PUBLIC PROCUREMENT MANAGEMENT & OVERSIGHT: A Comparative Perspective

1. PUBLIC PROCUREMENTMANAGEMENT & OVERSIGHT:A Comparative Perspective Public Financial Management Reform Program ADB Grant 0133-CAM 14 – 16 June 2010

2. Agenda • Introduction and Workshop Objectives • Overview: Public Procurement • Objectives • Management of the System • Accountability • Comparison of Public Procurement Systems: Fully Developed & Developing - United States of America - Republic of Indonesia - Royal Government of Cambodia • PFM Reform Program: Roadmap of Procurement Assistance to Cambodia • Conclusion

3. Introduction and Objectives • In December 2004, the Royal Government of Cambodia, through MEF, desired the establishment of an effective and efficient PFM system with a 10-year planning and implementation period. • As a part of these longer-term reforms, the PFM in Rural Ministries Project, financed by ADB Grant 0133-CAM, aims to strengthen the capabilities of procurement officials the three rural development ministries, MAFF, MRD and MOWRAM

4. Components: Grant Program • Component 1: Improve Public Financial Management Capacity in Rural Development Ministries • Component 2: Strengthening Capacity for Internal Auditing • Component 3: Strengthening Debt Management • Component 4: Strengthening the Effectiveness of the National Audit Authority

5. Workshop Objectives: • Compare the public procurement management systems, and related accountability, of the USA (a developed country) and Indonesia (a developing country) as a reference point for the Royal Government of Cambodia • Commence the process to enhance the procurement capabilities of officials serving at the three rural ministries. This will be accomplished through a series of capacity building initiatives, this being the first. • Provide: • The characteristics of a full-developed, well-functioning public procurement system; and • The initiatives undertaken by the Republic of Indonesia to reform its procurement system.

6. Overview of Public Procurement • Public vs. Private Procurement • Management of the Public System • Accountability

7. Public procurement is the use of public funds to acquire needed public goods and services • The primary objective of a fully-developed, well-functioning public procurement system is to acquire these goods and services at fair and reasonable prices. Social objectives; such as to ensure the growth and development of Cambodian suppliers, consultants and other service providers, are secondary objectives. • What is effective management of a country’s public procurement system?

8. A system that consistently acquires needed public goods and services at fair and reasonable prices is one indicator that it is well-functioning and well-managed. • Another indicator is free and open competition among private sector firms who have confidence in the fairness and integrity of the system • Fraud, waste and abuse will be minimized

9. Accountability helps to ensure the system is answerable for its actions: • Role of Internal Audit: General Inspectorate • External Audit: Supreme Audit Institution • Other checks and balances: Stakeholders

10. Comparison of Procurement Systems - United States of America - Republic of Indonesia

11. USA Public Procurement System

12. Public Procurement in the USA • The US federal government spends approximately $530 billion annually for a wide range of goods and services • US system is characterized by: • Centralized planning and policymaking • Decentralized procurement function • Well, if not overly, managed (checks and balances) • Internal and external accountability checks

13. Involves all three branches of government • Legislative Branch: enacts laws, such as the Federal Acquisition Regulation (FAR) which was promulgated as United States Code (USC) • Executive Branch: implements laws. The Office of Federal Procurement Policy (OFPP) operates within the Office of Management and Budget • Judicial Branch: interprets laws and regulations

14. Legislative Role • Federal Acquisition Regulation (FAR) • The FAR is the primary regulation for use by all Federal Executive agencies in their acquisition of supplies and services • The FAR became effective on April 1, 1984 • Permits fixed-price, fixed-price incentive and cost-type and multi-year contracts • The FAR provides for public participation, small business set asides and other “socially” desirable objectives

15. Executive Role • The OFPP in the Office of Management and Budget plays a central role in shaping the policies and practices federal agencies use to acquire needed public goods and services. Similar to Cambodia’s Department of Public Procurement • OFPP was established by Congress in 1974 to provide overall direction for government-wide procurement policies, regulations and procedures and to promote economy, efficiency, and effectiveness in acquisition processes.

16. Judicial Role • More than 90% of all bid protests and performance disputes are amicably resolved without judicial intervention • Binding and Non-Binding Arbitration • Hierarchy of courts for aggrieved parties to appeal public procurement actions • Board of Contract Appeals • Court of Claims

17. Other Characteristics • Stable cadre of well-trained, highly compensated procurement professionals, bound by an enforced code of conduct • Neutral and impartial fora to resolve bid protests and performance disputes • Procurement opportunities are widely-advertised and available in print form and on government websites • Both Pre- and Post- Award Audits

18. Evolution of the US System • Procurement through the 1960’s • Fraud, abuse and corruption • Three Key Reforms in the 1970’s • Cost Accounting Standards Board (CASB) • Public Law 87-653 Truth in Negotiations • Foreign Corrupt Practices Act of 1977

19. Public Procurement in Indonesia

20. GOI not yet enacted a Public Procurement Law • Procurement is governed by adopted decrees • Minimal judicial intervention (untrustworthy) • BANI Arbitration (also viewed as untrustworthy) • Before 1984: highly centralized • Even a typewriter. . . • Team 10 • From 1984 - 94: relaxed centralization for economic reasons; however competition, transparency & fairness were minimal. • Non-competitive awards to politically connected individuals and corporations were common

21. Public Procurement Reform (1992 – 1996) • Broad-based, longer term reform initiative • Based in the Coordinating Ministry for Economic Affairs • Led by a senior, well-respected official • Political will for reform (New Order Regime) • Economics supported the reform initiative • GOI initiative that was financially supported by ADB, USAID and WB

22. Broad-Based Support for Reform • 14 ministries and 10 state-owned enterprises (SOEs) • Procurement Review and Policy Analysis Group (PRPAG) formed to: • review and improve the Indonesian government's basic rules, regulations and practices relating to government procurements to improve the efficiency, transparency and openness of the government procurement system; • improve the government’s procurement oversight and management capabilities;

23. develop standard curricula for government-wide procurement training; • conduct a series of capacity building activities; including workshops, seminars and a training-of trainers (TOT) program, to help ingrain and institutionalize the expected new government procurement decree and implementing regulations into a cohesive, well-functioning Indonesian government procurement system; and • develop a system to disseminate timely and accurate information on government procurement policies, practices, and actions to both the public and private sectors.

24. Public Procurement ReformAccomplishments • PRPAG drafted a new Presidential Decree in 1 yr • Draft decree was adopted in April 1994 • PRPAG drafted a comprehensive implementing Public Procurement Manual • GOI’s Oversight and Management Capabilities were Strengthened • Standard Curricula for Government-wide Procurement Training was Developed • Advertising Procurement Opportunities Required

25. Procurement Related to Overall Financial Management Reform • Indonesia’s FMR Commenced in 1998 • In April 2001, the Ministry of Finance organized a “Financial Management Reform Committee” • In November 2001, the Committee set forth its “Principles and Strategy” to improve public expenditures management

26. Law17/03 concerning “State Finances” was enacted on 5 April 2003 • Law 01/04 concerning “State Treasury” was enacted on 9 January 2004 • Law 10/04 concerning “Law on Legislation” was enacted on 22 June 2004 • Law15/04 concerning “Audit on State Finances Accountability” was enacted on 19 July 2004 • Law 32/04 on “Regional Governance” and Law 33/04 on the “Fiscal Balance between the Central and Regional Governments” (Decentralization Laws) were enacted on 19 October 2004 • Law 15/06 concerning “State Audit Board” was enacted on 30 October 2006

27. Keys to Indonesia’s FMR Success • Broad-based involvement • Consensus development • Senior, well-respected Indonesians led • Stakeholder consultations • Multi Donor Support • Nationwide Dissemination of Newly-Enacted laws and Newly-Adopted Regulations • Extensive Public Awareness Seminars & Workshops

28. Hierarchy of Indonesian Laws & Regulations • Based on Law No. 10 of Year 2004 • 1945 Constitution • Law or Government Reg in Lieu of a Law • Government Regulation • Presidential Regulation • Regional Regulation

29. .

30. .

32. .

36. Summary Comparison US System Indonesian System Law Yes No Regulations Yes Yes Pre-Award Yes No Post-Award Yes Yes Advertising Yes Yes Judicial Yes No Written Opin Yes No Arbitration Yes Yes* Cadre Yes No GW Training Yes Yes Accountable Yes Yes

37. Cambodia’s Current Public Procurement System • As yet, Royal Government of Cambodia does not have a deeply-rooted public procurement law • The regulatory framework consists of Sub-Decrees and Amendments, easily changeable • Procurements and Privately-financed Build-Own-Operate (BOT) Projects are grouped together • Accordingly, Cambodia may wish to consider expediting the legal and regulatory framework to facilitate the capacity building and institutional development initiatives being undertaken

38. Cambodia’s Procurement Regulatory Framework • Procurement Sub-Decree No. 105 dated October 28, 2006; • Procurement Sub Decree dated June 8, 1995; • Procurement Sub-Decree No. 14 dated February 26, 2007; • Implementing Rules and Regulations Governing Public Procurement (IRRPP), amended on September 2, 1998; • Draft Implementing Rules and Regulations on Public Procurement and Procurement Manual for Goods, Works and Services (to be approved); • Procurement Manuals for Externally Financed Projects/Programs in Cambodia (Vols. 1-3) dated September 2005; • Prakas No. 45 on the Implementation on Deconcentralization for Public Procurement dated January 31, 2005; • Instructive Circular on Procurement Planning Guidelines No. 12 dated December 7, 2006 • Supplementary Instructions of Prakas No. 319 on Rules and Regulations of Public Procurement dated 31 August 1995

39. Effectively Three Systems • Procurements financed by the State Budget • Donor-Supported Procurements (SOP/PM) • Independent Procurement Agent (IPA) • Significant capacity building needs • Procurement officials are (or appear to be) assigned routine administrative work, without decision-making authority (PRC) • Government not yet able to decentralize the procurement function due to capacity deficiencies

40. MEF awarded contract to Independent Procurement Authority (IPA) to carryout World Bank-financed procurements on behalf of the Government. • At some point in the near future, the ministries will be required to assume these IPA duties (approx 200 procurements/year)

41. PFM Reform Program: Roadmap of Procurement Assistance to Royal Government of Cambodia • Focused on 3 rural development ministries • Training and capacity building in all procurement related matters under • the deconcentrated procurement sub decrees for procurement under national budget and • within the scope of SOPs and PM

42. On-the-Job (OTJ) Training • Mentoring • Coaching • National and International Procurement Specialists will work with the 3 ministries • Specific objectives on the following slides

43. Strengthen capacity in procurement planning and monitoring and assisting in preparing the Annual Procurement Plan and the Project Procurement Plan; • Strengthen capacity to monitor and evaluate the performance of the public procurement system; • Clarify lines of accountability within the procurement process, including effective oversight guidelines and identify key internal controls in budget execution

44. Strengthen the capability to monitor and evaluate procurement progress and conformance procedures and in preparing regular procurement reports to MEF and other agencies; • Update databases on procurement status and use procurement website to post information on procurement processes and contract awards; and • Establish good practices to ensure efficient functioning of the PRCs.

45. Implementation Structure

47. Public Procurement ManagementPublic Financial Management for Rural Development Program (PFMRP) Donor-Assisted ProcurementsCarried Out UnderSOP/PM Procedures

48. The Procurement Manual • Policies and procedures for the procurement of goods, works, and consulting services For Externally Financed Projects / Programs in Cambodia

49. Identification 1 Preparation 2 6 Evaluation 5 3 Appraisal Implementation 4 Loan/Grant Negotiation & Board Approval Project Cycle

50. PFMRP Procurement Plan The Procurement plan specifies the following procurement methods • International Competitive Bidding (ICB) • National Competitive Bidding (NCB) • National and International Shopping (NSH & IS) • Selection based on Consultants Qualifications (CQS) The training material for the PFMRD project will focus on the above procurement methods