Report No. 42391- KG Kyrgyz Republic Public Procurement System Assessment Using the OECD-DAC/World Bank Methodology November 10, 2007 Operational Policy and Services Europe and Central Asia Region Document of the World Bank PUBLIC PROCUREMENT SYSTEMASSESSMENT. USINGTHE OECD- DACWORLD BANKMETHDOLOGY Table of Contents EXECUTIVE SUMMARY ........................................................................................................ 1 IPublicProcurementAssessment-Findings andRecommendations . ................................. 6 ANNEX 1 UNIMPLEMENTED MAJOR RECOMMENDATIONS OF THE 2002 CPAR .................................................................................................................................................... . 18 ANNEX 2 SUMMARY OF RECOMMENDATIONS . ......................................................... 21 I1 Pillars andBaselineIndicators (BLIs) . ............................................................................... 24 Pillar I: Legislative andRegulatoryFramework .............................................................. 24 Indicator 1: Public procurement legislative and regulatory framework meets agreed standards and complies with obligations ............................................................ 24 Indicator 2: Implementing regulations and documentation................................................ 30 Pillar I1 InstitutionalFramework andManagement Capacity . ....................................... 34 Indicator 3: The public procurement system i s mainstreamed and well integrated into the system of public sector governance.................................................. 34 Indicator 4: The country has a functional normative/regulatory body............................... 37 Indicator 5: Existence o f institutional development capacity............................................. 40 Pillar I11 ProcurementOperations andMarket Practices . .............................................. 43 Indicator 6: The country's procurement operations andpractices are efficient .................43 Indicator 7:Functionality o fthe public procurement market ............................................ -45 Indicator 8: Existence o f contract administration and dispute resolution provisions ....................................................................................................................... 48 Pillar I V Integrity andTransparency of the Public ProcurementSystem . .................... 50 Indicator 9: The country has an effective control and audit system ................................... 50 Indicator 10: Efficiency o f the appeals mechanism ........................................................... 52 Indicator 11: Degree o f access to information .................................................................. -55 Indicator 12: The country has ethics and anticorruption measures inplace....................... 56 111 ... PUBLIC PROCUREMENT SYSTEMASSESSMENT, USINGTHE OECD- DACMORLD BANK METHDOLOGY EXECUTIVE SUMMARY Background 1. The World Bankstaff, in close collaborationwith a counterpart governmentteam, assessed the public procurement system and finalized the Country Procurement Assessment Report (CPAR) in December 2002. Among its provisions, the 2002 CPAR included an action plan for improvement o f the legislative framework, calling for a revised public procurement law, a set o f comprehensive implementation regulations, and other steps. The current report takes stock o f developments since 2002 within the Public Financial Management Framework (PFM) and contributes to the Countiy Fiduciary Assessment Update (CFAU), thus providing a combined financial management and procurement update. The CFAU report,' which i s being prepared concurrently with this report, covers other important elements o f the PFM, such as public sector accounting and reporting, internal controls and internal audit, and external audit. These elements are essential for an efficient, economical public procurement system. This procurement assessment provides a basis whereby the Government o f the Kyrgyz Republic (GOK) can formulate a capacity-building plan to improve its purchasing system; donors can devise strategies for assisting the capacity development plan andmitigate risks inindividualoperations that they decide to fund; and the country can monitor system performance and the success o f reform initiatives in improving outcomes. This assessment has been prepared in close collaboration with a team established by the GOK2 It incorporates results from analyses o f procurement legislation and feedback from various stakeholders in the procurement system, including government agencies, procuring entities, consultants, contractors, suppliers, and representatives o f civil society. 2. The PublicProcurementLaw (PPL) of the Kyrgyz Republictook effect on May 24, 2004. The PPL provides for a decentralized procurement system. All users o f central and local budgetary funds are now responsible for conducting procurement in accordance with the standards o f the new law. All upcoming tenders must be announced publicly, which greatly strengthens transparency. The State Agency on Public Procurement and Materials Reserve (SAPPMR) is responsible for assisting public entities incomplying with the law. 1 This report was submittedindraft to the Government o fthe Kyrgyz Republic on June 29,2007, and simultaneously distributed among donors for review and comment, and incorporates their comments. The World Bank teamwould like to thank J. Nurjanov, the Director o fthe SAPPMR, and the counterpart team comprising M.K.Kunakunov, head o f the Department for State; A. S. Umetaliev, Director o fthe National Procurement Training Center (NPTC); S. R. Abdymomunova, head o f the unit; A. T. Toktaliev, a leading specialist; G. H.Tynyrnseitova, a leading specialist; and J. J. Bazakeeva, trainer-consultant with the NPTC, for their excellent cooperation. The team would also like to thank the staffs of procuring entities, o f the Ministry o f Finance, o f consulting firms, contractors, and suppliers, and o f NGOs for their frank and honest feedback. 1 Post-2002 CPAR Changes 3. Since the December 2002 CPAR, several significant developments have occurred in the public procurementsystem of the Kyrgyz Republic.Inthe new PPL, the government implemented the majority o f the Bank's recommendations. Many recommendations for organizational reform also were implemented. One o f the most important developments has been the government's establishment o f the National Procurement Training Center (NPTC), supported by a grant from the Institutional Development Fund (IDF) o f the World Bank. The NPTC i s operational and has already trained over 1,500 public officials in conducting procurement according to the PPL. It has also held several seminars for consulting firms, contractors, and suppliers.However, many other recommendations remain unimplemented. 4. Ineffective implementation of the May 2004 PPL is a major weakness of the Kyrgyz public procurementsystem. While the country has a comprehensive legal framework for a sound public procurement system, actual performance suffers from several deficiencies. These shortcomings include the absence o f proper guidance to procuring entities; lack o f procurement organization and capacity; undesirable procurement methods; poor budgetary allocation processes; inadequate external and internal controls, including an anticomption agenda that has yet to be implemented; and a weak supply side, which has little trust in the procurement system. For instance, the complaint resolution mechanism i s not trusted by bidders. Only 20 complained in 2005 and 40 in 2006. Furthermore, the procurement data collection system i s nonfunctional. Without this data, a more complete analysis o f purchasing becomes difficult. As discussed ingreater detail below, additional deficiencies exist inthe legal framework that can be addressed downstream by clarifying and supplementing the PPL. Remedial steps would include the issuance o f effective implementing regulations, a procurement manual or procurement guides, Standard Tender Documents (STDs) and model contracts, or perhaps even some future redrafting o f PPL's provisions. 5. Although the PPL clearly assigns the procurementoversight and support roles to the SAPPMR, the agency is unable to fulfill these roles efficiently and objectively.It lacks adequate capacity. Its involvement in the actual conduct o f procurement-which i s the responsibility of procuring entities4onflicts with its oversight role. The SAPPMR provides little guidance to procuring entities to ensure effective PPL implementation. The agency has yet to prepare and disseminate comprehensive implementation regulations and a compliance manual for procuring entities. Procuring entities at all levels o f government are poorly organized. Some still conduct procurement through permanent tender commissions despite the PPL requirement to make a single department responsible for procurement with necessary capacity for it to function effectively. Furthermore, qualified procurement professionals are generally in short supply. Purchasing consequently i s being conducted by unqualified governmental staff who have received minimal instruction from the National Procurement Training Center. The net result i s weak implementation o f the PPL and the prevalence o f poor practices, from procurement planning to contract implementation. 6. On January 9, 2007, the prime minister issued a resolution to reinforce procuring entities' adherence to the PPL. The January resolution followed up on Article 13 o f the PPL, which requires all procuring entities to create or designate a separate procurement unit and to 2 staff this unit with qualified and trained personnel. Thus far, only the Ministry o f Health (MOH) has complied under the sectonvide approach (SWAP). This lack o f compliance-by ministries and by regional and district-level procuring entities-has done little to advance the goal o f using public resources economically and efficiently. Clearly the government needs to take stronger measures to translate the legislative mandate into action. 7. Procurement planning begins with initiation of budget formulation. However, planning currently consists o f little more than compiling a list o f items and their estimated costs for budgeting purposes. Multiyear procurement planning is absent. Even after the national budget is approved, adequate procurement plans have yet to be prepared; nor are they made public, which would help providers o f goods, works, and services in responding to tenders. Procuring entities receive funds late in the fiscal year, allowing insufficient time for efficient and economical procurement. Information provided in tender notices is sometimes incorrect andmisleading. Biddingdocuments often are unavailable to interested bidders.Bidpreparation time is too short. The quality o f technical specifications is poor. Contract award decisions frequently are based solely on the lowest price, not the lowest evaluated price. Tenders are cancelled without notice or justification. Contract management practices are poor. Contracts are sometimes terminated without justification. In addition, the complaint resolution mechanism appears to lack objectivity and transparency. Taken together, it is not surprising that providers o f goods, works, and services express little trust inthe system. Benchmarking against International Standards 8. The World Bank team and SAPPMR staff jointly analyzed the Kyrgyz public procurementsystem. The Kyrgyz procurement system was benchmarked against international standards as described in the July 17, 2007, "Methodology for Assessment o f National Procurement Systems Based on Indicators from OECD-DAC/World Bank R~und."~ Incarrying out its assignment, the World Bank team and the SAPPMR counterpart team reviewed the PPL in depth; consulted with relevant government agencies; and interviewed private firms, including construction contractors, consulting firms, and suppliers o f goods. The benchmarking exercise was expected to provide all parties with a more objective assessment o f actual performance by the public procurement system, while establishing a framework for measuring progress toward reform. Simultaneously, donors would be better able to evaluate funding risks. 9. The OECD/DAC methodology is based on four pillars. These support sound operations through (a)the legislative and regulatory framework; (b) the institutional framework andmanagement capacity; (c)purchasing operations and marketpractices; and (6) the integrity and transparency o f the public procurement system. Each pillar includes several baseline indicators (BLIs) and subindicators that describe formal and functional features o f the system. A score o f 0 to 3 is assigned to each subindicator, with 0 indicating failure to meet the standard, 1indicating the need for substantial work, 2 indicating less-than-full achievement with needfor improvement, and 3 indicating full achievement o f the standard. 3This methodology also includes complianceiperformance indicators (CPIs), which require monitoring data to determine adherance with the formal system. The CPIs were not used inthis assessment because o f insufficient data. 3 Benchmarking Results 10. Figure1summarizes resultsof the scores assigned to the OECD-DACpillars.Each point o f the diamond represents one o f the four pillars. The full area within the black-lined diamond represents an "ideal" system that perfectly conforms to international standards as defined by OECD-DAC definitions and methodology. The smaller red-lined diamond represents the current state o f the Kyrgyz public procurement system. Figure I. Procurement System Benchmarked Against Kyrgyz International Standards (OECD-DAC Methodology) LeaislativeL-- (1) -I- Proc OperatlHf & Markets 11. As shown in Figure 1, the points of the diamond are determined by a 040-3 composite ranking on each of the x andy axes. The highest composite score is 2.1 on the legislative and regulatory framework axis (Pillar I). In other words, according to the BLI assessment, the laws and regulations in the Kyrgyz Republic basically meet an acceptable international standard. By contrast, scores for the other three pillars flag serious deficiencies. In institutional and management capacity (Pillar II), average score is 1.O. In procurement the operations and market practices (Pillar 111), the average score i s 0.7. In public procurement integrity (Pillar IV), the average score is 1.2. 4 12. Figure 1 shows that progress has been made in recent years, but much remains to be done. While the legislative framework for procurement (Pillar I)has evolved toward achieving international standards, the institutional arrangements (Pillar 11) necessary to implement the legislation have lagged. Inparticular, procurement system operations (Pillar 111) do not inspire much trust among the providers o f goods, works, and services in the evolving national procurement market. This reflects a strong need to initiate partnerships between the public and private sectors to strengthen existing external controls, to establish internal controls, and to implement an effective anticorruption program (Pillar IV). Main Recommendations of this Assessment 13. Primary recommendationsare based on the benchmarkingresults (see Section 11). These have beenconsolidated and prioritized in the Summary o f Recommendations in Annex 2 to Section Io f this report. They include: (a) preparation o f a detailed implementation regulation; (b) provision o f adequate staffing resources to the SAPPMR; (c) assistance to procuring entities to organize themselves for carrying out procurement in an economic and efficient manner incompliance with the law; and (d) strengthening o f the National Procurement Training Center and to making it sustainable through inclusion o f budgetary resources in the budgets o f procuring entities. Budgeting processes also need to be improved so that procuring entities receive timely allocations to conduct procurementproperly before the fiscal year ends. 14. Another major weakness of the system is absence of a mechanism to collect, maintain, and disseminate procurement data. Such data is vital for determining whether public funds are being used efficiently and economically. This recommendation was included inthe 2002 CPAR as well, and hopefully it will now be implemented. Improvingbidders' trust inthe system also is needed through a reliable complaint resolution mechanism and through higher-quality tender documents, accurate technical specifications, and correct information in tender and contract-award notices. Finally, public procurement system integrity and transparency should be enhanced by aligning the PPL with anticorruption legislation and by strengthening internal and external controls through training inpublic procurement. 5 I.PublicProcurementAssessment-Findings andRecommendations 1.1. This section contains four parts. The first discusses the current public procurement scenario in the country. The second deals with the reforms undertaken since the 2002 Country Procurement Assessment Report (CPAR). The third analyses the results o f the benchmarking exercise conducted using the July 17, 2006, OECD-DAC/World Bank Methodology for Assessment o f National Procurement Systems. The fourth discusses outstanding weaknesses o f the system and makes recommendations for improvement. 1.2. The World Bank staff, in close collaborationwith a counterpartgovernment team, assessed the public procurement system and finalized the Country Procurement Assessment Report (CPAR) in December 2002. The 2002 CPAR included an action plan to improve the legislative framework through a revised public procurement law, a set o f comprehensive implementation regulations, and other steps. This report takes stock o f various developments since 2002 within the Public Financial Management Framework (PFM) and contributes to the Country Fiduciary Assessment Update (CFAU)-thus providing a combined financial management and procurement update. The CFAU report, which is being prepared concurrently with this report, covers other important elements o f the PFM such as public sector accounting and reporting, internal controls and internal audit, and external audit. These elements are essential for a public procurement system that functions economically and efficiently, a goal which is integral to the PFM. This assessment provides a basis on which the Government o f the Kyrgyz Republic (GOK) can develop a capacity-building plan to improve its procurement system. Donors can devise strategies for assisting the capacity development plan, This will help to mitigate risks in individual funding operations; and the country can better monitor system performance and the success o f reform initiatives in improving outcomes. 1.3. This assessment has been prepared in close collaboration with a team established by the GOK. It incorporates analyses o f the procurement legislation and feedback from various stakeholders in the procurement system, including government agencies, procuring entities, consultants, contractors, and suppliers, as well as representatives o f civil society. Overview of PublicProcurementin the Kyrgyz Republic 1.4 The Government of the Kyrgyz Republic initiated public procurement reform in 1994 and enacted the first Public Procurement Law (PPL) in April 1997. Since then, the country's legislative framework for procurement has been under regular development. Following the 2002 CPAR recommendations, the Government drafted a new PPL, which was passed by the Jogorky Kenesh (Parliament) in April 2004 and took effect on May 24, 2007. This PPL not only implemented several CPAR recommendations, but was also substantially in line with international standards. 1.5 The PPL spells out the major principles of the public procurement process. It identifies the parties to which PPL applies, defines the scope o f authority o f the State Agency on Public Procurement and Material Reserves (SAPPMR), and outlines the stages o f purchasingprocedure. The two main institutional categories under PPLjurisdiction are (a) state 6 and other entities that use the state budget, and (b) state-owned enterprises (SOEs) that are majority owned by the government. Among the strong points o f the PPL are the following: 0 A decentralized procurement system inwhich all users o f budgetary funds, central and local, are responsible for conducting their own procurement Adequate notification o fbiddingopportunities to suppliers and contractors 0 A requirement that the SAPPMR provides technical assistance to procuring entities in their organization o fprocurement functions Clear provisions for selection o f consulting services. 1.6 The framework for implementing the public procurement reform falls on the SAPPMR. SAPPMR has overall responsibility for developing procurement legislation and providing support and oversight to ensure procuring entities' compliance with the law. Procuring entities are responsible for the actual conduct o fprocurement, while external controls are exercised by the Chamber o f Accounts (CA). Internal controls do not yet exist. The Treasury in the Ministryo f Finance deals with contractual payments and i s also responsible for verifying that a procuring entity has conductedprocurement incompliance with the PPL. While a national public procurement implementation framework does exist, weak implementation o f the PPL shows that there i s muchroom for strengthening the process. 1.7 The public procurement legislative framework provides a theoretically sound environment for competitive and transparent procurement. This framework includes the PPL and a number o f resolutions. However, implementation o f the statutes by procuring entities i s weak. Procuring entities at all levels o f government are poorly organized and their personnel are trained inadequately to conduct procurement; the market i s not fully functional; and the country's internal and external controls are either nonexistent or intheir infancy at best. Inanutshell, implementation ofthe system is inefficient, resultinginuneconomic use ofpublic funds for state procurement that cumulatively account for approximately 5 percent o f annual GDP, as shown inTable 1. 7 Table 1. PublicProcurementas a Shareof GDP, 2004-06 Public GDP Ratioof public Year procurement (in US$ procurement (US$ million) million) expenditureto GDP (YO) 2004 97.2 2,239.9 4.34 2005 112.8 2,534.6 4.45 2006 158.4 2,924.0 5.42 Progress since the December2002 CPAR 1.8 Since the December 2002 CPAR, several significant developments have occurred in the public procurementsystem of the Kyrgyz Republic.Inthe new PPL, the government implemented the majority o f the Bank's recommendations (extension o f scope o f application, creation o f a separate chapter on procurement o f consulting services, inclusion o f additional definitions, provisions for financing the SAPPMR, among others). Many recommendations for organizational reform were also implemented, including separation o f the procurement function from the State Materials Reserve Fund in the SAPPMR and reorganization o f SAPPMR's funding mechanism. As recommended, a government implementing resolution mandated procuring entities to send their complete procurement plans to the SAPPMR at the beginningo f the budgetyear; the Public Procurement Bulletin is publishedtwice weekly; and the amount o f bid security is up to 3 percent maximum. One o f the most important developments since the 2002 CPAR has beenthe establishment o f the National Procurement Training Center (NPTC), supported by a grant from the Institutional Development Fund (IDF) o f the World Bank. The NPTC, which belongs to the SAPPMR, i s operational and has already trained over 1,500 public officials in conducting procurement under the PPL. It has also held several seminars for consulting firms, contractors, and suppliers. However, many other recommendations remain unimplemented(see Annex 1). 1.9 The GOK did not implement fully the recommendationfor procurement capacity building.Dialogue within the government to establish procurement as a separate career stream in the civil service has not been initiated. The government also did not follow most o f the CPAR recommendations on increasing accountability. N o internal audit department has been established; findings on corruption inpublic procurement are not made public; the Chamber o f Accounts annual reports are not published; and C A staff members do not receive adequate training in conducting procurement audits. It appears that several recommendations o f the 2002 CPAR were not implemented, either because o f the lack o f resources or the absence of necessary pieces o f legislation, or simply because the SAPPMR did not attach appropriate priority to them. It i s strongly recommended that the GOK consider implementing these recommendations to make the system more transparent, economic, and efficient. 8 1.10 The PPL provides a clear legislative foundation for the SAPPMR. The main functions o f the SAPPMR are to (a) develop the legal framework for public procurement, (b) coordinate and regulate the activity o f procuring entities in carrying out procurement, (c) monitor procuring entities' compliance with the PPL, (4 assist procuring entities in carrying out procurement through explanations o f the PPL and provision o f training to their personnel, (e) provide openness and transparency in procurement proceedings, and u> review and adjudicate complaints. It appears, however, that the SAPPMR i s more focused on reviewing procurement documents and evaluation reports-a role not mandated by any piece o f legislation-than on its oversight and support roles. Consequently the procuring entities have yet, as stipulated inArticle 13 o fthe PPL, to organize themselves to conduct procurement more effectively. 1.11 The Prime Minister issued a regulation on January 9, 2007, to ensure that procuring entities implement the PPL. In accordance with this resolution, the procuring entities shall (a) designate one o f their departments to be responsible for procurement or create a procurement unit, and establish a separate tender commission for each tender, with the procurement unit .and the tender commission strictly guided by the Regulations on the Procurement Unit and the Tender Commission; and (b) include inthe procurement unit and the tender commission members who are trained and qualified. Only some procuring entities at the center have complied with this regulation while regional and district-level procuring entities have yet to do so. 1.12 In response to the 2002 CPAR recommendationfor resumingregular publication of the PublicProcurementBulletin (PPB),the CFAUteamfound that thePPB is published twice a week.All procurement-relatedinformation, such as tender notices and contract awards, appear in the bulletin. However, the SAPPMR does not verify the information contained in these notices before publishing them inthe PPB. Thus tender notices often allow very short bid preparation time; and incomplete or incorrect contract information i s often included. Furthermore, contract award information i s not published systematically. This tarnishes the transparency o f the public procurement system. Assessment ofthe ProcurementSystem, UsingOECD-DACDVorldBankIndicators 1.13 In carrying out the benchmarkingof the Kyrgyz public procurement system, the World Bank team worked closely with the State Agency on Public Procurement and Material Reserves. It also sought views from other relevant government agencies and private sector firms representing civil works contractors, consulting firms, and suppliers o f goods. The World Bank team conducted an in-depth review o f the procurement legislative framework, including the PPL and several resolutions. The CFAU team carried out this assessment using the July 17, 2006, OECD-DAC/World Bank Methodology for Assessment o f National Procurement Systems, which i s based on four pillars, each o fwhich includes several indicators. 1.14 The assessment providesthe countrywith informationto monitor the performance of itsprocurementsystem andthe success of reforminitiativesin improvingperformance. Identifying weak links in a current system also provides donors with information to better 9 determine risks to the funds they provide to a partner country. This benchmarking has been conducted using the baseline indicators (BLIs) related to the formal and functional features o f the existing system.The compliance/performance indicators (CPIs) that deal with monitoring to determine the level o f compliance with the formal system have not been used because procurement data was lacking. 1.15 The BLIs present a snapshot comparison of the actual system with the internationalstandards represented by the baseline indicators. They address four pillars: (a)the existing legal framework that regulates procurement inthe country; (b) the institutional architecture o f the system; (c) the operation o f the system and competitiveness o f the national market; and (4 procurement system integrity. Each pillar includes several indicators and subindicators that are scored using a range o f 3 to 0. A score o f 3 indicates full achievement o f the stated standard; a score o f 2 shows that the system exhibits less than full achievement and needs some improvements in the area being assessed; a score o f 1 indicates areas where substantial work i s needed for the system to meet the standard. A score o f 0 shows failure to meet the proposed standard. The four pillars o f the Kyrgyz public procurement system scored as follows: I I I Less 1IPillar 1: Legislative/Regulatory Framework 2.1 than full achievement Pillar 2: InstitutionalArrangements 1.0 Needs substantial improvements Pillar 3: Procurement and Market Practices II0.7 II Failure II Pillar 4: System Integrity and Transparency 1.2 Needs substantial improvements 1.16 These scores show that progress has been made but much remainsto be done. The legislative framework for procurement (Pillar I)has evolved toward achieving international standards inrecent years. On the other hand, institutional arrangements (Pillar 11) to implement the legislation have made little headway. In particular, the operations o f the procurement system (Pillar 111) do not inspire muchtrust among the providers o f goods, works, and services in the evolving national procurement market. This indicates a strong need to initiate partnerships between the public and private sectors to strengthen existing external controls, to establish internal controls, and to implementthe anticorruption program (Pillar IV) effectively. The following paragraphs include detailed discussions o f the findings and recommendations for each Pillar. Pillar I:Legislative and Regulatory Framework (Overall score: 2.I) 1.17 Followingthe 2002 CPAR, the PPL of May 2004 provided a sound framework for public procurement.The government issued standard biddingdocuments, except for standard request for proposals for consulting services, which is being developed. The BLI assessment, confirms that the legislative framework generally meets international standards. The findings and recommendations under the indicators for this pillar are as follows: Summary of Findings for Indicator 1 (Public procurement legislative and regulatory framework meets agreed standards and complies with obligations) 10 0 The legal framework provides for a sound public procurement system. The PPL o f May 24, 2004, applies to all goods, works, and services procured with national budgetary funds and the funds o f enterprises that are majority owned by the government. It provides for appropriate procurement methods and processes that promote transparency, fairness, and economy. The Ministryof Finance's Order of October 18, 2001,4 requires that procuring entities seek and obtain for each procurement action a document (permit) from the SAPPMR certifying that it has complied with the PPL. This requirement not only adds to the procurement lead time but also cedes unnecessary discretion to the SAPPMR. This discretion opens the potential for misuse inthe procurement process. The PPL has no provision on sanctions against procuring entities or staff for violating the PPL. Recommendations 0 Although the Ministry o f Finance's Order o f October 18, 2001 has been amended to cancel the requirement o f the SAPPMR's involvement in the actual procurement process (See findings above and Footnote 4), the amended order i s yet to be implemented effectively. The Ministry o f Finance and the SAPPMR need to make concerted efforts to have all levels o f government implementthe changes. 0 Include a separate provision on sanctions against procuring entities and their staff for violating PPL provisions. Summary of Findingsfor Indicator 2 (Implementing regulations and documentation) 0 Lack o f a comprehensive implementation regulation and a manual. 0 The PPL provides for bid prequalification but no criteria to determine when to apply it and no clear requirementthat qualification should be assessedon a pass-or-fail basis. 0 No guidance note exists on how to evaluate technical and financial proposals for consultant services. 0 Standard Tender Documents exist and are o f good quality. However, technical specifications prepared by procuring entities are o f poor quality. The PPL requires that the contract should be awarded to the lowest evaluated bid, but there i s no guidance regulation or note for procuring entities. The SAPPMR's involvement in the actual conduct o f procurement does not allow it to objectively review and adjudicate bid complaints. Recommendations 0 Prepare a comprehensive implementation regulation and a manual with detailed explanations and clarifications o f PPL provisions, including evaluation methodology for goods, works, and consultants. 4 Information o n this subject received from the Treasury is as follows: "The order o f the Ministry o f Finance dated March 29,2007, amended the "Instruction for the regional departments o f the Treasury under the Ministry o f Finance o f the Kyrgyz Republic o n the procedure for opening and keeping Treasury accounts o n national budget expenditure transactions" to cancel the requirement for nataional budget institutions to submit the written permissionfrom the public procurement agency to the Treasury." 11 Include criteria in the implementation regulation that would enable potential bidders' qualifications and experience to be assessedfor prequalification on a pass-fail basis. 0 Use clear and broad technical specifications and introduce the concepts o f "substantial responsiveness" and "substantial equivalence," with a view to procuring the best-quality goods, works, and services. The SAPPMR may have to develop model technical specifications, and design and deliver training to procuring entity staff in how to write broad and clear technical specifications. Pillar 11:Institutionalframework and management capacity (Overall score: 1.0) 1.18 Pillar I1looks at how the procurementsystem (defined by the legal and regulatory framework) operates in practice through existing institutions and management systems. The CFAU team found little improvement since the last CPAR. Benchmarking results and recommendations are provided below. Summary of Findingsfor Indicator 3 (Publicprocurement system is mainstreamed and well integrated into the system ofpublic sector governance) Procurement planning for budget formulation and budget execution is weak. The requirement o f Article 13 o f the PPL to prepare a procurement plan upon the approval o f the Republic's budget i s not met. Multiyear procurement planningdoes not exist. 0 The Treasury does not release the funds allocated to procuring entities in a timely manner. Frequently, these funds are available to procuring entities only a few weeks before the end o f the fiscal year. As a result, procuring entities conduct uneconomic ' procurement using methods and procedures that lack transparency and do not foster optimal competition. 0 Initiation of procurement actions without ensuring availability o f funds i s common, frequently leading to cancellation o f tenders and even o f contracts that have been awarded and signed. This seriously affects bidder confidence in the system. As a result, a growing number o fbidders are deciding against doing business with the government. 0 Procuring entities are not allowed to use funds saved through competitive procurement procedures, creating a disincentive for realizing any savings. Recommendations 0 The SAPPMR must work with the MOF to improve procurement planning from the beginningo fbudget formulation, as well as to enforce procuring entity compliance with Article 13 o f the PPL. At the same time, the SAPPMR should prepare and disseminate to procuring entities detailed procurement plan formats listing all the essential information about every contract, such as the contract description, estimated value o f the contract, procurement method, and the key procurement processing dates leadingup to contract signature. 0 The MOF should consider ways and means to make funds available to procuring entities ina timely manner, at least three months before the fiscal year closes. 0 The MOFBAPPMR must issue an order requiring all procuring entities to obtain written confirmation o f funding availability before launching any tenders. 0 The M O F should consider allowing procuring entities to use the savings derived from 12 competitive procurement processes. Summary of Findingsfor Indicator 4 (Country has afunctional normativehegulatory body) 0 The SAPPMR is inadequately staffed to fulfill its responsibilities for overseeing and supporting procurement by procuring entities incompliance with the PPL. 0 The SAPPMR i s involved in the actual conduct o f procurement, which not only creates a conflict o f interest with regardto its authority to review and adjudicate complaints but also seriously saps its already weak capacity to fulfill its original responsibilities discussed above. Recommendations 0 Consider strengthening the SAPPMR to enable it to fulfill its responsibilities in an effective manner. This i s necessary for the agency to fulfill its oversight, support, and capacity-building roles. Summary of Findingsfor Indicator 5 (Existence of institutional development capacity) 0 The SAPPMR has the necessary means at its disposal (a Web site, the PPB, and government newspapers) to collect and disseminate information about the legal framework, tenders, and contract awards. However, the quality o f the information published leaves ample room for improvement. 0 N o sustainable strategy and procedure exist for collection and maintenance o f statistical data on procurement. 0 The National Procurement Training Center o f the SAPPMR provides training to public officials but is unable to meet all training needs. Furthermore, procuring entities do not receive budgetary allocations to pay the NPTC for stafftraining. No quality control standards exist to evaluate staff performance. The SAPPMR is yet to develop and implement a program for testing and certifying public officials as procurement professionals. Recommendations The SAPPMR must review and verify the information contained intender and contract- award notices to ensure that the information i s accurate and in compliance with the PPL. The SAPPMR should develop a strategy and procedure for collection, maintenance, and dissemination of statistical data on procurement. This may require the staff o f the SAPPMRto study the procurement data collection system and its use insome advanced country such as Hungary or Slovakia, among others. The SAPPMR should strengthen the NPTC to meet the training needs of the country. To staff procuring entities with certified procurement officials, the agency should also introduce a testing and certification program. Pillar III:Procurement operations and marketpractices (Overall score: 0.7) 1.19 Pillar I11involves the operational effectiveness and efficiency of the procurement system at the level of individual actions. It considers the market as a means o f judging the 13 quality and effectiveness o f the system after procurement procedures are put into practice. This pillar looks not at the legal and regulatory or institutional systems per se, but rather at how they operate. Findings from the benchmarking for this pillar follow below, with recommendations for improvement. Summary of Findings for Indicator 6 (Efficient country procurement operations and practices) While the country has a sound procurement legislative framework, its implementation at all levels o f government i s weak. Few procuring entities have qualified procurement staff; some use a permanent tender committee, which i s inconsistent with the PPL; and others assign this important task to one or two staff members who are already encumbered by the demands o f other workloads. Recommendations 0 Implement the Prime Minister's Resolution o f January 9, 2007, which requires each procuring entity to establish a procurement section in one o f its departments and to staff it with qualified procurement specialists. 0 Strengthen the NPTC to meet the training needs o f the country and to introduce a testing and certification program for procurement professionals. 0 Allocate budgetary funds to procuring entities to meet the cost o f staff procurement training. Summary of Findingsfor Indicator 7 (Functional public procurement market) 0 Public and private sector partnership i s weak. NGOs play a very minor role in public procurement. Private sector institutions are still organizing. Most consulting firms, contractors, and suppliers have little confidence inthe procurement system. This lack o f confidence may be attributed to the following: incorrect and misleading publication o f procurement opportunities; difficult access to bidding documents; poor quality o f bidding documents, especially technical specifications; short bid preparation time for bidders; minutes o f bid openings are not prepared properly and signed by all participants; unnecessary requirement to obtain a license from the SAPPMR before contracts can be awarded and signed; cancellation o f tenders without reason; cancellation o f contract awards without justification; frequent amendments to contracts duringcontract performance; and delayedcontractualpayments. Recommendations 0 The SAPPMR should develop mechanisms for partnership between the public and private sectors. NGOs should be encouraged to be more active in this partnership. To build private sector confidence in the public procurement system, the SAPMMR and procuring entities should eradicate undesirable procurement practices. Summary of Findings for Indicator 8 (Provisions for contract administration and dispute resolution) 0 While contract conditions include clauses on inspection, quality control, and other important matters, the contract administration procedures are generally weak, 14 especially for civil works. Written contract administration procedures do not exist and staff is not provided with systematic training to fill the gap. Recommendations To ensure that procuring entities administer contracts properly, it i s imperative for the SAPPMR to prepare a simple manual on contract administration and for the NPTC to designand deliver a training program for procuring entities. Pillar IV: Integrity and transparency of thepublic procurement system (Overall Score 1.2) 1.20 Pillar IV includesfive indicatorsthat a system must meetto operatewith integrity. These controls support implementation in accordance with the legal and regulatory framework, as well as measures to address the potential for corruption. The pillar also covers important efforts to involve stakeholders inthe control system. Summary of Findingsfor Indicator 9 (Country has an effective control and audit system) While external audit exists in the form o f the Chamber o f Accounts, internal controls are nonexistent. The C A audits procurement regularly, but these audits are ineffective since the chamber's staff i s not properly trained inprocurement processes. Furthermore, C A findings are not made public. It i s not known whether recommendations are taken into account or properly enforced. Recommendations Strengthenthe capacity o f the C A staff to audit public procurement. Make C A findings public and ensure that recommendations are implemented. Summary of Findingsfor Indicator 10 (Appeals mechanism efficiency) Providers o f goods, works, and services have little confidence inthe appeals mechanism because they do not view the complaint review mechanism as impartial, fair, and transparent. SAPPMR cannot effectively and objectively review and adjudicate complaints about a bidding process for which it also issues a document (permit) certifying that a procuring entity has complied with the provisions o f the PPL. Recommendations To increase bidder trust in the appeals mechanism, the SAPPMR must discontinue its direct involvement in the actual conduct o f procurement-that is, review o f evaluation reports, contracts, and other matters to issue the license required by the Treasury. The SAPPMR should also study appeal mechanism that are working efficiently in other countries (Slovakia, Hungary, and Poland, among others) and then adopt good practices. Ifnecessary, it should revisit and amend the PPL. The complaint mechanism under the current PPL could be improved by expanding the parties able to file complaints and the subjects or grounds that are subject to complaint. The mechanism as designed only admits complaints from "participants" or actual bidders, effectively closing it to "interested parties" such as whistleblowers or potential bidders who did not participate because o f irregularities or perceived irregularities. The grounds for 15 complaint are also severely restricted. They should be expanded to include irregular selection o f procurement method; the choice o f award winner under Paragraph 4, Article 27; and the irregular grantingo f preferences under Article 3, if in contravention o f the provisions o f the PPL. Additionally, the practice o f "debriefing" o f bidders should be considered for inclusion inthe new implementation regulations as well as ina future revision ofthe PPL. This will enhance transparency since the procuring entity has to articulate its justification for the award. It will also discourage the filing o f frivolous complaints or those based on misunderstandings that can be easily clarified in a debriefing. Summary of Findingsfor Indicator II (Degree of access to information) 0 Procurement information i s easily accessible but its quality is poor since SAPPMR does not systematically check the information submitted by procuring entities. Recommendations 0 The SAPPMR must introduce quality controls so that information, especially in tender notices, i s accurate, correct, true, and consistent with the relevant provisions o f the PPL. Summary of Findings for Indicator I 2 (Ethics and anticorruption measures are in place) 0 The Kyrgyz Republic i s a signatory o f the UN Convention on Anti-Corruption as o f August 2005. In October 2005, the National Anticorruption Council was established and an Anticorruption Agency was set up. The legal framework on anticorruption i s adequate as discussed above, but implementation o f the anticorruption legal framework i s weak. The Anticorruption Agency i s still in the preparation stage o f its fight against malfeasance. Moreover, no nexus seems to connect the PPL and the anticorruption legislation to identify the punitive consequences o f corrupt behavior inprocurement and the possibility o f referral for criminal charges. The PPL would benefit from such a nexus since the procurement law only cites "bribery" and not other relevant prohibited acts such as collusion, coercion, fraud and, to some extent, obstructive practices. Recommendations 0 The GOK should align the PPL with the anticorruption legislation and strengthen its implementation. OutstandingWeaknesses of the System: Risk and MitigationMeasures 1.21 Ineffective implementation of the May 2004 PPL is a major weakness of the Kyrgyz public procurementsystem. While a comprehensive legal framework i s inplace, the system suffers from deficiencies in actual practice as is well illustrated by the benchmarking described above. Deficiencies include absence o f proper guidance to procuring entities; lack o f procurement organization and capacity; undesirable procurement practices; poor budgetary allocation processes; inadequate external and internal controls; an unimplemented anticorruption agenda; and a weak supply side that mistrusts the procurement system. 16 1.22 The PPL clearly assigns procurementoversight and support roles to the SAPPMR. The SAPPMR is, however, unable to fulfill these roles efficiently and objectively. It lacks adequate capacity, and its involvement in actual procurement conduct, which i s the responsibility o f procuring entities, conflicts with its oversight role. The SAPPMR therefore provides little guidance to procuring entities to ensure effective implementation of the PPL. The agency has yet to prepare and disseminate a comprehensive implementation regulation and manual for use by procuring entities. Procuring entities at all levels o f government are poorly organized. Some still conduct procurement through permanent tender commissions indisregard o f the current PPL, which requires each entity to make one o f its departments responsible for purchasing and give it the capacity necessary to do the job. Furthermore, qualified procurement professionals are generally in short supply. Consequently, procurement i s being conducted by unqualified entity staff who receive rudimentary training from the National Procurement Training Center. The net result is weak implementation o f the PPL and poor practices from procurement planning to contract management. 1.23 Procurementplanning should begin with the budget formulation, but planning in fact is often simply a listing of items and their estimated costs for budgeting purposes. Multiyear procurement planning is not used. Even after the national budget i s approved, adequate procurement plans are not prepared. Making existing plans public would help providers o f goods, works, and services prepare better responses to tenders as they are launched, fostering optimal competition. Procuring entities receive funds late inthe fiscal year, giving them insufficient time to conduct economical and efficient procurement. Information provided in tender notices i s sometimes incorrect and misleading; bidding documents sometimes are not easily available to interested bidders; allowable bid preparation time i s too short; technical specifications are poor; contract award decisions frequently are made based on the lowest price instead o f the lowest evaluated price; tenders are cancelled without notice or justification; contract management practices are slipshod; sometimes contracts are terminated without any justification; and so on. These poor practices, combined with a complaint resolution mechanismthat appears to lack objectivity and transparency, has led the providers o f goods, works, and services to loose trust inthe system. 1.24 The supply side is improvingbut stillweak. The construction industryhas made good progress during the past decade, but i s still unable to qualify for large contracts. Manufactured goods are mostly imported. The consulting industryi s inits infancy. 1.25 The aforementioned weaknesses have been included and prioritized for action in Annex 2, which also includes recommendations for eliminating them. The recommendations have been discussed with the SAPPMR to help prepare a concrete action planto improve public procurement. 17 ANNEX 1. UNIMPLEMENTEDMAJOR RECOMMENDATIONSOF THE 2002 CPAR Recommendation in the CPAR Statusof Implementation 1. Abolish Article 30, "Cancellation o f The GOK partially amended Art. 29 (Art.30 in Tenders." the old PPL) according to the Bank's recommendations, but Art. 29 i s still worded unclearly and allows procuring entities to cancel tenders without valid reasons. This has become a common practice, leading to inefficient and uneconomicalprocurement that also lacks tranmarencv and fairness. 2. Establish a Procurement Advisory According to the SAPPMR, the PAC was Committee (PAC) to issue opinions on established inpursuance of RegulationNo. 583 SAPPMR draft annual reports about public o f September 29,2003. However, no activities procurement performance and on draft public by this committee have surfaced. procurement legislation and regulations. 3 , SAPPMR should conduct essential rather The MOF requirement o fmandatory than regular review o f procurement coordination by procuring entities with the documents (including biddingdocuments, SAPPMR has beencancelled. The SAPPMR is evaluation reports, draft contracts, etc.) as now expected to conduct only essential needed to fulfill its oversight and monitoring procurement review as required by the PPL. function. 4. Reorganizeprocuring entities to provide Only a few procuring entities have for an effective procurement framework in implementedthis recommendation due to lack which each sizeable purchaser (such as o f resources. The SAPPMR states that recent ministries,municipalities, oblast inspection findings show that separate administrations, etc.) should make its procurement units have been established inthe administrative or financial department following government entities: the Ministryo f responsible for procurement. Interior, the Ministry o f Education; the Correctional Facilities Department; the Ministryo fHealth; the Ministryo fEmergency; the State Committee for Migration; the Ministry o f Labor and Social Protection; the Department o f Water Resources; the Department o f Plant Protection; the Veterinary Department; and inseveraljoint-stock comr>anies. 5. Dialogue within GOK to establish Delays have occurred incivil service reform. procurement as a separate career stream in Implementation o f this recommendation would the Kyrgyz civil service. ensure that public procurement is conducted only by qualified professionals at all levels o f government, incompliance with procurement legislation. 6. Any findings on corruption inpublic Not implemented. It appears that current procurement should be made public through regulations do not permit publication o f such Publication inPPB and through the Web site. findings. 18 Recommendation inthe CPAR Statusof Imdementation 7. Design a comprehensive sample-format A format is inuse but it i s not comprehensive. procurement plan and disseminate it to DrocurinP:entities. 8. Prepare model technical specifications. Model technical specifications have not been prepared because of insufficient resources. Absence o f such models inareas where standardization i s possible leads to poor-quality technical specifications. Use o f poor technical specifications allows selection o f the lowest- "priced" bidder instead o f the lowest- "evaluated" bidder, without determiningbid responsiveness to technical specifications and the requirements for qualifications, delivery/completion time, etc. 9. Before comparing bidprices, procuring The commonpractice is to decide contract entities should examine bids indetail to awards on the basis o f the lowest price, even determine their substantial responsiveness to when it results indelivery o f substandardgoods the requirements specified inbidding andpoor-quality construction o fcivil works. documents. 10. SAPPMRshould review contract Procuring entities frequently make changes and performance on a sample basis to ensure adjustments incontracts that are concluded on compliance with the PPL provision that the basis o fpoor-quality technical prohibits changes incontract terms and specifications and the lowest bid price. This conditions ifsuch changes affect the bidding facilitates corruption. According to the conditions. SAPPMR, its inspection unit verifies the terms and conditions incontracts against the bids. Fines are imposed for unreasonable changes in the contract, and relevant materials are submitted to law enforcement agencies if necessary. 11. Procuring entities should launch tenders The practice o f launching tenders without only uponconfirmation from M O F of fund ensuringthe availability o f funds continues has availability to pay contractors ina timely not been discontinued. This leads to payment manner. delays or nonpayments to suppliers o f goods, works, and services. 12. SAPPMR should coordinate with the No progress has beenmade to date. To move president's administration inthe design and reforms along inthe introduction o f e- introduction o f e-procurement. procurement as recommendedinthe 2002 CPAR, regulations may need to be issued to implement e-procurement (perhaps instages from the most simple to more complicated: from "E-Disclosure," which i s the use o f a Web site for disclosing business opportunities, disseminating biddingdocuments, disclosing 19 Recommendation in the CPAR Statusof Implementation bidresults, and making public disclosure o f contract texts and prices; to "E-Purchasing," which i s the use o f a Web site for procurement o f high-volume, low-value contracts inwhich only price i s usually proposed; to "E- Tendering," which is the use o f a Web site for obtaining complex items and high-value, low- volume procurements inwhich a technical and financial proposal is submitted.) Concomitant to these are, o f course, parallel reforms o f infrastructure, government agency capacity, andbusiness capacity to provide the platform to carrv the reform to fruition. 13. Improve procurement data collection Because o f inaccurate or absent data, SAPPMR from procuring entities for use inSAPPMR i s unable to fulfill its function o f monitoring annual procurement reports. Improve the and evaluation to ensure compliance with format o f annual procurement reports and procurement legislation and rules. make them public. Establish computerized data collection and maintenance. 14. Include provisions authorizing the use o f STDsmention application o freference tribunal arbitration incontract disputes. (arbitration). There i s no arbitration tribunal in the Kyrgyz Republic as yet. .Bidders often consider settlement o f contractual disputes by commercial arbitration to be a more efficient and independent mechanismthan submission o f such disputes to local courts (and may therefore produce better prices). Although arbitration provisions can be achieved inthe Conditions o f Contract, it i s also usefulto explicitly mention inany futurerevisiting or amendment o fthe PPL that one fair contract condition would be a provision for settlement o f disputes under the last paragraph o f Article 21(1). The parties should be afforded an opportunity to opt for the more efficient mechanism o f arbitration compared to the more drawn-out court resolution under the civil code. Similarly, it i s also worth noting that Article 62 on "Claims under Contracts" can also benefit from future amendment since the statute appears one-sided, covering only alleged nonperformance by the procuring entity. The mechanism should also cover claims o f nonperformance bythe supplier/contractor and outline the process for the offended procuring entity to pursueremedy. 20 Measures Obiectives I Time Frame PILLAR I.LEGISLATIVE AND REGULATORY FRAMEWORK Discontinue licensing activity o f the SAPPMR To ensure that the SAPPMR Short Term by implementing the MOF order o f March 29, focuses on its mainrole o f 2007, amending the MOF Order o f October 18, providing support to 2001 "On opening and maintaining o f Treasury procuring entities and to accounts for registration o f operations on oversee the procurement execution o f expenditures o f the state budget o f function to ensure the Kyrgyz Republic by regional divisions o f compliance with the PPL. the Central Treasury o f the Ministry o f Finance.'' Prepare and disseminate an implementing To explain with a view to Short Term regulation and a manual for providing detailed improving the understanding guidance to procuring entities. (This among the procuring entities' recommendation was also included inthe 2002 staff involved inconducting CPAR Action Plan). procurement o f different provisions o f the PPL, including, among others, preparation o fprocurement plans, biddingdocuments, use o f pre- and postqualification, bid submissiodopening procedures, evaluation methodologies, preparation o f minutes, etc. Prepare model technical specifications for the To facilitate the task o f Medium frequently procured goods andworks, and train procuring entities o f Term staff o fprocuring entities inpreparing clear preparingbroad, clear and technical specifications (Also included inthe concise technical 2002 CPAR Action Plan), and introduce the specifications for efficient concept o f "substantial equivalence and and economic procurement. responsiveness." Implement Prime Minister's Resolution No. 2 To organize and strengthen Ongoing but o fJanuary 9,2007, on organization o f procuring entities for an needs to be procuring entities. effective implementation o f expedited. the PPL. Strengthen SAPPMR's structure and staffing. To increase SPPMR's Short Term efficiency and focus on its oversight and support roles. Improve procurement planning from the To planprocurement Medium beginning of the budget cycle, and streamline adequately before budgetary Term 21 I Measures Objectives Time Frame budgetaryprocesses to make funds availableto funds become available; and procuring entities ina timelymanner for once funds are available, to economic and efficient procurement. conduct procurement efficiently and economically inatimely mannerwithin a given fiscal year Requireprocuring entities to obtainwritten To make payments to Short Term assurances from the Treasury o f funding providers o f goods, works, availability before a tender for goods, works, or and services ina timely services i s launched. (The Action Plan o fthe manner, improving 2002 CPAR includedthe following: "Procuring competition for future entities to launch tenders only upon M O F contracts to create economy confirmation o f availability o f funds for timely contractual payments.") Make procurement data collection more To ensure that good quality Short Term effective (Le., systematically require procuring data i s available for analysis entities to submit data to the SAPPMR) and o fprocurement processes establish and maintain a computerized database (e.g., use o f competitive vs. for procurement data. (This i s also included in noncompetitive procurement the 2002 CPAR Action Plan.) methods), facilitating corrective measures. Improve quality o f information contained in To improve system Short Term tender notices, contract award notices, and other transparency and enhance itemspublished inthe Public Procurement private sector trust inits Bulletin (PPB),and enhance use o fthe PPB to reliability disseminate information about good procurement practices. PILLAR 111. PROCUREMENT OPERATIONS AND MARKET PRACTICES Develop mechanisms to improve partnership To interact frequently with LongTerm between the public and private sectors, civil society to introduce including providers o f goods, works, and social auditing, and with services, and civil society. consultants, contractors, and suppliers to ensure their continued interest in government tenders and to improve their understanding o f procurement legislation reauirements Prepare a simple manual on contract To ensure efficient, timely, Medium administration, and designtraining for contract and cost-effective contract Term administration. performance Make the National Procurement Training To ensure that the NPTC Medium Center self-sustainable by providing budgetary continues to function Term 22 Measures Objectives Time Frame resources to procuring entities so that they can effectively with a view to pay for its services. Introduce a testing and creating a cadre o f certification system for procurement officials to procurement professionals by become procurement professionals. testing their skills and certifying their Drofessionalism PILLAR IV. INTEGRITY AND TRANSPARENCY OF THE PUBLIC PROCUREMENTSYSTEM Streamline the appeals mechanismby To enhance bidder trust Medium expanding the parties that can file complaints Term and expanding the grounds for complaints. Alignthe PPLwith the anticorruption To strengthen the PPL from Long Term legislation and strengthen its implementation. such linkage since current procurement law does not include all prohibited acts, such as collusion, coercion, fraud, and obstructive practice Strengthen the capacity o f Chamber o f To ensure that the C A staff Short Term Accounts staff through training inprocurement. properly understand the procurement legislation to conduct meaningful procurement audits Prepare a code o f ethics for procuring entity To avoid conflict o f interest Short Term staff involved incarrying out public Drocurement. 23 11.PillarsandBaselineIndicators (BLIs) Pillar I:Legislative and Regulatory Framework 2.1. A sound governance system for public procurement begins with a solid legislative and regulatory framework. To measure that, Pillar I o f the OECD-DAC/World Bank BLI assessment uses two performance indicators-a legislative and regulatory framework for public procurement that achieves agreed-upon standards and complies with applicable obligations, and the existence o f implementingregulations and documentation. Indicator 1: Public procurement legislative and regulatory framework meets agreed standards and complies with obligations 2.2. For this indicator, the team reviewedthe legal and regulatory instruments, including the Public Procurement Law (PPL), the regulations issued by the prime minister, and the orders issued by the State Agency on Public Procurement and Materials Reserve (SAPPMR). The indicator's purpose i s to determine the structure o f the regulatory framework governing public procurement, the extent o f its coverage, and public access to relevant laws and regulations; the appropriateness of procurement methods; advertising rules and time limits; rules on participation; status o f tender documentation and technical specifications; tender valuation and award criteria; requirements for submission, receipt, and opening o f tenders; and effectiveness o f the complaint resolution mechanism. The indicator's eight subindicators are discussed and scored below. Subindicator Brief Explanation Score l(a)-Scope o f The major legal instrument that regulates public 2 application and coverage procurement inthe Kyrgyz Republic i s the Public o f the legislative and Procurement Law No. 69 of May 24,2004. It covers all regulatory framework goods, works, and services (including consulting services) for procurement usingnational budget f h d s and funds o fjoint-stock companies with state ownership o f at least 51 percent. It excludes from coverage procurement related to state security, national defense, protection o f state secrets, or natural disasters. Inthe future it mightbeworthrevisiting the exclusion o f natural disasters from application o f the legal regime since these situations may be better covered under the restrictedprocurement methods inChapter 5, including single-source selection. It might also be worth clarifying inthe implementingregulations that the procurement of uniforms, the construction o f buildings, and the like for national defense can very well be coveredunderthe law. 24 Generallythe legislativeandregulatory framework is recorded and organized hierarchically. The legal framework i s differentiated into laws, resolutions, regulations, instructions, and so forth, and precedence i s firmly established by the Law on Normative Legal Acts, No. 34, o f July 1, 1996. However ministries have issued contradictory rules for public procurement procedure. One example comes from the Ministryo f Finance's Order o f October 18,2001, No. 293-p, "On opening andmaintaining Treasury accounts for registration o f operations by regional divisions o f the Central Treasury o f the M O F to execute state budget expenditures o f the Kyrgyz Republic." Point 42 o f the ' instruction says that each procuring entity should obtain a written document (permit) from the SAF'PMR certifying that inconducting a procurement it has complied with the PPL. This permit must be submitted along with documentation o f expenses before contractual payments can be made. Although this procedure i s not stipulated by the PPL, every procuring entity after conducting a tender must apply to the SAPPMR for and obtain a permit before a contract i s awarded. Consequently, the SAPPMR i s engaged in licensing. This requirementnot only adds to the procurement lead time; it also cedes unnecessary discretion to the SAPPMR. This discretion has potential for misuse inthe procurement process. All legislative acts arepublishedinthe Public Procurement Bulletin (PPB) and inthe official governmentalnewspaperErkin Too or Slovo Kyrgyzstana, and posted on the SAPPMR's Web site. SAPPMR's Comments TheSAPPMR reviews all incoming documents on procurement procedures only in accordance with the legislation onpublicprocurement, Asfor MOF order No. 293 of January 18, 2001, ...this order was cancelled by MoF order No. 569-11of March 29, 2007. Therefore, aprocuring entity submits minutes of procurement procedures and other documents to the Treasury when an allocation is made. 1(b)-Procurement The PPLprescribes the criteria for use o fprocurement 3 methods methods (Articles 17, 18, 32,36, and 38) and defines open tender as the preferred purchasing method (Article 17 (2)). Other procurement methods are 25 permitted, based on criteria detailed inthe PPL and financial thresholds specified in a regulation. The other procurement methods include Two-Stage Tendering, LimitedTendering, Request for Quotations, and Single-Source Procurement. Fractioning o f contracts to limit competition is prohibited (Art.2 (3)). 1(c)-Advertising rules Contracts are advertised inthe Public Procurement and time limits Bulletin (PPB) and innational newspapers with a wide distribution (Art. 17 (2)). Contract awards are publishedinthe source(s) that publishedthe bid invitations (Art. 30). Article 17 (2) o f the PPL requires all procurement equaling or exceeding the maximum threshold amount to be advertised inthe mass media (official governmental newspaper Erkin Too) and inthe Public Procurement Bulletin. Purchases under the maximum ceiling are advertised only inthe PPB. Procurement under the minimum threshold amount is not advertised. The government resolution "On approval o fthreshold amounts inconducting public procurement," September 16, 2005, No. 440, establishes these limits. Depending on the procurement method, time limits vary from one week to six weeks. Though there i s no legal requirement to advertise online, the SAPPMR posts on its Web site every issue o f the PPB. Inthe implementingregulationsor inany future revisiting o f the law, to enhance transparency it i s worth considering a requirementthat sole source contacts under Article 38 shouldbe periodically publishedand that the exceptionaljustification for resorting to this method and the approving authority should be on record. 1(d)-Rules on Exclusion i s not permitted on the basis o f nationality. participation Domestic preferences are limitedby PPL to 20% for goods and 10% for works. Companies that have engaged incorrupt or fraudulent practices are excluded (Article 6). No special rules are established for participation by state-owned enterprises, nor i s there an existing system for debarment o fbidders with due process. It should be clarified inthe implementing regulations or inany future revisiting o fthe law that debarment or disqualification on the basis o f false statements should be material and not mere clerical or minor errors and that the participation of state-owned enterprises should be subject to the usual tests o f legal 26 andfinancial autonomy, operation under commercial law. and nondeDendencv. 1(e)-Tender The PPL generally prohibits use o f discriminatory and documentationand nonobjective criteria, requirements, or procedures technical specifications (Article 8 (5)) and states the minimumcontent o f tender documentation (Article 21). There are standard tender documents (STDs) for goods, services (other than consulting services), and works approvedby SAPPMR Order Nos. 67,68, and 69, which are obligatory. The Instructions for Preparationo f Technical Specifications for Goods and Works o f STDs (Attachments No. 7 and 8, respectively) require use o f neutral specifications or recognition o f equivalent standards when neutral specifications are unavailable. ~ ~~ 1(0-Tender evaluation The PPL does not establish evaluation criteria for andaward criteria procurement o f goods and works. Evaluation criteria for purchasinggoods are provided inthe standard tender documents. Point 32.1 o f attachment No. 2 to the STD for goods-called Instructions to Bidders (1B)-states that a contract i s awarded to a bid that i s substantially responsive and i s the lowest evaluated. Evaluation andComparison o f Bids, point 30.2 o f the IB,statesthat criteriaother thanprice that are quantifiable monetarily (including transportation costs, insurance, cost o f service and exploitation, among others) should be taken into consideration. The Instructions to Bidders to the STD for works (Attachment 2, point 25.1) states that a contract is awarded to the lowest evaluated bid. However no criteria are provided for establishing the lowest evaluated bid. Point 24, Evaluation and Comparison o f Bids, only states that the procuring entity defines the bid's evaluated cost by applying corrections for arithmetical errors, exclusion o f unforeseen expenses, and price adjustments for allowable deviations. The STD for procurement o f services (other than consulting) provides no criteria for bid evaluation. Evaluation o f proposals for consulting services i s governed by the PPL, which assigns adequate weight to quality and regulates how price and quality are weighed (Articles 50, 52). Duringthe evaluationperiod, Article 16 (1) o fthe PPL mandates that information about the examination. 27 evaluation, and comparison o fbids, quotations, or prices not be disclosed to the participants or to others not officially involved inthe evaluation process. 1(g)-Submission, PPL specifies the date, time, and manner o f submission 2 receipt, and opening o f and requires tenders to be opened immediately after the tenders submission deadline (Article 26 (1)). Tender documents must state the exact place and deadline for bid submission (Article 21 (1)). Participantsmust observe confidentiality o f submitted and used information (Article 16). Bidders' names and addresses; the prices, forms, and amounts o f their bid security; and debts intaxes and insurance are announced to those present at the bid opening. The PPL requires recordkeeping o f proceedings and submission o f a copy to the SAPPMR (Article 26 (3)) but does not requirerecords to be made available to bidderspresent at the bid opening or copies to be forwarded to those not present. However, information inthe minutes can be communicatedto absent biddersuuonreauest. 1(h)-Complaints The PPLprovides for abid complaint resolution 2 mechanism. It sets a time frame for administrative review o f complaints through appeals to procuring entities and the SAPPMR (Chapter 9) and establishes that any matter, except for those specified (use o f a procurement method, choice of a selection procedure, grantingpreferences, and decisionto cancel a tender), i s subject to review (Article 63 (3)). According to Article 62 o f the PPL, bid disputes may also be appealed to a court o fjustice. Based on complaint data (only 20 complaints were received in2005 and 40 in2006) and the interviews conducted with several consulting firms, contractors, and suppliersthe mechanism does not seem to be considered trustworthy. Furthermore, the SAPPMR cannot play its role o f reviewing and adjudicating complaints objectively since it is directly involved in the actual conduct o fprocurement: it reviews procurement documents for purchases byprocuring entities before issuing licenses required by the Treasury to make contractual payments. Infuturerevisions o fthe law, the complaint mechanismunder the current PPL could be improved by expanding the parties that are allowed to file complaints andby expanding the subjects/grounds that are admissible for complaint. The complaint 28 I mechanism as designed only allows complaints from "participants" or actual bidders and i s therefore effectively closed to other "interested parties" such as whistleblowers, or potential bidders who did not participate because o f some irregularity or perceived irregularity inthe procurement process. The grounds for complaints are also severely restricted and should bebroadenedto include irregular selection of the procurement method, the choice o f award winner under Paragraph 4, Article 27, and the irregular granting o f preferences under Article 3, ifin contravention o f the provisions o f the PPL. SAPPMR's Comments Some suppliersfile groundless complaints, i.e., their qualijkation does not meet a procuring entity's requirement or they offer goods of inadequate quality. Theprocuring entity and tender committee select a procurement method according to their procurement andfinancing plan and determine bid winnersfor contract award. It must be noted that the scope of the SAPPMR does not include a licensing ("issuance of a license")function, so the agency therefore may not interfere in tender committee andprocuring entity operations. Whenfurther amendments to the PPL are reviewed in thefuture (particularly the mechanism of complaint administration), the CFAU's recommendations will be taken into consideration. Summary of Findingsfor Indicator 1 0 The legal framework provides for a sound public procurement system. The PPL o f May 24, 2004, applies to all goods, works, and services procured using national budgetary funds and funds o f enterprises that are majority owned by the government. It provides for appropriate procurement methods and processes that promote transparency, fairness, andeconomy. 0 The Ministry o f Finance's Order o f October 18, 2001, requires that procuring entities seek and obtain for each procurement action a document (permit) from the SAPPMR certifying that it has complied with the PPL. This requirement not only lengthens procurement lead time; it also cedes unnecessary discretion to the SAPPMR. This discretion has the potential for misuse inthe procurement process. 0 The PPL does not include provision o f sanctions to be imposed on procuring entities andtheir staff for violating the PPL. Recommendations 29 Annul the Ministryo fFinance's Order of October 18, 2001,to ensure that the SAPPMX does not get involved in the actual conduct o f procurement and focuses on its original functions o f overseeing public procurement and supporting procuring entity compliance with the PPL. This will also make the bid complaint mechanism more objective. [Note: The MOF order inthis regardwas annulled on March 29, 2007, but the instructions are yet to be implemented by the SAPPMR and Treasury officials especially at the Oblast andRayon levels]. 0 Include a separate provision on sanctions to procuring entities and their staff for violating PPL provisions. Indicator2: Implementingregulationsand documentation 2.3, This indicator verifies the existence, availability, and quality o f implementing regulations, operational procedures, handbooks, and standard tender documents complete with standard contract conditions. Higher-level legislation, the PPL for example, provides the framework o f principles and policies that govern public procurement; while regulations, resolutions, orders, and instructions provide more-detailed explanations o f the statutes, make them operational, and explain how they are to be applied in specific circumstances. This indicator has six subindicators, which are discussed and scored inthe following table. Subindicator BriefExplanation Score 2(a)-Implementing Implementation o f the Public Procurement Law i s 1 regulations define supported by several resolutions and orders. These processes and resolutions and orders deal with the organizational procedures not included structure and staffing o f the SAPPMR, formation o f a inhigher-level database o f unreliable suppliers and contractors, legislation. sanctions for PPL violations, application o f the PPL, thresholds for different procurement methods, and standard tender documents, but there i s no comprehensive implementation regulation as recommendedby the 2002 CPAR. The 2002 CPAR recommended that when a revised PPL was enacted, a comprehensive implementation regulation should be prepared for ensuring that procuring entities understand the law's provisions. The World Bank also provided resources for this purpose, but as o fthe date o fthis assessment, the SAPPMR has not finalized the draft regulation. The resolutions and orders issued by the prime minister and the SAPPMR since the 2002 CPAR are listed below: 0 Statute "On the State Agency on Public Procurement and Material Reserves under the Government o f the Kyrgyz Republic" approved 30 by Government Resolution No. 129 o fFebruary 28,2006 Resolution "On formation o f the database o f unreliable (unfair) suppliers (contractors) and procedures o f its application" approvedby SAPPMR Order No. 8 o f January 13,2005 Resolution "On order o f consideration o f administrativeoffences and inflictiono f administrative sanctions for violation o fpublic procurement legislation" approved by SAPPMR Order No. 8 o f January 13,2005 Statute "On the department and tender commission o f a procuring entity" approved by SAPPMR Order No. 7 o fJanuary 13,2005 Resolution of the Government No. 2 o f January 9,2007, "On implementation o fthe Law o fthe Kyrgyz Republic `On Public Procurement"' Resolution of the Government No. 440 of September 16,2005, "On approval o f threshold sums at conduction o fpublic procurement" Order o f SAPPMR No. 67 o f September 26, 2006, "On approval o f standard tender documents on procurement o f goods by the method o f limited, unlimited, and two-stage tenders andby the method o f request for quotations" Order o f SAPPMR No. 68 o f September 26, 2006, "On approval o f standard tender documents for procurement o fworks by the methods o f limited and unlimitedtender" Order o f the SAPPMR No. 69 o f September 26, 2006, "On approval o f standard tender documents on procurement o f services by the methods o f limited, unlimited, and two-stage tenders" 2(b)-Model tender STDs approved by Order Nos. 67,68, and69 dated 2 documents for goods, September 26,2006, are obligatory and are dividedby works, and services are methods and objects ofprocurement (goods, works, available. and services other than consulting). The STDs for the procurement o f consulting services have been finalized. Some procuring entities recognize the need for improving the quality o f these documents. The STDs for works and services lack evaluation criteria. 2(c)-Procedures for Article 8 o f the PPL discusses qualification 3 prequalification are requirements in general. Article 8 discusses indetail 31 sound. the use o fprequalificationbut does not include criteria for its application. Prequalificationprocedures and standard documents have beendeveloped, approved, and recommendedfor use according to Article 9 o f the PPL. It i s worth noting that prequalification inthe Kyrgyz Republic i s rarely used. One explanation for this maybethat contracts for goods andworks are generally small invalue and size. Inthe implementingregulations, there mightbe a need to clarify what seems to be suggested that the rule o f Preferences under Article 3 can be applied at the stage o f Qualification Assessment. Preferences may be properly applied inbid evaluations because a percentage o f the appropriate preference may be calculated inevaluation of criteria that are quantifiable monetarily. This i s not, however, the case qualification assessment, which should be made on a pass-fail basis. Preferences should not used as a proxy for qualification and should not undulyrestrict eligibility or participation. ~ 2(d)-Procedures for Evaluation o f consulting service proposals i s regulated 2 contracting services and by the PPL, giving adequate importance to quality and other requirements in regulating how price and quality are to be considered which technical capacity (Articles 50, 52); but no STDs are available for i s a key criterion are procurement o f consulting services. suitable. There are five procurement methods for consulting services: quality-and-cost-based selection, quality- based selection, selection under a fixed budget, least- cost selection, and selection o f individual consultants. The PPLprovides that technical capacity/quality is the main criteria inthree o f the methods (quality-based selection, selection under a fixed budget, and selection o f individual consultants). No guidance is provided in the PPL on how technical qualifications are to be assessed(pass-fail review or scored evaluation). Under the remainingtwo methods (quality-and-cost-based selection and least-cost selection), a combination of price and technical capacity i s permitted. Article 47 o f the PPL requires that the Information to Consultants, which is a part o f the proposal request, contain details o f the selection procedure to be followed, including (a)a list o f the technical evaluation criteria, (b) details of the financial evaluation, and (c) the minimumpassing score for quality. 32 2(e)-User's guide or There is currently no approveduser's guide or manual, 0 manual for contracting and the PPL does not require one, although the entities i s available. SAPPMR supposedly is developing such a work to informprocuring entities about the law, policy, and applicationprocedures, including practical examples. 2(f)-General Recently approved STDs for goods, works, and 3 Conditions o f Contract services contain General Conditions of Contract that (GCC) for public sector are obligatory and are generally consistent with contracts cover goods, national requirements. works, and services that are consistent with national and, when applicable, international requirements. Summay of Findingsfor Indicator 2 A comprehensive implementation regulation and a manual to help procuring entities conduct procurement incompliance with the PPL are lacking. The PPL provides for prequalification o f bids, but no criteria are provided for determiningwhen to apply it. No guidance note exists on how to evaluate technical and financial proposals for consultant services. Standard Tender Documents exist and are o f good quality. However, technical specifications preparedby procuring entities are o f poor quality. The PPL requires that a contract should be awarded to the lowest evaluated bid. However, no regulation guides procuring entity staff on how to achieve this objective. The SAPPMR's involvement in the actual conduct o f procurement does not allow it to objectively review and adjudicate bid complaints. Recommendations Prepare a comprehensive implementation regulation and a manual with detailed explanations o f PPL provisions, including evaluation methodology for goods, works, and consultants. When amending the PPL, consider including clear criteria for the use o f bidder prequalification. To ensure that procuring entities use sound technical specifications to procure the best goods, works, and services, the SAPPMR may have to develop model technical specifications, and design and deliver training for procuring entity staff inwriting broad and clear technical specifications. 33 Pillar11. InstitutionalFrameworkand ManagementCapacity 2.4. Pillar I1 examines how the procurement system defined by a country's legal and regulatory framework operates in practice when filtered through the institutions and management systems o f public sector governance. Indicator 3: The publicprocurementsystem is mainstreamedand well integratedinto the systemof publicsector governance 2.5. This indicator examines the procurement system to determine (a) its suitability to discharge legally prescribed obligations without gaps or overlaps; (b) whether necessary links exist with other sectors o f government affecting procurement; (c) whether procurement operations are constrained by other external institutional factors; and (4 whether the managerial and technical capacity o f the system are adequate for procurement without unnecessary cost or delay. In assessing the integration o f the procurement system with other parts o f government, attention i s given to the financial management system because o f its complementary role in the process, from budget preparation and planning to Treasury operations for payment. This indicator has four subindicators, which are discussed and scored inthe table below. Subindicator BriefExplanation Score 3(a)-Procurement Procurement planning for budget formulation i s 0 planning and associated generally weak. The plans reviewed for this assessment expenditures are were merelyo f a list o f contracts with some figures for includedinthe budget budgetarypurposes. These are preparedessentially as formulation process financing plans, with no consideration givento timing, and contribute to contract packaging, the most appropriate procurement multiyear planning. method, or the interdependence between different contracts. Article 13(3) o f the PPL requires a procuring entity, within 10 days o fthe Republic's budget approval, to submit a procurementplan for the next fiscal year to the SAPPMR as specified inapproved forms. Hence procurement planningi s done not before but after the annual state budget is approved. There are no multiyear corporate plans since the state budget i s approved only on an annual basis. Procuring entities are unable to prepare proper time tables for plannedprocurement because they are unaware o f the timingo f the release and availability o f funds. There i s no mechanism for proper scheduling o f contracts to help predict cash flow needs within the government, to ensure timely payments, and to reduce the extra costs from delayed contractual payments and contract performance. 34 SAPPMR's Comments According to Regulation No. 29 of the GOK of January 20, 1999,procuring entities shall submit itemized public procurement plans with specipcation commodity classijkation within 10 days upon approval of the Republic 's budget. Originally, every procuring entity prepares a procurement plan for the next year according to its needs andforwards it to the MOF. Then, theplan is prepared if the budget is approved. Early in theyear, the SAPPMR distributes letters on submission of theprocurement plan with applicable formats enclosed. Currentprocurement planform has been designed and approved by order of the Director of the SAPPMR. Thisform contains thefollowing information: object of procurement; expenditure item; total allocated annual amount; breakdown of annual amount by quarters; andproposed procurement method. Multiyear procurement planning is not feasible because of the national budget, which is continually modiped during the course of the year. Regardingprovision offinancial resources by the MOF, not only procuring entities but also the SAPPMR itselffaces thisproblem. Becausefinancing isprovided toward the end of thefiscal year, there is no timefor bidding, andprocuring entities areforced to apply the single-source procurement method, which creates a conflict of interestfor both the SAPPMR and the procuring entity. _____~ _ _ _ _ ~ ~ 3(b)-Budget law and Budgetlegislation and financial procedures do not 0 financial procedures support conduct o f timely procurement procedures support timely because budgetary funds are not made available to procurement, contract procuring entities ina timely manner. Sometimes it i s execution, and only a few weeks before the end o fthe fiscal year that a payment. procuring entity is advised by the Ministry o f Finance o f funding availability for procurement. As the procuring entity rushes to commit and spend the funds before the fiscal year lapses, it chooses inappropriate procurement methods, such as single sourcing, and conducts uneconomic procurement. Furthermore, there i s no incentive for procuring entities to save public funds through efficient use ofthe public procurement system since any savings are recouped by the Treasury. Moreover, the next year's budgetary allocations are reduced by any amount not spent, even ifit represents a savingachievedthrough sound public procurement. 35 There are standards for invoice processingbyTreasury (the Instruction "On opening and maintaining o f Treasury accounts for registration o f operations to execute expenditures o f the state budget o f the Kyrgyz Republic by regional divisions o f the Central Treasury o f the Ministryo f Finance," approved by the October 18,2001, M O F Order No. 293-p), but no rules are provided for processing invoices to meet obligations for timely payment according to contract conditions. 3(c)-No initiation o f Initiation o fprocurement actions without ensuring that 0 procurement actions the funds are available to pay for goods, works, and occurs without existing services i s common practice inthe Kyrgyz Republic. budget appropriations. Procuring entities launch tender notices and even conclude contracts without any assurances o f fund availability from the Treasury. This results in delayed or defaulted payments to providers o f goods, works, and services. This seriouslyretards competition and results inhigher endprices for the public as more and more consulting firms, contractors, and suppliers cease doing business with the government. 3(d)-Systematic Public procurement contracts are not required to be 0 completion reports are registered with the Treasury, although a procuring prepared to certify entity must seek and obtain a document (permit) from budget execution and to the SAPPMR that the procurement process has been reconcile delivery with completed incompliance with the law. The Treasury budgetprogramming. uses this license as the basis o f contractual payments. N o systematic procurement completion reports are prepared for certification o fbudget execution and for reconciliation o f delivery with budgetprogramming. According to the SAPPMR, this requirement has now been cancelled. Summary of Findings Indicator 3 0 Procurement planning for budget formulation and execution i s weak. The requirement o f PPL Article 13 to prepare a procurement plan upon the approval o f the Republic's budgetis not beingmet. There is no practice o fmultiyear procurement planning. 0 The Treasury does not release funds allocated to procuring entities in a timely manner. Frequently procuring entities gain funding access only a few weeks before the fiscal year ends. Thus, procuring entities conduct uneconomic procurement using methods and procedures that lack transparency and do not encourage optimum competition. 0 Initiation o f procurement actions without ensuring availability o f funds is a common practice frequently leading to cancellation o f tenders and even o f contracts that have been awarded and signed. This seriously affects bidder confidence in the system, causing a growing number o fbidders to avoid doing business with the government. 36 Procuring entities are not allowed to use funds saved through competitive procurement procedures, creating a disincentive for realizing any savings. Recommendations 0 The SAPPMR should work with the MOF to improve procurement planning, beginning with budget formulation, and to enforce procuring entity compliance with Article 13 o f the PPL. At the same time, the SAPPMR should prepare and disseminate to procuring entities detailed procurement plan formats listing all the essential information about every contract, such as the contract description, its estimated value, the procurement method, andthe key procurement processing dates leading up to contract signature. 0 The MOF should consider ways and means to make funds available to procuring entities ina timely manner, at least three months before the fiscal year closes. 0 The MOF/SAPPMR should issue an order requiring all procuring entities to obtain written confirmation o f fundingavailability before launching any tenders. 0 The MOF should consider allowing procuring entities to use savings made through competitive procurement processes. Indicator4: The countryhas a functionalnormativehegulatorybody 2.6. This indicator deals with the existence o foversight and regulatory functions within the public sector, the independence o f regulation, performance effectiveness, and the degree o f coordination between responsib1e.organizations.The four sub indicators are discussed and scored below. Subindicator BriefExplanation Score 4(a)-The status and Article 14 o f the PPL states that the Authorized State 3 basis for the Body on Public Procurement i s the central body that normative/regulatory should implement the government policy on body i s covered inthe procurement o f goods, works, services, and consulting legislative and services. According to this Article, the head o f this regulatory framework. body is appointed anddismissed by the prime minister. For the organization and details o f the roles and responsibilities o fthe body, the article refers to a government resolution. Public procurement inthe Kyrgyz Republic i s decentralized, with purchasing o f goods, works, and services delegated to government agencies o f different levels. SAPPMR i s mandated to provide oversight and support to government agencies inconducting procurement. Article 14 (3) o f the PPL states the main functions o f SAPPMR, while Government Resolution No. 129 o f February 28, 2006, regulates the agency's status and functions. SAPPMR functions as a 37 regulatory body, an approval authority for use o f procurement methods above certain thresholds, and a complaint-review body. The SAPPMRdirector, who is a member o f government, reports to the prime minister. Under SAPPMR's auspices, the National Procurement Training Center was established to conduct public procurement training. It has a staff o f 25, including I trainers. 4(b)-The body has a Article 19 stipulates the following functions for the 3 defined set o f authorized state body, which charges the SAPPMR to responsibilities that develop a procurement regulatory framework, include but are not coordinate and regulate the procurement activity o f limitedto a set o feight procuring entities, monitor procuring entity compliance identified functions. with the PPL, assist procuring entities incarrying out procurement by training their personnel and providing advice on procurement conduct, ensure transparency o f procurement, review complaints and protests, adjudicate disputes, and issue bindingresolutions on procuring entities. The Government Resolution o f February 28,2006, "On the State Agency on Public Procurement and Material Reserves under the Government o f the Kyrgyz Republic," further defines the organizational structure, staffing, and functions o f the SAPPMR. 4(c)-The body's The SAPPMR i s based inBishkek and is represented in 1 organization, funding, seven oblasts. To fulfill its responsibilities, SAPPMR's staffing, and level o f central level includes the Department on Public independence and Procurement, which consists o f two sections: the authority (formal Normative and Inspection and Supervision Unit, and an power) to exercise its Reporting and Analytical Unit.The Public duties shouldbe Procurement Department o f the SAPPMRhas 12 staff sufficient and membersinBishkekand 4 or 5 staff ineach oblast. consistent with its SAPPMR staffing seems inadequate to fulfill its responsibilities. obligations to oversee and support the conduct o f procuring entities to ensure PPL compliance. 4(d)-The body's The SAPPMR participates inthe actual conduct o f 0 responsibilities should procurement by procuring entities-a role not legally be clearly definedand assigned to it. This involvement conflicts with its role separated to avoid inbiddispute resolution as stipulated inthe PPL.As conflict o f interest and previously discussed, SAPPMR is not responsible for direct involvement in direct procurement operations, but it became involved execution of nonetheless through issuance o fpermits to procuring procurement entities before funds could be released from the transactions. Treasury. The procuring entities are heavily dependent on SAPPMR, and this muddiesthe public procurement 38 process. The governing principle i s that the control and oversight bodies should be separate from those that conduct procurement activities. Article 14 o f the PPL specifies functions o f the SAPPMR. The provision that breached this wall by requiring SAPPMR to issue the de facto "licensing" documents recently has been cancelled. Instead, the Treasury now requires that all minutes o fprocurement procedures be submitted whenever a payment i s requested by a procuring entity. Summary of Findingsfor Indicator 4 The SAPPMR i s inadequately staffed to fulfill its responsibilities for overseeing and supporting the conduct o f procurement by procuring entities in compliance with the PPL. The SAPPMR is involved inthe actual conduct o f procurement, which not only creates a conflict of interest with regard to its authority to review and resolve complaints but seriously saps its already weak capacity to fulfill its original responsibilities discussed above. Recommendations Consider strengthening the SAPPR to enable it to fulfill its responsibilities effectively. 0 Discontinue the SAPPMR's involvement in the conduct o f procurement and refocus its attention on its oversight and support roles. 39 Indicator5: Existenceof institutionaldevelopmentcapacity 2.7. The objective o fthis indicator is to assess the extent to which the country has systems to support and monitor the performance o f the entire system, and to formulate and implement improvement plans. This requires, among other things, information systems, a capacity for analysis, feedback mechanisms, and planning capacity to carry out improvements. It i s very important that responsibilities are clearly assigned and are beingperformed. Subindicator BriefExplanation Score 5(a)-The country has There is a system for collection o f data, but it i s not 2 a system for collecting comprehensive. The SAPPMR supports a Web site that and disseminating provides legislative normative acts, public procurement procurement advertisements, and publication o f contract awards, but information, including no procurement plans. tender invitations, SAPPMR's Comments requests for proposals, and contract award Beginning in 2007, it is now recommended that all data. procuring entities provide their procurement plans in electronicformat, if requested. Some entities have done so, and the SAPPMR has posted these e-formatted plans on its oficial Website. However, because of delays in approval of the national budget not all procuring entities will be able toprovideJinal versions of their procurement plans on time. Final versions of procurement plans will be posted on the Website. S(b)-The country has No such strategy exists, although the Reporting and 1 a sustainable strategy Analytical Unit o f SAPPMRprovides statistical reports and procedures for every three months on use o f state funds by collecting and procurement method, region, and procuring entity monitoring national (including state-owned enterprises). But no data i s procurement statistics. provided on the duration o f different stages o f procurement cycles; unit prices for the most common types o f goods and services; and other information that allows analysis o f trends and levels o fparticipation, efficiency, and economy inpurchases and compliance with requirements. Available information is unreliable and not verified by audits, and some inconsistencies were noted betweendata collected by the Ministryo f Finance and SAPPMR. 5(c)-A sustainable Capacity building i s delegated to the National 2 strategy and training Procurement Training Center, which benefitedfrom a capacity exists to World Bank grant and technical assistance in provide skills developing the skills o f its staff indesigning and enhancement, advice. deliveringtraining. The NPTC provided training to 736 40 andassistanceto enable civil servants in2004,914 in2005, and434 in2006, government andprivate andprovidedadvisoryservices to procuring entities, sector participants to suppliers, and contractors. Significant demand for understand trainingexists inboththe public and private sectors. In procurement rules and many procuring entities, procurement staff received regulations andhow inadequate training. Auditors and inspectors o f the state they should be bodies responsible for external public procurement implemented. control have received no training at all. Procuring entities have insufficient finds to use the services o f the NPTC for training their staff in procurement. Therefore, the conduct o fpublic procurement by many procuring entities i s not compliant with the PPL. Recently, the NPTC has been restructured and combined with the Information Center o f the SAPPMR. A new director has beenappointed, while some key staff who were trained with the resources o f the IDFgrant indesignand deliveryo fprocurement training apparently have left. This restructuring raises serious concerns about the sustainability o f the training center after the IDF grant closes on August 20,2007. 5(d)-Quality control There are no quality standards. N o program for 0 standards are certification o fprocurement specialists has been disseminated, and used prepared and implemented. to evaluate staff performance and promote capacity development. Summary of Findingsfor Indicator 5 The SAPPMR has the necessary means at its disposal (the Web site, the PPB, and government newspapers) to collect and disseminate information about the legal framework, tenders, and contract awards. However, the quality o f the information publishedleaves ample room for improvement. N o sustainable strategy andprocedure exist for collection and maintenance o f statistical data on procurement. The National Procurement Training Center (NPTC) o f the SAPPMR provides training to public officials but i s not able to meet all training needs. The recent restructuring o f the NPTC has created serious issues about its sustainability. Furthermore, procuring entities do not receive budgetary allocations to pay the center for training their staff. No quality control standards exist to evaluate staff performance. The SAPPMR has yet to develop and implement a program for testing and certifying public officials as procurement professionals. 41 Recommendations The SAPPMR must check the contents o f tender and contract-award notices to ensure that the information i s correct and incompliance with the PPL. 0 The SAPPMR should develop a strategy and procedure for collection, maintenance, and dissemination o f statistical data on procurement. Inthis regard, it may be necessary for SAPPMR staff to study the procurement data collection system and its use in some advanced country such as Hungary, Slovakia, or elsewhere. 0 The SAPPMR should strengthen the training center to meet the training needs o f the country. To staff procuring entities with certified procurement officials, it should also introduce a testing and certification program. 42 Pillar 111. ProcurementOperations and Market Practices 2.8. Since public procurement in the Kyrgyz Republic i s decentralized, the team looked at the operational effectiveness and efficiency o fthe procurement system at the level o fprocuring entities. Inorder to use the market as one means o fjudging the quality and effectiveness o f the system in implementing procurement procedures, the team held interviews with several consulting firms, contractors, suppliers, and representatives o f the civil society, including the Kyrgyz Chapter o f the Transparency International. The information contained in the indicators below i s based on the information collected through these interviews. Indicator 6: The country's procurementoperations and practices are efficient 2.9. This indicator looks at the efficiency o f procuring entity operations and practices. In summary, this means that the operational practices result in timely contract awards at competitive market prices as determined by effective and fair implementation o f procurement procedures. Subindicator BriefExplanation Score 6(a)-The level o f The level o fprocurement competence among 0 procurement government officials is quite low. There are no defined competence among skills and knowledge profiles for procurementjobs. government officials Very few procuring entities have dedicated and within an entity is qualified procurement staff. Inmost cases, staff are consistent with their required to undertake procurement in addition to their procurement regular workloads. Obviously, they lack the required responsibilities. procurement skills. As a result, procurement is inefficient, uneconomic, and frequently lacks transparency. Article 13 o f the PPL requires a procuring entity to entrust the organization o f procurement to one o f its departments. More specifically, the article makes this department responsible for preparing a procurement planwhen the annual budget is approved; determining the procurement method andpre-qualifying bidders; developing standard biddingdocuments; organizing publication o f tender notices or issuingbid invitations to potential suppliers; ensuing compliance with the PPL, based on the tender commission's recommendation for contract award; reviewing and resolving complaints; publishingcontract award data in the PPB andmass media outlets; and collecting and maintaining procurement records for three years. Despite the Prime Minister's Resolution o f January 9, 43 2007, reinforcing these requirements, only a few procuring entities are fulfilling even some o fthese requirements. The PPLrequires one tender-commissionmember to be a specialist on procurement, certified by the NPTC. Ifno specialist is available inthe relevant field, the procuring entity can request SAPPMR to recommend someone for inclusionon the tender commission as a technical expert whose profile and expertise match the goods, works, or services beingprocured (Point V.6 o f the Statute on the Department and Tender Commission o f a ProcuringEntity," approved by order o f the SAPPMR on January 13,2005). 6(b)-The procurement The SAPPMR's National Procurement Training Center 1 training and information has been supported by a World Bank grant from the programs for Institutional Development Fund(IDF).With this grant, government officials and NPTC staff has acquired the necessary skills to design for private sector and deliver procurement training programs. While the participants are NPTC has trained about 1,500 public officials during consistent with demand. the last three years, there is still a large unmetdemand. The Government o f the Kyrgyz Republic recently has allocated 2.9 million sums for this purpose. The SAPPMR i s also striving to have the necessary budgetary resources allocated to procuring entities for training. This will enable them to pay for courses provided by the NPTC, making the center self- sustaining, a primary objective o f the World Bank grant. The NPTC solicits and incorporates feedback in designingits procurement training courses, but availability o f funds will be a major issue after the IDF grant closes ifprocuring entities do not gain access to budgetary funding. 6(c)-There are Article 13 (4) o f the PPL states that procuring entities 0 established norms for are responsible for collecting biddingdocuments, bids, protecting records and and other public procurement documentation and documents related to storing the records for three years. Yet the legal transactions and contract framework (Statute on Department and Tender management. Commission) does not specify which procurement records must be kept at the operational level. Public access to and inspection o f such records are also omitted from the regulatory framework. 6(d)-Provisions exist Generally a procuring entity entrusts one of its 2 for delegating authority corresponding departments or staff to organize 44 to others who have the tenderingproceedings andestablish an ad hoc tender capacity to exercise commission for each tender. Under the PPL (Article responsibilities. 13), the tender commission makes recommendations for contract award, while the department head makes the final decision based on the tender commission's advice. However, this provision i s not being implemented. Summary of Findingsfor Indicator 6 While the country has a sound procurement legislative framework, its implementation at all levels o f government i s weak. Few procuring entities have qualified procurement staff; others use a permanent tender committee, which i s inconsistent with the PPL; and still others assign this important task to one or two staff members who are already preoccupiedwith their current jobs. Recommendations Implement the Prime Minister's Resolution o f January 9, 2007, which requires procuring entities to create a procurement section in one o f their Departments and staff it with qualified procurement specialists. At the same time, strengthen the NPTC to meet the training needs o f the country as well as to introduce a testing and certification program for procurement professionals. Allocate budgetary funds to procuring entities to meet the cost o f staff procurement training. Indicator 7: Functionalityof the publicprocurementmarket 2.10. This indicator assesses the market response to public procurement needs for goods, works, and services inthe context o f the general economic climate, private sector development and policies, the existence o f financial institutions, the government's attractiveness as a business partner, andthe kindso f goods or services required for public projects. ~ Subindicator BriefExplanation Score 7(a)-There are No mechanism and no legal framework exist for such 0 effective mechanisms partnership, although the NPTC does organize short for partnerships between training programs to help improve awareness o f PPL the public andprivate requirements among consulting firms, contractors, and sectors. suppliers. NGOsplay a minimal role inensuring that procuring entities follow proper practices and procedures. SAPPMR's Comments A brief manual on PPL implementation has been issued 45 in cooperation with the "Future without Corruption '' NGO. The Central Asia Public Procurement Forum at I Issyk-Kul provided NGOs with an opportunity to voice their opinions. An anticorruption progress report has been preparedfor theprime minister. TheSAPPMR hasprovided an opportunityfor meetings across all oblasts with representatives of the business community andprocuring entities toprevent corruptpractices. 7(b)-Private sector The organization o fprivate sector institutions is 1 institutions are well improving. There are now associations o f consulting organized and able to firms, manufacturers, and civil works contractors. facilitate market access. Nevertheless, the private sector i s still unable to respond to all the procurement needs o fthe country. Most companies interviewed for this assessment indicated that they regularly follow up on public procurement opportunities but had little confidence in how the procurement systemoperates. Among the reasons cited were the following: technical specifications are too narrow and inhibit competition byunnecessary reference to brand names; essential requirements were missingfrom the technical specifications inbiddingdocuments for public contracts; and technical specifications sometimes contain requirements that are superfluous to the end- user's real needs but favor a particular firm. 7(c)-There are no Major systemic constraints still exist. Access to credit 0 major systemic i s difficult, and prevailing contracting practices deter constraints (e.g., the private sector from doing business with the inadequate access to government. These contracting practices include credit, contracting incorrect and misleading publication o fprocurement practices, etc.) inhibiting opportunities; difficult access to biddingdocuments; the private sector's poor quality o fbiddingdocuments, especially technical capacity to access the specifications; short bidpreparation time for bidders; procurement market. requirements o f licenses from the SAPPMR before contracts can be awarded and signed; cancellation o f tenders for no reason; cancellation o f contract awards without anyjustification; frequent amendments to contracts duringcontract performance; and delayed contractual payments. Standard Tender Documents A number o f issues exist concerning STDs: 0 Biddingdocuments are unavailableto bidders. 0 Procuring entities charge a highprice for bidding documents. sometimes creating; a barrier to entrv 46 whenprices are unreasonably high. 0 Technical specifications are usually o f poor quality. Tender Notices A number o fproblems persist inthe publication o f tender notices: Incorrect phone numbers, requirements, dates, andtimes are provided. 0 Tender notices are publishedon the day o fbid submission or only a few days prior to the deadline for bid submission, giving suppliers scant time to prepare their bids. Tenders are frequently cancelled after publication. 0 Insome regionsdistributionofbulletinsis delayed, with notices arriving only after all tenders have been closed. 0 Phone numbers indicated inadvertisements do not answer. Bid Openings and theAward Process A range o fproblems affect bidopenings and contract awards: The minutes o fbid openings do not always state bidprices, making it possible to manipulatebid prices and eventually the contract award. The Public Procurement Law does not require that all bidders present at a bid opening should sign the minutes. The manager o f a procuring entity can influence the biddingprocess even though Article 13, Point 7 of the PPL stipulates that such an official has no right to be a member o f the procurement departmentandor biddingcommission. Bid commission members are employees o f the procuring entity who are fully dependent on the manager's goodwill, making them subject to manipulation. Sometimes before announcing a contract award procuring entities interview bidders one by one. This seriously affects the transparency o f the procurement process and creates the potential for abuse by procuring entities. 47 Summary of Findingsfor Indicator 7 Public and private sector partnership is weak. NGOs play little role in public procurement. Private sector institutions are still organizing. Most consulting firms, contractors, and suppliers have little confidence in the procurement system. The major reasons for this lack o f confidence are incorrect and misleading publication o f procurement opportunities; difficult access to bidding documents; poor quality of bidding documents, especially technical specifications; short bid preparation time for bidders; minutes o f bid openings are not prepared properly and signed by all participants; requirements for licenses from the SAPPMR before contracts can be awarded and signed; cancellation o f tenders for no reason; cancellation o f contract awards without any justification; frequent amendments to contracts during contract performance; and delayed contractual payments. Recommendations 0 The SAPPMR should develop mechanisms for partnership between public and private sectors. Inthis partnership, the NGOs should be encouraged to be more active. To build private sector confidence in the public procurement system, the SAPMMR and procuring entities should eradicate undesirable procurement practices. Indicator8: Existenceof contract administrationanddisputeresolutionprovisions 2.11. For this indicator, the team reviewed current contract administration procedures and interviewed at some procuring entities to assess the quality o f their administrative practices. Subindicator BriefExplanation Score 8(a)-Procedures are Procedures for undertaking contract administration for 1 clearly definedfor goods (including inspection and acceptance procedures undertaking contract and quality control procedures) are defined inthe administration General Conditions o f Contract that form part o f the responsibilities, standard bidding documents. Administrative including inspection and procedures for civil works contracts are weak and acceptance procedures, result inacceptance o f low-quality civil works with quality control poor workmanship. Amendments to public procedures, and methods procurement contracts are regulatedby Article 60 o f to review and issue the PPL. Changing any provision o f a signed contract contract amendments in and introducing new terms and conditions that may a timely manner. alter tender contents and the basis for selection of the supplier (contractor) are prohibited.However, final payments are not always processed promptly as stipulatedby contract. 8(b)-Contracts include The Special Conditions o f Contract, which provide for 1 disputeresolution dispute resolution, allow the parties to submit a procedures that provide disagreement to arbitration or to a civil court o f general 48 for an efficient and fair jurisdiction. However, no provisions exist for process to resolve international arbitration incontracts with foreign disagreements arising providers o f goods and services. duringcontract Derfomance. 8(c)-Procedures exist Civilprocedures provide for contract enforcement and 1 to enforce the outcome allow the prevailing party ina contract dispute to move o f the dispute resolution for enforcement o fjudgment inthe courts. Although process. the Kyrgyz Republic i s a member o f the New York Convention on enforcement o f international arbitration awards, the country's public procurement contracts do not provide for enforcement o f the outcome o f the international dispute resolution process. Summary of Findingsfor Indicator 8 While conditions o f contract do include clauses on inspection, quality control, and other key items, contract administration procedures generally are weak, especially for civil works. Written contract administration procedures do not exist, and staff i s not provided with systematic training to fill the gaps. Recommendations To ensure that procuring entities administer contracts properly, it is imperative that the SAPPMR prepares a simple manual on contract administration and the NPTC designs and delivers a training program for procuring entities. 49 Pillar IV. Integrity and Transparency of the Public ProcurementSystem 2.12. Pillar IV covers four indicators that are considered necessary for a system that operates with integrity, has appropriate controls to support implementation in accordance with the legal and regulatory framework, and has appropriate measures to address potential corruption. It also covers important aspects o f the procurement systemthat incorporate stakeholders inthe control process. Aspects o f the procurement system and governance environment are defined and structured to contribute to overall integrity and transparency o f operations. Indicator9: The country has an effectivecontroland audit system 2.13. The objective o f this indicator is to determine the quality, reliability, and timeliness o f the internal and external controls. This indicator has five sub indicators, which are discussed and rated inthe table below. Subindicator Brief Explanation Score 9(a)-A legal External auditing i s conducted by several state bodies: 1 framework and the the SAPPMR, the Chamber o f Accounts, the Ministry organizatjon, policy, and o f Finance, and the Office o f the Procurator. procedures for internal The Chamber o f Accounts ensures external audit o f and external control and procurement operations. The C A i s accountable to the audit ofpublic president and the Parliament, which appoints members procurement operations o f the chamber. The C A has a central division and are inplace and provide three regional territorial divisions. There are 126 staff comprehensive at the central level, and around 40 staff inregional coverage. divisions. The C A audits all state bodies yearly. Procurement auditing i s only one aspect o f the chamber's multifaceted control program. The C A capacity to conduct audits i s weak; its staff lack proper training inprocurement; its reports are not made public. Only a few procuring entities (the Ministryo f Health and the Ministry of Finance) have internal control units, and they do not provide comprehensive coverage. The SAPPMR i s responsible for overseeing compliance byprocuring entities with public procurement legislation. The Normative and InspectionUnit located within the SAPPMRhas four staff memberswho carry out external control of procuring entities once every two years. The Statute on Order o f Conduct o f Control Activities, No. 24 governs their work. The SAPPMR auditors have received some training inprocurement audits. 50 The Divisionon Internal Audit (DIA) is under the Ministry o f Finance which has the mandate for controlling execution o f the state budget.However DIA auditors are not sufficiently informed about procurement requirementsand control systems to conduct quality audits. The division's staff has no public procurement training and i s unaware that training i s available. According to its mandate, the Office o f the Procurator (OP) carries out control o f government bodies for compliance with state legislation, including public procurement. OP inspectors survey an institution's activities once a year, including auditing o f public procurement. The inspectors seem to have little knowledge o fpublic procurement procedures. 9(b)-Enforcement and The follow-up and enforcement o f C A findings i s weak 1 follow-up o f control and selective and does not necessarily promote framework findings and compliance by procuring entities with the requirements recommendations of the procurement legal framework. provide an environment that fosters compliance. 9(c)-Internal control As notedabove, few procuring entities have internal 0 systems provide timely control systems. information on compliance to enable management action. 9(d)-Internal control As noted above, only a few procuring entities have 0 systems are sufficiently internal control systems. defined for performance audits to be conducted. 9(e)-Auditors are C A auditors have inadequate training inprocurement 1 sufficiently informed and therefore are unable to conduct quality and about procurement objective audits o fprocuring entityprocurement requirements and control operations. systems to conduct quality audits that foster compliance. Summary of Findingsfor Indicator 9 While external audit exists via the Chamber o f Accounts, internal controls are nonexistent. The C A conducts regular audits o f procurement, but the auditing i s ineffective since the chamber's staff are not properly trained in procurement processes. Furthermore, C A findings are not made public and whether or not its recommendations 51 are properly enforced remains unknown. Recommendations Strengthen the capacity o f the C A staff to conduct audits o f public procurement. Make the C A findings public and ensure that the C A recommendations are implemented. Indicator 10: Efficiencyof the appealsmechanism 2.14. The appeals mechanism was included under Pillar Iwith regard to its creation and coverage by the legal regulatory framework. It i s further assessed under this indicator, which addresses a range o f specific issues affecting its impact on the compliance environment in the country and the integrity o f the public procurement system. Subindicator BriefExplanation Score 1O(a)-Decisions are 2 based on available information, and the final decision can be reviewed and ruledupon by a body (or authority) with enforcement capacity under the law. 1O(b)-The complaint There are terms and time frames for resolution o f 1 review systemhas the complaints, but SAPPMR involvement inlicensing capacity to handle weakens the complaint mechanism. No clear complaints efficiently distinctions are made about competency inresolving and the means to enforce complaints by the central unit o f SAPPMR andits the remedy imposed. territorial representative bodies. The permissive activity o f the SAPPMR undermines the right for appeal because procuring entities are unable to submit complaints within the time frame established by the PPL. Article 63 (2) states that any tender commission decision may be appealed by the participants to the procuring entity within 10days after Dublication o f announcement results for a Drocurement 52 proceeding. Procuring entities do not publish the results o f a tender unless they have received the permit from the SAPPMR. It usually takes more than 10 days for the SAPPMR to issue such decisions; and according to the PPL, bidder complaints submittedto the procuring entity after the designated period are not taken into consideration. SAPPMR's Comments According to the PPL, only "single source" procurement must be coordinated with the SAPPMR. There is no needfor coordination with the SAPPMR when a tender is held sinceprocuring entities make decisions and award contracts themselves. Procuring entities must submit the minutes ofprocurement procedures to the SAPPMRfor information purposes only. For the sake of good order, to be sure that the procedure is in compliance with the PPL, procuring entities apply to the SAPPMRfor a professional opinion about thepropriety ofprocurement procedures. According to Article 66 of the PPL, the SAPPMR has the right to extend the term of temporary suspension during the appeals process to secure the rights of a supplier/contractor that hasfiled a complaint or claim,provided that the totalperiod of suspension does not exceed 30 days. 1O(c)-The system Chapter 9 o fthe PPL, the SAPPMR Regulation"On 3 operates fairly, with order o f consideration o f applications, suggestions, and balanced decisions complaints o fparticipants o f public procurement justified by available procedures," and the Civil Procedure Code regulate information. dispute resolution. The complaint mechanism o f procuring entities i s based on their internal regulations. The SAPPMR regulation requires decision making to bebased on information relevant to the case and calls for balanced verdicts. Decisions o fprocuring entities are subject to review by the SAPPMR and courts o f generaljurisdiction. SAPPMR decisions are subject to review by courts o f generaljurisdiction. Consulting firms, contractors, and suppliers have little confidence inthe system. In2005, only 20 complaints were received and only 40 in2006. This lack o f confidence can be attributed largely to the fact that the appeals mechanism is not viewed as partial, fair, and efficient. 1O(d)-Decisions are No decisions are published. Decisions are not publicly 0 53 published and made posted on the Web site of SAPPMR or inany other available to all interested easily accessible venue. Darties and to the Dublic. 10(e)-The system The SAPPMR, the complaint review body, is not 0 ensures that the independentand autonomous inresolving disputes. It complaint review body lacks sufficient autonomy from the rest o f the system to has full authority and ensure that its decisions are flee from interference or independence for conflict o f interest. For example, the SAPPMR has resolution o f disputes. been reviewing complaints filed against public procurement procedures that it hadpreviously approved through its power to issue permits and licenses. This issue has now been resolved with the cancellation o f the MOF decree requiringsuchpermits. Summary of Findingsfor Indicator 10 0 Providers o f goods, works, and services have little confidence inthe appeals mechanism because they view the complaint review process as not being impartial, fair, and transparent. The SAPPMR as a complaint review body i s not independent, disinterested, and efficient. Certainly, the SAPPMR could not objectively review and resolve complaints about a bidding process for which it had previously issued a document (permit) certifying that a procuring entity has complied with the provisions o f the PPL. With repeal o fthat provision, the concern has lessened. Recommendations 0 To increase bidder trust in the appeals mechanism, the SAPPMR must avoid direct involvement inthe actual conduct o f procurement through review o f evaluation reports, contracts, and other materials to issue licenses o f compliance required by the Treasury. The SAPPMR should also study the appeals mechanism in countries where it is working efficiently (for example, Slovakia, Hungary, and Poland, among others) and then subsequently amend the PPL as needed to provide a fairer and more efficient and transparent mechanism at home. 54 Indicator 11: Degree of access to information 2.15. This indicator deals with how relevant, available, and comprehensive information about the public procurement system is. ~ ~~ Subindicator BriefExplanation Score 11(a)-Information is Information on procurement i s easily accessible inthe 2 published and media. Although there i s no legal requirement to place distributed through information about public procurement on the Internet, available media with the information provided is centralizedinthe SAPPMR support from Web site, which includes public procurement legislation information technology andprocurement advertisements. However complaint when feasible. decisions and procurement plans are not open to the general public. As discussed inthe context o f other relevant indicators, the quality of the published information i s poor. Furthermore, quite often issues o f the PPB are skipped and information on the Web site is not updated because funds are lacking. The Public Procurement Bulletin and official Web site publishall information about forthcoming tenders, outcomes o f accomplished tenders, as well as all implementing regulations and procurement plans. Summary of Findingsfor Indicator 11 Information is easily accessible but its quality is poor since the SAPPMR does not systematically check the contents o f submissions forwarded by procuring entities for publication. Recommendations The SAPPMR should introduce quality controls so that the information it disseminates, especially the contents o f tender notices, are correct and true and consistent with the relevant provisions o f the PPL. 55 Indicator 12: The countryhas ethics and anticorruptionmeasuresin place 2.16. This indicator assesses the nature and scope o f the anticorruption provisions in the procurement system. This indicator has seven sub indicators, which are discussed and rated below. Subindicator BriefExplanation Score 12(a)-The legal and The legal framework does not establish a clear 1 regulatory framework requirement to include references to fraud and for procurement, corruption, conflict o f interest, and unethical behavior including tender and intendering documentation, butmakes fraud and contract documents, corruption punishable acts under the legislation. includes provisions against corruption, The PPL (Article 6) provides for disqualification o f fraud, conflict o f bidders/contractors/supplierswho have given anything interest, and unethical o f value to influence a procurement proceeding, behavior; it sets out decision, or selection o f a particular procedure. The (either directly or by standard tender documents do not include adequate reference to other laws) provisions on fraud and corruption. They only contain the actions that can be provisions on conflicts o f interest. The PPL does not taken with regard to give precise instructions on how to incorporate the such behavior. matter intendering documents. Paragraph 33 o f the instruction to bidders inthe STDs describes "Corruption and Fraudulent Practices" in specific terms and describes measures to be applied ifsuch malfeasance i s uncovered. Yet no nexus seems to link the PPLwith anticorruption legislation, which would call attention to the punitive consequences o f corrupt behavior in procurement and spotlight the possibility o f criminal referral. The PPL would benefit from such a nexus and have gaps filled in by provisions from the anticorruption legislation since the PPL only mentions "bribery" and not other prohibited acts like collusion, coercion, fraud, and to some extent, obstructive practice. 12(b)-The legal system Article 5 o f the PPL includes conflict-of-interest rules 3 defines responsibilities, for public officials. Provisions about bribery o f accountabilities, and officials and applicable sanctions are stipulated inthe penalties for individuals Criminal Code. and firms found culpable o f fraudulent or corrupt Article 5 o f the PPL includes conflict-of-interest rules practices. applying to public officials. Provisions on bribery o f officials and applicable sanctions are stipulated inthe Criminal Code inChaDter 30. "Official Crimes" 56 (Article 303: Corruption; Article 304: Abuse o f Official Position; Article 306: Concluding Contracts, PerformingPublic Procurement against the Interests o f the Kyrgyz Republic; Article 310:Bribery- remuneration; Article 311: Bribery-subornation; Article 313: The Extortion o f Bribes; and Article 314: Giving a Bribe).Article 314 covers the demand side and the rest regulate the supply side o f corruption. 12(c)-Evidence exists Little evidence is available o f prosecution and 0 o f enforcement o f punishment for corrupt practices. The following cases rulings andpenalties. can be cited: in2005, the director o f a professional technical college was prosecuted; in2006, a unit head and the head o fthe financial department o f the Chief Division for Execution o f Punishmentswere charged with crimes inpublic procurement; in2007, the director and chief accountant o f the state-owned I enterprise Kyrgyz Patent were prosecuted. SAPPMR's Comments When corrupt practices are uncovered in procuring entities, materials areforwarded to the appropriate bodiesfor action. At the same time, one of SAPPMR's objectives is prevention of corruption so that criminal violations inpublic procurement are rare. 12(d)-Special Some anticorruption programs and measures are in 2 measures exist to place. A State Strategy to Combat Corruption was prevent and detect fraud approved by PresidentialDecree 3251 on June 21, and corruption inpublic 2005; and the Law to Combat Corruption, No. 51, was procurement. enacted on March 6, 2003. The law applies to all civil servants. The National Agency to Combat Corruption has been established to fight both demand-side and supply-side malfeasance, including bribery and I collusion. However no special measures are inplace to detect and prevent corruption inpublic procurement. N o special courts and dedicated investigativebodies are responsible for investigating and prosecuting cases o f corruption. Corruption cases are handledincourts o f general jurisdiction (criminal division). It i s worth noting that the Kyrgyz Republic ranks 142"d on Transparency International's corruption perception index. 12(e)-Stakeholders N o strong and credible civil society organizations 0 (theprivate sector, civil exercise social audit and control, andno evidence society, andultimate shows that civil society helps shape and improve public beneficiaries o f procurement integrity, although some efforts to stir procurement/end-users) interest have been made recently by the SAPPMR (see 57 support the creation o f a procurement market known for its integrity and ethical behavior. 12(f)-The country A telephone line at the SAPPMR is dedicated to public 1 should have inplace a reporting o f cases o f fraud, unethical behavior, and secure mechanism for corruption. However, there i s no evidence that reporting fraudulent, stakeholders are usingit. When asked, SAPPMR staff corrupt, or unethical stated that they were unaware o f any cases reported via behavior. that telephone line. 12(g)-Codes o f There is no Code o f Ethics for all government officials 0 conduct/ethics codes with specific provisions for those involved inpublic cover participants in financial management, including procurement. Article public financial 10 o f the Law on Civil Service, No. 114, o f August 11, management systems 2004, provides general principles o f ethics for civil and also provide for servants, including procurement staff. However, no disclosure o f those in code o fprofessional conduct applies to procurement in decision-making particular. positions. Summary of Findings Indicator 12 0 The Kyrgyz Republic signedthe UNConvention on Anti-Corruption inAugust 2005. In October 2005, the National Anticorruption Council was established and the Anticorruption Agency set up. The legal framework on anticonuption is adequate, as discussed above. Implementation of the anticorruption legal framework i s weak. The Anticorruption Agency is still gearing up to fight corruption. No code o f professional ethics applies to procurement inparticular. Recommendations 0 The GOK should align the PPL with the anticorruption legislation and strengthen its implementation. 0 Prepare a code o f ethics to apply to staff involved in carrying out procurement with budgetary funds. 58