The rules defined in Appendix 4 should be followed not only in cases where misprocurement is reported, but also to address any other issue that bidders might be concerned with, such as imprecision in the bidding documents about technical or financial aspects of the project, payment, language of the documents, etc. Such issues, especially in complex projects, are likely to cause divergences and the need to address them becomes evident. Nonetheless, there is no formal complain mechanism set out in the Guidelines, either through the Bank or through the borrower legal system, or through an independent system such as arbitration277.
According to the Guidelines, bidders should address their questions about the bidding documents or any other issue that might arise during the procedure to the borrower278. Bidders, however, are free to send to the Bank their correspondence with the borrower. If the Bank receives the complaint before the closing date for submission of the bids, it might refer to the borrower, making comments and advising as to the action to be taken. If the communication is
276 See case reported by Shari and Cohn (2000).
277 It is worth mentioning that when the contract is already concluded between the borrower and the supplier, the Guidelines, in rule 2.42, state that disputes arising out of the contract should be solved through arbitration. This provision can bring about a number of problems since it is still not clear whether it should be interpreted as involving just technical issues of the contract, or if issues such as validity should also be decided by arbitration.
278 Guidelines: Procurement under the IBRD and IDA Credits, Appendix 3, 6-9.
received after the opening of the bids, and this is a case where the Bank will only carry out a post review, the Bank might send the communication to the borrower with considerations and appropriate actions, and will examine the procedure later to see if the instructions were followed.
If, however, a prior review is due, the Bank in consultation with the borrower, will try to address the issue, if appropriate279.
It is worth observing that the Bank will not exchange correspondence with the bidders, but only with the borrower. This policy is adopted in accordance with the statement in Appendix 3, 2, where the Bank emphases that “the borrower is legally responsible for the procurement. It invites, receives and evaluates bids and awards the contract. The contract is between the borrower and the Supplier or Contractor. The Bank is not a party to the contract”. The position adopted by the lender is of mere listener to the complaint. It does not acknowledge any responsibility for decisions even if the borrower is just following the orientation received from the Bank’s staff. In fact, the Bank will not even disclose to the complaining parts its communications with the borrower. Moreover, the Bank does not promise to investigate, pursue or address the complaint.
The Bank uses the suppliers’ information as a means to secure its agreement with the borrower without giving to the supplier any kind of legal rights against the decisions reached either by the lender or by the borrower.
It is difficult to understand how this position can be reconciled with the principles that the Guidelines aim to achieve. In general, procurement systems that place significant weight on the concept of transparency use some sort of enforcement mechanism that is external to the procurement agency and the people involved in taking decisions during the process280. This is done for several reasons. Firstly, in a transparent system the aim is to demonstrate to all interested parties that the procurement process is being done in accordance with the regulations.
Moreover, if breaches are detected, procurement officials might then be held accountable by an independent court or administrative tribunal. Therefore, an external means of enforcement is used as a powerful way not only to settle complaints but also to achieve an effective application of the
279 Guidelines: Procurement under the IBRD and IDA Credits, Appendix 3, 13.
280 See Arrowsmith, Linarelli, and Wallace, (2000), Chapter 12.
rules. The more effective the enforcement, the more credible the rules became. In a stable and reliable environment, suppliers would be more willing to take part in the procedures, as risks can be more easily accessed, and taxpayers and investors would be more confident that their money is being properly spent. Therefore, it is surprising that even though the Procurement Guidelines state transparency, economy and efficiency as the main goals, there are no clauses setting up an external system of enforcement where interested parties could challenge the decisions taken by the borrower and the lender.
In practice, however, there is evidence that bidders will take their complaints to the Executive Directors of their countries and request them to pursue the claim. Although the Guidelines do not mention this kind of complaint, the Procurement Manual provides guidance to staff on how to deal with them281. If a complaint is channelled through an Executive Director’s office the Task Team Leader or the Procurement Specialist involved in the project must acknowledge the complaint and send it for the borrower’s consideration immediately. Moreover, at the request of the Executive Director, the Country Director must explain in great detail how the specific issue raised was addressed and resolved. If he is not satisfied with the response, the complaint is brought to the Director of the Operational Procurement Review Committee, who has to review the complaint in cooperation with senior management, and provide a response282.
This kind of internal mechanism for dealing with complaints seems to be the most effective mechanism available to bidders. If a reliable review system is not available through the borrowers national legal system bidders are more likely to bring the complaint to their Executive Director, since this is the only mechanism that can assure them that their complaint will be looked at. According to the Bank’s organisation charter, the Executive Directors are placed in the highest position and all staff bellow them should pay due attention to the issues raised by the Directors. Therefore, any complaint raised by EDs must be carefully addressed.
An example of the mechanism used to help firms to bring complaints to their Executive Directors can be found in the Canadian Business Guide, a publication by the Office of Liaison
281 Procurement Manual Section 5.2.
282 Ibid.
with International Financial Institutions in the Canadian Embassy in Washington283. In explaining the function of the office, the Guide states the following:
“The OLIFI [Office of Liaison with International Financial Institutions] staff can provide information, advice and assistance to Canadian business people pursuing procurement opportunities with the World Bank and the Inter-American Development Bank. […] OLIFI also works in close cooperation with the Canadian Executive Directors’ office at the Banks, to fully protect and promote Canadian interests, and particularly to resolve any procurement or other commercial dispute that may arise”.
Moreover, the Guide explains that although the Guidelines state that the borrower is the one responsible for the procurement process, about 10-15% of the marketing initiative should be directed at Washington level “in order to gather and update essential project intelligence”.
When discussing the interference of Executive Directors in the procurement process, a remark must be made regarding the differentiated levels of power enjoyed by each Executive Director. As mentioned in Chapter II, the voting power of each ED is associated with the number of shares they represent. Larger shareholders will be able to provide to their business people a more efficient mechanism of support, as they will have an individual ED defending their interests. On the other hand, suppliers from minor shareholding countries might not have any access to their EDs, as they will be representing the interests of several different countries.
Moreover, since EDs representing major shareholders are the ones actually making everyday decisions at the Bank, it is possible that staff will be more careful in pursuing the issues raised by them then the complaints raised by other EDs. Since internal communication between EDs and staff is not disclosed to the general public it is not possible to determine the degree of efficiency and fairness with which complaints are handled. Therefore, the review mechanism based on the interference of EDs in the procurement procedure to secure the interest of bidders does not comply with the principle of transparency, or give all eligible bidders a level playing field on which to compete.
283 Office of Liaison with International Financial Institutions, The Canadian Embassy, A Canadian Business Guide: The World Bank and the Inter-American Development Bank , (online).
If we consider only the Guidelines’ provisions, it is not clear what the legal position of bidders is. Although it is certain that the Guidelines provide rights and obligations for third parties, especially bidders, they do not confer on them a contractual position in relation to the lender. The Bank excludes itself from any responsibility, and specifically refers to the borrower’s responsibility in relation to bidders. Nonetheless, the Bank encourages bidders to send to the institution any complaints that the borrower does not address properly, and requires its staff to be prepared to deal with the complaints as they are brought forward.
In this context, the Guidelines suggest that the legal relationship between the lender, the borrower and bidders should be framed as follows. The Bank and the borrower have a clear contractual relationship guided by the Loan Agreement. Any disputes between them will be solved according to the arbitration procedures defined in the Agreement. However, it is interesting to recall that so far, Loans Agreements have never being challenged by borrowers, despite the failure of many projects.
The borrower and the bidders will develop their relationship firstly according to the bidding documents. In those documents the borrower agrees to follow certain rules when selecting the winning bid, and bidders relying on such an agreement will design and submit their bids. The legal relationship arising during the procurement pr ocess will depend on the national legislation regulating procurement. Rights and obligations could be guided by principles of civil law, administrative law or contract law. Disputes between these two are likely to be solved by the national legal system of the borrowing country, if it allows such a challenge to governmental decisions284. At the second stage, the borrower and the winning supplier will enter a contractual relationship which will be subject to the applicable law and the dispute settlement defined in the bidding documents. The standard bidding documents provided by the Bank and required to be used for procurements financed by the institution state that any dispute between the purchaser
284 National enforcement mechanisms will be further developed in Chapter V.
and the contractors should be settled by arbitration conducted in accordance with the procedures set out in the contract285.
Finally, and most unclear of all, is the relationship between the Bank and the bidders.
This cannot be solved by reference to any contractual connection or by direct reference to the Guidelines, as the parties have not agreed to any legal relationship with each other. However, as will be further discussed in subsection 2 below, the rights reserved by the Bank to interfere with the decisions during the procurement process should have the correspondent obligation of responding, in accordance with its culpability, to any unlawful decision taken during the procedure. Moreover, as the Bank might interfere directly with the legal rights of a bidder it should recognise the rights of the other party to be heard and to have an impartial decision on the matter.