Strategies Support Procurement Reform
By Kenneth E. Barden
Procurement reform has taken center stage in developing countries as efforts are made to reduce burdening government deficits and combat corruption. Expert assistance from more developed countries is being used to assist developing nations build their own capacity. Numerous projects are now underway, sponsored by various multi-national donor groups, such as the World Bank, the International Monetary Fund, the United Nations Development Program, as well as development agencies of developed countries, such as the United States Agency for International Development.
Following are some of the key elements that are generally considered as basic to a modern and effective procurement system–elements that may also assist procurement professionals in the United States.
Preferably, a procurement regulatory framework should address all government contracts regardless of the funding source. The framework should be as consistent as possible, with deviations only out of peculiar necessity.
Transparency is important to assure trust and confidence in the procurement system. Vendors must be assured that the opportunities to provide goods and services are offered on a level playing field, while the public’s interest is preserved in the best, most effective use of tax and other public moneys–all while avoiding corruptive influences. Transparency can be achieved by government agencies through the use of effective advertising, public bid opening procedures, objective bid evaluation criteria, independent evaluation methods consistent with the stipulations of the bidding documents, awarding of contracts to qualified vendors having submitted the lowest evaluated bid without negotiations, publication of award results, fair and speedy protest and dispute resolution handling pro-cesses, and disclosure of signed contracts and prices.
Effective and fair procedural rules are important in open competitive bidding. Requiring bidding documents to be well-formulated will reduce the number of bid submissions that may deviate from the specifications indicated. Rules should also exclude any provision or mechanism that could affect the transparency of the process. Procurement procedures utilizing methods other than open competitive bidding must be restricted within appropriate limits.
Balance Between Public and Private Partners
Modern procurement regulations attempt to provide losing bidders with an effective way to submit contract award protests. More generally, private partners in government contracts are expected to be proactive in implementing competitive mechanisms and should be the guardians of those mechanisms exactly in the same manner as government agencies. Private partners must be offered fair contract conditions. Certain institutional mechanisms have a critical role to play in the balance between partners and in the transparency of the process.
Exceptions and Waivers
To the extent that exceptions and waivers are needed by a government agency in order to proceed in a timely manner with its procurement, procurement regulations may include specific exceptions to contract law–for example, termination for convenience. The regulations should also provide for any waiver needed in the context of international agreements.
Each country will develop its own procurements laws, regulations and processes in a way best suited to its individual needs. However, some common provisions include:
1. Registration of Bidders.
In countries that require pre-registration of bidders as a prerequisite for bidding, the process is intended to provide due diligence to screen bidders’ legal and fiscal capacity or as a means for pre-qualification, especially for civil works. However, mandatory registration can often be a cumbersome procedure that does not accurately reflect changes in capacity achieved by potential candidates.
Typical factors considered in a registration system include:
(a) National Registration of Bidders
Acceptance–There should be routine assessments to ensure the system’s transparency and ensure that it does not unduly discriminate against any prospective bidder.
Centralization vs. decentralization–Whether the registry is centralized or decentralized depends to a large part on the capacity of the government and its ability to provide necessary information to requesting agencies. A centralized system may be easier and less burdensome for a potential bidder to comply, but such a system must be able to provide ready and reliable information to requesting agencies.
Foreigners and national bidders–Many development assistance programs require that foreign bidders be allowed to participate in the bidding process. In order to allow for that, regulations should permit foreign businesses to register, or alternatively, be allowed to bid, even without registration, leaving registration for after award and before signature of contract.
(b) Registration Requirements
Legal and commercial situation–If a registry exists, it should be able to provide the legal and commercial status of the prospective bidder.
Fiscal situation.–Some registries require bidders to keep their fiscal situation up-to-date in the registry, including proof that all taxes and other governmental obligations are not materially delinquent.
Financial qualification–Some countries provide for the reporting of this information for qualification of bidders; however, financial situation may not always be relevant to a bidders ability to provide the goods or services, particularly if the bidder in fairly new in business or otherwise is disadvantaged compared with older established businesses. If used, such a requirement should be restricted only to civil works contracts where the financial integrity of the bidder is much more relevant to its capacity to perform the contract.
Technical qualification–Like that of financial qualification, the requirement of technical qualification should be limited to those circumstances where such qualification is relevant to the bidder’s ability to perform.
How to register–Some systems allow prospective bidders to register by mail and, if the conditions in the country allow, through the Internet. The more accessible the registration process is, the better the level of participation.
Frequency of updating–Registration should remain permanently open to bidders, including opportunity for updating information at any time. No deadline for specific bidding processes should be imposed.
Time taken for registration should be reasonable.
Advertisement–Registration should not be used to substitute for advertisement when open competition is required. However, when advertising for civil works, potential bidders may be identified by the category specified in the registration system.
2. Open Competitive Bidding. Procedural rules are important when it comes to open competitive bidding. They should require the use of well-formulated bidding documents, which will result in bid submissions that are free from qualifications or restrictions. Those procedures or rules should encompass the following:
(a) Effective advertisement
Advertisement should utilize the appropriate media to secure responses from the desired business sector, giving enough time to bidders to prepare their bid. If possible, bidding opportunities may also be advertised electronically if permissible under local law. The minimum requirement should include:
Publication. There should be a standard, recognized publication in at least one local newspaper, in addition to any official gazette.
Web page. If the government agency has a Web page, posting of bidding opportunities can increase awareness among potential bidders.
Eligibility criteria and procedures should not deny bidders access to a bidding process or an award for reasons that are unrelated to their qualification to carry out the contract. Procedures should:
Be based on the ability of bidders to carry out the contract.
Not restrict foreign bidders;
Allow local blacklisting for fraud and corruption to be carried out with due process, but with rights for accused firms to defend themselves.
Guarantee that government-owned enterprises acting as bidders demonstrate that they are legally and financially autonomous and pursuant to commercial law, and that any bids offered by them are not selected or contracted by authority to which such enterprises otherwise report.
(c) Qualification of bidders
It is preferable for procedures to qualification based on the bid documents, rather than pre-qualification. Pre-qualification should be restricted to civil works and be restricted to large or complex contracts or for special cases with due justification.
Procedures should define post-qualification as the rule, and specifically state in which situations pre-qualification would be applied. These rules should include satisfactory past performance of bidders as an element of qualification.
A review of bidders’ qualification should be made by examining whether the bidder does or does not meet qualification criteria and not under the bid specifications by using a point system reflecting that qualification.
Any review of bidders’ qualification should be conducted separately from the evaluation of their bids.
No bidder should be disqualified on grounds of immaterial bureaucratic procedures.
(d) Standard bidding documents
The establishment of standard bidding documents is important for transparency, speed of the process, increased competition, and fostering of capacity standardization of procedures. Generally, all of the agencies of the government should agree on a common or uniform standard bidding document to be used in all local open bidding processes. The documents should include the following items:
(1) Instruction to Bidders and Selection Process
Reasonable minimum number of days to submit bid (typically at least 30 days);
Bids may be submitted by postal or by hand delivery;
Budget the maximum amount of budgetary resources available for the bidding process could be disclosed (if local legislation so requires);
Clear instructions on how to obtain bidding documents, indicating address and price (if applicable). However, bidders who decide at their own risk to submit a bid without having bought the bidding documents should not be disqualified for that reason alone.
Clarifications to bidding documents should be in writing and made available to all potential bidders.
Amendments to bidding documents should be advertised with the same procedure used to advertise the original bidding documents. There should be at least a week interval between the publication of the last amendment and the date for bid submission.
Bid evaluation criteria should be non-discriminatory and should be disclosed and rigorously quantified in monetary terms to define the lowest evaluated bidder. Quantifying bid evaluation criteria in monetary terms is the only method that leads to transparent evaluation and allows bidders to submit an effective protest to the awarding authority.
(2) Bidding documents and contract should be in the language of commercial use in the country.
(3) Bid prices. Bidding documents should define price and payment conditions, including (a) the local (or any internationally used) currency that could be used; (b) the method of payment; and (c) price adjustment procedures, preferably using an adjustment formula. (All contracts for countries with high inflation should have price adjustment; for countries with a stable currency, price adjustment should be included for contracts longer than 12 months.) Price adjustment formulas should not be used in bid evaluation.
(4) Bid security. When required, bid security should follow the generally accepted practice used in the local market (securities issued by banks or by sureties). Alternative methods, such as automatic penalty to bidders failing to honor a bid, in lieu of bid securities would be acceptable.
(5) Liquidated damages, if any, should be clearly set out in the bid specifications.
(6) Complaints. Modern procurement regulations usually will provide to losing bidders an effective way to submit protests pertaining to contract award. The goal in the protest handling system should be:
Complaints should be accepted at any time. Those received before bids are submitted should be addressed before bid opening. All others should be taken into account, but the response should be announced only after award is recommended.
The government procurement agency should have an administrative process for dealing with complaints, including an independent reviewer to review the procuring agency’s responses to complaints.
Protests should be submitted to an independent entity and not simply to the supervisor of the contracting agency.
When protests are submitted before award they may lead to reconsidering the award of the contract; when protests are submitted after the award, the only consequence should be the bidders entitlement to compensatory damages for the cost of bid preparation. The government should consider adopting regulations requiring protestors to deposit a guarantee against frivolous complaints.
(7) Bid opening. Public bid opening of all bids, and recording of the opening in minutes signed by all bidders in attendance, is a requirement for maintaining transparency and accountability. At the opening:
Late bids should be rejected and returned unopened.
Procedures for bid opening should follow the prescribed rules.
Minutes should be kept recording the actions taken at the bid opening.
Bid documents, including all of the envelopes in which the bid was submitted, should be safeguarded.
(8) Confidentiality. After the bid opening and until the contract award, all information about bids and their evaluation should be kept confidential. For transparency reasons, the evaluation report and all non-proprietary information may be made available to the public after an award recommendation has been published.
(9) Evaluation of bids. Bids should be evaluated by an independent evaluation committee, giving special consideration to:
Clarification of bids.
Establishing the qualification of the bidder separately from the evaluation of its bid.
Lowest evaluated cost criteria as basis for award. A contract should be made to the bidder having submitted the lowest evaluated responsive bid.
Rejection of all bids: A bid or bids may be rejected if such bid or bids (a) are not responsive; (b) the price offered by the lowest bidder is substantially higher than the confirmed good estimate for the contract; (c) the process was not competitive (for example, there could be a decision by the government agency that a bidding process was non-competitive if fewer than three were actually offered).
(10) Preference to some classes of bidders. Preference to some classes of bidders may be acceptable in bidding, provided it is required by law and procedures for the application of such preference in bid evaluation are properly defined and acceptable.
(11) Award criteria
The award should be made to the bidder having submitted the lowest evaluated responsive bid, provided that bidder has been determined to be qualified in accordance with pre-disclosed criteria.
Award of contract should be without negotiations, since negotiations would lead bidders not to submit their best bid at the time of bid submission and would affect the perception of transparency (which is one of the main benefits deriving from public bidding).
(12) Standard contract implementation. Bidding documents should include standard contracts. The contract documents should identify the scope of work to be performed, the goods to be supplied, the rights and obligations of the government agency and of the supplier or contractor, as well as how the contract will be implemented and supervised. In addition the following provisions should be included:
Payments–The method of payment should be the same as defined in the bidding document.
Performance security–A guarantee for satisfactory performance of the contractor or supplier should be included either in the form of a performance security/bond or retention of payment.
Settlement of disputes–Contracts should include a system for settlement of disputes. In very large contracts the use of a Dispute Resolution Board (or a Dispute Resolution Expert in large contracts) should be encouraged before disputes are submitted to arbitration or to courts.
(13) E-procurement. Governments should be consider electronic bidding processes, provided the local conditions of infrastructure,
3. Reserved Invitations–Procurement procedures other than open competitive bidding should be restricted within appropriate limits. Restricted bidding may be appropriate for small value contracts and situations in which there are only a small number of potential candidates. However, this should be limited in circumstances and should provide for the following minimum requirements:
(a) Number of invitees and criteria for selection.
Minimum of three proposals received; however, the process should be open to whoever wants to bid, even if not invited.
If possible firms should not be invited more than once, unless other firms do not exist.
(b) Standard request for bids
Simplified document asking for proposals by letter, fax, or electronic means.
Minimum price; or
Combination of price and delivery time, in which case delivery time would be evaluated in monetary terms, and added to price. Minimum overall evaluated price would result in award.
(d) E-procuremen–if possible, e-purchasing should be preferred.
4. Direct Contracting. This should be used only in exceptional cases with due justification to be kept on record. The justification should specify the reasons for the direct contracting and who has approved it. The conditions justifying direct contracting are:
(a) Spare parts from the original manufacturer of the equipment.
(b) Only one manufacturer exists for the required good.
(c) Emergency, such as natural disasters.
(d) Small-value contract.
Developing Counties or Centralized Departments
By including these key elements when developing procurement policies and procedures will help ensure the transparency necessary for a modern, efficient procurement function. Whether building a procurment department in a developing county, or creating a centralized procurement department on the local or state levels, reform strategies further secure the public’s interest in effective government.
Editor’s Note: Kenneth Barden has over 25 years of experience as an attorney, primarily working with government agencies, including the procurement sector. For several years, Mr. Barden served as City Attorney in Richmond, IN, where he helped create that city’s first full-time Central Purchasing office. From there, Mr. Barden went to Dayton, OH, where he served as Chief General Counsel and developed new procurement regulations and policies. Mr. Barden has been a member of the American Bar Association Model Procurement Code and has spoken at a number of training seminars. Most recently, Mr. Barden has provided legal services in Palau and the Northern Mariana Islands as an Assistant Attorney General, with procurement as one of his specialties.