While an adequate procurement practice does not guarantee the success of these projects, poor practices can certainly make it more difficult to achieve. Hence, the Bank’s interest in procurement derives from the need to ensure that the resources will be allocated for the purpose for which the loan was granted, and also that it will be done in an efficient way215.
The Guidelines, Procurement under the IBRD Loans and IDA Credits and Selection and Employment of Consultants by World Bank Borrowers216, and the Standard Bidding Documents set out the details of the procedures required by the Bank. These rules are designed to address four major concerns: firstly, to ensure that the goods and services needed for the project are procured with due attention to economy and effic iency; secondly, to secure compliance with the Bank’s interest in giving all eligible bidders from developed and developing countries an opportunity to compete in providing goods and works financed by the Bank; thirdly, to encourage the development of domestic contracting and manufacturing industries in the borrowing country, stimulating development in those countries; and finally, to ensure transparency in the procurement process217.
214Caufield, (1998).
215 IBRD Article of Agreement, Article III, Section 5 (b).
216 Both documents have been revised in May 2004.
217 Guidelines Procurement under IBRD Loans and IDA Credits para. 1.2.
The Bank believes that the most efficient way to achieve those objectives, when procuring goods and works, is through International Competitive Bidding (ICB)218. This rule requires the borrower to advertise bidding opportunities internationally, therefore enabling the greatest number of suppliers to be aware of the project. The publicity for the contracts is usually undertaken in two stages: firstly, just after the appraisal the borrower issues a General Procurement Notice (GPN) which is advertised in the United Nations publication Development Business, informing readers of the works and goods that will be procured. The second stage takes place after the documents are ready for the implementation of the project, and the borrower is compelled to advertise each particular package of contract in at least one national newspaper in its own country (and in any official gazette, if such exists). Further publication in Development Business for specific projects will usually be required when procuring large and complex projects219. At this second stage the borrower is also bound to send detailed information to potential bidders which had showed interest by answering the GPN220.
The Guidelines also establish a series of prococurement procedures to be followed. For example, it defines rules on pre-qualification of the bidders; the strict cases where a two stage bidding procedure can take place; the procedures to be followed when opening, evaluating and awarding a contract, rules on specifications, and all other specific aspects that the bidding documents should contain such as currency of payment, la nguage of the bidding documents, price adjustments, possibilities of negotiation, etc.
As mentioned above, the ICB procedure was chosen by the Bank because it was seen as securing the goals of the project, achieving best value for money, giving access to suppliers from all countries, ensuring that a transparent decision is reached through objective criteria, and
218 The details of the procedure are set out in the Guidelines: Procurement under the IBRD and IDA Credits.
219 Borrowers will no longer be obligated to publish in the print version of United Nations Development Business (UNDB) Specific Procurement Notices (SPNs) for goods and works under US$10 million. As a result of these changes, the on-line and print versions of UNDB may no longer be considered to be identical. Certain SPNs may only appear on-line and not in print. These changes make the hard-copy version of UNDB practically obsolete. Since the on-line version of UNDB was launched in December 1998, subscribers have had the option to receive only the hard copy (US$495 per year), or both (US$695 per year).
220 There is a simplified ICB process (Quick Disbursement Operations) which are used for procurement under adjustment operation. This kind of procedure does not require the publication of GPNs or SPNs.
stimulating the participation of suppliers from developing countries. Moreover, other advantages of such proceedings have been identified221: it facilitates monitoring of the whole process by the Bank and bidders; it provides an easy way to reassure shareholders that the money is being spent on the projects and not being wasted in corrupt practices, and will increase competition leading to an efficient application of resources.
However, the great emphasis on transparency has a ‘cost’. The ICB has been severely criticised for being an extremely onerous and time-consuming procedure, which sometimes leads to an inefficient procurement. Moreover, the way officers of the Bank conduct this procedure in practice can cause serious negative effects to the final goal of the project.222. A clear example is the potential exclusion of qualified bidders that do not have sufficient economic strength to cope with the heavy documentation burden and high financial requirements imposed, despite having the capacity to perform the work or supply the goods procured with equal or higher quality than any other international company223. Apart from running the risk of becoming more expensive, the project will take longer to be implemented (the ICB procedure takes from eighth to twenty months), delaying, therefore, the results that those goods or works are supposed to bring224. Furthermore, ICB has been criticised as being a procedure that aims to favour the largest multinational firms225.
Thus, it is possible that transparency could compromise some of the objectives of the Guidelines, in particular the economy and efficiency requirements. Arrowsmith correctly advocates that “strict competition requirements with only limited exceptions based on objective and verifiable criteria […] may lead to more commercial procurement for cases in which corruption, discrimination or simply bad judgement would otherwise have led to an abusive or unwise choice of supplier […]. However, they will produce a less commercial result when,
221 See Arrowsmith, Linarelli, and Wallace, (2000).
222 See examples given by Tucker (1997), pg. 153/154 and also (2001).
223 There has been a complaint on this grounds under Brazilian courts: See TRF 1 Região Apelacão em Mandado de Seguranca 95.01.19153-2/TO Pavitergo – Pavimentacão e Terraplanagem Goias Ltda v.
União Federal e Estado de Tocantins.
224 For further identification of the problems with the World Bank procurement procedure see Tucker,(1997) and (2001).
225 See Rojas, (1998) citing Cheryl Payer, The World Bank. A critical analysis, Monthly Review Press, 1982.
without the requirement, the particular (honest and competent) purchaser would have obtained a more advantageous deal or relationship through other means […]”226. Given the fact that the contracting agency is assessed in a case by case basis, the PS or PAS should be concerned with establishing the appropriate balance between the costs of a transparent procedure and the benefits of allowing some discretion to the purchaser. This analysis, of course, will take into account several factors. The skills of the procurement staff involved in the project will certainly have considerable weight, but probably more important than that would be the assessment of the monitoring system in place. A strong monitoring system accompanied by a related measure such as accountability for bad practices and strong anticorruption policies would reduce the need for transparency and increase the likelihood of good procurement decisions227.
It is fair to say that section three of the Guidelines allows for other types of procedures:
Limited International Bidding, which permits direct invitation of bidders and is used for contracts of small values or where there is a limited amount of suppliers; National Competitive Bidding, where contracts that are unlikely to attract foreign competition will be advertised at a national level and national language will be used in the bidding documents; Shopping (international and national) , where three quotations can be used to procure off-the-shelf products of small value;
Direct Contracting, where it is permissible to buy from a particular supplier in cases where there is only one source; Force Account, where the use of the borrower’s own personnel and equipment is the only practical method for constructing a given kind of work; Procurement through UN agencies, for off-the-shelf products of certain primarily areas; and some other kinds of procedures that follow the established commercial practices. Nevertheless, the use of those procedures is secondary and ICB is usually preferred228. Therefore, some of the problems that occur during the procurement process could be directly related to the selection of the procedures adopted.
In practice the Bank does not rely on the borrower’s experience and expertise to deal with a less transparent procedure. Moreover, since the Bank has the power to significantly
226 Arrowsmith, (2002) (a).
227 For further discussion on this issue see the enforcement Chapter of this work.
228 Tucker, note 222.
interfere in the procurement plan, human resources from the borrowing country will not be stimulated to find the most efficient way to procure goods, works and services but only to blindly follow the Bank’s rules. Therefore, in the future, assets gained during the Bank’s projects might face potential problems when maintenance or replacements are needed229.
It is interesting to note that the Guidelines emphasise the fact that the responsibility for the implementation and decision under the procurement process rests only on the borrower. The Bank, in this context, will only supervise the procedure. However, if the Bank does not agree with the decision of the borrower or, if the borrower does not strictly follow the rules imposed by the Bank, the funds for the project can be suspended. Therefore, it can be said that “although a development bank does not direct the borrower to award the contract to any particular offerer or to take any other action in connection with the procurement, it has the power to pursue, which provides it with the ability to exert significant pressure”230.
The procedures for contracting consultants’ services vary significantly for contracts for goods and works. The rules established for those procedures are set out in the Guidelines:
Selection and Employment of Consultants by the World Bank Borrowers. The method of selection under this procedure is not through ICB but starts from selecting a small number of firms from which a high quality bid is expected. This rather subjective criterion reflects the weight attached to quality rather than to price in choosing the consultants. It is worth mentioning that anticipated consulting assignments must be included in the General Procurement Notice, and large value contracts must also be advertised in a national newspaper and in Development Business231. Not all interested firms will be invited to bid but a short-list should be prepared by the borrower and approved by the Bank with at least three, and a maximum of six firms.
229 It is interesting to note that the Bank has been engaged in financing the reform of procurement systems in some of its member countries relying on the UNCITRAL Model Law on Procurement of Goods, Construction and Services. However, even when the borrower has already implemented the reform, and procurement personnel have been trained, the Bank still insists on the use of the Guidelines.
230 Arrowsmith, Linarelli, Wallace, (2000), p.111. For further discussion on the relationship between the Bank, borrowers and bidders see the enforcement Chapter.
231 Contracts expected to cost US$200,000 equivalent.
The Bank’s concerns with the quality of the service provided can also be observed in the award criteria. Although in the evaluation of the bids quality and costs will be taken into account, the final weight of the ‘costs’ will normally range from 10 to 20 points out of a total score of 100.
However, as correctly pointed out by Tucker232, the Bank does not evaluate and rank the supplier’s previous performance unless it is a very poor one, as is usually the case with the private sector. As a consequence, since the degree of fulfilment of the contract initially proposed by the consultant is not taken into account when considering future contracts, the bidder does not have the incentive to design a proposal that in practice will work with high efficiency. After signing the contract, their actual performance only has to be minimally satisfactory for them to be allowed to enter future proceedings, where once again what will be accessed is not their efficiency but the quality of the bid that they submitted.
The Bank maintains a database of firms interested in working on Bank-financed projects (DACON), which can be used to assist the borrower to identify firms that would be eligible for short-listing. It is important to note that registration on this list is not compulsory in order to be short-listed, and that the information contained in it is only descriptive, and does not imply the Bank’s endorsement or approval. As mentioned above, the Bank will have the role of reviewing and approving the borrower’s short-list to ensure that only capable firms are considered for selection. As with the procurement of goods and works, the Bank emphasises the fact that the selection process is entirely the borrower’s responsibility. However, it can be said that once again the borrower’s decision suffers from severe interference by the Bank.
A few other provisions of the Guidelines are important when examining the Bank’s policies on procurement for the purpose of this study233. First, as a development institution, the Bank is concerned with the participation and development of national firms in the bidding procedure. When procuring goods, the Bank allows in some instances the borrower to establish a margin of preference in favour of goods manufactured in its own country. Domestic contractors
232 (1997).
233 Those provisions will be carefully analyzed in latter Chapters. Here, it is provided just a brief overlook of the legal challenge that they might pose.
can also be granted a preference margin when procuring for work contracts. The domestic preference is significant (7.5% for work contracts and 15% of the CIP price for goods), and the borrower will need the Bank’s approval and will be subjected to the terms and conditions stated in the World Bank Procurement Guidelines Appendix 2. In the Consultants Guidelines, the development of national firms is stimulated by including as one of the award criteria the extent of participation by nationals in the performance of the assignment.
It seems that in the last few years the IBRD and IDA payments to borrowing countries for supplying local and foreign procurement have increased signif icantly, from US$ 7.2 billion in 1999 to US$ 9.7 billion in 2000. Of the US$ 9.7 billion, 8.9 was paid for in-country procurement and 0.8 billion from clients outside the borrowing country234. Hence, suppliers from developing countries are apparently becomin g more competitive and gaining ground in the international market. However, there is evidence from World Bank officials that in practice international firms are getting national firms to bid on their behalf in order to qualify for domestic preferences. This, besides increasing the value of procurement, does not bring the benefits to the domestic industry aimed by the Bank235.
Finally, in Appendix 3 of both Guidelines the Bank alerts potential suppliers to the role that the Bank, the borrower and the bidders will have in the procurement process. From those statements it becomes clear that the Bank understands that the borrower is the one legally responsible for the procurement and that the interest of the institution is with the adequate application of the funds. However, it is not entirely clear what are the legal foundations, the rights and liabilities, which are attached to the position taken by the lending institution in the procurement field. As has been noted in the description above, the decision-making power of the Bank is undeniable, but the formalities of the documents point to the procuring entity (the borrower) as the only one with a legal relationship with the bidders. But are the statements reflecting the real legal position of the parties, or trying to deny a relationship between the Bank
234 Presentation given by Colleen Gorove, Business Partnership & Outreach Group, Working with the World Bank Group.
235 Other arguments on the provision of domestic preferences will be provided at Chapters VII and VIII.
and the bidders that actually exists, or, at least, should exist? These questions remain unanswered in the context of procurement procedures conducted by the World Bank. However, on projects financed by the European Bank of Reconstruction and Development, the European Court of Justice has found the lending institution accountable for its decisions during the procurement process in some particular cases236. Although the basis for the legal relationship between the EBRD and bidders is peculiar to the European system, it is submitted that a similar relationship should be acknowledged in procurement procedures conducted in World Bank financed projects.