project counsel (10 respondents). Asian Development Bank.

0%, OSFMD

19%, OSFMD

14%, OSFMD

30%, OGC

30%, OGC

30%, OGC

0% 20% 40% 60%

ADB & EA disagree on guidelines interpretation

EA not in accordance with Procurement Guidelines, but RD

supports EA

Disagreement with RD on guidelines interpretation

Figure 9: Disagreement in PC Decisions above $10 million—by Nature of Disagreement

Figure 10: Factors Delaying PC Decisions Perceptions by PAU

EA = executing agency, HQ = headquarters, OSFMD = Operations Services and Financial Management Department, PAU = project administration unit, PC = procurement committee, RD = regional department, RM = resident mission.

Source: Survey of heads of project administration units, Asian Development Bank.

41%

100%

65%

24%

71%

86%

43%

29%

Quantum/Quality of RD staff

Quantum/Quality of EA staff

Quantum/Quality of OSFMD staff

Other Causes

D RMs HQ

20

Note: Days required for the regional departments from the receipt of the bid evaluation reports to the issuance of a fax conveying “no objection.”

Source: Survey of heads of project administration units. Asian Development Bank.

13 days

37 days

75 days

23 days

30 days

77 days

0 20 40 60 80 100

"Shortest time" reported by RDs

"Average number of days required" as reported by RDs

"Longest time" reported by RDs

D Resident Missions Headquarters

4. Specific Findings—Below $10 million Threshold

55. For procurement below the $10 million threshold, the efficiency of procurement processes is not optimized.26 Regional departments estimate the normal duration of the procurement review process by regional departments and EAs without OSFMD involvement to be between 30 and 37 days from the receipt of the BER to the issuance of “no objection”. The longest time reported across all regional departments was 75 to 77 days. There was little difference in survey results from resident missions and headquarters divisions. Some cases were reported as having been processed within 1 or 2 days, but these do not reflect the norm.

56. Delegation to regional departments has improved efficiency but impact on governance not clear. PAU heads remarked that increasing the threshold for Procurement Committee review from $3 million to $10 million in 2004, and delegating this authority to regional departments improved efficiency. This reform, however, needs to be backed by robust procurement governance arrangements under regional department responsibilities. 57. The quality of bidding documents prepared by EAs is often poor and not compliant with ADB procurement guidelines. OGC and OSFMD staff consulted by regional departments on an informal basis indicated that bidding documents were not often up to ADB standards. This led to delays as OGC and OSFMD had to undertake detailed reviews, although the procurement was below the $10 million threshold. OGC suggested that the desire of regional departments to respond speedily and not offend EAs might have influenced the quality of the procurement review. OGC experience was that EAs routinely made numerous errors in their submissions. Changes to standard bidding documents were another cause of delay, triggering prolonged correspondence between ADB and EAs. OGC pointed out that EAs increasingly add clauses to ADB standard bidding documents, some of which have a fundamental impact on the terms of the bidding and are not acceptable. The respondents

26 While efficiency can be measured in various ways, this review confined itself to looking at the time required for

project implementation, as specified in the terms of reference (Appendix 2).

Figure 11: Average Number of Days to Approve Contracts Below $10 Million

21

underscored that regional departments were responsible for detecting such deviations during the initial review. 58. Based on these concerns, the current value-based approach to decentralizing procurement approval authority may not always be efficient and effective. Some regional departments and EAs have the capacity to handle large-value contracts. Many large contracts may also be relatively standard and easily processed by experienced staff. Conversely, large contracts do not necessarily expose ADB to more risk.

5. Recommendations

59. Move to a risk based streamlined procurement approach. As proposed earlier, the key to making procurement processes more effective and efficient is a risk based approach rather than the current value based approach. It is necessary to frame a meaningful approach that places projects and programs in specific risk categories, perhaps similar to the environmental risk categorization of projects. An illustrative procurement risk categorization matrix may include important variables such as (i) transparency; (ii) value; (iii) complexity; (iv) criticality; and (v) bid contestability (effective competition). Workable guidelines should be formulated and adopted as a matter of policy. Risk management should be tied to staff capacity and adequate risk mitigation measures. 60. For procurement that is high risk or above the procurement threshold, resolving the issue of multiple procurement reviews by OSFMD will require changes in existing processes. Figures 12 and 13 provide a possible approach for streamlining procurement review processes, while maintaining appropriate checks and balances. 61. For procurement that is high risk or above the procurement threshold, the following changes are recommended as follows:

(i) OSFMD reviews at various levels take place before, not after, the regional department director and Assistant General Counsel sign off;

(ii) OSFMD provides one time, consolidated feedback from all its levels,27 ensuring consistency, including comments on the procurement paper;

(iii) OSFMD transits this consolidated feedback to the regional department. (iv) The regional department makes the required changes before its directors and

AGC sign off as procurement committee meetings.

62. For procurement that is low risk, improving the quality and efficiency in procurement review involves strengthening capacity and accountability (see Figure 13).

(i) PASS will be expedited to will enhance the quality of documents and reduce the time required for procurement.

(ii) PAU heads or their alternates should mentor new international and national staff to help in their development.

(iii) Regional department approval documents should be subject to audit.

27 The various levels of OSFMD that provide feedback currently include: the procurement specialist, the OSFMD unit

head, the director of OSFMD, and the Procurement Committee secretary. See Figure 3.

22

63. To enhance efficiency in both complex and low risk procurement, additional recommendations include:

(i) Use of the OSFMD standardized online tool28 for bid document review to ensure greater efficiency in review. OSFMD is currently updating the tool.

(ii) At the time of loan processing, the regional department (headquarters and resident mission), community of practice, OGC, and OSFMD should review a draft ICB/NCB document and agree on and approve a master bidding document. Only the regional department would then need to review the subsequent bidding documents. If needed, the department could consult with OGC and OSFMD for clarifications. This would require assessing the department’s procurement expertise before such delegation.

64. Strengthen fiduciary risk management by accrediting more staff for low risk projects and involving more OSFMD staff in complex projects. Beginning in 2014, only PASS graduates will be able to endorse bidding documents and BERs prepared by EAs. This is expected to greatly improve the quality of procurement governance and reduce fiduciary risks. Sufficient PASS graduates must be available to perform this work expeditiously. Regional departments also suggested that PAU heads or their alternates mentor new international and national staff to help new staff’s capacity development. For “complex” procurement, more upstream involvement of OSFMD staff in project planning and processing, procurement review and other risk mitigation measures is needed.

28 COSOpedia and an interactive procurement document review system (Après) are being developed by OSFMD.

Figure 12: Proposed Procurement Procedure (High Risk and Above Procurement Committee Threshold)

ADB = Asian Development Bank, BER = bid evaluation report, DG = director general, EA= executing agency, IFB = invitation for bids, OGC = Office of the General Counsel, OSFMD=Operations Services and Financial Management Department, PC = Procurement Committee, RD = regional department. Source: Asian Development Bank 23

Figure 13: Proposed Procurement Procedure (Low Risk)

ADB = Asian Development Bank, BER = bid evaluation report, EA= executing agency, HQ = headquarters, IFB = invitation for bids, OGC = Office of the General Counsel, OSFMD = Operations Services and Financial Management Department, PASS = procurement accreditation skills scheme, PC = Procurement Committee, RD = regional department, RM = resident mission.

24

25

E. Risk Management

1. Background

65. The EA has responsibility for procurement in ADB-financed projects, while ADB is responsible for fiduciary oversight. ADB’s fiduciary duty29 is to ensure that the proceeds of any loan it guarantees or participates in are used only for the purposes for which the loan was granted, with due attention to considerations of economy and efficiency. 66. OAI investigates fraud and corruption allegations and conducts Project Procurement Related Reviews (PPRRs):

(i) Investigation of allegations. OAI receives an average of 200 complaints a year; about half from ADB staff. In 2011, 16% of OAI’s investigations concerned procurement-related irregularities, mostly in the bid evaluation process. After initial screening of complaints by a complaints assessment team, OAI conducts detailed investigations as appropriate. The Integrity Oversight Committee reviews the findings of the investigation and determines the sanctions to be applied to firms and individuals found to be engaged in corrupt or fraudulent practices.

(ii) PPRRs. As a second core function, OAI conducts about five PPRRs a year to

recognize and prevent internal control weaknesses in ADB-financed projects. Criteria to select projects for review include the level of funding, the number of contracts, consultation with regional departments, and potential benefits from the PPRR exercise.

2. Findings

67. Procurement review actions by Regional Departments are not subject to regular assessment and verification. ADB procurement review actions that have been delegated and decentralized are not subject to adequate verification and assessment. In 2004, when ADB increased the procurement approval threshold for authorized directors, it did not conduct a capacity assessment of regional department staff. In addition, ADB does not conduct formal audits of whether regional departments are properly discharging their fiduciary. While OAI undertakes about five PPRRs every year (see para. 66) and provides recommendations and guidance to regional departments, this is not equivalent to regular audits and audit follow-ups. Based on OAI’s experience from PPRRs conducted, most irregularities occur in procurement across all sectors. However, staff generally does not conduct spot checks due primarily to the lack of capacity and resources, including limited time allowed for review missions (see Chapter V). 68. There is no systematic approach for tracking resolution of procurement related complaints. The survey of PAU heads showed that there is no single approach to handling procurement-related complaints—the response depends on the nature of the complaint. As noted above (see para. 66), EAs are responsible for procurement in ADB financed projects. Many bidders and contractors, as well as other stakeholders including the public, are unclear about ADB’s fiduciary role. When there is a perceived violation of procurement requirements, EAs are generally contacted and may refer such complaints to ADB, as appropriate. Complaints are received by regional department staff, which transmits them to OAI and/or OSFMD or to the

29 ADB. 1966. Agreement Establishing the Asian Development Bank. Manila.

26

EA as appropriate. Cases referred to OAI are handled in accordance with OAI procedures (para. 66), while in cases related to the Procurement Committee approval process, OSFMD provides a response to the complainant after the completion of the procurement process. There is no tracking of the handling of complaints, including timeline for addressing and providing feedback to complainant.

3. Recommendations

69. Back decentralization or procurement approval authority by regular reviews. Regular reviews of regional department procurement documentation are needed to verify the adequacy of fiduciary checks and to detect any gaps in risk control and management. To better understand delays in the procurement process under $10 million, a cross-sectoral baseline assessment of the process in DMCs should be carried out to identify the strengths and weaknesses of the current procurement process, the quality of documentation prepared (including bidding documents and contracts) and the reasons for delays in the procurement process. At the same time, a regular assessment of procurement processes and documentation to verify the adequate risk mitigation measures should be initiated. Regular reviews of department procurement documentation are needed to verify the adequacy of fiduciary checks and to detect any gaps in risk control and management. 70. Given the high stakes for ADB in improving procurement governance and ensuring quality through appropriate project oversight and monitoring pursuant to ADB’s result’s framework. BPMSD, OAI, OSFMD and RSDD need to combine resources to develop training courses in procurement and project management, with an emphasis on conducting spot checks (see paras. 75 and 79). Staff roles and responsibilities should be clarified in the appropriate project administration instruction. OAI is integrating lessons learned from PPRRs into the tool kits for regional departments and is planning to develop a tool kit to assist EAs. 71. Establish benchmarks and a timeframe for each stage of procurement planning and review. These benchmarks should be used to monitor procurement efficiency and progress of the reforms proposed in this document. 72. Establish a central system to accept and deal with procurement complaints. Such a system will better inform decisions relating to procurement issues (whether systemic, based on lack of clarity or awareness, and other concerns) and promote greater transparency and accountability. OSFMD is developing a comprehensive complaints management system that complements the 2012 accountability mechanism policy.30

F. Executing Agency and ADB Procurement Capacity

1. Background

73. Previous sections underscored the importance of planning and business process improvement. All of the proposed reforms require attention to the capacity of EA and ADB staff.

30 ADB. 2012. Review of the Accountability Mechanism Policy. Manila. The policy suggests measures to help ADB

improve complaint handling.

27

2. Findings on Executing Agency Capacity

74. Procurement capacity of EAs is generally weak and ADB training programs for EAs in procurement management are insufficient. PAMs pay inadequate attention to addressing gaps in EA procurement capacity. In the past, with support from key departments, BPMSD arranged annual month-long DMC orientation programs that included sessions on procurement governance and management. That program was discontinued in 2009. Currently, OSFMD regularly implements training programs to improve EA agency procurement and project management capacity, including country project implementation and administration seminars, design and monitoring framework workshops, and procurement clinics. However, these training programs have largely been familiarization courses and not the in-depth systemic training required. Even in EAs who have been trained and who have been implementing ADB projects for years, the quality and timeliness of procurement implementation have not always improved.

3. Recommendations on Executing Agency Capacity

75. Provide more in depth procurement capacity development for EAs. It is recommended that ADB develop a new and comprehensive strategy for EA capacity development, which should be linked with the risk based procurement approaches proposed in this review (see Figure 2 and Table 1). Courses should provide EAs with more targeted and regular training in procurement management, encourage them to use procurement agencies for their major procurement activities, and promote the establishment of private sector procurement specialists to undertake government procurement activities. 76. PAMs/FAMs should include action plans to address risks related to EA capacity constraints. While helping EAs to increase capacity, ADB should also be mindful of overburdening DMC governments. Regional Departments should more effectively coordinate with other development partners and improve communication within ADB teams to avoid frequent missions to the same ministry or agency by different teams; promote more joint missions; and better harmonize its travel plans with those of other development partners. 77. OSFMD is working on improving EA capacity development programs. In 2013, OSFMD will roll out a revised project design and performance management course for DMCs. OSFMD has also been providing procurement and project implementation clinics in response to requests from regional departments and resident missions for targeted and timely advice to DMCs. OSFMD is also considering regional technical assistance (RETA) to provide extensive training to EA staff based on the CPS analysis. Priority will be given to DMCs with large portfolios and corresponding capacity needs (see also Table 3 and paras. 75 to 78). 78. Explore introduction of an electronic procurement platform for EAs. ADB has had significant success in reducing processing time for consultant recruitment through the electronic platform of the Consultant Management System (CMS II). This system will be expanded under CMS II to cover loan-specific consultant recruitment by EAs. Given the increasing interest in, and use of, electronic procurement by ADB borrowers, it is appropriate to consider expediting the introduction of an ADB electronic procurement platform for: oversight of bid evaluations of straightforward goods and works contracts by EAs; building on OSFMD initiatives such as the electronic review of bidding documents; and the introduction of project processing and portfolio management system (P3M).

28

4. Findings on ADB Staff Capacity

79. About half of regional department international staff require urgent training in procurement. Earlier discussions cited examples of weak ADB staff capacity in procurement, at all stages of procurement governance: (i) CPS (para. 23), (ii) Project Planning (para. 29), (iii) Procurement Review (para. 46), and (iv) Risk Management (para. 65). Adequate staff capacity is needed to promote “One ADB” approach to improve procurement governance. Figure 14 shows the sectors in which these specialists are needed. It must be cautioned that the survey results do not provide the work context nor do they clarify how many trained procurement staff are needed. In PAUs at headquarters, national staff generally focus on consultant recruitment, mainly individual recruitment; progress monitoring; technical assistance completion report and PCR activities; and budgeting. They do not presently have the opportunity to become experienced in the technical aspects of the projects. Notwithstanding the survey results, many resident missions have national staff who are well-qualified specialists, trained in project and procurement management.31

80. Procurement Accreditation Skills Scheme Program (PASS) is helping to improve staff procurement capacity. PASS was launched by BPDB and OSFMD in 2011 to provide staff with responsibility for discharging their fiduciary duties and providing procurement advice to borrowers with the skills needed. As of June 2012, around 560 staff has enrolled and more than 225 have attended mandatory e-learning workshops and modules. PASS is delivered through e-learning, classroom workshops, case studies, processing real-life transactions, mentoring, and validation. BPMSD and OSFMD are managing the process. Each accreditation exercise takes place over 12 months, with a fast-track process for PAU heads, their alternates, and OSFMD procurement specialists. Certification of staff has been slow, as this requires staff to undertake an actual process of consultant recruitment or procurement. Final examinations were pilot-tested on OSFMD staff and the feedback received is being incorporated in revised test questions. Overall feedback on PASS has been positive.

31 Observation based on the experience of Ajay Guha, one of the consultants for this review.

Source: ADB survey of heads of project administration units..

Infrastructure1

Agriculture1

Energy7

Finance/ Public

Management2

Transport5

Water/ Urban Development

6

Procurement / Analysts

6

Figure 14: Number of Specialist Staff Needed by Heads of Project Administration Units

29

5. Recommendations on ADB Capacity

81. Increase the role and number of national procurement officers in resident missions. Two headquarters divisions and most resident missions with large portfolios have recruited national procurement officers (see Table 3). They reported that this improved portfolio performance in every case. PAU heads suggested examining the distribution of international and national procurement staff in resident missions, including the ratio of procurement staff to the number of loans, and to consider sharing international staff between offices depending on location and workload. PAU heads also suggested that all resident missions with a significant project portfolio should have an out-posted OSFMD staff member (see Chapter V for a discussion on outposting of staff). In addition to increasing national procurement officers in resident missions consideration should be given to introducing matrix reporting of these staff to country directors and relevant OSFMD procurement directors. 82. Accelerate Procurement Accreditation Skills Scheme (PASS) and expand to include advanced accreditation in specialized areas. Key areas not extensively covered in existing ADB capacity development programs include (i) procurement packaging strategy, (ii) procurement planning and pricing, and (iii) private sector and public–private partnership procurement. PASS should be expanded to provide more advanced and specialized levels of procurement accreditation for staff. If resources permit, it should be broadened to provide basic accreditation for targeted EA staff in sectors and countries where ADB contemplates a robust lending program. PASS should be reviewed on an ongoing basis to confirm its continued effectiveness and relevance. 83. By 2014, ADB will have a system in place that requires PASS graduates to confirm that all consultant recruitment and procurement transactions are in accord with ADB guidelines, procedures, and PAIs. With properly trained and accredited staff, ADB fiduciary duties will be discharged more efficiently and effectively. It is proposed that ADB accelerate the roll out of PASS for key ADB staff to provide regional departments with sufficient accredited staff to endorse bidding documents and BERs (see Figure 13 on low risk procurement transactions).

V. IMPLEMENTING PROCUREMENT GOVERNANCE REFORMS

A. Background

84. Previous chapters highlighted procurement governance practices and possible areas of improvement. Resource implications in this review should be resource neutral. This chapter explores how to achieve a resource neutral approach to implementing review recommendations. Proposals on issues related to staffing must be coordinated with BPMSD. A unit for institutional coordination was established in BPMSD in 2009. Its main roles include the assessment of staff resources and the skills mix needed to deliver ADB corporate goals. The annual exercise for developing the work program and budget framework, and the annual budget are the required processes for proposing changes in human resources. ADB needs to carefully examine resource needs of implementing recommendations, including reallocation of priorities and staff. B. Findings

85. Procurement governance in resident missions requires sufficient staff capacity. ADB has 31 international and 12 national procurement specialists. Five of the 31 international specialists have been out-posted to resident missions and provide hands-on support to

30

executing and implementing agencies when required. Evidence shows that those resident missions that have out-posted OSFMD staff, coordinated with local procurement staff where available, have improved procurement governance, efficiency and risk management.32 Other MDBs use outposted procurement officers to develop resident mission procurement capacity. For example, the IADB has out-posted procurement staff to 95% of their 27 field offices. These staff supervise the most critical procurement governance processes at field level. The World Bank, with a procurement portfolio of about $20 billion each year, has some 100 accredited procurement specialists in the Asia Pacific region, located in procurement hubs in Almaty, Bangkok, Beijing, Delhi, Dhaka, Hanoi, Jakarta, Manila, and Sydney. Some key functions, which used to be managed by the World Bank headquarters, have been delegated to these hubs. 86. Some resident missions and divisions within regional departments are more in need of dedicated procurement staff than others. Table 3 indicates some resident missions and divisions with a relatively high volume of procurement may not have dedicated procurement staff. For example, it appears that the Sri Lanka, Nepal, and Uzbekistan resident missions should strengthen their country operations with additional human resources. The problem of inadequate procurement capacity can be solved in various ways and BPMSD has indicated that staff redeployment is one early solution. In addition to procurement volume, the review proposes a supportive approach to procurement management that recognizes the capacity of fragile and conflict-affected DMCs and aims to improve flexibility and implementation speed in these DMCs. C. Recommendations

87. Redeploy staff to help address the problem of inadequate procurement capacity in regional departments. BPMSD has indicated that staff redeployment is one early solution. In addition to procurement volume, the review proposes a supportive approach to procurement management that recognizes the capacity of fragile and conflict-affected DMCs and aims to improve flexibility and implementation speed in these DMCs. 88. Implement structured exchange programs between regional departments and OSFMD to help strengthen procurement capacity. 33 The survey of PAU heads and OSFMD staff indicated that the main role of OSFMD staff has been to provide guidance based on ADB procurement guidelines. However, both regional departments and OSFMD specialists have suggested the need for OSFMD staff to be given more practical project management experience (Chapter IV) to better understand project implementation demands. A structured staff exchange program would equip procurement specialists with a better skills mix. 89. Assign procurement specialists to the front office of regional departments to strengthen procurement governance This proposal will require a larger number of trained and accredited procurement specialists. OSFMD could provide such specialists and maintain a reduced but core team would within OSFMD to focus on critical activities such as policy, training, audits, PAI improvements, guidelines development, large procurement approvals, document standardization, and interagency cooperation. Alternatively, regional department front offices could hire procurement staff to closely coordinate with OSFMD.

32 ADB. 2012. Work Program and Budget Framework (WPBF) 2013–2015—Request for Inputs and Proposed

Timetable. Manila. Internal memo from OSFMD. 33 Such a program has started on a pilot basis, though it may not yet cover OSFMD. The Human Resources Division

may provide a detailed plan and suggestions on how to rotate OSFMD staff in regional departments.

31

90. Out-post procurement experts and extend missions to help improve procurement capacity in resident missions. Since 2009, OSFMD (with BPMSD support) has out-posted procurement specialists to the Bangladesh, PRC, India, Pakistan, and Viet Nam resident missions. Out-posting a specialist to the Uzbekistan Resident Mission is under review by the Central and West Asia Department. The demand for out-posted OSFMD staff to deal with contracts below $10 million indicates a lack of resident mission capacity. To optimize the effectiveness of the out-posting arrangement, resident missions have recruited 13 full-time national procurement officers. Extended missions by OSFMD staff to selected resident missions such as Indonesia (to support Southeast Asia), and Papua New Guinea (to support the Pacific) also play an important role in improving procurement governance efficiency. Out-posting and extended missions should be expanded to resident missions such as Sri Lanka and Nepal, where the volume of contracts is high compared with the number of procurement staff. Out-posted OSFMD staff normally effect improvements in contract award and disbursement performance within the first or second year. 91. Improve OSFMD staff skills to enable them to effectively contribute to procurement reviews. OSFMD capacity may be built through recruitment, retooling, and rotation policies. Staff exchanges between OSFMD and regional departments and the participation of OSFMD in loan processing missions and teams involving projects classified as “complex procurement” are needed. All OSFMD staff should have at least 2–3 years in a sector division to acquire experience in the design, processing, and administration of technical assistance and loans. As familiarity with field operations is highly desirable for OSFMD staff, OSFMD should be aided with suitable incentives in recruiting more internal staff from regional departments in preference to external recruitment. 92. Expand ADB capacity to support EA procurement capacity. This review has established the lack of EA procurement capacity as a major cause of inefficient procurement governance, 34 and thus the need for ADB to support better targeted and more intensive development of this capacity as described in para. 77. ADB should consider allocating more resources to strengthening initiatives that bolster EA procurement capacity. It is suggested that OSFMD consult with BPMSD for additional support in building EA procurement capacity by: (i) strengthening training programs for these agencies and (ii) redeploying and/or recruiting (OSFMD) staff who can contribute to such capacity development.

34 See Figure 9.

Table 3: Staff Profile and Volume of Procurement

Total No. of

IS

No. of IS

Familiar with

Procure-

menta

% of IS Familiar

with Procure-

ment

No. of NS in PAU

No. of NS

Familiar with

Procure-

menta

% of NS Familiar

with Procure-

ment

No. of NS

Procure-ment

Officer

No. of OSFMD

Outposting Specialist

PASS

Nominationb

E-Learning

Completedb

CWRD BENCHMARK 14 166.3 72 5.3 75% 83%AFRM 10 61 23 2.7 4 4 100% 7 7 100% 0 3 1 AdequateARM 0 0 0 0 0 3 2 67% 0 3 1 AdequateCWEN 25 221 126 1.8 12 9 75% 6 6 100% 0 13 4 InadequateCWER 13 118 45 2.6 6 4 67% 2 2 100% 0 6 3 InadequateCWPF 12 402 15 26.8 13 8 62% 6 5 83% 0 17 2 AdequateCWTC 43 686 42 16.3 12 8 67% 3 2 67% 1 19 7 AdequateCWUW 22 199 40 5.0 12 12 100% 5 4 80% 0 18 3 InadequateKARM 0 0 0 1 0 0% 0 0 0 2 1 AdequateKYRM 4 22 4 5.5 1 1 100% 5 4 80% 0 3 3 AdequatePRM 17 216 528 0.4 6 3 50% 2 2 100% 1 1 7 5 AdequateTJRM 7 5 10 0.5 2 2 100% 5 3 60% 0 5 3 AdequateURM 12 66 26 2.5 2 2 100% 4 3 75% 0 6 3 Adequate

EARD BENCHMARK 17 193.1 205 4.4 56% 77%EAEN 10 78 63 1.2 9 5 56% 2 2 100% 0 5 2 AdequateEAER 23 90 67 1.3 12 4 33% 4 4 100% 0 7 4 AdequateEAPF 3 1 4 0.3 7 2 29% 2 1 50% 0 4 3 AdequateEASS 24 167 36 4.6 13 11 85% 6 5 83% 0 12 2 InadequateEATC 21 547 24 22.8 9 2 22% 3 1 33% 0 7 4 InadequateMNRM 7 0 0 2 2 100% 4 1 25% 0 6 3 AdequatePRCM 31 469 1,243 0.4 2 2 100% 10 10 100% 1 1 3 3 Adequate

PARD BENCHMARK 14 19.2 22 1.3 31% 44%PATE 12 23 67 0.3 23 7 30% 4 2 50% 0 11 5 AdequatePAUS 22 27 22 1.2 8 2 25% 2 1 50% 0 8 5 AdequatePLCO 16 19 13 1.5 3 0 0% 2 2 100% 0 4 2 AdequatePNRM 14 24 18 1.3 4 2 50% 7 2 29% 0 3 1 AdequateSOTL 0 0 4 0.0 2 1 50% 2 0 0% 0 1 1 AdequateSPSO 18 22 6 3.7 5 2 40% 1 1 100% 0 4 2 Adequate

SARD BENCHMARK 28 306.5 101 7.8 47% 72%BRM 37 219 416 0.5 6 3 50% 15 15 100% 1 1 22 7 AdequateINRM 41 704 44 16.0 7 3 43% 10 10 100% 1 1 27 8 AdequateNRM 26 163 100 1.6 4 2 50% 9 4 44% 1 22 7 InadequateSAEN 35 683 45 15.2 16 7 44% 6 2 33% 0 21 9 InadequateSAER 10 19 14 1.4 10 4 40% 4 4 100% 0 6 7 AdequateSAHS 15 103 20 5.2 11 5 45% 3 2 67% 0 12 8 AdequateSAPF 33 443 14 31.6 13 3 23% 5 5 100% 0 5 10 AdequateSATC 26 337 126 2.7 12 7 58% 7 1 14% 1 16 11 AdequateSAUW 25 271 180 1.5 13 10 77% 2 1 50% 0 16 6 InadequateSLRM 31 123 48 2.6 3 1 33% 3 2 67% 0 13 3 Inadequate

EARD

SARD

CWRD

PARD

Assessment

RatingcDept./Division/RM

Contract Award

($ million)

No. of Contracts

Key HR Profile

Unit of Contract Amount

($)

No. of Projects

PASS Indicator32

ARM = Armenia Resident Mission; AFRM = Afghanistan Resident Mission; BRM = Bangladesh Resident Mission; CARM = Cambodia Resident Mission; CWEN = Energy Division; CWER = Environment, Natural Resources and Agriculture Division; CWPF = Public Management, Financial Sector, and Trade Division; CWRD = Central and West Asia Department; CWTC = Transport and Communications Division; CWUW = Urban Development and Water Division; EAEN = Energy Division; EAER = Environment, Natural Resources and Agriculture Division; EAPF = Public Management, Financial Sector, and Regional Cooperation Division; EARD = East Asia Department; EASS = Urban and Social Sectors Division; EATC = Transport and Communications Division; INRM = India Resident Mission; IS = international staff; IRM = Indonesia Resident Mission; KARM = Kazakhstan Resident Mission; KYRM = Kyrgyz Resident Mission; LRM = Lao PDR Resident Mission; MNRM = Mongolia Resident Mission; NRM = Nepal Resident Mission; NS = national staff; OSFMD = Operations Services and Financial Management Department; PARD = Pacific Department; PASS = procurement accreditation skills scheme; PATE = Transport, Energy, and Natural Resources Division; PAU = project administration unit; PLCO = Pacific Liaison and Coordination Office; PAUS = Urban, Social Development and Public Management Division; PHCO = Philippines Country Office; PNRM = Papua New Guinea Resident Mission; PRCM = People's Republic of China Resident Mission; PRM = Pakistan Resident Mission; RM = resident mission; SAEN = Energy Division; SAER = Environment, Natural Resources and Agriculture Division; SAHS = Human and Social Development Division; SAPF = Public Management, Financial Sector, and Trade Division; SARD = South Asia Department; SATC = Transport and Communications Division; SAUW = Urban Development and Water Division; SEEN = Energy Division, SEER = Environment, Natural Resources and Agriculture Division; SEHS = Human and Social Development Division; SEPF = Public Management, Financial Sector, and Trade Division; SETC = Transport and Communications Division; SEUW = Urban Development and Water Division; SERD = Southeast Asia Department; SLRM = Sri Lanka Resident Mission; SOTL = Special Office in Timor-Leste; SPSO = Pacific Subregional Office; TRM = Thailand Resident Mission; TJRM = Tajikistan Resident Mission; URM = Uzbekistan Resident Mission; VRM = Viet Nam Resident Mission. a The numbers are based on the survey conducted by the Strategy and Policy Department and the Operations Services and Financial Management Department in March 2012. b The numbers do not tally, as these include non-project administration unit and international staff. c The rating Is defined as either “adequate” or “inadequate” based on (i) number of contracts, (ii) unit of each contract, (iii) percentage of international staff familiar with procurement,

and (iv) percentage of national staff familiar with procurement—assessed based on the survey of project administration unit heads.

Note: Number of projects and contract awards from Operations Dashboard as of May 2012. Number of contracts from survey of heads of project administration units.

Source: Asian Development Bank estimates.

Total No. of

IS

No. of IS

Familiar with

Procure-

menta

% of IS Familiar

with Procure-

ment

No. of NS in PAU

No. of NS

Familiar with

Procure-

menta

% of NS Familiar

with Procure-

ment

No. of NS

Procure-ment

Officer

No. of OSFMD

Outposting Specialist

PASS

Nominationb

E-Learning

Completedb

SERD BENCHMARK 18 191.1 105 25.5 47% 76%CARM 11 14 45 0.3 5 3 60% 8 4 50% 1 Three RMs

share one staff

10 6 Adequate

IRM 29 325 263 1.2 10 4 40% 3 2 67% 1 9 8 AdequateLRM 11 10 200 0.1 2 2 100% 7 5 71% 1 Three RMs

share one staff

15 5 Adequate

PHCO 2 0 0 4 1 25% 3 2 67% 0 1 0 AdequateSEEN 13 844 60 14.1 14 5 36% 5 4 80% 0 6 4 InadequateSEER 30 56 232 0.2 19 11 58% 3 2 67% 0 8 1 AdequateSEHS 35 138 346 0.4 9 8 89% 8 7 88% 0 9 3 AdequateSEPF 24 490 2 245.0 16 4 25% 5 4 80% 0 3 3 Inadequate

SETC 30 157 36 4.4 16 7 44% 5 4 80% 0 9 8 InadequateSEUW 7 12 20 0.6 12 8 67% 3 3 100% 0 6 1 AdequateTRM 4 103 9 11.4 5 0 0% 2 1 50% 0 2 0 AdequateVRM 25 144 50 2.9 4 1 25% 14 12 86% 1 Three RMs

share one staff

18 8 Adequate

SERD

Assessment

RatingcDept./Division/RM

Contract Award

($ million)

No. of Contracts

Key HR Profile

Unit of Contract Amount

($)

No. of Projects

PASS Indicator

33

34

VI. RECOMMENDATIONS

Recommendations Timing Department/s

Country Partnership Strategy (CPS) 1. CPS will establish national level procurement risk

assessments and country specific thresholds for Procurement Committee reviews, ICB, NCB, and shopping. (Required Action: Guidelines for preparing national level procurement risk assessments and criteria for determining country specific thresholds for Procurement Committee reviews, ICB, NCB and shopping, OM and Template Revisions)

2013 OSFMD and SPD

Project Planning and Processing 2. Regional departments will categorize procurement risk as

“complex” or “low risk”, for each project. Each categorization proposed should be cleared by OSFMD before concept paper clearance by ADB management. (Required Action: Guidelines for determining procurement risk categorization as being “complex” or “low risk”, OM and Templates Revision)

2013

OSFMD and SPD

3. Tools and guidelines for preparing project cost estimates will be updated and made available to project staff. E-solutions will be considered, including re-introduction of COSTAB or an MS Excel tool. (Required Action: Guidelines and tools, OM and Templates Revision)

2014 OSFMD and SPD

4. During project processing, regional departments will prepare draft ICB/NCB document along with a master bidding document. These are to be part of the linked documents which will be reviewed and cleared by MRM/SRM. (Required Action: OM Revision)

2013 SPD

Procurement Review Processes 5. Streamlined procurement committee review processes will be

implemented. (Required Action: PAI and Other Guidelines Revision)

2013 OSFMD

6. For “complex” procurement, more upstream OSFMD involvement of procurement review and other risk mitigation measures will be introduced. (Required Action: PAI and Other Guidelines Revision)

2013 OSFMD

7. For “low risk” procurement, procurement decisions will be delegated to regional departments together with adequate risk mitigation measures. (Required Action: PAI and Other Guidelines Revised)

2013 OSFMD

Risk Management 8. A cross-sectoral baseline assessment of the procurement

process under $10 million in DMCs will be carried out to identify the strengths and weaknesses of the current process, the quality of documentation prepared (including bidding

2013 OSFMD

35

Recommendations Timing Department/s

documents and contracts) and the reasons for delays in the procurement process. (Required Action: Assessment)

9. Regular assessment of procurement processes and documentation will be initiated to verify adequate risk mitigation measures. (Required Action: Post procurement assessments)

2013 OSFMD and OAG

10. A central system to accept and deal with procurement complaints will be established. (Required Action: Procurement complaints system)

2013 OSFMD

Capacity Development 11. PASS will be accelerated for key ADB staff to provide regional

departments with sufficient accredited staff to endorse bidding documents and BERs. Fundamental training courses in cost estimation and procurement planning will also be developed. (Required Action: Training courses)

2013 BPMSD and OSFMD

12. Procurement capacity in resident missions and divisions, and links with OSFMD, will be strengthened through measures such as a structured staff exchange program between OSFMD and regional departments, matrix reporting to OSFMD by national procurement officers in resident missions, out-posting and extended missions and, depending on staff resources, the assignment of procurement specialists to the front offices of regional departments. (Required Action: Plan and implement reform)

2014 BPMSD and OSFMD

13. To implement the country assessments and risk based procurement approaches, OSFMD staff capacity will be improved. (Required Action: As stated)

2014 OSFMD

14. A new and comprehensive strategy for EA capacity development, linked with the risk-based procurement approaches proposed in the review, will be developed. (Required Action: As stated)

2014 OSFMD

15. Staff skills will be linked with accreditation and delegation of procurement authority to regional departments. (Required Action: As stated)

2014 BPMSD and OSFMD

16. Benchmarks for each stage of procurement planning and review will be established. These benchmarks will be used to monitor procurement efficiency. (Required Action: As stated)

2013 OSFMD

Appendix 1

36

ADB = Asian Development Bank. Source: Central Operations Services Office, Asian Development Bank, May 2012.

0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2011

Num

ber o

f Con

tract

s

dummy

Turnkey

Others

Goods

Fellowship/Training

ConsultingServices

Works

5,5405,426

ADB = Asian Development Bank. Source: Central Operations Services Office, Asian Development Bank, May 2012.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2010 2011

Value

of C

ontra

cts ($

milli

on)

Dummy

Turnkey

Others

Goods

Fellowship/Training

ConsultingServices

Works

9,028

7,993

CURRENT ADB PROCUREMENT PORTFOLIO

A. Overview of Procurement Portfolio

1. The majority of ADB procurement contracts are for less than $1 million, but a small number of large contracts, valued over $10 million, account for about 60% of the total. In 2010 and 2011, ADB awarded a yearly average of 5,483 contracts for works, goods, turnkey projects, consulting services, fellowship and training programs, representing an average annual value of $8,511 million (Figures A1.1 and A1.2). The ratio between the total value and total number of contracts indicates that most contracts were less than $1 million in value, and only a small proportion of contracts exceeded $10 million. For example, of the 4,080 contracts in 2011 for works, goods, and turnkey projects, only 135 contracts (or 3%) were greater in value than $10 million. However, the 3% accounted for 64% ($5.1 billion) of the total value of contracts for works, goods, and turnkey projects.1

1 Data provided by Operations Services and Financial Management Department (OSFMD) on ADB loan portfolio

(not including policy-based loans). COSO is upgraded as OSFMD in 2013.

Figure A1.1: Number of Contracts Awarded under ADB Loans, by Nature of Contract

Figure A1.2: Value of Contracts Awarded under ADB Loans, by Nature of Contract

Appendix 1

37

ADB = Asian Development Bank, ICT = information and community technology. Source: Central Operations Services Office, Asian Development Bank.

Transport and ICT

36.7%

Energy 28.2%

Water and Other Municipal

Infrastructure and Services

10.6%

Agriculture and Natural

Resources 9.3%

Multisector8.9%

Education 4.4%

Public Sector Management

1.3%

Health and Social Protection

0.6%

Industry and Trade 0.1%

Finance 0.1%

ADB = Asian Development Bank, ICT = information and communication technology. Source: Central Operations Services Office, Asian Development Bank.

0.6

0.5

1.4

0.3

6.2

5.6

0.6

1.2

0.7

0.5

0 1,000 2,000

Finance

Industry & Trade

Public Sector Management

Health & Social Protection

Energy

Transport & ICT

Education

Water & Other MunicipalInfrastructure and Services

Multisector

Agriculture & Natural Resources

Average Value of Contract ($ million)

Total : 5,540 contracts

B. Procurement Portfolio by Sector

2. The energy and transport sectors account for over two-thirds of ADB’s procurement portfolio (Figures A1.3 and A1.4). Large numbers of lower-value contracts are typical in sectors such as health, social protection, education, agriculture and natural resources, in contrast to the energy, transport, and information and communication technology sectors. Note that the average value of each contract in Figure A1.4 is only a rough indication of the differences in packaging in each sector. For example, most individual energy contracts may be worth a few million dollars (average value around $6 million), but one or two may be worth tens or even hundreds of millions of dollars.

Figure A1.3: ADB Procurement Portfolio, 2011—Share of Total Value by Sector

Figure A1.4: ADB Procurement Portfolio, 2011—Number of Contracts by Sector

Appendix 1

38

ADB = Asian Development Bank. Source: Central Operations Services Office, Asian Development Bank.

South(40%)

Southeast(20%)

Central/ West(14%)

East(25%)

Pacific(1%)

ADB = Asian Development Bank. Source: Central Operations Services Office, Asian Development Bank.

2,141

1,325

1,097

865

112

1.6

1.3

1.1

2.5

1.0

0 500 1,000 1,500 2,000 2,500

South

Southeast

Central/West

East

Pacific

No. of Contracts

Reg

ion

Average Value of Contract($ million)

C. Procurement Portfolio by Region and Country 3. South Asia and East Asia made up 65% of the value of ADB contracts in 2011 (Figure A1.5). The packaging of contracts per region is not as varied as that per sector, as indicated by the average values of contracts for each region (Figure A1.6). East Asia’s higher average value is mostly due to large-value contracts in the People’s Republic of China (PRC). The procurement portfolio by country in 2011 ranged from zero to over $2,000 million (PRC) (Figure A1.7).

Figure A1.5: ADB Procurement Portfolio, 2011—Share of Total Value by Region

Figure A1.6: ADB Procurement Portfolio, 2011—Number of Contracts by Region

Appendix 1

39

ADB = Asian Development Bank. Note: Policy-based loans are excluded. Source: Central Operations Services Office, Asian Development Bank.

0 1,000 2,000 3,000

Cook IslandsRegional

Solomon IslandsTuvaluKiribati

Turkmenistan, Rep. ofLao People's Dem Rep

Tajikistan, Rep. ofArmenia, Republic of

Afghanistan, Islamic Rep. ofMaldives

BhutanMicronesia

MongoliaSamoa

Fiji, Republic ofKyrgyz Republic

Papua New GuineaGeorgia

CambodiaAzerbaijan, Rep. of

PhilippinesNepal

KazakhstanIndonesia

Uzbekistan, Rep. ofSri LankaPakistan

BangladeshViet Nam,Socialist Rep. of

IndiaChina, People's Rep. of

D. Procurement Portfolio by Type 4. Works procurement and turnkey contracts together account for over three-quarters of ADB procurement portfolio (Figure A1.8).

Figure A1.7: Value of Contracts Awarded under ADB Loans, 2011—By Country ($ million)

Appendix 1

40

E. Thresholds 5. ADB thresholds for ICB are roughly comparable to those of the World Bank. For works procurement, the two agencies have the same average ICB threshold ($4.3 million), but the World Bank has noticeably higher ICB thresholds for Afghanistan, Bangladesh, and the PRC while ADB thresholds are noticeably higher for Mongolia, Nepal, Samoa, Sri Lanka, and Uzbekistan. For goods, ADB has the same threshold for all countries ($0.5 million) whereas the World Bank has a lower average threshold at $0.3 million. The Philippines is an exception: the World Bank threshold is twice as high as ADB’s (Figures A1.9 and A 1.10).2 Within specific countries and sectors, ADB ICB thresholds, unlike those of the other MDBs, are not based on sector capacity assessments (e.g., domestic construction and manufacturing industries) but on a nominal assessment of the local capability and level of competition in earlier procurement cases.

2 COSOpedia. While these are published figures, departures occur on a case-by-case basis. Both ADB and the World

Bank generally allow infrastructure projects to have higher ICB thresholds. For ADB, COSO initially sets the ICB threshold range and subsequently, within each range, the specific threshold is determined country by country.

Figure 8: ADB Procurement Portfolio, 2011—By Nature of Contract ($ million)

Figure 8: ADB Procurement Portfolio, 2011—By Nature of Contract ($ million)

ADB = Asian Development Bank. Source: Central Operations Services Office, Asian Development Bank.

Fellowship/ Training(0.1%)

Consulting Services

(3.3%)

Others(6.7%)

Goods(12.6%)

Turnkey(20.7%)

Works(56.6%)

Figure A1.8: ADB Procurement Portfolio, 2011—By Nature of Contract (Share of Total Value)

ADB = Asian Development Bank, PRC = People’s Republic of China. Sources: Asian Development Bank and World Bank. 2012.

0 5 10 15 20

PRC

India

Indonesia

Pakistan

Philippines

Viet Nam

Republic of Fiji

Kazakhstan

Papua New Guinea

Sri Lanka**

Afghanistan*

Bangladesh***

Mongolia*

Nepal*

Samoa*

Uzbekistan*

Works Procurement ($ million)

Cou

ntry

World Bank Works

ADB Works

Figure A1.9: ADB and World Bank Comparison on International Competitive Bidding Thresholds for Works

Notes: Range for certain countries: * Range provided by

ADB: $1 million– $2 million.

**Range provided by World Bank: $0.5 million–$1 million.

***Range provided by World Bank: $1 million–$5 million.

Appendix 1

41

ADB = Asian Development Bank, PRC = People’s Republic of China. Sources: Asian Development Bank and World Bank. 2012.

0.0 0.2 0.4 0.6 0.8 1.0 1.2

PRC

India

Indonesia

Pakistan

Philippines

Viet Nam

Republic of Fiji

Kazakhstan

Papua New Guinea

Sri Lanka**

Afghanistan

Bangladesh***

Mongolia

Nepal*

Samoa

Uzbekistan

Goods Procurement ($ million)

Co

un

try

World Bank Goods

ADB Goods

6. ADB decides prior-review thresholds on a case-by-case basis. Apart from NCB and very small-value packages, most contract packages are subject to prior review. In some cases, such as in the PRC, ADB has allowed post-review procedures for selected road contracts due to the domestic capacity in this sector. 7. Case-by-case flexibility is necessary and ADB has such flexibility. This is necessary due to various trade-offs involved in setting ICB and NCB thresholds, and local market conditions. In general, ICB involves more administrative processing and requires more time, but there is less exposure to risk. NCB offers efficiency and economy, but may carry greater exposure to risk in some countries. NCB is the norm where due to local market conditions, the nature and scope of certain contracts are unlikely to attract international competition. Differences in thresholds between ADB and other MDBs are to be expected as MDBs have different risk management strategies, different findings from executing agency capacity assessments, different levels of staffing and, therefore, different capacities to conduct due diligence processes.

Figure A1.10 : ADB and World Bank—Comparison of International Competitive Bidding Thresholds for Goods

Notes: Range provided by World Bank for certain countries: * $0.1 million–

$0.2 million. **$0.25 million–

$0.5 million. ***$0.3 million–

$0.5 million.

Appendix 2

42

TERMS OF REFERENCE

A. Background 1. ADB Development Effectiveness Reviews in 2009 and 2010 highlighted low success rates of recently completed operations. While these are due to past project implementation practices, it is essential that ADB maximizes future efforts to ensure project success. The President's Planning Directions issued in April 2011 instruct ADB staff to improve project implementation and supervision and to apply the recommendations of the project implementation working group. Project related procurement (including consultant recruitment) is a key element of project implementation. It is particularly important to link ADB governance of procurement development effectiveness. 2. During the Project Implementation Working Group's discussions, concerns were expressed regarding (i) the time ADB takes to complete procurement governance actions (efficiency) and the extent to which this contributes to delayed project implementation, (ii) the extent to which procurement packaging prepared by regional departments in each project’s procurement plan reflects sector considerations and ensures efficiency and economy, (iii) the effectiveness of ADB procurement governance actions in adding value to fiduciary risk management, (iv) the effectiveness of ADB current transaction value-based rather than risk-based approach to procurement governance, (v) the focus of governance actions on compliance rather than economy, and (vi) the effectiveness of procurement capacity assessments in defining an appropriate project procurement governance strategy. The working group's “Good Project Implementation Practice” report (December 2010) recommended “Undertake a comprehensive review of the governance structure of procurement decisions, covering the oversight function, procedural efficiency, packaging policy, thresholds, and accreditation by mid-2011.” 3. Over 90% of approved loans and/or grants are delivered by procuring goods, works, or consulting services. Over the past 5 years, an average of almost 7,000 contracts has been awarded annually. 98% were less than $10 million—and almost 90% less than $1 million. Only 2%, annual average of 155 contracts, were greater than $10 million. Consequently, the efficiency and effectiveness of procurement processes, including governance actions, directly influence efficiency (project implementation timing), economy (value for money), and effectiveness (quality of results). However, ADB and executing agencies have distinctly different procurement responsibilities. 4. Executing agencies are required to manage the application of procurement business processes in accordance with ADB and/or national guidelines as prescribed in a project’s report, the recommendation of the President and its associated procurement plan, to award and administer contracts for goods, works, and services financed by ADB loans and grants.1 5. ADB has governance responsibility to manage fiduciary risks and promote economy and efficiency throughout the application of procurement processes by executing agencies. 2 In 2004, as part of the Innovation and Efficiency Initiative (IEI) to delegate more authority to operational departments, the threshold for review of bid evaluation reports by the Procurement Committee was increased from $3 to $10 million, and the requirement for prior review of bidding documents prepared by executing agencies for national competitive bidding (NCB) was abbreviated so that only bidding 1 This study excludes an assessment of the administration of consultant services by ADB financed under technical

assistance projects. 2 ADB’s Charter (Article 14) specifies that ADB financing shall be used only for procurement in member countries of goods

and services produced in member countries, except by Board waiver, and that ADB will ensure its finances are used only for the purposes for which the loan was granted and with due attention to considerations of economy and efficiency.

Appendix 2

43

documents for the first contract under a project needed prior review, provided approved contract templates were used for subsequent transactions. In addition, for executing agencies with adequate capacity, post-review of documents under NCB was permitted and this approach was subsequently extended to permit post-review of documents for international competitive bidding. From 2006, in terms of procurement governance, operational departments have been primarily responsible for transactional review of most bid documentation and evaluations submitted by executing agencies that require prior review. Since then, annually about 98% of goods and works procurement transactions accounting for 47% by value have been under $10 million. 6. During project preparation, an executing agency procurement capacity assessment including a risk analysis is mandatory. This should inform decisions on procurement packaging, procurement management and capacity building support for the executing agency and ADB’s procurement governance strategy, including prior and/or post review and the related sampling methodology applied for procurement oversight and, to some extent, NCB thresholds. 7. During project implementation, the governance of procurement transactions by selection method described in ADB procurement guidelines is detailed in each project’s procurement plan. At predetermined points in the procurement process, the executing agency submits agreed documentation for review and validation by ADB before proceeding to the next governance gateway. ADB, either through the regional division (for contracts less than $10 million) or Procurement Committee (for contracts greater than $10 million), undertakes agreed procurement governance action including reviewing and approving the level of procedural compliance and integrity of documentation. In addition, OSFMD has recently introduced a procurement review for effective implementation tool to be employed during implementation (usually during a midterm review) to identify actions that will enable executing and implementing agencies to achieve procurement outputs on time and within budget. B. Objective 8. The purpose of the review is to consider options to improve ADB’s governance of procurement to reduce project delay, increase economy, and the quality of results. C. Scope of Work 9. The work will focus on procurement in relation to ADB’s loan and grant financing and exclude procurement undertaken by ADB for its own administrative requirements. This will include:

(i) Review the current procurement governance structure, including an assessment of ADB current procurement governance arrangements by procurement type, volume, value, thresholds and authority, to identify the value and cycle time for each review/decision by ADB in a procurement process (e.g., using value stream mapping).

(ii) Analyze current governance actions, their agreed timing/sampling, their value addition

and effectiveness in meeting governance objectives (e.g., through critical path timing); including a review of the actual cycle time and responsiveness of each review/decision for a representative sample of projects, sectors, and developing member countries (DMCs) over the last few years. Data should be analyzed in detail and compared with stipulated ADB deadlines as per procurement provisions.

(iii) Assess the effectiveness of the current Procurement Committee process including the

documentation requirements.

Appendix 2

44

(iv) Undertake a comparative analysis of current and past governance structures to assess the impact of the change on economy and efficiency.

(v) Review past problematic cases of procurement (such as those considered by the Office of Anticorruption and Integrity) to see if these were caused by weaknesses in procurement procedures and staff capacity.

(vi) Describe and analyze procurement governance procedures in ADB comparator agencies such as the World Bank, Inter-American Development Bank, and African Development Bank.

(vii) Review country procurement capacity assessment practices and the effectiveness of the procurement capacity assessment methodology in defining a project procurement governance strategy as described in project procurement plans—including sampling methodology.

(viii) Review ADB procurement packaging policy, including how procurement packages

prepared by regional divisions reflect different DMCs’ needs and different sector requirements while ensuring efficiency and economy

(ix) Review ADB staff capacity development in procurement governance, including

analyzing the distribution of procurement expertise throughout ADB—regional divisions, resident missions, Office of the General Counsel (OGC), and OSFMD; review the role of resident missions in the procurement process and how to improve their functions in comparison with comparator agencies; assess the current system of posting of OSFMD staff to resident missions; and assess improvement in the level of service from the roll-out of national procurement officers at resident missions.

(x) Identify shortcomings to be included in the newly developed procurement accreditation

system. (xi) Recommend a range of options to improve procurement governance structure.

D. Composition of Oversight Committee 10. An Oversight Committee composed of Deputy Director General level staff from the Strategy and Policy Department (SPD) (chair), each regional division, Office of the Auditor General, OGC, and OSFMD will manage the study. 11. OSFMD will provide secretariat support in the preparation of a draft report. E. Implementation and Deliverables 12. Two international consultants will be engaged on an intermittent basis for one person month each with the following outputs:

(i) Inception Report (within 1 week of commencement) will include: a. the methodology and analytical approach proposed to undertake the study; b. possible issues/problems that may affect the implementation of this

assignment; and c. a detailed work plan proposed for the duration of this assignment.

Appendix 2

45

(ii) Interim Report (within 6 weeks of commencement) will include: a. the current state of the area, a view of the effectiveness of the current structure,

process, quality, staff capability and/or compliance in each area, and recommendations for ways in which the current state could be improved to achieve competitive, transparent, efficient and effective procurement within ADB; and

b. a detailed analysis and recommendations of ADB procurement reform efforts required, addressing the initial three questions set out above and measures and benchmarks for the impact of the selected reform initiatives identified.

(iii) Draft Final Report: to be submitted no later than 7 weeks from commencement.

(iv) Final Report: to be submitted at the conclusion of this assignment, i.e., no later than 8

weeks from the commencement date. F. Consultant’s Qualifications 13. The international consultants should have the following qualifications:

(i) A post-graduate degree in a major relevant discipline (e.g., procurement, engineering, law, management or business);

(ii) At least 10 years experience in procurement practices and 5 years of public procurement practices, with background on the procurement procedures of development partners, with extensive experience in the area of procurement reviews/audits, procurement assessments and procurement reform programs;

(iii) In-depth knowledge and familiarity with procurement governance in more than one country, and the activities of multi-lateral development banks, preferably ADB; and

(iv) Extensive knowledge and familiarity with current process mapping, process improvement and compliance performance improvement.

Appendix 3

46

SURVEY RESPONDENTS AND QUESTIONNAIRES

1. E-surveys were administered to the heads of project administration units (PAUs), procurement specialists from the Operations Services and Financial Management Department (OSFMD), legal officers and project counsel from the Office of the General Counsel (OGC), and a purposive sample of executing agency representatives. 2. The following table shows the number of those who responded by 20 April, before the survey results were compiled and analyzed.

Questionnaire Type of Respondent Number of Respondents

1 PAU heads 33 2 OSFMD procurement specialists 21 3 OGC counsel and legal officers 10 4 Executing agency representatives 23

OGC = Office of the General Counsel, OSFMD = Operations Services and Financial Management Department, PAU = project administration unit.

3. The four survey questionnaires, administered among the different groups of respondents, are available upon request.

Appendix 4 47

CAPACITY BUILDING INITIATIVES OF ADB

A. External 1. Country project implementation and administration seminars. The CPIA seminars are organized in association with the resident mission, Controller’s Department, and Office of Anticorruption and Integrity. On average, 12 such seminars are held each year. Generally attended by staff of executing agencies, the 2-week seminars deliver training sessions on procurement, engagement of consultants, disbursement management, and briefings on corruption and integrity issues. 2. Design and monitoring framework workshops. The 5-day DMF workshops give Asian Development Bank (ADB) partners and staff immediate assistance in developing participative project design, results-focused implementation, and transparent and meaningful monitoring. It teaches participants to operationalize the design and monitoring framework, the starting point for operational planning, and supports executing agencies in preparing achievable annual implementation plans and projections. Guidelines and e-learning modules are available on the website. Four such workshops were organized in 2011. 3. Procurement clinics. The clinics are a flexible form of targeted review and assistance for all management and procurement officials of executing and implementing agencies. Held by OSFMD international staff and national procurement officers, the clinics supplement the CPIA training to improve or accelerate knowledge, execution, quality, and effectiveness of those undertaking procurement and project management. The clinics can be held in the country alongside the CPIA, by phone, by videoconference, or as requested by regional departments. This initiative was started in 2010. In 2011, six clinics were organized along with CPIA seminars. B. Internal 4. ADB induction. The induction courses are conducted by the Budget, Personnel and Management Systems Department (BPMSD) for all new staff and include sessions on OSFMD activities. The sessions will familiarize staff with procurement and consultant recruitment guidelines, OSFMD organization and responsibilities, and delegation of approval authority. 5. Project implementation seminars. Also conducted by BPMSD, these seminars are aimed at project staff and introduce them to the project cycle, consultant recruitment, procurement reviews, procurement guidelines, corruption red flags, and disbursements. There are 2–3 such courses every year. 6. Project management and procurement clinics. These clinics are run at ADB headquarters and resident missions to improve participants’ knowledge on broad or specific areas of project management and procurement, and analyze issues that arise during implementation. The clinics are interactive, i.e., staff are encouraged to provide real-life examples that are then discussed. The clinics are organized on request. 7. E-learning. Training programs are available online and staff can acquire knowledge in a flexible manner. Various courses are provided on the Operations Services and Financial Management Department (OSFMD) website, COSOpedia.

48 Appendix 4

8. Procurement master class. The sessions are run weekly to provide continuous professional development for staff wishing to expand or update their specialist knowledge. OSFMD staff and special invitees provide insights on various aspects related to procurement. These classes cover a variety of topics such as value for money, improving procurement capacity, outcome-based contracts, procurement of highly technical equipment for nontechnical staff, reforming public procurement, risk management, preparing terms of reference, and complaints and review mechanisms. 9. Advanced procurement and project management forums. These sessions discuss and capture the good practices employed by experienced practitioners in the relevant communities of practice. They cover a wide range of topics. 10. Design and monitoring framework training. This is provided for those undertaking DMF activities to improve the quality of project design and monitoring. It introduces participants to the participatory tools necessary for the proper development of the DMF—from stakeholder analysis to result chains—and to understand the difference between outcome and impact, and how to select indicators. 11. National procurement officer training. Given the increased delegation of procurement approval authority to resident missions and sector divisions of regional departments, improving procurement capacity is essential. General and expert-level training helps these procurement professionals improve project implementation and departmental supervision. 12. Central Operations Services Office procurement specialist induction. This 3-week training program imparts detailed knowledge of ADB processes, procedures, and integrity monitoring, and knowledge and practical application of ADB guidelines. A mentoring system helps new procurement staff acquire the necessary skills to undertake their new responsibilities.

Appendix 5 49

PROCUREMENT FIDUCIARY FRAMEWORK OF MULTILATERAL BANKS

A. World Bank 1. Procurement management. The Operations Manual (BP 11.00-Procurement) lists the general responsibilities and accountabilities of World Bank staff at each stage of the project cycle. For each project, the task team leader has the overall primary responsibility to ensure that procurement is carried out in accordance with World Bank policies and procedures and by obtaining internal approvals before conveying approvals or recommendations to the borrowers. Each project team has a procurement specialist or procurement accredited staff (PAS) responsible for ensuring that the borrower carries out procurement in compliance with the loan agreement and procurement policies throughout the project cycle. As part of the processing team, the procurement specialist or PAS assists the project team and the borrower in finalizing the procurement provisions of the loan agreements, the initial procurement plan, the procurement supervision plan, and the bidding documents. Annexes of this document provide a well-designed and comprehensive decision authority matrix, maximum prior-review thresholds, general responsibilities and accountabilities for procurement work, and mandatory prior-review thresholds for different levels of staff. This information and additional guidelines help World Bank staff operate within a clear framework and reduce risks within the organization. The key aspect noted is that the procurement specialist or PAS is involved throughout the project cycle and is part of the project team—not a reviewer of actions taken by the team. 2. Delegation of authority. Regional vice presidents are responsible for ensuring that all procurement-related fiduciary obligations are carried out professionally and thoroughly. The World Bank has found that the lack of timely and high-quality guidance to borrowers is a major cause of delays and procurement problems. Accordingly, the procurement service function is delegated to staff closest to the borrower from the planning stage through contract completion, provided that suitably qualified and experienced procurement staff are available to give such advice. However, the fiduciary functions of the borrower that are not subject to review by the regional procurement manager (RPM) or the Operations Procurement Review Committee (OPRC) can be delegated to country offices only if certain conditions are met, one of which is accreditation of staff to become a PAS. Accreditation indicates that the Procurement Sector Board has certified that an individual has the qualifications necessary to provide procurement advice for certain procurement actions, in particular those fiduciary functions related to providing “no objections” to the borrower’s actions. Delegation of authority to procurement specialists and PAS is clearly defined in the Operations Manual. For example, the procurement specialists and PAS are delegated to clear proposals valued up to $25 million in case of works and turnkey contracts, and up to $10 million for goods. Beyond this level, higher authority is delegated to the RPM and full authority to the OPRC. It is interesting to note that the World Bank can accredit individual consultants to assist in procurement review. 3. Procurement hubs. Accredited staff (procurement specialists and PAS) are posted to various procurement hubs, which comprise a number of such staff carrying out the oversight functions as part of the country teams. In the East Asia and Pacific (EAP) region, which corresponds with the Southeast Asia, East Asia, and Pacific regions of the Asian Development Bank (ADB), the World Bank has established six procurement hubs with about 47 procurement specialists who are trained and accredited to clear procurement proposals up to certain thresholds. The hubs include international, national, and regional procurement specialists. Within the EAP region, the hubs are in Beijing, Bangkok, Manila, Hanoi, Jakarta, and Sydney.

50 Appendix 5

4. Procurement operations. All major contracts are subject to prior review, and post review is conducted for smaller packages on a sampling basis. In 2011, the World Bank approved on prior-review basis about 10,250 contracts totaling about $123 billion. These figures do not include the contracts that are below the prior-review thresholds. Such contracts may be large in number but the overall value is likely to be much lower compared with total operations. As for the countries that correspond to ADB’s developing member countries, the World Bank approved on prior-review basis about 5,100 contracts with a total value of about $8 billion. B. African Development Bank 5. In its efforts to streamline its procurement and financial functions and to improve service quality to its clients, the African Development Bank (AfDB) took several actions in 2008. The main focus of the streamlining was decentralization of procurement fiduciary tasks to the country level. Accredited and trained staff (procurement specialists and PAS) were moved to these offices. These procurement specialists are involved in projects from processing through completion. At headquarters, procurement staff focus on policy, development of standard bidding documents, guidelines, accreditation, and advisory support. AfDB follows the same process of accreditation of procurement specialists and PAS as the World Bank, although the clearing authority is much lower. The delegated authority matrix is similar to the World Bank's. Like other multilateral development banks, AfDB does not conduct its own country procurement assessment reports (CPARs) but adopts the reports of the World Bank. 6. AfDB is increasing the use of information technology to transmit procurement documents. It is no longer necessary to submit hard copies of the bidding documents for clearance. For bid evaluation reports, the executing agencies do not now have to submit copies of the “three best evaluated bids”. The post-review system is being increasingly adopted for small-value contracts consistent with national and project-specific capacity. In 2011, AfDB awarded 1,686 contracts with a total value of $1.9 billion. C. Inter-American Development Bank 7. The Inter-American Development Bank (IADB) has a decentralized procurement organization. The field procurement team is divided into four groups, each led by a group head. Twenty-three procurement specialists, posted in most of the borrowing countries, report to an assigned group head, located in one of the countries of the group. At headquarters, a group of seven procurement specialists operate under the division chief. The headquarters team is largely responsible for formulating policies, procedures, and standard bidding documents. This group also handles the procurement activities of the countries that do have an assigned resident procurement specialist. 8. Six CPARs have been posted on the website. These were conducted in association with the World Bank. The information released by the CPARs provides guidance on establishing the thresholds for various procurement methods. While there are compulsory international competitive bidding thresholds of $5 million for works and $350,000 for goods, project team leaders can decide on different thresholds subject to clearance by the procurement units on a case-by-case basis. A table containing standard thresholds for each country is posted on the website. The use of country systems is encouraged. Advance use of country systems has been adopted for one country, and there is a target to include two more countries in future. Further, two countries have been approved for partial use of country systems and the target is to include 10 more countries. In 2011, IADB awarded 1,855 contracts for a total of $1.72 billion.

Appendix 6 51

PREPARING FOR STRATEGY 2020

1. The long-term strategic framework of the Asian Development Bank, Strategy 2020,1 defines private sector development and private sector operations as the key drivers of change in Asia and the Pacific. Under Strategy 2020, ADB will expand its work with the private sector to generate greater economic growth in the region. Public–private partnership (PPP) is seen as an important modality to achieve this objective and Strategy 2020 emphasizes the promotion of PPP in all ADB core operational areas. Asia and the Pacific will require infrastructure investments of at least $8 trillion until 2020. As traditional sources of financing will not be able to meet this requirement, the private sector will need to play a greater role, especially through PPPs. In the ADB context, all contracts such as performance-based contracts (management and service contracts), lease–operate–transfer, build–own, operate–transfer, design–build–finance and operate, and its variants, as well as concessions are considered types of PPP. 2. ADB PPP operations will focus on advocacy, enabling environment, project development, and project finance. In addition, there is a need for capacity in handling PPP transactions. In 2008, ADB, along with the World Bank Institute and the Inter-American Development Bank, launched the Multilaterals' Public–Private Partnerships for Infrastructure Capacity Development as a learning program for PPP practitioners. ADB employs about 15 staff across the regional departments and the Private Sector Operations Department (PSOD) who are designated as PPP specialists. It is understood that most of these are experienced in private sector transactions but have limited experience and training in PPP transactions. ADB needs to focus on bridging this knowledge gap by taking a lead role in facilitating PPP projects, including securing professional advice from consultants. A larger core group will be needed to handle PPP operations, which will require intensive facilitation and professional involvement. The current fragmented organizational approach will not be sustainable. PPP projects cannot be developed independently. A dedicated team of PPP specialists and staff from public sector divisions and PSOD needs to develop a comprehensive program of projects that benefit from funding from ADB’s public and private sector departments along with guarantees and co-financing. Processing PPP projects in isolation will not work, as evident from the low success rate so far. ADB has begun supporting the preparation of PPP projects in several developing member countries, such as India, Philippines, Viet Nam, and Indonesia. 3. As contracts normally differ from one another, standard bidding documents are not sufficient. Some agencies have posted such documents which are available for reference. The heads of procurement of several multilateral development banks have developed a guidance note on public sector aspects of PPP projects. A similar document on private sector aspects will be prepared in due course. Frankly, the benefit of this document is limited. Recommendations are sketchy and provide general comments on flexibility, bidding process, documentation, and the need for transparency. In view of the potentially large resource mobilization required for infrastructure development in Asia and the Pacific, the document preparations are still in their infancy. In short, ADB has the opportunity to contribute much more to PPP development—if it adopts a focused and professional approach, including that of a transaction advisor.

1 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020. Manila.