Tampering with public procurementThe procurement regime needs a complete overhaul, but the motive and method are doubtful.
Finance Minister Janardan Sharma, since his appointment to the position about a hundred days ago, is flexing all his muscles to "restructure" Nepal's public procurement system by amending the Public Procurement Act 2007 and related Public Procurement Regulations 2008. He is reported to have formed a task force last week to recommend the required amendments to remove provisions that he sees as bottlenecks to the timely implementation of projects. Headed by the secretary of the Public Procurement Monitoring Office, the task force has representation from about a dozen ministries mainly with responsibilities in public civil works, and it has been asked to submit a report with specific changes in the act, regulations and current requirement of bidding documents.
Minister Sharma is eying three major sets of public procurement rules currently in practice. First, he wants to reduce the submitting deadline of bidding documents from 35 to seven days from the date of the public notice calling for bids. Second, he is for amending the provision of awarding the contract to the lowest bidder. Third, the "clumsy" bidding process as provisioned in Section 2 of the act is sought to be simplified. The minister has also come up with a drastic "innovative" idea to make legal arrangements for carrying out work in projects worth up to Rs100 million through labour cooperatives while the very existence of such cooperatives is dubious.
The reform imperative
No doubt, Nepal's public procurement regime needs a complete overhaul. The Public Procurement Act has been amended at least nine times since its enactment. However, it still has effectively failed to increase the scale and efficiency of even budgeted capital expenditure and equally failed to ensure fairness and transparency in the bidding process. Capital expenditure has remained chronically low. All aspects of the project cycle from selection, implementation and management to completion have always been problematic, even without a citable example of best practices adhered to. The completion period often gets unduly extended. Cost overruns and difference payments to contractors are deliberate and have become the norm rather than the exception. Worst of all, there is a clear absence of political will to mend these aberrations costing billions to the country's exchequer.
Instead, there is blatant political interference in the bidding process of big and small projects by the parties in power in their respective political jurisdictions, from the federal to the local levels. Efforts to update the entire public procurement process from awarding the contract to completing the project by using recent information technology (for example, execution of e-bidding and real-time recording of the work process) have been thwarted by the pervasive rent-seeking interest of the political class. An entirely new ecosystem for digitised and automated processes was never created. There were some discussions on activating the online submission of bids, but other related support systems like e-payment of the security deposit, particulars of large amounts, and the document verification and digital signature validation processes (on the digital platform) were never initiated.
On the procurement governance front, the Public Procurement Monitoring Office is overtly obsessed with a centralist, read anti-federalist, mindset, and it has been trying to regulate the public procurement deals of the whole country from a single, understaffed office at the centre. Since Nepal's federal constitution has devolved a fair amount of fiscal prowess to the subnational governments, the very idea of centralised public procurement management and monitoring is antithetic to the federal polity. Both institutional and legal frameworks should have been allowed and supported to evolve at the subnational levels to ensure transparency and expenditure efficiency at each government unit.
Against this backdrop, the finance minister's effort to restructure the public procurement system ideally should have been desirable, thus, welcomed. But that is not the case here. Both the motive and the method the minister is employing have raised quite a few eyebrows in policy circles. Prima facie, he is trying to dismantle the existing system without proposing better policy, institutional and operational alternatives. His idea of forcing contractors to register the bid proposals within seven days of the call notice being published is impractical. It smacks of a design to collude with chosen contractors who enjoy the privilege of ex-ante inside information. Even for a reasonably sized project, a week is insufficient to develop a workable financial or technical proposal. The new idea of mobilising the so-called labour cooperatives for civil work-related projects is purely populist and has been deliberately hatched to support party cadres.
The 35-day window given to potential contractors to register their bid documents is not only the reason for delaying project execution. If other facets of project administration—like timely calling for proposals, preparing the detailed project report and deploying appropriately skilled project personnel in advance—are put in place, the output could improve substantially. Several earlier reports, including one prepared by the Public Procurement Monitoring Office, have proposed at least 21 days to provide reasonable time to the bidders and, thereby, not compromise the prospect of fair competition.
It may be recalled that it took 15 years to convince Nepal's policymakers about the necessity of enacting the Public Procurement Act and setting up the Public Procurement Monitoring Office since the first elected government took charge after the restoration of democracy in 1990. Any whimsical destruction of a budding system is bound to have catastrophic results.
Even today, one critical component missing in the debate, sadly, is customising the public procurement policies, institutions and policies to meet the developmental needs of the federalised nation-state in consonance with the principles of fiscal federalism. It is common knowledge in Nepal that ad hoc, unstable and impractical arrangements in the public procurement policies and practices have been the core reason for the rampant embezzlement of public funds. Unfortunately, public procurement has become the area of critical interest even among the elected executives in all three tiers of government for all the wrong reasons—to suck public funds for their vested interests. Therefore, changes to plug these loopholes are long overdue, but Sharma's prescription appears to be more precarious than desirable. It is equivalent to policy corruption at the highest level.