Country Procurement Assessment Report (CPAR) VOLUME ......Malawi CPAR, Volume I i May 24, 2004 Main...

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Malawi

Country Procurement Assessment Report (CPAR)

VOLUME I MAIN FINDINGS AND RECOMMENDATIONS

May 24, 2004

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Malawi CPAR, Volume I i May 24, 2004 Main Findings and Recommendations

CURRENCY EQUIVALENTS

Currency Unit = Malawi Kwacha (MWK) US$ 1.00 = MWK 106.50 (September, 2003)

FISCAL YEAR July 1 – June 30

ABBREVIATIONS

ACB - Anti-Corruption Bureau CGS - Central Government Stores CIF - Cost Insurance and Freight CMS - Central Medical Stores COMESA - Common Market for Eastern and Southern Africa DISTMS - Department of Information Systems and Managing Services DoPP - Director of Public Procurement FIMTAP - Financial Management, Transparency and Accountability Project FRDP II - Third Fiscal Restructuring and Deregulation Technical Assistance Project GCU - Government Contracting Unit GOM - Government of Malawi HIPC - Heavily-Indebted Poor Countries IFMIS - Integrated Financial Management System IPC - Internal Procurement Committee Kw - Kwacha MDGs - Millenium Development Goals MoF - Ministry of Finance MOH - Ministry of Health MRA - Malawi Revenue Authority NAO - National Audit Office NCIC - National Construction Industry Council OPC - Office of the President Cabinet PSI - Pre-shipment Inspection PVHO - Plant and Vehicle Hiring Organization SADC - Southern Africa Development Community PIU - Project Implementing Units SPU - Specialized Procurement Units ToT - Training of Trainers

Malawi CPAR, Volume I ii May 24, 2004 Main Findings and Recommendations

Regional Vice President: Callisto E. Madavo, AFRVPCountry Director: Hartwig Schafer, AFC03Sector Director: Gerard Byam, AFTQKTask Team Leader: Slaheddine Ben-Halima/Tesfaalem Gebreiyesus, AFTPC

TABLE OF CONTENTS

CURRENCY EQUIVALENTS............................................................................................i

ABBREVIATIONS ..............................................................................................................i

PREFACE.........................................................................................................................1

MAIN FINDINGS AND RECOMMENDATIONS .............................................3

INTRODUCTION ..........................................................................................................3

FINDINGS AND RECOMMENDATIONS ............................................................4 I. Pillar 1 – Legal, Regulatory and Institutional Framework ........................5

I.1 Legal and Regulatory Framework .................................................................5 I.2 Institutional Framework ................................................................................8 I.3 Summary of Recommendations for Legal and Regulatory Framework .........16 I.4 Summary of Recommendations for Institutional Framework........................16

II. Pillar 2 – Procurement Procedures and Practices.....................................17

II.1 Procurement Planning.................................................................................17 II.2 Registration of Bidders ..............................................................................17 II.3 The Procurement Methods Specified in the Law, Generally in line with Accepted

Practices.......................................................................................................18 II.4 No Standard Bidding Documents and Specifications..................................19 II.5 No Major Irregularity in Bid Submission and Opening ..............................19 II.6 Bid Evaluation-Act specifies that bid evaluation shall be as per bidding

documents ....................................................................................................20 II.7 Domestic Preference Eligibility criteria and preference margins should be

specified in the Regulations..........................................................................20 II.8 Contract Negotiations (Goods and Works)..................................................20 II.9 Current Poor Record and Filing System......................................................21 II.10 Budgeting and Delayed Payments............................................................21 II.11 Local Government Procurement Practices.................................................22 II.12 Contract Administration............................................................................23

III. Pillar 3 – Procurement Proficiency............................................................24

III.1 Lack of Procurement Proficiency is a Key Issue ........................................24 III.2 A Procurement Cadre Consisting of Trained and Experienced Procurement

Professionals ................................................................................................24 III.3 Up-grading and Accreditation of Procurement Professionals ....................25 III.4 Capacity Building Measures ....................................................................26 III.5 Summary of Recommendations for Developing Procurement Proficiency ..27

IV. Pillar 4 – Independent Audits and Recourse.............................................27

IV.1 Currently NAO lacks capacity to carry out audits to ensure financial integrity in the public sector procurement decisions........................................................27

IV.2 Enforcing Procurement Rules...................................................................27 IV.3 Review of Complaints ...............................................................................29 IV.4 Information Dissemination and Sensitization.............................................30 IV.5 Summary of Recommendations for Audit and Recourse...........................30

V. Pillar 5 – Anti-Corruption Measures.........................................................31

V.1 Corruption in Procurement ........................................................................31 V.2 Anti-corruption..........................................................................................31 V.3 Lack of Code of Conduct and Ethical Behaviour ........................................33 V.4 Monitoring ................................................................................................33 V.5 Summary of Recommendations for Anti-Corruption Measures ...................35

VI. Public Sector Management Performance..................................................36

VI.1 Malawi has undertaken a range of public sector reform initiatives ............36 VI.2 Status and Issues of Public Sector Management in Malawi........................36 VI.3 Financial Value of Expenditures on Public Procurement...........................38

VII. E-Procurement ...........................................................................................39

Table: E-Procurement Situation in Malawi.........................................................39 Recommendations for E-Procurement ................................................................41

VIII. Performance on World Bank-Financed Projects ......................................42

VIII.1 World Bank Portfolio .............................................................................42 VIII.2 Major findings of the Country Portfolio Review (February 2003) ..........42 VIII.3 Procurement Issues in the Portfolio.........................................................43 VIII.4 Unacceptable Practices on Bank-financed Projects .................................43 VIII.5 Indicative Thresholds for Procurement Methods and Prior Review by the Bank

.....................................................................................................................44 VIII.6 Risk Assessment....................................................................................44 VIII.7 Recommendations to strengthen Fiduciary Safeguard on Bank-Financed

Projects ........................................................................................................45

IX. Private Sector .............................................................................................47

Recommendations..............................................................................................50 Private Sector Perspectives on Public Sector Procurement..................................51

X. Public Sector Procurement – General Risk Assessment...........................52

Summary of Risk Assessment ............................................................................54 RECOMMENDED ACTION PLAN..................................................................55

A. Measures to be taken by the Government .................................................................55

B. Measures to be taken by the Bank and Other Financiers ..........................................56

C. Monitoring and follow-up............................................................................................56

D. CPAR Action Plan .......................................................................................................57

E. Recommended Action Plan to Enhance the Competitiveness of the Private Sector in Public Sector Procurement ...............................................................................................62

F. Summary of Recommended Action Plan for E-Procurement ....................................63

Malawi CPAR, Volume I 1 May 24, 2004 Main Findings and Recommendations

MALAWI

COUNTRY PROCUREMENT ASSESSMENT REPORT (CPAR)

PREFACE i. The Malawi Country Procurement Assessment Report is a joint undertaking between the Malawi Government and the World Bank to analyze the country procurement system and recommend appropriate actions to improve the efficiency, economy and transparency of the system. ii. This report is based on June 2003’s main mission to Malawi and subsequent work to collect and assimilate relevant information regarding the country’s procurement system. From its inception, the Government has shown keen interest in the CPAR and formed a Task Force with a diversified composition to work with the Bank’s CPAR team. At the end of the main mission, the CPAR team presented its initial observations and draft recommendations on a workshop convened by the Task Force. The Draft CPAR key findings and attached Action Plan were also discussed in detail in a CPAR Stakeholders Workshop ( May 12-13, 2004) that clearly again demonstrated full ownership of the government and concerned key stakeholders. Stakeholders discussed and adopted the Action Plan with a few constructive comments. iii. This report is divided into (a) an Executive Summary (b) Main Report on Findings and Recommendations streamlined along the five pillars of sound public fiduciary management,and (c) Annexes.

Acknowledgments

iv. The CPAR Team1 wishes to acknowledge the extensive cooperation and support received from officials and staff of the Malawi public organizations, parastatals, private companies, NGOs and professional organizations interviewed during the assessment and who readily provided background documents, as appropriate. The Team wishes to express its particular appreciation to Mr. Soko, Head of Economic Affairs, Ministry of Finance and the CPAR Task Force that he leads. Finally, the CPAR Team remains impressed by the efforts made by the new office of Public

1 The CPAR Team was comprised of: Mr. Slaheddine Ben-Halima, Senior Procurement Specialist, Task Team Leader (TTL), Mr. Tesfaalem Gebreiyesus, Senior Procurement Specialist, Co-Task Team Leader, Ms. Lucy Fye, Private Sector Development Specialist; Mr. Subhash C. Dhingra, procurement consultant (former Senior Procurement Specialist) Mr. Johnstone Nyirenda, Procurement specialist. Malawi country office and PLS RAMBOLL Management, Denmark (the latter for the public sector part of the report). Mr. Robert Floyd, Public Sector Specialist, contributed to the section on Public Sector Management Performance and also served as peer reviewer of the CPAR. A local consultant, Mr. Maurice Juma provided assistance in collecting procurement related information. Mr. Dunstan Wai, Country Manager in Malawi, Ms. Lynette MacAdam and Ms. Rose Chikuamba offered support, coordination and invaluable assistance for the execution of the assessment. Ms. Emma Mariano (AFTPC) assisted the report compilation and quality assurance. Mr. Rogati Anael Kayani, Procurement Hub Coordinator (Uganda Hub), Ms. Alison Michelli - LEGPR. Ms. Pamela Bigart/ Ms. Nancy Bikondo ( OPCPR), Mr. Michael L.O. Stevens, Lead Public Sector Specialist (AFTPR) Sudhir Chitale- Lead Economist (Country economist), Ms. Muthoni Kaniaru, Country Lawyer and DFID served as reviewers of the CPAR. Ms. Alison Micheli worked closely with the CPAR team in further quality assurance.


Procurement to organize an effective consultative CPAR Stakeholders Workshop and the exemplary level of participation and ownership demonstrated by stakeholders during that workshop.


VOLUME I

MAIN FINDINGS AND RECOMMENDATIONS

INTRODUCTION

1. Importance of Public procurement for Malawi: From 1996 to 2002.2, more than 40% of public expenditures (recurrent and development budget) or US$ 235 million on average, passed through public procurement, translating into 12.2 to 16.2 percent of GDP during that period -- This is a higher proportion than the 10% estimated for most countries in Africa. These figures underscore the importance of public procurement for the country’s financial management and the need for a sound procurement fiduciary system to be in place in order to achieve budgetary savings that can be allocated to economic development and poverty reduction. Even if a conservatively estimated 10% of this cost could be saved through better procurement policies, practices and institutional arrangements, this would mean a yearly gain to the exchequer of the order of $24 million.

2. Procurement Reform and Country Assistance Strategy. In August 2002, the Government’s Poverty Reduction Strategy Paper (PRSP) was endorsed by the World Bank and International Monetary Fund. One objective is to promote good governance to ensure that public institutions and systems establish an effective incentive system, increase productivity and benefit the poor. The Country Assistance Strategy (CAS) for FY04-06, agreed with the Government in line with this objective, emphasizes strengthening economic management; growth; and service delivery. The objectives of the PRSP and the CAS are difficult to achieve without sound public procurement -- based on economy, efficiency and transparency in the use of public funds. The recommendations made in this Report aim to help achieve these objectives.

3. Progress with Procurement Reform. Since the preparation of the diagnostic study on Malawi’s public procurement system in 1996, the Government has made good progress with establishing new – and relatively good – legal framework for procurement reform. But there has not yet been much reform (institutional, practical and oversight). In 2003, the Malawi Parliament passed a new procurement law, the Public Procurement Act of 2003, which became effective in August of that year. The new Procurement Act requires procurement regulations to provide, interalia, thresholds for the use of the various procurement methods, bid and bid evaluation procedures and contract management

4. In May 2000, the Government summarily transferred the functions of the Malawi Tender Board to the already existing Government Contracting Out Unit (GCU) whose original role was to

2 Based on IMF statistical data, IMF Country Report No 02/182 of August 2002.


privatize and “contract out” various service activities of Government. Approval of government tenders was added and “Interim Guidelines”3 were hurriedly developed to regulate procurement. However, the “Interim Guidelines” are not clear on procurement procedures and do not provide for standard bidding documents and manuals. Draft regulations have been in preparation for some time and need to be finalized in order to fill the vacuum created with the enactment of the new Procurement Act. Also, procurement staff need to be trained on the basis of the new Regulations to be able to implement the Procurement Act efficiently.

5. Weaknesses in Current Procurement Performance. The weaknesses in the current procurement procedures are revealed in the survey done in the context of the CPAR for Bank financed projects, as well as in the Country Portfolio Performance Review (CPPR) of February 2003, which identified substantial delays in the procurement process, insufficient capacity, and inadequacies in procurement organization, documents and management. The continued reliance on the Interim Guidelines, which include a number of practices that are considered incompatible with internationally acceptable procurement standards, are also partially to blame for this. Delays in procurement processing due to faulty procurement management are costly to the State in lost benefits that could have been gained by getting projects on stream earlier, had the procedures been handled properly.

6. Objectives of the CPAR. The analysis of the CPAR is carried out against the five basic pillars of a sound public procurement system, including: (i) a functioning legal, regulatory and institutional framework, (ii) use of modernized procurement procedures and practices; (iii) procurement proficiency of Government staff; (iv) independence of audits and recourse for complaints; and (v) inclusion of anti-corruption measures in the procurement law and application of effective sanctions. In addition, the CPAR analyses the performance of the private sector in public procurement and the procurement performance of Bank financed projects. The analysis has led to the recommendations made below, summarized in the Action Plan, to strengthen each pillar over time.

FINDINGS AND RECOMMENDATIONS 7. Overall context: Malawi is starting its procurement reform activities with a clean slate – essentially from scratch; its main existing plank is the relatively good Procurement Act. This poses a positive opportunity for installing a new good public procurement system soon – even the Tender Board was disbanded in 2000 to enable a fresh start. As shown below, Malawi has intentions to set up an independent Directorate of Public Procurement, it has plans to fully decentralize procurement authorities to implementing agencies through Internal Procurement Committees (IPCs), and it has plans to establish a cadre of public procurement professionals to support effective and professional procurement through the IPCs. Government has also re-iterated its strong commitment to eradicate corruption, including in activities related to procurement.

8. The Procurement Act was passed, in 2003, after delays and near derailment. Six months after the Procurement Act became law, the Director of Public Procurement has not been appointed4; hence the Act cannot realistically be implemented. The SPUs (specialized procurement units) in the ministries and agencies (to provide professional procurement support to IPCs) are yet to be established and staffed.

3 “Interim Procurement Guidelines for Goods, Works, Consultancy Services and Donor-funded projects” of 2000. 4 Subsequently, the Director has been appointed in March/April 2004; the office is yet to be operationalized.


9. At this juncture, political commitment is crucial to build on the positive steps already taken and to create a good new procurement system consistent with the vision expressed at the highest political level, from time to time.

I. Pillar 1 – Legal, Regulatory and Institutional Framework I.1 Legal and Regulatory Framework I.1.1 Prior to enactment of the new Procurement Act, public procurement was governed by Interim Guidelines that had a number of weaknesses 10. Around May 2000, the government issued a directive dismantling the Malawi Tender Board. From June 2000 until August 1, 2003 public procurement in Malawi was governed by a circular issued by the Office of the President Cabinet (OPC) -- the “Interim Procurement Guidelines for goods, works, consultancy services and donor-funded projects”5 ( Interim Guidelines). As such, the Guidelines were internal government rules with authority derived from the OPC, but not reaching outside the central ministries and departments. Notably, the Guidelines did not cover local government procurement and, lacking the status of a Law, they had only the limited authority of internal administrative rules. 11. Despite the use of the term “Guidelines”, these are equivalent to primary legislation, which would have benefited from being supported by bylaws and rules. There are no practical references, standard documents or any other form of official guide as to the application of these “guidelines”. This inadequacy is one of the factors contributing to the confusion, described later in the section on “Practices”, which exist among the procuring entities as to the proper application of the rules. 12. In a number of respects, these Interim Guidelines were not in line with sound international public procurement practices. In particular, they provided for: • Use of the Merit point system for evaluation of all goods and works procurement; • Use of qualification criteria (e.g. financial capability and previous performance) as evaluation

criteria; Application of excessive and inappropriate margins of preference - 25% for locally manufactured goods, 20% for local retailers and 15% for works, even under NCB and shopping procedures; use of margin of preference for local consulting firms; • A requirement for registration and classification as a condition for bidding; and • Inadequate mechanism for handling complaints. 13. The other side of the problem was that the Interim Guidelines were poorly enforced and monitored. When combined with an acute low level of procurement knowledge in procuring entities, the result was in number of practices not conducive to economy, efficiency and

5 Circular No. 1/2000 of 09/06/2000


transparency, including excessive use of quotations, pre-contract negotiations (goods and works) etc.


I.1.2 Existing Legal Framework for Public Procurement

14. The main existing legal documents covering public procurement in Malawi are:

(i) Public Procurement Act (2003);

(ii) Financial Management and Accounting Procedures for District Assemblies (2001);

(iii) District Development Fund, Financial Management and Accounting Procedures Manual (2001); and

(iv) The National Construction Industry Act (1996).

I.1.3 New Public Procurement Act 15. With the enactment of the Procurement Act, effective as of August 1, 2003 and modelled on the UNICTRAL Model Law6, Malawi has passed a major milestone in the procurement reforms initiated in 1996. The Act supersedes any previous procurement statutes and regulations in force, including the Interim Guidelines. The country will experience an overnight legal reform covering public procurement at both central and local levels. There is no interim period for implementation or other measures of easing the transition. Combined with the general low knowledge and capacity on procurement at all levels, there is a high risk of an extended period of legal confusion until information about the new Act has been disseminated and capacity to operate it has been built 16. Essential features of the Procurement Act are to: • Decentralize public procurement decisions and responsibility to the procuring entities –

ministries and government agencies through the Internal Procurement Committees (IPCs) and their Special Procurement Units (SPUs).

• Provide for the establishment of a Procurement Cadre as a new professional stream within the civil service

• Introduce a new set of procurement methods with well-described conditions for use, thereby containing discretionary decision making within appropriate units.

• Establish the Office of the Director of Public Procurement (DoPP) as the policy body responsible for regulation and monitoring of public procurement in Malawi, in place of the approval functions of GCU and the erstwhile Malawi Tender Board.

• Establish a standing review committee with the office of the DoPP as a credible complaints mechanism for public procurement.

I.1.4 Procurement Regulations 17. Since the Act has, essentially overnight, replaced all existing rules, it is of paramount importance that Regulations are put in place as soon as possible to provide guidance on all the procedural and technical issues that will emerge during implementation. The existence of specific

6 UNCITRAL Model Law on Procurement of Goods, Construction and Services (1993)


guidelines is especially important in an environment such as Malawi, where procurement capacity is very low.

I.1.5 Local Government Procurement

18. Procurement in the City, Town and District Assemblies has been covered by two parallel sets of rules. Procurement under the District Development Fund (DDF) was covered by a manual7

issued by the Decentralization Secretariat, while the remaining procurement was covered by a circular issued by the Department of Local Authorities under the OPC. The DDF operates as a parallel source of funding for projects in the districts supporting the decentralization process.8

While the Procurement Act applies to local government procurement, it is evident that the Act was based on the needs of large procurers in the central administration. The Procurement Act does leave sufficient flexibility for the needs of local procurement to be addressed in the Regulations. The draft procurement Regulations made available during the CPAR mission do not contain any provisions catering to the specific needs of the local procuring authorities and local community procurement. Local community procurement has specific characteristics requiring simplified procurement mechanisms and appropriate control mechanisms: • Lack of capacity and administrative resources at procuring entity • Small volume procurement • Need for simplified planning requirements • Need for simplified procedures reflecting the small volume procurement • Need for simplified standard documents • Mechanisms to involve the local community in the procurement process, creating • Ownership and utilising peer control • Need for appropriate audit measures I.2 Institutional Framework I.2.1 Malawi Procurement System in Transition 19. Not only the legal but also the institutional framework for procurement in Malawi is in a state of transition. The new Procurement Act establishes new institutions but they are not yet in place and operational. As a result organizations, such as the GCU, as from August 1, 2003, are o longer legally mandated to operate in the area of procurement (though still mandated to operate as the “Government Contracting Out” unit). After August 1, 2003, the procurement related functions rest with the office of the Director of Public Procurement (DoPP), though this office has not yet been operationalized. I.2.2. The Government Contracting-Out Unit

20. When the Malawi Tender Board ceased to function, government transferred this function to GCU (Government Contracting Out Unit), which reported to the Office of the President and Cabinet (OPC). The main role of GCU is to privatise and “contract out” various activities of government, but as 2000 the GCU also assumed responsibilities for approving government contracts.

7 District Development Fund, Financial management and Accounting Procedures Manual 8 With the Local Government Act (1998) the government of Malawi has launched a decentralization reform,

seeking to empower local authorities and decentralize decisions in key areas of government.


21. The GCU has been not so effective in meeting its public procurement function:

• Despite the requirement in the Interim Guidelines, the GCU was normally not consulted by the Internal Procurement Units (IPCS) on tender documents to be issued. Procurement review cannot be effective unless the bidding documents themselves are reviewed, prior to issuance.

• It was also observed by some procuring entities that sometimes the GCU would simply award the contract to another bidder than the one approved by the IPC, without even referring the bid evaluation report back to the IPC in question.

• The GCU’s review of bid evaluation reports was generally not rigorous enough to

verify if the procuring entities have adequately utilized the bid evaluation criteria specified in the bidding documents appropriately;

• As mentioned earlier, there was poor monitoring of the extent of application of

Guidelines and procurement statistics is non-existent.

I.2.3 Decentralization 22. A key feature of the Procurement Act is the introduction of a decentralised procurement system, whereby the procuring entities are fully responsible for all procurement within their domain and budget, including the tendering, contract award and contract administration, whereas the role of the DoPP will be limited to monitoring and reviewing. The Procurement Act also describes the role of the IPCs, which with decentralisation will become fully responsible for procurement in their respective organisations. A new feature is the Specialised Procurement Units (SPUs), which will handle day-to-day procurement issues and support the respective IPCs. According to the Procurement Act, an SPU shall include at least two procurement specialists whose qualifications have been certified by the DoPP. The new institutional set up, under the new Act is briefly described below.

I.2.4 The Office of the Director of Public Procurement

I.2.4.1 Oversight and Regulatory Functions as Opposed to Executing Functions

23. The DoPP will assume oversight and regulatory functions as opposed to the GCU, which also has extensive executive functions. The Procurement Act assigns a comprehensive list of functions to the DoPP including:


Policy and regulatory role• Advise Government on policy in procurement matters • Develop Regulations, instructions and standard bidding documents • Carry out economic studies and future projections on procurement • Promote the procurement profession • Promote the application of modern information and communication technology in public

procurement Complaints• Provide administrative review Monitoring• Monitor performance of procuring entities and suppliers and refer violations to relevant

authorities • Provide periodic assessments of procurement activities • Collect data on procurement performance • Appoint members to the IPCs when procurement exceeds a certain value • Maintain and circulate lists of debarred bidders (blacklists) Information dissemination and capacity building• Ensure the availability of legal texts • Organise training and build capacity within the procurement cadre Other responsibilities• Appoint up to three external IPC members for procurement beyond certain thresholds

24. The World Bank is currently financing a consultancy assignment aimed at supporting institutional reform in the area of procurement. The consultancy will assist in designing and developing the institutional framework for the DoPP. I.2.4.2 DoPP should be seen to operate independently and on professional terms.

25. According to the Procurement Act, after each financial year, the DoPP shall report on his activities to the “Minister”9. The “Minister” shall then present the report to the National Assembly.10 The Act does not specify, which Minister the DoPP is referring to, however, according to the GCU, the DoPP shall report to the Minister responsible for Procurement Affairs at any given time. At the moment, the Minister responsible for Procurement issues is the President himself since procurement is under the OPC, and the DoPP will therefore be reporting to the OPC. 26. This might raise some issues concerning the independence of the DoPP. In particular in light of the above described informal procedure, whereby the OPC up until now has been directly involved in the award of contracts on several occasions. In order to function properly and to be seen as a fair and non-biased review and regulatory body, it is important that the DoPP maintains its independence both in legal and in real terms. Thus, while the problem of direct executive influence on tender award will be mitigated with the decentralization of procurement decisions and contract award to the ministerial and departmental levels, it is important that the DoPP is seen to operate independently and on professional terms. 27. It is highlighted that the location of the DoPP under the President would not be desirable. It would be organizationally correct, for fiduciary and other reasons, to make the DoPP

9 Article 41.1 10 Article 41.2


responsible to the Ministry of Finance. In order to maintain the desirable objective of having DoPP as a strong, properly empowered institution that overseas the entire procurement policy framework (policy development, Laws and Rules, oversight and enforcement), the Ministry of Finance may have a general ministerial remit over the DoPP, but it should not have managerial authority over the Director of the DoPP. It is recognized that this recommendation may require amendment to the recently enacted Procurement Act. Yet, there is balance of advantage in favor of this change in order (a) to ensure that the fiduciary organizational principles are honored, and (b) to de-link the DoPP from the President and Office of the President and Cabinet (OPC). Such an arrangement would correctly free the President from a responsibility which could otherwise organizationally embroil that exalted position in operational controversies and sensitivities that could arise in the sphere of procurement. 11

I.2.4.3 Securing Information Flow to the DoPP 28. Lack of procurement information mechanism to enable to monitor (or even to compile basic procurement statistics) is non-existent. Sound and efficient information mechanisms and procedures between the DoPP and the procuring entities should be established to enable the office of the DoPP to carry its function effectively. .I.2.4.4 Monitoring the Role of the DoPP vis-à-vis Local Government 29. The CPAR Mission identified several shortcomings in the overall procurement monitoring and auditing of the local government procurement. At present it appears that there is virtually no monitoring taking place either by the Department of Local Government or by the GCU. 30. As part of an overall focus on strengthening monitoring of public procurement, there will be an increased need for strengthening the institutions, which will carry out the monitoring functions. The office of the DoPP should become a strong and focused monitoring entity, and adequate resources should be allocated to this extent. Rather than building up extensive monitoring capacity at both the DoPP and within the Department of Local Government, it is suggested that the DoPP be empowered to directly monitor local government procurement.

I.2.5 Internal Procurement Committees Under the New Procurement Act

31. The Interim Guidelines established IPCs in all procuring entities. The notion of IPCs is also adopted in the new Procurement Act. Thus, the Act obliges all ministries, departments and parastatal organisations, and other entities and authorities of public administration in Malawi to establish IPCs. The IPCs shall have the following functions:

• Ascertaining the availability of funds to pay for each procurement • Opening of bids • Examination, evaluation and comparison of bids, and the selection of the successful bidder

11 This issue was discussed in detail during the CPAR Stakeholders Workshop (May 12-13, 2004) in which three options for the location of DoPP were discussed- i.e. (i) MoF; (ii) Office of the President (as per the Act) and (iii) Parliament (PAC). Participants showed no difference in seeing an independent regulatory and monitoring. The general consensus was, however, not to move the DoPP to the MoF for the following main reasons: (i) DoPP will not be responsible for day to day procurement operations and hence concerns on the degree and effects of possible interference would, in practice, be mitigated; (ii) moving the DoPP to MoF can not fully mitigate the concerns on potential interferences; and (iii) moreover, the Act has just been enacted and, therefore, rather than considering to introduce changes at this moment, it would be preferable to give a “testing period” after which the situation would be reassessed depending on the experience of DoPP during the period.


• Such other functions as may be prescribed in the Regulations 32. The Procurement Act also details the composition of the IPCs, and highlights that their members must be well informed about and trained in public procurement. The Procurement Act leaves it to the DoPP to issue guidelines regarding the professional qualifications of the IPC members. 33. When procurement exceeds certain thresholds12, the DoPP shall nominate up to three external members for the IPC. The nomination of IPC members by the DoPP for certain larger tenders may strengthen an otherwise weak IPC in situations, where the tenders are large and perhaps complicated and hence desirable. It is important, however, that the nomination of the external IPC members be carried out in such a way that the DoPP not be seen to influence the decision making of the IPC. This has been done under the Act by DoPP maintaining a pool of suitably qualified candidates from the procurement cadre, which would then be suitably delegated to the various IPCs when the need arises. In any case, the method for nomination of external IPC members will be described in more detail in the Procurement Regulations. I.2.6 Specialised Procurement Units will become key operational units for public procurement and hence should be focus of attention

34. A new feature introduced by the Procurement ct is the Specialised Procurement Units (SPUs). According to the Act,13 the procuring entities may establish SPUs and assign to them authority to conduct procurement in accordance with the Act. Smaller procuring entities with low volume procurement may decide to share SPUs. The Act further specifies that the SPU shall include at least two procurement specialists whose qualifications have been certified by the DoPP. The SPU will serve as secretariat to the IPC and support the IPC in any manner necessary. 35. The following figure summarizes the relations between the IPC, the SPU and the DoPP as envisaged in the new law.

IPC forLarge volum e procurm ent

R egular IPC

SPU

Procuring Entity

D oPP

IPC m em bers appointed by D PP

M onitoring

Fig1: Relations between IPC, SPU and DoPP

12 The thresholds shall be prescribed by the DoPP and may differ for goods, works and consultancy 13 Article 10


36. As foreseen in the Act, the SPUs will become the key operational units of public procurement in Malawi – especially in the ministries, departments and parastatals with large volume procurement. Thus, where established, the SPUs should be responsible for the day-to-day business of procurement, including, but not limited to: • General co-ordination especially within ministry, department or agency • Organise development of technical specifications14 • Prepare bid documents • Organise advertisement • Issue bid documents • Organise communication with bidders • Issue bid receipts and keep bids till opening date • Arrange public bid opening sessions • Participate in bid evaluation as determined by the IPC • Prepare evaluation reports • Prepare draft contracts • Present the result of a tendering procedure to the IPC for approval • Maintain proper records for the whole procurement process.

37. This Report believes that if the decentralized procurement regime is to operate effectively, maximum attention and support should be given to the SPUs. The issue of acute lack of procurement proficiency in the country, which could severely affect the success of the decentralized system (unless adequately mitigated) is treated further in the “Procurement Proficiency” section of this report. I.2.7 Centralized Government Purchasing vis-à-vis a Decentralized Procurement Regime

38. Gaining the advantages of scale was the objective when planning procurement through the Central Government Stores (CGS), Central Medical Stores (CMS) and Plant and Vehicle Hiring Organisation (PVHO). The government stores were also one of the subjects of the 1996 diagnostic study mentioned in connection with the legal and regulatory framework earlier in this report. I.2.7.1 The Plant and Vehicle Hiring Organization (PVHO)

39. The PVHO is tasked with purchasing, hiring and maintenance of plants and vehicles for the Government. It is headquartered in Blantyre, where the central stores facility is placed, and it has additional stores facilities in Mzuzu and Lilongwe. . In addition 14 district repair workshops are maintained by PVHO. The PVHO currently stores approximately 200 items (approximately 130vehicles and 70 items of construction equipment). It maintains approximately 700 staff out of which approximately 200 are tasked with maintenance. 40. Under the Interim Procurement Guidelines, it was mandatory for government entities to first approach the PVHO, when wishing to procure vehicles or equipment.15 However, a large proportion of government procuring entities disregard this requirement and procure

14 The SPU should be able to use technical specialists for the development of technical specifications in agreement with the buyer/Ministry. However, the responsibility for ensuring the quality must still rest with the SPU and the IPC.

15 Article 31.1 of the Interim Procurement Guidelines


directly from the private sector. The reasons cited by other government entities for disregarding the PVHO are: (a) the slow and low quality service, and (b) that the prices are not lower compared to the private market suppliers. 41. The PVHO claims a net profit for 2001/2002 amounting to 91.895 USD. This does not, however, include estimates or figures for the Government subsidies provided to the PVHO in the form of donation of equipment and the capital investment in PVHO. Had the PVHO operated on fully commercial terms, the servicing of capital or loans related to purchase of equipment etc should have figured. Naturally, these expenses would have influenced the net profitability of PVHO. Thus, the CPAR Mission remains sceptical towards the notion that the PVHO is a profitable organisation. The fact that most Government procuring entities no longer use the services of the PVHO, the obvious deficiencies in the organisation, including excessive staffing, as well as the general developments in the vehicle and rental market, which provides plenty of opportunity for private sector goods and services, makes the further existence of the organisation questionable.16 .I.2.7.2 The Central Government Stores

42. The CGS was established in 196817 and purchases, stocks and distributes common items (only goods) for the Government. The headquarter and main storage facility is in Blantyre, and additional stores are kept in Zomba, Liwonde, Lilongwe, Kasungo and Mzuzu. All purchasing is carried out at the Blantyre headquarter and goods are subsequently distributed or delivered to the other stores facilities. It has a staff of about 360 and carries out an annual procurement in the order of US$ 600,000. 43. While procurement through the CGS was mandatory according to the Interim Guidelines, the CGS concedes that most government entities did not follow this requirement. In fact, the CGS estimates that from July 2002 to June 2003, the CGS lost business worth Kw 21 Million (USD 240,321) as a result of ministries and departments buying goods elsewhere.18 The frequently cited reasons for not using the services of the CGS are: (a) lack of stock, (b) bureaucracy, and (c) prolonged delivery. The CGS faces financial constraints due to lack of payment from government entities (amounting to approximately 63 million Kw) and debt incurred to private suppliers (amounting to approximately 48 million Kw). Other financial and operational constraints are caused by the current cash-budget system, which makes it difficult for the CGS to plan and package procurement and replenish stocks in the required manner. The CGS has tried to alleviate this problem by employing local one-year framework agreements. Thus, according to the CGS approximately two thirds of the items are procured through these framework agreements with selected suppliers, identified through open tenders. 44. The 1996 Diagnostic study recommended a complete reorganisation of the set-up for centralised government purchasing. A key recommendation was the conversion of the CGS into a

16 Also the 1996 Study provided clear and sound suggestions to the dismantling of the PVHO and the transfer of tasks, however much has not been done since been effectuated. During the Mission a number of reasons for lack of action were cited including: i) Lack of political will; ii) Lack of knowledge on how to proceed with reforms; and iii) Lack of data on financial and other gains, which could be obtained through reforms. 17 Established by General Notice 127/1968 of Laws of Malawi under chapter 37:01, Section 17 of the Finance and

Audit Act. 18 The figure was provided by the CGS in July 2003 and is based on pro forma invoices issued to ministries and

departments against the actual sales made.


more efficient entity with streamlined responsibilities and increased technical skills: the Government Procurement and Supplies Organisation (GPSO). 45. In 1999, the Human Resource Management and Development Department of the OPC carried out a functional review of the CGS on behalf of the government.19 Notably, the 1999/2000 reform initiative did not take heed of the recommendations of the 1996 Diagnostic Study in that full regional storage capacity were maintained and several of the tasks recommended are not addressed in the organizational set-up. 46. In the view of the CPAR Mission, any such purchasing and storage organisation must be able to make the best value for money in government purchasing. In other words, the stores organisation should be competitive in terms of price, quality and delivery when compared to the private sector. Otherwise, the procuring entities may just as well approach the private sector directly. 47. The following considerations argue in favour of seriously considering the discontinuation of the centralized purchase facility: • The CGS purchase, stocks and supplies ordinary items, which are readily available on

the market. • Ministries and Department already bypass the CGS due to lack of competitiveness on

prices, delivery and services • With the decentralised procurement and increased focus on procurement capacity

building, the procuring entities will increase their capacity for conducting their own procurement without the assistance of the CGS.

• With proper procurement planning and supply management, the individual procuring entities and/or the procuring entities under a ministry, department or agency could also consolidate their requirement and hence still enjoy the benefit of economy of scale and scope.

48. The decision to discontinue the current role of CGS could entail social costs through possible retrenchments. However, many of the staff that are active in purchasing activities could be encouraged to qualify (with retraining etc., as needed) for enrolment in the new procurement cadre to be formed. The cadre is expected to have a structured and attractive career path and salaries. Others would need retraining support for absorption elsewhere in government or to choose other career options. I.2.7.3 Central Medical Stores (CMS)

49. The CMS procures, stocks, and distributes pharmaceutical supplies and medical equipment. Several studies and assessments have been carried out in relation to the rationalisation of the CMS, and several development partners are sponsoring these efforts. Thus, in March 2001, the Ministry of Health and Population (MoHP) supported by DFID started a project to strengthen the capacity of the CMS in preparation for the transition of CMS into an autonomous, non-profit entity with sound business practices. 50. The latest World Bank assessment was carried out in January 200320 and focussed, among other things, on CMS procurement. The key findings were consistent with the findings of

19 The functional review and proposed new structure of the CGS was approved by the Cabinet in 2000. 20 The full assessment is included in Annex XXX


previous CMS assessments, and confirmed the need for radical changes in the CMS. Like the CPAR Mission, the CMS Assessment Team suffered from lack of documentation within the CMS systems, which is again an indicator of the poor state of affairs in the organisation. The most significant weaknesses identified included: • Lack of basic system for pre-qualification/quality assurance mechanism • Deficient bidding and contractual documentation • Severe human resources constraints • Total dependency on Treasury Department for payment of services rendered • Unwieldy scheme of approval and clearances that hamper transparency of procurement

actions and make the timeframe fro contract award long and unpredictable • Poor record keeping and deficient contract management • Absence of a demand-led inventory to enable full and continuing availability, timely delivery

and proper forecasting needs 51. The CMS Assessment Team came up with a number of recommendations for the improvement of the organisation and operations of the CMS. With respect to procurement, the Team specifically recommended that: • A CMS procurement strategy be adopted to ensure value for money in the purchase of drugs

and health supplies • As a short/ medium term measure, an international specialised procurement agency should be

selected on a competitive basis to carry out health sector procurement. This could be combined with a technology transfer/ capacity building component to support the further strengthening of the CMS.

I.3 Summary of Recommendations for Legal and Regulatory Framework Short term: • Work on the Procurement Regulations should be finalized as soon as possible. • Any in-depth training in procurement should be supplemented by specific training in the

Procurement Act, and the Procurement Regulations when they become available.• The DoPP and the Ministry of Local government may issue a set of simplified procedures

(manual) suitable for fiduciary management for community driven development projects that takes its specific nature into account.

I.4 Summary of Recommendations for Institutional Framework

Short term• Operationalize the office by staffing it and provision of resources. • Ensure that the IPC members nominated by the DoPP are independent and operate as such • Support the establishment of SPUs. The support should include setting up the SPUs,

description of tasks and functions, identification and training of staff, equipment support, etc. • Establish Information Management System (IMS) to ensure proper information flow to the

DoPP and allowing the DoPP to gather procurement statistics and fulfil its reporting requirements.

• Ensure that the DoPP is given full monitoring and supervisory powers regarding the procurement carried out by local government authorities.


• Continue the process of rationalising and restructuring the CMS • Immediately initiate studies to clearly recommend the future of CGS and PVHO21

Medium term• Continue strengthening the DoPP with resources and training. • Take concrete measures to implement recommendations on CGS and PVHO

II. Pillar 2 – Procurement Procedures and Practices II.1 Procurement Planning 52. With few exceptions procurement planning, as a prerequisite for floating of tenders was not required under the Interim Guidelines and was not performed in practice except by some of the larger procurers. The absence of procurement planning reflects two related issues: (i) lack of knowledge of the value of planning, and (ii) delays in procurement processing and disadvantages arsing from the consequent inability to ”package” the contracts properly, caused by the cash budget system currently used in Malawi. The other impacts of the cash budget system are described in a separate section. 53. Essential features of proper procurement planning normally include: • Realistic project definition • Achievable process completion periods • Accurate cost estimates and budget compliance • Driven by documented need • Proper design of packets (both in size and type of procurement) • Proper choice of procurement method • Knowledge of relevant market.

54. Even though the Procurement Act requires procurement planning, the Regulations22 must specify specific features of proper procurement plans. Since knowledge of the advantages of procurement planning is lacking, the approach must be two-pronged. Firstly, the capacity building initiatives that are under way must include procurement planning as an important requisite for achieving value for money. Secondly, the requirements for procurement planning that are now entrenched in the Procurement Act must be enforced as an integrated part of the procurement audit program that should be launched by the DoPP. II.2 Registration of Bidders 55. Under the “Interim guidelines”, registration of bidders was a condition for bidding and was used for qualification purposes. The Procurement Act will allow submission of bids without prior registration but requires that a bidder be registered with the relevant authority as a condition for contract award. Currently, qualification of bidders is mostly carried out through use of registration lists, on which the bidders apply for inclusion. Currently, there is a “registration” list

21 On CGS: During the CPAR stakeholders’ workshop and subsequent meetings, the government has affirmed that it will, as a priority, form a team to closely study CGS and provide its recommendations to government. On PVHO: the initial procurement processes (under a Bank financed Project) are underway to enable the employment of a consultant to study PVHO more closely and provide its recommendations on the future of the organization.

22 The draft Regulations made available to the Mission does indeed have a section on procurement planning.


for the construction industry, maintained by the NCIC, a “registration” list maintained by GCU for small value procurement (under 100.000 K). In addition, most procuring entities have supplier (registration) lists of their own. Certified professions, such as architects, surveyors and accountants also have their own registration lists. The administration of these lists involves a fair amount of bureaucracy, and according to the private sector, it is the general perception that the information on the lists is outdated and that the time-consuming processes of application and renewal are a burden to the businesses. 56. Some of the observations on the registration system include: • overlapping lists leading to double work and unnecessary burdens on bidders. • data requirements for obtaining a registration are substantial and processing of an application

is time consuming due to lack of capacity in the registering agencies. • registration is a pre-requisite for acceptance of bid from a bidder. • The way in which potential bidders are selected from the list is non-transparent and does not

follow any set of rules. • the uses of these lists for award of contracts not restricted to small value procurement. It is

quite often used for much higher value procurement. 57. Even though registration lists pose a barrier to entry, for small value procurement, having a system of efficient and transparent registration is acceptable since it avoids the need to qualify bidders for every small purchase. .

58. While the Procurement Act will, as opposed to earlier guidelines, allow submission of bids without prior registration, a bidder must still be registered with the relevant authority to be awarded the contract. This is a useful change to the registration system. But it is essential that the registration process itself not be too cumbersome and time consuming. 59. Finally, the use of “pre-qualification” is beneficial for certain large value and/or complex procurement. Another option is “post-qualification” for the not so complex cases. The Regulations, when drafted, should allow the procurement entity to decide which of the two options to adopt on a case-by-case basis. It is preferable to add guidance on the choices but the regulations should leave the flexibility to the procuring entity after that to use one or the other approach in individual cases.

II.3 The Procurement Methods Specified in the Law, Generally in line with Accepted Practices 60. The new Procurement Act specifies a set of procurement methods that are generally in line with accepted international practices, with open tendering as the “normal method” for procurement of goods, works and services. The procurement Act also describes the conditions for use of each method. However, to the extent that size of contract is a condition for use, all thresholds for application of the different procurement methods in the Procurement Act are to be defined in the Regulations, these were not available at the time of preparing this report. For ease of reference, the procurement methods stipulated in the new Public Procurement Act are listed in the Annex to this report.


Use of Quotations

61. The Mission encountered widespread use of “requests for quotations” (or “shopping”) as a method of procuring goods and works. In the procuring entities visited, the ratio between “open tender” and “request for quotations” was roughly 40% vs. 60%. In some procuring units, more that 80% of the total government-funded procurement is acquired through methods other than “open tendering”. 62. Even though the new procurement Act was not enacted, excessive use of quotations is in contradiction with the requirement of the Interim Procurement Guidelines that the principal method of procurement is “open tendering”. However, enforcement has been very lax, and the reasons cited for use of “request for quotations “ are: (i) lack of planning which leads to procurement being rushed; (ii) lack of knowledge of tendering procedures; and (iii) the convenience of just picking suppliers from the registration list. Without tight enforcement by the procuring entities and the DoPP, the CPAR mission is concerned that this practice could continue even under the new Procurement Act. 63. It must be recognized that one of the major challenges of the new DoPP is to change the mindset of the procuring officers, so that they understand the benefits of open tendering as the procurement method of choice. In that respect, regulations should give guidance as to when exactly the request for quotations method should be used consistent with the Procurement Act.23.

II.4 No Standard Bidding Documents and Specifications 64. There have been no standard bidding documents in Malawi, even though documents inspired by or copied from donor documents are in widespread use. This situation, combined with the very low capacity within the IPCs (Independent Procurement Committees) in the ministries and government agencies has created ample opportunity for mistakes and misuse, compromised transparency, hindered proper monitoring and placed unnecessary burdens on bidders. 65. The quality of specifications often has been poor. The Mission encountered several instances where bidding documents, including specifications, were reused regardless of whether the recurring tender was for the same type of services24, apparently because the procuring officer needed to submit some paperwork but did not have the updated specifications. In such cases, bidders rely on their informal knowledge of the actual needs of the procuring entity, and the formal specifications are just pro-forma paper without real meaning. It goes without saying that such practice renders any attempt to enforce a contract futile and opens door for negotiations in contradiction with the principles of transparency, economy and efficiency. II.5 No Major Irregularity in Bid Submission and Opening 66. Tenders are submitted25 in tender boxes, opened and read aloud publicly at the end of the submission period. There are no reports of any widespread irregularities in this respect. The time

23 An example is the Procurement Act section 30(9): “local request-for-quotations shall be used when the desired goods, construction or services are ordinarily available from more than two sources in Malawi at competitive prices.” The terms “local”, “ordinarily available” and “competitive prices” appear quite open for interpretation. Since regulations issued by the DoPP will contain thresholds for each procurement method, the thresholds, and not such vague conditions, should decide the choice of method.

24 The Mission witnessed this practice in a very large government-funded works tender, floated by a ministry. 25 At one particular large procuring entity, quotations are often collected verbally. This practice does not appear to

be common, but it demonstrates the laxity of the oversight functions in the current system.


allowed for bid submission in national tenders is 28 days, which is sufficient. When issued, the Regulations will contain specific time limits for the individual steps of the procurement process. II.6 Bid Evaluation-Act specifies that bid evaluation shall be as per bidding documents 67. Bid evaluation pursuant to the Interim Guidelines followed the merit point system where qualification criteria are used as evaluation criteria. The price accounts for only 30% of the total number of merit points. Such a practice compromises value for money and introduces an inappropriate mix of qualification and evaluation criteria. The Procurement Act abolishes the current merit point system and introduces lowest evaluated bid (on the basis of price and non price criteria specified in the bidding documents). Importantly, the Procurement Act explicitly requires that bids should be evaluated only in accordance with the criteria specified in the bidding documents (this has not always been the case).

II.7 Domestic Preference Eligibility criteria and preference margins should be specified in the Regulations 68. Domestic preference continues to be allowed under the Procurement Act. The Regulations will specify the margins to be allowed on the basis of eligibility criteria. 69. Even though domestic preference in principle is a barrier to the free market and value for money, it is internationally accepted that a developing country can apply its procurement policy to support development of its private sector. However, domestic preference should be limited to “international tenders”, and not be applied to cases where only “national” advertisement and procurement is contemplated. Finally, domestic preference should be applied in a transparent manner, based on specific and mandatory criteria for application and margins of preference26 defined in the legal framework. II.8 Contract Negotiations (Goods and Works) 70. Even though the Interim Guidelines prohibits negotiations between procuring entity and the bidder before signing the contract, negotiations is common practice. almost all the entities visited by the CPAR Mission, stated that negotiations are commonplace. The underlying reasons for this practice, as identified by the CPAR Mission are: • Inadequate specifications leading to the need for clarifications/discussions • Inadequate instructions to bidders and poor/missing terms of contract leading to need for

clarifications/discussions 71. Negotiations are in direct contradiction with the principle of equality among the bidders, and pose a barrier to the competitive situation that should ensure value for money. The Procurement Act similarly prohibits negotiations, but unless the current practice is targeted directly, both through the elimination of the causes, and vigilant enforcement, then the practice is bound to persist.

26 Otherwise, the risk is that foreign companies establish themselves in Malawi with the sole purpose of gaining access to domestic preference, thus circumventing the objective of the rules. The criteria for application could be designed as to apply only for the developing local businesses, as intended.


II.9 Current Poor Record and Filing System 72. Most entities visited by the Mission displayed a combination of incomplete files and inadequate filing systems. A number of public entities informed the Mission that collection of proposals could be verbal, even though the Interim Regulation demands that all proposals must be in writing. In addition, files could apparently go missing during the ordinary office routines, without causing any greater alarm. 73. The most common filing system is to file by document type, and not contract-wise, i.e. all advertisements in the office are filed together, evaluation reports are filed together, etc., making it difficult and time consuming to collect a complete procurement file for a particular contract. This practice, together with the issue of missing files, also poses an obstacle to monitoring and the proper execution of procurement audits. 74. The new Procurement Act has introduced the term “Record of Procurement Proceedings”, with quite specific demands for the content of that file27. According to the Procurement Act, the record must now be made available to the public on request. The introduction of the Procurement Record and the decision to make this available to the general public and the press is a major change in course from the existing system. 75. The Procurement Record, if implemented correctly and enforced, will have a profound impact on the quality of statistics gathered and in turn will improve the quality of the policy decisions made by the DoPP. However, the enforcement of the Procurement Record will be difficult as capacity to implement new rules at the procuring entities generally is low. It will also demand vigorous enforcement by the DoPP to get the procuring entities to handle procurement files differently from all other government files. To support dissemination and enforcement of the Procurement Record the Regulations should contain a more specific checklist with a breakdown of the elements of the Procurement Record.

II.10 Budgeting and Delayed Payments 76. Procurement planning is currently not a part of the budget process. This leads to a situation where the funds released by the Ministry of Finance do not match the procurement requirements by the ministries. Even though the Ministry of Finance alleges to release all allocated funds during the fiscal year, the Mission encountered widespread claims that funds are not only delayed but are also not reaching the procuring entities as allocated. The problem is enhanced by the financial requirement that no tender can be floated without available funding. Such requirements dictate an upper limit to the size of tenders, which can be floated and encourages the practice of “splitting” the tendered quantities and facilitates, thereby, the excessive use of “request for quotations” instead of “open tenders”. Delays in release and shortage of allocated funds lead to delayed payments to contractors with all its negative consequences on the value for money including the following: a) bidders factor in the risk of delayed payments in their

27 Procurement Act section 27. The record must contain the following information: (a) a description of the object of the procurement; (b) a list of the participating bidders and their qualifications; (c) bid prices; (d) a summary (f) the evaluation of bids; (e) summary of any review proceedings and decisions thereon; (f) requests for clarification, and responses thereto; (g) a statement of grounds for cancellation of procurement proceedings; (h) a statement of grounds for choice of a procurement method other than tendering or request for proposals for services; (i) a statement of grounds for reduction of bid-preparation periods; and (j) information concerning rejection of bids


bids resulting in relatively higher bid prices; b) negative effect on contractors’ cash flow reflected in implementation delays; c) interest charges on delayed payments reducing much needed funds; d) larger amounts of local currency than originally planned due to possible changes in the exchange rates during the delay period 77. It is not within the scope of this report to make recommendations on the current budgeting system,28 but it appears evident that linking proper procurement planning with the budget process could improve the issue of late/reduced payments. II.11 Local Government Procurement Practices 78 During the visits to various local government entities, the Mission observed the existence of a number of malpractices within public procurement including inadequate advertising of tenders, excessive use of quotation method and application of non-transparent selection processes, lack of transparency regarding contract award including lack of publication of contract awards, undue political influence on contract award especially by councillors, and lack of oversight and procurement audits. 79. The Mission was informed that award decisions are often made on political grounds, and thus many of the procurement decisions made by the local government authorities are perceived as biased and questionable. 80. Some of the councillors met maintained that the influence of councillors on the local tendering processes is justified due to the councillors knowledge of the local conditions and the local market. However, most councillors also agreed that the same argument might be used against councillors interfering, as many councillors depend on the local business community for campaign funds and therefore may be perceived as being biased towards certain local interests. Procurement is an executive function, which should be carried out without political interference. Politicians are responsible for approving the budget and supervising its implementation, but should not be involved in the executive role of dispersing the funds. Thus, the oversight role of the councillors is compromised, when they, as in the present situation, are also involved in the execution of the budget provisions through procurement. The Mission suggests that these principles are clearly spelled out in the forthcoming Procurement Regulations or the suggested Handbook for local government procurement. 81. Another issue calling for immediate attention is the lack of adequate monitoring and low frequency of audits of local government procurement, despite the many indications that irregularities are frequent.29 As an aspect of the monitoring element, the Mission identified no examples of local community involvement in the monitoring of local public procurement. This mirrors the similar situation at central government level, where civil society monitoring of the procurement processes is completely missing. As described further in the section on anti-corruption, measures for civil society monitoring of public procurement by local government can and should be vested within the larger a anti-corruption monitoring effort. 82. Another key issue is the general lack of capacity for conducting sound procurement at the local government level. A major task persists in introducing the new legal framework to all relevant parties involved in the procurement process, including the local communities and local

28 Budgeting issues are described in the World Bank CFAA (2002) report 29 As of June 2003, out of 28 district assemblies only 6 districts had been audited since the fiscal year 1997/98 and for

12 assemblies the last audit was in 1995/96.


civil society. Beyond mere introduction all officials involved directly in the procurement process, from members of the local IPCs to those officials responsible for contract follow-up and contract management must be trained so that they are able to fully use and abide with the new legal and procedural framework. The issue of building capacity within public procurement is further described in the “Procurement Proficiency” Section of this report. II.12 Contract Administration 83. This is the process of ensuring that the contractor’s performance meets contractual provisions and requirements. The new Procurement law requires procuring entities to establish procedures for contract administration and provide the necessary resources for implementation. Experience in some Bank financed projects has shown that there is general lack of understanding of contractual provisions and proper assessment of contractor’s claims (as and when they arise). It needs to be noted that lack of adequate contract administration leads to significant time and/or cost overruns, particularly in civil works, draining any benefit that could be acquired using an efficient procurement system. NCIC (and DoPP) should therefore enhance procuring entities’ capacities by equipping them with the tools and techniques for contract administration (including monitoring of work plan, contract change control system, quality control, contract performance reporting and payment systems procedures). II. 13 Summary of Procedures and Practices Recommendations Short term:• Include specific requirements for procurement plans in Regulations. • The Regulations should specify exactly when procurement methods other than tendering are

allowed, link the exceptions to thresholds and limit access to the discretionary choice of procurement method.

• Work on standard procurement documents should commence immediately with an aim to release these documents immediately after the new Regulations. Priority should be given to standard bidding documents, bid evaluation standards and standard advertisement forms in order to quickly standardise the flow of information to the DoPP.

• Standard documents should be made available on the government web site. • The DoPP should effectively enforce the ban on pre-contract negotiations. • Regulations should specify that domestic preference only be applied in international tenders

and specify eligibility and quantified criteria for granting the preference margin • Regulations should specify how to apply the admissible award criteria – specifically, how to

determine the lowest evaluated bid price • However, the DoPP in its role as monitoring authority should prioritize enforcement of proper

filing as a prerequisite for audit and monitoring of procurement.


Medium term:• The DoPP should launch a separate assessment of the use of registration lists system

throughout the procurement environment in Malawi, with an aim to consolidate and streamline the lists, and minimise the burden on the bidders.

• Ministries/Gov. Agencies should ensure that procurement planning is carried out on annual basis and performance against plan monitored. DoPP should verify proper application of procurement planning as part of post reviews.

• Develop standard procurement documents specifically developed for and catering to the needs of local authorities.

• Proper dissemination of the standard documents be arranged by issuing a guide for application of the documents, containing both the procedural rules from the Regulations and best practice, as it comes out in the standard documents

III. Pillar 3 – Procurement Proficiency III.1 Lack of Procurement Proficiency is a Key Issue 84. Lack of capacity is the single most important issue in the sector, and all of the interlocutors with whom the Mission met, cited lack of capacity and skilled personnel as a great impediment to conducting sound procurement. As a general rule, the current “procurement” expertise is usually represented by the “stores” officers (mainly simple shopping expertise, plus supply and distribution background), though not all of the listed IPCs have even this limited expertise of “Stores Officer”. Based on a sample of 163 IPC members, 53% have no higher education and only 2% have acquired further professional development. With decentralisation and the creation of properly staffed SPUs in each procuring entity the demand for skilled procurement staff will undoubtedly rise substantially.

85. The procurement capacity of the various procuring entities varies greatly. A few ministries like the Ministry of Health and large parastatals like NRA have some experience with procurement through procuring under donor funded projects. The staff undertaking procurement in these entities has already had some exposure to the use of the procurement rules of the various donors. The experience and knowledge of the relevant staff is still limited and there is a need for further training. For other ministries, who do not have prior experience with donor-funded procurement, the capacity gap to be bridged is much greater. 86. At the local government level, the procurement capacity is diminutive, and there is a great need for a quick yet carefully planned intervention. Provided this report’s recommendations regarding local government are followed, the procurement will be left to the executive level of the local government authorities, and there will be a need for introducing sound procurement principles and training of relevant staff within all local government entities also. III.2 A Procurement Cadre Consisting of Trained and Experienced Procurement Professionals 87. The new Procurement Act calls for the establishment of a professional procurement cadre. Thus, according to the Procurement Act, the DoPP shall “promote the development of a professional procurement workforce, including by organising and conducting training programmes, and developing government wide policies and programmes aimed at establishing


procurement-related positions, career paths and performance incentives.”30 It also obliges the DoPP to set up a career development and management programme, as well as a system for selection and appointment of procurement officers.31 The latter is important, since a common feature of procurement at both central and local government level is the lack of capacity and qualified procurement professionals. 88. At the moment, procurement is mainly carried out by “stores” officers (experience limited to small value purchases of simple goods and stocking and supply thereof) without adequate experience and exposure to the more involved aspects of “procurement” in a more complex situation. Also, there is, within all levels of the administration, a general lack of understanding concerning the differences between a procurement specialist and a stores officer. While the former must have knowledge of the procurement legislation, be a skilled procurement planner and be able to supervise the entire tender procedure (including tender material, advertising, tender evaluation, etc.), and covers works, goods and services, the latter is mainly involved in simple “shopping” as well distribution and stocking of goods. Thus the skills and qualifications needed for the two positions are quite different. 89. As it is at present, procurement is generally not viewed as an established profession and does not present an attractive career path, and from this follows the overall lack of incentive schemes for procurement professionals. This situation stands in the way of establishing the necessary capacity for proper procurement in compliance with existing rules. 90. While the establishment of the procurement cadre is now a legal requirement in the new Procurement Act, the establishment must be linked to the overall and on-going civil service reform and vested within the framework of the current civil service system. Two main issues must be addressed when introducing a new cadre within the civil service system: • Upgrading and certification of procurement professionals,

• Placement of the cadre within the public service pay framework ensuring attractive salary levels.

III.3 Up-grading and Accreditation of Procurement Professionals 91. The key challenge will be to organise the transition from mere stores management to full-fledged procurement. Ideally there should be a clear distinction between the stores staff category and the procurement staff category. Thus, the latter should be recognised within the public service meritocracy on similar level as other professionals. Thus, a regular career path for procurement specialists should be introduced. In doing so, it will be necessary to introduce a new accreditation scheme. Such a scheme should not be unduly rigid, but should ensure that those working as procurement specialists possess the necessary skills and experience. The accreditation should involve (a) professional qualifications, (b) knowledge of public procurement rules and regulations, and (c) practical work experience.

30 Procurement Act, Article 5, (2), (d). 31 Procurement Act, Article 12.


III.4 Capacity Building Measures 92. As mentioned above, the Mission identified deficiencies in compliance with existing rules and poor procurement planning largely caused by poor capacity in the majority of public entities. In addition to training and up-grading of procurement professionals, there is a need for specialised training and sensitisation for employees of key institutions such as Auditor General, the ACB and others. Also, there is a need for introduction to basic procurement rules to persons involved in the tender procedure such as members of IPCs. At present, however, there is no availability of specialised public procurement training as well as lack of lack of qualified trainers. 93 To address the capacity issue, the World Bank is currently financing a capacity building consultancy, which is working directly with the GCU to identify training needs and carry out training. Thus, the Consultancy will focus on Training Needs Analysis; Training of Trainers (ToT); Training of IPC members; and support to identified training institutions. The capacity building consultancy currently taking place has already made an initial assessment of available training providers and their capacity.32 The initial assessment confirmed that CPAR Mission’s observations concerning the lack of proficient procurement training institutions.

94. The implementation of the proposed procurement reforms is expected to generate an extensive demand for procurement training over and above the already limited availability, and the Government need to address this issue by implying both short, medium and long term measures. Training for the reform of public procurement will not only cover the rules and regulations, it will also involve changes in ethical and cultural ways of doing procurement. 95. In view of the on-going capacity building consultancy, the CPAR mission refrain from making specific recommendations on the scope and nature of the procurement training but would like to emphasize the significance of national procurement capacity building strategy, building procurement capacity on a sustainable basis, carry out procurement training targeted at establishing a procurement cadre and periodically sensitize the political level i.e. cabinet ministers, parliamentarians and local government councillors. 96. Government is to be complemented for taking advance action in training up procurement staff by retaining consultants, over a year ago, for such a task. Funds for this consultancy assignment were provided under a Bank financed TA project with more funds to be provided in follow-on programs, as needed. Besides, this consultant is expected to review capacities and institutions for creating the capacity needed for procurement training as a continuing program. The Action Plan includes creation of institutional capacity after the receipt of the report of the consultant. The DoPP, as the cadre management authority, is also responsible to ensure that adequate training is given on an ongoing basis to the staff concerned.

32 Please refer to the “Malawi Government Capacity Building and Training Consultancy – Inception Report of 20th June 2003” developed by the contractor PROMPT.


III.5 Summary of Recommendations for Developing Procurement Proficiency 97. The following short and medium term actions are being recommended to address the above issues: Short Term

• The short-term measures should focus on how best

Country Procurement Assessment Report (CPAR) VOLUME ......Malawi CPAR, Volume I i May 24, 2004 Main...

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