Topics

Supply Chain Management (SCM)/ Logistic / Distribution Management

World Bank Procurement

Introduction

Procurement of goods, works or services under the projects funded by the World Bank whether under International Bank for Reconstruction and Development (IBRD) orJnternational Development Association (IDA) has to be in accordance with the guidelines of the Bank for such procurements. These guidelines have been developed by the Bank based on their need for impartial administration of procurement among eligible bidders thereby providing equal business opportunity to the Member Countries of the Bank and are based on the accumulated experience of the Bank and good/procurement practices followed on a global scale. The basic considerations guiding procurement in Bank financed projects are :

a) Need for economy and efficiency in the execution of the project;
(b) Bank’s interest as a co-operative institution in giving all eligible bidders from developed and developing countries an opportunity to compete;
(c) Bank’s interest as a development institution in encouraging the development of domestic contracting and manufacturing industries; and
(d) The importance of transparency in the procurement process.

The Bank’s guidelines cover various procedures acceptable to the Bank and these are applicable only to the extend they are provided in the legal loan agreement for the specific project. The Bank’s procedures in many respects differ from the procedures normally adopted in the Government of India viz. the nodal agency, the Directorate General of Supplies and Disposal (DGS&D). Some of the major differences are also highlighted later in this paper.

Volume

Procurement organisations and the business community in India can not afford to over look the Bank’s procurement procedures in view of the heavy funding being done by the World Bank group in India and consequently the volume of purchases made by the project implementation units. Table below gives the large borrowers and the Bank’s disbursement upto financial year 1999. It would be seen that while during 1999 Russia was the largest borrower with a borrowing of US $ 3.51 billions, India borrowed US $ 1.437 billions, cumulative disbursement upto financial year 1999 for India was US $ 51.99 billions followed by china at US $33.05 billions.

The loan agreement for a specific project between the Government of India and an institution of the World Bank is subject to international law and therefore, takes precedence over local law. As a consequence procurement rules of the loan agreement apply even where the domestic rules are different. The Bank’s guidelines for procurement are incorporated in the loan agreement (may be by reference) and in the overall the Bank guidelines to the extent provided in the legal agreement are applicable. The loan agreements generally refer to a procurement schedule which specifies special ICB rules, any exceptions to ICB, domestic preference, provisions for Bank’s review etc.

Methods of Procurement

The normal method of procurement is International Competitive Bidding (ICB) and any exceptions to it i.e. use of other methods has to be as agreed to in the loan agreement. The other methods of procurement are Limited Interanational Bidding (LIB), National Competitive Bidding (NCB), Shopping : lnternational/ National, Direct Contracting, Force Account and procurement through NGOs/ UN agencies.
The position, in brief, under the various methods of procurement is as under

International Competitive Bidding (ICB)

This gives an opportunity to prospective bidders from member countries of the Bank and Taiwan & China to bid. It is generally adopted for procurements valued over US $ 200,000 for goods and US $ 10,000,000 for works. This method is also applied where items need to be imported or where foreign firms are expected to participate. The actual value limits may occasionally vary depending on the limits agreed to in the loan agreement.

The ICB procedure could be single step or two step. Single step is the most common and involves obtaining a bid followed by a one stage evaluation. Two step is generally used for industrial projects or cases of differing technical solutions. In the first stage, technical proposals including qualification details are obtained and technical specifications finalised. In the second stage, price bids from qualified bidders are obtained to the revised specifications as finalised at the end of the first stage and are evaluated for award of contract. Two envelope system where both Technical and Price Bids are obtained at the same time but evaluation is done in two stages; stage 1 for technical evaluation and stage 2 for price evaluation is not peremissible.

Steps to be followed under ICB are :
(i) Publication of General Procurement Notice followed by a specific Invitation for Bids (IFB) in United Nations’ Development Business (UNDB);
(ii) Transmission of IFB to Embassies and trade representatives of countries of likely suppliers;
(iii) Transmission of IFBs to those who have expressed interest in response to the General Procurement Notice;
(iv) Publication of IFB in National newspapers with wide circulation in all regions of the country;
(v) Use of Bank’s standard bidding documents;
(vi) Sale of bidding documents after the publications and permitting adequate bidding period;
(vii) Public opening of the bids and preparation of minutes of bid opening:
(viii) Evaluation of bids without discrimination and strictly as per the clauses of the bid document;
(ix) Award of contract to the lowest evaluated responsive bidder;
(x) Contract performance monitoring.

Limited International Bidding (LIB)

This is similar to a limited tender where firms of proven capacity and capability from atleast two different countries are invited to bid without an open advertisement. It is generally adopted where either amounts are small or there are only a limited known number of suppliers.

National Competitive Bidding (NCB)

This is like an advertised tender at the national level and is used for procuring goods or works which by their nature or scope are unlikely to attract foreign suppliers. Foreign bidders are however, permitted to participate but they are also to be paid in the local currency only. This method is generally used where
(i) Contract values are small;
(ii) Foreign firms are not likely to be interested;
(iii) Local prices are below the international prices;
(iv) Works are labour intensive and scattered geographically or spread over a period of time; and
(v) Cost of ICB outweighs its advantages.

Shopping : International/National

In this method price quotations are obtained from atleast three suppliers in two different countries (international shopping) or from the local suppliers (national shopping). It is used for procuring readily available off the shelf-items or standard specification commodities that are small in value. Rate contracts of DGS&D are also acceptable in national shopping. Further goods proposed to be procured under shopping can also be procured directly from UN Agencies.

Direct Contracting

Direct contracting without competition is generally used in cases of (i) extension of existing contracts; (ii) standardization of equipment; (iii) spare parts to be compatible with existing equipment; (iv) proprietary equipment; (v) need for urgent delivery and (vi) exceptional cases like natural disasters etc.

Force Account

This method is used in case of works carried out by use of borrowers’ own personnel, materials and equipment. This is used where (i) works are small and scattered; (ii) must be carried out without disrupting on-going operations; (iii) work quantities cannot be defined; (iv) risk of interruption is better borne by the borrower and (v) in case of emergencies needing immediate action. Construction using this is generally limited to 10% of the cost of civil works.

Procurement through NGOs/UN Agencies

Procurement through NGOs is used sometimes in the interest of sustainability of a project or to achieve specific social objectives like increasing the utilization of local know-how and materials or employing labour intensive technologies, etc. Procurement from specialized agencies of the United Nations in some cases is an efficient way of procuring small quantities of off-the-shelf items mainly in the fields of education, health, rural water supply, sanitation, etc.
Each oiihe above procedures is applicable only to the extent provided in the project agreement.

Bid Examination and Evaluation

The bids obtained in response to an IFB have to be examined and evaluated strictly as per the provisions of the bidding documents. Only some of the important features of this evaluation for ICB/NCB are discussed here with a view to amphasize the extent of standardization and transparency followed in Bank Procurement.

A bid is first examined to see if it is substantially responsive and detailed evaluation is done only of substantially responsive bids. The main points in examination include (i) whether the bid is complete and is signed; (ii) whether bid security has been given; (iii) whether there are computational errors; (iv) whether there are any major deviations from the bid conditions; (v) whether the bid is technically responsive.

In case of deviations in the bids received, the deviations that are generally treated as unacceptable and therefore result in rejection of the bid include (a) bids received late; (b) bids from ineligible bidders, (c) bids that are unsigned, (d) bids without bid security or with an unacceptable bid security; (e) bidders that did not qualify in pre-qualification; (f) bids having price variation against fixed price requirement; (g) bids offering an alternative unacceptable design; (h) bids offering unacceptable delivery period; (i) bids involving unacceptable subcontracting; (j) bids with reservation on warranty, arbitration rules etc.

The criteria for bid evaluation is pre disclosed in the Banks’ Standard Documents and may include many factors other than the price alone based on the type of goods/equipment being procured. For example in purchase of goods/equipment, it may include one or a combination of;
(a) Cost of inland transportation, insurance and other costs within the Purchaser’s country incidental to delivery of the goods to their final destination;
(b) delivery schedule offered in the bid;
(c) deviations in payment schedule from that specified;
(d) the cost of components, mandatory spare parts, and service;
(e) the availability in the Purchaser’s country of spare parts and after-sales services for the equipment offered in the bid;
(f) the projected operating and maintenance costs during the life of the equipment;
(g) the performance and productivity of the equipment offered; and/or (h) other specific criteria indicated in the Bid Data Sheet and/or in the Technical Specifications.

In case of industrial plants etc., bid evaluation may also includes items like (i) efficiency (ii) re-sale value (iii) life cycle cost etc.

The actual criteria used in respect of each of these items is also well defined and as an example if we consider the delivery terms, the bid document (Schedule of Requirements) may specify that the delivery required is within 90-150 days, further stating that no credit will be given to earlier deliveries and bids offering delivery beyond this range will be treated as non-responsive, within this acceptable range, an adjustment per week at the rate....... (specified) will be added to the bid price of bids offering deliveries later than the earliest delivery period specified (90 days here).

Similarly if a bid deviates from the payment schedule and if the deviation offered is considered acceptable, the bid is evaluated by calculating interest earned for any earlier payments involved in the terms outlined in the bid as compared with those stipulated in the Bid Invitation at the rate per annum specified in the document i.e. the rate at which the bid will be loaded in such a case is also pre-disclosed.

Standard Bidding Documents

In view of the Bank’s concern for standardization of purchase procedures and transparency in the total system of purchase, the Bank has developed Standard Bidding Documents (SBDs) and the borrowers are required to use them with minimum changes. Changes to be done have to be necessarily within the scope permitted under the guidelines. The documents agreed to between the Government of India task force and the World Bank for use in India include the following :
(a) ICB Goods;
(b) ICB Civil Works (Major);
(c) ICB Pharmaceuticals;
(d) ICB Supply & Erection of Equipment;
(e) ICB Supply & Installation of Information Systems;
(f) NCB Goods and Equipment;
(g) NCB Civil Works;
(h) NCB Pharmaceuticals;
(i) Consultants ; Lumpsum - Simple Assignments;
(j) Consultants : Time-based - Complex Assignments;
(k) Consultants : Small Assignments - Lumpsum;
(I) Consultants : Small Assignments - Time-rbased;

Further the Bank is in the process of developing Standard Bidding Documents for
(a) Turnkey Industrial Projects;
(b) Technology Transfer Contracts; and
(c) Supply and Installation of Information Systems (two stage).

The Bank has been continuously evolving and updating its procurement rules/ guidelines based on experience. A number of modifications have been made by the Bank in respect of various clauses relating to (i) currency; (ii) transportation/ insurance; (iii) domestic preference; (iv) bid validity extension; (v) appendices; (vi) eligibility/boycott; (vii) reserved procurement; (viii) regional preference (deleted); (ix) BOT/BOO/BOOT; (x) community participation; (ix) fraud and corruption; (xii) transparency; (xiii) dispute resolution; (xiv) reserved procurement, etc.

In order to indicate the extend of standardisation done by the Bank in the SBDs, “Table of Contents’ of an SBD for ICB goods has been listed in Annexure I and the “Table of Clauses’ for Instructions to Bidders and General Conditions of Contract are listed in Annexures II & III for reference.

Bank Review

The Bank guidelines provide for a review by the Bank of the procurement decisions taken by the borrower. The review may be a prior or a post review of individual cases. Modifications to contracts are also subject to reviews.

During these reviews the Bank determines if the borrower has violated the agreed rules or if a procurement has been inconsistent with the agreed procedures. In such an eventuality the Bank may declare it to be a misprocurement. Misprocurement entails that the Bank (i) does not finance the expenditure, (ii) may cancel that portion of the loan allocated to the goods that have been misprocured and (iii) may in addition exercise other remedies under the loan agreement. It would thus be clear that the Bank requires that the agreed upon procurement procedures and the Bank’s guidelines are followed by the borrowers to the satisfaction of the Bank. Normally non-initation of a procurement process or its non-completion are not treated as misprocurement.

Bank’s VS GOI Procedures

Use of the World Bank Standard Bidding Documents and the procurement guidelines and rules clearly bring out that the Bank’s procedures are well documented and do differ at many places with the practices followed by the Government of India. Some of the major differences are pointed out as an illustration and these do not cover all the differences between two systems. The main differences perhaps arise on account of different concerns of the World Bank and the Govt. of India in making their purchases. While the Bank’s major concern would be to provide a level playing field to all member countries and provide a transparent system, the major concern of the Government of India would perhaps be to provide encouragement and support to local manufacture, Public Sector Units, Small Scale Units and some of the entities specially set up by the Government like KVIC, WDOs, ACASH, etc. Some of the prominent features of the Bank’s procedures that are normally in deviation to GOI rules are as under:

1. No exemption from bid security deposit (earnest money)
2. No exemption from performance security.
3. A specific provision for domestic preference exists in the Bank’s documents. However, there is no purchase or price preference for PSUs/Small Scale Industries, etc..
4. If in a fixed price contract there is a delay in award of contract beyond 60 days after expiry of validity, there is a provision for price adjustment of the winning bid for inflation during this period.
5. The date of conversion of prices and different currencies to a common base is pre-disclosed.
6. Late bids are returned un-opened and no other bids are rejected at the time of bid opening.
7. Methodology for bid evaluation is pre-disclosed. Similarly, criteria for domestic preference is pre-disclosed.
8. All requests for clarifications and responses there to are made only in writing.
9. Criteria for evaluating the capability of a bidder to be able to perform satisfactorily is pre-disclosed.
10. Format for manufacturers’ authorisation is pre-laid down.
11. Warranty obligations covering period, scope and responsibility are pre-defined.
12. Loadings for deviations to payment terms and delivery terms are pre-defined.
13. Only complete bids for each schedule are considered.
14. Splitting of quantities is not permitted.
15. Negotiations are not allowed.
16. Bids are generally considered non-responsive in case of deviations like :
(a) Insufficient bid security.
(b) Full quantity or all incidental services for a schedule not quoted for.
(c) Insufficient validity.
(d) Price variation asked for against a fixed price bid.
(e) Delivery period required exceeds what is stated in bid document.
(f) Warranty provided is for lower duration, reduced scope or doubtful responsibility.

The above is in brief, the Bank’s procurement procedure as generally applicable and major deviations between these procedures and the Government of India rules.

Conclusion

The main effort in the procurement under World Bank procedures is to make the system as transparent as possible, lay down all parameters required for bid evaluation and thereby reduce subjectivity to the minimum. However procurement being a complex process, they may not have been able to achieve transparency in full, but it is a matter of great satisfaction that the Bank has certainly succeeded to a very large extent.

The information given in this paper is not complete, it is only indicative and has mainly been extracted from various documents of the Bank and is not an original, compilation by the author.