OECS COUNTRY PROCUREMENT ASSESSMENT REPORT. (Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines)

Transcription

1 OECS COUNTRY PROCUREMENT ASSESSMENT REPORT (Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines) VOLUME I. FINDINGS AND RECOMMENDATIONS VOLUME II. DATA AND ANALYSIS April 2003

2 CURRENCY EQUIVALENTS Currency Unit = East Caribbean Dollar (EC Dollar) US$1 = 2.70 EC Dollars ABBREVIATIONS AND ACRONYMS AO BOO BOOT BOT CDB CEO CSSO CSTB CTB DOA DTB EC$ ECDS FAA FR ICR LCB LIB MOCW MOCWT MOH MOW NBP NCB NS OECS PAC PAR PIU PMU PPS PS PSR PTB Accounting Officer Build, Own and Operate Build, Own, Operate and Transfer Build, Operate and Transfer Caribbean Development Bank Chief Executive Officer Civil Service Staff orders Central Supplies Tender Board, St. Vincent and the Grenadines. Central Tender Boards of Dominica, St. Lucia and/or Public Tenders Board of Grenada and/or Central Supplies Tender Board, St. Vincent and the Grenadines, Tender Board of St. Kitts Director of Audit Departmental Tender Board East Caribbean Dollars Eastern Caribbean Drug Service Finance Act, Dominica, Grenada and/or the Finance Administration Act, St. Lucia, Finance Act, St. Kitts and Nevis, and Financial and Audit Act, St. Vincent and the Grenadines. Financial Regulations Implementation Completion Reports Local Competitive Bidding Limited International Bidding Ministry of Communication and Works or the Ministry of Communication, Works and Public Utilities or the Ministry of Communication, Works and Transport Ministry of Communications, Works and Transport Ministry of Health Ministry of Water No Bribery Pledge National Competitive Bidding National Shopping Organization of Eastern Caribbean States Public Accounts Committee Performance Audit Reports Project Implementation Unit Project Management Units Pharmaceutical Procurement Services of the OECS Permanent Secretary to the Government Procurement and Stores Regulations Public Tenders Board, Grenada (designated term for the CTB)

3 QCBS RFP SBD TA UK UNCITRAL WTO Quality- and Cost-based Selection Method Request for Proposals Standard Bidding Documents Technical Assistance United Kingdom United Nations Committee on International Trade and Laws World Trade Organization

4 Preface Executive Summary OECS COUNTRY PROCUREMENT ASSESSMENT REPORT VOLUME I. FINDINGS AND RECOMMENDATIONS Summary of Findings: Strengths and Weaknesses of Present Procurement System 1. Legal and Regulatory Frameworks 1 A. Existing Legal and Regulatory Framework 1 B. Findings on the Existing Legal and Regulatory Framework 4 C. Recommendations on the Legal and Regulatory Framework 5 (i) Short Term Actions 5 (ii) Medium Term Actions 2. Procedures and Practices 8 A. Findings on Procurement Planning and Annual Updating of Procurement Plans 8 B. Findings on Eligibility and Process 8 C. Findings on Methods of Procurement 10 D. Findings on Monitoring and Contract Management 14 E. Recommendations on Procedures and Practices 15 (i) Short Term Actions 15 (ii) Medium Term Actions Organization and Resources 17 A. Organizations Tender Boards, Ministries/Departments, Parastatals and Local Governments 17 (i) Findings 17 (ii) Recommendations: Short Term Actions 17 (iii) Recommendations: Medium Term Actions 18 B. Resources 19 (i) Findings 19 (ii) Recommendations: Short Term Actions 20 (ii) Recommendations: Medium Term Actions Audit and Anti-Corruption Measures 22 A. Audit 22 (i) Findings 22 (ii) Recommendations: Short Term Action 25 (ii) Recommendations: Medium Term Action 25

5 B. Anti-Corruption Measures 26 (i) Findings 26 (ii) Recommendations Performance on Bank-assisted Projects General Risk Assessment Private Sector A. Commercial Regulations 32 B. Commercial Practices Recommended Action Plan 34 Annex 1: Recommended Action Plan 35 Annex 2: Technical Assistance 38 List of Tables

6 Date of the Report: OECS COUNTRY PROCUREMENT ASSESSMENT REPORT (Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines) PREFACE 1. This report was completed in June 2001, and revised in April Basis of the Report 2. As part of the preparation of the World Bank s three-year Country Assistance Strategy (CAS), it was agreed with the Governments of Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines (hereinafter called the OECS group ), that a Country Procurement Assessment Report (CPAR) would be prepared. In consultation with the Ministries of Finance of the OECS Countries (MOF), the CPAR Mission comprising of Mr. Vladimir T. Jadrijevic, Senior Procurement Specialist and Task Manager, and Mr. Narayanaswami Viswanathan, Procurement and Project Management Consultant, visited the OECS countries from October 18 to 28, 2000 to conduct the procurement review. This was followed by another visit by Mr. N. Viswanathan to the OECS group from November 20 to December 12, 2000 to complete the outstanding work in the field. 3. This report reflects the joint efforts of the OECS group and the Bank, is based on the work of Mr. Viswanathan, and has been prepared under the general guidance of Messrs. Armando Araujo (Regional Procurement Advisor) and Vladimir T. Jadrijevic (Task Manager) of LCOPR. The mission received valuable inputs during the preparation of this report from many senior government officials including Ambrose V. George, Minister of Finance and Economic Planning, Dominica, Hon. Anthony Boatswain, Minister of Finance, Grenada, Hon. Denzil Douglas, Prime Minister and Minister of Finance, St. Kitts and Nevis, and Messrs /Mesdames. Joseph Banis, Acting Financial Secretary, Dominica, Timothy Antoine, Acting Permanent Secretary, Ministry of Finance and Chairperson of the Central Tender Board, Wendell Lawrence, Financial Secretary, St. Kitts and Nevis, Zenith James, Director of Finance, Ministry of Finance and Chairperson of the Central Tender Board, St. Lucia, Mr. Maurice Edwards, Director General, Ministry of Finance and Planning and Chairperson of the Central Tender Board 1 and Laura Browne, Director of Planning, Ministry of Finance and Planning of St. Vincent and the Grenadines and officials of the ministries, departments and agencies involved in public sector procurement of goods and services. This report also includes inputs from the OECS Country Team, and Task Team Leaders associated with ongoing projects in the OECS countries. The report follows the format outlined in the World Bank s interim instructions dated June 1, The list of documents used in 1 For ease of reading, the term Central Tender Board or abbreviation CTB is used through out this document to refer to the Public Tenders Board (PTB) of Grenada, Tender Board of St. Kitts and Nevis and Central Supplies Tenders Board (CSTB) of St. Vincent and the Grenadines.

7 preparation of this report appears in Annex 1 of Volume II of the CPAR and the list of persons met in Annex 2 of Volume II of CPAR. 4. A stand-alone report for Dominica in support of a World Bank s proposed structural adjustment operation to that country is currently being prepared. References to Dominica will be updated in the final draft of the OECS CPAR on the basis of the findings of the standalone Dominica exercise and discussions with that Government, scheduled to be completed shortly. Acknowledgements 5. The mission wishes to acknowledge the extensive cooperation, assistance and valuable advice received from various government, parastatals, and private sector officials, contractor representatives and consulting engineers as well as donors. Particular thanks are due to the Ministries of Finance, the Ministries of Planning, the Ministries of Agriculture, the Ministries of Communication and Works, the Ministries of Education, the Ministries of Health, the Ministries of Legal Affairs and/or Attorney General, the Ministries of Local Government, the Departments of Transport, Office of the Prime Minister, Customs Departments, the Accountant Generals, the Directors of Audit, etc., the Chamber of Industry and Commerce, the Association of Consulting Engineers (ACE), the Construction Contractor s Association, and the European Union.

8 OECS EXECUTIVE SUMMARY Strategy and Objectives of the OECS CPAR 1. The World Bank s 2001 Country Assistance Strategy (CAS) for the OECS group 1 included a focus on institutional development in the public expenditure management area by providing for the preparation of a Country Assessment Procurement Report (CPAR), a Country Financial Accountability Assessment (CFAA), and an Institutional and Organizational Capacity Review (IOCR). In October 2000, the Bank and the OECS member countries agreed to the prepare a Country Procurement Assessment Report (CPAR) which would review public sector procurement systems in the sub-region and include an action plan for reform formulated in terms of regional approaches. Agreed procurement reform actions would be part of an integrated regional agenda for comprehensive public sector reform resulting from the Bank analytical work in the various areas and the ensuing discussions with the countries. 2. A separate CPAR is currently being prepared for Dominica, as background work for the type of World Bank s financial support and public expenditure management reform currently envisaged for that country. However, the two reports are fully consistent in their finding and recommendations. While a number of short-term recommendations can be implemented independently in each country, both CPARs focus primarily on the benefits of regional harmonization of procurement policy and the advantages and challenges of joint public procurement at the regional level for selected goods. Key Findings and Policy Recommendations The regulatory framework is outdated and requires substantial revision. Significant gaps in the framework contribute to distorting practices and the widespread perception that the system lacks transparency. A sound, harmonized regime for public sector procurement would unify and strengthen the OECS countries position in external trade fora and enhance regional trade in good and services, and would be consistent with other regional initiatives. 3. None of the OECS member countries has adopted laws which set forth clear and comprehensive frameworks for public sector procurement. The Ministry of Finance (MOF) of each country 2 is empowered by the Finance and Audit Act (FAA) 3 to regulate 1 In this report, the term OECS group refers to Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines. Antigua and Barbuda, also part of the OECS group is not included in this report since it is not a borrowing member of the World Bank. 2 Designated as Ministry of Finance and Economic Planning in the Commonwealth of Dominica. Designated as Ministry of Finance in Grenada, St. Kitts and Nevis and St. Lucia. Designated as the Ministry of Finance and Planning in St. Vincent and the Grenadines 3 Commonwealth of Dominica: (i) Finance and Audit Act 1965 (act No. 8 of 1965) date of commencement 15 September 1966; Grenada: Finance and Audit Act 1964: and Finance and Audit Amendment Act 1998 (Act No. 25 of 1998); St. Kitts and Nevis: Finance Act 1990 (Act no. 9 of 1990); Saint Lucia: Finance Administration Act 1997 (Act No. 3 of 1997); and St. Vincent and the Grenadines: Financial and Audit Act 1964.

9 procurement. MOF issues Financial Regulations (FR) and Procurement and Stores Regulations (PSR) 4. As executive acts, these rules can be easily changed by the Minister of Finance and do not reflect established government procurement principles and practices. Existing rules promote selective bidding, excessive discretion in decision making, and do not address issues and aspects which are key to efficiency, fairness, transparency and accountability, such as, for example: public bid opening; qualifications on suppliers and contractors; award to the lowest evaluated bidder; bid protests; debarment of bidders; disclosure of procurement rules; and and maintenance of procurement records. In addition, conditions for use of various procurement methods are not defined and there are no separate rules for procurement of consulting services. 4. In general, private sector, civil society, and many public officials perceive public sector procurement practices as non-transparent. The legal framework does not contain specific provisions, either in procurement rules or other legal texts, which may faciliate the identification, prevention and investigation of corrupt or fraudulent procurement practices. No reference to corrupt practices is included in bidding documents. In addition, there is little protection of whistleblowers, and no formal mechanism or channel to report instances of corruption. A sound regulatory framework would help reduce many opportunities for corrupt practices currently facilitated by gaps and inconsistencies in the system and engender confidence in the business community and civil society that procurement practices are fair and transparent. Additional measures designed to prevent and combat corruption should be incorporated in the overall regulatory framework. These may include, for example, specific anticorruption legislation which, inter alia, establishes an anti-corruption body, freedom of information and whistleblower protection legislation, a corruption reporting hot line, and training for appropriate public officials in forensic auditing and other relevant techniques to uncover and investigate corruption cases. 4 Commonwealth of Dominica: (i) Financial Regulations 1976 made under Section 16(1) of the Finance and Audit Act 1965; and (ii) Financial (Stores) Regulations effective 1 November Grenada: (i) The Financial Rules, 1998 [First Schedule] and (ii) The Stores Rules 1998 [Second Schedule] of the Finance and Audit Amendment Act 1998 (Act No. 25 of 1998). St. Kitts and Nevis (i) Financial Instructions 1983 (issued under Section 53 of the Constitution); and (ii) Stores Rules of St. Christopher and Nevis (effective 19 September 1983). Saint Lucia: (i) Financial Regulations (Statutory Instruments, 1997 No. 36); and (ii) Procurement and Stores Regulations (Statutory Instruments, 1997 No. 37). St. Vincent and the Grenadines: (i) Financial and Stores Rules of the Windward Islands 1952; (ii) Manual of Tender Procedures (issued on November 21, 1967 as Statutory Rules No ).

10 5. The regulatory framework for public sector procurement should be harmonized at the regional level and cover all relevant principles and procedures as well as institutional and organizational aspects. The framework should be consistent with ongoing regional efforts to create a common procurement regime, particularly in the context of CARICOM, the Free Trade Area of the Americas (FTAA) process, and the establishment of the Caribbean Single Market and Economy (CSME). In addition, as signatories to the World Trade Organization (WTO) Agreement, OECS countries have committed themselves to enter into negotiations leading to the adoption of a multilateral procurement regime. A harmonized procurement framework would increase procurement efficiency and economies of scale, and substantially enhance the OECS countries negotiating position in all regional as well as plurilateral external fora, such as the WTO Government Procurement Agreement (GPA). 6. The Inter-American Development Bank (IADB) recently approved a technical assistance project to review procurement systems in CARICOM countries (including the OECS countries reviewed in this CPAR), ensure greater availability of government procurement statistics for national and regional policy makers, and provide recommendations on the formulation and implementation of a regional government procurement framework that would facilitate the establishment of the CSME and help strengthen CARICOM s external economic relations. Further synergies between the Bank s analytical work in the fiduciary area and the IADB s project are being explored to maximize results and avoid overlaps. Additional previous reviews of procurement harmonization options include model legislation for financial administration prepared in 1995 with the assistance of the Canadian Government, which has not been adopted. The harmonized framework proposed under that exercise included a set of individual domestic laws rather than uniform legislation for the region. Alternative harmonization options, which should be further assessed, include the adoption of regional directives or a regional agreement including all relevant principles and basic features of acceptable procedures and requiring member countries to adopt consistent national legislation. There are no effective institutional arrangements for policy oversight. In addition to national authorities, appropriate arrangements at the regional level are desirable to promote harmonization, coordinate capacity building efforts, and carry out a policy dialogue on procurement with external partners. 7. The Director of Audit (DOA) is empowered by the Constitution and the FAA Act/Audit Act to oversee government accounts and report annually or more often, if necessary, to the Parliament. However, the DOA does not monitor implementation of procurement rules or has any policy generation or coordination function. There is no other body with such functions or authority which is critical to promote and oversee the modernization and harmonization of procurement rules. 8. At the regional level, ideally within the OECS Secretariat, these responsibilities should include maintaining an ongoing policy dialogue with the countries and external partners, including the donor community, providing technical assistance to the countries in reforming and maintaining their national legislations up to date, monitoring and evaluating the impact of the reforms and the continued efficiency of the national and regional systems,

11 coordinating capacity building, publishing a procurement bulleting or otherwise disseminating information on procurement, and developing harmonized tools (e.g. bidding documents, e-procurement, manuals, etc.) to facilitate the efficient implementation of the regional procurement system. 9. At the national level, an appropriate authority should be designated as official interlocutor of the regional policy/oversight body. The national authority should be responsible for overseeing implementation of the regional approach within the domestic system. An viable option could be converting the Central Tender Board (CTB), where it exists, into a policy making and regulatory body, provided that its operational involvement in the procurement process ceases and has staff with adequate capacity and authority to promote the changes at the highest levels of government. The current procurement organization and resources are not efficient. Procurement decision-making authority should be decentralized to procuring entities, except for selected items for which better economies of scales could be achieved at the national or regional level, and a comprehensive capacity-building program should be implemented to create a competent corps of procurement professionals. 10. The CTB, Minister of Finance, or Cabinet, depending on applicable thresholds which are, generally, very low, approve most contracts. This approach causes delays and reduces the procuring entities ownership of the procurement process and accountability. The procuring entities, in turn, have little opportunity or incentives to build procurement capacity. While a CTB is legally required for all OECS countries, St. Kitts and Nevis and Dominica never established one. In these countries the contracts are approved by the Minister of Finance and the Minister of Works if involving construction. A Departmental Tender Board is required only in Grenada, for contract below the specified threshold, and may be appointed ad hoc in St. Lucia. 11. Procurement decision-making authority should be delegated to line ministries and other procuring entities in the public sector by substantially raising current contracting powers thresholds and revising them upwardly every year, as appropriate. It is also recommended that the CTB (or Ministers of Finance and Works in the cases of Dominica and St. Kitts) and Cabinet have no role in approving contracts. As a minimum, their current role should be gradually phased out, as the procuring entities capacity increases and internal controls are strengthened, and limited by law to a strictly formal review (i.e. only to ensure the legality of the process), subject to stringent time limits (i.e. approval would be implicit when the time has elapsed), and on the basis of a streamlined bid evaluation report designed for this purpose. 12. The option of procuring in bulk certain goods needed on a recurrent basis by all public sector organizations (e.g. paper, spare parts) should be further considered. Procuring units could be established for this purpose in the Ministries of Finance and carry out bulk procurement for all government organizations by consolidating annual procurement plans prepared by each entity. The heads of these centralized units should be experienced procurement professionals authorized to sign all contracts without requiring further

12 approvals. In addition, better economies of scale and bargaining positions could be achieved by pulling requirements for selected items (e.g. construction materials, diesel fuel for electricity generation) and procuring them on a regional basis under the umbrella of the OECS Secretariat. Such regional procurement approach should build on the experience of the joint procurement of pharmaceuticals carried out by the OECS Secretariat s Pharmaceutical Procurement Services (PPS) Unit following further review and improvement of the procurement practices presently utilized by the PPS. 13. Procurement is not considered a professional expertise with specific entry requirements and a career path in the civil service system based on qualifications and performance. While levels of capacity vary form country to country, overall, in the region there are few capable procurement officers and very little training opportunities are available. An in-depth skills inventory and training needs assessment should be prepared and a comprehensive regional capacity development strategy developed. The assessment and strategy should include private and public training institutions and universities. The development of a post graduate program on government contracts or the inclusion of relevant courses in the main universities curricula should be considered. A procurement career should be designed to be consistent with wider public service reforms. Practices of application are poor and procedures for planning, carrying out and monitoring procurement inefficient and often non-transparent. Controls should be strengthened, effective planning, monitoring and contract administration tools adopted, and a strategy to incorporate new efficiencies such as e-procurement developed. 14. With very few exceptions, procuring entities do not prepare procurement plans, typically invite bids from a short-list of bidders, do not specify evaluation or qualification criteria in the bidding documents, have no established systems and limited capacity for contract administration, and often pay suppliers and contractors with substantial delays. In addition, there is no pre-qualification for major contracts, and no post qualification is conducted with resulting serious contract implementation problems, there are no standard bidding documents, invitation for bids are usually not advertised, and, in many cases, contracts are inappropriately split among different bidders. Even where rules designed to enhance transparency exist (e.g. publication of contract awards), they are generally not applied. Finally, contracts are often not fully funded through their completion due to inadequate budgeting. 15. There are significant arrears on submission of audit reports to the Parliament in several of the countries. The Directors of Audits have severely limited financial resources, staff and training, and their approach is excessively bureaucratic. Consequently, the control function is ineffective and is generally held in low regard. In addition, there is no code of ethics defining responsibilities of public employees involved in the procurement function, roles and responsibilities are not clearly defined in writing, there are few technical and administrative controls and procurement records are generally poorly maintained. 16. Pending the harmonized revision of the legal framework, the following remedial actions should be implemented by each country OECS countries in the short-term:

13 prepare appropriate procurement plans; adopt realistic annual budgets; use open bidding with clear post-qualification requirements; advertise contracts on a regional basis; adopt standard bidding documents for the main types of procurement which include appropriate evaluation criteria; publish contract awards on a regional basis; issue procedures and instructions to implementing and control agencies; require that suppliers and contractors be paid more promptly; and ensure that evaluation committees comprise only technically qualified staff. 17. Specific Guidelines on how to implement and monitor these actions should be issued by the Ministries of Finance. Appropriate instruments with force of law should also be considered to support enforcement in the interim period until a comprehensive legal reform is designed and implemented. The revised regulatory framework, which requires a concerted medium-term effort on a regional basis, should mandate regional competitive bidding for contracts above an appropriate threshold and address other relevant procedures and tools, as appropriate. Among other initiatives which could significantly enhance efficiency and transparency is the development of a regional e-procurement strategy including actions easily achievable in the short-term such as electronic advertisement of procurement information (e.g. bid notices, documents, laws and regulations, guidelines for bidders, and awards) and actions requiring medium-term efforts to establish appropriate regulatory, control, infrastructure and institutional frameworks, and capacity to implement a fully electronic public procurement system. Both sets of actions should be spearheaded and coordinated by the proposed regional policy unit (see para. 8) in coordination with their national counterparts. Consultation and Next Steps 18. Following data collection and analysis and discussions in each member countries, preliminary findings and recommendations for reform were presented to the countries by the Bank on May 25, 2001 during the Meeting on External Assistance to the OECS in Saint Lucia. A regional workshop is currently planned for May 29 and 30, 2003 to gain agreement from a broad group of stakeholders at the technical and policy level on a Regional Fiduciary (i.e. procurement and financial management) Action Plan for the OECS. The workshop will present the key policy recommendations of the CPAR and CFAA and further explore the need for a regional oversight framework for public expenditure and public sector issues, taking into account lessons learned from past experience about the challenges of regional cooperation. 19. The workshop s main objective is to produce an action plan agreed upon by the participants. The action plan would be incorporated in the final version of the CPAR and forwarded to the OECS and national authorities for endorsement. Individual sessions with each country team will also be held to confirm country-specific recommendations included in the two reports.

14 SUMMARY OF FINDINGS: STRENGTHS AND WEAKNESSES OF THE PRESENT PROCUREMENT SYSTEM 1. LEGAL AND REGULATORY FRAMEWORKS A. Existing Legal and Regulatory Frameworks 1.1 The national constitutions of the OECS group were reviewed for differences and similarities in legal and regulatory frameworks. Grenada, St. Lucia and St. Vincent and the Grenadines (hereinafter referred to as the OECS Group for purposes of this report) have representative and unitary governments with several local administrative units. St. Kitts and Nevis, on the other hand, has a federal form of government, and the island of Nevis has its own administration. The OECS group recognizes Queen Elizabeth II as the Head of State, represented by a Governor-General. The exception is Dominica, which is an independent republic within the British Commonwealth. In each country, the Constitution provides for: (i) withdrawals from a Consolidated Fund or other public funds; (ii) authorization of expenditure from Consolidated Funds by appropriation law; (iii) authorization of expenditure in advance of the appropriation law; and (iv) requirements for proper accounting and audit of funds. The Constitution also permits government to collect and spend money in specific ways under the Finance Act, which is ratified annually. Regulation of public expenditures for procuring agencies is done through parliamentary appropriations The Financial Regulations/Instructions and the Stores Rules and Regulations made under the Finance Administration Act govern the public sector procurement of goods, works and services. These regulations provide that government departments may enter into contracts, subject to Stores Rules and Regulations. Through regulatory and subsequent administrative arrangements, the processing of all procurement contracts for all major works became the responsibility of the Ministry of Communication and Works (MOCW). 1.3 The Director of Audit (DOA) is empowered by the Constitution and the Audit Act to carry out an independent audit of the accounts and operations of government departments and public entities. DOA s responsibilities include oversight of government accounts and those of public entities, and annually reporting irregularities, such as improper vouchers, to the Parliament. It also is empowered to prepare special reports for 1 The basic legislation in each country is: Commonwealth of Dominica: (i) The Constitution of the Commonwealth of Dominica 1978 (amended by Act 9 of 1983; Act No. 21 of 1984; Act No. 22 of 1984); (ii) Finance and Audit Act 1965 (act No. 8 of 1965) date of commencement 15 September 1966; (iii) Financial Regulations 1976 made under Section 16(1) of the Finance and Audit Act 1965; (iv) Financial (Stores) Regulations effective 1 November Grenada: (i) Grenada Constitution Order 1973; (ii) Finance and Audit Act 1964: (iii) Finance and Audit Amendment Act 1998 (Act No. 25 of 1998) contains (a) The Financial Rules, 1998 [First Schedule] and (b) The Stores Rules 1998 [Second Schedule]. St. Kitts and Nevis (i) Constitution of 1983; (ii) Audit Act 1990 (Act 8 of 1990); (ii) Finance Act 1990 (Act no. 9 of 1990); (iii) Financial Instructions 1983 (issued under Section 53 of the Constitution); (iv) Stores Rules of St. Christopher and Nevis (effective 19 September 1983.Saint Lucia: (i) The Saint Lucia Constitution Order 1978: (ii) Finance Administration Act 1997 (Act No. 3 of 1997); (iii) Audit Act 1988 (Act No. 26 of 1988); (iii) Financial Regulations (Statutory Instruments, 1997 No. 36); (iv) Procurement and Stores Regulations (Statutory Instruments, 1997 No. 37). St. Vincent and the Grenadines: (i) The Constitution of St. Vincent and the Grenadines; (ii) Financial and Stores Rules of the Windward Islands 1952; (iii) Financial and Audit Act 1964; (iv) Manual of Tender Procedures (issued on November 21, 1967 as Statutory Rules No ).

15 2 Parliament. DOA s audit of accounts determines whether, in its opinion, all funds expended and charged to appropriation accounts were applied according to the provision made by Parliament, and that payments of public money conform to the authority that governs it, and was incurred with appropriate regard for avoiding waste and extravagance. 1.4 The Minister of Finance (MOF) prepares Financial Regulations as well as Procurement and Stores Regulations. The MOF is operationally involved in procurement, by virtue of having the authority to issue directions for the procurement of goods and services by tender or direct purchase, and for the sale of stores by tender or direct sale. The Financial Regulations and/or the Stores Regulations or Rules require the establishment of a Central Tender Board (CTB) 2 in the OECS group, which functions as an oversight body. However, the CTB operates only in Grenada, St. Lucia, and St. Vincent and the Grenadines, with the Ministry of Finance taking the lead role. In Dominica and St. Kitts, MOF and MOCW exercise oversight responsibility for procurement of goods and works, respectively. For Nevis, MOF alone assumes the oversight responsibility. 1.5 Procurement entities do their own planning, prepare bid documents, issue invitations for bids, evaluate bids and make recommendation for contract award. Most procurement of works and goods, not involving donor funds, is done through selective tendering. This is usually by invitation to three firms from: (i) the approved register of contractors for works classified into large, medium and small lots; and (ii) past experience or knowledge of the goods procuring entity. For major works, using prescribed pre-qualification criteria, the MOCW reviews the list of large contractors and normally selects three considered competent enough to meet the requirements. On the other hand, decision-making is not decentralized. This is because: (i) there is a Central Tender Board (CTB) responsible for processing procurement of goods, works and services for the Government Ministries and Departments in Grenada, St. Lucia, and St. Vincent and the Grenadines; and (ii) though there is no functioning CTB in St. Kitts and Nevis, decision making is centralized in MOF and MOCW for goods and works, respectively. In the case of Dominica: (i) all contracts for works require the approval of PS of the MOCW and their Minister, with separate clearance from the MOF about availability of funds for each contract; and (ii) for goods, the approval of the PS of MOF is required. In the cases of St. Kitts and the island of Nevis, the approval of their respective Ministries of Finance is required for all contracts of significant value. 1.6 For St. Lucia, and St. Vincent and the Grenadines, the decision of the CTB is final and thus not formally subject to consideration and approval by the Cabinet. In Grenada, all contracts for goods, works, and services must be approved by the Cabinet. In Dominica and St. Kitts and Nevis, the Minister decides whether the approval of the Cabinet is needed before contract award; however, in most cases the Cabinet s approval is obtained. Table 1 delineates procurement contract decision-making arrangements in 2 For ease of reading the terms Central Tender Board or abbreviation CTB are used through out this document to refer to the Public Tenders Board, the Tender Board and the Central Supplies Tenders Board of Grenada, St. Kitts and Nevis and St. Vincent and the Grenadines respectively.

16 3 the OECS group: Table 1. Procurement Decision Making in the OECS Group OECS Country Dominica. 3 Grenada 4 St. Kitts and Nevis 5 St. Lucia 6 St. Vincent and the Grenadines 7 Existence of a CTB Yes. CTB in Regulations but in reality does not exist. Yes. Called the Public Tenders Board (PTB). Yes. Called Tenders Board under the Financial Instructions. Not in existence. Yes, called CTB Yes. Called Central Supply Tenders Board (CSTB) DTB Approval Required Not applicable. There is no Departmental Tender Board (DTB). This is a statutory requirement. Works contracts exceeding EC$10,000 but not exceeding EC$100,000 require the approval of the DTB. Not Applicable. There is no Departmental Tender Board (DTB), as this is not a statutory requirement Goods and works contracts valued at EC$20,000 or more, but not exceeding EC$100,000, require the approval of the Departmental Tender Board. Its decision is final. Goods and works contracts valued at EC$20,000 or more, but not exceeding EC$250,000, must be ratified by CSTB CTB Approval Required The stores regulations require that contracts for goods exceeding the value of EC$5,000 and for common-user supplies involving more than one ministry the matter must be considered by CTB. Not being done in practice. Contracts for goods and works exceeding EC$10,000 and EC$100,000, respectively, require the approval of the PTB. The Financial Instructions and the Stores rules require that contracts for works exceeding EC$3,000 and goods exceeding EC$300 (except for stationery) must be considered by the Tenders Board. (This is the CTB). Not being done in practice. For goods and works contracts exceeding EC$100,000 Goods and works contracts valued at EC$250,000 or more Remarks Contracts for goods are entered into after obtaining the approval of MOF. All works exceeding EC$ 10,000 processed by MOCW; approvals of PS/MOCW and Minister for Communication and Works required. The Minister refers to Cabinet generally for cases exceeding EC$50,000. If the contract value exceeds EC$100,000, the approval of the Cabinet is required. Works contracts exceeding EC$3,000 require approval of the PS and the Minister of MOCW. The approval of Cabinet is obtained if the value exceeds EC$50,000. With regard to contracts for goods exceeding the value of EC$300,000 MOF approval is required. Stationery items are procured by the Office of the Prime Minister. CTB decision is final. CSTB decision is final. 3 Regulations 280 to 286 of the Financial (Stores) Regulations, 1980 of Dominica 4 Section 7 of the Stores Rules, 1998 of Grenada 5 Section 24 of the Financial Instructions of St. Kitts and Nevis dated Regulations 11, 12 and 16 of the Procurement and Stores Regulations, 1997 of St. Lucia 7 Rule 7 of the Manual of Tender Procedures (issued on November 21, 1967 as Statutory Rules No ).

17 4 1.7 In all countries reviewed, procurement for common user office supplies and materials is centralized in the MOF or the office of the Prime Minister. 1.8 Guidance for the current public procurement system is scattered among various outdated procurement regulations and procedures. Responsibility for review and monitoring is similarly dispersed. There are many players in the procurement system and interventions in selecting the short list of three contractors/suppliers. As a result, little action is taken to ensure the procurement process compliance with established regulations and procedures. B. Findings on the Existing Legal and Regulatory Framework 1.9 The existing procurement regimes in the OECS group--the Financial Regulations/Instructions, Stores Regulations/Rules and/or the Manual of Tender Procedures--made under the Finance Administration Act essentially are internal rules for financial and economic control of government administration. As such, they lack the status needed for an effective procurement law. As administrative documents, they can be amended by the MOF with no regard for the rights of suppliers-contractors. Open advertisement, competitive bidding and contract award criteria, for example, depend on the approach taken by the Government in power at any given time The Regulations are not enacted by parliament, and so lack adequate legal standing either to command the respect of public administration officials or inspire the confidence of the private sector. Even these rules are not complied with fully during the procurement process, e.g., advertisement, competitive tendering, and establishment and use of a Central Tender Board in the cases of Dominica, St. Kitts and Nevis The Regulations /Rules do not really regulate the actual procurement process from the viewpoint of economy, efficiency, competition, and transparency. The content concerned with procurement process, including methods and contract award, are not complete and frequently ambiguous. This leads to arbitrary decisions that result in inefficiency and lack of transparency. Further, these Regulations/Rules do not include the details of a public procurement law. As an example, the UNCITRAL Model Law on Procurement of Goods, Construction and Services sets forth simple rules which are key to benchmark procurement principles such as transparency, efficiency, and accountability. The Regulations/Rules promote the use of shopping or selective tendering involving solicitation of bids from at least three suppliers and contractors from a pre-approved list. Furthermore, the choice of procurement process and evaluation criteria, including the qualification and experience required of the bidder, are highly dependent on the discretion of the head of the procuring entity, namely, MOCW, MOF, or CTB Advertising of bidding opportunities is rarely done by the procuring entity for contracts financed by the local budget--though this is often required by the procurement

18 5 rules. Advertisement of the bidding opportunity is done only where it is required by an external funding agency Under the existing procurement regime, there is no independent permanent body to which contractors-suppliers can file complaints. A supplier-contractor maltreated by a public entity must file the complaint with the entity accused of wrongdoing. Also, complaining contractors-suppliers have no guarantees or legal assurance of transparency or equality when they seek remedies. The system of control is entirely internal; for example, many public entities have internal audit sections but lack a formal protocol for dealing with contractor complaints The present system does not cater: (i) either to complaints relating to crude dealings of corruption and/ or (ii) to sophisticated practices by procurement entities misdirecting procurement contract awards to favor clients. Without credible complaint paths, especially when technical merit is challenged--with clear implications for economy, efficiency, competition, and transparency--suppliers and contractors will be discouraged from lodging reasonable complaints. Thus, violation of procurement rules and regulations goes unchecked, which further erodes public confidence in the system Under the existing Procurement regime, bidders can take their complaints to courts of law under normal civil procedures. From a purely practical standpoint, this is not a procedure bidders would pursue, given the cost and time involved, as well as the uncertainty about whether they will receive fair treatment. C. Recommendations on Legal and Regulatory Framework Short-term Actions 1.16 As the proposed procurement actions will encompass the operations of the OECS group as a whole, attention should be given to developing a dialogue between the MOF of all members of the OECS group in the short-term to harmonize procedures in the medium-term on a regional basis MOF should conduct workshops to discuss the main legal and regulatory procurement issues with key stakeholders, and promote dialogue and discussions among those most knowledgeable about procurement issues in OECS, including representatives from the government, business community, and civil society. The Bank could provide technical assistance for these workshops. Medium-term Actions 1.18 The United Nations Commission on International Trade Law (UNCITRAL) model law on procurement of goods, construction and services (hereinafter called the Model Law ) can been used as a reference document and basis for the development of a transparent and efficient Government Procurement regulatory framework. Various provisions similar to those of the Model Law would help address many of the specific

19 6 problems identified, provided that modifications are made which are appropriate to the domestic legal and administrative systems and traditions. Clearly, not all the provisions included in the Model Law would necessarily be applicable or desirable in the OECS context. Among other aspects which would require substantial tailoring, is the inclusion of separate chapters for procurement of consulting services, bid protest, and debarment, and articles on e-procurement and procurement through community participation. In addition, some of the provisions of the Model Law do not address adequately aspects which are important for transparency (e.g. maximum amount of domestic preference, conditions under which foreign bidders can be excluded). Finally, the Model Law also includes provisions which are not recommended by the Bank or would require substantial modifications (e.g. provisions on alternative procurement methods). National procurement legislations should be fully consistent in order to establish a harmonized framework for the OECS community. A harmonized regional procurement regime would substantially strengthen the OECS negotiating position in regional and external fora, such CARICOM, the Free Trade Area of the Americas and the WTO. Different options such as OECS directives or a regional agreement on public sector procurement should be further assessed as a starting point for the reform implementation phase Appropriate institutional arrangements should be established at the regional and national levels to promote harmonization and coordinate all capacity building activities ensuring a consistent approach and maximizing results. The national procurement oversight authority could be an independent arm of the executive outside the framework of the Ministries/Departments, reporting to the Parliament and informing the Cabinet annually, or on an ad-hoc basis when the need arises. In the alternative, the current CTBs, where they exist could be converted into policy making and regulatory bodies, provided that they are no longer operationally involved in procurement and have appropriate capacity and authority The procurement oversight authorities would also be responsible for providing procurement policy coordination and guidance, etc., to the Department/Ministerial tender boards as well as the parastatal tender boards. Their functions would be to develop implementing regulations, consistent with the regional and national frameworks and monitor the overall implementation of the revised regulatory framework. The oversight authorities would also collect statistics on public procurement, prepare standard bidding documents, maintain a dialogue with stakeholders (including business and civil society), provide training for procurement staff, and publish an annual report. This range of functions encompasses both policy and regulatory duties. These institutional arrangements are as important as a sound regulatory framework for the establishment and well functioning of a modern, harmonized procurement regime in the OECS The regional and nationals oversight authorities should include representatives from the private sector and civil society. The representatives from the private sector and civil society would be selected by their respective organizations The procurement law should include the establishment of an independent review system (including from the policy/oversight authorities) to address complaints from

20 7 aggrieved bidders and provide remedies against breaches of the legislation The institutional relationships and levels of authority in the procurement framework should be elaborated more precisely in the proposed public procurement legislation and accompanying regulations The Regulations for recruitment of consultants should be substantially different from those for goods and works. Therefore two separate sets of Regulations should be issued under the proposed procurement legislation: one dealing with bidding procedures for goods and works and the other dealing with Requests for Proposals for selection, hiring, and use of consultants The proposed procurement reform would encompass public sector procurement operations of all members of the OECS group. Harmonization of procurement laws, rules and regulations of each member of the OECS group becomes more important as regional procurement, as envisaged, would be done by bulking items commonly procured by the public sector with a view to increasing contract size to make it sufficiently attractive to prospective bidders and to achieve economy of scale. Action should be taken to facilitate the necessary harmonization of legal instruments There is little value added by referring bids to the Cabinet for approval of individual contract awards exceeding (i) EC$100,000 (i.e. US$ 37,037 equivalent) in the case of Grenada; and (ii) EC$50,000 (US$ 18,519 equivalent) in the case of Dominica, and St. Kitts and Nevis -which adds about two to six weeks to the processing time. For this reason, immediate consideration should be given to abolishing this requirement. The Cabinet instead could obtain a statement periodically of all contracts exceeding specified thresholds. As a minimum, the role of Cabinet should be gradually phased out and limited to very large contracts. Until phased out, Cabinet s review should be strictly formal (i.e. only violations of the law), conducted on the basis of an evaluation report developed for this purpose, and completed within a very short time period In the medium term, individual procuring entities should be given authority to undertake procurement of goods, works, and services required to meet their operational needs with the funds appropriated for them. They should be held accountable for public procurement decisions taken by them, as they cannot hold accountable any outside agencies (e.g., CTB or MOF) for causing delays by protracted decision-making.

21 8 2. PROCEDURES AND PRACTICES A. Findings on Procurement Planning and Annual Updating of Procurement Plans 2.1 A major weakness in Ministries/Departments and parastatals is the lack of a proper procurement plan containing bid packages prepared with consideration of economy and efficiency, and scheduled properly to meet project implementation needs. Furthermore, these plans, even if they exist in some form, are not updated on a semiannual basis. 2.2 Lack of planning often creates conditions favorable to ad hoc or unwarranted emergency procurement, so that obtaining goods becomes urgent and standard rules are waived. In addition, if the issue of planning is not adequately addressed, it would be difficult to embark on regional or joint procurement of common items. B. Findings on Eligibility and Process 2.3 In the OECS group, the statutory requirements for competitive bidding and advertisement vary from country to country. Further, there is inconsistency between the statutory requirements and the practice followed, as reflected in Table 2, below. Table 2. Statutory requirements and practice followed for competitive tendering and advertising for procurement of works. OECS Group Statutory Requirements-- Actual Practice under local funding competitive tendering and advertising for works contracts Dominica 8 Not required. Advertisement is not done. Selective tender procedure is followed by soliciting bids from three or more firms. Grenada 9 Not required. Advertisement is not done. On occasion the MOCW places the invitation for bid on their notice board. Selective tender procedure is followed by St. Kitts and Nevis 10 St. Lucia 11 St. Vincent and the Grenadines 12 Required for contracts exceeding EC$3,000 (US$1,111 equivalent). Required for contracts exceeding EC$100,000 (US$37,037 equivalent). Required for contracts exceeding EC$250,000 (US$92,593 equivalent) soliciting bids from three or more firms. Advertisement is not done. Selective tender procedure is followed by soliciting bids from three or more firms. Advertisement is not done. Selective tender procedure is followed by soliciting bids from three or more firms. Most ministries advertise bidding opportunities for contracts exceeding EC$250,000 (US$92,593 equivalent), unless they obtain a waiver from CTB. 2.4 In the OECS group, except Grenada, prospective bidders for works are expected 8 Regulation 173 of the Dominica Financial Regulations, Rule 117 of Grenada Financial Rules Instruction 318 read with Instruction 334 of the St. Kitts and Nevis Financial Instructions Regulation 13 read with Regulation 16 of the St. Lucia, the Procurement and Stores Regulations Rules 6 and 7 read with Rule 2 of the St. Vincent and the Grenadines, the Purchases and Tenders Procedure issued in 21 November 1967 under circular No. 32/67.