Contracting with the Government

1. Contracting with the Government

2. Introduction to public procurement • What does it measure?

3. What is public procurement? Public procurement refers to the purchase by governments and state-owned enterprises of goods and works.  Examples: pencils, cleaning services, road maintenance. The indicator focuses on procurement of works. PRIVATE SECTOR

4. Why does public procurement matter worldwide?

5. What are the pillarsof public procurement? • When these principles are not observed • Public funds are allocated inefficiently • Market access is restricted • Collusion may prosper • In the case of works, they may never be delivered or require more time/money

6. Key terms in public procurement

7. The public procurement life-cycle Invoicing & Payment Needs & Budgeting Award & Signing Renegotiation Bids collection Opening& Evaluation Needs & Budgeting Invoicing & Payment Tendering The Procuring Entity publishes the tender documents, inviting bidders to submit their bid before a set deadline. The bid should show compliance with selection and award criteria. Bidders seek clarifications, if needed, and choose sub-contractors. After the winner is selected, winning and losing bidders are informed. The winning bidder (now called contractor) signs the contract with the Procuring Entity, setting the terms of their relationship. During the life of the contract, the contractor and the Procuring Entity may renegotiate certain contract terms (for example, delivery time, materials, etc.). Bidders submit their bids along with a form of bid guarantee, if so requested by the tender documents. During the works, the contractor provides regular invoices to the Procuring Entity, who checks the progression and quality of the works. If the works comply with the contract, the Procuring Entity pays the contractor. The Procuring Entity assesses its needs, estimates the contract value and allocates budget. At a public meeting, the Procuring Entity opens the bids. Submissions are evaluated to check for compliance with the tender documents requirements. Renegotiation Tendering 1 3 Award & signing Bids collection 2 Opening & evaluation 2. Selection and award 1. Planning 3. Contract Management

8. Introduction to public procurement • What does it measure?

9. Case Study Assumptions • Resurfacing 20 Km of a 2-lane road (not a highway) • Value: USD 2.5M • No work beyond resurfacing • Domestic and privately owned LLC • Operates in main business city • Wins the contract Entity that conducts procurement for the authority that owns the majority of comparable roads.

10. Phase 1: Budgeting and Needs Assessment • This section focuses on how the contract value of new projects is estimated and how budget is allocated. • Poor planning is one of the main causes of delay and cost overruns that waste public funds in construction. • Lack of pre-allocated budget is one of the main causes of delay in payment. • Good practices: contract value estimates are based on technical studies and previous projects. Budget is set aside for the project before it starts. Source: ROCKS Database – 2017

11. Phase 2: from Advertisement to Bid Submission • Good practices • Procurement is open to anyone to maximize market access. • Informal interactions between bidders and the PE are limited and very regulated. • Tender documents are free and publicly available. • Tender documents set all selection and award criteria. • Clarifications are shared with all bidders. • Bid security does not preclude participation of small companies • Subcontracting is regulated.

12. Phase 3: from Bid Opening to Contract Signing • This section focuses on: • The time and reasons for delay between bid opening and the commencement of the works • The criteria used for evaluation and award • Exclusion of bidders • Good practices include: • Proceeding to bid opening immediately after the deadline for submission • Using a (well defined) best-value-for-money criteria for award, whenever possible • Giving bidders a standstill period to file complaints with the PE • Speedy processing of contract formalities at the PE • Pre-approval of all permits and authorizations required to begin the works • Limiting informal interactions between bidders and the PE • Binding employees of the PE to a code of ethics and conduct • Providing excluded bidders with enough (and timely) information to challenge the decision

13. Phase 4: Contract Management • This section focuses on: • Performance guarantee • Contract renegotiations • Termination at-will of the procuring entity • Good practices: • Performance guarantee does not impose prohibitive costs on businesses and is returned promptly. • Contract renegotiations are limited to exceptional circumstances and not used to compensate for defective planning or unrealistically low bids. • Emergencies are not used as excuses for renegotiation. • Renegotiations are made publicly available. • Termination at will is limited to pre-set circumstances and safeguards for the contractor are in place. 46% of contracts had price renegotiations larger than 5% 83% • of contracts hadtime renegotiations larger than 5% • (2015 Study on public contracts in Italy)

14. Phase 5: Payment, Delays and Quality Assessment • This section focuses on: • Payment • Inspections • Main causes of delays and overruns • Good practices: • The legal framework sets a time limit for paying contractors. • Payment is processed within that time limit. • Payments are spread out throughout the life of the contract, allowing market access to companies with more limited resources. • Delayed payment is addressed with sanctions. • Contractors resort to (efficient) courts to seek payment, instead of bribes. • Inspections are conducted regularly. • Post-completion guarantee is not burdensome to the company.

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