Saddam Hussein and Mohammad Shaaf Najib*
Why Study Public Procurement Regimes?
Governments across the globe are spending a significant portion of their budgets on procurement. Public procurement spending is estimated to account for 15% of the world’s GDP. This is predominantly visible in developing countries with active infrastructure and social programs. Any attempt, therefore, to bring fiscal discipline by efficient allocation of resources and then pragmatically spending must consider procurement to be a fundamental part.
Gains of a good public procurement framework make available additional resources for development and lead to better outcomes of expenditure by assigning the tasks to the best possible service provider. This eventually has a positive bearing on service delivery. Empirical evidence supports that procurement reforms improve spending efficiency by 1% of GDP. This means that this saving could be diverted to other pressing sectors like education, health, and municipal services.
Thus, effective public procurement systems can help governments see better value for money, reduce pressure on public budgets, and leave agencies better prepared to invite private investments. Public funds are scarce and governments must invest with intention. Improving public procurement systems contributes to a vibrant private sector, helps governments get the most out of their investments, and supports growth.
Background
Historically, public procurement in Pakistan was traditionally regulated by three primary instruments as follows:
- The Purchase Manual of the defunct Department of Supplies and Disposal, which generally covered the purchase of commodities
- The West Pakistan Building and Roads Department Code which governs the construction of buildings and roads and the hiring of consultants for this purpose
- The General Financial Rules of the Federal Government and the delegation of financial power rules
In the late 1990s, however, public procurement was now seen as a critical function of the state institutions as public procurement expenditure share continue to grow in the government expenditure.
Following the World Bank’s assessment of Pakistan’s then procurement regime and recommendations put forward by the World Bank on basis of this assessment, the Pakistan government worked upon introducing legislative and systemic reforms to the public procurement regime. As a result, in 2002 the Government of Pakistan established the federal Public Procurement Regulatory Authority (PPRA) under the Public Procurement Regulatory Ordinance, 2002. PPRA is designed as an autonomous body tasked with the responsibility of recommending laws and regulations governing public procurement along with monitoring the application of procurement laws and performance of federal procuring agencies to improve governance, management, transparency, accountability, and quality of public procurements. Consequently, the Public Procurement Rules were promulgated in 2004 to establish and maintain a robust and efficient procurement regime in the country.
With the exception of Balochistan, Sindh, Punjab, and Khyber Pakhtunkhwa have also established their respective procurement authorities and designed their own procurement laws, although with slight variations but majorly all in line with the federal PPRA rules. The Sindh Public Procurement Rules are more exhaustive, they also provide an independent grievance redressal arrangement and a framework for regulating public-private partnership (PPP) procurements. The Punjab PPRA has adopted federal rules while Khyber Pakhtunkhwa has notified the NWFP Procurement of Goods, Works, Services, and Consultancy Services Rules. As regards Balochistan, the Public Procurement Act was promulgated in 2009 but rules have not been notified as yet. In Azad Jammu & Kashmir and Gilgit-Baltistan, procurement laws have not yet been introduced.
Shortcomings of Public Procurement Regime in Pakistan
Over the years, PPRA rules have seen few amendments, but no significant changes have been made in the initial ordinance and consequent rules. Thus, there remain many shortcomings and flaws despite nearly two decades since the authority was put in place.
The major criticism of the PPRA ordinance and rules is the lack of coherence between the two. While in actuality, the rules must be in line with the and following the spirit of the ordinance, the PPRA ordinance and rules seem like two documents on completely separate wavelengths.
The ordinance, in many places, has been formed using vague terminologies with only the basic (sometimes unnecessary) details and lacks necessary explanations on many fronts. The ordinance is also missing basic principles of the procurement regime, which instead have been mentioned in the rules. Including the rules of procurement in the ordinance will not only increase the worth of the ordinance, but also provide much needed legal framework and support to these principles. Additionally, no regulatory ideas that the rules shall follow have been discussed in the ordinance. The ordinance just establishes the procurement authority but fails to define the main regime of procurement, which must have been included in the ordinance to strengthen the base for the PPRA rules.
Additionally, we have too many procurement regulations. There is something to be said about cutting down human intervention and involvement, and use established, state-pf-the-art IT packages for public procurement. If someone does not comply, the file will not move in the system. This function can also be outsourced to ensure efficiency and transparency. The fact of the matter is that the experiment of regulatory authorities and centralized procurement systems has failed in Pakistan.
Among things that the ordinance and rules do include, a lot has been left to subjective interpretation which is highly problematic for any legal framework and guiding rules. This adds to the overall inconsistency of the procurement framework by creating a massive gap between the ordinance and consequent rules. The definition for corruption and fraudulent activities has neither been defined nor has it been linked to any specific corruption laws outside the framework of the PPRA ordinance. This creates a massive bottleneck in procurement procedures due to a lack of clarity on what may come under the umbrella of corruption.
Besides, mis-procurement has been equated to corrupt and fraudulent activities. Without a clear definition of corruption otherwise, in addition to unclear approval mechanisms, terming mis-procurement as corrupt or fraudulent activities is not only problematic but also kills the efficiency and effectiveness of the rules. As a result, most procurement officers would be unwilling to approve procurements, and in cases where they would approve such procurements, the time costs attached will increase in a bid to ensure absolute compliance to the rules which though are not well-defined.
In parallel, there is a need to improve the bidding rules and procedures as well, as currently in case of a single bid at the first call of bids cannot be accepted regardless of its merits, but a single bid will automatically be awarded the contract if no other bids appear even during the second call. This causes a severe delay in such cases by not awarding single bidders the tender in the first attempt as the entire process needs to be repeated. The option to negotiate a price with the winner after awarding of tender, while ensuring no exploitation is also lacking from the ordinance despite its possible benefits in reducing costs where possible.
Additionally, while the PPRA was envisioned to bring about robust and efficient reforms in the procurement regimes, the limitation on splitting or regrouping of proposals is a source of inefficiency in the current framework and needs to be looked upon. The lack of flexibility in the PPRA ordinance and rules despite it being aimed at ensuring efficiency and bringing about the greater public good reflects poorly on the performance of PPRA.
Furthermore, the concept of Public Private Partnerships is still in its formative phase at the national level. At the federal level, the regulatory and legal framework for the PPPs is not backed by legislation. The federal PPRA Rules are silent regarding PPP procurements. At the provincial level, however, some progress has been made in Sindh and the Punjab. Line departments at both federal and provincial level suffer from capacity constraints as there is dearth of professionals having expertise of managing PPP transactions. The private market for PPPs is also underdeveloped.
Recently, the federal cabinet has amended the procurement rules to allow the government to award contracts to the state-owned enterprises without floating public tenders, which may compromise transparency in public sector deals. The federal government notified the amended Public Procurement Regulatory Authority (PPRA) rules on June 29 after approval from the cabinet. According to the amended rule 42 (f), “A procuring agency may engage in direct contracting with state-owned entities such as professional, autonomous or semi-autonomous organizations or bodies of the federal or provincial governments for the procurement of such works and services, including consultancy services, which are time-sensitive and in the public interest”. Only time-sensitive cases are allowed exemption, still they would be subjected to major conditions in the rules, PPRA clarified later. This was long overdue. Such entities were struggling with complaints of vendors against them as well as the departments with audit paras who engage them. Anyhow, it is indeed a compromise on competitiveness and at large transparency. This amendment is not fair in broader economic sense and now every public sector department, will be using this clause to get away from tendering. Bypassing is the not the solution but an alternate effective system is. Earlier in 2020, about 23 major amendments have been introduced in the PPRA rules of 2004. Though, real change in positive is not that visible, unless substantial changes are made in the fundamentals.
Policy Recommendations – The Way Forward
The public procurement regime, without any doubt, necessities comprehensive reforms.
Firstly, PPRAs should be strengthened through operational independence and financial sustainability. To transform the PPRAs into autonomous, neutral, and independent regulatory bodies, the mechanism for the constitution of PPRA Boards may be reviewed. Inclusion of representatives of private-sector stakeholders (such as trade bodies), civil society, Auditor General, National Accountability Bureau (NAB), Pakistan Engineering Council (PEC), a representative of opposition members in the National Assembly may be considered. The Managing Director may also be selected from the public/private sector through an open competitive process. For financial autonomy, the PPRAs may request the Ministry of Finance/ Finance Departments to prescribe a formula for funding their activities so that there is predictability in the expected resources from the government. Any institution working on government budget will never get true independence.
Secondly, there is a dire need for amendments and revisions of rules. The legal framework may be reviewed and amended periodically to address the gaps and weaknesses, improve transparency and facilitate efficiency and economy in procurement processes. For instance, to mention a few may include: value for money assessments; prescribing timelines for different steps in procurement processes; enabling provisions for e-procurement; specifying consequences of mis-procurement and specific penalties for bid-rigging or use of corrupt, fraudulent, collusive, or obstructive practices in procurement and so on.
Thirdly, there should be a second-tier grievance redressal forum. PPRAs shall make arrangements to develop a second (independent) tier for the redressal of grievances. This will help the public procurement system in better process management and accountability of public officials which will ultimately lead to efficiency in procurements. PPRA Boards may deliberate and decide on the contours of such a tier. To ensure that the public procurements do not suffer inordinate delays, a timeframe could be given within which these complaints can be filed. The PPRA Board can also consider a standstill period which will mean that if a complaint is filed within this period, the Board could bar the procuring agency from signing the contract till the complaint is resolved. The second-tier office should duly publicize its decisions and keep a record of the complaints about the identification of common issues and persistent aberration from the rules/ norms.
Fourthly, the PPRAs shall develop procurement regulations, standard bidding documents, and model manuals for goods, works, and services. These regulations and manuals may be developed in consultations with the stakeholders.
Fifthly, PPRA should formulate a legal framework for public-private partnerships. Fiscal limitations in countries have led to innovative approaches in the provision of infrastructure. To bridge the growing deficit between the cost of the infrastructure and the resources available, and to achieve efficiency and effectiveness in the delivery of infrastructure services, Public-Private Partnerships have emerged as a growing element of public sector procurement. To provide legal support to PPPs the federal and provincial governments may introduce a comprehensive legal and institutional framework that provides clear guidelines and procedures for the development and implementation of 14 Public-Private Procurement Partnerships in sync with international best practices.
Lastly, and exceedingly important reform area is that PPRA must introduce E-procurement, which is the future. International experience suggests that technological innovations such as e-procurement and electronic reverse auctions can enhance the efficiency of procurement, eliminate bid-rigging, strengthen transparency and achieve value for money. The digitalization of procurement processes eliminates the direct interface between procurement officials and bidders and thereby significantly reduces the chances of bribery and corruption.
Conclusion
The bottom-line is that without changing this procurement regime, the Government of Pakistan cannot utilize its resources efficiently. The crucial point here is to cut down on excessive regulations to reduce rent seeking, automate for transparency and efficiency, and outsource management of procurement as the present bureaucracy (and its mindset) is simply not equipped (personally or technically) to achieve these goals.
* The authors Saddam Hussein and Mohammad Shaaf Najib are Research Economist and Research Fellow at Pakistan Institute of Development Economics (PIDE), Islamabad, respectively.