Procurement in ADB Funded Projects Presentation by J

Procurement in ADB Funded Projects Presentation by J. Srinivasan Head, Disbursement, Asian Development Bank – India Resident Mission

ADB § Asian Development Bank (ADB) is a multilateral development finance institution owned by 65 members, 47 from Asia and the Pacific and 18 from other parts of the globe. § ADB was established in 1966. India is one of its 31 founding members, and holds the fourth largest share. § ADB is dedicated to reducing poverty in the Asia and Pacific Region through pro-poor sustainable economic growth, social development, and good governance.

ADB § ADB's principal tools are loans, equities, guarantees and technical assistance, assistance which it mainly provides to governments of developing member countries (DMCs) for specific projects and programs. § In 2005, ADB operations totaled $7. 4 billion in loan, equities, guarantees, grants and technical assistance.

Procurement Process • ADB’s procedures should be followed for contracts financed wholly or partially by ADB. • About 80% of loan amount is used for procurement of goods and civil works. • ADB’s Standard Bidding Documents (SBD) are mandatory for ICB procedures. • For contracts not financed by ADB within an ADB-assisted project, borrower may adopt its own procurement procedures with prior approval of ADB. However, the goods and works to be procured shall be of satisfactory quality, and compatible with the balance of the project. Also prices should be so as not to affect adversely the economic and financial viability of the project.

The Procurement Process Basic Principles in Procurement • Five basic principles generally guide ADB requirements: Ø the proceeds of ADB financing can be used only for procurement of goods and works supplied from, and produced in, member countries of ADB Ø economy and efficiency in the procurement of the goods and works involved in the implementation of the project Ø transparency in the procurement process Ø an equal opportunity to all eligible bidders from developed and developing member countries to compete in providing goods and works financed by ADB Ø encouraging the development of domestic contracting and manufacturing industries in the countries of the borrowers

ADB’s Anti-Corruption Policy (1) • ADB’s anticorruption policy requires borrowers as well as bidders, suppliers, and contractors under ADB-financed contracts, observe the highest standard of ethics during the procurement and execution of contracts. In pursuance of this policy, ADB defines, for the purpose of this provision, the terms as: – “Corrupt Practice” means the offering, giving, receiving, or soliciting, directly or indirectly, of any thing of value to influence the action of any party in the procurement process or the execution of a contract; – “Fraudulent Practice” means misrepresentation or omission of facts in order to influence a procurement process or the execution of a contract;

ADB’s Anti-Corruption Policy (2) • Collusive practices means a scheme or arrangement between two or more bidders, with or without the knowledge of the Borrower, designed to influence the action of any party in a procurement process or the execution of a contract; • Coercive practices means harming or threatening to harm, directly or indirectly, persons, or their property to influence their participation in a procurement process, or affect the execution of a contract;

India’s Share of Procurement Contracts, 2004 -05

International Competitive Bidding (ICB) • Thresholds (loan specific) – Works: $1 million to $10 million (for India - $10 million) – Goods: $0. 5 million to $1 million • Procurement Committee – Approval threshold increased from $3 million to $10 million • Prequalification is emphasized only for large/complex contracts • Bidding period reduced from 90 to 42 days • Other requirements include, public opening of bids, publication of the results of evaluation and of the amount of contract and provisions for bidders to protest if felt necessary

National Competitive Bidding (NCB) • Used when foreign bidders are not expected to be interested because (a) the contract values are small (b) works are scattered geographically or spread over time (c) works are labor intensive (d) the goods or works are available locally at prices below the international market • NCB procedures adopted by borrowers shall be reviewed and modified as necessary to assure economy, efficiency, transparency and broad consistency with ADB guidelines • ADB will review the draft bid documents of the first NCB contract and for subsequent NCB contracts, ADB’s prior review is not mandatory • If procurement is not carried out as per ADB guidelines, ADB may declare ‘MISPROCUREMENT’ and normally cancel that portion of financing allocated to goods/works that have been misprocured.

Limited International Bidding (LIB) • • • Used when limited number of suppliers are available Amount not large enough for ICB, up to $1 million Exceptional reasons justify departure from ICB procedures Advertisement in newspaper not required but encouraged All other ICB procedures will apply including the publication of the details of contract awards

General Problems Faced in Procurement of Goods/ Works in ADB Financed Projects • Weak procurement capacity of Executing Agencies (EAs) – In some cases (particularly urban sector), capacity of the EAs is weak to manage large contract packages. – For this reason, EAs adopt smaller size of contract packages, due to which works are awarded to small local contractors. – This often results in poor quality of works or incomplete works leading to termination of contracts.

General Problems Faced in Procurement of Goods/ Works in ADB Financed Projects • Engineer’s Estimate / ‘Schedule of Rates (SOR)’ are not updated regularly taking into account the prevailing market rates of materials/labor and the uncertainty involved in the specialized nature of work. • Consequently, the Executing Agencies (EAs) end up receiving bids as high as 120% to 200% of the engineers’ estimate. • Even for marginal differences of 2% or so, EAs routinely request ADB approval to negotiate with the lowest evaluated responsive bidder. • This leads to a vicious cycle of delays in project implementation.

General Problems Faced in Procurement in ADB Financed Projects • Participation of lead international firms in Joint Ventures (JV) with local contractors – In some cases of award of contract to JV bidders, it has been noted that the participation of lead international firms is very less during the execution. – The associate domestic firms end up with executing the work for which they do not have the required capacity in terms of qualified personnel, required construction equipments etc.

General Problems Faced in Procurement in ADB Financed Projects • Mismatch between ADB procedures and Government procedures such as: – No provision for third party insurance in bid documents prepared by the EAs – Disclosure of estimated bid price by the EAs in the NITs, which is not acceptable according to ADB procedures. – % above/below system of quoting item-rates in case of item-rate tenders, which is not acceptable according to ADB procedures – Use of brand names in the bid documents, not allowed by ADB guidelines

General Problems Faced in Procurement in ADB Financed Projects • Low degree of delegation of powers to operational level (project directors) for contract awards. • For example, in the municipal sector, contracts exceeding Rs 3 million have to be placed before the full Council in one city, and in another the limit is Rs 10 million. As most ADB-assisted contracts exceed Rs 100 million, this leads to extensive delays.

General Problems Faced in Procurement in ADB Financed Projects • We have one case where a price bid for about $120 million was opened and evaluated at the project level in about one week. Thereafter it took nearly three months to reach ADB, just a day before expiry of bid validity. • Non-compliance with conditions for award of contracts such as completion of acquisition of land or right of way, completion of compensation and resettlement activities, site clearing etc. also tend to delay contract awards.

For More Information (J. Srinivasan) Email: jsrinivasan@adb. org Web site: www. adb. org