Need for good governance in proposed Presidential Procurement Committee
It is commendable that President Maithripala Sirisena’s Government is taking steps to establish good governance under the 19th Amendment to the Constitution through an independent Presidential Procurement Commission for National Procurement activity and reactivating the National Procurement Agency (NPA) type organisation as a procurement entity and the procurement servicing focal point.
Public procurement is one of the key areas of the last regime where there were serious lapses costing billions of dollars and damaging the whole Sri Lankan economy, environment and society. The evidence suggests that the loss of good governance in public procurement has caused serious long term issues to economic management especially implementing politically motivated unsolicited proposals-based procurement activities.
The new move is a marvelous effort by the government which should streamline the public sector procurement policy. It is a timely need and a national obligation, on one hand to repair the loss image of procurement handling of the country and on the other hand, to reassure the economy, efficiency, value for money and equity and fairness especially out of scarce, foreign debt-based investments for the benefit of the country.
Any future debt crisis situation in Sri Lanka as discussed in the Business Times recently, would be attributed to the loss of good governance in procurements.
The achievement of good governance is possible if there are strong institutions and stable government policies in the future. Similarly, support of the politicians for establishing good governance is indispensable and bringing in “greatest good for the greatest number” of the society according to Lawrence Kohlberg (a US-based Harvard University philosopher). Kohlberg stated that today’s politicians have no ethical responsibility to spend unjustified manner and misappropriate future generations’ tax money and also that it is unethical and unfair to harm the future generations’ economy because politicians have been selected democratically, and entered into a social contract for a specific period of time. According to Kohlberg, during the “social contracted period” politicians expect to do “what is best for everyone on the whole” and “what could all of us in principle agree to”. Therefore, political-contractors have no right to violate the principles of good governance even in procurement and to do the “greatest harm for the greatest number”. Moreover, the good governance is prerequisite for an efficient economic development.
Good Governance and Economic Development
Good governance is an essential requirement for achieving economic efficiency and establishing sustainable economic development. Although the relationship between good governance and economic development is not clear, evidence suggests that the majority of developed countries achieved a high level of living standards with higher rate of per capita for their people through the application of good governance: democracy, majority consensus, mutual agreement, rule of law, equity and fairness for all in the society. Good governance in all aspects leads to accountability, transparency, decency-honesty and trust and establishing a level playing-field for every citizen that will promote efficient economic management.
There is no room for corruption, bribery, malpractices, misappropriations and misuse as the information is open and all are working for societal well-being on a platform of a level playing-field.
The government has an unconditional responsibility to manage the public sector resources efficiently and provide room for distributing the overall economic outcomes among the society. In this endeavour, the government needs to introduce related reforms to operations in both institutions and services such as the Treasury, Central Bank, public enterprises, civil service and operational systems. The procurement activity is a public operational system similar to administrative and financial procedures, expenditure control and revenue collection, cash and debt management, budget management and monitoring, environment procedures, project administration. Moreover, the lapses and improper application of procurement operational system affect the entire inter-connected operational systems covering production of goods and services, construction, price mechanisms, foreign exchange, exchange control, foreign direct investment, banking and insurance systems etc. In the recent past, evidence suggested that there are considerable lapses in the procurement operational system, which damaged the whole public operational systems.
Previous lapses in procurement management
The procurement operational management is one area where good governance is of paramount importance as it has brought long term implications and severe damage to the whole economic operating system of the country. For example, the former government started the Colombo Port City Project and the Lotus Tower Project without following proper procurement procedures. In general, these projects are unsolicited single-source proposals, foreign-debt payable by Sri Lanka. Construction is fully managed by powerful investors and there is little room for Sri Lanka to intervene after the projects have already started. In many projects, outcomes and benefits are not yet properly indentified and the contribution to the economy is uncertain because there is no proper cost-benefit analysis and social and economic, environment impact analyses according to the evidence at present.
Similarly the Hambantota Harbour Project, Mattala Airport Project, on-going Uva-Uma Oya Project, etc are other examples, basically single-source, unsolicited proposals without competitive bids and they are one-to-one transactions with enormous cost and would be a severe burden on the taxpayers. These are examples of projects started disregarding real-actual cost of the environmental and societal damages in addition to formidable economic problems. Moreover, the feasibility of Uma-Oya project is questionable; particularly since both Uma-Oya region and Hambantota region are in the South East Monsoon area where during the rainy season, water is plenty in both areas.
In addition the Uma Oya fed-agricultural area hasn’t sufficient water even at present. In addition, there are environmental hazards along the tunnel-site area; it has already destroyed 60 to 70 villagers’ traditional livelihoods, dried up water sources and vegetation. Presently, out of the construction, 16 per cent is over while around 46 per cent of the cost has incurred. The decision is painful and costly.
In general, since 2008 the Government has totally disregarded the basic principle of good governance in procurement. They are as follows;
= Maximising economy, efficiency and value for money of the investment; and totally feasible and in compliance with the prevailing economic situation. At the project proposal stage, they have not evaluated the proposal in terms of cost and benefits, outcomes and outputs, economic social and environmental impact analysis and other studies required as per regulations.
=Not provided an opportunity to bidders in terms of equality and level playing-field while adhering to prescribed standards, specifications, local laws, rules and regulations and international obligations,
=Fair, equal and maximum opportunity for interested parties to participate in the project procurements competitively; many are unsolicited, one-to-one basis proposals, comparative cost of the project is not known to the borrower. Sri Lanka has agreed to pay a very high cost for project activities.
= Many unsolicited, proposal-based projects are without transparency, accountability and equity in procurement, before and after the implementation of the project, As a result there may be corruption, bribes, misappropriation, hidden transactions and cost of the project has been escalated to high levels. Approval for implementation of these projects have been granted without ensuring the ultimate outcomes and outputs and identifying contribution to the economy,
Sri Lanka is a sovereign country and has the power to decide and accept foreign debt-based projects irrespective of the source of financing. Foreign governments have no authority to implement a development project unless otherwise Sri Lanka really needs it and accepts the terms and conditions. The Government as the borrower has the sole responsibility for the award and administration of the projects irrespective of whatever the county is involved in funding, even for a gift or grant-based procurement offers.
It is apparent that the former government didn’t follow the procurement principles of good governance as mentioned above and is left with a huge balance of foreign debt of around US$60 billion by the end of 2014 (in 2010 foreign debt value was $21.5 billion). In addition, there are huge unpaid bills consisting of debt repayment installments and interest. Some of these are for completed projects like Hambantota harbour, International Cricket Grounds and Mattala airport, although the contribution to the economy is doubtful or nothing. Considering the prevailing situation, the new government leaders promised to investigate and reorganise the ongoing foreign debt-financed projects ensuring good governance from election platforms. However, it may be impossible even to revise those projects at present because the damage is beyond restoration because they have been started without following the principles of procurement at the beginning of the project implementation.
Previous efforts to establish good governance
Former President Chandrika Kumaratunga’s Government introduced reforms in procurement in 1998 and set up a separate Procurement Support Bureau Division in the Public Finance Department (PFD) in the Treasury for procurement activities. The procurement operation was inward oriented, inefficient together with time consuming. Considering the prevailed delays and inefficiencies in public procurement, the UNP Government made a request to the World Bank (WB) in 2002 and the WB submitted its Country Procurement Assessment Report in June 2003, which was prepared in consultation and participation of the Asian Development Bank (ADB), the Japan Bank for International Corporation and the National Construction Contractors Association of Sri Lanka. The principal recommendations of the WB report were:
= In the short term, strengthen the Procurement Support Bureau;
Hambantota Port
=In the medium term to create a Procurement Regulatory Agency and
=In the long term enacting a Public Procurement Law.
Considering the magnitude of the subject, Ms. Kumaratunga submitted a Cabinet Memorandum dated 6th May 2004, cited as “an urgent national need to formulate a National Procurement Strategy and streamline the national procurement system and procedures with a view to eliminate corrupt practices, waste of time and funds and improve the transparency and efficiency pertaining to the government work”. Accordingly, the National Procurement Agency (NPA) was established in July 2004 and it is a remarkable procurement development policy to establish good governance by the former president and the UNP Government.
NPA’s Good Governance role
The NPA has acted as an independent procurement professional entity and advising institution, followed a centralized independent procurement system for the government, helped to minimise corruption and malpractices while maximising “economy, efficiency, transparency and fairness aspects of public procurements and a more effective utilisation of public resources”.
During July 2004 to December 2007, the NPA made a commendable effort towards reforming and developing public procurement system and has issued a comprehensive “National procurement Guidelines and Manual” for goods, work and services and guidelines for selecting consultants together with “Standard Bidding Documents (SBD)” by 2006 with the approval of the Cabinet of Ministers.
These procurement guidelines are applicable to all government and semi-government institutions and helped to enhance competition, proper bidding procedures, selection of most effective, efficient bidder with economised, value for money and speedy implementation of the project.
The WB and the ADB supported the procurement executing system development and the NPA has achieved commendable benefits for the country, began to function as a professional body and introduced many timely reforms and training and capacity development programmes for state officials.
The NPA made arrangements to appoint retired, experienced senior government officers to the most of the Cabinet Appointed Tender Boards (CATB) which helped to secure the independence and integrity of the management of tender procedures.
It is worthwhile to mention the dedicated contribution and leadership in these processses by NPA Chairman Daya Liyanage (retired Deputy Secretary to the Treasury) and Sarath Muthugala (presently Chief Procurement Expert at the ADB). Irrespective of NPA’s remarkable achievements, the Government has closed down the agency in December 2007 for political reasons. This decision resulted in a complete reversal of good governance qualities as envisaged by Ms Kumaratunga.
Absence of good governance in procurement
The derailment of good governance in procurement began in January 2008 with the PFD of the Treasury being entrusted with the regulatory, oversight and policy-making role with respect to public procurement in Sri Lanka disregarding all valuable reforms undertaken in the procurement area by the NPA. Thereafter, the procurement functions have been decentralised to procuring entities and provincial levels while the PFD has played a role which is very often ineffective and has inefficient decentralized control systems together with weak monitoring system similar to the period before 2002.
The deactivation of the NPA has ultimately resulted in introducing an unprecedented number of unsolicited bids and standalone proposals for mega, high-cost projects which paved the way to destroying the basic procurement principles, lacking accountability and wasting public funds. Billions of rupees worth of unsolicited projects brought in without competitive bidding has resulted in accumulating huge foreign debt and long-term consequences for the country.
On the other hand, when there is competitive bidding followed by required procurement procedures, such projects were subject to delays and countless difficulties to implement; some of them have not started at all. For example; Broadlands Hydro-Electricity Generation Project has been approved after following a correct procedure, costing $82 million, subsequently delayed several years due to hidden reasons. In some cases, the original approval was cancelled and offered for higher cost after retendering. The Norochcholai Coal Power Plant is another example with similar criticisms.
The new Presidential Procurement Commission (PPC) and reactivation of an NPA type entity is essential for rebuilding trust and restoring the image of the country procurement executing system.
The PPC must clear the backlog of the NPA period work and place the procurement engine on track in order to bringing in good governance to public procurement system.
Some of the activities included in the action plan of the PPC are:
= Procurement Regulatory Agency: The first action of the PPC is to establish an NPA-type regulatory body, in order to strengthen procurement operation under the direct supervision by PPC.
=Strengthening effective legal/regulatory framework: In the short term, PPC may take steps to improve the procurement legal and regulatory framework, update the NPA-guidelines, manuals and SDBs and procurement procedures and adopt a principles-based procurement law, in order to enhance the economic and efficient selection of investment partners.
= Introduction of National Procurement Law: In the long-term, it is essential to take action to constitute and enact a Public Procurement Law approved by Parliament. The procurement law will strengthen the stakeholders’ trust, certainty and stability, greater transparency and accountability, trust on the application across procuring entities, efficiency in procurement operations and improve the country’s image among the investment partners abroad.
= Further improvements to procurement guidelines, practices and procedures: In the short/medium term, action must be taken for upgrading and improving the present set of procurement guidelines and internal procedures. Furthermore, the independency and integrity of CATB and CANC level Procurement Committees will be strengthened, by appointing retired, competent, reputed personalities and outside subject experts.
=Enhance capacity development: It is an urgent need for the PPC to undertake steps for strengthening of the capacities of procurement entities and professionalisation of procurement functions through enhancing training and development, maximising skills and capabilities of the procurement staff and internal auditors and AG’s Department audit staff.
= Strong monitoring and evaluation: PPC must develop, apply and strengthen the appropriate monitoring and evaluation systems and performance measuring systems through collecting, analysing, maintaining and disseminating of procurement information and data.
= Review and enforcement mechanisms: It is essential to have a comprehensive review mechanism and an effective enforcement system, strengthening current legal framework. Further PPC will take steps to strengthen the appealing process and the scope of the Appeals Board to deal with complaints about procurement process and strengthening of public officials’ accountability through the enforcement of the rules of ethics.
=Integration with governance and Public Financial Management (PFM): PPC will take action to integrate the public procurement function into the government’s financial management system and also to strengthen the procurement-reforms mechanism with a broader governance reforms including public administration, civil service reforms, PFM, audit and accountability and anti-corruption.
=Electronic Government Procurement (e-GP): In order to keep up with the growth of e-commerce and mindful of the need of efficiency and transparency in the procurement system, PPC will develop an electronic-Government Procurement strategy as a useful tool for procurement system improvement.
=Enhance state relationship with private sector and civil society: PPC will take action to enhance the outreach and strengthen and improve relationship between the private sector, civil society and the Government which ultimately leads to better utilisation of public resources and helps the delivery of quality goods and services timely manner.
The Presidential Procurement Commission members need to be honest, have integrity, capability and competency together with clean records, providing open and inclusive team culture and clear direction and leadership in order to allow PPC to operate as a strong institution.
The Commission should operate independently, free from political interention. In addition to the usual communication, it may submit functional reports periodically to the Cabinet and Parliament for review and guidance. Presently, the whole country is looking at the prospective Presidential Commissions as they provide a new good governance experience of the new Maithripala regime in Sri Lanka.
(The writer is a freelance Economic Consultant after retiring as the Director General (Economic Policy Planning) in the Ministry of Rural Economy in 2006. He was attached to the Ministry of finance: General Treasury from 1988 to 2002 and has wide experience in Treasury Operations. He could be reached at palithaeka@yahoo.com