REPUBLIC OF SLOVAKIA FINAL

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized REPUBLIC OF SLOVAKIA FINAL COUNTRY PROCUREMENT ASSESSMENT REPORT May, 2001 EUROPE AND CENTRAL ASIA REGION THE WORLD BANK 28844

2 SLOVAKIA FINAL COUNTRY PROCUREMENT ASSESSMENT REPORT FINDINGS AND RECOMMENDATIONS Table of Contents Acronyms Preface: Date, Basis and Purpose of Report Acknowledgements Page i i Executive Summary ii Part A : SUMMARY OF FINDINGS - STRENGTHS AND WEAKNESSES OF PRESENT PROCUREMENT SYSTEM Public Sector 1. Legal and Regulatory Framework 1 2. Procedures and Practices 2 3. Organization and Resources 5 4. Audit and Anti-Corruption Measures 7 5. Public Sector Management Performance 8 6. Performance on Bank-assisted Projects 9 7. General Risk Assessment 10 Private Sector 8. Commercial Regulations Commercial Practices 11 Part B: RECOMMENDED ACTION PLAN 10. Strategic Approach Measures to be Taken by the Government Measures to be Taken by the Bank Technical Assistance Timetable Recommended Bank Approach for Supervision 14 Attachments 1. Action Plan CURRENCY Currency Unit = Slovak Koruna (SKK) US$1 = SK 47 May, 2001)

3 ACRONYMS CPAR EBRD EC EU GCC GEF GOS ICB IDF MOF NCB NBS NKU PPA PPB OPP RFP SAB SBD UNCITRAL USAID WTO Country Procurement Assessment Report European Bank for Reconstruction and Development Evaluation Commission European Union General Conditions of Contract Global Environment Facility Government of Slovakia International Competitive Bidding Institutional Development Fund Ministry of Finance National Competitive Bidding National Bank of Slovakia Supreme Audit Office Public Procurement Act Public Procurement Bulletin Office of Public Procurement Request for Proposals Single Administration Document Standard Bidding Documents United Nations Commission for International Trade Law United States Agency for International Development World Trade Organization

4 i SLOVAKIA FINAL COUNTRY PROCUREMENT ASSESSMENT REPORT (CPAR) PREFACE Date of the Report This report was completed on May 23, Basis of Report This report updates the CPAR on Slovakia dated January 10, The report is based on the findings of a Bank mission to Slovakia from November 9 to 18, 1999, and analyses of the materials and other information collected. The mission comprised of Messrs. Naushad Khan, Senior Procurement Specialist, (CPAR team leader); Jagdish Jassal, Procurement Analyst (team member), and Mr. Henry Marek, Consultant (team member). Messrs. Juraj Sipko, Director, Foreign Relations Department, Stefan Hritz, General Director, Mikulas Bakay, Director for Procurement and Concession, Ministry of Construction and Public Works extended full cooperation to the Bank mission, and made valuable contributions to the mission s work through participation in the assessment. The report follows the CPAR instructions issued by the Bank s Procurement Policy and Services Group on June 1, This report has been discussed with the Office of Public Procurement of Slovakia and reflects the agreements reached between the Office and the World Bank. Purpose of the Report The World Bank undertakes assessments of the procurement environment, covering both public and private sectors in borrowing member countries on a systematic basis. The objective of the assessment is to determine the compatibility of national procurement law and practices with the principles of economy and efficiency and with international procurement practices. The findings and recommendations of this work not only help the Bank ensure that sound procurement practices are followed in the projects that the Bank finances, but also enables it to provide valuable feedback to member countries regarding the strengths and weaknesses of their public procurement systems. This enables member countries to improve the transparency of the procurement process and enhance efficiency of public spending. Acknowledgements The team acknowledges the extensive cooperation and assistance received from officials and staff of the public and private agencies visited. The team is particularly grateful to Ms. Marcela Havranova of the International Financial Institutions Division, Slovak Ministry of Finance, for organizing the mission s program in Slovakia, and Ms. Bola Surakat for processing the report.

5 ii SLOVAKIA COUNTRY PROCUREMENT ASSESSMENT REPORT Executive Summary Slovakia was the first country in Central and Eastern Europe to introduce a Public Procurement Act (PPA) in Its procurement legislation has evolved during the last five years. Several substantial amendments to the 1994 Act were the result of the Government s continued efforts to improve Slovakia s procurement system. The current Public Procurement Act was passed in September 1999 with a view mainly to fulfilling the requirements of Slovakia s candidacy for the European Union. The World Bank has continuously supported government efforts to introduce a transparent and competitive public procurement system in Slovakia. In 1994, the Bank conducted an assessment of the public and private sector environment in Slovakia. As a result, it provided feedback to the Government to help it improve the transparency and effectiveness of the system. It backed up its recommendations for these improvements through a grant from its Institutional Development Fund (IDF) and through direct technical assistance on procurement. Under the IDF grant-funded procurement institutional development project, the 1994 PPA was amended and an improved PPA introduced in The 1996 PPA reflected only some of Bank recommendations. With the help of the grant, procurement guidelines and standard bidding documents were prepared; 25 public officials were trained in training others in procurement; and 500 public officials throughout the country received initial training in procurement. The following two major Bank recommendations were not included in this version of the PPA: (i) creation of an independent public procurement body; and (ii) inclusion of separate provisions in the PPA on procurement of services. The September 1999 PPA did provide for the creation of an independent Office of Public Procurement (OPP). This update of the 1995 CPAR is based on the September 1999 PPA and the findings of the Bank CPAR mission to Slovakia in November The 1999 PPA is an improvement upon the previous PPAs in some respects, including the creation of an OPP, more detailed and clear procurement procedures, accreditation of procurement professionals, introduction of the Public Procurement Bulletin and expanded bid protest resolution procedures. However, it is the Bank's view that, although the procurement methods in the 1999 PPA comply with EU Directives, some of these methods lack transparency and may not result in efficient and competitive procurement. The PPA provides for four procurement methods: open tendering, restricted tendering, negotiated tendering with prior notification; and negotiated tendering without prior notification. While open tendering includes transparent procedures which will lead to competitive and economic procurement, the PPA does not include appropriate criteria for the use of restricted tendering, such as the availability of a limited number of suppliers, response to natural disasters, etc. Similarly, the negotiated procurement with prior notification method lacks transparency and gives excessive discretion to the contracting authority.

6 iii In order to improve the transparency of the negotiated procurement with prior notification method, it is recommended that the conditions for its use should be brought more into line with those contained in the European Union Supplies Directive and that, where such conditions of use are not met, Open or Restricted Tendering should be employed. One of the significant flaws in the 1999 PPA, just as was the case in the 1994 and 1996 PPAs, is the lack of clear provisions specific to the procurement of consultants services. Consequently, contracting authorities have been and will be using the same procedures for the procurement of consultants services as are applicable to goods and works. This gives rise to undesirable practices, such as decision on the selection of service providers on the basis of their price rather than the quality of their proposals, requirement of bid and performance securities, which are not relevant in case of a consulting services contract. The Bank recommends strongly, as it did in the past, the inclusion in the PPA of separate provisions relating to procurement of consultants services in future amendments to the PPA. The other major recommendations made by the Bank include: improvement in procurement planning by providing information about budgetary allocations early in the budgetary cycle to the implementing agencies so that adequate time is available to conduct economic and efficient procurement; establishment by contracting authorities of a permanent procurement committee responsible for decision making and for providing oversight; and evaluation committees to deal with the bidding process; introduction of a formal code of ethics for government employees to improve their accountability in procurement; continuous training of the staff of contracting authorities in procurement to ensure effective implementation of the PPA; updating of the procurement guidelines and standard bidding documents prepared with the assistance of the Bank s IDF grant; collection and dissemination of best procurement practices to contracting authorities through the PPB; and dialogue with the private sector to keep suppliers, contractors and consultants informed of the requirements of the PPA and of improvements in the procurement system. The Bank also recommends that the role of the Supreme Audit Office of Slovakia (NKU) in conducting procurement audits of contracting authorities at regular intervals be enhanced and its reports be made public. Furthermore, NKU auditors should receive basic training in the application of the PPA.

7 iv The 1999 PPA provides for accreditation of procurement professionals. This is an important improvement in the public procurement system. However, the concern is that the accreditation process may become a bureaucratic obstacle to professional development. Therefore, in order to ensure the successful and timely implementation of this program, it would be necessary for the OPP to urgently formulate a detailed institutional development plan, including strengthening the OPP s own capacity and arrange sources of financing to implement the institutional development plans and OPP s institutional capacity. OPP also needs to define clear criteria for accreditation of the procurement professionals in the country. The CPAR includes detailed recommendations for improving the transparency and effectiveness of the PPA. These relate to the language of bidding documents and bids in case of international open tendering; bids to be opened immediately after the deadline for bid submission; guidelines on evaluation systems to ensure the use of objective criteria; improvements in the bid protest resolution procedure; and use of the list of entrepreneurs only to expedite qualification process rather than pre-select bidders. The Bank believes strongly that the implementation of the above-mentioned recommendations (as detailed in the attached action plan) will greatly improve the transparency, economy and efficiency of the public procurement system of Slovakia. It recommends that, pending amendments to the PPA, the GOS implement these actions through a regulation or guidelines. In order to implement the proposed action plan included in the CPAR, it will be necessary that the GOS identify funds from its own budgetary resources, in addition to exploring the possibility of seeking technical assistance from international organizations, such as EU, OECD, EBRD, and bilateral donors.

8 FINDINGS AND RECOMMENDATIONS A SUMMARY OF FINDINGS STRENGTHS AND WEAKNESSES OF THE PRESENT PROCUREMENT SYSTEM 1. Legal and Regulatory Framework 1.1 The principal sources of law in Slovakia are its constitution, acts of the National Council of the Slovak Republic, and Government decrees and resolutions. The general legal framework in Slovakia is improving as a result of the Government s efforts to reform the system. The reform is driven by Slovakia s efforts in introducing marketoriented reforms, its anticipated membership of the European Union and is aimed at making the Slovak legal framework comprehensive and consistent with that of the EU. The country s current legal framework for public sector procurement consists of the Public Procurement Act No 263/1999 (PPA) passed by the Slovak Parliament on September 14, This Act is based on the European Union s directives on procurement. It came into effect on January 1, The 1999 Act replaced the PPAs 81/1994 and 120/1996, which were based on the UNCITRAL Model Law on Public Procurement. The PPA applies to all procurement financed or co-financed with state budgetary resources. 1.2 Slovakia was the first country in Central and Eastern Europe to introduce a public procurement act in Its procurement legislation has evolved during the last five years. Several substantial amendments to the 1994 Act are the result of the Government s continued efforts to improve Slovakia s procurement. The switch from the UNCITRAL model law, on which the 1994 and 1996 PPAs were based, to the EU procurement directives, which form the basis of the September 1999 Act, was necessitated mainly to fulfil the requirements for Slovakia s candidacy for the EU. 1.3 Bank Review of the 1994 PPA: The Bank conducted an assessment of the public and private sector procurement in Slovakia in The results of this review were included in the CPAR dated January 10, The main recommendations of the 1995 CPAR included: (i) removal of ambiguities through revision of the 1994 PPA; (ii) creation of an independent public procurement office to ensure effective performance of the public procurement system; preparation of explanatory guidelines, separate standard bidding documents for goods, civil works, and consultant services, and (iii) training of procuring entities to ensure consistency, better transparency and integrity in the procurement process. The Bank backed up these recommendations with the approval of a grant at the request of the Government of Slovakia (GOS) from the Bank s Institutional Development Fund (IDF) to implement these recommendations. 1.4 IDF Grant for Strengthening Public Procurement: The IDF grant objectives included strengthening of the public procurement office through the provision of office and training equipment; revision to the PPA of 1994 to improve clarity and transparency; preparation of standard bidding documents, training of procurement trainers; and initial training of approximately 500 public procurement officials both at central and local government levels. The grantfunded activities were successfully completed. The impact of the grant-funded activities on public procurement can be regarded as positive. Although the PPA of May 1996 did not include all Bank recommendations made in the 1995 CPAR, the revised law removed some ambiguities of the 1994 Act; public officials became better informed of the requirements of the PPA through training seminars; standard bidding documents became available to the procuring entities; and the Act provided for the Office of Public Procurement (OPP), which has now been established. 2. Procedures and Practices 2.1 Applicable Procurement Methods: The current PPA includes the following procurement methods: open tendering, restricted tendering, negotiated procurement with prior notification, and negotiated procurement without prior notification. According to the Act, under these methods different processes are established for contracts falling into the categories: Above the Threshold and Below the Threshold. The Act, however, lacks adequate guidance and criteria on the procurement methods to be applied. Furthermore, the financial thresholds, which govern the participation of firms, are too high, considering the current economic environment in Slovakia.

9 Open Tendering and Restricted Tendering: Open Tendering is to be used for procurement of goods, works and services. The PPA permits unlimited number of bidders and requires 40 days for bid preparation from the date of publication of invitation to bid in the PPB. Restricted Tendering permits contracting authorities to restrict the number of bidders to no less than five and not more than 20 bidders. 2.3 Negotiated Procedure with Prior Notification is used if the previous open or restricted tenders were unsuccessful or resulted in rejection of all bids and the contract conditions remain the same, precise performance parameters are difficult to define, in case of research and development, or if it is not possible to stipulate price requirements because of the nature of works and services and the risk involved. Finally, Negotiated Procedure without Prior Notification can be used in case of a single source of supply; copyrighted products; natural disasters; extension of existing contracts (up to 50% of the original contract value); failure of the open or restricted tender; or time pressure. 2.4 The 1999 PPA contains some improvements over the 1996 Act such as the independent OPP, accreditation of procurement professionals and expanded complaint procedure. However, it is the Bank's view that, although the procurement methods in the 1999 PPA comply with EU Directives, some of these methods lack transparency and may not result in efficient and competitive procurement (see paragraph 2.3 above). The strengths and weaknesses of the PPA are enumerated below Strengths unified law for national and sub-national levels of government; a clear description of the contracting authority; more detailed and clear procurement procedures applicable to the prescribed methods of procurement; establishment of an independent Office of Public Procurement with clear obligations and authority; introduction of the Public Procurement Bulletin (PPB); introduction of accreditation of procurement professionals; an expanded bid protest procedure and for the resolution of protests. 2.6 Weaknesses Financial Thresholds high financial thresholds which govern the participation of firms. Procurement Procedures the Act does not include a clear prequalification procedure; the provision relating to bid evaluation does not include factors of evaluation other than bid price; no provision that the alternative may be considered only when the base bid is determined to be the lowest evaluated responsive bid; no specific provision that bids must be opened immediately after the bid submission deadline; exclusion of bids offering significantly low prices (more than 10% from the arithmetical average of other price quotations); reasons for which the OPP can order cancellation of a bidding process are not specified in the PPA. contract conditions to be included in bidding documents not specified; Restricted Tendering there are no criteria for the use of restricted tendering. The contracting authority has the discretion. This may lead to undesirable practices; Negotiated Tendering with Prior Notification

10 3 the conditions of use of this method are more extensive than those stipulated in the corresponding EU Directive, thus facilitating excessive use of this untransparent procurement method. Furthermore, the procedure of negotiating in turn with selected bidders, which is allowed under the PPA but not under the EU Directives, makes the procedure exceptionally difficult to control, runs the risk that bidders will inflate their prices, in anticipation of their prices being negotiated downward, and leaves the method open to abuse. Negotiated Tendering without Prior Notification this procedure should be used only for the single source, copyrighted or proprietary materials and exceptional events, such as natural disasters. Advisory/Consultants Services Absence of separate provisions on procurement of consultants services Accreditation of Procurement Staff effective January 1, 2002 all contracting authorities shall be required to use the service of professionally qualified procurement staff certified by the OPP. However, no detailed program for this important provision has yet been drawn up by the OPP. The present level of expertise and capacity at the OPP would need to be strengthened through urgent technical assistance to ensure timely implementation of the program; Journal (Public Procurement Bulletin) The Journal should also be used for disseminating information about best practices in public procurement to contracting authorities as well as to inform suppliers, contractors and consultants about bidding requirements and opportunities; Bid Protests (also described as a strength above) The law contains unrealistic requirements to be followed by the OPP to resolve bid protests. 2.7 Key Recommendations: In order to improve the transparency of public procurement and to remove the ambiguities (discussed above), the following actions are recommended: Restricted Tendering. The criteria for the use of restricted tendering (such as limited number of providers of goods, works or services; procurement to respond to natural disasters etc.) should be established. Negotiated Procedure with Prior Notification.. In order to improve the transparency of the method, it is recommended that the conditions of its use should be curtailed and that, as in the EU Directives, in all cases where these conditions are not met, Open or Restricted Tendering should be used instead. Also, negotiation should be entered into only with the winning bidder, not with a series of bidders in turn. Procurement of Services. A separate provision specific to consultants services should be included in the Act. Bidding Documents. The PPA does not provide for standard bidding documents which will enable full implementation of the provisions of the PPA. It is recommended that the Government update the standard bidding documents which were prepared with the IDF grant to reflect the new PPA and make them available to contracting authorities. Language. For international tenders, especially those of high value, contracting authorities will no doubt want to attract participation by major foreign bidders, in order to increase competition and to gain access to the advanced

11 4 technologies which foreign bidders may offer. In these circumstances, it clearly makes sense to invite those bidders to bid in a major international language of business, as this will facilitate their participation and lower the costs which they incur in bidding. Given this, it is recommended that the PPA should encourage contracting authorities who conduct high-value, international tenders to issue bidding documents in an international language. However, given that any resultant contract will have to be administered and interpreted by Slovak institutions, the Government may still require that the contract be written in the official language. Bid Submission. The PPA should require the contracting authority to make arrangements for the safe keeping of bids received prior to the deadline for bid submission. Bid Opening. The 1996 Law specifically required contracting authorities to open bids immediately after the bid submission deadline. The current PPA lacks this provision, which is very critical to the integrity of the bidding process. Bid Evaluation. It is recommended that the OPP prepare detailed guidelines on evaluation systems, collect best evaluation practices on the subject and require the contracting authorities to apply those practices. Award of Contract. The contracting authority is required to accept the draft contract of the winning bidder no later than five days before the expiry of the bid security, unless a bid protest is received. It is recommended that standard bidding documents include contract conditions. Bid Protests and Complaints. The 24 hour deadline for the contracting authority to submit its position to the OPP is unrealistic and may result in decisions based on incomplete or factually unverified information in the contracting authority's department. The fairness and consistency of OPP decisions on protests would depend upon the level of technical expertise, fairness and efficiency of the OPP staff. It is, therefore, necessary to improve the procedures and to build the required capacity in the OPP to deal with bid protests. 3. Organization and Resources 3.1 Procurement in Slovakia continues to be decentralized. Procurement is the responsibility of each contracting authority. The contracting authority is defined as follows: an organization financed or co-financed by state budget; a municipality, an organization financed or co-financed by municipal budget; health insurance agency; a legal entity established by law as a public institution; entities dealing with energy, water, geology, civil aviation, inland navigation, highways, roads and local roads, road transport, rail transport, telecommunication and post, with a controlling influence of the state or municipality. The Office of Public Procurement provides the oversight of the procurement function. The OPP can establish offices in other locations of the country. The OPP is headed by a Chairman who is appointed and can be removed by the Government, (the Prime Minister). The OPP s main functions are to: draft public procurement and concession procurement regulations and laws; administer public and concession procurement; prepare and submit an annual report to the Government of Slovakia (GOS), and if requested, to the Slovak National Council; notify the conversions of financial thresholds for the above-the-threshold methods of public procurement into Slovak currency; collect and advertise information on the intended methods of public procurement for the respective year in the Public Procurement Bulletin (PPB); publish the PPB; maintain the list of entrepreneurs; prepare and administer professional training programs; issue licenses of professional qualifications and maintain the list of qualified professionals and provide methodological guidance to the participants in the process of public procurement; impose fines, supervise public procurement and resolve bid disputes. 3.2 Organization of Procurement Operations within Procuring Entities: The Act of September 1999 provides for the establishment of an evaluation commission of a minimum of three members to undertake procurement decisions. Although their membership varies depending on the value and complexity of the procurement, they have some permanent members who participate in all procurement activities, from planning to bid evaluation and contract administration. The permanent involvement of a small number of procuring entity staff in all procurements and all bid

12 5 evaluations, without a well-regulated rotation, may create conflicts of interest and increase the opportunity for corruption. 3.3 It is recommended, therefore, that the OPP should promote the introduction by procuring entities of the following approach for the management of above-the-threshold procurement in the public sector. This structure would comprise: A permanent Procurement Committee, comprising three members of the senior management team of the procuring entity, for example at Head of Department level. The functions of this Procurement Committee would be to: approve annual procurement expenditure programs and ensure adequate planning of all tenders; oversee the entire procurement procedure of each tender, to ensure its probity and compliance with the PPA; ensure that the most appropriate and competitive procurement method is used; critically appraise any proposal to use a procurement method other than Open Tendering appoint the members of the Evaluation Commission for each procurement and nominate its Chairman; approve the bidding documents before their issue to the bidders; approve the bid evaluation report and recommendation for award of contract, made by the Individual Evaluation Commissions. Individual Evaluation Commissions (EC): The main function of an EC would be to evaluate bids and submit their recommendations for award relating to a specific bidding process and the evaluation criteria given in the bidding documents; We believe that this separation of functions would deliver the following benefits: increase the control of procuring entities senior management over the planning and execution of annual procurement programs and individual tenders ; reduce the opportunity for undue interference in contract award decisions; reduce the opportunity for individual employees of procuring entities to exercise discretion in the award of contracts or to forge corrupt relationships with bidders; increase the accountability of procuring entity staff involved in procurement. 3.4 Procurement Profession in Slovakia: Since 1994, public officials in central and local governments have acquired substantial experience in procurement through on-the-job experience and training programs. One such program was financed by a World Bank IDF grant, under which 25 public officials were trained as trainers in procurement and 500 public officials throughout the country received initial procurement training. This effort has resulted in creating a procurement core staff. Although the procurement profession in Slovakia is not a recognized profession, in the last five years a number of experienced procurement professionals have been produced. Nevertheless, for large well-established enterprises, such as Slovak telecom, water, gas, and power entities, which have qualified and well-trained professionals, other public officials undertake procurement as one task among several others for which they are responsible. Training in procurement skills should be an ongoing activity in all agencies undertaking procurement. 3.5 One of the strong points of the September 1999 Act is the introduction of a formal system of accreditation of procurement professionals. It is expected that the implementation of this accreditation system, the main purpose of which is to increase professionalism and accountability, will lead to the establishment of a formal procurement profession in the country. The concern is that the accreditation process should not become a bureaucratic obstacle to professional development. However, to ensure the successful and timely implementation of this program it would be necessary for the OPP to urgently formulate a detailed institutional plan, including its own capacity and sources of financing. 3.6 Conduct and Ethics: There is currently no published Code of Ethics for procurement and other officers working in the public sector in Slovakia. The result is that procurement staff do not have any clear guidance on the

13 6 norms and values to which they are expected to adhere in the way they do their jobs. We recommend that the OPP draft and publish a clear and appropriate Code of Professional Ethics for public-sector procurement staff, including OPP, and that it enforce this Code in all contracting entities. This initiative may have to be coordinated with or implemented through the appropriate civil service rules and regulations. 4. Audit and Anti-Corruption Measures 4.1 Audit: The Supreme Audit Office of Slovakia (NKU) is responsible for external audit of public bodies. The Supreme Audit Office is responsible for assuring compliance with laws and regulations, including the PPA; auditing accounts and financial statements; and ensuring that particular projects and programs are carried out with due regard for value for money. The NKU is not authorized to impose fines and penalties. Employing departments are responsible for disciplinary actions. NKU refers criminal activities to the police and prosecutors. All NKU findings should be based on facts and backed up by evidence. NKU submits its reports to Parliament but has no authority to release them to the public. It is recommended that the role of NKU in conducting procurement audits of contracting authorities at regular intervals should be increased and its reports should be made public and auditors receive basic training in the application of the PPA. 4.2 Anti-Corruption Measures: At the Government of Slovakia s (GOS) request, a World Bank mission recently conducted surveys on perceptions and experiences of corruption in the country. The mission s findings are that nontransparent procurement processes still contribute significantly to the improper allocation of public funds. Disregard of procurement rules, for instance, has been identified as the most frequent violation of the law by the 1998 Supreme Audit Office Report. 4.3 The mission found the following main weaknesses of procurement practices in Slovakia: Unclear division of authority among the key players; Absence of effective controlling mechanisms; Weak public awareness about procedures; Unequal access to information; Lack of professionalism and competence of those who are responsible for organizing and supervising the processes; Lack of planning; Ambiguous laws; Lack of transparency in procurement procedures; Subjective evaluation systems; Lack of implementation guidelines, SBDs, contract formats. 4.4 To strengthen measures regarding transparency and anti-corruption, the Bank is fully supporting the government in its efforts to introduce a national anti-corruption program. 5. Public Sector Procurement Management Performance 5.1 Against the backdrop of the last CPAR findings and recommendations and expected improvements, which should have resulted from the enactment of the 1996 Procurement Law, the procurement environment in Slovakia has not changed sufficiently. In fact, according to the head of the Supreme Audit Office, the 1996 (Act) Procurement Law has been the most abused law. This conclusion was supported further by the Slovak Anti-Monopoly Department, which indicated a substantial increase in anti-competitive practices (e.g. price fixing, bid rigging, collusion among bidders, under-invoicing, etc.) and the Government's inability to successfully prosecute violators due to weaknesses in the legal system. Among the factors contributing to the deterioration include: lack of guidelines about the use of various nonpublic tendering procedures, qualification assessment criteria; lack of separate standard bidding documents and contract formats for goods, works, and consultants services; poor and unclear technical specifications; ambiguous and subjective evaluation systems; lack of expertise among the evaluation commissions; poorly written contracts; and, last but not least, low salaries of procurement staff.

14 7 5.2 Open Public Tender: The 1996 law provided for open public tender as the standard procedure for public procurement above the prescribed thresholds. The Law also required a minimum of three compliant bids for evaluation, failing which the entire bidding process is cancelled. There have been few cases of public tender which resulted in contract awards. In many cases, the bidding process was cancelled due to lack of three fully compliant bids. There were cases where the bidding opportunities were advertised in papers with restricted circulation. In some cases, the bid preparation time was as little as 10 days instead of the required 36 days. The procedures mostly used were Restricted Tender, Negotiated "Proceedings", and Direct Contracting. These results demonstrated that the procurement procedures included in the 1999 PPA would provide better procurement practices than the ones in use prior to the new law. 5.3 Evaluation Methodology: Bid evaluation was based on merit point system with price as the main factor. The Evaluation Commission appointed for each tender consisted of members who generally lacked training and experience in evaluation, specially technical expertise relevant to the product being bid. In addition, the standard criteria used for qualification assessment were ambiguous. All these factors led to either cancellation of the public tender process or the wrong bidder getting the contract award. 5.4 Anti-Competitive Practices: According to the Anti-Monopoly Department, there were a number of instances of price fixing, collusion, under-invoicing, bid rigging, and price dumping but the violators could not be prosecuted because of technical flaws. 5.5 Fraud and Corruption: Several instances of fraud and corruption were quoted by the Chairman, of the Supreme Audit Office. In one case, a contract was signed even before the procurement process was initiated. In another case, the contract price in a civil works contract was increased from the initial SKK 10 million to SKK 85 million because of technical lacunae in the contract. In yet another case, the contract award was given to the next lowest priced bidder without any justification. Contracts are reported to have been awarded on the basis of bidders' connections. 5.6 Contract Administration: Often poorly written contracts have resulted in poor performance, specially in civil works contracts. In numerous cases, contract extensions of the original contract price were granted without justification. In many other works contracts, local contractors were allowed to bid in foreign currencies for local currency expenditures and subsequently granted price adjustment due to fluctuation in exchange rates. 6. Performance on Bank-assisted Projects 6.1 The performance in Bank-financed projects was not reviewed because currently there is only one active project in Slovakia.

15 8 7. General Risk Assessment 7.1 In Central and Eastern Europe, Slovakia was the first country to pass a public procurement act, in 1994, and establish a procurement system based on the principles of transparency, competition, economy and efficiency and suitable for an emerging market economy system. The system did have certain deficiencies (no independent public procurement office) and had to deal with ambiguities (e.g., unclear evaluation methodologies) to which the World Bank drew the Government s attention through the CPAR of January These deficiencies and ambiguities enabled certain procuring entities to use procurement methods with little transparency, such as excessive sole sourcing by certain procuring entities, especially at the local government level. Nevertheless, the country did not only gain experience in competitive procurement procedures and practices but also learned from it. As a result, the procurement legislation in Slovakia was amended a number of times to reflect the realities of the Slovak economic system. 7.2 The 1999 Act includes an independent Public Procurement Office, with responsibility for effective implementation of the Act, an accreditation system for procurement professionals and clear procurement responsibilities of those using public budgetary resources. The Act still contains some provisions which are ambiguous, unnecessary or unsuitable to an open market system. For example, the criteria for the use of the restricted tendering procedure are unclear; also, the conditions for use of the negotiated procurement method with notification are excessively generous and the procedure of negotiation with several bidders is difficult to control and open to abuse. 7.3 It is hoped that the recent procurement history of Slovakia, the government s current efforts to eradicate corrupt practices and the implementation of the action plan in Attachment 1 will minimize the risks of misuse of the public procurement system in the country. In light of this, Slovakia, from a procurement point of view, can be classified as an average risk country Private Sector 8. Commercial Regulations 8.1 Private sector commercial entities have their own purchasing rules. Large firms have written purchasing rules and procurement committees to make procurement decisions. The private sector commercial activities are generally governed by the Commercial and Civil Codes, tax laws, labor code, foreign exchange rules, etc. Regulations related to customs, licensing, quality certifications and inspection are being aligned to international standards both in compliance with WTO requirements and also with a view to Slovakia s accession to EU. 8.2 The private sector view of the public procurement system is generally mixed, despite some undesirable practices being followed by procuring entities, such as use of poor-quality bidding documents and a system of bid evaluation based on merit points. The public procurement system is considered to be a valuable source of business and the transparency-oriented public advertising of bids and public bid opening is particularly appreciated.

16 9 9. Commercial Practices 9.1 There are a large number of private enterprises of all types and sizes. These enterprises use various sources of supplies (equipment and materials) both at home and abroad. Their purchasing practices, including contracting arrangements, vary according to the nature and size of their business. A small firm may not have an organization for conducting its purchases and the owner himself or herself may conduct procurement through telephone (and these days through Internet as well) while a large firm generally has a well-organized purchasing department staffed with competent purchasing staff. These departments draw heavily on the firm s technical and legal department for dealing with different aspects of procurement. In both cases, the purchasing practices are based on the selection of sources of supplies through competition. Selection is usually made as a result of comparison of prices, delivery, and reliability. Negotiation of price, contract terms and quality are also common practices. 9.2 There is evidence of under-invoicing especially among small companies. There are also reports of facilitation payments for expediting customs clearance. Goods are also frequently described incorrectly on the invoices. This is attributed to the introduction of the Single Administrative Document (SAD) where the coding system is often not relevant to reality. Tariff language is specific and often fails to describe goods properly (especially for customs valuation purposes). This creates discretion and results in different tariffication at different border crossings. Except in case of large contracts, involving manufacturing, pre-shipment inspection is rarely conducted. The general practice is to conduct inspection either at the time of customs clearance or upon receipt of goods. Barter and counter-trade have become things of the past. 9.3 INCOTERMs are understood well in Slovakia, and used in commercial contracts. CIF, CIP and EXW are the most commonly used INCOTERMS. 10. Strategic Approach B - RECOMMENDED ACTION PLAN 10.1 Slovakia has gained significant experience in public procurement, albeit that some procuring entities have manipulated the requirements of the procurement acts of 1994 and Most procuring entities (there are about 6000 of them all over Slovakia) have gained some experience in procurement procedures and practices. The number of public officials with varying degrees of knowledge of competitive procurement requirements has been growing. This is the result both of the on the-job experience and the training opportunities that were made available with external assistance, such as a World Bank IDF grant for strengthening public procurement in the country. It is recommended that Slovakia should build upon its experience in procurement procedures and practices by focusing on capacity building for procurement. This objective has been put in a sharp focus by the new procurement act. For example, the establishment of an effective Office of Public Procurement and the successful implementation of the system of accreditation of procurement professionals as stipulated in the new act will require considerable resources. These should be among the first priorities of the government in order to ensure effective implementation of the law.

17 10 Training of contracting authorities, development of standard bidding documents and guidelines for procuring entities, improving the private sector s awareness of the requirements of the new law are other priorities that should be high on the procurement agenda of the government. It is understood that, as part of Slovakia s accession program to the European Union, the government will have sufficient resources at its disposal to strengthen its public procurement system. 11. Measures to be Taken by the Government 11.1 The action proposed to be implemented by the Government to address the issues are included in Attachment 1 the Action Plan. It is essential to implement these actions in order to ensure efficient, economic and transparent procurement. It is recommended that, pending amendments to the Public Procurement Act, guidelines be issued to implement the recommendations in the Action Plan. 11.2: In addition to the Action Plan, it is important that the GOS pay special attention to introducing improvement in the following areas: Planning: There is lack of proper procurement planning, which is leading to inefficient and uneconomic procurement. The OPP, in consultation with the Ministry of Finance and other major contracting authorities, should establish rules for the preparation of procurement plans and their implementation prior to but definitely as soon as information about approval of annual budgetary allocations is available to them. The one-year budgetary cycle also makes it difficult to conduct economic and efficient procurement, as funds have to be spent before the end of the fiscal year i.e. December 31, every year while information about the budgetary allocation reaches procuring entities around April and May, which is already too late to conduct open tendering, especially for large contracts. It is, therefore, important that budget users are informed of their allocations immediately after approval of the annual budget by Parliament. In order to ensure efficient and economic procurement, the last tranche of the budgetary allocation should be released before September each year. Some provisions should also be made for utilizing budget allocations to implement large contracts under a roll-over plan to ensure efficient performance of contracts. Procurement Organization. There is also a lack of appropriate procurement organization at the level of contracting authorities. It is recommended that each contracting authority be required to establish a permanent procurement committee and separate evaluation commission only as needed. In this regard, OPP will have to create a basis for procuring entities to establish a permanent procurement committee to serve as a decision-making body and draft detailed rules about the composition, competence and obligations of such committees. It should also ensure that procuring entities include qualified technical experts in evaluation committees. Accountability. There is no formal code of ethics for government employees. The rules regarding ethics exist in different laws and regulations and are not effective. Therefore, there is an urgent need for the government to introduce a code of ethics for public servants. Concerning public procurement, the OPP should take the lead in this area. It is recommended that OPP draft a code of ethics for procuring entities employees dealing with procurement matters.

18 11 Training. Continuous training of the staff of procuring entities in procurement is crucial to effective implementation of the public procurement law. The OPP should prepare, especially because of the changes in the Act, and implement training programs for updating the knowledge of the current procurement professionals and provide vital training to new staff. This should be a priority objective. Procurement of Consultants Services. In the absence of clear provisions in the 1999 PPA specific to the procurement of consultants services, contracting authorities have been and will be using the same procedures for the procurement services as are applicable to goods and works. This gives rise to undesirable practices, such as decision on the selection of service providers on the basis of their price rather than the quality of their proposals, requirement of bid and performance securities, etc. As it did a number of times in the past, the Bank recommends strongly that the OPP include separate provisions relating to procurement of consultants services in future amendments to the PPA. The provision relating to performance is unclear and not of relevance to procurement of consultants services. Collection and Dissemination of Best Procurement Practices. Collection and dissemination of best procurement practices is extremely important for good public procurement. The OPP should collect examples of best practices and disseminate them through the PPB to all contracting authorities. The OPP should also assess from time to time the effectiveness of the application of best practices with a view to including them in staff training materials and the PPB. Dialogue with Private Sector. In order to keep suppliers, contractors and consultants informed of the improvements in the procurement system, such as the introduction of, amendments to the Act, the OPP should hold information workshops for private sector entities. 12. Measures to be Taken by the Bank 12.1 It is recommended that the Bank continue its procurement dialogue with the Government on the development of the existing system resulting mostly from the 1999 Public Procurement Act The Central European countries, such as Slovakia, which are anticipating EU membership in the near future, are using the EU procurement directives as the basis of their own procurement legislation. There being a common understanding among these countries that full compliance with the EU directives will help expedite their accession to the EU, these countries are introducing into their own laws procurement methods which are compatible with the EU Directives. However, it is the Bank's view that, although the procurement methods in the 1999 PPA comply with EU Directives, they lack transparency and may not result in efficient and competitive procurement The Bank should continue accepting the Open Tendering procedure of the Slovak procurement act as National Competitive Bidding (NCB) in Bank-financed projects for civil works contracts up to thresholds to be determined project by project, and subject to the following conditions: NCB draft documents will be satisfactory to the Bank prior to their use;