USE OF INDEPENDENT PROCUREMENT AGENTS (IPA)

AHSAN ALIProcurement Hub LeaderSouth East Asia (Cambodia, Lao-PDR, Thailand, Malaysia, Myanmar, & Greater Mekong Sub-Regional Operations)

The Cambodia experience

Agenda

Why an IPA in Cambodia? Terms of Reference of the IPA. Specific Procurement tasks of IPA. IPA Selection Process. Issues in the Selection Process and Lessons Learnt. Implementation of IPA’s Contract. Contract Implementation Constraints related to: IPA

arrangements in general, the design of the specific IPA Arrangement in Cambodia, Capacity and Performance of the IPA firm, and the broader Procurement Environment in Cambodia.

Impact of IPA constraints on Project Implementation. Key Lessons Learnt from implementation of IPA arrangement.

Why an IPA in Cambodia?

Bank conducted a Fiduciary Review of 7 projects in 2004/2005; found widespread fraud, corruption, collusion, bid manipulation

Declared misprocurement in June 2006 on 42 contracts under 5 projects (3 ongoing and 2 closed) ; the 3 ongoing projects were also suspended; resulting in strained Bank-Government relationship

Bank and Government agreed on a set of actions for lifting suspension, including an IPA to carry out all procurement under the 3 ongoing projects to mitigate the risk of further procedural non-compliance, fraud and corruption.

Why an IPA in Cambodia?

Government proposed to expand the scope of the IPA to include the entire Bank portfolio in Cambodia, not just the 3 suspended projects, as a way to protect itself against any risk of further misprocurement.

Engagement of the IPA was perceived at the time as a quick and appropriate response to address fraud and corruption issues and to improve compliance with the agreed procurement procedures.

No time frame or strategy was established at that time for transitioning out of the IPA arrangement and reverting procurement responsibility back to the project implementing agencies.

Terms of Reference of the IPA

To carry out procurement of all contract packages for goods, works, and consultant services, regardless of value, under all ongoing projects. Community level procurement was excluded.

Provide procurement services from preparation of bidding documents to award of contract, i.e. IPA responsible only for the selection process.

No capacity building responsibility of IPA.

Project implementing agencies would continue to be responsible for signing the contracts and managing contract execution, including payments to contractors, suppliers and consultants selected by the IPA.

Terms of Reference of the IPA

Government restricted involvement of its staff in the procurement process carried out by the IPA in order to avoid getting implicated in any downstream misprocurement.

Project implementing agencies to only provide technical inputs to the IPA ( Specs, TORs), after which the IPA prepares the bidding/RFP documents and obtains approval from the Govt’s procurement review committee (PRC) and no objection from the Bank (for prior review cases).

After issuance of bidding documents, no further contact or interaction of government staff with the IPA, especially not during the evaluation process, until the draft contract prepared by the IPA is sent to PRC for approval and onward to the project implementing agency for signature.

Specific Procurement tasks of IPA

Broadly the procurement tasks included: Reviewing, from the commercial perspective, the Technical

Inputs provided by the project implementing agencies; Preparing and arranging publication of advertisements; Preparing and issuing bidding documents/request for

proposals; Organising and carrying out shortlisting and bid/proposal

evaluations with recommendations; Issuing notifications of contract award Drafting final contract documents; Publishing contract award information;

Specific Procurement tasks of IPA

Also included: Holding bid/proposal openings, producing minutes; Issuing clarification responses; Issuing addendum to bidding documents or RFPs; Requesting No Objection letters where required; Advising during contract finalization/negotiations; Preparing minutes of contract negotiations; Obtaining references; Checking bidder submittals for signs of fraud, collusion

IPA Selection Process

Ministry of Economy & Finance (MEF), as the Client, embarked upon the selection process to engage an international IPA firm under a single contract to provide IPA services to all Bank-financed projects in Cambodia.

The method of Selection Based on Consultants’ Qualifications was applied on an exceptional basis due to urgency.

EOIs were invited in late 2006, 5 firms responded; Crown Agents, UK, was selected by MEF as the most qualified firm and invited to submit a combined technical/financial proposal.

IPA Selection Process

RFP provided list of ongoing/approved projects, total estimated annual procurement spend, indicative list of key staff positions, and a link to the Bank’s website for accessing project information. Also included provision for adding future new projects.

The firm had to estimate the quantum of procurement and quote fee rates as percentage of contract award price, for different slabs/ranges of contract award prices under different scenarios of total actual annual procurement spend.

Proposals received Q1 2007, evaluation completed Q2 2007, contract negotiations completed Q3 2007, and contract with Crown Agents signed Q4 (November) 2007 for an initial one-year period with possibility of extension subject to satisfactory performance.

Issues in the Selection Process and Lessons Learnt

Took 15 months to complete - Hiring of an IPA was a first time for Cambodia, Client capacity constraints, risk averseness of government, extensive Bank support required.

Lack of defined expected procurement packages and estimated staff-months in the RFP made it difficult for IPA to estimate the quantum of work and therefore the resource requirements and cost.

Unfamiliar proposal pricing terms (percentage fee rates) and no requirement for staff months to be proposed by IPA made it difficult for Client to assess reasonableness of offered inputs and price.

No proposed contract ceiling price. A tentative estimate of the number and price ranges of the expected procurement was provided to the firm during contract negotiations to help develop a cost analysis and notional contract price.

Implementation of IPA’s Contract

Crown Agents’ Team Composition:

Team mobilised in Phnom Penh December 2007; Procurement commenced around end-January 2008.

1 Team Leader 2 International Senior Procurement Specialists 2 National Procurement Specialists 1 Part time MIS Specialist Administrative staff Some Head Office and regional support for legal and technical advice

Original team comprised entirely of free-lance consultants; later replaced Team Leader with a senior member of their permanent HQs staff.

Supervision of IPA’s contract by the Ministry of Economy & Finance; with support of an international procurement advisor.

Projected Workload

All procurement packages for goods, works, and consultant services, regardless of value.

for 16 ongoing projects plus 3 in pipeline

about 350 contract packages in the first year

Total Annual estimated spend $25 million

Contract Implementation Constraints related inherently to IPA arrangements in general

Learning Curve

Requires development of:

Knowledge of each individual project working relationship with project, MEF, and Bank staff understanding of the local market environment in Cambodia. Understanding of the fiduciary risks work handing arrangements within the IPA office record keeping systems Logistic arrangements.

Implementation Constraints related inherently to IPA arrangements in general

Lack of ownership of project agencies

Shifting procurement responsibility and authority from project agencies to IPA resulted in a general decline in interest and ownership by project staff.

Cooperation of some project agency staff with IPA was at times found wanting, and at times obstructive.

No incentive to make IPA arrangement succeed. Project agencies to accept the result of the contract awarded by IPA, but

still responsible for managing contract implementation and delivery. At times individual consultants selected by IPA were found by project

agencies as not being technically qualified.

Implementation Constraints related to the design of the specific IPA Arrangement in Cambodia

Unpredictability of Procurement workload

Updated procurement plans prepared at the inception report stage of the IPA’s contract revealed significantly different procurement requirements than those estimated by the IPA at proposal preparation stage.

Further frequent changes in procurement plans. Changes in prioritisation of project implementing agencies. Problems in procurement planning reduced ability to effectively provide

additional resources. Considerable number of simple procurement processes, such as

Individual Consultants and Shopping, consuming significant IPA resources.

Implementation Constraints related to the design of the specific IPA Arrangement in Cambodia

Inaccurate, incomplete or delayed procurement information

Delayed or changed technical inputs provided by project agencies to the IPA (e.g. scope, quantities) which are inconsistent with procurement plans; resulting in delay in initiating the procurement process.

Additional effort required by IPA in finalizing technical inputs (specifications, TORs) provided by project implementing agencies.

Changes in specifications and TORs after the procurement process has commenced.

Changes in package budgets and cost estimates after the procurement process has commenced.

Cancellation of packages due to changed needs after the procurement process has commenced.

Implementation Constraints related to the design of the specific IPA Arrangement in Cambodia

Large number of stakeholders (project agencies, PRC, MEF, WB, Contractors)

Lack of clear responsibilities and contact points leading to delays in processing procurement.

A number of project agencies as well as Bank Task Teams unclear on the role of the IPA.

Confusion over approval mechanisms leading to delays in approving procurement.

Unclear lines of communications between stakeholders and IPA.

Varying advice from different stakeholders.

Implementation Constraints related to Capacity and Performance of the IPA firm

Original Crown Agents team comprised entirely of free-lance staff who were not adequately supervised.

Change in Team Leader within first month and then again after 7 months, ultimately appointing a senior member of their permanent HQs staff after which performance improved. Points to the need for giving permanent staff some advantage in the evaluation criteria.

Turnover of international procurement specialists Shortage of national procurement expertise Quality assurance issues Procurement progress monitoring issues Relationship building effort needed for winning cooperation of project agency

staff. Lengthy learning and adaptation curve.

Implementation Constraints related to the broader Procurement Environment in Cambodia

Weak local private sector, lacking confidence in and understanding of procurement processes

Frequent need to re-invite bids either because of no response or all non-responsive or unqualified bidders.

Lack of comprehension of requirements in the World Bank’s or Government’s standard bidding documents, which also at times discourages some potential bidders from bidding.

Some bidders not confident of winning contracts through fair and open competition in a weak governance environment.

Some bidders rely on collusive, fraudulent and corrupt practices as a business norm. No established culture of protests or representations leading to remedies and relief. It was expected that the presence of the IPA would encourage the participation of new

market entrants in Bank-financed tenders, encouraged by the expectation that the procurement process would be handled ethically and in compliance with our Guidelines, but this did not happen.

Implementation Constraints related to the broader procurement environment in Cambodia

Governance Challenges Indicators of fraud and collusion continue to be identified periodically by

the IPA and also by the Bank during the bid evaluation and review process, resulting in cancelation of bidding process and re-inviting with additional safeguards.

Occasional allegations around integrity issues. IPA primarily focused on procedural compliance in the procurement

process, and its impact on possible corruption at or around the later stage of contract signing by project agencies, as well as on collusive practices among bidders, remains unclear.

However, no assessment conducted to establish baseline for corruption levels in general and in procurement in particular, nor the impact of IPA arrangement on corruption levels in or around the procurement process.

Impact of IPA constraints on project implementation

Significant delay in procurement processes at the end of the first one year IPA contract period.

At the end of the first year, around $12 million of procurement undertaken and $6 million of contracts awarded, against the estimated annual spend of $25 million.

Resulting delay in project implementation. Erosion of procurement capacity of project implementing agencies

and government staff. Bank’s effort in prior reviews did not reduce. Poor performance of the selected firm had the effect of undermining

the Bank's and Government's confidence in the IPA model itself.

Exclusion of small and simple procurement from IPA’s Scope In Dec 2008, Government and Bank agreed to exclude small and

simple procurement from the scope of the IPA which were not conducive to effective use of IPA resources, and to allow the project agencies to carry out these procurement themselves without the IPA

Works < $100,000 Goods < $50,000 All individual consultants Selection of NGOs Direct Contracting Single Source Selection Procurement from UN Agencies

Selection of second IPA firm

Also in December 2008, Government decided and Bank agreed to proceed with selection of a second IPA firm with the objective of improving procurement performance.

Crown Agents’ contract was extended to enable completion of the ongoing procurement packages, but with a cut-off date to stop undertaking new procurement packages.

Second IPA firm, Charles Kendall & Partners, UK (CKP), the second highest ranked firm in the original selection process, was invited to submit a proposal based on an improved TOR which provided for greater sharing of information between the IPA and project agencies.

Contract with CKP was signed in July 2009, procurement commenced in August 2009, and the services are currently ongoing.

Key Lessons Learnt from implementation of IPA arrangement

Be clear about the objective and expectations. Agree on a transition strategy upfront to set target benchmarks for agencies to

meet in order to exit from the IPA arrangement. Make capacity building an explicit mandate of the IPA, or through parallel

initiatives. Avoid hands-off approach by project implementing agencies. An IPA only fixes the Purchaser's side of the procurement transaction; it does

not fix a dysfunctional market. Both sides of the equation need to be addressed for an IPA to function successfully in a weak governance environment.

Focus on transactions which are practically feasible for use of the IPA. Focus attention on the start-up phase, because if the IPA does not deliver in

time and with quality, its credibility is undermined, hence fueling criticism and undermining further buy-in from project agencies.

Key Lessons Learnt from implementation of IPA arrangement

Poor performance contributed to the efficacy of the IPA model remaining unproven as an effective procurement implementation modality in circumstances of a failure of a Borrower's fiduciary controls. Perhaps, if the second IPA performs satisfactorily, we will learn more about the efficacy of the model.

IPA arrangement can adversely affect efforts for broader procurement reform and capacity building, by drawing away attention and weakening the relationship and dialogue with the Government.

Can create a disconnect in perception and approach with other multi-laterals (such as ADB).

Use of IPA neither a quick fix nor a permanent solution to capacity and governance issues in procurement;

Key Lessons Learnt from implementation of IPA arrangement Sustainable improvement would require:

a comprehensive assessment of the gaps in procurement capacity and governance of each project implementing agency separately

put in place, upfront, appropriate checks and balances and remedies for increased accountability of those involved in the procurement process, and

implement a wide range of short to medium term strengthening measures to increase competitiveness and transparency in the procurement procedures and build capacity, including strengthening of country procurement systems and oversight mechanisms.

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