ASIAN DEVELOPMENT BANK
PROJECT PROCUREMENT-RELATED REVIEW REPORT
Loan 2254-BAN(SF): SECOND RURAL INFRASTRUCTURE IMPROVEMENT PROJECT
This report has been redacted in accordance with the Asian Development Bank’s Public Communications Policy (PCP). In particular, it excludes confidential and other information in accordance with paragraph 126 of the PCP, items 9, 11, 12, 14 & 15.
Office of Anticorruption and Integrity Issued 12 August 2011
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A Project Procurement-Related Review (PPRR) is
a review undertaken by OAI on ongoing ADB-financed projects, to confirm compliance with applicable ADB’s policies, guidelines, and the loan agreement, with a focus on preventing and detecting integrity violations (http://www.adb.org/Integrity/integrity-
violations.asp) involving ADB-related activities or ADB staff as defined under ADB’s Anticorruption Policy as amended (http://www.adb.org/Anticorruption/policy
procedures.asp) and ADB’s Integrity Principles and Guidelines (http://www.adb.org/Documents/Guidelines/Integrity-Principles-Guidelines/2010/integrity-
guidelines-procedures-2010.pdf).
ADB’s Anticorruption Policy requires all parties, including borrowers, beneficiaries, bidders, consultants, suppliers, contractors and ADB staff to observe the highest ethical
standards when participating in ADB-related activities. The Policy supports ADB’s obligation, in accordance with Article 14(xi) of the Agreement Establishing the Asian Development Bank, to ensure that the proceeds of ADB financing are used only for
intended purposes.
The PPRR assesses internal controls in place, identifies irregularities and instances of noncompliance, inspects the project outputs, and recommends enhancements to mitigate or eliminate opportunities for fraud, corruption, or abuse of resources and to help improve
development effectiveness of future projects.
A Project Procurement-Related Review is not an evaluation to assess development effectiveness of ADB-funded projects. It does not review project outcomes or development impact, which can only be assessed after the
finalization of a project.
CURRENCY EQUIVALENTS (as of 31 March 2010)
Currency Unit = Taka (Tk) Tk1.00 = $0.14 $1.00 = Tk 69.24
ABBREVIATIONS
ADB - Asian Development Bank BOQ - bill of quantity BRM - ADB Bangladesh Resident Mission COSO - ADB Central Operations Services Office EA - executing agency ITB - instruction to bidders LGED - Local Government Engineering Department MLGRDC - Ministry of Local Government, Rural
Development, and Cooperatives NCB - national competitive bidding NOA - notification of award OAI - ADB Office of Anticorruption and Integrity PMO - project management office PPRR - project procurement-related review SARD - ADB South Asia Department
NOTE
In this report, $ refers to US dollars.
CONTENTS
Page
EXECUTIVE SUMMARY I
I. PROJECT BACKGROUND 1
II. REVIEW OBJECTIVES, SCOPE, AND METHODOLOGY 2
III. REVIEW FINDINGS AND RECOMMENDATIONS 5 A. Procurement 5 B. Asset Inspection 11 C. Weaknesses in Internal Controls 12
IV. CONCLUDING COMMENTS 13
Figure 1: Nature of Findings Profile ............................................................................................ iiiFigure 2: Reviewed Civil Works Contracts (Awarded through NCB) ........................................... 4
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EXECUTIVE SUMMARY
1. The Office of Anticorruption and Integrity (OAI) conducted a project procurement-related review (PPRR) of Asian Development Bank (ADB) Loan 2254-(SF)BAN: Second Rural Infrastructure Improvement Project (the Project), from September to November 2010.1
This report documents findings and makes recommendations as a result of the PPRR.
2. The overall goal of the Project is to reduce poverty by expanding economic opportunities to the rural poor in 23 districts of Bangladesh. This will be achieved by improving rural infrastructure such as roads and growth center markets, gender development, and improved local governance. The Project will upgrade about 1,360 kilometers (km) of subdistrict roads, 780 km of union roads, 7,780 km of village roads, 370 rural markets, and 190 union council complexes. It will also provide for strengthening the capability of local government units. These will provide local communities with effective transport to markets and access to social services. Investments in the Project will effectively reduce poverty as small farmers and the functionally landless will gain from additional employment, particularly of women.2
3. The improved rural road network will bring increased motorized and transport services, lower transport costs for goods and passengers, allow substantial savings in vehicle operating costs, and catalyze an overall increase in traffic volume by 70%. The Project will improve the environment by planting and maintaining tress along the roads and building more effective drainage infrastructure.3 The Project is aligned with ADB’s Country Partnership Strategy of boosting rural incomes to reduce poverty.4
4. The PPRR Team examined the Project’s procurement documentation, and inspected civil works subprojects. The main PPRR objective is to identify and mitigate internal control weaknesses that may allow integrity violations to occur in ADB-financed projects as defined under ADB’s Anticorruption Policy as amended and ADB’s Integrity Principles and Guidelines (May 2010), and impair development effectiveness.5
5. The findings and recommendations in this report are intended to further enhance development effectiveness of the Project and future ADB-financed projects in Bangladesh. Comments on development effectiveness throughout this report are limited to PPRR observations, and how recommendations made here - with respect to anticorruption measures, strong internal controls and compliance with applicable guidelines - can increase development effectiveness. This report does not and cannot comment on the overall development effectiveness of the Project.
1 OAI staff members and engaged consultants from A. Qasem & Co., Chartered Accountants, Bangladesh
comprised the PPRR Team. 2 ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and
Administration of Department for International Development of the United Kingdom Grant to the People’s Republic of Bangladesh: Second Rural Infrastructure Improvement Project. Manila.
3 Ibid. 4 ADB. 2005. Country Strategy and Program (2006-2010): Bangladesh. Manila. and ADB. 2009. Country Partnership
Strategy Midterm Review: Bangladesh (2006-2010). Manila. 5 ADB. 1998. Anticorruption Policy. Manila. para. 67.
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Major Recommendations 6. The key recommendations are for Ministry of Local Government, Rural Development, and Cooperatives (MLGRDC) and Local Engineering Department (LGED) in the Local Government Division, in coordination with ADB South Asia Department (SARD) through ADB Bangladesh Resident Mission (BRM) to:
• reinforce the evaluation process to ensure selection of the most responsive and qualified bidder with the lowest evaluated bid;
• establish and/or strengthen controls and ensure the procurement process is transparent and conforms fully to ADB Procurement Guidelines and Bangladesh Procurement Rules, 2008 (amended up to 30 April 2010), as applicable;
• institute measures to help local contractors for small value civil works understand bid requirements;
• strengthen supervision to ensure construction contracts are implemented efficiently and implement measures to ensure subprojects are maintained properly after completion; and
• ensure that procurement integrity and transparency are established at the commencement of every development project and observed throughout implementation.
7. Strong procurement and internal controls mitigate the risk of improper use of Project funds and assets, maximize development effectiveness, and deter fraud and corruption. The Borrower is encouraged to continue taking the lead in addressing this promptly, and collaborate with ADB to strengthen Bangladesh’s capacity to manage for development results. 8. BRM acknowledged the need to strengthen EA’s procurement processes, and noted that they are running regular training for EAs in collaboration with ADB’s Central Operations Services Office (COSO) on procurement, recruitment of consultants and project implementation. Further procurement-related courses are scheduled for 2011 and beyond.
9. LGED provided their assurance in ensuring integrity and transparency in future procurement processes. They have accordingly instructed all the field executive engineers; design, supervision and monitoring consultants; and personnel concerned to take corrective measures. In addition, on-the-job training for the technical evaluation committee members is being conducted. Results in Brief 10. Of the 39 contracts reviewed, the PPRR Team noted 109 procurement-related findings. Figure 1 illustrates the breakdown of the 109 findings.
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Figure 1: Nature of Findings Profile
11. Among the 109 procurement-related findings, the PPRR Team noted a number of instances that ADB’s Anticorruption Policy may have been violated by contractors. OAI intends to investigate these indicators in relation to possible misrepresentation and collusion in accordance with ADB’s Integrity Principles and Guidelines, and seek the cooperation of the executing agency and Project staff at all levels in this effort. 12. Procurement. Based on the review of the Project’s procurement procedures and documents of 39 sample civil works contracts awarded as of 31 March 2010 in 11 districts, the PPRR Team noted a number of deviations from ADB’s Procurement Guidelines and Loan Agreement, and identified areas for improvement. These include, among others (i) bidders failed to appropriately fill up the required bid forms but were considered responsive, (ii) lack of due diligence in bid evaluation, (iii) inconsistencies and irregularities in bid evaluation, (iv) signing of a contract with a contractor who submitted deficient performance security, and (v) post facto approvals for contract variation.
13. Asset Inspection. The PPRR Team inspected 28 civil works subprojects that were completed or near completlion.6
Civil works were determined to be generally in line with contract specifications, structure consistent with the design, and were utilized as intended. There were, however, defects which included, among others, (i) prevalence of road undulation over the entire road length which may have been caused by improper base and sub-base course compaction; (ii) seal coat of asphalt concrete already worn off exposing the asphalt concrete, and in some spots, even the asphalt concrete was worn off; (iii) poor quality of concrete which may have been caused by inconsistent application of mix ratio; (iv) presence of moisture in walls, which may have been caused by poor drainage system in the roof resulting to water clogging and seepage in walls; (v) cracks in walls due to inadequate brick work or substandard materials used; and (vi) some parts of the constructed road not designed for heavy truck loads were destroyed due to passage of heavy trucks carrying cement. Most of these deficiencies may have been caused by contractors’ lack of capability in terms of equipment and skills and/or lack of on-site supervision of the works.
6 The PPRR Team included a quantity surveyor to inspect subprojects.
0%10%20%30%40%
39%36%
9% 8% 6%2%
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Concluding Comments 14. The PPRR Team recognizes the challenges faced by LGED inherent in implementing decentralized projects in areas which are remote, and where there are numerous smaller-sized civil works subprojects but with inadequate number of capable local contractors, among others.7
Greater collaboration may be required between SARD, BRM, and MLGRDC/Government of Bangladesh to ensure procurement transparency is enhanced.
15. Despite the weaknesses noted, there were positive indications that the Project delivered the expected outputs to improve rural infrastructure in the districts of Bangladesh. Project works were found to be generally used as intended by targeted beneficiaries. The PPRR Team calls on the local government units to manage and maintain these local infrastructures to ensure sustainability of the subprojects. Implementation of recommendations in this report can only augment results achieved to date. The PPRR Team encourages SARD, BRM, MLGRDC, and LGED to implement lessons learned from this Project to future ADB-financed projects in Bangladesh.
16. Firms or individuals who violated ADB’s Anticorruption Policy by engaging in corrupt, coercive, collusive, or fraudulent practices are not eligible to participate in ADB-financed, administered, or supported activity during their sanction period. The PPRR Team encourages the EA, MLGRDC, and LGED to sign up for access to ADB’s full sanctions list (http://sanctions.adb.org) and check the sanctions list before engaging any entities to protect project funds and project outcomes.
17. The PPRR Team thanks Project management and staff, especially the PMO, LGED district offices, as well as SARD and BRM for their cooperation, responsiveness and assistance to the PPRR requirements and valuable inputs. ADB values the courtesy and support that Project officials extended to the PPRR Team.
7 In its response to the draft of this report, LGED reiterated the findings extracted from the bilateral discussion
between ADB and LGED in 2008 as: (i) prevailing uncongenial atmosphere for the bidders countrywide, (ii) lack of required experience of local level bidders; (iii) high cost of construction materials; (iv) remote location of some contract packages; and (v) difficulty in meeting required specific criteria by the bidders.
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I. PROJECT BACKGROUND 1. The Asian Development Bank (ADB) Loan No. 2254-BAN(SF): Second Rural Infrastructure Improvement Project (the Project), approved on 18 August 2006, aims to reduce poverty in 23 districts of northeast and central Bangladesh.8
The Loan Agreement between People’s Republic of Bangladesh and ADB was executed on 17 September 2006. The Loan became effective on 5 December 2006. Poverty reduction will be realized by expanding the economic opportunities of the rural poor by improving rural infrastructure such as roads and growth center markets, gender development, and improved local governance.
2. The Project is aligned with ADB’s Country Partnership Strategy9
of boosting rural incomes to reduce poverty. By improving rural infrastructure, gender development, and local governance, it expands economic activities, improves efficiency of transport to markets and trading centers, and access to social and welfare services. Strengthening local government units will enable them to plan, manage and maintain the local infrastructure. Local participation will create a sense of ownership and focus greater attention to effective maintenance.
3. The Project costs approximately $260.5 million including taxes and duties of $20.1 million. ADB financed $96.1 million equivalent (36.9% of total Project cost) from its Special Funds resources. A total of $164.4 million was sourced from the United Kingdom’s Department for International Development ($60.9 million or 23.4%), German Development Cooperation ($25.2 or 9.7%), and the Government of Bangladesh ($78.3 million or 30%). The Project is scheduled for completion in June 2011, and the loan is scheduled to close on 31 December 2011. The loan allocation as of 31 March 2010 (the review cut-off date) was as follows:
Category/Sub-category Loan Allocation ( in $million) % of ADB Financing Category Sub-category
Civil works 75.73 Rural Roads 66.20 54 Rural Infrastructure 9.53 62 Equipment & Vehicles 5.37 Equipment & Furniture 3.37 100* Vehicles 2.00 100* Studies and External Audit 0.71 100* Training 4.61 100* Consulting Services 7.18 100* Interest Charges 2.45 100** Unallocated 2.35 Total 98.40
Basis: ADB Loan and Grant Financial Information System * Exclusive of local taxes ** Financing is 100% of amount due 4. The Local Government Engineering Department (LGED) in the Local Government Division of the Ministry of Local Government, Rural Development, and Cooperatives
8 The 23 districts are (i) in Rajshahi Division: Dinajpur, Thakaurgaon, Panchagar, Rangpur, Nilphamari, Gaibandha,
Kurigram, and Lalmonirhat; (ii) in Dhaka Division: Mymensingh, Kishoreganj, Nekrokona, Jamalpur, Sherpur, Tangail, Dhaka, Gazipur, Narsingdi, Manikganj, Munsiganj, and Narayanganj; and (iii) Chittagong Division: Comilla, Brahmanbaria, and Chandpur.
9 ADB. 2005. Country Strategy and Program (2006-2010): Bangladesh. Manila. and ADB. 2009. Country Partnership Strategy Midterm Review: Bangladesh (2006-2010). Manila.
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(MLGRDC) is the Project executing agency (EA) and is responsible for the overall project implementation. The project management office (PMO) established by LGED in Dhaka and headed by a Project director is directly responsible for overall implementation, monitoring and supervision. The PMO works closely with the staff of LGED in district and sub-district offices and coordinates with union councils and management committees of the growth center markets and the jetties in implementing relevant project activities. The LGED district offices, headed by executive engineers are responsible for implementing subprojects under the guidance of the PMO. They are responsible for maintaining submersible roads. 5. ADB’s lending program to Bangladesh recognizes the linkage to the country’s Millennium Development Goal as it identifies the major causes of poverty in Bangladesh as “living in remote and unfavorable environments with limited transport and other infrastructure. The Project addresses the problem of isolation-induced poverty by expanding the economic opportunities available to the rural poor through improved rural infrastructure.10
6. Efficient rural transport and supporting infrastructure are indispensable to reducing poverty and achieving rapid economic development in Bangladesh. The Project draws on experience and lessons identified from previous projects, particularly in mainstreaming the participatory approach and empowering local government.11 Based on ADB’s Strategy 2020 and the Government’s policies, ADB places high priority to inclusive growth in its operations in Bangladesh to ensure that the disadvantaged and the impoverished participate in and benefit from growth. To promote development in rural areas, which is home to about 74% of the nation’s poor, ADB through this type of Project, is helping generate employment; renovate or build rural roads and associated infrastructure; and improve access to markets, trading centers, and social services.12
II. REVIEW OBJECTIVES, SCOPE, AND METHODOLOGY 7. The overall PPPR objective is to prevent and detect fraud and corruption as defined under ADB’s Anticorruption Policy.13 Corrupt behavior is a serious impediment to the development process, severely reducing development effectiveness and jeopardizing successful delivery of development benefits. The Anticorruption Policy, alongside with the ADB Procurement Guidelines14 and Guidelines on the Use of Consultants by Asian Development Bank and its Borrowers15 require all parties, including borrowers, beneficiaries, bidders, consultants, suppliers, contractors, and ADB staff to maintain the highest ethical standards for ADB-financed activities.16
8. To ensure such ethical standards, ADB’s Anticorruption Policy prohibits fraudulent and corrupt practices in ADB-financed, administered or supported operations, and defines the following as integrity violations: 10 ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and
Administration of Department for International Development of the United Kingdom Grant to the People’s Republic of Bangladesh: Second Rural Infrastructure Improvement Project. Manila.
11 Ibid. 12 ADB. Development Effectiveness Brief: Bangladesh – A Partnership for Progress. Manila. 13 Paragraph 67, ADB’s Anticorruption Policy (2 July 1998). Manila. 14 Paragraph 1.06, Guidelines for Procurement Under Asian Development Bank Loans (November 2004); Paragraph
1.14, Procurement Guidelines (February 2007 and April 2010). Manila. 15 Paragraph 1.23, Guidelines on The Use of Consultants by Asian Development Bank and Its Borrowers (February
2007 and April 2010). Manila. 16 Paragraph 14(iii), ADB’s Anticorruption Policy (2 July 1998). Manila.
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• a fraudulent practice as any action or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation,
• a corrupt practice as the offering, giving, receiving or soliciting, directly or indirectly, anything of value to influence improperly the actions of another party,
• a collusive practice as an arrangement between two or more parties designed to achieve an improper purpose, including influencing improperly the actions of another party, and
• a coercive practice as impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party.
9. In addition,
• abuse is theft, waste, or improper use of assets related to ADB-related activity, either committed intentionally or through reckless disregard,
• a conflict of interest is any situation in which a party has interests that could improperly influence that party’s performance of official duties or responsibilities, contractual obligations, or compliance with applicable laws and regulations, and that such conflict of interest may contribute to or constitute a prohibited practice under the anticorruption policy, and
• an obstructive practice is (i) deliberately destroying, falsifying, altering, or concealing of evidence material to an ADB investigation; (ii) making false statements to investigators in order to materially impede an ADB investigation; (iii) threatening, harassing, or intimidating any party to prevent it from disclosing its knowledge of matters relevant to the investigation or from pursuing the investigation; or (iv) materially impeding ADB’s contractual rights of audit or access to information.
10. Other integrity violations include:
• violations of ADB sanctions, • other violations of ADB’s Anticorruption Policy, including failure to adhere to the
highest ethical standards, and • retaliation against whistleblowers or witnesses, which is any detrimental act,
direct or indirect, recommended, threatened, or taken against a whistleblower or witness or person associated with a whistleblower or witness in a manner material to a complaint because of the report or cooperation with an ADB investigation by the whistleblower or witness, which shall be investigated in accordance with Administrative Order 2.10.17
11. This PPRR is intended to:
• identify whether the procurement of project works complied with ADB’s Procurement Guidelines and the Loan Agreement18
17 Paragraph 2, Integrity Principles and Guidelines (May 2010). Manila; and ADB Administrative Order 2.10:
Whistleblower and Witness Protection.
;
18 The PPRR also took into account compliance with Bangladesh Public Procurement Act, 2006 (including amendments) and Public Procurement Rules, 2008 (amended up to 30 April 2010).
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• determine whether project contracts were implemented according to agreed terms; and
• recommend improvements to internal controls that mitigate opportunities for fraud, corruption, or abuse in this project and future ADB-financed projects in Bangladesh.
12. PPRRs are conducted in line with ADB’s efforts to manage for development results. Effective internal control mechanisms enhance the assurance that project funds are directed towards its intended purpose and targeted beneficiaries. This PPRR thus contributes to ensuring ADB-financed projects are managed to produce intended development results. 13. To achieve the review objectives, the PPRR Team conducted a detailed review of procurement documentation at the PMO and 11 of 23 LGED district offices, inquired with PMO and LGED district offices staff and Project consultants, evaluated the Project’s procurement processes and internal controls, and performed inspection of subprojects at selected project sites.
14. As the contracts were awarded mostly to civil works contractors (72%) as of 31 March 2010, the PPRR Team examined the procurement documentation and processes for 39 civil works contracts, amounting to a total of Tk671.01 million (or $9.6 million equivalent), representing 37% of total awarded contracts for civil works. These contracts were procured through national competitive bidding (NCB).
Figure 2: Reviewed Civil Works Contracts (Awarded through NCB)
15. During site visits in 11 districts, the PPRR Team inspected 28 civil works projects aggregating to a total of Tk534.96 (or approximately $7.73 million). With its quantity surveyor, the PPRR Team assessed whether the assets:
• physically exist at the appropriate location, • were in accordance with specifications stated in the supporting documents,
37.93%
20.14%
17.54%
5.12%
4.89%
4.09%3.68%
2.42%
2.31%1.65%0.22%
Thakurgaon
Dinajpur
Kishoregonj
Comilla
Panchagarh
Sherpur
Munshiganj
Narayanganj
Netrokona
Mymensingh
Brahmanbaria
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• were of prima facie acceptable quality, and • were being used for the intended purpose.
III. REVIEW FINDINGS AND RECOMMENDATIONS
16. The PPRR findings pertain primarily to Project procurement, asset inspection, and internal control issues, as highlighted below. A. Procurement
17. Based on the review of the Project’s procurement procedures and documents of sample civil works contracts, the PPRR Team noted a number of deviations from ADB’s Procurement Guidelines and the Loan Agreement, including Bangladesh Public Procurement Act, 2006 (including amendments) and Public Procurement Rules, 2008 (amended up to 30 April 2010). 18. The Loan Agreement requires the Borrower to ensure that ADB’s Anticorruption Policy is followed throughout Project implementation, it being understood that ADB reserves the right to investigate any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project.19
19. The PPRR Team noted some instances where ADB’s Anticorruption Policy may have been violated by contractors. To determine if this is so, OAI will investigate these indicators in relation to possible misrepresentation and potential collusion among contractors in accordance with ADB’s Integrity Principles and Guidelines. Violations to ADB’s Anticorruption Policy invariably results in ineffective and/or improper use of the Project funds, thereby reducing development effectiveness.
20. Out of the 39 contracts reviewed by the PPRR Team, 109 procurement-related findings were noted. Figure 1 from the executive summary above illustrates the breakdown of the 109 findings.
1. Potential misrepresentation
Contractor cannot be located at address specified in the bid document
21. To determine the authenticity of addresses specified by the bidders in the bid documents, the PPRR Team verified, on a sample basis the addresses of nine winning bidders. The results indicated that four contractors were not in their respective addresses specified.20
Submission of potentially falsified auditor’s reports 22. In one of the Comilla projects21
, the winning bidder submitted auditor’s reports for 2009 and 2010 for a contract signed in 2009. The PPRR Team determined that the auditing firm for the said auditor’s reports was not in the list of members and firms published by the local institute.
19 Schedule 5, paragraph 29, Loan Agreement between People’s Republic of Bangladesh and Asian Development
Bank dated 17 September 2006. 20 Contractors for two Comilla projects, and one contractor each for Munshigonj and Sherpur projects. 21 See footnote 8 for the list of districts covered under the loan.
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23. In the Brahmanbaria project reviewed, the audited accounts submitted by the winning bidder showed a balance sheet for the year 2007, which was not properly balanced. This was also not detected during bid evaluation, a sign of lack of due diligence. LGED – Brahmanbaria, in its response to the finding indicated that since the package size was small, the submitted balance sheet was not taken into consideration during evaluation.
24. PPRR Team views this as non-compliance with the Procurement Guidelines and emphasizes that the evaluation process should be consistent with the criteria specified in the bid document. Non-review of bidders’ submissions to bid requirements may lead to questionable evaluation process, and awarding contracts to technically and/or financially unqualified bidders.
Submission of potentially falsified TIN and VAT certificates 25. The PPRR Team noted that in a Netrokona project, one of the losing bidders submitted potential falsified TIN and VAT certificates as the TIN number in the TIN certificate did not match the TIN number in the VAT certificate. In its response to the finding, LGED – Netrokona indicated that according to the bidder the TIN number in the TIN certificate was the correct TIN number and that in the VAT certificate was a printing error. However, no further verification on the bidder’s declaration was conducted. 26. The lack of adequate due diligence on the part of the evaluation committee on documents submitted by the bidders places the Project at risk as it may be dealing with ineligible or unqualified contractors.
2. Indications of possible collusion
27. Collusive bidding among bidders tends to drive up prices and defeats the competitive process. The PPRR Team found instances where possible collusion among bidders during the procurement process took place. This was manifested by submission of two or more bids with identical handwriting style and script, identical proposed personnel and vehicles, bid securities with sequential serial numbers, quoted prices which are abnormally high or low resulting in abnormal price differences, and possible intent of some bidders to be disqualified by submitting deficient bid securities. Furthermore, there were indications that a single bidder may have submitted two or more bids under different names. Competing bidders may be related parties 28. Brahmanbaria. Of the nine contractors that purchased bid documents for a contract in Brahmanbaria, only two submitted bids. The bid security provided by the losing bidder was initially issued on account of the winning bidder, which was subsequently overwritten. When the contract was awarded, the bid security of the losing bidder was used as part of the performance security of the winning bidder.
29. The PPRR Team also noted that the bill of quantity (BOQ) prices of certain items had significant differences for both bidders, resulting to abnormal price differences between the two bids, making it appear that it was a competitive bidding. These are indications of collusion or both bids may have come from the same bidder or may be related bidders.
30. LGED, in its response to the draft of this report, attributed the abnormal rates quoted by some bidders to illiteracy, as some bidders did not have the understanding of the bid
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documents. LGED indicated that this has been minimized through regular pre-bid meetings with contractors where they clarify bid requirements. 31. Mymensingh. In one of the contracts for Mymensingh, five contractors purchased bid documents but only two submitted bids. The PPRR Team noted that the signature found in the bid document of the winning bidder was also in the bid submission of the losing bidder but was covered by a correction fluid in an attempt to erase/delete the same. Furthermore, the bid securities provided by both bidders were sequentially issued by the same bank on the same day. These indicate that the concerned bidders may either be related, belong to the same contractor, or have colluded. 32. Narayanganj. In another contract for a project in Narayanganj, there were only two contractors who submitted bids. The PPRR Team noted that both bidders proposed the same engineer, attaching the same CV, and proposed the same transport and vehicles. 33. Thakurgaon. The winning bidder and one of the three losing bidders for one of the contracts in Thakurgaon proposed the same four personnel in their bid submissions, as indicated by the same names, age and working experience. The losing bidder’s mailing address as indicated in its trade license is similar to the address in the one of the winning bidder’s supporting documents. Specifically, an appointment letter issued by the winning bidder to the losing bidder indicates that the losing bidder works for the winning bidder. Effectively, these two bids may have been submitted by the same bidder or related bidders.
Similarities in handwriting and cover pages of bid documents 34. Similarities in handwriting in bid submissions indicate potential collusion among bidders. The PPRR Team noted a number of BOQs with similar handwriting styles and similar cover pages of bid documents submitted by bidders in different districts. The PPRR Team was made to understand by the PMO that LGED deals with a large number of small civil works contracts where a number of contractors participating in these types of procurement contracts are illiterate and would not be able to understand the requirements or even speak and write in English. As such they use the services of persons in their districts to fill up the required procurement forms, which could be a reason for similarities in handwriting in the BOQs of several bidders. 35. The PPRR Team noted similarities in handwriting in the BOQs of some bidders in Brahmanbaria, Thakurgaon22
, Netrokona, and Dinajpur. The PPRR Team also noted similarities in cover pages of the bid documents submitted by four bidders for three contracts in Comilla.
Syndicated bidding 36. The PPRR Team noted indications of syndicated bidding where several bidders appeared to have made some arrangements among themselves before submitting bids for a group of contracts advertised together. In many cases, the level of participation was very low, (i.e., of sample contracts reviewed 56% had bidders’ participation rate ranging from 6% up to 38% only). LGED responded that newcomer bidders who purchased bid documents are not familiar with the bid requirements and formalities that they may have decided not to participate,
22 Out of the 36 contractors who purchased bid documents, only three submitted bids and two bidders have similar
handwriting in their BOQs.
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and even experienced bidders may have decided not to participate after considering additional information required such as profit margin, availability and cost of materials and labor.23
37. Two contractors were the only bidders for two civil works contracts in Panchagarh and each won a contract. The PPRR Team noted that while the contracts are being implemented on the same location, unit prices of both firms for some items in the BOQ have significant differences that the bids seemed manipulated to influence the outcome.
38. Analysis of the bid participation and award for the five contracts in Comilla revealed that all five awarded bidders had bid exclusively for those packages that they won. In most cases, these five bidders did not purchase bid documents for the other packages, although some of these were sold together. In cases where the winner of one package purchased bid documents for other packages, the contractor did not bid in any other package.
39. In its response to the draft of this report, LGED indicated that exclusive bidding by contractors occurs if a particular contractor has the advantage to execute the package within its jurisdiction, where the contractor has the facility to get equipment, labor and materials at minimum prices, and that the contractor may even have its own brickfield. 40. In the procurement under a Comilla contract, only two bidders participated out of nine who purchased the bid documents. The PPRR Team noted that while the bid security amount was indicated in the advertisement, one of the participating bidders provided a much lesser amount of bid security, which was the reason for its disqualification. Given the circumstances identified, it appeared that the bids were manipulated to ensure the contract was awarded to the intended contractor.
41. In their response to the draft of this report, LGED indicated that they have always been careful to eliminate cases of syndicated bidding. If they had doubts of the existence of syndicated bidding, the packages were retendered in most cases. However, LGED acknowledged that this is still an area for further improvement, and advised that they are trying their best to have a transparent and efficient system. Recommendation 42. The PPRR Team recommends that MLGRDC through LGED assist and support OAI in future investigations on possible integrity violations committed by contractors identified through this PPRR.
4. Tender information sheet not filled up by bidders 43. The Tender Information Sheet (Form W-2) included in the bid documents requires the bidders to fill up Form W-2 for purposes of verification of eligibility and qualification of the bidder as provided for in the relevant clauses of the Instruction to Tenderers. The PPRR Team noted that while the bidders submitted supporting documents for purposes of verification of eligibility and qualification, most did not accomplish Form W-2 as required. Furthermore, most of the bidders did not provide telephone numbers.
23 One LGED district indicated two possible reasons for low turnout of participating bidders: (i) all those who
purchased bid documents were ineligible; and (ii) those ineligible buyers speculate to share in the earnings of a cartel, if in existence.
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44. The PPRR Team was made to understand by LGED that most of the bidders lack experience in filling up the forms but provided seal and stamp showing their name, address and signature. One of the LGED districts indicated that they are now requesting bidders to fill up the same and provide telephone phone numbers during bid opening or pre-bid meeting. Another LGED districts indicated that some bidders are reluctant to give out their telephone numbers.
45. In their response to the draft report, LGED indicated that the deficiencies noted above were experienced in the early years of the tender, and that the bidders are improving and coping with the requirements of the bid documents24
. In addition, LGED explained that there are times when contractors do not give their actual addresses and telephone numbers for fear of being threatened/blackmailed by the miscreants/rival contractors.
5. Lack of due diligence/irregularities in the evaluation process 46. ADB Procurement Guidelines provides that the bid documents shall specify any factors, in addition to price, which will be taken into account in evaluating bids, and how such factors will be quantified or otherwise evaluated.25 Furthermore, in the examination of bids the borrower should ascertain whether the bids (a) meet the eligibility requirements specified by the Procurement Guidelines, (b) have been properly signed, (c) are accompanied by the required securities or required signed declaration, (d) are substantially responsive to the bidding documents, and (e) are otherwise generally in order. If a bid is not substantially responsive, that is, it contains material deviations from or reservations to the terms, conditions, and specifications in the bidding documents, it shall not be considered further.26
The PPRR Team noted instances where evaluations were inconsistent with submitted documents. These deficiencies suggest questionable bid evaluation process, which may result to awarding contracts to unqualified bidders.
47. As mandatory requirements, the bidder should submit among others, an updated trade license, VAT registration, and current income tax certificate. The PPRR Team noted that in one of the Comilla contracts reviewed, the winning bidder submitted a tax identification number certificate but did not submit any income certificate. LGED – Comilla responded that the bid was considered responsive as the bid amount was lesser than the cost estimate and the bidder has fulfilled all other criteria. In one of the Thakurgaon contracts, the PPRR Team noted that the trade license of the second lowest bidder pertained to steel re-rolling and cement supplier and not for construction business, however, the bidder was declared responsive.
48. In another Thakurgaon contract the PPRR Team noted that the winning bidder was not compliant with the works experience requirement in the Instruction to Bidders (ITB) clause 12.3(b)27
due to submission of building construction experience instead of road construction experience. The PMO responded that the bidder had road construction experience and provided a declaration from the bidder that they constructed the three level multi-storied car park, and the winding driveway inside the car park as their road experience. The PPRR Team is of the view that the work experience was inadequate for a large scheme road construction contract amounting to Tk60,499,974.49 (or about $874,000), and there was no supporting documents substantiating the bidder’s declaration.
24 The sample contracts reviewed were contracted in 2008 and 2009. 25 Paragraphs 2.17 and 2.52, Procurement Guidelines (February 2007 and April 2010). 26 Paragraph 2.48, Procurement Guidelines (February 2007 and April 2010). 27 Required number of similar contracts over the past five years.
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49. The bid documents provide that “all pages of the original and of each copy of the tender, except for the un-amended printed literature, shall be numbered sequentially and signed or initialed by the person signing the tender.” The PPRR Team noted instances where sequential numbering and signing of pages of bids were not done by the bidders who were declared responsive and some as winning bidders. For one of the contracts in Comilla, the PPRR Team was made to understand that bidders are inexperienced in these requirements, and that the documents were attested by a 1st class officer.
50. Review of two contracts in Kishoreganj that were awarded to the same bidder in November 2008 indicated that the equipment list submitted was prepared in 2002. The PPRR Team could not ascertain whether or not the existence of the equipment was validated by the evaluation committee.
51. In one of the contracts in Panchagarh, there were five bidders and the contract was awarded to a contractor who did not comply with the personnel capacity and equipment capacity requirements. Three other bidders were declared non-responsive due to non-compliance with personnel and equipment capacity requirements. The PPRR Team noted that the only firm compliant with all the evaluation criteria was not declared the winner. LGED – Panchagarh responded that the contract was awarded to the contractor despite non-compliance with the bid requirements as the contractor had the lowest bid.
52. In its response to the draft of this report, BRM indicated it will continue its due diligence in reviewing the EA’s submissions. LGED indicated that local contractors are relatively small and only occasionally win contracts. These contractors do not have permanent staff and equipment, and they hire manpower and equipment only when they are awarded contracts. Moreover, the same persons in the locality are hired by the contractors. As a consequence, there are times when the list of equipment and personnel supplied by different local contractors are common. LGED acknowledged that the Technical Evaluation Committee did not give proper attention to this criteria during evaluation, and this is currently being addressed.
6. Deficient Performance Security 53. ADB Procurement Guidelines and Bangladesh Public Procurement Rules, 2008 (amended up to 30 April 2010) provide for the bidding documents for works to require security in an amount sufficient to protect the borrower in case of breach of contract by the contractor. The Instruction to Tenderers in the bid documents for civil works contracts for this Project require the successful bidder to furnish the performance security for the due performance of the contract in the amount specified in the tender data sheet within 14 days of receipt of notification of award (NOA). 54. In one of the contracts in Sherpur, the PPRR Team noted that while the performance security required by the notification of award was Tk460,000, the winning bidder submitted a performance security of Tk425,000, a deficiency by Tk35,000. The contract was signed nevertheless. Review of documentation relating to the performance security disclosed that after completion of works in January 2010, the contractor was refunded the supposedly required performance security of Tk460,000, which was more than the performance security provided. Eight months later and at the time of the ongoing PPRR fieldwork in October 2010, the contractor returned the excess payment through a pay order dated 19 October 2010 amounting to Tk35,000.
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55. LGED – Sherpur indicated to the PPRR Team that what transpired pertained to an error in calculations, and emphasized that the excess payment had been refunded by the contractor. The PPRR Team reminds LGED to implement strict compliance to the bid requirements to ensure integrity and transparency in procurement processes.
7. Post facto approvals for contract variation 56. The PPRR Team noted that a variation to the works which increased the contract price was executed to one of the contracts in Mymensingh but the documentation of approvals were executed after eight months from the completion of the works. The PPRR Team also noted that ADB, as an exception granted post facto approval. LGED explained that the works were completed in the presence of the supervision consultant, and the revised estimates were approved post-facto by appropriate authorities after completion of the works. LGED indicated that post-facto approval was given under unavoidable circumstances, and added that the variation had to be done as an emergency case as the project officials and consultants did not have any office space, and the top floor of the building was exposed to the elements. 57. The PPRR Team suggests that LGED should discourage prolonged post-facto endorsements and approvals of contract variations – even for emergency cases such as above, which took eight months. Recommendations 58. Applying an evaluation method that is inconsistent from the bid document may lead to questionable evaluation process, and awarding contracts to unqualified bidders. It is recommended that LGED ensure the evaluation committee exercises due diligence in evaluation of the bid proposals, and consistently observes applicable evaluation procedures especially on required supporting documents. 59. In order to ensure integrity and transparency in procurement processes, it is recommended that LGED:
• take steps in ensuring that prospective bidders understand the bid requirements,
(e.g., conducting pre-bid meetings); and • ensure strict compliance with the requirement pertaining to performance security.
60. It is also recommended that LGED discourage prolonged post-facto endorsements and approvals of contract variations.
B. Asset Inspection 61. The PPRR Team, which included a quantity surveyor inspected 28 civil works projects in the 11 districts covered by the PPRR. Of these, 25 were completed projects and 3 were near completion. These comprised extensions of functional buildings, improvements of upazila and union roads28
, improvement of growth center markets rural hut bazaars and women market sections, and construction of union district council complex.
28 “Upazila” means subdistrict in Bangla language and “union” means an administrative subdivision of a subdistrict
governed by a union council.
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62. The PPRR Team noted that of the 25 completed projects, three experienced substantial delays, namely 127, 96 and 72 days, respectively. The rest of the contracts were completed on time or before the planned completion dates. 63. The PPRR Team determined that the civil works were generally consistent with design, in line with contract specifications, and were used as intended. There were, however, defects noted in some construction works, which included, among others:
• clear cover of culvert found to be inadequate; • prevalence of road undulation over its entire length, which may have been
caused by improper base and sub-base course compaction; • seal coat of asphalt concrete supposedly 7mm thick worn off exposing the
asphalt concrete and in some spots, even the asphalt concrete was worn off; • poor quality of concrete which may have been caused by inconsistent application
of mix ratio; • presence of moisture in wall and sunshade of a union prashad complex, which
may have been caused by poor drainage system in the roof resulting to water clogging and subsequent seepage in the walls and other components of the building;
• cracks in walls due to inadequate brick work or substandard materials used; and • some parts of the constructed road not designed to take heavy truck loads were
destroyed due to passage of heavy trucks carrying cement. 64. These deficiencies may have been caused by contractors’ lack of capability in terms of equipment and skills and/or lack of on-site supervision of the works. LGED advised that appropriate actions have been taken to rectify the defects. The on-site supervision teams have been alerted, and retention money will only be refunded to contractors if rectification has been done. Recommendations 65. To ensure that construction contracts are implemented efficiently and maintained properly after completion, it is recommended that LGED
• determine if completed construction works with observed defects are still under their warranty period and if so, ensure these are corrected by the contractors concerned;
• ensure closer supervision of construction works; and • implement periodic inspection of the Project and effect immediate repairs, as
necessary. C. Weaknesses in Internal Controls 66. The PPRR Team also assessed the Project’s internal controls and identified the following areas for improvement. Strong internal controls significantly reduce the risk of undetected fraud and corruption, and are vital in ensuring Project funds are directed towards stated objectives, for intended beneficiaries.29
Inconsistencies in procurement reports
29 Note that this section does not include controls already referred to previously in this report.
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67. From the review of the evaluation reports, the PPRR Team noted inconsistencies in information pertaining to total number of bids sold for three contracts in two districts, and in reporting the winning bidder’s liquid assets for one contract. 68. The PPRR Team also noted inconsistencies in the names of bidders in two sections of the minutes of bid opening of a Comilla project. The names of the bidders under the “Tenderer and their authorized representative(s) present” of the minutes of bid opening were not the same names of bidders indicated in another section “Results” of the minutes. The said minutes of bid opening was duly signed by the Tender Opening Committee.
69. The PPRR Team also noted inconsistencies in total number of bidders present during the bid opening for a Sherpur package (i.e., four per the minutes of bid opening and three per the tender opening sheet).
70. The PPRR Team calls on LGED to strengthen review procedures of procurement reports and minutes to ensure accuracy of information and integrity in the procurement process.
Unupdated sale of bids register and unaccounted bid sales 71. With the Project that is highly decentralized, sale of bids for a specific contract package for each district is done in one or more locations and bid sales registers are usually maintained at the LGED district offices as primary locations. Each secondary location submits a forwarding total of sold bid documents to the primary location. 72. In one of the Comilla contracts, a total of nine bid documents were sold but only eight names of bidders were recorded in the bid register. The name of the bidder that was not recorded was one of the two bidders who submitted bids for the package.
73. Proceeds from sale of bid documents are deposited by LGED to a Government treasury account and a treasury challan, a form of official receipt is issued to support the deposit. The PPRR Team noted that in two Sherpur contracts, treasury challans for deposited sales amounts were less than the total number of bids sold. Recommendations 74. In order to ensure accuracy of information and transparency in procurement processes, the PPRR Team recommends that LGED ensure:
• that procurement reports and minutes (e.g., evaluation reports, bid opening
minutes and bid opening sheet) contain accurate information, and these are reviewed prior to their issuance;
• completeness of information in the bid register; and • supporting documents are intact to ensure sales from bid documents are
appropriately deposited.
IV. CONCLUDING COMMENTS
75. The PPRR Team recognizes the challenges faced by LGED inherent in decentralized projects and in areas which are remote, and where there are numerous smaller-sized civil works
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subprojects but with inadequate number of capable local contractors, among others. Greater collaboration may be required between ADB SARD, through BRM and MLGRDC/Government of Bangladesh to implement an effective monitoring mechanism for future decentralized projects in Bangladesh, and to ensure transparent procurement capacity at all levels. 76. It is important that weaknesses in procurement, asset inspection, and internal control identified here do not recur in this project and in similar projects in Bangladesh. The importance of exercising adequate due diligence during bid evaluation and consistent application of the evaluation criteria should be stressed to ensure transparent selection of the most qualified bidder. Bidding integrity and transparency should be established at project commencement and observed throughout project implementation in order to maximize development effectiveness. 77. It is worth noting that despite the deficiencies noted, there were positive indications that the Project delivered expected outputs to improve rural infrastructure in the districts of northeast and central Bangladesh. A case in point is that the project works were found to be generally used as intended by targeted beneficiaries, notably seen in Comilla’s women market and bazaar growth center, Danajpur’s roads, and Netrokona’s Executive Engineer’s Offices. It is imperative that the local government units will be able to manage and maintain these local infrastructures to ensure sustainability of the subprojects. Implementation of recommendations in this report can only augment results achieved to date. 78. OAI encourages ADB SARD, in coordination with BRM to conduct limited compliance reviews (spot reviews) during review missions to ensure bidding integrity and transparency in the procurement process. BRM agreed to further strengthen its due diligence by randomly selecting and reviewing sample contracts during bidding and contracting process to confirm if clauses from the loan agreement are adhered to, and as part of this process, identify and document any weaknesses.
79. The PPRR Team extends its thanks to Project management and staff, especially the PMO, LGED district offices for their cooperation and responsiveness on the PRRR requirements, as well as SARD and BRM for their support and assistance to the team during the course of the review. ADB values the courtesy and support that the Project officials extended to the PPRR Team.
