PART II PROJECT PREPARATION AND STRUCTURING
A. GENERAL PROCUREMENT PRINCIPLES AND METHODS
Traditional procurement for goods and services is primarily part of the technical and engineering work of the project. The key decisions in the process are generally made by engineers, including decisions on such issues as; (1) how to divide the equipment, services, and construction into appropriate procurement packages; (2) the technical specifications to be established for the goods and services; and (3) how to evaluate the technical aspects of the bids in case of a competitive process. There may be some attention to procurement in the feasibility stage. However, the intense work is done in the project preparation phase where decisions are made on whether to have competitive bidding, the form of the bidding, the nature of the bid package, and whether bidders should be required to submit, as part of the bid package, evidence that they had arranged the funding necessary to carry out the project.
The lawyer’s primary role is to ensure the legitimacy and integrity of the procurement process through strict compliance with any applicable procurement laws or regulations and the absence of fraud and corruption. It may also provide substantial input into the drafting of the bidding
51
documents and advise on protests from unsuccessful bidders and other legal issues that inevitably arise during the bidding and bid evaluation process.
1. BASIC OBJECTIVES
The ultimate objective of any procurement process is to obtain goods and services for the project (or from the project) in an economical and efficient manner that provides value for money to the procuring party over the life of the project. This generally means obtaining project inputs or outputs that meet the needed quality and technical standards at the least cost. An important secondary objective is to have a fair, open and transparent process that is free of corruption and that establishes legitimacy in the eyes of the potential suppliers and the public. The choice of the most appropriate method would vary with the characteristics of the project and the nature of the procurement being undertaken. Specifically, it would depend on such factors as industry practice in the sector concerned, the procurement capacity of the country in which the project is located, the size and complexity of the project, and expected bidder interest.
2. METHODS OF ACHIEVING THESE OBJECTIVES
There are two basic options to meet these objectives. First, the process may allow the project sponsor to identify a small group of contractors, suppliers, and other input or output providers on
52
the basis of its own experience and to negotiate directly with them to secure the best price and quality. The second option is to require the sponsor to use some sort of competitive bidding process.
The first option is informal and not governed by any specific rules or regulations. It implicitly assumes that the profit motive will be sufficient incentive for the sponsor to obtain the needed goods and services in the most economical and efficient manner, but it is not a public process and lacks transparency. As a result, a sponsor using this option runs the risk of subsequent criticism if problems arise in the construction and operation of the project. The second option assumes that a more formal competitive process governed by specific rules and regulations is needed to meet the objectives of economy, efficiency, openness and transparency.
Although there are exceptions, it has been generally believed that procurement for major projects is best done through some type of competitive bidding process where offers from several bidders are solicited, received and evaluated in an open and transparent process. The theory has been that this leads to the lowest cost and best value for money and establishes a legitimacy which is important for governments and sponsors who may face political opposition to major projects. It is for these reasons that (1) host governments have generally insisted that specific procurement rules providing for competitive bidding be used when public funds are used in the project or when the
53
project provides certain types of public services and (2) multilateral development banks have generally insisted on competitive procurement procedures when their funds are used in a project.
While some form of competitive process is still preferred, in October 2013 the World Bank completed a major review of its procurement policies which may lead to a new procurement framework and operational policies which would provide more flexibility in the process. It has proposed an approach that reduces reliance on strict compliance with specified procedures and a singular focus on lowest bid price and increases use of what it terms a “fit-for-purpose” approach. This might mean, for example, that in evaluating the bids received in a competitive bidding process, the lowest price may not always be the be the most appropriate way to achieve the best value for money over the life of the project.
In addition to price, other relevant factors may include: quality, the costs over the whole life of the project, and other benefits. In the words of the report, the Bank would consider a more flexible approach to procurement that is context specific in that it would vary with the nature of the project, the sector involved, industry practice, and market conditions. As a result, it would be “proportional” to the needs of the specific project.
The main exceptions to pure competitive bidding where some form of direct negotiation is generally accepted are cases where: (1) proprietary or a new, innovative technology is required and where it would not be possible to seek competing bids; (2)
54
smaller projects are undertaken by smaller entities using direct negotiation in order to save the substantial costs of a competitive process; (3) the applicable procurement regime permits unsolicited bids and negotiations are conducted with the bidder and (4) a concessionaire is selected by a competitive process but where direct, post-award negotiation is permitted in order to make limited changes in the terms of the concession required by lenders to make the project bankable.