EU-Asia Urbs ProjectPreventing Corruption in Public Contracting: Capacity Building and Networking for Civil

Society and Local Governments

Public Contracting Handbook – TI Pakistan Section

Procurement SpecialistTransparency International Pakistan

5-C, 2nd Floor, Khyaban-e-Ittehad, Phase VIIDefence Housing Authority – Karachi

Tele: (0092-21) 5390408-9 Fax: 5390410E-mail: ti-pak@khi.paknet.com.pk. Website: www.transparency.org.pk

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Table of Contents

Chapter 1 Title Page

1(a) Introduction 3

1(b) Background. 5

1 (c) National Anticorruption Strategy by Government Anticorruption Agency

NAB

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1(d) How TI Pakistan brought change in National Procurement Law 7

1(e) Motivation for TI Pakistan to take part in the URBS project 10

Chapter 2

2(a) Tools and Training Material 11

2(b) Transparent Procurement Principles 12

2(c) Fair And Efficient Procurement 12

2(d) The Integrity Pact Application of Integrity Pact 13

2(e) Why Is Proficient Public Procurement So Important? 14

Chapter 3

3 (a) TI Pakistan Recommendation on Transparent Procurement System 15

3 (b) How Integrity Pacts helped Generate Market Competition in Pakistan 18

3(c) Who is active in anti-corruption work in Pakistan 19

3(d) Why such large number of Bidders Participated in the Tendering Process 20

3 (e) Lesson Learned from this Procurement 20

3 (f) Check List Bidding Process Lessons learnt, way forward and recommendations

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Chapter 4 18

4 (a) Conclusion 25

4(b) Monitoring of “ Integrity Pact” 25

Annexure-I Procurement Manual Prepared for Public/Local Bodies 26

Annexure-II Results of Participants’ of CBT Workshop Evaluation Questionnaire 27

Annexure-III Memorandum Of Understanding MOU 30

Annexure-IV Major Guidelines for Development, Procurement and Contracting as recommended by the NACS.

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Annexure-V Public Procurement Rules, 2004. 36

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Chapter 1

1(a). Introduction

Internationally, the Transparency International movement’s main aim is to strengthen the global value system by making transparency and accountability more relevant public norms. Corruption can have many manifestations, and countries, typically develop a complex set of institutions, laws, rules and regulations (the “integrity system”) in order to combat corruption.

Few activities create greater temptations or offer more opportunities for Corruption than public sector procurement. Every level of government and every kind of government organisation purchases goods and services, often in quantities and monetary amounts that defy comprehension. Whether this is really the most common form of public corruption may be questionable but without doubt it is alarmingly widespread and almost certainly the most publicised.

Bribery and extortion in public sector procurement of goods and services are key manifestations of corruption. “Public sector” in this context includes national or provincial governments, administrations of cities or local communities as well as other organizations carrying out public functions.

The effect of Corruption in the sector Public Procurement is one of the greatest effect on all countries be it developed or developing, financial as well as social. The potential for corruption significantly undermine development goals. In March 2005, on the occasion of publication of Global Corruption Report, Dr Peter Eigen, founding Chairman of TI spoke on Corruption in Procurement. Following excerpts are quoted from the news published in Daily DAWN, Pakistan;

BERLIN, March 16: The reconstruction of Iraq risks turning into the world's biggest corruption scandal, Transparency International said on Wednesday in a report focused on a world wide problem of bribery in the building industry.

"If urgent steps are not taken, Iraq will not become the shining beacon of democracy envisaged by the Bush administration, it will become the biggest corruption scandal in history," the independent anti-graft group wrote in its annual Global Corruption Report.

The report refers to the scandal-tainted U.N. oil-for-food programme and complaints of bribery affecting almost all Iraqi government operations. It criticized the United States for its poor handling of procurement and said calls for rapid privatisation to reduce debts were misguided.

Corruption was likely to worsen as large-scale spending on building contracts and procurement got under way. Peter Eigen, Transparency chairman, urged recipients of huge reconstruction aid, notably Iraq and the countries affected by the Asian tsunami, to be as open as possible about new building projects in a bid to stamp out graft.

"In these cases, the risk of corruption is particularly high if there is no specific effort to counter it," Mr Eigen said. Transparency wants much more rigorous systems in place for procurement, especially in Iraq, and launched a list of minimum standards for public contracting on Wednesday. However, Mr Eigen recognizes other priorities, such as security and flexibility.

"One has to be realistic. We understand the dilemmas. We are not fundamentalists," he said. "Certain things help. If there is very high form transparency it helps. You make it open and people

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understand that." Eigen also said "generations of cronyism" in Indonesia, the worst hit tsunami country, would not be overturned at once.

CONSTRUCTION CORRUPTION: The group said surveys had repeatedly shown that corruption was most prevalent in the $3.2 trillion construction sector and plagued both the developed and developing worlds.

Transparency reckons about $400 billion is paid to support corrupt deals, but Eigen said the real cost was far higher. "There are a plethora of white elephants or expensive and poor quality work. It has a tremendous secondary impact."

Corruption in Public Procurement is spread all over the World, even in developed countries. Below is the Report from USAID Press Release, 3 August 2005;

Harvard Defendants Pay Over $31 Million to Settle False Claims Act Allegations

Assistant Attorney General for the Department of Justice's Civil Division Peter Keisler; United States Attorney Michael J. Sullivan; Arnold J. Haiman, Acting General Counsel of the United States Agency for International Development; and Bruce Crandlemire Acting Inspector General of the United States Agency for International Development's Office of Inspector General, announced today that the United States has successfully resolved its civil case against Harvard University, Andrei Shleifer and Jonathan Hay. In a settlement reached with the United States, Harvard, Shleifer, Hay and FFIA, formerly known as Farallon Fixed Income Associates, LP, have agreed to pay a total amount in excess of $31 million to resolve civil claims arising out of the false billings from Harvard to the U.S. Agency for International Development ("USAID").

The two senior Harvard University advisors, Shleifer, as Project Director, and Hay, as Project Manager, were paid under a USAID grant to lead a project to provide advice to the nascent Russian economy on privatization following the fall of communism and the creation of fair and open markets and the rule of law. The United States alleged that instead, Shleifer and Hay used their positions and substantial influence over Russian officials at this pivotal time in Russian history to advance their own and their spouses' private financial interests.

Under today's settlement, the total payments will exceed $31 million. Specifically the settlement calls for Harvard to pay $26.5 million; Shleifer to pay $2 million; and Hay to pay between $1 million and $2 million (depending upon his earnings over the next 10 years). Also factored into the settlement amount total is $1.5 million already paid to the United States by FFIA, formerly known as Farallon Fixed Income Associates, LP, a company owned by Shleifer's wife, Nancy Zimmerman. In addition, Shleifer and Hay have agreed to be debarred by USAID.

After extensive summary judgment briefings, U.S. District Judge Douglas P. Woodlock, in a one hundred-page opinion, found liability against Shleifer and Hay under the False Claims Act, and against Harvard for breach of contract with USAID. At a federal civil trial, a jury found additional liability against Shleifer for Shleifer's violation of the conflict of interest policy in USAID's contracts with Harvard. http://www.usaid.gov/press/releases/2005/pr050803_1.html

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Transparency International Pakistan realizes that presently public procurement in all departments of Pakistan is treated as a downstream, clerical, buying and selling function and, therefore does not attract professionalism and competent staff to deal with the meagre resources with integrity and transparency. TI Pakistan since 2000 is working towards the goal of professionalizing the organisations and individuals responsible for procurement through targeted capacity building activities. This is the core element of the initiative, addressing not only capacity building efforts at the level of agencies and individuals, but also to strengthen systems, transparency and tackles corruption.

Pakistan had over 27 different Procurement Procedures, which was the main reason of using discretions to conduct Procurement. These discretionary power allowed opportunities of corruption. Under these Procurement Procedures Tender Documents in certain cases were even issued on a published date, and the Completed Tender is to be submitted next day.

1(b). Background.

In February 2000, a Proposal was forwarded by Transparency International Pakistan to the Managing Director Karachi Water & Sewerage Board (KWSB), Government of Sindh for the introduction of “Integrity Pact” and Transparency in Public Procurement Procedures to be implemented within the workings of the KW&SB.

The “ Integrity Pact” has been developed by the Transparency International as a model for Transparent Procurement, on the basis of extensive discussions with governments and international agencies such as the World Bank, the Inter-American Development Bank, the Asian Development Bank, the International Finance Corporation, UNDP, the Court of Arbitration of the International Chamber of Commerce and FIDIC. The IP is was already in practice on various procurement projects in Argentina, Colombia, Italy, Korea, Nepal , Ecuador, Germany and Panama.

The concept of an Integrity Pact has been designed by TI as a voluntary pact to be signed by all contractors and procuring agency to make public procurement practices transparent is one of them.

“Integrity Pact” is a system which insures that all activities and decisions of public offices are transparent and that the projects/works are implemented, services are provided or taken, and goods/materials are supplied without giving or taking any kind of benefit, financial or otherwise. Justification of the decisions taken is provided without much ado to the parties concerned or to any interested individual or institution/organization.

With consistent efforts and persuasion of over one year persuasion by TI Pakistan, KWSB agreed to the TI Pakistan proposal for implementing “Integrity Pact” in its procurement procedures. In April 16, 2001, the Managing Director KWSB issued a formal letter accepting the assistance of TI-Pakistan for implementation of the

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“Integrity Pact” and Transparency in the workings of the KW&SB with regards its Public Procurement Procedures within KW&SB and the “Integrity Pact” in the Greater Karachi Water Supply Scheme Phase-V, Stage-II , 2nd 100 MGD Project K-III.

1(c). National Anticorruption Strategy by Government Anticorruption Agency NAB.

In 2001 Pakistan Government on the advise of Transparency International, initiated preparation of National Anticorruption Strategy, based on NIS Pillars. The project was executed by National Accountability Bureau funded by Dfid, and is based on the wide range of recommendations by all stakeholders and Transparency International Pakistan.

Pakistan’s national integrity system pillars are the executive, the public accountability bodies (the Auditor General’s Department, Public Accounts Committee and the Ombudsman), the anti-corruption agencies and law enforcement, the legal system and judiciary, the Legislature and political system, the media, civil society and the private sector.

NACS has been formulated in three phases, review and assessment phase, develop overarching strategic framework, and the implementation plan for all pillars

Chapter 2 sets out the results of the overall review and assessment, including nature, extent and impact of corruption;

Chapter 3 then outlines the genesis of corruption, and of anti-corruption initiatives, setting out many of the key underlying causes of corruption;

Chapter 4, examines systemic weaknesses within each pillar of the national integrity system, and how they sustain corruption;

Chapter 5 contains the strategy and strategy implementation plan for each pillar of the national integrity.

KPMG were the Consultant of the project, and specially for Transparent Procurement Procedures, they requested assistance of TI Secretariat. KPMG were advised by TI to contact TI Pakistan as we were already active in the Transparent Procurement Procedures.

KPMG then requested TI Pakistan to prepare a detailed proposal for the Transparent Procurement Procedures, which was to be circulated to all stakeholders in Pakistan by National Accountability Bureau.

This is a fact that most award of Procurement Contracts in Pakistan are usually manipulated in favour of a higher Bidder by increasing the lowest bids on account of artificially enhancing of their Bid Prices by unilateral loading additional cost for few clarification/conditions quoted by lowest bidders. Members of Departmental Evaluation Committee under present Tendering System have assumed vast discretionary powers, prescribed under the authority of a clause in evaluation procedure that “Provided that a bid is substantially responsive, the Purchaser may waive any non-conformity or omissions in the bid that does not constitute a material

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deviation”. The decisions under this authority are normally not above criticism and have caused serious problems with regards to Award of Contracts in the past.

TI Pakistan after reviewing most of the international procurement procedures viz. FIDIC, World Bank, Asian Development Bank, African Development Bank, Pakistan Engineering Council, WTO, prepared the proposal for most Transparent Procurement Procedures, in which all the discretionary power are totally eliminated from the Evaluation Criteria, and award decision.

In the 3 days International Workshop held in Islamabad on 19-21 July 2003, TI Pakistan suggestions of the Transparent Procurement Procedures were deliberated by all stakeholders. The participants of the workshop included Businessmen, Educationalists, Government Experts, Consulting Engineers, Contractors, NAB experts, KPMG Consultants, TI Experts from UK, NGOs and many others.

1(d). How TI Pakistan brought change in national Procurement Law.

Application of Integrity Pact.

a) The Integrity Pact in Pakistan was applied in the Selection of Design & Supervision Consultants in KWSB, K-III Project. The Evaluation Criteria for Short Listing was made Transparent by TI Pakistan.

b) In May 2001, to confirm the establishment of the “Integrity Pact” a Workshop was organized by TI-Pakistan for the Karachi Water and Sewerage Board. This Workshop was chaired by the Managing Director and attended by the Deputy Managing Directors, Senior Engineers and Administration, a total of nearly 50-officials of the KW&SB. The Keynote speaker on this occasion was Dr. Michael Wiehen, President TI-Germany, who introduced the Integrity Pact principle and its benefits in establishing Transparency in Procurement within the Karachi Water & Sewerage Board.

c) The other important aspect of application of Integrity Pact in KWSB was that signing of the IP was made mandatory for all Consultants. Till that time, IP has been a voluntary Pact all over the World. Now taking the lead, many TI NCs have made it Mandatory for all Bidders to sign the “Integrity Pact”.

d) After the Short Listing, Evaluation Criteria for the “Letter of Invitation” (LOI) , on two envelop system, Technical and Financial was made Transparent and Discretion-free. Only those Technically Evaluated proposals which scored 75% marks were considered for Financial Evaluation, and the best technical proposal was selected for award of the Contract. The Contract was awarded to the Top ranking Technical Firm on the lowest price quoted by the Top Three Ranking Firms.

e) On 23rd August, 2001, Dr Michael Wiehen specially visited Pakistan and Congratulated the Managing Director and the Coordination Committee of the KWSB on the preparation of a transparent document “Letter of Invitation (LOI)” for short listing of Consultants/Consortiums in a short period. The

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document was commended as not only being transparent but that it included a non-discretionary evaluation criteria.

f) He informed the members present, that the LOI produced by KWSB is probably first of its kind in international bidding and that Transparency International will consider circulating for adoption of this LOI in the other TI-National Chapters. Brig. Muhammad Bahram Khan, Managing Director assured that other documents viz. Contract Agreement, Evaluation of Contractors and Conditions of Contract will also be made Transparent and discretion free, and declared that all forthcoming procurement projects of KWSB will follow the same procedures.

g) Finally based on TI Pakistan Integrity Pact, in July 2002 KW&SB awarded the Consultancy Contract on Rs. 62 Million, at a net saving to KW&SB of nearly Rs.185.5 Million, from the PC-I estimate of Rs. 249 million. The K-II Project which comprised of works of almost the similar volume of work as that of K-III was executed in the years 1993-2001 at Consultancy fee of Rs 180 Million plus US $ 4 million.

h) Techno Consult Pakistan Ltd was awarded the Contract in March 2002. Accordingly the Consultants and KW & SB agreed to follow Transparent Procurement of Contracts as the Consultant Contract Agreement included TI Pakistan Integrity Pact.

i) Transparency International Pakistan executed the first phase of the project in 2002. The Integrity Pact was signed by all participating Consultants and Contractors on the Greater Karachi Water Supply Scheme, Phase-V, Stage-II, 2nd 100 MGD, K-III Project. The TI Pakistan was associated with the KW&SB till the award of the Consultancy Contract and up to and including the prequalification of Contractors. However following the disassociation of Transparency International Pakistan from the project, Brig. Sardar Javed Ashraf Khan the Managing Director of KW&SB whole heartedly supported and continued the process of Transparent Procurement that had been set up by TI Pakistan at the Consultancy Tendering Stage. The Managing Director regularly sought the advise of TI Pakistan on the award of tenders for Transparency and Procedural clarifications. The advise given by TI-Pakistan were normally fully implemented.

j) The Tender process for Procurement Contracts was completed in September 2003 and all major Construction Contracts were awarded at a total Cost of Rs 4448 million. It may be mentioned here that this total cost for award was against the approved PC-I Costs of Rs. 5285 Million with variations of between 31.5% to 8% below the departmental estimates. The whole process which to all intents and purpose was wholly Transparent and in accordance with the spirit of the Integrity Pact, resulted in total saving of 15.83%.

k) This report presents an analysis of the potential monetary benefits of Transparency in Government Procurement and specifically details the success achieved by the “Integrity Pact” and the subsequent Transparency in Procurement of Services and Works on the K-III Water Supply Project up to

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and including the Awards of Contracts for the Consultancy and Construction by the Karachi Water and Sewerage Board, under the Aegis of the Niamatullah Khan Nazim - City District Government Karachi – Pakistan.

l) Benchmarks and standards and a constant monitoring are important for the credibility of any procurement systems. The management of KWSB following Standards prescribed by Pakistan Engineering Council, supported by Transparency International Pakistan, fully implemented Procurement Standards in the process of Tendering of Services and Works. The Project tendering was reorganized into packages, and 18 tenders were combined and reduced to 8 Packages. This arrangement was essential in order to make not only an economical work load for the bidders, to complete the tender Award in the least possible time frame, but to enhance the monitoring capability of the awarded contracts. The total savings on the Scheme has been Rs. 1.024 Billion against approved Cost of Rs. 5.53 Billion. The detailed report is available on TI Pakistan website.

m) This Project has become a role model of Transparent Procurement Procedures. In the Report prepared by the Working Party of the Trade Committee of OECD on the Transparency in Government Procurement: The Benefits of Efficient Governance and orientations for achieving it. TD/TC/WP(2002)31/FINAL www.oecd.org/trade. This Contrcat is reported as one of the project on saving in cost,. Excerpts are quoted below

QuoteTransparent procurement procedures can contribute to a more efficient allocation of resources through increased competition and budgetary savings for governments. Indeed, procurement systems that lack transparency spawn local markets characterised by limited competition, dominant providers and an absence of “best-in-class” suppliers. Costs of goods and services are artificially high and incentives for providers to innovate are non-existent. As a result local markets never thrive.

Conversely, as companies (domestic and foreign) develop confidence in participating in procurement practices, the number of bidders expands, yielding stronger competition. Such increase in competition can bring costs down, improve quality and delivery terms, facilitate innovative approaches to production and improve after sales services and maintenance.

For governments, such efficiencies can directly translate into acquisition of goods and services of better quality and at lower prices to meet national needs. This will enable governments to provide more social services, economic and social infrastructure and other public goods to their citizens. It can furthermore help reducing taxes on the public, which aids development. Box 1 presents some examples of cost-savings achieved through transparent procurement procedures.

Ensuring transparency of government procurement systems also has ramifications beyond the government procurement sector, and can provide a solid foundation for sustained economic growth and development.

By lowering risk, transparent procurement procedures can in fact help attract more investment, and encourage partnership with local companies, which could also underpin future home-driven growth. Considering that the bulk of FDI flows remains confined to developed countries, these developments can be particularly significant

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for developing and emerging economies. Indeed, a transparent government procurement system allows competing enterprises to assess more clearly the costs and benefits for them of particular transactions. They can make more realistic economic investment decisions where public procurement rules are in line with good commercial practice and public accountability requirements. By contrast, risk adverse foreign investors distrust opaque procurement systems, which can discourage capital investment (including joint ventures) for local production of goods and services.

Box 1. Examples of cost-savings under transparent procurement systems

Through the strengthening of transparency and procurement procedures, by e.g. eliminating any tender specifications that favour a particular tender, Guatemala’s Ministry of Health reports savings of 43 percent in the purchasing of medicines1;

The Colombian Ministry of Defence reports generating 47 percent savings in the procurement of military goods through improvement of transparency and procurement procedures2;

Nicaragua had been spending about 17 percent of the health budget on pharmaceuticals. High drug expenditure had resulted from a lack of pricing and drug information and non-transparent procurement procedures. With the establishment of a transparent procurement agency, accompanied by the effective implementation of an essential drug list, the government was able to control drug costs significantly. Within one year, thanks to these measures, the government had reduced its pharmaceutical budget from $21 million to $13 million from 1992-19933;

In Pakistan, an open and transparent bidding process has resulted in savings of more than Rs 187

million (US $3.1m) for the Karachi Water and Sewerage Board4;

After introducing transparent procurement procedures in the energy sector, Bangladesh was able to reduce electricity prices at less than US $0.03 a kilowatt-hour, roughly half the price of directly negotiated deals in Indonesia5.

Unquote

1(e). Motivation for TI Pakistan to take part in the Urbs project

By the time URBS Project was offered by TI to Pakistan in 2004, TI Pakistan was already in process to provide its services to Local Authorities and many public agency for Transparent Public Procurement. A list of Memorandum of Understanding signed with various government departments is attached at Annexure-I.

TI Pakistan has been working with City District Government Karachi, and has made a comprehensive Procurement Manual for CDGK in March 2004. ( website).

The URBS Project suited its most important and nationally recognised on going project of implementing the Transparent Procurement Procedures its has steered.

1 USAID, 1999. 2 USAID, 1999. 3 Cohen, “The LAC Pharmaceutical Region.” 4 Transparency International, 2002.5 Lovei and McKechine, 2000.

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Chapter 2

2(a) Tools and Training Material

The most successful tool of Transparency International Pakistan is Memorandum of Understanding MOU it signs with public procuring agencies. A typical MOU is at Annexure II.

After Signing of the MOU, TI Pakistan prepares Procurement Manual for the procuring g agency and after its is reviewed and discussed with the officers of the procuring agency, it is printed and presented in a ceremony, normally arranged by the procuring agency, to the head of the Procuring Agency, jointly by TI Pakistan and NAB.

The Procurement Manual comprises of all the Standard Bidding Documents on procurement of Works, Goods & Services, based on International Standards, World Bank, FIDIC and Pakistan Engineering Council, duly amended to comply with the Transparent Procurement Procedures, recommended by the National Accountability Bureau in the National Anticorruption Strategy 2002, and fully compliant to the Public Procurement Rules 2004.

TI Pakistan also provides the services to vet all tender document which the Procuring Agency prepares on the basis of Procurement Manual for 3 months w.e.f. the date a directive is issued by the Head of the Procuring Agency. This period is subject to extension on mutually agreed terms.

The 3 days CBT Workshop was held on 19-21 September 2005 at Karachi, based on the Procurement Manual for the Capacity Building and Training of the experts on procurement from various departments.

The Workshop was jointly held with following agencies;

1. Transparency International2. Transparency International Pakistan3. World Bank4. National Accountability Bureau5. Public Procurement Regulator Authority6. Auditor General Pakistan.

In all 35 participants were given the Procurement Manual comprising of 3 volumes, prepared for Pakistan Steel, which is being implemented successfully. The Training material used by the six organisations in the CBT Worksop is available on TI Pakistan website. The participants were awarded Certificate as Certified Trainer and Procurement Specialist.

A Survey of the Workshop was conducted to know the responses of the participants on the advantage of the workshop. The Survey report is at Annexure-III.

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2(b). TRANSPARENT PROCUREMENT PRINCIPLES

Transparency International Pakistan firmly believes that the application of the principles of integrity, transparency and accountability to all decision making on major public investments will maximize the economic, financial, social, environmental and political benefits.

Integrity means that the best available technical expertise is employed in a non-discriminatory manner, that fair and open competition leads to a quality product at a fair price (value for money), and that the product takes into account the legitimate aspirations and concerns of all the stakeholders.

Transparency means that institutions, processes and decisions are made accessible to the public at large or to “representatives” of the public so that processes and decisions can be monitored, reviewed, commented upon and influenced by the stakeholders. It is essential that transparency be created from the very beginning so that potentially every step in the long decision making process related to the construction of a large dam can be influenced in a timely manner, if necessary. In particular the entire process of considering alternative sources of power or water, alternative locations or designs and the environmental and social aspects of the proposed project needs to be carried out in full transparency, for the protection of the people in the project area and of the environment, but also of the integrity and eventual economic justification of the investment. Indeed the assessment should start with questioning the additional power generation capacity or the water flows claimed to be “needed”. Often efforts directed at reducing demand (by better transmission and distribution efficiency or better demand management) or by better time management of water flows can be much more economical and profitable than new major investments.

“Transparency” in this context is not achieved by grudgingly allowing access to some internal documents to selected people. “Transparency” requires that the government or project agency (the “principal”) voluntarily and proactively provide full public information through the print and electronic media about the potential options, plans, designs and programs. Government must also not be allowed to deal separately with individual stakeholder groups, keeping one away from the other.

Accountability means that governments, public (government-owned or –controlled) institutions and individual officials on the one hand, and companies and agents or other individuals acting on behalf of companies on the other hand, must be held strictly accountable for the correct and complete execution of their tasks and duties. Wherever violations of legal or contractual obligations occur, the perpetrator must be taken to task, by disciplinary, contractual and/or criminal sanctions, as appropriate. Laxness in accountability will quickly erode integrity.

2(c). FAIR AND EFFICIENT PROCUREMENTProcurement should be economical. It should result in the best quality of goods and services for the price paid, or the lowest price for the acceptable quality of goods and services; not necessarily the lowest priced goods available; and, not necessarily the absolutely best quality available, but the best combination to meet the particular needs.

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“Price” is usually “evaluated price” – meaning that additional factors such as operating costs, availability of spares, servicing facilities are taken into account.

Contract award decisions should be fair and impartial. Public funds should not be used to provide favours; standards and specifications must be non-discriminatory; suppliers and contractors should be selected on the basis of their qualifications and the merit of their offers; there should be equal treatment of all in terms of deadlines, confidentiality, and so on.

The process should be transparent. Procurement requirements, rules and decision-making criteria should be readily accessible to all potential suppliers and contractors, and preferably announced as part of the invitation to bid. The opening of bids should be public, and all decisions should be fully recorded in writing.

The procurement process should be efficient. The procurement rules should reflect the value and complexity of the items to be procured. Procedures for small value purchases should be simple and fast, but as purchase values and complexity increase, more time and more complex rules will be required to ensure that principles are observed. “Decision making” for larger contracts may require committee and review processes, however bureaucratic interventions should be kept to a minimum.

Accountability is essential. Procedures should be systematic and dependable, and records explaining and justifying all decisions and actions, should be kept and maintained. Competence and integrity in procurement encourages suppliers and contractors to make their best offers and this in turn leads to even better procurement performance. Purchasers who fail to meet high standards of accountability and fairness are quickly identified as poor partners with which to do business.

2(d). The Integrity Pact

The Integrity Pact is an agreement among the government/government agency and the bidders/companies, who participate in the bidding process for the supply of goods or services for a selected contract/project, that bribes will not be offered, granted or sought, both during the bidding process and during implementation of the contract by the successful bidder. The IP has the following main features:

A formal no-bribery commitment by the bidder, as part of the signed tender document, [supported by a company Code of Conduct and a Compliance Program];

A corresponding commitment of the government to prevent extortion and the acceptance of bribes by its officials;

Disclosure of all payments to agents and other third parties; Sanctions against bidders who violate their no-bribery commitment; and An involvement of Civil Society in monitoring the bid evaluation, the award

decision process and the implementation of the contract. Public disclosure of the award decision, including the major elements of the

evaluation and the reasons for the selection of the successful bidder.

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2(e). Why Is Proficient Public Procurement So Important?

Public procurement is the process by which a public agency buy the inputs for vital public-sector investments. Those investments, both in physical infrastructure and in strengthened institutional and human capacities, lay foundations for national development. In procurement terms, those inputs are generally grouped into three categories:

civil works - for example, bridges and buildings, harbours and highways; goods - typically equipment, material and supplies, commodities, textbooks,

medical supplies; and services - expert advice and training, conventionally labelled Technical

Assistance, as well as such things as building maintenance, computer programming, etc.

The quality, timeliness, local appropriateness and affordability of those procured inputs can largely determine whether the public investments will succeed or fail. So the beneficial impact and contribution of the input, particularly in the case of technical assistance services, can exceed their direct costs, by several orders of magnitude. Yet procurement costs can be substantial, consuming scarce resources of tightly constrained government budgets. Often the required funding must be borrowed. Moreover, the process also consumes scarce skilled public-sector human resources. It takes time, not merely for procurement planning and contracting but also for contract supervision and execution. And much of this process is highly visible, as well as controversial, exposing ministers and civil servants to scrutiny and second-guessing for procurement choices they made, deferred or discarded. ( World Bank )

Unquote

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Chapter 3

3 (a). TI Pakistan Recommendation on Transparent Procurement System

Recommendations of TI Pakistan for ensuring Transparency in the Public Procurement Procedures for Procurement of Works, Goods, Equipment, IT and Services were agreed in the Workshop. They are described below.

a) Either the World Bank or PEC Bylaws should be uniformly implemented in all government and semi government departments till such time the PPRA prepares its own Guidelines.

b) For ensuring Transparency and Public Participation, the Transparency International Pakistan’s Tool ‘ Integrity Pact” should be made an integral part of all tenders.

c) For every new project, Public Hearings should be made mandatory for necessity of the project and environmental assessment, prior to concept clearance approval .

d) All Consultancy Contracts except Single Source Selection of the Engineering Expert, should be processed on the Two Envelep System, evaluated on the basis of Technical competence with minimum passing marks of 75%. The Financial Proposals of firms lower than 75% should be returned unopened, the remaining Financial proposals should be publicly opened, and the contract awarded to the lowest bidder.

e) Clients must declare their evaluation reports ten days (10)prior to actual award of the Contract. All objections received from any sector including the competitors shall be examined and a Re-Evaluation if required is carried out and the Contract awarded to the lowest bidder.

f) Evaluation Committees for Pre-qualification and Award of Contracts must include at least two departmental members, and a minimum of three independent experts, (One each from the Pakistan Engineering Council, Institute of Chartered Accountants and FPCCI).

By this time, the result of Integrity Pact on K-III had become International News and was being mentioned as the reference model of Transparent Public Procurement. This became one of the important example quoted all over as the Cost of Corruption.

In the July 19-21, 2002workshop of National Accountability Bureau TI Pakistan proudly presented results of Integrity Pact on K-III. The TI Pakistan recommendations for Transparent Public Procurement were approved by the Stakeholders.

TI Pakistan were requested by KPMG to prepare item by item recommendations for Transparent Public Procurement to be made part of the NACS. The Specific recommendations were made and were incorporated in the Draft Final Report of NACS by KPMG. In September 2002, the NACS was completed and approved by

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Government of Pakistan. www.nab.gov.pk. Public Contracting Excerpts Annexure-IV

Pakistan’s national integrity system pillars are the executive, the public accountability bodies (the Auditor General’s Department, Public Accounts Committee and the Ombudsman), the anti-corruption agencies and law enforcement, the legal system and judiciary, the Legislature and political system, the media, civil society and the private sector.

3(b). Transparency International Efforts for formation of National Agency for Procurement.

The National Anti Corruption Strategy was approved by the Cabinet on 20th September 2002 & 5th October 2002 and its Implementation mechanism was approved by the President of Pakistan on 24th October 2002. The Implementation Committee under the Chairmanship NAB Lt Gen. Muneer Hafiez was formed for its effective implementation.

Prime Minister of Pakistan Mr. Shaukat Aziz, then the Federal Minister for Finance in 2002, invited Transparency International to visit Pakistan to assess the status of the anti-corruption measures taken by GOP and to make recommendations as to where additional efforts could be useful. In response to this invitation, TI sent a small mission comprising Executive Director TIS, Michael H. Wiehen, Member of the Board TI, and Executive Director of TI Pakistan, which visited Islamabad and Lahore from April 18 to 26, 2002. The mission held meetings with almost all the GOP Ministries, and representatives of the business and legal communities.

Amongst many other recommendations, T I Mission recommended to the Government of Pakistan to completely overhaul of the country’s procurement system, institutions and rules and immediate implement the recommendation of the World Bank, pending approval of GOP since 1998, to set up a regulatory Authority Public Procurement Regulatory Authority.

Immediately after the TI Missions visit, the PPRA Ordinance , pending for approval since two years in bureaucratic process, was signed by the President of Pakistan.

PPRA was then persuaded for one and half years by National Accountability Bureau and TI Pakistan with full support of Mr. Shaukat Aziz, the then Finance Minister, to finalize the Public Procurement Rules based on the NACS Recommendations on Transparent Procurement.

Finally On 8th June 2004, Ministry of Finance, GOP issued the Public Procurement Rules 2004 through S.R.O. 432 (I)/2004. Most of the steps of TI Integrity Pact have now been incorporated in Mandatory Rules, and thus the IP has been reduced to one page only. The Public Procurement Rules 2004 are at Annexure-V.

The Vital Rules which have been incorporated in the Public Procurement Rules 2004 as checks and balances for discretion free Procurement Procedures are;

a. Standardization of Procurement Process and Tender Documents, advertise all prequalification or tenders on PSML website and in at least one English & one Urdu

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National Daily Newspaper, Min 15 working days.

b. Provide Prequalification & Tender Documents to bidders which shall includes the detailed evaluation criteria, Bid award method,

c. Signing of Integrity Pact, Rights of bidders for complain on the evaluation report prior to award, Standard Conditions of Contract, Specifications which shall not favour any single contractor or supplier nor put others at a disadvantage.

d. Announcement of the results of bid evaluation in the form of a report giving justification for acceptance or rejection of bids at least ten days prior to the award of procurement contract, and no negotiations with the bidder having submitted the lowest evaluated responsive bid or with any other bidder.

e. Finalizing of the Evaluation Report after examining all complaints.

f. Award of all Contracts to Consultants, Contractors & Suppliers only to the responsive lowest evaluated bidder, and the evaluation report and contract after it is awarded shall be made public.

The NACS includes following action to be monitored/steered by TI Pakistan.

1. Provide further support and impetus for the coalition of multinational/national companies and governments convened to implement the OECD Convention to Combat Bribery of Foreign Public officials. Coalition to meet regularly to determine ways of reducing corruption in procurement (and indeed all government business interactions). Transparency International (TI) embassies, donor agencies and PPRA.

2. Provide guidance to all business to inform their employees abut the tougher anti-bribery arrangements, and the definition of bribery i.e. includes entertainment of officials etc. FPPCI, TI-Pakistan, American Business Council, Overseas Investment, Chamber of Commerce and Industry.

3. All companies operating in Pakistan to have Code of Conduct, Good Governance Corporate policies, including no bribery provisions in conformity with US Foreign Corrupt Practices Act and the OECD Convention etc. FPPCI, TI-Pakistan, American Business Council, Overseas Investment, Chamber of Commerce and Industry

3( b). Lessons learnt, way forward and recommendations

The most relevant aspect of the Capacity Building and Training Workshop was participation of various agencies as Trainers, which is an excellent example of cooperation, as well as confidence these agencies on the expertise of Transparency International Pakistan in the filed of Procurement.

National Accountability Bureau is the highest level of National Anticorruption Agency.Public Procurement Regulatory Authority is the GOP Regulators of Procurement.

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Auditor General Pakistan is the watchdog of GOP on public expenditure.The World Bank is the largest IFI with annual development loans of over US $ 15 Billion per annum.

This was the first Time that the World Bank joined hands with any TI Chapter in procurement project.

As a direct result of the CBT Workshop, the World Bank has requested TI Pakistan to be associated with its forthcoming development Loan of over US $ 160 million for the Sindh Irrigation Ministry. TI Pakistan’s responsibility will be vetting of all the Procurement Documents prepared by the Sindh Irrigation Ministry, and to examine and confirm whether the evaluation reports of various procurement contracts under the loan are complying the requirements of the Evaluation Criteria contained in the respective Bidding Documents.

The Media news paper as well as TV, covered the CBT Workshop in big way, which increased the awareness amongst public on the importance of Transparent Public Procurement, and the role TI Pakistan in implementation of the new procurement law.

Three MOU’s on the application of “Integrity Pact” were signed after the WORKSHOP, with National Bank of Pakistan, Port Qasim, Trading Corporation of Pakistan. TI Pakistan is continuing its efforts to provide expert services for the implementation of Public Procurement Rules 2004 in Pakistan. The other venture of TI Pakistan in this regard is to convince World bank and ADB to apply these rules in their Loan Agreements, as they are more Transparent than their Procurement Procedures.

The most successful example of use of Procurement Manual is the procurement of Refractory Coke by Pakistan Steel.

3(b) How Integrity Pacts helped Generate Market Competition in Pakistan

Procurement of 100,000MT of Flat Battery Produced METALLURGICAL COKE by Pakistan Steel, is a perfect example of Transparent Procurement.

In 2004 TI Pakistan signed the MOU with Pakistan Steel for the application of Integrity Pact and compliance of PPR 2004. TIP prepared " Procurement Manual" for Pakistan Steel which comprises of Bidding Processes, and SBD's for Services, Works, Goods, Equipment and IT.

Transparency International Pakistan has provided the services of procurement experts and all efforts to prepare the Procurement Manual, to the Pakistan Steel Mills – Karachi, without any fee or cost.

TIP also is vetting all the TENDER Documents, which was agreed initially for 3 months, but extended mutually for further period upto end of December 2005. Till date TIP has vetted and amended over 500 tender Documents. Pakistan Steel from time to time also refer special cases of Procurement for advise to confirm application of per PPR 2004.

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Due to lower efficiency of Blast Furnace, Pakistan Steel needed for the first time Metallurgical Coke to enhance the production capacity. The production of Pakistan Steel had been at 25%, due to Major Overhaul needed for Coke Oven Batteries. As the repairs would take many months, Pakistan Steel urgently required Metallurgical Coke, which would enhance the production upto 90%. This item being rarely used, the market inquiry by Pakistan Steel in June 2005, could identify only one supplier, who was quoting US $ 400 per ton. The issue was referred to TI Pakistan to be handled in accordance with Public Procurement Rules 2004. TI Pakistan guided Pakistan Steel and prepared Tender Notice and Tender Documents for them based on the Procurement Manual.

Pakistan Steel was advised to:

1. Advertise the Tender Internationally, in 3 lots, the first for 35,000 Tons.

2 To send the Tender Notice to Pakistan Embassies abroad to contact suppliers there to bid for this product.

On 12th August,2005, 15 Bids were received, opened publicly, and 35,000 Tons Contract was awarded on 12th September 2005 to the Lowest Responsive Bidder, M/s Rag Trading GMBH Germany, at US $ 176 per ton for a total of US $ 6,160,000. The good response was due to the Transparent Tendering which included signing of IP. The process assured the suppliers that the Contract Award will be on Merit and they participated in the bidding process..

In September 2005, Second Tender was also floated for 70,000 Tons, and this time also 15 Bids were received, and Contract Awarded on 7th October 2005 to Lowest Responsive Bidder, M/s Hong Fortune Resources (Energy) China Co. Ltd. at US $ 145 per ton., for a total of . US $ 10,150,000.

Total Cost 16,310,000

The estimated price by Pakistan Steel initially for 105,000 tons was US $ 42 Million.

The award saved Pakistan Steel 60% of the initial estimated cost.

Net saving US $ 25.7 Million. or Rs. 154 Million.

Further procurement of 250,000 Tons of Metallurgical Coke is again being processed on the same procedure. The additional net savings to Pakistan Steel on new Contracts would be over US $ 50 Million or Rs. 300 Million

3(c). Who is active in anti-corruption work in Pakistan.

Most of the International Funding Agencies, UNO, and Local Departments are active in anticorruption work.

Institutions of Anticorruption of Pakistan.

Pakistan comprises if four provinces under Federal Government.

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Provincial Anticorruption Departments are working in the four provinces under the West Pakistan Anti-Corruption Establishment (ACE) Ordinance of September 1961

The National Accountability Bureau under the National Accountability Bureau Ordinance 1999 is the national anticorruption Agency.

Transparency International Pakistan is working in providing reforms in the governance system of Pakistan to Government as well as private sector.

Auditor General Pakistan is the Federal Government Department who is monitoring the public expenditure through annual Audit.

Public Accounts Committee of the National Assembly is monitoring the Corruption through examination of the Audit Reports submitted by the Auditor General Pakistan.

World Bank is one of the IFI which has a detailed procedure of Anticorruption system, and mechanism for the redressal of complains against Fraud & Corrupt practices.

TI Pakistan is closely working with NAB in its anti-corruption awareness campaign, and implementation of NACS recommendations. TI Pakistan campaign on the implementation of Transparent Public Procurement Procedures is also supported by NAB, who are in fact associated in application of TI Model Procurement Manual.

3(d) Why such large number of Bidders Participated in the Tendering Process

The reason for this saving is that Tender terms was prepared on the International Standards as per SBD's of WB, FIDIC, & PEC, including IP, and evaluation report to be given to bidders for submitting objections prior to award of contract.

Suppliers felt confident that the award of contract will be on merit. All serious bidders participated. Secondly the Tender Notice was widely Advertised in the Pakistani News papers, Pakistan Steel Website, PPRA website, and Pakistan Embassies also advertised it in foreign countries.

3(e). Lesson Learned From This Procurement

In 3 Months and 11 Days, the Procurement Process was completed, Tender Advertised, Contract Awarded, and the Material supplied to Pakistan Steel. This could have happened only due to Transparent Procurement Procedures, which Included signing of the Integrity Pact by the Contractor. The strength of Procurement Manual is in award of Contract within 45 days once the tenders have been opened.

The Tenders were Invited on 1st July 2005. Contract for First Consignment was Awarded on 12th September 2005, and the Supply reached Karachi Port on 11th October 2005. On 18 October 2005 the News published in Daily dawn quoted below confirms that Pakistan Steel production has again reached 90% due to arrival of the Coke.

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Daily Dawn October 18, 2005

Pakistan Steel cuts prices

KARACHI, Oct 17: Pakistan Steel has further slashed the prices of its products with immediate effect to facilitate reconstruction in the earthquake hit areas and discourage dumping of sub-standard imported steel products in the country.

The prices of its cold rolled and galvanized materials were reduced by Rs1,000 per ton. Besides, the prices of billets used for making construction bars had also been cut by Rs750 per ton, says a PS statement here on Monday.

Pakistan Steel had earlier reduced the prices of hot rolled coils by Rs2,500 per ton just a couple of weeks ago.

With the import of coke, Pakistan Steel was again in full production gear running at capacity of over 90 per cent. Thus, PS would be able to continue supply of essential long and flat products including pig iron.—APP

3(f). CHECK LIST BIDDING PROCESS PRESCRIBED BY PUBLIC PROCUREMENT RULES 8 JUNE 2004 S.R.O. 432 (I)/2004 BY GOVERNMENT OF PAKISTAN FINANCE DIVISION

A Checklist is prepared for Procuring Agency on the compliance of Procurement Rules. This list will enable the approving authority to award the contracts confidently.

Item No.

Description of Procurement Process

Compliance Deviation if any, and reference no. of the prior approval o procuring agency for exemption.

1 1. Lowest evaluated responsive bidder(proposed for contract award)

(a) Name

b) Address

2 Estimated date (date, month, year) of contract signing.

3 Estimated completion period.4 Bid Price(s) (Read-out)5 Effect of Corrections for Errors6 Effect of Other Adjustments7 Proposed Contract Price for

Award 8 Tender/Prequalification

Advertisement Publication DateDate of Publication

9 Date of tender opening Min 15 working days for Local tenders and

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30 working days for International Tenders

10 Pakistan Engineering Council Guidelines for Prequalification of Contractors, Invitation of Tender, Short listing of Consultants and Invitation of Proposals amended to comply with Public Procurement Rules 2004 are to be used.

11 Integrity Pact12 The Evaluation Criteria and Sub

Criteria is to be disclosed in advance to the Bidders in the Bid Documents.

Reference Page No. of the Evaluation Criteria in the Bid Document

13 Evaluation of bids.- All bids shall be evaluated in accordance with the evaluation criteria and other terms and conditions set forth in the prescribed bidding documents. No evaluation criteria shall be used for evaluation of bids that had not been specified in the bidding documents.

14 Method of Procurements, for Consultancy, Works and Equipment.

Lowest Evaluated Bidder is to be Awarded the Contract

PPR Definition No. (d) “contractor” means a person, consultant, firm, company or an organization who undertakes to supply goods, services or works;

(a) single stage – one envelope procedure.-

(b) single stage – two envelope procedure.-

(c) two stage bidding procedure.-

(d) two stage - two envelope bidding procedure.-

15 The Evaluation Report giving reasons for selection to be made public for 10 days before award. All objections shall be acknowledged, examined by the same evaluation committee in 5 days, and the Evaluation Report be Finalized for award.

Evaluation Reports declared to Bidders and Final Evaluation

1.Date of declaration of Evaluation Report.

2.Nos of objections received,

3. Any change in the original Evaluation Report and reasons.

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Report to be Attached.

16 Rule No. 48. Redressal of grievances by the procuring agency.- (1) The procuring agency shall constitute a committee comprising of odd number of persons, with proper powers and authorizations, to address the complaints of bidders that may occur prior to the entry into force of the procurement contract.

(2) Any bidder feeling aggrieved by any act of the procuring agency after the submission of his bid may lodge a written complaint concerning his grievances not later than fifteen days after the announcement of the bid evaluation report under rule 35.

(3) The committee shall investigate and decide upon the complaint within fifteen days of the receipt of the complaint.

(4) Mere fact of lodging of a complaint shall not warrant suspension of the procurement process.

(5) Any bidder not satisfied with the decision of the committee of the procuring agency may lodge an appeal in the relevant court of jurisdiction.

17 Limitation on negotiations.- Save as otherwise provided there shall be no negotiations with the bidder having submitted the lowest evaluated bid or with any other bidder:

Provided that the extent of negotiation permissible shall be subject to the regulations issued

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by the PPRA18 Re-bidding.- (1) If the

PROCURING AGENCY has rejected all tenders and reinvaded Tenders. Then;

(2) PROCURING AGENCY before invitation for re-bidding shall assess the reasons for rejection and may revise specifications, evaluation criteria or any other condition for bidders as it may deem necessary.

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Chapter 4

4(a). Conclusion

The TI Pakistan Experience confirms that IP allows procurement to be based on Standard Biding Documents acceptable to International Standards, and generates healthy Market Competition and Contract is awarded to the most experienced, competent and lowest responsive evaluated bidder in the shortest possible time.

4 (b). Monitoring of “ Integrity Pact”

The monitoring mechanism under the Integrity Pact contained in the Public Procurement Rules 2004 is a peculiar system evolved by TI Pakistan.

The monitoring is an on going process by the civil society, Anti corruption Agency, and the bidders.

a. During the award process, as the Evaluation Report is provided to all the bidders 10 days before the Award, the checks are made by the competitors, who are the technically most competent to examine the recommendations, and reasons of not awarding to them. This act also prevent evaluators to either manipulate the award, or to commit any mistake in the evaluation process.

b. After the Award of Contract, the Contract Documents as well as the Evaluation Report is to be made public, if website is available, then on the website of the procuring agency. The civil society watchdogs will monitor the Contract and its physical implementation and raise questions when ever they find substandard works.

c. The Contract Document on website also provide opportunity to bidders to know the contract rates, and if they are very high, the bidders will be interested in participation of future tenders.

d. The anticorruption agencies will have ready access to the evaluation report and Contract, and on receiving any complaint, they will be able to check the process without waste of time in securing the documents.

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Annexure IProcurement Manual Prepared for following Public/Local Bodies

1. City District Government-Karachi on 22nd day of March, 2003. www.karachicity.gov.pk

2. Pakistan Telecommunication Company Ltd.

3. Pakistan Steel Mills Limited on 16th June, 2004.www. pakistansteel.gov.pk

4. Pakistan International Airlines on 10th June, 2005. www.piac.org.pk

5. Port Qasim Authority on 20 April 2006

6. National Bank of Pakistan 30 March 2006

7. Central Board of Revenue on 11th October, 2005

8. Trading Corporation of Pakistan on 25 April 2006

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Annexure-II

Activity:

Capacity Building and Training on Procurement: Train the Trainers Workshop, 19th -21st September 2005, Karachi, Pakistan

Subject: Results of Participants’ Evaluation Questionnaire

Evaluating the main activities of the present project as an ongoing effort is key to providing

important feedback to the project’s organisation and overall delivery. Evaluation of this Capacity Building and Training Workshop was done through the preparation and distribution of a participants’ questionnaire. Of the 35 participants attending, completed questionnaires of 26 participants were collected. The following summarises the responses.

Participation

The workshop met its goal of attracting about 20 participants. About 50% of the participants represented State owned enterprises while the remaining 50% was split between national and local government representatives. TI Pakistan and some journalists also participated. The participation/target audience was appropriate to the objectives of the Workshop, i.e. to train the trainers.

There was a significant gender imbalance with only two participants being women. However, the age distribution of participants was good with the majority ranging between 30 and 60.

Most participants said they participated to learn amore about transparent public procurement procedures and how Pakistan’s law in particular the PPRA can be implemented effectively.

Workshop Contents

Participants felt that the workshop had adequately covered issues such as how corruption in public contracting operates and can be prevented, international and regional norms and guidelines for preventing corruption in public contracting and procurement, state obligations and case studies on public procurement law and policy implementation, and characteristics of corruption in public contracting and risks of corruption in Pakistan. Overall, participants assessed that “current and future needs for capacity building and training on reforming public procurement practices” were covered best.

Project Preventing Corruption in Public Contracting: Capacity Building and Networking for Civil Society and Local Governments

27

Participants responded that the information, best practices and specific tools presented were useful (14) or very useful (11). Specifically, participants viewed the following discussions useful:

Tools to promote transparency and prevent corruption in public procurement useful; Information Disclosure;

Information about existing laws on public procurement in Pakistan such as the PPRA and about international rules and procures presented by the World Bank;

Integrity Pacts; Bid evaluation and evaluation criteria; How to raise public awareness.

Participants also identified some issues for further discussion and follow-up: Case studies and sector specific issues Prequalification of Bidders/suppliers; Monitoring and ensuring effective implementation - who is the watch dog?; How to consolidate/synchronise/work with varying different public procurement rules

(PPRA, OEC and World Bank). Procurement - IT related rules, software/hardware; How local conditions effect corruption in procurement Non-financial corruption How to evaluate bids Resolution of disputes Negotiations and drafting of specifications How to strengthen grass roots level

A number of participants felt that further training on the above issues would be welcomed. Some stated that the present workshop should be conducted throughout Pakistan.

Participants unanimously responded that they support the cross-sectoral coalition and partnership building among stakeholders in their country. Factors preventing this include institutional bureaucracy, bureaucratic attitudes, vested interests, and lack of coordination, common interests, confidence and interaction.

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Overall Workshop Evaluation

Generally participants agreed that the Workshop had successfully met its objectives in terms of increasing public awareness and deepening understanding of corruption in public contracting and of adapting useful tools to help ensure implementation of Public Procurement Rules. More than 50% of participants responded that workshop interaction and participatory discussions were excellent.

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Annexure III

TRANSPARENCY INTERNATIONAL PAKISTANStrives to build a better country to live in

MEMORANDUM OF UNDERSTANDING

This Memorandum of Understanding is signed on the 10th day of June 2005 between Transparency International Pakistan (TIP) and the Pakistan International Airlines (PIA) for the Implementation of the “Integrity Pact” and Transparency in its Procurement Systems.

Transparency International, is a non-governmental organisation, dedicated to government accountability, and curbing the international and national corruption. Through over 98 independent National Chapters, Transparency International bring together people of integrity in civil society, business and government, to work as coalitions for Systemic reforms. Transparency International do not “ name names” or attack individuals or investigate, but focus on building systems that combat corruption.

Transparency International national chapter Transparency International Pakistan aims at Building a coherent National Integrity System, to institutionalize efforts to curb corruption. The ultimate goal of this system is to make corruption a “high risk” and “ low return” undertaking. It is designed to prevent corruption from occurring in the first phase, rather than resting on punishment after the event. Because corruption tends to be the result of SYSTEMATIC failures. The primary emphasis of Transparency International Pakistan is on reforming the system, rather than blaming the individuals.

The “Integrity Pact” is an Integral Part of the National Accountability Bureau initiative towards Shafaff Pakistan, the National Anti Corruption Strategy approved by the Cabinet on 20th September 2002 & 5th October 2002, its Implementation mechanism approved by the President 24th October 2002. The Integrity Pact is a tool developed by Transparency International, which ensures that all activities and decisions of public offices are transparent and that the projects/works are implemented, services are provided or taken, and goods/materials are supplied without giving taking or allowing for any kind of benefit, financial or otherwise. Justification of the decisions taken is provided without discrimination to all parties concerned or to any individual or institution/organization.

Considering that all Companies and Organizations in Pakistan share a responsibility to combat bribery in all forms and manifestations, it is agreed;

That Public Procurement Rules 2004 are applicable in PIA including “Integrity Pact” prescribed by PPRA.

To sign this Memorandum of Understanding between Transparency International Pakistan (TI-Pakistan) and the Pakistan International Airlines

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(PIA) for the Implementation of the “Integrity Pact” and Transparency in its Procurement Systems.

That PIA along with TI-Pakistan will work jointly for the implementation of the PEC & World Bank SBDs which is a recommendation of the NACS, and those recommendations in the NACS involving Transparency in procurement, and Public Procurement Rules 2004 .It is also agreed that the PIA will establish an accountability in all its dealings and try to provide all the necessary Checks and Balances in its effort towards a Transparent Procurement System .

A Coordination Committee of PIA & TIP members will be formed. to implement “Integrity Pact” and Transparency in its Procurement Systems.

The Coordinating Committee.

This committee to be set up by PIA, shall consist of a three members comprising Officials of PIA, with responsibilities related to Law, Finance and Technical (Procurement & Contracts) Departments. and two Representative of TI-Pakistan. The Secretary General TI Pakistan shall act as its Chairman.

The Coordinating Committee will:

1. Identify and list all issues of transparency and evaluation of tenders criteria in the procurement bidding documents, including the discretionary conditions of exiting in the contract documents and make the necessary changes where necessary..

2. Prepare ways and means to be included in Contract Documents to eliminate/reduce delays to a bare minimum (Time base decisions with predictable milestones) and in approvals by providing mandatory time frames for submittals by consultants/contractors and approvals by client/consultants.

3. Introduce approval systems to process and award contracts, as well as complete the Projects at the most economical cost and within the scheduled time.

4. Incorporate the Directives of the NACS & PPRA with regards to Procurement and Contracting.

Herein after it is agreed that;

All important decisions be made public.

Information on all important activities including auditor's report should be made easily accessible to all.

PIA will periodically make public their sources of income and revenues.

PIA has the responsibility to inform the local public and all interested individuals / institutions / organizations / Vendors and others about the activities carried out under this Agreement.

In accordance with the proposed Pact, Transparency International Pakistan will provide experts’ services for 3-months beginning from June 2005, which may be renewed on mutual understanding.

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Team of Experts of TI Pakistan and PIA will prepare “PIA Procurement Manual’.

The “PIA Procurement Manual” will comprise of all the Standard Bidding Documents on procurement of Works, Goods & Services, based on International Standards, World

Bank, FIDIC and Pakistan Engineering Council, duly amended to comply with the Transparent Procurement Procedures, recommended by the National Accountability Bureau in the National Anticorruption Strategy 2002, and fully compliant to the

Public Procurement Rules 2004.

TIP agree to vet all tender document of which PIA prepares on the basis of Procurement Manual for 3 months w.e.f . the date a directive is issued by the President of National Bank.

PIA will hold a press conference/seminar to declare application of PIA Procurement Manual.

TIP under its charter will not participate in the PIA tendering process in any capacity, not even as observer.

Transparency International Pakistan will provide experts’ services to PIA without any cost to the PIA .

That all information relevant to providing Transparency Procurement procedures shall be provided to the Coordination Committee by the PIA and all its related departments. It shall include documents which are in addition to those that are allowed under the Freedom of Information. Ordinance 2002.

That in case the PIA fails to carry out the above agreed-upon recommendations Transparency International Pakistan has the right to withdraw from this Memorandum of Understanding and declare the same through a public announcement. Such withdrawal shall be effective 30-days after the date of the receipt of a notification given by TI-Pakistan to the PIA to this effect.

Tariq KirmaniChairmanPakistan International Airlines (PIA)

Syed Adil Gilani,Vice Chairman,Transparency International Pakistan

Saad RashidProject AdvisorTransparency International Pakistan

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Annexure-IV

The following are some of the Major Guidelines for Development, Procurement and Contracting as recommended by the NACS.

Systemicweakness

Proposed strategy Proposed measures Responsibility

Failures inmechanisms toensure sounduse ofdevelopmentfunds

Introducewider participationand transparencyin developmentprocess

Development projects to bebased on independentcommunity needs assessmentwith broad local publicparticipation

All tiers of LocalGovernment

Laid down requirements fordetails of all projects to bemade public at planningstage, either in localcommunity (local projects) ofin the media(national projects)Aid agencies and International

All concernedorganizations

Tenures to be fixed for ProjectDirectors. In case of shortduration projects of untothree years, posting for theentire project period. Forprojects of longer duration,there must be criteria ofminimum three years

All concernedorganizations

Lack of clearstandardcoherent andtransparent setof laws andprocedures

Create standard,coherent andtransparent set oflaws andprocedures

Either the Pakistan Quick with GoPEngineering Council (PEC)byelaws of the World Bankguidelines should beuniformly implemented untilsuch time the PublicProcurement RegulatoryAuthority prepares its ownlaws and procedures

GoP

Procurementrules andpracticesoutdated, anti-competitive,non-transparent

Ensure that new law and proceduresfacilitate faircompetition,transparency andpublic participation

High value and high profileprocurements in particular,above Rs. 5 Million forprocurement of services, andover Rs. 50 Million forprocurement of works, goodsand equipment, to be basedon Integrity Pacts. These shallserve as model for inclusionin law

All concernedorganizations

All consultancy contractsExcept single source selectionof engineering experts, shouldbe processed on the twoenvelope system, evaluated onthe basis of technicalcompetence with minimumpassing marks of 75%. Thefinancial proposals of firmslower than 75% should bereturned unopened, theremaining financial proposalsshould be publicly openedand the contract awarded tothe lowest bidder.

PPRA

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Project specifications to bewidely publicized/circulated/advertised with definedminimum period beforeinvitations to bid

PPRA

Bill of Quantity (BOQ) Formatrequires change, to includebreakdown against each BOQitem cost of material,equipment, labour &overhead costs

PPRA

Evaluations should be onpre-determined andpre-publicized criteria

Evaluation committees forprocurement over definedamount should includemembers of civil society, forexample from Institute ofChartered Accountants, PECand FPCCI

Evaluation reports should bemade public, e.g. by placingon website or locally by theclients 10 days prior to awardof contracts to invite anyobjections from any sector forthe purpose of making anyre-evaluation, if needed

Introduce standard systems of required documentation,reasons for decisions andprocedures for audit

Foreign governments,multinational/nationalcompanies anddonor agenciesencourage orfail to preventcorruption

Build thewillingness,capacity andconfidence of thegovernments/multinational/donor agencies tofight corruption

All companies operating inPakistan to have Code ofConduct, Good GovernanceCorporate policies, includingno bribery provisions inconformity with US ForeignCorrupt Practices Act and theOCD Convention etc.

TransparencyInternationalembassies,donor agenciesand PPRA

Provide guidance to allbusinesses to inform theiremployees about the tougheranti-bribery arrangements, andthe definition of bribery i.e.includes entertainment ofofficials etc.

FPCCI, TIPakistan,AmericanBusiness Council,OverseasInvestment,Chamber ofCommerce andIndustry

All companies operating inPakistan to have Code ofConduct, Good GovernanceCorporate policies, includingno bribery provisions inconformity with US ForeignCorrupt Practices Act and theOECD Convention etc.

FPCCI, TIPakistan,AmericanBusiness Council,OverseasInvestment,Chamber ofCommerce andIndustry

Honest biddersdissuaded from

Reform proceduresand practices to

GoP to put in placearrangements to guarantee

PPRA, Ministryof Finance

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bidding incentives widergroup of bidders

swift payment of consultants,contractors invoicesIntroduce system of milestonepayment release system, i.e.opening of local Letter ofCredit (LC), and developmentfunds for projects should beplaced with Bank for openingof LC for full duration ofProject

PPRA, MinistryOf Finance

Effective system forblacklisting corruptcontractors

PPRA, Ministryof Finance

Projects offeropportunitiesfor corruptionand fail to meetdevelopmentneeds

StrengthenFunctionalspecialization andprofessionalism intechnical/developmental areas

Ensure all projects planned,and payments made, on thebasis of milestones andoutputs

PPRA,

In key technical/developmental depts., amendservice laws to provide forcontinuity of professionalofficers on projects and intechnical departments andprevent rotation to differentdept; technical depts. to beheaded by technicalprofessionals

Ministry of Law,Ministry ofFinance,EstablishmentDivision andProvincialGovernments

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Annexure-V

PUBLIC PROCUREMENTRULES, 2004

36

Part-II

STATUTORY NOTIFICATION (S.R.O.)

GOVERNMENT OF PAKISTANFINANCE DIVISION

(Admn. And Coord. Wing)

NOTIFICATION

Islamabad, the 8th June, 2004

S.R.O. 432 (I)/2004.-- In exercise of the powers conferred by section 26 of the Public Procurement Regulatory Authority Ordinance, 2002 (XXII of 2002), the Federal Government is pleased to make the following rules, namely:-

1. Short title and commencement.- (1) These rules may be called the Public Procurement Rules, 2004.(2) They shall come into force at once.

GENERAL PROVISIONS

2. Definitions.- (1) In these rules, unless there is anything repugnant in the subject or context,-

(a) “bid” means a tender, or an offer, in response to an invitation, by a person, consultant, firm, company or an organization expressing his or its willingness to undertake a specified task at a price;

(b) “bidder” means a person who submits a bid;

(c) “competitive bidding” means a procedure leading to the award of a contract whereby all the interested persons, firms, companies or organizations may bid for the contract and includes both national competitive bidding and international competitive bidding;

(d) “contractor” means a person, consultant, firm, company or an organization who undertakes to supply goods, services or works;

(e) “contract” means an agreement enforceable by law;

(f) “corrupt and fraudulent practices” includes the offering, giving, receiving, or soliciting of any thing of value to influence the action of a public official or the supplier or contractor in the procurement process or in contract execution to the detriment of the procuring agencies; or misrepresentation of facts in order to influence a procurement process or the execution of a contract, collusive practices among bidders (prior to or after bid submission) designed to establish bid prices at artificial, non-competitive levels and to deprive the procuring agencies of the benefits of free and open competition and any request for, or solicitation of anything of value by any public official in the course of the exercise of his duty;

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(g) “emergency” means natural calamities, disasters, accidents, war and operational emergency which may give rise to abnormal situation requiring prompt and immediate action to limit or avoid damage to person, property or the environment;

(h) “lowest evaluated bid” means,-(i) a bid most closely conforming to evaluation criteria and other

conditions specified in the bidding document; and(ii) having lowest evaluated cost;

(i) “Ordinance” means the Public Procurement Regulatory Authority Ordinance, 2002 (XXII of 2002);

(j) “repeat orders” means procurement of the same commodity from the same source without competition and includes enhancement of contracts;

(k) “supplier” means a person, consultant, firm, company or an organization who undertakes to supply goods, services or works; and

(l) “value for money” means best returns for each rupee spent in terms of quality, timeliness, reliability, after sales service, up-gradeability, price, source, and the combination of whole-life cost and quality to meet the procuring agency’s requirements.

(2) The expressions used but not defined in these rules shall have the same meanings as are assigned to them in the Ordinance.

3. Scope and applicability.- Save as otherwise provided, these rules shall apply to all procurements made by all procuring agencies of the Federal Government whether within or outside Pakistan.

4. Principles of procurements.- Procuring agencies, while engaging in procurements, shall ensure that the procurements are conducted in a fair and transparent manner, the object of procurement brings value for money to the agency and the procurement process is efficient and economical.

5. International and inter-governmental commitments of the Federal Government.- Whenever these rules are in conflict with an obligation or commitment of the Federal Government arising out of an international treaty or an agreement with a State or States, or any international financial institution the provisions of such international treaty or agreement shall prevail to the extent of such conflict.

6. Language.- (1) All communications and documentation related to procurements of the Federal Government shall either be in Urdu or English or both. Except where a procuring agency is situated outside the territories of Pakistan and procurements are to be made locally, the procuring agency may use the local language in addition to Urdu or English.(2) Where the use of local language is found essential, the original documentation shall be in Urdu or English, which shall be retained on record; for all other purposes their translations in local language shall be used: Provided that such use of local language ensures maximum economy and efficiency in the procurement.

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(3) In case of the dispute reference shall be made to the original documentation retained on record.

7. Integrity pact.- Procurements exceeding the prescribed limit shall be subject to an integrity pact, as specified by regulation with approval of the Federal Government, between the procuring agency and the suppliers or contractors.

PROCUREMENT PLANNING8. Procurement planning.- Within one year of commencement of these rules, all procuring agencies shall devise a mechanism, for planning in detail for all proposed procurements with the object of realistically determining the requirements of the procuring agency, within its available resources, delivery time or completion date and benefits that are likely to accrue to the procuring agency in future.

9. Limitation on splitting or regrouping of proposed procurement.- Save as otherwise provided and subject to the regulation made by the Authority, with the prior approval of the Federal Government, a procuring agencies shall announce in an appropriate manner all proposed procurements for each financial year and shall proceed accordingly without any splitting or regrouping of the procurements so planned. The annual requirements thus determined would be advertised in advance on the Authority’s website as well as on the website of the procuring agency in case the procuring agency has its own website.

10. Specifications.- Specifications shall allow the widest possible competition and shall not favour any single contractor or supplier nor put others at a disadvantage. Specifications shall be generic and shall not include references to brand names, model numbers, catalogue numbers or similar classifications. However if the procuring agency is convinced that the use of or a reference to a brand name or a catalogue number is essential to complete an otherwise incomplete specification, such use or reference shall be qualified with the words “or equivalent”.

11. Approval mechanism.- All procuring agencies shall provide clear authorization and delegation of powers for different categories of procurement and shall only initiate procurements once approval of the competent authorities concerned has been accorded.

PROCUREMENT ADVERTISEMENTS

12. Methods of advertisement.- (1) Procurements over forty thousand rupees and up to the limit of one million rupees shall be advertised on the Authority’s website in the manner and format specified by regulation by the Authority from time to time. These procurement opportunities may also be advertised in print media, if deemed necessary by the procuring agency.

(2) All procurement opportunities over one million rupees should be advertised on the Authority’s website as well as in other print media or newspapers having wide circulation. The advertisement in the newspapers shall principally appear in at least two national dailies, one in English and the other in Urdu.

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(3) In cases where the procuring agency has its own website it may also post all advertisements concerning procurement on that website as well.

(4) A procuring agency utilizing electronic media shall ensure that the information posted on the website is complete for the purposes for which it has been posted, and such information shall remain available on that website until the closing date for the submission of bids.

13. Response time.- (1) The procuring agency may decide the response time for receipt of bids or proposals (including proposals for pre-qualification) from the date of publication of an advertisement or notice, keeping in view the individual procurement’s complexity, availability and urgency. However, under no circumstances the response time shall be less than fifteen working days for national competitive bidding and thirty working days for international competitive bidding from the date of publication of advertisement or notice. All advertisements or notices shall expressly mention the response time allowed for that particular procurement along with the information for collection of bid documents which shall be issued till a given date, allowing sufficient time to complete and submit the bid by the closing date:

Provided that no time limit shall be applicable in case of emergency.

(2) The response time shall be calculated from the date of first publication of the advertisement in a newspaper or posting on the web site, as the case may be.

(3) In situations where publication of such advertisements or notices has occurred in both electronic and print media, the response time shall be calculated from the day of its first publication in the newspapers.

14. Exceptions.- It shall be mandatory for all procuring agencies to advertise all procurement requirements exceeding forty thousand rupees. However under following circumstances deviation from the requirement is permissible with the prior approval of the Authority,-

(a) the proposed procurement is related to national security and its publication could jeopardize national security objectives; and

(b) the proposed procurement advertisement or notice or publication of it, in any manner, relates to disclosure of information, which is proprietary in nature or falls within the definition of intellectual property which is available from a single source.

PRE-QUALIFICATION, QUALIFICATION AND DIS-QUALIFICATION OF SUPPLIERS AND CONTRACTORS

15. Pre-qualification of suppliers and contractors.- (1) A procuring agency, prior to the floating of tenders, invitation to proposals or offers in procurement proceedings, may engage in pre-qualification of bidders in case of services, civil works, turnkey projects and in case of procurement of expensive and technically complex equipment to ensure that only technically and financially capable firms having adequate managerial capability are invited to submit bids. Such pre-

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qualification shall solely be based upon the ability of the interested parties to perform that particular work satisfactorily.(2) A procuring agency while engaging in pre-qualification may take into consideration the following factors, namely:-

(a) relevant experience and past performance; (b) capabilities with respect to personnel, equipment, and plant;(c) financial position;(d) appropriate managerial capability; and(e) any other factor that a procuring agency may deem relevant, not inconsistent with these rules.

16. Pre-qualification process.- (1) The procuring agency engaging in pre-qualification shall announce, in the pre-qualification documents, all information required for pre-qualification including instructions for preparation and submission of the pre-qualification documents, evaluation criteria, list of documentary evidence required by suppliers or contractors to demonstrate their respective qualifications and any other information that the procuring agency deems necessary for pre-qualification.

(2) The procuring agency shall provide a set of pre-qualification documents to any supplier or contractor, on request and subject to payment of price, if any.

Explanation.- For the purposes of this sub-rule price means the cost of printing and providing the documents only.(3) The procuring agency shall promptly notify each supplier or contractor submitting an application to pre-qualify whether or not it has been pre-qualified and shall make available to any person directly involved in the pre-qualification process, upon request, the names of all suppliers or contractors who have been pre-qualified. Only suppliers or contractors who have been pre-qualified shall be entitled to participate further in the procurement proceedings.(4) The procuring agency shall communicate to those suppliers or contractors who have not been pre-qualified the reasons for not pre-qualifying them.

17. Qualification of suppliers and contractors.- A procuring agency, at any stage of the procurement proceedings, having credible reasons for or prima facie evidence of any defect in supplier’s or contractor’s capacities, may require the suppliers or contractors to provide information concerning their professional, technical, financial, legal or managerial competence whether already pre-qualified or not:

Provided that such qualification shall only be laid down after recording reasons therefore in writing. They shall form part of the records of that procurement proceeding.

18. Disqualification of suppliers and contractors.- The procuring agency shall disqualify a supplier or contractor if it finds, at any time, that the information submitted by him concerning his qualification as supplier or contractor was false and materially inaccurate or incomplete.

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19. Blacklisting of suppliers and contractors.- The procuring agencies shall specify a mechanism and manner to permanently or temporarily bar, from participating in their respective procurement proceedings, suppliers and contractors who either consistently fail to provide satisfactory performances or are found to be indulging in corrupt or fraudulent practices. Such barring action shall be duly publicized and communicated to the Authority:

Provided that any supplier or contractor who is to be blacklisted shall be accorded adequate opportunity of being heard.

METHODS OF PROCUREMENT20. Principal method of procurement.- Save as otherwise provided hereinafter, the procuring agencies shall use open competitive bidding as the principal method of procurement for the procurement of goods, services and works.

21. Open competitive bidding.- Subject to the provisions of rules 22 to 37 the procuring agencies shall engage in open competitive bidding if the cost of the object to be procured is more than forty thousand rupees.

22. Submission of bids.- (1) The bids shall be submitted in a sealed package or packages in such manner that the contents are fully enclosed and cannot be known until duly opened.(2) A procuring agency shall specify the manner and method of submission and receipt of bids in an unambiguous and clear manner in the bidding documents.

23. Bidding documents.- (1) Procuring agencies shall formulate precise and unambiguous bidding documents that shall be made available to the bidders immediately after the publication of the invitation to bid.(2) For competitive bidding, whether open or limited, the bidding documents shall include the following, namely:-

(a) invitation to bid;

(b) instructions to bidders;

(c) form of bid;

(d) form of contract;

(e) general or special conditions of contract;

(f) specifications and drawings or performance criteria (where applicable);

(g) list of goods or bill of quantities (where applicable);

(h) delivery time or completion schedule;

(i) qualification criteria (where applicable);

(j) bid evaluation criteria;

(k) format of all securities required (where applicable);

(l) details of standards (if any) that are to be used in assessing the quality of goods, works or services specified; and

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(m) any other detail not inconsistent with these rules that the procuring agency may deem necessary.

(3) Any information, that becomes necessary for bidding or for bid evaluation, after the invitation to bid or issue of the bidding documents to the prospective bidders, shall be provided in a timely manner and on equal opportunity basis. Where notification of such change, addition, modification or deletion becomes essential, such notification shall be made in a manner similar to the original advertisement.(4) Procuring agencies shall use standard bidding documents as and when notified by regulation by the Authority:

Provided that bidding documents already in use of procuring agencies may be retained in their respective usage to the extent they are not inconsistent with these rules, and till such time that the standard bidding documents are specified by regulations.(5) The procuring agency shall provide a set of bidding documents to any supplier or contractor, on request and subject to payment of price, if any.

Explanation.- For the purpose of this sub-rule price means the cost of printing and providing the documents only.

24. Reservations and preference.- (1) Procuring agencies shall allow all prospective bidders to participate in procuring procedure without regard to nationality, except in cases in which any procuring agency decides to limit such participation to national bidders only or prohibit participation of bidders of some nationalities, in accordance with the policy of Federal Government.(2) Procuring agencies shall allow for a preference to domestic or national suppliers or contractors in accordance with the policies of the Federal Government. The magnitude of price preference to be accorded shall be clearly mentioned in the bidding documents under the bid evaluation criteria.

25. Bid security.- The procuring agency may require the bidders to furnish a bid security not exceeding five per cent of the bid price.

26. Bid validity.- (1) A procuring agency, keeping in view the nature of the procurement, shall subject the bid to a bid validity period.(2) Bids shall be valid for the period of time specified in the bidding document.(3) The procuring agency shall ordinarily be under an obligation to process and evaluate the bid within the stipulated bid validity period. However under exceptional circumstances and for reason to be recorded in writing, if an extension is considered necessary, all those who have submitted their bids shall be asked to extend their respective bid validity period. Such extension shall be for not more than the period equal to the period of the original bid validity.(4) Bidders who,-

(a) agree to extension of their bid validity period shall also extend the validity of the bid bond or security for the extended period of the bid validity;

(b) agree to the procuring agency’s request for extension of bid validity period shall not be permitted to change the substance of their bids; and

(c) do not agree to an extension of the bid validity period shall be allowed to withdraw their bids without forfeiture of their bid bonds or securities.

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27. Extension of time for submission of bids.- Where a procuring agency has already prescribed a deadline for the submission of bids and due to any reason the procuring agency finds it necessary to extend such deadline, it shall do so only after recording its reasons in writing and in an equal opportunity manner. Advertisement of such extension in time shall be done in a manner similar to the original advertisement.

OPENING, EVALUATION AND REJECTION OF BIDS

28. Opening of bids.- (1) The date for opening of bids and the last date for the submission of bids shall be the same. Bids shall be opened at the time

specified in the bidding documents. The bids shall be opened at least thirty minutes after the deadline for submission of bids.

(2) All bids shall be opened publicly in the presence of the bidders or their representatives who may choose to be present, at the time and place announced prior to the bidding. The procuring agency shall read aloud the unit price as well as the bid amount and shall record the minutes of the bid opening. All bidders in attendance shall sign an attendance sheet. All bids submitted after the time prescribed shall be rejected and returned without being opened.

29. Evaluation criteria.- Procuring agencies shall formulate an appropriate evaluation criterion listing all the relevant information against which a bid is to be evaluated. Such evaluation criteria shall form an integral part of the bidding documents. Failure to provide for an unambiguous evaluation criteria in the bidding documents shall amount to misprocurement.

30. Evaluation of bids.- (1) All bids shall be evaluated in accordance with the evaluation criteria and other terms and conditions set forth in the prescribed bidding documents. Save as provided for in clause (iv) of sub-rule (3) of rule 36 no evaluation criteria shall be used for evaluation of bids that had not been specified in the bidding documents.(2) For the purposes of comparison of bids quoted in different currencies, the price shall be converted into a single currency specified in the bidding documents. The rate of exchange shall be the selling rate, prevailing on the date of opening of bids specified in the bidding documents, as notified by the State Bank of Pakistan on that day.(3) A bid once opened in accordance with the prescribed procedure shall be subject to only those rules, regulations and policies that are in force at the time of issue of notice for invitation of bids.

31. Clarification of bids.- (1) No bidder shall be allowed to alter or modify his bid after the bids have been opened. However the procuring agency may seek and accept clarifications to the bid that do not change the substance of the bid.(2) Any request for clarification in the bid, made by the procuring agency shall invariably be in writing. The response to such request shall also be in writing.

32. Discriminatory and difficult conditions.- Save as otherwise provided, no procuring agency shall introduce any condition, which discriminates between bidders

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or that is considered to be met with difficulty. In ascertaining the discriminatory or difficult nature of any condition reference shall be made to the ordinary practices of that trade, manufacturing, construction business or service to which that particular procurement is related.

33. Rejection of bids.- (1) The procuring agency may reject all bids or proposals at any time prior to the acceptance of a bid or proposal. The procuring agency shall upon request communicate to any supplier or contractor who submitted a bid or proposal, the grounds for its rejection of all bids or proposals, but is not required to justify those grounds.(2) The procuring agency shall incur no liability, solely by virtue of its invoking sub-rule (1) towards suppliers or contractors who have submitted bids or proposals. (3) Notice of the rejection of all bids or proposals shall be given promptly to all suppliers or contractors that submitted bids or proposals.

34. Re-bidding.- (1) If the procuring agency has rejected all bids under rule 33 it may call for a re-bidding.(2) The procuring agency before invitation for re-bidding shall assess the reasons for rejection and may revise specifications, evaluation criteria or any other condition for bidders as it may deem necessary.

35. Announcement of evaluation reports.- Procuring agencies shall announce the results of bid evaluation in the form of a report giving justification for acceptance or rejection of bids at least ten days prior to the award of procurement contract.

36. Procedures of open competitive bidding.- Save as otherwise provided in these rules the following procedures shall be permissible for open competitive bidding, namely:-

(a) single stage – one envelope procedure.- Each bid shall comprise one single envelope containing, separately, financial proposal and technical proposal (if any). All bids received shall be opened and evaluated in the manner prescribed in the bidding document.

(b) single stage – two envelope procedure.- (i) The bid shall comprise a single package containing two separate envelopes. Each envelope shall contain separately the financial proposal and the technical proposal;

(ii) the envelopes shall be marked as “FINANCIAL PROPOSAL” and “TECHNICAL PROPOSAL” in bold and legible letters to avoid confusion;

(iii) initially, only the envelope marked “TECHNICAL PROPOSAL” shall be opened;(iv) the envelope marked as “FINANCIAL PROPOSAL” shall be retained

in the custody of the procuring agency without being opened;(v) the procuring agency shall evaluate the technical proposal in a manner

prescribed in advance, without reference to the price and reject any proposal which do not conform to the specified requirements;

(vi) during the technical evaluation no amendments in the technical proposal shall be permitted;

(vii) the financial proposals of bids shall be opened publicly at a time, date and venue announced and communicated to the bidders in advance;

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(viii) after the evaluation and approval of the technical proposal the procuring agency, shall at a time within the bid validity period, publicly open the financial proposals of the technically accepted bids only. The financial proposal of bids found technically non-responsive shall be returned un-opened to the respective bidders; and

(ix) the bid found to be the lowest evaluated bid shall be accepted.(c) two stage bidding procedure.-

First stage(i) the bidders shall first submit, according to the required specifications, a

technical proposal without price; (ii) the technical proposal shall be evaluated in accordance with the

specified evaluation criteria and may be discussed with the bidders regarding any deficiencies and unsatisfactory technical features;

(iii) after such discussions, all the bidders shall be permitted to revise their respective technical proposals to meet the requirements of the procuring agency;

(iv) the procuring agency may revise, delete, modify or add any aspect of the technical requirements or evaluation criteria, or it may add new requirements or criteria not inconsistent with these rules:

Provided that such revisions, deletions, modifications or additions are communicated to all the bidders equally at the time of invitation to submit final bids, and that sufficient time is allowed to the bidders to prepare their revised bids:

Provided further that such allowance of time shall not be less than fifteen days in the case of national competitive bidding and thirty days in the case of international competitive bidding;

(v) those bidders not willing to conform their respective bids to the procuring agency’s technical requirements may be allowed to withdraw from the bidding without forfeiture of their bid security;Second stage

(vi) the bidders, whose technical proposals or bids have not been rejected and who are willing to conform their bids to the revised technical requirements of the procuring agency, shall be invited to submit a revised technical proposal along with the financial proposal;

(vii) the revised technical proposal and the financial proposal shall be opened at a time, date and venue announced and communicated to the bidders in advance; and

(viii) the revised technical proposal and the financial proposal shall be evaluated in the manner prescribed above. The bid found to be the lowest evaluated bid shall be accepted:

Provided that in setting the date for the submission of the revised technical proposal and financial proposal a procuring agency shall allow sufficient time to the bidders to incorporate the agreed upon changes in the technical proposal and prepare their financial proposals accordingly.

(d) two stage - two envelope bidding procedure.- First stage

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(i) the bid shall comprise a single package containing two separate envelopes. Each envelope shall contain separately the financial proposal and the technical proposal;

(ii) the envelopes shall be marked as “FINANCIAL PROPOSAL” and “TECHNICAL PROPOSAL” in bold and legible letters to avoid confusion;

(iii) initially, only the envelope marked “TECHNICAL PROPOSAL” shall be opened;

(iv) the envelope marked as “FINANCIAL PROPOSAL” shall be retained in the custody of the procuring agency without being opened;

(v) the technical proposal shall be discussed with the bidders with reference to the procuring agency’s technical requirements;

(vi) those bidders willing to meet the requirements of the procuring agency shall be allowed to revise their technical proposals following these discussions;

(vii) bidders not willing to conform their technical proposal to the revised requirements of the procuring agency shall be allowed to withdraw their respective bids without forfeiture of their bid security;Second stage

(viii) after agreement between the procuring agency and the bidders on the technical requirements, bidders who are willing to conform to the revised technical specifications and whose bids have not already been rejected shall submit a revised technical proposal and supplementary financial proposal, according to the technical requirement;

(ix) the revised technical proposal along with the original financial proposal and supplementary financial proposal shall be opened at a date, time and venue announced in advance by the procuring agency:

Provided that in setting the date for the submission of the revised technical proposal and supplementary price proposal a procuring agency shall allow sufficient time to the bidders to incorporate the agreed upon changes in the technical proposal and to prepare the required supplementary financial proposal; and

(x) the procuring agency shall evaluate the whole proposal in accordance with the evaluation criteria and the bid found to be the lowest evaluated bid shall be accepted.

37. Conditions for use of single stage two envelope, two stage and two stage two envelope bidding procedures.- Single stage one envelope bidding procedure shall ordinarily be the main open competitive bidding procedure used for most of the procurement. Other appropriate procedures of open competitive bidding shall be selected in the following circumstances, namely:-

(a) single stage two envelope bidding procedure shall be used where the bids are to be evaluated on technical and financial grounds and price is taken into account after technical evaluation;

(b) two stage bidding procedure shall be adopted in large and complex contracts where technically unequal proposals are likely to be encountered or where the procuring agency is aware of its options in the market but, for a given set of performance requirements, there are two or more equally acceptable technical solutions available to the procuring agency; and

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(c) two stage two envelope bidding method shall be used for procurement where alternative technical proposals are possible, such as certain type of machinery or equipment or manufacturing plant.

ACCEPTANCE OF BIDS AND AWARD OF PROCUREMENT CONTRACTS

38. Acceptance of bids.- The bidder with the lowest evaluated bid, if not in conflict with any other law, rules, regulations or policy of the Federal Government, shall be awarded the procurement contract, within the original or extended period of bid validity.

39. Performance guarantee.- Where needed and clearly expressed in the bidding documents, the procuring agency shall require the successful bidder to furnish a performance guarantee which shall not exceed ten per cent of the contract amount.

40. Limitation on negotiations.- Save as otherwise provided there shall be no negotiations with the bidder having submitted the lowest evaluated bid or with any other bidder:

Provided that the extent of negotiation permissible shall be subject to the regulations issued by the Authority.

41. Confidentiality.- The procuring agency shall keep all information regarding the bid evaluation confidential until the time of the announcement of the evaluation report in accordance with the requirements of rule 35.

42. Alternative methods of procurements.- A procuring agency may utilize the following alternative methods of procurement of goods, services and works, namely:-(a) petty purchases.- Procuring agencies may provide for petty purchases where

the object of the procurement is below the financial limit of ten thousand rupees. Such procurement shall be exempt from the requirements of bidding or quotation of prices:

Provided that the procuring agencies shall ensure that procurement of petty purchases is in conformity with the principles of procurement prescribed in rule 4:

Provided further that procuring agencies convinced of the inadequacy of the financial limit prescribed for petty purchases in undertaking their respective operations may approach the Federal Government for enhancement of the same with full and proper justifications.

(b) request for quotations.- A procuring agency shall engage in this method of procurement only if the following conditions exist, namely:-

(i) the cost of object of procurement is below the prescribed limit of forty thousand rupees;

(ii) the object of the procurement has standard specifications;(iii) minimum of three quotations have been obtained; and(iv) the object of the procurement is purchased from the supplier offering

the lowest price:

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Provided that procuring agencies convinced of the inadequacy of the financial limit prescribed for request for quotations in undertaking their respective operations may approach the Federal Government for enhancement of the same with full and proper justifications.

(c) direct contracting.- A procuring agency shall only engage in direct contracting if the following conditions exist, namely:-

(i) the procurement concerns the acquisition of spare parts or supplementary services from original manufacturer or supplier:

Provided that the same are not available from alternative sources;

(ii) only one manufacturer or supplier exists for the required procurement:

Provided that the procuring agencies shall specify the appropriate fora, which may authorize procurement of proprietary object after due diligence; and

(iii) where a change of supplier would oblige the procuring agency to acquire material having different technical specifications or characteristics and would result in incompatibility or disproportionate technical difficulties in operation and maintenance:

Provided that the contract or contracts do not exceed three years in duration;

(iv) repeat orders not exceeding fifteen per cent of the original procurement; (v) in case of an emergency and

(vi) when the price of good, services or work is fixed by Government or any other authority agency of body duly authorised by the Government, on its behalf.”:

Provided that the procuring agencies shall specify appropriate fora vested with necessary authority to declare an emergency.

(d) negotiated tendering.- A procuring agency may engage in negotiated tendering with one or more suppliers or contractors with or without prior publication of a procurement notification. This procedure shall only be used when,-

(i) the supplies involved are manufactured purely for the purpose of supporting a specific piece of research or an experiment, a study or a particular development;

(ii) for technical or artistic reasons, or for reasons connected with protection of exclusive rights or intellectual property, the supplies may be manufactured or delivered only by a particular supplier;

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(iii) for reasons of extreme urgency brought about by events unforeseeable by the procuring agency, the time limits laid down for open and limited bidding methods cannot be met. The circumstances invoked to justify extreme urgency must not be attributable to the procuring agency:

Provided that any procuring agency desirous of using negotiated tendering as a method of procurement shall record its reasons and justifications in writing for resorting to negotiated tendering and shall place the same on record.

43. On account payments.- All procuring agencies shall make prompt payments to suppliers and contractors against their invoices or running bills within the time given in the conditions of the contract, which shall not exceed thirty days.

44. Entry into force of the procurement contract.- A procurement contract shall come into force,-

(a) where no formal signing of a contract is required, from the date the notice of the acceptance of the bid or purchase order has been given to the bidder whose bid has been accepted. Such notice of acceptance or purchase order shall be issued within a reasonable time; or

(b) where the procuring agency requires signing of a written contract, from the date on which the signatures of both the procuring agency and the successful bidder are affixed to the written contract. Such affixing of signatures shall take place within a reasonable time:

Provided that where the coming into force of a contract is contingent upon fulfillment of a certain condition or conditions, the contract shall take effect from the date whereon such fulfillment takes place.

45. Closing of contract.- (1) Except for defect liability or maintenance by the supplier or contractor, as specified in the conditions of contract, performance of the contract shall be deemed close on the issue of over all delivery certificate or taking over certificate which shall be issued within thirty days of final taking over of goods or receiving the deliverables or completion of works enabling the supplier or contractor to submit final bill and the auditors to do substantial audit.(2) In case of defect liability or maintenance period, defect liability certificate shall be issued within thirty days of the expiry of the said period enabling the supplier or contractor to submit the final bill. Except for unsettled claims, which shall be resolved through arbitration, the bill shall be paid within the time given in the conditions of contract, which shall not exceed sixty days to close the contract for final audit.

MAINTENANCE OF RECORD AND FREEDOM OF INFORMATION

46. Record of procurement proceedings.- (1) All procuring agencies shall maintain a record of their respective procurement proceedings along with all associated documentation for a minimum period of five years.(2) Such maintenance of record shall be subject to the regulations framed in this regard from time to time.

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47. Public access and transparency.- As soon as a contract has been awarded the procuring agency shall make all documents related to the evaluation of the bid and award of contract public:

Provided that where the disclosure of any information related to the award of a contract is of proprietary nature or where the procuring agency is convinced that such disclosure shall be against the public interest, it can withhold only such information

from public disclosure subject to the prior approval of the Authority.REDRESSAL OF GRIEVANCES AND SETTLEMENT OF DISPUTES

48. Redressal of grievances by the procuring agency.- (1) The procuring agency shall constitute a committee comprising of odd number of persons, with proper powers and authorizations, to address the complaints of bidders that may occur prior to the entry into force of the procurement contract.(2) Any bidder feeling aggrieved by any act of the procuring agency after the submission of his bid may lodge a written complaint concerning his grievances not later than fifteen days after the announcement of the bid evaluation report under rule 35.(3) The committee shall investigate and decide upon the complaint within fifteen days of the receipt of the complaint.(4) Mere fact of lodging of a complaint shall not warrant suspension of the procurement process.(5) Any bidder not satisfied with the decision of the committee of the procuring agency may lodge an appeal in the relevant court of jurisdiction.

49. Arbitration.- (1) After coming into force of the procurement contracts, disputes between the parties to the contract shall be settled by arbitration.(2) The procuring agencies shall provide for a method of arbitration in the procurement contract, not inconsistent with the laws of Pakistan.

50. Mis-procurement.- Any unauthorized breach of these rules shall amount to mis-procurement.

51. Overriding effect.- The provisions of these rules shall have effect notwithstanding anything to the contrary contained in any other rules concerning public procurements:

Provided that the prevailing rules and procedures will remain applicable only for the procurement of goods, services and works for which notice for invitation of bids had been issued prior to the commencement of these rules unless the procuring agency deems it appropriate to re-issue the notice for the said procurement after commencement of these rules.

[No. F. 6(1)-Admn.V/04 ] Sd/-

(Sajid Hassan)Additional Secretary to the

Government of Pakistan Finance Division Islamabad

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