Yemen Procurement Assessments and Reforms

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Yemen Procurement Assessments and Reforms

• Yehya Al-Ashwal
• Chairman of the Technical Committee of the High
  Tender Board (Yemen Public Procurement)
• Regional Workshop for Strengthening Procurement
  and Public Sector Reform
• Cairo, Egypt March 30- April 1, 2009

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First Yemen Procurement Assessment Report -YPAR

• Yemen Procurement Assessment Report was completed
  on December 21, 2000 by Fred Kranz, Lead
  Procurement Specialist, MNAVP.
• Objectives are to determine the Strengths and
  weaknesses of the Yemeni Procurement System.
• Findings Gaps in the Legislation, absence of
  Standard Bidding Documents (SBDs) and conflicts
  with the World Bank's Guidelines.

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Definition of Procurement Assessment Report - PAR

• Diagnostic tool to measure the reliability of the
  national public procurement system and risks
  posed by the weakness in the procurement system
  that may result in uneconomic and inefficient
  procurement of goods, works and serviced procured
  with public funds.
• It opens a dialogue with the Government on the
  necessary reforms to improve the system.

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PAR Objectives

• Principal Objectives
• Provide a comprehensive analysis of the countrys
  public procurement system
• Undertake a general assessment of the
  institutional, organizational and other risks
  associated with the procurement process
• Assess the competitiveness and performance of the
  local private sector
• Develop a prioritized action plan to bring about
  institutional improvements

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YPAR Expected Outputs

• Consolidated Reports and Action Plans for Reform
  Programs
• Improvements needed for NCB
• Opinion on the reliability of the system and
  risks associated with it
• Document used by all donors
• Basic information for Capacity Building in
  Procurement
• Encourage Harmonization with other donors

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YPAR FINDINGSA. Legal and Regulatory Framework

• The legal framework is not up to international
  standards, notably in the following areas
• Gaps in the Legislation, absence of Standard
  Bidding Documents (SBDs) and conflicts with the
  World Bank's Guidelines.
• Even where regulations exist, they are not
  necessarily honored.
• lack of understanding these national regulations.
  

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YPAR FINDINGS B. Procedures and Practices

• Many large contracts are split into smaller
  contracts to avoid the scrutiny of the HTB.
• A number of procurement practices have been
  identified which are inefficient and
  uneconomical, and result in heavy losses to GOY.
• Most of them seem to result from unfamiliarity
  with the new Legislation, coupled with a lack of
  oversight of the procurement system and a lack of
  training.

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YPAR FINDINGS B. Procedures and PracticesThe
registration system

• The registration system does not serve its
  purpose related to public procurement and
  currently functions to the disadvantage of many
  capable Yemeni bidders.
• Leaves the problem of pre- and post qualification
  of unregistered foreign contractors unresolved.

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YPAR FINDINGS B. Procedures and Practices
Conflict with World Bank Guidelines

• Several discrepancies exist between the
  provisions of the Law and the Regulations, and
  the requirements of the Guidelines. For instance,
  the Regulations provide that foreign bidders must
  appoint an agent in Yemen and that bid security
  and insurance should be obtained from Yemeni
  banks and insurance companies, respectively.
• Such requirements are acceptable in national
  procurement, but not acceptable in IDA financed
  projects.

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YPAR FINDINGS B. Procedures and
PracticesSelection of bidders

• In the case of limited tendering, negotiated
  bidding and direct purchase, the selection
  process to determine which companies shall be
  invited to bid is not transparent.

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YPAR FINDINGS B. Procedures and Practices
Modification of bids

• Article 49 of the Regulations allows bids to be
  withdrawn but also provides that subsequently,
  the bidder may not resubmit a bid for the same
  tender. This is contrary to international
  practice.

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YPAR FINDINGS B. Procedures and Practices
Evaluation criteria

• The Regulations do not provide for evaluation
  criteria other than price. This is most probably
  an oversight in light of other provisions in the
  new Legislation. Inclusion of evaluation criteria
  other than price should have particular
  application in the case of consultants'
  contracts.

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YPAR FINDINGS B. Procedures and Practices
Price negotiations with bidders

• Price negotiations with bidders take place
  regularly, although they are not allowed by the
  new Legislation. The price negotiations with
  bidders has resulted in higher-than-necessary bid
  prices, as bidders protect themselves in advance
  with inflated bid prices.

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YPAR FINDINGS B. Procedures and Practices
Exchange risk and price adjustments

• Articles 34, 35 and 70 of the Regulations have
  been interpreted to mean that Yemeni suppliers or
  contractors can only be paid in YR, although
  foreign suppliers can be paid either in YR or in
  foreign currency, or both. This burdens the
  Yemeni contractors with the exchange risk and
  puts them at a disadvantage versus foreign
  contractors especially in larger works where many
  building materials need to be imported. It also
  results in higher bid prices, as contractors will
  include these risk factors in their prices.

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YPAR FINDINGS B. Procedures and Practices
Inspection and acceptance

• The supply of many goods and the construction of
  GOY projects suffer from unreliable or
  unperformed inspection and acceptance procedures.
  This could be remedied by enforcement of the
  Regulations' inspection and acceptance procedures
  which are quite succinct.

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YPAR FINDINGS B. Procedures and Practices
Payment procedures

• Contract prices in Yemen are substantially higher
  than in neighboring countries and this is
  believed to be due to a combination of factors of
  which payment delays is dominant.

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YPAR FINDINGS B. Procedures and Practices
MCHUP engineering services

• The current Legislation reserves several
  important functions to MCHUP, such as preparation
  of specifications and designs for construction
  works, responsibility for handover and
  supervision of works, prior approval of hiring of
  a consulting engineer by a procuring entity, and
  endorsement of completion certificates.

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YPAR FINDINGS C. Organization and Resources

• The Law and the Regulations describe the
  decentralized organization of Yemeni procurement.
  Tender committees within procuring entity take
  care of all tendering, make all procurement
  decisions within the limits of their authority
  and refer decisions exceeding that limit to a
  higher tender committee in the hierarchy. The
  whole system is supervised and regulated by a
  central authority.

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YPAR FINDINGS C. Organization and Resources

• In its current application, the procurement
  system of multiple tender committees is becoming
  progressively centralized because of the low
  thresholds of authority of tender committees and
  frequent HTB/HTC administrative intervention. De
  facto centralization has led to erosion of
  procurement capacity at the tender committee
  level and to overburdening the capacities of the
  HTC, which in turn has led to neglect of HTB/HTCs
  regulatory mandate. The deteriorating capacity of
  the tender committee has, in turn, led to
  increased HTB/HTC administrative intervention.

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YPAR FINDINGS D. Audit and Anti-corruption
Measures

• Corruption is said to be the single most negative
  factor facing business, including procurement, in
  Yemen. The Legislation is inadequate on the
  subject of corruption it does not contain a
  precise definition of corruption and fall short
  of the range of practices that should be
  forbidden. It does not mention or provide
  sanctions for civil servants on tender committees
  soliciting or accepting bribes, or making award
  decisions on the basis of illicit inducements.
• Bidding Documents do not address corruption.

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YPAR FINDINGS D. Audit and Anti-corruption
Measures

• The Government has specifically asked for
  recommendations and tools to curb corruption in
  public procurement and the report contains
  suggestions to promote the integrity of and the
  fairness and public confidence in the public
  procurement process. Among the suggested areas
  are systematic diagnosis of corruption rather
  than a piecemeal approach, enforcement of
  sanctions, regular audits, an emphasis on public
  awareness, openness, etc.

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YPAR FINDINGS E. Public Sector Management
Performance

• The government has initiated a fundamental reform
  of the civil service which could enhance
  transparency in procurement as well.
• Contractors and suppliers are sometimes required
  to pay duties and taxes from which they are
  contractually exempted. A circular from MOF
  should clarify the situation.
• Complaints about customs clearance were almost
  universal.

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YPAR FINDINGS F. Performance on Bank-assisted
Projects
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YPAR FINDINGS G. General Risk Assessment

• If no measures are taken, the risk of inefficient
  and uneconomic procurement in Yemen will remain
  unacceptable, as the regulatory, administrative
  and judiciary framework are all deficient.
  Although the new Law and Regulations of 1997 have
  provided notable improvements, they are neither
  correctly nor rigorously applied.

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YPAR FINDINGS H. Private Sector Procurement

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YPAR FINDINGS I. Recommended Action Plan

• In support of the major steps already taken by
  the government or underway in the areas of new
  legislation, civil service reform and judiciary
  reform, an incremental approach is proposed.
• For the legislative part filling the gaps in the
  existing Legislation through the new Manual.
• For the executive part institution-building
  within HTB/HTC, providing the tools to introduce
  procurement planning and rationalization in the
  procurement process, while instituting consistent
  application of and respect for the Legislation.
• For the judiciary part full support for the
  ongoing judiciary reform and arbitration
  initiatives, in order to provide fair and timely
  dispute resolution for bidders, contractors and
  GOY alike.

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Second Reforms Requirements and Related Actions

• Legal reforms to raise national procurement fully
  to an international standard would require
  extensive parliamentary involvement and should,
  therefore, only be considered part of a long-term
  strategy. . DONE
• Filling the gaps in the legal framework and
  clarify those points in the Legislation which
  seem in conflict with Bank Guidelines are highly
  required. DONE
• For those critical needs, a comprehensive
  National Procurement Manual should be prepared.
  DONE

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Second Reforms Requirements and Related Actions

• Where the Legislation is in conflict with Bank
  Guidelines, the Manual would have to distinguish
  between provisions which are binding according to
  national law, but unacceptable under Bank
  Guidelines. In the latter case, the Manual would
  have to provide acceptable alternatives to
  satisfy the Guidelines . DONE
• It is recommended that the new Manual provide
  explanation of the rights of bidders and
  contractors to dispute resolution. DONE
• Arbitration clauses should be included in the
  new SBDs, as part of the general conditions of
  contract. DONE

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Second Reforms Requirements and Related Actions

• Management Information System (MIS) system should
  be installed at the HTC, with terminals at
  various procuring entities. PMIS will be
  established.
• The MIS would provide essential capabilities in
  the following areas procurement planning and
  tracking of tenders, process control and
  financial control of tenders and preparation of
  data bases relevant to public procurement. PMIS
  will be established.
• It is recommended that GOY waive the requirement
  that Yemeni bidders be registered, until the
  registration system is improved. The Bylaw
  insured registration improvement.
• Meanwhile, all bidders, Yemeni and foreign alike,
  should be subject to pre - or post -
  qualification or bothDONE

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Second Reforms Requirements and Related Actions

• The Manual should give detailed instruction on
  dealing with these conflicts which are
  unavoidable due to the national focus of the
  Legislation versus the international focus of the
  Guidelines and other rules of donors. DONE
• It is recommended that in order to establish
  lists in a transparent way, procuring entities
  should solicit names of potential bidders on a
  regular basis, by open advertising, and
  frequently update their data bank of qualified
  potential contractors and suppliers. Mentioned in
  the Bylaw
• The proposed MIS would support this effort of
  improved transparency.

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Second Reforms Requirements and Related Actions

• The Manual should state clearly that bidders may
  freely modify their bids before bid opening. DONE
• The Manual should give specific instructions on
  how to include evaluation criteria other than
  price in bidding documents and how to take them
  into account in evaluations. DONE
• It is also recommended that the HTB review all
  bidding documents and all evaluations for
  consultants contracts with a value above
  US200,000 equivalent.

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Second Reforms Requirements and Related Actions

• Clear instructions of the HTB should put an end
  to the undesirable practice of Price
  Negotiations. DONE
• The HTB should decide whether under national
  tendering, all bidders could be allowed to
  request payment in foreign currency as a
  percentage of their bid price. DONE For goods
  only
• The necessary indices for major price-determining
  factors should be prepared and the new SDBs
  should include both price adjustment and
  escalation clauses in case of contracts to be
  completed in more than 18 months. Price
  adjustment only for special circumstances
  (International price escalation or Fuel price
  escalated by the government).

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Second Reforms Requirements and Related Actions

• A working group should analyze whether
  pre-shipment/post-shipment inspection of major
  equipment purchases would be advisable. Bylaw has
  stated the ways of inspection according to the
  volume and importance of the tender (Inspection
  company and or inspection technical committee)
• For acceptance of all public works, independent
  consulting engineers should be employed. Bylaw
  has stated that employing independent consultant
  engineers only if required, i.e. technical
  expertise.
• MOF should take appropriate measures to simplify
  procedures and reduce payment delays. Bylaw has
  stated that if the payments delayed the vendor
  has the for compensation.

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Second Reforms Requirements and Related Actions

• New provisions shall be prepared, favoring the
  involvement the domestic private consultant
  sector that is fully capable to do both design
  and supervision work under contracts with GOY.
  Bylaw has stated provisions encouraging the
  involvement of the private consultants to do both
  design and supervision.
• The Legislation shall be designed to allow for
  Entity Tender Board (ETB) designate the
  responsiveness lowest bidder while the HTB is to
  review and endorsement of tenders that value
  increase the threshold of the ETB. It is now the
  actual practice of the HTB.

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Second Reforms Requirements and Related Actions

• It is recommended that GOY return to
  decentralization of procurement, in the spirit in
  which the Law and Regulations were written. The
  Law and Bylaw secured the practice of
  decentralization of procurement, and it is now
  the actual practice of the HTB.
• The HTB and HTC should reorient their activities
  towards their regulatory function, in support of
  the entire procurement system. Their work would
  focus on monitoring and regulating the Yemeni
  procurement system and training. It is now the
  actual practice of the HTB.

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Second Reforms Requirements and Related Actions

• A gradual increase in the threshold of review by
  the HTB, following extensive training of primary
  tender committees, is recommended as well. Bylaw
  Doubled the threshold and new threshold for the
  lower levels.
• In order to be able to carry out their tasks, the
  HTB and HTC should prepare a business plan and a
  budget which addresses their regulation mandate
  under the Law and Regulations and the review of
  high value contracts. It is now the actual
  practice of the HTB.
• Selecting auditors for financial and procurement
  audits from a shortlist of auditors thought
  capable of auditing projects, agreed upon by COCA
  and IDA. This shortlist of auditors should be
  reviewed annually. SNACC and PMB are the new two
  oversight institutions (SNACC) already
  established while PMB expected to be established
  soon.

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Second Reforms Requirements and Related Actions

• A full diagnosis of the customs service is
  currently underway with the support of the IMF,
  aimed at establishing simplified and efficient
  clearance and duty collection procedures DONE

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Third Results of the Reform

• Roll-out of National Standard Bidding Documents
  (SBD).
• New Procurement Law according to UNICITRAL
  principles (international procedures).
• Restructuring of the High Tender Board (HTB).
• Additional new control body Higher Authority for
  Tender Control (HATC).
• Implementation of a Procurement Management
  Information System (PMIS).
• Disclosure Policy.

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Forth Lessons Learned

• No Reform without a champion
• The guidance and lead role of the Deputy Prime
  Minister keeping the reforms on track.
• The way forward
• Agreement with the reform champions including DPM
  was reached.
• comments from donors accommodated in the Bylaw.
• Additional comments from the donors and
  stakeholders will be accommodated in the updating
  Bylaw and Guidelines.

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Fifth Sustainable Reforms

• Yemen working with donors to keep reforms on the
  track. Some examples of cooperation as follows
• Yemen Government through HTB performed
  Procurement Self Assessment using OECD-DAC
  methodology.
• World Bank and Arab Fund Support to build the
  PMIS.
• USAID (Anti-Corruption Program). The components
  of the support are HTB (website, computers,
  printers, photocopy machines), Procurement
  Training Courses (Ministry and Governorate
  levels), etc.
• One of the cooperation method is the OECD Joint
  Learning Study (JLS). Started and two stages of
  the three stages completed.

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What is a Joint Learning Study

• JLS is a new and innovative method designed to
  share knowledge on key policy issues between OECD
  countries and countries in MENA region.
• JLS methodology supports integrity and corruption
  prevention mechanism.
• A JLS report covers specific areas of interest
  for MENA countries. One of the key elements is
  the involvement of experts from both OECD and
  MENA countries in the assessment process.

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What are the objectives of the JLS

• To assess progress made by given country in key
  aspects of integrity and corruption prevention
  policies and practices.
• To provide policy recommendations to support the
  successful implementation of reforms in MENA
  countries that are in line with international
  good practices.
• To foster policy dialogue and mutual learning
  across OECD and MENA.