Yemen Procurement Assessments and Reforms

1. 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

2. 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 todetermine 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.

3. 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.

4. PAR – Objectives Principal Objectives • Provide a comprehensive analysis of the country’s 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

5. 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

6. 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.

7. 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.

8. 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.

9. YPAR FINDINGS B. Procedures and PracticesConflict 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.

10. 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.

11. 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.

12. 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.

13. YPAR FINDINGS B. Procedures and PracticesPrice 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.

14. 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.

15. 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.

16. YPAR FINDINGS B. Procedures and PracticesPayment 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.

17. YPAR FINDINGS B. Procedures and PracticesMCHUP 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

23. YPAR FINDINGS F. Performance on Bank-assisted Projects

24. 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.

25. YPAR FINDINGS H. Private Sector Procurement

26. 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.

27. 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

28. 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

29. 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 both……DONE

30. 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.

31. 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 US$200,000 equivalent.

32. 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).

33. 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.

34. 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.

35. 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.

36. 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.

37. 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

38. 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.

39. 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.

40. 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.

41. 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.

42. 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.