Public Procurement and Multilateral Development Banks: Law, Practice and Problems 9781849460217, 9781509995301, 9781509912940

The multilateral development banks cumulatively channel billions of dollars annually in development assistance to borrow

223 85 3MB

English Pages [343] Year 2017

Table of contents :
Preface
Contents
Table of Cases
Table of Legislation
Part I: History and Law
1
Introduction
2
A Historical Overview of the MDBs and the History of Public Procurement Regulation in the World Bank
I. Introduction
II. History of the Multilateral Development Banks
III. Background to Public Procurement Regulation in the MDBs: A Case Study of the World Bank
IV. The History and Evolution of Procurement Policy in the World Bank
V. Conclusion
3
The MDBs and International Law
I. Introduction
II. International Personality of MDBs: Capacity, Immunity and Liability
III. The Status of MDB Loan Agreements in International Law
IV. The Relationship Between the MDBs and Their Borrowers
V. MDBs, Public Procurement and Global Administrative Law
VI. Conclusion
Part II: Practice: Documents, Processes and Procedures
4
The Procurement Documents
I. Introduction
II. Country Intervention Documents
III. The Loan Agreement
IV. The General Conditions for Loans
V. The Procurement Rules
VI. The General Conditions of Contract (GCC)
VII. The Standard Procurement Documents (SPDs)
VIII. The Project Procurement Strategy for Development
IX. The Procurement Plan
X. The Project Implementation Plan/Manual
XI. Conclusion
5
The Project Cycle and the Procurement Process
I. Introduction
II. An Overview of Procurement Organisation in the MDBs: The Example of the World Bank
III. Project Preparation
IV. Project Implementation and Procurement
V. Procurement Procedures Used by the Bank
VI. Evaluation and Monitoring
VII. Conclusion
6
Value for Money, Competition and Selection Procedures
I. Introduction
II. Value for Money: Meaning
III. Competition in Procurement: Meaning
IV. Competitive Award Procedures Under Bank-financed Contracts
V. Non-competitive Procedures
VI. Market Approaches
VII. Selection and Contractual Arrangements
VIII. Conclusion
7
Secondary (Sustainability) Concerns in MDB Procurement
I. Introduction
II. Secondary Concerns in Public Procurement: Meaning
III. Secondary Policies in Other Jurisdictions: A Synopsis
IV. The World Bank and Secondary Policies: Rationale
V. The Implementation of Secondary Policies in the World Bank
VI. The Frequency of the Use of Secondary Considerations in Bank-funded Contracts
VII. Secondary Policies and the Other MDBs
VIII. Conclusion
Part III: Problems and Issues Affecting MDB Procurement
8
Corruption in MDB Funded Procurement
I. Introduction
II. Corruption in Public Procurement: A Primer
III. Anti-corruption in the World Bank
IV. Anti-corruption and Bank Borrowers
V. Concluding Remarks
9
The Aid Effectiveness Agenda: Harmonisation, Tied Aid and Use of Country Systems
I. Introduction
II. Aid Effectiveness
III. Harmonisation
IV. Tied Aid
V. Use of Country Systems in Funded Procurement
VI. Conclusion
10
Public Procurement Reform and the Development of Procurement Capacity in Developing Countries: The Role of MDBs
I. Introduction
II. Conceptual Framework
III. The Multilateral Agenda on Procurement Reform and Capacity Development in Developing Countries
IV. Initiating the Reform Process: Assessing Procurement Systems
V. The Role of the UNCITRAL Model Law on Procurement
VI. The Role of the MDBs in Procurement Reform
VII. The Role of the MDBs in the Development of Procurement Capacity
VIII. Conclusion
11
Remedies Under MDB-funded Procurement
I. Introduction
II. Introduction to Supplier Remedies in Public Procurement
III. The World Bank"s Approach to Remedies
IV. Complaints Forum for Bidders Under MDB-funded Contracts
V. Forum for Disputes Between Contractors and Borrowers
VI. Disputes Between Borrowers and the World Bank
VII. Conclusion
Index

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PUBLIC PROCUREMENT AND MULTILATERAL DEVELOPMENT BANKS The multilateral development banks cumulatively channel billions of dollars annually in development assistance to borrower countries. This finance is usually spent through processes that incorporate the public procurement regulations of the banks. It is, in fact, often a condition of this finance that the funds must be spent using the procurement regulations of the lender institution. This book examines the issues and challenges raised by procurement regulation in the multilateral development banks. It examines the history of procurement regulation in the banks; the tripartite relationship created between the banks, borrowers and contractors in funded procurements; the procurement documents and procurement cycle; and how the banks ensure competition and value for money in funded procurements. It examines the banks’ approach to sustainability concerns in public procurement such as environmental, social or industrial concerns; as well as how they address the issue of corruption and fraud in funded contracts. The aid effectiveness agenda is examined. It will be seen that the development banks have undertaken steps to harmonise their policies and practices, increased borrower procurement capacity, taken steps to reduce the tying of aid, and play an important role in the reform of borrower procurement systems, all in an effort to improve the effectiveness of development finance. The contractual and other remedies that are available to parties that may be aggrieved as a result of a funded procurement are also examined.

ii

Public Procurement and Multilateral Development Banks Law, Practice and Problems

Sope Williams-Elegbe

OXFORD AND PORTLAND, OREGON 2017

Hart Publishing An imprint of Bloomsbury Publishing Plc Hart Publishing Ltd Kemp House Chawley Park Cumnor Hill Oxford OX2 9PH UK

Bloomsbury Publishing Plc 50 Bedford Square London WC1B 3DP UK

www.hartpub.co.uk www.bloomsbury.com Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland, OR 97213-3786 USA www.isbs.com HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published 2017 © Sope Williams-Elegbe 2017 Sope Williams-Elegbe has asserted her right under the Copyright, Designs and Patents Act 1988 to be identified as Author of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/opengovernment-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2017. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: HB: 978-1-84946-021-7 ePDF: 978-1-50991-294-0 ePub: 978-1-50991-293-3 Library of Congress Cataloging-in-Publication Data Names: Williams-Elegbe, Sope, author. Title: Public procurement and multilateral development banks : law, practice and problems / Sope Williams-Elegbe. Description: Portland, Oregon : Hart Publishing, 2017. | Includes bibliographical references and index. Identifiers: LCCN 2016058793 (print) | LCCN 2016059673 (ebook) | ISBN 9781849460217 (hardback : alk. paper) | ISBN 9781509912933 (Epub) Subjects: LCSH: Government purchasing—Law and legislation. | Public contracts. | Development banks—Law and legislation. Classification: LCC K884 .W555 2017 (print) | LCC K884 (ebook) | DDC 346.02/3—dc23 LC record available at https://lccn.loc.gov/2016058793 Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

For Dayo, Ife, and Fara Elegbe

vi

Preface The aim of this book is to provide a structured, comprehensive, and understandable analysis of the regulation and practice of public procurement in the multilateral development banks (MDBs). The institutions examined for the purpose of this book are the World Bank and the regional development banks, namely, the Inter-American Development Bank, the African Development Bank, the Asian Development Bank and the European Bank for Reconstruction and Development. These institutions cumulatively channel billions of dollars annually in loans and grants for infrastructure projects, development and technical assistance to developing and Member countries and spend this money through processes that incorporate the public procurement regulations of these lenders/funders. It is often a condition of the finance provided that procurements under such funded projects is done according to the lender’s procurement regulations. However, although the procurement process is subject to rules of the lending institution, the process is managed by the borrower, (usually a developing country public agency) with the funder merely taking a supervisory role to ensure that the process is properly conducted. In contracts financed by the development banks, the dichotomy between the source (and hence the understanding of the procurement rules) and the application of these rules has led to various problems, which have affected the management and efficiency of the use of the funds. Some of these problems arise from a lack of understanding of the rationale for the rules; a lack of understanding of the rules themselves; the confusion that arises from the multiple procurement regulatory regimes to which borrowers are subject from different lenders; and the lack of capacity in some borrower countries/ agencies to apply the rules in a manner that furthers efficient and transparent procurement. The lack of capacity has in particular led to undesirable outcomes in development projects in the sense that often, projects are improperly implemented and do not achieve their objectives. Apart from a lack of capacity, corruption is another issue that affects the procurement of goods and services under funded projects and may lead to the funder terminating the funding owing to the misapplication of the procurement rules or a misuse of the funds. This will then mean that projects may not deliver the anticipated results and may possibly remain incomplete, where funds are withdrawn. It is instructive to note that there is no known academic text, which examines procurement regulation in the MDBs. Whilst there has been extensive analysis of the political context in which the MDBs operate, there has

viii Preface been no legal or comparative discussion of the procurement regulation of the MDBs. This book aims to fill that gap by providing a coherent and contextual analysis of the procurement regulation in the MDBs. Given the billions of dollars that are channeled as development assistance through these institutions, an accurate knowledge and understanding of the procurement regulations and practices of these institutions is important to borrowers, non-governmental organisations and the consultants that work on projects funded by these institutions, as well as academics and persons interested in public procurement more generally. This book would not have been written without the assistance of several people, whose help was invaluable during the preparation of this manuscript. In particular, I am grateful for the support of Stellenbosch University, where I have been a Research Fellow since 2012 and a full-time member of staff since 2016; and the University of Cape Town, where I held the Olu Akinkugbe Fellowship in Business Law in 2015, which afforded me time away to focus on the manuscript. I am grateful for the support of the Dean of Law at Stellenbosch, Professor Sonia Human, a colleague and a friend whose mentorship has been a source of inspiration. I am also grateful to the former Dean of Law at the University of Lagos, Prof Akin IbidapoObe. I would also like to thank other colleagues and friends who took time to discuss ideas with me, such as Prof Geo Quinot, Dr Ada Okoye, and Mr Enzo de Laurentiis of the World Bank, who graciously responded to all my queries. Other colleagues who have supported me are Prof Karin Calitz, Prof Zsa-Zsa Boggenpoel, and Dr Lize Mills, all of Stellenbosch University, and Dr Toyin Adejonwo-Osho and Mrs Andrea Ajibade of the University of Lagos, where I worked from 2014–2016. I would also like to appreciate the help of Mrs Annette King, who was always happy to assist with various tasks. My family have been a constant source of support and I would like to thank my parents, Chief and Mrs Williams, and my siblings: Seyi Oshikanlu, Prof Bisi Ademuyiwa and Gbenga Williams. I am of course grateful for the love and support of my husband, Dayo Elegbe, and my intelligent and witty daughters, Ifeoluwa and Olutofarati, both of whom had to endure my absences while I worked on this book. I have endeavoured to state the position of the law as at 1 July 2016. Sope Williams-Elegbe Stellenbosch University South Africa

Contents Preface�� vii Table of Cases�� xv Table of Legislation�� xvii Part I: History and Law 1. Introduction�� 3 2. A Historical Overview of the MDBs and the History of Public Procurement Regulation in the World Bank�� 9 I. Introduction�� 9 II. History of the Multilateral Development Banks�� 9 A. The World Bank�� 9 B. The Inter-American Development Bank (IDB)�� 11 C. The African Development Bank (AfDB)�� 12 D. The Asian Development Bank (ADB)�� 14 E. The European Bank for Reconstruction and Development (EBRD)�� 15 III. Background to Public Procurement Regulation in the MDBs: A Case Study of the World Bank�� 16 IV. The History and Evolution of Procurement Policy in the World Bank�� 18 V. Conclusion�� 29 3. The MDBs and International Law�� 31 I. Introduction�� 31 II. International Personality of MDBs: Capacity, Immunity and Liability�� 32 A. Capacity�� 33 B. Immunity�� 34 C. Liability�� 37 III. The Status of MDB Loan Agreements in International Law�� 39 A. Interpretation�� 41 B. Adherence�� 42 C. Dispute Resolution�� 43 IV. The Relationship Between the MDBs and Their Borrowers�� 45

x Contents V. MDBs, Public Procurement and Global Administrative Law�� 47 VI. Conclusion�� 49 Part II: Practice: Documents, Processes and Procedures 4. The Procurement Documents�� 53 I. Introduction�� 53 II. Country Intervention Documents�� 53 III. The Loan Agreement�� 55 IV. The General Conditions for Loans�� 56 V. The Procurement Rules�� 58 A. The 2011 Procurement Guidelines�� 58 i. The 2011 Procurement Guidelines for Goods, Works and Non-consulting Services�� 60 ii. The 2011 Procurement Guidelines for the Selection of Consultants�� 62 B. The 2016 Procurement Framework�� 64 i. The 2016 Procurement Regulations for Borrowers�� 65 ii. Bank Policy: Procurement in IPF and Other Operational Procurement Matters�� 68 iii. Bank Directive: Procurement in IPF and Other Operational Procurement Matters�� 69 iv. Bank Procedure: Procurement in IPF and Other Operational Procurement Matters�� 70 VI. The General Conditions of Contract (GCC)�� 70 VII. The Standard Procurement Documents (SPDs)�� 72 VIII. The Project Procurement Strategy for Development�� 73 IX. The Procurement Plan�� 74 X. The Project Implementation Plan/Manual�� 75 XI. Conclusion�� 76 5. The Project Cycle and the Procurement Process�� 77 I. Introduction�� 77 II. An Overview of Procurement Organisation in the MDBs: The Example of the World Bank�� 78 III. Project Preparation�� 81 A. Assessing Borrower Capacity�� 81 B. Project Identification and Preparation�� 83 C. Project Appraisal �� 84 D. Loan Negotiations and Approval�� 85 IV. Project Implementation and Procurement�� 85 A. The Procurement Cycle�� 86 i. Procurement and Project Plans�� 87

Contents xi ii. Preparation of Standard Procurement (Bidding) Documents�� 87 iii. Advertisement�� 87 iv. Bid Opening�� 88 v. Bid Evaluation�� 89 vi. Standstill Period�� 91 vii. Contract Award�� 91 viii. Contract Management�� 92 ix. Post Reviews�� 92 V. Procurement Procedures Used by the Bank�� 93 A. The 2011 Procurement Guidelines�� 93 i. Goods, Works and Non-consulting Services�� 93 ii. Consulting Services�� 97 B. The 2016 Procurement Regulations�� 98 VI. Evaluation and Monitoring �� 101 II. Conclusion�� 102 V 6. Value for Money, Competition and Selection Procedures�� 103 I. Introduction�� 103 II. Value for Money: Meaning�� 103 III. Competition in Procurement: Meaning �� 107 IV. Competitive Award Procedures Under Bank-financed Contracts�� 109 A. Competitive Procedures for Goods, Works and Non-consulting Services �� 110 i. Request for Proposals (RFP) �� 110 ii. Request for Bids (RFB)�� 111 iii. Request for Quotations (RFQ)�� 112 B. Competitive Procedures for Consulting Services �� 112 i. Shortlisting�� 113 ii. Quality and Cost-based Selection (QCBS)�� 113 iii. Fixed Budget-based Selection (FBS)�� 115 iv. Least Cost-based Selection (LCS)�� 116 v. Quality-based Selection (QBS)�� 116 vi. Consultant’s Qualification-based Selection (CQS)�� 117 V. Non-competitive Procedures�� 118 A. Goods, Works and Non-consulting Services�� 118 B. Consulting Services�� 121 VI. Market Approaches�� 122 VII. Selection and Contractual Arrangements�� 131 A. Competitive Dialogue�� 132 B. Public-Private Partnerships (PPP)�� 134

xii Contents

VIII.

i. Build, Own and Operate (BOO)�� 135 ii. Build, Operate and Transfer (BOT)�� 136 iii. Build, Own, Operate and Transfer (BOOT)�� 136 C. Commercial Practices�� 136 D. United Nations Agencies�� 137 E. Electronic Reverse Auctions�� 137 F. Operations Involving a Programme of Imports�� 138 G. Commodities�� 138 H. Community Driven Development�� 139 I. Force Accounts�� 139 J. Framework Agreements�� 140 K. Performance-based Contracts�� 141 Conclusion�� 142

7. Secondary (Sustainability) Concerns in MDB Procurement�� 143 I. Introduction�� 143 II. Secondary Concerns in Public Procurement: Meaning�� 143 III. Secondary Policies in Other Jurisdictions: A Synopsis�� 148 IV. The World Bank and Secondary Policies: Rationale�� 153 V. The Implementation of Secondary Policies in the World Bank�� 155 A. Prequalification of Firms�� 159 B. Functional and Technical Specifications�� 159 C. Evaluation Criteria�� 161 D. Contract Terms and Conditions�� 161 E. Contract Monitoring �� 162 VI. The Frequency of the Use of Secondary Considerations in Bank-funded Contracts�� 162 VII. Secondary Policies and the Other MDBs�� 163 A. The Inter-American Development Bank�� 163 B. The African Development Bank�� 164 C. The Asian Development Bank�� 166 D. The European Bank for Reconstruction and Development �� 167 VIII. Conclusion�� 168 Part III: Problems and Issues Affecting MDB Procurement 8. Corruption in MDB Funded Procurement�� 171 I. Introduction�� 171 II. Corruption in Public Procurement: A Primer�� 172 III. Anti-corruption in the World Bank�� 177 A. The History of Anti-corruption in the World Bank: From Turning a Blind Eye to Mainstreaming Anti-corruption�� 178

Contents xiii B. Addressing Corruption in Bank-funded Contracts�� 187 i. The Corruption Offences in the Bank’s Anti-corruption Policy�� 187 ii. Prevention of Corruption in Bank-funded Contracts�� 189 iii. Ensuring Compliance with Bank Anti-corruption Norms�� 193 iv. Detection and Investigation of Corruption in Bank-funded Contracts�� 195 v. Deterrence, Sanctions and Resolution of Corruption Cases�� 199 a. Sanctions Against Borrowers�� 200 b. Sanctions Against Contractors �� 203 c. Settlements and Resolution of Cases with Contractors�� 209 d. Bank Contractors After Sanctions: Integrity Compliance Programmes�� 210 IV. Anti-corruption and Bank Borrowers�� 211 A. The Procurement Guidelines and Regulations�� 211 B. The Anti-corruption Guidelines�� 212 C. The General Conditions of Contract �� 214 D. Standard Procurement Documents �� 214 V. Concluding Remarks �� 215 9. The Aid Effectiveness Agenda: Harmonisation, Tied Aid and Use of Country Systems�� 217 I. Introduction�� 217 II. Aid Effectiveness�� 217 A. The Meaning of Effective Aid�� 217 III. Harmonisation�� 220 A. The Meaning of Harmonisation�� 220 B. A History of the Harmonisation Agenda�� 221 C. The Procurement Harmonisation Agenda�� 227 i. Standardisation of Procurement Documents�� 228 ii. Co-operation in the Area of Anti-corruption�� 230 IV. Tied Aid�� 232 A. What is Tied Aid?�� 232 B. Effects of Tied Aid on Development: A Primer�� 234 C. Multilateral Efforts at Untying Aid: A Chronological Review�� 236 V. Use of Country Systems in Funded Procurement�� 239 A. The Meaning of Use of Country Systems�� 239 B. The Methodology and the Pilot�� 241 VI. Conclusion�� 242

xiv Contents 10. Public Procurement Reform and the Development of Procurement Capacity in Developing Countries: The Role of MDBs�� 243 I. Introduction�� 243 II. Conceptual Framework�� 243 A. Public Procurement Reform�� 243 B. The Development of Procurement Capacity�� 249 C. Use of Country Systems�� 251 III. The Multilateral Agenda on Procurement Reform and Capacity Development in Developing Countries�� 256 IV. Initiating the Reform Process: Assessing Procurement Systems�� 264 A. Country Procurement Assessment Reports (CPAR)�� 264 B. Methodology for Assessing Procurement Systems (MAPS)�� 267 C. Methodology for Assessing Alternative Procurement Arrangements (MAAPA)�� 272 V. The Role of the UNCITRAL Model Law on Procurement�� 273 VI. The Role of the MDBs in Procurement Reform�� 275 A. Promoters�� 276 B. Funders�� 277 C. Implementers�� 277 VII. The Role of the MDBs in the Development of Procurement Capacity�� 277 VIII. Conclusion�� 280 11. Remedies Under MDB-funded Procurement�� 281 I. Introduction�� 281 II. Introduction to Supplier Remedies in Public Procurement�� 281 III. The World Bank’s Approach to Remedies�� 283 IV. Complaints Forum for Bidders Under MDB-funded Contracts�� 284 A. The Kinds of Remedies Available to Bidders�� 291 V. Forum for Disputes Between Contractors and Borrowers�� 292 A. The Kinds of Remedies Available to Contractors�� 296 VI. Disputes Between Borrowers and the World Bank�� 296 A. Remedies Available to the Parties to a Loan Agreement �� 299 VII. Conclusion�� 304 Index�� 305

Table of Cases Belgium Scimet v African Development Bank, Court of First Instance of Brussels, 14 February 1997, 128 ILR 582�� 36 Canada World Bank Group v Wallace 2016 SCC 15�� 35, 186, 290 European Court of Justice Alphabetical Alcatel Austria AG v Bundesministerium fur Wissenschaft und Verkehr (Case C-81/98) [1999] ECR I-7671�� 91 Ambisig- Ambiente e Sistemas de Informacao Georgrafica SA v Nersant- Associacao Empresarial da Regiao de Santarem (Case C-601/13) EU:C:2015:204 (ECJ)�� 90 Commissionv Italy (Case C-525/03) [2005] ECR I-9405�� 119 Concordia Bus Finland Oy Ab, formerly Stagecoach Finland Oy Ab v Helsingin kaupunki and HKL-Bussiliikenne (Case C-513/99) [2002] ECR I-7213�� 149 EVN AG and Wienstrom GmbH v Republik Österreich (Case C-488/01) [2003] ECR I-14527�� 149 Chronological C-81/98 Alcatel Austria AG v Bundesministerium fur Wissenschaft und Verkehr [1999] ECR I-7671�� 91 C-513/99 Concordia Bus Finland Oy Ab, formerly Stagecoach Finland Oy Ab v Helsingin kaupunki and HKL-Bussiliikenne [2002] ECR I-7213�� 149 C-488/01 EVN AG and Wienstrom GmbH v Republik Österreich [2003] ECR I-14527�� 149 C-525/03 Commissionv Italy [2005] ECR I-9405�� 119 C-601/13 Ambisig- Ambiente e Sistemas de Informacao Georgrafica SA v Nersant- Associacao Empresarial da Regiao de Santarem EU:C:2015:204 (ECJ)�� 90 International Germany v United States of America (the LaGrand case) (2001) ICJ Reports, 466, 485, para 48�� 301

xvi Table of Cases United States of America Atlantic Tele-Network v Inter-American Development Bank, 251 F. Supp. 2d 126 (D.D.C. 2003)�� 36 Luster S.A. Celulose e Papel v Inter-American Development Bank, 382 F.2d 454 (D.C. Cir. 1967), 28 March 1966�� 36 Mendaro v World Bank 717 F.2d 610 (D.C. Cir. 1983)�� 35, 290

Table of Legislation Africa AfDB Procurement Procedures (2012)�� 164–166 para 2.52�� 165 para 2.55�� 165 Appendix 2 para 3�� 166 para 6�� 166 para 7�� 166 para 9�� 166 para 13�� 166 African Development Bank, Rules and Procedures for Procurement of Goods and Works (Abidjan, African Development, 2012) see AfDB Procurement Procedures (2012) Agreement Establishing the African Development Bank Art 12�� 17 Art 52�� 36 America see also United States of America Agreement Establishing the Inter-American Development Bank Art III(1)�� 17 IDB Procurement Guidelines (2011)�� 163–164 para 2.52�� 164 para 2.55�� 164 Appendix 2�� 164 para 6�� 164 Inter-American Development Bank, Policies for the Procurement of Goods and Works financed by the Inter-American Development Bank GN-2349-9 (Washington DC, Inter-American Development Bank, 2011) see IDB Procurement Guidelines (2011) Asia ADB Procurement Guidelines (2015)�� 166–167 para 2.52�� 167 para 2.55�� 167 Appendix 2�� 167 Agreement Establishing the Asian Development Bank Art 8�� 17 Art 50�� 36 Asian Development Bank, Procurement Guidelines (April 2015) see ADB Procurement Guidelines (2015)

xviii Table of Legislation Europe Agreement Establishing the European Bank for Reconstruction and Development Art 1�� 16 Art 8(1)�� 17 EBRD Procurement Policies (2014)�� 168 para 3.16�� 168 para 3.19�� 168 Headquarters Agreement between the United Kingdom of Great Britain and Northern Ireland and the European Bank for Reconstruction and Development Art 4�� 36 Procurement Policies and Rules for projects financed by the European Bank for Reconstruction and Development (October 2014) see EBRD Procurement Policies (2014) European Union Directive 2014/24/EU on public procurement and repealing Directive 2004/18/EC (EU Procurement Directives)�� 149 Art 1(11)(a)�� 123 Art 28�� 123 Art 28(1), (2)�� 123 Art 42�� 149 Art 42(4)�� 149 Art 57�� 104 International Agreement for Mutual Enforcement of Debarment Decisions by the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, Inter-American Development Bank Group and the World Bank Group (Washington DC, The World Bank, 2010)�� 186 Anti-Corruption Guidelines�� 187–188, 212–214 para 1�� 185, 213 para 7�� 188 para 9�� 212, 213 para 9(d)�� 194 para 10�� 214 para 11�� 214 Articles of Agreement Art III, section 5(b)�� 178 Art IV, section 10�� 178 Bank Directive: Procurement in IPF and other Operational Procurement Matters (Catalogue No.OPSVP5.05 DIR.114 July 2016) (Bank Directive (2016))�� 64, 69 section I(1)�� 69 section IIE(5)�� 79, 80

Table of Legislation xix section IIIA�� 190 section IIIC�� 69 section IIIC(4)�� 193 section IIIE�� 69 section IIIG�� 69 section IIIH�� 69 Bank Policy�� 68–69 section I�� 69 section IIIA�� 69, 106 section IIIC�� 69 section IIIC(3)�� 212 section IIID�� 69 section IIIE�� 69 section IIIF�� 69, 256 section IIIG�� 69 Bank Procedure�� 70 section I(1)�� 70 section III�� 70 Annex I para 2.1�� 191 para 2.3�� 191 para 3�� 191 Bank Procedures BP 10.00 para 5�� 83 paras 9–13�� 83 para 24�� 84 Bank Procedures BP 11.00 (January 2011, Revised July 2014) para 11�� 202 para 12�� 202 para 13�� 202 para 31�� 203 para 32�� 203 para 33�� 203 para 35�� 203 Annex A, para 1�� 78, 80 Bank Procurement Guidelines (2011)�� 59–62, 188–189 para 1.1�� 58, 285 para 1.2�� 86, 108 para 1.3�� 122 para 1.10�� 212 para 1.16�� 189, 211 para 1.16(e)�� 212 para 1.18�� 19 para 2.1�� 93 para 2.2�� 60 para 2.7�� 87 para 2.44�� 88 para 2.45�� 88, 89 para 2.55�� 155

xx Table of Legislation para 2.61�� 108, 109 para 2.65�� 285 para 3.1�� 93 para 3.2�� 94 para 3.3�� 94, 207 para 3.4�� 94 para 3.5�� 94 para 3.6�� 94, 95 para 3.7�� 95 para 3.9�� 95, 96 para 3.10�� 95, 96 para 3.19�� 96 para 3.20�� 23, 97, 255 Appendix 2�� 156 Appendix 3�� 45 para 3�� 86 para 13�� 284 para 14�� 291 para 15�� 285, 291 Consultant Guidelines (2011)�� 59, 62–64 para 2.1�� 97 para 2.3�� 113 para 3.2�� 97 para 3.5�� 97 para 3.6�� 98 para 3.7�� 98 para 3.9�� 98 para 3.15�� 98 Draft Articles on the Responsibility of International Organisations (2011) Yearbook of the International Law Commission Vol II, Pt II (Draft Articles on Responsibility)�� 37, 302 Art 1�� 37 Art 3�� 37 Art 4�� 37 Arts 7–9�� 37 Arts 30–31�� 37 Art 31�� 302 Draft Articles on Responsibility of States for Internationally Wrongful Acts with commentaries (2001). Yearbook of the International Law Commission Vol II part Two, 31–143�� 302 Art 30�� 302 Art 31�� 302, 303 Arts 34–37�� 303 General Conditions for Loans (GCL)�� 56, 199 Art I�� 56 Art I, section 1.01�� 56

Table of Legislation xxi Art II�� 56 Art III�� 56 Art IV�� 57 Art V�� 57 Art V, section 5.06�� 57 Art VI�� 57 Art VII�� 43, 57 section 7.02�� 200 section 7.02(a)–(m)�� 201 section 7.03�� 200 section 7.06�� 201 Art VIII�� 57 section 8.01�� 40, 57 section 8.04�� 57 section 8.04(a)�� 296 section 8.04(b), (c), (d), (e)�� 297 section 8.04(g)�� 297, 301 section 8.04(h)�� 298, 301 section 8.04(k)�� 298 Art IX�� 58 Art X�� 58 Appendix�� 58 Government Procurement Agreement (GPA)�� 49, 150 Art X�� 150 Art X(3)�� 150 Art XXII(8)(a)(iii)�� 150 ICSID Convention on the Settlement of Investment Disputes between States and Nationals of other States (2006)�� 303 Art 1�� 303 Art 42(2)�� 303 International Bank for Reconstruction and Development Articles of Agreement see IRBD Articles of Agreement International Bank for Reconstruction and Development, General Conditions for Loans (Washington DC, World Bank, 2012) see General Conditions for Loans (GCL)) IRBD Articles of Agreement Art I�� 34, 153 Art II, section 5b�� 22 Art III section 4�� 39 section 5�� 17 Art IV, section 10�� 17, 21–22 Art VII�� 33, 34 section 3�� 36 section 5�� 186

xxii Table of Legislation Operational Policy OP 11.00 Procurement (January 2011, Revised July 2014) see Bank Procedures BP 11.00 (January 2011, Revised July 2014) Procurement Regulations for IPF Borrowers: Procurement in Investment Project Financing: Goods, Works, Non-Consulting Services and Consulting Services (July 2016) (Procurement Regulations for Borrowers (2016))�� 29, 65, 98–101 Common Abbreviations and Defined Terms�� 74, 77, 112, 196 Section I�� 65 para 1.1�� 65, 106 para 1.2�� 65 para 1.3�� 65 Section II�� 65–66 para 2.1�� 65 para 2.3�� 66 para 2.4�� 66, 256 Section III�� 66 para 3.2�� 66, 86 para 3.4�� 66, 86 paras 3.5–3.8�� 93 para 3.5�� 92 para 3.6�� 92, 195 para 3.9�� 195 para 3.10�� 86 para 3.11�� 86 para 3.12�� 109 paras 3.14–3.17�� 194 paras 3.14–3.20�� 66 para 3.19�� 195 paras 3.21–3.23�� 66, 90 para 3.23�� 90, 195, 207, 212 para 3.24�� 66, 202 para 3.25�� 66, 202 paras 3.26–3.31�� 66, 286 para 3.32�� 66, 189, 212 Section IV�� 66 paras 4.1–4.5�� 66 para 4.1�� 74, 83, 158 Section V�� 66 paras 5.1–5.2�� 66 para 5.4�� 289 para 5.8�� 66 para 5.9�� 66 para 5.10�� 66 para 5.11�� 66 para 5.12�� 66, 148, 155 para 5.13�� 66 para 5.22�� 85, 87, 88

Table of Legislation xxiii paras 5.23–5.24�� 87 para 5.23�� 88 para 5.24�� 88 para 5.27�� 66, 195 para 5.29�� 67 para 5.30�� 67 paras 5.31–5.32�� 110, 117 paras 5.33–5.49�� 67 para 5.36�� 88 para 5.38�� 66 para 5.40�� 88 para 5.41�� 89 para 5.48�� 89 para 5.49�� 89 para 5.50�� 89 paras 5.51–5.87�� 117 para 5.51�� 66, 157 para 5.59�� 109 paras 5.65–5.67�� 67 para 5.68�� 91, 105 para 5.69�� 131 para 5.70�� 131 paras 5.72–5.77�� 117 paras 5.72–5.80�� 111 para 5.74�� 91 paras 5.78–5.80�� 67 para 5.79�� 91 paras 5.81–5.87�� 111 paras 5.88–5.89�� 91 para 5.91�� 91 para 5.95�� 91 Section VI�� 67 paras 6.3–6.4�� 67, 99 para 6.3�� 110 para 6.4�� 110 paras 6.5–6.6�� 67, 99 para 6.5�� 111 para 6.7�� 67, 99, 112 paras 6.8–6.10�� 67 para 6.8�� 99 paras 6.9–6.10�� 99 para 6.9�� 119, 120 para 6.10�� 120 para 6.11�� 67, 123 para 6.12�� 67, 123 paras 6.13–6.14�� 67 para 6.13�� 124 para 6.14�� 124

xxiv Table of Legislation paras 6.15–6.18�� 67 para 6.15�� 124 para 6.17�� 125 para 6.18�� 124 paras 6.19–6.24�� 67 para 6.22�� 126 para 6.23�� 126 para 6.25�� 127 para 6.27�� 67, 127 paras 6.28–6.29�� 128 paras 6.28–6.30�� 67 para 6.30�� 128 para 6.31�� 128 para 6.32�� 111, 128 para 6.33�� 129 para 6.34�� 111 para 6.35�� 129 para 6.36�� 129 para 6.37�� 131 paras 6.39–6.41�� 67 para 6.39�� 99, 132 para 6.40�� 132 paras 6.42–6.45�� 67 para 6.42�� 100, 135 para 6.46�� 67, 100, 136 paras 6.47–6.48�� 67, 100 para 6.47�� 137 para 6.48�� 137 para 6.49�� 67, 100, 137 paras 6.50–6.51�� 67 para 6.50�� 138 para 6.51�� 138 para 6.52�� 67, 101, 139 paras 6.54–6.55�� 67, 101 para 6.54�� 111, 139 para 6.55�� 140 paras 6.57–6.61�� 67 para 6.57�� 101, 140 para 6.58�� 141 paras 6.60–6.61�� 101 para 6.60�� 141 para 6.61�� 142 Section VII�� 68 para 7.3�� 68, 113 paras 7.4–7.5�� 68 para 7.4�� 115 para 7.5�� 115

Table of Legislation xxv paras 7.6–7.7�� 68 para 7.6�� 116 para 7.7�� 116 paras 7.8–7.9�� 68 para 7.8�� 116 para 7.9�� 116 paras 7.11–7.12�� 68 para 7.11�� 118 para 7.12�� 118 paras 7.13–7.15�� 68 para 7.13�� 121 para 7.14�� 121 para 7.15�� 121 paras 7.16–7.17�� 113 paras 7.16–7.21�� 68 para 7.16�� 113 para 7.22�� 68, 123 para 7.23�� 68, 123 para 7.24�� 68, 124 para 7.25�� 68, 124 paras 7.26–7.31�� 68 para 7.33�� 131 paras 7.34–7.39�� 68 Annex I para 2.2�� 106 para 2.3�� 106 paras 3.3–3.5�� 107 Annex II para 3.1�� 191 para 4.1�� 93 para 4.2�� 195 para 7.1�� 192 para 9.1�� 195 Annex III�� 284, 287 para 2.1�� 287 para 2.2�� 287 para 2.3�� 288 para 2.4�� 288 para 2.5�� 288 para 2.6�� 288 para 3.1�� 288 para 3.1(a), (b)�� 288, 291 para 3.1(c)�� 289, 291 para 3.2(a)�� 288 Annex IV, para 2.2�� 199, 203 Annex V�� 74 paras 2–3�� 74

xxvi Table of Legislation para 2.1�� 74, 84 para 2.3�� 90, 158 para 3�� 74, 84 Annex VI�� 157 Annex VII para 1.1�� 153, 157 para 2.2�� 157, 158, 161 para 2.3�� 157 para 2.4�� 158 para 2.5�� 161 para 2.6�� 160 Annex X para 2.1�� 74, 89 para 2.2�� 89 para 2.3�� 161 paras 3.2–3.4�� 131 para 4.9�� 113 Annex XI paras 2–3�� 162 para 2.4�� 92 para 3.1�� 92 Annex XII�� 112 para 3.7�� 110, 111 para 5.1�� 112 para 5.2�� 112 para 5.3�� 112 paras 6.1–6.3�� 137 paras 6.4–6.6�� 138 paras 6.7–6.8�� 139 para 6.9�� 139 para 7.1�� 113 para 7.2�� 114 para 7.3�� 116, 117 Annex XIII para 3.1�� 133 para 3.3�� 133 para 4.1�� 134 Annex XIV para 2.1�� 136 para 5�� 136 Annex XV para 4.1�� 141 para 4.2�� 141 Sanctioning Guidelines�� 204 para I�� 206 para II�� 205, 207, 208, 210, 211 para II(F)�� 208

Table of Legislation xxvii Sanctions Procedures section 4.01(a), (c)�� 204 section 4.02(a), (c)�� 204 section 4.03(a)�� 204 section 4.04�� 204 section 5.01(a), (b)�� 204 section 8.01�� 205 section 8.02(b)�� 205 section 8.03(a)�� 205 section 9.01�� 210 section 9.01(a)�� 205 section 9.01(c)�� 207 section 9.01(d)�� 205, 206 section 9.01(e)�� 208 section 11.01(a), (b)�� 209 section 11.03�� 209 Standard Procurement Document, Request for Bids: Works (After Prequalification) (Washington DC, World Bank, 2016) section VII�� 160 Statute of the International Court of Justice Art 34�� 43 Art 34(3)�� 43 UNCITRAL Arbitration Rules (2014)�� 304 Art 35�� 304 UNCITRAL Model Law�� 48, 119, 221, 228, 246, 273–275 Ch III�� 123 Ch IV�� 123 Art 2(o)�� 149 Art 9�� 104 Art 10(4)�� 150 Art 11(2)�� 149 Art 11(3)(a)�� 149 Art 11(3)(b)�� 150 Art 12�� 120 Art 30(2)�� 128 Art 34�� 119 Art 49�� 128 Vienna Convention on the Law of Treaties Art 2(1)(a)�� 39 Art 5�� 39 Art 26�� 42 Art 27�� 42 Art 31�� 34, 42 Art 77�� 40 World Bank Sanctioning Guidelines see Sanctioning Guidelines World Bank Sanctions Procedures (Washington DC, World Bank, 2011) see Sanctions Procedures

xxviii Table of Legislation United Kingdom Public Contracts Regulations 2015 (SI 2015/102) reg 12�� 140 United States of America 15 USC § 633�� 151 41 USC § 253�� 151 §§ 8301–8305�� 151 § 8302(a)(1)�� 151 49 USC § 5323�� 151 Regulations Federal Acquisition Regulations (FAR)�� 152 Pt 2 2.101�� 77, 103, 152 Pt 9 9.103�� 104 Pt 18�� 119 Pt 23 23.000�� 152 23.103�� 152 23.104�� 152 23.105�� 152 23.202�� 152 Pt 36�� 152

Part I

History and Law

2

1 Introduction

T

HIS BOOK EXAMINES public procurement regulation and practice in the multilateral development banks (MDBs). For the purpose of this book this refers to the World Bank and the regional development banks, namely: the Inter-American Development Bank; the African Development Bank; the Asian Development Bank; and the European Bank for Reconstruction and Development. These institutions cumulatively channel billions of dollars annually in loans and grants for infrastructure projects, development and technical assistance to developing and member countries; and spend this money through processes that incorporate the public procurement regulations of these lenders/funders. It is in fact often a condition of the finance provided that procurement under funded projects is done according to the lender’s procurement regulations. However, although the procurement process is subject to the rules of the lending institution, the process is managed by the borrower (usually a developing country public agency) with the funder merely taking a supervisory role to ensure that the process is properly conducted. In contracts financed by the development banks, the dichotomy between the source—and hence the understanding—of the procurement rules and the application of these rules has led to various problems, which have affected the management and efficiency of the use of MDB funds. Some of these problems arise from a lack of understanding of the rationale for the rules; a lack of understanding of the rules themselves; the confusion that arises from the multiple procurement regulatory regimes to which borrowers are often subject from different lenders; and the lack of capacity in some borrower countries/agencies to apply the rules in a manner that furthers efficient and transparent procurement. The lack of capacity has in particular led to undesirable outcomes in development projects, in the sense that frequently projects are improperly implemented and do not achieve their objectives. Apart from the problems highlighted above, corruption is another issue that affects the procurement of goods, services and construction under funded projects. Where corruption affects a project, this may lead to the funder terminating or withdrawing the loan owing to the breach or misapplication of the procurement rules and or the misuse of the funds.

4 Introduction This may then mean that projects may not deliver the anticipated results, or may possibly remain uncompleted, where the funds are withdrawn and the borrower is unable to afford the project without external financial support. There are two issues that may be highlighted about procurement regulation in MDBs. First, it is important to note that the objective of procurement regulation in these institutions is to ensure that loan proceeds are properly spent when the borrower conducts the procurement process. Paradoxically, it may be noted that the procurement practices of the lenders are not wholly conducive to ensuring that loan proceeds are properly spent. The vast number of projects financed by the development banks, the complex nature of their procurement regulations, and of course the inability of the banks to supervise every procurement process in detail, means that the supervision of funded contracts is limited. This supervision often takes the form of a prior (document-based) review of the borrower’s intention to award a contract to a particular contractor; site visits (or other implementation support offered during the pendency of a project); and a post-contract review in the form of an audit. Post-contract audits used to occur in a very limited number of cases, and although the actual number of audits conducted is now on the rise, an inability to fully and properly supervise all funded procurements has still resulted in the wastage and loss of loans to corruption, theft and incompetent procurement. Whilst there are no accurate statistics to indicate the amount of MDB funds lost to theft and corruption, it must be noted that even where MDB funds are lost or misapplied, this does not affect the borrower’s repayment obligations; citizens in borrower countries still have to repay the loans (through taxation). This has led to such ‘lost’ loans being tagged ‘criminal debt’ by development experts.1 Where MDB funds are lost, it is doubtful whether the citizens of such countries have any form of recourse against the lenders for participating in conduct that has led to the acquisition of debt without corresponding returns. A second issue with MDB procurement, which impacts the efficient and effective spending of MDB funds, is the method and process for identifying projects that require MDB financing. Although this is mostly a political question, the challenge of properly and appropriately determining which projects are best placed to benefit from development loans may explain why some of these development projects do not always result in the expected benefits. However, as will be seen, development banks as well as other donors are increasingly trying to ensure consistency and alignment with national aspirations, priorities and needs in the identification of projects suitable for funding.

1 J Winters, ‘Criminal Debt’ in JR Pincus and JA Winters (eds), Reinventing the World Bank (Ithaca, Cornell University Press, 2002).

Introduction 5 Despite the importance of MDB public procurement rules in the development arena, there is little information which presents, in a coherent and comprehensive way, the public procurement regulatory framework, the procurement practices and the legal and practical issues that arise from the procurement framework of the MDBs. This book presents for the first time, and in a comprehensive, structured and analytical manner, the law, practice and problems of public procurement regulation in the MDBs, using the World Bank as a case study, whilst drawing out areas of difference between the World Bank and the other MDBs. The World Bank was chosen as the case study because of its importance as the largest MDB and also its leadership in the development arena. The observations made by Cassen about the World Bank in 1994 still apply today; in his words: It suffices it to say that the [World Bank] Group is the corner-stone of multilateral aid…Its country reports are widely used as the basis of statistical and economic knowledge for all donors. Its policy analysis similarly guides many donors’ lending. It has provided intellectual leadership in development thinking…Western aid in its present form could not function without it…2

In addition, in relation to the development of procurement policy: the World Bank…has been in the forefront of development financing both in terms of volume and with respect to the formulation of operational policies, including procurement policy…The Bank has established detailed procedures for procurement in connection with projects funded by itself…Regional development banks, and other international financing institutions, have adopted procurement directives modeled on those of the World Bank.3

Added to these views is the fact that since the early 2000s, there has been a lot more co-operation between the MDBs in harmonising and coordinating approaches and assistance to borrowers, such as in relation to country assistance strategies, in the area of anti-corruption and in relation to procurement policies and practices, giving the World Bank an even greater role in the development lending space. This book examines the objectives of procurement regulation in the MDBs and the approaches to procurement regulation in these institutions and considers whether the approach taken by the institutions to procurement regulation is desirable or even necessary. The book highlights and analyses the problems that attend the procurement practices of the development banks, studies and compares the approaches of the banks, and examines selected common issues and the solutions that the different banks may have applied to resolving those issues. 2

R Cassen, Does Aid Work? (Oxford, Oxford University Press, 1994), 212, 213. Westring and G Jadoun, Public Procurement Manual for Central and Eastern Europe (Turin, International Training Centre for the ILO, 1996). 3 G

6 Introduction The book aims at developing a coherent framework for understanding the regulation of public procurement in MDBs. It must be stated here that the book is not concerned with the ability of a borrowing State to enter into private contracts, as this issue has previously been addressed in the literature.4 What this book is rather concerned with, is the regulatory framework of procurement for contracts that are funded by a MDB. This regulatory framework is in some cases made more complicated by the tripartite relationship that governs funded procurement contracts and exists between the borrower, the funder and the contractor/supplier. As will be seen, the development banks are not parties to the contract between the contractor and the borrower, but retain a coordinating and supervisory role, which is quite weighty, given the many devices applied by the MDBs to ensure the proper expenditure of the funds. The book is comprised of 11 chapters and grouped into three parts. Each chapter of the book will discuss salient issues attending public procurement regulation in multilateral development banks. Part I of the book contains an introduction to the history and the legal status of MDBs. Chapter 1 is the introduction and sets out the structure of the book. Chapter 2 presents an overview of public procurement regulation in the MDBs; examining the conceptual framework for procurement regulation and the basis for regulating procurement by the development banks as well as the history and objectives of procurement regulation in the institutions. Chapter 3 examines the status of the MDBs as subjects of international law, considering the legal personality of the MDBs and their liability and immunity under international law, as well as the importance of MDBs as major actors in the field of global administrative law and the implications thereof. It looks at the status of loan agreements in international law, as well as the nature of the relationship between the MDBs and borrowers. Part II of the book considers the operational procurement framework in the MDBs. Specifically, Chapter 4 examines the documents that govern the public procurement process. It also considers the hierarchy between these documents, which include, inter alia, the loan agreement; the procurement guidelines; the contractual documents as embodied in the General Conditions of Contract (GCC); and the procurement and project plans. The chapter examines the role and scope of the procurement regulations and the standard bidding documents used by the institutions. Chapter 5 considers the organisation of procurement in the MDBs and the project cycle. The chapter examines the entire procurement process, looking holistically at all the stages of procurement, from project identification to 4 See I Alvik, Contracting with Sovereignty: State Contracts and International A rbitration (Oxford, Hart Publishing, 2011); C Turpin, ‘Public Contracts’ in K Zweigert and U Drobnig (eds), International Encyclopedia of Comparative Law (Leiden, Martinus Nijhoff, 1982); S Arrowsmith, Judicial Review and Government Procurement (Carswell, 1988).

Introduction 7 procurement proper, to contract award, to implementation, to payment and finally post-contract audits. This chapter will examine the processes for each stage, and the problems and challenges faced during the different phases of this process. Chapter 6 considers the issues of value for money and competition in MDB-funded contracts by focusing on the competitive procurement award procedures that are required by the MDBs, with a focus on the World Bank. It will be seen that one of the methods of attaining the value for money ideal in MDB procurement is through a reliance on award procedures that call for a competition between bidders. Such competitions are believed to secure the best price for the procuring agency and thus meet the value for money ideal. The chapter also looks at non-competitive award procedures and examines how, if at all, these are designed to reflect the value for money ideal. In Chapter 7, the book examines secondary or sustainability concerns in public procurement in the institutions. What are also referred to as ‘horizontal’ policies in public procurement (ie non-primary or non-vertical concerns that are considered in procurement decision-making such as industrial, social and environmental issues) are also a factor in the procurement regulation of MDBs. This chapter considers the nature and scope of, and limits to, including secondary issues within the framework of contracts financed by the MDBs. Part III is the final part of the book and examines the problems and issues that are peculiar to MDB procurement. One of the most intractable issues in development procurement is addressed in Chapter 8: the issue of corruption and fraud in projects funded by the development banks. As mentioned earlier, the failure of funded projects has led to development loans being tagged ‘criminal debt’; as where the loan is not used for its intended purpose, this does not alter the repayment obligation of the borrower, financed in most cases through taxation. The issue of corruption in development procurement has led to different kinds of corruption mitigation measures and penalties such as debarment (blacklisting) and misprocurement being included in MDB procurement regulations. These are examined, as are the causes of corruption in development projects and whether, indeed, MDB-funded projects are more predisposed to corruption than public procurement in other contexts. In Chapter 9, multilateral initiatives, which have impacted MDB public procurement policies and approaches, and are collectively referred to as the ‘aid effectiveness agenda’ are considered. The foundation of this agenda is a desire to improve the effectiveness of development aid, through various measures; the most important to public procurement being donor commitments to untie aid, the harmonisation of donor procurement practices and policies, and the reliance on national procurement systems (the use of country systems policy).

8 Introduction Chapter 10 of the book considers the issues of public procurement reform in developing countries, the development of procurement capacity in borrowers, and the initiative on the use of country systems. The chapter examines the role that MDBs have played and continue to play in relation to procurement reform and capacity building in developing countries and the extent to which such initiatives have been successful. Finally, Chapter 11 considers the extent to which the parties involved in a financed contract, namely the MDBs, borrowers’ contractors and bidders may seek remedies for disputes arising out of a funded project. It may be noted that, in general, neither the loan agreement nor the procurement contract creates any contractual relationship between MDBs and contractors, and this has implications for the remedial framework. The chapter examines the forum for resolving disputes that arise between bidders/contractors and borrowers, and the nature and limits of dispute resolution mechanisms established or supported by MDBs. The chapter also examines the nature of remedies available to the parties in a dispute. In addition, the chapter considers the forum for resolving disputes that arise out of the loan agreement between the MDB and the borrower. At present, there is no English language text devoted to an examination of the legal issues that are raised by MDB procurement and this book considers the new procurement framework that was adopted by the World Bank in July 2016. It thus looks at the outgoing form of procurement regulation in the World Bank (in the form of the 2011 procurement guidelines), as well as the approach that will be taken from July 2016. The book is thus the first comprehensive evaluation of procurement in the development banks and is particularly timely, given the recent overhaul of the World Bank’s procurement framework which is expected to lead to significant changes in future. The uniqueness of the book lies in the fact that it is the first of its kind, as well as in its readable style, making it accessible to lawyers and non-lawyers alike. As much as possible, the book avoids jargon and explains the meanings of technical concepts in public procurement. It is hoped that this book will be of use to practitioners in international development, academics, non-governmental organisations, students, consultants who work on MDB-funded projects and public officials in agencies that are required to implement the procurement rules of MDBs. This book presents with clarity and simplicity the ‘why’ and the ‘what’ of procurement regulation in MDBs, and aims to contribute towards an understanding of the rules on public procurement more generally, and in the MDBs in particular. The book also aims to present an analysis of MDB procurement requirements, and as much as possible attempts to provide a holistic approach to all the legal and practical issues that arise in MDB funded procurements.

2 A Historical Overview of the MDBs and the History of Public Procurement Regulation in the World Bank I. INTRODUCTION

T

HIS CHAPTER PRESENTS a brief history of the MDBs under consideration, examining the historical context of their establishment and their objectives. It also presents an overview of public procurement regulation in these institutions, using the World Bank as a case study, and examining the basis for and the objectives of procurement regulation in the MDBs. II. HISTORY OF THE MULTILATERAL DEVELOPMENT BANKS

A. The World Bank The World Bank (the Bank) is a development finance institution established by virtue of the 1944 Bretton Woods agreement to provide reconstruction aid to countries devastated by World War II.1 The World Bank is a specialised agency of the United Nations and formally became a part of this system in November 1947.2 Through a combination of the overwhelming scale of post-war reconstruction required by Western Europe after World War II (which the Bank was unable to meet), and the rise of communist ideology (which the US sought to counter in developing countries), the Bank quickly

1 M Alacevich, The Political Economy of the World Bank: The Early Years (Stanford, Stanford University Press, 2009), 2. Although the Bank was established in 1944, it began operations in June 1946. 2 ES Mason and RE Asher, The World Bank since Bretton Woods (Washington DC, Brookings Institution, 1973); World Bank, A Guide to the World Bank, 3rd edn (Washington DC, The World Bank, 2011) 49.

10 Historical Overview repositioned from its reconstruction mandate, and turned its attention to development.3 The name ‘World Bank’ is a misnomer in the sense that the term really refers to two lending institutions, viz the International Bank for Reconstruction and Development (IBRD), which was charged with providing post-war reconstruction assistance and now lends to middle income and creditworthy low income countries; and the International Development Agency (IDA), which provides grants and interest-free loans to the poorest countries.4 However, the World Bank Group is comprised of five separate institutions: the IBRD and the IDA; the International Finance Corporation (IFC), which is focused exclusively on the private sector; the Multilateral Investment Guarantee Agency (MIGA), which provides political risk insurance guarantees to investors and lenders; and the International Centre for Settlement of Investment Disputes (ICSID), which provides international facilities for the conciliation and arbitration of investment disputes.5 The Bank is the largest of the MDBs; lending in fiscal year 2014 was a little over $40 billion6 and $42.4 billion in fiscal year 2015.7 The Bank is the oldest and the largest MDB and has almost universal membership at 188 countries in 2016.8 It sets the pace and provides operational direction for the other MDBs, which are all regional institutions with limited membership. One important point to note in relation to membership is that the MDBs do not operate in isolation, and there is overlapping membership in all of them. The Bank’s non-concessional lending is funded by private sector financial markets that are content to invest in bonds issued by the Bank,9 whilst its concessional lending through IDA credits is funded through transfers from Member States. The United States remains the Bank’s largest contributor to date, contributing about 17 per cent of Bank funds in 2014.10 The World Bank’s lending portfolio has changed significantly since its inception, both in terms of theme and sector. The Bank has moved from

3 D Kapur, JP Lewis and RC Webb, The World Bank: History (Washington DC, Brookings Institution Press, 1997) 10. 4 Alacevich, Political Economy n 1 above; HV Morais ‘Testing the Frontiers of Their Mandates: The Experience of the Multilateral Development Banks’ (2004) 98 American Society of International Law Proceedings 64. 5 See www.worldbank.org. 6 World Bank, Annual Report, 2014 (Washington DC, The World Bank, 2014). 7 World Bank, Annual Report, 2015 (Washington DC, The World Bank, 2015). 8 Note that the Bank is owned by the governments of its member nations and they have the ‘ultimate decision-making power within the organization on all matters, including policy, financial and membership issues’. See www.worldbank.org. See also World Bank, A Guide to the World Bank, 3rd edn (Washington DC, The World Bank, 2011) 7. 9 Kapur, Lewis and Webb, The World Bank, n 3 above, 2. 10 R Nelson, Multilateral Development Banks: Overview and Issues for Congress (Washington DC, Congressional Research Service, December 2015) 9.

History of the Multilateral Development Banks 11 financing large developmental infrastructure projects to financing ‘soft’ projects; between 2010 and 2014, the largest amount of Bank lending went to financial and private sector development.11 Thus, although its focus at inception was project lending, this has significantly moved towards ‘programme lending’12 and the Bank has had to adjust its procurement system to cater to new lending modalities. B. The Inter-American Development Bank (IDB) The IDB is the oldest of the regional development banks,13 having been established in 1959 to provide Latin American and Caribbean countries with a bank focused on their needs and to thwart the spread of communism in the region.14 The IDB was described by one of its early General Counsel as a ‘cooperative international financial institution’.15 This description is appropriate, given that it was in pursuit of deeper regional co-operation that the idea of a regional development bank was first mooted in 1889–1890, at the first International Conference of American states.16 The idea for a regional bank did not gain acceptance during this time, but in 1940, a convention for the establishment of an Inter-American Bank was signed by the US, but eventually abandoned during World War II.17 This convention was instrumental in shaping the framework of the World Bank a few years later.18 The IDB prides itself on being the leading source of development finance for the region. Unlike the World Bank, and the other MDBs, the IDB has traditionally focused on social projects rather than large infrastructure projects; although it commenced infrastructure lending in the 1970s.19 Its focus on social lending raised significant problems for the IDB in its early days, as the focus sectors such as water, health, education and agriculture usually required significant institutional reform on the part of borrowers,

11

World Bank Annual Report 2014. See generally Kapur, Lewis and Webb, The World Bank, n 3 above, 3–9. 13 See generally, D Tussie, The Multilateral Development Banks: The Inter-American Development Bank (Boulder, Lynne Reinner Publishers, 1995) ch 2; SS Dell, The Inter-American Development Bank: A study in development financing (New York, Praeger Publishers, 1972). 14 S Babb, Behind the Development Banks: Washington Politics, World Poverty and the Wealth of Nations (Chicago, Chicago University Press, 2009) ch 1. 15 AH Weiss, ‘The Inter-American Development Bank’ (1972) Journal of International Law & Economics 232, 233. 16 Dell, The Inter-American Development Bank, n 13 above, ch 1; R Culpeper, ‘Regional Development Banks: Exploiting their Specificity’ (1994) 15(3) Third World Quarterly 459. 17 Culpeper, ‘Regional Development Banks,’ n 16 above, 460. 18 Culpeper, ‘Regional Development Banks,’ n 16 above, ibid. 19 Nelson, Multilateral Development Banks n 10 above, 2. 12

12 Historical Overview usually requiring new legislation.20 As a result, IDB loan agreements were very complex, ‘covering many conditions precedent to disbursement’.21 It must be noted here that all the MDBs operate in the same way: they provide both concessional and non-concessional funds.22 The concessional funds are given to the poorest borrowers or least developed countries (LDCs), whilst the non-concessional funds are given to credit worthy borrowers. In the World Bank, concessional lending is provided through the IDA, as mentioned above and in the IDB, it is provided through the Fund for Special Operations (FSO). There is an extremely close relationship between the World Bank and IDB in the areas of funding and management, and the IDB more closely mirrors the World Bank’s structure and operations than do the other development banks. Similar to the World Bank Group’s International Finance Corporation (IFC), the IDB also provides loans to the private sector through its Inter-American Investment Corporation and Multilateral Investment Fund.23 The IDB is made up of 48 members. This includes 26 members from the region and 22 non-regional members from Europe, Asia, and Israel. As discussed above, the MDBs contain overlapping membership and the US and the UK are members of all the MDBs. Regional members of the IDB must have prior membership of the Organization of American States, while non-regional members must also be members of the International Monetary Fund. C. The African Development Bank (AfDB) The establishment of the IDB created the impetus for the establishment of the other regional development banks, especially the Asian and African development banks.24 In 1961, interested African countries asked the United Nations Economic Commission for Africa (UNECA) to examine the possibility for a regional development bank in Africa. This led to a conference of African finance ministers, where the agreement for a regional bank was finalised in August 1963. The AfDB was created to promote development efforts on the African continent. It commenced lending in 1966 and was initially headquartered in Sudan, but now operates from Cote d’Ivoire. 20

Weiss, ‘Inter-American Development Bank,’ n 15 above, 233.

21 ibid. 22

Note that the EBRD does not have a concessional window. Multilateral Development Banks, n 10 above, 3. 24 Culpeper, ‘Regional Development Banks,’ n 16 above, 460. See also KA Mingst, ‘The African Development Bank: From Follower to Broker and Partner’ in S Park and JR Strand (eds), Global Economic Governance and the Development Practices of the Multilateral Development Banks (London, Routledge, 2016). 23 Nelson,

History of the Multilateral Development Banks 13 Similar to the World Bank Group, the AfDB actually consists of three distinct entities: the African Development Bank, which is the parent institution, the African Development Fund, established in November 1972 and the Nigeria Trust Fund, established by the Federal Government of Nigeria in 1976. The AfDB is Africa’s largest development finance institution and is now comprised of 53 African countries and 25 non-African members. Non-regional members wishing to join the AfDB must first be members of the African Development Fund. Unlike the other MDBs, the AfDB did not initially admit non-regional members and only began to admit nonregional members in 1982.25 This was in part due to the fact that the AfDB was intended to be a strictly African affair, with the Board of Governors, the Directors, as well as the top management, all being African. As stated by English and Mule ‘the memory of colonial domination was too recent, and for many too bitter, to countenance new ties to the North’.26 This policy proved to be too costly as it meant that the fledgling and newly independent African states were faced with very high subscription costs, which could not be paid. This severely hampered the operations of the AfDB.27 After several attempts at opening up to non-regional members, an agreement was finally reached in 1982, thus bringing in new members and new sources of funding. Similar to the World Bank, the AfDB’s focus at inception was infrastructure lending. The AfDB also provides both concessional and non- concessional financing. Concessional financing is provided through the African Development Fund. Although non-concessional loans are available to the private sector, the AfDB does not have a separate fund for private sector projects.28 Non-concessional financing is provided by the AfDB to creditworthy members and ‘blend’ countries, that is, those countries whose Gross National Income is sufficient for them to qualify for both concessional and non-concessional financing. The African Development Fund provides concessional financing to low income countries unable to borrow at market rates. The Nigeria Trust Fund assists the development efforts of the poorer AfDB members whose economic and social conditions and prospects require financing on non-conventional terms.29 The main lending instruments used by the AfDB are project lending, followed by policy/sectoral lending, followed by grants, guarantees and equity finance.

25 Nelson,

Multilateral Development Banks, n 10 above, 3. EP English and HM Mule, The Multilateral Development Banks: The African Development Bank (Boulder Co, Lynne Reinner Publishers, 1996), ch 2. 27 ibid, 27. 28 Nelson, Multilateral Development Banks, n 10 above, 3. 29 African Development Bank, Nigeria Trust Fund Operational Guidelines (November 2008). Available at http://www.afdb.org/fileadmin/uploads/afdb/Documents/Policy-Documents/4%20EN-%20Nigeria_Trust_Fund_%28NTF%29_-_Operational_Guidelines.pdf. 26 See

14 Historical Overview The AfDB maintains very close links to the other MDBs, especially the World Bank. In 2000, it signed a Memorandum of Understanding (MOU) with the World Bank outlining a strategic partnership between the two institutions.30 This MOU was revised in 2002 to make it more operational, and in 2003, a set of action plans under the MOU was drawn up to delineate co-operation in various sectors.31 The largest contributors to the AfDB are Nigeria, Egypt and South Africa from the continent and the US, Germany and Canada from the cohort of non-regional members. D. The Asian Development Bank (ADB) The proposal for the creation of a development bank for the Asia-Pacific region can be traced to a conference of the then United Nations Commission for Asia and the Far East in 1963.32 A Consultative Committee was created to determine the case for a new institution. The case was made that a development bank in the region would be a conduit for channeling additional external resources to the region; would assist in financing projects that were not adequately funded by other donor agencies; and act as a focal point for regional activities that would promote economic co-operation.33 The Consultative Committee prepared a draft of an Agreement establishing the Asian Development Bank (the Charter), which after a review by potential participants in the bank was adopted at the Second Ministerial Conference on Asian Economic Cooperation in 1965.34 The Charter entered into force on 22 August 1966 and established the ADB, which was headquartered in Manila, Philippines and was created to provide developmental finance to the countries in Asia and the Pacific.35 The ADB achieves its objectives through a mix of grants loans, technical assistance, policy dialogues, and equity investments. The ADB lends exclusively for development purposes and most of its lending is targeted at the public sector.36 The ADB is similar in operation to the other MDBs in the provision

30 See K Murison (ed), Africa South of the Sahara 2003, 32nd edn (London, Europa Publications, 2003) 1244–1245. 31 ibid, 1245. 32 N Kappagoda, The Multilateral Development Banks: The Asian Development Bank, (Boulder Co, Lynne Reinner Publishers, 1995), ch 2. 33 See Asian Development Bank, The Asian Development Bank: Questions and Answers (Manila, Asian Development Bank, 1992). 34 ibid. 35 AK Nandakumar, J Beswick, B Sah and R Wallack, Asian Development Bank: Overview of Structure, Funding, Policy and Programs with emphasis on the health and agriculture sectors (Waltham, Brandeis University, 2007), 1. Available at http://sihp.brandeis.edu/ighd/ PDFs/Asian-Development-Bank-Overview-09-07.pdf. 36 Nandakumar et al Asian Development Bank n 35 above, 1.

History of the Multilateral Development Banks 15 of concessional finance. Its tenor lending is implemented by the ADB, whilst the Asian Development Fund, established in 1974, offers low interest loans to the poorest borrowers. The ADB also finances specific projects, including those forming part of a national or regional development programme.37 The ADB is made up of 48 regional members and 19 non-regional members (from Europe and the USA). Unlike the AfDB, the ADB admitted non-regional countries to membership of the ADB from the outset, in recognition that those countries would be a major source of funds for the ADB.38 Although one of the latest development banks to be established, the ABD is a pioneer in other respects, and in 1995, it became the first development bank to develop a governance policy to ensure that development assistance fully benefits the poor. Given the level of development that has occurred in the region, there have been insinuations that the ADB is no longer relevant in a region with a capital surplus. To meet the challenges the ADB is likely to face in future, it developed a Long Term Strategic Framework 2020 to assist it in counteracting the challenges accompanying rapid economic growth but rising inequalities in the region. E. The European Bank for Reconstruction and Development (EBRD) After the Cold War, there was an urgent need in Europe to help finance the transformation of the countries of Central and Eastern Europe into free market economies.39 In 1989, the then President of France, François Mitterrand, called for the establishment of a European development bank. This call was endorsed by the European Council, and in 1990, a series of meetings led to the development of the Agreement Establishing the European Bank for Reconstruction and Development,40 which was signed in Paris on 29 May 1990 and entered into force on 28 March 1991. The EBRD is headquartered in the United Kingdom and is the youngest of the MDBs, having commenced full operations in April 1991.

37 Kappagoda,

The Multilateral Development Banks n 32 above, 15. The Multilateral Development Banks n 32 above, 14. 39 M Cogen, An Introduction to European Intergovernmental Organizations (Farnham, Ashgate, 2015), ch 5. 40 IFI Shihata, The European Bank for Reconstruction and Development: A Comparative Analysis of the Constituent Agreement (London, Graham & Trotman/Martinus Nijhoff, 1990), ch 1. See also PA Menkveld, Origin and Role of the European Bank for Reconstruction and Development (London, Graham & Trotman, 1991); J Linarelli, ‘The European Bank for Reconstruction and Development and Development: Legal and Policy Issues’ (1995) University of Pennsylvania Journal of International Business Law 373. 38 Kappagoda,

16 Historical Overview The main objective for the creation of the EBRD was to ease the transition of the former communist countries to a market-based economy. In the aftermath of the Soviet collapse, it was thought expedient to establish an organisation whose objective would be to transition the countries of Central and Eastern Europe from centrally planned to capitalist economies.41 The EBRD came into existence with 40 States and the European Investment Bank42 as its members. The EBRD is different from the other MDBs in that it supports democracy building and does not have a concessional window.43 In addition, it provides a large proportion of its loans to the private sector. Its main thematic and focus areas are food security, global food production, and the development of the private sector. Unlike the other MDBs, and uniquely for a development bank, the EBRD has a political mandate in that it assists only those countries ‘committed to and applying the principles of multiparty democracy, pluralism and market economics’.44 Safeguarding the environment and a commitment to sustainable energy are also central to the EBRD’s activities. The EBRD serves the interests of all its shareholders, which are currently 64 countries, including the European Union and the European Investment Bank. III. BACKGROUND TO PUBLIC PROCUREMENT REGULATION IN THE MDBs: A CASE STUDY OF THE WORLD BANK

As an international development institution, the World Bank funds capitalintensive projects in developing countries, which are implemented by means of procurements in these countries. The regulation of public procurement by the development banks arose from a need to prevent the loss of funds channeled to developing countries as project finance. It should be noted that procurement regulation was not initially envisaged by the constitutions of the development banks and was only introduced by the banks several years into their operations. For instance, the first formal direction on World Bank procurement was issued in 1964,45 almost 20 years after it commenced lending. In addition, the anti-corruption thrust that is seen in MDB procurement

41 A Bronstone, The European Bank for Reconstruction and Development (Manchester, Manchester University Press, 1999), 3. 42 Bronstone, The European Bank, n 41 above, 27. 43 Nelson Multilateral Development Banks, n 10 above, 3. 44 See Agreement Establishing the European Bank for Reconstruction and Development, 29 ILM 1077 (1990), art 1. 45 R Hunja, ‘Recent Revisions to the World Bank’s Procurement and Consultants Selection Guidelines’ (1997) 6 Public Procurement Law Review 217, 218.

Background to Public Procurement Regulation in the MDBs 17 regulation today is also relatively recent, having arisen in response to the ‘corruption eruption’ of the 1990s.46 Although the constitutions of the development banks did not originally clearly specify for procurement regulation or for anti-corruption measures, they did contain provisions to ensure that loan proceeds were not wasted in a general sense. For instance, the World Bank’s Articles of Agreement require that loan proceeds are to be used for the purposes for which they are granted, with due regard to considerations of economy and efficiency.47 The Articles however prohibit the Bank from taking political or non-economic considerations into account or interfering in the political affairs of its members.48 This raised a quandary for the Bank in deciding how to ensure that the disbursement of loan proceeds through project procurements is conducted in an open, transparent and competitive manner in countries that might have weak public administration systems, or lax or non-existent public procurement regulation, without interfering with the borrower’s internal administration. To circumvent this problem, the Bank formulated its own procurement guidelines, which would regulate procurements conducted using its funds and made it a condition of its finance that project procurement is done in accordance with its own procurement guidelines. The Bank’s approach to procurement regulation was subsequently adopted by the other development banks. The regulation of procurement by the MDBs was initially designed to cater for the kinds of procurements conducted from the 1970s to the 1990s, which were often large-scale, stand-alone infrastructure investments.49 The approach of the other MDBs to procurement was thus largely driven by the historical evolution of World Bank procurement. During the early decades of Bank operations, it was necessary that the procurement process was very formalistic, paper-heavy and ensured that bidders (who may be totally unknown to the Bank) were able to complete awarded contracts.50 It should be noted that in all the MDBs, although the procurement process is

46 S Williams, ‘The Debarment of Corrupt Contractors from World Bank Financed Contracts’ (2007) 36(3) Public Contract Law Journal 277. 47 International Bank for Reconstruction and Development Articles of Agreement, art III (5) 2 UNTS 134 (27 December 1945), amended Dec. 16, 1965, 606 UNTS 294 [hereinafter IBRD Articles of Agreement]. See also Agreement establishing the Asian Development Bank, 571 UNTS 123 (22 August 1966), art 8; the Agreement establishing the Inter-American Development Bank, 389 UNTS 69 (8 April 1959), art III(1); the Agreement establishing the African Development Bank 510 UNTS 3 (4 August 1963), art 12; and the Agreement Establishing the European Bank for Reconstruction and Development, 1646 UNTS 97 (29 May 1990), art 8(1). 48 IBRD Articles of Agreement, art IV(10). 49 T Tucker, ‘A Critical Analysis of the Procurement Procedures of the World Bank’ in S Arrowsmith and A Davies (eds), Public Procurement: Global Revolution (The Hague, Kluwer Law International, 1998) 141. 50 Tucker, ‘A Critical Analysis’ n 49 above, 141.

18 Historical Overview subject to MDB procurement rules, the process is managed by the borrower, with the MDB merely taking a supervisory role to ensure that the process is properly conducted.51 The procurement regulations have since evolved to reflect changes in the Bank’s operations and conditions in member countries.52 This trend has also been followed by the other MDBs, given that they look to the Bank for leadership in this area. From the relatively modest procurement rules issued in the 1960s, procurement regulation in the development banks has grown to cater for the entire value chain of procurement, from the planning phases to the post-procurement phases. The regulations have also changed to reflect the use of new technologies in the procurement process as well as new and different ways of delivering development assistance.53 For instance, the Bank has moved from large single infrastructure projects to an ‘everincreasing number of smaller, dispersed contracts, sector-wide approaches, and performance-based and community-based activities, which now make up a significant share of the Bank’s operations’.54 In addition, the 2008 global financial crises affected development funding, and called for different methods of financing and procuring, which of course have affected the substance of Bank procurement regulation. IV. THE HISTORY AND EVOLUTION OF PROCUREMENT POLICY IN THE WORLD BANK

Almost 20 years after its establishment, the Bank recognised the need to provide Bank staff with direction on procurement and thus in 1961, the first written procurement rules were compiled to provide guidance for staff. A few years later, in 1964, the first formal instructions, which contained the procedures to be used by Bank staff in conducting international competitive bidding (ICB) were approved by the Bank’s Board of Executive Directors. Although the use of ICB and other procurement procedures was formalised in 1964, the Bank had earlier introduced ICB as the normal procurement procedure in 1951.55 ICB is regarded as the gold standard of procurement

51 See generally, S Arrowsmith, J Linarelli and D Wallace, Regulating Public Procurement: National and International Perspectives (The Hague, Kluwer Law International, 2000), ch 3. 52 Operations Policy and Country Services (OPCS), The World Bank’s Procurement Policies and Procedures: Policy Review Approach Paper (Washington DC, The World Bank, 29 March 2012), para 3. Available at siteresources.worldbank.org/INTECA/ Resources/257896-1335553632562/Approach-Paper-Eng.pdf. Hereafter OPCS, Approach Paper. 53 ibid, para 3. 54 ibid, para 6. 55 Operations Policy and Country Services (OPCS), The World Bank’s Procurement Policies and Procedures: Policy Review Initiating Discussion Paper (Washington DC, The World Bank, 29 March 2012), 2. Available at http://siteresources.worldbank.org/

The History and Evolution of Procurement Policy in the World Bank 19 methods and requires that all bidders (who have met the test of eligibility, such as nationality etc) are given notification of the procurement opportunity, through international advertising, and are given an equal opportunity to bid. In 1956, it was decided that only Bank members (and Switzerland) would be eligible to bid for Bank contracts.56 However, the Bank now permits firms and individuals from all countries to bid for Bank-financed contracts, with very limited exceptions.57 Preferences for domestic suppliers were introduced in 1966, and the specification of currency for bid comparisons was regulated in 1971. The first formal instructions on selecting consultants, mainly for large engineering contracts, were issued in 1966.58 As stated above, the initial procurement guidelines have undergone significant revision over the years to reflect changes in the Bank’s approach to lending; changes in the global financial landscape; and innovations in the field of public procurement.59 After the creation of the initial procurement guidelines in 1964, the documents were amended in 1965, in 1974, in 1985 and in 1995.60 During the 1970s and 1980s, the Bank exercised its fiduciary duty by reviewing and approving all contracts and eventually shifted from the explicit approval of contracts to the use of a letter of ‘no-objection’ given to the borrower to proceed with the contract, a move which clarified the Bank’s role as a financier but not a party to the contract.61 This requirement for a letter of ‘no-objection’ from the Bank is still in use today.62 It must be stated here that the requirement for Bank approval at different stages of the procurement process is one way by which the Bank retains de facto control over the procurement process.63 Thus, whilst the Bank does not maintain operational control over procurement decisions, there is little that the borrower can do to proceed with the project if it does not obtain the approval of the Bank. In the 1980s, the Bank introduced a measure of flexibility into its procurement procedures to take into account the purchases of common or ‘off the INTECA/Resources/257896-1335553632562/Initiating-Discussion-Paper-Eng.pdf. Hereafter OPCS, Initiating Discussion paper. See also G Westring, ‘Procurement of Contractors and Consultants—A World Bank Perspective’ (1991) 19 International Business Lawyer 357. 56 OPCS,

Initiating Discussion Paper n 55 above, 2. The World Bank, Guidelines: Procurement of Goods, Works and Non-consulting services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers, (Washington DC, The World Bank, January 2011), para 1.8. Hereafter, Bank Procurement Guidelines (2011). 58 OPCS, Initiating Discussion paper, n 55 above, 2. 59 JJ Verdeaux, ‘The World Bank and Public Procurement: Improving Aid Effectiveness and Addressing Corruption’ (2006) Public Procurement Law Review NA179. 60 HC Casavola, ‘Internationalizing Public Procurement Law: Conflicting Global Standards for Public Procurement’ (2006) 6(3) Global Jurist Advances 1535; Hunja, ‘Recent Revisions’, n 45 above, 217. 61 OPCS, ‘Initiating Discussion Paper’, n 55 above, 2. 62 Bank Procurement Guidelines (2011), para 1.18. 63 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 51 above, ch 3. 57

20 Historical Overview shelf’ items and to set thresholds for the use of ICB. The Bank also introduced price as a criterion for the consideration of consultants’ contracts.64 In addition, the 1980s evidenced a slight, if informal, move towards the use of country procurement systems where appropriate for Bank financed contracts.65 It must be noted that the actual reliance on country systems in Bank-funded contracts were few and far between during this decade. However, this set the stage for the introduction of Country Procurement Assessment Reports (CPARs), as well as the formal acknowledgement of the necessity to rely on country systems where appropriate, which 20 years later, led to the conduct of an extensive piloting programme on the use of country systems.66 The CPAR was developed to be used as a means of conducting a holistic review of domestic public procurement, which could be used as the basis for initiating procurement reform. As stated by the Bank, ‘the CPAR was intended to be an analytical tool to diagnose the health of the existing system in the country, and in the process generate a dialogue with the government focused on needed reforms … to improve a country’s system for procuring goods, works and consulting services’.67 Other changes that occurred during this decade were increased codification and standardisation of procurement and the introduction of standard bidding documents.68 In relation to the basis of the Bank’s procurement policy, it can be seen that between 1964 and 1994, the Bank’s procurement policy was premised on four considerations: economy and efficiency in the procurement process; competition; encouraging local industry and transparency.69 These policy considerations were implemented through specific procurement procedures; in particular, open and competitive bidding, which has been described as the mainstay of the Bank’s policies for the procurement of goods, services and works under Bank-financed projects.70 Open and competitive bidding was achieved through a default measure of requiring ICB for Bank-financed procurements. As stated earlier, ICB in essence means that procurements

64 OPCS,

Initiating Discussion paper, n 55 above, 3. Initiating Discussion paper, n 55 above, 3. 66 See Use of Country Procurement Systems in Bank-supported Operations: Proposed Piloting Program I (R008-36/3), April 2008; Piloting Program in Use of Country Systems: First Progress Report (SecM2009-513), October 2009; Use of Country Procurement Systems in Bank-Supported Operations: First Progress Report on the Piloting Program, (R2009-0314 and IDA/R2009-0317), December 2009, and Piloting Program in the Use of Country Procurement Systems: Second Progress Report, October 2010. See also Bank Procurement Guidelines (2011), para 3.20. 67 World Bank, Country Procurement Assessment Report Instruction. Section I- I ntroduction (www.worldbank.org). 68 OPCS, Initiating discussion paper, n 55 above, 3. 69 See World Bank, Guidelines: Procurement under IBRD Loans and IDA Credits and Grants (Washington DC, The World Bank, January 1995, revised in 1996, 1997 and 1999) para 1.2. 70 OPCS, Approach paper, n 52 above, 1. 65 OPCS,

The History and Evolution of Procurement Policy in the World Bank 21 are advertised internationally and are open to persons beyond the borrower country.71 Although there were several changes to the initial procurement guidelines, these changes did not in any way signify a shift in the Bank’s underlying procurement policy and the four policy considerations mentioned above still dominated the Bank’s procurement system, in spite of the introduction of new procurement methods, the increased standardisation of procurement and changes to the Bank’s lending. The most significant alteration to the Bank’s procurement policy occurred in 1995 when the Bank introduced a new paragraph in its procurement guidelines dealing with fraud and corruption in Bank procurements.72 This new paragraph established the Bank’s intention to debar firms engaging in corruption from bidding for Bank-financed contracts and also contained a clause permitting borrowers to include a ‘no-bribery’ pledge in bid documentation. The paragraph on corruption was again revised in 2004 to include bid rigging, price-fixing, collusion and coercive practices in the list of prohibited activities and grant the Bank contractual access to bid and contract documentation and the power to audit the accounts of suppliers.73 It must be noted that the introduction of anti-corruption measures into the Bank’s procurement landscape was a long time coming and evidenced a dramatic shift away from the Bank’s often stated policy not to interfere in domestic corruption issues, as these were considered ‘political’, even if the corruption arose in Bank-financed projects.74 The prohibition against being influenced by political or non-economic considerations by the Bank is found in Article IV, section 10 of the Bank’s Articles of Agreement, which provides that: The Bank and its officers shall not interfere in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the

71 World Bank, Guidelines: Procurement under IBRD Loans and IDA Credits and Grants (Washington DC, The World Bank, 2004) paras 1.3 and 1.4. 72 World Bank, Guidelines: Procurement under IBRD Loans and IDA Credits and Grants (January 1995, revised in 1996, 1997 and 1999) para 1.15. 73 World Bank, Guidelines: Procurement under IBRD Loans and IDA Credits and Grants (2004) para 1.14; S Williams, ‘World Bank Introduces New Measures to Reduce Fraud and Corruption in Bank-financed Projects and the Administration of Bank Loans’ (2007) 16(5) Public Procurement Law Review NA152; PH Dubois and AE Nowlan, ‘Global Administrative Law and the Legitimacy of Sanctions Regimes in International Law’ (2010) 36 Yale Journal of International Law Online 15. 74 IFI Shihata, ‘Corruption: A General Review with an Emphasis on the Role of the World Bank’ (1997) 15 Dickinson Journal of International Law 451, 475. It has been argued that the Bank’s concern with corruption coincided with the United States’ increased attack on international bribery during the Clinton administration. See N Wallace-Bruce, ‘Corruption and Competitiveness in Global Business: The Dawn of a New Era’ (2000) 24 Melbourne University Law Review 349, 362.

22 Historical Overview member or members concerned. Only economic considerations shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the purposes stated in Article I.75

As will be discussed further in Chapter 8 below, with the assumption to the leadership of the Bank by James Wolfensohn in 1995, the Bank decided to face the issue of corruption in developmental projects head-on, and determined that it could rely on a provision in its Articles of Agreement, which provides that loan proceeds must only used for their intended purpose; to grant legitimacy to its anti-corruption efforts.76 The introduction of an anti-corruption element into the Bank’s procurement policies had two objectives. The first was to ensure that in accordance with the Bank’s Articles of Agreement, Bank funds were used for the purpose for which they were intended, with due regard for considerations of ‘economy and efficiency’. The other was to ensure that corruption did not continue to remain an obstacle to development.77 The Bank’s policy against corruption is based on four main strategies. The first is to ensure that the procurement process contains preventive and punitive elements against corruption. The Bank’s policy of debarring corrupt contractors guilty of various infractions and declaring misprocurement (ie the termination of funding) assists in executing both these elements.78 Second, the Bank ensures that the pre-approval stage of loans and projects is rigorous and contains input from all interested parties.79 Third, measures are taken to ensure that, institutionally, the Bank is corruption free; and fourth, the Bank has improved auditing and supervision requirements in its projects.80 It could thus be surmised that by the end of 2004, the Bank’s procurement policy was based on the four considerations mentioned above: economy and efficiency in the procurement process; competition; encouraging local industry and transparency; with the introduction of an anti-corruption policy

75

IBRD Articles of Agreement, art IV(10). Articles of Agreement, art II(5b) provides: ‘The Bank shall make arrangements to ensure that the proceeds of any loan are used only for the purposes for which the loan was granted, with due attention to considerations of economy and efficiency and without regard to political or other non-economic influences or considerations.’ 77 JA Winters, ‘Criminal Debt’ in JR Pincus and JA Winters (eds), Reinventing the World Bank (Ithaca, Cornell University Press, 2002). 78 See generally, S Williams-Elegbe, Fighting Corruption in Public Procurement: A Comparative Analysis of Debarment or Disqualification Measures (Oxford, Hart Publishing, 2012), ch 3. 79 G Mansuri and V Rao, Localizing Development: Does Participation Work? (Washington DC, The World Bank, 2013); S Schlemmer-Schult, ‘The Impact of Civil Society on the World Bank, the International Monetary Fund and the World Trade Organization: The Case of the World Bank’ (2001) 7 ILSA Journal of International & Comparative Law 399, 403–04. 80 World Bank, Operational Manual 10.02 (Revised March, 2012). 76 IBRD

The History and Evolution of Procurement Policy in the World Bank 23 that led to increased oversight and further encouraged economy and efficiency in project procurement. The decade between 2005 and 2014 saw a profusion of activity and shifts in the Bank’s procurement policy. Whilst the previous 40 years had witnessed mainly incremental changes to the Bank’s procurement framework and policies—the most significant being the introduction of an anti-corruption policy, implemented through the insertion of punitive and preventive anticorruption measures into the Bank’s procurement guidelines—the decade between 2005 and 2014 witnessed new movement in the Bank’s procurement framework and policy. It must be noted, however, that this movement related to extensions to the Bank’s anti-corruption policy combined with a new governance approach in Bank procurement.81 In 2005, the Paris Declaration82 as expanded by the Accra Agenda83 and subsequent high-level documents issued by global development institutions gave the impetus for the changes to Bank procurement. These documents identified the reliance on country procurement systems in aid or donorfinanced projects as a priority for development partners.84 These multilateral instruments provided the momentum for the Bank to engage in its pilot on the use of country systems and the eventual provision in the Bank procurement guidelines accepting the use of a country’s system in a Bankfunded project within certain narrow limits.85 These issues will be further elaborated upon in Chapters 9 and 10. During this decade, there were increased attempts made to harmonise the practices and policies of the major multilateral development banks.86 These attempts can be traced to the High Level Forum on Harmonization in Rome in 200387 steered by the OECD’s Development Assistance Committee (DAC), which championed the other high level forums in Paris, Accra and Busan. Harmonisation efforts led to the use of County Partnership Strategies, which introduced coherence in funding priorities between development

81 EW Debevoise and CR Yukins, ‘Assessing the World Bank’s Proposed Revision of its Procurement Guidelines’ (2010) 52(21) The Government Contractor 1. 82 Paris Declaration on Aid Effectiveness: Ownership, Harmonization, Alignment, Results and Mutual Accountability, High Level Forum on Aid Effectiveness, February 28 to March 2, 2005 (Paris, OECD, 2005). 83 Accra Agenda for Action, 3rd High Level Forum on Aid Effectiveness, 2–4 September 2008, Accra Ghana (Paris, OECD, 2008). 84 Paris Declaration, para 17; Accra Agenda, para 15. See also the Cuzco Declaration of the OECD/DAC Task Force on Procurement; Strong Procurement Systems for Effective States, May 2011 and the Busan Partnership for Effective Development Cooperation, 4th High Level Forum on Aid Effectiveness 29 November to 2 December 2011. 85 Bank Procurement Guidelines (2011), para 3.20. 86 E Nwogwugwu, ‘Towards the Harmonisation of International Procurement Policies and Practices’ (2005) 14(3) Public Procurement Law Review 131. 87 Rome Declaration on Harmonization, 1st High Level Forum on Aid Effectiveness, 24–25 February 2003, Rome (OECD 2003).

24 Historical Overview partners, whilst in relation to procurement, development institutions88 pursued harmonisation of procurement guidelines, the standardisation of bidding documents as well as co-operation in relation to enforcement.89 These cumulative shifts in the Bank’s procurement framework were occasioned inter alia, by the policy changes in the development landscape as discussed above, but also by changes to the Bank’s methods for delivering project finance;90 new areas that qualified for Bank lending; increased sectorial support as opposed to project lending; the increasing complexities wrought by fragile and conflict-affected States as well as global developments in public procurement, which saw far-reaching reviews of public procurement frameworks by inter-governmental and multilateral bodies such as the European Union (EU) and the United Nations Commission on International Trade Law (UNCITRAL).91 It must be noted that these shifts were not peculiar to the Bank’s procurement space; and since the start of the new millennium and most notably, since the financial crisis of 2008, the Bank has been re-evaluating its entire operations and governance framework in order to be able to respond better to unforeseen global changes and events, and increase accountability, inclusiveness and participation in Bank decision-making.92 It has been shown 88 The co-operating institutions are the Asian Development Bank, African Development Bank, Black Sea trade and Development Bank, Caribbean Development Bank, Council of Europe Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Inter-American Development Bank, Islamic Development Bank and the World Bank. 89 See Agreement for Mutual Enforcement of Enforcement Decisions between the African Development Bank Group, Asian Development Bank, European Bank for Reconstruction and Development, Inter-American Development Bank and the World Bank Group (9 April, 2010). See also CR Yukins, ‘Cross-Debarment: A Stakeholder Analysis’ (2013) 45 George Washington International Law Review 219; L Foliot-Lalliot, ‘Introduction to the World Bank’s Policies in the Fight against Corruption and Conflicts of Interest in Public Contracts’ in JB Auby et al (eds), Corruption and Conflicts of Interest: A Comparative Law Approach (Cheltenham, Edward Elgar Publishing, 2014); N Seiler and J Madir, ‘Fight against Corruption: Sanctions Regimes of Multilateral Development Banks’ (2012) 15(1) Journal of International Economic Law 5; SS. Zimmerman and FA Fariello Jr. ‘Coordinating the Fight against Fraud and Corruption: Agreement on Cross-Debarment among Multilateral Development Banks’ (2011) 3 World Bank Legal Review 189. 90 See A Gelb and N Hashi, ‘The Anatomy of Program-for-Results: An Approach to Results Based Aid’ (2014) CGD Working Paper 374. Available at www.cgdev.org/sites/default/files/ anatomy-program-for-results.pdf. 91 In July 2011, UNCITRAL adopted a new Model Law on Procurement, which replaced the earlier Model law of 1994. See www.uncitral.org/uncitral/en/uncitral_texts/procurement_ infrastructure/2011Model.html. The European Union on 15 January 2014, adopted new rules on public procurement and concession contracts, which replace the rules adopted in 2004. See Press Release www.europarl.europa.eu/news/en/news-room/content/20140110IPR32386/ html/New-EU-procurement-rules-to-ensure-better-quality-and-value-for-money. 92 Mansuri and Rao, ‘Localizing Development’ n 79 above; MS Ahluwalia et al, Repowering the World Bank for the 21st Century: Report of the High Level Commission on Modernization of World Bank Group Governance (Washington DC, The World Bank, 2009); A Ebrahim and S Herz, ‘Accountability in Complex Organizations: World Bank Responses to Civil Society’ (2007) Harvard University John F Kennedy School of Government Faculty Research Working Papers 1.

The History and Evolution of Procurement Policy in the World Bank 25 that there is ‘a high correlation between the extent and quality of public participation and overall project quality’.93 Thus, the desire to improve the effectiveness of Bank projects has led to concerns about good governance both within and outside the Bank.94 One of the stated dimensions of good governance is the quality of policy-making and public service delivery95 and this indicates why the Bank’s procurement policies were impacted by the Bank’s governance reform agenda. In addition, and as has been discussed above, improving public procurement practices is one way of improving the effectiveness of expenditure as good public procurement practices are a major determinant of the effectiveness of public expenditure.96 In 2011, the Bank commenced a holistic reform of its procurement policies, practices and procedures. The reform commenced with a comprehensive review of the Bank’s current approach to procurement under Bank-financed operations, the first such review by the Bank since it was established.97 The review covered both the Bank’s operational procurement policies and procedures, and their application by the Bank and its borrowers.98 It may be noted that procurement is not the only area to undergo reform, and the Bank: is advancing multiple reforms to promote inclusiveness, innovation, efficiency, effectiveness, and openness. It is increasing the voice and representation of developing and transition economies; promoting accountability and good governance; increasing transparency and access to information; expanding cooperation with the United Nations, the IMF, other multilateral development banks, donors, civil society, and foundations; and modernizing its financial services.99

The procurement reform was aimed at ensuring that Bank procurement is in alignment with its changing role, is fit for purpose and aligns with the Bank’s broader modernisation agenda.100 The reform also addressed the challenges and innovations that now dominate Bank operations. The reform also had as its aims: the attainment of the larger goal of improving development effectiveness by encouraging the use of country systems and harmonization, building competitive

93

Ebrahim and Herz, ‘Accountability in Complex Organisations,’ n 92 above, 4. Woods, ‘The Challenge of Good Governance for the IMF and World Bank Themselves’ (2000) 28(5) World Development 823; C Santiso, ‘Good Governance and Aid Effectiveness: The World Bank and Conditionality’ (2001) 7(1) Georgetown Public Policy Review 1. 95 D Kaufmann, A Kraay and P Zoido-Lobatan ‘Governance Matters’ (1999) World Bank Policy Research Working Paper 2196. 96 Independent Evaluation Group. The World Bank and Public Procurement—An Independent Evaluation: Vol I, Building Procurement Capacity and Systems (Washington DC, The World Bank) 1. 97 OPCS, Approach paper, n 52 above, para 5. 98 ibid, para 13. 99 World Bank, A Guide to the World Bank, n 8 above, 66. 100 OPCS, Approach paper, n 52 above, 5. 94 N

26 Historical Overview local industries, strengthening public sector management, improving governance and anticorruption, promoting sustainability, accelerating investment in infrastructure, and deepening international trade, among others.101

It is thought that these agendas converge, in some way or another, with public procurement and the review was designed to identify both the opportunities and the trade-offs in realising these policy goals, to exploit synergies that advance the Bank’s agenda, and to position the Bank for the future.102 It should be noted that prior to the reforms of the Bank procurement system which commenced in 2011, there was little clarity in the Bank procurement guidelines as to which provisions were ‘policies, guidelines, rules and procedures’, which meant that any deviation from the guidelines had to be approved by the Bank’s Executive Board, no matter how small or reasonable.103 One of the objectives of the reforms was to increase the level of coherence in the Bank’s procurement system by distinguishing between different categories of information and the mandatory nature or otherwise of the information, all within a broader, more carefully defined procurement framework.104 The review of the Bank’s procurement system led to the development of a new framework for procurement in Bank projects, which was adopted by the Bank’s Executive Directors in November 2013.105 This new framework set out a vision statement for Bank project procurement, which is to the effect that: ‘Procurement in Bank Operations supports clients to achieve value for money with integrity in delivering sustainable development.’106 The importance of the articulation of this vision statement cannot be over-emphasised as it means that for the first time, the Bank is clear as to the purpose of its procurement, and the statement explicitly puts borrowers at the centre of Bank procurement. Before this, Bank procurement requirements were imposed on borrowers to meet the Bank’s requirements and fiduciary obligations. These requirements were often adopted without input

101 OPCS, 102 ibid.

Initiating discussion paper, n 55 above, para 11.

103 Review of the World Bank Procurement Policies and Procedures: Questions and Answers. Available at www.worldbank.org. 104 For information on the changes to the Bank’s procurement framework, see P Trepte, ‘All Change at the World Bank? The New Procurement Framework’, (2016) 4 Public Procurement Law Review 121; S Williams-Elegbe, ‘The Evolution of the World Bank’s Procurement Framework: Reform and Coherence for the 21st Century’ (2016) 16(1) Journal of Public Procurement 23. 105 See World Bank, Procurement in World Bank Investment Project Finance. Phase I, A Proposed New Framework (Washington DC, The World Bank, 25 October 2013). Available at consultations.worldbank.org/consultation/procurement-policy-review-consultations Hereafter World Bank, A New Framework. 106 World Bank, A New Framework, n 105 above, para 4.

The History and Evolution of Procurement Policy in the World Bank 27 from the users, and often without taking into account end-users’ needs.107 An important aspect of the vision statement is that it seeks to ensure sustainable development. According to the Bank, procurement is both a development instrument and a strategic policy tool that can support a broad range of economic and social development objectives.108 This is also the first time that the Bank has development at the centre of its procurement policy and practices, instead of its fiduciary obligations. It also signals an acceptance of the insight that public procurement can be a prominent tool to help achieve developmental objectives.109 The Framework document also emphasises that the vision statement will be undergirded by principles of best practice in procurement, which are said to be economy, efficiency, effectiveness, integrity, openness and transparency and fairness.110 The Framework document also developed a value-proposition for the Bank. This value-proposition is focused on ‘achieving value for money, supporting clients in pursuing sustainable procurement goals, integration, and exercising adaptability and leadership’.111 Again, it must be noted that this also evidences a paradigm shift for the Bank as prior to this, Bank procurement policy was seen as a tool to standardise procurement practices and ensure the appropriate use of Bank funds. Although the Bank prided itself on its role in setting the tone for public procurement, especially for developing countries that looked to the Bank for guidance in relation to procurement reform, this is the first time that the Bank is expressing a formal objective to provide leadership in public procurement. This leadership role will take the form of the Bank continuing to champion procurement reform, the articulation of best practices, and the Bank developing its knowledge of partner systems.112 In relation to the adaptability of procurement, the Framework document expresses the desire that at the micro or project level, Bank procurement

107 HC Casavola, ‘The Globalization of Public Contract Law’ in R Nogellou and U Stelkens, Comparative Law on Public Contracts (Brussels, Bruylant, 2010). 108 World Bank, Procurement in World Bank Investment Project Finance: Phase II Developing the Proposed New Procurement Framework (Washington DC, The World Bank, 2014) 10. Available at www.worldbank.org. Hereafter World Bank, Developing the Framework. 109 See generally, C McCrudden, Buying Social Justice: Equality, Government Procurement and Legal Change (Oxford, Oxford University Press, 2007); S Arrowsmith and P Kunzlik (eds), Social and Environmental Policies in EC Procurement Law (Cambridge, Cambridge University Press 2009); R Watermeyer, ‘The Use of Targeted Procurement as an Instrument of Poverty Alleviation and Job Creation in Infrastructure Projects’ (2000) 2(5) Public Procurement Law Review 226; S Karangizi and I Ndahiro, ‘Public Procurement Reforms and Development in the Eastern and Southern Africa Region’ in RH Garcia (ed), International Public Procurement: A Guide to Best Practice (London, Globe Law and Business, 2009). 110 OPCS, A New Framework, n 105 above, 4. 111 ibid, 6. 112 ibid.

28 Historical Overview arrangements will be ‘fit-for-purpose’.113 This again represents a paradigm shift for the Bank and will finally put to rest the criticism that it used to adopt a ‘one size fits all’ approach to its procurement regulations, which were designed for large stand-alone infrastructure projects and did not therefore meet the needs of non-project (or programme procurements) and smaller value, less complex project procurements. The new move towards adaptability means that the Bank will permit the use of country systems, where it sees that an acceptable standard of procurement will be achieved, even if the country’s approach and legal and administrative tradition differs from that of the Bank. Another aspect of the Bank’s procurement system that has been affected by the review is in the area of the remedies that may be provided in the event of complaints by bidders. More will be said on this in Chapter 11. One area of Bank procurement that is not affected by the review is the Bank’s approach to preventing and sanctioning fraud and corruption in Bank financed projects.114 This is possibly as a result of the fact that most of the changes to the Bank’s procurement policy and guidelines between 1994 and 2011 focused on changes, amendments and supplementations to the Bank’s approach to fraud and corruption and, as a result, further changes are not as yet required in this area. An important aspect of the review, as was mentioned earlier, is the differentiation between the different facets of the Bank procurement system. Thus, the new procurement framework segments the policy, operational and regulatory documents on procurement, which ought to lead to increased clarity in implementation. In August 2014, phase II of the review articulated the proposed framework into a fuller strategy on how the Bank would support client procurement performance and provided the outline of a new statement of procurement policy.115 This phase addressed implementation issues, included more consultation with stakeholders and led to the preparation of a detailed policy proposal, which was presented to the Bank’s Executive Directors for approval.116 The policy proposal was approved by the Bank’s Board in July 2015; as a result, the new procurement documents in the procurement framework, comprising of the new Procurement Policy,117 new Procurement Directives,118 the new Procurement Procedures119 and the Procurement 113

ibid, 7. ibid, 14. 115 ibid, 16. 116 ibid. 117 World Bank, Bank Policy: Procurement in IPF and other Operational Procurement Matters (Catalogue No.OPSVP5.05-POL.144 July 2016) Hereafter, Bank Policy (2016). 118 World Bank, Bank Directive: Procurement in IPF and other Operational Procurement Matters (Catalogue No.OPSVP5.05 DIR.114 July 2016) Hereafter, Bank Directive (2016). 119 World Bank, Bank Procedure: Procurement in IPF and other Operational Procurement Matters (Catalogue No.OPSVP5.05-PROC 108 July 2016) Hereafter, Bank Procedure (2016). 114

Conclusion 29 Regulations120 were adopted in July 2016. These documents are discussed in detail in Chapter 4. It is important to note here that despite the adoption of the new procurement framework, the current version of the Bank procurement guidelines (the 2011 guidelines) will continue to be used alongside the new procurement documents. Ongoing projects will continue to rely on the 2011 procurement guidelines, whilst all new projects will utilise the new procurement framework. In addition, in the case of projects already in the pipeline, where procurement has not yet commenced, these may be restructured in order to rely on the new procurement framework. V. CONCLUSION

This chapter has presented a brief overview of the history of the MDBs and a brief history of the rationale for and the evolution of procurement policy in the MDBs using the World Bank as an example. The strategic relationship between the Bank and the other MDBs means that the MDBs closely mirror the Bank in the development of their procurement policies and systems and the Bank often sets the tone for them. However, the new framework adopted by the Bank will create areas of divergence between the practices of the MDBs and the Bank, until such a time as the MDBs decide to amend their procurement regulations to mirror the new Bank procurement framework.

120 World Bank, Procurement Regulations for IPF Borrowers: Procurement in Investment Project Financing: Goods, Works, Non-Consulting Services and Consulting Services (July 2016). Hereafter, Procurement Regulations for Borrowers (2016).

30

3 The MDBs and International Law I. INTRODUCTION

T

HIS CHAPTER WILL examine the status of MDBs in international law, with a particular focus on the World Bank. MDBs have a ‘dual character’1 in international law; this gives rise to some difficulty in relation to their status in international law. Their dual character stems from the fact that they are intergovernmental organisations, created by States for a purpose, but they engage in financial transactions, similar in nature to the transactions of private commercial entities. In addition, (except in relation to the EBRD), most of the transactions entered into by MDBs have a State as the other contracting party.2 The nature of the MDBs as international organisations which are subject to international law, and the commercial nature of their operations, also raises some difficulty in the procurement context, in relation to the nature of their responsibilities and obligations to bidders/contractors and the public where such persons are affected by a Bank-financed contract. Other difficulties arise in relation to the nature of dispute resolution mechanisms and remedies available to persons affected by a MDB funded contract. This chapter will examine the international legal personality of the institutions and the consequences of this personality, which include the contractual capacity, liability for wrongful acts, and the immunity enjoyed by international institutions. It will also analyse the status of MDB loans in international law and the nature of the relationship between the borrower, and MDBs. It will be seen that the rigid adherence of the MDBs to maintaining their status as a financier (and not a party to the procurement contract) has presented problems of governance, accountability and oversight in respect of financed contracts. Finally, the chapter will highlight the importance of the MDBs as major actors in the field of global administrative law and the implications thereof.

1 DD Bradlow, ‘International Law and the Operations of International Financial Institutions’ in DD Bradlow and DB Hunter, International Financial Institutions and International Law (Alphen aan den Rijn, Kluwer Law International, 2010). 2 Bradlow, ‘International Law’ n 1 above.

32 The MDBs and International Law II. INTERNATIONAL PERSONALITY OF MDBs: CAPACITY, IMMUNITY AND LIABILITY

The MDBs are international organisations and are recognised as subjects of international law, created and endowed with a certain autonomy in order to achieve certain goals.3 An international organisation has been defined as an organisation set up by agreement between two or more States.4 International organisations are now firmly assumed and accepted to be actors in their own right; and despite the fact that they are owned by States, they are not considered to be mere reflections of State interests and behaviour.5 It is trite law that international organisations possess a ‘large measure of international personality and the capacity to operate upon an international plane’.6 In the Reparation Advisory Opinion, this was taken to mean that an international organisation is a subject of international law, is capable of possessing international rights and duties and that it has capacity to maintain its rights by bringing international claims.7 Similarly in the seminal Italian case of Profoli,8 it was held that an international organisation, in this case, the International Institute for Agriculture, had international legal personality as the States establishing it had intended for it to be ‘absolutely autonomous vis-à-vis each and every member state’. As a result, it was ‘empowered to organize its own structure and legal order autonomously and without interference from sovereign states’.9 In relation to the MDBs, they may possess a fuller measure of autonomy than some other international organisations, given that especially in the case of the World Bank, it does not ‘rely for its annual budget upon contributions from its members, and…enjoys full autonomy in deciding the form and content of such budget’.10 It may be noted at this juncture that international organisations do not automatically possess international legal personality.11 In the Reparation Advisory Opinion, the International Court of Justice (ICJ) set out two

3 Legality of the Use by a State of Nuclear Weapons in Armed Conflict, Advisory Opinion of 8 July 1996, ICJ Reports 1996, p. 66, 75. 4 P Malanczuk, Akehurst’s Modern Introduction to International Law (London, Routledge, 2002) 92. 5 C Weaver, ‘The World’s Bank and the Bank’s World’ (2007) 13(4) Global Governance 493. 6 Reparation for injuries suffered in the service of the United Nations, Advisory Opinion of 11 April, 1949. ICJ Reports 1949, p. 174, 179. 7 ibid. 8 Istituto Internazionale di Agricoltura v Profoli, cited in A Cassesse, International Law, 2nd edn (Oxford, Oxford University Press, 2005) 136. 9 Cassesse, International Law, n 8 above, 136. 10 Agreements Between the United Nations and the International Monetary Fund and the United Nations and the International Bank for Reconstruction and Development, art X.16 UNTS 328 (1948). 11 Cassesse, International Law, n 8 above, 137.

International Personality of MDBs: Capacity, Immunity and Liability 33 criteria for determining legal personality: first it must be shown that the Member States which set up the organisation intended to clothe it ‘with the competence required to enable these functions to be effectively d ischarged’.12 In other words, the founders of the international organisation intended to create an autonomous body.13 Second, the international organisation must in fact enjoy the autonomy from Member States and effective capacity necessary for it to act as an international subject.14 As was stated by the ICJ, it must be shown that the international organisation ‘is in fact exercising and enjoying functions and rights which can only be explained on the basis of the possession of a large measure of international personality and the capacity to operate upon an international plane’.15 As stated by Cassesse, ‘once this twofold test is met, it may be considered that international organisations possess international rights and obligations deriving from international customary rules’.16 In the case of the MDBs, they pass these tests and possess capacity and personality by virtue of their constituent agreements. In international law, international organisations do not of course have the same status as States, and are governed by the principle of ‘competence’. As was stated by the ICJ: International organizations are subjects of international law which do not, unlike states possess a general competence. International organisations are governed by the principle of ‘speciality’, that is to say, they are invested by the States which create them with powers, the limits of which are a function of the common interests whose promotion those States entrust to them.17

International organisations thus do not have identical rights or powers, as States, but have those rights and powers, which are necessary to fulfil the needs of the community that established them.18 A. Capacity International organisations such as the MDBs possess rights or powers, which derive both out of international law and their constituent instruments.19

12

Reparation Advisory Opinion, n 6 above, 179. International Law, n 8 above, ibid. 14 Reparation Advisory Opinion, n 6 above, 180–81. 15 ibid, 179. 16 Cassesse, International Law, n 8 above, 137. 17 Legality of the Use by a State of Nuclear Weapons in Armed Conflict, Advisory Opinion of 8 July 1996, ICJ Reports 1996, p 66, 78. 18 Reparation Advisory Opinion, n 6 above, 178. 19 See IBRD Articles of Agreement, art VII. 13 Cassesse,

34 The MDBs and International Law These rights include the capacity to contract,20 and to carry out actions in fulfilment of their objectives as stated in their constituent documents. The objectives for the creation of the MDBs are similar as an examination of their constituent documents reveals.21 As discussed in Chapter 2, the only MDB with a slightly different mandate is the EBRD, which includes in its mandate the establishment of democracy in the Central and Eastern European States. Under international law, international organisations also have a right to bring an international claim in order to obtain reparations for damages caused by Member States or a third State to the agents or property of the organisation. In the Reparation Advisory Opinion, the ICJ was of the view that an international organisation could bring a claim for damages caused to its property or officials. This is a procedural right inuring to the organisation where its substantive rights have been infringed. In interpreting the scope of the powers granted to MDBs, it may be noted that by virtue of article 31 of the Vienna Convention on the Law of Treaties,22 treaties are to be interpreted according to the ordinary meaning of their words in light of their purpose, and the context in which they operate. This provision and the ‘exquisitely ambiguous terms’23 of many of the MDB constituent agreements have served to provide them with the flexibility needed to adapt to the changing conditions in which they have operated over the past seven decades.24 They have thus been able to utilise this flexibility to shift from project to policy-based lending, and in recent times have also focused on supporting governance reforms in borrowers.25 B. Immunity The MDBs possess the right to immunity from the jurisdiction of domestic courts for acts done by the organisation. Thus, cases like Profoli illustrated

20

Thus, for example, the IBRD Articles of Agreement, art VII provides that: ‘The Bank shall possess full juridical personality and in particular, the capacity:

(i) to contract; (ii) to acquire and dispose of immovable and movable property; (iii) to institute legal proceedings.’ 21

See IBRD Articles of Agreement, art I. Vienna Convention on the Law of Treaties (23 May 1969) 1980 UNTS 332. 23 Bradlow, ‘International Law’, n 1 above, 12. There are criticisms about the ambiguous nature of MDB constituent documents. See for instance M Barnett and M Finnemore, Rules for the World: International Organizations in Global Politics (Ithaca, Cornell University Press, 2004) 22. 24 Bradlow, ‘International law’, n 1 above, 13. 25 See I Shihata, ‘Democracy and Development’ (1997) 46 International and Comparative Law Quarterly, 639. 22

International Personality of MDBs: Capacity, Immunity and Liability 35 that in the employment context, employees of international organisations cannot seek redress in domestic courts for acts or omissions by the organisations. Similarly, the case of Mendaro v World Bank26 established that in the MDB context, employees were precluded from bringing actions in domestic courts against their employers. Such employee-employer cases are now adjudicated in the administrative tribunals established by most of these international organisations.27 Although international organisations enjoy immunity under international law, it is unclear to what extent these immunities can be enjoyed.28 The scope of immunities is to a large extent governed by treaties29 or by agreements concluded between the international organisation and the State where the organisation is located.30 The immunity from legal process is intended to secure the organisation’s ability to perform its functions and protect it from interference from domestic courts. As was stated by Reinisch and Wurm: the rationale for the broad immunity usually enjoyed by international organisations is the ‘functional necessity’ of protecting the independent functioning of international organisations. This requirement is usually seen as necessitating an exemption from the jurisdiction and possible interference of national courts in the affairs of international organisations.31

In the case of World Bank Group v Wallace,32 the immunity of World Bank staff was upheld by the Supreme Court of Canada, to prevent the compulsion of Bank employees by domestic courts. In relation to the MDBs, their immunity is a little circumscribed, as they do not enjoy full functional immunity from legal process before national courts.33 Thus, the African Development Bank, the Asian Development 26

Mendaro v World Bank 717 F.2d 610 (D.C. Cir 1983). generally, CF Amerasinghe, ‘The World Bank Administrative Tribunal: Its Establishment and its Work’ in C de Cooker (ed), International Administration: Law and Management Practices in International Organisations (Leiden, Martinus Nijhoff Publishers, 1989); O Elias and M Thomas, ‘Administrative Tribunals of International Organizations’ in C G iorgetti (ed), The Rules, Practice and Jurisprudence of International Courts and Tribunals (Leiden, Martinus Nijhoff Publishers, 2012); P Dallari, ‘Administrative Tribunals of International Organizations and World Constitutionalism’ in O Elias (ed), The Development and Effectiveness of International Administrative Law (Leiden, Martinus Nijhoff Publishing, 2012); CF Amerasinghe, ‘International Administrative Tribunals’ in CPR Romano, KJ Alter and Y Shany (eds), The Oxford Handbook of International Adjudication (Oxford, Oxford University Press, 2014). 28 Malanczuk, Akehurst’s Modern International Law, n 4 above, 127. 29 See for instance the Convention on the Privileges and Immunities of the United Nations 1946–1947 UNTS 16; Convention on the Privileges and Immunities of the Specialized Agencies 1949 UNTS 262. 30 Malanczuk, Akehurst’s Modern International Law, n 4 above, 127. 31 A Reinisch and J Wurm, ‘International Financial Institutions before National Courts’ in Bradlow and Hunter, International Financial Institutions and International Law, n 1 above, 106. 32 World Bank Group v Wallace 2016 SCC 15. 33 Reinisch and Wurm, ‘International Financial Institutions’, n 31 above, 104. 27 See

36 The MDBs and International Law Bank and the European Bank for Reconstruction and Development all provide that that they do not enjoy immunity in relation to cases arising out of their borrowing powers, in relation to their power to guarantee obligations or underwrite the sale of securities.34 The reasoning for this is clear. Given that they often raise money on the international capital markets, it would affect the creditworthiness of the MDBs if their creditors could not have access to remedies against the MDBs where necessary. Despite these provisions, however, there are very few cases brought against the MDBs, either by borrowers or creditors; the few cases that are brought often fail on the basis of the immunity clause or a lack of standing on the part of the claimant.35 In the procurement context, the World Bank is also immune from suits brought by bidders or contractors. This is provided for in Art VII, section 3 of its Articles of Agreement, which provides that: Actions may be brought against the Bank only in a court of competent jurisdiction in the territories of a member in which the Bank has an office, has appointed an agent for the purpose of accepting service or notice of process, or has issued or guaranteed securities. No actions shall, however, be brought by members or persons acting for or deriving claims from members. The property and assets of the Bank shall, wheresoever located and by whomsoever held, be immune from all forms of seizure, attachment or execution before the delivery of final judgment against the Bank.

Despite the existence of these provisions, it has been argued that where an MDB turns a blind eye to irregularities in the procurement process, to the detriment of (unsuccessful) bidders who suffer financial losses as a result, the MDB ought to be liable for the breach of a duty to ensure that its procurement regulations are appropriately applied.36 The argument is that this breach of duty circumvents the immunity provisions, as it arises not from the borrower’s actions in the procurement process, but from the MDB’s

34 See Agreement Establishing the African Development Bank, art 52; Asian Development Bank Articles of Agreement, art 50; and Headquarters Agreement between the United Kingdom of Great Britain and Northern Ireland and the European Bank for Reconstruction and Development, 1656 UNTS 264 (15 April 1991), art 4. 35 See Luster S.A. Celulose e Papel v Inter-American Development Bank, 382 F.2d 454 (D.C. Cir. 1967), 28 March 1966; Scimet v African Development Bank, Court of First Instance of Brussels, 14 February 1997, 128 ILR 582; Atlantic Tele-Network v Inter-American Development Bank, 251 F. Supp. 2d 126 (D.D.C. 2003). For a criticism of the jurisprudence on the immunity of MDBs, see S Herz, ‘Rethinking International Financial Institution Immunity’ in Bradlow and Hunter, International Financial Institutions, n 1 above, ch 5. 36 See B Malmendier, ‘The Liability of International Development Banks in Procurement Proceedings: The Example of the International Bank for Reconstruction and Development, the European Bank for Reconstruction and Development and the Inter-American Development Bank’ (2010) 4 Public Procurement Law Review 135, 139–40.

International Personality of MDBs: Capacity, Immunity and Liability 37 inadequate supervision of the procurement process that causes a bidder loss.37 More will be said on this issue in Chapter 11. C. Liability Another consequence of the recognition of legal personality for international organisations, is that they are also responsible for their acts under international law.38 Thus, international organisations are legally responsible for their acts and omissions which cause harm to third parties.39 It has been stated that international organisations cannot ‘violate the principles they were established to serve’ and it would be ‘perverse, even destructive to postulate a community expectation that international organisations need not conform to the principles of public order’.40 The most recent elucidation of the liability of international organisations is the Draft Articles of the International Law Commission, on the Responsibility of International Organizations developed in 2011.41 The Draft Articles apply to an internationally wrongful act by an international organisation, committed within or without the course of its conduct.42 The Draft Articles clarify a number of principles relating to international responsibility: first that every ‘internationally wrongful act’ of an international organisation entails its international responsibility.43 Second, that an internationally wrongful act is one that is attributable to that organisation under international law; and constitutes a breach of an international obligation of that organisation.44 The Draft Articles further extend the concept of vicarious liability to the acts of agents of the international organisation, even if the agents are acting outside the scope of their authority.45 Where an international organization commits an internationally wrongful act, it is expected to cease from that act or omission and make reparations for all injuries caused by its international wrongful act.46 37

Malmendier, ‘The Liability of International Development Banks’ n 36 above, 139. ND White, The Law of International Organisations (Manchester, Manchester University Press, 2005), ch 7. 39 E Suzuki and S Nanwani, ‘Responsibility of International Organizations: The Accountability Mechanisms of Multilateral Development Banks’ (2005–2006) 27 Michigan Journal of International Law 177, 179. 40 MH Arsanjani, ‘Claims against International Organisations: Quis Custodiet Ipsos Custodies’ (1981) 7 Yale Journal of World Public Order 131, 133–34. 41 Draft Articles on the Responsibility of International Organisations (2011) Yearbook of the International Law Commission Vol II, Part II. Available at legal.un.org/ilc/texts/ instruments/english/draft_articles/9_11_2011.pdf. Hereafter Draft Articles on Responsibility. 42 ibid art 1. 43 ibid, art 3. 44 ibid, art 4. 45 ibid, arts 7–9. 46 ibid, arts 30–31. 38

38 The MDBs and International Law It may be noted that the liability covered in the Draft Articles is limited to legal responsibility for acts and omissions, and does not cover issues of governance and accountability.47 The issue of the governance and accountability of MDBs has received attention in the literature,48 and has been addressed through different means by the MDBs, such as the World Bank Inspection Panel.49 Like the World Bank, all the MDBs have a similar independent inspection mechanism, modelled on the World Bank Inspection Panel.50 It should be noted that these accountability mechanisms give third parties and private individuals the right to lodge claims against the MDBs for non-compliance with their own policies and procedures.51 It may be noted that the Draft Articles received a somewhat cool response from international scholars and international actors, but their utility lies in the clarification of the issues that are required to be addressed by international organisations in the conduct of their functions.52 It is important to state that the fact that an organisation may be held responsible for its acts does not automatically preclude the possibility that its Member States could bear liability for those same acts.53 In relation to the MDBs, it is clear that they are responsible for acts or omissions committed in the course of implementing their objectives.54 However, their status as financial institutions also subjects them to an additional layer of liability, in respect of the socio-economic and human rights impact of their activities.55 It is in this area that the MDBs have faced the most criticism and calls for them to be made more accountable.56

47 Chatham House, ‘Legal Responsibility of International Organisations in International Law’. Available at www.chathamhouse.org/sites/files/chathamhouse/public/Research/International% 20Law/il100211summary.pdf. 48 See generally, Suzuki and Nanwani, ‘Responsibility of International Organizations’ n 39 above. 49 See Suzuki and Nanwani, ‘Responsibility of International Organizations’ n 39 above, 180. See also J Zalcberg, ‘The World Bank Inspection Panel: A Tool for Ensuring the World Bank’s Compliance with International Law?’ (2012) 8 Macquarie Journal of International & Comparative Environmental Law 75. 50 See generally, M Van Putten, Policing the Banks: Accountability Mechanisms for the Financial Sector (Montreal, McGill University Press, 2008); LC Reif, The Ombudsman, Good Governance and the International Human Rights System (Leiden, Martinus Nijhoff Publishers, 2004), ch 10; R MacKenzie, C Romano and Y Shany (eds), The Manual on International Courts and Tribunals, 2nd edn (Oxford, Oxford University Press, 2010), chs 17 and 18. 51 Suzuki and Nanwani, ‘Responsibility of International Organizations’ n 39 above, 181. 52 Chatham House, ‘Legal Responsibility’ n 47 above. 53 Institute of International Law, ‘The Legal Consequences for Member States of the NonFulfillment by International Organizations of Their Obligations Towards Third Parties’ (1995) 66-I Y.B. Institute of International Law, 249, 257. 54 See International Law Association, Accountability of International Organisations Final Conference Report (Berlin, ILA, 2004) 22–23. 55 See generally, S Skogly, The Human Rights Obligations of the World Bank and the International Monetary Fund (London, Cavendish Publishing, 2001). 56 See generally, Weaver, ‘The World’s Bank and the Bank’s World’ n 5 above.

The Status of MDB Loan Agreements in International Law 39 III. THE STATUS OF MDB LOAN AGREEMENTS IN INTERNATIONAL LAW

The main function of MDBs is to provide finance to developing countries (or other qualifying institutions) to meet developmental objectives and investment needs. This finance is typically provided through a loan—on concessionary or non-concessionary terms or by means of a grant. Other forms of assistance may be provided, such as technical assistance and guarantees, but the focus here is on the provision of term funds and not assistance in kind or assistance in the form of grants. By its Articles of Agreement, the World Bank may ‘guarantee, participate in, or make loans to any member, or any political subdivision thereof and any business, industrial and agricultural enterprise in the territories of a member…’.57 The provision of loans through development banks is usually made through the instrumentality of a loan agreement between the MDB and the recipient government or its agency.58 Like any agreement for the provision of credit, the loan agreement contains information such as the amount and tenor of the loan, the fees applicable to the loan, the interest rate applied, the terms of repayment, including the place and currency of repayment and the purpose for which the funds may be utilised.59 The loan agreement issued by MDBs for the provision of funds is regarded in law as a treaty.60 A treaty is simply an agreement under international law, entered into by international actors. The Vienna Convention on the Law of Treaties defines a treaty as ‘an international agreement concluded between States in written form and governed by international law…’.61 This definition has, however, been criticised for being incomplete and u nderdeveloped,62 and Hollis defines a treaty simply as an international legal instrument.63 Going by this, a loan agreement issued by an international actor such as a

57

IBRD Articles of Agreement, art III, s 4. CJ Olmsted, ‘Economic Development Loan Agreements—Part I—Public Economic Development Loan Agreements—Choice of Law and Remedy’ (1960) 48(3) California Law Review 424. 59 See IBRD General Conditions for Loans (12 March 2012); HN Scott, ‘Enforceability of Loan Agreements between the World Bank and its Member Countries’ (1964) 13 American University Law Review 185. See also I Shihata, ‘Avoidance and Settlement of Disputes—The World Bank’s Approach and Experience’ (1999) 1 International Law Forum 90. 60 See Vienna Convention on the Law of Treaties, n 22 above, art 5. See also S Arrowsmith, J Linarelli and D Wallace, Regulating Public Procurement: National and International Perspectives (The Hague, Kluwer Law International, 2000), ch 3, and Scott, ‘Enforceability of Loan Agreements,’ n 59 above, 187. 61 Vienna Convention on the Law of Treaties, n 22 above, art 2(1)(a). 62 J Klabbers, The Concept of Treaty in International Law (The Hague, Kluwer Law International, 1996) 8. 63 DB Hollis, ‘Defining Treaties’ in DB Hollis (ed), The Oxford Guide to Treaties (Oxford, Oxford University Press, 2012), 11. 58

40 The MDBs and International Law MDB, which creates obligations between a State (or the agency of a State) and the MDB, qualifies as an international agreement or a treaty. As early as 1959, the then General Counsel of the World Bank, Aron Broches had argued that a loan agreement with a State was subject to international law.64 In fact the UN had early on in the World Bank’s history required loan agreements to be registered with the UN under a rticle 102 of the UN Charter.65 An arrangement was entered into whereby the Bank registers loan and guarantee agreements between the Bank and Member States with the UN, but merely files with the UN, agreements between the Bank and non-member States.66 Similarly, in 1972, Arnold Wiess, General Counsel for the Inter-American Development Bank asserted that loan agreements assumed ‘the nature of international agreements’.67 In essence, a loan agreement is an international treaty contract, which means that unlike a treaty, where the document is the agreement, a treaty contract merely serves as evidence of the agreement and other information may be admitted in the interpretation of the contract.68 In addition, and unlike a treaty properly so called, a treaty contract will not constitute a source of international law. As an international agreement, an MDB loan agreement is subject to international law and may not be overridden by domestic law The World Bank General Conditions for Loans provide that: The rights and obligations of the Bank and the Loan Parties under the Legal Agreements shall be valid and enforceable in accordance with their terms notwithstanding the law of any state or political subdivision thereof to the contract. Neither the Bank not any Loan party shall be entitled in any proceeding under this Article to assert any claim that any provision of these General Conditions or of the Legal Agreements is invalid or unenforceable because of any provision of the Articles of Agreement of the Bank.69

By this provision, the loan agreement may not be overridden either by domestic law, nor by the Bank’s constitution. Head refers to this clause as the ‘governing law’ provision of the General Conditions, although the 64 See A Broches, Selected Essays: World Bank, ICSID and other Subjects of Public and rivate International Law (Dordrecht, Martinus Nijhoff Publisers, 1995), ch 1. See also P JW Head, ‘The Evolution of the Governing Law for Loan Agreements of the World Bank and the other Multilateral Development Banks’ (1996) 90(2) American Journal of International Law 214. 65 ES Mason and RE Asher, The World Bank since Bretton Woods (Washington DC, Brookings Institution Press, 1973) 54–59. See also Vienna Convention on the Law of Treaties, n 22 above, art 77. 66 Mason and Asher, World Bank since Bretton Woods, n 65 above, 54–59. 67 AH Weiss, ‘The Inter-American Development Bank’ (1972) Journal of International Law and Economics 232, 233. 68 CJ Mahoney, ‘Treaties as Contracts: Textualism, Contract Theory, and the Interpretation of Treaties’ (2007) 116 Yale Law Journal 824. 69 IBRD, General Conditions for Loans (March 2012), art VIII, section 8.01.

The Status of MDB Loan Agreements in International Law 41 clause does not specify a particular legal system for disputes, but is instead negative in character, denying the applicability of domestic law to disputes between loan parties.70 One issue that arises as a result of this provision is whether a loan agreement (as a treaty contract) will be supreme to a State’s constitution or other supreme law. In many countries, treaties (or other sources of international law) may have primacy over domestic law, but not over the constitution.71 In Meireles’ view, this may mean that should the constitution of the borrowing country provide principles that apply to its procurement which are in conflict with the provisions of the loan agreement, these domestic rules may take priority over the provisions of the loan agreement.72 Note that where loans are made not to a State but to a State-owned enterprise, (which loan is guaranteed by the State), such loans may not be regarded as treaties, being more analogous to contracts made with a private corporation. However, such loan agreements will usually include choice of law provisions to exclude the operation of domestic law.73 As was stated by Arrowsmith et al, ‘…the loan agreement may say that the rights and obligations of the parties are valid and enforceable in accordance with the terms and conditions of the loan agreement, notwithstanding any local domestic law to the contrary’.74 The fact that a MDB loan agreement is subject to international law produces various other consequences, which will be examined below. A. Interpretation As mentioned above, the interpretation of the loan agreement is subject to international law, and the rights and the remedies available to enforce these rights will also be governed by international law.75 Although essentially a theoretical consideration, given that MDB operations are mostly limited to the financial sphere, a MDB will be precluded from entering into an agreement that conflicts with the ‘rules of international law incorporating basic standards of international conduct’.76 In relation to the interpretation of loan agreements, the rule is that treaties must be interpreted according to the ordinary meaning of their words 70

Head, ‘The Evolution of the Governing Law for Loan Agreements,’ n 64 above, 220. Aust, Modern Treaty Law and Practice, 3rd edn (Cambridge, Cambridge University Press, 2013), ch 10. 72 MC Meireles, The World Bank Procurement Regulations: A critical analysis of the enforcement mechanism and of the application of secondary policies in financed projects (unpublished PhD Thesis, University of Nottingham, 2006) 86. 73 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 60 above, 113. 74 ibid. 75 Scott, ‘Enforceability of Loan Agreements,’ n 59 above, 190. 76 ibid. 71 A

42 The MDBs and International Law in the light of their purpose and the context in which they operate.77 As will be discussed in Chapter 4, the loan agreement incorporates by reference the procurement regulations and to this extent, those regulations also form a part of the treaty contract and cannot be overridden by domestic law.78 This means that a borrower is unable to claim that the Bank procurement regulations cannot be adhered to because they are inconsistent with local law.79 It may be noted here that although loan agreements are traditionally thought of as being subject to international law, it is only the EBRD that expressly states this in its conditions of contract. This may be because 60 per cent of EBRD loans are made to the private sector, it is deemed necessary to explicitly state this in order to ensure that EBRD borrowers may not rely on domestic law to defeat the purpose of a loan.80 B. Adherence The status of the loan agreement as a treaty contract means that the contract is subject to the principle that every treaty in force is binding upon the parties and must be performed in good faith.81 This is simply the domestic principle of sanctity of contracts (pacta sunt servanda). This means that the parties to a loan agreement ie the borrower and the MDB must execute the loan agreement according to its tenor, and in good faith. In the MDB context, this principle is of the utmost significance, given that some developing countries may have an unstable political climate, and there may be an unwillingness to continue with an agreement entered into by a prior government, especially given the rhetoric around the ‘criminal’, ‘odious’ and ‘illegitimate’ nature of MDB debt in the last two decades.82 This risk is, however, addressed by article 27 of the Vienna Convention on the Law of Treaties, which provides that a party may not rely on domestic

77

Vienna Convention on the Law of Treaties, n 22 above, art 31. Head, ‘Evolution of the Governing Law’, n 64 above, 229. 79 ibid, 216–17. 80 Head, ‘Evolution of the Governing Law’, n 64, 214. See also J Linarelli, ‘The European Bank for Reconstruction and Development and the Post-Cold War Era’ (1995) 16 University of Pennsylvania Journal of International Business Law 373. 81 Vienna Convention on the Law of Treaties, n 22 above, art 26. 82 See generally, BS Chimni, ‘International Financial Institutions and International Law’, in Bradlow and Hunter, International Financial Institutions and International Law n 1 above, 2010), 55; JA Winters, ‘Criminal Debt’ in J Pincus and JA Winters (eds), Reinventing the World Bank (Ithaca, Cornell University Press, 2002); PO Sulser and C Chern, ‘Keeping Public Private Partnership Infrastructure Projects on Track: The Role of Multistakeholder Partnering Committees and Dispute Boards in Emerging Market Infrastructure Projects’ (2014) 5 World Bank Legal Review 19; P Sarlo, ‘The Global Financial Crisis and the Transnational Anti-Corruption Regime: A Call for Regulation of the World Bank’s Lending Practices’ (2013– 2014) 45 Georgetown Journal of International Law 1293; J Hanlon, ‘Wolfowitz, the World Bank and Illegitimate Lending’ (2007) 13(3) Brown Journal of World Affairs 41. 78

The Status of MDB Loan Agreements in International Law 43 law as a justification for a failure to abide by a treaty. This provision applies to borrowers as well as the MDBs, and neither party may rely on its internal regulations to defeat the purpose of a loan agreement. This protects MDBs from possible unilateral changes to loan obligations by borrowers, and also means that a loan agreement may not be frustrated by a plea of sovereign immunity in domestic courts.83 This is of crucial importance, given as mentioned, the often politically unstable environments in which the MDBs operate, which sometimes experience unannounced regime changes. This provision prevents a subsequent hostile regime from defaulting or denying loan commitments to an MDB.84 C. Dispute Resolution It must be noted that unlike treaties between States, which are subject to adjudication by the ICJ,85 MDBs may not have direct recourse to the ICJ for settlement of disputes arising under a loan agreement. However, if the constituent document of the MDB is in question in any dispute between States, then the international organisation will be notified of the proceedings of the ICJ.86 Thus, although the loan agreement is a treaty in international law, neither the borrower nor the Bank can approach the ICJ to resolve a conflict arising out of the loan agreement. In addition, the parties to a loan agreement may not take advantage of the jurisdiction of the International Centre for the Settlement of Investment Disputes (ICSID) as it is limited to arbitrating disputes between States and foreign investors.87 In relation to dispute resolution, loan agreements usually contain a standard provision which specifies how disputes between the borrower and the Bank are to be resolved.88 These disputes are required to be resolved either by arbitration or by negotiation. Early in the Bank’s history, many such disputes were settled by negotiation, through the World Bank’s Board of Executive Directors.89 As stated by Shihata, ‘the fact that Bank lending is a “going-concern” and not a single, once-and-for-all transaction, tempers

83

Scott, ‘Enforceability of Loan Agreements,’ n 59 above, 191. The Word Bank Procurement Regulations, n 72, 40. 85 Statute of the International Court of Justice, 3 Bevans 1179; 59 Stat.1031; TS 993; 39 AJIL Supp 215 (1945), art 34. 86 Statute of the ICJ, art 34(3). 87 See generally, I Alvik, Contracting with Sovereignty: State Contracts and International Arbitration (Oxford, Hart Publishing, 2011). 88 See IBRD General Conditions for Loans (2012), art VII. See also IFI Shihata, ‘Avoidance and Settlement of Disputes: The World Bank’s Approach and Experience’ (1999) 1 International Law Forum 90, 92. 89 Shihata, ‘Avoidance and Settlement of Disputes’ n 88, 91. 84 Meireles,

44 The MDBs and International Law attempts that may otherwise be made to prolong the dispute or to resolve it through adversarial methods’.90 As stated, loan agreements contain an arbitral clause for the resolution of disputes under the agreement, which arise between the Bank and a borrower. In addition, the World Bank has adopted the forum of dispute boards as the main avenue for the adjudication of disputes arising out of the execution of a loan agreement, especially in relation to disputes between contractors and borrowers. Dispute boards (also referred to as dispute review boards) differ from other types of conflict resolution mechanisms as they are designed both to avoid disputes and to decide on unavoidable disputes.91 In this respect, they function both as adjudicatory and a contract management tool.92 These dispute boards are a cheap and relatively quick means of resolution and are supposed to be appointed at the beginning of a Bank-financed contract,93 to address any conflicts that might arise during the pendency of a contract. Since 1995, the use of dispute boards has been mandatory for contracts in the World Bank, the Asian Development Bank, and the European Bank for Reconstruction and Development for contracts over a specified threshold.94 In 2000, the World Bank went further to require that the decisions of Dispute Boards should be binding and effect given to them by the parties unless and until they are overturned by an arbitral award.95 Apart from Dispute Boards, the other avenue of redress that is available in respect of Bank-funded projects is the World Bank Inspection Panel.96 This is an independent and impartial complaints mechanism for persons who are or will be affected by a Bank-funded project.97 The Inspection Panel addresses ‘allegations of harm to people or the environment and reviews whether the Bank followed its operational policies and procedures’.98 However, the Inspection Panel does not have jurisdiction over ‘complaints against

90

ibid, 92. Hök, ‘FIDIC/MDB Approach in respect of Dispute Adjudication Boards’ fidic.org/ sites/default/files/FIDIC%20MDB%20Approach%20in%20respect%20of%20Dispute% 20Adjudication%20Boards.pdf. 92 ibid. 93 Sulser and Chern, ‘Keeping Public Private Partnership Infrastructure Projects on Track’ n 82 above; C Chern, ‘The Role of Dispute Boards in Construction: Benefits without Burden’ (2010) 9 Spanish Arbitration Review (Revista del Club Esopanol del Arbitraje) 5. 94 Chern, ‘The Role of Dispute Boards in Construction’ n 93 above, 7. 95 ibid. 96 See generally, I Shihata, The World Bank Inspection Panel: In Practice, 2nd edn. (Oxford, Oxford University Press, 2000). 97 See D Bradlow, ‘Private Complaints and International Organisations: A Comparative Study of the Independent Inspection Mechanisms in International Financial Institutions’ (2005) 36 Georgetown Journal of International Law 403; R Bissell and S Nanwani, ‘Multilateral Development Bank Accountability Mechanisms: Developments and Challenges’ (2009) 6(1) Manchester Journal of International Economic Law 2. 98 See ewebapps.worldbank.org/apps/ip/Pages/AboutUS.aspx. 91 GS

The Relationship Between the MDBs and Their Borrowers 45 procurement decisions by Bank Borrowers’,99 and as such is not available for persons affected by borrower procurement decisions. The limited availability of dispute resolution mechanisms in funded procurements has been subject to much criticism, especially where there are allegations of fraud or corruption in a funded contract. In such cases, and in cases where there is a likelihood that the funded project or programme will not be completed, the Bank reserves the power in the loan agreement to suspend payments under the loan, although this does not necessarily provide any remedies to persons or communities affected by the contracts. The remedies available to the affected parties where there is corruption in a funded contract is examined in Chapter 8. More will be said on the dispute resolution mechanisms available to the parties in the tripartite relationship ie the borrower, the contractor and the Bank in MDB-funded procurements in Chapter 11. IV. THE RELATIONSHIP BETWEEN THE MDBs AND THEIR BORROWERS

The relationship between the MDBs and their borrowers is in the first place one of creditor-debtor. The relationship is governed by the legal and loan agreements and by the Bank’s General Conditions for Loans, which are the standardised terms that apply to agreements between the Bank and its borrowers. The loan agreement delineates the relationship between the Bank and the borrower,100 and clarifies their respective roles. Under a typical loan agreement, the Bank agrees to provide the specified funds, subject to the payment of a front-end fee by a borrower and the borrower undertakes to use the loan for the designated purpose, and to repay the loan in accordance with the schedule specified in the loan agreement. It should be noted that by virtue of the Bank’s procurement guidelines, the Bank is not a party to any contract financed by the loan.101 The Bank’s role in procurement is limited to ensuring that the loan is properly used and that the required procedures have been followed.102 As a result of the dichotomy between the Bank’s role as a financier and its responsibility to ensure the appropriate use of loan proceeds, the Bank has

99 See KVSK Nathan, ‘The World Bank Inspection Panel: Court or Quango’ (1995) 12 Journal of International Arbitration 135. 100 LJ Dumas, JR Wedel and G Callman, Confronting Corruption, Building Accountability: Lessons from the World of International Development Advising (New York, Palgrave Macmillan, 2010) 169. 101 Bank Procurement Guidelines (2011), appendix 3. 102 ibid.

46 The MDBs and International Law had to develop mechanisms to adequately supervise Bank-funded projects, whilst ensuring that the Bank maintained a sufficient arm’s-length relationship with the Borrower.103 The approach of the Bank has thus been to combine periodic missions with systematic reporting,104 reviews and audits. As seen above, although the basic relationship between the MDBs and Borrowers is that of creditor-debtor, the MDBs also function as development institutions and in that role, they promote and finance good governance, and wholesale and sectorial legal and institutional reform in borrowers. The MDBs have also been at the forefront of implementing economic liberalisation policies in developing and centrally planned economies. This adds a patron-client dynamic to the relationship between the MDBs and such borrowers. In relation to the relationship dynamics between the MDBs and their borrowers, it may be noted that MDB borrowers or clients can exercise little leverage on the policies of MDBs and it is the highest contributing MDB members that may be able to exercise the power of the purse to influence MDB policies. However, borrowers can still leverage on the MDBs, through the (rare) threat of loan default.105 In fact, it has been stated in relation to the World Bank that the largest borrowers may be able to resist unfavourable conditions during loan negotiations, given the imperative to approve loans by World Bank staff.106 Also, the reluctance of erstwhile large borrowers like Russia, China and India to borrow from MDBs, especially from the World Bank, in recent decades has put pressure on the Bank to become more ‘client-focused’.107 In addition, the increasing status of countries such as China108 and India,109 who have themselves become an alternative source of development finance for developing countries, especially in Africa, has also put pressure on MDBs to ensure their continued relevance, by meeting the needs of developing countries.

103

Mason and Asher, World Bank since Bretton Woods, n 65 above, 256

105

Weaver, ‘The World’s Bank’, n 5 above, 501.

104 ibid. 106 ibid.

107 ibid, 502. Note that the emergence of ‘southern’ development banks such as the Asian Infrastructure Investment Bank also increases the pressure on the Bank to address the needs and concerns of its borrowers. See M Wan, The Asian Infrastructure Investment Bank: The Construction of Power and the Struggle for the East Asian International Order (New York, Palgrave Macmillan, 2016), ch 4. 108 See generally, DH Shinn and J Eisenman, China and Africa: A Century of Engagement (Philadelphia, University of Pennsylvania Press, 2012), ch 5. See also C Alden, China in Africa (London, Zed Books, 2007); D Brautigam, ‘China’s Foreign Aid in Africa: What do we know?’ in RI Rotberg (ed), China in Africa: Trade, Aid and Influence (Washington DC, Brookings Institution Press, 2008). 109 F Cheru and CI Obi, The Rise of China and India in Africa (London, Zed Books, 2010); O Morrissey and E Zgovu, The Impact of China and India on Sub-Saharan Africa: Opportunities, Challenges and Policies (London, Commonwealth Secretariat, 2011), ch 3.

MDBs, Public Procurement and Global Administrative Law 47 V. MDBs, PUBLIC PROCUREMENT AND GLOBAL ADMINISTRATIVE LAW

Based on the belief that much of global governance is administrative in character and is often organised and shaped by the principles of administrative law,110 scholars have increasingly highlighted the emergence of a rational body of global administrative law, which explains the rule-making and enforcement mechanisms in institutions like the MDBs. According to Krisch and Kingsbury: With the expansion in global governance, many administrative and regulatory functions are now performed in a global rather than national context, yet through a great number of different forms, ranging from binding decisions of international organizations to nonbinding agreements in intergovernmental networks and to domestic administrative action in the context of global regimes. Examples include UN Security Council decisions on individual sanctions; World Bank rulemaking for developing countries; the setting of standards on money laundering by the Financial Action Task Force; or domestic administrative decisions on market access of foreign products as part of the WTO regime.111

This global administrative law is defined as comprising the: mechanisms, principles, practices, and supporting social understandings that promote or otherwise affect the accountability of global administrative bodies, in particular by ensuring they meet adequate standards of transparency, participation, reasoned decision, and legality, and by providing effective review of the rules and decisions they make.112

In other words, traditional administration and rule-making is increasingly occurring in the ‘global administrative space’, where the ‘strict dichotomy between domestic and international has largely broken down, in which administrative functions are performed in often complex interplays between officials and institutions on different levels, and in which regulation may be highly effective despite its predominantly non-binding forms’.113 As stated by Kingsbury et al: underlying the emergence of global administrative law is the vast increase in the reach and forms of transgovernmental regulation and administration designed to address the consequences of globalized interdependence in such fields as security,

110 N Krisch and B Kingsbury, ‘Introduction: Global Governance and Global Administrative Law in the International Legal Order’ (2006) 17(1) European Journal of International Law 1, 3. 111 Krisch and Kingsbury, ‘Introduction: Global Governance and Global Administrative Law’, n 110 above, 3. 112 B Kingsbury, N Krisch and RB Stewart, ‘The Emergence of Global Administrative Law’ (2005) 68(15) Law and Contemporary Problems 15, 17. 113 Krisch and Kingsbury, ‘Introduction: Global Governance and Global Administrative Law, n 110 above, 1.

48 The MDBs and International Law the conditions on development and financial assistance to developing countries, environmental protection, banking and financial regulation, law enforcement, telecommunications, trade in products and services, intellectual property, labor standards, and cross-border movements of populations, including refugees.114

In their view, the consequences of global interdependence cannot be fully addressed through national or domestic regulatory regimes and as a result: transnational systems of regulation or regulatory cooperation have been established through international treaties and more informal intergovernmental networks of cooperation, shifting many regulatory decisions from the national to the global level…the detail and implementation of such regulation is determined by transnational administrative bodies—including international organizations and informal groups of officials—that perform administrative functions but are not directly subject to control by national governments or domestic legal systems…115

Nowhere is this truer than in relation to international (or global) public procurement regimes, of which MDB procurement regulatory frameworks form a crucial part. Thus, although MDBs are actors in the classic Statecentric approach to international law as has been discussed above; they are also actors in global administrative law, and are involved in rule-making that impacts State action, but to which States may not necessarily be a party. Procurement has become increasingly internationalised and transnational bodies dictate not just the overarching principles of procurement regulation, but also the procurement procedures that ought to be relied on by States, thus covering both the macro and the microelements of domestic public procurement regulation. It has already been seen that in developing countries, MDBs, especially the World Bank, fund and promote procurement reform along the lines of standards that are acceptable to the MDBs,116 and ‘the exercise of public power in contractual activities has been shaped to respond to the needs and requirements that were prioritized at the supranational level’.117 MDB procurement rules thus create administrative and procedural duties for borrowers and also affect the rights of the private parties involved in those procurements.118 However, the internationalisation of public procurement

114 Kingsbury, Krisch and Stewart, ‘The Emergence of Global Administrative Law’, n 112 above, 16. 115 ibid. 116 S Williams-Elegbe, ‘The World Bank’s Influence on Procurement Reform in Africa’ (2013) 21(1) African Journal of International and Comparative Law, 95. These standards are often based on the UNCITRAL Model Law on procurement, discussed in Chapter 10. See generally, S Arrowsmith, Reform of the UNCITRAL Model Law on Procurement: Procurement Regulation for the 21st Century (Eagan, West, 2010). 117 E Morlino, ‘International Public Procurement’ in S Cassese (ed), Research Handbook on Global Administrative Law (Cheltenham, Edward Elgar Publishing, 2016). 118 ibid, 88.

Conclusion 49 has not been accompanied by the internationalisation of procurement dispute settlement mechanisms, which remain unapologetically local and in some contexts, ineffectual. This dissonance is amplified in MDB procurement, and creates a remedial gap that is unmet for Bank funded procurements. The internationalisation of public procurement is also accompanied by a convergence of procurement norms, standards and procedures, as well as a proliferation of different regulatory frameworks. The consequences of a convergence towards a uniform standard of regulation are both positive and negative. Positive in the sense that as agreements like the WTO’s Government Procurement Agreement (GPA)119 and regional procurement agreements (such as the EU procurement directives) become more commonplace, a uniform approach to procurement regulation may reduce the barriers to entry to government procurement markets created by differing and conflicting legal regimes, thus increasing international trade. However, this uniformity may also be negative, in that such regulation responds to mixed interests,120 which may not always prioritise domestic interests or needs, and also creates the false impression that uniformity of regulations are enough to ensure a functional procurement system in developing countries.121 The existence of multiple procurement regulatory frameworks, to which countries are subject, of course creates its own problems, which are addressed in Chapters 9 and 10. Thus, despite the fact that the content of these frameworks are similar as a result of the convergence discussed above, the intersection and the relationship between these frameworks122 and the manner in which they are implemented by States may often amount to an administrative nightmare, with adverse consequences for the successful implementation of the rules. VI. CONCLUSION

This chapter has provided a snapshot of the international law issues that arise by virtue of MDBs’ status as international organisations and actors in international law. It was seen that like all international organisations, MDBs enjoy international personality, which provides them with c ontractual

119 For information on the GPA see generally, S Arrowsmith and RD Anderson, The WTO Government Procurement Agreement: Challenge and Reform (Cambridge, Cambridge University Press, 2011). 120 Morlino, ‘International Public Procurement,’ n 117 above, 83. 121 S Williams-Elegbe, ‘Beyond UNCITRAL: The Challenge of Procurement Reform Implementation in Africa’ (2014) 1 Stellenbosch Law Review 209. 122 See for instance HC Casavola, ‘The WTO and the EU: Exploring the Relationship between Public Procurement Regulatory Systems’ in E Chiti and BG Mattarella (eds), Global Administrative Law and EU Administrative Law: Relationships, Legal Issues and Comparison (Berlin, Springer-Verlag, 2011).

50 The MDBs and International Law capacity, immunity, but also responsibility for wrongful acts done by them under international law. The chapter has also examined the status of the loan agreement, which governs the relationship between the MDB and the borrower and is regarded as a treaty contract in international law. The chapter also examined the complex nature of the relationship between borrowers and MDBs, which is both a creditor-debtor relationship, as well as a patron-client relationship. It has been seen that in general, the countries that provide the largest funds to MDBs for their operations may be able to influence the policies and practices of the MDBs, but the pressure to lend, as well as the rise of lenders like India and China, may result in MDBs becoming more sympathetic to the needs of their borrowers. Finally, the chapter has highlighted the emergence of a global administrative law on public procurement, created by MDBs and other international organisations, through international agreements and template laws on procurement. It can be seen that this uniformity in procurement regulation may contain both negative and positive elements for developing countries.

Part II

Practice: Documents, Processes and Procedures

52

4 The Procurement Documents I. INTRODUCTION

T

HIS CHAPTER FOCUSES on the documents that are of importance in relation to MDB loans and procurements financed by means of such loans. The chapter will examine the country intervention documents, which set the framework for MDB intervention in a country; the loan agreement; the general conditions for loans; the procurement regulations; general conditions of contract; standard procurement (bidding) documents and the procurement and project implementation plan. In particular, the chapter highlights the general features of a loan agreement; examines what is required of borrowers under the procurement regulations; as well as the consequences for a breach of the loan agreement or a failure to adhere to the procurement guidelines and procurement plan. It may be noted that the harmonisation initiative of the MDBs (discussed in Chapter 9) has resulted in a significant convergence and similarity of the procurement documents utilised by the MDBs. This convergence was pursued by using the World Bank documents as a template or model for the other MDBs. The chapter will thus focus on World Bank documents given the similarities in the form and content of these documents across all the MDBs. II. COUNTRY INTERVENTION DOCUMENTS

There are a number of strategy documents that guide donor interventions in borrower (or recipient) countries. These documents establish the priority sectors and projects for donor involvement and determine what projects may qualify for donor funding. In the World Bank, the preparation of these documents is frequently referred to as Economic and Sector Work (ESW). Prior to an understanding of the procurement process of MDBs, it is important to understand how development projects are selected for funding. In the first place, the World Bank, in collaboration with the other MDBs, bilateral aid agencies and other funders develop a Country Assistance Framework (CAF). The CAF is a common strategic approach for a ssisting

54 The Procurement Documents a particular developing country,1 and is geared at harmonising donor approaches to development intervention. It builds a consensus around key national priorities to minimise waste and optimise donor funds. For developing countries that are eligible for IDA assistance, the Poverty Reduction Strategy Paper (PRSP) provides the background for developing a CAF.2 The ultimate goal of a CAF is to increase the impact of donor lending by increasing the scale of developmental projects, and ensuring co-operation between donors involved in similar sectors or similar projects. It reduces transaction costs and streamlines the donor bureaucracy that is involved in lending, such as differing layers of approvals, review and reporting requirements. After the development of a CAF, donors individually develop a Country Partnership Framework (CPF),3 which is the donor’s unique programme developed under the broader umbrella of the CAF. However, prior to the development of a CPF, the World Bank engages in a process to determine the challenges and opportunities faced by the country, and how best these can be addressed. This is done through a diagnostic called a Systematic Country Diagnostic (SCD). The SCD is said to inform the strategic dialogue between the World Bank Group and its clients about priority areas for World Bank Group engagement.4 The SCD is a diagnostic exercise conducted in consultation with other interested stakeholders, such as national authorities, the private sector, civil society and others.5 According to the World Bank, the SCD ‘presents a systematic assessment of the constraints a country has to address and the opportunities it can embrace to accelerate progress toward the goals of ending extreme poverty and promoting shared prosperity in a sustainable way’.6 It must be noted that a SCD is not limited to areas or sectors where the Bank is currently active, or where the Bank expects immediate country demand, but is a more holistic analysis of the factors that could drive poverty reduction.7 The SCD also examines the constraints the country faces in achieving the inclusive growth needed to attain a sustainable reduction in extreme poverty and an increase in shared prosperity.8 The SCD identifies a

1 See World Bank, World Bank Group Directive: Country Engagement (Catalogue n umber: OPCS 5.01-DIR.01, July 1, 2014). Available at siteresources.worldbank.org/OPSMANUAL/112526-1124459412562/23587333/DirectiveCountryEngagement(July2014).pdf. 2 World Bank, What are PRSPs? Available at web.worldbank.org/WBSITE/EXTERNAL/ TOPICS/EXTPOVERTY/EXTPRS/0,,contentMDK:22283891~menuPK:384209~pagePK:210 058~piPK:210062~theSitePK:384201,00.html. 3 World Bank, World Bank Guidance: Country Partnership Framework Products (1 July 2014) 3. Available at siteresources.worldbank.org/EXTOPMANUAL/Resources/5021831404156575856/CPFGuidance7-01-14.pdf. 4 World Bank, World Bank Group Directive: Country Engagement, n 1 above, 3. 5 ibid. 6 ibid. 7 ibid. 8 ibid.

The Loan Agreement 55 set of priorities through which a country may most effectively and sustainably achieve the poverty reduction and shared prosperity goals and serves as the reference point for consultations when developing the CPF.9 The CPF is itself not an analytical document, but is undergirded by the empirical evidence provided by the SCD.10 The CPF is of crucial importance as it is the central tool relied on by the Bank’s Management and the Board for reviewing and guiding the World Bank Group’s country programmes and gauging their effectiveness.11 It may be noted that as is done with the CAF, the preparation of a CPF is also country-driven, and is guided by national developmental plans and aspirations. The CPF draws on the findings of the SCD and includes consultation with relevant stakeholders, in order to determine its objectives.12 Once this is done, the CPF ‘lays out a selective and flexible program of engagement, tailored to the country’s needs, to support the achievement of those objectives’.13 The CPF identifies a cluster of sectors that qualify for donor support, either through new lending or continuing support to qualifying projects. The CPF also identifies new or existing projects that will be supported by the donor, as well as the outcome indicators for the identified clusters or projects. One of the key features of a CPF is that it leverages on support from the government as well as the private sector; so for instance, the World Bank will utilise existing government programmes or attract additional private sector investment in order to upscale particular projects. III. THE LOAN AGREEMENT

A loan agreement is a simple contractual document between the borrower country and the lender, which contains information on the general conditions of the contract, the amount of the loan and the payment terms, including payment dates, the project to which the loan relates, remedies of the lender, the effectiveness of the agreement and termination provisions. The loan agreement is a standardised document and will normally contain the basic information on the front-end fee, which is usually 0.25 per cent of the loan amount, payable on loan effectiveness;14 the lending rate, which varies depending on the nature of the financed project; a commitment fee, (which may be waived); as well as the maturity term.15 9 ibid.

10 ibid

11 World Bank, World Bank Guidance: Country Partnership Framework Products, n 3 above, 3. 12 ibid. 13 ibid. 14 World Bank, A Guide to the World Bank, 3rd edn (Washington DC, The World Bank, 2011) 75. 15 ibid, 75.

56 The Procurement Documents Although the loan agreement is itself a very brief document, it incorporates by reference other documents such as the General Conditions for Loans,16 and the procurement guidelines. In addition, the schedule to the loan agreement contains fuller particulars on project execution, and the roles of the different agencies that may be involved in the project as well as further requirements of the lender. These further requirements may include factors such as the environmental and social safeguards that must be implemented by the borrower, where the project may have environmental and social adverse consequences; as well as compliance with the anti-corruption guidelines and the project anti-corruption plan; financial management, project reporting, monitoring and evaluation; the procurement methods to be used in the project; as well as the nature of review by the borrower. The loan agreement also guides the manner of withdrawal of funds under the loan, and the manner in which the loan is to be amortised, including the payment schedule as well as the closing date of the loan. Given that the loan agreement incorporates the procurement guidelines/ regulations and the General Conditions for Loans, an examination of these documents is also necessary. IV. THE GENERAL CONDITIONS FOR LOANS

The General Conditions for Loans (GCL) contain the contractual provisions for Bank loans to borrowers. As was discussed above, the loan agreement is a very simple document and the contractual terms and conditions that apply to Bank loans are contained in the GCL and incorporated by reference into the loan agreement. The GCL is divided into ten broad articles and each article is comprised of several sub-sections. This section highlights the broad contents of the GCL. (i)

Article I, Introductory Provisions: this article provides for the applicability of the GCL and states that the GCL ‘set forth certain terms and conditions generally applicable to the Loan Agreement and to any other Legal Agreement’.17 (ii) Article II, Withdrawals: This article provides information on how withdrawals under the loan are to be made, and matters pertaining to the designated loan account, and signatures for those accounts. It also contains information on eligible expenditures under the loan. (iii) Article III, Loan Terms: This article contains provisions pertaining to the front-end fee payable under the loan, interest payments, repayment obligations, place and currency of repayment (amongst others). 16 International Bank for Reconstruction and Development, General Conditions for Loans (Washington DC, World Bank, 2012). Hereafter ‘General Conditions for Loans’. 17 ibid, art I, section 1.01.

The General Conditions for Loans 57 (iv)

Article IV, Conversion of Loan Terms: Under this article, where a borrower requires the conversion of loan terms in order to facilitate prudent debt management, it shall make a request to the Bank. If the Bank agrees, conversion may be made to a fixed rate, or to a fixed spread of payment. (v) Article V, Project Execution: This article is of importance to procurements financed by Bank loans and provides for the responsibilities of the borrower and the project implementing entity. There is also an obligation that goods, works and services financed by the loan may only be used for the purposes of the project.18 Other obligations on the borrower relate to project documentation, project monitoring and evaluation as well as financial management. (vi) Article VI, Financial and Economic Data: By virtue of this article, the borrower is required to furnish the Bank with all financial and economic data, in relation to its external debt and balance of payment as requested by the Bank. (vii) Article VII, Cancellation, Suspension, Acceleration: Article VII covers the remedies available to the Bank where problems arise under the loan, or the borrower otherwise defaults on its obligations. Thus, the Bank may suspend the loan for, inter alia, a payment failure, a performance failure, fraud and corruption, for an extraordinary situation, for misrepresentation, for assigning its obligations under the loan, for cessation of membership of the IMF and the Bank as well as the debarment of the borrower agency. A loan may be cancelled where a suspension of the loan lasts longer than 30 days, for fraud and corruption, for misprocurement, or where the loan is no longer required. A loan repayment may be accelerated where there is a payment or performance default, and assignment of borrower obligations (among others). (viii) Article VIII, Enforceability and Arbitration: Article VIII provides that the rights and obligations of the Bank and the borrower ‘shall be valid and enforceable in accordance with their terms notwithstanding the law of any state or political subdivision thereof to the contrary’.19 Further, neither the Bank nor the borrower is entitled to assert that the General Conditions or the loan agreement is invalid or unenforceable because of any provision of the Articles of Agreement of the Bank.20 Further, any dispute under the loan agreement is required to be submitted to arbitration.21 More is said on this in Chapter 11. 18

ibid, art V, section 5.06. ibid, art VIII, section 8.01. 20 ibid, art VIII, section 8.01. 21 ibid, art VIII, section 8.04. 19

58 The Procurement Documents (ix) Article IX, Effectiveness and Termination: Article IX provides information on when a loan shall become effective, and the conditions under which the loan may be cancelled for failure to become effective. (x) Article X, Miscellaneous Provisions: This article contains information on matters such as representatives of the Bank and borrower, the execution of the loan agreement in counterparts and the Bank’s disclosure policy. (xi) Appendix: The appendix contains the meanings and interpretation of terms used in the GCL.

V. THE PROCUREMENT RULES

As has been mentioned in earlier chapters, the Bank commenced a review of its procurement framework in 2011, which culminated in changes to its procurement documents amongst others. This section will review both the 2011 version of the Bank’s procurement guidelines as well as the regulations, which came into force in July 2016. One of the major changes wrought by the new framework is the consolidation of the separate procurement guidelines on consulting and non-consulting contracts into one document that applies to both consulting and non-consulting contracts. A. The 2011 Procurement Guidelines As was discussed in Chapter 2, section III, the creation of MDB procurement regulations arose in response to the need to ensure probity in the use of MDB funds. In the case of the World Bank, the 2011 procurement guidelines contain information on the policy and operational approach for funded contracts and provide detailed provisions on Bank expectations for procurements under funded projects. The procurement guidelines are incorporated by reference into the loan agreement, and thus form an integral part of the loan agreement. The implication of this is that the procurement guidelines become elevated to the status of a treaty contract. It may be noted that the procurement guidelines expressly state that they do not create obligations on the part of a contractor and only govern the relationship between the borrower and the lender.22

22

See Bank Procurement Guidelines (2011), para 1.1.

The Procurement Rules 59 As discussed further in Chapter 9, the harmonisation agenda of the MDBs included a move towards the development of a set of uniform procurement documents as envisaged by the Rome Declaration on Harmonization.23 In pursuit of this agenda, there has been the harmonisation of the procurement guidelines of the MDBs, using the World Bank’s procurement guidelines as the standard.24 For instance, the African Development Bank amended its procurement guidelines in 1999, 2008 and in 2012 to essentially reflect the World Bank guidelines.25 Similarly, the Asian Development Bank 2015 revision to its procurement guidelines created an almost mirror image of the World Bank 2011 procurement guidelines.26 A similar claim can be made in relation to the procurement guidelines of the Inter-American Development Bank and the 2011 version of their guidelines is very similar to the World Bank guidelines.27 The 2014 versions of the EBRD procurement policies and rules are also similar to the World Bank’s procurement guidelines although there are some areas of divergence, given the different lending approach and market segmentation of the EBRD.28 As a result of the similarities in the procurement guidelines of all the MDBs, this section will focus on the World Bank procurement guidelines. As was mentioned in Chapter 2, section III, the Bank procurement guidelines were developed to ensure that Bank funds were utilised with due regard for ‘economy and efficiency’. In essence, they aim to provide a structured, consistent and coherent approach for the procurement of goods/construction services or consulting services under Bank-funded projects. In the World Bank, there are two sets of procurement guidelines, one applicable to the procurement of goods and construction contracts29 and one for the selection of consultants.30 23 See Rome Declaration on Harmonization. Available at www.oecd.org/dac/effectiveness/31451637.pdf. See also OECD, OECD/DAC Harmonising Donor Practices for Effective Delivery (Paris, OECD, 2003). 24 See E Nwogwugwu, ‘Towards the Harmonisation of International Procurement Policies and Practices’ (2005) 14(3) Public Procurement Law Review 131. 25 African Development Bank, Rules and Procedures for Procurement of Goods and Works (May 2008 edition, revised July 2012). See also V Sharma, ‘An Update on Procurement Reforms at the African Development Bank’ (2016) 4 Public Procurement Law Review 151. 26 Asian Development Bank, Procurement Guidelines (April 2015). 27 Inter-American Development Bank, Policies for the Procurement of Goods and Works financed by the Inter-American Development Bank (GN-2349-9, March 2011). See also A Sala, ‘The Inter-American Development Bank: Reform to Build Up and Increase the Use of National Procurement Systems’ (2016) 4 Public Procurement Law Review 164. 28 European Bank for Reconstruction and Development, Procurement Policies and Rules for projects financed by the European Bank for Reconstruction and Development (October 2014). See J Jackholt, ‘The Procurement Policies and Rules and the Procurement Activities of the European Bank for Reconstruction and Development’ (2016) 4 Public Procurement Law Review 172. 29 Bank Procurement Guidelines (2011). 30 World Bank, Procurement Guidelines: Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers (Washington DC, World Bank, January 2011, revised July 2014). Hereafter ‘Consultant Guidelines’.

60 The Procurement Documents One criticism of the Bank procurement guidelines was that they encouraged a ‘one size fits all’ approach to Bank-funded procurement,31 and promoted a rigid and inflexible methodology in dealing with Bank procurements, irrespective of sector, size or nature of contract.32 As will be seen, this criticism has been addressed to a large extent by the 2016 procurement regulations. i. The 2011 Procurement Guidelines for Goods, Works and Non-consulting Services The procurement guidelines are divided into four sections: Introduction, International Competitive Bidding, Other procurement methods, and the Appendices, which contain Guidance for Bidders, information on reviews and domestic preferences. It may be noted that the procurement guidelines of all the MDBs are arranged in this format, except that of the EBRD. (i)

(ii)

Introduction: the opening section of the World Bank procurement guidelines contains information on the purpose of the guidelines, general information which discusses the preference for open competitive methods of procurement, especially international competitive bidding (ICB), the applicability of the guidelines, prohibitions against conflicts of interest, the eligibility of firms to participate in a Bank-funded contract, and Bank policy on advance contracting and retroactive financing. In addition, this section contains information on bids by joint ventures, the Bank’s approach to procurement review, misprocurement, fraud and corruption and the remedies against such. This section concludes with the importance of the procurement plan prepared by the borrower. International Competitive Bidding: this section of the Bank procurement guidelines provides clarity on the use of ICB as the default procurement method under Bank-funded contracts. The rationale for ICB is to ensure that all eligible prospective bidders have the opportunity to bid for Bank-funded contracts. This section further provides details on the implementation of ICB, including payment methods such as a ‘lump-sum, unit prices, reimbursable cost plus fees, or combinations thereof’.33 The section also discusses contract aggregation, single responsibility contracts and contract unbundling. In the case

31 See Operations Policy and Country Services (OPCS), The World Bank’s Procurement Policies and Procedures: Policy Review Approach Paper (Washington DC, The World Bank, March 29, 2012), 13. Available at siteresources.worldbank.org/INTECA/Resources/2578961335553632562/Approach-Paper-Eng.pdf. Hereafter OPCS, Approach Paper. 32 T Tucker, ‘A Critical Analysis of the Procurement Procedures of the World Bank’ in S Arrowsmith and A Davies (eds), Public Procurement: Global Revolution (The Hague, Kluwer Law International, 1998). 33 Bank Procurement Guidelines (2011), para 2.2.

The Procurement Rules 61 of complex contracts, the Bank generally prefers two-stage bidding, especially where it is impracticable for bidders to prepare final technical proposals in advance. This section also addresses the advertising and prequalification requirements for ICB. In addition, issues surrounding the bidding documents, validity of bids, bid securities, use of brand names and pricing methods, price adjustment, transportation and insurance, currency issues, applicable laws and settlement of disputes are addressed. Finally, the guidelines address bid opening, evaluation, and award of contract under ICB. (iii) Other Methods of Procurement: In the third section, the procurement guidelines deal with the Bank’s approach to other methods of procurement. In particular, the guidelines address conditions where ICB would not be economical, or where other procurement methods are more appropriate or where the Bank will rely on a borrower’s domestic procurement system (use of country systems). This section details the circumstances under which procurement may be conducted using limited ICB (essentially ICB through direct invitation); national competitive bidding; shopping, direct procurement (ie sole-source procurement); framework agreements; procurement using government departments (referred to as force account); and procurement from UN agencies. This section further elucidates the Bank’s approach to issues such as procurement under public-private partnerships; performancebased procurement and community participation in procurement. (iv) Appendices: There are three appendices attached to the procurement guidelines. The first appendix deals with the procurement plan and requires that the plan be consistent with the loan agreement, the procurement guidelines and the project implementation plan. It also deals with the issue of post and prior reviews by the Bank. The appendix provides information on the Borrower’s obligations where a funded contract is subject to prior review,34 and where a contract is subject to post review. A prior review merely means that the Bank must receive the required documentation and issue a certificate of ‘no objection’ to the borrower before the borrower can proceed to the next phase of the procurement process. A ‘no objection’ notice from the Bank will be required in relation to the prequalification and bidding documents, the bid evaluation report, and any changes or modifications to any aspect of the process, and any modifications to the signed contract. A post review is carried out by the Bank and obliges the borrower to retain all documentation relevant to the procurement for a period of up to two years after the closure of the loan agreement. It may be stated here that these reviews are reviews of documentation and may often be inadequate to uncover flaws in project implementation. As a 34

Prior review thresholds are stated in the procurement plan.

62 The Procurement Documents result, these reviews are supplemented with mission implementation visits (site visits), where appropriate. It should be noted that the Bank may declare misprocurement, where the procurement process is not in accordance with the procedures or methods to which the Bank gave its no objection notice. The second appendix to the procurement guidelines contains information on preferences for domestically manufactured goods and domestic contractors under ICB and how such bids are to be evaluated and compared. The third appendix under the procurement guidelines is titled ‘Guidance to bidders’ and provides clarity on both the Bank and the borrower’s role in a Bank-funded contract. It also provides information on how the Bank will address complaints by aggrieved bidders. ii. The 2011 Procurement Guidelines for the Selection of Consultants The guidelines for the selection and employment of consultants under Bankfunded contracts (consultant guidelines) govern the manner in which Bank borrowers may hire consultants under Bank-funded contracts. The consultant guidelines have a very similar layout to the procurement guidelines for goods, works and non-consulting services, except, of course in relation to procurement methods. The consultant guidelines are divided into five sections and three appendices. (i)

Introduction: The introduction to the consultant guidelines clarifies the role and the importance of the consultant guidelines. As in the case of the procurement guidelines for goods and works, the consultant guidelines apply to the selection of consultants under projects wholly or partly financed by the Bank. The consultant guidelines are also incorporated by reference into the loan agreement and thus form an integral part of that agreement. The consultant guidelines also do not create any rights as between the borrower and the consultant, whose rights and obligations are governed by the request for proposals (RFP) and the procurement contract. The introduction also gives the reason for the use of quality and cost-based selection (QCBS) as the default procurement method for consultants. It is important to note that the consultant guidelines only apply where the services to be rendered are of an intellectual and advisory nature, but do not apply to services where the physical output to be produced predominates, such as in contracts for mapping, aerial photography, construction etc. The line is thus drawn between the consultant guidelines, which apply purely to intellectual services, and the procurement guidelines, which are to be used where the primary object of the contract is to produce a physical output. The consultant guidelines also contain prohibitions

The Procurement Rules 63 against conflicts of interest, fraud and corruption, and clarify eligibility requirements, Bank rules on advance contracting and retroactive financing, as well as the importance of the procurement plan. (ii) Quality and Cost-Based Selection: As mentioned above, QCBS is the Bank’s default procurement method for consulting services. QCBS is a procurement method, which takes into account both the quality and the cost of the services being offered and gives each a relative weighting. QCBS involves a competition between prior shortlisted firms. Under QCBS, the cost-based aspect of the bid is to be used judiciously, with the focus being on quality, except in cases of routine services. The stages of QCBS are listed in the consultant guidelines to include the preparation of the terms of reference, preparation of the budget, advertising requirements, preparation of the short list, issuance of the request for proposals and letters of invitation as well as the evaluation of proposals. This section also highlights the requirements for negotiation and award of contracts. (iii) Other Methods of Selection: The third section of the consultant guidelines focuses on the other permitted procurement methods, which are quality-based selection, selection under a fixed budget, least cost selection, selection based on contractors qualifications, and single source selection. Other methods also include the use of country systems, selection of UN agencies and NGOs. (iv) Types of Contracts: The fourth section of the guidelines is devoted to the types of contracts that may be entered into between the borrower and the consultant. These are listed as lump-sum contracts, timebased contracts, retainer and contingency fee contracts, percentage contracts and indefinite delivery contracts. It also contains provisions on currency and payment. (v) Selection of Individual Consultants: Under the final section, the use of individual consultants may be preferred where the experience and qualifications of the individual are paramount, and a team of experts and other professional support is not necessary. This section thus details the requirements for the use of individual consultants. (vi) Appendices: similar to the procurement guidelines for goods and works, the consultant guidelines contain three appendices, which are virtually identical to the appendices in the procurement guidelines. The first appendix requires the procurement plan to be consistent with the procurement implementation plan, the consultant guidelines and the loan agreement. This appendix also provides the borrower’s obligations where a contract is subject to prior review. As was discussed in the context of the procurement guidelines, where prior review is mandated, the borrower shall furnish to the Bank the d ocuments that pertain to the budget, the RFP, the list of shortlisted firms, and the technical evaluation report. The borrower may only proceed to

64 The Procurement Documents opening the financial proposals after receiving the Bank’s ‘no objection’ notice on the technical proposals. Also, any modification or extension to bid validity requires a ‘no objection’ notice from the Bank. Post reviews follow the same format as under the procurement guidelines and the borrower is required to keep documents for up to two years after the closure of the loan agreement. Other issues covered under this appendix are the publication and award of contract as well as the borrower’s due diligence obligations in ensuring that debarred contractors are not proposed for a Bank-funded contract. The second appendix is solely directed at the data sheet and the instructions to consultants that must accompany every RFP. Again, the purpose of this is to ensure consistency and uniformity in Bank-funded contracts and the appendix simply lists the information that must be sent to proposed consultants. The third and final appendix is titled ‘Guidance to consultants’ and as is the case under the procurement guidelines, this appendix provides clarity on the roles of the Bank and the borrower and also provides information on treatment of bidders’ complaints.

B. The 2016 Procurement Framework As mentioned, the Bank embarked on a review of its procurement framework in 2011. This review was intended to improve and streamline Bank procurement as well as make it more suitable to the changing needs of borrowers and bring it into line with global procurement practices. Prior to the review of the Bank’s procurement system, there was little clarity in the Bank procurement guidelines as to which provisions were policies, guidelines, rules and procedures.35 The review thus sought to increase the level of coherence in the Bank’s procurement system by distinguishing between different categories of information and the mandatory nature or otherwise of the information. The Bank’s Board approved the review in July 2015, and as a result, new procurement documents, comprising of the new Procurement Policy,36 the new Procurement Directives,37 the new Procurement Procedures38 and the 35 World Bank, Review of the World Bank Procurement Policies and Procedures: Questions and Answers. Available at consultations.worldbank.org/Data/hub/files/consultation-template/ procurement-policy-review-consultationsopenconsultationtemplate/materials/procurement_ reform_qa_august_2014.pdf. 36 World Bank, Bank Policy: Procurement in IPF and other Operational Procurement Matters (Catalogue No.OPSVP5.05-POL.144 July 2016) Hereafter, ‘Bank Policy (2016)’. 37 World Bank, Bank Directive: Procurement in IPF and other Operational Procurement Matters (Catalogue No.OPSVP5.05 DIR.114 July 2016) Hereafter, ‘Bank Directive (2016)’. 38 World Bank, Bank Procedure: Procurement in IPF and other Operational Procurement Matters (Catalogue No.OPSVP5.05-PROC 108 July 2016) Hereafter, ‘Bank Procedure (2016)’.

The Procurement Rules 65 Procurement Regulations39 were adopted in July 2016. Despite the adoption of the new procurement framework, the 2011 version of the Bank procurement guidelines will continue to be used alongside the new procurement documents. Thus, ongoing projects will continue to rely on the 2011 version of the Bank procurement guidelines, whilst all new projects will be conducted under the new procurement framework. For projects already in the pipeline, where procurement has not yet commenced, these may be restructured in order to rely on the new procurement framework. This section will examine the contents of the new procurement documents. i. The 2016 Procurement Regulations for Borrowers The 2016 regulations contain much of the information that is contained in the 2011 procurement guidelines, but is also focused exclusively on the obligations of the borrower in conducting and managing a funded procurement. The 2016 regulations differ from the 2011 guidelines in that they apply to all procurements (goods, works, consulting and non-consulting services), and are much longer than the 2011 guidelines, containing seven sections and fifteen appendices. This section will examine the broad content and layout of the 2016 regulations. Many of these sections will be analysed in detail in the rest of the book. (i)

(ii)

Section I, Introduction: The Introduction to the 2016 regulations contains the vision, the purpose, and the core procurement principles. The Bank’s procurement vision states that ‘Procurement in Investment Project Financing supports Borrowers to achieve value for money with integrity in delivering sustainable development’.40 The purpose of the regulations is also stated as being to ensure that the proceeds of Bank loans are only used for the purposes for which the loan is granted.41 The core procurement principles are stated to be value for money, economy, efficiency, integrity, fitness for purpose, efficiency, transparency and fairness.42 Section II, General Considerations: the section on general considerations deals with the applicability of the procurement regulations;43 and the situations when it will be permissible to rely on the procurement

39 World Bank, Procurement Regulations for IPF Borrowers: Procurement in Investment Project Financing: Goods, Works, Non-Consulting Services and Consulting Services (July 2016). Hereafter, ‘Procurement Regulations for Borrowers (2016)’. 40 See Procurement Regulations for Borrowers, para 1.1. 41 ibid, para 1.2 42 ibid, para 1.3. 43 The procurement regulations apply to ‘the procurement of goods, works, non-consulting and consulting services to be financed in whole or in part’ through the Bank. See para 2.1.

66 The Procurement Documents arrangements of another donor or of the borrower, referred to as alternative procurement arrangements.44 (iii) Section III, Governance: the section on governance contains information on the roles and responsibilities of the Bank and the borrower. Thus, whilst the Borrower is ‘responsible for carrying out procurement activities financed by the Bank’ in accordance with the procurement regulations;45 the Bank is responsible for ‘procurement oversight under a risk-based approach, through prior and post review, independent procurement review and third party assurance, as appropriate’.46 This section also contains Bank prescriptions on conflict of interest, unfair competitive advantage47 and fraud and corruption.48 Other matters dealt with in the section on governance are the eligibility of firms to participate in funded procurements,49 Bank remedies where a borrower fails to comply with the procurement regulations,50 and the complaint mechanism for aggrieved bidders.51 (iv) Section IV, Project Procurement Strategy for Development and Procurement Plan: this section provides information on the development of a Project Procurement Strategy for Development and Procurement Plan by the borrower.52 More will be said on these below. (v) Section V, General Procurement Provisions: this section contains information of a general nature, which may affect all procurement under Bank-funded contracts. Thus, the section contains provisions on when retroactive financing is permissible;53 on domestic preferences54 (discussed in detail in Chapter 7); on electronic procurement;55 on the use of the Bank’s online procurement planning and tracking tool;56 on joint ventures;57 leased assets;58 sustainable procurement;59 value engineering;60 and the procurement of second-hand goods.61 Other issues addressed in this section include brand names;62 abnormally low 44

Procurement Regulations for Borrowers, paras 2.3 and 2.4. ibid, para 3.2. 46 ibid, para 3.4. 47 ibid, paras 3.14–3.20. 48 ibid, para 3.32. 49 ibid, paras 3.21–3.23. 50 ibid, paras 3.24 and 3.25. 51 ibid, paras 3.26–3.31. 52 ibid, paras 4.1–4.5. 53 ibid, paras 5.1–5.2. 54 ibid, para 5.51. 55 ibid, para 5.8. 56 ibid, para 5.9. 57 ibid, para 5.38. 58 ibid, para 5.10. 59 ibid, para 5.12. See also Chapter 7 below. 60 Procurement Regulations for Borrowers, para 5.13. 61 ibid, para 5.11. 62 ibid, para 5.27. 45

The Procurement Rules 67 bids;63 the standstill period;64 contract conditions;65 INCOTERMS;66 and issues pertaining to bids from bid security to bid opening.67 (vi) Section VI, Approved selection methods, particular types of approved selection arrangements and market approach options for goods, works, and non-consulting services: this section contains information on the procurement methods, which are permitted by the Bank, which are detailed as a request for proposals;68 a request for bids;69 a request for quotations;70 and direct selection.71 The section also contains information on market approaches, which are, in essence, the kinds of competition permitted under a funded contract. These are described as open competition;72 limited competition;73 international competition74 (referred to as approaching the international market); national competition;75 prequalification76 and post qualification;77 single stage and multi stage procurement.78 The section also explains the situations in which peculiar procurement methods may be used by a borrower. These methods are competitive dialogue;79 public private partnerships;80 commercial practices;81 UN agencies;82 electronic reverse auctions;83 operations involving a programme of imports and commodities;84 community-driven procurement85 and a reliance on force accounts.86 This final part of this section also contains information on contractual arrangements such as framework contracts and performance based contracts.87

63

ibid, paras 5.65–5.67. ibid, paras 5.78–5.80. 65 ibid, para 5.29. 66 ibid, para 5.30. 67 ibid, paras 5.33–5.49. 68 ibid, paras 6.3–6.4. 69 ibid, paras 6.5–6.6. 70 ibid, para 6.7. 71 ibid, paras 6.8–6.10. 72 ibid, para 6.11. 73 ibid, para 6.12. 74 ibid, paras 6.13–6.14. 75 ibid, paras 6.15–6.18. 76 ibid, paras 6.19–6.24 77 ibid, para 6.27. 78 ibid, paras 6.28–6.30. 79 ibid, paras 6.39–6.41. 80 ibid, paras 6.42–6.45. 81 ibid, para 6.46. 82 ibid, paras 6.47–6.48. 83 ibid, para 6.49. 84 ibid, paras 6.50–6.51. 85 ibid, para 6.52. 86 ibid, paras 6.54–6.55. 87 ibid, paras 6.57–6.61. 64

68 The Procurement Documents (vii)

Section VII, Approved selection methods and market approach options for consulting services: the final section of the procurement regulations contains information on the procurement procedures and methods acceptable in the procurement of consulting services. The section lists the approved procurement methods for selecting consulting firms as quality and cost-based selection;88 fixed budget-based selection;89 least cost-based selection;90 quality based selection;91 consultant’s qualification based selection;92 and direct selection.93 The market approaches permitted for the procurement of consulting services are identical to the approaches for the procurement of goods, works and non-consulting services and are open competition,94 limited competition,95 international competition96 and national competition.97 In addition, the section provides information on the selection procedures for consulting firms, which are listed as shortlist and request for proposals.98 The section also highlights particular selection arrangements such as commercial practices, UN agencies, non-profit organisations, banks and procurement agents.99 The final part of this section also provides information on the selection of individual consultants.100 (viii) Appendices: as was mentioned above, the 2016 procurement regulations contain 15 appendices, which elaborate on specific sections of the regulations and also provide detailed direction on how borrowers are to conduct procurement under the regulations. ii. Bank Policy: Procurement in IPF and Other Operational Procurement Matters The second major document issued after the revision to the Bank’s procurement framework is the Bank Policy document. This document is directed at the Bank and: sets out a vision, and the key principles and other policy requirements governing the procurement of goods, works, non-consulting services and consulting services 88

ibid, para 7.3. ibid, paras 7.4–7.5. 90 ibid, paras 7.6–7.7. 91 ibid, paras 7.8–7.9. 92 ibid, paras 7.11–7.12. 93 ibid, paras 7.13–7.15. 94 ibid, para 7.22. 95 ibid, para 7.23. 96 ibid, para 7.24. 97 ibid, para 7.25. 98 ibid, paras 7.16–7.21 99 ibid, paras 7.26–7.31. 100 ibid, paras 7.34–7.39. 89

The Procurement Rules 69 financed by the Bank (in whole or in part) through IPF operations, excluding (i) guarantees; and (ii) the procurement of goods, works, non-consulting services and consulting services financed by the Bank through loans made by eligible financial intermediaries, where the final recipient of loan funds is a private borrower.101

The Bank Policy sets out the vision for Bank funded procurement,102 lists the core procurement principles governing Bank funded procurement,103 as well as matters pertaining to governance in funded procurement,104 roles and responsibilities,105 alternative procurement arrangements106 and the Project Procurement Strategy Document.107 iii. Bank Directive: Procurement in IPF and Other Operational Procurement Matters Apart from the procurement regulations and the Bank policy, discussed above, the review of the Bank’s procurement framework also included the creation of two other documents, which provide operational direction for Bank procurement staff. The first document is known as the ‘Bank Directive: Procurement in Investment Project Financing and other Operational Procurement Matters’. The Directive applies only to the Bank and: sets out the operational and general rules related to: (a) the procurement of goods, works, non-consulting services and consulting services financed by the Bank (in whole or in part)…(b) the Bank’s support to Borrowers in the area of procurement capacity building; and (c) other operational procurement matters.108

The Bank Directive discusses matters such as procurement compliance monitoring and implementation support;109 and the roles, responsibilities and accountabilities of the various hierarchies of staff involved in procurement.110 Other matters addressed by the Directive include the handling of procurement complaints;111 and the kinds of support that may be given to borrowers in procurement capacity building.112

101

Bank Policy, section I. ibid, section III A. 103 ibid, section III C. 104 ibid, section III D. 105 ibid, section III E. 106 ibid, section III F. 107 ibid, section III G. 108 Bank Directive, section I (1). 109 ibid, section III C. 110 ibid, section III E. 111 ibid, section III G. 112 ibid, section III H. 102

70 The Procurement Documents iv. Bank Procedure: Procurement in IPF and Other Operational Procurement Matters The second operational procurement document created by virtue of the new procurement framework is referred to as the ‘Bank Procedure: Procurement in Investment Project Financing and Other Operational Procurement Matters’. The Bank Procedure applies to the Bank and ‘sets out the procedural instructions related to procurement in IPF and other operational procurement matters, such as PASP, procurement accreditation, OPRC, and interinstitutional operational conflict of interest’.113 The Bank Procedure differs considerably from the Bank Directive, as the Procedure addresses processing, documentation and technical requirements for procurement under IPF operations.114 The Bank Procedure elaborates the procedural steps for procurement by relevant staff and the various roles involved in the procurement process, from project preparation to project implementation support and monitoring and the accreditation of Bank procurement staff. VI. THE GENERAL CONDITIONS OF CONTRACT (GCC)

The GCC are required to be used in all funded procurements. It must first be noted that there are different GCC, which apply to MDB procurement contracts, depending on the sector and nature of the contract. There is thus is a GCC, which applies to construction contracts,115 one, which applies to simple procurements, and one for consulting contracts. The GCC in essence all contain similar information, tailored to fit the peculiarities of the contract. The GCC for construction contracts116 is one of the documents that was harmonised across all the MDBs and took effect in June 2010.117 Due to its universal applicability amongst the MDBs, the GCC for construction will be used as the model for the following discussion. The function of the GCC is to provide the standard contractual terms and conditions that will govern the relationship between the contractor and the borrower under a financed contract. The GCC exists to ensure contractual consistency across MDB procurements, ensure that neither the borrower 113 ibid, section I (1). PASP stands for Procurement Accreditation and Standards Panel, which sets up standards and core competences for Bank procurement staff. OPRC stands for the Operations Procurement Review Committee. 114 ibid, section III. 115 This harmonised GCC was developed in conjunction with the International Federation of Consulting Engineers (FIDIC). 116 See Conditions of Contract for Construction for Building and Engineering Works designed by the Employer: Multilateral Development Bank Harmonised Edition June 2010. Available at fidic.org/sites/default/files/cons_mdb_gc_v3_unprotected_0.pdf. 117 See FIDIC MDB Harmonised Construction Contract. Available at fidic.org/node/321.

The General Conditions of Contract (GCC) 71 nor the contractor is subject to unfair, onerous, illegal or unacceptable contractual terms and to ensure that the contracts between the borrower and the contractor comply with MDB policies, values and general norms of international law.118 This section highlights the general terms that are found across all the variants of the GCC. (i)

Interpretation: All the variants of the GCC begin with a definition of terms used in the contract and an interpretation of words used in the contract. (ii) Communication: The GCC contain an explanation of how communication under the contract is to be sent—usually required to be in writing and delivered by hand, mail or courier or sent by acceptable means of electronic communication. (iii) Law and language: The GCC also provide for the law and language that applies to the contract. (iv) Compliance: The GCC requires the contractor to comply with all applicable laws and regulations of the borrower, including those that pertain to applicable taxes and duties. (v) Assignment and subcontracting: The GCC contains prohibitions on assignment and wholly subcontracting the work under the contract. (vi) Effectiveness and termination: The GCC contain provisions on effectiveness and termination of the contract as well as commencement and expiration of the contract. (vii) Contract modification: Other provisions that are found within all the GCC are the provisions on modification of contract, force majeure etc. (viii) Contractor’s obligations: The GCC also contains detailed provisions on the obligations of the contractor, including but not limited to the standard of performance, conflicts of interest and other prohibited activities; confidentiality; accounting; reporting and auditing amongst others. (ix) Liabilities: Other provisions address the liability of the contractor for defects or inadequate performance. (x) Contractor’s staff: The GCC also covers issues that pertain to the relationship between the contractor and its personnel during the duration of the contract, including provisions for the removal and replacement of staff. (xi) Borrower’s obligations: The GCC also provide for the obligations of the borrower including access to premises, relevant documents and assistance with necessary permits and licenses. 118 For instance, the GCC on Construction contains provisions for the treatment of workers, which comply with ILO standards. See section 6 GCC for Construction.

72 The Procurement Documents (xii) Payment: The GCC also governs all issues relating to the payment of the contractor, subcontractors, and agents. (xiii) Disputes: The GCC also contains provisions relating to the settlement of disputes between the contractor and the borrower. These are the terms that are common to the GCC, irrespective of variant. Of course specialised GCC such as the one for construction contracts contains a plethora of terms, which are relevant to construction contracts. Beyond the GCC, there are also Special Conditions of Contract (SCC), which can be used to modify the GCC to deal with special conditions or circumstances affecting the contract. SCC may modify the governing law of the contract, method of communications, effectiveness provisions and any other term of the GCC. VII. THE STANDARD PROCUREMENT DOCUMENTS (SPDs)

The standard procurement documents (SPDs) are part of the procurement documents that were impacted by the Bank’s review of its procurement framework. Prior to 2016, the SPDs were referred to as standard bidding documents (SBDs) and there had been substantial convergence in these documents across all the MDBs. In 2008, the MDBs further jointly developed a master procurement document, which contained the SBDs and the GCC for use by individual MDB’s as required.119 After the review of the Bank’s procurement framework, the SPDs have been updated to reflect the changes wrought by the introduction of the 2016 procurement regulations. It must be noted that the use of Bank issued SPDs is mandatory for international competitive procurement. Similarly, under the 2011 procurement guidelines, borrowers are required to use SBDs with minimal changes. For national competitive bidding (NCB), and for the use of country systems (UCS), the borrower may use its own standard bidding documents if the Bank has assessed that they are acceptable and consistent with Bank policy. A SPD is in essence, the full complement of the documents and information that is sent to prospective bidders and it includes information on the contract, requirements for compliant bids, information on bid submission, evaluation criteria, award of the contract and all the information required for a bidder to meaningfully participate in the bid process. SPDs perform various functions, they define the rules bidders must follow in the p reparation

119 See siteresources.worldbank.org/INTPROCUREMENT/Resources/GenericMPDJul08.pdf.

The Project Procurement Strategy for Development 73 and submission of their bids;120 they define the technical requirements and the technical specifications of the bid, as well as clarify and define the evaluation criteria.121 By virtue of the new procurement framework, the SPDs have been further differentiated, and there are now SPDs that apply to the procurement of goods (differentiated into the one envelope and two envelope process); SPDs for health procurement; for the procurement of textbooks; for the procurement of works; plant; management services; non-consulting services; consulting services; and information systems. This section will review the general terms of SPDs, using the SPDs for goods as the example. The SPDs for goods are divided into three parts. These are: Part I, Bidding Procedures; Part II, Supply Requirements and Part III, Conditions of Contract. (i)

Part I: Bidding Procedures: The SPDs for goods contain information on bidding procedures. Specifically, the contents of Part I are the instructions to bidders, the information to be contained in the bid data sheet, the evaluation and qualification criteria, the bidding forms, the eligibility of countries and a restatement of the Bank’s policy on fraud and corruption. (ii) Part II: Supply Requirements: This section contains information on the schedule of requirements for goods. This includes delivery schedules, completion schedules, technical specifications, and the drawings that describe the goods and any related services to be procured, inspections and tests. (iii) Part III: Conditions of Contract: The final section in the SPDs for works and for goods is focused on the contractual terms. Thus, the GCC discussed above are included in this part of the SPDs as well as any special or particular conditions of contract. This section also contains contractual documents, which are to be completed by a successful bidder after the award of contract. These include the performance security and the advance payment security forms.

VIII. THE PROJECT PROCUREMENT STRATEGY FOR DEVELOPMENT

The Project Procurement Strategy for Development (PPSD) is a new document required under the new procurement framework. The PPSD is defined 120 GT Ware, S Moss, J Edgardo Campos and GP Noone, ‘Corruption in Public Procurement: A Perennial Challenge’ in J Edgardo Campos and S Pradhan (eds), The Many Faces of Corruption: Tracking Vulnerabilities at the Sector Level (Washington DC, The World Bank, 2007) 311. 121 ibid.

74 The Procurement Documents in the 2016 procurement regulations as ‘a project-level strategy document, prepared by the Borrower, that describes how procurement in IPF operations support the development objectives of the project and deliver VfM’.122 It is required to be prepared by the borrower as part of the project preparation process, to be reviewed and agreed upon by the borrower and the Bank.123 The PPSD is a document that contains detailed information on how procurement activities will support the development objectives of the project and deliver value for money under a risk-managed approach.124 The PPSD provides the justifications and rationalisations for the borrower approach to project procurement, such as the justifications for the selection methods chosen, and will also provide the justification for expanded Bank support under the project.125 Other information contained in the PPSD includes a clear statement of the objectives of the project,126 an identification of the specific project needs; an assessment of adequacy of the market to respond to the procurement; an assessment of the agency’s capability to conduct the procurement; and a justification of procurement decisions,127 such as the evaluation criteria used in the procurement process.128 The PPSD includes a strategic assessment of the project as well as an analysis of the operational context and the factors that may affect the achievement of procurement objectives.129 It will also contain market research that assesses issues that impact the project level of risk, and will contain a procurement risk management and contract management plan.130 IX. THE PROCUREMENT PLAN

A procurement plan under MDB contracts operates slightly differently from procurement plans in domestic procurement. In the domestic context, a procurement plan transforms an organisation’s mission, goals and objectives into measurable activities, which are used to plan, budget and manage the procurement function within the organisation.131

122

Procurement regulations for borrowers, Common Abbreviations and Defined terms. ibid, Annex V, section 2.1. 124 ibid, section 4.1. 125 ibid, Annex V. 126 ibid, Annex V, paras 2–3. 127 ibid, Annex V. 128 ibid, Annex X, para 2.1. 129 ibid, Annex V, paras 2–3. 130 ibid, Annex V, para 3. 131 See National Institute of Governmental Purchasing, Public Procurement Dictionary of Terms (Virginia, National Institute of Governmental Purchasing, 2010). 123

The Project Implementation Plan/Manual 75 However, under MDB financed contracts, a procurement plan essentially provides a roadmap on how the procurement process is to be conducted. Thus, critical elements of the procurement process are set out, such as the procurement method to be used, prior review thresholds, procurement time schedules, as well as any implementing agency capacity building activities. It may also contain information on community participation in procurement. The procurement plan is in the first place designed to cover the first 18 months of the funded project, thereafter it will be updated annually or as necessary. The procurement plan is also one of the documents that benefited from MDB harmonisation initiatives. It must be stated that the procurement plan is a crucial document in MDB procurement and a failure to adhere to the plan may lead to misprocurement under the loan. X. THE PROJECT IMPLEMENTATION PLAN/MANUAL

The project implementation plan (PIP), also referred to as the project implementation manual is another template based document that provides detail on the nature of the project and implementation guidelines, including guidelines on monitoring and evaluation of the project. A typical PIP will give a summary of the project, its scope and objectives, and will include a detailed financing plan; describing the various sources of the funds, where the project is not wholly funded by one lender.132 It also focuses on implementation arrangements, naming the government organisation that is responsible for the project; the organisational arrangement between the borrower and the implementing agency; a clarification of the roles of the implementing agency and other relevant agencies and departments; the administrative arrangements during project implementation; and the role of the MDB during project implementation. The PIP will also address any risks to the project and how these will be mitigated. In addition, a detailed implementation plan will contain timebound tasks for each component of the project, a schedule of procurement actions with target dates and a schedule for disbursement of funds for each project component, including for co-financing where relevant.133 The PIP must also contain ‘specific actions required to achieve the project’s development impact objectives (including implementation of environmental and social actions specified in any mitigation plans, resettlement plans, and

132 Operational Manual BP10.00 Annex B—Elements of a Project Implementation Plan, January 1994. Available at web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/EXTPOLICIES/EXTOPMANUAL/0,,contentMDK:20066372~menuPK:64701637~pagePK:64709096~ piPK:64709108~theSitePK:502184,00.html#_ftn1. 133 Operational Manual BP 10.00.

76 The Procurement Documents indigenous peoples plans)’.134 Other implementation information in the PIP will cover project accounting and financial management systems, timelines for audits and project accounts. In relation to project monitoring and evaluation, the PIP will address development impact indicators and progress and financial indicators for project success, as well as any provisions in the loan agreement that require special attention.135 XI. CONCLUSION

As can be seen from the above, there are various documents that guide and govern procurement under MDB financed contracts. The multiplicity of overlapping documents makes it imperative for the documents to be carefully drafted so as to avoid inconsistencies or conflicts, which may delay project implementation and affect the success of the project. The reforms to the Bank’s procurement framework, address to an extent, this issue of a multiplicity of documents. One of the aims of the reform process was to rationalise and streamline the Bank’s approach to procurement, including procurement documentation. This rationalisation will certainly assist borrowers to better manage and understand the Bank’s procurement system, and hopefully lead to better outcomes in funded contracts.

134 ibid. 135 ibid.

5 The Project Cycle and the Procurement Process I. INTRODUCTION

T

HIS CHAPTER EXAMINES the project cycle under Bank lending programmes. The project cycle of course includes the procurement process, and this chapter holistically examines all the stages of a project, from project identification to contractor evaluation and selection, to contract award and implementation and finally to payment and post- contract audits. The chapter will focus on the World Bank, and will examine the processes for each stage, highlighting the issues faced during the d ifferent stages of the project cycle. It must be noted that the Bank defines the procurement process quite broadly as ‘the identification of a need…through planning and market research, functional or specification requirements writing, budget considerations, selection, contract award, and contract management and end on the last day of the last warranty’.1 This definition is in contrast to the narrow definition of procurement that is covered by the regulatory framework in the EU and also in some countries influenced by the common law.2 In these jurisdictions, the procurement process is generally limited to the selection/ award phase of the procurement process. The USA, however, also adopts a broader and more expansive definition of procurement process, which is closer to the approach of the Bank.3 Perhaps it should be mentioned

1

See Procurement Regulations for Borrowers, Common Abbreviations and Defined Terms. generally, Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, ch 1; S Arrowsmith, The Law of Public and Utilities Procurement, 3rd edn (London, Sweet & Maxwell, 2014); and P Bolton, The Law of Government Procurement in South Africa (Cape Town, Lexis Nexis, 2007), ch 2; KT Udeh, ‘The Regulatory Framework for Public Procurement in Kenya’ in G Quinot and S Arrowsmith (eds), Public Procurement Regulation in Africa (Cambridge, Cambridge University Press, 2013); KN Adham and C Siwar, ‘Transformation of Government Procurement in Malaysia: Directions and Initiatives’. Paper presented at the 5th International Public Procurement Conference, Seattle, Washington, 17–19 August, 2012. Available at www.ippa.org/IPPC5/Proceedings/Part7/PAPER7-1.pdf. 3 Under the US Federal Acquisition Regulations 2.101, acquisition is said to begin ‘at the point when agency needs are established and includes the description of requirements to satisfy agency needs, solicitation and selection of sources, award of contracts, contract financing, 2 See

78 The Project Cycle and the Procurement Process that the historical antecedents of the World Bank and its physical location and proximity to the US legal system has meant that in many respects, the Bank adopts nomenclature and a legal approach that is often similar to the US. II. AN OVERVIEW OF PROCUREMENT ORGANISATION IN THE MDBs: THE EXAMPLE OF THE WORLD BANK

It has earlier been alluded to that the MDBs operate in different capacities in undertaking their core functions. In the procurement context, they operate both as a financier and as an oversight mechanism, necessitated by the obligation to ensure that loan proceeds are properly utilised. The fact that MDBs’ role under project procurements is limited to an oversight one, and the fact that there is no privity of contract between contractors and MDBs has meant that they have had to find innovative ways to maintain control over the procurement process. One of the ways in which this control is maintained, is through the manner in which procurement is organised. This section will provide an overview of the institutional framework for procurement in the MDBs. Information on the organisation of the procurement function prior to 2016 can be gleaned from the World Bank’s operational manual.4 By virtue of this document, the highest operational authority is the Bank’s regional management, followed by the Bank’s country director, the sector manager and the task team leader. In relation to the core procurement function, the highest authority is the Bank’s Chief Procurement Officer, followed by the Regional Procurement Officer, Procurement Specialists and Procurement Accredited Staff, and then Procurement Analysts, each with distinct but inter-related functions in relation to Bank-funded procurements. In order to understand the Bank’s procurement organisation, one needs to understand the procurement-related functions the Bank is involved in. These are the supervision function, the fiduciary function and the procurement capacity building function. A task team, headed by a task team leader (TTL), has the primary responsibility to ensure ‘that procurement is carried out in accordance with the Bank’s policies and procedures’.5 The task team thus executes both the supervisory and the fiduciary functions in relation to funded procurements.

contract performance, contract administration, and those technical and management functions directly related to the process of fulfilling agency needs by contract’. 4 The World Bank Operations Manual, Bank Procedures, Procurement BP 11.00 Annex A (January 2011, Revised July 2014), para 1. Available at siteresources.worldbank.org/ OPSMANUAL/Attachments/23610552/BP11.00-AnnexA(updatedJuly2014)revA.pdf. 5 ibid, para 1.

An Overview of Procurement Organisation in the MDBs 79 The TTL therefore obtains the necessary internal clearances before approving of the borrower’s actions under the project. The task team is comprised of a procurement specialist (PS) or a procurement accredited staff (PAS), responsible for project preparation and implementation support. Project preparation includes a capacity and risk assessment, supervision and procurement planning. Implementation support here essentially refers to support missions to the borrower and other forms of off-site support. They also provide support on procurement matters to other categories of Bank staff. The PS/PAS are required to ensure that the procurement complies with the loan agreement and the Bank’s policies. They are also responsible for planning and conducting prior and post reviews and requesting higher level reviews. The TTL is further required to evaluate the project by collating all the information on the project and seeking the contribution of the PS/PAS on facts, fiduciary issues, lessons learned etc. In relation to procurement capacity building, the Bank usually starts by conducting a Country Procurement Assessment through the Regional Procurement Manager and the Bank Country Director. This is supported by the Bank’s Procurement Policy and Services Group (OPCPR) and the Legal Procurement Sub-Unit (LEGPR). If on the basis of the Country Procurement Assessment Report, the Bank undertakes to assist a borrower in procurement reform, this is again the responsibility of the Country Director and the Regional Procurement Manager, with LEGPR overseeing the legal aspects of the reform programme. Under the Bank’s new procurement framework, some of the existing Bank operational documents will be replaced by the new procurement documents mentioned and discussed in Chapter 4. However, the division of roles in Bank-funded contracts, will still be very similar to what obtains under the pre-2016 regime. The new Bank Procedure and Bank Directive discussed in Chapter 4 provides the full information on procurement organisation in the Bank and also changes the nomenclature of the Bank staff involved in the IPF function. Thus, the Bank staff that are now involved in the procurement function are the Team Leader (TL), (who replaces the TTL) and is supported by the Accredited Practices Specialist (APS), the Accredited Practice Manager (APM), the Procurement Accredited Staff (PAS) and the Practice Manager (PM). Under the new Bank Directive, the task teams headed by the TL ‘are responsible and accountable for project-level procurement support and procurement monitoring activities’.6 Amongst other things, the job of the

6 World Bank, Bank Directive: Procurement in IPF and other Operational Procurement Matters (Catalogue No. OPSVP5.05 DIR.114 July 2016). Hereafter ‘Bank Directive (2016)’, section IIE(5).

80 The Project Cycle and the Procurement Process TL is to carry out project procurement-related risk assessments and propose appropriate procurement arrangements, and to monitor the implementation of risk mitigation measures; assist the borrower in the preparation of the PPSD and Procurement Plan; issuing Bank no-objection letters to a borrower’s decision that requires procurement clearance, subject to the procurement clearance; handle procurement-related complaints; monitor contract management and contractual disputes; as well as provide hands-on implementation support.7 The APM has both fiduciary and operational responsibilities under funded procurements. APMs serve as recognised authorities on operational procurement and are members of the Operations Procurement Review Committee (OPRC). They advise regional management on the application of procurement policy and how to address systemic and related operational issues across sectors/sub-sectors in their regions. APM supervise regional procurement staff and oversee the organisation and delivery of procurement services at the regional level.8 They make sure that appropriate fiduciary and quality controls are in place, and monitor consistency in the application of procurement policies when making procurement decisions.9 The APM ensure that each project has the right complement of staff (an APS or a PAS), and reviews the procurement sections in project documents and also escalates any procurement issues in the regions under his jurisdiction.10 The APM is also responsible for reviewing and responding to procurement complaints, and is the focal point for procurement issues between borrower’s and complaining bidders.11 The APS and the PAS have a more project-focused role and they are the ‘task team members accountable for procurement activities related to the preparation and the supervision of the project as per their delegates and accreditations’.12 It should be noted that the responsibilities and authority of the APS and the PAS are delegated from the APM, and include assisting the borrower in preparing the project procurement strategy document and the procurement plan; drafting the procurement-related sections of the project documents and loan agreement; assisting the TL on procurement operational and capacity building work; conducting prior and post- procurement reviews; providing implementation support to the borrower and contributing to the conduct of a country procurement assessment.13

7

ibid, section IIE(5). Bank Procedures BP 11.00, n 4 above, para 1. 9 ibid. 10 ibid. 11 ibid. 12 ibid. 13 ibid. 8

Project Preparation 81 III. PROJECT PREPARATION

When a donor agrees to finance an investment project, there are a number of preliminary actions that are taken prior to the commencement of the procurement process. These include assessing the suitability of the borrower’s agency or department to manage donor funds, assessing the institutional and fiduciary risk that the borrower’s system may pose to donor funds and the identification and appraisal of the project. A. Assessing Borrower Capacity In order the ensure that the borrower’s agency does not pose a risk to Bank funds, the Bank uses a number of tools to assess the borrower’s ability to properly conduct a procurement process and manage donor funds. This activity is conducted during the project preparation phase. The most comprehensive of the diagnostic tools available for this exercise is the CPAR. The CPAR will be discussed extensively in Chapter 10, and it will be seen that the other MDBs have accepted the CPAR as the best tool for assessing a procurement system, and many of them rely on it for their own purposes. Before a country procurement assessment is conducted, the Bank tries to obtain the commitment and agreement of the government to the process in order to ensure that the government takes ownership of the reform process.14 The CPAR is a means of conducting a holistic review of domestic public procurement, which could be used as the basis for initiating procurement reform, should this be required.15 The CPAR is described as: an analytical tool to diagnose the health of the existing system in the country, and in the process generate a dialogue with the government focused on needed reforms. The main purpose of a CPAR is to establish the need for and guide the development of an action plan to improve a country’s system for procuring goods, works and consulting services.16

The CPAR provides a key input to the Country Partnership Framework for the Bank to support public procurement reform as part of an agreed implementation strategy.17

14 World Bank, Country Procurement Assessment Report Instruction. Section III- Preparation of the CPAR. www.worldbank.org. 15 S Williams-Elegbe, ‘The World Bank’s Influence on Procurement Reform in Africa’ (2013) 21(1) African Journal of International & Comparative Law 95. 16 World Bank, Country Procurement Assessment Report Instruction. Section I—Introduction. www.worldbank.org. 17 World Bank Office Memorandum on Revised CPAR Procedures (23 May 2002).

82 The Project Cycle and the Procurement Process The CPAR is built on both a doctrinal and empirical investigation into a domestic procurement system that focuses on eight to ten sectors, depending on the country in question. Thus the standard areas that are investigated as part of the CPAR are the Legal and Regulatory Framework; Procurement Practices and Procedures; Procurement Organisation and Resources; Electronic Commerce in Public Procurement; Audit and Anti-Corruption Measures; Customs and Trade Practices; Private Sector Procurement and a general risk assessment. The CPAR template used by the Bank contains a series of questionnaires, which are addressed by Bank staff to the relevant persons, agencies and organisations in the country being assessed. Apart from the CPAR, there are sector-specific assessments, which examine a borrower agency’s suitability to conduct the procurement of specific goods such as textbooks, scientific equipment for laboratories and goods for the health sector. These assessments would typically examine the capability and capacity of the borrower agency; assess the risks that will affect the agency’s ability to conduct the procurement process; develop an action plan to mitigate any deficiencies in capacity, and recommend appropriate Bank supervision for the project in line with the findings of the assessment.18 Apart from the CPAR, another tool has become increasingly utilised in assessing borrower procurement systems. This tool is referred to as the OECD/DAC Methodology for Assessing Procurement Systems (MAPS). As is discussed in Chapter 10, the MAPS provides ‘a common tool which developing countries and donors can use to assess the quality and effectiveness of procurement systems’.19 The idea is that the assessment will provide a basis upon which a country can formulate a capacity development plan and procurement reform initiatives to address weaknesses and improve its procurement system. It may also be used as an input in a donor risk assessment for the use of country systems. Apart from the CPAR and the MAPS, the new procurement framework has also developed another tool to be used in assessing whether borrower procurement systems are suitable for alternative procurement arrangements. This tool is referred to as the Methodology for Assessing Alternative Procurement Arrangements (MAAPA)20 and is based on the MAPS tool,

18 World Bank, ‘Assessment of Agency Capacity to Procure Health Sector Goods: Setting Prior Review Thresholds and Procurement Supervision Plan’ (17 September 2001). Available at web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/PROCUREMENT/0,contentMDK: 20105513~menuPK:84283~pagePK:84269~piPK:60001558~theSitePK:84266,00.html. 19 OECD-DAC, Methodology for Assessing Procurement Systems (Paris, OECD February 2010), 2. 20 World Bank, Draft Guide to the APA Assessment: Methodology to assess Alternative Procurement Arrangements in Borrower Implementing Agencies for Procurements financed under IPF (July 2016). Available at pubdocs.worldbank.org/en/634391468437110489/AlternativeProcurement-Arrangements-Guide-to-the-Assessor.pdf.

Project Preparation 83 with the inclusion of an additional indicator that assesses procurement operations. B. Project Identification and Preparation Based on the country intervention documents discussed in Chapter 4, the Bank and the borrower will typically jointly identify projects that support the objectives of the CPF and the borrower’s developmental goals. The relevant borrower agency responsible for the project will prepare and design the project with the assistance and support of the Bank.21 After the Bank and borrower have reached a preliminary understanding on the project concept and parameters, a task team is formed and resources allocated for further project preparation leading to the concept decision point.22 Project preparation follows project identification and involves an examination of the technical and institutional requirements needed to achieve project objectives.23 Project preparation includes feasibility studies and environmental and impact assessments that will serve to refine the ‘objectives, components, schedule, institutional responsibility, and implementation plan of the project’.24 During the preparation stage, the Bank also begins to determine the conditions required for the project to succeed and for the Bank to be sure that the project will have positive economic, financial, social and environmental impacts.25 The Bank also decides how much finance to provide as a ‘preparation advance’, up to a maximum of US$6 million for project preparation.26 During the project preparation stage, the borrower is required to develop a Project Procurement Strategy for Development (PPSD) and a procurement plan. The PPSD addresses ‘how procurement activities will support the development objectives of the project and will deliver the best value for money under a risk managed approach’.27 There is thus a clear synergy for the first time between the goals of the project and the procurement function. The PPSD provides the justification for the procurement selection methods in the procurement plan, and will identify the specific project needs, assess the

21 World Bank, ‘Resource Guide: Project Cycle’. Available at web.worldbank.org/WBSITE/ EXTERNAL/PROJECTS/PROCUREMENT/0,contentMDK:20109658~menuPK:84282~ pagePK:84269~piPK:60001558~theSitePK:84266~isCURL:Y,00.html. 22 The World Bank Operations Manual, Bank Procedures BP 10.00, Investment Project Financing, para 5. Available at policies.worldbank.org/sites/ppf3/PPFDocuments/4036BP% 2010%2000_July1_2016%20clean.pdf. 23 World Bank, Monthly Operational Summary (August 2015) 3. 24 World Bank, ‘Resource Guide: Project Cycle’, n 21 above. 25 ibid. 26 Bank Procedures BP 10.00, n 22 above, paras 9–13. 27 Procurement Regulations for Borrowers, para 4.1.

84 The Project Cycle and the Procurement Process capability of the market to respond to the procurement, assess the agency’s experience in the kind of project procurement, provide a justification for procurement decisions and selection methods, and justify the proposed selection methods in terms of market analysis, risk, country context and project circumstances.28 The PPSD also contains a strategic assessment of the project, including its development objectives, desired outcomes and the operational context of the procurement, as well as risk factors such as agency capability, market conditions, procurement arrangements and a contract management plan.29 C. Project Appraisal As the name implies, the project appraisal stage involves a comprehensive and holistic review of all the aspects of the proposed project, viz the technical, institutional, economic and financial aspects30 as established by the project documents, as well as all the feasibility studies and impact assessments that have been conducted. The Bank ‘appraises the Project to confirm any relevant Project and financing information and resolve any outstanding legal, design, and implementation issues’.31 The result of this review is detailed in a Project Appraisal Document (PAD), which provides a detailed description of the project and its implementation.32 Note that after appraisal, the Bank finalises the draft Project documentation, including draft legal documentation.33 The PAD contains a review of the main project components and explains the rationale for the project, as well as the lessons learned from similar projects in similar contexts. It also discusses the implementation and financial management arrangements. Other facets of this document include an analysis of the economic, financial, technical, institutional, environmental and social aspects of the project. The PAD also addresses issues of project sustainability and the project risks. It also discusses the major loan conditions, the readiness for project implementation, and whether the project is in compliance with all applicable Bank policies. The PAD will also contain a summary of the PPSD and is also subject to Bank review and approval.

28

ibid, Annex V, para 2.1. ibid, Annex V, para 3. 30 World Bank, Monthly Operational Summary (August 2015). 31 Bank Procedures BP 10.00, n 22 above, para 24. 32 World Bank, Resource Guide: Project Cycle n 21 above. 33 Bank Procedures BP 10.00, n 22 above, para 24. 29

Project Implementation and Procurement 85 D. Loan Negotiations and Approval This stage deals with the negotiations for the terms of the loan that will support the project. At this stage, the borrower and the Bank enter into discussions on the terms of the loan that will be incorporated into the loan agreement. At the conclusion of the negotiations, the loan agreement and the PAD are sent to the Bank’s Board for approval.34 Once approved, the loan agreement is signed by the relevant parties to the agreement; ie the representative of the borrower, and a representative from the Bank. It should be noted that, as discussed in Chapter 4, the contents of the loan agreement are fairly standardised and include the General Conditions for Loans and the procurement guidelines. Given that the development of the CPF and the other relevant documents are done with borrower input, the negotiations typically do not last very long, as most of the difficult issues would already have been addressed at earlier stages of the intervention process. In most cases, a General Procurement Notice (GPN) will be published once the project is approved. A GPN is required for all procurement financed by the Bank that is expected to involve open international competitive procurement.35 A GPN contains information on the project, including any procurements that are envisaged under the project. It contains information on the borrower or proposed borrower, the purpose and amount of the financing, scope of procurement reflecting the Procurement Plan, the borrower’s contact details and the internet address where the Specific Procurement Notice (SPN) will be posted.36 The GPN gives possible contractors, consultants and suppliers notice of forthcoming business that will be financed by the Bank. The GPN is the responsibility of the borrower agency and provides details through which prospective contractors may obtain further information on the project. These notices are published on the Bank’s website as well as on the website of United Nations Development Business Online (www.devbusiness.com). IV. PROJECT IMPLEMENTATION AND PROCUREMENT

The project implementation phase is the phase where the procurement process is conducted. As discussed in Chapter 4, prior to July 2016, the procurement process was governed by two separate procurement guidelines: one for the procurement of goods, works, and non-consulting services, and one for the procurement of consulting services. These separate guidelines 34

World Bank, Monthly Operational Summary (August 2015). Procurement Regulations for Borrowers, para 5.22. 36 ibid, para 5.22. 35

86 The Project Cycle and the Procurement Process were replaced by one document, the Procurement Regulations for Borrowers, for contracts implemented after 1 July 2016. The importance of efficient and effective procurement to the Bank cannot be overemphasised. It is during this process that Bank funds are spent (or misspent) and it is also a very open process that is liable to attract public criticism, where things do not go as planned. In addition, the ‘Bank’s reputation as a competent, impartial manager and supervisor and ultimately, as a sound financial institution is affected by how the procurement process is conducted’.37 As such, the Bank takes a very keen interest in the entire procurement cycle and maintains intervention points throughout the process to ensure that procurement is conducted in a way that upholds the Bank’s policies and meets the developmental objectives of the project. As discussed in Chapter 4, both the 2011 procurement guidelines and the 2016 procurement regulations clearly state the division of responsibilities between the Bank and the Borrower in relation to the procurement process. The borrower is responsible for carrying out procurement activities financed by the Bank in accordance with the Bank’s procurement regulations.38 These activities include ‘planning, strategizing, seeking, receiving and evaluating quotations, bids, or proposals, and awarding and managing the contracts’.39 Although under the new Bank procurement framework, it is envisaged that the Bank will provide more hands on support to borrowers, such as assisting in the drafting of procurement documents and drafting procurement reports and contract award documentation,40 this does not in any way reduce the borrower’s responsibility for the proper conduct of the procurement process.41 The Bank on the other hand is responsible for carrying out ‘its procurement functions, including implementation support, monitoring and procurement oversight, under a risk-based approach’.42 A. The Procurement Cycle The various stages in the procurement process of a Bank-funded project are explained below.

37 G Westring, ‘Procurement of Contractors and Consultants—A World Bank Perspective’ (1991) 19 International Business Lawyer 357. 38 Bank Procurement Guidelines, para 1.2; Procurement Regulations for Borrowers para 3.2. 39 Bank Procurement Guidelines, para 1.2; Procurement Regulations for Borrowers para 3.2. 40 Procurement Regulations for Borrowers, para 3.10. 41 ibid, para 3.11. 42 Bank Procurement Guidelines, Appendix 3, para 3; Procurement Regulations for Borrowers para 3.4.

Project Implementation and Procurement 87 i. Procurement and Project Plans The procurement process gets a head start with the project implementation plan, which is developed alongside the procurement plan. The contents of these documents are discussed in Chapter 4. The procurement plan will detail the procurement method to be used, prior review thresholds, procurement time schedules, as well as any implementing agency capacity building activities. It may also contain information on community participation in procurement, if any. ii. Preparation of Standard Procurement (Bidding) Documents The next phase in the procurement process is the preparation of the procurement documents. As discussed in Chapter 4, the procurement documents are the full complement of the documents and information that is sent to prospective bidders and includes information on the contract, requirements for compliant bids, information on bid submission, evaluation criteria, award of the contract and all the information required for a bidder to meaningfully participate in the bid process. Procurement documents perform various functions: they define the rules bidders must follow in the preparation and submission of their bids,43 and define the technical requirements, and the technical specifications of the bid as well as clarify and define the evaluation criteria.44 There are standard procurement documents (SPDs) for the procurement of goods, and for special sectors such as health, education, IT and the procurement of plants. In many cases, the preparation of the procurement documents will involve adjusting existing templates in order to meet the specificities of the proposed contract. iii. Advertisement The preparation of the bidding documents is accompanied by an advertisement in both the 2011 procurement guidelines and the 2016 procurement regulations.45 In Bank-financed contracts, although the responsibility for advertising procurements opportunities lies with the borrower,46 the

43 GT Ware, S Moss, J Edgardo Campos and GP Noone, ‘Corruption in Public Procurement: A Perennial Challenge’ in J Edgardo Campos and S Pradhan (eds), The Many Faces of Corruption: Tracking Vulnerabilities at the Sector Level (Washington DC, World Bank, 2007) 311. 44 ibid. 45 Bank Procurement Guidelines, para 2.7; Procurement Regulations for Borrowers, para 5.22. 46 Procurement Regulations for Borrowers, paras 5.23–5.24; Bank Procurement Guidelines, para 2.7.

88 The Project Cycle and the Procurement Process orrower is required to follow a Bank template for the publication of b these notices. Once the borrower prepares a GPN, this is submitted to the Bank and it is the Bank that arranges for its publication on the Bank portal (www.clientconnection.worldbank.org), on Development Gateway (www. dgmarket.com), which contains the notices of tenders from all international development agencies, and on the UN development business website mentioned earlier.47 The SPN is also to be published on the borrower’s free access website, in the official gazette and one newspaper of national circulation.48 Where the contract involves international competitive procurement, the SPN shall also be published in an international newspaper of wide circulation.49 iv. Bid Opening Once the bid documents are published, and bidders respond to the invitation to prequalify, requests for expressions of interest and invitation to bid, the next stage in the procurement process is the bid opening. There are differences in the time limit given for bid preparation between the 2011 procurement guidelines and the 2016 procurement regulations. Under the 2011 guidelines, for contracts subject to ICB, bidders are given a minimum of six weeks to prepare and submit their bids, and 12 weeks in the case of complex contracts.50 Under the 2016 procurement regulations, a more flexible approach is taken and the bid preparation time depends on the circumstances of the case and the ‘magnitude, risk and complexity of the procurement’.51 The minimum period allowed shall be 30 business days, where the procurement involves international competition.52 The time of bid opening will normally be stated to be the same time as the deadline for the receipt of bids, or promptly afterwards.53 The borrower is required to open all bids at the stipulated time.54 In addition, bids shall be opened in public, meaning that bidders or their representatives shall be allowed to be present at the bid opening. The name of the bidder and total amount of each bid, and of any alternative bids if they have been requested or permitted, shall be read aloud and recorded when opened and a copy of this record shall be promptly sent to the Bank and all

47

Procurement Regulations for Borrowers, para 5.22. ibid, para 5.23. 49 ibid, para 5.24. 50 Bank Procurement Guidelines, para 2.44. 51 Procurement Regulations for Borrowers, para 5.36. 52 ibid, para 5.36. 53 Bank Procurement Guidelines, para 2.45; Procurement Regulations for Borrowers para 5.40. 54 Bank Procurement Guidelines, para 2.45. 48

Project Implementation and Procurement 89 bidders whose bids or proposals were opened.55 Bids received after the time stipulated, as well as those not opened and read out at bid opening, shall not be considered.56 v. Bid Evaluation Although the bid opening is a public process, for the purposes of transparency, and to mitigate the risk of collusion in the bidding process, the next phase in the procurement process, which is the bid evaluation stage, is not a public activity. The borrower is not permitted to consider the merits of any bid or proposal not received during the public bid opening.57 Evaluation is ‘the event in a procurement process during which the procuring entity determines the actual cost and the relative merits of offers, to determine which offer is to be accepted for contract award’.58 Evaluation may also be described as the procedure for the strategic assessment of tender bids submitted by (prequalified) bidders.59 The evaluation of bids is done by relying on evaluation criteria, which would have been specified in the PPSD, and in the standard procurement documents.60 The evaluation criteria included in these documents must be strictly adhered to. The overall aim of the evaluation criteria selected is to ultimately obtain value for money and achieve the developmental objectives of the project. The 2016 procurement regulations state that the evaluation criteria shall be proportionate and appropriate to all the circumstances of the project.61 Evaluation criteria should be quantifiable and should have been included in the bidding documents; only the evaluation criteria indicated in the bidding documents shall be applied, and applied consistently to all bids and proposals received.62 Evaluation criteria fall into two broad categories—criteria that assess the technical merits or quality of the proposal and those that relate to the price or the cost.63 In particular, the criteria that are evaluated for the purposes of awarding a contract are the costs (the adjusted bid price and life cycle costs);

55

Bank Procurement Guidelines, para 2.45; Procurement Regulations for Borrowers para 5.41. Procurement Guidelines, para 2.45; Procurement Regulations for Borrowers para 5.49. 57 Bank Procurement Guidelines, para 2.45; Procurement Regulations for Borrowers para 5.48. 58 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 2 above, 673. 59 Z Hatush and M Skitmore, ‘Criteria for Contractor Selection’ (1997) 15 Construction Management and Economics 19, 23. 60 Procurement Regulations for Borrowers, para 5.50, Annex X, para 2.1. 61 ibid, Annex X, para 2.2. 62 ibid, Annex X, para 2.2. 63 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 2 above, 674. 56 Bank

90 The Project Cycle and the Procurement Process quality of the goods/works (and the extent to which this quality meets the requirements stated in the bidding documents); sustainable procurement, which is the extent to which the bid or proposal takes into account economic, social and environmental benefits in support of project objectives; innovations, which permit bidders to exceed the requirements in the bidding documents; and risk, which is the ability of the bid or proposal to respond to unforeseen changes.64 A winning bid will essentially be one that is fully responsive to the contractual specifications and where the bidder is simultaneously qualified to undertake the contract.65 In seeking value for money, most procurement systems have a ‘value for money continuum’, with price at one end and other considerations such as technical capability or quality at the other end.66 The chosen evaluation criteria will depend on the importance of these factors, from the price to obtaining the best value.67 A trade off will usually be made between the price and these other factors,68 to determine which combination of factors will provide the best value solution, and meet the developmental objectives of the project. At this juncture, it is necessary to distinguish what is known as eligibility criteria from evaluation criteria. Under the 2016 Bank procurement regulations, all eligible firms are permitted to bid for Bank-financed contracts and eligibility may only be denied a bidder if he lacks the capability or the resources to perform the contract; is involved in a conflict of interest situation; is tainted by fraud and corruption and has been debarred by the Bank;69 or there are international law grounds denying him access to the contract.70 As was discussed by Advocate General Wathelet, in the context of the European Union, selection (or eligibility) criteria concern the bidder’s personal situation and its ability to engage in the professional activity in question, whilst evaluation criteria assess which tender is the most economically advantageous from the point of view of the contracting authority.71 In evaluating bids and proposals, the evaluation criteria are each assigned different weightings and it is these weightings that are aggregated to

64

Procurement Regulations for Borrowers, Annex V, para 2.3. Hatush and Skitmore, ‘Criteria for Contractor Selection,’ n 59, 23. 66 T Bunting, ‘Lost and Found: In Search of a Uniform Approach for Selecting Best Value’ (2014) 44(1) Public Contract Law Journal 1. 67 ibid. 68 ibid. 69 Procurement Regulations for Borrowers, paras 3.21–3.23. 70 ibid, para 3.23. 71 See Ambisig- Ambiente e Sistemas de Informacao Georgrafica SA v Nersant- Associacao Empresarial da Regiao de Santarem (C-601/13) EU:C:2015:204 (ECJ); see also A Brown, ‘Evaluation of the Quality and Experience of the Team Assigned to Perform a Public Contract: Case C-601/13 Ambising’ (2015) 5 Public Procurement Law Review NA 147. 65

Project Implementation and Procurement 91 etermine the final score for the bidder that submits the most economically d advantageous tender. The score for the price is of course inversely proportional to the price, so that the most expensive bid obtains a lower score. Other criteria are given a weighting and a score in accordance with what is specified in the bidding documents. After the evaluation process, the contract is to be awarded to the bidder that offers the most advantageous bid or proposal.72 vi. Standstill Period The 2016 Bank regulations include for the first time a ‘standstill period’,73 during which a contract will not be awarded until ten business days after the notification of intention to award the contract is transmitted to bidders.74 This standstill period exists in a similar form in other jurisdictions, and is intended to give aggrieved bidders a chance to challenge the decision to award a contract before the contract is awarded; in order to prevent challenges to a concluded contract. Prior to the standstill period, all bidders, including unsuccessful bidders receive a notification, which provides them with the reasons why their bid was unsuccessful.75 If a complaint is made during the standstill period, this shall be resolved and no contract shall be awarded until the complaints are resolved to the satisfaction of the Bank.76 vii. Contract Award Where no complaints are received during the standstill period, the borrower may proceed to award the contract to the recommended bidder, provided it has received the Bank’s no objection notice.77 Borrowers are required to publish the notification of contract award in the same media as the notices of the GPN and the SPN.78 It may be noted here that concluded contracts are signed between the borrower and the contractor or supplier. The World Bank is not a party to the contract, and provides no remedies to contractors in respect of the contract. Most of the contract terms will have been included by virtue of the GCC and the SCC, discussed in Chapter 4.

72

Procurement Regulations for Borrowers, para 5.68. the standstill provision in the EU see Alcatel Austria AG v Bundesministerium fur Wissenschaft und Verkehr (C-81/98) [1999] ECR I-7671 (ECG 6th Chamber); P Henty, ‘Is the Standstill a Step Forward?’ (2006) 5 Public Procurement Law Review 253. 74 Procurement Regulations for Borrowers, para 5.79. 75 ibid, para 5.74. 76 ibid, para 5.91. 77 ibid, paras 5.88–5.89. 78 ibid, para 5.95. 73 On

92 The Project Cycle and the Procurement Process viii. Contract Management Under the 2016 procurement regulations, the borrower is required to develop a contract management plan, which will be used to manage the contract for its duration, to ‘ensure that contractor performance is satisfactory, contractor requirements are met, and relevant stakeholders are well informed and satisfied with the goods, works, non-consulting services, and consulting services provided under the contract’.79 This level of detail in the area of contract management does not exist under the 2011 procurement guidelines and is an area of innovation in the new procurement framework. A contract management plan contains information such as key roles and responsibilities; key contractual dates and delivery milestones; budget and payment milestones; record keeping requirements; risks to the contract as well as mitigation measures; communication and reporting procedures; and KPIs and measurement process.80 The aim of contract management is to ensure that all parties to the contract meet their contractual obligations, and that contractor performance is satisfactory. A contract management plan will serve to minimise transaction costs in the procurement process and will provide illumination on the potentially problematic areas of the contract and mitigation measures for these. Some of the transactions costs that arise in a Bank-funded procurement arise in the area of contract monitoring, enforcing compliance,81 and avoiding conflicts. The contract management plan reduces these costs by limiting the potential for conflicts. ix. Post Reviews It should be noted that the Bank conducts post reviews of the procurement process undertaken by the borrower to ensure that the process as conducted complies with the requirements of the agreement between the borrower and the Bank.82 The requirement for a post review will previously have been stated in the procurement plan. Reviews may be conducted by Bank staff or by a third party acceptable to the Bank.83 Post reviews feed into the Bank’s procurement risk management process, and it is believed that they have improved the quality of procurement risk assessments.84 In recent years, the

79

ibid, Annex XI, para 2.4. ibid, Annex XI, para 3.1. KPI stands for Key Performance Indicators. 81 AS Ralph, ‘Transaction Management: A Systemic Approach to Procurement Reform’ (2014) 43(4) Public Contract Law Journal 621. 82 Procurement Regulations for Borrowers, para 3.5. 83 ibid, para 3.6. 84 World Bank, Procurement in World Bank Operations: Tables and Figures for FY13 (Washington DC, World Bank, 20 May 2014), para 4. 80

Procurement Procedures Used by the Bank 93 Bank has increased the number of its post reviews and in FY 2013, achieved a 100 per cent compliance with post review requirements.85 Post reviews ensure, inter alia, that the procurement procedures followed by the borrower comply with the legal agreement between the borrower and the Bank; that the borrower is in compliance with agreed procurement arrangements; highlight any fraud and corruption red flags and identify actions to correct procurement deficiencies.86 V. PROCUREMENT PROCEDURES USED BY THE BANK

This section will briefly examine the procurement methods that are acceptable to the Bank, both under the 2011 procurement guidelines and the 2016 procurement regulations. It may be noted that one of the changes wrought by the new Bank procurement framework is an expansion of the kinds of methods of procurement methods that can be utilised by borrowers in Bankfunded projects. A. The 2011 Procurement Guidelines i. Goods, Works and Non-consulting Services As discussed in Chapter 2, international competitive bidding (ICB) is the default procurement method under the 2011 procurement guidelines. The objective of ICB, ‘is to provide all eligible prospective bidders with timely and adequate notification of a Borrower’s requirements and an equal opportunity to bid for the required goods, works, and non-consulting services’.87 For ICB, contracts are advertised outside the borrower country—on the Bank’s website and on UN Development Business Online. In many cases, contract opportunities are also advertised in international newspapers and magazines, such as The Economist. Where ICB would not be ‘the most economic or efficient method of procurement’ or where the Bank has agreed to use the procurement system of the borrower,88 then other methods of procurement may be used. The first of these is limited international bidding (LIB). This is defined as ICB by direct invitation without open advertisement. It is used in cases where (a) there is only a limited number of suppliers, or (b) other exceptional reasons may justify departure from full ICB procedures. Under LIB, borrowers shall seek bids from a list of potential suppliers broad enough to 85 ibid. 86

Procurement Regulations for Borrowers, paras 3.5–3.8, Annex II, para 4.1. Bank Procurement Guidelines, para 2.1. 88 ibid, para 3.1. 87

94 The Project Cycle and the Procurement Process assure competitive prices, such list to include all suppliers when there are only a limited number.89 Where LIB is not appropriate, a borrower may use national competitive bidding (NCB). This is defined as: the competitive bidding procedure normally used for public procurement in the country of the Borrower, and may be the most appropriate method of procurement of goods, works, and non-consulting services which, by their nature or scope, are unlikely to attract foreign competition.90

NCB is in effect, a reliance on the borrower’s domestic procurement procedures and is suitable where there is unlikely to be foreign interest in the contract as a result of factors such as the size and value of the contract; geographical spread of the construction; where works are labour intensive; or the goods, works or services are locally available at prices below the international market.91 For NCB, contract opportunities are advertised in a national newspaper in the national language.92 Another method of procurement that is available under the 2011 Procurement Guidelines is known as ‘shopping’. Shopping is a method of obtaining and comparing a minimum of three price quotations obtained from several suppliers, contractors or service providers.93 It is regarded as appropriate ‘for procuring limited quantities of readily available off-the-shelf goods or standard specification commodities of small value, or simple civil works of small value’.94 A framework agreement (FA): is a long-term agreement with suppliers, contractors and providers of non-consulting services which sets out terms and conditions under which specific procurements (call-offs) can be made throughout the term of the agreement. FAs are generally based on prices that are either pre-agreed, or determined at the call-off stage through competition or a process allowing their revision without further competition.95

Under the 2011 guidelines, a framework agreement is permitted as an alternative to shopping and national competitive bidding for the following categories of goods: (a) goods that can be procured off-the-shelf, or are in common use with standard specifications; (b) non-consulting services that are of a simple and non-complex nature and may be required from time to

89

ibid, para 3.2. ibid, para 3.3. 91 ibid. 92 ibid, para 3.4. 93 ibid, para 3.5. 94 ibid. 95 ibid, para 3.6. 90

Procurement Procedures Used by the Bank 95 time by the same agency (or multiple agencies) of the borrower; or (c) small value contracts for works under emergency operations.96 It must be noted that the use of framework agreements shall not restrict foreign competition, and should be limited to a maximum duration of three years. The procurement guidelines also permit the use of direct or single source contracting in situations where: (a) an existing contract for goods, works, and non-consulting services, awarded in accordance with procedures acceptable to the Bank, may be extended for additional goods, works, and non-consulting services of a similar nature. The Bank shall be satisfied in such cases that no advantage could be obtained by further competition and that the prices on the extended contract are reasonable. Provisions for such an extension, if considered likely in advance, shall be included in the original contract; (b) standardization of equipment or spare parts, to be compatible with existing equipment, may justify additional purchases from the original Supplier. For such purchases to be justified, the original equipment shall be suitable, the number of new items shall generally be less than the existing number, the price shall be reasonable, and the advantages of another make or source of equipment shall have been considered and rejected on grounds acceptable to the Bank; (c) the required equipment is proprietary and obtainable only from one source; (d) the procurement of certain goods from a particular supplier is essential to achieve the required performance or functional guarantee of an equipment or plant or facility; (e) in exceptional cases, such as, but not limited to, in response to natural disasters and emergency situations declared by the Borrower and recognized by the Bank; and (f) in circumstances that are in accordance with the provisions of paragraph 3.10 for procurement from UN Agencies.97

Procurement may also be done through what is referred to as a force account, which is used for ‘works such as construction and installation of equipment and non-consulting services carried out by a government department of the Borrower’s country using its own personnel and equipment’.98 This kind of procurement method is justified when: (a) quantities of construction and installation works that are involved cannot be defined in advance; (b) construction and installation works are small and scattered or in remote locations for which qualified construction firms are unlikely to bid at reasonable prices;

96

ibid, para 3.6. ibid, para 3.7. 98 ibid, para 3.9. 97

96 The Project Cycle and the Procurement Process (c) construction and installation works are required to be carried out without disrupting ongoing operations; (d) risks of unavoidable work interruption are better borne by the Borrower than by a contractor; (e) specialized non-consulting services such as aerial surveys and mapping, as a matter of Borrower’s law or official regulations for consideration such as national security, can only be carried out by specialized branches of the government; or (f) urgent repairs to prevent further damages, requiring prompt attention, or works to be carried out in conflict-affected areas where private firms may not be interested.99

Direct procurement from United Nations agencies is also permitted where the procurement involves the purchase of small quantities of off-the-shelf goods in the fields of education and health; of health-related goods for the treatment of humans and animals, including vaccines, drugs and pharmaceuticals, preventive health and contraceptive devices and biomedical equipment; where the number of suppliers is limited or the UN agency is uniquely or exceptionally qualified to procure such goods and related non-consulting services; of small value contracts for works of a simple nature when the UN agencies act as contractors, or directly hire small contractors and skilled or unskilled labor; or in exceptional cases, such as in response to natural disasters and emergency situations declared by the borrower and recognised by the Bank.100 There are cases where, in the interest of project sustainability, or in order to achieve specific social objectives of the project, it is desirable to call for the participation of local communities and/or non-governmental organisations (NGOs) in civil works and the delivery of non-consulting services.101 This is known as community participation in procurement and in such cases, ‘the procurement procedures, specifications, and contract packaging shall be suitably adapted to reflect these considerations, provided that these are acceptable to the Bank’.102 As is discussed further in Chapter 9, the Bank also permits borrowers to utilise domestic procurement rules within narrow limits. Thus, it is provided that where a borrower’s system has been ‘determined to be consistent with these Guidelines and acceptable to the Bank under the Bank’s Use of Country Systems Piloting Program’, such system may be used for procurement ‘in pilot projects that have been approved by the Bank under such

99

ibid, para 3.9. ibid, para 3.10. 101 ibid, para 3.19. 102 ibid. 100

Procurement Procedures Used by the Bank 97 Piloting Program’.103 It may be noted here that the pilot referred to is the Use of Country Systems pilot that took place between 2008 and 2011, which was eventually abandoned by the Bank. This paragraph was however included in the guidelines to give legitimacy to the use of country systems during the pilot programme. The pilot was aimed at determining the acceptability of borrower systems in ICB contracts, but was not wholly successful. ii. Consulting Services The procurement guidelines for consulting services are similar to the guidelines for goods, works and non-consulting services, in the sense that there is a default procurement method, the quality and cost selection method (QCBS) and several other methods where QCBS is not appropriate. Under the 2011 consulting guidelines, QCBS is described as ‘a competitive process among short-listed firms that takes into account the quality of the proposal and the cost of the services in the selection of the successful firm’.104 In addition, cost as a factor is required to be used judiciously, and the relative weight to be given to the quality and cost ‘shall be determined for each case depending on the nature of the assignment’.105 Where QCBS is not appropriate, a borrower may use the quality based selection method (QBS). QBS is appropriate for complex or highly specialised assignments for which it is difficult to define precise terms of reference and the required input from the consultants, and for which the client expects the consultants to demonstrate innovation in their proposals; and or assignments that have a high downstream impact and in which the objective is to have the best experts; and assignments that can be carried out in substantially different ways, such that proposals will not be comparable.106 Another method of proposal acceptable for the procurement of consulting services is selection under a fixed budget (FBS). This method is appropriate when the assignment is simple and can be precisely defined and when the budget is fixed. The bidding documents shall indicate the available budget and request the consultants to provide their best technical and financial proposals in separate envelopes, within the budget.107 Also, a least cost selection method (LCS) is permissible for selecting consultants for assignments of a standard or routine nature (audits, engineering

103

ibid, para 3.20. Consulting Guidelines, para 2.1. 105 ibid. 106 ibid, para 3.2. 107 ibid, para 3.5. 104

98 The Project Cycle and the Procurement Process design of non-complex works, and so forth) where well-established practices and standards exist.108 A selection based on contractor’s qualifications (CQS), may be used for small assignments or emergency situations declared by the borrower and recognised by the Bank, for which the need for preparing and evaluating competitive proposals is not justified. In such cases, the borrower shall prepare the terms of reference and obtain expressions of interest that include information on the experience and qualifications of at least three qualified firms with relevant experience.109 Firms having the required experience and competence relevant to the assignment shall be assessed and compared, and the best-qualified and experienced firm shall be selected.110 As is the case under the procurement guidelines for goods, works and non-consulting services, single source selection is also permitted under the consulting guidelines. This method is appropriate for the procurement of tasks that represent a natural continuation of previous work carried out by the firm; in exceptional cases, such as, but not limited to, in response to natural disasters and for emergency situations declared by the borrower and recognised by the Bank; very small assignments; or when only one firm is qualified or has experience of exceptional worth for the assignment.111 It may be noted that UN agencies may also be single-sourced, where they are exceptionally placed to provide advice and technical assistance in their area of expertise.112 B. The 2016 Procurement Regulations Within the 2016 procurement regulations, the Bank classifies two procurement methods: what are termed ‘approved selection methods’ and ‘approved selection arrangements’. Approved selection methods are akin to procurement methods in domestic jurisdictions and include requests for proposals; requests for bids; requests for quotations and direct selection. The approved selection arrangements are competitive dialogue; public private partnerships; commercial practices; UN agencies; e-auctions; imports; commodities; community driven development; force accounts; framework agreements and performance-based contracts. A request for proposals (RFP) and a request for bids (RFB) differ in relation to the flexibility provided to the bidder. A RFP is used when the nature and complexity of the procurement requires bidders to offer customised

108

ibid, para 3.6. ibid, para 3.7. 110 ibid. 111 ibid, para 3.9. 112 ibid, para 3.15. 109

Procurement Procedures Used by the Bank 99 solutions that may vary or exceed the requirements in the RFP document and is conducted in a multi-stage process.113 A RFB is used when owing to the nature of the procurement, the borrower is able to specify detailed requirements to which bidders respond and is conducted in a single stage process.114 A request for quotations (RFQ) is a competitive method where the borrower compares price quotations from relevant firms. This method uses price as the main evaluation criterion and is useful for the procurement of limited quantities of ‘readily available off-the-shelf goods or non-consulting services’.115 It is useful for standardised goods of a routine nature, where it is more efficient to utilise this method than other more competitive or complex procurement methods. Direct selection, as the name implies, is a non-competitive method of procurement where only one firm is approached and chosen to undertake the contract.116 In other jurisdictions, direct selection is referred to as solesource, single-source or direct procurement.117 For direct selection to be used as the method of procurement, the borrower must be able to justify it—either because there is only one firm available that can provide the goods or services required, or the procurement is low value and low risk, or there is an emergency situation, such as in response to a natural disaster.118 The selection arrangements acceptable to the Bank have been used for decades by national procurement systems and essentially provide more flexibility in cases of complex procurement.119 Thus the competitive dialogue procedure is one in which the borrower cannot easily define the technical requirements of the contract and also wants the bidders to specify solutions for the problem faced by the borrower. In other words, it allows for ‘dynamic engagement’120 between the bidders and the borrower. Some of the benefits of a competitive dialogue process are improved communication between bidders and the borrower, which permits innovative solutions; better price discipline, which reduces the scope for price increases; and enhanced competition, which increases value for money.121 113

Procurement Regulations for Borrowers, paras 6.3–6.4. ibid, paras 6.5–6.6. 115 ibid, para 6.7. 116 ibid, para 6.8. 117 See WS Curry, Government Contracting: Promises and Perils (Boca Raton, Florida, CRC Press, 2010) 11–12. 118 Procurement Regulations for Borrowers, paras 6.9–6.10. 119 See S Arrowsmith and S Treumer, Competitive Dialogue in EU Procurement (Cambridge, Cambridge University Press, 2012); M Burnett, ‘Using Competitive Dialogue in EU Public Procurement—Early Trends and Future Developments’ (2009) 2 EIPASCOPE 17; A Brown, ‘The Impact of the New Procurement Directive on Large Public Infrastructure Projects: Competitive Dialogue or Better the Devil You Know?’ (2004) 4 Public Procurement Law Review 160. 120 Procurement Regulations for Borrowers, para 6.39. 121 European PPP Expertise Centre, ‘Procurement of PPP and the use of Competitive Dialogue in Europe: A Review of public sector practices across Europe’, para 4. Available at www.eib.org/epec/resources/epec-procurement-and-cd-public.pdf. 114

100 The Project Cycle and the Procurement Process Public private partnerships (PPP) are a procurement arrangement where the provision of public sector goods is financed by the private sector and the financier obtains his reward from charging the public or the government for the use of that good. It is a means of financing large infrastructure projects, where a government is unable to provide the finance for these projects up front.122 In MDB-funded contracts, PPPs refer to joint government, MDB and private sector collaboration in relation to a specific issue or project.123 In PPPs, the private sector bears significant risk and management responsibility and they are usually long-term contracts,124 with a 10 to 30 year duration. In a PPP contract, the private sector partner, once selected, has significant latitude in determining how the project will be implemented. The borrower will specify its outputs, but will not necessarily specify how these are to be provided.125 Commercial practices refer to a reliance on procurement methods used by private sector beneficiaries of non-repayable financing for the procurement of goods, works or non-consulting services.126 The procurement arrangements involving UN agencies are not new to the Bank and occur when a UN agency is used in either a non-competitive or a competitive process to provide the goods, works and non-consulting services for a particular project.127 Electronic reverse auctions are also not a new form of procurement and have been utilised in many domestic jurisdictions.128 They are in essence an internet-based bidding system where potential contractors bid against each other on price, resulting in lower prices for the borrower.129 Electronic reverse auctions are suitable for ‘simple well-defined purchases’ where the determining factor is price or quantity and where a considered evaluation process is not required.130 UNCITRAL describes these auctions as an online, real-time, dynamic auction between a buying organisation and a number of suppliers who compete against each other to win the contract by submitting successively lower priced bids during a scheduled time period.131

122 See generally, C Greve and G Hodge (eds), Rethinking Public-Private Partnerships: Strategies for Turbulent Times (London, Routledge, 2013). 123 ER Yescombe, Public-Private Partnerships: Principles of Policy and Finance (Oxford, Elsevier, 2007) 2. 124 Procurement Regulations for Borrowers, para 6.42. 125 Yescombe, Public-Private Partnerships, n 123 above, 4. 126 Procurement Regulations for Borrowers, para 6.46. 127 ibid, paras 6.47–6.48. 128 G Manoochehri and C Lindsy, ‘Reverse Auctions: Benefits, Challenges and Best Practices’ (2008) 6(1) California Journal of Operations Management 123. 129 Procurement Regulations for Borrowers, para 6.49. 130 See World Bank, e-Reverse Auction Guidelines for MDB Financed Procurement (Washington DC, World Bank, December 2005). 131 UNCITRAL 38th Session Vienna 4–15 July 2005, Report of Working Group I (Procurement) on the work of its 7th session.

Evaluation and Monitoring 101 Community driven development involves a call for the participation of local communities, and or local non-governmental organisations in a Bankfunded project.132 This is done to achieve specific project objectives or to increase project sustainability. Under such an arrangement, the procurement methods used to achieve these objectives will still be required to be acceptable to the Bank. A force account may be likened to national in-house procurement, where procurement is carried out by a government department, using its own personnel and equipment. There must of course be a justification for the use of a force account and the contracts must be monitored with the same rigour that applies to third-party contracts.133 Framework agreements are long term agreements with contractors, which set out the terms and conditions under which specific purchases can be made throughout the term of an agreement.134 The Bank procurement regulations define them as an ‘agreement established with one or more firms for the anticipated procurement of goods, works, non-consulting services, as and when required over a specified period of time’.135 Framework agreements generally envisage two competitions—the first which selects the contractors that will be part of the overall framework agreement, and the second, the award of specific contracts based on the framework.136 Performance-based contracts are contractual arrangements where payment is made for measured outputs or performance targets instead of inputs.137 VI. EVALUATION AND MONITORING

Following the completion of a project, the Bank’s Independent Evaluation Group (IEG) conducts an audit of the project to measure the project’s outcome against its original developmental objectives.138 This audit includes a review of the project completion report, as well as the preparation of a

132

Procurement Regulations for Borrowers, para 6.52. ibid, paras 6.54–6.55. 134 Office of Government Commerce, Framework Agreements (September 2008). In the USA, framework agreements are referred to as Indefinite Delivery/Indefinite Quantity Contracts (ID/IQ) contracts. See D Kassel, Managing Public Sector Projects: A Strategic Framework for Success in an Era of Downsized Government (Boca Raton, Florida, CRC Press, 2010) 80. 135 Procurement Regulations for Borrowers, para 6.57. 136 AS Graells, ‘Public Procurement and the European Competition Rules’ (London, Bloomsbury Publishing, 2015) 355–56. See also K Horska, ‘Curbing the World Bank’s Problems with Patronage and Corruption through the Use of Open Framework Agreement (2010) 39(3) Public Contract Law Journal 679. 137 Procurement Regulations for Borrowers, paras 6.60–6.61. 138 World Bank, A Guide to the World Bank, 3rd edn (Washington DC, The World Bank, 2011) 93. 133

102 The Project Cycle and the Procurement Process separate report. Note that this audit goes beyond the post reviews of the procurement process discussed above. It is a more comprehensive evaluation of project implementation and project success including of course, procurement issues. Apart from IEG evaluations, the Bank’s Quality Assurance Group (QAG) also monitors the quality of Bank operations in relation to the quality of loan projects, and the quality of advisory services or technical assistance delivered to borrowers.139 In addition, the QAG monitors the quality of project supervision and reports to the Board of Directors.140 VII. CONCLUSION

This chapter has shed light on the core functions and approach to procurement within funded projects. The chapter examined the organisation of procurement in the World Bank, as well as the stages of a project cycle, including the stages of the procurement process. Procurement under investment project lending takes place within a project cycle and under the Bank’s procurement framework; there is a clear division of responsibility for the various functions within the project cycle. It may be noted that although the Bank contributes significantly to ensuring the success of funded projects, it does not in truth bear any of the risks should the project fail, as borrowers are still required to repay loans, even in the event of the project failure.141

139 ibid. 140 ibid.

141 MC Meireles, The World Bank Procurement Regulations: A Critical Analysis of the Enforcement Mechanism and of the Application of Secondary Policies in Financed Projects (unpublished PhD Thesis, University of Nottingham, 2006), 71.

6 Value for Money, Competition and Selection Procedures I. INTRODUCTION

T

HIS CHAPTER EXAMINES the related issues of competition and value for money in MDB-financed contracts, using the World Bank as an example. The chapter will consider the rationales for the pursuit of competition and value for money in these contracts, and how the Bank ensures the attainment of these principles through procurement regulation. The chapter will also examine competitive award procedures and other requirements designed to foster competition in Bank contracts. II. VALUE FOR MONEY: MEANING

At the most basic level, value for money means to ‘acquire the goods, works or services needed by the government on the best available terms’.1 In some jurisdictions, the value for money objective is also referred to as ‘best value’ and has been further defined as the outcome that provides the government with ‘the greatest overall benefit’.2 Procurement that is based on value for money is ‘intended to deliver a better allocation of scarce public resources among competing ends by weighing the cost and quality aspects of different options and choosing the one which fully meets the purchaser’s needs at the lowest cost’.3 It is thus a cost–benefit analysis that takes into account a variety of factors, which balance the features of the desired goods/services with the cost of obtaining them as well as the political and social goals being pursued by the government.4 1 S Arrowsmith, J Linarelli and D Wallace, Regulating Public Procurement: National and International Perspectives (The Hague, Kluwer Law International, 2000) 28. 2 See Federal Acquisition Regulations, FAR2.101. See also T Bunting, ‘Lost and Found: In Search of a Uniform Approach for Selecting Best Value’ (2014) 44(1) Public Contract Law Journal 2. 3 A Semple, A Practical Guide to Public Procurement (Oxford, Oxford University Press, 2015) 143. 4 P Trepte, Regulating Procurement: Understanding the Ends and Means of Public Procurement Regulation (Oxford, Oxford University Press, 2004) 390.

104 Value for Money, Competition and Selection According to Arrowsmith et al, value for money has three components. The first component is directed at ensuring that the goods, works or services being procured are suitable for requirements.5 This means that the items or services perform the required functions without underperforming or without being excessive to requirements (also known as gold plating).6 The second component is that the contract is the most advantageous that the government may obtain, in terms of price and other factors relevant to the procurement, such as life cycle costs etc.7 The third component is to ensure that the contractor is able to satisfactorily perform the contract,8 and is not prevented by any intrinsic issues from being able to complete the contract. Thus, if value for money is not to remain an abstract concept, the contractor’s performance has to coincide with what was promised in its offer.9 In the US, this is assured through ‘responsibility’ provisions in the Federal Acquisition Regulations10 and in the EU through the ‘qualitative selection’ criteria in the EU Procurement Directives.11 Ensuring that a contractor can successfully complete a contract includes a consideration of a wide array of factors which range from the contractor’s compliance with existing legislation (such as tax and social security laws), to an absence of convictions for specified offences12 as well as performance on past public contracts. The UNCITRAL Model Law also contains analogous provisions.13 The rationale for value for money as an objective of procurement regulation seems fairly obvious: the government (or its agencies) in spending taxpayers’ money are under an obligation to ensure the judicious use of these funds.14 The value for money objective can, however, conflict with the other objectives of a public procurement system and various commentators have discussed the possible hierarchy of the competing objectives in a procurement system.15 5

Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 1 above, 29.

6 ibid. 7 ibid.

8 ibid, 30. See also S Arrowsmith, S Treumer, J Fejø and L Jiang, Public Procurement egulation: An Introduction, (2010), Ch 1. Available at ‘www.nottingham.ac.uk/pprg/ R documentsarchive/asialinkmaterials/publicprocurementregulationintroduction.pdf 9 G Racca, RC Perin, GL Albano, ‘Competition in the Execution Phase of Public Procurement’ (2011) 41(1) Public Contract Law Journal 89, 95; Semple, A Practical Guide to Public Procurement, n 3 above, 159–62. 10 FAR 9.103. See also JB Warnock, ‘Principled or Practical Responsibility: Sixty Years of Discussion’ (2012) 41(4) Public Contract Law Journal 881. 11 Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement, Art 57. (hereafter ‘EU Procurement Directives’). 12 S Williams-Elegbe, Fighting Corruption in Public Procurement: A Comparative Analysis of Disqualification or Debarment Measures (Oxford, Hart Publishing, 2012) Ch 4. 13 See UNCITRAL Model Law 2011, art 9. 14 O Dekel, ‘The Legal Theory of Competitive Bidding for Government Contracts’ (2008) 37(2) Public Contract Law Journal, 237, 246. 15 See Dekel, n 14 above. See also F Neumayr, ‘Value for Money v Equal Treatment: The Relationship Between the Seemingly Overriding National Rationale for Regulating Public Procurement and the Fundamental EC Principle of Equality of Treatment’ (2002) 11 Public

Value for Money: Meaning 105 Whilst it is relatively easy to define the value for money ideal, it is more difficult to determine how best to achieve value for money in practical terms. Thus it has been said that a contracting authority has to ‘strike a delicate balance between acquiring goods and services at the lowest price and obtaining the maximum advantage relative to all costs and benefits’.16 In public procurement, value for money may be assessed by balancing the quality of a proposed tender against the cost of that tender, and this is where the concept of the ‘most economically advantageous tender’ that is used to select the best offer in many jurisdictions, including the MDBs, arises from.17 It must be stated that there is no universal formula for assessing value for money in public procurement. The way in which both costs and quality are assessed, measured, and compared with other options18 will vary depending on the subject matter of the procurement and the jurisdiction. In general, the value for money objective is implemented through the use of competitive award procedures as far as is practicable and, as will be seen below, the Bank adopts a similar approach. Apart from the reliance on competitive award procedures, the enforceability of legal rules on procurement go a long way to secure the value for money objective.19 As stated, there is no singular approach to value for money, and its practical implementation will depend to a large extent on the subject matter and complexity of the procurement. The factors that will require consideration to implement the value for money objective in the procurement of office paper will not be the same factors under consideration in the procurement of a fighter plane or a dam. Given this, contracting authorities have a discretion in national systems to select the best approach to obtaining value for money.20 One can best imagine value for money as a continuum between the lowest price and other tradeoffs21 (such as quality, technical capabilities, life cycle costs, environmental factors etc), which have to be traded against the price to obtain the best outcome for the government. Within this continuum, there are different award procedures that could be used to achieve

Procurement Law Review 215. See also Arrowsmith, Treumer, Fejø and Jiang, Public Procurement Regulation, n 8 above, Ch 1 and S Kelman, Procurement and Public Management: The Fear of Discretion and the Quality of Government Performance (Washington DC, American Enterprise Institute Press, 1990) 28. 16

Bunting, ‘Lost and Found’ n 2 above, 2. S Arrowsmith, The Law of Public and Utilities Procurement, 3rd edn (London, Sweet & Maxwell, 2014) 18. For a full discussion of the value for money concept as it pertains to the UK, see Arrowsmith, The Law of Public and Utilities Procurement, Ch 2. See Procurement Regulations for Borrowers, para 5.68. 18 Semple, A Practical Guide to Public Procurement, n 3 above, 143. 19 Arrowsmith, Treumer, Fejø and Jiang, Public Procurement Regulation, n 8 above, Ch 1. 20 Bunting, ‘Lost and Found’ n 2 above, 2. 21 ibid. 17

106 Value for Money, Competition and Selection value for money, whether we are seeking the lowest price, or balancing that against other non-price tradeoffs. In the Bank’s new procurement framework, value for money is of c ritical importance and is the central theme in the Bank’s recently articulated procurement vision, which states that ‘Procurement in Bank Operations supports Borrowers to achieve value for money with integrity in delivering sustainable development’.22 The Bank’s 2016 procurement regulations define value for money as the: effective, efficient and economic use of resources, which requires the evaluation of relevant costs and benefits, along with an assessment of risks and non-price attributes and or life cycle costs as appropriate. Price alone may not necessarily represent value for money.23

It can thus be seen that, similar to the other definitions given above, value for money is an objective that seeks to ensure the best use of Bank resources and the best outcome in project procurement. The 2016 procurement regulations further specify how value for money may be achieved in project procurement. These include: (i) (ii) (iii)

ensuring integrity throughout the procurement process; a clear statement of needs and procurement objectives; a procurement approach that is proportional to the risk, value, context and complexity of the procurement; (iv) appropriate specification of the requirements; (v) selection of appropriate contractual arrangements; (vi) suitable evaluation criteria; (vii) the selection of the firm that best meets the needs and objectives of the procurement; (viii) effective contract management to assure a successful execution of the contract and ensure that the deliverables are met as agreed in the contract.24 Value for money and competition are intricately connected, and maximising competition in public contracting, in the sense of there being more than one bidder, is often touted as the best way of achieving value for money.25 The Bank regulations provide that a ‘clear and focused approach to market’, ie the pursuit of competition in relation to selection methods and specifications should be adopted, with reference to the proportionality,

22

Bank Policy, section III A; Procurement Regulations for Borrowers, para 1.1. Procurement Regulations for Borrowers, Annex 1, para 2.2. 24 ibid, Annex I, para 2.3. 25 See S Schooner, ‘Desiderata: Objectives for a System of Government Contract Law’ (2002) 2 Public Procurement Law Review 103; Dekel, ‘The Legal Theory of Competitive Bidding’, above n 13, 238. 23

Competition in Procurement: Meaning 107 value, complexity and risk of the procurement.26 The 2016 Bank procurement regulations adopt a holistic approach to value for money and as will be seen, competitive procedures are an important pillar for achieving this. III. COMPETITION IN PROCUREMENT: MEANING

Competition is said to be one of the overarching principles of a procurement system and Schooner describes it as a ‘pillar’ of a procurement system.27 He argues that it is through competition that the government ‘receives its best value in terms of price, quality and contract terms and conditions’.28 In a practical sense, competition means inviting or encouraging the participation of a wide pool of potential contractors, the idea being that private companies, who are driven by profit, will compete to obtain government contracts,29 thereby driving down prices and promoting innovation and excellence. It is believed that the pressure of competition from other firms will induce each bidder to put forward its best offer,30 to the benefit of the government and taxpayers. Competition in public contracting is not a linear concept and operates in multiple dimensions; Caldwell et al have illustrated that the meaning of competition in procurement depends on perspective.31 Thus, from the perspective of the government, competition might be said to exist if there is a ‘progressive technology, and the passing on to consumers the results of this progressiveness in the form of lower prices, larger output, improved prices’.32 However, from the point of view of the contractor, competition exists when there are limited barriers to participating in a government tender, and limited structural impediments to this participation.33 Dekel similarly analyses what he terms ‘economically efficient contracting’ as comprising of two constituent parts: from the perspective of the government: economic efficiency occurs when a transaction produces the maximum utility for the government; but from an economic standpoint, there is optimal efficiency

26

Procurement Regulations for Borrowers, Annex I, paras 3.3–3.5. Schooner, ‘Desiderata’ n 25 above, 104. 28 ibid, 105. 29 ibid, 104–06. 30 Arrowsmith, Treumer, Fejø and Jiang, Public Procurement Regulation, n 8 above, 24. 31 N Caldwell, H Walker, C Harland, L Knight, J Zheng and T Wakeley, ‘Promoting Competitive Markets: The Role of Public Procurement’ (2005) 11 Journal of Purchasing & Supply Management 242–51. 32 Caldwell et al, ‘Promoting Competitive Markets’, n 31 above, citing JK Galbraith, American Capitalism: The Concept of Countervailing Power 2nd edn (Oxford, Blackwell Publishing, 1980). 33 Caldwell et al, ‘Promoting Competitive Markets’, n 31 above. See also Dekel, ‘The Legal Theory of Competitive Bidding’, n 14 above, 237. 27

108 Value for Money, Competition and Selection when a transaction is entered into with the most efficient contractor, which provides the economy with the maximum aggregate well-being.34 At a simplistic level, it is generally understood that competition in procurement means the participation of more than one supplier in a public procurement process.35 In Trepte’s words, competition operates as a ‘discovery procedure by allowing different suppliers to communicate the prices and terms on which products are available and which may be produced using different quantitative combinations of various factors of production’.36 As discussed in the context of value for money, it is also helpful to conceive of a competition continuum, where there is no competition at one end of the spectrum and a highly competitive procurement process at the other, with varying degrees of competition in between. Procurement officials will also have discretion to choose a procurement procedure that provides maximum competition depending on the subject matter, the circumstances of the procurement and the value and complexity of the procurement. Of course, there are legislative and structural issues that may affect competition, one of which is non-competitive markets, and in countries where there is a weak supplier base, procurement regulations requiring the participation of a wide pool of potential contractors may be an exercise in futility. Although most jurisdictions focus on competition at the selection stage of a procurement process, in the sense of requiring procedures that seek to obtain a wide participation of potential contactors, a case has been made that competition also requires an approach that ensures efficiency at all stages of the procurement cycle, to prevent poor contract drafting and inadequate contracting management, which may result in losses for the public authority, and undermine efforts to ensure a competitive process.37 Under the 2011 procurement guidelines, competition was one of the main considerations that guided the Bank’s approach to procurement,38 although competition did not necessarily mean that multiple suppliers bid for a Bank-funded contract. The Bank’s 2011 procurement guidelines indicated that although bids could be rejected where there is a ‘lack of effective c ompetition’,39 a lack of competition shall not be determined solely on the number of bidders and even when only one bid is submitted,

34 Dekel, ‘The Legal Theory of Competitive Bidding’, n 14 above, 237. See also Trepte, Regulating Procurement n 4 above, 85–89. 35 See Racca, Perin and Albano, ‘Competition in the Execution Phase’, n 9 above, 89, 92–95. See also WE Kovacic and RD Anderson, ‘Competition Policy and International Trade Liberalisation: Essential Complements to Ensure Good Performance in Public Procurement Markets’ (2009) 2 Public Procurement Law Review 67. 36 Trepte Regulating Procurement, n 4 above, 394. 37 Racca, Perin and Albano, ‘Competition in the Execution Phase’, n 9 above, 98. 38 Bank Procurement Guidelines, para 1.2. 39 ibid, para 2.61.

Competitive Award Procedures Under Bank-financed Contracts 109 the bidding process may be considered valid, if the bid was satisfactorily advertised, the qualification criteria were not unduly restrictive and prices are reasonable in comparison to market values.40 From this, it can be seen that the Bank adopts a pragmatic approach to competition, which focused more on the character of prices received, rather than the number of bidders. This approach also recognises that there can be a large number of bidders but insufficient competition due to anti-competitive schemes such as bid rigging.41 The 2016 procurement regulations do not deviate too far from this approach. Thus the regulations provide that the ‘effective participation and performance of high-quality firms and individuals is critical to achieve competition and value for money through procurement processes’.42 This provision establishes the link between competition and value for money in funded procurements. In relation to the provisions on the rejection of bids for a lack of effective competition, the 2016 procurement regulations mirror the approach in the 2011 procurement guidelines to the extent that a lack of an adequate number of bidders is not necessarily an indicator of the absence of competition.43 IV. COMPETITIVE AWARD PROCEDURES UNDER BANK-FINANCED CONTRACTS

As has been discussed above, competition is pursued through the implementation of competitive award procedures. This section reviews and analyses these procedures as utilised by the World Bank, examining the competitive procedures for the procurement of goods, works and services. This section will focus on the procedures in the 2016 procurement regulations. It should first be noted that in the 2016 procurement regulations, the Bank distinguishes between what are termed ‘approved selection methods’, which are the different kinds of permitted procurement methods from what it terms ‘market approach options’ which, inter alia, indicate the kind of competition that is sought, whether that is open, limited, international or national competition.

40

ibid, para 2.61. See generally, A Heimler, ‘Cartels in Public Procurement’ (2012) 8 Journal of Competition Law and Economics 849; AS Graells, Public Procurement and the EU Competition Rules (London, Bloomsbury Publishing, 2015) 69–72; OECD, Fighting Cartels in Public Procurement (Paris, OECD, 2008); SE Weishaar, Cartels, Competition and Public Procurement: Law and Economics Approaches to Bid-Rigging (Cheltenham, Edward Elgar Publishing, 2013). 42 Procurement Regulations for Borrowers, para 3.12. 43 ibid, para 5.59. 41

110 Value for Money, Competition and Selection A. Competitive Procedures for Goods, Works and Non-consulting Services i. Request for Proposals (RFP) A RFP is a: competitive method for the solicitation of proposals that should be used when, because of the nature and complexity of the goods, works or non-consulting services to be provided, the Borrower’s business needs are better met by allowing proposers to offer customized solutions or proposals that vary in the manner in which they meet or exceed the requirement of the request for proposals document.44

The use of a RFP permits a borrower to include broad performance or functional criteria in the RFP document and to then seek, depending on the nature of the procurement, technological, innovative, or efficient solutions from bidders.45 This method of procurement is appropriate where the quality of the goods, works or service is more important than the price46 and proposals are usually scored more on technical merit than price. The RFP procedure also permits negotiations between the borrower and potential contractors and gives the borrower the discretion to assess (in line with the stated evaluation criteria), which proposal presents the best solution. Under the 2016 procurement regulations, an RFP may be conducted in multiple stages.47 In addition, a RFP can be conducted with or without a pre-qualification procedure. The process for conducting an RFP is explained in detail in Annex XII of the 2016 procurement regulations. Where a qualification procedure is used, the process will generally take the following form: (i) Preparation of the RFP document using the Bank’s standard RFP document. (ii) Issue the specific procurement notice using the Bank’s template. (iii) Issue initially selected proposers with the RFP document, inviting them to submit full technical and financial proposals (note that the initial selection includes a prequalification process). (iv) Clarifications and amendments—where a bidder requests for additional information or clarifications, all such requests and responses shall be simultaneously sent to all bidders. Any modification of the RFP as a result should be introduced in the form of an amendment.48 (v) Proposal submission and opening—this must be strictly done in accordance with the deadlines stated in the RFP.49 Bids shall also be opened in public and the names of bidders recorded. 44

ibid, para 6.3. Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 1 above, 460. 46 ibid. 47 Procurement Regulations for Borrowers, para 6.4. 48 ibid, paras 5.31–5.32. 49 ibid, Annex XII, para 3.7. 45

Competitive Award Procedures Under Bank-financed Contracts 111 (vi)

Proposal evaluation and post-qualification assessment—this shall be done in accordance with the specified evaluation criteria and at this stage may be followed where permitted by negotiations with bidders (where the procurement is international) and is conducted in the presence of an independent third party.50 The borrower can negotiate any terms, starting with the proposal with the most advantageous offer. Where negotiations are not conducted, the borrower invites bidders of substantially responsive bids to submit their best and final offer (BAFO)51 or alternatively, invite the bidders to negotiate. (vii) Notification of intention to award the contract and standstill period—this notification, which is sent to each bidder, will include the name and offered price of the successful bid (without revealing the cost breakdown or other confidential information) as well as the reasons why the particular bidder was unsuccessful. The notification will also include the duration of the standstill period.52 If no complaints are received during the standstill period, then the borrower will send the notice of award to the successful bidder.53 If requested by an unsuccessful bidder, any debriefing can be done orally or in writing. A request for a debriefing should be made during the standstill period.54 (viii) Award of contract and publication of contract award—once the standstill period has expired, the borrower may award the contract and publish the contract award notice.55 ii. Request for Bids (RFB) A RFB is defined as a competitive method for the solicitation of bids that should be used when, due to the nature of the goods, works or non- consulting services to be provided, the borrower is able to specify detailed requirements to which bidders respond in offering bids.56 The difference between a RFP and a RFB lies in the ability of the borrower to clearly and adequately define its requirements through the contract specifications. Clear specifications will have a profound effect on competition and the openness of procurement and must be detailed and unambiguous for bidders to bid on a common product.57 An RFB is therefore

50 ibid.

51 BAFO and negotiations are only permitted for international competitive procurement subject to prior review. See Procurement regulations for Borrowers, para 6.32 and para 6.34. 52 Procurement Regulations for Borrowers, paras 5.72–5.80. 53 ibid, para 6.54. 54 ibid, para 5.81–5.87. 55 ibid, Annex XII, para 3.7. 56 ibid, para 6.5. 57 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement n 1 above, 487.

112 Value for Money, Competition and Selection appropriate for non-complex procurements, off the shelf goods, and routine non-consulting services. Procurement under a RFB is conducted under a single stage (one envelope) or a multi-stage (two envelope) process and follows a very similar process to the RFP, with the exception of the pre-qualification process.58 iii. Request for Quotations (RFQ) A RFQ is a method of procurement which often limits competition and is hence suitable for procuring limited quantities of readily available off-theshelf goods or non-consulting services, standard specification commodities, or simple civil works of small value, when it is more efficient to use a RFQ than more competitive methods.59 In a RFQ, the borrower is permitted to obtain quotations either by putting out an advertisement,60 in which case competition is not limited, or by sending a RFQ to a limited number of firms (three firms at the minimum).61 The RFQ is expected to include clear specifications, which describe the goods as well as the quantity required, delivery time and place as well as any installation requirements.62 The evaluation of the quotations received shall be conducted using the evaluation criteria specified in the RFQ.63 B. Competitive Procedures for Consulting Services The World Bank adopts different procurement procedures for the procurement of consulting services. Consulting services in this context refers to a range of services that are of an advisory or professional nature.64 Note that most of the procurement procedures that are prescribed for the procurement of consulting services are in truth based on the RFP procedure. They are at their core, a restatement of the RFP procedure, with different methods for determining the evaluation criteria applicable to consulting services. There are, in fact, very few differences between the 2011 procurement guidelines and the 2016 procurement regulations in relation to selection procedures for consulting services. This section will thus rely on the more detailed 2016 procurement regulations.

58

Procurement Regulations for Borrowers, Annex XII. ibid, para 6.7. 60 ibid, Annex XII, para 5.1 61 ibid. 62 ibid, Annex XII, para 5.2. 63 ibid, Annex XII, para 5.3. 64 ibid, Common Abbreviations and Defined Terms. 59

Competitive Award Procedures Under Bank-financed Contracts 113 i. Shortlisting It should be noted that the Bank requires a borrower to prepare a shortlist of firms in all cases of consulting services, except for consultants qualificationbased selection and direct selection.65 The shortlist should consist of between five and eight firms and is based on firms that have the relevant experience and capabilities for the assignment.66 The shortlisting stage must also follow specific steps as defined by the Bank’s regulations.67 These are: (i)

Preparation of the terms of reference (TOR) for the assignment, which clearly defines the objectives, goals and scope of the assignment.68 (ii) Request for the Expressions of Interest (EoI). This must be in accordance with the Bank’s template, and include the TOR. (iii) Publication of the EoI. (iv) Clarifications of the EoI, which shall be in writing. (v) Submission of the expressions of interest, within the stated deadlines, which shall be no less than ten business days. Interestingly, the late submission of an EoI shall not be a cause for its rejection unless the borrower has already prepared a shortlist of qualified firms based on the received EoIs. (vi) Shortlisting—this should be done on the basis of the experience and capability of the firms in the EoI, but key personnel should not be evaluated at this stage. Once firms have been shortlisted, the borrower then sends an RFP to the shortlisted firms; the RFP69 is then evaluated on the basis of the selection methods described below. ii. Quality and Cost-based Selection (QCBS) This is a competitive method of selection that takes into account both the quality of the proposal as well as the cost of the services.70 The proposals are obtained through a RFP that will state the weight that will be given to the technical proposal and the weight that will be given to the cost component.71 The proposal with the highest combined score for both q uality and cost will be deemed the most advantageous proposal.72 65

ibid, para 7.16. ibid, paras 7.16–7.17. 67 ibid, Annex XII, para 7.1. 68 Under the 2011 consultant guidelines, the TOR shall also provide background information including a list of existing relevant studies and basic data to facilitate the consultants’ preparation of their proposals. See Consultant Guidelines, para 2.3. 69 Procurement Regulations for Borrowers, Annex XII, para 7.1. 70 ibid, para 7.3. 71 ibid, para 7.3; Annex X, para 4.9. 72 ibid. 66

114 Value for Money, Competition and Selection There are mandated steps that must be followed when a borrower carries out a QCBS.73 These are: (i) (ii)

Preparation of RFP based on the Bank’s standard RFP document. Proposal preparation period: the borrower shall allow sufficient time for the firms to prepare their proposals, depending on the nature and complexity of the assignment. (iii) Issuance of a letter to submit proposals with the RFP to the shortlisted firms. (iv) Clarifications and amendments—these shall be sent to all shortlisted bidders. (v) Proposal submission—both the technical and the financial aspects of the proposal shall be submitted in two separate and sealed envelopes. (vi) Opening of technical proposal—this should be done by the deadline specified in the RFP, read aloud and the names of bidders recorded. (vii) Evaluation of technical proposals—this should be done in accordance with the evaluation criteria in the RFP and the results of this evaluation communicated to all bidders, as well as whether they met the minimum score. (viii) The financial proposals of the bidders that meet the minimum qualifying technical requirements should then be opened and the financial proposals of those that did not meet the technical requirements should be returned to the bidders unopened. (ix) Evaluation of financial proposals—this should also meet the requirements indicated in the RFP. (x) Combined evaluation (or addition) of cost and quality—in accordance with the criteria specified in the RFP. (xi) Negotiations—these can include a discussion of the TOR, the methodology, the borrower’s inputs74 and the special conditions of contract. (xii) Notification of award and standstill period—once a successful bidder has been selected, the borrower is required to send a letter to each bidder notifying them of its intention to award the contract to the successful bidder. The notification should contain the information on the successful bidder, the information of all the bidders that made the shortlist, the prices offered by these bidders, the overall technical scores of each bidder, the final combined scores and final ranking of the consultants, the reason why the particular bidder was unsuccessful and the duration of the standstill period.75 This notification

73

ibid, Annex XII, para 7.2. might refer to any information the borrower is required to provide under the TOR to assist in the completion of the assignment. 75 Procurement Regulations for Borrowers, Annex XII, para 7.2. 74 This

Competitive Award Procedures Under Bank-financed Contracts 115 may only be sent after the borrower receives the Bank’s no-objection notice to the proposed draft contract between the borrower and the successful bidder.76 (xiii) Award of contract and publication of contract award—upon the expiry of the standstill period (and the resolution of any complaints that arose during the standstill period), the borrower must transmit the notice of award to the successful bidder.77 The borrower should also publish the contract award notice within two weeks of notifying the successful bidder.78 (xiv) Debriefing—unsuccessful bidders under the QCBS procedure are also entitled to a debriefing by the borrower as long as the request for a debriefing comes during the standstill period. Debriefing may be done in writing or verbally and should include the deficiencies in the bidder’s proposal, the overall scores of the unsuccessful bidder as well as the rationale for the award of contract to the successful bidder.79 iii. Fixed Budget-based Selection (FBS) This is a method for selecting consultants under which the borrower possesses a fixed budget for undertaking the assignment, which budget cannot be exceeded. Apart from the fixed budget aspect, the FBS is similar to the QCBS method described above. The procurement regulations describe FBS as: a competitive process among short-listed firms that takes into account the quality of the proposal and the cost of services in the selection of the successful firm. The cost of the services is specified as a fixed budget in the request for proposals document that shall not be exceeded.80

FBS is appropriate when the consulting service required is simple and can be precisely defined; the budget is reasonably estimated and set; and the budget is sufficient for the firm to perform the assignment.81 The RFP shall specify the budget ceiling that is not to be exceeded and the minimum score for technical proposals. The proposal with the highest technical score that also meets the fixed budget requirement is considered the most advantageous proposal.82

76 ibid. 77 ibid. 78 ibid. 79 ibid. 80

ibid, para 7.4.

82

ibid, para 7.5.

81 ibid.

116 Value for Money, Competition and Selection The steps the borrower is required to follow for the FBS procedure is identical to the steps for QCBS listed above. iv. Least Cost-based Selection (LCS) The LCS procedure is similar to the QCBS procedure and takes into account both the quality of the proposal and the cost of the services in the selection of successful firms. It is appropriate for standard assignments, where well-established practices and standards exist.83 The RFP shall specify the minimum score for the technical proposal and amongst the firms that meet this minimum score, the proposal with the lowest evaluated cost shall be considered the most advantageous proposal.84 The steps the borrower is required to follow for the LCS procedure are identical to the steps for QCBS listed above. v. Quality-based Selection (QBS) The QBS method does not include cost as part of the evaluation c riteria.85 There are two ways in which it works; first if financial proposals are requested, these will only be opened once the proposal with the highest quality has been selected. Second, where the RFP requests only the technical proposals, then only the firm with the highest ranked technical proposal is invited to submit a financial proposal for negotiations.86 This procurement method is useful for complex or highly specialised assignments for which the borrower requires the consultant’s input and innovation in proposing solutions and assignments with a high downstream impact or where an assignment can be carried out in substantially different ways.87 The steps the borrower is required to follow for the QBS procedure88 are substantially similar to the RFP procedure discussed in the context of goods, works, and non-consulting services above. These steps are: (i)

Preparation of the RFP document using the Bank’s standard RFP document. (ii) Proposal preparation period, which provides sufficient time to bidders depending on the nature and complexity of the assignment. (iii) Issue shortlisted firms with the RFP document, inviting them to submit a proposal. 83

ibid, para 7.6. ibid, para 7.7. 85 ibid, para 7.8. 86 ibid. 87 ibid, para 7.9. 88 ibid, Annex XII, para 7.3. 84

Competitive Award Procedures Under Bank-financed Contracts 117 (iv)

Clarifications and amendments—where a bidder requests for additional information or clarifications, all such requests and responses should be simultaneously sent to all bidders. Any modification of the RFP as a result should be introduced in the form of an amendment.89 (v) Proposal submission and opening—this must be strictly done in accordance with the deadlines stated in the RFP. The borrower may choose to request both the technical and the financial proposals at the same time or request only the technical proposal and after selecting the highest ranked technical proposal, invite that firm to submit a detailed financial proposal for negotiations. For the opening of bids, only the technical proposals should be opened and the names of bidders recorded.90 (vi) Proposal evaluation and assessment—this should be done in accordance with the evaluation criteria specified in the RFP. (vii) Communication of results—the borrower should notify the consulting firm with the highest technical score to either submit a financial proposal, or inform him when the financial proposal will be opened. (viii) Financial proposal—this should be opened not earlier than seven days after communication of the technical evaluation results to the consulting firms. The financial proposal of the highest ranking technical proposal should be opened in the presence of the other firms that submitted proposals. (ix) Evaluation of financial proposals and negotiations—the borrower will evaluate the financial proposal and negotiate the contract. (x) Notification of intention to award the contract and standstill period— this notification, which is sent to each bidder, will include the name and offered price of the successful bid (without revealing the cost breakdown or other confidential information) as well as the reasons why the particular bidder was unsuccessful. The notification will also include the duration of the standstill period.91 If no complaints are received during the standstill period, then the borrower will send the notice of award to the successful bidder. (xi) Debriefings—a debriefing shall be done if requested by an unsuccessful bidder and can be done orally or in writing.92 vi. Consultant’s Qualification-based Selection (CQS) This method is one in which competition is limited as advertisements are not required. In this method, the borrower invites firms to submit their 89

ibid, paras 5.31–5.32. ibid, Annex XII, para 7.3. 91 ibid, paras 5.72–5.77. 92 ibid, paras 5.51–5.87. 90

118 Value for Money, Competition and Selection expressions of interest (EoI), which contains information about the firm’s experience and qualifications. Of the firms that submit an EoI, the borrower selects the firm with the best qualifications and experience to submit technical and financial proposals for negotiations.93 This method of procurement is appropriate for small assignments and emergency situations where a competitive process may not be justified.94 V. NON-COMPETITIVE PROCEDURES

As discussed above, the reliance on competitive procurement procedures is at the heart of the realisation of the value for money objective. However, there are several instances where a competitive process conflicts with the value for money objective, where for instance, the procurement is for low value goods or services and it will be operationally and financially inefficient to engage in a protracted procurement procedure. This is why less competitive procedures such as the RFQ and the CQS method discussed above exist. However, there are situations in which a total absence of competition may be justified, as opposed to merely limiting competition. It will be seen that given the potential pitfalls of a non-competitive process, which include corruption, abuse and the wastage of public funds; there are strict limits, which are placed on the use of non-competitive methods. This section examines the use of non-competitive procurement methods in Bank-funded procurements under the 2016 procurement regulations. A. Goods, Works and Non-consulting Services In relation to the procurement of goods, works and non-consulting services, the 2016 procurement regulations identify two kinds of direct selection methods. The first is stated to be single-source selection, where only one firm is approached even though there are several possible contractors. The second method of direct selection permitted by the Bank is what is termed ‘sole-source’ selection. This selection occurs where there is only one possible source for the goods, works and non-consulting services to be procured. Either of these approaches are justified in the following circumstances: (i)

93 94

there is an existing contract that was not originally financed by the Bank and which requires an extension for goods, works or non- consulting services of a similar nature. If it is properly justified and

ibid, para 7.11. ibid, para 7.12.

Non-competitive Procedures 119 no advantage many be obtained by competition, then the contract may continue with the extant supplier; or (ii) there is a justifiable requirement to re-engage a firm that has previously completed a contract with the borrower to perform a similar type of contract. The justification should show past satisfactory performance; that no advantage may be obtained by competition and that the prices are reasonable; or (iii) the procurement is both very low-value and low-risk as agreed in the Procurement Plan; or (iv) the case is exceptional, for example in response to emergency situations; or (v) standardization of goods that need to be compatible with existing goods may justify additional purchases from the original firm; or (vi) the required equipment is proprietary and obtainable from only one source; or (vii) the procurement of certain goods from a particular firm is essential to achieve the required performance or functional guarantee of an equipment plant or facility; or (viii) the goods, works or non-consulting services provided in the borrower’s country by a state owned enterprise, university, research centre or institution of the borrower’s country are of a unique and exceptional nature; or (ix) direct selection of UN agencies.95 It may be noted here that these requirements are alternative and not cumulative and this means that there will be several situations, including high value and high-risk procurements where a non-competitive procedure may be permitted under the 2016 regulations. Direct selection in cases of emergency is permitted in many jurisdictions,96 and applies to unforeseeable situations. Katayama described an emergency as ‘the development of conditions suddenly escalating the existing danger beyond that which is considered ordinary’.97 However, although the crisis that is triggered by

95

ibid, para 6.9. Direct selection or direct contracting is permitted in both the EU and the USA and under the UNCITRAL Model Law. For the approach in the EU see Case C-525/03 Commission v Italy [2005] ECRI-09405. For the US approach see FAR Part 18 and the Emergency Acquisitions Guide (2011) as well as C Colesanti, ‘The Final Frontier: Emergency Procurement in Financial Crises’ (2014) 43(3) Public Contract Law Journal 567. For the UNCITRAL Model Law see art 34 and C Nicholas, ‘Work of UNCITRAL on Government Procurement: Purpose, Objectives, and Complementarity with the Work of the WTO’ in S Arrowsmith and RD Anderson (eds), The WTO Regime on Government Procurement: Challenge and Reform (Cambridge, Cambridge University Press, 2011). 97 RN Katayama, ‘Emergency Procurement Powers’ (1968–1969) 2 Public Contract Law Journal 236, 237. 96

120 Value for Money, Competition and Selection an emergency or a natural disaster often requires that responses to such situations must be extraordinary, or at least, rapid,98 it must also be noted that emergency or disaster procurements are open to abuse.99 In true situations of an emergency, procurement is often fraught with irregularities100 that result in a situation where the responses are inadequate at best, and non-existent at worst. Thus, it may be important for the Bank to ensure that the irregularities that could result are mitigated through thorough ex post reviews and audits. Sole-source procurement is seemingly more justifiable than single-source selection, given that if there is only one possible source available, then, the procuring entity has little choice but to engage that contractor. The 2016 procurement regulations further provide that in both situations of singlesource and sole-source procurement, the borrower should ensure that the prices are reasonable, no advantage may be obtained by competition and the firm had performed satisfactorily in the previous contract.101 In addition, the procurement should not have been split into smaller lots to avoid the requirements for competitive processes.102 These caveats are the only guarantees to secure the value for money ideal and to ensure that tender splitting is not used to circumvent the need for competitive processes.103 Although the general requirement for a no objection notice will also serve to ensure that these direct selection methods are not abused, it is suggested that more will need to be done by the Bank in terms of post reviews under direct selection procurements.

98

Katayama, ‘Emergency Procurement Powers’ n 97 above, 237. For instance in the European Commission Flash Eurobarometer 374: Businesses’ attitudes towards corruption in the EU Report (February 2014), 60, 49% of EU businesses surveyed opined that there is the abuse of emergency grounds to justify the use of non-competitive or fast-track procedures in the EU. See D Leschinsky, ‘The Only Game in Town: Canada’s Approach to the Regulation of Sole-Source Procurements’ (2011) 3 Public Procurement Law Review 81–97. See also M Motyka-Mojkowski, ‘Economic Reasons as a Justification for Extreme Urgency in Construction Projects for Sports Events’ (2013) 2 Public Procurement Law Review NA35–NA41. 100 See Colesanti, ‘The Final Frontier’, n 96 above, which details the conflicts of interest which arose in the emergency procurements with financial services companies intended to stabilise the country during the financial crisis of 2008. See also US Government Accountability Office, GAO-120573T, Improper Payments: Remaining Challenges and Strategies for Government Wide Reduction Efforts (Washington DC, Government Accountability Office, 2012) 2–3, which details improper payments of up to $115.3 billion during emergency procurements in the USA. 101 Procurement Regulations for Borrowers, para 6.9. 102 ibid, para 6.10. 103 A prohibition against tender splitting for this purpose exists in most procurement regulation instruments. See UNCITRAL Model Law, art 12. 99

Non-competitive Procedures 121 B. Consulting Services The use of direct selection methods is also permitted for the procurement of consulting services in limited circumstances.104 Thus, single-source selection may be appropriate in the following circumstances: (i)

an existing contract for consultant services, not originally financed by the Bank, but awarded in accordance with procedure acceptable to the Bank may be extended for additional consulting services of a similar nature, if it is properly justified, no advantage may be obtained by competition, and the prices are reasonable; or (ii) for tasks that represent a natural continuation of previous work carried out by a consultant, within the last 12 months, where the continuity in the technical approach, experience acquired, and continued professional liability of the same consultant may make continuation with the initial consultant preferable to a new competition, subject to satisfactory performance in the initial assignment; or (iii) there is a justifiable requirement to re-engage a firm that has previously completed a contract with the borrower to perform a similar type of consulting services. The justification should show satisfactory performance of the firm in the previous contract, that no advantage may be obtained by competition, and that the prices are reasonable; or (iv) the procurement is both very low-value and low-risk as agreed in the Procurement Plan; or (v) in exceptional cases for example, in response to emergency situations; or (vi) only one firm is qualified, or one firm has experience of exceptional worth for the assignment; or (vii) the consulting services provided in the borrower’s country by an SOE, university and research centre, or institution of the borrower’s country are of a unique and exceptional nature; or (viii) direct selection of UN agencies.105 The prices in these cases have to be reasonable and consistent with market rates and the required consulting services must not have been split in order to avoid competitive processes.106 In addition, and as was discussed in the context of goods, works and nonconsulting services, the Bank may have to be more vigilant in relation to its prior and post reviews of contracts to which direct selection applies. 104

Procurement Regulations for Borrowers, para 7.13. ibid, para 7.14. 106 ibid, para 7.15. 105

122 Value for Money, Competition and Selection VI. MARKET APPROACHES

One of the ways in which the 2016 procurement regulations differ from the 2011 procurement guidelines is in the separation of procurement procedures (or selection methods) from the amount of competition that is acceptable to the Bank, or what the Bank terms ‘market approach options’. These market approach options in effect consider competition as a continuum, with full competition at one end and restricted competition at the other. It must be stated that under the 2016 procurement regulations, these market approach options, in some cases, blur procurement procedures with the amount of competition permitted by the Bank. The market approaches are stated to be: (i) open competition; (ii) limited competition; (iii) approaching the international market; (iv) approaching the national market; (v) prequalification and initial selection; (vi) post-qualification; (vii) single-stage (one envelope); (viii) single-stage (two envelopes); (ix) multi-stage procurement; (x) best and final offer; (xi) negotiations; and (xii) use of rated type evaluation criteria. Whilst the first four may truly be termed market approaches, in that they indicate whether the borrower will approach a national/international market or whether the borrower will seek full and open competition verses restricted or limited competition the next five approaches are merely stages within a procurement procedure. The succeeding two ‘approaches’ provide detail on the kinds of negotiations that may be entered into, whilst the final approach has nothing to do with market approaches and discusses the kinds of evaluation criteria that are permissible in different circumstances. As the analysis below will show, most of these market approaches are regarded as procurement procedures in domestic jurisdictions and there is a very tenuous line between these market approaches and substantial procurement procedures. (i)

107

Open competition: Open competition has been stated to be the ‘bedrock’ of the Bank’s procurement framework. This was especially the case under the 2011 procurement guidelines where it was stated that ‘open competition is the basis for efficient public procurement. Borrowers shall select the most appropriate method for the specific procurement. In most cases, International Competitive Bidding (ICB)…is the most appropriate method’.107 From this, it can be seen that the Bank previously equated open competition with international competition, but has moved away from this approach. Open competition is regarded as a tendering procedure in most jurisdictions and is described as the process where all prospective

Bank Procurement Guidelines, para 1.3.

Market Approaches 123 contractors interested in the procurement may submit a tender.108 In the EU system, the ‘open procedure’ is similarly defined as ‘those procedures whereby any interested economic operator may submit a tender’.109 Arrowsmith also defines it as a formal tendering procedure under which the contract is advertised and all interested economic operators can tender.110 The UNCITRAL Model Law also speaks of ‘open tendering’.111 Under the 2016 procurement regulations, an open competitive approach to market is the Bank’s preferred approach and ‘provides all eligible prospective bidders with timely and adequate advertisement of a Borrower’s requirements and an equal opportunity to bid…’.112 A focus on open competition or tendering as a preferred approach is common in most jurisdictions as it is believed to be the most beneficial method of securing transparency and competition in procurement.113 (ii) Limited competition: Limited competition has various appellations in other procurement systems. In the EU system,114 and under the UNCITRAL Model Law,115 it is referred to as ‘restricted tendering’ and described in the EU procurement directives as procedures in which any economic operator may request to participate in response to a call for a competition, but where only those economic operators invited by the contracting authority may submit a tender.116 Under the Bank’s regulations, a limited competitive approach to market ‘is by invitation only, without advertisement. It may be an appropriate method of selection where there are only a limited number of firms or there are other exceptional reasons that justify departure from open competitive procurement approaches’.117 In relation to Bank-financed consulting contracts, limited competition occurs where a borrower prepares a shortlist without advertisement. However, borrowers are to seek expressions of interest from a list of potential consultants wide enough to ensure adequate competition.118 (iii) International competition: As was mentioned above, international competitive bidding was the preferred procurement procedure under the 2011 procurement guidelines. The new procurement framework

108

Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 1 above, 466. EU Procurement Directives, art 1(11)(a). 110 Arrowsmith, The Law of Public and Utilities Procurement, n 17 above, 606. 111 UNCITRAL Model law 2011, Chapter III. 112 Procurement Regulations for Borrowers, paras 6.11 and 7.22. 113 Arrowsmith, Treumer, Fejø and Jiang, Public Procurement Regulation, n 8 above, 34. 114 EU Procurement Directives, art 28. 115 UNCITRAL Model Law, Chapter IV. 116 EU Procurement Directives, art 28(1) and (2). 117 Procurement Regulations for Borrowers, para 6.12. 118 ibid, para 7.23. 109

124 Value for Money, Competition and Selection introduced flexibility into the Bank’s approach and dropped the overriding emphasis on international competitive bidding. International competition is now appropriate where the participation of foreign firms will increase competition and assure the achievement of value for money and fit for purpose results.119 International competition requires mandatory international advertisement and is now stated to be the preferred approach for complex, high risk and or high value procurements.120 In addition, international competition is mandatory for contracts over a certain value. These thresholds are country specific and are determined on the condition of specific markets, the capacity of local industry and the country’s level of risk.121 According to Westring, the advantages of international competitive bidding (ICB) are that it assists borrowers to obtain the most appropriate goods or works at the least cost; gives all bidders equal opportunity to participate; ensures the procurement process is conducted in an open and objective fashion; reduces opportunities for corruption; and facilitates the entry of developing country contractors.122 However, ICB is also subject to the criticism that it takes an undue length of time to complete procurements using this method; it requires burdensome documentation; allows different kinds of equipment, which may lead to redundancy and an excessive variety of spares and maintenance; and also forces the acceptance of the lowest bid.123 (iv) National competition: this is an approach that covers two related aspects. First national competition, as the name implies, refers to a procurement procedure that does not require international bidding, in other words, limits competition to domestic contractors.124 Further, this approach may also include a reliance on the country’s own procurement arrangements.125 In other words, national competition also means a reliance on the borrower’s domestic procurement framework if it is acceptable to the Bank. Thus, where national competition is the preferred approach, it makes sense to rely on domestic procurement arrangements and procedures, given that only domestic contractors are bidding. However, this does not take into account the fact that even if a contract is not advertised internationally, the widespread

119

ibid, paras 6.13 and 7.24. ibid, para 6.14. 121 ibid. 122 G Westring, ‘Procurement of Contractors and Consultants—A World Bank Perspective’ (1991) 19 International Business Lawyer 357, 359. 123 Westring, ‘Procurement of Contractors and Consultants’, n 122 above, 359. 124 Procurement Regulations for Borrowers, paras 6.15 and 7.25. 125 ibid, para 6.18. 120

Market Approaches 125

(v)

126

use of the internet means that non-domestic contractors will also be appraised of that procurement and may be interested in participating. Note that national competition does not exclude the participation of foreign firms, who are permitted to participate on the same terms and conditions, which apply to domestic firms.126 Prequalification and initial selection: As was discussed above, many of the Bank’s approaches to market are themselves stages in a procurement procedure. Prequalification is one of these stages that can be considered both as a means of approaching or testing the market and as a stage in a selection procedure. It is defined as the ‘process by which procuring entities formally determine which interested persons they should give the opportunity to submit a tender or proposal’.127 The aim of a prequalification process is to ensure that the persons who bid for a contract actually have the experience and the technical and financial resources necessary to fulfil on the contract.128 Prequalification minimises the risk of contract failure and establishes the minimum capacities below which contractors will not be considered.129 Contractual issues such as time delays and cost-overruns are usually linked to bidders qualifications (financial strength, technical capacity and experience),130 and prequalification can assist in eliminating the risks of such failures. Pre-qualification may further be described as a process of screening and weeding out unqualified or otherwise unsuitable contractors from the pool of possible bidders. It prevents unqualified or otherwise unsuitable bidders from preparing a bid, saving them that time and expense. It also helps to measure the amount of interest in a contract, and provides an opportunity to later revise bidding documents depending on the amount of interest expressed.131 Prequalification also gives an indication of potential contractors’ capabilities, allowing necessary adjustments at the initial stages where required.132 Prequalification may take the form of a review of documentation submitted, or in complex contracts, it could take the form of a detailed on site investigation of the bidder’s facilities. Where a bidder does not meet the prequalification criteria, he will be rejected and not invited to submit a proposal for the contract. Where a bidder submits

ibid, para 6.17. Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 1 above, 608. 128 Westring, ‘Procurement of Contractors and Consultants,’ n 122 above, 360. 129 See N Banaitiene and A Banaitis, ‘Analysis of Criteria for Contractors’ Qualification Evaluation’ (2006) Vol XII(4) Technological and Economic Development of Economy 276. 130 Banaitiene and Banaitis, ‘Analysis of Criteria’, n 129 above, 277. 131 Westring, ‘Procurement of Contractors and Consultants,’ n 122 above, 360. 132 ibid. 127

126 Value for Money, Competition and Selection incomplete information, this will usually lead to its exclusion from the bidding process.133 It may be noted that prequalification is not intended to limit competition and should be based only on the capability and resources of prospective eligible bidders to satisfactorily perform the contract, taking into account the following objective and measurable criteria such as: (a) relevant general and specific experience, satisfactory past performance and successful completion of similar projects over a given period; (b) financial situation; and (c) capability of construction and manufacturing facilities where relevant.134 It may be noted here that an assessment of a bidder’s specific experience and past performance does not necessarily mean the bidder is required to possess previous experience on Bank-funded projects. Rather, what is required is specific experience in that particular sector, irrespective of whether those projects were undertaken in the private or the public sector, and irrespective of the nature of the funders of the past projects. Any other interpretation would limit competition on such contracts to past Bank contractors. In addition, the financial situation of a potential bidder examined through the prequalification process is designed to ensure that the bidder has the financial resources to remain in business during the pendency of the contract; can complete the contract; and is able to meet any legal liabilities that may arise from the performance of the contract.135 This assessment is designed to forestall the risk of engaging a contractor who may be facing or is close to facing bankruptcy. Some of the information that may be requested to prove a positive financial situation includes audited balance sheets, cash flow, and average annual turnover.136 Assessing the capacity and the capabilities of a manufacturing plant also minimises the risk that a contractor will be unable to meet contractual deadlines or fully perform the contract. Note that if there is a more than a 12-month delay between the conclusion of the prequalification process and the issuance of bidding documents, the Bank requires the conducting of a new prequalification process,137 in order to prevent the reliance on outdated information and to take cognisance of corporate changes that could have occurred in that time.

133 Z Hatush and M Skitmore, ‘Criteria for Contractor Selection’ (1997) 15 Construction Management and Economics 19, 26. 134 Procurement Regulations for Borrowers, para 6.23. 135 See Arrowsmith, The Law of Public and Utilities Procurement, n 17 above, 1190. 136 See Standard Procurement Document—Prequalification Document (Works) (July 2016). 137 Procurement Regulations for Borrowers, para 6.22.

Market Approaches 127 The 2016 procurement regulations introduce a procedure similar to the traditional prequalification procedure, which is referred to as ‘Initial Selection’.138 This initial selection is a method used to shortlist candidates in a RFP and competitive dialogue procurement process. The first stage of an initial selection is the prequalification process described above, through which a long-list of applicants is created and ranked.139 The highest ranking candidates are then selected to submit proposals in the RFP or competitive dialogue procedure. (vi) Post-qualification: The Bank also provides for a ‘post-qualification’ procedure, which is a screening that occurs after the evaluation of tenders. Post-qualification is used in cases where there has not been a prequalification or initial selection.140 In the post-qualification procedure, the borrower has to ensure that a bidder whose bid would be recommended for award has the capability and the resources to effectively carry out the contract.141 The criteria for the post-qualification assessment must be specified in the bidding documents, and are distinct and separate from evaluation criteria and perform an entirely different function from evaluation criteria. Thus, whilst evaluation criteria are used to rank or compare the offers from different bidders to determine which bidder has best met the evaluation criteria, qualification criteria assess a firm’s qualifications against an objective standard.142 Post-qualification criteria assess substantially the same factors as prequalification criteria, except that the process of qualification is conducted later in the procurement process. The Bank’s standard procurement documents143 provide borrowers with clarity on the information that should be assessed during post-qualification. It may be noted that a positive post-qualification is a prerequisite to the award of the contract to the bidder with the most advantageous bid, and where it is seen that this bidder does not meet the post-qualification criteria, then its bid must be disqualified, and the next best bid examined to assess whether it meets the qualification criteria. (vii) Single-stage (one envelope and two envelope): The discussion of single-stage procurement is essentially a discussion as to whether a procurement procedure can be conducted in a single stage where both technical and financial proposals are included in one envelope, or

138

ibid, para 6.25. ibid, para 6.25. 140 ibid, para 6.27. 141 ibid. 142 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 1 above, 688. 143 World Bank, Standard Procurement Documents—Request for Bids (Goods) (July 2016). 139

128 Value for Money, Competition and Selection c onducted in a single stage where technical and financial proposals are included in separate envelopes.144 (viii) Multi-stage: A multi-stage procurement deals with the implementation of the RFP procedure for complex procurements. The 2016 procurement regulations provide that in the procurement of (a) large complex facilities awarded on the basis of a turnkey contract for the design and build of an industrial plant; (b) works of a complex and special nature; or (c) complex information and communication technology that are subject to rapid technology advances, it may be undesirable or impractical to prepare complete technical specifications in advance.145 In the first stage of a multi-stage procedure, proposals are invited on the basis of a conceptual design or performance or functional specification basis, subject to the borrower conducting confidential discovery and clarification meetings to learn about possible solutions.146 In the second stage of the procedure, the bidding/request for proposals document may be amended based on the discoveries made in the confidential meetings, and issued to the qualified bidders requesting them to submit final proposals.147 The second stage may be submitted in one or two envelopes for the technical and financial parts respectively, where the two envelopes are opened and evaluated sequentially.148 It is apposite to mention here that the multi-stage procurement exists in other procurement regimes under different nomenclature. Thus in the EU system, there are two procedures, known as ‘competitive dialogue’ and ‘competitive negotiation,’ which are used for complex contracts and are similar to the Bank multi-stage procedure.149 Under the UNCITRAL Model Law, the procedure known as ‘request for proposals with dialogue’ is most akin to the Bank’s multi-stage procedure.150 (ix) Best and final offer (BAFO): The BAFO approach as described by the Bank regulations is a type of the negotiations that could be held during a RFP procedure. This kind of negotiation occurs when the borrower invites bidders whose bids were substantially responsive or achieved the minimum score to submit their ‘best and final offer’.151 It must be noted that the BAFO is not limited to a reduction of prices,

144

Procurement Regulations for Borrowers, paras 6.28–6.29. ibid, para 6.30. 146 ibid, para 6.31. 147 ibid. 148 ibid. 149 For an explanation of the EU approach see Arrowsmith, The Law of Public and Utilities Procurement, n 16 above, Ch 8. 150 See Article 30 (2) and Art 49 UNCITRAL Model Law (2011). 151 Procurement Regulations for Borrowers, para 6.32. 145

Market Approaches 129

(x)

but extends to any part of the bid. Note that bidders are required to be informed in bidding documents if a BAFO will be requested and that bidders are not required to submit a BAFO and that there will be no negotiation after a BAFO.152 It should be noted that a BAFO is only permitted in international competitive bidding where procurement is subject to the Bank’s prior review.153 The aim of the BAFO is to further ensure competition and value for money in complex procurements. Where BAFO is to be used, the Bank also requires that the borrower engages the services of a probity assurance provider agreed with the Bank.154 Negotiations: The regulations discuss how negotiations under international competitive bidding subject to prior review may be conducted. Any negotiations as permitted by the Bank must be conducted in accordance with the requirements of the bidding document. Negotiations may cover all terms and conditions, including the price, social, environmental and innovative aspects of a proposal, in so far as these negotiations do not change the minimum requirements of the bid or the proposal.155 These negotiations differ from the dialogue that is conducted in a multi-stage RFP, as those dialogues occur prior to the submission of proposals. These negotiations, on the other hand, occur after proposals have been evaluated and one is adjudged to be the most advantageous, the borrower then enters into negotiations with this bidder and if the outcome is unsatisfactory, the borrower proceeds to negotiate with the next best proposal until a satisfactory outcome is reached.156 As was discussed in the context of BAFO above, the aim of these negotiations is to ensure value for money and ensure that the best terms possible are offered to the borrower in large contracts. However, negotiations also have their disadvantages. As documented by Arrowsmith et al, negotiations and the possibility of amendment may discourage bidders from initially offering their best price; in addition, pressurising bidders to improve their offers could result in unsustainable offers with an impact on performance; and finally, negotiations provide opportunities for corruption, where a borrower provides confidential information to a bidder that gives it an undue advantage.157 To circumvent this, the Bank regulations provide that negotiations must occur in the presence of a probity assurance provider agreed to by the Bank.158

152 ibid. 153 ibid. 154

ibid, para 6.33. ibid, para 6.35. 156 ibid, para 6.36. 157 Arrowsmith, Treumer, Fejø and Jiang, Public Procurement Regulation, n 8 above, 84. 158 Procurement Regulations for Borrowers, para 6.35. 155

130 Value for Money, Competition and Selection (xi) Rated evaluation criteria: Evaluation criteria can be classified in two ways –- those that directly relate to the contract, such as price, technical quality or merit and product performance, and those that may often not relate to contract performance, such as secondary (ie environmental) criteria.159 Evaluation criteria could also be classified based on whether or not they are mandatory. Where mandatory evaluation criteria are used, the procuring authority does not have a discretion to award a contract where the criteria are not met, and a proposal must be rejected if the stipulated criteria are unsatisfied. Evaluation criteria could further be of a discretionary nature, in which case the procuring authority has a discretion to award a contract to a bidder that meets the requirements or a combination of the requirements in the procuring authority’s discretion.160 Evaluation criteria are key to ensuring that value for money and developmental objectives for a project are achieved. It may be noted that in specific sectors such as construction procurement, the evaluation criteria relied on are usually consistent, with different emphasis or weight being given to these criteria, depending on the particular project.161 The Bank’s preference is for non-rated evaluation criteria, which means that the evaluation criteria are quantified or converted into monetary terms. These quantified criteria are then calculated to determine which proposal is the most advantageous. It may be noted that given the complexity and the multi-dimensional nature of evaluation criteria, especially for large projects, a procuring entity has to find reliable methodology to assess both qualitative and quantitative (ie price) evaluation criteria.162 There are several tools that have been developed for this purpose and the procuring entity will need to determine which of these tools best serves its purposes.163 As is discussed further in Chapter 8, the preference for non-rated criteria is designed to limit the opportunities for corruption in bid evaluation by limiting the discretion of procuring officials in conducting the evaluation. Under the Bank’s regulations, where non-rated criteria are used the most advantageous proposal is determined to be substantially

159

Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 1 above, 674. ibid, 674–75. 161 Hatush and Skitmore, ‘Criteria for Contractor Selection’, n 133 above, 20. 162 KS Bhutta and F Huq, ‘Supplier Selection Problem: A Comparison of the Total Cost of Ownership and Analytic Hierarchy Process Approaches’ (2002) 7 Supply Chain Management 126. 163 M Zeydan, C Colpan and C Cobanoglu, ‘A Combined Methodology for Supplier Selection and Performance Evaluation’ (2011) 38(3) Expert Systems with Applications 2741. One of the more common tools for evaluating multiple criteria is the ‘analytical hierarchy process’. See GD Holt, ‘Which Contractor Selection Methodology?’ (1998) 16(3) International Journal of Project Management 153. 160

Selection and Contractual Arrangements 131 responsive to the bidding documents and the lowest evaluated cost.164 Rated evaluation criteria are defined by the Bank as criteria that are evaluated on merit points, as they cannot be fully assessed in monetary terms. The merit points are assigned based on the degree to which the proposal exceeds the requirements in the bidding documents.165 Rated criteria can further be mandatory criteria where the proposal must be rejected if the maximum or minimum points are not achieved; or desirable criteria, where there is no minimum or maximum threshold that would trigger a rejection of the proposal.166 When rated criteria are used, the most advantageous proposal is determined from the substantially responsive bidder that meets the qualification criteria and submitted the best evaluated proposal.167 The procurement regulations further provide that rated criteria shall only be used when benefits or the evaluation criteria may not be quantifiable in monetary terms. The rated criteria shall be prioritised, assigned merit points, and weighted based on the importance of the criteria to the outcome.168 The use of rated evaluation criteria may often present opportunities for corruption and abuse as it introduces an element of subjectivity into the evaluation process. The Bank’s reluctance towards this form of evaluation arises because the assessment of evaluation criteria that have been converted to merit points is a: subjective assessment of the worth of the bid against each criterion. Under such evaluation systems, there is often no right or wrong answer in the decision making process, as the winning bid is simply the one that receives the most points; in such situation, the decision is wide open to corrupt influence and it becomes all but impossible to hold the evaluators accountable for the correctness of their decision.169

VII. SELECTION AND CONTRACTUAL ARRANGEMENTS

As was mentioned above, apart from the procurement procedures permitted by the Bank, the Bank also provides for the use of other methods and 164

Procurement Regulations for Borrowers, para 5.70. ibid, para 6.37. 166 ibid, para 7.33. 167 ibid, para 5.69. 168 ibid, Annex X, paras 3.2–3.4. 169 GT Ware, S Moss, J Edgardo Campos and GP Noone, ‘Corruption in Public Procurement: A Perennial Challenge’ in J Edgardo Campos and S Pradhan (eds), The Many Faces of Corruption: Tracking Vulnerabilities at the Sector Level (Washington DC, The World Bank, 2007) 314–15. 165

132 Value for Money, Competition and Selection arrangements, which borrowers may rely on in procurements under Bankfunded contracts. This section examines these methods and arrangements, under the 2016 procurement regulations and highlight the issues that may arise from their use. A. Competitive Dialogue The competitive dialogue procedure is defined by the Bank as an ‘interactive multistage selection arrangement that allows for dynamic engagement with proposers’.170 Competitive dialogue is to be used only for complex or innovative procurement.171 The competitive dialogue procedure is widely used in domestic jurisdictions and has been the subject of intense academic scrutiny.172 The competitive dialogue procedure is appropriate for use where the borrower cannot easily define the technical requirements of the contract and also wants the bidders to specify solutions to the problem faced by the borrower. It is also useful for projects that include private sources of finance (public-private partnerships) and concession contracts.173 The procedure allows for an iterative engagement between the bidders and the borrower. Some of the benefits of a competitive dialogue process include the improved communication between bidders and the borrower, which permits innovative solutions, better price discipline which reduces the scope for price increases and enhanced competition, which increases value for money.174 Under the Bank procurement regulations, competitive dialogue is only permitted for complex or innovative procurements where: (a) there are a number of solutions that satisfy the Borrower’s requirements and the technical and commercial arrangements to support those solutions require discussion and development between the parties; (b) due to the complexity of the procurement, the Borrower is not objectively able to define the technical or performance specifications and scope to satisfy its requirements and/or is not objectively able to specify the legal and/or financial arrangements of the procurement.175

170

Procurement Regulations for Borrowers, para 6.39.

171 ibid.

172 See S Arrowsmith and S Treumer (eds), Competitive Dialogue in EU Procurement Law (Cambridge, Cambridge University Press, 2012); M Burnett (with M Oder), Competitive Dialogue—A Practical Guide (Maastricht, European Institute of Public Administration, 2009). 173 See C Queiroz and A Lopez Martinez, ‘Legal Frameworks for Successful Public-Private Partnerships’ in P de Vries and EB Yehoue (eds), The Routledge Companion to Public-Private Partnerships (London, Routledge, 2013). 174 European PPP Expertise Centre, ‘Procurement of PPP and the use of Competitive Dialogue in Europe: A Review of Public Sector Practices across Europe’, para 4. 175 Procurement Regulations for Borrowers, para 6.40.

Selection and Contractual Arrangements 133 In a competitive dialogue, the borrower must again rely on a probity assurance provider agreed to by the Bank.176 The role of the third-party probity assurance provider is to ensure that the dialogues conducted between the borrower and the bidders do not include any improper practices. The competitive dialogue process has three phases: Phase 1: Initial selection177 (i) (ii) (iii)

Prequalification and initial selection. Receipt and public opening of initial selection applications. Evaluation of initial selection applications to identify candidates to be initially selected and to participate in dialogues. The number of initially selected candidates, should be between three and six candidates.

Phase 2: Request for interim proposals and dialogue178 (iv) (v) (vi)

Issue request for proposals document to initially selected firms. The candidates submit interim proposals, which are opened in public. The borrower makes an initial assessment of interim proposals, against the evaluation criteria in the RFP document. (vii) Parties enter into a dialogue, in which the borrower enters into separate, confidential, and bilateral dialogues with each of the candidates. (viii) The borrower may test the readiness of candidates to submit final proposals by requiring and assessing a ‘Draft Final Proposal’. Once the borrower is satisfied that at least one compliant final proposal will be received, it may close the dialogues. Phase 3: Request for Final Proposals179 (ix)

Issue updated request for proposals document to the proposers (that have not been eliminated in Phase 2), in accordance with the Bank’s SPD. A two-envelope process is normally used at this Phase. (x) Receipt and public opening of final proposals. Only the technical proposals are opened at this time. Financial proposals remain sealed. (xi) The borrower evaluates technical proposals against the evaluation criteria described in the request for proposals document. (xii) The borrower opens the financial proposals in the presence of the probity auditor. The borrower evaluates financial proposals against the evaluation criteria described in the request for proposals document. (xiii) Once evaluation is completed, the borrower selects the most advantageous proposal for contract award according to the criteria specified in the RFP document. 176

ibid, Annex XIII, para 3.1. ibid, para 3.3. 178 ibid. 179 ibid. 177

134 Value for Money, Competition and Selection (xiv) Once the most advantageous proposal has been selected, the borrower and the selected bidder will finalise details of the solution. This process only allows for clarification and confirmation and does not permit any material deviation from the final proposal that formed the basis of the borrower’s selection. (xv) The probity auditor shall prepare a probity report. The report will be provided to the borrower and a copy sent to the Bank and to all proposers who were involved in the dialogue stages, (after excluding all confidential information), and published on the borrower’s website. This should be done at the same time as transmission of the notice of intention to award the contract. (xvi) Notification of intention to award and standstill period: The borrower transmits its notice of intention to award the contract to the proposers. This initiates the standstill period. Where applicable, the borrower debriefs and manages any complaints received that relate to the decision to award the contract. (xvii) The borrower shall publish the contract award notice following expiry of the standstill period. Note that during negotiations, borrowers are not permitted to provide information in a discriminatory manner, so as to give some firms an advantage over others and must keep bidders’ confidential information private.180 The third-party probity assurance provider attends these meetings to ensure that the process is competitive and that the borrower provides no undue advantage to a particular firm.181 B. Public-Private Partnerships (PPP) A PPP is a procurement arrangement under which a private sector participant is involved both as a financier and as contractor (or sometimes, the concessionaire) for the provision of a service or infrastructure.182 A reliance on PPP arises due to the financial and organisational constraints that may be faced by a state in trying to provide public infrastructure.183 As defined by Yescombe, a PPP is a long-term contract between a public sector party and

180

ibid, Annex XIII, para 4.1.

181 ibid.

182 For information on PPPs, see M Bult-Spiering and G Dewulf, Strategic Issues in PublicPrivate Partnerships: An International Perspective (Oxford, Blackwell Publishing, 2006). 183 Yescombe defines public infrastructure as ‘facilities, which are necessary for the functioning of the economy and society. They are not an end in themselves, but a means of supporting a nation’s economic and social activity…’. ER Yescombe, Public-Private Partnerships: Principles of Policy and Finance (Oxford, Butterworth-Heinemann, 2007) 1–2.

Selection and Contractual Arrangements 135 a private sector party for the design, construction, financing and operation of public infrastructure (the facility).184 Under a PPP contract, payments are made over the life of the contract to the private sector party for the use of the facility, by either by the public sector or the general public as users of the facility, with the facility remaining in private sector ownership, or reverting to public sector ownership at the end of the PPP contract.185 According to Arrowsmith et al, PPPs have two main objectives; first to enhance value for money, through the transfer of risk to the private sector (which is arguably better placed to manage such risks) and through the efficiencies created when one entity designs, builds and manages a facility; and second, to ensure the development of projects that would otherwise not have been executed due to a lack of public funds.186 The Bank’s 2016 procurement regulations define a PPP as ‘a long term contract between a private party and a government entity providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance’.187 Thus, it can be seen that the main elements of a PPP are the significant involvement of the private sector; the allocation of risk to the private sector; innovation; co-operation; and the payment scheme, which differs from traditional procurement methods.188 The risks that are transferred to the private sector in a PPP usually relate to the costs of design and construction of the facility; market demand or usage of the facility; quality of service provided and the operational and maintenance costs.189 A PPP is an alternative method for the procurement of infrastructure and under the Bank regulations can take the following forms:190 i. Build, Own and Operate (BOO) In a BOO contract, the asset is built by the private sector and the ownership of the facility or the asset remains with the private sector party,191 who is remunerated by charging the public authority, or in the case of road construction, the general public for the use of that facility.

184 Yescombe, 185 ibid.

Public-Private Partnerships, n 183 above, 3.

186 Arrowsmith, Treumer, Fejø and Jiang, Public Procurement Regulation, n 8 above, 130–31. 187 Procurement Regulations for Borrowers, para 6.42. 188 See C Greve and G Hodge (eds), Rethinking Public-Private Partnerships: Strategies for Turbulent times (London Routledge, 2013), Ch 1. 189 Yescombe, Public-Private Partnerships, n 183 above, 4. 190 Procurement Regulations for Borrowers, para 6.43. 191 Yescombe, Public-Private Partnerships, n 183 above, 7–8.

136 Value for Money, Competition and Selection ii. Build, Operate and Transfer (BOT) In a BOT contract, at the end of the contract, the ownership of the asset remains with the public sector and the management and operation of the asset is eventually transferred from the private to the public sector. This will be done at a nominal or at no cost,192 given that the private sector party would have been expected to recoup its investment during the pendency of the contract. iii. Build, Own, Operate and Transfer (BOOT) A BOOT contract is substantially similar to a BOT contact, with the distinction that in a BOOT contract, ownership of the asset is initially vested in the private sector, which operates and manages the asset. At the end of the contractual term, the ownership and management of the asset is passed to the public sector. It may be noted at this juncture that the Bank regulations clearly delineate the responsibilities of the borrower and the Bank in a PPP procurement, and as is the case in traditional procurement, the borrower is responsible for project assessment, project structuring, selection of the private partner and contract management.193 It should also be noted that the selection of a private partner must be done through a competitive selection process, unless there are particular circumstances, which warrant a non-competitive selection.194 C. Commercial Practices Commercial practices refer to the reliance on procurement methods used by private sector beneficiaries of non-repayable financing for the procurement of goods, works or non-consulting services.195 Where a project involves financing a programme of imports, then commercial practices may be used for such contracts.196 An approach that refers to commercial practices in public procurement is not new and many domestic jurisdictions have often turned to the private sector to examine whether private sector commercial practices may increase

192 Yescombe,

Public-Private Partnerships, n 183 above, ibid. Procurement Regulations for Borrowers, Annex XIV, para 2.1. 194 ibid, Annex XIV, para 5. 195 Procurement Regulations for Borrowers, para 6.46. 196 ibid. 193

Selection and Contractual Arrangements 137 the efficiency and cost-effectiveness of public purchasing.197 In the USA for instance, the Federal Acquisition Streamlining Act, 1994 was designed to maximise the use of commercial acquisition methods.198 It must be noted that commercial practices vary greatly and apply to different aspects of the procurement cycle, but these practices are generally less burdensome and bureaucratic than government procurement practices, owing of course to the differences between commercial agencies and government agencies. D. United Nations Agencies With the approval of the Bank, a borrower may directly approach a UN agency in situations where their expertise or rapid mobilisation on the ground is critical, in particular, in circumstances of urgent need of assistance or capacity constraints.199 In entering into a contract with a UN agency, the borrower should use a standard form of agreement between the borrower and the UN agency or a template agreement approved by the Bank.200 The reliance on UN agencies may be suitable due to a natural or man-made disaster, in conflict situations, or in situations of capacity constraints because of fragility or specific vulnerabilities. E. Electronic Reverse Auctions Electronic reverse auctions are techniques which may be applied in a procurement procedure, rather than a procedure in itself.201 As defined by the Bank regulations, an electronic reverse auction ‘is a scheduled online event in which prequalified/registered firms bid against each other on their price’.202 It is to be used during a request for quotations procedure where the borrower’s requirements are unambiguously specified and there is adequate competition among firms.203

197 See for instance, the US GAO Report—Commercial Practices: Leading-Edge Practices can Help DOD Better Manage Clothing and Textile Stocks (April 1994); JW Beausoleil, Past Performance Handbook: Applying Commercial Practices to Federal Procurement, 2nd edn (Vienna, Management Concepts, 2010). 198 See TM O’Connor and MP Wangemann, Federal Contracting Answer Book, 3rd edn (Vienna, Management Concepts, 2013), Ch 3. 199 Procurement Regulations for Borrowers, para 6.47. 200 ibid, para 6.48. 201 Semple, A Practical Guide to Public Procurement, n 3 above, 91. 202 Procurement Regulations for Borrowers, para 6.49. 203 ibid, Annex XII, paras 6.1–6.3.

138 Value for Money, Competition and Selection In an electronic reverse auction, there is the downward revision of bidders’ prices using an online platform. The inclusion of a reverse auction (as prices are lowered, and not increased as in a regular auction) is intended to ensure the borrower (or the buyer) receives the lowest price possible.204 In most cases, the prices offered by bidders are visible to all, and they then bid against each other in offering the lowest price possible. The auction usually takes place after the evaluation of technical proposals in the RFP procedure. Electronic auctions are considered to provide significant benefits in the procurement process. These benefits include improving the prices offered by providing bidders with information on competitors’ tenders through the auction process;205 savings from clearer specifications; and increased transparency, which limits the opportunities for abuse.206 As with all procedures, electronic auctions also contain elements that may limit their utility. Thus research by the OECD207 and some academics has pointed to the fact that increased transparency in the procurement process may make communication between bidders easier, promoting collusion among bidders.208 Further, electronic auctions make it more difficult for bidders to break a cartel, given that other cartel members will see what prices have been submitted in violation of a cartel arrangement.209 F. Operations Involving a Programme of Imports Some Bank projects will provide financing for imports. Where this is the case, the RFB method with simplified advertising and currency provisions may be used for large value contracts and smaller value contracts may be executed using commercial practices that are acceptable to the Bank.210 G. Commodities The procurement of commodities refers to the procurement of grains, animal feed, cooking oil, fertilizer and metals.211 It is unclear whether this list

204 M Trybus, R Caranta and G Edelstam (eds), EU Public Contract Law: Public Procurement and Beyond (Bruxelles, Bruylant, 2013), Ch 4. 205 S Arrowsmith, ‘Regulating Electronic Reverse Auctions under the UNCITRAL Model Law on Procurement’ in S Arrowsmith (ed), Public Procurement Regulation in the 21st Century: Reform of the UNCITRAL Model Law on Procurement (Eagan, West, 2009). 206 Arrowsmith, ‘Regulating Electronic Reverse Auctions’, n 205 above. 207 OECD, Public Procurement: Role of Competition Authorities (Paris, OECD, 2007) 7 208 See generally GL Albano, ‘Preventing Collusion in Public Procurement’ in N Dimitri (ed) Handbook of Procurement (Cambridge, Cambridge University Press, 2006). See also Graells Public Procurement and the EU Competition Rules, n 41 above, Ch 2. 209 Arrowsmith, Treumer, Fejø and Jiang, Public Procurement Regulation, n 8 above, 151. 210 Procurement Regulations for Borrowers, para 6.50 and Annex XII, paras 6.4–6.6. 211 ibid, para 6.51.

Selection and Contractual Arrangements 139 is exhaustive, but it is suggested that similar commodities may also be procured by relying on these provisions. The Bank provides that in the procurement of these commodities, a framework arrangement or an electronic reverse auction may be used, as contracts may involve multiple awards for partial quantities; in order to assure the security of supply, take advantage of market conditions, and keep inventories low.212 H. Community Driven Development A community driven development arrangement involves a call for the participation of local communities and or local non-governmental organisations in a Bank-funded project.213 This is done to achieve specific project objectives or to increase project sustainability. Under such an arrangement, the procurement methods used to achieve these objectives will still be required to meet the Bank’s value for money policy and be acceptable to the Bank. Community driven procurements envisage a large number of small value contracts and works scattered in remote areas. The procurement methods to be used include RFQ, local competitive bidding, direct contracting and the use of community labour and resources.214 I. Force Accounts Force account refers to work performed by a procuring authority using its own ‘forces’.215 A force account unit is a government owned construction unit that is not managerially, legally or financially autonomous.216 A force account procurement occurs when the provision or works and non- consulting services is provided by a government department in the borrower country, using its own personnel and equipment.217 Another way of describing it is the direct performance of a contract by the borrower. In such cases, the borrower provides the supervision, materials, labour and equipment.218

212

ibid, Annex XII, paras 6.7–6.8. ibid, para 6.52. 214 ibid, Annex XII, para 6.9. 215 See S Keoki Sears, GA Sears, RH Clough, JL Rounds and RO Segner Jr, Construction Project Management: A Practical Guide to Field Construction Management, 6th edn (Hoboken, John Wiley & Sons, 2015) 12. 216 Procurement Regulations for Borrowers, para 6.54. 217 ibid, para 6.54 218 Keoki Sears, Sears, Clough, Rounds and Segner Jr, Construction Project Management, n 215 above, 12. 213

140 Value for Money, Competition and Selection Force account has parallels in domestic jurisdictions and is referred to as in-house contracting in the UK.219 Under the procurement regulations, a reliance on a force account is only permitted in circumstances where: (a) the quantities of construction and installation works that are involved cannot be defined in advance; (b) the construction and installation works are small and scattered or in remote locations, so that qualified construction forms are unlikely to bid at reasonable prices; (c) the construction and installation works are required to be carried out without disrupting ongoing operations; (d) the risks of unavoidable work interruption are better borne by the Borrower than by a contractor; (e) specialised non-consulting services such as aerial surveys and mapping as a matter of the Borrower’s law or official regulations, can only be carried out by specialised branches of the government; or (f) urgent repairs are needed requiring prompt attention to prevent further damage, or works need to be carried out in conflict affected areas where private firms may not be interested.220 J. Framework Agreements Framework agreements may be defined as long-term agreements with contractors, which set out the terms and conditions under which specific purchases can be made throughout the term of an agreement.221 The Bank procurement regulations define them as ‘an agreement with one or more firms that establishes the terms and conditions that will govern any contract awarded during the term of the framework agreement (a call off contract)’.222 Framework agreements are appropriate when: (a) there is frequent re-ordering based on the same (or similar) set of specifications;

219 See Public Contracts Regulations, SI 2015/102, reg 12; Risk Management Partners v London Borough of Brent [2011] UKSC 7. 220 Procurement Regulations for Borrowers, para 6.55. 221 Office of Government Commerce, Framework Agreements (September 2008). In the USA, framework agreements are referred to as Indefinite Delivery/Indefinite Quantity Contracts (ID/IQ) contracts. See D Kassel, Managing Public Sector Projects: A Strategic Framework for Success in an Era of Downsized Government (Boca Raton, CRC Press, 2010) 80. 222 Procurement Regulations for Borrowers, para 6.57.

Selection and Contractual Arrangements 141 (b) different entities of the borrower procure the same goods, works, and non-consulting services and aggregating the demand could potentially lead to volume discounts; (c) emergency situations/crisis planning (such as for natural disasters); and (d) no single firm is considered to have sufficient capacity.223 Framework agreements are implemented after the completion of the initial processes in the procurement cycle viz, the identification of interested persons, prequalification and setting contractual terms224 in advance of particular orders. They are used in domestic systems for purchasing standardised goods, or in any case, goods for which very clear specifications can be issued.225 Framework agreements generally envisage two competitions: the first, which selects the contractors that will be part of the overall framework agreement and the second, which awards specific contracts based on the framework.226 Under the procurement regulations, the first competition will be conducted using an appropriate competitive selection method and the second competition, which is termed a ‘call-off’, is used to award a contract for fixed quantities or for a definite service.227 Note that a framework agreement may only last for three years, with a right of renewal for a further two years, if the initial engagement was satisfactory.228 K. Performance-based Contracts The procurement regulations describe performance-based contracts as contractual arrangements where payment is made for measured outputs or performance targets instead of inputs.229 The outputs aim at satisfying

223

ibid, para 6.58. Arrowsmith, Treumer, Fejø and Jiang, Public Procurement Regulation, n 8 above, 115. 225 See D Gordon and J Kang, ‘Task Order Contracting in the US Federal System: The Current System and its Historical Context’ in Arrowsmith (ed) Public Procurement Regulation in the 21st Century, above n 205, Chapter 5; S Arrowsmith, ‘Methods for Purchasing On-Going Requirements: The System of Framework Agreements and Dynamic Purchasing Systems under the EC Directives and UK Procurement Regulations,’ in Arrowsmith (ed) Public Procurement Regulation in the 21st Century, n 205 above, Ch 3; S Karangizi, ‘Frameworks Arrangements in Public Procurement: A Perspective from Africa’ in Arrowsmith (ed), Public Procurement Regulation in the 21st Century, n 205 above, Ch 6. 226 AS Graells, Public Procurement and the European Competition Rules, n 41 above, 355–56. See also K Horska, ‘Curbing the World Bank’s Problems with Patronage and Corruption through the Use of Open Framework Agreements’ (2010) 39(3) Public Contract Law Journal 679. 227 Procurement Regulations for Borrowers, Annex XV, para 4.1. 228 ibid, Annex XV, para 4.2. 229 ibid, para 6.60. 224

142 Value for Money, Competition and Selection functional needs in terms of quality, quantity and reliability. Performancebased contracts are useful for the rehabilitation of roads and the operation and maintenance of roads by the contractor for specified periods.230 In performance-based contracting, the contractor is essentially given a specific performance goal to meet, instead of a set of detailed design specifications.231 The contractor is not instructed on how it should perform or what process to use, but is only given direction on what should be accomplished.232 Payment is then made on the basis of these accomplishments. Research in the US illustrates that performance-based contracting leads to lower prices and an increase in procuring authority satisfaction and corresponding increases in the quality of the work provided.233 It is thus a useful tool for achieving value for money in so far as the borrower can properly monitor the contract. However, these types of contracts may also be prone to abuse, given the ambiguity of the criteria.234 VIII. CONCLUSION

This chapter has attempted to clarify the importance of value for money and competition in funded procurements and to highlight the reliance on competitive contract procedures to achieve these objectives. It has been seen that the Bank relies on a wide range of competitive procedures and market approaches to maximise competition in funded contracts. However, as discussed, in appropriate cases, such as emergencies, non-competitive procurement methods are also permitted within narrowly defined limits.

230

ibid, para 6.61. Pegnato, ‘Assessing Federal Procurement Reform: Has the Procurement Pendulum Stopped Swinging?’ in KV Thai (ed), International Handbook of Public Procurement (Boca Raton, CRC Press, 2009) 74. 232 ibid. 233 ibid. 234 See N Caldwell, E Bakker and JJD Read, ‘The Purchasing Process in Public Procurement’ in L Knight, C Harland, J Telgen, KV Thai, G Callender and K McKen (eds), Public Procurement: International Cases and Commentary (Abingdon, Routledge, 2007) 153. 231 JA

7 Secondary (Sustainability) Concerns in MDB Procurement I. INTRODUCTION

T

HIS CHAPTER EXAMINES secondary concerns in public procurement in the MDBs, with a focus on the World Bank. What is also referred to as ‘horizontal’ or ‘collateral’ policies in public procurement, ie non-primary or non-vertical concerns that are considered in procurement decision-making such as industrial, social, and environmental issues also factor in the procurement regulation of the development banks.1 This chapter considers the nature, scope and limits to including secondary concerns in procurements financed by these institutions. The chapter briefly examines the use of secondary policies in other international procurement instruments and also the rationale and the implementation of these policies in the MDBs. Note that the chapter does not, however, consider issues that pertain to the environmental impact of MDB policies, programmes or projects,2 but is limited to a consideration of secondary criteria in funded contracts. II. SECONDARY CONCERNS IN PUBLIC PROCUREMENT: MEANING

Secondary issues in public procurement could take the form of industrial, environmental, social and other factors that will form part of the selection criteria and process in public procurement. Given the large sums of money

1 The aforementioned concerns are often referred to as ‘first-generation policies’, to differentiate them from newer concerns such as innovation in public procurement. See generally G Quinot, ‘Innovation, State Contracting and Public Procurement Law’ (2015) 7 Trade, Law and Development 230. 2 The environmental impact of Bank operations is addressed through the Bank’s environmental and social safeguard policies, which are designed to ensure that Bank operations do not harm people or the environment. The Bank has policies on environmental assessment, which cover issues from natural habitats to indigenous peoples. For more information see K Huyser, ‘Sustainable Development: Rhetoric and Reform at the World Bank’ (1991) 4(1) Transnational Law and Contemporary Problems 253.

144 Secondary Concerns in MDB Procurement involved in public procurement, most national jurisdictions use public contracting as a tool to ensure compliance with secondary or non-commercial goals.3 In an early analysis of secondary concerns in procurement, it was stated in reference to procurement spend in the USA that: when a single purchaser spends that much money in the market, the act of doing so creates social, economic and political situations. Thus, the choice before the Government is, in a sense, not whether it should burden its procurement processes with specific attention to social, economic, and political goals. It is instead determining which social, economic and political purposes to pursue.4

As discussed by Graells, public procurement is a very relevant tool of public expense, and consequently an important instrument of macroeconomic policy with which the government tries to influence behaviour and infuse growth in communities and economic sectors.5 The term ‘secondary goals’ arises in contradistinction to the ‘primary’ goals of public procurement, which are commonly discussed as value for money, transparency, efficiency, and integrity.6 In essence, when we talk of secondary goals, we are referring to the non-commercial considerations that feature in the decision to purchase goods, services, or works by a public authority. The use of procurement to achieve secondary objectives has had a long history in a good number of jurisdictions such as the UK, the EU, the US, South Africa, Malaysia, Canada, Germany, Australia, and Northern Ireland.7 In the UK, the government has used its contractual power to achieve its ‘regulatory ends’8 at least since 1891 by requiring government contractors to comply with the fair labour standards resolution of the House 3 TM Arnaiz, ‘Social Considerations in Spanish Public Procurement Law’ (2011) 2 Public Procurement Law Review 56–79. See also E Fisher, ‘The Power of Purchase: Addressing Sustainability through Public Procurement (2013) 1 European Procurement and Public & Private Partnership Law Review 2. 4 HR Van Cleve Jr, ‘The Use of Federal Procurement to Achieve National Goals’ (1961) Wisconsin Law Review 566, 568. 5 AS Graells, Public Procurement and the EU Competition Rules 1st edn (London, Hart Publishing, 2011), 48. 6 See S Schooner, ‘Desiderata: Objectives for a System of Government Contract Laws’ (2002) 11 Public Procurement Law Review 103–10; O Dekel, ‘The Legal Theory of Competitive Bidding for Government Contracts’ (2008) Public Contract Law Journal 237; S Arrowsmith, J Linarelli and D Wallace, Regulating Public Procurement: National and International Perspectives (London, Kluwer Law International, 2000), Ch 1. 7 C McCrudden, Buying Social Justice: Equality, Government Procurement and Legal Change (Oxford, Oxford University Press, 2007). See JG Terrell, Background Paper Review of the World Bank’s Procurement Policies and Procedures, Green Procurement in Selected Environmental Policy Frameworks (Washington DC, The World Bank, 2012). Available at consultations.worldbank.org/Data/hub/files/meetings/Procurement_Policies/WBBackgroundGreenProcurement.pdf. See also SW Feldman and WN Keyes, Government Contracts in a Nutshell, 5th edn (Eagan, West Publishing Co, 2011), Ch 19. 8 H Street, Government Liability: A Comparative Study (Cambridge, Cambridge University Press, 1953) 82.

Secondary Concerns in Public Procurement: Meaning 145 of Commons.9 In his comprehensive book on the subject, McCrudden traces the formal use of public contracts as an avenue to address social issues in the UK to the First World War, when the British government introduced a programme for providing work to disabled ex-servicemen, using government contracts.10 There is a plethora of information on the rationale, history and legal approaches on the use of government contracts in this way,11 and this chapter contributes to this discourse by focusing on the use of secondary or horizontal linkages in the public procurement of MDBs. There are different ways of defining the use of secondary objectives in public procurement. Arrowsmith and Kunzlik define it as the use of public procurement to promote social, environmental and other societal objectives that are not necessarily connected with the functional objective of a specific procurement, but which the procuring body chooses, or is required, to advance in the context of its procurement contracts.12 Graells on his part, realises that public procurement is one of the many instruments that is available to foster economic development and the achievement of political goals.13 It may be noted at this juncture that the secondary goals that are chosen to be implemented through public procurement; as well as the choice to use public procurement as the device to achieve these goals, instead of alternative tools such as taxation, subsidies or grants, is a politically motivated decision and depends to a large extent on prevailing domestic and international political views.14 Thus, in most jurisdictions, environmental policies are expressly pursued through public procurement in response to the science of climate change and the international ‘green’ agenda.15 A simple definition of secondary policies in public procurement given by McCrudden is ‘the use of government funds…to achieve social goals’.16

9 O Kahn-Freud, ‘Legislation through Adjudication: The Legal Aspect of Fair Wages Clauses and Recognised Conditions’ (1948) 11 Modern Law Review 269, 272. 10 McCrudden, Buying Social Justice, n 7 above, 4. 11 HR Van Cleve Jr., ‘The Use of Federal Procurement to Achieve National Goals’ (1961) Wisconsin Law Review 566, 568; McCrudden, Buying Social Justice, n 7 above; S Arrowsmith and P Kunzlik, ‘Public Procurement and Horizontal Policies in EC Law: General Principles’ in S Arrowsmith and P Kunzlik (eds), Social and Environmental Policies in EC Procurement Law: New Directives and New Directions (Cambridge, Cambridge University Press, 2009); R Caranta and M Trybus, The Law of Green and Social Procurement in Europe (Djøf Publishing, Copenhagen, 2010); S Morettini, ‘Public Procurement and Secondary Policies in EU and Global Administrative Law’ in E Chiti and BG Mattarella (eds), Global Administrative Law and EU Administrative Law (New York, Springer, 2011); G Piga and T Tatrai, Public Procurement Policy (Abingdon, Routledge, 2016). 12 S Arrowsmith and P Kunzlik, ‘Public Procurement and Horizontal Policies’ n 11 above. 13 Graells, Public Procurement and EU Competition Rules, n 5 above, 49. 14 ibid. 15 See for instance, European Commission, Buying Green! A Handbook on Green Public Procurement, 3rd edn. (Luxembourg, European Union, 2016). 16 McCrudden, Buying Social Justice, n 7 above, 2.

146 Secondary Concerns in MDB Procurement However, social goals are not the only goals that procurement may be used to achieve, and the existing literature has identified five principal goals that could be advanced using public procurement. These are: (i)

economic goals: ie to stimulate economic activity, protect national industries against foreign competition, to improve the competitiveness of certain industrial sectors; (ii) social goals: ie to remedy regional or ethnic disparities, to assist certain disadvantaged groups in society (women, the disabled, minorities etc); (iii) environmental goals: ie to ensure that public procurement supports goods that are manufactured in an environmentally friendly or sustainable way or can be disposed of in a sustainable way;17 (iv) policy goals: ie to create jobs, promote fair labour conditions; and (v) political goals: ie to support the advancement of a political cause or ideology.18 Arrowsmith provides a useful taxonomy for understanding secondary policies in public procurement, especially in terms of understanding what these policies seek to achieve.19 According to her, public procurement could first be used to secure contractor compliance with existing legal requirements, or secure compliance that goes beyond the general legal rules. Here, public procurement eligibility criteria could disqualify bidders who for instance do not pay taxes, or who pay their workers minimum wages, or do not meet certain environmental management standards.20 Second, public procurement could be used to ensure that the performance of a public contract is in accordance with legislation or public policy. For instance, a requirement that contractors produce goods in an environmentally friendly manner or produce goods that do not have certain chemicals. Other requirements could be that contractors pay employees involved in the performance of a public contract a fair wage or employ female or disabled workers.21

17 See European Commission, Communication from the Commission to the European Parliament, The European Economic and Social Committee and the Committee of the Regions, Public Procurement for a Better Environment 16 July 2008 (COM (2008) 400), para 3.1. 18 See generally, McCrudden, Buying Social Justice, n 7 above, Ch 2 and the papers cited therein. 19 See S Arrowsmith, ‘A Taxonomy of Horizaontal Policies in Public Procurement’ in Arrowsmith and Kunzlik (eds), Social and Environmental Policies in EC Procurement Law, n 11 above. See also Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, Ch 5; and S Arrowsmith, ‘Horizontal Policies in Public Procurement: A Taxonomy’ (2010) 10 Journal of Public Procurement 127, 149. 20 Arrowsmith ‘A Taxonomy of Horizontal Policies’, n 19 above, 146–49. 21 ibid.

Secondary Concerns in Public Procurement: Meaning 147 Third, public procurement could be used to expand a policy in the sense of expanding the effectiveness of a policy, such as policy that favours minorities or a policy to redress inequities of any kind.22 There are many ways of incorporating secondary concerns into public procurement. It is often a requirement that the secondary considerations be clearly stated in bidding and specification documents, and in relation to environmental criteria, they are usually required to be linked to the subject matter of the contract. In addition, the inclusion of secondary criteria must still represent value for money to the contracting authority. It will be seen later that these requirements as implemented in domestic procurement are mirrored by the Bank in its own approach to secondary concerns under its procurement regulations. According to Arrowsmith, there are nine different mechanisms by which secondary polices may be implemented within a procurement framework;23 although only the six most commonly used mechanisms will be re-examined here. In her view, secondary criteria could first affect the decision to purchase in terms of whether the procuring authority buys at all, or what it buys. Second, secondary criteria could be included in the specifications of the contract or the contractual requirements as established by the procuring authority.24 The implementation of secondary criteria in this way is ubiquitous in developing and developed countries and the Bank also permits this approach. Third, procurement regulations could exclude or disqualify contractors that do not meet specified secondary criteria. In this regard, prequalification or qualification requirements could include the specified secondary criteria.25 Fourth, secondary criteria may be included in a procurement process as evaluation criteria, where a weighting is given to the secondary criteria and it is weighted along the other traditional (or commercial) criteria such as price, quality or functionality.26 As will be seen below, this is one of the methods that is prescribed by the Bank for borrowers wishing to include secondary criteria in Bank-funded procurements. Fifth, public procurement rules could provide price preferences or other kinds of preferential treatment (such as set-asides) to contractors that meet the specified secondary criteria; so for instance, a percentage of contracts could be set aside to be awarded to small businesses, or businesses that meet other criteria. For instance, in South Africa, preferences apply to businesses that employ or are owned by groups historically disadvantaged by apartheid.27 22 ibid.

23 ibid, 127–46. See also R Watermeyer, ‘Facilitating Sustainable Development through Public and Donor Procurement Regimes: Tools and Techniques’ (2004) 13(1) Public Procurement Law Review 30, 43. 24 Arrowsmith, ‘A Taxonomy of Horizontal Policies’ n 19 above, 127–46. 25 ibid. 26 Watermeyer, ‘Facilitating Sustainable Development’, n 23 above, 43–44. 27 See P Bolton, The Law of Government Procurement in South Africa (Cape Town, LexisNexis Butterworths, 2007), Ch 10.

148 Secondary Concerns in MDB Procurement Finally, procurement regulation may also permit secondary criteria to be included as contract conditions to the extent that non-performance of these conditions will amount to a breach of contract.28 As will be seen, the World Bank also permits this approach. III. SECONDARY POLICIES IN OTHER JURISDICTIONS: A SYNOPSIS

As was discussed in section II above, the incorporation of secondary criteria into the procurement process is pervasive in domestic procurement, and there has been an expansion of the content of these policies over the last two decades. One of the changes to the Bank’s procurement framework that has been discussed is the articulation of the Bank’s procurement vision ‘to support Borrowers to achieve value for money with integrity in delivering sustainable development’. This illustrates that sustainability issues are intended to be a central theme of Bank-funded procurement. The 2016 procurement regulations, provide that ‘If agreed with the Bank, Borrowers may include sustainability requirements in the procurement process, including their own sustainable procurement policy requirements where these are applied in ways that are consistent with the Banks core procurement principles’.29 The revision and the expansion of the nomenclature on secondary concerns to include sustainability issues represents quite a departure from the 2011 version of the Bank’s procurement guidelines, which has a much narrower focus. The Bank’s new approach to secondary concerns is evidence of a global movement towards an increasing reliance on procurement as a tool for sustainability, and an increasing awareness of the public sector’s environmental impact and responsibility for sustainable purchasing and consumption.30 As will be seen, many of the existing multilateral instruments on public procurement regulation contain provisions which explicitly advance environmental and other goals and the Bank is merely responding to global changes in public procurement. For instance, the EU defines green procurement as ‘a process whereby public authorities seek to procure goods, services and works with a reduced environmental impact throughout their life-cycle when compared to goods,

28

Arrowsmith, ‘A Taxonomy of Horizontal Policies’, n 19 above. Procurement Regulations for Borrowers, para 5.12. 30 The EU procurement directives call for a tender evaluation approach that includes a lifecycle costing approach. See para 96, EU Procurement Directives and art 68. See McCrudden, Buying Social Justice, n 7 above; R Caranta, ‘Sustainable Public Procurement in the EU’ in Caranta and Trybus (eds), The Law of Green and Social Procurement in the EU, n 11 above. See also G Quinot, ‘Promotion of Social Policy through Public Procurement in Africa’ in G Quinot and S Arrowsmith (eds), Public Procurement Regulation in Africa (Cambridge, Cambridge University Press, 2013). 29

Secondary Policies in Other Jurisdictions: A Synopsis 149 services and works with the same primary function that would otherwise be procured’.31 In addition, the Europe 2020 strategy document32 identified public procurement as one of the market-based instruments to be used to achieve ‘smart, sustainable and inclusive growth’ in Europe.33 In line with this thinking, the preamble to the EU Procurement Directives, provide that public procurement should be used to ‘facilitate the participation of small and medium enterprises in public procurement and enable procurers to make better use of public procurement in support of common societal goals’.34 The directives thus expressly permit the use of technical specifications that include secondary criteria in so far as those specifications are not discriminatory, and afford equal access to the procurement procedure.35 There is extensive literature and case law in the EU, which clarifies the use of environmental criteria in public procurement,36 which will not be examined here; suffice it to say that when secondary criteria are included in the technical specifications for a contract, they shall not refer to a specific make or source, or to a particular process that is characteristic of a particular bidder, or to trademarks or patents which will eliminate certain bidders. Where such references are made (on an exceptional basis), they shall be accompanied by the words ‘or equivalent’.37 Similarly, the UNCITRAL Model Law on procurement permits States to take into account socio-economic policies, defined as ‘environmental, social, economic and other policies…authorized or required by the procurement regulations or other provisions of the law…to be taken into account by the procuring entity in the procurement proceedings’.38 The Model Law further provides that evaluation criteria may include any criteria that the procurement regulations or other provisions of the law of this State authorise or require to be taken into account39 and specifically provides that the evaluation criteria in domestic procurement may include ‘…the environmental characteristics of the subject matter…’.40

31

EU Communication on Green Public Procurement 2008, n 17 above, para 3.1. Commission, Communication from the Commission Europe 2020, A Strategy for Smart, Sustainable and Inclusive Growth 3 March 2010, COM (2010). 33 ibid, para 2. 34 See Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC [2014] OJ L94/65, para 3. 35 EU Procurement Directives, art 42. 36 Arrowsmith and Kunzlik, Social and Environmental Policies in EC Procurement Law, n 11 above; Caranta and Trybus, The Law of Green and Social Procurement in Europe, n 11 above; McCrudden, Buying Social Justice, n 7 above, chs 10–13. See for instance, Case C-488/01 EVN AG and Wienstrom GmbH v Republik Österreich. [2003] ECR I-14527; Concordia Bus Finland Oy Ab, formerly Stagecoach Finland Oy Ab v Helsingin kaupunki and HKL-Bussiliikenne [2002] ECR I-7213. 37 EU Procurement Directives, art 42(4). 38 UNCITRAL Model Law on Procurement, art 2(o). 39 ibid, art 11(3)(a). 40 ibid, art 11(2). 32 European

150 Secondary Concerns in MDB Procurement As is the case under the EU directives, the Model Law also cautions against a requirement for a particular trademark or trade name, patent, design or type of specific origin or producer; unless there is ‘no sufficiently precise or intelligible way of describing the characteristics of the subject matter of the procurement and provided that words such as “or equivalent” are included’.41 The Model Law also permits, within a very limited scope, the use of procurement for industrial development through a domestic preference in favour of domestic suppliers or for domestically produced goods.42 The WTO’s revised Government Procurement Agreement (GPA) contains provisions on secondary policies43 that are similar in scope to the provisions of the UNCITRAL Model Law, with additional provisions that apply to the peculiar needs of developing countries.44 Thus, the GPA provides, in art V, that a developing country may adopt price preference programmes and offsets in its procurement on the basis that these measures are only adopted for a limited time. The GPA also provides that a party may adopt or apply technical specifications to promote the conservation of natural resources or protect the environment.45 This clearly covers the use of environmentally friendly procurement, with the caveat that technical specifications must not be used to create an unnecessary obstacle to international trade. Further, where design or descriptive characteristics are used in technical specifications, a party must indicate that it will consider bids that demonstrably fulfil the requirements of the procurement by including words such as ‘or equivalent’ in tender documentation.46 It is likely that future revisions of the GPA may expand its sustainable procurement provisions as the GPA has committed to the adoption of a future work programme to examine the treatment of sustainable procurement.47 41

ibid, art 10(4). ibid, art 11(3)(b). 43 For the literature on the applicability of secondary polices under the GPA see S Arrowsmith and RD Anderson, The WTO Regime on Government Procurement: Challenge and Reform (Cambridge, Cambridge University Press, 2011), Chs 14–16; S Arrowsmith, Government Procurement in the WTO (London, Kluwer Law International, 2003), Ch 13; S Arrowsmith, ‘Public Procurement as a Tool of Policy and the Impact of Market Liberalisation’ (1995) 111 Law Quarterly Review 235; McCrudden, ‘Buying Social Justice’, n 7 above, Ch 8; P Kunzlik, ‘Environmental Issues in International Procurement’ in S Arrowsmith and A Davies (eds), Public Procurement: Global Revolution (London, Kluwer Law International, 1999); Morettini. ‘Public Procurement and Secondary Policies in EU and Global Administrative Law’, n 11 above. 44 Arrowsmith and Anderson, The WTO Regime on Government Procurement: Challenge and Reform, n 43 above. 45 Government Procurement Agreement 2011, art X. 46 ibid, art X(3). 47 ibid, art XXII (8)(a)(iii). On 30 March 2012, the Committee on Government Procurement issued a decision on a Work Programme on Sustainable Procurement, which provides that the work programme shall examine, inter alia: 42

(a)

the objectives of sustainable procurement;

Secondary Policies in Other Jurisdictions: A Synopsis 151 Apart from the international agreements on public procurement, domestic jurisdictions have also relied on secondary concerns in procurement. One domestic jurisdiction that has a long tradition of using public procurement to achieve secondary goals is the US. The controversial Buy American Act of 193348 essentially requires public agencies to prefer US-made goods in their purchases and provides that: only unmanufactured articles, materials and supplies that have been mined or produced in the United States and only manufactured articles, materials and supplies that have been manufactured in the United States substantially all from articles, materials or supplies mined, produced or manufactured in the United States, shall be acquired for public use unless the head of the department or independent establishment concerned determines their acquisition to be inconsistent with the public interest or their cost to be unreasonable.49

Other US statutes that contain restrictions on the purchase of non-US goods include the confusingly named Buy America Act of 1983,50 which provides for preferences for the use of US manufactured materials in mass-transit related procurements; and the Competition in Contracting Act 1984,51 which permits US procuring agencies to restrict competition to achieve industrial mobilisation objectives. In addition, the Small Business Act of 195352 provides for set-asides for small businesses to ensure that such businesses obtain a proportion of public contracts.53 These are, however, not the only statutes that apply to secondary criteria and there are several other statutes which apply to particular sectors.54 (b) (c) (d)

the ways in which the concept of sustainable procurement is integrated into national and sub-national procurement policies; the ways in which sustainable procurement can be practiced in a manner consistent with the principle of ‘best value for money’; and the ways in which sustainable procurement can be practiced in a manner consistent with Parties’ international trade obligations. See Annex E to Appendix 2 of the Decision on the Outcomes of the Negotiations Under Article XXIV:7 of the Agreement on Government Procurement, adopted on 30 March 2012 (GPA/113, p. 444). Available at www.wto.org.

48

41 USC §§ 8301–8305. § 8302(a)(1). 50 49 USC § 5323. 51 41 USC 253. 52 15 USC 633. 53 For a review and criticism of this legislation see AM Cullen, ‘The Small Business Set-Aside Program: Where Achievement Means Consistently Failing to Meet Small Business Contracting Goals’ (2012) 41(3) Public Contract Law Journal 703. See also K Mee, ‘Improving Opportunities for Women-Owned Small Businesses in Federal Contracting: Current Efforts, Remaining Challenges and Proposals for the Future’ (2012) 41(3) Public Contract Law Journal 721; T Taylor, ‘The End of an Era? How Affirmative Action in Government Contracting can Survive after Rothe’ (2010) 39(4) Public Contract Law Journal 853. 49

54 MJ Golub and SL Fenske, ‘US Government Procurement: Opportunities and Obstacles for Foreign Contractors’ (1987) 20 The George Washington Journal of International Law and Economics 573–82. See also McCrudden, Buying Social Justice, n 7 above, chs 6–7.

152 Secondary Concerns in MDB Procurement Still on the US, the Federal Acquisition Regulations (FAR), provide for ‘sustainable acquisition’, which is defined as ‘acquiring goods and services in order to create and maintain conditions (1) under which humans and nature can exist in productive harmony and (2) that permit fulfilling the social, economic and other requirements of present and future generations’.55 In furtherance of this, there is a policy thrust, which supports the use of public procurement to: improve the quality of the environment, to foster markets for sustainable technologies, materials, products and services and encouraging safe operation of vehicles by– (a) Reducing or preventing pollution; (b) Managing efficiently and reducing energy and water use in Government facilities; (c) Using renewable energy and renewable energy technologies; (d) Acquiring energy-efficient and water-efficient products and services, environmentally preferable…products, products containing recovered materials, non-ozone depleting products and biobased products; (e) Requiring contractors to identify hazardous material; (f) Encouraging contractors to adopt and enforce policies than ban text messages while driving and (g) Requiring contractors to comply with agency environmental management systems.56

To this end, federal agencies are required to ensure that 95 per cent of new contracts shall advance the sustainable acquisition policy.57 The sustainable procurement policy also applies to all procurements, with very limited exceptions.58 By this requirement, the US has essentially mainstreamed sustainable procurement59 in its federal procurement practices and the FAR contains extensive provisions on the kinds of purchases that qualify under the sustainable procurement policy.60 55

FAR 2.101. FAR 23.000. 57 FAR 23.103. 58 FAR 23.202, FAR 23.104 and FAR 23.105. The main exemptions apply to contracts performed outside the US and contracts for weapons systems. 59 For the literature on sustainable practices in US procurement see J Agyeman, RD Bullard and B Evans, ‘Exploring the Nexus: Bringing Together Sustainability, Environmental Justice and Equity’ (2002) 6 Space and Polity 77; DM Conway, ‘Sustainable Procurement Policies and Practices at the State and Local Government Level’, in KH Hirokawa and PE Salkin (eds), Greening Local Government: Legal Strategies for Promoting Sustainability, Efficiency and Fiscal Savings (Chicago, American Bar Association, 2013); M Roseland, Toward Sustainable Communities, 4th edn (Abingdon, Routledge, 2012); L Silva, ‘The Problems with Using Renewable Energy Certificates to meet Federal Renewable Energy Requirements’ (2012) 41(4) Public Contract Law Journal 985. 60 The US also maintains a policy of sustainability in building design, construction and architect-engineer services. See FAR 36 and PE Tolan Jr, ‘Going-Going-Green: Strategies for Fostering Sustainable New Federal Buildings’ (2012) 41(2) Public Contract Law Journal 233. 56

The World Bank and Secondary Policies: Rationale 153 IV. THE WORLD BANK AND SECONDARY POLICIES: RATIONALE

To understand why secondary policies may feature within the Bank procurement framework, one needs to examine the Bank’s Articles of Agreement, which provide the rationale for the establishment of the Bank and an indication as to why secondary policies (in the narrow or broad sense) feature in Bank procurement. Article I of the IBRD Articles of Agreement provides that the purpose of the Bank is: To promote the long-ranged balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment for the development of the productive resources of members, thereby assisting in raising productivity, the standard of living and conditions of labor in their territories.

It is not difficult to see that this provision is broad enough to grant legitimacy to the Bank’s incorporation of secondary policies within its procurement framework, especially the narrow approach to these issues that prevailed under the 2011 procurement guidelines. There are three issues that arise in relation to secondary policies in Bank funded contracts. The first is whether the Bank permits borrowers to use funded procurements to achieve secondary goals—the answer to this is yes. Under the 2016 procurement regulations, borrowers are allowed to include what the Bank terms ‘sustainability requirements’ in project planning documents, and once approved, these requirements may be included in qualification and bidding documents, as long as these requirements can be justified and do not contradict the Bank’s core procurement principles. The second issue is whether the Bank requires borrowers to take these issues into account? The answer here is clearly no; in spite of the Bank’s recognition of these issues as important development issues,61 the 2016 procurement regulations clearly indicate that the inclusion of sustainability requirements is not mandatory.62 Despite the utility of procurement for achieving secondary goals, in the Bank context where borrower agencies are often faced with a lack of institutional capacity,63 requiring borrowers to include what may often be complex specifications to take into account secondary goals may thwart their ability to properly conduct the procurement process.64 This is a real concern and one that requires significant attention

61 See Morettini, ‘Public Procurement and Secondary Policies in EU and Global Administrative Law’, n 11 above. 62 Procurement Regulations for Borrowers, Annex VII, para 1.1. 63 See Arrowsmith, Linelli and Wallace, Regulating Public Procurement, n 6 above, 114. 64 S Lundberg and PO Marklund, ‘Green Public Procurement as an Environmental Policy Instrument: Cost-Effectiveness’ (2013) 4(4) Environmental Economics 75, which highlighted that the inclusion of green criteria into the award procedure (through scoring rules) increases the complexity of the procurement process.

154 Secondary Concerns in MDB Procurement by the Bank where a borrower does include sustainability requirements in its procurement strategy document. Third, one may then ask the question why the Bank, which is a nonstate entity will pursue concerns that may not be directly related to attaining value for money or meeting the developmental objectives of the project being financed by the Bank. The answer to this is both simple and complex. The simple answer is that the Bank is a developmental institution with the mission of ‘ending extreme poverty within a generation and promoting shared prosperity’.65 The Bank’s focus is on reducing inequalities and pushing for greater equity in developing countries by promoting the income growth of the bottom 40 per cent of the population in each country.66 Thus, permitting secondary concerns in Bank-funded projects is in alignment with the Bank’s overarching mission of poverty reduction and the promotion of equity in developing countries. The more complex rationale as to why the Bank permits secondary concerns in funded contracts can be traced to the history of the Bank. In the first place, the Bank was conceived as a public sector institution;67 a multilateral institution owned and governed by national governments. Its clients are governments, but the Bank was not owned by any one of them.68 As a creation of governments, and as an institution that was created to minister to the needs of States, the Bank was always going to be likely to take into account the desires of States in spending Bank funds, as long as those desires did not conflict with the Bank’s Articles of Agreement. Thus, if those desires included secondary concerns in public procurement, the Bank would be bound to cater to these desires. Second, early in the Bank’s history, project lending (ie the funding of specific projects) was adopted as the Bank’s formula for its intervention in development.69 The discrete, ‘identifiable and assessable’ nature of these projects meant that the impact of secondary concerns on such projects could be adequately measured and quantified and the detrimental impact on the project, if any could be determined, and a decision made on that basis.

65

See www.worldbank.org. See www.worldbank.org. 67 Despite the fact that the Bank in the early days relied heavily on private sector funds. See D Kapur, JP Lewis and R Webb, The World Bank: Its First Half Century (Vol 1: History) (Washington DC, Brookings Institution, 1997), Ch 1. See also World Bank, World Bank Historical Chronology, available at www.worldbank.org, 8. 68 Kapur, Lewis and Webb, The World Bank: Its First Half Century, n 67 above, Ch 1. 69 ibid. 66

The Implementation of Secondary Policies 155 V. THE IMPLEMENTATION OF SECONDARY POLICIES IN THE WORLD BANK

As can be seen from the above synopsis, the inclusion of secondary criteria in public procurement is a feature of the major international regulatory frameworks on procurement and the Bank is no exception to this. As stated above, the 2016 Bank regulations provide that ‘Borrowers may include sustainability requirements in the procurement process, including their own sustainable procurement policy requirements where these are applied in ways that are consistent with the Banks core procurement principles’.70 Thus, the inclusion of secondary or sustainability considerations must be in accordance with the Bank’s principles and where this is not the case, the borrower will not be permitted to include those considerations in Bank funded procurement. Before examining the methods by which secondary concerns may be included in Bank-funded procurement, it may be noted that in the 2011 and 1999 versions of the Bank’s procurement guidelines, secondary concerns were included in the Bank’s regulations in two ways. First, the provisions on evaluation of bids permitted the inclusion of various criteria at the evaluation stage, which included secondary criteria. Thus, the guidelines provided: Bidding documents shall also specify the relevant factors, in addition to price to be considered in bid evaluation, and the manner in which they will be applied for the purpose of determining the lowest evaluated bid. For goods and equipment, other factors may be taken into consideration including among others…environmental benefits. The factors other than price to be used for determining the lowest evaluated bid shall, to the extent practicable, be expressed in monetary terms given a relative weight in the evaluation provisions in the bidding documents in the evaluation provisions of the bidding documents.71

From the above, it can be seen that a wide range of criteria could be taken into account as evaluation criteria and although the provisions expressly mentioned environmental benefits, they are wide enough to include other non-environmental secondary criteria. Second, the guidelines also explicitly provided for the inclusion of industrial concerns and provided for a price preference for goods manufactured in the borrower country or works provided by eligible domestic contractors.72 Price preferences were introduced in the Bank in 1965 and ‘represented an effort to reconcile concerns for the development of local industry and the

70

Procurement Regulations for Borrowers, para 5.12. Bank, Guidelines: Procurement under IBRD Loans and IDA Credits Bank Procurement Guidelines (Washington DC, World Bank, 1999), para 2.51; Bank Procurement Guidelines (2011), para 2.52. 72 Bank Procurement Guidelines (2011), para 2.55. 71 World

156 Secondary Concerns in MDB Procurement contribution of the project to domestic development, with considerations of efficiency and international fairness and cooperation’.73 The aim of these preferences is to ensure that goods manufactured in the borrower country could compete favourably with goods manufactured abroad in the Bank-funded contract. The 2011 procurement guidelines provided that for the purposes of domestic preferences, bids offered under a Bank-funded contract shall be divided into three groups: (A) bids offering goods manufactured in the borrower, where labour, raw materials and components form 30% of the EXW price of the goods offered and the production facility has been in existence since the time and (B) all other bids offering goods manufactured in the country of the borrower and (C) bids offering goods manufactured abroad that have been imported or will be imported.74

Once these categories have been established, then if on evaluation, a bid from group (A) or (B) is the lowest evaluated bid, then it shall be selected for award. However, if the lowest evaluated bid is from a bid in group (C), then all bids from group (C) shall be compared with the lowest evaluated bid from group (A) after adding an amount equal to 15 per cent of the bid to the bids in group (C). If after doing this, the bid from group (A) is the lowest, it shall be selected for award, and if not, then the lowest evaluated bid in group (C) shall be selected for award.75 By this, goods manufactured in the country of the borrower are permitted to be 15 per cent more expensive than goods manufactured abroad. Margins of preference are also extensively utilised in domestic procurement, and are used to boost domestic manufacturing through government purchases.76 In some jurisdictions, price preferences of up to 25 or even 50 per cent are provided to bidders from the target groups.77 For works contracts, a similar approach is adopted but the margin of preference is lower at 7.5 per cent; but this preference can only apply to countries that qualify for it.78 The price preferences for construction contracts thus apply on a more limited basis and to a more limited extent than the price preferences for goods. This may be due in part to the often-larger value of construction contracts in comparison to the procurement of goods,

73 G Westring, ‘Procurement of Contractors and Consultants—A World Bank View’ (1991) 19 International Business Lawyer 357, 358. 74 Bank Procurement Guidelines (2011), Appendix 2. 75 ibid. 76 See Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 6 above, Ch 5. 77 See McCrudden, Buying Social Justice, n 7 above, Ch 2; Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 6 above, Ch 5. 78 Bank Procurement Guidelines (2011), Appendix 2.

The Implementation of Secondary Policies 157 and the need to maintain the value for money requirement in Bank-funded contracts. In relation to the 2016 Bank procurement regulations, the nomenclature has been revised and expanded to ‘sustainability requirements’. The new expanded approach to secondary concerns can be traced to the initial discussions on the Bank’s new procurement framework, which saw sustainable and environmentally and socially responsible procurement (ESRP) being highlighted as one of the important concerns facing public procurement.79 This is not surprising given that part of the motivation for the review of Bank procurement was the realisation that the global context in which the Bank operated had changed significantly, and the Bank needed to respond to new challenges and new opportunities in its operations,80 issues of sustainability being both a challenge and an opportunity in the procurement context. The 2016 Bank procurement regulations provide for domestic preferences in substantially the same format that obtained under the 2011 Bank procurement guidelines discussed above, by providing for a 15 per cent price preference for domestically manufactured goods and a 7.5 per cent price preference in relation to works contracts.81 However, the 2016 regulations make a further provision for sustainable procurement, which may cover the borrower’s policies on economic, social and environmental sustainability82 such as equality requirements, health and safety requirements, vehicle emission standards and risks and opportunities identified through analysis of the market or the operating environment.83 It is clear that under the 2016 regulations, secondary concerns are given a very wide definition and cover many of the sustainable procurement practices that borrowers may wish to implement. Under the 2016 procurement regulations, borrowers are given the flexibility to determine the extent to which secondary concerns will be implemented in a Bank-funded procurement, provided these are applied in ways that are consistent with the Bank’s core principles.84 The upshot of this is that borrowers now have significant latitude in implementing secondary concerns, and can apply these criteria at all stages of the procurement process, from the pre-qualification of suppliers to contract management.85

79 See OPCS, The World Bank’s Procurement Policies and Procedures: Policy Review Approach Paper (Washington DC, World Bank, 2012) 11–-14. 80 See OPCS, The World Bank’s Procurement Policies and Procedures: Policy Review Initiating Discussion Paper (Washington DC, World Bank, 2012), para 22. 81 Procurement Regulations for Borrowers, para 5.51, Annex VI. 82 Procurement Regulations for Borrowers, Annex VII, para 2.3. 83 ibid, Annex VII, para 2.3. 84 ibid, Annex VII, para 1.1. 85 ibid, Annex VII, para 2.2.

158 Secondary Concerns in MDB Procurement Where a borrower seeks to implement secondary criteria, this must be done with the consent of the Bank and this intention must have been identified at the planning stage and reflected in the project procurement strategy for development (PPSD) document. As discussed in Chapter 4, this document addresses how procurement activities will support the development objectives of the project and will deliver the best value for money under a risk managed approach.86 The PPSD provides the justification for the procurement selection methods in the procurement plan, and thus in relation to secondary criteria will also provide the justification for the inclusion of these criteria and in particular, justify them in relation to the country context and project circumstances.87 Part of the function of the PPSD is to contain a strategic assessment of the project, including the project’s development objectives and desired outcomes. Where secondary criteria are included in a funded procurement, the PPSD ought to state with clarity how the inclusion of those criteria will contribute to the project’s developmental objectives, and the expected outcomes of the inclusion of the secondary criteria. The Bank requires secondary criteria requirements to be evidence-based and where they are not based on existing internationally recognised standards such as eco-labeling standards;88 they should be based on information obtained from stakeholders in industry, civil society and international development agencies.89 This requirement provides an additional hurdle for borrowers and will limit the potential for the abuse of secondary concerns by borrowers. Where a borrower is not willing to rely on existing eco-labels, then the borrower will have to obtain evidence from credible sources to justify its requirements.90 The Bank permits secondary criteria to be included at different stages of the procurement process. These stages are listed in the Bank’s regulations as prequalification, functional and technical specifications, evaluation criteria, contract terms and conditions and contract performance monitoring.91

86

ibid, para 4.1. ibid, Annex V, para 2.3. 88 An eco-label is a voluntary environmental performance certification, which identifies proven environmental characteristics of a product or service. Eco-labels are awarded by a third party and authorise the use of a particular label on the certified products. See Global Ecolabelling Network, Introduction to EcoLabelling (July 2004) available at www.globalecolabelling. net. 89 Procurement Regulations for Borrowers, Annex VII, para 2.4. 90 The function of an ecolabel as identified by the ISO is to communicate ‘verifiable and accurate information, that is not misleading, on environmental aspects of products and services, to encourage the demand for and supply of those products and services that cause less stress on the environment, thereby stimulating the potential for market-driven continuous environmental improvement’. 91 Procurement Regulations for Borrowers, Annex VII, para 2.2. 87

The Implementation of Secondary Policies 159 A. Prequalification of Firms As stated, the borrower is permitted to include secondary criteria in prequalification documents. Prequalification has been defined as a process by which procuring entities formally determine which interested persons should be given the opportunity to submit a tender or a proposal.92 The aim of prequalification is to ensure that invitations to bid are extended only to firms that have the capability and resources to undertake the contract. For Bank-funded contracts there is a standard prequalification document, which borrowers are required to use. Where secondary criteria are included in the prequalification stage, this may restrict competition,93 but it also means that bidders who are unable to meet the secondary criteria are spared the time and the expense of putting in a bid that may ultimately fail. Secondary criteria may be included in the eligibility requirements of the prequalification document or in the sections, which pertain to qualifications and experience. For example, a requirement may be included that bidders must have an International Standards Organisation (ISO) certification for environmental compliance in relation to particular goods/services. Other ways of including secondary criteria at this stage could be through the exclusion of companies that have breached environmental legislation in the past or by including evidence of the required criteria in past experience, or by including environmental management systems certification as proof of the technical capacity in the required area.94 B. Functional and Technical Specifications Secondary criteria are often included in technical specifications,95 with the caveat that proprietary identifications are not used, and specifications are not used to unduly restrict competition. Specifications are defined as the technical requirements, which objectively define the characteristics of the goods, works or services to be procured, in order to ensure that these goods, works or services will fulfil their intended purpose.96 Specifications

92

Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 6 above, 608. the issue of prequalification being used to restrict competition and the approach in different jurisdictions, see Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 6 above, Ch 10. 94 See A Appolloni, A D’Amato and W Cheng, ‘Is Public Procurement Going Green? Experiences and Open Issues’ in G Piga and S Treumer (eds), The Applied Law and Economics of Public Procurement (Abingdon, Routledge, 2013). 95 See Appolloni, D’Amato and Cheng, ‘Is Public Procurement Going Green?’ n 94 above. 96 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 6 above, 407. 93 On

160 Secondary Concerns in MDB Procurement could take the form of design specifications, performance specifications or functional specifications. Design specifications describe ‘the design requirements that the contractor must meet in order to successfully perform the contract’.97 Performance specifications state the performance parameters that a product must meet, leaving the design to the contractor; and functional specifications state the functions the product must perform, leaving it to the contractor to specify the design of the product.98 In drafting technical specifications, the Bank’s standard procurement documents (SPDs), provide that specifications should be clear and precise, and drafted to permit the widest possible competition.99 The SPDs also state that care must be taken to ensure that specifications are not restrictive and recognised international standards should be used as much as possible.100 In particular, the SPDs provide that: where other particular standards are used, whether national standards of the Borrower’s country or other standards, it should be stated that goods, materials, and workmanship meeting other authoritative standards, and which promise to ensure equal or higher quality than the standards specified, will also be acceptable.101

Although these provisions are contained in non-prescriptive guidance notes to borrowers, they restate the policy that specifications that include standards or other criteria must not be used to restrict competition.102 Under the 2016 Bank procurement regulations, borrowers are encouraged to adopt international standards.103 Unlike the secondary criteria regimes under other international procurement agreements, the Bank procurement regulations do not expressly state that technical specifications that include secondary criteria must be linked to the subject matter of the contract, and can only include requirements that are related to the production of the goods, works or services being procured. Without this express limitation, it means it may be possible for a borrower to include criteria that relate to a contractor’s production method as a whole.104 For example, whilst a borrower may specify that the particular goods required must be produced without the use of certain environmentally unfriendly chemicals, it is unclear whether a borrower may further require

97 ibid. 98 ibid.

99 World Bank, Standard Procurement Document, Request for Bids: Works (After Prequali fication) (Washington DC, World Bank, 2016), section VII. 100 World Bank, Standard Procurement Document, n 99 above. 101 ibid. 102 For a criticism of the Bank’s early approach to specifications see T Tucker, ‘A Critical Analysis of the Procurement Procedures of the World Bank’ in S Arrowsmith and A Davies (eds), Public Procurement: Global Revolution (London, Kluwer Law International, 1998). 103 Procurement Regulations for Borrowers, Annex VII, para 2.6. 104 Morettini, ‘Public Procurement and Secondary Policies in EU and Global Administrative Law’, n 11 above.

The Implementation of Secondary Policies 161 that all goods produced by the contractor must adhere to this requirement. The borrower is not, however, permitted to require production processes that are proprietary, or otherwise applicable to only one firm or to firms in one country or region, unless such a requirement is justified to the satisfaction of the Bank.105 C. Evaluation Criteria The Bank procurement regulations also permit sustainable criteria to be demonstrated through evaluation criteria. The evaluation criteria that may be relied on by a borrower in this regard include costs; the quality of the goods/works—and the extent to which this quality meets the requirements stated in the bidding documents; sustainable procurement, which is the extent to which the bid or proposal takes into account economic, social and environmental benefits in support of project objectives; innovations, which permit bidders to exceed the requirements in the bidding documents; and risk, which is the ability of the bid or proposal to respond to unforeseen changes.106 Although the research by Lundberg and Marklund reveals that including secondary criteria—in this case, environmental criteria in scoring methodology—makes the procurement procedure complex and non-transparent and sacrifices the efficiency of the procurement process,107 the use of these criteria at the evaluation stage is favoured by the Bank. Where secondary criteria are relied on at this stage, then the selection of the contractor will be based on factors that include price, functionality and performance of the product/ service as well as the secondary criteria such as the production process or the environmental quality of the product/service. Of course, as has been stated earlier, the evaluation criteria must be clearly stated in the bidding documents and must not be used as a means of restricting competition. D. Contract Terms and Conditions The procurement regulations provide that the borrower may include sustainable procurement considerations in contract terms and conditions.108 Secondary criteria may be included in a contract by requiring for example, that a percentage of work under the contract must be subcontracted to the 105

Procurement Regulations for Borrowers, Annex VII, para 2.5. ibid, Annex X, para 2.3. 107 Lundberg and Marklund ‘Green Public Procurement’, n 64 above. 108 Procurement Regulations for Borrowers, Annex VII, para 2.2. 106

162 Secondary Concerns in MDB Procurement target groups of the secondary policy,109 such as women or the disabled, or that certain environmental milestones are reached. Where secondary criteria are included as contractual terms or conditions, the upshot is that the breach of these terms will amount to a breach of the contract between the contractor and the borrower. Depending on the nature of the term breached, it may give the borrower specific rights under the contract, including the right to suspend or terminate the contract, or the right to receive liquidated damages, in so far as these provisions have also been included in the contract.110 E. Contract Monitoring The Bank permits secondary criteria to be included in contract monitoring conditions. Contract monitoring is controlled through a contract management plan as developed by the borrower.111 In relation to the secondary criteria, the contract management plan will essentially measure whether and to what extent the contractor has provided what was promised under the contract. Where there is a deficit in the contractor’s performance in this regard, remedial measures may be imposed or the default penalties under the contract activated. VI. THE FREQUENCY OF THE USE OF SECONDARY CONSIDERATIONS IN BANK-FUNDED CONTRACTS

Despite the existence of provisions which permit the borrower to include secondary criteria in Bank-funded contracts, an examination of the use of domestic preferences in these contracts has revealed that they are infrequently used by borrowers. An analysis of ICB contracts between 1999 and 2009 shows that domestic preferences were rarely used; and between this time there were only 153 identified contracts, cumulatively valued at US$280 million, with each contract averaging US$1.83 million, that included domestic preferences.112 This analysis also showed that in cases

109

Watermeyer, ‘Facilitating Sustainable Development’ n 23 above. Regulations for Borrowers, Annex IX. See J Cibinic Jr , RC Nash Jr and JF Nagle, Administration of Government Contracts, 4th edn (Illinois, Wolters Kluwer/CCH 2006), Ch 10. 111 Procurement Regulations for Borrowers, Annex XI, paras 2–3. 112 M Alexander and C Fletcher III , Background Paper Review of World Bank Policies and Procedures: The Use and Impact of the Bank’s Policy of Domestic Preferences (Washington DC, The World Bank, 2012), 4. Available at http://siteresources.worldbank.org/ INTPROCUREMENT/Resources/DomesticPreferenceProcurementPolicyReviewBackgroundPaper-FINAL.pdf. 110 Procurement

Secondary Policies and the Other MDBs 163 where domestic preferences were permitted, they did not have a significant impact on outcomes.113 As a result, it has been suggested that: It is very doubtful, therefore, that the policy continues to generate much benefit for local industries: either they would have won in the first place or the preference did not change the outcome. It may be that the use of domestic preferences has outlived its usefulness and, as corroborated in other studies, that other policy instruments are more useful in developing local industries.114

It remains to be seen whether the Bank will in future jettison the use of domestic preferences. However, this may not be likely as there will be severe opposition from developing country borrowers, despite the evidence which shows the limited impact of domestic preferences and the infrequency of their use. VII. SECONDARY POLICIES AND THE OTHER MDBs

As was mentioned earlier, the other MBDs follow the lead of the World Bank in relation to procurement regulation. The result of the harmonisation agenda in the MDBs (discussed fully in chapter 9) is that their procurement guidelines are almost identical in form and in substance to the current version of the Bank’s procurement guidelines. However, the new Bank procurement framework will create differences in the Bank’s approach to secondary considerations and the approach of the other MDBs. These differences will persist unless and until the other MDBs mirror the Bank, by undertaking a review of their own procurement, or by merely adopting the changes made by the Bank in their own context.115 This section will consider the approach to secondary considerations currently adopted by the other MDBs. A. The Inter-American Development Bank The latest revision to the Inter-American Development Bank (IDB) procurement guidelines116 is very similar to the 2011 World Bank procurement 113

ibid, n 112 above, 4. ibid, n 112 above, 5. 115 It should be noted that some of the MDB procurement systems are also undergoing reform. See A Salazer and M Lopez, ‘The Inter-American Development Bank: Reforms to Build Up and Increase the Use of National Procurement Systems in Latin America and the Caribbean’ (2016) 4 Public Procurement Law Review 164; V Sharma, ‘An Update on Procurement Reforms at the African Development Bank’ (2016) 4 Public Procurement Law Review 151. 116 Inter-American Development Bank, Policies for the Procurement of Goods and Works financed by the Inter-American Development Bank GN-2349-9 (Washington DC, Inter-American Development Bank, 2011). Hereafter, ‘IDB Procurement Guidelines (2011)’. 114

164 Secondary Concerns in MDB Procurement guidelines. IDB procurement guidelines permit the inclusion of secondary criteria and the use of domestic preferences as long as these are included with the approval of the IDB. Thus, the guidelines provide in relation to the evaluation and comparison of bids that: Bidding documents shall also specify the relevant factors, in addition to price to be considered in bid evaluation, and the manner in which they will be applied for the purpose of determining the lowest evaluated bid. For goods and equipment, other factors may be taken into consideration including among others…environmental benefits. The factors other than price to be used for determining the lowest evaluated bid shall, to the extent practicable, be expressed in monetary terms in the evaluation provisions of the bidding documents.117

These provisions clearly provide borrowers with the latitude to include secondary criteria in evaluation criteria. Further, the guidelines provide for domestic preferences in substantially the same form as the current World Bank procurement guidelines. The IDB guidelines provide that: At the request of the Borrower, and under conditions to be agreed under the Loan Contract and set forth in the bidding documents, a margin of preference may be provided in the evaluation of bids for goods manufactured in the country of the Borrower when comparing bids offering such goods with those offering goods manufactured abroad.118

The main area of difference between the provisions in the IDB, the World Bank and the other MDBs, is that the IDB does not provide domestic preferences for construction contracts (works), only for goods.119 The IDB domestic preference for goods is 15 per cent.120 It should be noted that the method of assessing those bids is exactly the same as under the 2011 World Bank procurement guidelines and will not be restated here. B. The African Development Bank The African Development Bank (AfDB) procurement guidelines121 are also almost identical to the 2011 World Bank procurement guidelines, and it appears also that the proposed reforms to the AfDB will be modelled after the reform programme of the World Bank.122 The AfDB guidelines also 117

IDB procurement Guidelines (2011), para 2.52. ibid, para 2.55. 119 ibid, Appendix 2, para 6. 120 ibid, Appendix 2. 121 African Development Bank, Rules and Procedures for Procurement of Goods and Works (Abidjan, African Development, 2012). Hereafter ‘AfDB Procurement Procedures (2012)’. 122 See Sharma, ‘An Update on Procurement Reforms’ n 115 above. 118

Secondary Policies and the Other MDBs 165 ermit the inclusion of secondary criteria and the use of domestic preferp ences as long as these are included with the approval of the AfDB. The AfDB procurement guidelines provide in relation to the evaluation and comparison of bids that: Bidding documents shall also specify the relevant factors, in addition to price to be considered in bid evaluation, and the manner in which they will be applied for the purpose of determining the lowest evaluated bid. For goods and equipment, other factors may be taken into consideration including among others…environmental benefits. The factors other than price to be used for determining the lowest evaluated bid shall, to the extent practicable, be expressed in monetary terms in the evaluation provisions of the bidding documents.123

These provisions provide borrowers with the latitude to include secondary criteria in evaluation criteria. Further, the guidelines provide for domestic preferences in substantially the same form as the 2011 World Bank procurement guidelines. The AfDB guidelines provide that: At the request of the Borrower, and under conditions to be agreed under the Financing Agreement and set forth in the bidding documents, a margin of preference may be provided in the evaluation of bids for: (a) goods manufactured in the country of the Borrower (domestic) or in a country which has joined the borrowing country in a regional economic institutional arrangement (regional), when comparing bids offering such goods with those offering goods manufactured abroad; and (b) contractors either from the country of the Borrower (domestic), or from Member Countries which have joined the borrowing country in a regional economic institutional arrangement (regional), when comparing bids from eligible domestic contractors with those from foreign firms.124

The African Development Bank differs slightly in its approach to domestic preferences. Thus, as can be seen from the above, domestic preferences are also extended to countries within the borrower’s sub-region, which participate in an economic community with the borrower. There are many such regional economic communities in Africa and this provision recognises the principle of reciprocity on which these community agreements are based.125 123

AfDB Procurement Procedures (2012), para 2.52. ibid, para 2.55. 125 There are eight regional economic communities in Africa that are recognised by the African Union and several others that are not recognised. The recognised ones are the Arab Maghreb Union; Common Market for Eastern and Southern Africa; Community of SahelSaharan States; East African Community; Economic Community of West African States; Economic Community of Central African States; Intergovernmental Authority on Development and the South African Development Community. For information on African regional economic communities see RF Oppong, Legal Aspects of Economic Integration in Africa (Cambridge, Cambridge University Press, 2011); KT Hansan (ed), Contemporary Regional Development in Africa (Farnham, Ashgate Publishing, 2015); D Seck (ed), Regional Economic Integration in West Africa (New York, Springer, 2014). 124

166 Secondary Concerns in MDB Procurement Another area of difference between the African development bank’s provisions on domestic preferences and the other MDBs is that the AfDB goes into great detail to define ‘domestic’126 contractors/goods and also draws a distinction between preferences given to domestic contractors (referred to as domestic preferences) and preferences given to regional contractors (referred to as regional preferences).127 In addition, the threshold for the local content for domestic goods to qualify for domestic preferences is lower in the AfDB than under the regulations of the other MDBs. Thus, whilst goods will qualify as domestic in the other MDBs if they have a local content of 30 per cent, the local content requirement in the AfDB regulations is 20 per cent.128 This might be in recognition of the weak manufacturing capacity of many African States and their high dependency on imports, in the areas of retail and in manufacturing.129 Another area of difference between the regulations of the AfDB and the other MDBs is in the margin of price preferences. In relation to domestic preferences, whilst in the other MDBs and the Bank, the preferences are 15 per cent for goods and 7.5 per cent for works, under the AfDB regulations, the margin of preference is also 15 per cent for goods, but is 10 per cent for works.130 For the regional preferences, the margin for goods is 10 per cent and for works is 7.5 per cent.131 C. The Asian Development Bank As is the case in the IDB and the AfDB, the latest revision to the Asian Development Bank (ADB) procurement guidelines132 is very similar to the 2011 version of the World Bank procurement guidelines. ADB procurement guidelines permit the inclusion of secondary criteria and the use of domestic preferences as long as these are included with the approval of the ADB.

126 AfDB Procurement Procedures (2012), Appendix 2, para 7. A contractor is deemed to be domestic if it is registered in the borrowing country and undertakes the majority of its activities there and the majority shareholders are nationals of the borrowing country and the majority of its Board are nationals of the borrowing county and at least 50% of its staff are nationals of the borrower country. 127 ibid, Appendix 2, para 3. 128 ibid, para 6. 129 See generally, JI Dibua, Modernization and the Crisis of Development in Africa: The Nigerian Experience (Farnham, Ashgate Publishing, 2006); M Alemayehu, Industrializing Africa: Development Options and Challenges for the 21st Century (New Jersey, Africa World Press, 2000). 130 AfDB Procurement Procedures (2012), Appendix 2, para 9. 131 ibid, Appendix 2, para 13. 132 Asian Development Bank, Procurement Guidelines (April 2015). Hereafter ‘ADB Procurement Guidelines (2015)’.

Secondary Policies and the Other MDBs 167 The guidelines provide in relation to the evaluation and comparison of bids that: Bidding documents shall also specify the relevant factors, in addition to price to be considered in bid evaluation, and the manner in which they will be applied for the purpose of determining the lowest evaluated bid. For goods and equipment, other factors may be taken into consideration including among others…environmental benefits. The factors other than price to be used for determining the lowest evaluated bid shall, to the extent practicable, be expressed in monetary terms in the evaluation provisions of the bidding documents.133

These provisions also provide borrowers with the latitude to include secondary criteria in evaluation criteria. Further, the guidelines provide for domestic preferences in substantially the same form as the 2011 World Bank procurement guidelines, and the IDB and AfDB guidelines. The ADB guidelines provide that: At the request of the borrower, and under conditions to be agreed under the financing agreement and set forth in the bidding documents, a margin of preference may be provided in the evaluation of bids for: (c) goods manufactured in the country of the borrower when comparing bids offering such goods with those offering goods manufactured abroad; and (d) works in member countries below a specified threshold of GNP per capita, when comparing bids from eligible domestic contractors with those from foreign firms.134

It should be noted that the method of assessing those bids is exactly the same as under the 2011 World Bank procurement guidelines and will not be restated here. The preference for goods is 15 per cent and for works is 7.5 per cent.135 D. The European Bank for Reconstruction and Development As discussed in Chapter 2, the EBRD operates slightly different from the other MDBs in that a large proportion of its loans are made to the private sector. Although its procurement regulations are very similar to the procurement regulations of the other MDBs, its approach to secondary criteria also reflects its unique positioning as a development bank geared towards the private sector.

133

ibid, para 2.52. ibid, para 2.55. 135 ibid, Appendix 2. 134

168 Secondary Concerns in MDB Procurement The latest version of the EBRD guidelines for project procurements136 permits the inclusion of secondary criteria in evaluation criteria. The guidelines state that: Tender documents shall also specify the relevant factors, in addition to the submitted tender price to be considered in tender evaluation, and the manner in which they will be applied for the purpose of determining the lowest evaluated tender. Factors which may be taken into consideration include inter alia…environmental benefits. The factors other than price to be used for determining the lowest evaluated tender shall be expressed in monetary terms, or where that is not possible for demonstrable reasons, given a relative weight in the evaluation provisions of the tender documents.137

Other areas where secondary criteria may be included in EBRD-funded projects, is in relation to the specifications, which are required to be based on ‘relevant quality characteristics and/or performance requirements’.138 It is interesting to note that the EBRD procurement regulations do not contain provisions for domestic preferences. This is of course to be expected, given that a preponderance of EBRD loans are made to the private sector. VIII. CONCLUSION

It can be seen that the World Bank and the other MDBs permit the use of secondary concerns in funded procurement within defined limits. It can also be seen that the review of the World Bank’s procurement framework has clarified and expanded the ways in which secondary considerations may be included in funded contracts. The new focus on sustainability criteria is as a result of changes in the understanding of public procurement’s impact on the environment. It remains to be seen, however, whether there will be an increased reliance on these provisions in Bank procurement, given that as discussed above, domestic preferences were rarely used by borrowers, and when used, had only a limited impact on procurement outcomes.

136 See Procurement Policies and Rules for projects financed by the European Bank for Reconstruction and Development (October 2014). Hereafter ‘EBRD Procurement Policies’. 137 EBRD Procurement Policies (2014), para 3.16. 138 ibid, para 3.19.

Part III

Problems and Issues Affecting MDB Procurement

170

8 Corruption in MDB Funded Procurement I. INTRODUCTION

T

HIS CHAPTER ADDRESSES one of the most intractable issues in development procurement; which is the issue of corruption and fraud in projects funded by development banks. Corruption in development projects, and MDB willingness to address it, has had a chequered history. It was not until the 1990s that the World Bank took decisive steps to address corruption in Bank-funded contracts and more generally. The Bank’s approach to tackling corruption was quickly followed and mirrored by the other MDBs. As a result of the Bank’s earlier reluctance to take action against corruption in funded projects, development loans were once dubbed ‘criminal debt’, because even where the loan was misappropriated and not used for its intended purpose, this did not alter the repayment obligation of the borrower, financed in most cases through taxation.1 The chapter focuses on the corruption mitigation measures that are incorporated into the procurement regulations and other relevant documents which govern Bank-funded contracts. It commences with an explanation of the issue of corruption in public procurement, including an illustration of the areas of risk. Next, the chapter undertakes a historical evaluation of the issue of corruption within the World Bank, and an examination of the various approaches that have been taken by the Bank in addressing this issue. The chapter also considers Bank remedies where corruption occurs, and the anti-corruption obligations imposed on borrowers and contractors. The chapter focuses solely on the World Bank, as anti-corruption measures are one area in which the harmonisation agenda has achieved substantial convergence of policies and practices in all the MDBs.

1 See generally, JA Winters ‘Criminal Debt’ in J Pincus and JA Winters (eds), Reinventing the World Bank (Ithaca, Cornell University Press, 2002) and J Hanlon, ‘Wolfowitz, the World Bank and Illegitimate Lending’ (2007) 13 Brown Journal of World Affairs 41.

172 Corruption in MDB Funded Procurement II. CORRUPTION IN PUBLIC PROCUREMENT: A PRIMER

There is a plethora of information on the nature, incidence and typology of corruption in public procurement,2 and as such, this section will only briefly highlight the major facets of this discourse, as well as the areas of corruption vulnerability in the procurement process. As has been discussed elsewhere, corruption is a result of the interplay of economic, institutional, political, social and historical factors. It tends to: flourish when public sector policies generate economic rents, institutions are weak, political and bureaucratic power is exercised for personal gain, society does not forcefully disapprove corruption and voice mechanisms are not strong. Excessive discretionary power is vested in public officials, monopolistic authority, lack of transparency in the functioning of government, absence of effective accountability systems, high cost of getting to public office and low public sector wages also encourage fraud and corruption.3

In many of the Bank’s clients, corruption is systemic or pervasive and this has implications for the conduct of Bank-funded corruption. According to the Bank, corruption is systemic (or endemic): where bribery, on a large or small scale, is routine in dealings between the public sector and firms or individuals. Where systemic corruption exists, formal and informal rules are at odds with one another; bribery may be illegal but is understood by everyone to be routine in transactions with the government. Another kind of equilibrium prevails, a systemic corruption ‘trap’ in which the incentives are strong for firms, individuals, and officials to comply with and not fight the system.4

In Klitgaard’s words, ‘a distinguishing characteristic of systemic corruption is that the many parts of the government that are supposed to prevent corruption have themselves become corrupted—budgeting, auditing, inspection, monitoring, evaluation, and enforcement’.5 This affects the efficacy of normal anti-corruption enforcement and makes the anti-corruption task much more difficult.6

2 See for instance T Soreide, Corruption in Public Procurement: Causes, Consequences and Cures (Bergen, Chr. Michelsen Institute, 2002); T Soreide, Drivers of Corruption: A Brief Review (Washington DC, World Bank, 2014); S Rose-Ackerman and T Soreide (eds), International Handbook on the Economics of Corruption Vol II (Cheltenham, Edward Elgar Publishing, 2011), part II. 3 MA Aguilar, JBS Gill and L Pino, Preventing Fraud and Corruption in World Bank Contracts: A Guide for Staff (Washington DC, World Bank, 2000) 2. 4 World Bank, Helping Countries Combat Corruption: The Role of the World Bank (Washington DC, The World Bank, 1997). 5 R Klitgaard, ‘Leadership Under Systemic Corruption’ (2004) [Online] Available at www. cgu.edu/include/Leadership_Under_System_Corruption_12-04.pdf. 6 Klitgaard, ‘Leadership under Systemic Corruption’ n 5 above.

Corruption in Public Procurement: A Primer 173 It has been argued that ‘corruption occurs when a function, whether public or private, requires the allocation of benefits or the provision of a good or service’.7 The same can be said for corruption in public procurement, which is one of the areas in which bureaucratic corruption manifests. Public procurement is susceptible to corruption8 due partly to the large sums involved, the (usually) non-commercial nature of procuring entities, the nature of the relationship between the decision-maker and the public body, the measures of unsupervised discretion, bureaucratic rules and budgets that may not be tied to specified goals as well as non-performance related pay and low pay.9 Public procurement also presents the opportunity for corruption because of the asymmetry of information between the public official and his principal—ie the government. As the public official holds more information about the procurement process and the procurement market, the official is able to use this knowledge to his advantage by manipulating the procurement process, should he choose to do so.10 In both developed and developing countries, public procurement is often fraught with corruption and or irregularities due to the combination of the amounts of money involved, as well as the discretion mentioned above that is available to public officials in conducting the procurement function.11 Inserted into this mix is the ‘cut-throat competition between bidding companies that rely heavily on public contracts for their survival’.12 In some contexts, this dependency, (or over-dependency) on public contracts leads to a desperation that is expressed through the willingness of the private sector to offer bribes or other inducements to ensure that they obtain government contracts. Procurement corruption is thus a multi-faceted problem affecting both developed and developing countries,13 which requires a multi-dimensional approach if it is to be kept in check.14

7 I Shihata, ‘Corruption—A General Review with an Emphasis on the Role of the World Bank’ (1997) Dickinson Journal of International Law 451, 459. 8 Soreide, Corruption in Public Procurement, n 2 above, 4; S Kelman, Procurement and Public Management: The Fear of Discretion and the Quality of Government Performance (Washington DC, AEI Press, 1990), Ch 2; F Anechiarico and JB Jacobs, The Pursuit of Absolute Integrity: How Corruption Control Makes Government Ineffective (Chicago, University of Chicago Press, 1996), Ch 8. 9 S Williams-Elegbe, Fighting Corruption in Public Procurement: A Comparative Analysis of Disqualification or Debarment Measures (Oxford, Hart Publishing, 2012), Ch 2. 10 ibid. 11 Kelman, Procurement and Public Management, n 8 above, Ch 2. 12 GT Ware, S Moss, JE Campos and GT Noone, ‘Corruption in Public Procurement: A Perennial Challenge’ in JE Campos and S Pradhan (eds), The Many Faces of Corruption: Tracking Vulnerabilities at the Sector Level (Washington DC, The World Bank, 2007) 296. 13 See Williams-Elegbe, Fighting Corruption in Public Procurement, n 9 above, Ch 2; Ware, Moss, Campos and Noone, ‘Corruption in Public Procurement’, n 12 above, Ch 9; Soreide, Corruption in Public Procurement, n 2 above, Ch 2. 14 Williams-Elegbe, Fighting Corruption in Public Procurement, n 9 above, Ch 2.

174 Corruption in MDB Funded Procurement Although the incidence and the typology of procurement corruption varies from one jurisdiction to the next, and even within countries there may be regional variations, earlier work by the present author identified two main forms of corruption in public procurement,15 viz, public corruption and private corruption. Public corruption is that which moves from the private sector to the public official and consists of bribes or other inducements given to a public official to influence the exercise of his discretion. Contrary to general opinion, the manipulation of the exercise of discretion is not limited to the award of a contract to the bribing bidder, but can occur at any stage of the procurement process, such as in ‘deciding which firms to invite for tender, by emphasizing or designing evaluation criteria that favours a preferred company…’.16 In addition, public officials may split contracts to circumvent procedural rules for advertisement and publication, design advertisements to be deliberately misleading or obscure; suddenly change bid opening times; accept inaccurate or incomplete documentation from bidders; engage in deliberately poor contract management and monitoring; and may engage in ‘autocorruption’ which is when the public official ‘wrongly secures for himself or an associate, the privileges which rightly belong to the public by by-passing or manipulating the formal procedures necessary for the award of these privileges’.17 This type of corruption manifests through conflicts of interest and contract awards that involve a shell company or a subcontractor that is in essence acting as a front for the public official. Private corruption is corruption which is executed by the private sector and manifests as collusion, price-fixing, and maintenance of cartels or other uncompetitive practices committed by bidders in the procurement process.18 Public officials may enable this type of corruption, in which case, it may be fostered by bribery, or it may be executed to the ignorance of the public sector.19 The aim of this type of corruption is often to ensure that a bidder preselected by the participants in the anti-competitive scheme obtains the tender, through a manipulation of the procurement process.20 Much academic attention has been devoted to the nature of anti-competitive schemes in public procurement21 and more recently, the work by Graells has 15

ibid, 25–27. ibid, 26. Footnotes omitted. 17 ibid. 18 R Klitgaard, Controlling Corruption (California, University of California Press, 1998), Ch 6. 19 Ware, Moss, Campos and Noone, ‘Corruption in Public Procurement’, n 12 above, 301. 20 ibid. 21 RP McAfee and J McMillan, ‘Bidding Rings’ (1992) 82 American Economic Review 579; GL Albano, P Buccirossi, G Spagnolo and M Zanza, ‘Preventing Collusion in Public Procurement’ in N Dimitri, G Piga and G Spagnolo (eds), Handbook of Procurement (Cambridge, Cambridge University Press, 2006); P Klemperer, ‘Competition Policy in Auctions and “Bidding Markets”’ in P Buccirossi (ed), Handbook of Antitrust Economics (Massachusetts, MIT 16

Corruption in Public Procurement: A Primer 175 illustrated how the formal rules on transparency in public procurement may increase the likelihood of collusion among bidders. In his view, procurement regulations ‘significantly increase the transparency of the market and facilitate collusion among bidders through repeated interaction’.22 Apart from procurement regulations that increase transparency, procurement procedures that facilitate the exchange of information between bidders and the procuring authority present further opportunities for restrictions of competition as a result of coordination or collusion among candidates.23 In addition, requirements to aggregate procurement contracts in many jurisdictions provide another area of risk for anti-competitive schemes.24 It may be noted that anti-competitive schemes are often facilitated by the existence of a developed and fairly sophisticated private sector. In some developing countries which are characterised by a low manufacturing base, and an under developed private sector, private corruption in the form of anti-competitive schemes may not occur with as much frequency as public corruption.25 There are four broad areas of the procurement process that are vulnerable to corruption, which require corruption mitigation measures. These are: (i)

Project identification and design: this phase may be affected by political influence, which determines what projects will be executed and where those projects are located.26 At this stage, a procuring authority may also overstate its requirements in order to increase the potential for corrupt earnings during project implementation.27 According to Ware et al, political influence in the selection of projects: may set up a dynamic that leads to bid rigging or collusion in later phases. Budgetary insertions guarantee that there will be funding

Press, 2008); WE Kovacic et al, ‘Bidding Rings and the Design of Anti-Collusive Measures for Auctions and Procurements’ in Dimitri, Piga and Spagnolo (eds), Handbook of Procurement (above). 22 AS Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) 69. 23 ibid, 71. See also AS Graells, ‘Prevention and Deterrence of Bid Rigging: A Look from the New EU Directive on Public Procurement’ in GM Racca and CR Yukins, (eds), Integrity and Efficiency in Sustainable Public Contracts: Balancing Corruption Concerns in Public Procurement Internationally (Brussels, Bruylant, 2014). 24 GL Albano, ‘Demand Aggregation and Collusion Prevention in Public Procurement’ in Racca and Yukins, Integrity and Efficiency in Sustainable Public Contracts, n 23 above. 25 S Williams-Elegbe, ‘Systemic Corruption and Public Procurement in Developing Countries: Are there Any Solutions?’ (2017) Journal of Public Procurement (forthcoming). 26 Ware, Moss, Campos and Noone, ‘Corruption in Public Procurement’, n 12 above, 308 and S Williams-Elegbe, ‘The Reform and Regulation of Public Procurement in Nigeria’ (2012) 41 Public Contract Law Journal 339. See also R Klitgaard, R Maclean-Abaroa and HL Parris, Corrupt Cities: A Practical Guide to Cure and Prevention (Ithaca, ICS Press, 2000), 118–24. 27 Aguilar, Gill and Pino, Preventing Fraud and Corruption in World Bank Contracts, n 3 above, 3.

176 Corruption in MDB Funded Procurement for the project; bid rigging or collusion guarantees that the expected diversion of funds to political and other unintended uses is realized.28 (ii) Bid advertising, bid specification and prequalification: here requirements may be tailored to favour a preferred (corrupt) bidder. Widespread advertising may limit collusion as it may increase the pool of bidders, some of which may not be participants in the collusive scheme, but advertising also puts the colluders on notice that an opportunity exists and may thus facilitate collusion. Inadequate information in bidding and prequalification notices may also be used to limit participation to preferred bidders, as can the use of limited circulation or local newspapers for advertising tenders.29 (iii) Bid evaluation, post qualification and contract award: at the stage of bid evaluation, the use of rated evaluation criteria in which merit points are assigned to each evaluation criterion may often present opportunities for corruption and abuse as it introduces an element of subjectivity into the evaluation process. As discussed in Chapter 6, the Bank prefers the use of non-rated evaluation criteria as rated evaluation criteria introduce an element of subjectivity, discretion and thus the opportunity for corruption.30 As was stated by Ware et al, rated criteria are in essence a: subjective assessment of the worth of the bid against each criterion. Under such evaluation systems, there is often no right or wrong answer in the decision making process, as the winning bid is simply the one that receives the most points; in such situation, the decision is wide open to corrupt influence and it becomes all but impossible to hold the evaluators accountable for the correctness of their decision.31 Apart from the manipulation of evaluation criteria for improper purposes, the post-qualification process may also be relied on to disqualify the best tender and make room for a preferred bidder.32 (iv) Contract performance, management and supervision: Once a contract is awarded to a preferred bidder, the procuring entity may refuse to appropriately monitor the contractor that was selected on an improper basis and may agree to change orders,33 price increases and overlook decreases in contractual quality. In addition, a contractor may present 28

Ware, Moss, Campos and Noone, ‘Corruption in Public Procurement’, n 12 above, 307. Gill and Pino, Preventing Fraud and Corruption in World Bank Contracts, n 3 above, 5. 30 ibid. 31 Ware, Moss, Campos and Noone, ‘Corruption in Public Procurement’, n 12 above, 314–15. 32 ibid, 315. 33 Aguilar, Gill and Pino, Preventing Fraud and Corruption in World Bank Contracts n 3 above, 7. 29 Aguilar,

Anti-corruption in the World Bank 177 fraudulent invoices with the complicity of officials and charge for more of a good or service than was provided, or even make fraudulent expense claims.34 As will be discussed further in the next section, there is no public procurement system that is immune from corruption. Although there are measures that may be taken to minimise the risk of corruption, and which will in fact minimise these risks, in some developing countries, the weakness of public sector institutions, the culture of silence in relation to public sector malfeasance, public sector impunity as a result of lax or non-existent legal enforcement, inadequate attention to the rule of law, the absence of suitable accountability mechanisms and, most importantly, the absence of a real commitment to addressing procurement corruption often means that despite the existence of ‘remedial measures and control mechanisms that strengthen the procurement system and reduce the risk of corruption’,35 corruption in public procurement remains a real problem and often goes unchallenged. The risks and vulnerabilities that exist in domestic procurement as highlighted above are also a real issue in Bank-funded procurement, more so as the Bank’s supervision and review of contracts is limited to an examination of the documents, which, of course, can be fraudulently altered or manipulated to conform to requirements. Of course, this is not to suggest that the Bank undertakes a physical examination or forensic audit of all contracts awarded; but as is discussed further below, it is certainly possible to rely on local community organisations and non-governmental organisations to provide information on contract outcomes for contracts over a certain threshold.36 As will be discussed further below, once the Bank made the decision to take corruption seriously, it began a sustained and systematic approach to addressing corruption in funded procurements and beyond, targeting in particular, the risk areas mentioned above. III. ANTI-CORRUPTION IN THE WORLD BANK

This section considers the background to the approach to anti-corruption by the Bank, and the reasons why the Bank did not significantly address corruption until 50 years after its establishment. This section also considers the noteworthy chronological events that impacted the Bank’s and indeed, the 34 ibid. See also I Hors, ‘Shedding Light on Corrupt Practices in Public Procurement’ (2003) 5 Public Procurement Law Review NA101. 35 Ware, Moss, Campos and Noone, ‘Corruption in Public Procurement’, n 12 above, 308. 36 The use of civil society monitors in procurement is increasingly being used as an anti-corruption tool. See Williams-Elegbe, ‘Systemic Corruption and Public Procurement’, n 25 above.

178 Corruption in MDB Funded Procurement global anti-corruption landscape. The section will then specifically consider the anti-corruption measures in relation to Bank-funded procurement. A. The History of Anti-corruption in the World Bank: From Turning a Blind Eye to Mainstreaming Anti-corruption From its inception up to the mid-1990s, the Bank was resolute in not taking action against corruption, especially beyond the contracts financed by the Bank.37 The Bank’s approach was informed by its strict interpretation Art III, section 5(b) of the Bank’s Articles of Agreement, which provides that: The Bank shall make arrangements to ensure that the proceeds of any loan are used only for the purposes for which the loan was granted, with due attention to considerations of economy and efficiency and without regard to political or other non-economic influences or considerations.

Further, Art IV section 10 provides: The Bank and its officers shall not interfere in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the purposes stated in Article I.

For many years, the management of the Bank ignored the issue of corruption in Bank borrowers on the grounds that corruption was a political issue and the Articles of Agreement prohibited the Bank’s involvement in political issues. In many cases, if the Bank felt that there was an economic case for lending to a regime, irrespective of how corrupt (or abusive) that regime was, it would do so, on the basis that it was only permitted to factor economic considerations in its decision-making.38 This was the case even when the Bank was aware that Bank loans were being misappropriated,39 despite the overwhelming evidence that linked underdevelopment and poor growth to corruption;40 and the devastating impact of corruption on the effectiveness of aid.41 Although the Bank’s procurement guidelines and other

37 JD Wolfensohn, ‘Corruption Impedes Development-and Hurts the Poor’ (1998) International Journal of Government Auditing 1. 38 H Marquette, Corruption, Politics and Development: The Role of the World Bank (London, Palgrave MacMillan, 2003), Ch 1. 39 ibid. 40 P Mauro, ‘The Effects of Corruption on Growth, Investment and Government Expenditure’ (1996) IMF Working Paper 1, 17. See also World Bank, Helping Countries Combat Corruption: The Role of the World Bank (Washington DC, The World Bank, 1997). 41 M Robinson, ‘Corruption and Development: An Introduction’ in M Robinson (ed), Corruption and Development (London, Frank Cass, 1998) 2.

Anti-corruption in the World Bank 179 perational policies contained regulations to minimise corruption in Banko funded procurements,42 these were often ineffective and flouted in countries with systemic corruption issues. However, the year 1995 marked a watershed in the Bank in relation to its approach to corruption. In 1995, James Wolfensohn assumed the presidency of the Bank and inherited ‘an institution in crisis’.43 Some of these crises were tied to various failed and unsustainable projects that had been approved and implemented by the Bank in the 1980s and early 1990s, especially projects whose execution violated the Bank’s own policies;44 as well as a culture of loan approval, which affected the performance, sustainability and quality of Bank operations.45 As stated by Rose-Ackerman, there was a ‘bias in favour of making loans without asking too many questions about the integrity of the projects’.46 In her view, this bias was exacerbated by the conditions under which the loans were made; loans were tied to the fiscal health of the borrowing government, and not the success of the individual project.47 Another institutional problem, which Wolfensohn faced, was the declining relevance of the Bank, given the increase in private capital flows to developing countries.48 Wolfensohn thus had to decide how to manage the conflicting priorities of increasing the Bank’s relevance in development lending through increased lending and less cumbersome procedures, but also improving the efficiency of lending and the delivery of better developmental results through addressing corruption, better loan management and public participation.49 The major declaration that the Bank was ready to address corruption was made in a groundbreaking speech by Wolfensohn at the Bank’s Annual Meeting on 1 October 1996, where he stated that the Bank was ready to deal with the ‘cancer of corruption’.50 This declaration was not an isolated 42 I Shihata, ‘Corruption: A General Review with an Emphasis on the Role of the World Bank’ (1997) 15 Dickinson Journal of International Law 451–74. 43 See B Rich, ‘The World Bank under James Wolfensohn’ in J Pincus and JA Winters (eds) Reinventing the World Bank (Ithaca, Cornell University Press, 2002) 27. 44 B Morse and T Berger, Sardar Sarovar: The Report of the Independent Review (Ottawa, Resource Futures International, 1992) 234. 45 W Wapenhans, Effective Implementation: Key to Development Impact: Report of the World Bank’s Portfolio Task Force (Washington DC, The World Bank, 1992) 12. See also R Wade, ‘The World Bank and the Environment’ in M Boas and D McNeill (eds), Global Institutions and Development: Framing the World? (London, Routledge, 2004). 46 S Rose Ackerman, ‘The Role of the World Bank in Controlling Corruption’ (1997) 29 Law and Policy in International Business 93, 94. 47 ibid. 48 Rich, ‘The World Bank under James Wolfensohn’, n 43 above, 28–29. 49 ibid, 30–31. 50 JD Wolfensohn, ‘People and Development, Annual Meetings Address’ (Washington DC, The World Bank, 1996). Available at web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/ORGANIZATION/EXTPRESIDENT/EXTPASTPRESIDENTS/PRESIDENTEXT ERNAL/0,contentMDK:20025269~menuPK:232083~pagePK:159837~piPK:159808~theSit ePK:227585,00.html.

180 Corruption in MDB Funded Procurement incident and came on the heels of a series of reports that highlighted the nature of corruption as a developmental issue.51 For instance, in 1993, a Bank report highlighted the poor accounting and auditing practices of the Bank and inattention to borrower auditing standards,52 which lent further credence to the view that more needed to be done about domestic approaches to governance and corruption. In addition, the Bank’s departure from its early approach to corruption was also informed by an international anti-corruption movement, which was termed the ‘corruption eruption’ by Naim.53 As stated by the former Bank General Counsel: The World Bank does not exist in a vacuum. It deals with a world that that undergoes constant changes in a fast increasing pace. Changes occur not only in the economic conditions and relationships the Bank is meant to address, and in their underlying political, social and environmental underpinnings, but also in the expectations of its members, the ideological orientation of its work and continuously evolving development economic theories.54

Further, increased calls from borrowers for assistance in tackling corruption also contributed in no small measure to the Bank’s alteration of its stance on corruption.55 It is the result of changes in the thinking around corruption; the evolution of the ideas around corruption, and its subsequent conceptualisation as an economic,56 and developmental, as opposed to a political issue; the increasing evidence about the impact of corruption; as well as the evolving needs of both Bank borrowers and shareholders that set the scene for the Bank’s decision to take a role in global anti-corruption efforts. Prior to Wolfensohn’s speech, the Bank had already begun taking action in relation to corruption in Bank-financed contracts.57 In August 1996, the Bank procurement guidelines were amended to introduce a new paragraph dealing with fraud and corruption in Bank-financed contracts.58 This paragraph established the Bank’s intention to debar firms engaging in corruption in bidding for Bank-financed contracts and also contained a clause permitting borrowers to include a ‘no-bribery’ pledge in bid documentation. 51 World Bank, Governance and Development (Washington DC, The World Bank, 1992). World Bank, Governance: The World Bank’s Experience (Washington DC, The World Bank, 1994). 52 World Bank, Financial Reporting and Auditing Task Force Report (Washington DC, The World Bank, 1993). 53 M Naim, ‘The Corruption Eruption’ (1995) 2 Brown Journal of World Affairs 243, 245. 54 I Shihata, The World Bank in a Changing World Vol III (New York, Springer, 2000) vii. 55 World Bank, Helping Countries Combat Corruption, n 40 above, 5–6. 56 Rose-Ackerman, ‘The Role of the World Bank in Controlling Corruption’, n 46 above, 93–114. 57 See H Marquette, ‘The World Bank’s Fight against Corruption’ (2007) 13 Brown Journal of World Affairs 27–-40; Shihata, ‘Corruption—A General Review’, n 42 above, 474–75. 58 World Bank, Helping Countries Combat Corruption, n 40 above, 30.

Anti-corruption in the World Bank 181 The paragraph on corruption was again revised in 2004, to include collusion and coercive practices in the list of prohibited activities, grant the Bank contractual access to bid and contract documentation, and the power to audit the accounts of suppliers. In the early part of 1997, the 20th World Development Report59 established the good governance paradigm, which saw the Bank shift from ‘the prescriptions of free markets and minimal government to a position of recognizing the importance of having an effective government that could implement and manage free market reform’.60 The Report emphasised the relationship between development and ineffective States and prescribed a two-part strategy to improving governance through (i) matching the State’s role to its capability; and (ii) raising capability where weak, by reinvigorating public institutions to check arbitrary State actions and combat corruption; increasing institutional efficiency; increasing participation; and improving incentives.61 Although there have been criticisms over the approach to governance adopted by the Bank, which focuses on ‘improving political accountability, strengthening civil society, promoting competition via markets, imposing institutional restraints on power and reforming public sector management’,62 it is clear that the quality of governance is important to developing useful, context-specific approaches to anti-corruption.63 The Report also highlighted the failures of development assistance; it suggested that to increase the effectiveness of aid, it needed to be closely tied to the policies of the recipients and resources should be channeled to the countries with good policies and priority given to institutional reinvigoration.64 The Report thus set the stage both for coordination among development institutions in relation to country intervention strategies as discussed in Chapter 5, and also in relation to the linkage between financial flows and good governance. On the back of this, other lenders such as the US took action, and in 2004, the US government established a bilateral aid agency known as the Millennium Challenge Corporation, which provides development finance to countries that meet certain good governance criteria.65

59 World Bank, World Development Report 1997: The State in a Changing World (Oxford, Oxford University Press, 1997). 60 N Hobbs, ‘Corruption in World Bank Financed Projects: Why Bribery is a Tolerated Anathema’ (2005) DESTIN London School of Economic Working Paper 05-65, 14. 61 World Bank, World Development Report 1997 n 59, 2–5. 62 D Hough, Corruption, Anti-Corruption and Governance (London, Palgrave Macmillan, 2013) 34. 63 ibid, 31. See also Williams-Elegbe, ‘Systemic Corruption and Public Procurement’ n 25 above. 64 See A Chhibber, ‘The State in a Changing World’ (1997) Finance and Development 17, 19; World Bank, World Development Report 1997, n 59, 140–42. 65 See C Tarnoff, Millennium Challenge Corporation (Washington DC, Congressional Research Service, 2009).

182 Corruption in MDB Funded Procurement Later in 1997, the Bank approved an anti-corruption strategy, which marked a turning point in the Bank’s anti-corruption discourse. The strategy defined corruption as ‘the abuse of public office for private gain’,66 and set in motion a chain of events that has permanently affected operations in the Bank, including its procurement system, governance, public finance management, and procurement in the other MDBs as well as in developing countries. The stimulus for the Bank’s initial approach to the corruption problem can be traced to internal memoranda67 that highlighted the issue of corruption and concluded that not all aspects of national governance were precluded from Bank consideration.68 Corruption was eventually incorporated into the Bank’s development agenda and the Bank is now in many ways at the forefront of the global fight against corruption.69 The fight against corruption is now seen as key to reducing poverty and achieving sustained economic growth in developing countries.70 The Bank’s anti-corruption policy stems from two factors. The first is a desire to ensure that Bank funds are used for the purposes for which they were granted, as required by the Articles of Agreement. The second is the realisation that ineffective lending harms development and has severe consequences for citizens in borrower countries. It is ironic that when the Bank eventually decided to address the issue of corruption, both within funded projects and more broadly,71 the same Articles of Agreement that were regarded as prohibiting the Bank from addressing corruption, were the same ones later regarded as being broad enough to grant legitimacy to the Bank’s anti-corruption efforts.72 According to the Anti-Corruption Strategy, the Bank was to address corruption through four channels: i. ii.

66

preventing fraud and corruption within Bank-financed projects; helping countries that request Bank support in their efforts to reduce corruption;

World Bank, Helping Countries Combat Corruption, n 40 above, 8. Memorandum of the General Counsel, SecM91-131, Issues of Governance in Borrowing Members—The Extent of Their Relevance Under the Bank’s Articles of Agreement, 21 December 1990 (5 February 1991); Legal Opinion of the General Counsel, SecM95-707, Prohibition of Political Activities in the Bank’s Work, 11 July 1995 (12 July 1995). 68 World Bank, Governance and Development (Washington DC, The World Bank, 1992); World Bank, Governance: The World Bank’s Experience (Washington DC, The World Bank, 1994). 69 S Williams-Elegbe, ‘The Debarment of Corrupt Contractors from World Bank Financed Contracts’ (2007) 36 Public Contract Law Journal 277, 282. 70 Hobbs, ‘Corruption in World Bank Financed Projects’, n 60 above, 2. 71 Winters, ‘Criminal Debt;’ n 1 above. 72 P Chanda, ‘The Effectiveness of the World Bank’s Anticorruption Efforts: Current Legal and Structural Obstacles and Uncertainties’ (2004) Denver Journal of International and Policy 315, 316. See also Center for Strategic and International Studies, The United States and the Multilateral Development Banks (Washington DC, CSIS Press, 1997) 40. 67 Legal

Anti-corruption in the World Bank 183 iii.

iv.

taking corruption into account in country assistance strategies, country lending operations, policy dialogues, analytical work and the choice and design of projects. In other words, mainstreaming the concern with corruption in all of the Bank’s work; lending active support to international efforts to fight corruption.73

The ultimate goal of the Bank’s anti-corruption strategy was not to eliminate corruption completely, but to help countries ‘move from systemic corruption to an environment of well-performing government that minimizes corruption’s negative effect on development’.74 This goal recognises the impossibility of eliminating corruption75 as well as its complexity, deeprooted and entrenched nature in societies where it is systemic. As was highlighted by Khan, the immediate effect the Bank’s initial stance on corruption was a much higher degree of concern with accountability within the Bank; a closer examination of the corruption and governance implications of Bank policies;76 and an overall mainstreaming of accountability and good governance in the Bank. It should be noted that the Bank’s approach to anti-corruption was focused on strengthening institutions, on the basis that where corruption is a manifestation of weak public management systems and inappropriate policies, improving the legal and the institutional framework will address the corruption issue.77 Based on the Anti-Corruption Strategy, the Bank made a commitment to ensure that loan disbursement decisions were guided by various factors, including the risks of corruption during project design or implementation; the extent to which developmental objectives could be compromised by corruption; and the willingness of a government to act to control corruption if it threatens the effectiveness of Bank projects and or economic and social development.78 The loan administration charge was introduced, which links loan disbursement to project progress as reported in a project management report prepared by the borrower.79 This was aimed at increasing borrower supervision of the procurement process, so that disbursements were made on the basis of physical progress. In relation to funded contracts, the Bank’s policy against corruption is based on four main strategies. The first is to ensure that the procurement process contains preventive and punitive elements against corruption. The 73

World Bank, Helping Countries Combat Corruption, n 40 above, 23.

74 ibid. 75

Shihata, ‘Corruption—A General Review’, n 42 above, 462. Khan, ‘Corruption and Governance in Early Capitalism: World Bank Strategies and their Limitations’ in Pincus and Winters, (eds), Reinventing the World Bank, n 1 above, 165. 77 World Bank, Helping Countries Combat Corruption, n 40 above, 13–14. 78 ibid, 51. 79 Aguilar, Gill and Pino, Preventing Fraud and Corruption in World Bank Contracts, n 3 above, 13. 76 M

184 Corruption in MDB Funded Procurement Bank’s policy of debarring corrupt contractors assists in executing both these elements. Second, as discussed in Chapter 5, the Bank ensures that the pre-approval stage of loans and projects is rigorous and contains input from all interested parties.80 Third, measures are taken to ensure that institutionally the Bank is corruption free. Finally, as will be seen below, the Bank has improved auditing and supervision requirements in funded projects. In October 1998, a year after the anti-corruption policy was issued, the Bank created an anti-corruption hotline and expanded the remit of the existing Oversight Committee on Fraud and Corruption involving World Bank staff to ‘encompass oversight of all allegations of fraudulent or corrupt practices- within the Bank Group or in connection with Bank Group-financed contracts’.81 This was the precursor to the Department of Institutional Integrity (INT), which was created in 2001, and was established to investigate allegations of fraud, corruption, coercion and collusion in Bank contracts and Bank operations more generally.82 INT also investigates allegations of serious staff misconduct and assists in improving compliance with Bank policies.83 The INT Department was converted to a Vice Presidency in 2008, on the recommendations of the Volker Panel, and is now known as the Integrity Vice Presidency.84 It is the hub for the investigation, resolution and sanctioning for allegations of corruption in Bank operations, including in Bank-funded contracts. The Integrity Vice Presidency uses a number of tools for the prevention and detection of corruption including early warning systems and forensic methodologies for tracking funds lost to fraud and corruption.85 In addition, it conducts the debarment process through the Office of Suspension and Debarment and also assists debarred companies in achieving an acceptable level of compliance through the Integrity Compliance Office.86 More will be said on the work of INT below. 80 World Bank, World Bank Operational Manual, Good Practices 14.70 (Washington DC, World Bank, 2000). 81 See JD Wolfensohn, ‘New Measures to Combat Fraud and Corruption’. Reprinted in Aguilar, Gill and Pino, Preventing Fraud and Corruption in World Bank Contracts, n 3 above, 43–47. 82 World Bank, A Guide to the World Bank, 3rd edn (Washington DC, The World Bank, 2011) 46. 83 ibid. 84 P Volker, G Gaviria, J Githongo, BW Heineman, W Van Gerven and J Vereker, Independent Panel Review of the World Bank Department of Institutional Integrity (Washington DC, The World Bank, 2007) 13. Available at siteresources.worldbank.org/NEWS/Resources/ Volcker_Report_Sept._12,_for_website_FINAL.pdf. For information on recent changes to the INT see K Tipton, ‘Corruption in the World Bank’s Integrity Vice Presidency: Seven Years Later’ (2013) 22 Currents: International Trade Law Journal 69. 85 World Bank, World Bank Group Integrity Vice Presidency Annual Update FY 2015 (Washington DC, The World Bank, 2015) 2–3. 86 See generally, JJ Verdeax, ‘The World Bank and Public Procurement: Improving Aid Effectiveness and Addressing Corruption’ (2006) 6 Public Procurement Law Review NA179; S Williams-Elegbe, ‘The Debarment of Corrupt Contractors from World Bank-Financed Contracts’ (2007) 36 Public Contract Law Journal 277.

Anti-corruption in the World Bank 185 In 2006, the World Bank issued its Anti-Corruption Guidelines,87 which set out the principles, requirements and sanctions applicable to persons and entities which receive Bank funds; are responsible for the deposit or transfer of; or take or influence decisions regarding the use of such proceeds.88 These Guidelines were revised and expanded in 2011. In 2006 also, the other MDBs agreed to co-operate in anti-corruption matters, by establishing a task force to work towards a coordinated approach to corruption in the MDBs and other international financial institutions.89 In 2007, the Bank went a step further in linking anti-corruption to governance, when it issued the Governance and Anti-Corruption Strategy,90 which heightened the Bank’s focus on governance and anti-corruption (GAC) as an integral part of its work to reduce poverty and promote growth91 and adopted a consistent approach to GAC across all countries. The strategy paper delineated the specific approaches that the Bank would utilise in assisting countries and the greater weight that would be given to governance in lending decisions. The paper was updated in 2012, to reflect the global changes that had occurred since 2007, especially in relation to civil society engagement, social media, the financial crisis and increased citizen participation.92 The updated strategy illustrated an intention to focus on results and to manage risks more effectively, whilst continuing to include governance dimensions into Bank programs. In 2010, the Bank launched the International Corruption Hunters Alliance,93 a network of anti-corruption officials, with the aim of expanding the fight against corruption by promoting the international enforcement of national anti-corruption and asset forfeiture laws to yield higher end results.94 In the same year, the MDBs in an unprecedented step entered into

87 World Bank, Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants (15 October 2006), Hereafter ‘Anti-Corruption Guidelines’. Available at ‘siteresources.worldbank.org/INTOFFEVASUS/ Resources/WB_Anti_Corruption_Guidelines_10_2006.pdf. See S Williams, ‘World Bank Introduces New Measures to Reduce Fraud and Corruption in Bank-financed Contracts and the Administration of Bank Loans’ (2007) 5 Public Procurement Law Review NA152. 88 Anti-Corruption Guidelines, para 1. 89 World Bank, International Financial Institutions Anti-Corruption Task Force, Uniform Framework for Preventing and Combating Fraud and Corruption (Washington DC, The World Bank, 2006). 90 World Bank, Strengthening World Bank Group Engagement on Governance and AntiCorruption (Washington DC, The World Bank. 2007). 91 ibid, para 1. 92 World Bank, Strengthening Governance, Tackling Corruption: The World Bank’s Group Updated Strategy and Implementation Plan (Washington DC, The World Bank, 2012). 93 World Bank, Annual Integrity Report, Integrity Vice Presidency (Washington DC, The World Bank, 2010). 94 S Tenney and AD Salda, Historical Dictionary of the World Bank, 2nd edn (Lanham, Scarecrow Press, 2014).

186 Corruption in MDB Funded Procurement an agreement on cross-debarment, ie the enforcement of the debarment of a contractor in one MDB by all the other MDBs.95 In 2016, the World Bank received a boost to its anti-corruption efforts in two interesting, but unrelated ways. First, in April 2016, the Supreme Court of Canada issued its judgment in the case of World Bank Group v Wallace.96 In this case, the accused persons were former employees of SNC-Lavalin Inc., and had been accused (under the Canadian Corruption of Foreign Public Officials Act) of bribing Bangladeshi officials in a Bank-funded contract. Canadian investigators intercepted communication between the accused persons in order to obtain evidence against them. The accused challenged this evidence and also sought an order requiring the production of INT records on the case. This order was granted at first instance, but on appeal, the Supreme Court of Canada held that the immunity outlined in Art VII, s. 5 of the IBRD Articles of Agreement ‘shields the entire collection of stored documents of the IBRD and the IDA from both search and seizure and from compelled production’.97 In addressing the issue of whether named Bank employees had waived their immunity by co-operating with domestic law enforcement, and could be compelled to produce the documents requested, the Supreme Court held that: exposing the World Bank Group to forms of implied or constructive waiver could have a chilling effect on collaboration with domestic law enforcement. Such an effect would be harmful, since multilateral banks including the World Bank Group are particularly well placed to investigate corruption and to serve at the frontlines of international anti-corruption efforts.98

Notably, in the opening paragraph to the judgment, the Court lent credence to the Bank’s anti-corruption efforts when it stated that: Corruption is a significant obstacle to international development. It undermines confidence in public institutions, diverts funds from those who are in great need of financial support, and violates business integrity. Corruption often transcends borders. In order to tackle this global problem, worldwide cooperation is needed. When international financial organizations, such as the appellant World Bank Group, share information gathered from informants across the world with the law enforcement agencies of member states, they help achieve what neither could do on their own.

The significance of this ruling is that it affirms, supports and recognises at the highest domestic level, Bank and multilateral anti-corruption efforts and provides domestic judicial support for the global fight against corruption. 95 World Bank, Agreement for Mutual Enforcement of Debarment Decisions by the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, Inter-American Development Bank Group and the World Bank Group (Washington DC, The World Bank, 2010). 96 World Bank Group v Wallace 2016 SCC 15. 97 ibid, para 67. 98 ibid, para 94.

Anti-corruption in the World Bank 187 Secondly, in May 2016, the UK government hosted a major anti- corruption conference, which brought together global leaders from government, civil society and business to step up global action against corruption. The upshot of this conference was a document titled the Global Declaration against Corruption.99 The Declaration announced global ‘leaders’ shared ambition to tackle corruption100 and contains an international consensus to fight corruption by exposing it in all its forms, by punishing the corrupt and by driving corruption out, wherever it may exist. B. Addressing Corruption in Bank-funded Contracts This section will look at the specific measures that are utilised by the Bank to prevent corruption in Bank-funded procurements. It will first examine how the Bank describes corruption in Bank-funded procurements, and next examine the different channels through which the Bank addresses corruption. These are prevention and compliance, detection and investigation, deterrence, sanctions and resolution. i. The Corruption Offences in the Bank’s Anti-corruption Policy The Bank’s approach to corruption has been significantly streamlined in the last decade. As was mentioned above, the inclusion of a paragraph on fraud and corruption first occurred in the 1996 revision to the procurement guidelines. That paragraph was revised and expanded in 2004 and exists in substantially the same form under the 2011 procurement guidelines. The provisions on corruption in the procurement guidelines are reproduced in the Bank’s anti-corruption guidelines, which state: These Guidelines address the following defined practices when engaged in by recipients of Loan proceeds in connection with the use of such proceeds: A ‘corrupt practice’ is the offering, giving, receiving or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another party. A ‘fraudulent practice’ is any act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation. A ‘collusive practice’ is an arrangement between two or more parties designed to achieve an improper purpose, including to influence improperly the actions of another party.

99 Available at www.gov.uk/government/publications/global-declaration-against-corruption/ global-declaration-against-corruption. 100 See ibid, preamble.

188 Corruption in MDB Funded Procurement A ‘coercive practice’ is impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party. An ‘obstructive practice’ is (i)

deliberately destroying, falsifying, altering or concealing of evidence material to the investigation or making false statements to investigators in order to materially impede a Bank investigation into allegations of a corrupt, fraudulent, coercive or collusive practice; and/or threatening, harassing or intimidating any party to prevent it from disclosing its knowledge of matters relevant to the investigation or from pursuing the investigation, or (ii) acts intended to materially impede the exercise of the Bank’s contractual rights of audit or access to information.101 The 2011 procurement guidelines provide: It is the Bank’s policy to require that Borrower’s (including beneficiaries of Bank loans), bidders, suppliers, contractors and their agents (whether declared or not), sub-contractors, sub-consultants, service providers or suppliers and any personnel thereof observe the highest standards of ethics during the procurement and execution of Bank-financed contracts. In pursuance of this policy, the Bank: (a) defines for the purposes of this provision, the terms set forth below as follows: (i) ‘corrupt practice’ is the offering, giving, receiving or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another party. (ii) ‘fraudulent practice’ is any act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation. (iii) ‘collusive practice’ is an arrangement between two or more parties designed to achieve an improper purpose, including to influence improperly the actions of another party. (iv) ‘coercive practice’ is impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party. (v) an ‘obstructive practice’ is (aa) deliberately destroying, falsifying, altering or concealing of evidence material to the investigation or making false statements to investigators in order to materially impede a Bank investigation into allegations of a corrupt, fraudulent, coercive or collusive practice; and/or threatening, harassing or intimidating any party to prevent it from disclosing its knowledge of matters relevant to the investigation or from pursuing the investigation, or (bb) acts intended to materially impede the exercise of the Bank’s inspection and audit rights provided for under paragraph 1.16 (e) below.

101

Anti-Corruption Guidelines, para 7.

Anti-corruption in the World Bank 189 (b) will reject a proposal for award if it determines that the bidder recommended for award or any of its personnel or agents or its sub-consultants or subcontractors, service providers, suppliers and/or their employees has, directly or indirectly, engaged in corrupt, fraudulent, collusive, coercive or obstructive practices in competing for the contract in question; (c) will declare misprocurement and cancel the portion of the loan allocated to a contract if it determines at any time that representatives of the Borrower or of a recipient of any part of the proceeds of the loan engaged in corrupt, fraudulent, collusive, coercive or obstructive practices during the procurement or the implementation of the contract in question, without the Borrower having taken timely and appropriate action satisfactory to the Bank to address such practices when they occur, including by failing to inform the Bank in a timely manner at the time they knew of the practices; (d) will sanction a firm or individual, at any time in accordance with the prevailing Bank’s sanctions procedures including by publicly declaring such firm or individual ineligible, either indefinitely or for a stated period of time: (i) to be awarded a Bank-financed contract and (ii) to be nominated a sub-contractor, consultant, supplier or service provider of an otherwise eligible firm being awarded a Bank-financed contract; (e) will require that a clause be included in bidding documents and in contacts financed by a Bank loan, requiring bidders, suppliers and contractors, and their sub-contractors, agents, personnel, consultants, service-providers, or suppliers to permit the Bank to inspect all accounts, records, and other documents relating to the submission of bids and contract performance, and to have them audited by auditors appointed by the Bank…102

As can be seen, the Bank adopts an extremely wide approach to corruption offences, in order to ensure that all kinds of unethical conduct are prohibited. Under the 2016 procurement regulations, the offences that will lead to Bank sanctions are exactly the same as under the 2011 procurement guidelines. The 2016 regulations, incorporate the Anti-Corruption Guidelines into the regulations.103 The main area of difference between the 2016 regulations and the 2011 procurement guidelines is in the nature of the sanctions as the 2016 regulations provide for the sanction of cross-debarment. This will be discussed in detail below. ii. Prevention of Corruption in Bank-funded Contracts As was discussed in section II above, there are several areas of vulnerability to corruption in domestic public procurement as well as in Bank-funded contracts. Investigations by INT highlight that the areas that are most

102 103

Bank Procurement Guidelines (2011), para 1.16. Procurement Regulations for Borrowers, para 3.32.

190 Corruption in MDB Funded Procurement v ulnerable in Bank projects are in relation to the procurement process, contract management and financial management.104 Most corruption schemes are in fact a composite of different kinds of corruption making them difficult to unravel. It is thus often the case that demands or offers for illegal payments are accompanied by bid rigging or other anti-competitive schemes, and fraud in documentation, contract and financial management is used to cover up the bribery and bid rigging.105 The difficulties, the cost and the expense of investigating corruption, make preventative measures a better approach to controlling corruption, since detection does not always result in a return of funds lost to corruption and is unable to redress the procurement quality issues that are often integral to procurement corruption. Under the 2016 regulations, there are a series of corruption preventive measures that the Bank relies on in funded procurements. It may be noted that some of these measures such as prior review are both preventive and detection measures and the classification adopted in this section is by no means exclusive as some of the measures will fall into more than one category. This section will examine those that are relevant to the procurement process. (i)

(ii)

Project preparation and procurement assessments: A series of corruption preventative measures are included in the project preparation phase. One of these is a procurement assessment, which considers both procurement and non-procurement risks that may affect the project and considers the procurement arrangements suitable for the project.106 Prior review: For contracts over a certain threshold, the Bank requires an ex-ante review of planned procurement actions that will be carried out by the borrower. Prior review is a function of the value of the contract as well as the level of risk involved. Some of the risk factors that are considered are whether the procurement is likely to be complex, such as where an innovative solution is required or where the scope of the procurement is uncertain and not easily quantifiable; whether there is a high downstream impact, such as critical consulting services on matters that have significant consequences for the project; whether the procurement arrangements have inherent risk, such as procurement that includes the use of negotiations, best and final offer (BAFO), competitive dialogue and the application of sustainable procurement; and situations where the borrower has been assessed

104 World Bank Integrity Vice Presidency, Fraud and Corruption Awareness Handbook (Washington DC, The World Bank, 2009). Available at siteresources.worldbank.org/INTDOII/ Resources/INT_inside_fraud_text_090909.pdf. 105 ibid, Ch 2. 106 Bank Directive, section III A.

Anti-corruption in the World Bank 191 to have low capacity, such as in FCS environments, to carry out the subject procurement.107 There are established thresholds for prior review, which are shown in Table 1 below and it is possible for the Accredited Practice Manager (APM) to set a lower threshold for prior review, with the necessary permission.108 Similarly, where the risk is low or moderate, the APM may determine that a procurement above the prior review threshold may instead be subject to post review and the APM may also request the Bank’s Chief Procurement Officer to increase the mandatory review value thresholds for low to moderate risk procurements.109 It may be noted that the determination of whether a contract meets the prior review threshold is based on the total value of the contract, including all taxes and levies. In slice and package arrangements, the threshold is based on the aggregate value of individual contracts under the arrangement.110 Table 8.1: Procurement Prior Review Thresholds (US$ million)111 TYPE OF PROCUREMENT

HIGH RISK

SUBSTANTIAL MODERATE LOW RISK RISK RISK

Works (including turnkey, supply & installation of plant and equipment and PPP).

$5

$10

$15

$20

Goods, information technology and nonconsulting services

$1.5

$2

$4

$6

Consultants: firms

$500,000 $1

$2

$4

$400,000

$500,000

Consultants: Individual $200,000 $300,000

It should be noted that the prior review function is undertaken by different categories of staff, depending on the value of the procurement. Thus for lower value contracts above the prior review threshold, the prior review is undertaken by the Accredited Practice Specialist or the Procurement Accredited Staff. For intermediate value contracts, the review is conducted by the

107 Procurement Regulations for Borrowers, Annex II, para 3.1. FCS stands for fragile and conflict affected states. 108 Bank Procedure, Annex I, para 2.3. 109 ibid. 110 ibid, Annex I, para 3. 111 ibid, Annex I, para 2.1.

192 Corruption in MDB Funded Procurement APM and for higher value contracts; the prior review is a function of the Operational Procurement Review Committee (OPRC).112 Prior review involves the review of relevant procurement documents and key recommendations of the borrower and issuing a no objection notice prior to the borrower moving to the next stage in the procurement process.113 These documents will include general and special procurement notices; procurement plans; prequalification documents; request for proposal documents; bidding documents; evaluation reports; and selection and contract management documents.114 Apart from being useful in uncovering anomalies, prior review also serves to reassure the borrower that the process is consistent with the Bank procurement regulations. Where anomalies or red flags are detected, the prior review personnel may take further action by clarifying issues with the borrower; refusing to issue the no objection notice; and may submit a complaint to INT for further investigation. The Fraud and Corruption Awareness Handbook issued by INT provides Bank staff with information for understanding the red flags that might signal corruption in a Bank-funded contract. As an anti-corruption tool, prior reviews are useful to prevent the ‘more obvious or grand forms of corruption’,115 but they may not uncover the more subtle kinds of corruption that occur in some Bank contracts. Earlier research by Hobbs indicated that some of the bribery in Bank contracts takes the form of a ‘pay-to-play’ scheme where bidders with responsive bids are approached and are required to pay a bribe in order to be awarded the contract. Thus, in essence, the evaluation of bids includes cost, quality and size of bribe paid.116 Similarly, prior reviews will not uncover bribes paid by successful contractors to successfully implement the contract.117 Thus, ‘speed money’ may be required to process invoices, to deliver goods or ensure inspectors arrive at site as and when due. In addition, although the fees due to agents used by bidders or contractors are required to be included in bids, illegal payments will not be included in agent’s fees or commissions and are often paid to an individual unconnected to the contract, who distribute same to the relevant officials.118

112 The OPRC is comprised of the Bank Chief Procurement Officer, the Legal Procurement Adviser from LEGOP (the operational unit of the Legal Vice Presidency of the Bank) and the APM. 113 Procurement Regulations for Borrowers, Annex II, para 7.1. 114 ibid. 115 Hobbs, ‘Corruption in World Bank Financed Projects’ n 60 above, 21. 116 ibid, 23. 117 ibid. 118 ibid, 25.

Anti-corruption in the World Bank 193 (iii) Expanded implementation support: In cases where the borrower is deemed by the Bank to be in urgent need of assistance because of a natural or man-made disaster or conflict, or experiences capacity constraints because of fragility or specific vulnerabilities (including for small States);119 the Bank may agree to provide hands-on expanded implementation support to the borrower at various stages of the procurement process. The nature of this support may include (a) drafting procurement documents; (b) evaluating bids; (c) observing dialogues and negotiations with bidders; or (d) drafting procurement reports and contract award documentation.120 Although in such cases, the Bank takes a very involved role in the procurement process, it must still be noted that the provision of this kind of support does not absolve the borrower of its responsibilities in relation to its execution of the project and ‘does not result in the Bank executing procurement on behalf of the Borrower’.121 Expanded support to borrowers in these cases prevents the irregularities that may arise from corruption as well as from a lack of capacity. (iv) Knowledge sharing: In 2008, the Bank launched a Preventive Services Unit (PSU) in INT, to assist Bank staff in anticipating and preventing fraud and corruption in Bank-financed contracts.122 The PSU provides staff with information on the corruption warning signs and an indication of the risks that relate to Bank contractors. iii. Ensuring Compliance with Bank Anti-corruption Norms Besides undertaking measures to prevent or forestall the occurrence of corruption in Bank-funded contracts, the Bank devotes its attention to ensuring that bidders and borrowers comply with the Bank’s anti-corruption policy. Compliance is ensured through a number of avenues: (i)

Country Partnership Framework (CPF): As mentioned in Chapter 5, the Bank’s CPF ‘guides the Bank’s support to a member country’123 and relies on an analytical tool called the Systematic Country Diagnostic (SCD) to determine the most critical constraints to ‘reducing poverty and building shared prosperity sustainably, while considering

119 World Bank Operations Manual, OP 10.00 (revised July 2014), para 12. See also Procurement Regulations for Borrowers, para 3.10. For an analysis of the prevalence of corruption in emergency or disaster procurement see J Schultz and T Soreide, ‘Corruption in Emergency Procurement’ (2008) 32(4) Disasters 516. 120 Bank Directive, section III C (4). 121 ibid. 122 World Bank, Annual Integrity Report, Integrity Vice Presidency (Washington DC, The World Bank, 2008). 123 See World Bank, ‘Country Strategies’ at www.worldbank.org/en/projects-operations/ country-strategies.

194 Corruption in MDB Funded Procurement the voices of the poor and the views of the private sector and other stakeholders’.124 Of course, should the SCD reveal corruption as a threat or a constraint to the Bank’s intervention, the CPF may highlight the Bank’s support for strategies to ameliorate this constraint.125 (ii) Anti-corruption agreements: By virtue of the Anti-Corruption Guidelines, the Bank requires the borrower to include anti-corruption provisions in its agreements with all recipients of loan proceeds, which will include subcontractors, sub-consultants, service providers, suppliers and agents. These recipients must abide by the Bank’s policy on fraud and corruption, as expressed in the Anti-Corruption Guidelines discussed above.126 Under the provisions, the loan recipient commits to take all steps necessary to conduct itself with the highest standards of ethics, and will comply with the Anti-Corruption Guidelines; will permit the Bank to inspect all accounts, records and documents relating to the procurement process and have these audited by auditors appointed by the Bank; will be liable to early termination of its contract with the borrower if it engages in fraud and corruption; and will be liable to provide restitution of any amounts under the loan in respect of which fraud and corruption has occurred.127 Note that the provisions of the Anti-Corruption Guidelines form a mandatory component of the Standard Procurement Documents (SPD). The limitations of anti-corruption commitment or agreement are obvious. Such commitment or agreement is only as persuasive as the integrity of the maker of the agreement. In countries with systemic corruption, such an agreement is almost worthless as a reliable indication of the likelihood of corruption occurring in the contract, or as an assurance that the parties will not engage in corruption within Bankfunded contracts. (iii) Restrictions in the procurement regulations: Apart from the ratification of the anti-corruption agreement discussed above, the Bank procurement regulations contain extensive restrictions on activity that could tend to an abuse of the procurement process. Thus, the procurement regulations provide extensive restrictions on conflicts of interest through the use of firms and individuals that have been involved in project preparation or are otherwise involved in the procurement process.128 In addition, a bidder is not permitted to submit more than

124

See ibid. World Bank, Independent Evaluation Group, The World Bank and Public Procurement: An Independent Evaluation, Vol 1: Building Procurement Capacity and Systems’ (Washington DC, The World Bank, 2013), Ch 2. 126 Anti-Corruption Guidelines, para 9(d). 127 ibid. 128 Procurement Regulations for Borrowers, paras 3.14–3.17. 125

Anti-corruption in the World Bank 195 one bid in a procurement process,129 in order to improve its chance of obtaining the contract. Another restriction in the regulations is the prohibition against the use of brand names in procurement specifications,130 and a restriction against the award of contracts to contractors or persons that have been sanctioned by the Bank.131 iv. Detection and Investigation of Corruption in Bank-funded Contracts (i)

(ii)

129

Post reviews: The Bank carries out post reviews of procurement processes undertaken by the borrower to determine whether the process complied with the agreement between the borrower and the Bank. The Bank may use a third party, such as a supreme audit institution, to carry out post reviews.132 The purpose of procurement post reviews include but are not limited to: a) verifying that the procurement procedures followed by the borrower are compliant with the legal agreement; b) confirming that the borrower continues to be in compliance with the agreed procurement arrangements, including timely and effective implementation of the agreed risk mitigation/management plan; c) the continued adherence to the contract including technical compliance; d) noting Fraud and Corruption red flags and report any evidence to INT; e) identifying mitigating measures or actions to correct procurement deficiencies and recommend them to the borrower.133 The documents that are used for a post review include the signed original of the contract, and all subsequent amendments or addenda; the bids/proposals evaluation report; the recommendation for award; the payment invoices or certificates; and the certificates for inspection, delivery, completion and acceptance of goods, works and non-consulting services.134 Independent procurement reviews and third party probity assurance: Independent procurement reviews are an additional level of review. They are procurement audits performed by independent third parties appointed by the Bank, when the Bank determines the need for such a review based on its risk assessment.135 Third-party probity assurance is the use of a third party to ensure the integrity of the procurement

ibid, para 3.19. ibid, para 5.27. 131 ibid, para 3.23. 132 ibid, para 3.6. 133 ibid, Annex II, para 4.2. 134 ibid, Annex II, para 9.1. 135 ibid, para 3.9. 130

196 Corruption in MDB Funded Procurement process as conducted by the borrower. The procurement regulations define a third-party probity assurer as ‘an independent third party that provides specialist probity services for concurrent monitoring of the procurement process’.136 The third party participates in monitoring specific points of the procurement process such as negotiations and dialogues, and submits a report to all interested parties thereafter. These independent procurement reviews and reports of third-party assurers are also an avenue by which unwholesome practices in procurement may be discovered. (iii) Voluntary disclosure program (VDP): In 2006, the Bank launched a voluntary disclosure program which permitted contractors who admitted to acts of corruption in Bank-funded contracts the opportunity to avoid debarment if such contractors implemented an internal audit and compliance program to the satisfaction of the Bank. Under the VDP, contractors: commit to cease paying bribes or engaging in fraud, corruption, collusion or coercion. They must disclose to the Bank all such past misconduct in Bank-supported projects or contracts, implement a robust and monitored compliance program, and pay the bulk of the costs associated with participation in the VDP…In exchange for full cooperation, VDP participants avoid public debarment for disclosed past misconduct, and benefit from the Bank’s assurances of confidentiality.137 In essence, the VDP requires three things of contractors that have engaged in corruption and are not currently under investigation. They are required to commit to desist from acts of corruption; voluntarily disclose past misconduct on Bank-funded contracts, and implement a robust corporate governance compliance program that is monitored by a compliance monitor acceptable to the Bank.138 The Bank will then not debar the contractor nor its current or previous staff for these misdeeds.139 However, if the contractor breaches the terms of the VDP agreement with the Bank, it will be sanctioned by a ten-year mandatory debarment by the Bank.140 136

ibid, Common Abbreviations and Defined Terms. Release, World Bank Launches Voluntrary Disclosure Program (Washington DC, The World Bank). Available at www.worldbank.org/en/news/press-release/2006/08/15/worldbank-launches-voluntary-disclosure-program. See also, World Bank, Voluntary Disclosure Program Guide for Participants (Washington DC, The World Bank, 2011). Hereafter ‘VDP Guide for Participants’. Available at siteresources.worldbank.org/INTVOLDISPRO/Resources/ VDP_Guidelines_2011.pdf. 138 See VDP Guide for Participants, 8. 139 ibid. 140 ibid, 12. See generally, SH Deming, ‘Anti-Corruption Policies: Eligibility and Debarment Practices at the World Bank and the Regional Development Banks’ (2010) 44 International Lawyer 871. 137 Press

Anti-corruption in the World Bank 197 The VDP was met with some criticism at its inception, on the basis that it provided ‘amnesty and confidentiality to corrupt contractors, but fails to compensate…the people and countries that have been hurt’.141 The argument made by Rogers is that the VDP absolves contractors of their misdeeds but does not require them to disgorge the unjust gains acquired as result of the corruption, nor forgive the portion of loans lost by the countries to corruption, thus offending the principles of distributive justice.142 Although these concerns are valid, it must be noted that the purpose of the VDP is to assist the Bank in its investigative efforts at uncovering corruption and change private sector behaviour.143 It is thus both an investigative aid and a compliance tool. A much more stringent approach, or a distributive justice approach to voluntary disclosures will not provide erring contractors with the incentive to disclose past misdeeds and change corporate attitudes to corruption. As will be seen below in the context of sanctions against contractors, an obligation to make restitution to the borrower or remedy any harm done is one of the sanctions that may be imposed on contractors. (iv) Direct implementation reviews: A direct implementation review (DIR) was developed by INT in 2001. Its purpose is to evaluate Bankfinanced projects for indicators of fraudulent and corrupt activity.; it is more extensive than prior or post reviews as it includes site visits as well as the examination of relevant documentation. DIRs have proved useful in highlighting issues that may have been missed by other forms of Bank supervision.144 (v) Investigations: Investigations are the conducted by INT, which is charged with responsibility over all corruption matters in the Bank. The process of investigation begins when a complaint is made to INT about a sanctionable practice in a Bank funded project.145 Complaints may be made through the fraud and corruption hotline, through the Bank Integrity app, by email or through direct submissions.146 Upon receipt of the complaint, INT will assess the urgency or the priority of the complaint and act accordingly. Some of the factors taken into

141 SB Rogers, ‘World Bank Voluntary Disclosure Program (VDP): A Distributive Justice Critique’ (2008) 46 Columbia Journal of Transnational Law 709. 142 ibid, 724–25. 143 Williams, ‘World Bank Introduces New Measures’ n 87 above. 144 K Horska, ‘Curbing the World Bank’s Problems with Patronage and Corruption through the Use of Open Framework Agreements’ (2010) 39(3) Public Contract Journal 679. 145 World Bank, Guide to the Staff Rule 8.01: Investigative Process (Washington DC, The World Bank, 2011). 146 PH Dubois, ‘Domestic and International Administrative Tools to Combat Fraud and Corruption: A Comparison of US Suspension and Debarment with the World Bank’s Sanctions System’ (2012) University of Chicago Legal Forum 195, 218.

198 Corruption in MDB Funded Procurement account in determining priority include the amount of funds involved, the reputational risk to the Bank, and the quality of evidence or information received.147 Where the complaint is substantiated, and INT believes there is sufficient evidence that the entity or individual is engaged in a sanctionable practice, INT prepares a report, known as a Final Investigation Report. It should be noted that INT investigations are administrative rather than criminal in nature; the standard of proof is lower than the criminal burden of proof and is more akin to the civil ‘balance of probabilities’. The Final Investigation Report is sent to relevant officials within the Bank and to the Bank President. INT may also on the basis of that report make a referral to the borrower government, where its officials are implicated in the investigations. Where the investigation reveals that the contractor committed a sanctionable offence, INT launches a sanctions case by submitting a Statement of Accusations and Evidence (SAE) to one of the Bank’s Evaluation and Suspension Officers (EO)148 in the Office of Suspension and Debarment (OSD). As will be discussed further below, before an investigation is complete, INT may request the EO to impose a temporary suspension on the subject of the investigation, prior to the commencement of formal sanctions proceedings. If the EO finds that there is sufficient evidence that the subject engaged in at least one sanctionable practice,149 and that the investigation will be concluded within one year, the EO may impose a temporary suspension of no more than two years on the entity or individual in question.150 As is discussed further below, the OSD engages in an adjudicatory process, which will often result in sanctions. Where OSD determines that commencing the adjudicatory process is not appropriate, it will inform INT and refrain from issuing a notice to the investigated entity or individual. (vi) Inspections and audits: The Bank retains a right to inspect and audit documents relating to a Bank-funded procurement. This right exists in both the 2011 procurement guidelines and the 2016 regulations, which provides that: a clause be included in requests for bids/proposals and in contracts financed by a Bank loan, requiring bidders, (applicants/proposers), consultants, contractors, suppliers and their sub-contractors, sub-consultants, agents, personnel, consultants, service providers, or suppliers, permit the Bank to inspect all accounts, records and 147

ibid, 219. Leroy and F Fariello, The World Bank Group Sanctions Process and its Recent Reforms (Washington DC, The World Bank, 2012) 3. 149 ibid. 150 Dubois, ‘Domestic and International Administrative Tools’, n 146 above, 219–20; Leroy and Fariello, The World Bank Group Sanctions Process n 148 above, 12–14. 148 AM

Anti-corruption in the World Bank 199 other documents relating to the procurement process, selection and/or contract execution, and to have them audited by auditors appointed by the Bank.151 Under the 2016 regulations, inspections and audits are forensic or investigative in nature and involve an ex post investigation of financial records, data and other information belonging to and in the possession of the supplier/contractor, as well as physical verification and third party verification of evidence.152 Although inspections and audits are investigative in nature, and are often aimed at uncovering evidence about allegations of fraud or corruption, they are not conducted by INT, although the information obtained from an inspection or audit may lead to an investigation by INT. (vii) Whistleblowing/reporting mechanisms: In 2013, the Bank developed an ‘Integrity App’, which could be used by the public to report acts of fraud and corruption in Bank-financed contracts. The other reporting mechanisms are an online ‘Integrity Complaint Form’ and a telephone hotline. These reporting mechanisms are of course of importance in uncovering acts that would otherwise not have come to the Bank’s notice. It may be noted that in fiscal year 2015, 73 per cent of complaints to the Bank came from non-Bank sources, such as ‘contractors, citizens, government officials, employees of NGOs, and other multilateral development banks’153 who relied on these reporting mechanisms in making a complaint. v. Deterrence, Sanctions and Resolution of Corruption Cases This section considers the measures that can be taken by the Bank, once there is a finding that there has been fraud or corruption in relation to Bank funds. The Bank has a two-pronged approach to deterrence and sanctions: measures that are directed at the borrower and measures that are directed at contractors. In relation to borrowers, the Bank is able to use the remedies of misprocurement, loan suspension, cancellation and/or loan acceleration. These remedies are usually included in the loan agreement and the General Condition for Loans, which are standardised terms applying to Bank loans.154 In relation to contractors, there is a formal sanctions process for adjudicating cases, and imposing a range of sanctions where INT investigations reveal a sanctionable offence.

151

Procurement Regulations for Borrowers, Annex IV, para 2.2.

152 ibid. 153 The

World Bank Group Integrity Vice Presidency, Annual Update Fiscal Year 2015 (Washington DC, World Bank, 2015) 34. 154 World Bank, IBRD, General Conditions for Loans (Washington DC, The World Bank, 2012). Hereafter ‘General Conditions for Loans’.

200 Corruption in MDB Funded Procurement This section will further look at the specific remedies and sanctions available to the Bank once there is fraud and corruption in the procurement context. a. Sanctions Against Borrowers (i)

(ii)

Loan cancellation: Loan cancellation is the most far-reaching and punitive of legal remedies available to the Bank against borrowers and has been described as the ‘ultimate tool for enforcement’.155 It entails the withdrawal of part or the whole of funds agreed upon in the loan agreement. As discussed further below, partial loan cancellation is quite common as it is usually implemented with a declaration of misprocurement, but total loan cancellation is used by the Bank as a last resort, in the most egregious of cases, and in situations where the Bank and the borrower are unable to agree on some fundamental issues.156 In discussing loan cancellation, Shihata opines that ‘given the cooperative nature of the Bank and its on-going long term relationships with its borrowing members, matters are expected to be settled through negotiation more often than through resort to such remedies’.157 As is stated in the General Conditions for Loans, the events which may trigger a cancellation of a loan include the suspension of a loan for a period of 30 days; if the Bank determines that amount of the loan balance is not required by the borrower; if the Bank determines that corruption, fraud, collusion or coercion occurred and the borrower or the project implementing entity did not take ‘timely and appropriate action satisfactory to the Bank to address such practices…’; where there is misprocurement and where at the closing date of the loan, there remains an unwithdrawn loan balance.158 Loan suspension: Loan suspension is a serious remedy, and can occur for a wide range of issues that may be unrelated to the procurement context. In these cases, the Bank may ‘suspend in whole or in part the right of the Borrower to make withdrawals from the Loan Account. Such suspension shall continue until the event (or events) which gave rise to the suspension has (or have) ceased to exist’.159 The events which may give rise to a suspension are payment failure under the

155 I Shihata (ed), The World Bank in a Changing World: Selected Essays and Lectures, Vol II (Leiden, Martinus Nijhoff, 1995) 548. 156 S Engel, The World Bank and the Post Washington Consensus in Vietnam and Indonesia (London, Routledge, 2010) 150. 157 Shihata, The World Bank in a Changing World, n 155, 319. 158 General Conditions for Loans, art VII section 7.03. 159 ibid, art VII section 7.02.

Anti-corruption in the World Bank 201 loan; performance failure under the legal agreement; corrupt, fraudulent, collusive and coercive practices in relation to the proceeds of the loan; an extraordinary situation, which makes it improbable that the project will be carried out (this may include for instance a civil war in the borrower); where an event occurred prior to loan effectiveness, which would have entitled the Bank to suspend the loan had the loan agreement been effective when the event occurred; where a misrepresentation was made by the borrower in or pursuant to the loan agreement; the failure of a co-financing agreement; where the borrower assigned its obligations under the loan without the consent of the Bank; where the Member country ceases to be a member of the Bank or the IMF; any material adverse change in the condition of the borrower (such as when it becomes unable to repay its debts), and the borrower (not the Member country) is debarred by the Bank and any other event under the loan agreement that could lead to suspension.160 Unlike loan cancellation, suspension is temporary and the borrower will be permitted to resume withdrawal of loan funds once the event leading to suspension ceases. However, as mentioned above, where a suspension exceeds 30 days, it may lead to a cancellation of the loan. (iii) Loan acceleration: This is another serious remedy available to the Bank and involves the immediate and complete repayment of funds that are not yet due under the agreement. In other words, the acceleration of loan repayment. As is the case under loan suspension, there are various events that could lead to loan acceleration. These are a payment default of an amount due to the Bank; a performance default of any obligation under the legal agreement, which default persists for 60 days after notice of the default has been given; the failure of a co-financing agreement; the borrower assigning its obligations under the loan without the consent of the Bank; the Member country ceasing to be a member of the Bank or the IMF; any material adverse change in the condition of the borrower; and any other additional event in the loan agreement which may lead to acceleration.161 A loan acceleration penalty is potentially a more devastating event than either loan cancellation or suspension, as it may create a situation where a borrower is unable to repay its debts, whether those debts are those that issued from the Bank or those that issued from the private sector capital markets. (iv) Misprocurement: Misprocurement is a financial remedy a vailable to the Bank when the borrower has breached an aspect of the loan agreement or the procurement regulations in relation to the procurement of goods, works or services that are financed by the Bank. Misprocurement

160 161

ibid, art VII section 7.02(a)–(m). ibid, art VII section 7.06.

202 Corruption in MDB Funded Procurement is the termination of a portion of the finance devoted to specific procurements for various infractions. By virtue of the Bank’s regulations, the Bank may declare misprocurement in accordance with the relevant provisions of the procurement regulations. When misprocurement is declared, the Bank will not finance expenditures under the contract that has been so misprocured.162 Misprocurement can be applied to contracts financed using all categories and methods of procurement and may be declared at any point during the procurement process, even if the Bank had previously provided the borrower with a no objection notice for that portion of the project.163 Misprocurement is normally accompanied with the cancellation of portion of the loan allocated to the misprocured contract.164 In exceptional cases, such as where ‘there are legitimate differences in judgment between the Bank and the borrower, or if the borrower genuinely misunderstood the requirements of the loan agreement’,165 the Bank may decide to cancel the portion of the loan allocated to the misprocured contract, but instead to reallocate it to other components of the project. Note that in such cases, that portion of the loan may not be used to finance any contract awarded in respect of which misprocurement was declared.166 Misprocurement may be declared for a variety of offences or infractions. Thus, the procurement regulations provide that misprocurement may be declared in the following cases: a) Where the borrower has not complied with the procurement requirements set out in the legal agreement, such as where there is a failure to address complaints in accordance with applicable requirements.167 This provision puts pressure on borrowers to ensure that all complaints are dealt with with dispatch and in accordance with the Bank’s regulations, as a failure to do so may have severe consequences for the borrower. b) Where the Bank concludes that the no objection notice or the notice of satisfactory resolution was issued on the basis of incomplete, inaccurate or misleading information furnished by the borrower or the terms and conditions of the contract had been substantially modified without the Bank’s no objection notice, even if the project has closed.168

162 World Bank Operational Policy OP 11.00 Procurement (January 2011, Revised July 2014), para 11. 163 ibid, para 12. 164 ibid. 165 ibid, para 13. 166 ibid. 167 Procurement Regulations for Borrowers, para 3.24. 168 ibid, para 3.25.

Anti-corruption in the World Bank 203 c) Where the Bank determines that the representatives of the borrower or a recipient of loan proceeds engaged in corrupt, fraudulent, collusive, coercive or obstructive practices during the procurement process, selection and/or execution of the contract in question, without the borrower having taken timely and appropriate action satisfactory to the Bank to address such practices when they occur, including by failing to inform the Bank in a timely manner at the time they knew of the practices.169 Where an infraction that could lead to misprocurement has occurred, the Task Team Leader sends a written notice to the borrower, bringing the violation to its attention and giving it an opportunity to explain how the situation has been rectified or why the Bank should not declare misprocurement.170 Depending on the borrower’s response, or if the borrower fails to respond within a reasonable timeframe, the matter is raised to the Bank Country Director through a memorandum giving the details of the case and recommending a course of action to be taken.171 Where the borrower disagrees with the Bank’s determination that a violation has occurred, and/or that the Bank should declare misprocurement, the memorandum addresses the borrower’s points.172 Where the borrower can show that no violation has occurred or that the underlying violation has been or will be rectified, no misprocurement will be declared. However, if this is not the case, the Bank prepares a draft final notice to the borrower, declaring misprocurement, cancelling a part of the loan, and informing the borrower of the actions it must take.173 If there is a case for not cancelling the portion of the loan allocated to the misprocured contract, then after clearance with the relevant Bank personnel, the borrower will be notified.174 b. Sanctions Against Contractors The World Bank’s sanctions process against contractors has evolved significantly from its inception in the late 1990s.175 The necessity for a formal sanctions process arose from a need to develop an effective mechanism for 169

ibid, Annex IV, para 2.2. Bank Operational Manual, BP 11.00: Procurement (July 2011, Revised July 2014), para 31. 171 ibid, para 32. 172 ibid. 173 ibid, para 33. 174 ibid, para 35. 175 D Thornburgh, RL Gainer and CH Walker, Report Concerning the Debarment Processes of the World Bank (Washington DC, The World Bank, 2002). For a review of the performance of the Bank’s sanctions process, see T Soreide, L Groning and R Wandall, ‘An Efficient AntiCorruption Sanctions Regime? The Case of the World Bank’ (2016) 16(2) Chicago Journal of International Law 523. 170 World

204 Corruption in MDB Funded Procurement sanctioning companies and individuals found to have engaged in fraud or corruption.176 From a one-tiered sanctions process that was used between 1998 and 2004 to the two-tiered sanctions process that has been in place since 2004 with various modifications,177 the Bank maintains a ‘quasijudicial administrative process’178 for sanctioning firms that are involved in fraud and or corruption on Bank-funded contracts. As was mentioned above, the sanctions process commences with either a request for early temporary suspension, or on the conclusion of an investigation, with the submission of a Statement of Accusation and Evidence to the EO. If the EO evaluates the evidence presented by INT and determines that the evidence supports a finding of a sanctionable practice,179 the EO will issue a Notice of Sanctions Proceedings to the entity or individual in question (the respondent) and recommend a sanction and, if applicable, temporarily suspends the respondent if the recommended sanction is a period of debarment exceeding six months.180 Within 30 days of receipt of the notice, the respondent may file an Explanation with the EO seeking either the dismissal of the case or a revision of the sanction recommended and, on this basis, the EO may either withdraw the notice and so terminate the temporary suspension (if any) or revise the recommended sanction.181 However, if the respondent does not submit an explanation, then, within 90 days of the receipt of the notice, it must submit a Response to the Sanctions Board, which may include written arguments and evidence.182 Where a Response is not submitted, then the sanction recommended by the EO will stand.183 INT maintains the role of prosecutor in cases before the Sanctions Board and may submit a Reply to the respondent’s Response.184 Where a Response 176 LB de Chazournes and E Fromageau, ‘Balancing the Scales: The World Bank Sanctions Process and Access to Remedies’ (2012) 23(4) European Journal of International Law 963, 968. 177 For a history of the Bank’s Sanctions process, see ibid; Leroy and Fariello, The World Bank Group Sanctions Process, n 148 above. For information on the operation of the sanctions process, see S Williams, ‘The Debarment of Corrupt Contractors from World Bank-Financed Contracts’ (2007) 36 Public Contract law Journal 277; PH Dubois, ‘The Litigator’s Role in the World Bank’s Fight Against Fraud and Corruption’ (2013) 39(1) Litigation 38; TJ Canni, ‘Debarment is No Longer Private World Bank Business: An Examination of the Bank’s Distinct Debarment Procedures used for Corporate Procurements and Financed Projects’ (2010) 40(1) Public Contract Law Journal 147; PH Dubois, ‘Domestic and International Administrative Tools to Combat Fraud and Corruption: A Comparison of US Suspension and Debarment with the World Bank’s Sanctions System’ (2012) University of Chicago Legal Forum 195. 178 Leroy and Fariello, The World Bank Group Sanctions Process, n148 above, 2. 179 World Bank, World Bank Sanctions Procedures (Washington DC, World Bank, 2011), s 4.01(a). Hereafter ‘Sanctions Procedures’. Available at siteresources.worldbank.org/EXTOFFEVASUS/Resources/WBGSanctionsProceduresJan2011.pdf. 180 Sanctions Procedures, s 4.01(a), (c), 4.02(a) and 4.02(c). See also World Bank, World Bank Sanctioning Guidelines. Hereafter ‘Sanctioning Guidelines’. Available at siteresources. worldbank.org/EXTOFFEVASUS/Resources/WorldBankSanctioningGuidelines.pdf. 181 Sanctions Procedures, s 4.03(a), s 4.02(c). 182 ibid, s 5.01(a). 183 ibid, s 4.04. 184 ibid, s 5.01(b).

Anti-corruption in the World Bank 205 is submitted, the Sanctions Board conducts a de novo review of all the evidence and arguments and determines whether it is ‘more likely than not’ that a sanctionable offence was committed.185 If there is inadequate evidence, the proceedings will be terminated, and if the evidence points to a sanctionable practice, the Sanctions Board imposes an appropriate sanction.186 The Sanctions Board is not bound by the earlier recommendation of the EO and its decision is final and cannot be appealed.187 This section will consider the kinds of sanctions that may be imposed on contractors, once it is determined that a sanctionable offence was committed. (i)

Reprimand: In cases where the misconduct was of a minor nature or the respondent was only peripherally involved in the misconduct, the Sanctions Board may issue a Letter of Reprimand, admonishing the respondent’s conduct.188 This letter is issued where any other sanction would be: disproportionate to the offence…Examples include cases where an affiliate of the Respondent has been found to have some shared responsibility for misconduct because of an isolated lapse in supervision, but the affiliate was not in any way complicit in the misconduct.189 Under the Sanctioning Guidelines, it may be used to sanction an affiliate of the respondent that was only guilty of an isolated incident or a lack of oversight.190

(ii)

Conditional non-debarment: under this sanction, the respondent escapes debarment, provided it complies with ‘certain remedial, preventative or other conditions…’.191 These conditions must be met within a set time frame and if they are not met, the party will be debarred.192 Under this sanction, the party avoids debarment as long as it fulfils the specified conditions. If it fails to meet these conditions, then the debarment is revived. According to Leroy and Fariello, conditional non-debarment is: normally applied in cases where the Respondent has already taken com-

prehensive voluntary corrective measures and the circumstances otherwise indicate that it need not be debarred. It is also applied to parents and other affiliates of Respondents in cases where they were not engaged in misconduct but a systemic failure to supervise made the misconduct possible.193 185

ibid, s 8.02(b). ibid, s 8.01. 187 ibid, s 8.01 and 8.03(a). 188 ibid, s 9.01(a). 189 Leroy and Fariello, The World Bank Group Sanctions Process, n 148 above, 5. 190 Sanctioning Guidelines, para II. 191 Sanctions Procedures, s 9.01(d). 192 Leroy and Fariello, The World Bank Group Sanctions Process, n 148 above, 5. 193 ibid. 186

206 Corruption in MDB Funded Procurement This sanction may be used where the level of culpability of the respondent is low and there has been extensive co-operation on the part of the respondent. (iii) Debarment: Debarment is a measure whereby ‘government suppliers may be denied access to public contracts for committing various infringements or offences’.194 It has become a common tool for addressing contractor infringements in domestic public procurement and has been the subject of intense academic scrutiny.195 The World Bank utilises two kinds of debarment measures against contractors guilty of a sanctionable offence, viz, debarment with conditional release and debarment for a definite or indefinite period. Debarment with conditional release is referred to as the ‘baseline sanction’196 and occurs when the EO or the Sanctions Board imposes the minimum three-year debarment.197 At the termination or lapse of the three-year period, the sanctioned party may be released once the debarment period has lapsed and it has complied with certain conditions. These conditions may include verifiable actions to improve business governance, including the introduction of corporate compliance programs, disciplinary action taken against erring employees and restitution.198 The debarred party is also expected to implement, for an adequate period, an integrity compliance programme satisfactory to the Bank.199 Debarment with conditional release is the Bank’s baseline sanction and its purpose

194 Williams-Elegbe, Fighting Corruption in Public Procurement, n 9 above, 31. See also S Schooner, ‘The Paper Tiger Stirs: Rethinking Exclusion and Debarment’ (2004) 5 Public Procurement Law Review 211, 212–13. 195 See generally, Williams-Elegbe, Fighting Corruption in Public Procurement, n 9 above; Anechiarico and Jacobs, The Pursuit of Absolute Integrity, n 8 above; Kelman, Procurement and Public Management, n 8 above; E Piselli, ‘The Scope for Excluding Providers who have Committed Criminal Offences under the EU Procurement Directives’ (2000) 6 Public Procurement Law Review 267; S Williams-Elegbe, ‘The Mandatory Exclusions for Corruption in the New EC Procurement Directives’ (2006) 31 European Law Review 711; T Medina, ‘EU Directives as an Anti-Corruption Measure: Excluding Corruption Convicted Tenderers from Public Procurement Contracts’ in KV Thai (ed), International Handbook of Public Procurement (Boca Raton, CRC Press, 2008); S Williams-Elegbe, ‘The Debarment of Corrupt Contractors from World Bank-Financed Contracts’ (2007) 36 Public Contract Law Journal 277; S Williams-Elegbe, ‘Debarment in Africa: A Cross-Jurisdictional Evaluation’ (2016) 3 Public Procurement Law Review 71; S Denning, ‘Anti-Corruption Policies: Eligibility and Debarment Procedures and the World Bank and Regional Development Banks’ (2010) 44 International Lawyer 871; E Auriol and T Soreide, ‘An Economic Analysis of Debarment’ (2015) Toulouse School of Economics Discussion Paper TSE-599, 1; JR Heilbrunn, ‘The Fight against Corruption: The World Bank Debarment Policy’ in S Manacorda, F Centonze and G Fortis (eds), Preventing Corporate Corruption: The Anti-Bribery Compliance Mode (Switzerland, Springer, 2014). 196 Sanctioning Guidelines, para 1. 197 ibid, para 1. 198 Sanctions Procedures, s 9.01(d). 199 ibid, s 9.01(d); Leroy and Fariello, The World Bank Group Sanctions Process, n 148 above, 4.

Anti-corruption in the World Bank 207 is to ‘place greater emphasis on rehabilitation, encouraging sanctioned firms to adopt adequate, effective policies and measures that make it less likely that they will engage in such misconduct again’.200 In relation to debarment for an indefinite or defined period, also referred to as ‘plain vanilla debarment’,201 this occurs when the debarment is imposed indefinitely or permanently, or imposed for a specified time limit. A debarment for a fixed period may be imposed where no purpose would be served by imposing conditions, for instance because there is already a robust compliance program in place, the sanctionble practice was an isolated act and the proposed debarment is for a relatively short period ie one year or less.202 An indefinite or permanent debarment may be appropriate where ‘there are no reasonable grounds for thinking that the respondent can be rehabilitated through compliance or conditions and may be used for natural persons, closely held companies of such persons and shell companies’.203 In all cases of debarment, the sanctioned party is ineligible to receive a Bank contract, be nominated as a sub-contractor or service provider for another contractor on a Bank-financed contract, to receive the proceeds of any loan or otherwise participate in the preparation or implementation of a Bank project.204 Apart from debarments that are imposed by the Bank, both the 2011 procurement guidelines and the 2016 procurement regulations provide that if requested by the borrower, the Bank may permit bidding documents to include a clause preventing a person that has been debarred by the proper judicial or administrative authorities in the borrower country from being eligible to obtain a Bank-financed contract.205 However, the debarment must relate to fraud or corruption and the judicial or administrative proceeding afforded the firm or the individual adequate due process.206 By this provision, the Bank has extended the scope of debarment to domestic actions. This is not surprising given that the MDBs in 2010 decided to co-operate in the area of debarment and signed an agreement to debar firms and entities that had been debarred by any of the MDBs.207 This agreement is examined in Chapter 9.

200

Leroy and Fariello, The World Bank Group Sanctions Process, n 148 above, 15. ibid, 14. 202 Sanctioning Guidelines, para II. 203 ibid, para II. 204 Sanctions Procedures, s 9.01(c). 205 Procurement Regulations for Borrowers, para 3.23. 206 ibid, para 3.23; Bank Procurement Guidelines (2011), para 3.3. 207 See CR Yukins, ‘Cross Debarment: A Stakeholder Analysis’ (2013) 45 George Washington International Law Review 219. 201

208 Corruption in MDB Funded Procurement (iv) Restitution: A respondent may be required to make restitution to the borrower, or any other affected party, or to take action to remedy the harm that was done by its misconduct.208 True restitution entails a disgorgement of the profits from the corruption or the illegal transaction,209 and is not an unknown remedy in corruption cases.210 Under the Bank’s sanctioning guidelines, restitution may be used in exceptional circumstances, where there is a quantifiable amount to be restored to the borrower or the project.211 It may be noted that restitution has only been used in a very limited number of cases, owing in part to the challenges that attend the use of this remedy by an inter-governmental organisation. These challenges include calculating the quantum to be restituted and determining the appropriate beneficiary.212 Research by Fariello and Bo indicates that restitution has only been used in five reported cases by the Bank.213 (v) Fines: As is the case with restitution discussed above, the World Bank system also relies on the use of financial remedies, such as fines in ‘exceptional circumstances, including those involving fraud in contract execution where there is a quantifiable amount to be restored to the client country or project’.214 Unlike restitution, which has been used (albeit sparingly), fines have only been used in one case, where a $100 million fine was imposed on Siemens in 2009, as part of a complex settlement for Siemen’s corrupt practices. The Siemens fine was not restored to the countries affected by Siemen’s infractions, but was administered by the United Nations Global Compact and used to fund anti-corruption initiatives in several countries. (vi) Contractual termination: Although the Bank is not a party to the contract between the borrower and the contractor, the General Conditions of Contract provide that where a borrower discovers that a contractor engaged in ‘corrupt, fraudulent, collusive or coercive practices in competing for or executing the contract’, the borrower may

208

Sanctions Procedures s 9.01(e). generally, G Virgo, The Principles of the Law of Restitution (Oxford, Oxford University Press, 2006). 210 See N Kochan and R Goodyear, Corruption: The New Corporate Challenge (London, Palgrave Macmillan, 2011), Ch 12. See also L Gray, K Hansen and P Recica-Kirkbride, Few and Far: The Hard Facts on Stolen Asset Recovery (Washington DC, The World Bank/OECD, 2014); JA Oduor, FMU Fernando, A Flah, D Gottwald, JM Hauch, M Mathias, JW Park and O Stolpe, Left out of the Bargain: Settlements in Foreign Bribery Cases and Implications for Asset Recovery (Washington DC, The World Bank, 2014), Ch 4. 211 Sanctioning Guidelines, para II. 212 FA Fariello Jr . and G Bo, ‘Development-Oriented Alternatives to Debarment as an AntiCorruption Accountability Tool’ in J Wouters, A Ninio, T Doherty and H Cisse, World Bank Legal Review Vol 6: Improving Delivery in Development: The Role of Voice, Social Contract and Accountability (Washington DC, The World Bank, 2015). 213 ibid, 426. 214 Sanctioning Guidelines, para II(F). 209 See

Anti-corruption in the World Bank 209 terminate the contract after giving the contractor 14 days’ notice.215 By mandating the use of the GCC in Bank-funded contracts, the Bank thus indirectly ensures that corrupt contractors will lose the contract and the attendant benefits. The consequences of termination will be dealt with under the dispute resolution provisions of the GCC and the governing law of the contract. c. Settlements and Resolution of Cases with Contractors (i)

Negotiated resolution agreements (NRA): It is interesting that the Bank also provides for settlement of cases between INT and the accused contractors (the respondents), which precludes in most cases, a full Sanctions Board hearing. The purpose of the NRA is to save the Bank the resources that would normally go into a full investigation and a sanctions hearing.216 For such an agreement, the respondent must usually co-operate fully with the Bank in its investigation and provide the Bank with all the information required about the case. At any time prior to or during the Sanctions Board hearing, INT and the respondents may request a stay of proceedings in order to undertake settlement negotiations.217 Such a stay may be granted for 60 days or more, if required, to a maximum of 90 days.218 Once a NRA has been entered into by INT and the respondent, this agreement will become binding after a review by the EO, to ensure it does not violate the Bank’s sanctioning guidelines. Once the NRA is accepted, its effect is to dispose of the sanctions hearing, or defer the proceedings pending compliance with the conditions in the NRA.219 Note that an NRA may contain sanctions, which will then be applied in the same way as sanctions imposed by the Sanctions Board.220 An NRA must be cleared by the World Bank’s General Counsel and signed by INT’s Vice President.221 In discussing the benefits of settlement agreements, McCarthy, highlights that, as at June 2016, the Bank had participated in the negotiation and enforcement of more than 45 settlements, and these co-operation-based tools: enable a wide range of companies large and small, international and local to commit to integrity, change their behavior, and level the competitive playing field…The World Bank’s decision to settle

215

General Conditions of Contract, art 15.6. Leroy and Fariello, The World Bank Group Sanctions Process, n 148 above, 21–22. 217 Sanctions Procedures, section 11.01(a). 218 ibid, section 11.01(b). 219 ibid, section 11.03. 220 INT, The World Bank’s Group Settlements: How Negotiated Resolution Agreements Fit Within the World Bank Group’s Sanctions System. Available at siteresources.worldbank.org/ INTDOII/Resources/NoteOnSettlementProcess.pdf. 221 ibid. 216

210 Corruption in MDB Funded Procurement some corruption cases has strengthened our ability to prevent the recurrence of fraud and corruption while holding those responsible accountable. Settlements enable us to fight corruption by partnering with companies to change business.222 Thus, NRA are used as both a resource conservation mechanism and as a means of changing corporate behaviour in the long term. d. Bank Contractors After Sanctions: Integrity Compliance Programmes Many of the Bank’s sanctions include a compliance element to be undertaken by the errant contractors. This is informed by both the preventive and deterrent function of Bank sanctions against corruption.223 The reliance on integrity compliance programmes can be traced to the quandary faced by the Bank in determining whether a sanctioned contractor was indeed fit to bid for Bank contracts once the contractor’s debarment had expired. In order to provide an assurance that the contractor had become ‘rehabilitated’, and reduce the risk of recidivism by corrupt contractors,224 the Bank requires that contractors implement an adequate compliance programme based on best practices.225 In pursuance of this, and to provide contractors with support, the Bank created an Integrity Compliance Office, headed by an Integrity Compliance Officer (ICO) to provide guidance to sanctioned parties in establishing appropriate integrity compliance programs.226 The ICO monitors implementation and decides whether the conditions have been satisfied.227 Some of the Bank sanctions that include a compliance element are: (i) conditional non-debarment; (ii) debarment with conditional release; and (iii) NRAs.228 As debarment with conditional release is the baseline sanction for corrupt contractors, it can be seen that integrity compliance programs will affect a great proportion of contractors in the sanctions system. The conditions that may be imposed for a debarment with conditional release include: a) the implementation or improvement of an integrity compliance program; and

222 See L McCarthy, ‘Settling for Development with Integrity’ (2016). Available at www. fcpablog.com/blog/2016/6/13/leonard-mccarthy-of-the-world-bank-settling-for-development. html#sthash.dT3lUKl9.dpuf. Leonard MacCarthy is the Vice President of INT at the World Bank Group. 223 Fariello Jr. and Bo, ‘Development-Oriented Alternatives to Debarment’, n 212 above, 418; Leroy and Fariello, The World Bank Group Sanctions Process, n 148 above, 15. 224 Fariello Jr. and Bo, ‘Development-Oriented Alternatives to Debarment’, n 212 above, 426. 225 Leroy and Fariello, The World Bank Group Sanctions Process, n 148 above, 16. 226 ibid. 227 ibid. 228 Sanctions Procedures, section 9.01; Sanctioning Guidelines, para II.

Anti-corruption and Bank Borrowers 211 b) remedial measures to address the misconduct for which the respondent was sanctioned, including disciplinary action or termination of employee(s)/officer(s) responsible for the misconduct.229 It may be noted that despite the efforts to support debarred contractors through the creation of the office of the ICO, there has been limited engagement with the ICO by companies, especially debarred SMMEs, as a result of the relatively high costs of instituting compliance programs.230 IV. ANTI-CORRUPTION AND BANK BORROWERS

This section highlights the anti-corruption obligations of Bank borrowers under the Bank’s anti-corruption policy and procurement framework. The section examines the contents of the Anti-Corruption Policy and operational and procurement-related documents to understand the anti-corruption obligations of borrowers under Bank-financed contracts. A. The Procurement Guidelines and Regulations The 2011 procurement guidelines contain various prescripts directed at borrowers on the issue of corruption. Some of these have been restated in earlier sections of this chapter and for the sake of brevity will only be briefly addressed. Under the 2011 procurement guidelines, the Bank imposes a general integrity obligation on borrowers and para 1.16 provides that: It is the Bank’s policy to require that Borrowers (including beneficiaries of Bank loans), bidders, suppliers, contractors and their agents (whether declared or not), sub-contractors, sub-consultants, service providers or suppliers, and any personnel thereof, observe the highest standard of ethics during the procurement and execution of Bank- financed contracts.

By virtue of this provision, borrowers are under an obligation to ensure that all persons who are involved with a Bank-funded project maintain the ‘highest standard of ethics’. This obligation inures irrespective of whether the persons are agents or employees of the borrower. Apart from this general obligation, the procurement guidelines also contain specific instructions to borrowers on anti-corruption issues. For

229

Sanctioning Guidelines, para II. Jr. and Bo, ‘Development-Oriented Alternatives to Debarment’, n 212 above, 424. See also Ponemon Institute, The True Cost of Compliance: A Benchmark Study of Multinational Organizations (January 2011). Available at www.tripwire.com/tripwire/assets/File/ ponemon/True_Cost_of_Compliance_Report.pdf. 230 Fariello

212 Corruption in MDB Funded Procurement instance, a borrower is not permitted to award a Bank-financed contract to a person who has been sanctioned by the Bank.231 Another obligation on borrowers is to include a clause in bidding documents and in contracts financed by the Bank loan, requiring bidders, suppliers and contractors, and their sub-contractors, agents, personnel, consultants, service providers or suppliers, to permit the Bank to inspect all accounts, records and other documents relating to the submission of bids and contract performance, and to have them audited by auditors appointed by the Bank.232 The 2016 procurement framework also expresses Bank expectations of parties involved in a Bank-financed contract. The Bank Policy, in the section on core procurement principles provides: The principle of integrity refers to the use of funds, resources, assets, and authority according to the intended purposes and in a manner that is well informed, aligned with the public interest, and aligned with broader principles of good governance. The Bank therefore requires that all parties involved in the Procurement Process, including without limitation, Borrowers and sub-Borrowers (and other beneficiaries of Bank Financing); bidders, consultants, contractors, and suppliers; any subcontractors, sub-consultants, service providers or suppliers; any agents (whether declared or not); and any of their personnel, observe the highest standard of ethics during the Procurement Process of Bank-financed contracts, and refrain from fraud and corruption, as that term is defined in the Anti-Corruption Guidelines.233

The 2016 regulations also provide general and specific obligations on parties involved in a Bank-financed contract. The general obligation provides that ‘The Bank requires the application of, and compliance with the Bank’s Anti-Corruption Guidelines, including without limitation, the Bank’s right to sanction and the Bank’s inspection and audit rights’.234 In terms of specific anti-corruption obligations, the procurement regulations provide, inter alia, that borrowers are not permitted to award a contract to a person sanctioned by the Bank,235 and borrowers are obliged to ensure that a clause of compliance with the Bank’s anti-corruption guidelines is included in bid documents.236 B. The Anti-corruption Guidelines The Anti-Corruption Guidelines mentioned above ‘set out the general principles, requirements and sanctions applicable to persons and entities, which

231

Bank Procurement Guidelines (2011), para 1.10. ibid, para 1.16(e). 233 Bank Policy, section IIIC(3). 234 Procurement Regulations for Borrowers, para 3.32. 235 ibid, para 3.23. 236 Anti-Corruption Guidelines, para 9. 232

Anti-corruption and Bank Borrowers 213 receive, are responsible for the deposit or transfer of, or take or influence decisions regarding the use of such proceeds’.237 The Guidelines apply to borrowers and impose several obligations on Bank borrowers. Paragraph 9 of the Guidelines requires the borrower to: (a) take all appropriate measures to prevent corrupt, fraudulent, collusive, coercive and obstructive practices in connection with the use of Loan proceeds, including (but not limited to) (i) adopting appropriate fiduciary and administrative practices and institutional arrangements to ensure that the proceeds of the Loan are used only for the purposes for which the Loan was granted, and (ii) ensuring that all of its representatives involved with the project, and all recipients of Loan proceeds with which it enters into an agreement related to the Project, receive a copy of these Guidelines and are made aware of its contents; (b) immediately report to the Bank any allegations of fraud and corruption in connection with the use of Loan proceeds that come to its attention; (c) if the Bank determines that any person or entity referred to in (a) above has engaged in corrupt, fraudulent, collusive, coercive or obstructive practices in connection with the use of Loan proceeds, take timely and appropriate action, satisfactory to the Bank, to address such practices when they occur; (d) include such provisions in its agreements with each recipient of Loan proceeds as the Bank may require to give full effect to these Guidelines, including (but not limited to) provisions (i) requiring such recipient to abide by paragraph 10 of these Guidelines, (ii) requiring such recipient to permit the Bank to inspect all of their accounts and records and other documents relating to the project required to be maintained pursuant to the Loan Agreement and to have them audited by, or on behalf of, the Bank, (iii) providing for the early termination or suspension by the Borrower of the agreement if such recipient is declared ineligible by the Bank under paragraph 11 below; and (iv) requiring restitution by such recipient of any amount of the loan with respect to which fraud and corruption has occurred; (e) cooperate fully with representatives of the Bank in any investigation into allegations of fraud and corruption in connection with the use of loan proceeds; and (f) in the event that the Bank declares any recipient of Loan proceeds ineligible as described in paragraph 11 below, take all necessary and appropriate action to give full effect to such declaration by, among other things, (i) exercising the Borrower’s right to terminate early or suspend the agreement between the Borrower and such recipient and/ or (ii) seeking restitution. 237

ibid, para 1.

214 Corruption in MDB Funded Procurement Similar obligations are imposed on contractors and other recipients of loan proceeds,238 and in the event that these obligations are breached, the Guidelines state the remedies that are available to the Bank against the guilty party, which include debarment.239 Through the medium of the Guidelines, the Bank delegates a large part of its fiduciary responsibilities to borrowers and they are required to ensure that institutional arrangements suffice to manage Bank funds. This responsibility may be difficult for borrowers to meet in cases where the borrower is plagued by weak institutions or in fragile and conflict States. However, as was discussed above, there is likely to be expanded implementation support from the Bank to ameliorate these challenges. C. The General Conditions of Contract The General Conditions of Contract (GCC) discussed in Chapter 4, also impose contractual anti-corruption obligations as between the contractor and the borrower. Under the GCC, the penalty for the breach of these obligations is the termination of the contract. Thus, under article 15.6 of the GCC, where the employer determines based on reasonable evidence that the contractor has engaged in corrupt, fraudulent, collusive or coercive practices in competing for or executing the contract, then the employer may, after giving the contractor 14 days’ notice, terminate the contract and expel him from the site. It may be noted that under the GCC, fraud and corruption are expressly stated to include acts of bribery, extortion or coercion, fraud and collusion. As mentioned above, the consequences of contract termination will be addressed under the dispute resolution provisions of the GCC (discussed in Chapter 11). Note that contractual termination for corruption is not an unknown concept in contract law and fraud and corruption are regarded in many jurisdictions as factors that will vitiate the consent upon which a contract is based.240 However, in the procurement context, termination is often accompanied by far-reaching and disruptive effects, especially in the construction context. This is why the GCC permits, but does not require contract termination in the event of fraud or corruption. D. Standard Procurement Documents The Bank’s standard procurement documents contain ‘Instructions to Bidders’, which restate the fraud and corruption provisions as found in the 238

ibid, para 10. ibid, para 11. 240 Williams-Elegbe, ‘Fighting Corruption in Public Procurement’, n 9 above, Ch 9. 239

Concluding Remarks 215 Anti-Corruption Guidelines and the procurement regulations.241 The AntiCorruption Guidelines are thus incorporated into the standard procurement documents, ensuring that bidders are aware of the anti-corruption obligations before they bid. V. CONCLUDING REMARKS

As can be seen, there has been a lot of action on the part of the Bank in relation to anti-corruption. Despite the Bank’s best efforts, however, there are still many challenges faced in relation to corruption in Bank-financed contracts.242 Some of the suggestions that have been made to reduce the corruption include mainstreaming corruption vulnerability assessments (CVA) for large projects. This is an intelligence driven assessment that can determine the likelihood of corruption occurring in a planned project.243 It examines both the country environment as well as the project for areas on vulnerability that might increase the project risk.244 A CVA will highlight environmental and country risks, systems and control measures as well as human factors.245 One issue that has not been addressed by the Bank is the issue of the power relations in countries that allow individuals to avoid detection, prosecution or conviction where they engage in corruption.246 Where there is a culture of impunity, non-accountability or selective enforcement that exempts politicians and high-ranking officials from being subjected to the rule of law, corruption cannot simply be addressed through legal or prescriptive means. However, this is a difficult issue to address, given its political and cultural nature.247 It must be noted that if there is to be substantial improvement in corruption developing countries, institutional and legal reform in itself is insufficient. The Bank also recognises that the type of corruption that is attributable to the exercise of power relations within countries cannot be addressed through new legislation or institutions.248 It is perhaps time for the Bank to pursue the option of international censure for systemically corrupt governments and prevent them from accessing Bank and other donor funds until there are noticeable improvements in

241 World Bank, Standard Procurement Documents: Request for Bids (Works After Prequalification) (Washington DC, The World Bank, 2016). 242 See S Zimmerman, ‘Globalizing the Fight against Corruption’ in Manacorda, Centonze and Fortis, Preventing Corporate Corruption, n 198 above. 243 Ware, Moss, Campos and Noone, ‘Corruption in Public Procurement’, n 12 above, 325. 244 ibid. 245 ibid. 246 Hobbs, ‘Corruption in World Bank Financed Projects’, n 60 above, 16. 247 World Bank, Helping Countries Combat Corruption, n 40 above, 13–14. 248 ibid, 10.

216 Corruption in MDB Funded Procurement relation to the rule of law, good governance and anti-corruption. This has been done in a few instances, but it may be time for a policy approach that simply denies Bank funding to governments that are unwilling to address systemic corruption. In addition, the Bank may need to support calls for an international criminal court for corruption cases. This will no doubt send a message that the international community regards corruption as a serious international crime and will pursue those engaging in corruption. This is already the thrust of the Global Declaration Against Corruption discussed above, although the Global Declaration does not go so far to call for such a court, but expresses the international community’s intention to pursue and prosecute those found to be engaging in corrupt practices.

9 The Aid Effectiveness Agenda: Harmonisation, Tied Aid and Use of Country Systems I. INTRODUCTION

T

HIS CHAPTER EXAMINES the aid effectiveness agenda, which has impacted MDB public procurement policies and approaches. The basis for this agenda is a desire to improve the effectiveness of aid, through various measures, the most important to procurement being the harmonisation of donor procurement practices and policies; donor commitments to untie aid as well as the reliance on national procurement systems. This chapter critically evaluates the aid effectiveness agenda, examining the effect that the various initiatives have had on MDB procurement. The chapter examines the genesis of the aid effectiveness agenda; the attempts made to harmonise donor procurement practices; the multilateral efforts to untie aid; and the use of country systems initiatives. It should be mentioned that the use of country systems will only be briefly examined in this chapter and a fuller consideration will be given to it in Chapter 10 below. II. AID EFFECTIVENESS

A. The Meaning of Effective Aid The issue of aid effectiveness first arose in the development arena in the 1960s, when it was obvious that the increase in development financing1 was not accompanied by a concomitant improvement in development outcomes. The work of the World Bank also provided a framework for understanding the failure of aid and, in 1997, the World Development Report highlighted the failure of development assistance, and suggested that in order to increase the effectiveness of aid, it needed to be closely tied to the policies of 1 J Loxley and HA Sackey, ‘Aid Effectiveness in Africa’ (2008) African Development Review 163, 165.

218 The Aid Effectiveness Agenda the recipients; resources should be channeled to the countries with good policies and priority given to institutional reinvigoration.2 Aid effectiveness in essence refers to the level of impact of aid spending; the idea that aid spending should be utilised in such a way that it achieves pre-determined developmental goals and does so in the most cost-effective manner.3 Determining whether aid is effective thus has both an impact assessment and a cost assessment element.4 Other writers such as Loxley and Sackey view the aid effectiveness debate from the lens of the effect of aid on growth.5 In their work, they assess the impact that aid has had on growth in Africa and conclude that aid is effective where it increases investment, and thus growth.6 Beyond the development of a framework for measuring the effectiveness of aid, it is clear that aid is a complex subject and there are several reasons why aid may not be effective, and aid effectiveness may be impacted by the nature of aid allocation decisions, and the kind of aid that is provided.7 One of the first truly global attempts to achieve a consensus on aid effectiveness was the International Conference on Financing for Development, which held from 18–22 March 2002 at Monterrey, Mexico. The conference was organised by the United Nations Department for Economic and Social Affairs and supported by the major multilateral and bilateral donors. The aim of the conference was to address the ‘challenges of financing for development around the world, particularly in developing countries’.8 The conference was convened in light of the shortfalls in funding needed to achieve the Millennium Development Goals, and a desire to increase the effective use of available resources through mobilisation, coherence and consistency. The Monterrey conference culminated in an agreement by the participants referred to as the Monterrey Consensus, which can be viewed as the modern genesis and foundation of the aid effectiveness agenda.

2 See A Chhibber, ‘The State in a Changing World’ (1997) Finance and Development, 17, 19; World Bank, World Development Report 1997: The State in a Changing World (Oxford, Oxford University Press, 1997) 140, 142. 3 See generally P Quartey, ‘Innovative Ways of Making Aid Effective in Ghana: Tied Aid versus Direct Budgetary Support’ (2005) 17 Journal of International Development 1077. See also R Riddel, Does Foreign Aid Really Work (Oxford, Oxford University Press, 2007). 4 See H Hansen and F Tarp, ‘Policy Arena: Aid Effectiveness Disputed’ (2000) 12 Journal of International Development 367. 5 Loxley and Sackey, ‘Aid Effectiveness in Africa’ n 1 above. 6 ibid. See also H Hansen and F Tarp, ‘Aid and Growth’ (2001) 64(2) Journal of Development Economics 547–70; CJ Dalgaard, H Hansen and F Tarp, ‘On the Empires of Foreign Aid and Growth’ (2004) 114 Economic Journal 191. 7 I Martinez-Zarzoso, F Nowak-Lehmann, MD Parra and S Klasen, ‘Does Aid Promote Donor Exports? Commercial Interest versus Instrumental Philanthropy’ (2014) 67(4) Kyklos 559. 8 United Nations, International Conference on Financing for Development, Monterrey Consensus on Financing for Development (18–22 March 2002) para 1. Available at www. un.org/esa/ffd/monterrey/MonterreyConsensus.pdf.

Aid Effectiveness 219 In relation to aid effectiveness, the Monterrey Consensus provided in paragraph 43 that: Recipient and donor countries, as well as international institutions, should strive to make ODA more effective. In particular, there is a need for the multilateral and bilateral financial and development institutions to intensify efforts to: —— Harmonize their operational procedures at the highest standard so as to reduce transaction costs and make ODA disbursement and delivery more flexible, taking into account national development needs and objectives under the ownership of the recipient country; —— Support and enhance recent efforts and initiatives, such as untying aid, including the implementation of the Organisation for Economic Cooperation and Development/Development Assistance Committee recommendation on untying aid to the least developed countries, as agreed by the Organisation for Economic Cooperation and Development in May 2001. Further efforts should be made to address burdensome restrictions; —— Enhance the absorptive capacity and financial management of the recipient countries to utilize aid in order to promote the use of the most suitable aid delivery instruments that are responsive to the needs of developing countries and to the need for resource predictability, including budget support mechanisms, where appropriate, and in a fully consultative manner; —— Use development frameworks that are owned and driven by developing countries and that embody poverty reduction strategies, including poverty reduction strategy papers, as vehicles for aid delivery, upon request; —— Enhance recipient countries’ input into and ownership of the design, including procurement, of technical assistance programmes; and increase the effective use of local technical assistance resources; —— Promote the use of ODA to leverage additional financing for development, such as foreign investment, trade and domestic resources; —— Strengthen triangular cooperation, including countries with economies in transition, and South-South cooperation, as delivery tools for assistance; —— Improve ODA targeting to the poor, coordination of aid and measurement of results. (emphasis added)

From the above, one can distil several initiatives, which have subsequently become the components of the aid effectiveness agenda. These are the harmonisation of donor policies and practices, untying aid, the use of country systems and improving procurement capacity in recipients, improving recipient ownership of aid funded programs and improving development results.9 The first three will be examined in the sections below, as they have

9 After the Monterrey Conference, the World Bank and the MDBs convened the 1st International Roundtable on Managing for Development Results (5–6 June 2002, Washington DC). The roundtable was intended to take stock of ongoing actions and determine what was necessary to adopt results based approaches in developing countries. There have been three other roundtables since 2002; Marrakech 2004, Hanoi 2007 and Accra 2008. The Roundtable resulted in the formation of a OECD/DAC Joint Venture on Managing Results for

220 The Aid Effectiveness Agenda been the most relevant to MDB procurement practices and policies, whilst the last two will be examined in Chapter 10. III. HARMONISATION

A. The Meaning of Harmonisation As seen above, the Monterrey Consensus provided the initial framework for the components of the aid effectiveness agenda, of which the harmonisation of donor operational procedures was the initial commitment. Harmonisation has perhaps achieved the most impact in the decades following the Monterey Consensus, and has resulted in dramatic changes to the way MDBs conduct procurement, coordinate and co-operate within and without the procurement sphere. Harmonisation refers to donor attempts to coordinate their operational policies, procedures and practices with those of recipients in order to improve the effectiveness of development assistance.10 It is important to emphasise here that harmonisation imposes obligations on both donors and recipients, although most of the attention has been devoted to donor coordination measures. This is partly due to the fact that whilst the burden of the lack of coordination amongst donors produces adverse consequences for aid recipients, by stretching their resources and capacity, donors are able to circumvent the inadequacies (or lack of coordination) in recipient systems through a reliance on donor procurement, auditing and accountability measures. For instance, a 2003 survey by the OECD found that the greatest burden on recipient countries arose from donor-driven priorities and systems, followed closely by difficulties encountered in complying with donor procedures and uncoordinated donor practices.11 Harmonisation usually has one or more of three objectives: to achieve similarity in relation to practices, procedures and operations; to achieve uniformity; and or to increase co-operation/coordination between donors. In relation to the MDBs, as discussed further below, it appears as though the approach to harmonisation prioritises similarity of policies and practices

evelopment, which published OECD/DAC, Emerging Good Practice in Managing Results for D Development: Sourcebook. (Paris, OECD/The World Bank 2008). Available at www.oecd.org/ dac/effectiveness/36853468.pdf. 10 See Rome Declaration on Harmonisation (2003). Available at www.oecd.org/dac/effectiveness/31451637.pdf. See also E Nwogwugwu, ‘Towards the Harmonisation of International Procurement Policies and Practices’ (2005) 14(3) Public Procurement Law Review 131. 11 R Manning and M Reveyrand, OECD/DAC Harmonising Donor Practices for Effective Delivery (Paris, OECD, 2003) 13–14.

Harmonisation 221 over uniformity,12 and since 1999, the MDBs have increasingly adopted similar procurement policies, regulations and practices. Of course, this is not to say that in some other areas, uniformity has not been achieved, and there are many areas where harmonised documents used by the MDBs are identical, or at least, where several sections or paragraphs within documents are identical. There is also a much greater level of coordination between the MDBs, in areas as varied as co-financing, fraud and corruption investigations, and debarment. As mentioned above, the issue of harmonisation is not directed solely at donors, and as will be discussed further in Chapter 10, aid recipients have been encouraged by the donors, especially the MDBs, to reform their procurement systems and harmonise their procedures and policies in line with international best practices, using the UNCITRAL Model Law as a template. As a result, many of the countries that have adopted new procurement legislation in the last 20 years, did so on the basis of the UNCITRAL Model Law and there is thus a great similarity between the procurement legislation of many developing countries, especially in Africa.13 B. A History of the Harmonisation Agenda In 1999, prior to the Monterrey conference, the MDBs and key development partners comprising of the Asian Development Bank, the African Development Bank, the Black Sea Trade and Development Bank, the Caribbean Development Bank, the Council of Europe Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the World Bank and the Islamic Development Bank, established a forum for procurement harmonisation, which was aimed at providing ‘a coherent mechanism for procurement cooperation between the multilateral development banks (MDBs), international financial institutions (IFIs) and key development partners’.14 This forum was initially designed to pursue greater co-operation and coordination between the partners and did not as at that time pursue a 12 See Harmonization of Procurement Policies and Practices of Public International Financial Institutions Progress Report, (2005). Available at www.iadb.org/document.cfm?id=605598. 13 It may be noted that as at June 2016, 46 countries have either used the UNCITRAL Model Law on Procurement (2011) or the UNCITRAL Model Law on the Procurement of Goods, Construction and Services (1994) as a model for reforming their public procurement laws and systems. See www.uncitral.org/uncitral/en/uncitral_texts/procurement_infrastructure. html. See S Williams-Elegbe, ‘A Comparative Analysis of Public Procurement Reforms in Africa: C hallenges and Prospects (2015) 1 The Swedish Procurement Law Journal (Upphandlingsrattslig Tidskrift) 11. 14 See World Bank, Procurement Harmonization. Available at web.worldbank.org/WBSITE/ EXTERNAL/PROJECTS/PROCUREMENT/0,contentMDK:22989220~menuPK:8118597~ pagePK:8271521~piPK:8271523~theSitePK:84266,00.html.

222 The Aid Effectiveness Agenda similarity (or uniformity) agenda. However, in 2003, the First High Level Forum on Aid Effectiveness in Rome, which issued the Rome Declaration on Harmonization,15 caused a sea change in the MDB approach to co- operation and coordination. The Rome Declaration expressed its support for the Monterrey Consensus and further clarified the commitments of both donors and partners in order to improve development effectiveness. Under the Rome Declaration donors committed to: —— Ensuring that development assistance is delivered in accordance with partner country priorities, including poverty reduction strategies and similar approaches, and that harmonisation efforts are adapted to the country context. —— Reviewing and identifying ways to amend, as appropriate, our individual institutions’ and countries’ policies, procedures, and practices to facilitate harmonisation. In addition, we will work to reduce donor missions, reviews, and reporting, streamline conditionalities, and simplify and harmonise documentation. —— Implementing progressively—building on experiences so far and the messages from the regional workshops—the good practice standards or principles in development assistance delivery and management, taking into account specific country circumstances. We will disseminate the good practices to our managers and staff at headquarters and in country offices and to other in country development partners. —— Intensifying donor efforts to work through delegated cooperation at the country level and increasing the flexibility of country-based staff to manage country programmes and projects more effectively and efficiently. —— Developing, at all levels within our organisations, incentives that foster management and staff recognition of the benefits of harmonisation in the interest of increased aid effectiveness. —— Providing support for country analytic work in ways that will strengthen governments’ ability to assume a greater leadership role and take ownership of development results. In particular, we will work with partner governments to forge stronger partnerships and will collaborate to improve the policy relevance, quality, delivery, and efficiency of country analytic work. —— Expanding or mainstreaming country-led efforts (whether begun in particular sectors, thematic areas, or individual projects) to streamline donor procedures and practices, including enhancing demand-driven technical cooperation. The list of countries presently involved includes E thiopia, Jamaica, Vietnam, Bangladesh, Bolivia, Cambodia, Honduras, Kenya, Kyrgyz Republic, Morocco, Niger, Nicaragua, Pacific Islands, Philippines, Senegal, and Zambia. —— Providing budget, sector, or balance of payments support where it is consistent with the mandate of the donor, and when appropriate policy and

15

Rome Declaration on Harmonization, n 10 above.

Harmonisation 223 fiduciary arrangements are in place. Good practice principles or standards— including alignment with national budget cycles and national poverty reduction strategy reviews—should be used in delivering such assistance. —— Promoting harmonised approaches in global and regional programs. (emphasis added)

From the above, it can be seen that the Rome Declaration focused on improved coordination and co-operation between donors; a move towards increasing similarity and uniformity in policies, practices and documents; and improving recipient ownership of development work. After the conclusion of the Rome Forum, the MDBs began in earnest to work towards the harmonisation of their procurement framework and towards coordination of efforts in areas such as in the fight against corruption and in investigations by MDB inspection panels.16 What has occurred with time, especially in the procurement space, is that there has been a great deal of emulation of the World Bank’s approach to specific issues, whilst each MDB retains something of its own identity in the precise formulation of its policies.17 The World Bank has thus taken the lead in relation to the harmonisation agenda, and its leadership role here can be attributed to its ‘gravitational force, size and power’.18 In the aftermath of the Rome Forum, another instrument, known as the Paris Declaration was issued, subsequent to the 2nd High Level Forum on Aid Effectiveness, which took place in Paris in 2005. This Forum focused on examining the progress on aid effectiveness and under the Paris Declaration, donors and recipients agreed to a series of commitments on achieving aid effectiveness. The Declaration was described as ‘a practical, action-oriented roadmap to improve the quality of aid and its impact on development’. Unlike other development fora, the Paris Declaration established specific implementation measures and established a monitoring system to assess progress on the commitments, and ensure that donors and recipients could hold each other accountable for these commitments. In the area of harmonisation, the Paris Declaration reaffirmed the harmonisation commitments of the Rome Declaration and stated that: 3. We reaffirm the commitments made at Rome to harmonise and align aid delivery. We are encouraged that many donors and partner countries are making

16 L Boisson de Charzournes, ‘Partnerships, Emulation and Coordination: Towards the Emergence of a Droit Commun in the Field of Development Finance’ in H Cisse, DD Bradlow and B Kingsbury (eds), International Financial Institutions and Global Legal Governance’ World Bank Legal Review Vol 3 (Washington DC, The World Bank, 2012) 173, 182. 17 Boisson de Charzournes, ‘Partnerships, Emulation and Coordination’, n 16 above, 179. 18 ibid, 176.

224 The Aid Effectiveness Agenda aid effectiveness a high priority, and we reaffirm our c ommitment to accelerate progress in implementation, especially in the following areas: i.

Strengthening partner countries’ national development strategies and associated operational frameworks (e.g., planning, budget, and performance assessment frameworks). ii. Increasing alignment of aid with partner countries’ priorities, systems and procedures and helping to strengthen their capacities. iii. Enhancing donors’ and partner countries’ respective accountability to their citizens and parliaments for their development policies, strategies and performance. iv. Eliminating duplication of efforts and rationalising donor activities to make them as cost-effective as possible. v. Reforming and simplifying donor policies and procedures to encourage collaborative behaviour and progressive alignment with partner countries’ priorities, systems and procedures. vi. Defining measures and standards of performance and accountability of partner country systems in public financial management, procurement, fiduciary safeguards and environmental assessments, in line with broadly accepted good practices and their quick and widespread application. 4. We commit ourselves to taking concrete and effective action to address the remaining challenges, including: i.

Weaknesses in partner countries’ institutional capacities to develop and implement results-driven national development strategies. ii. Failure to provide more predictable and multi-year commitments on aid flows to committed partner countries. iii. Insufficient delegation of authority to donors’ field staff, and inadequate attention to incentives for effective development partnerships between donors and partner countries. iv. Insufficient integration of global programmes and initiatives into partner countries’ broader development agendas, including in critical areas such as HIV/AIDS. v. Corruption and lack of transparency, which erode public support, impede effective resource mobilisation and allocation and divert resources away from activities that are vital for poverty reduction and sustainable economic development. Where corruption exists, it inhibits donors from relying on partner country systems.19

From the above, it can be seen that the Paris Declaration was almost identical to the Rome Declaration in its thrust, but the Paris commitments were more detailed and provided clarity on the further actions that were required of donors and recipients.

19 Paris Declaration on Aid Effectiveness (2005), paras 3–4. Available at www.oecd.org/dac/ effectiveness/34428351.pdf.

Harmonisation 225 In September 2008, the 3rd High Level Forum on Aid Effectiveness took place in Accra, Ghana and culminated in the Accra Agenda for Action (AAA).20 The AAA was intended to galvanise momentum to ensure that the targets set out in the Paris Declaration were met.21 The AAA was more focused, action and results oriented than either the Rome and Paris Declarations. The AAA emphasised three areas where further action was required. These were country ownership; building more effective and inclusive partnerships as well as achieving development results, and accounting for them.22 In relation to increasing country ownership, the recipient countries committed to broadening country level dialogue on development by engaging with civil society organisations and other development actors; to strengthen their capacity to lead and manage development, and to strengthen their procurement systems, whilst donors committed to using recipient systems to the ‘maximum extent possible’, and as a ‘first option’.23 In the area of building more effective and inclusive partnerships for development, donors committed to reducing the costly fragmentation of aid by reducing duplication, continuing to untie aid and working with all development actors, including civil society.24 In relation to delivering results and accounting for them, donors committed to develop cost-effective tools to assess the impact of development policies; whilst recipients committed to improving their quality of policy design. Both donors and recipients committed to increasing the transparency of aid through increased parliamentary oversight, and mutual assessment reviews.25 The AAA was responsible for galvanising various changes in MDB operations, such as the World Bank-led Use of Country Systems pilot from 2008– 2010 and the recently introduced results-based lending instrument known as Program-For-Results (P4R). The most recent declaration in the chronology of the aid effectiveness agenda was issued at the 4th High Level Forum on Aid Effectiveness, which was held in Busan, Korea in 2011. The Busan Forum culminated in the agreement referred to as the Busan Partnership for Effective Development Cooperation (Busan Accord). The Busan Accord not only addressed the progress made in implementing the Paris Declaration, but also considered the impact of new challenges on the development landscape.

20

pdf.

21

Accra Agenda for Action (2008). Available at www.oecd.org/dac/effectiveness/34428351.

ibid, para 6. ibid, paras 8–10. 23 ibid, para 15. 24 ibid, paras 19–20. 25 ibid, paras 22–24. 22

226 The Aid Effectiveness Agenda As the name indicates, the Busan Accord was focused on the issue of development co-operation, recognising the value of South-South and NorthSouth co-operation. The Accord highlighted four principles that would undergird further work on development aid. The Accord stated that: 11. As we embrace the diversity that underpins our partnership and the catalytic role of development co-operation, we share common principles which—consistent with our agreed international commitments on human rights, decent work, gender equality, environmental sustainability and disability—form the foundation of our co-operation for effective development: a)

b)

c) d)

Ownership of development priorities by developing countries. Partnerships for development can only succeed if they are led by developing countries, implementing approaches that are tailored to country-specific situations and needs. Focus on results. Our investments and efforts must have a lasting impact on eradicating poverty and reducing inequality, on sustainable development, and on enhancing developing countries’ capacities, aligned with the priorities and policies set out by developing countries themselves. Inclusive development partnerships. Openness, trust, and mutual respect and learning lie at the core of effective partnerships in support of development goals, recognising the different and complementary roles of all actors. Transparency and accountability to each other. Mutual accountability and accountability to the intended beneficiaries of our co-operation, as well as to our respective citizens, organisations, constituents and shareholders, is critical to delivering results. Transparent practices form the basis for enhanced accountability.

12. These shared principles will guide our actions to: a) b)

c) d)

Deepen, extend and operationalise the democratic ownership of development policies and processes. Strengthen our efforts to achieve concrete and sustainable results. This involves better managing for results, monitoring, evaluating and communicating progress; as well as scaling up our support, strengthening national capacities and leveraging diverse resources and initiatives in support of development results. Broaden support for South-South and triangular co-operation, helping to tailor these horizontal partnerships to a greater diversity of country contexts and needs. Support developing countries in their efforts to facilitate, leverage and strengthen the impact of diverse forms of development finance and activities, ensuring that these diverse forms of co-operation have a catalytic effect on development.26

26 The Busan Partnership for Effective Development Cooperation (2012), paras 11–12. Hereafter ‘Busan Accord’. Available at www.oecd.org/dac/effectiveness/49650173.pdf.

Harmonisation 227 Although the Busan Accord was an important agreement for re-committing donors and recipients to the promises made at Rome, Paris and Accra, there was very little that was new in Busan, which had not been restated in some form in the previous fora. It must be noted that the harmonisation agenda as pursued by the MDBs is very broad and applies beyond procurement and procurement related issues.27 In the areas in which harmonisation is pursued, MDB harmonisation usually commences with the harmonisation of (or agreement on) the constituent elements of a standard and then coordination around common procedures.28 This is certainly true in the procurement context, where, as discussed below, there has been harmonisation of MDB procurement guidelines; standardisation of procurement (bidding) documents for the procurement of goods, works, small works, plant design supply and installation, and consultant’s request for proposals; co-operation in relation to good procurement procedures and practices, including electronic government procurement, procurement in fragile and conflict situations, country procurement reform, debarment of firms, etc; and joint training, capacity building, knowledge sharing and diagnostic work as part of co-financed projects.29 C. The Procurement Harmonisation Agenda As can be seen from the texts of the various instruments reproduced above, donors committed to harmonise their policies and procedures and increase co-operation and coordination. The level of co-operation between the MDBs has, since the Rome Declaration, moved from ‘ad-hoc consultation to the creation of a coherent system built on cooperation across a broad field of issues’.30 Nowhere is this truer than in the area of MDB procurement. In relation to the MDB procurement architecture, the harmonisation agenda has been driven in no small part by the meeting of MDB Heads of Procurement,31 which commenced regular structured meetings in February 1998,

27 For a review of areas of cooperation see Boisson de Charzournes, ‘Partnerships, Emulation and Coordination’, n 16 above, 173. 28 ibid, 174. 29 See World Bank, Procurement Harmonization, n 14 above. 30 World Bank, Update on Cooperation Among Multilateral Development Banks, (Washington DC, The World Bank, 2004). 31 See generally World Bank, The World Bank and Public Procurement: An Independent Evaluation Vol I Building Procurement Capacity and Systems (Washington DC, The World Bank, 2013), Ch 6. Available at ieg.worldbank.org/Data/reports/chapters/procurement_vol1. pdf.

228 The Aid Effectiveness Agenda and agreed to ‘continue the harmonization of standard bidding documents, anti-corruption provisions, and other procurement related issues’.32 Prior to a consideration of the practical steps taken to achieve harmonisation and greater coherence between the MDBs, it is necessary to examine one aspect of the harmonisation agenda that has received little academic attention. It was alluded to earlier that the harmonisation component of the aid effectiveness agenda envisaged a harmonisation not only in relation to donors, but also contemplated a gradual harmonisation or at least an acceptable degree of similarity of procurement policies and practices as between donors and recipient countries. For instance, the Rome Declaration provided that ‘Partner countries on their part will undertake necessary reforms to enable progressive reliance by donors on their systems as they adopt international principles or standards and apply good practices’.33 The Paris Declaration included a commitment that donors would work towards ‘Reforming and simplifying donor policies and procedures to encourage collaborative behaviour and progressive alignment with partner countries’ priorities, systems and procedures’.34 It should be noted that the internationalisation of recipient country procurement systems has been managed through the process of the reform and modernisation of these procurement systems. This reform and subsequent convergence of procurement policies and practices has been assisted in no small way by the UNCITRAL Model Law on Procurement, mentioned earlier, which provides a template public procurement law based on international best practices and extensive global input that is relied on by many countries in the legislative aspect of procurement reform. More will be said about this in Chapter 10. This section will examine the elements of the procurement harmonisation agenda that has been implemented by the MDBs. i. Standardisation of Procurement Documents One area that has benefited from the MDB harmonisation agenda is the standardisation of procurement documents. Starting from the macro to the micro, procurement documents used by the MDBs have been substantially harmonised and a great degree of similarity, and in some cases, the uniformity of documents has been achieved, through the development of Master (or template) documents. Some of the procurement documents that have been harmonised are: (i)

Procurement Guidelines/Regulations: A review of the procurement guidelines of the MDBs reveals much similarity. Of course it is

32 See Inter-American Development Bank, Harmonization of Procurement Policies and ractices of Public International Financial Institutions Progress Report, (Washington DC, P Inter-American Development Bank, 2005). Available at www.iadb.org/document.cfm?id=605598. 33 Rome Declaration on Harmonisation, n 10 above. 34 Paris Declaration on Aid Effectiveness, n 19 above, para 3.

Harmonisation 229

(ii)

unlikely that uniformity will ever be achieved here, given the different objectives and markets in which the MDBs operate, but it is clear that there has been a great deal of emulation of the 2011 Bank procurement guidelines in relation to aspects that are subject to common approaches. For instance a comparison of the procurement guidelines of the World Bank, with those of the Inter-American Development Bank (IADB),35 the African Development Bank (AfDB)36 and the Asian Development Bank37 shows that they are almost identical in form and content, with the exception of a few paragraphs that speak to peculiar aspects of each MDB’s procurement. A comparison with the procurement guidelines of the World Bank and the European Bank for Reconstruction and Development (EBRD)38 also reveal many areas of similarity, though not to the extent of the other MDBs, given the different operational context of the EBRD. Standard bidding documents: In terms of bidding documents, the MDBs have agreed on Master documents, which are model documents intended to be used by the MDBs, ‘whilst allowing for institutional and member country considerations’.39 It may be stated that although the review of the Bank’s procurement framework led to some changes to the standard bidding documents and the change in nomenclature to ‘standard procurement documents’, the substance of the documents remains essentially the same. Note that in relation to the standard bidding documents, the pool of participating MDBs is wider than the MDBs under consideration in this book and includes the ADB, the AfDB, the EBRD, the IADB, the World Bank, the Black Sea Trade and Development Bank (BSTDB), the Caribbean Development Bank (CDB), Council of Europe Development Bank (CEB), and Islamic Development Bank (IsDB). The Master documents that have been formulated to date are: (a) Selection of consultants: standard request for proposals (October 2011).40

35 Inter-American Development Bank, Policies for the Procurement of Goods and Works financed by the Inter-American Development Bank, GN-2349-9. March 2011 (Washington DC, Inter-American Development Bank, 2011). 36 African Development Bank, Rules and Procedures for Procurement of Goods and Works (Abidjan, African Development Bank, 2012). 37 Asian Development Bank, Procurement Guidelines (Manila, Asian Development Bank, 2015). 38 European Bank for Reconstruction and Development, Procurement Policies and Rules for Projects Financed by the European Bank of Reconstruction and Development (London, European Bank for Reconstruction and Development, 2014). 39 World Bank, Procurement Harmonization, n 14 above. 40 Available at siteresources.worldbank.org/INTPROCUREMENT/Resources/Master_ Harmonized_SRFP_(Oct_2011)v2.pdf.

230 The Aid Effectiveness Agenda (b) Generic Master Procurement Document (July 2008)41 (c) Master Document for the Procurement of Small Works (July 2008)42 (d) Prequalification Documents for Procurement of Works and Users Guide (May 2003)43 (e) Master Document for Procurement of Works (July 2008)44 (f) Master Document for Procurement of Goods (July 2008)45 (g) Master Document for Procurement of Plant Design, Supply and Installation (February 2007)46 (h) Procurement and PPP Transactions Guidance for MDB Public Sector Engagements (February 2012)47 (i) MDB Procurement Principles applicable to Private Sector Transactions: Guidance for MDBs (October 2012).48 (iii) Contractual documents: Another area in which there has been harmonisation is in relation to MDB conditions of contract. In particular, in relation to construction contracts there has been harmonisation between the MDBs and the International Federation of Consulting Engineers (FIDIC) on the standard clauses applicable to such contracts.49 ii. Co-operation in the Area of Anti-corruption In the area of anti-corruption, the MDBs have also recorded a large measure of success in their coordination and cooperation efforts. The MDBs created

41 Available at siteresources.worldbank.org/INTPROCUREMENT/Resources/GenericMPDJul08.pdf. 42 Available at siteresources.worldbank.org/INTPROCUREMENT/Resources/MPD-SmallWorks-Jul08.pdf. 43 Available at siteresources.worldbank.org/INTPROCUREMENT/Resources/MasterPQ06-16-03.pdf. 44 Available at siteresources.worldbank.org/INTPROCUREMENT/Resources/MPD-WorksJul08.pdf. 45 Available at siteresources.worldbank.org/INTPROCUREMENT/Resources/MPD-GoodsJul08.pdf. 46 Available at siteresources.worldbank.org/INTPROCUREMENT/Resources/MBD-PLANTrev-JUN06-final-rev02-05-07.pdf. 47 Available at siteresources.worldbank.org/INTPROCUREMENT/Resources/MDB_Procur ementPrinciplesApplicableToPublicSectorTransactions.pdf. 48 Available at siteresources.worldbank.org/INTPROCUREMENT/Resources/MDB_Procur ementPrinciplesApplicableToPrivateSectorTransactions.pdf. 49 At present, there is a standard contract in the form of the Conditions of Contract for Construction for Building and Engineering Works designed by the Employer (MDB H armonized Edition, June 2010). Available at www.ebrd.com/downloads/procurement/project/mdbgcv3unprotected.pdf.

Harmonisation 231 an International Financial Institution Anti-Corruption Task Force, which to date has been able to reach agreement in the following areas: (i)

Uniform Framework for Preventing and Combating Fraud and Corruption:50 This document established the elements of a harmonised strategy to combat corruption within MBD operations. The Uniform Framework was the upshot of an agreement of 18 February 2006 between the AfDB Group, the ADB, the EBRD, the European Investment Bank (EIB) Group, the International Monetary Fund, the IADB Group and the World Bank Group, under which they agreed to establish a Joint International Financial Institutions Anti-Corruption Task Force. The Task Force agreed to harmonise the definitions of fraud and corruption; committed to common guidelines and principles in investigations; agreed to exchange information; committed to address comprehensive integrity due diligence; implement the mutual recognition of enforcement actions; and support the anti-corruption efforts of Member countries. As will be seen below, many of these initial commitments have found expression in various agreements between the MDBs and the other participants in the Task Force. (ii) Agreement for the Mutual Enforcement of Debarment Decisions:51 The Uniform Framework discussed above set the stage for this agreement, which entered into force in 2010. Under this agreement, individuals or groups sanctioned by one MBD may be sanctioned for the same offence by the participating MDBs. The MDBs that are part of the ‘cross-debarment’ regime are the ADB, the AfDB, the IADB, the EBRD and the World Bank. The rationale for cross-debarment is to increase the deterrent effect of MDB sanctions by multiplying the economic impact of debarment.52 (iii) MDB Harmonized Principles on the Treatment of Corporate Groups:53 These principles provide guidance for MDB sanctions on related 50 Uniform Framework for Preventing and Combating Fraud and Corruption (September 2006). Available at www.afdb.org/fileadmin/uploads/afdb/Documents/GenericDocuments/30716700-EN-UNIFORM-FRAMEWORK-FOR-COMBATTING-FRAUD-V6. PDF 51 Agreement for the Mutual Enforcement of Debarment Decisions Adopted April 9, 2010. Available at crossdebarment.org/oai001p.nsf/0/F77A326B818A19C548257853000C2B10/ $FILE/cross-debarment-agreement.pdf 52 World Bank, Mutual Enforcement of Debarment Decisions Among Multilateral Development Banks (Washington DC, The World Bank, 2010) para 9. Available at siteresources.worldbank.org/INTDOII/Resources/Bank_paper_cross_debar.pdf. See also SS Zimmerman and FA Fariello Jr., ‘Coordinating the Fight against Fraud and Corruption: Agreement on CrossDebarment among Multilateral Development Banks’ (2011) 3 World Bank Legal Review 189. 53 MDB Harmonized Principles on the Treatment of Corporate Groups, Adopted 10 S eptember 2012. Available at lnadbg4.adb.org/oai001p.nsf/0/A7912C61C52A85AD48257 ACC002DB7EE/$FILE/MDB%20Harmonized%20Principles%20on%20Treatment%20of% 20Corporate%20Groups.pdf.

232 The Aid Effectiveness Agenda c orporate groups such as parent and subsidiary and sister companies. Under the Harmonized Principles, sanctions will be implemented on the entities within corporate groups depending on the circumstances of the case.54 Thus, sanctions will generally be imposed on entities controlled by the respondent, entities controlling the respondent and entities under common control, unless it can be shown that these entities are free from responsibility for the sanctioned practice.55 (iv) General Principles and Guidelines for Sanctions:56 The General Principles set out common standards for sanctions, which have been incorporated into the sanction policies of the participating institutions. The participating institutions include the MDBs which are the subject of this book, namely, the ADB, the AfDB, the IADB, the EBRD and the World Bank as well as the EIB. The General Principles set out the range of sanctions that may be used, the aggravating and mitigating circumstances as well as the role of settlements in the sanctions process. (v) International Financial Institutions Principles and Guidelines for Investigations:57 These principles provide guidance for the organisation of investigations conducted by the participating MDBs, which includes, the ADB, the AfDB, the IADB, the EBRD, the World Bank as well as the EIB. The Principles provide that each MDB shall have an independent investigative office, and procedures for closing investigations, referrals to national authorities among others. IV. TIED AID

A. What is Tied Aid? A simplistic way of defining tied aid is that it is aid granted ‘with strings attached’.58 Tied aid is generally used to describe a practice where aid is provided on the condition that the goods, services or works to be financed from

54

ibid, para A1 ibid, para A3-6. 56 General Principles and Guidelines for Sanctions. See lnadbg4.adb.org/oai001p.nsf/0/CE3 A1AB934F345F048257ACC002D8448/$FILE/Harmonized%20Sanctioning%20Guidelines. pdf. 57 International Financial Institutions Principles and Guidelines for Investigations. Annexed to the Uniform Framework. Available at www.afdb.org/fileadmin/uploads/afdb/Documents/ Generic-Documents/30716700-EN-UNIFORM-FRAMEWORK-FOR-C OMBATTINGFRAUD-V6.PDF. 58 A La Chimia, ‘Donors Influence on Developing Countries’ Procurement Systems, Rules and Markets: A Critical Analysis’ in G Quinot and S Arrowsmith, Public Procurement Regulation in Africa (Cambridge, Cambridge University Press, 2013) 241. 55

Tied Aid 233 the aid are purchased from the donor’s country.59 However, in practice, tied aid can take any one of three forms; aid may be tied to a specific project or programme; aid may be tied to the procurement of specific goods/services; or aid may be tied to a country or region, from where the goods or services must originate.60 Aid may be fully or partially tied. It is fully tied when the goods or services must be obtained from a particular country or even a particular supplier; and is partially tied when the recipient is required to procure from specific countries or regions.61 Aid can also be formally or informally tied. It is formally tied where the aid agreement between the donor and the recipient contains the provisions for tying the aid (the aid conditionality), and where the recipient has no choice but to comply with the tying conditions.62 Aid may be informally tied where there is no formal requirement to tie the aid, but the absence of open advertisements or announcements for contract opportunities, or advertisements to a select or closed group, mean that, in reality, the aid is tied. Informally tied aid presents the greatest challenge to efforts to untie aid, as even though donors have all committed to untying aid, many of them still pursue practices that result in restrictions on the disbursement of aid. According to La Chimia, informally tied aid is ‘very damaging for recipient countries because its impact cannot be monitored, and it precludes the possibility to put in place safeguard mechanisms allowing aid to be untied when procuring from the donor would cause excessive costs’.63 It is interesting to note that informal tying of aid is reinforced both by the lack of capacity and poor procurement practices in some developing countries, as well as the considerable influence that the donor has over the disbursement of funds.64 It must be noted that tied aid is more a problem with bilateral65 than with multilateral aid, and in relation to projects financed by the MDBs, these are generally procured through international competitive bidding and as a

59 A La Chimia, Tied Aid and Development Aid Procurement in the Framework of EU and WTO Law: The Imperative For Change (Oxford, Hart Publishing, 2013), Ch 1. See also J Ansari and HW Singer, Rich and Poor Countries: Consequence of International Economic Disorder, 4th edn (London, Routledge, 1988), Ch 7. 60 C Jekma, The Tying of Aid (Paris, OECD, 1991) 11. Available at www.oecd.org/dev/ pgd/29412505.pdf. 61 La Chimia, ‘Donors Influence on Developing Countries Procurement Systems’ n 58 above, 241. 62 ibid. 63 A La Chimia, ‘Untying Aid through the Agreement on Government Procurement: A Means to Encourage Developing Countries Accession to the Agreement and Improve Aid Eeffectiveness?’ in S Arrowsmith and RD Anderson (eds), The WTO Regime on Government Procurement: Challenge and Reform (Cambridge, Cambridge University Press, 2011). 64 La Chimia, Tied Aid and Development Aid Procurement n 59 above, 31. 65 See generally, MM Ensign, Doing Good or Doing Well? Japan’s Foreign Aid Program (New York, Columbia University Press, 1992); D Brautigam, The Dragon’s Gift: The Real Story of China in Africa (Oxford, Oxford University Press, 2009).

234 The Aid Effectiveness Agenda result, are not subject to tying. However, the increased coordination between multilateral and bilateral donors in financing development has meant that multilateral organisations have taken up the issue of tied aid, as a result of its established effect on development and on the effectiveness of aid.66 As was discussed above in the context of the harmonisation agenda, tied aid featured prominently in multilateral efforts to improve aid effectiveness and still remains an important component of the aid effectiveness agenda. Untying aid is a complex exercise, and goes beyond a commitment to formally untie aid, or increase the transparency of contract opportunities and is a ‘matter of contracts, modalities, use of country systems and offering local business an opportunity to compete successfully for contracts’.67 The OECD, which has championed the cause of untying aid in the development community and amongst OECD Member donors, defines untied aid as ‘loans or grants which are freely and fully available to finance procurement from substantially all aid recipient countries and from OECD countries’.68 Some of the issues that militate against the untying of aid include factors such as rules of origin; minimum national content rules; insufficiently developed recipient country procurement systems and capacity; inadequate supplier capacity to bid internationally or for large projects; donor risk aversion as well as public pressure from donor countries. B. Effects of Tied Aid on Development: A Primer There has been a plethora of literature and studies69 which highlight the negative effects of tied aid on developing countries. Many of these studies predate the aid effectiveness agenda, and played a part in informing the inclusion of tied aid as a component of the MDB aid effectiveness agenda. The reasons for tying aid are not overly complex, and La Chimia presents three reasons for tying aid: the economic, where donors choose to use aid

66 MC Kemp and S Kojima, ‘Tied Aid and the Paradoxes of Donor Enrichment and R ecipient Impoverishment’ (1985) 26(1) International Economic Review 721; JM Miquel-Florensa, ‘Aid Effectiveness: A Comparison of Tied with Untied Aid’ (2007) York University Working Paper. Available at Wdept.econ.yorku.ca/research/workingPapers/working_papers/2007/ April2007_TiedUntied.pdf. 67 EJ Clay, M Geddes and L Natali, Untying Aid: Is it working? An Evaluation of the Implementation of the Paris Declaration and of the 2001 DAC Recommendation of Untying ODA to the LDCs (Copenhagen, Danish Institute for International Studies, 2009) vii. 68 OECD DAC, Revised DAC Recommendation on Untying ODA to the Least Developed Countries and Heavily Indebted Poor Countries (Paris, OECD, 2014) Annex I. Available at www.oecd.org/dac/untied-aid/Revised%20DAC%20Recommendation%20on%20Untying %20Official%20Development%20Assistance%20to%20the%20Least%20Developed.pdf 69 See generally CJ Jepma, International Policy Coordination and Untying of Aid (Avebury, Aldershot, 1994); J Chinnock and S Collinson, Purchasing Power and Aid Untying: Targeted Procurement and Poverty Reduction (Johannesburg, Action Aid, 1999).

Tied Aid 235 as an instrument for promoting trade; the political, where tying aid is seen to build national support for development policy; and the defensive, where donors have to tie aid because other donors are also tying their aid.70 It may be noted that there is evidence to suggest that tied aid does not actually produce significant economic benefits for donors,71 leading to the conclusion that the real reason for tied aid is more likely to be political expedience than economic benefit. The main argument against tied aid is its negative effect on the efficacy of aid72 and on the effectiveness of donor expenditure. Tied aid undermines the efficient use of aid funds as it often leads to higher prices being paid for the aid-financed goods and services,73 and reduces the nominal value of the aid given.74 Tied aid also produces irrelevant projects, which do not necessarily meet the developmental needs or aspirations of the recipient country, but are instead designed to provide support and opportunities for the donor’s markets.75 For instance, given that it is easier to tie aid on infrastructure projects than it is to tie aid granted through budget support finance,76 infrastructure projects may be more readily financed through aid, even if they are not what is most needed by the recipient. Tied aid further ‘distorts the natural patterns of trade in favour of the donor country’;77 frustrating efforts by the recipient to use the aid funds to boost trade with other countries in the region or sub-region. For these reasons, tied aid is often a major cause of aid failure.78 Other negative impacts of tied aid include the loss of markets suffered by the

70 A La Chimia, ‘Untying Aid through the Agreement on Government Procurement’ n 63 above, 397–98. See also Jepma, The Tying of Aid, n 60 above, 13–14; I Martínez-Zarzoso, F Nowak-Lehmann, S Klasen and M Larch, ‘Does German Development Aid Promote German Exports’ (2009) 10(3) German Economic Review 317. 71 See I Martinez-Zarzoso, F Nowak-Lehmann, MD Parra and S Klasen, ‘Does Aid Promote Donor Exports? Commercial Interest versus Instrumental Philanthropy’ (2014) 67(4) Kyklos 559. See also A La Chimia, ‘International Steps to Unite Aid: The DAC/OECD Recommendation on Untying Official Development Assistance to the Least Developed Countries’ (2004) 13 Public Procurement Law Review 1. 72 See L Hilditch, ‘Untied Aid Goes Further’, 2001 (2) International Development Magazine 1. 73 See generally, OECD Brief, Untying Aid to the Least Developed Countries (2001), which estimates a price increase of between 15 and 30% for goods procured with tied aid. See also Clay, Geddes and Natali, Untying Aid: Is it working? n 67 above, 1, which estimates similar figures. 74 Jepma, The Tying of Aid, n 60 above, 15. 75 La Chimia, ‘Donors Influence on Developing Countries Procurement Systems’ n 57 above, 241–42. 76 Jepma, The Tying of Aid, n 60 above, 12. 77 A La Chimia and S Arrowsmith, ‘Addressing Tied Aid: Towards a More DevelopmentOriented WTO’ (2009) 12(3) Journal of International Economic Law 707, 708. 78 A. Alesina and D Dollar, ‘Who Gives Foreign Aid to Whom and Why?’ (2000) 5 Journal of Economic Growth 33; D Moyo, Dead Aid: Why Aid is not Working and How there is a Better Way for Africa (New York, Farrar, Strauss and Giroux, 2009).

236 The Aid Effectiveness Agenda r ecipients, where the tied aid is a prohibition against buying locally, and the wasteful practice of procuring sometimes locally incompatible m achinery that requires more expensive, foreign-sourced, spare parts or training and maintenance contracts.79 Tied aid also acts as a constraint on donor co-operation, where donors are less likely to coordinate lending, if that will undermine their ability to tie the aid funds.80 Tied aid is an unwholesome but prevalent practice in development financing and although some success has been recorded by development partners, in eradicating the practice, much still needs to be done. The next section examines multilateral (including MDB) efforts at untying aid. C. Multilateral Efforts at Untying Aid: A Chronological Review It is on record that the first attempts to agree to untie aid occurred in the 1970s, although an agreement could not be reached owing to the opposition of countries such as France, Canada and Italy.81 According to Jepma, the 1980s presented a similar picture to the 1970s, and any reduction in the amount of tied aid between the 1970s and 1980s can be attributable to a shift from bilateral to multilateral financing.82 However, between the 1970s and the 2000s, the development community continued to call for the untying of aid. In 2001, the first international consensus on untying aid was issued by the OECD in the form of the OECD/DAC Recommendation on Untying Aid. The Recommendation received a boost from the 2002 Monterrey Conference, which put the issue of tied aid on the development agenda and requested donors to wholly untie aid. As was discussed above, the Monterrey Consensus, which was the package of commitments that issued from the Monterrey conference, can be seen as the modern genesis of the aid effectiveness movement. In relation to untying aid, the Monterrey Consensus provided that donors, recipients and international institutions should strive to make aid more effective and: support and enhance recent efforts and initiatives, such as untying aid, including the implementation of the Organisation for Economic Cooperation and Development/Development Assistance Committee recommendation on untying aid to the

79 La Chimia, ‘Donors Influence on Developing Countries Procurement Systems’ n 57 above, 242; A Szirmai, The Dynamics of Socio-Economic Development: An Introduction (Cambridge, Cambridge University Press, 2005) 600. 80 Clay, Geddes and Natali, Untying Aid: Is it working? n 67 above, 1. 81 H Fuhrer, The Story of Official Development Assistance (Paris, OECD, 1996) 22. 82 Jepma, The Tying of Aid, n 60 above, 17.

Tied Aid 237 least developed countries…Further efforts should be made to address burdensome restrictions…83

The Monterrey Consensus thus did not formulate a new approach to untying aid, but requested that donors implement existing commitments on untying aid as reflected in the 2001 OECD/DAC Recommendation. As stated, the first OECD/DAC recommendation on untying aid was issued in 2001 and subsequently amended in 2006, 2008 and 2014. Although the OECD/DAC Recommendation is a step in the right direction for untying aid, it is limited in scope and thus limited in impact.84 The Recommendation requires donors to ‘untie their ODA to the LDCs and HIPCs to the greatest extent possible…’85 in the areas of balance of payments and structural adjustment support; debt forgiveness; sector and multi-sector programme assistance; investment project aid; import and commodity support; commercial services contracts, and ODA to NonGovernmental Organisations for procurement related activities.86 The Recommendation does not apply to investment-related technical co-operation and freestanding technical co-operation, or to food aid. It is thus limited in scope, as it does not cover all procurements financed by donors. In addition, a there is a limited number of recipients that may benefit from the Recommendation, given that it only applies to Least Developed Countries (LDCs) and Highly Indebted Poor Countries (HIPCs). As at the latest revision to the Recommendation in January 2014, there were only 55 countries that were so defined, and which qualified for untied aid under the Recommendation.87 The Recommendation thus does not apply to all aid recipients, and donors are free to adopt tied aid practices for recipients that are not defined as LDCs or HIPCs, despite the fact that tied aid is disadvantageous to all aid recipients, irrespective of whether they are categorised as LDCs or HIPCs. Other factors that circumscribe the efficacy of the Recommendation are first, the increase in the number of non-OECD donors, such as China and India, that routinely use tied aid practices. Also, new private sector donors such as large foundations remain outside the ambit of the Recommendation. It has been found that the operations of these new actors ‘are based on normal economic and political interests in international relations, without distinguishing the special attributes of development assistance’.88

83

Monterrey Consensus, n 8 above, para 43. Chimia, ‘Untying Aid through the Government Procurement Agreement’ n 63 above,

84 La

399. 85 OECD DAC, Revised DAC Recommendation on Untying ODA, n 67 above, para 8. 86 ibid. 87 ibid, Annex II. 88 See OECD Policy Brief No 3: Aid Reform and the Changing Landscape of Development Cooperation (2011). Available at www.oecd.org/dac/evaluation/dcdndep/48366032.pdf.

238 The Aid Effectiveness Agenda These ‘new’ donors in particular skew the effect and the impact of the Recommendation, which is only applicable to OECD Members. It may also be noted that the Recommendation is non-binding and its implementation relies wholly on peer pressure and the monitoring role of the OECD.89 Despite the inherent limitations of the Recommendation above, there has been some success in untying aid by OECD members and in 2011, a survey by the OECD further reported that by 2009, 79 per cent of all bilateral ODA was untied.90 The next multilateral milestone in relation to tied aid was achieved through the Paris Declaration on Aid Effectiveness. The Paris Declaration was issued in the aftermath of the 2nd High Level Forum on Aid Effectiveness, which took place in Paris in 2005. This forum was focused on examining joint progress on aid effectiveness and both donors and recipients agreed to a series of commitments on achieving such. In relation to tied aid, the Paris Declaration was very similar to the Monterrey Consensus in its thrust and provided that: Untying aid generally increases aid effectiveness by reducing transaction costs for partner countries and improving country ownership and alignment. DAC Donors will continue to make progress on untying as encouraged by the 2001 DAC Recommendation on Untying Official Development Assistance to the Least Developed Countries.91

In relation to the measurable indicators of progress, there were no specific targets set to untie aid, and instead the commitment was to monitor continued progress over time.92 Further and more concrete impetus was given to the tied aid agenda in the Third High Level Forum on Aid Effectiveness, Accra, 2008, which led to the Accra Agenda for Action (AAA). The Accra Forum tracked the progress made since Paris and set the agenda for the accelerated attainment of the Paris goals. The AAA provided greater clarity on donor commitments in the area of tied aid and provided that: a) b)

OECD-DAC donors will extend coverage of the 2001 DAC Recommendation on Untying Aid to non-LDC HIPCs and will improve their reporting on the 2001 DAC Recommendation. Donors will elaborate individual plans to further untie their aid to the maximum extent.

89 La Chimia, ‘Untying Aid through the Government Procurement Agreement’ n 63 above, 399. 90 OECD, Better Aid: Aid Effectiveness, 2011: Progess in Implementing the Paris Declaration (Paris, OECD, 2011), Ch 3. 91 Paris Declaration on Aid Effectiveness, n 19 above, para 31. 92 ibid, Indicator 8.

Use of Country Systems in Funded Procurement 239 c)

d)

Donors will promote the use of local and regional procurement by ensuring that their procurement procedures are transparent and allow local and regional firms to compete. We will build on examples of good practice to help improve local firms’ capacity to compete successfully for aid-funded procurement. We will respect our international agreements on corporate social responsibility.93

Similarly, in the area of tied aid, the Busan Accord restated the commitments of the AAA and stated that: Pursuant to the Accra Agenda for Action, we will accelerate our efforts to untie aid…In addition to increasing value for money, untying can present opportunities for local procurement, business development, employment and income generation in developing countries. We will improve the quality, consistency and transparency of reporting on the tying status of aid.94

The multilateral agenda on untying aid continues to make progress, albeit slowly. As was stated by Clay et al, ‘untying is not an end in itself but a means to increase aid effectiveness and its developmental impact’95 and donors, including the MDBs, must do more to ensure that all donors c ommit to and implement untied aid in their development financing. V. USE OF COUNTRY SYSTEMS IN FUNDED PROCUREMENT

A. The Meaning of Use of Country Systems As can be seen from the foregoing discussion on aid effectiveness, the reliance on borrower country systems in the procurement process for funded contracts was regarded as a crucial part of the aid effectiveness agenda, and was described as having the potential to be one of the ‘most significant policy changes’ for MDBs.96 From Monterrey to Busan, the reliance on borrower country procurement systems in donor-financed contracts was expected to assist aid recipient countries to develop their procurement and public financial management systems; improve domestic procurement capacity; and thus improve aid delivery outcomes. Improving domestic procurement capacity is of particular importance when aid is provided through direct budget support. 93

Accra Agenda for Action, n 20 above, para 18. Busan Accord, n 26 above, para 18(e). 95 Clay, Geddes and Natali, Untying Aid: Is it working? n 67 above, x. 96 CL Pallas and J Wood, ‘The World Bank’s Use of Country Systems for Procurement: A Good Idea Gone Bad’ (2009) 27(2) Development Policy Review 215, 218. These authors argue that the driver for the use of country systems is not limited to the aid effectiveness agenda, but is also in response ‘to pressure from certain borrowers and…to maintain market share in the face of competition from other lenders’. 94

240 The Aid Effectiveness Agenda As discussed in Chapter 2, procurement regulation by the MDBs developed in response to the weak institutions and weak public financial management systems that existed in borrower countries.97 However, the ‘parallel’ procurement systems used by MDBs and donors created duplication, increased transaction costs, hampered alignment with country priorities and ownership and constrained efforts to strengthen national capacity.98 As was also mentioned above, the use of multiple donor systems and practices placed a resource and capacity burden on aid recipients and borrowers. Country systems may be described as national arrangements and procedures for public financial management, procurement, audit, monitoring, evaluation and social and environmental procedures.99 In the provision of aid, donors will often use some aspects of a country’s systems but not all. However, where aid is provided through budget support, then there will be little choice but for the donor to rely on the country’s systems in the management and disbursement of these funds.100 It should be noted that the use of country systems did not begin with the aid effectiveness agenda and there is evidence that in the 1980s, the World Bank attempted a slight, if informal move towards the use of country procurement systems where appropriate for Bank-financed contracts.101 However, the actual reliance on country systems in Bank-funded contracts were few and far between during this decade, but this set the stage for the introduction of the Country Procurement Assessment Reports (CPARS) as well as the formal acknowledgement of the necessity to rely on country systems where appropriate. Twenty years later, the Monterrey Consensus and the subsequent High Level Fora galvanised the World Bank to pursue this agenda which had been unsuccessful in earlier decades. As discussed further below, the desire to rely on national procurement systems led to the conduct of an extensive piloting programme to examine the modalities for the use of domestic country systems in Bank-funded contracts and to determine the level of robustness that could suffice for a domestic procurement system to be used in Bank-funded procurement.102

97 D Dollar and L Pritchett, Assessing Aid—What Works, What Doesn’t and Why (Washington DC, The World Bank, 1998). 98 Dollar and Pritchett, Assessing Aid n 97 above. 99 OECD, ‘Country Systems, and Why We Need to Use Them’, in Development Co- operation Report 2010 (Paris, OECD Publishing, 2010) 45. Available at dx.doi.org/10.1787/ dcr-2010-6-en. 100 ibid, 46. 101 Operations Policy and Country Services, The World Bank’s Procurement Policies and Procedures: Initiating Discussion Paper (Washington DC, The World Bank, 2012) 3; Pallas and Wood, ‘The World Bank’s Use of Country Systems for Procurement’, n 96 above, 216–19. 102 S Williams-Elegbe, ‘The Evolution of the World Bank’s Procurement Policy: Reform and Coherence for the 21st Century’ (2016) 16(1) Journal of Public Procurement 23. See also Pallas and Wood, ‘The World Bank’s Use of Country Systems for Procurement’, n 96 above, 221–22.

Use of Country Systems in Funded Procurement 241 It must be noted that of all the components of the aid effectiveness agenda, the use of country systems has probably been the least successful initiative in terms of actual MDB practice. Although use of country systems was included as a clause in the 2011 Bank procurement guidelines, there are very few cases in which a borrower’s procurement system has been deemed appropriate for use for international bidding in an MDB funded project. B. The Methodology and the Pilot For many years, the World Bank relied on CPARs to assess both the quality/performance of country procurement systems as well as the capacity of borrower implementing agencies to manage the risks of the procurement.103 The other MDBs accepted the CPAR as the best tool for assessing a procurement system and also jointly used CPARs for the reform of borrower procurement systems. The CPAR was developed to be used as a means of conducting a holistic review of domestic public procurement, which could be used as the basis for initiating procurement reform. As stated by the Bank, ‘the CPAR was intended to be an analytical tool to diagnose the health of the existing system in the country, and in the process generate a dialogue with the government focused on needed reforms. The main purpose of a CPAR is to establish the need for and guide the development of an action plan to improve a country’s system for procuring goods, works and consulting services.104 The CPAR is built on a doctrinal and empirical investigation into a domestic procurement system that focuses on eight to ten sectors, depending on the country in question. Thus the standard areas that are investigated as part of the Country Procurement Assessment are the Legal and Regulatory Framework; Procurement Practices and Procedures; Procurement Organisation and Resources; Electronic Commerce in Public Procurement; Audit and Anti-Corruption Measures; Customs and Trade Practices; Private Sector Procurement and a general risk assessment. The CPAR template used by the Bank contains a series of questionnaires, which are addressed by Bank staff to the relevant persons, agencies and organisations in the country being assessed. Before a country procurement assessment is conducted, the Bank tries to obtain the commitment and agreement of the government to the process in order to ensure that the government takes ownership of the reform process.105 103 See World Bank, Country Systems in Procurement. Available at web.worldbank.org/ WBSITE/EXTERNAL/PROJECTS/PROCUREMENT/0, contentMDK:21036741~pagePK:84 269~piPK:60001558~theSitePK:84266,00.html. 104 World Bank, Country Procurement Assessment Report Instruction. Section I-Introduction. (Washington DC, The World Bank, 2011) (www.worldbank.org). 105 World Bank, Country Procurement Assessment Report Instruction. Section III-Preparation of the CPAR (www.worldbank.org).

242 The Aid Effectiveness Agenda In 2003, as a follow up to the Paris Declaration, the Joint Venture on Procurement was established, which was a co-operative platform between OECD/DAC and the World Bank set out to develop ‘the tools and mechanisms for effecting measurable improvement in local procurement systems and encouraging the use of national systems, as those systems improved’.106 The result of this work was the development of the Methodology for Assessment of Country Procurement Systems (MAPS), which was issued in July 2006. From 2008 to 2011, the World Bank used the MAPS in a pilot programme for the use of country systems. The pilot was launched to assess which countries had procurement systems that met the Bank’s minimum benchmark and could then be used for Bank-funded contracts. The conclusion from the pilot was that it was not very successful, as apart from the MAPS methodology, which was used to assess borrower procurement systems, a second stage of the pilot measured the equivalence of country procurement systems with the Bank’s procurement system, and none of the countries were able to reach this stage of the pilot.107 More is said on this in Chapter 10. VI. CONCLUSION

As can be seen from the foregoing discussion, the aid effectiveness agenda, especially in relation to harmonisation, untying aid and the use of country systems has been pursued by the MDBs as part of a greater caucus, which includes OECD Members and major bilateral donors. The components of the aid effectiveness agenda have realised varying degrees of success, with the harmonisation agenda being the most successful and the use of country systems agenda being the least successful. It is hoped that the MDBs will continue to pursue these agendas even in the face of a looming global slowdown, which is likely to affect development financing, and which makes the case for effective aid spending all the more compelling.

106 African Development Bank, ‘Harmonisation in Public Procurement: Comprehensive Review of the AfDB’s Procurement Policies and Procedures’ (Abidjan, African Development Bank, 2014) para 18. Available at www.afdb.org/fileadmin/uploads/afdb/Documents/Procurement/Project-related-Procurement/Summary_of_Literature_on_Harmonization_in_Public_ Procurement.pdf. 107 The World Bank, The World Bank and Public Procurement: An Independent Evaluation Vol II Achieving Development Effectiveness through Procurement in Bank Financial Assistance (Washington DC, IEG World Bank, 2014) 10–12. Available at http://ieg.worldbank.org/ Data/reports/Procurement_Vol_II_02_04_2014.pdf.

10 Public Procurement Reform and the Development of Procurement Capacity in Developing Countries: The Role of MDBs I. INTRODUCTION

T

HIS CHAPTER CONSIDERS in detail two issues that arose from the aid effectiveness agenda, namely, the issues of procurement reform and developing borrower capacity in public procurement. It may be stated here that these issues are integral aspects of the use of country systems component of the aid effectiveness agenda; as MDB interest in procurement reform and capacity development stems from a desire to implement commitments to rely on country systems for procurement in funded projects. This chapter provides a framework for understanding these issues and the role MDBs have played; the chapter will consider the scope of the multilateral agenda on these issues; evaluate the process of procurement reform and capacity building in developing countries; and the approaches of the MDBs to procurement reform and capacity development. The chapter will also examine the UNCITRAL Model Law on Procurement and its influence on the procurement reform initiatives in developing countries. II. CONCEPTUAL FRAMEWORK

A. Public Procurement Reform Public procurement reform has been described by Basheka as the attempts at changing organisational, institutional and legal structures that manage the public procurement process.1 The procurement reform process is thus

1 B Basheka, ‘Public Procurement Reforms in Africa: A Tool for Effective Governance of the Public Sector and Poverty Reduction’ in KV Thai (ed), International Handbook of Public Procurement, (Boca Raton, CRC Press, 2009) 131, 136.

244 Public Procurement Reform a review of an existing public procurement system, with a view to making the system more responsive to changing circumstances to meet desired goals.2 Public procurement reform is by no means peculiar to developing countries. Most, if not all developed countries are constantly engaging in the process of reforming public procurement3 for reasons such as increasing efficiency and innovation; reducing waste through the increased use of electronic mechanisms in procurement; the use of private sector finance and collaborative procurement; improving services delivery; and utilising procurement to promote sustainable contracting; and giving a proportion of contracts to small and medium-sized enterprises (SMEs) and other vulnerable groups such as veterans, disabled persons, minorities or persons from disadvantaged regions.4 Procurement reform in developed countries often aims to take into account the changes in the nature of what is being bought, such as the increased purchase of IT systems and services; and adopting the use of new technologies in the procurement process, such as electronic auctions, electronic reverse auctions and electronic payment systems.5 Procurement reform in developed countries is essentially aimed at the modernisation of already established and functional procurement systems. In developing countries, procurement reform is intended to make procurement fit for purpose and less prone to corruption, fraud and mismanagement. The ultimate aim, however, is to assist countries to better manage resources to meet developmental outcomes, given the limited finance available for development; as well as the unwillingness of donors to continue to provide budget support or fund developmental projects where developing

2 ibid.

3 PR Schapper, JN Veiga Malta and DL Gilbert, ‘An Analytical Framework for the Management and Reform of Public Procurement’ (2006) 6 Journal of Public Procurement 1. 4 See generally, European Commission, Green Paper on the Modernization of EU Public Procurement Policy: Towards a More Efficient European Procurement Market’ COM(2011) 15 final (27 January 2011); S Kelman, Unleashing Change: A Study of Organizational Change in Government (Washington DC, Brookings Institution Press, 2005); S Kelman, Procurement and Public Management: The Fear of Discretion and the Quality of Government Performance (Washington DC, AEI Press, 1990); WE Kovacic, ‘Evaluating the Effects of Procurement Reform’ (1998) 33(2) Procurement Lawyer 1; JJ Snider Smith, ‘Competition and Transparency: What Works for Public Procurement Reform’ (2008) 38(1) Public Contract Law Journal 85; S Kelman, ‘Remaking Federal Procurement’ (2002) 31(4) Public Contract Law Journal 581; SL Schooner, ‘Fear of Oversight: The Fundamental Failure of Businesslike Government’ (2001) 50(3) American University Law Review 627; CH Bovis, ‘The Challenges of Public Procurement Reform in the Single Market of the European Union’ (2013) 14 ERA Forum 35–57; M Burnett, ‘PPP and EU Public Procurement Reform—Time to Change the Rules for Competitive Dialogue?’ (2011) 6(2) European Public Private Partnership Law Review 61. 5 JA Pegnato, ‘Assessing Federal Procurement Reform: Has the Procurement Pendulum stopped Swinging?’ in KV Thai (ed), International Handbook of Public Procurement (Boca Raton, CRC Press, 2009).

Conceptual Framework 245 country governments were misappropriating funds and abusing or manipulating procurement processes for illegitimate ends.6 Procurement reform is often required in developing countries in order to build strong institutions that are crucial for sustained growth and development.7 Given the centrality of procurement as the vehicle for meeting developmental goals, a strong, fully functional procurement system based on the rule of law is a sine qua non for development. The importance of procurement reform to donors and MDBs cannot be overstated. The procurement system in a country: provides the key delivery system for goods, works and services financed by the global donor community. As aid flows to recipient countries have increased, so too has the interest in seeing that funds are used for intended purposes and the goods, works and services are delivered efficiently and effectively.8

Where a country procurement system is unable to properly utilise and manage funds, whether these funds flow from donors or from domestic sources, this will have adverse consequences for the ability of that country to meet developmental targets. According to the OECD: The impact of foreign aid is especially affected by procurement performance given the overwhelming proportion of Official Development Assistance (ODA) that is delivered through the public contracting process. Unfortunately, procurement systems in many developing countries are particularly weak and serve to squander scarce domestic and foreign resources.9

As a result, the reform of developing country public procurement systems and ‘strengthening procurement capacity in developing countries must be a vital component of efforts to improve social and economic well-being and a necessary feature of programmes designed to meet the international commitment to reducing poverty’.10 It has been stated that the components of an effective procurement system in developing countries include an adequate legal framework; a consistent policy framework; defined institutional arrangements; a professional civil service; adequate resources to support the procurement function, as well as laws that prevent fraud and corruption, increase transparency and the 6 Basheka, ‘Public Procurement Reforms in Africa’, n 1 above, 133; CG Wescott, ‘World Bank Support for Public Financial Management and Procurement: From Theory to Practice’ (2009) 22(1) Governance: An International Journal of Policy, Administration and Institutions 139. 7 D Rodrik, A Subramanian and F Trebbi, ‘Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development’ (2004) 9(2) Journal of Economic Growth 131. 8 OECD-DAC, Strengthening Country Procurement Systems: Results and Opportunities (Paris, OECD, 2011), 8. 9 OECD-DAC, Harmonising Donor Practices for Effective Aid Delivery, Vol 3: Strengthening Procurement Capacities in Developing Countries (Washington DC, World Bank & OECD Publishing, 2005) 8. 10 ibid.

246 Public Procurement Reform inclusion of civil society.11 One may also add an efficient procurement watchdog and a functional remedial system. Whilst there has been much debate on the necessary accompaniments for and obstacles to procurement reform in developing countries,12 there is agreement that a fully functional procurement system is in essence, one that is ‘governed by a clear legal framework establishing the rules for transparency, efficiency and mechanisms for enforcement, coupled with an institutional arrangement that ensures consistency in overall policy formulation and implementation’.13 To distil this further, procurement reform in developing countries often takes the following form: (i)

The development of new, integrated procurement legislation or the expansion or amendment to previous legislation to bring coherence into the legal framework, require the use of mandatory competitive bidding procedures, create new institutions, and create new, or strengthen existing, offences and remedies for breaches of the legislation. As will be discussed in detail below, many of these legal reforms are based on the UNCITRAL Model Law on Procurement.14 (ii) The creation of a new or reformed institution with oversight over public procurement and charged in some cases with developing procurement policy. The reform process often includes the creation of an organisation responsible for ensuring compliance with the new legislative and policy framework. This organisation maintains consistency in policy and legal interpretation and procurement implementation across some or all tiers of government and may also be responsible for coordinating procurement training as part of the procurement reform process. It should be noted that one of the main outcomes of procurement reform is a separation of operational procurement institutions from regulatory or oversight institutions. (iii) Capacity building: the development of the capacity of public officials to understand, interpret and implement the new requirements of a reformed public procurement system is crucial to the success of reforms. Legal and institutional changes, which do not manage the 11

R Rothery, ‘Understanding Public Procurement’ (2002) 3 The Governance Brief 1. R Hunja, ‘Obstacles to Public Procurement Reform in Developing Countries’ in S Arrowsmith and M Trybus (eds), Public Procurement: The Continuing Revolution, (London, Kluwer Law International, 2003) 15; Basheka, ‘Public Procurement Reforms in Africa’, n 1 above, 133; C Walker ‘Setting up a Public Procurement System: The Six Step Method’ in S Arrowsmith and M Trybus (eds), Public Procurement: The Continuing Revolution (London, Kluwer Law International, 2003) 3; S Williams-Elegbe, ‘Beyond UNCITRAL: The Challenges of Procurement Reform Implementation in Africa’ (2014) 1 Stellenbosch Law Review 209; Schapper, Viega Malta and Gilbert, ‘An Analytical Framework’ n 3 above. 13 Hunja, ‘Obstacles to Public Procurement Reform’, n 12 above, 15. 14 UNCITRAL Model Law on Procurement of Goods, Services and Construction, 1994 and the UNCITRAL Model Law on Procurement, 2011. Available at www.uncitral.org. 12

Conceptual Framework 247 moral hazard inherent in the procurement function, will ultimately lead to the failure of reforms. Thus, procurement reforms are accompanied with a large training component to professionalise the procurement function, and raise the ‘strategic profile of procurement’.15 (iv) The creation of a system of administrative remedies: Adjudicatory mechanisms in developing countries are often slow, weak, compromised and in need of reform themselves. In relation to procurement disputes, where time is often of the essence, and there is a need to understand technical concepts, procurement reform is often accompanied by the creation of a system of administrative remedies to settle disputes and the creation (or strengthening) of existing organisations to dispense these administrative remedies.16 It may be noted that the categories of reform initiatives mentioned above are often referred to as ‘first generation reforms’ as they are the basics necessary for the creation of an effective and functional procurement system. There are of course other components of procurement reform, such as the creation of electronic platforms and data management initiatives, but these four mentioned are the common issues that are initially addressed by most developing countries undergoing reform. Procurement reform measures in developing countries are often beset with challenges,17 which include the fact that unwholesome or unethical procurement practices are fiercely defended by the entrenched and powerful forces they benefit.18 Dismantling these vested interests remains one of the greatest obstacles to the success of a procurement reform program. Another issue that affects procurement reform in developing countries is the difficulties presented in managing the politics of change.19 This is an issue that often gets little attention in procurement reform initiatives, and coupled with the fierce resistance to reform in countries where procurement is used by the political and economic elite as an avenue for personal enrichment, may often lead to fragmented and piecemeal reforms, with little meaningful change in the status quo. The UNDP has also highlighted the superficiality of many capacity development initiatives and noted that: Efforts to strengthen skills, processes and systems do not produce sustainable results if they fail to address the inherently political and complex realities of the 15

Hunja, ‘Obstacles to Public Procurement Reform’, n 12 above, 16. Quinot, ‘A Comparative Perspective on Supplier Remedies’ in G Quinot and S Arrowsmith (eds), Public Procurement Regulation in Africa (Cambridge, Cambridge University Press, 2013) 316. 17 See generally, Williams-Elegbe, ‘Beyond UNCITRAL’ n 12 above. 18 OECD-DAC, Harmonising Donor Practices for Effective Aid Delivery’, n 9 above, 16. 19 JE Campos and JL Syquia, ‘Managing the Politics of Reform: Overhauling the Legal Infrastructure of Public Procurement in the Philippines’ (2006) World Bank Working Paper No. 70. See also ER Auster and T Ruebottom, ‘Navigating the Politics and Emotions of Change’ (2013) 54(4) MIT Sloan Management Review 31–36, which details a five-step process to manage the politics of change within organisations. 16 G

248 Public Procurement Reform situation and deal with the question of ‘winners and losers’. Capacity development, whether intentional or not, can lead to shifts in roles and responsibilities. These can unsettle vested interests and established power structures and require changes in behaviour, norms, and values. To be effective, supporting capacity development therefore requires us to create appropriate political and social incentives and mobilize strong political ownership and commitment.20

Another challenge to procurement reform is the lack of effective political commitment to the reform process. It was this issue of political ownership and commitment that was addressed at the Cusco Declaration of 2011, which was agreed to by bilateral and multilateral donors and developing countries and recognised that ‘procurement reform requires sustained ownership and political commitment; appropriate technical solutions are essential, but are not adequate on their own…’.21 It has even been suggested that because reform efforts legitimise governments, in some countries, political leadership use the rhetoric of reform to pretend that action is being taken,22 without a genuine commitment to these reforms. Finally, it may be noted that procurement reforms often do not succeed if they are not accompanied by ‘fundamental changes in practices and behaviour’.23 If procurement reform does not aim or succeed at altering behaviour and practices, the result will be the superimposition of ‘old’ behaviour patterns upon the ‘new’ procurement framework.24 As was mentioned by Wescott, there is often ‘a gap in most reforming countries, between the promise of new announcements and initiatives on one hand, and the actual delivery of reforms on the other…’.25 The World Bank has similarly noted in a 2016 assessment of the procurement systems of 77 countries, that although many countries have sound procurement regulations, the implementation of these regulations often lags behind.26 These gaps and lags may 20

UNDP, Capacity Development Practice Note (UNDP, 2008). Cusco Declaration of the OECD/DAC Task Force on Procurement, Strong Procurement Systems for Effective States (2011). Available at http://www.unpcdc.org/media/218061/ cusco%20declaration_6may2011.pdf. 22 W Webb, ‘A Caveat on Public Management Reform and Corruption Prevention’ (2008) 43(4) Journal of Public Administration 592–606. 23 O Ladipo, A Sanchez and J Sopher, Accountability in Public Expenditures in Latin America and the Caribbean: Revitalizing Reforms in Financial Management and Procurement (Washington DC, The World Bank, 2009), Ch 4. 24 In the medical sciences and psychology, there are recognised behaviour change techniques, which are defined as ‘an observable, replicable, and irreducible component of an intervention designed to alter or redirect causal processes that regulate behaviour…’. See S Michie, M Richardson, M Johnston, C Abraham, J Francis, W Hardeman, MP Eccles, J Cane and CE Wood, ‘The Behaviour Change Technique Taxonomy (v1) of 93 Hierarchically Clustered Techniques: Building an International Consensus for the Reporting of Behaviour Change Interventions’ (2013) 46(1) Annals of Behavioural Medicine 81. 25 CG Wescott, ‘World Bank Support for Public Financial Management and Procurement: From Theory to Practice’ (2009) 22(1) Governance: An International Journal of Policy, Administration and Institutions 139, 142. 26 World Bank, Benchmarking Public Procurement 2016: Assessing Public Procurement Systems in 77 Economies (Washington DC, The World Bank, 2016) 3. 21 The

Conceptual Framework 249 be attributed to the moral hazard in public procurement; the idea that there is a tendency for unobserved human behaviour to bend the rules, and pursue a course of action that is in a person’s best interest;27 even if this interest is at odds with the public interest. B. The Development of Procurement Capacity From the discussion above, it can be seen that capacity building is an integral component of procurement reform. According to the OECD, ‘to achieve sustainable results, procurement reform and procurement capacity development need to go hand in hand’.28 Although capacity development is a necessary complement to procurement reform, the capacity issue also stems from a desire to ensure that in the long term, developing countries can take responsibility (in partnership with donors) for their own development and have the capacity to actually do so.29 To understand what is meant by the development of procurement capacity, we first have to understand the meaning of ‘capacity’. According to the OECD, capacity is the ability of people, organisations, and society as a whole to manage their affairs successfully. Capacity development is then understood as the process whereby people, organisations, and society as a whole unleash, strengthen, create, adapt and maintain capacity over time.30 An alternative definition, proposed by the World Bank Institute, defines capacity development as: a locally driven process of learning by leaders, coalitions and other agents of change that brings about changes in sociopolitical, policy-related, and organizational factors to enhance local ownership for and the effectiveness and efficiency of efforts to achieve a development goal.31

The UN has similarly defined capacity-building as ‘establishing the conditions under which public servants are able to embark on a continuous process of learning and adapting to change—building on existing knowledge and skills and enhancing and using them in new directions’.32 27 GS Eskeland and H Thiele, ‘Corruption Under Moral Hazard’ (1999) World Bank Policy Research Working Paper 2204. 28 OECD-DAC, Strengthening Country Procurement Systems, n 8 above, 41. 29 See S Maxwell and R Riddell, ‘Conditionality or Contract: Perspectives on Partnership for Development’ (1998) 10 Journal of International Development 257. 30 OECD-DAC, The Challenge of Capacity Development: Working Toward Good Practice (Paris, OECD, 2006). 31 S Otoo, N Agapitova and J Behrens, The Capacity Development Results Framework: A Strategic and Results Oriented Approach to Learning for Capacity Development (Washington DC, World Bank Institute, 2009). 32 See United Nations Economic and Social Council, Committee of Experts on Public Administration: Definition of Basic Concepts and Terminologies in Governance and Public Administration (2006), 8.

250 Public Procurement Reform Thus, public procurement capacity development may be defined as a process of developing and improving the ability of procuring entities to effectively and efficiently implement, manage and conduct public procurement in accordance with the law and international best practices, or as the process of developing or enhancing the skills of procurement personnel to enable them to function effectively and achieve measurable results.33 Like all capacity development, developing public procurement capacity is a long-term and continuous exercise, given that there are often rapid changes in procurement methods and innovative practices, and in the measurement and tracking of procurement trends and outcomes. Despite commitments to procurement capacity development by the development community, procurement capacity is still insufficient to meet domestic needs in many developing countries.34 Some of the reasons why capacity development initiatives funded by MDBs and other donors have not borne much fruit may be due in part to the fact that most funded capacity building measures are fragmented and short term. As described by Otoo et al: Many capacity development activities are not founded on rigorous needs assessments and do not include appropriate sequencing of measures aimed at institutional or organizational change and individual skill building. What is needed is a more comprehensive and sustained approach, one that builds a permanent capacity to manage sectors and deliver services.35

Similarly, the OECD recognised that: many previous programmes to develop procurement capacity have been low-level, too short term and donor driven and have mostly failed to address fundamental barriers to change, or make sustainable improvements. Theoretical work on capacity development that is being undertaken tells us that a more strategic, holistic approach is needed.36

Where the motivation for capacity development is not home grown and arises in response to donor requirements and the aid effectiveness agenda, there is often a lack of clear policy direction on how a country wants its procurement system to evolve and the kind of specific capacity demands it is likely to face in future.37 This is especially the case in countries that implemented first generation procurement reforms to establish a functional procurement system for the first time. The OECD/DAC Good Practice Paper on

33

Williams-Elegbe, ‘Beyond UNCITRAL’ n 12 above, 210–211. ibid, 211–215. 35 Otoo, Agapitova and Behrens, The Capacity Development Results Framework, n 31 above, 1. 36 OECD-DAC, Harmonising Donor Practices for Effective Aid Delivery, n 9 above, 9 37 OECD, Compendium of Country Examples and Lessons Learned from Applying the Methodology for Assessing National Procurement Systems, Vol I Sharing Experiences (Washington DC, OECD, 2008) 46. 34

Conceptual Framework 251 Capacity Development also emphasised that ‘Needs assessments have generally been donor-driven and have focused only on narrow areas where from the donor perspective capacity is lacking. This has led to programs with short term, “quick fix” solutions, the beneficial impact of which quickly disappears’.38 Another reason for the failure of donor-funded capacity building initiatives may be the low baseline capacity that is often possessed by public servants in developing countries. The often-weak education systems in many developing countries directly affect the ability of public servants to understand and internalise the new and technical concepts which pervade public procurement as a subject. This means that in many cases, short-term and even intensive training on these concepts cannot later be applied and implemented, as they were never truly properly understood. As will be discussed in detail later, the failure to adequately and properly develop procurement capacity in developing countries has affected the procurement reform agenda and has impacted on the success of the use of country systems initiatives. Until an effective way is found to successfully build procurement capacity in developing countries, the aid effectiveness agenda will not achieve all of its objectives and citizens will continue to suffer the consequences of undesirable procurement outcomes.39 C. Use of Country Systems As discussed in Chapter 9, the World Bank initiated a use of country systems agenda in the 1980s with little success. However, with multilateral commitments to rely on country systems for funded procurement, the World Bank as well as the other MDBs made another attempt to implement this agenda. The best way of understanding why the use of country systems is important in international development can be taken from an OECD report, which states: It is certainly true that the way in which aid has been delivered in the past—for example, when donors create their own mechanisms for implementing development rather than using partner countries’ systems—has risked undermining the sustainability of development efforts. By bypassing the government’s existing systems, these parallel systems can contribute to the country’s continued dependency on donors. Bypassing a country’s decision-making bodies can undermine these

38 OECD/DAC-World Bank 3rd Joint Roundtable on Strengthening Procurement Capacities in Developing Countries Draft Good Practice Paper on Procurement Capacity Development (Washington DC, OECD/DAC, 2004). Available at www1.worldbank.org/publicsector/ pe/befa05/Capacity%20Development.pdf. 39 See generally C Lopes and T Theisohn, Ownership, Leadership and Transformation: Can We Do Better for Capacity Development? (New York, Earthscan Publications, 2003), Ch 3.

252 Public Procurement Reform institutions and hence the accountability of the government towards its own citizens. These risks need to be considered alongside donors’ own concerns as they make efforts to increase their use of country systems in the delivery of aid.’40

The use of country systems has been proven to build sustainable capacity for a country to develop, implement and account for its policies to its citizens and parliament.41 Using country systems especially in public procurement is important beyond the delivery of aid, as procurement expenditures account for a significant proportion of government spending, and can be up to 70 per cent of GDP in developing countries.42 Thus, an efficient and effective procurement system will increase the likelihood of a country meeting domestic developmental aspirations and goals and will improve social and economic outcomes. As was stated by the World Bank, ‘strengthening country procurement systems is core to improving the development effectiveness of public expenditure, whether it be financed with taxes, with World Bank funds, or with resources from other partners’.43 The benefits of a reliance on national procurement systems was summarised by Ayoung as follows: The use of national systems promises to alleviate the load on recipient countries of having to deal with multiple policies, in particular procurement rules; make it easier for donors to co-finance operations; and in the long run reduce the transaction costs for the countries. Most importantly, it also provides a strong incentive for countries to bring their systems to an acceptable standard and thus scale up development by improving the return on all government expenditures not just those funded by donors.44

It may be noted that a reliance on country systems it is not an easy exercise and despite its proven long-term benefits, there are several risks presented by this idea, which are often in opposition to a donor’s own internal policies 40 OECD, ‘Country Systems, and Why We Need to Use Them’ in Development Co-operation Report 2010 (Paris, OECD, 2010), 44. Available at www.oecd-ilibrary.org/ docserver/ download/4310031ec006.pdf?expires=1474032515&id=id&accname=guest&checksum=305 61212307FE4CFD563A93579F5EF36. 41 UNDP, Moving Towards the Use of Country Systems for Procurement in Bangladesh: A Case Study (2009). Available at unpcdc.org/media/22472/moving%20towards%20use%20 of%20country%20systems%20for%20procurement%20in%20bangladesh.pdf. 42 UNDP, Public Procurement Capacity Development Guide (Procurement Capacity Development Centre, Capacity Development Group, and Bureau for Development Policy 2010). Available at www.undp.org/content/dam/aplaws/publication/en/publications/capacity-development/undp-procurement-capacity-assessment-users-guide/Procurement%20Capacity%20 Assessment%20Guide.pdf. 43 World Bank, Use of Country Systems in Bank-Supported Operations: Proposed Piloting Progam (Washington DC, The World Bank, 2008). Available at siteresources.worldbank.org/ INTPROCUREMENT/Resources/UseOfCountrySystemsFinalApprovedVersionForDisclosureJune20-2008.pdf. 44 A Ayoung, Background Paper Review of the World Bank’s Procurement Policies and Procedures: Use of Procurement Country Systems (Washington DC, The World Bank, 2013), 3. Available at consultations.worldbank.org/Data/hub/files/meetings/Procurement_ Policies/Background_Paper_on_Use_of_Country_Systems.pdf.

Conceptual Framework 253 and politics. These include the risks of loss of funds to fraud or corruption (fiduciary risk); the risk that the funds will not be used for the stated developmental project (development risk); the risk to the donor’s reputation if their efforts are not recognised or the blame they may face where something goes wrong (reputational risk); and the delays that the use of country systems may occasion to the deployment of funds (delay risk).45 These risks raise several concerns for donors, and an aversion to these risks may be partly responsible for the slow pace of progress in relation to the use of country systems agenda. In many cases, the responsibility of bilateral donors to their governments and domestic taxpayers means that such donors must ensure that the development financing they provide is not exposed to an unacceptable level of risk.46 In deciding to transition to the use of country systems, there are several issues that are required to be addressed by both donors and borrowers. In the first place, the donor must understand properly the nature of the country system,47 to understand whether the system is sufficiently robust and is properly aligned with international practices, or the practices the donor is accustomed to.48 The system here refers to institutional arrangements for the procurement function, leadership and accountability structures and the legislative, policy and operational frameworks. The existing gaps in the system must also be mapped. Second, the donor must understand the existing capacities within the system for managing or deploying funds and undertaking the required functions and tasks. In other words, whether the existing manpower in the country (or more precisely in the particular agency), can cope with implementing the required functions to a standard acceptable to the donor. This is particularly important, where the function is of a specialist or technical nature, such as the procurement in the construction, healthcare or water/sanitation sectors. Third, once both the system and the capacities have been mapped, the donor needs to assess the level of risk presented by the system and existing capacities, determine if the risk level is acceptable, and further develop risk mitigation strategies. In cases where an intolerable level of risk is presented, the donor may of course decide not to use the country system, until there is an improvement in it. Fourth, the donor must also review its own capacity to manage the nature of the interaction that will be had with borrowers, where country systems are 45

OECD ‘Country Systems, and Why We Need to Use Them’ n 40 above, 48. Moving towards the use of country systems for procurement in Bangladesh, n 41 above. 47 Note that there is debate as to what constitutes the element of a procurement system. Should it be limited to rules, regulations and the institutional framework, or should it take into account the broader environment that impacts the functioning of the procurement system. See Ayoung, Background Paper Review, n 44 above, 6–7. 48 Note that in some cases, the scope of an assessment is limited to an agency, sector or region. 46 UNDP,

254 Public Procurement Reform being utilised. The differences in the nature and the level of interaction often require a novel approach that may be difficult to implement, without organisational, institutional, operational and structural variations in the donors. As discussed below, the Country Procurement Assessment Reports (CPAR) and later the OECD-DAC Methodology for Assessing Procurement Systems (MAPS) were used to understand the level of compliance within a country system, assess the level of risk, and also determine appropriate risk mitigation strategies. With the adoption of the Bank’s new procurement framework, the Bank also created a new methodology for assessing borrower suitability for alternative procurement systems. As mentioned in Chapter 9, the use of country systems pilot by the World Bank between 2008 and 2011 was not very successful in determining a way forward for this agenda.49 The initial objective of the pilot was to propose a methodology by which ‘national procurement systems would be relied upon for ICB contracts in countries that have achieved procurement standards equivalent to those embodied in the Bank’s Procurement Guidelines and have demonstrated capacity to carry out such procurement’.50 The methodology was to be used to identify a group of countries, in which national procurement systems were of sufficient quality and capacity to achieve generally the same results in terms of economy and efficiency as could be achieved through the application of the World Bank’s procedures.51 The components of the methodology used in selecting countries and projects were detailed as follows: (i)

(ii)

An assessment of the quality of country procurement systems, using the knowledge the Bank has gained through public finance management assessments, Country Procurement Assessment Reviews, procurement reform programs, and the application of the OECD/DAC Procurement Benchmarking Tool; A detailed examination of the extent to which the country’s procurement policies are equivalent to and consistent with the principles of the Bank’s procurement policies as set out in its Procurement Guidelines;

49 See World Bank, Use of Country Procurement Systems in Bank-supported Operations: Proposed Piloting Program I (R008-36/3), (Washington DC, The World Bank, 2008); World Bank, Piloting Program in Use of Country Systems: First Progress Report (SecM2009-513) (Washington DC, The World Bank, 2009); World Bank, Use of Country Procurement Systems in Bank-Supported Operations: First Progress Report on the Piloting Program (R2009-0314 and IDA/R2009-0317), (Washington DC, The World Bank, 2009); and World Bank, Piloting Program in the Use of Country Procurement Systems: Second Progress Report (Washington DC, The World Bank, 2010). 50 World Bank, Use of Country Systems in Bank-Supported Operations: Proposed Piloting Program (Washington DC, The World Bank, 2008) para 2. Available at siteresources.worldbank.org/INTPROCUREMENT/Resources/UseOfCountrySystemsFinalApprovedVersionForDisclosure-June20-2008.pdf. 51 World Bank, Use of Country Systems in Bank-Supported Operations: Proposed Piloting Program, n 50, para 4.

Conceptual Framework 255 (iii) A review of compliance with the country’s policies and procedures, and the past performance and overall capacity of the government agencies designated to be responsible for the proposed projects to be covered by country pilots; (iv) An assessment of the fiduciary risks of pilot projects; (v) Launching of a process of limited national competitive bidding for the selection of consultants in the pilot countries; (vi) Incorporating a strong program of gap-filling analysis and capacity building in procurement; and (vii) Maintenance of a regular reporting framework, an international advisory panel, and a transparent mechanism for the continued participation of stakeholders during the pilot program.52 At the conclusion of the pilot in 2011, none of the countries in the pilot were unconditionally cleared to be eligible for the Bank to rely on their systems for Bank-funded procurements.53 The second progress report in December 2010 stated that the piloting program had proved challenging and had ‘not been a success’ from the perspective of its original objective, which was to use country procurement systems in individual projects.54 It was evident that no project using country procurement systems would be approved before the scheduled end of the programme on 30 June 2011, and the Bank decided that the programme would not be extended beyond that date.55 One effect of the pilot, however, was that a paragraph was included in the 2011 procurement guidelines which provides for the use of country systems in circumstances related to the pilot.56 The pilot provided a lot of lessons which will be useful to the Bank and the other MDBs in future approaches to the use of country systems. As was detailed by Ayoung: First, the Piloting Program’s ‘all-or-nothing’ approach—that is, the country’s system in toto was considered to have passed or failed the benchmark—limited the number of countries that could participate in the piloting program: only four countries, out of the starting twenty, were conditionally approved at the end of 52 ibid.

53 World Bank, The World Bank and Public Procurement: An Independent Evaluation Vol II Achieving Development Effectiveness through Procurement in Bank Financial Assistance (Washington DC, IEG/World Bank, 2014), 10–12. Available at ieg.worldbank.org/Data/ reports/Procurement_Vol_II_02_04_2014.pdf 54 World Bank, Piloting Program in the Use of Country Procurement Systems: Second Progress Report (Washington DC, The World Bank, 2010). 55 World Bank, The World Bank and Public Procurement: An Independent Evaluation Vol II, n 53 above, 10–12. 56 See Bank Procurement Guidelines (2011), para 3.20, which state that ‘The Use of Country Systems (UCS) refers to the use of the procurement procedures and methods contemplated in the public procurement system in place in the country of the Borrower that have been determined to be consistent with these Guidelines and acceptable to the Bank under the Bank’s Use of Country Systems Piloting Program. They may be used by Borrowers in pilot projects that have been approved by the Bank under such Piloting Program.’

256 Public Procurement Reform Stage II, subject to a set of corrective actions to be approved and adopted by the borrower. Second, a sequenced and measured approach to the use of country systems would be a more likely successful approach. Such an approach would be to use those well-performing segments of the borrower’s procurement system while continuing to focus efforts on improving the rest of the system and those related areas such as public administration, budgeting and financial management, as needed. Third, there would always be inconsistencies when comparing national regulations with international institutions’ procurement policies, as their respective objectives are typically trying to achieve different results. Such lessons were used to shape future initiatives on new ways to increase the Bank’s use of country systems such as the recently approved PforR lending instrument and the Bank’s ongoing review of its procurement policy.57

Despite the failure of the pilot in relation to using country systems for contracts subject to the ICB procedure, there is evidence to suggest that the use of country systems, through increased reliance on national competitive bidding (NCB) procedure is on the rise. Bank figures indicate that for FY2011, 40 per cent of contracts by value, and 90 per cent of contracts by number under sector investment lending was conducted using national systems under the NCB procedure.58 Other approaches that have been used to increase reliance on domestic systems are Output based aid (OBA), sector wide approaches (SWAPS), and Program for results (PforR).59 It may be noted here that apart from the use of country systems policy, which subsists under the 2016 procurement regulations, the 2016 regulations also introduced the prospect for the Bank to rely not only on domestic procurement systems, but to also rely on the procurement rules and procedures of another multilateral or bilateral organisation.60 In the 2016 regulations, the use of country systems and the reliance on the procurement procedures of another multilateral or bilateral organisation are referred to as ‘alternative procurement arrangements’. In addition, the Bank created a detailed methodology to assess the use of alternative procurement arrangements.61 More will be said on this methodology below. III. THE MULTILATERAL AGENDA ON PROCUREMENT REFORM AND CAPACITY DEVELOPMENT IN DEVELOPING COUNTRIES

As illustrated above, public procurement reform and capacity building are intrinsically connected, and capacity building is an essential component of 57 Ayoung,

Background Paper Review, n 44 above, 16. ibid, 16 59 ibid, 11, 15. 60 Bank Policy, section IIIF; Procurement Regulations for Borrowers, para 2.4. 61 World Bank, Draft Guide to the APA Assessment: Methodology to assess Alternative Procurement Arrangements in Borrower Implementing Agencies for Procurements Financed under IPF (Washington DC, World Bank, 2016). 58

The Multilateral Agenda on Procurement Reform and Capacity 257 a procurement reform agenda. Public procurement reforms will fail, where a country does not have the necessary capacity to sustain, maintain, translate and implement reforms, and reforms are often incomplete without the capacity development component. The impetus for the procurement reform agenda is in many cases, regional, and each wave of reform has often been in response to regional procurement catalysts. For instance, in Europe, aside from efforts to modernise and rationalise the public procurement framework,62 most domestic procurement reform was directed at ensuring that non-EU Member States could conform to the EU procurement legislative framework as part of EU accession requirements. In Africa and in Asia, reforms were donor driven and aimed at ensuring that development aid was not lost to fraud and corruption.63 Procurement reform in North America is notoriously done in response to procurement scandals, in order to plug gaps in the legislation exposed by newsworthy fraud and corruption.64 Apart from regional catalysts for procurement reform, the aid effectiveness agenda discussed in Chapter 9 has had the biggest influence on reform initiatives in developing countries. A review of the aid effectiveness commitments reveals that procurement reform and capacity building were regarded as important components of the aid effectiveness agenda. Thus, the Monterrey Consensus reiterated that: 19. It is critical to reinforce national efforts in capacity-building in developing countries and countries with economies in transition in such areas as institutional infrastructure, human resource development, public finance… in particular, public administration…

62 S Arrowsmith, ‘The Purposes of the EU Procurement Directives: Ends, Means and the Implications for National Regulatory Space for Commercial and Horizontal Procurement Policies’ (2012) 14 Cambridge Yearbook of European Legal Studies 1; S Arrowsmith, ‘Modernising the EU’s Public Procurement Regime: A Blueprint for Real Simplicity and Flexibility’ (2012) 21 Public Procurement Law Review 71. 63 See S Karangizi and I Ndahiro, ‘Public Procurement Reforms and Development in the Eastern and Southern Africa Region’ in RH Garcia (ed), International Public Procurement: a Guide to Best Practice (London, Globe Law and Business, 2009) 113; African Development Bank Group, COMESA Public Procurement Reform and Capacity Building Projects: Project Performance Evaluation Report (2012) 2–3; African Development Bank Group, Tunis Declaration on Public Procurement Reform in Africa Sustaining Economic Development and Poverty Reduction (2009). 64 JA Pegnato, Assessing Federal Procurement Reform: Has the Procurement Pendulum Stopped Swinging? in V Thai (ed), International Handbook of Public Procurement (London, CRC Press, 2009); J Branstetter and D Druyun, ‘An Evolving Case Study in Corruption, Power and Procurement’ (2005) 34(3) Public Contract Law Journal 443; AA Mothershed, ‘The $435 Hammer and $600 Toilet Seat Scandals: Does Media Coverage of Procurement Scandals lead to Procurement Reform?’ (2012) 41(4) Public Contract Law Journal 855; CR Yukins, ‘Ethics in Procurement: New Challenges after a Decade of Reform’ (2002) 38 Procurement Lawyer 3.

258 Public Procurement Reform The Monterrey Consensus placed specific commitments on the international development community to the effect that: 43. Recipient and donor countries, as well as international institutions, should strive to make ODA more effective. In particular, there is a need for the multilateral and bilateral financial and development institutions to intensify efforts to: —— Harmonize their operational procedures at the highest standard so as to reduce transaction costs and make ODA disbursement and delivery more flexible, taking into account national development needs and objectives under the ownership of the recipient country; —— Support and enhance recent efforts and initiatives, such as untying aid, including the implementation of the Organisation for Economic Cooperation and Development/Development Assistance Committee recommendation on untying aid to the least developed countries, as agreed by the Organisation for Economic Cooperation and Development in May 2001. Further efforts should be made to address burdensome restrictions; —— Enhance the absorptive capacity and financial management of the recipient countries to utilize aid in order to promote the use of the most suitable aid delivery instruments that are responsive to the needs of developing countries and to the need for resource predictability, including budget support mechanisms, where appropriate, and in a fully consultative manner; —— Use development frameworks that are owned and driven by developing countries and that embody poverty reduction strategies, including poverty reduction strategy papers, as vehicles for aid delivery, upon request; —— Enhance recipient countries’ input into and ownership of the design, including procurement, of technical assistance programmes; and increase the effective use of local technical assistance resources; —— Promote the use of ODA to leverage additional financing for development, such as foreign investment, trade and domestic resources; —— Strengthen triangular cooperation, including countries with economies in transition, and South-South cooperation, as delivery tools for assistance; —— Improve ODA targeting to the poor, coordination of aid and measurement of results. (emphasis added)

The Rome Declaration on Harmonization lent further credence to procurement reform, capacity building and the use of country systems initiatives and stated that: We in the donor community have been concerned with the growing evidence that, over time, the totality and wide variety of donor requirements and processes for preparing, delivering, and monitoring development assistance are generating unproductive transaction costs for, and drawing down the limited capacity of, partner countries. We are also aware of partner country concerns that donors’ practices do not always fit well with national development priorities and systems, including their budget, programme, and project planning cycles and public expenditure and financial management systems. We recognise that these issues require urgent, coordinated, and sustained action to improve our effectiveness on the ground.

The Multilateral Agenda on Procurement Reform and Capacity 259 We attach high importance to partner countries’ assuming a stronger leadership role in the coordination of development assistance, and to assisting in building their capacity to do so. Partner countries on their part will undertake necessary reforms to enable progressive reliance by donors on their systems as they adopt international principles or standards and apply good practices. The key element that will guide this work is a country-based approach that emphasizes country ownership and government leadership, includes capacity building, recognises diverse aid modalities (projects, sector approaches, and budget or balance of payments support), and engages civil society including the private sector. (emphasis added)

After the Rome High Level Forum, a series of Round Table meetings were held between development partners, including the MDBs.65 These Round Tables culminated in the 2004 Johannesburg Declaration.66 The Johannesburg Declaration, in recognising the fact that improvements in country procurement systems would ‘(i) produce enormous benefits towards efficient use of public resources…and (ii) facilitate harmonization and aid effectiveness by enabling greater reliance on well performing country systems for delivery of development assistance…’ considered that urgent action was needed in the following areas: —— Accord public procurement reform a higher strategic priority. —— Improve the effectiveness of the approaches and techniques used to develop procurement system capacity. —— For aid funded procurement, move towards greater reliance on national systems that conform to internationally recognized standards, or are moving successfully in that direction. In addition, under the Johannesburg Declaration, the partners committed to: —— Work to strengthen country procurement system capacity at the institutional, organizational and professional levels using new approaches and techniques, which strongly emphasize country ownership. —— Do this by carrying out careful systems-wide diagnostics at the country level, identifying priority areas of weakness, and designing realistic reform programmes based on the results that are closely and flexibly monitored during implementation. —— Focus on measurable improvements in the performance and impact of procurement systems. From the above, it can be seen that the Johannesburg Declaration, included a commitment for the adoption of a diagnostic tool as the agreed international 65 OECD/DAC—World Bank Joint Round Table Initiative on Strengthening Procurement Capacities in Developing Countries (Washington DC, World Bank, 2003). 66 OECD, Johannesburg Declaration: A Framework for Developing Effective Procurement Systems in Developing Countries (Paris, OECD, 2004). Available at www.oecd.org/dac/ effectiveness/34269704.pdf.

260 Public Procurement Reform standard for assessment of national procurement systems. Following the conclusion of the Round Table initiative, the Joint Venture for Procurement was established under the coordination of the OECD/DAC Working Party on Aid Effectiveness. The Joint Venture subsequently developed a methodology for the application of baseline and compliance and performance indicators to be used in the assessment of domestic procurement systems. This tool, discussed below, is referred to as the Methodology for Assessing Procurement Systems (MAPS), which was utilised in the assessment of procurement systems that were candidates for reform.67 After the Johannesburg Declaration, the next multilateral milestone in this area occurred at Paris, and the text of the Paris Declaration expanded and clarified the obligations of donors and recipients in relation to procurement reform, capacity development and the use of country systems. The following paragraphs are particularly pertinent: 20. Partner countries commit to: —— Carry out diagnostic reviews that provide reliable assessments of country systems and procedures. —— On the basis of such diagnostic reviews, undertake reforms that may be necessary to ensure that national systems, institutions and procedures for managing aid and other development resources are effective, accountable and transparent. —— Undertake reforms, such as public management reform that may be necessary to launch and fuel sustainable capacity development processes. 23. Partner countries commit to: —— Integrate specific capacity strengthening objectives in national development strategies and pursue their implementation through country-led capacity development strategies where needed. 28. Partner countries and donors jointly commit to: —— Use mutually agreed standards and processes to carry out diagnostics, develop sustainable reforms and monitor implementation. —— Commit sufficient resources to support and sustain medium and long-term procurement reforms and capacity development. —— Share feedback at the country level on recommended approaches so they can be improved over time. 29. Partner countries commit to take leadership and implement the procurement reform process.

67 OECD Methodology for Assessing Procurement Systems (Paris, OECD, 2010). Available at www.oecd.org/dac/effectiveness/45181522.pdf.

The Multilateral Agenda on Procurement Reform and Capacity 261 30. Donors commit to: —— Progressively rely on partner country systems for procurement when the country has implemented mutually agreed standards and processes (Indicator 5). —— Adopt harmonised approaches when national systems do not meet mutually agreed levels of performance or donors do not use them. (emphasis added)

After the Paris Declaration but prior to the Accra Agenda for Action (AAA), the May 2008 meeting of the Joint Venture on Procurement issued the Arusha Statement, which reiterated donor commitments made at Paris to provide ‘sufficient resources to support and sustain medium and long term procurement reforms and capacity development’.68 After Arusha, the AAA reiterated the commitments made under the Paris Declaration and further highlighted the areas where more was required to be done by both donors and recipients. The AAA placed a ‘special emphasis on encouraging donors to let recipient countries use their procurement systems when implementing aid projects’,69 and remains to date the most comprehensive statement by the development community on this issue. The relevant paragraphs of the AAA are reproduced below: 8. Country ownership is key. Developing country governments will take stronger leadership of their own development policies, and will engage with their parliaments and citizens in shaping those policies. Donors will support them by respecting countries’ priorities, investing in their human resources and institutions, making greater use of their systems to deliver aid, and increasing the predictability of aid flows. 14. Without robust capacity—strong institutions, systems, and local expertise— developing countries cannot fully own and manage their development processes. We agreed in the Paris Declaration that capacity development is the responsibility of developing countries, with donors playing a supportive role, and that technical co-operation is one means among others to develop capacity. Together, developing countries and donors will take the following actions to strengthen capacity development: (a) Developing countries will systematically identify areas where there is a need to strengthen the capacity to perform and deliver services at all levels— national, sub-national, sectoral, and thematic—and design strategies to address them. Donors will strengthen their own capacity and skills to be more responsive to developing countries’ needs.

68 Arusha Statement of the OECD/DAC Joint Venture on Procurement ‘To Support the Implementation of the Paris Declaration Principles by Building Reliable Public Procurement Systems’ (2008) para 3. Available at www.unpcdc.org/media/4140/global%20jv%20on%20 procurement.pdf. 69 A La Chimia, ‘Donors’ Influence on Developing Countries Procurement Systems, Rules and Markets: A Critical Analysis’ in G Quinot and S Arrowsmith, Public Procurement Regulation in Africa (Cambridge, Cambridge University Press, 2013) 252.

262 Public Procurement Reform (b) Donors’ support for capacity development will be demand-driven and designed to support country ownership. To this end, developing countries and donors will i) jointly select and manage technical co-operation, and ii) promote the provision of technical co-operation by local and regional resources, including through South-South co-operation. (c) Developing countries and donors will work together at all levels to promote operational changes that make capacity development support more effective. We will strengthen and use developing country systems to the maximum extent possible 15. Successful development depends to a large extent on a government’s capacity to implement its policies and manage public resources through its own institutions and systems. In the Paris Declaration, developing countries committed to strengthen their systems and donors committed to use those systems to the maximum extent possible. Evidence shows, however, that developing countries and donors are not on track to meet these commitments. Progress in improving the quality of country systems varies considerably among countries; and even when there are good-quality country systems, donors often do not use them. Yet it is recognised that using country systems promotes their development. To strengthen and increase the use of country systems, we will take the following actions: (a) Donors agree to use country systems as the first option for aid programmes in support of activities managed by the public sector. (b) Should donors choose to use another option and rely on aid delivery mechanisms outside country systems (including parallel project implementation units), they will transparently state the rationale for this and will review their positions at regular intervals. Where use of country systems is not feasible, donors will establish additional safeguards and measures in ways that strengthen rather than undermine country systems and procedures. (c) Developing countries and donors will jointly assess the quality of country systems in a country-led process using mutually agreed diagnostic tools. Where country systems require further strengthening, developing countries will lead in defining reform programmes and priorities. Donors will support these reforms and provide capacity development assistance. (d) Donors will immediately start working on and sharing transparent plans for undertaking their Paris commitments on using country systems in all forms of development assistance; provide staff guidance on how these systems can be used; and ensure that internal incentives encourage their use. They will finalise these plans as a matter of urgency. (e) Donors recollect and reaffirm their Paris Declaration commitment to provide 66% of aid as programme-based approaches. In addition, donors will aim to channel 50% or more of government-to-government assistance through country fiduciary systems, including by increasing the percentage of assistance provided through programme based approaches. (emphasis added)

In assessing the specific components of the agendas on procurement reform and capacity building, it is difficult to make generalisations about the issues that are addressed by this agenda, given the different contexts within which

The Multilateral Agenda on Procurement Reform and Capacity 263 the agenda is expressed. However, Williams-Elegbe’s earlier work on public procurement reform in Africa, covering Nigeria, Ghana, South Africa, Kenya and Tunisia70 has shown that, at least in relation to these countries, the procurement reform and capacity issues are similar. Similarly, work by Basheka and other authors’ paints a similar picture of the issues that are addressed by a procurement reform agenda.71 These can be summarised as the creation of new legislation or the rationalisation of existing legislation, which provides for mandatory competitive bidding processes, creates new processes and institutions and a system of supplier remedies. In Africa, the anti-corruption element that is prevalent in procurement reform may also mean the creation of new procurement offences. In relation to the development of procurement capacity, because in many African countries the reform agenda included the creation of an entirely new procurement system, capacity development was aimed at getting public servants acquainted with the basics, such as understanding the new rules; ensuring compliance with legislated processes; understanding the appropriate modalities for procurement; understanding procurement documentation; knowledge in the use of procurement tools, including electronic/digital tools; understanding the gamut of prohibited practices; understanding supply chain management, procurement monitoring and auditing; and managing the bidding, evaluation and contract award process. In addition, the novelty of the procurement framework also meant that government contractors, politicians, and the general public also had to be acquainted with the new system to understand the changes wrought by it. Where a new regulatory institution was established, capacity development also required that the staff of the institution were apprised of their functions and assisted to develop the skills necessary to function in their new roles. In more developed or mature procurement systems, procurement capacity may be focused on issues like e-procurement and the use of technology to improve transparency and increase competition amongst bidders; the promotion of innovation in procurement, and environmentally and socially responsible procurement. Other issues that may warrant attention include contract management and administration; risk assessments; control measures and defence procurement.

70 See generally, Williams-Elegbe, ‘Beyond UNCITRAL’, n 12 above, 209; S Williams-Elegbe, ‘The World Bank’s Influence on Procurement Reform in Africa’ (2013) 21 African Journal of International and Comparative Law 95; S Williams-Elegbe, ‘A Comparative A nalysis of Public Procurement Reforms in Africa: Challenges and Prospects’ (2015) 1 The Swedish Procurement Law Journal 11. 71 Basheka, ‘Public Procurement Reforms in Africa’, n 1 above, 133; Hunja, ‘Obstacles to Public Procurement Reform’, n 12 above, 15; Walker, Setting Up a Public Procurement System, n 12 above, 3.

264 Public Procurement Reform IV. INITIATING THE REFORM PROCESS: ASSESSING PROCUREMENT SYSTEMS

The start of any procurement reform process, (whether the reforms are holistic or apply only to certain aspects of the procurement framework) is an assessment of the system to determine the nature of the current system, identify the gaps and determine what is required to plug those gaps. The reasons for procurement reform vary, and apart from the inherent advantages to the country, reform is intended to result in increased donor reliance on the country’s procurement system, in fulfilment of donor commitments under the Paris Declaration and the Accra Agenda for Action. Assessing a country’s procurement system is a complex and painstaking task, which invariably results in an assessment of a country’s public finance management system, of which the procurement system forms a part. The assessment of a procurement system relies on several diagnostic tools, which include the CPAR, MAPS, and the new Methodology for Assessing Alternative Procurement Systems (MAAPA). These tools are discussed in more detail below. A. Country Procurement Assessment Reports (CPAR) A CPAR is a diagnostic tool developed by the World Bank that analyses a country’s: present procurement policies, organization, and procedures, to help them develop or modify their systems to: (a) increase their capacity to plan, manage and monitor the procurement process effectively; (b) improve the accountability, integrity, and transparency of the process and reduce the scope for corruption; and (c) be consistent with internationally accepted principles and practices.72

The CPAR was designed to determine if a country’s procurement procedures were suitable for use in Bank-funded operations for NCB; to assess the strength of a procurement system (where funds were intended for nonproject lending or as budget support), and determine the supervision, risk mitigation, or fiduciary measures required. The main purpose of the CPAR is to establish the need for, and guide the development of an action plan to improve a country’s public procurement system.73 The objectives of a CPAR are thus to: (a) provide a comprehensive analysis of the country’s public sector procurement system, including the existing legal framework, organizational r esponsibilities and control and oversight capabilities, present procedures and practices, and how well these work in practice; 72 World Bank, Country Procurement Assessment Report (Washington DC, The World Bank, 2003), Introduction. 73 ibid.

Initiating the Reform Process: Assessing Procurement Systems 265 (b) undertake a general assessment of the institutional, organizational and other risks associated with the procurement process, including identification of procurement practices unacceptable for use in Bank-financed projects; (c) develop a prioritized action plan to bring about institutional improvements, and (d) assess the competitiveness and performance of local private industry with regard to participation in public procurement, and the adequacy of commercial practices that relate to public procurement.74

A CPAR is a standardised document, which provides information on the following areas in relation to the country’s procurement framework: the legal framework; procurement system organisational framework; procurement capacity building system/institutions; procurement procedures/tools; decision-making and control system; anti-corruption initiatives and programmes; private sector participation in the system; contract administration and management and the system for addressing complaints.75 The CPAR is built on a doctrinal and empirical investigation into a domestic procurement system that contains eight to ten sections, depending on the country in question. Thus the standard sections that a CPAR will contain are: Legal and Regulatory Framework; Procurement Practices and Procedures; Procurement Organisation and Resources; Electronic Commerce in Public Procurement; Audit and Anti-Corruption Measures; Customs and Trade Practices; Private Sector Procurement and a general risk assessment. In relation to the risk assessment, the CPAR evaluates the different risks associated with the country’s procurement system. These include the risks which arise from the culture of accountability, the status and professionalism of procurement personnel (the lower the cadre, the more likely they can be influenced); the salary structure of public sector procurement staff versus the private sector; the degree to which agencies responsible for procurement are free from political interference; and the existence of clear written standards, procedures and delegations of authority and responsibility.76 The CPAR assesses a procurement system against set benchmarks, which are perceived as the elements of a well-functioning procurement system and are stated as: (i)

A clear, comprehensive and transparent legal framework as characterized by: the presence of legal rules that are easily identifiable, that in themselves do promote all the objectives stated above and that govern all aspects of the procurement process. At a minimum such rules should provide for: wide advertising of bidding opportunities, maintenance of records related to the procurement process, predisclosure of all criteria for contract award, contract award based on

74 ibid. 75 ibid, 76

Content and Organisation. ibid, section IV.

266 Public Procurement Reform objective criteria to the lowest evaluated bidder, public bid opening, access to a bidder complaints review mechanism, and disclosure of the results of the procurement process. (ii) Clarity on functional responsibilities and accountabilities for the procurement function as characterized by a definition of: (a) those who have responsibilities for implementing procurement including preparation of bid documents and the decision on contract award, (b) who in the buying entities bears primary accountability for proper application of the procurement rules, and (c) means of enforcing these responsibilities and accountabilities including the application of appropriate sanctions. (iii) Related to (ii) above, is the need for an institutional framework that differentiates between those who carry out the procurement function and those who have oversight responsibilities. In this regard, it is now generally agreed to be a good approach to have an agency, which has responsibility for overall procurement policy formulation and the authority to exercise oversight regarding proper application of the procurement rules and regulations. Attributes that make such an agency successful include: lack of involvement in internal operational procurement matters in the buying entities, functional independence and authority to enable it oversee procurement in the entire public sector and an adequate budget and staff to enable it carry out its responsibilities effectively. (iv) Robust mechanisms for enforcement. Clarity of rules and institutional arrangements may be of little value if there doesn’t exist the means to enforce the rules and if the rules aren’t in fact enforced. The means of enforcement include the right to audits by the government of the procurement process and a bidder complaints review mechanism in which bidders have confidence. (v) A well trained procurement staff. Central to ensuring proper application of the procurement system is a cadre of staff that possess the technical proficiency to implement the function. The existence of a continuous, focused, and targeted training program is therefore mandatory.77 (emphasis added) In terms of the reliance and applicability of a CPAR, it must be noted that although the CPAR was created and developed by the World Bank, in 2002, the other MDBs agreed to use the CPAR as a common assessment tool and coordinate and participate actively in assessments and follow-up activities in client countries. Thus, the CPAR was relied on extensively by all the MDBs in the assessment of a country procurement system. Apart from the CPAR, there are sector specific assessments, which examine a borrower agency’s suitability to conduct the procurement of specific goods such as textbooks, scientific equipment for laboratories, and health 77 World Bank, CPAR—Attachment 1: Elements that constitute a well functioning procurement system.

Initiating the Reform Process: Assessing Procurement Systems 267 sector goods. These assessments would typically examine the capability and capacity of the borrower agency; assess the risks that will affect the agency’s ability to conduct the procurement process; develop an action plan to mitigate any deficiencies in capacity; and recommend appropriate Bank supervision for the project in line with the findings of the assessment.78 B. Methodology for Assessing Procurement Systems (MAPS) As was mentioned above, the Johannesburg Declaration created the impetus for the development of an internationally agreed tool for assessing and monitoring country procurement systems. This tool was developed by the Joint Venture for Procurement, (later the Task Force on Procurement) working under the coordination of the Working Party on Aid Effectiveness of the OECD/DAC. The MAPS provides ‘a common tool which developing countries and donors can use to assess the quality and effectiveness of procurement systems’.79 The idea being that the assessment will provide a basis upon which a country can formulate a capacity development plan and procurement reform initiatives to address weaknesses and improve its procurement system. It may also be used as an input in a donor risk assessment for the use of country systems. There are two versions of this assessment tool now known as MAPS80— the initial version issued in 2006, known as the Methodology for the Assessment of National Procurement Systems (MANPS),81 which contained two kinds of indicators of assessment—Baseline Indicators and Compliance/Performance Indicators, and the 2010 version which contains only the baseline indicators and is known as the Methodology for the Assessment of Procurement Systems (MAPS). The reason for the omission of the compliance/ performance indicators from the later version of MAPS is because the compliance/performance indicators were always presented as non-mandatory and it was seen that they required some refinement in order to provide a more focused methodology for compliance monitoring.82 The compliance and performance indicators depend on the availability of comprehensive procurement records that often do not exist in many developing countries.83 78 World Bank, Assessment of Agency Capacity to Procure Health Sector Goods: Setting Prior Review Thresholds and Procurement Supervision Plan (Washington DC, The World Bank, 2003). 79 OECD-DAC, Methodology for Assessing Procurement Systems, n 67 above, 2. 80 OECD, ‘Compendium of Country Examples and Lessons Learned from Applying the Methodology for Assessment of National Procurement Systems Volume I: Sharing Experiences’ (2008) 9(4) OECD Journal on Development 3, 11. 81 OECD, Methodology for the Assessment of National Procurement Systems Version 4, (Paris, OECD, 17 July 2006). Available at www.oecd.org/dac/effectiveness/37390076.pdf. 82 OECD-DAC, Strengthening Procurement Systems, n 8 above, 10. 83 OECD, ‘Compendium of Country Examples and Lessons Learned’, n 80 above, 20.

268 Public Procurement Reform (i) Baseline Indicators (BLIs): The baseline indicators compare the country procurement system against the international standards that are represented by the baseline indicators. The baseline indicators address four pillars: (a) the existing legal framework that regulates procurement in the country; (b) the institutional architecture of the system; (c) the operation of the system and competitiveness of the national market; and (d) the integrity of the procurement system. Each pillar has a number of indicators and sub-indicators to be assessed.84 There are 12 indicators in total and 54 sub-indicators. Each sub-indicator is given an assessment score. The scoring system ranges from 3 to 0. A score of 3 indicates full achievement of the stated standard; a score of 2 indicates that the area relating to the sub-indicator exhibits less than full achievement and needs some improvements; and a score of 1 is for those areas where substantive work is needed for the system to meet the standard. A score of 0 is indicates a failure to meet the proposed standard.85 Table 10.1 below presents the pillars and their indicators. The sub-indicators are not represented here. Table 10.1: Methodology for Assessing Procurement Systems (MAPS) Baseline Indicators PILLARS

Legislative and regulatory framework.

INDICATORS Public procurement legislative and regulatory framework achieves the agreed standards and complies with applicable obligations.

Institutional framework and management capacity.

Procurement operations and market practices.

Integrity and transparency of the public procurement system.

The public procurement system is mainstreamed and well integrated into the public sector governance system.

The country’s procurement operations and practices are efficient.

The country has effective control and audit systems.

(Continued)

84 OECD-DAC, 85

ibid, 4–5.

Methodology for Assessing Procurement Systems, n 67 above, 3.

Initiating the Reform Process: Assessing Procurement Systems 269 Table 10.1: (Continued) Existence of implementing regulations and documentation.

The country has a functional normative/ regulatory body.

Functionality of the public procurement market.

Efficiency of appeals mechanism.

Existence of institutional development capacity.

Existence Degree of of contract access to administration information. and dispute resolution provisions. The country has ethics and anticorruption measures in place.

Source: MAPS 2010

(ii) Compliance/Performance Indicators (CPIs): As mentioned above, the MANPS contained both baseline and compliance/performance indicators. The compliance/performance indicators assess how the procurement system operates in practice and evaluate the application of the regulations as well as the prevailing procurement practices in the country. These indicators evaluate procurement practices through an examination of a sample of procurement transactions, and other relevant information that is deemed representative of the performance of the system.86 As stated, the CPIs ‘are intended to provide information based on review of data, surveys or interviews. The CPIs help identify those areas where compliance or performance is weak, and when a more in-depth review of deficiencies and their likely causes may be warranted’.87 CPIs are used to determine the degree to which the system follows its own regulations, or what the perception of compliance is in those cases where the compliance indicator cannot be measured quantitatively.88 It should be noted that unlike the BLI assessment, there is no scoring of compliance but the analysis of the data is used to assist in determining the degree of compliance within

86 OECD, Methodology for the Assessment of National Procurement Systems, n 81 above, 2. 87 ibid, 47. 88 ibid.

270 Public Procurement Reform a procurement system.89 The CPI is thus a more subjective and qualitative component of a procurement system assessment. Apart from being useful for measuring compliance within an existing system, the CPI may also be used to monitor the effectiveness of reforms introduced to address weaknesses in the system. CPIs provide information that is useful to the management of the system and can also pinpoint specific areas of risk or weakness in the implementation process.90 The CPIs are not to be used in isolation and each CPI will be attached to a relevant BLI to provide empirical evidence of the doctrinal assessment of the BLI. Table 10.2 below represents the CPIs and their associated BLIs. Table 10.2: Methodology for the Assessment of National Procurement Systems (MANPS) Compliance/Performance Indicators and associated Baseline Indicators SN 1.

Baseline Indicator Public procurement legislative and regulatory framework.

Compliance or performance indicators Percentage of procurement subject to the legislative framework being assessed (in volume and in number of contracts) carried out through open tendering. Percentage of open tender documents that include provisions limiting participating for reasons other than qualifications or acceptable exclusions. Percentage of tenders rejected in each process. Percentage of tenders opened publicly and recorded. Percentage of cases resolved within the terms established in the legal framework.

2.

3.

Implementing regulations and documentation.

Percentage of tenders that use model tender documents or clauses.

Mainstreamed and well integrated into the public sector governance system.

Percentage of payments made late.

Percentage of tenders that use the GCC, standard clauses or templates as applicable.

(Continued)

89 ibid. 90 ibid.

Initiating the Reform Process: Assessing Procurement Systems 271 Table 10.2: (Continued) SN

Baseline Indicator

Compliance or performance indicators

4.

The country has a functional normative/ regulatory body.

Percentage of those surveyed that perceive procurement as being performed competently and independently. Percentage of those surveyed that perceive the regulatory function to be free of conflict.

5.

Existence of institutional development capacity.

Age of information.

6.

The country’s procurement operations and practices are efficient.

Average number of days for procurement cycle from tender advertisement to contract award.

Functionality of the public procurement market.

Opinion on effectiveness of mechanisms to engage with relevant organizations or agencies.

Existence of contract administration and dispute resolution provisions.

Percentage of contracts containing such provisions.

7.

8.

Percentage of contracts found with incomplete records being retained.

Average number of tenders submitted in each process.

Evidence in contracts surveyed that contract administration is timely. Percentage of contracts that include ADR provisions.

9.

The country has effective control and audit systems.

Number of recommendations pending after one year. Number of qualified opinions from external auditors due to critical internal control weaknesses and recommendations referring to internal controls that remain outstanding. Percentage of agencies reviewed with written internal control procedures.

10.

Efficiency of appeals mechanism.

(a) Percentage of complaints processed within the time limits in the legal framework. (b) Percentage of decisions taken that are enforced. Percentage of favorable opinions.

11.

The country has ethics Percentage of cases that result in sanctions or and anti-corruption penalties. measures in place. Percentage of favourable opinions by the public on the effectiveness of the anti-corruption measures.

Source: MANPS 2006

272 Public Procurement Reform It may be noted that there are significant areas of overlap between a CPAR and the MAPS in terms of content and approach. Both assessments undertake what is in essence a doctrinal review of the legislative, organisational and institutional framework of a country procurement system. It is only the MANPS, which includes compliance and performance indicators that attempts a qualitative and quantitative assessment of a system. Of course, it goes without saying that the utility of a doctrinal review of a system is limited and this is why both the CPAR and MAPS are often accompanied by other assessments of different aspects of a public financial management system.

C. Methodology for Assessing Alternative Procurement Arrangements (MAAPA) The MAAPA was developed under the new procurement framework to assist the Bank with ‘identifying, assessing and agreeing’ acceptable alternative procurement arrangements (APAs) in borrower implementing agencies.91 It is important to note that the MAAPA is designed to assess borrower’s agencies, and whilst it considers the national procurement system, the MAAPA assessment is not intended to approve countries’ procurement arrangements.92 It thus has a different thrust and a narrower scope than the OECD MAPS. The findings of a MAAPA will be used to justify Bank decisions in relation to the APA.93 The MAAPA is intended to assess the legal and regulatory framework as well as the capacity and the capability of a borrower implementing agency.94 It is based on the MAPS, with the inclusion of another pillar, which relates to procurement operations and the use of minimum standards.95 The MAAPA is comprised of five pillars, each one covering several dimensions or facets of a procurement system. The pillars and dimensions are reproduced in Table 10.3 below.

91

World Bank, Draft Guide to the APA Assessment, n 61 above, section I.

92 ibid. 93

ibid, section III. ibid, section I. 95 ibid. 94

The Role of the UNCITRAL Model Law on Procurement 273 Table 10.3: Methodology for Assessing Alternative Procurement Arrangements (MAAPA) Pillars and Dimensions PILLAR

DIMENSIONS

Legal, regulatory and policy framework

Public procurement legislation, policy, regulations, general conditions of contract, sustainability.

Institutional framework and management capacity

Procurement planning, payments, functional normative/regulatory body, institutional development capacity, conflict of interests, national procurement statistics, staff performance, training.

Procurement administration and market practices

Procurement competence, safekeeping of records, procurement review and controls, partnerships.

Integrity and transparency of the public procurement system

Internal and external controls, audit, complaints mechanism, access to information, fraud and corruption, record keeping.

Procurement operations

Procurement methods, advertising, tender documentation and technical specifications, bidding process, model tender documents, pre-qualification, evaluation and award criteria, procurement performance, dispute resolution, risk management.

Prior to the conduct of an assessment, the Bank conducts an initial feasibility study to review the national environment, publicly available information, any complaints received by the Bank and any prior fraud and corruption allegations. This review, once completed, determines whether the Bank will proceed to a full MAAPA assessment.96 V. THE ROLE OF THE UNCITRAL MODEL LAW ON PROCUREMENT

The United Nations Commission on International Trade Law (UNCITRAL) was established in 1966 to further the progressive harmonisation, unification, and modernisation of the law of international trade by promoting the use and adoption of legislative and non-legislative instruments in key areas of commercial law, including public procurement. In relation to public procurement, UNCITRAL seeks to ‘facilitate international trade through the

96

ibid, section IV.

274 Public Procurement Reform harmonization of national law on procurement based on the main principles of transparency and competition’.97 In 1986, at its 19th session, UNCITRAL decided to commence work on public procurement, and after close to a decade, the first comprehensive model law for the procurement of goods, services and construction was issued in 1994, to be used as a template for countries wishing to regulate or reform their public procurement systems. The Model Law was a huge success and was used by many developing countries that decided to regulate government procurement for the first time, or to amend existing procurement legislation.98 According to Nicholas: the Model Law is a template available to national governments seeking to introduce or reform procurement legislation for their domestic economies. It is intended to provide all the essential procedures and principles for conducting various types of procurement proceedings in a national system, with a view to the achievement of value for money for the taxpayer, and avoiding abuse or corruption.99

In 2003, at its 36th session, UNCITRAL decided to commence further work on public procurement. Although the 1994 version of the Model Law was enormously successful, evolutions in procurement methods, innovations in relation to e-technologies, the trend towards harmonisation of procurement practices and regulation, and other changes such as the increasing move towards public-private partnerships, outsourcing and the use of concessions, meant that by the mid-2000s, the 1994 Model Law was in danger of becoming obsolete, as it did not take into account innovations in the rapidly changing procurement space.100 UNCITRAL thus decided that the Model

97 C Nicholas, ‘Work of UNCITRAL on Government Procurement: Purpose, Objectives, and Complementarity with the Work of the WTO’ in S Arrowsmith and RD Anderson, The WTO Regime on Government Procurement: Challenge and Reform (Cambridge, Cambridge University Press, 2011). 98 S Arrowsmith and J Tillipman (eds), Reform of the UNCITRAL Model Law on Procurement: Procurement Regulation for the 21st Century (Eagan, West, 2010), Ch 1; R Hunja, ‘The UNCITRAL Model Law on Procurement of Goods, Construction and Services and its Impact on Procurement Reform’, in S Arrowsmith and A Davies (eds), Public Procurement: Global Revolution (London, Kluwer Law International, 1998); Hunja, ‘Obstacles to ‘Public Procurement Reform’ n 12 above. See Basheka, ‘Public Procurement Reforms in Africa’, n 1 above, 131; D Wallace, ‘UNCITRAL: Reform of the Model Procurement Law’ (2005) 35(3) Public Contract Law Journal 485. 99 Nicholas, ‘Work of UNCITRAL on Government Procurement’, n 97 above. 100 See generally, C Nicholas, ‘The UNCITRAL Model Law: An Example for the Global Community’ in RH Garcia (ed), International Public Procurement: A Guide to Best Practice (London, Globe Law and Business, 2009); D Wallace Jr , CR Yukins, and JP Matechak, ‘UNCITRAL Model Law: Reforming Electronic Procurement, Reverse Auctions and Framework Contracts’ (2005) 40(2) The Procurement Lawyer 1. See also C Nicholas, ‘Policy Choices in the Implementation of Electronic Procurement: The Approach of the UNCITRAL Model Law on Procurement to Electronic Communications’. Paper presented at the 4th International Public Procurement Conference. Available at www.ippa.org/IPPC4/Proceedings/05e-Procurement/ Paper5-3.pdf.

The Role of the MDBs in Procurement Reform 275 Law could benefit from being updated to reflect these changes and new procurement practices.101 The new Model Law was finally adopted in 2011, with its accompanying guide being completed in 2012.102 The UNCITRAL Model Law is a comprehensive template law that can be adopted by countries wishing to adopt a model law. It is designed to be flexible to accord with local circumstances, while preserving desired outcomes.103 Its comprehensive nature makes it suitable to apply to differing local circumstances and provides countries with options; so countries may pick and choose the parts of the Model Law that are most suitable to their particular legal system and circumstances. As a template, none of the Model Law’s provisions are binding in any way. This degree of flexibility has contributed to the Model Law’s appeal and its success as a globally accepted template. As a testament to its appeal and global acceptance, many donors, particularly the World Bank have encouraged (or required) developing countries to utilise the Model Law when they finance procurement reform.104 The UNCITRAL Model Law has contributed in no small way to the harmonisation of global procurement law,105 and assisted in reducing regulatory differences106 in public procurement across jurisdictions. In terms of the Model Law’s content, it contains extensive and alternative provisions on the organisation of procurement, roles and responsibilities, procurement procedures, etc. As was mentioned in Chapter 9, the harmonisation agenda did not only infer harmonisation between donor practices, but also contemplated the harmonisation of developing countries procurement in line with international best practice. The UNCITRAL Model Law has thus served to align the laws of developing and transition economies in line with an acceptable standard based on international best practice. VI. THE ROLE OF THE MDBs IN PROCUREMENT REFORM

The MDBs undertake three roles in procurement reform in developing countries. They are usually the promoters, the funders and in some cases, the

101 C Nicholas, ‘Reform of the UNCITRAL Model Law on Procurement’ (2010) EBRD Law in Transition Online 1. 102 See UNCITRAL Model Law on Public Procurement (2011). Available at www.uncitral. org/pdf/english/texts/procurem/ml-procurement-2011/2011-Model-Law-on-Public-Procurement-e.pdf. 103 Nicholas, ‘Work of UNCITRAL on Government Procurement’, n 97 above. 104 S Arrowsmith, ‘Public Procurement: ‘An Appraisal of the UNCITRAL Model Law as a Global Standard’ (2004) 53 International and Comparative Law Quarterly 21. 105 ibid. 106 ibid.

276 Public Procurement Reform implementers of these reforms. La Chimia notes that ‘bilateral and multilateral donors have been and are heavily involved in the processes of reforming national procurement systems in developing countries’.107 Donor support to procurement reform includes contributing assessment tools and support, and providing financial support and technical assistance during the reform process. Donors have also provided an external impetus to facilitate internal discussion and help bring about required change.108 A. Promoters In a survey by the OECD on countries that had undergone procurement reform, many of the survey respondents stated that the reform agenda commenced in response to donor pressure or a donor-funded assessment of the procurement system that revealed weaknesses in the system.109 Other reform was catalysed by multilateral agreements, most notably the Paris Declaration.110 It is interesting that in this survey, 56 per cent of respondents indicated that their national reform programme was prioritised jointly with donors. Donors use various incentives to push for procurement reform. These include the threat of withholding aid or alternatively, promises to provide more aid (ie reform conditionalities).111 For instance, in the US, the Millennium Challenge Corporation was established to channel aid funds to countries which show a commitment to anti-corruption and good governance.112 In 2014, the World Bank commenced with a project which benchmarks public procurement and provides data and information on the procurement regulatory environment that affects the ability of the private sector to do business with the government.113 The project aims at providing empirical information that may support country efforts to modernise and reform procurement systems and institutions. It is thus another tool that may be relied on by MDBs in driving procurement reform.

107 La Chimia, ‘Donors’ Influence on Developing Countries’ Procurement Systems’ n 69 above. 108 OECD-DAC, Strengthening Procurement Systems n 8 above, 77. 109 ibid, 15. 110 ibid. 111 The World Bank, The World Bank and Public Procurement: An Independent Evaluation Vol I Building Procurement Capacity and Systems (Washington DC, The World Bank, 2013), Ch 4. Available at ieg.worldbank.org/Data/reports/chapters/procurement_vol1.pdf. 112 See generally, C Tarnoff, Millennium Challenge Corporation (Washington DC, Congressional Research Service, 2009). 113 World Bank, Benchmarking Public Procurement 2016, n 26 above, 2.

The Role of the MDBs in the Development of Procurement Capacity 277 B. Funders Donors, including MDBs, have been at the forefront of providing the initial funding for procurement reform initiatives. For instance, donors fund the procurement assessment exercise, whether this utilises MAPS or the CPAR and often also provide funds for various aspects of the reform program.114 Since the Monterrey Consensus, great emphasis has been placed on donors to support, through aid, countries that have in place good development plans and have implemented effective country system reforms.115 In the survey by the OECD, 68 per cent of respondent countries had benefitted from donor funding to finance procurement reforms, and in some countries, more than one donor was involved in supporting procurement reforms.116 C. Implementers In cases where a country does not have the necessary capacity to undertake the reform measures, donors are often able to provide technical assistance to assist in implementing various aspects of the reform program until such a time as the country is able to do this without external assistance.117 Some of the ways in which MDBs have implemented procurement reforms has been in the area of drafting procurement legislation and regulations using consultants; providing training and capacity building; assisting in developing electronic platforms and other procurement tools; providing mentoring to the staff of procurement regulatory agencies; drafting operational procedures for borrower agencies etc. VII. THE ROLE OF THE MDBs IN THE DEVELOPMENT OF PROCUREMENT CAPACITY

The issue of capacity development is central both to ensuring sustainable procurement reform and also to ensuring donor adherence to their commitments to rely on country systems. In view of this, capacity development

114 See The World Bank, The World Bank and Public Procurement: An Independent Evaluation Vol I Building Procurement Capacity and Systems, n 111 above. See also Williams-Elegbe, ‘The World Bank’s Influence on Procurement Reform in Africa’, n 70 above; Ayoung, Background Paper Review, n 44 above, 19–22. 115 La Chimia, ‘Donors’ Influence on Developing Countries’ Procurement Systems’, n 69 above, 249. 116 OECD-DAC, Strengthening Procurement Systems, n 8 above, 15. 117 ibid, 20–21.

278 Public Procurement Reform has been given much attention by the MDBs and other donors. This section examines the role that MDBs (and other donors) have played in the development of procurement capacity, with a focus on the institutions established in furtherance of the development of procurement capacity. In the development of procurement capacity, MDBs have also served as promoters, funders and implementers of procurement capacity development initiatives. One of the salient ways in which the MDBs have assisted developing countries in this regard is through the creation of capacity development plans and the provision of the actual capacity development and training programmes in countries where an assessment of the procurement systems was undertaken. It has been mentioned that one of the objectives of a country procurement assessment is to provide an analysis of the strengths and weaknesses of the system and a basis upon which a country can articulate a capacity development plan to improve upon these weaknesses.118 In formulating a capacity development plan, countries and donors have often relied on the UNDP public procurement capacity development approach.119 The UNDP procurement capacity development process assesses the desired capacities in a procurement system against ‘desired capacities, to generate an understanding of capacity, assets, gaps and needs that can serve as input for formulating a capacity development response or strategy’.120 The process is cyclical and includes five steps: (i) engage partners and build consensus; (ii) assess capacity assets and needs; (iii) formulate capacity development strategies; (iv) implement and monitor capacity development strategies; and (v) evaluate capacity development strategies.121 The UNDP has identified four capacity development response strategies. These are: —— Institutional Reform and Incentives: process facilitation for change management, functional reviews, salary reform, business processes —— Leadership Capacities: negotiation & visioning skills, coaching and mentoring, ethics, advocacy and media —— Education, Training and Learning: training methods, tertiary education curricula and investments, vocational education, on-the-job skills

118 OECD,

Compendium of Country Examples and Lessons Learned, n 80 above, 11. UNDP Public Procurement Capacity Development Guide (New York, UNDP, 2010). Available at www.undp.org/content/dam/aplaws/publication/en/publications/capacitydevelopment/undp-procurement-capacity-assessment-users-guide/Procurement%20Capacity%20Assessment%20Guide.pdf. 120 ibid, 6. 121 KR Ejlskov Jensen and ML Refsgaard, Procurement Capacity Development: From Theory to Practice (New York, UNDP, 2008). Available at www.unpcdc.org/media/12158/procurement%20capacity%20development%20-%20from%20theory%20to%20practice.pdf. 119 UNDP,

The Role of the MDBs in the Development of Procurement Capacity 279 —— Accountability and Voice Mechanisms: peer reviews, citizen watch, Monitoring and Evaluation, stakeholder feedback, public info campaigns.122

The UNDP capacity assessment tool is suitable for use with both the CPAR and MAPS, and in many instances, it has been used together with these tools. Where a capacity development plan has been formulated, further assistance in the practical capacity development and training may be obtained from the UN Procurement Capacity Development Centre (PCDC), established as a procurement capacity resource centre in 2008 in partnership with Danida. It is instructive that the idea for the PCDC emerged out of the OECD-DAC/ World Bank Round Table on Procurement.123 The PCDC provides online resources and tools, capacity assessment, planning, implementation support and capacity development to countries and agencies. Apart from the UNDP, the World Bank also has a general capacity development centre, also known as the World Bank Institute (WBI). The WBI is the capacity development arm of the World Bank, which attempts to transform the way development practitioners operate, by equipping them with technical skills, but also with very practical knowledge on how to drive change on the ground.124 It has been described as ‘one of the Bank’s main instruments for developing individual, organizational, and institutional capacity through the exchange of knowledge among those countries’.125 In relation to procurement capacity development, the WBI has conducted procurement training for officials from several developing countries in the last two decades. It has been stated that: Bank contributions to the raising of global awareness of the importance of procurement, as well as contributions in some important new areas of procurement practices, have been largely channeled through the WBI. This has been done through training, building communities of practice, and developing tools for the analysis and greater transparency of information on public procurement. WBI complements the Bank’s procurement reform efforts mainly through its collaborative governance practice, which uses its trust funds to promote open public procurement, including third party procurement and contract monitoring.126

In 2011, the WBI launched the Open Learning Campus, which provides online access to a range of courses and learning developed by the Bank

122 ibid. 123

See www.unpcdc.org/home/service/about-us.aspx. Bank, A Guide to the World Bank, 3rd edn. (Washington DC, The World Bank, 2011), 45. 125 See The World Bank, About the World Bank Institute, (Washington DC, The World Bank). Available at web.worldbank.org/WBSITE/EXTERNAL/WBI/0,contentMDK:20097853 ~menuPK:204763~pagePK:209023~piPK:207535~theSitePK:213799,00.html. 126 The World Bank, The World Bank and Public Procurement: An Independent Evaluation Vol I Building Procurement Capacity and Systems n 111 above, 97. 124 World

280 Public Procurement Reform over time.127 Beyond the WBI/Open Learning Campus, the World Bank provides a certificate and a diploma level course in public procurement which is available online and is taught as a Massive Online Open Course (MOOC).128 The course was launched in 2014 and as at March 2016 had had more than 4,000 enrolments from over 135 countries. Other action that the MDBs have undertaken in response to the development of public procurement capacity building is through the provision of resources to guide this process. One such resource is the Good Practice Paper (GPP) on Procurement Capacity Development, drafted under the aegis of the OECD/DAC-World Bank Joint Round Table on Procurement. The GPP is similar to the UNDP capacity development assessment tool in its thrust, with the exception that it is less detailed, given that it is merely a statement of good practices. The GPP provides the principles for developing a procurement capacity development plan, which must be based on (i) country ownership; (ii) broad stakeholder consultation; (iii) open-eyed and cost effective needs assessment; (iv) strategic planning; and (v) closely monitored and flexibly managed implementation. VIII. CONCLUSION

It can be seen from the foregoing discussion that without a commitment to procurement reform and capacity building in developing countries, it will be impossible to meet the use of country systems component of the aid effectiveness agenda. It must be reiterated that developing countries have a grave obligation to ensure that they implement and maintain reform programmes that may be initiated by MDBs and other lenders. Taking ownership of reform measures is critical to their success and reforming countries must realise that their citizens’, not the MDBs, are the ultimate beneficiaries of reform initiatives.

127

See olc.worldbank.org/.

128 www.procurementlearning.org.

11 Remedies Under MDB-funded Procurement I. INTRODUCTION

T

HIS CHAPTER CONSIDERS the extent to which the parties involved in a funded procurement such as bidders, contractors, borrowers, and MDBs may seek remedies in disputes arising out of a loan agreement and a funded project. It may be noted that in general, neither the loan agreement nor the procurement contract creates any contractual relationship between MDBs and third parties, such as bidders/contractors. As mentioned in Chapter 3, the nature of remedies and the fora available for third parties to seek redress from MDBs are limited, and this is one of the most criticised aspects of MDB operations. The focus of this chapter is the remedies available to the participants in a loan agreement and a funded contract, using the World Bank as a case study. It will not examine the kinds of disputes that are heard by MDB Inspection Panels, or disputes between MDBs and their employees, which go before MDB Administrative Tribunals, as these have been considered in detail elsewhere.1 II. INTRODUCTION TO SUPPLIER REMEDIES IN PUBLIC PROCUREMENT

One of the stated aspects of a good procurement system is the availability of remedies for bidders/contractors where there are breaches of the procurement

1 See generally, IFI Shihata, The World Bank Inspection Panel: In Practice (Oxford, Oxford University Publishing, 2000); G Alfredsson and R Ring (eds), The Inspection Panel of the World Bank: A Different Complaints Procedure (The Hague, Martinus Nijhoff Publishers, 2001); CF Amerasinghe, ‘The World Bank Administrative Tribunal: Its Establishment and its Work’ in C de Cooker (ed), International Administration: Law and Management Practices in International Organisations (Dordrecht, Martinus Nijhoff Publishers, 1989): MS Thomas and O Elias (ed), The Development and Effectiveness of International Administrative Law (Martinus Nijhoff Publishers, 2012).

282 Remedies Under MDB-funded Procurement regulations or of the procurement process.2 The availability of remedies for procurement violations is often a useful tool for securing compliance with, or deterring and correcting violations of, the procurement rules3 and in many cases, actions brought by aggrieved suppliers is the best and cheapest way to police the procurement system. Of course, whether there is a remedial system available depends on the nature of the procurement system, ie whether it is a domestic or an international procurement system. In national procurement systems, the nature and availability of remedies for procurement violations may depend on the legal culture, the forum available for procurement violations, and the kind of breach that has occurred.4 In MDB procurement systems, the picture is not so clear-cut, and the nature and availability of remedies for procurement violations depends on the institutional limits on the availability of remedies, and the existence of such a right in the procurement regulations, bidding and contractual documents. There are various approaches that may be adopted in implementing a procurement remedial system, which include a review of procurement decisions by the procuring authority or review by an external authority, which could be judicial or administrative.5 National systems generally adopt a multiple forum approach in providing for a system of review of procurement decisions, the appropriate forum being determined by the nature of the breach complained of, the kind of relief sought and the bidder/contractor’s standing to obtain this relief.6 However, there is of course no uniform approach adopted by domestic jurisdictions. As was highlighted by Nicholas: there remains a broad range of approaches to remedies provisions in different legal systems, in that States differ significantly in their approach to enforcement

2 S Arrowsmith, J Linarelli and D Wallace, Regulating Public Procurement: National and International Perspectives (London, Kluwer Law International, 2000), Ch 12; X Zhang, ‘Supplier Review as a Mechanism for Securing Compliance with Government Public Procurement Rules: A Critical Perspective’ (2007) 5 Public Procurement Law Review 325; D Gordon, ‘Constructing a Bid Protest Process; The Choices that Every Procurement Challenge System Must Make’ (2006) 35 Public Contract Law Journal 427; GAO, Bid Protests at GAO: A Descriptive Guide (2009); M Shaengold and R Brams, ‘Choice of Forum for Government Contract Claims: Court of Federal Claims vs. Board of Contract Appeals’ (2008) 17 Federal Circuit Bar Journal 279; M Shaengold, T Michael Guiffre and E Gill, ‘Choice of Forum for Federal Government Contract Bid Protests’ (2009) 18 Federal Circuit Bar Journal 243; CH Bovis, ‘Access to Justice and Remedies in Public Procurement’ (2012) 3 European Procurement and Public Private Partnership Law Review 195. 3 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 2 above, Ch 12; Zhang, ‘Supplier Review as a Mechanism for Securing Compliance with Government Public Procurement Rules’ n 2 above, 326–28. 4 For an examination of procurement remedies in several jurisdictions see generally, D Fairgrieve and F Lichere (eds), Public Procurement Law: Damages as an Effective Remedy (Oxford, Hart Publishing, 2011). 5 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 2 above, Ch 12. 6 X Zhang, ‘Forum for Review by Suppliers in Public Procurement: An Analysis and Assessment of the Models in International Instruments’ (2009) 5 Public Procurement Law Review 201.

The World Bank’s Approach to Remedies 283 and in the extent to which they offer review at the instigation of the supplier (largely reflecting the fundamental conceptual and structural aspects of the legal system of each State.)7

A procurement remedies system is a good way to enhance the efficiency and transparency of the procurement system, as a remedial system will serve as an avenue for breaches to be revealed,8 but such a remedial system may also be accompanied by certain drawbacks, such as costs and delays to the procurement process; the difficulty of proving that a violation has occurred and determining appropriate damages as well as the possibility of ‘overcompliance’ by procuring authorities, to avoid procurement disputes, which may make procurement more bureaucratic.9 This chapter examines the availability of remedies to participants in a loan agreement and a MDB-funded contract. It considers the Bank approach to remedies, examining the remedial framework for bidders, contractors, borrowers and the Bank. It examines the nature of the forum and the nature of relief available. It will be seen that there are several institutional limits placed on the rights of participants under MDB funded contracts and these limits may have adverse implications for the remedial rights of those who participate in MDB-funded procurement. III. THE WORLD BANK’S APPROACH TO REMEDIES

The Bank’s approach to remedies varies considerably from that of domestic jurisdictions, and prior to the review of the Bank’s procurement framework, the availability of rights of review were very limited. Providing bidders with an opportunity to challenge improper decisions by the borrower will ultimately improve the quality of borrower decision-making and the effectiveness of procurement conducted under Bank rules. It is also possible that a review system could significantly increase the ability of the Bank to uncover corruption and impropriety in procurements,10 as these challenges will serve as an avenue for such acts to be revealed,11 as well as a deterrent to improper conduct.12 The main factor that limits Bank intervention in procurement disputes is the fact that neither the loan agreement nor the procurement regulations

7 C Nicholas, ‘Remedies for Breaches of Procurement Regulation and the UNCITRAL Model Law on Procurement’ in D Fairgrieve and F Lichere (eds), Public Procurement Law: Damages as an Effective Remedy (Oxford, Hart Publishing, 2011) 221. 8 Gordon, ‘Constructing a Bid Protest Process’ n 2 above. 9 Zhang, ‘Supplier Review as a Mechanism for Securing Compliance with Government Procurement Rules’ n 2 above, 339. 10 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 2 above, 129. 11 Gordon, ‘Constructing a Bid Protest Process’, n 2 above, 427. 12 ibid.

284 Remedies Under MDB-funded Procurement create any privity of contract between MDBs and contractors. Despite the power the Bank wields in conducting the supervisory process over funded procurements, the absence of privity limits the Bank’s intervention in a funded contract.13 As mentioned in Chapter 4, the General Conditions of Contract (GCC) provide dispute resolution clauses for disputes that may arise between the borrower and the contractor. The approach of the Bank in relation to remedies is to create a framework that may be used to ensure that participants in a funded procurement have access to remedies in funded contracts, but the Bank does not itself provide these remedies; neither does it create an institutional forum where remedies may be sought. The next section examines the Bank’s approach to remedies in relation to complaints brought by bidders, in relation to disputes arising between contractors and borrowers, and in relation to disputes arising under the loan agreement between the borrower and the Bank. IV. COMPLAINTS FORUM FOR BIDDERS UNDER MDB-FUNDED CONTRACTS

Under the 2011 procurement guidelines, the approach to dealing with bidder complaints is detailed as follows: Complaints, received from bidders after the opening of the bids, will be handled as follows. In the case of contracts not subject to prior review by the Bank, the communication or its relevant extracts, as deemed appropriate, will be sent to the Borrower for due consideration and appropriate action. The Borrower shall provide to the Bank all relevant documentation for the Bank’s review and comments. In the cases of contracts subject to the prior review process, the communication will be examined by the Bank, in consultation with the Borrower. If additional data is required to complete this process, these will be obtained from the Borrower. If additional information or clarification is required from the bidder, the Bank will ask the Borrower to obtain it and comment or incorporate it, as appropriate, in the evaluation report. The Bank’s review will not be completed until the communication is fully examined and considered. Communications received from bidders involving allegations of fraud and corruption may warrant a different treatment due to reasons of confidentiality. In such cases, the Bank shall apply due care and discretion in sharing with the Borrower information deemed appropriate.14

In addition, a bidder who wishes to ascertain the grounds on which its bid was not selected, should request an explanation from the borrower in

13 Under the Procurement Regulations for Borrowers, the Bank has a very limited role in relation to procurement complaint resolution. See Annex III. 14 See Bank Procurement Guidelines (2011), Appendix 3, para 13.

Complaints Forum for Bidders Under MDB-funded Contracts 285 riting or at a debriefing meeting.15 The outcome of this meeting should w be submitted to the Bank and bidders may write to the Bank directly if the bidder has a complaint against the borrower.16 Where a bidder is not satisfied with the explanation offered by the borrower, the bidder may request a meeting from the Bank’s Regional Procurement Adviser (RPA) of the borrowing country.17 The meeting between the bidder and the RPA is not a hearing and a bidder is not entitled to submit representations on the Bank’s decision to reject its bid. The purpose of this meeting is for the supplier to obtain further information on why it was not successful in the particular procurement process and the meeting is limited to a discussion of the complainant’s bid and not those of competitors,18 and there is no provision for the taking of remedial action by the Bank. As can be seen, the forum required by the Bank in cases of complaints by bidders is in each case the borrower agency conducting the procurement. Although in relation to contracts subject to prior review, the Bank will not complete the review until the complaint has been addressed, this does not in any way mean that a bidder or complainant will be entitled to obtain real (or traditional) remedies. As will be seen, the borrower is only permitted to offer a bidder very limited remedies. The absence of stronger remedies in this context stems from a number of factors: first is the fact that as the Bank closely and directly supervises the procurement process, areas where there are obvious breaches of the procurement rules may have been addressed during the Bank’s prior review of the process. Second, as was discussed above, the Bank’s intervention in bidder remedies is limited as bidders do not have any rights of recourse against the Bank, as there is no legal relationship created between bidders and the Bank for the purpose of instituting a challenge procedure.19 The relationship between a bidder and a borrower is governed by the bidding documents and any contracts which arise exist between the bidder and the borrower,20 and bidders do not have rights or claims arising from the existence of the loan between the borrower and the Bank.21 The issues that arise from the borrower being the forum for bidder complaints under Bank-funded contracts are the same issues that arise in national jurisdictions when the avenue of redress is a procuring authority. In domestic jurisdictions, review at the level of the procuring authority

15

ibid, para 2.65. ibid, Appendix 3, para 15. 17 ibid. 18 ibid. 19 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 2 above, 110. 20 Bank Procurement Guidelines (2011), para 1.1. 21 ibid, para 1.1. See also M de Castro Meireles, The World Bank Procurement Regulations: a Critical Analysis of the Enforcement Mechanism and of the Application of Secondary Policies in Financed Projects (Unpublished PhD Thesis, University of Nottingham, 2006) 95–97. 16

286 Remedies Under MDB-funded Procurement may lead to interim remedies such as a stay of procurement proceedings; a reversal of the disputed procurement decision; or a cancellation of the contested procurement procedure; but a procuring authority often does not have the power to award damages. It is not clear whether a borrower considering a bidder’s complaint is permitted to offer similar remedies as are available under domestic procurement. The borrower is expected to take ‘appropriate action’ and it is submitted that this ought to include at the very least to include a stay of procurement proceedings until the complaint is examined and a reversal of wrongful actions. The approach to remedies under the 2016 procurement regulations differs significantly from the 2011 procurement guidelines and the 2016 regulations provide extensive and detailed provisions for dispute resolution between bidders and borrowers, providing for the causes of action, the persons with standing to bring a complaint, the time limits for bringing and addressing complaints, and also clearly articulates the nature of the relief that can be provided to bidders. The regulations provide: 3.26 Procurement-related complaints (Complaints) should be submitted to the Borrower in a timely manner, at the appropriate stage of the procurement process, and when so submitted, the Borrower shall address them promptly and fairly. Timeliness, in both the submission of Complaints and their resolution, is of critical importance in order to avoid undue delay and disruption in the project of which the procurement is a part. 3.27 All Complaints shall be recorded by the Borrower in the appropriate tracking and monitoring system, as agreed between the Bank and the Borrower. 3.28 Those Complaints arising in connection with contracts for which the Bank’s Standard Procurement Documents (SPDs) are required to be used, shall be administered and handled in accordance with Annex III, Procurement-related Complaints. The contracts where the Borrower shall use the Bank’s SPDs shall be specified in the Procurement Plan for the project. 3.29 Whenever the Bank’s SPDs are required to be used, a Standstill Period shall apply, unless otherwise provided under Paragraph 5.80. 3.30 Complaints, other than those covered under Annex III, Procurement-Related Complaints, are to be handled by the Borrower in accordance with the applicable complaint review rules and procedures as agreed by the Bank. 3.31 A Complaint that includes allegations of Fraud or Corruption may require special treatment. The Borrower and the Bank shall consult to determine any additional actions that may be necessary.22

There is an entire annex in the 2016 procurement regulations devoted to the issue of procurement complaints, which provides further clarity on

22

Procurement Regulations for Borrowers, paras 3.26–3.31.

Complaints Forum for Bidders Under MDB-funded Contracts 287 the complaint process for bidders.23 Thus in the first place, the regulations provide for the causes of action and provide that a complaint may challenge: a. The Borrower’s selection documents, including: prequalification, initial selection, request for bids, requests for proposals documents; b. the Borrower’s decision to exclude an Applicant/Bidder/Proposer/Consultant from a procurement process prior to award; and/or c. the Borrower’s decision to award the contract following transmission of unsuccessful Bidder/Proposer/Consultant in the Notice of Intention to Award.24

What is interesting about these provisions, is that it appears as though no aspect of the procurement process is exempt from redress. This approach may conflict with domestic procurement approaches in some developing countries, where issues such as the choice of procurement method, the choice of evaluation procedure and the conclusion of the contract may be exempt from judicial or administrative review.25 In addition, under the regulations, there is a clearly articulated right for persons excluded to seek redress. This represents a departure from the 2011 procurement guidelines, where excluded parties were granted very limited rights of redress.26 The regulations further detail the persons that are entitled to initiate a complaint, and provide that complaints may be submitted by ‘interested parties’,27 and define an interested party as an ‘actual bidder/proposer/ consultant seeking to obtain the contract at issue (including an applicant for prequalification/initial selection…)’.28 Further, under the regulations, ‘potential applicants/ bidders/proposers/consultants are also interested parties in relation to complaints challenging the prequalification/initial selection document, request for bids/ request for proposals document, or any other Borrower document requesting bids/proposals or applications’.29 It is not clear, what the regulations mean by ‘potential applicants’, but it may be that the regulations permit both participants in the procurement process as well as those who could have participated, but chose not to (or perhaps were prevented from participating) to submit complaints.30

23

ibid, Annex III. ibid, Annex III, para 2.1. 25 See G Quinot, ‘A Comparative Perspective on Supplier Remedies in African Procurement Systems’ in G Quinot and S Arrowsmith (eds), Public Procurement Regulation in Africa (Cambridge, Cambridge University Press, 2013). 26 S Williams-Elegbe, Fighting Corruption in Public Procurement: A Comparative Analysis of Disqualification or Debarment Measures (Oxford, Hart Publishing, 2012), Ch 11. 27 Procurement Regulations for Borrowers, Annex III, para 2.2. 28 ibid. 29 ibid. 30 See generally, Arrowsmith, Linarelli and Wallace, n 2 above, 771–72. 24

288 Remedies Under MDB-funded Procurement Other issues addressed by the 2016 regulations include the form of complaints. These are required to be submitted (in a timely manner),31 in writing to the borrower and to include identifying information about the complainant,32 and the complainant’s interest in the subject matter. The complaint must of course identify the specific project to which the complaint relates, the procurement reference number, the current stage of the procurement process, indicate any previous communication between the complainant and the borrower on the complaint; specify the nature of complaint, and the perceived adverse impact on the complainant; and the nature of the procurement violation.33 In relation to the timeliness of complaints, it was seen in Chapter 8 that misprocurement may be declared by the Bank, where the borrower fails to address complaints in a timely manner. This is a very serious consequence and will ensure that borrowers approach their responsibility to address complaints with the utmost seriousness. The borrower is required to give ‘prompt and fair consideration’ to each complaint, in so far as the complaint meets the formal requirements,34 and complaints that are not in the required form are still required to be addressed ‘within a reasonable time’.35 The regulations also introduce strict timelines for the submission and addressing of procurement complaints by borrowers and prohibits borrowers from continuing with a procurement procedure until the complaint has been addressed.36 In relation to the timelines, complaints challenging the terms of prequalification/initial selection documents, request for proposals documents, and any documents requesting bids, proposals or applications should be submitted to the borrower at least ten business days prior to the deadline for the submission of these bids etc, or within five business days after the issuing of any amended terms, whichever is later.37 The borrower must acknowledge the complaint in writing within three business days of receipt, and shall review and respond to the complainant not later than seven business days from the date of receipt.38 Where a complaint relates to the exclusion of an interested party from a procurement process prior to contract award, this should be submitted to the borrower within ten business days after the interested party receives notice of such exclusion.39

31

Procurement Regulations for Borrowers, Annex III, para 2.3. ibid, Annex III, para 2.4. 33 ibid. 34 ibid, Annex III, para 2.5. 35 ibid, Annex III, para 2.6. 36 ibid, Annex III, para 3.1. 37 ibid, Annex III, para 3.1(a). 38 ibid, Annex III, para 3.2(a). 39 ibid, Annex III, para 3.1(b). 32

Complaints Forum for Bidders Under MDB-funded Contracts 289 The borrower shall acknowledge receipt in writing within three business days of receipt and shall review and respond to the complainant not later than seven business days from the date of receipt.40 Finally, where a complaint follows the Notification of Intention to Award the contract (or notification of intention to conclude a framework agreement), such shall be submitted to the borrower within the standstill period.41 The borrower shall acknowledge the complaint within three business days of receipt and must review and respond to the complainant no later than 15 business days from the date of receipt of the complaint.42 Whether a bidder may obtain remedies against the borrower under domestic law for breaches of the Bank’s procurement rules, or for breaches of national rules, where the country system is relied upon, will of course depend on the law of the jurisdiction in question. It may be noted that under the 2016 procurement regulations, an effective complaints mechanism is required for national competition, where domestic procedures are to be used.43 Similarly, in the methodology for the assessment of alternative procurement arrangements discussed in Chapter 10, a country’s procurement dispute resolution system is assessed in determining whether the country’s system is suitable to be relied on for Bank-funded procurements. Where the bidder alleges that the borrower has breached its obligations under the Bank procurement regulations, and seeks remedies in a domestic court against the borrower, it may be argued that given that the procurement regulations are incorporated into the loan agreement, which is a treaty contract, and is subject to adjudication in accordance with its tenor; and does not create any rights for third parties, remedies may be wholly unavailable in a domestic court. Where the bidder is relying on the breach of domestic procurement rules, the availability of remedies will of course depend on the jurisdiction and the domestic procurement regulatory framework, but it has been argued that in some developing countries, judicial enforcement in relation to public procurement leaves a lot to be desired,44 and in some cases, remedies in respect of procurement contracts may be wholly unavailable under the domestic law of the borrowing country.45 In relation to obtaining remedies against the Bank, although (as has been discussed) there is no possibility for a bidder to directly obtain a

40 ibid. 41

ibid, Annex III, para 3.1(c).

42 ibid. 43

ibid, para 5.4. Malmendier, ‘The Liability of International Development Banks in Procurement Proceedings: The Example of the International Bank for Reconstruction and Development, the European Bank for Reconstruction and Development and the Inter-American Development Bank’ (2010) 4 Public Procurement Law Review 135, 136. 45 Arrowsmith, Linarelli and Wallace, Regulating Public Procurement, n 2 above,143. 44 B

290 Remedies Under MDB-funded Procurement remedy from the Bank, it is possible that where a bidder appraises the Bank of the improper actions of the borrower, such actions may constitute a breach of the loan agreement between the borrower and the Bank, under which the Bank may compel the borrower to fulfil its obligations under the agreement, which incorporate the Bank’s procurement regulations. According to Malmendier, the Bank is under an obligation to provide effective remedies to a bidder where a borrower has failed to properly conduct the procurement process as this failure stems from the Bank’s failure to properly supervise the borrower.46 In his view, the Bank has a responsibility borne out of its authority over the borrower to efficiently use the monitoring and review instruments available to it,47 and that even though there is no direct contractual relationship between the Bank and bidders, an extracontractual relationship exists, which obliges the Bank to ensure that a ‘bidder will not be discriminated against in breach of the procedural principles issued by the bank’.48 Despite the arguments put forward by Malmendier, it is clear that the Bank will not be liable in a domestic court to a bidder when a borrower breaches the Bank’s procurement regulations. This is because, first, the Bank and its staff have immunity from domestic jurisdiction.49 This immunity frees the World Bank from the peculiarities of national politics by immunising the Bank from legal process.50 Second, the procurement regulations and anything arising out of it, once incorporated by reference into the loan agreement, become an international treaty contract, and cannot be overridden by domestic law.51 Third, as mentioned, bidding for a Bank contract does not create any legal relationship between the Bank and bidders for the purpose of instituting a review procedure. The Bank’s refusal to create an institutional remedial system for bidders has however, been criticised,52 and as argued by Malmendier, suppliers ought to be able to rely on an extracontractual relationship created between the Bank and bidders on a Bank contract.

46

Malmendier, ‘The Liability of International Development Banks’, n 44 above, 139.

47 ibid. 48

ibid, 145. Articles of Agreement, art VII. P Sands and P Klein, Bowett: The Law of International Institutions, 6th edn (London, Sweet & Maxwell, 2009) part III; cf K Wellens, Remedies against International Organisations (Cambridge, Cambridge University Press, 2002) 118. 50 Mendaro v World Bank 717 F.2d 610 (D.C Cir. 1983); World Bank Group v Wallace 2016 SCC 15. 51 J Head, ‘Evolution of the Governing Law for Loan Agreements of the World Bank and other Multilateral Development Banks’ (1996) 90 American Journal of International Law 214, 229. 52 de Castro Meireles, The World Bank Procurement Regulations n 21 above, Ch V, 68; S Williams, ‘The Debarment of Corrupt Contractors from World Bank-Financed Contracts’ (2007) 36 Public Contract Law Journal 277; Malmendier, ‘The Liability of International Development Banks’ n 44 above. 49 IBRD

Complaints Forum for Bidders Under MDB-funded Contracts 291 A. The Kinds of Remedies Available to Bidders Although as can be seen above, it is a misnomer to talk of remedies in the traditional sense in the context of bidders on a Bank-funded procurement, there is still some relief that complainants are entitled to and will receive in respect of valid complaints. Under the 2011 procurement guidelines, bidders are entitled to receive ‘acknowledgement’ of a complaint received prior to the conclusion of the procurement process and the award of the contract.53 The borrower is also expected to take appropriate action on the complaint, and as was discussed above, this may include the possibility of a stay of procurement proceedings and a reversal of the wrongful decision. Once the contract has been awarded, the bidder may obtain correspondence from the Bank on the position with its complaint. Where a contract has been awarded and the bidder wishes to understand why its bid was not selected, it is entitled to a debriefing meeting with Bank staff in the borrower country, if it is not satisfied with the written explanation from the borrower.54 As can be seen, the nature of the remedies provided under the 2011 procurement guidelines was limited and there was little clarity on what types of relief were available to bidders. The 2016 procurement regulations expanded the scope of remedies that may result from a complaint by an interested party. Thus, a borrower is permitted to ‘modify the prequalification/initial selection, request for bids/request for proposals, or other documents, the Borrower shall issue an addendum, and if necessary, extend the application/Bid/Proposal submission deadline’.55 Further a borrower may decide to change the results of the earlier stage/phase of the procurement process, and in such cases, it shall promptly transmit a revised notification of evaluation results to all relevant parties.56 Finally, a borrower may change its contract award recommendation, and notify the revised intent to award to all previously notified persons.57 The ability for a borrower to amend its contract award decision is of particular importance and significance for bidders, who would have been entitled to the contract, but for the borrower’s wrongful actions. The 2016 regulations thus provide bidders with the kinds of remedies that are utilised in domestic procurement systems and this is a welcome feature of the new Bank procurement framework.

53

Bank Procurement Guidelines (2011), Appendix 3, para 14. ibid, Appendix 3, para 15. 55 Procurement Regulations for Borrowers, Annex III, para 3.1(a). 56 ibid, Annex III, para 3.1(b). 57 ibid, Annex III, para 3.1(c). 54

292 Remedies Under MDB-funded Procurement V. FORUM FOR DISPUTES BETWEEN CONTRACTORS AND BORROWERS

In relation to disputes between contractors and borrowers, the General Conditions of Contract (GCC) provide that disputes between the contractor and the borrower shall be subject to resolution through a dispute board and arbitration. The GCC provisions state that: Disputes shall be referred to a DB for decision in accordance with Sub-Clause 20.4 [Obtaining Dispute Board’s Decision]. The Parties shall appoint a DB by the date stated in the Contract Data.58

For other types of contract, arbitration is suggested as the main form of dispute resolution. Thus, the FIDIC short form of contract states that: Unless settled amicably, any dispute or difference which arises between the Contractor and the Employer out of or in connection with the Contract, including any valuation or other decision of the Employer, shall be referred by either Party to adjudication in accordance with the attached Rules for Adjudication (‘the Rules’). The adjudicator shall be any person agreed by the Parties. In the event of disagreement, the adjudicator shall be appointed in accordance with the Rules.59

The World Bank has adopted the forum of dispute boards (DB) as the first avenue for the adjudication of disputes between contractors and borrowers. A DB is: a dispute resolution procedure that is normally established at the outset of a project and remains in place throughout the project’s duration. The board may comprise one or three members who become acquainted with the contract, the project and the individuals involved with the project, in order to provide informal assistance, provide recommendations about how disputes should be resolved, and provide binding decisions.60

The aim of a DB is to create a procedure for resolving disputes without resort to formal, time-consuming, and costly proceedings in court or arbitration.61 There are three kinds of forum that are covered under the term ‘dispute board’. We have dispute review boards, which issue non-binding

58 FIDIC, Conditions of Contract for Construction for Building and Engineering Works designed by the Employer MDB Harmonized Edition, June 2010, clause 20.2. Available at fidic.org/sites/default/files/cons_mdb_gc_v3_unprotected_0.pdf. 59 FIDIC, Short form of contract: General Condition’s 1st edn (Geneva, FIDIC, 1999), art 15. 60 N Gould, ‘Enforcing a Dispute Board’s Decision: Issues and Considerations’ Introduction to International Arbitration Conference 2011. Available at www.fenwickelliott.com/files/paper_-_ nick_gould_-_july_2011.pdf. 61 CS Dorgan, ‘The ICCs new Dispute Board Rules’ (2005) 22(2) International Construction Law Review 142, 144.

Forum for Disputes Between Contractors and Borrowers 293 recommendations; dispute adjudication boards which issue binding recommendations, and the combined dispute board, which contain elements of both the dispute review board and the dispute adjudication board.62 Dispute boards differ from other types of conflict resolution mechanisms as they are designed both to avoid disputes, and to decide on unavoidable disputes.63 In this respect, they function both as an adjudicatory and a contract management tool.64 Dispute boards are a cheap and relatively quick means of resolution and are supposed to be appointed at the beginning of a Bank-financed contract65 to address any conflicts that might arise during the pendency of a contract. Dispute boards were developed by the private sector and the first official dispute board was used in the construction of the Eisenhower Tunnel in the USA in 1975.66 Gould succinctly describes dispute boards as ‘three experts assisting with the smooth running of substantial projects and then making recommendations to resolve issues, disagreements and disputes that arise along the way’.67 It was not long after their introduction to the US that the World Bank adopted the concept, and it is reported that the first dispute board was used by the Bank in 1980, on a large international project in Honduras that was partly financed by the Bank.68 In 1995, the World Bank made them mandatory for all Bank-financed contracts over US$10 million, and the Asian Development Bank and the European Bank for Reconstruction and Development also adopted this approach in 1997.69 In 2000, the World Bank went further to require that the decisions of dispute boards should be binding and effect given to them by the parties unless and until they are overturned by an arbitral award.70

62 C Chern, The Law of Construction Disputes 2nd edn (Abingdon, Routledge, 2016), Ch 14. 63 GS Hök, ‘FIDIC/MDB Approach in respect of Dispute Adjudication Boards’ (Berlin, 2012). Available at fidic.org/sites/default/files/FIDIC%20MDB%20Approach%20in%20resp ect%20of%20Dispute%20Adjudication%20Boards.pdf. 64 ibid. 65 PO Sulser and C Chern, ‘Keeping Public Private Partnership Infrastructure Projects on Track: The Role of Multistakeholder Partnering Committees and Dispute Boards in Emerging Market Infrastructure Projects’ (2013) 5 The World Bank, Legal Review, 21. See also C Chern, ‘The Role of Dispute Boards in Construction: Benefits without Burden’ (2010) 9 Spanish Arbitration Review (Revista del Club Esopanol del Arbitraje) 5. 66 Chern, The Role of Dispute Boards in Construction’ n 65 above. 67 Gould, ‘Enforcing a Dispute Board’s Decision’ n 60 above. 68 Chern, The Law of Construction Disputes, n 62 above, Ch 14. 69 Chern, ‘The Role of Dispute Boards in Construction’ n 65 above. 70 ibid. See also C Chern, Chern on Dispute Boards: Practice and Procedure 3rd edn, (Abingdon, Routledge, 2015).

294 Remedies Under MDB-funded Procurement The harmonised MDB GCC provide for the appointment of DB and other information relating to this forum. Thus, clause 20 provides for the appointment of the dispute board, which shall comprise: either one or three suitably qualified persons (the members), each of whom shall be fluent in the language for communication defined in the Contract and shall be a professional experienced in the type of construction involved in the Works and with the interpretation of contractual documents. If the number is not so stated and the Parties do not agree otherwise, the DB shall comprise three persons.71

Where the DB comprises three persons, each party shall nominate one member for the approval of the other party. The first two members shall recommend and the parties shall agree upon the third member, who shall act as chairman. However, if a list of potential members has been agreed by the parties and is included in the contract, the members shall be selected from those on the list, other than anyone who is unable or unwilling to accept appointment to the DB.72 It may be noted that although a panel of three members is customary, this is not mandatory and for smaller contracts, a one-man panel is more appropriate and usual.73 The independence, experience and expertise of DB members adds to the appeal of the DB as a dispute settlement forum and gives their decision considerable persuasive force.74 Dispute board decisions are generally considered to be at least as fair and as informed as any court or arbitral tribunal.75 In addition, the cost of the remuneration of DB members is shared equally between the contractor and the borrower.76 In relation to the operation of the DB, the parties may ‘jointly refer a matter to the DB for it to give its opinion. Neither Party shall consult the DB on any matter without the agreement of the other Party’.77 The parties may refer a dispute to the DB, arising ‘in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Engineer’.78 The DB is required to give its decision within 84 days of receiving the matter or any other period as approved by the parties.79 The decision of the DB must be reasoned and is binding on both parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement

71

FIDIC Harmonised GCC for construction, n 58 above, clause 20.2.

72 ibid.

73 Chern,

The Law of Construction Disputes, n 62 above, 367. Dorgan, ‘The ICCs new Dispute Board Rules’ (2005) 22(2) International Construction Law Review 142, 145. See also Chern, Chern on Dispute Boards, n 70 above, Ch 6. 75 Sulser and Chern, ‘Keeping Public-Private Partnership Infrastructure Projects on Track’ n 65 above, 21, 34. 76 FIDIC Harmonised GCC for construction, n 58 above, clause 20.2. 77 ibid. 78 ibid, clause 20.3. 79 ibid. 74 CS

Forum for Disputes Between Contractors and Borrowers 295 or an arbitral award.80 Where a party is dissatisfied with the decision of the DB, it may issue a ‘notice of dissatisfaction’ within the required time, and in which case, the parties are required to attempt to settle the dispute amicably before the commencement of arbitration.81 Arbitration will commence after 56 days from the day on which a notice of dissatisfaction was given, even if no attempt at an amicable settlement has been made.82 Where a dispute between the parties arising out of or in connection with the contract is not settled amicably or the DB’s decision (if any) has not become final and binding, the dispute shall be finally settled by arbitration.83 In addition, where the decision of the DB has become final and binding, and a party fails to comply with the DB decision, this failure may be referred to arbitration.84 In relation to the legal status of a dispute board decision, it is not an arbitral decision, but rather is a decision that the parties have agreed to comply with by virtue of the contract. The dispute board is described by Chern as ‘a creature of contract…with jurisdiction to hear and advise on the resolution of disputes’.85 A failure to abide by the DB decision therefore is a breach of contract and it is that breach that is referred to arbitration.86 In practice, many decisions of dispute boards are complied with by the parties, and very few dispute board decisions are referred to arbitration.87 Where a dispute board decision goes to arbitration, the arbitrators shall have full power to open up, review and revise any certificate, determination, instruction, opinion or valuation of the engineer, and any decision of the DB, relevant to the dispute.88 This has been said to mean that the arbitration tribunal may revisit the ‘merits and substance of the dispute and come to its own decision as to the facts, law and relief’.89 Note that the parties and their representatives may be called as witnesses and give evidence before the arbitrators. The decision of the DB shall also be admissible in evidence in the arbitration.90 It may be noted that apart from dispute boards and arbitration, the other avenue of redress that is available in respect of Bank-funded projects is the World Bank Inspection Panel.91 This is an independent and impartial

80 ibid. 81

ibid, clause 20.5.

82 ibid. 83

ibid, clause 20.6. ibid, clause 20.7. 85 Chern, The Law of Construction Disputes, n 62 above, 359. 86 Gould, ‘Enforcing a Dispute Board’s decision’ n 60 above. 87 Chern, The Law of Construction Disputes, n 62 above, 357–58. 88 FIDIC Harmonised GCC for construction, n 58 above, clause 20.6. 89 Gould, ‘Enforcing a Dispute Board’s decision’ n 60 above. 90 FIDIC Harmonised GCC for construction, n 58 above, clause 20.6. 91 See generally, IFI Shihata, The World Bank Inspection Panel: In Practice, 2nd edn (Oxford, Oxford University Press, 2000). 84

296 Remedies Under MDB-funded Procurement c omplaints mechanism for persons who are or will be affected by a Bankfunded project.92 The Inspection Panel typically addresses issues such as ‘allegations of harm to people or the environment and reviews whether the Bank followed its operational policies and procedures’.93 However, the Inspection Panel does not have jurisdiction over ‘complaints against procurement decisions by Bank Borrowers’,94 and as such is not available to bidders, contractors or any persons affected by borrower procurement decisions. A. The Kinds of Remedies Available to Contractors The remedies that are available in a dispute before a DB or an arbitrator are the normal remedies available in any contract dispute. In addition, a DB may ‘decide upon any provisional relief such as interim or conservatory measures’, and may also open up, review and revise any certificate, decision, determination, instruction, opinion or valuation of the Engineer, relevant to the dispute.95 VI. DISPUTES BETWEEN BORROWERS AND THE WORLD BANK

Disputes between borrowers and the Bank may arise as a result of breaches of the legal documents, such as the procurement regulations or the loan agreement. The Bank’s General Conditions for Loans provide that: any controversy between the parties to the Loan Agreement or the parties to the Guarantee Agreement, and any claim by any such party against any other such party arising under the Loan Agreement or the Guarantee Agreement, which has not been settled by agreement of the parties shall be submitted to arbitration by an arbitral tribunal as hereinafter provided.96

Adjudication through arbitration involves the establishment of an adjudicatory panel (the arbitral tribunal) subsequent to the development of an issue

92 See D Bradlow, ‘Private Complaints and International Organisations: A Comparative Study of the Independent Inspection Mechanisms in International Financial Institutions’ (2005) 36 Georgetown Journal of International Law 403; R Bissell and S Nanwani, ‘Multilateral Development Bank Accountability Mechanisms: Developments and Challenges’ (2009) 6(1) Manchester Journal of International Economic Law 2. 93 See ewebapps.worldbank.org/apps/ip/Pages/AboutUS.aspx. 94 See KVSK Nathan, ‘The World Bank Inspection Panel: Court or Quango’ (1995) 12 Journal of International Arbitration 135. 95 General Conditions of Dispute Board Agreement, para 9, procedural rules in FIDIC Harmonised GCC. 96 IBRD General Conditions for Loans Art VIII, section 8.04(a).

Disputes Between Borrowers and the World Bank 297 in contention. The authority of the arbitral tribunal arises from the contract, and the arbitral tribunal is decommissioned once the dispute is settled and a decision (award) is issued.97 It has been argued that an arbitral tribunal established under a loan agreement qualifies as an international dispute settlement forum,98 despite its ad hoc nature and lack of permanence. Romano, Alter and Shany argue that the institutionalised framework (provided in this case by the World Bank) and the legal framework (provided here by the General Conditions for Loans) ‘ensures a certain degree of continuity and coherence between the various panels’,99 thus giving such panels a degree of stability despite their essentially transient nature. Under the General Conditions for Loans, it is provided that the parties to such arbitration shall be the Bank on one side and the loan parties on the other,100 and the arbitral tribunal shall consist of three arbitrators; one appointed by the Bank; the second appointed by the borrower and the third (an umpire) appointed by the agreement of the parties, or if they do not agree by the President of the ICJ and failing that, by the Secretary General of the United Nations.101 These provisions are designed to secure the independence and impartiality of the arbitral tribunal.102 An arbitration proceeding shall be instituted by the giving of notice to the other party. The notice must contain a statement ‘setting forth the nature of the controversy or claim to be submitted to arbitration, the nature of the relief sought, and the name of the arbitrator appointed by the party instituting such proceeding’.103 Within 30 days of receiving this notice, the other party shall notify the party instituting the proceeding, the name of the arbitrator appointed by such other party.104 If after 60 days of instituting the procedure, the parties have not agreed on an umpire, the umpire shall be appointed as described above.105 The arbitral tribunal is empowered to decide on all questions relating to its competence; it shall determine its own procedure, and shall issue its decisions by virtue of a majority vote.106 It is also required to afford to 97 CPR Romano, KJ Alter and Y Shany, ‘Mapping International Adjudicative Bodies, the Issues and Players’ in C Romano, K Alter and Y Shany (eds), The Oxford Handbook of International Adjudication (Oxford, Oxford University Publishing, 2014). See also M Davies, ‘The Use of Arbitration in Loan Agreements in International Project Finance: Opening Pandora’s Box or an Unexpected Panacea’ (2015) 32(2) Journal of International Arbitration 143. 98 Romano, Alter and Shany, ‘Mapping International Adjudicative Bodies, the Issues and Players’ n 97 above, 11. 99 ibid. 100 IBRD General Conditions for Loans, Art VIII, section 8.04(b). 101 ibid, Art VIII, section 8.04(c). 102 Wellens, Remedies against International Organisations, n 49 above, 126–27. 103 IBRD General Conditions for Loans, Art VIII, section 8.04(d). 104 ibid. 105 ibid, Art VIII, section 8.04(e). 106 ibid, section 8.04(g).

298 Remedies Under MDB-funded Procurement all parties a fair hearing and shall render its decisions in writing.107 In the words of Wellens, a ‘third party dispute settlement procedure derives its legitimacy from its impartiality, which requires that parties should not be obstructed when presenting their arguments and submitting evidence’.108 It is thus of critical importance that both parties to the dispute, in this case, the borrower and the Bank are granted an opportunity to present documentary and oral evidence in support of their claims to the arbitral tribunal. Unlike the position with the DB, the decision of the arbitral tribunal is final and binding upon the parties to the loan agreement and each party is required to ‘abide by and comply with any such award rendered by the Arbitral Tribunal’.109 If 30 days after the award is made, it has not been complied with, any party may: i.

enter judgment upon or institute a proceeding to enforce the award in any court of competent jurisdiction against the other party; ii. enforce such judgment by execution; or iii. pursue any other appropriate remedy against such other party for the enforcement of the award…110 The resort to arbitration in this context and the reliance on independent and impartial mechanisms for appointing the arbitral umpire is designed to provide relief in situations where the parties to the loan agreement may not trust domestic judicial systems.111 Thus, a developing country may feel uncomfortable submitting to a ‘Western,’ or ‘colonial’ judicial system, and the Bank may also not deign to submit to a court where it is not certain about adherence to the rule of law, and judicial independence and impartiality. It may be noted that arbitration proceedings in respect of a loan agreement do not differ from other kinds of arbitration and are recognised and enforced in the same manner as commercial arbitration awards between non-state parties. However, the enforcement of an arbitral award is subject to the domestic legal regime for the enforcement of (foreign) arbitral awards.112 The enforcement of the arbitral award being subject to domestic law presents the greatest risk in relation to reliance on arbitral tribunals.113 This risk is, however, ameliorated in part by the existence of international agreements, the most notable being the Convention on the Recognition and

107

IBRD General Conditions for Loans Art VIII, section 8.04(h). Remedies against International Organisations, n 49 above, 126–27. 109 IBRD General Conditions for Loans Art VIII, section 8.04(h). 110 ibid, section 8.04(k). 111 de Castro Meireles, The World Bank Procurement Regulations n 21 above, 51. 112 GR Delaume, ‘Economic Development and Sovereign Immunity’ (1985) 79 American Journal of International Law 319. 113 ibid. 108 Wellens,

Disputes Between Borrowers and the World Bank 299 Enforcement of Foreign Arbitral Awards (the New York Convention),114 which provides common standards for the recognition and enforcement of foreign and non-domestic arbitral awards. A. Remedies Available to the Parties to a Loan Agreement The breach of an obligation under a loan agreement constitutes the breach of an international law obligation and is thus an international wrong, which results in certain consequences.115 It must be the case also that the breach of an obligation under the procurement regulations must also constitute the breach of an international law obligation, given the fact that the procurement regulations are incorporated by reference into the loan agreement and thus become part of this agreement. Remedies in international law are often shrouded in uncertainty and in the Bank context, this is not helped by the fact that the World Bank General Conditions for Loans is silent on the nature of remedies that may be available for the breach of obligations under a loan agreement. This is not unusual in relation to international agreements,116 and it has been noted that the area of remedies ‘is one of the most undeveloped areas of international law’,117 and there is as yet no defined approach to remedies by international tribunals and dispute settlement bodies.118 However, the Bank’s operational manual provides some clarity on the nature of remedies that may be available to the Bank, in cases of the breach of an obligation under the loan agreement or the procurement regulations by the borrower. The manual provides: If the borrower does not comply with its contractual obligations, or other events occur which give rise to a legal remedy under the loan agreement for the Investment Project Financing, the Bank consults with the borrower, and requires the

114 1958 330 UNTS 3. The New York Convention had 156 state parties as at April 2016. For information on the New York Convention see generally, H Kronke, P Nacimiento, D Otto and NC Port, Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention (London, Kluwer Law International, 2010). 115 A Aust, Modern Treaty Law and Practice (Cambridge, Cambridge University Press, 2000), Ch 21, 300. 116 See Convention on the Settlement of Investment Disputes (2006). Available at icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR_English-final.pdf and UNCITRAL Arbitration Rules (2010). Available at www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-rulesrevised-2010-e.pdf. 117 EA Posner and AO Sykes, ‘Efficient Breach of International Law: Optimal Remedies, “Legalized Non-Compliance,” and Related Issues’ (2011) University of Chicago John M. Olin Law and Economics Research Paper No. 546. See also SC McCaffrey, Understanding International Law (New York, Lexis Nexis 2006), Ch 7. 118 C Gray, ‘Remedies in International Dispute Settlement’ in C Romano, K Alter and Y Shany (eds), The Oxford Handbook of International Adjudication (Oxford, Oxford University Press 2014).

300 Remedies Under MDB-funded Procurement borrower to take timely and appropriate corrective measures. The Bank’s legal remedies are specified in the relevant legal agreements and include suspension of disbursements of, and cancellation of, unwithdrawn amounts of the financing. The Bank exercises such remedies when warranted and as it deems appropriate, taking into account, among other things, country, sector-, and investment-specific circumstances, the extent of possible harm caused by circumstances giving rise to the remedy, and borrower’s commitment and actions to address the identified problems. However, the Bank takes a graduated approach to suspension for nonpayment, and when an IBRD loan or IDA credit payment from the borrower to the Bank is overdue by 60 days, the Bank suspends all financings to or guaranteed by the country concerned.’119

The manual further provides: The Bank declares misprocurement in accordance with the relevant provisions of the Procurement and Consultant Guidelines. When misprocurement is declared, the Bank does not finance expenditures under the contract that has been so misprocured and normally cancels the portion of the proceeds of the loan allocated to this contract.120

By this, where a breach of the loan agreement occurs, the Bank is entitled to suspend or terminate in whole or in part, the finance provided to the borrower. However, it is not clear if these remedies also apply to arbitration proceedings, or only apply once the Bank and the borrower agree on the nature of the breach even without submitting to arbitration. It seems to be settled that the remedies available to the parties to a loan agreement subsequent to arbitration proceedings are the remedies that are generally available in respect of arbitration under commercial contracts. As was stated by Gray, ‘international law…cannot today provide any principles, criteria, or methods for determining a priori how reparation is to be made for the injury caused by a wrongful act or omission’.121 Thus in many cases of international arbitration involving States, remedies are unquestioningly borrowed from municipal law and in awarding damages, arbitral tribunals also rely extensively on the techniques of assessment utilised by municipal courts.122 In the few cases where international arbitral tribunals explicitly refer to a source of law, this source is usually vaguely stated as the ‘general principles of law’.123 Note that there are authors who assert that, as a matter of course, the breach of an obligation under international law

119 The World Bank Operations Manual, Operational Policies OP 10.00, Investment Project Financing, para 25. Available at siteresources.worldbank.org/OPSMANUAL/Resources/EntireOM_External.pdf. 120 The World Bank Operations Manual, Operational Policies OP 11.00 Procurement, para 11. Available at siteresources.worldbank.org/OPSMANUAL/Resources/EntireOM_External.pdf. 121 CD Gray, Judicial Remedies in International Law (Oxford, Oxford University Press, 1996), Ch 1. 122 ibid. 123 ibid.

Disputes Between Borrowers and the World Bank 301 gives rise to an obligation to make reparations, consisting of desisting from the breach, restitution, and compensation.124 Whilst this may be so, it is not necessarily the approach that an arbitral tribunal will adopt in relation to claims under a loan agreement, given that these kinds of reparations may not be possible in such cases.125 It must be noted that the kind of relief that is available in arbitration proceedings may often be wider than the type of relief available in judicial proceedings.126 This may be as a result of the fact that the question of the kinds of remedies available and the method of the quantification of damages is left to the arbitrator,127 who is not bound by the rules and limitations of judicial proceedings. This may be seen in the provisions of the General Conditions for Loans, which permit the arbitral tribunal to decide on all ‘questions relating to its competence’,128 and further provides without qualification or limitation that an award rendered by the tribunal shall be final and binding upon the parties to the loan agreement.129 This may mean that the arbitral tribunal may decide on the substantive law it will apply to the claim or controversy,130 and once it has decided on the source of the substantive law and issues a decision based on that law, such a decision is final and binding on the parties before the arbitral tribunal. Thus, in analysing the remedies that may be available to the parties to a loan agreement, one may again refer to the remedies that are generally available to parties in other kinds of international arbitration. In relation to commercial arbitration, the remedies provided may often take the form of a declaration of the position of the law, or a declaration that an agreement has been breached, or the provision of monetary compensation or damages for the losses suffered by the injured party.131 However, there is less clarity as to whether other forms of remedies that are known in domestic law, such as specific performance, injunctions and restitution may be granted by a loan

124 McCaffrey, Understanding International Law, n 117 above, Ch 7. See also I Brownlie, Principles of Public International Law (Oxford, Oxford University Press, 2003) 442; EH Riedel, ‘Damages’ in R. Bernhardt (ed), Max Planck Encyclopedia of Public International Law (Oxford, Oxford University Press, 1992). See also arts 30 and 31, Draft Articles on State Responsibility of States for Internationally Wrongful Acts (2001). 125 See generally, CF Dugan, D Wallace Jr, ND Rubins and B Sabahi, Investor-State Arbitration (Oxford, Oxford University Press, 2011), Chapter XIX; see also B Sabahi, Compensation and Reparation in Investor-State Arbitration: Principles and Practice (Oxford, Oxford University Press, 2011), Ch 3. 126 MF Hoellering, ‘Remedies in Arbitration’ (1985) 20(3) Forum 516. 127 Gray, Judicial Remedies in International Law, n 121 Ch 1. 128 IBRD General Conditions for Loans Article VIII, section 8.04(g). 129 ibid, Article VIII, section 8.04(h). 130 In Germany v United States of America (the LaGrand case) (2001) ICJ Reports, 466, 485, para 48, the ICJ held that ‘where jurisdiction exists over a dispute on a particular matter, no separate basis for jurisdiction is required by the Court to consider the remedies a party has requested for the breach of the obligation’. 131 Gray, Judicial Remedies in International Law n 121, Ch 1.

302 Remedies Under MDB-funded Procurement agreement arbitral tribunal. These remedies are rare, but not unknown in international arbitration and their availability would often depend on the contents of the compromis.132 In situations where it is the Bank that is in breach of its contractual or other obligations to the borrower, the commentaries on Draft Articles on the Responsibility of International Organisations133 expand on the kinds of remedies expected from an international organisation in breach of its obligations. Article 31 of the Draft Articles provides that ‘the responsible international organization is under an obligation to make full reparation for the injury caused by the internationally wrongful act’. The Commentaries to the Draft Articles state that the principle of full reparation is often applied in practice in a flexible manner, and full reparation may not always be possible.134 Thus, it is suggested that in relation to breaches of a loan agreement by an MDB, the arbitral tribunal may not necessarily provide full reparation to the borrower. Where a State is in default of its obligations under a loan agreement, the international law approach may be gleaned from the Draft Articles on Responsibility of States for Internationally Wrongful Acts.135 These Draft Articles provide that where a State is responsible for an internationally wrongful act, it is under an obligation to cease that act, offer appropriate assurances and guarantees of non-repetition,136 and make full reparation for the injury caused by the internationally wrongful act.137 The meaning of reparation was examined in the Factory at Charzow case, where the court held that: Reparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability have existed if that act had not been committed. Restitution in kind, or, if this is not possible, payment of a sum corresponding to the value which a restitution in kind would bear; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it—such are the principles which should serve to determine the amount of compensation due for an act contrary to international law.138

132 Gray,

Judicial Remedies in International Law, n 121, Ch 1. Articles on the Responsibility of International Organisations (2011) Yearbook of the International Law Commission Vol II, Part II. Available at legal.un.org/ilc/texts/instruments/ english/draft_articles/9_11_2011.pdf. 134 Draft Articles on the responsibility of International Organisations, with commentaries (2011). Available at legal.un.org/ilc/texts/instruments/english/commentaries/9_11_2011.pdf. 135 Draft Articles on Responsibility of States for Internationally wrongful acts with commentaries (2001). Yearbook of the International Law Commission Vol II part Two, 31–143. 136 Draft Articles on Responsibility of States for Internationally Wrongful Acts, art 30. 137 ibid, art 31. 138 Factory at Chorzow, Merits, Judgment No. 13, 1928 P.C.I.J Series A, No. 17, 29 at p 47. 133 Draft

Disputes Between Borrowers and the World Bank 303 In this regard, it can be seen that reparations is a general term, which covers all forms of damages that may be required to make good the injury suffered as a result of the breach of an international law obligation. The Draft Articles further clarify that reparation may take the form of restitution, compensation and satisfaction.139 In addition, under article 38, interest is payable on a principal sum owed, where such interest is necessary to ensure full reparation. One point that may be made in relation to the concept of reparations is that it is an obligation that ‘arises automatically upon commission of an internationally wrongful act and is not as such contingent upon a demand…’.140 However, it is also recognised that the form the reparations will take will most likely be determined in adjudicatory proceedings, meaning that once a breach of a loan agreement is established, the injured party is entitled to the form of remedies as decided by the arbitral tribunal, although the right of the injured party to these damages may have pre-existed the establishment of the arbitral tribunal. To examine how remedies are dealt with (or not) in the context of other forms of international arbitration, it is necessary to examine two other regimes for international arbitration. The most pertinent of these is arbitration under the International Centre for the Settlement of Investment Disputes (ICSID), which is an organisation under the World Bank Group, was created to provide facilities for conciliation and the arbitration of international investment disputes.141 Although ICSID only applies to disputes between States and nationals of other States, it is a model for international arbitration and may provide guidance on the appropriate choice of law for remedies in international arbitration. Article 42(2) of the ICSID convention provides that: The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute…and such rules of international law as may be applicable.

Under the ICSID convention, therefore, it can be seen that the choice of law for arbitration and the attendant remedies will depend on the agreement of the parties, or the law of the State to the dispute, as well as international law. In terms of the nature of relief granted, ICSID has traditionally focused on the granting of pecuniary damages to the exclusion of other forms of relief.142 139

Draft Articles on Responsibility of States for Internationally Wrongful Acts, arts 34–37. ibid, art 31 Commentary. 141 Convention on the Settlement of Investment Disputes between States and Nationals of other States (2006), art I. 142 C Schreuer, ‘Non-Pecuniary Remedies in ICSID Arbitration’ (2004) 20(4) Arbitration International 325–32. 140

304 Remedies Under MDB-funded Procurement The other regime that warrants examination is the UNCITRAL rbitration rules, which provide an internationally accepted model for the A process of arbitration itself.143 The UNCITRAL Arbitration rules provide in article 35 that: The arbitral tribunal shall apply the rules of the law designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the arbitral tribunal shall apply the law, which it determines to be appropriate.144

It can thus be seen that the choice of law in international arbitration is generally dependent on the agreement of the parties. In the World Bank context, the choice of law is international law, which does not possess a coherent body of law in relation to remedies, and as such, what is likely to occur is that a system of law (ie common law, civil law etc) may be chosen by arbitrators as opposed to the law of a particular jurisdiction. VII. CONCLUSION

As can be seen from the forgoing discussion, the provision of remedies in relation to disputes arising out of a Bank-funded project is not subject to a coherent or properly defined regime. This is partly due to the international law character of the Bank procurement regulations and the loan agreement and also the absence of a contractual or any relationship between the Bank and participants in a funded procurement process. It must be stated, however, that there are few disputes that have been recorded in this area and contractual disputes are often quickly dispatched by the nominated dispute boards.

143 DD Caron, LM Caplan, The UNCITRAL Arbitration Rules: A Commentary (Oxford, Oxford University Press, 2013), Ch 1. 144 UNCITRAL Arbitration Rules (2014).

Index Accra Agenda for Action (AAA) see under harmonisation; procurement reform and development of procurement capacity; tied aid African Development Bank (AfDB) 12–14 entities 13 historical background 12 infrastructure lending 13 membership 13 secondary criteria 164–6 strategic partnership with World Bank 14 African Development Fund 13 aid effectiveness key issues/conclusion 7, 217, 242 meaning 217–20 World Development Report 217–18 see also country systems’ use; harmonisation; tied aid anti-competitive schemes see under corruption anti-corruption see corruption appraisal see under project cycle approved selection methods/arrangements see under project cycle Arrowsmith, S 104, 135, 145–7 Arusha Statement 261 Asian Development Bank (ADB) 14–15 historical background 14 long term relevance 15 membership 15 operations 14–15 secondary criteria 166–7 audits see under corruption autonomy see under international law Ayoung, A 252, 255 Basheka, B 243 best and final offer (BAFO) see under market approaches bids/bidding see under competitive procedures, for goods, works and non-consulting services; corruption; harmonisation; project cycle; remedies borrower capacity assessment see under project cycle breaches of regulations/process see under remedies Bretton Woods agreement (1944) 9 Broches, A 40

build, operate and transfer (BOT) contract see under public private partnerships (PPP) build, own and operate (BOO) contract see under public private partnerships (PPP) build, own, operate and transfer (BOOT) contract, public private partnerships (PPP) Busan Accord see under tied aid Caldwell, N 107 capacity development see procurement reform and development of procurement capacity Cassen, R 5 Clay, EJ 239 commercial practices see under project cycle; under selection and contractual arrangements commodities see under selection and contractual arrangements community driven development see under project cycle community participation in procurement see under project cycle competitive dialogue 131–4 definition/meaning 132 non-discriminative information 134 permitted situations 132–3 procedure see under project cycle process phases 133–4 competitive procedures competition continuum 108 for consulting services 112–18 consultant’s qualification-based selection (CBS) 117–18 fixed budget-based selection (FBS) 115–16 least cost-based selection 116 quality and cost-based selection (QCBS) 113–15 quality-based selection (QBS) 116–17 shortlisting 113 as discovery 108 economic efficiency 107–8 for goods, works and non-consulting services 110–12 request for bids 111–12 request for proposals (RFP) 98–9, 110–11 request for quotations (RFQ) 99, 112 key issues/conclusion 7, 103, 142

306 Index meaning 107–9 perspectives 107 as pillar of system 1–7 at stages of cycle 108 World Bank 108–9 competitive award procedures 109–18 passim see also market approaches; non-competitive procedures; selection and contractual arrangements; value for money conditional non-debarment sanction see under corruption consultant’s qualification-based selection (CBS) see under competitive procedures, for consulting services consulting services competitive procedures see under competitive procedures non-competitive procedures see under non-competitive procedures contractors qualifications selection (CQS) see under project cycle settlements/resolution of cases with see under corruption contractors and borrowers, disputes between see under remedies contracts general conditions of see procurement documents, general conditions of contract (GCC) performance/management/supervision see under corruption project cycle see under project cycle contractual termination see under corruption corruption anti-competitive schemes 174–5 anti-corruption agreements 194 anti-corruption co-operation 230–2 Anti-corruption Guidelines 212–14 anti-corruption history of World Bank 178–87 anti-corruption strategy 182–3 Articles of Agreement 178 Department of Institutional Integrity (INT) 184 good governance paradigm 181–2 governance and anti-corruption (GAC) focus 185–6 ineffectiveness 178–9 institutional problems 179–80 loan administration charge 183 audits 198–9 Bank-financed/funded contracts 180–1, 183–4, 195–9 bid advertising/evaluation 176 borrowers, sanctions against 200–3

compliance with norms 193–5 conditional non-debarment sanction 205–6 contract performance/management/ supervision 176–7 contractors after sanctions 210–11 sanctions against 203–9 settlements/resolution of cases with 209–10 contractual termination 208–9 corruption vulnerability assessments (CVA) 215 Country Partnership Framework (CPF) 193 cultural/political issues 215 debarment sanction 206–7, 233 direct implementation reviews (DIRs) 197 fines 208 General Conditions of Contract 214 Global Declaration against Corruption 187, 216 harmonisation of anti-corruption 230–2 independent procurement reviews 195–6 inspections 198–9 integrity compliance programmes 210–11 investigations 197–8, 232 key issues/conclusions 3–4, 7, 171, 215–16 loan acceleration remedy 201 loan cancellation remedy 200 loan suspension remedy 200–1 Millennium Challenge Corporation (US) 181 misprocurement remedy 201–3 negotiated resolution agreements (NRA) 209–10 offences 187–9 political/cultural issues 215 post reviews 195 prevention 189–93 and expanded implementation support 193 knowledge sharing 193 prior review 190–2 project assessments 190 procurement guidelines and regulations (2011) 211–12 procurement regulation restrictions 194–5 project, identification/design 175–6 public/private 174 reporting mechanisms 199 reprimand sanction 205 restitution sanction 208 sanctions and remedies 199–211, 232

Index 307 Standard Procurement Documents 214–15 susceptibility in public procurement 173 Systematic Country Diagnostic (SCD) 193–4 systemic/pervasive 172 third party probity assurance 195–6 voluntary disclosure programme (VDP) 196–7 vulnerable areas 175–7 whistleblowing/reporting mechanisms 199 World Bank Group v Wallace 186 see also remedies Country Assistance Framework (CAF) see under procurement documents country intervention documents see under procurement documents Country Partnership Framework (CPF) see under corruption; procurement documents country procurement assessment reports (CPARs) see under country systems’ use country systems’, see also use aid effectiveness country systems’ use and aid effectiveness 239–40, 241 country procurement assessment reports (CPARs) 240, 241–2 meaning 239–41 methodology for assessment of country procurement systems (MAPS) 242 national arrangements/systems 240 parallel procurement systems 240 pilot programme 240 procurement reform see under procurement reform and development of procurement capacity see also harmonisation; tied aid cycle see project cycle debarment sanction see under corruption Dekel, O 107–8 direct implementation reviews (DIRs) see under corruption direct selection see under project cycle dispute boards (DBs) see under remedies documents see procurement documents domestic procurement rules, utilisation see under project cycle effectiveness see aid effectiveness electronic reverse auctions benefits/disadvantages 138 definition 137 downward revision 138 project cycle 100 emergency (direct) selection see under noncompetitive procedures

European Bank for Reconstruction and Development (EBRD) capacity 34 historical background 15 objectives 16 secondary criteria 167–8 evaluation criteria see under market approaches Factory at Charzow case 302 fines see under corruption fixed budget-based selection (FBS) see under competitive procedures, for consulting services; project cycle force account procurement see under project cycle force accounts meaning 139–40 permitted circumstances 140 project cycle 95–6, 101 framework agreements appropriateness 140–1 competitions 141 definition 140 implementation 141 project cycle 101 time limits 141 general conditions of contract (GCC) see under procurement documents general conditions for loans see under procurement documents global administrative law see under international law Good Practice Paper (GPP) see under procurement reform and development of procurement capacity Gould, N 293 Graells, AS 144, 145, 174–5 guidelines and regulations see procurement guidelines and regulations (2011) harmonisation Accra Agenda for Action (AAA) 23, 225 anti-corruption co-operation 230–2 bidding documents’ standardisation 229–30 Busan Accord 226–7 donor coordination 220 forum for procurement harmonisation 221–2 history/evolution 23–4, 221–7 meaning 220–1 Monterrey Consensus 220, 221 objectives 220–1 Paris Declaration 223–4 procurement documents guidelines (2011) 59

308 Index procurement documents’ standardisation 228–30 procurement harmonisation 227–32 Rome Declaration on Harmonization 59, 222–3 UNCITRAL Model Law 221 see also aid effectiveness; tied aid Hollis, DB 39 identification see under project cycle immunity see under international law implementation see under project cycle imports’ programme operations see under selection and contractual arrangements integrity compliance programmes see under corruption Inter-American Development Bank (IDB) concessional funds 12 historical background 11 membership 12 secondary criteria 163–4 social lending focus 11–12 International Bank for Reconstruction and Development (IBRD) 10 International Centre for the Settlement of Investment Disputes (ICSID) see under remedies international competition see under market approaches International Conference of American states (1889–1890) 11 International Development Agency (IDA) 10 International Finance Corporation (IFC) 10 international law autonomy 32–3 borrowers’ relationships with MDBs 45–6 capacity 33–4 dual character 31 global administrative law 47–9 governance/accountability liability 38 immunity 34–7 from domestic courts 34–5 full functional immunity 35–6 scope of 35 international personality 32–8 key issues/conclusion 6, 31, 49–50 liability 37–8 loan agreements 39–45 adherence 42–3 dispute resolution mechanisms 43–5 interpretation 41–2 role/nature 39 to state-owned enterprises 41 supremacy to state’s constitution 41 as treaties 39–40

uniform standard of regulation 49 World Bank autonomy 32 borrowers’ relationships with 45–6 dispute resolution 43–4 immunity 36 liability 38 loan agreements 39–41 international personality see under international law Jepma, C 236 Katayama, RN 119 Khan, M 183 Kingsbury, B 47 Klitgaard, R 172 Krisch, N 47 Kunzlik, P 145 La Chimia, A 234–5 least cost-based selection see under competitive procedures, for consulting services liability see under international law loan acceleration remedy see under corruption loan agreement arbitral panel see under remedies loan agreements see under international law; procurement documents loan cancellation remedy see under corruption loan suspension remedy see under corruption McCrudden, C 145 Malmendier, B 290 market approaches best and final offer (BAFO) 128–9 domestic jurisdictions 122 evaluation criteria 130–1 international competition 123–4 limited competition 123 multi-stage procurement 128 national competition 124–5 negotiations 129 non-rated evaluation criteria 130–1 open competition 122–3 options 122 post-qualification 127 prequalification 125–7 rated evaluation criteria 130–1 single-stage procurement 127–8 World Bank 122–31 passim see also competitive procedures Mendaro v World Bank 35 methodology for assessing alternative procurement arrangements (MAAPA)

Index 309 see under procurement reform and development of procurement capacity methodology for assessment of country procurement systems (MAPS) see under country systems’ use; procurement reform and development of procurement capacity Millennium Challenge Corporation (US) 181 misprocurement remedy see under corruption Monterrey Consensus see under harmonisation; procurement reform and development of procurement capacity; tied aid multilateral development banks (MDBs) concessional/non-concessional funds 12 historical overview 9–16 identification of projects 4 institutions 3 procurement policies/strategy, development see under World Bank procurement regulation 5–6 Multilateral Investment Guarantee Agency (MIGA) 10 Naim, M 180 national competition see under market approaches negotiated resolution agreements (NRA) see under corruption negotiations see under market approaches Nigeria Trust Fund 13 non-competitive procedures consulting services 121 emergency (direct) selection 119–20 for goods, works and non-consulting services 118–20 emergency (direct) selection 119–20 single-source/sole-source selection 118, 120 key issues 118 World Bank 118–21 passim see also competitive procedures open competition see under market approaches Otoo, S 250 Paris Declaration, procurement reform and development of procurement capacity 23, 260–1 performance-based contracts see under selection and contractual arrangements policy see procurement policy, history/ evolution post reviews see under project cycle post-qualification see under market approaches

Poverty Reduction Strategy Paper (PRSP) see under procurement documents PPP see public private partnerships (PPP) preparation see under project cycle prequalification see under market approaches; secondary criteria price preferences see under secondary criteria privity of contract see under remedies procurement documents convergence/similarity 53 Country Assistance Framework (CAF) 53–4 country intervention documents 53–5 Country Partnership Framework (CPF) 54, 55 general conditions of contract (GCC) construction contracts 70–2 types 70 general conditions for loans 56–8 key issues/conclusion 6, 53, 76 loan agreement 55–6 Poverty Reduction Strategy Paper (PRSP) 54 procurement framework (2016) 64–70 aims/adoption 64–5 borrowers, regulations for 65–8 IPF/other operational matters 68–70 procurement guidelines (2011) 58–64 construction contracts 59 for goods, works and non-consulting services 59–62 harmonisation agenda 59 methodology criticism 60 for selection of consultants 59, 62–4 procurement plan/manual (PIP) 74–6 Project Procurement Strategy for Development (PPSD) 73–4 standard procurement documents (SPDs) 72–3 strategy documents 53 Systematic Country Diagnostic (SCD) 54–5 World Bank convergence/similarity 53 Economic and Sector Work (ESW) 53 procurement framework (2016) 64–70 passim procurement guidelines (2011) 58–64 passim procurement rules 58 procurement framework (2016) see under procurement documents procurement guidelines and regulations (2011) corruption 211–12 see also under procurement documents; project cycle

310 Index procurement organisation see under project cycle procurement plan/manual (PIP) see under procurement documents procurement policy, history/ evolution 18–29 bidding eligibilities 19 consultants’ contracts 20 corruption policies 21–3, 28 country procurement systems 20 framework mission statement (2013) 26–7 harmonisation efforts 23–4 holistic reform (2011) 25–6 implementation of new framework 28–9 initial procurement guidelines 19 international competitive bidding (ICB) (1964) 18–19, 20 methodological changes 24–5 policy considerations 1964–1994 20–2 remedies 28 value proposition 27–8 procurement reform and development of procurement capacity Accra Agenda for Action 261–2, 264 aid effectiveness agenda 257–62 aims/intentions 244–5 Arusha Statement 261 capacity development 249–51 fragmented/short term measures 250 low baseline capacity 251 meaning/definitions 249–50 policy direction requirement 250–1 categories of initiatives 245–7 challenges to reform 247–9 country procurement assessment reports (CPARs) 264–7 MAPS overlap 272 objectives 264–5 risk assessment 265 sector specific assessments 266–7 set benchmarks 265–6 country systems’ use benefits 251–2 pilot programme 254–6 risks 252–3 transition issues 253–4 Cusco Declaration 248 in developed countries 244 funders of 277 Good Practice Paper (GPP) 280 implementers of 277 Johannesburg Declaration 259–60 key issues/conclusion 8, 243, 280 MDBs’ role capacity development 277–80 procurement reform 275–7 meaning of reform 243–4

methodology for assessing alternative procurement arrangements (MAAPA) 272–3 methodology for assessment of country procurement systems (MAPS) 267–72 baseline indicators (BLIs) 268–9 BLIs and associated CPIs 270–1 Table compliance/performance indicators (CPIs) 269–70 CPAR overlap 272 versions 267 Monterrey Consensus 257–8 multilateral agenda 256–63 national contexts 262–3 OECD/DAC Good Practice Paper 250–1 Paris Declaration 23, 260–2, 264 promoters of 276 reform issues 243–9 regional impetus 257 Rome Declaration on Harmonization 258–9 technology use 263 UNCITRAL model law 273–5 aims/objectives 273–4 as comprehensive template 275 harmonisation effect 275 1994/2011 versions 274–5 UNDP capacity development process 278–9 World Bank Institute (WBI) 279–80 procurement regulation, case study 16–18 delayed introduction 16–17 global financial crises (2008) 18 infrastructure investments 17–18 loan proceeds provisions 17 trends and changes 18 Profoli case 32, 34 project appraisal see under project cycle project cycle advertisement 87–8 appraisal 84 approved selection methods/ arrangements 98 bidding documents, preparation 87 bids evaluation 89–91 limited international bidding 93–4 opening 88–9 request for bids (RFB) 98–9 borrower capacity assessment 81–3 commercial practices 100 community driven development 101 community participation in procurement 96 competitive dialogue procedure 99 contractor’s qualifications selection (CQS) 98

Index 311 contracts award 91 direct/single source contracting 95–6 management 92 country procurement assessment 79 country procurement assessment reports (CPAR) input 81–2 direct selection 99 domestic procurement rules, utilisation 96–7 electronic reverse auctions see electronic reverse auctions evaluation and monitoring 101–2 fixed budget selection (FBS) 97 force account procurement see force accounts framework agreements see framework agreements identification 83–4 implementation 85–6 key issues/conclusion 6–7, 77, 102 least cost selection (LCS) 97–8 limited international bidding 93–4 methodology for assessing procurement systems (MAPS) 82 monitoring 101–2 performance-based contracts 101 post reviews 92–3 PPP see public private partnerships (PPP) preparation 81–5 procurement cycle 86–93 procurement guidelines (2011) for consulting services 97–8 for goods, works and non-consulting services 93–7 procurement organisation 78–80 accredited practice manager (APM) 79, 80 country procurement assessment 79 operational manual (World Bank) 78 procurement-related functions 78–9 role of MDBs 78 task team leader (TTL) 78–9 and procurement process 77–8 procurement and project plans 87 procurement regulations 2016 98–101 procurement-related functions 78–9 project appraisal 84 project identification 83–4 project implementation 85–6 project preparation 81–5 project procurement strategy for development (PPSD) 83–4 quality based selection method (QBS) 97 quality and cost selection method (QCBS) 97 request for bids (RFB) 98–9

request for proposals (RFP) 98–9, 110–11 request for quotations (RFQ) 99, 112 shopping method 94–5 single source selection 98 standard procurement (bidding) documents, preparation 87 standstill period 91 World Bank evaluation and monitoring 101–2 procurement organisation example 78–80 procedures 93–101 project identification/design see under corruption Project Procurement Strategy for Development (PPSD) see under procurement documents public private partnerships (PPP) build, operate and transfer (BOT) contract 136 build, own and operate (BOO) contract 135 build, own, operate and transfer (BOOT) contract 136 definition/meaning 134–5 project cycle 100 quality and cost-based selection (QCBS) see under competitive procedures, for consulting services; project cycle quality-based selection (QBS) see under competitive procedures, for consulting services; project cycle quotations see project cycle, request for quotations (RFQ) reform see procurement reform and development of procurement capacity regulation, uniform standard see under international law regulations see procurement guidelines and regulations (2011); procurement regulation, case study Reinisch, A 35 remedies approaches 282–3 arbitration 292, 295 bidders’ complaints forum 284–91 basic approach 284 borrower agency as forum 285–6 causes of action 286, 287 domestic jurisdictions 289–90 forms of complaints 288 interested parties 287 kinds of remedies 291 privity of contract 284 selection explanation 284–5

312 Index timelines 288–9 2016 regulations 286–7 breaches of regulations/process 281 contractors and borrowers, disputes between 292–6 kinds of remedies 296 dispute boards (DBs) 292–5 adjudicatory/contract management role 293 adoption by World Bank 293 aims 292, 293 kinds of 292–3 membership of 294 operation 294–5 Factory at Charzow case 302 General Conditions of Contract (GCC) 292 International Centre for the Settlement of Investment Disputes (ICSID) 10, 43, 303 international dispute settlement forum 297 key issues/conclusion 8, 281, 283, 304 loan agreement arbitral panel 296–9 authority 296–7 empowerment 297–8 enforcement and domestic legal regimes 298–9 parties/notice 297 loan agreement parties 299–304 bank in breach of obligations 302 as commercial contract remedies 300–1 international law remedies 299 nature of remedies 299–300 relief available 301–2 reparations concept 303 state in default of obligations 302–3 supplier remedies 281–3 UNCITRAL Arbitration rules 304 World Bank Inspection Panel 295–6 World Bank’s approach 283–4 see also corruption Reparation Advisory Opinion 32–3, 34 reporting mechanisms see under corruption reprimand sanction see under corruption request for proposals (RFP) 98–9, 110–11 request for quotations (RFQ) 99, 112 restitution sanction see under corruption Romano, CPR 297 Rose-Ackerman, S 179 Schooner, S 107 secondary criteria contract conditions 148 contract monitoring 162 contract terms and conditions 161–2 definitions 145–7

environmental/non-environmental criteria 155 environmentally and socially responsible procurement (ESRP) 157 EU Procurement Directives 148–9 evaluation criteria 147, 161 evidence-based requirements 158 frequency of use 162–3 functional and technical specifications 159–61 historical use 144–5 implementation mechanisms 147 key issues/conclusion 7, 143, 168 as macroeconomic instrument 143–4 non-state entity policy criteria 154 other jurisdictions 148–52 other MDBs 163–8 permitted policy criteria 153 preferences 147 prequalification 159 price preferences for construction contracts 156–7 domestic preferences 157 for manufactured goods 155–6 principle goals 145–6 project procurement strategy for development (PPSD) document 158 public policy/legislation requirements 146–7 required policy criteria 153–4 sustainability 7, 143n, 146, 148–52, 153–5, 157, 161, 168 UNCITRAL Model Law 149–50 US non-US goods’ purchase restrictions 151 sustainable acquisition regulations 152 World Bank implementation 155–9 rationales 153–5 WTO, Government Procurement Agreement (GPA) 49, 150 selection and contractual arrangements commercial practices 136–7 commodities 138–9 community driven development 139 competitive dialogue see competitive dialogue force accounts see force accounts imports’ programme operations 138 performance-based contracts 141–2 PPP see public private partnerships (PPP) UN agencies 137 World Bank 131–42 passim see also competitive procedures shopping method see under project cycle shortlisting see under competitive procedures, for consulting services

Index 313 single source selection see under project cycle single-stage procurement see under market approaches standard procurement documents (SPDs) see under procurement documents standstill period see under project cycle strategy documents see under procurement documents sustainability see under secondary criteria Systematic Country Diagnostic (SCD) see under corruption; procurement documents third party probity assurance see under corruption tied aid Accra Agenda for Action (AAA) 238–9 bilateral/multilateral aid 233–4 Busan Accord 239 definition 232–3 formally/informally tied 233 forms of 233 Monterrey Consensus 236–7 negative effects 234–6 OECD/DAC Recommendation 236–8 Paris Declaration on Aid Effectiveness 238 untying aid meaning 234 multilateral efforts 236–9 see also country systems’ use; harmonisation Trepte, P 108 UN agencies see under selection and contractual arrangements UNCITRAL Arbitration rules, remedies 304 UNCITRAL Model law harmonisation 221 procurement reform see under procurement reform and development of procurement capacity secondary criteria 149–50 value for money 104 UNDP capacity development process see under procurement reform and development of procurement capacity uniform standard of regulation see under international law United Nations Economic Commission for Africa (UNECA) 12 value for money basic meaning 103 competitive award procedures 105

in competitive procedures 108–9 components 104 contract performance 104 hierarchy of competing objectives 104 lowest price/other tradeoffs continuum 105–6 market approaches 124, 129–30 non-competitive procedures 118, 120 in practice 105 price advantageousness 104 responsibility/qualitative selection criteria 104 suitability for requirements 104 US/EU provisions 104 World Bank regulations 106–7 see also competitive procedures Vienna Convention 34, 39 voluntary disclosure programme (VDP) see under corruption Ware, GT 175–6 Wellens, K 298 Westcott, CG 248 whistleblowing/reporting mechanisms see under corruption Wiess, A 40 Wolfensohn, James 22, 179–80 World Bank annual lending 10 corruption see corruption, anti-corruption history of World Bank funding of lending 10 group institutions 10 historical overview 9–11 international law see under international law lending portfolio 10–11 membership 10 post-war reconstruction role 9–10 procurement documents see under procurement documents procurement policy see procurement policy, history/evolution procurement regulation, case see procurement regulation, case study project cycle see under project cycle secondary criteria see secondary criteria World Bank Group v Wallace 35 World Bank Institute (WBI) see under procurement reform and development of procurement capacity WTO, Government Procurement Agreement (GPA) 49, 150 Wurm, J 35

314