Country Procurement Assessment Report (CPAR) VOLUME I …

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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 and fast SPU could be staffed with procurement proficient staff. This should be based on a training need analysis that should be taken almost immediately. The initial training should focus on quick gains by focusing on staff with some exposure in procurement, including CGS staff relevant to the procurement function.

• Develop comprehensive capacity building strategy and action plan Medium term

• Establish cadre of procurement specialists within the public service system and introduce certification.

• Execute comprehensive capacity building programme focusing on training and up-grading procurement professionals

• Ensure sustainability of procurement capacity building programs through adequate resourcing, evaluation and updating of training programs and proper incentive systems

• Establish procurement professional Association tasked with promotion of the profession, issuing ethical guidelines, and assisting with capacity building measures.

IV. Pillar 4 – Independent Audits and Recourse IV.1 Currently NAO lacks capacity to carry out audits to ensure financial integrity in the public sector procurement decisions 98. Auditing of public procurement is exercised by the Auditor General through the National Audit Office (NAO). The role and responsibilities of the Auditor General and his office are regulated in the 2003 Public Audit Act (PAA). The Public accounts Committee of the National Assembly (PAC) together with the Auditor General assumes “watchdog” responsibility over public expenditure. The PAA expands the powers and duties of the Auditor General. Thus, as a new measure, the Auditor General may undertake performance reviews and audits. He may also seek assistance for specialised audits where required. This could be for specialised procurement cases. It is, however, widely recognized that the NAO still lacks capacity for procurement auditing, with the result that auditing of public procurement is less comprehensive than may be necessary to ensure a high degree of compliance with the Procurement Act and to combat corruption effectively. IV.2 Enforcing Procurement Rules 99. The approval process, as has been administered by the GCU is not comprehensive, including detailed review to ensure that the bid evaluation is carried out as per the provisions in the bidding documents. On the other hand, with the Act coming into force, GCU’s role in this area will be replaced by the role of the DoPP. The DoPP is not required to approve individual cases of


procurement, but, instead, to set policies on procurement and to regulate and monitor overall government procurement activities. 33

100. Before August 1, 2003 no single entity was effectively responsible for monitoring and enforcing the procurement rules. While the GCU authorizes advertisements and approves bid evaluations, the Local Government Finance Committee monitors the local authorities, and the Auditor General performs financial audits, no one carries out actual “procurement reviews” to monitor the professional integrity and application of procurement principles and rules. This combined with the fact that knowledge of procurement rules among procuring entities is generally low, has created a situation where there are widespread malpractices, such as excessive use of the simpler methods of procurement such as “quotations” (or “shopping”), and resorting to pre-contract negotiations, etc. 101. It is important that the “procurement review” functions, targeted at the professional and technical integrity of the procurement process, and to be conducted by or on behalf of the DoPP are distinguished from the general and regular audits that are performed by the Auditor General to ensure financial integrity in the public sector purchasing decisions. The difference between a financial audit and a procurement review can be illustrated as follows:

Key elements of a financial audit Key elements of procurement review

Monitoring: • Budget compliance • Proper disbursement of funds • Timely and correct delivery • Financial integrity

Monitoring: • Proper planning before tender • Adequate transparency (advertisement) • Correct choice of procurement method • Correct application of award criteria • Presence of full procurement file • Proper bid documents

102. With the introduction of a decentralized procurement system, the need for rigorous enforcement of the procurement process becomes even more accentuated. The DoPP should ensure that IPCs and Controlling Officers are made fully aware of their increased responsibilities and accountabilities in the decentralized procurement regime. It needs to be noted that adequate monitoring and enforcement are some of the pillars of decentralized procurement. The new Act (i) assigns the DoPP with the function of monitoring the performance of procuring entities to ascertain efficiency and compliance with applicable legislation, regulation and instructions; and (ii) specifies that the Auditor General shall carry regular auditing of procurement activities to ensure that public funds are expended for their intended purpose, ensuring that proper and accountable systems are in place and adhered to. In this regard, the efforts of the NAO and the DoPP should be coordinated. The Auditor General does have some knowledge of procurement procedures, but with the introduction of the Procurement Act, procurement capacity must be predominantly built at the DoPP to monitor the performance of procurement entities and manage and execute procurement reviews (using in house capacity or employing skilled consultants) on a post review basis.

33 The role of the DoPP is elaborated in the Organisation & Resources section of this report


IV.3 Review of Complaints 103. Currently aggrieved bidders do not have a specified path of complaint. Bidders take different points of entry as complaints are filed with the GCU, the National Audit Office and the ACB. This, together with a very low number of actual complaints34, suggests that the bidders do not trust the procuring entity to provide a fair processing of complaints, and that there is confusion as to which overlying authority they should approach. Indeed this was confirmed by private businesses citing fear of arbitrary blacklisting as their main reason for not complaining. 104. The court system is perceived as costly, cumbersome, and suppliers are very reluctant to take the government to court for fear of blacklisting. It is less than a decade since Malawi began its transformation to a multi-party democracy, and the thought of filing lawsuit against the government, justified or not, is still very far flung for most private businesses. While the higher courts are regarded as having reasonable integrity, it is a common perception that the lower Magistrate Courts are riddled with corruption, caused by lack of capacity in the judiciary, low wages and lack of proper monitoring. 105. Informal handling of complaints seems to be the norm, even though credible information on this issue, for obvious reasons, is scarce. This leads to complaints entering the system at various points, based on ad hoc personal relationships. Complaints were even seen filed verbally at senior officials in other ministries, with a request that “something was worked out”. These practices are all signs that in reality there is currently no functioning system of complaints. 106. With the new Procurement Act, this situation should change, as (i) the DoPP, according to the Act, will assume the role of central authority for reviewing complaints (administrative review) in procurement matters and (ii) the High Court shall have jurisdiction over petitions for judicial review of decisions made by review bodies or failure of those bodies to make a decision with the prescribed time limit. The Act also requires DoPP to establish a standing review committee from which the DOPP shall convene three member ad hoc review committees to review applications. To this end, an administrative review department should be established in DoPP to provide a “one stop shop” for aggrieved bidders. The Administrative review department would also be responsible for collaborating with or transferring relevant cases to other institutions such as the NAO, the ACB or the Prosecutor General. 107. However, for the DoPP to assume this role as a credible avenue of complaint it is important that procedures securing integrity and equal treatment are embedded in the Regulations. Private companies have suggested that the opportunity to provide anonymous complaints would be of assistance. Such a mechanism could be modelled on the current hotline option provided by the ACB. Other countries have adopted a model where as business associations are allowed to complain on behalf of their, otherwise anonymous, members. This reduces the problem of unsubstantiated complaints. 108. For the DoPP to assert itself as a credible and efficient complaints handler, it is necessary to contemplate the weaknesses of the current system. While the present GCU has the formal right to intervene as a complaints authority, it has seldom happened, because of lack of resources and

34 At the Ministry of Health, one of Malawi’s large governmental procurers, less than one formal complaint concerning procurement is received annually.


authority. The Procurement Act will provide the DoPP with the authority, and it is now up to the new DoPP to allocate the necessary resources to guarantee proper handling of complaints. 109. The Regulations should specify procedures for handling of complaints, with priority given to securing a transparent and credible system. IV.4 Information Dissemination and Sensitization 110. The Mission identified widespread shortcomings in the general knowledge about the new Procurement Act and its institutional and procedural implications. For the proper functioning of the new system devised by the Procurement Act, it is important that all relevant parties are properly informed. In view of the very limited number of complaints filed up until now, it is particularly important that information about the new review mechanism be disseminated. Thus, after the actual establishment of the DoPP, a nation wide information campaign should be organised. The campaign should target central government – including senior officials, cabinet members and parliamentarians; local government; parastatals; civil society; as well as the international and national business community and informing all these about the new institutional set-up, its implications, and paying particular attention to the review system. IV.5 Summary of Recommendations for Audit and Recourse Short term• The roles of the DoPP vis-à-vis the role of the NAO in conducting procurement audits should

be clarified, and the cooperation between the DoPP and the NAO should be formalized. • Strengthen procurement audit capacity of the NAO and increase frequency of audits

Strengthen internal controls and audit functions of ministries, departments and other government agencies including the Police

• Establish technical unit for public procurement audit in the NAO • DoPP to focus on enforcing the rules on Record of Procurement Proceedings and the rules of

public access to these records • DoPP should establish a unit/ department for administrative review with adequate resources

to handle complaints • The DoPP should run public awareness campaigns, perhaps in cooperation with the ACB, to

raise the general knowledge level of its new role as a procurement complaints authority.


Medium term• The roles of the DoPP vis-à-vis the role of the NAO in conducting procurement reviews

auditing the procurement activities as mentioned above should be clarified and elaborated, and the relevant cooperation between the DoPP and the NAO should be formalized.

• A program of systematic procurement reviews by DoPP with clear performance indicators, at both central and local levels, should be developed.

• A program of systematic procurement reviews by DoPP with clear performance indicators, at both central and local levels, should be developed.

• Carry out a nationwide information/ sensitization campaign aimed at informing of the new institutional set-up. The campaign shall in particular provide information about the review system and the remedies provided.

V. Pillar 5 – Anti-Corruption Measures V.1 Corruption in Procurement 111. A contributing factor to the alleged corruptive practices35 in public procurement is the weak public sector managerial accountability. The weak public sector managerial accountability also results from lack of enforcement of the laws and principles of ethics, and is related to outdated and unclear policies; inadequate and/or excessive instructions; unnecessary procedures and ignorance of the rules. Transparency International (TI) has consistently ranked Malawi among the most corrupt countries in the world. On the latest Corruption Perceptions Index prepared by Transparency International,36 Malawi was ranked nr 68 with a score of 2,9.37 This is a decline in comparison with previous years, both in relative terms (ranking in relation to other countries) and qualitative terms (score on points). Although TI warns against overstating the significance on year-to-year comparisons, it is significant to note that longer-term trends in the scores seem less encouraging:38

V.2 Anti-corruption V.2.1 Institutional Set-up for Fighting Corruption in Procurement

112. The key government institution responsible for combating corruption in Malawi is the Anti-corruption Bureau (ACB), which is described in more detail below. Other government institutions playing a role in the fight against corruption are the already mentioned NAO and the Director of Public Prosecution (DPP), the Parliament select committees (such as PAC and the Legal Affairs Committee) and the Police. A central issue is the role of the new DoPP vis-à-vis the established institutions, especially the ACB and the NAO. As illustrated below, the monitoring and oversight mandate of the DoPP fits well into the already established institutional set-up.

35 According to the ACB Annual Reports for 2000 and 2001, approximately one-third of the major investigations focus on corruption in relation to procurement.

36 Transparency International Corruption Perceptions Index (CPI) 2002 37 The CPI relates to perceptions of the degree of corruption as seen by business people, academics and risk analysts,

and ranges between 10 (highly clean) and 0 (highly corrupt). 38 In the period 2001-2002 there were three main governance issues that received public prominence: a move to

amend the Constitution to allow the President to stand for more than two terms of office; the food crisis caused by drought and mismanagement; and a number of human rights issues. Some observed that the Malawi public opinion tends to embrace all of these under the umbrella of “corruption”, which would contribute to the decline.


Figure: Mandate and Functions of Key Oversight Institutions

Institution Mandate and functions DoPP Monitors the procurement environment in order to implement proactive and/or

corrective measures when necessary. The monitoring ensures that rules and procedures are adhered to, including the anti-corruption provisions of the Procurement Act. If corruption related offences are detected, the DoPP (and/or the procuring entity) shall report this to the ACB or other relevant law-enforcement authorities.

ACB Investigates corruption offences within public procurement. When investigation determines breach of the anti-corruption provisions of the Procurement Act, the ACB will refer the case to the Director of Public Prosecution.39

NAO Conducts auditing of procurement with focus on both financial audit but also issues of contract management, etc. In doing so, the NAO should be assisted by the DoPP, which due to its monitoring and information gathering efforts, should be in a position to direct the NAO towards cases in need of particular scrutiny.

V.2.2 Legal and Strategic Framework 113. The key legal instrument for combating corruption in Malawi, and thus also within procurement is the Corrupt Practices Act (CPA) No. 18 of 1995. The Act was reviewed by a working group under the Malawi Law Commission in 2002, and a number of amendments have been suggested. If approved, these amendments will broaden the scope and operating field of the ACB, for example by allowing the Bureau to prosecute cases without obtaining prior approval by the Director of Public Prosecution. Notably, there have been instances of disagreement between the Director of Public Prosecution and the ACB, where the Director of Public Prosecution has refused to endorse prosecution of certain high-profile cases. At the time of writing, the amendments were scheduled for Parliament hearing, however, observers remain uncertain as to whether Parliament will in fact grant increased authority to the ACB40

114. While a Strategic Plan covering 2002-2005 exists for the ACB as an organisation, no national strategic framework for combating corruption across all sectors of government and society is yet in place. Thus, one of the strategic objectives of the ACB for the period 2002-2005 is to develop a National Plan of Action for Combating Corruption and implement this.41 Such a strategy/action plan should include a strong focus on reducing corrupt practices in public procurement, and input from the DoPP and other relevant parties should be sought.

39 Following a review of the Corrupt Practices Act, by the Law Commission, the Commission has proposed that the ACB should no longer be required to seek consent from the Director of Public Prosecution before prosecuting corruption offenders.

40 Based on information provided during the CPAR stakeholders Workshop (May 2004), what has been approved, in this regard, as an amendment to the Act is the requirement for the Director of Public Prosecution is required to provide reasons for deciding not to prosecute a case referred to it by ACB within 30 days.

41 This has already been suggested in a “Project Rationale” Document that the ACB has sent to DFID (mid July 2003)

seeking donor assistance in getting it started. The NACSP will also use the results of the World Bank- sponsored national review on corruption to determine future ACB prevention processes.


V.2.3 Specialized investigation unit in the Anti-Corruption Bureau 115. At the time of this assessment, the ACB was in the process of establishing a specialised investigation unit focusing specifically on procurement and contracts. The unit should be well updated with new procurement regime and implications of the same and should establish close cooperation and ties with DoPP and the NAO.

V.3 Lack of Code of Conduct and Ethical Behaviour 116. With regards to procurement, no specific ethics measures are currently in place.42 However, the Procurement Act contains specific provisions on the conduct of public officials and bidders (Article 18), on disclosure of interest (Article 19) and on debarment of bidders and suppliers (Article 20). The act also has provisions on corrupt, fraudulent and collusion practices. 117. With these measures, the Procurement Act takes an important stance on corruption and the conduct of officials involved in procurement. Accordingly, a comprehensive ethics code for the new procurement profession would need to be developed. The development of the code of ethics should befall on the DoPP, if possible in collaboration with the new Procurement Professionals Association. V.4 Monitoring V.4.1 The extensive provisions on access to information in public procurement proceedings should be enforced

118. An important prerequisite for civil society and media monitoring of public procurement is the possibility of obtaining timely and reliable information about the procurement process. This requires that as much information as possible is made public and that publication is made without delay and in manner, which makes it easy accessible, also to interlocutors outside the government system 119. A broader legal framework determining the rights of citizens to obtain information from the public sector is lacking, and no Freedom of Information Act has been developed43.

120. The new procurement act determines that procuring entities shall promptly publish a notice of all procurement contract awards beyond a certain level in the national Gazette.44 The Act further obliges the procuring entities to maintain procurement records and documentation for a minimum period of five years, and determines that the record, upon request, shall be made available to any person after bid acceptance.45 These quite extensive provisions on access to information in public procurement proceedings will, if enforced, prove a very important step in increasing overall transparency in procurement.

42 Nor does the stores profession have a code of conduct or specific ethical guidelines. 43 The Mission was told that a draft bill is resting with the Ministry of Information. However, but it failed to obtain a

copy. 44 Public Procurement Act, Article 26. 45 The disclosure may be restricted in the case of national defence or security, Article 27 (5). Also, the record shall be

prepared in a manner that avoids disclosure of proprietary commercial information, Article 27 (6).


V.4.2 Lack of Capacity of NGOs for Monitoring Public Procurement 121. Several of the people interviewed during the CPAR mission pointed to the lack of capacity among local NGOs as a deterring factor for civil society involvement in monitoring public procurement. The ACB provided the Mission with a list of NGOs, which it collaborates with through its public education activities, and none of these NGOs focus specifically on corruption in procurement. However, the Mission did met with the Malawi Economic Justice Network (MEJN), a coalition of civil society organisation46, which has developed and is currently implementing mechanisms for monitoring the Government budgeting process. MEJN is also trying to conduct financial expenditure tracking, but this task has proven very complicated due to lack of transparency and discrepancies between allocated expenditure and actual expenditure. 122. The MEJN indicated interest in expanding its monitoring efforts to also encompass procurement, as this would match ongoing monitoring efforts well. However, this involvement would require additional resources and training of MEJN staff. An example of NGO activities in the area of public procurement is indicated in the Annexes of Volume II. V.4.3 Media not Fulfilling the Watchdog Role 123. The media could serve as an important watchdog in exposing the negative effects of misconduct and corruption within procurement. Also, the media may serve as an important partner in efforts to strengthen public awareness on procurement issues. Unfortunately, the Malawi media are presently not fulfilling the watchdog role, and sound investigative journalism on corruption is very limited. Likewise with procurement related journalism, and the knowledge of procurement among journalist are virtually non-existing. This situation should be improved by the introduction of procurement training specifically designed for the journalists. Ideally, procurement could constitute a module within a broader training programme on investigative journalism.

V.4.4 Absence of Whistle-blowing Mechanisms on Public Procurement 124. When introducing whistle-blowing mechanisms, focus remains on the responsibility of workers or citizens in general to raise concerns about malpractice, and the responsibility of those in charge to investigate and remedy such issues. As a mean of allowing and encouraging citizens to blow the whistle on malpractices within public procurement, it is suggested that a hotline be established. The hotline could be operated by the DoPP as part of its monitoring efforts or by the ACB, which already has a broader corruption hotline. 125. Another, and often overlooked aspect, of whistle-blowing is the protection and rights of the whistleblower and the introduction of a sound whistle-blowing culture, where the whistleblower is seen as a witness and not as a complainant. The suggested amendments to the Corrupt Practices Act prepared by the Malawi Law Commission include several provisions of protection of whistleblowers.47

126. The establishment of whistle-blowing mechanisms must be combined with information efforts informing those involved in the procurement process and the general public when to blow

46 Updated information on MEJN is available on www.mejn.org47 The Law Commission suggests inserting a new Article 51A on “Protection of whistleblowers and other

informers”


the whistle and where to go with a claim. In conducting such information activities, inspiration can be sought from the ACB.48

V.4.5 Absence of Performance Indicators to Monitor Corruption in Procurement 127. As a broader monitoring measure, it is suggested that a set of performance indicators for monitoring corruption in public procurement be developed. Reports on the indicators should be forwarded from the procuring entities to the DoPP, and should constitute a central part of the Information Management System. If implemented properly, the use of the indicators, will allow the DoPP to detect trouble spots and maintain a broader overview of developments in the sector. Examples of indicators that may be used are shown in the Annexes. V.5 Summary of Recommendations for Anti-Corruption Measures Short term• Assist the ACB to develop a National Anti-Corruption Strategy and Action Plan with focus on

combating corruption in procurement and with broad government and civil society involvement

• Promote the development and dissemination of a code of conduct for civil servants applicable across government

• Establish hotline for disclosure of misconduct within public procurement either linked to the DoPP or to the already existing corruption hotline operated by the ACB

• Promote NAO technical assistance and support to the ACB in investigations. • Strengthen Parliamentary Select Committees.

Medium term• Establish operational links between the procurement and contracts investigation unit of the

ACB and the monitoring unit of the DoPP • DoPP to publish procurement information, advertisements, awards, guidelines, etc. on the

government web-site to enhance transparency and access to information on procurement procedures

• Introduce capacity building scheme for involving NGOs in public procurement monitoring, including a grant facility supporting procurement related projects within civil society

• Conduct country-wide information campaign about the responsibility and avenues of disclosing information on violations of the procurement procedures

• Introduce Performance Indicators to Monitor Corruption in Procurement as a mechanism allowing the DoPP to monitor critical trends in public procurement across government.

48 The ACB has just published an information pamphlet that informs people on what they can and should do if they discover corruption at their work places, and gives guidance on what to do, and what they can expect, if they become witnesses. A first print run of 5000 will be ready for distribution in mid August. It will also be used as a working tool in the ACB’s “Managerial Accountability Workshops”


VI. Public Sector Management Performance This section provides an overview of the key public sector management issues facing the Government of Malawi (GOM). It also provides an attempt to quantify, based on currently available budget data, the financial value of expenditures on public procurement by the GOM.

VI.1 Malawi has undertaken a range of public sector reform initiatives 128. Malawi has undertaken a broad range of public sector reform initiatives covering public expenditure management, administrative and civil service reform, capacity building, anti-corruption, and decentralization. Over the past three years, in particular, GOM has concentrated on addressing these issues, to include passage of new Finance Act, Audit Act and Procurement Act (all three approved in 2003), re-establishment of an Internal Audit Department, operationalization of an Integrated Financial Management Information System (IFMIS), and development of a medium term pay policy. In parallel with IFMIS implementation, key budget reforms are underway to improve the efficiency, quality, and realism of budget preparation, execution and reporting .

VI.2 Status and Issues of Public Sector Management in Malawi • While some progress has been made, in general terms, budgetary resources are spread

thinly, with continuing pressure to over-spend, while there continues to be large variations between planned and actual expenditures and non-compliance with financial rules and regulations. In addition, poor incentives and inadequate capacity in the public sector continues to hamper the Government’s ability to effectively and efficiently carry out critical functions. These issues have been highlighted in the Malawi Public Expenditure Review (PER), HIPC Tracking Assessment and Action Plan (AAP), the Country Financial Accountability Assessment (CFAA), and the Financial Management, Transparency and Accountability Project (FIMTAP).

• Public sector management reforms have moved slowly, due in part to the fact that Malawi

remains very poor, with difficult development challenges exacerbated by a high incidence of HIV/AIDS, severe drought and food shortages in the recent past, heavy reliance on a few commodities, and a low skills base – particularly in the Government sector. Likewise, there is increasing pressure to improve economic governance, given the need to account for HIPC resources, articulation of poverty reducing programs in the MPRSP, and the Millennium Development Goals (MDGs).

• It is generally agreed that the Government’s efforts to deepen public expenditure

management reforms, improve governance by building Malawi's capability to carry out budget implementation, enhance the transparency of public institutions and build capacity for more effective service delivery are on track, although implementation will require significant political commitment and capacity building.

• The Government has gradually instituted a Medium-Term Expenditure Framework (MTEF),

which seeks to develop a strategic approach to budgeting and planning. • The 2001 Public Expenditure Review (PER) and the CFAA noted that a viable MTEF begins

with improved budget implementation through inter alia improving compliance with budget


execution procedures, enhancing the timeliness and accuracy of reporting arrangements, and strengthening ex post accountability. To this end, an integrated financial management information system has been designed and adapted to the Malawian context.

• In addition, the Government has reviewed aspects of its civil service system in order to strengthen the incentive and institutional framework with pay and grading reforms and functional reviews of line agency roles and structures. While Government has not embarked on large scale administrative reform, it has begun hiring accounting professionals on contract, as well as outsourcing other activities, a new housing allowance scheme has been introduced, and a performance contracting scheme is being implemented. Over the medium-term, Malawi’s administrative reform agenda will include a thorough revision of job classes, grading, and salary structures in combination with systematic role restructuring of central line agencies in anticipation of the decentralization of service delivery responsibilities. A new Medium Term Wage Policy has been adopted and a framework for implementation is being established.

• Improving public sector governance has also been a priority for the Government. The

Anti-Corruption Bureau (ACB) was established under the Corrupt Practices Act, as described in more detail in chapter C.4 above. Since its establishment, the ACB has proven to be an increasingly credible mechanism for raising public awareness about the costs of corruption, and more important, investigating suspected corrupt practices by high officials. Likewise, the role of the Ombudsman has been prominent, with more than 5,000 cases submitted annually and significant declines in mal-administration reported in some agencies. The Government has made progress in consulting civil society and steps are underway to institutionalise regular monitoring of budget and program implementation by local communities, NGOs, and other civil society groups.

• A range of structural or institutional deficiencies and poor capacity continue to weaken

virtually all stages of the budget cycle: Significant progress has been made in ensuring that a greater share of donor financing is being recorded in the development budget, introducing program classification in the budget and encouraging line ministries to comply with the requirements of the cash budget system. But despite these successes, Malawi has made only modest progress in achieving fiscal discipline and operational efficiency in the public service. Formal rules and procedures governing budget formulation and appropriation, execution, and reporting are not adequately enforced. Also, extra-budgetary requests, intended as emergency measures, have become a standard practice. Moreover, the poor quality and lack of timely access to fiscal and macroeconomic data continues to be a serious constraint on budget monitoring, as does weak internal and external audit functions. Insufficient attention has been given to the monitoring of frontline performance, and improving the key public management requirements for effective program implementation.

129. Addressing the sector issues described above and improving economic governance and accountability will require a volume and quality of skills not currently available in Malawi. Within the context of a sequenced approach to public sector improvement, the Government will implement a strategic capacity building program initially focused on financial management and accountability related skills.


VI.3 Financial Value of Expenditures on Public Procurement 130. Given that neither the GCU, the National Statistical Office nor the MoF collects or publishes any information on expenditures on public procurement, an attempt at quantifying these expenditures for this assessment has relied on IMF statistical data. Table 2. Malawi Estimates of Expenditures on Public Procurement, 1994-2001 (KM millions)

1996/97

Act.

1997/98

Act.

1998/99 Act.

1999/00 Act.

2000/01 Act.

2001/02 Est.

8714 13,844 19736 27,229 37,887 44143 Total Recurrent Expenditures ¾ Out of which

purchases of goods and services (a)

2950 4553 5315 7043 7696 10,891

1738 2904 5524 9583 11,530 10,986 540 797 1190 1932 1741 2180

Development Expenditure (b) ¾ Domestic financed ¾ Foreign financed 1197 2106 4333 7651 9789 8806

Estimate of public procurement (Million MK) c= a+b

4688 7457 10,839 16,626 19,226 21,877

Exchange rates approx. MK/USD (d)

21.2 43.9 46.4 80.1 67.3 75

Estimate of public procurement (MUSD) = e= c/d

221 169 234 208 286 292

Estimate of recurrent expenditure on goods and services (% of GDP)

7.7 7.8 7.9 7.8 6.8 8.1

Estimate of development expenditure (% of GDP)

4.5 5 8.3 10.6 10.1 8.1

Estimate of Public Procurement as a % of total annual budget

45 45 43 45 39 40

Estimate of total public procurement (% of GDP)

12.2 12.8 16.2 18.4 16.9 16.2

Source: computed based on data in IMF Country Report No.02/182- Malawi Selected Issues and Statistical Appendix-, August 2002 131. The above estimate shows that average annual expenditure on public procurement has been in the order of US$ 235 million over the 1996-2002 period translating to approximately 40% of annual budget and 15% of the GDP. Even if 10% of this cost could be saved through effective procurement policies, institutional arrangements, procedures and practices, this could result in a yearly gain in the order of US$ 24 million. Potential gains to the economy in establishing sound public procurement system are therefore self-evident.


VII. E-Procurement 132. Malawi is a country grappling with major problems of poverty, poor infrastructure, and illiteracy, and with such pressing issues at hand, it may seem premature to promote advanced technology in public procurement. However, experience from elsewhere shows that e-procurement poses an opportunity for Malawi, potentially enabling it to reap benefits from comparably small investments. 133. The new Procurement Act does indeed provide for the necessary legal framework for e-procurement as it allows information exchange to be electronic, and allows the DoPP to “devise a strategy for, and to promote, the application of modern information and technology communications technology to public procurement”. 134. The situation in Malawi as regard to e-procurement is summarized below: Table: E-Procurement Situation in Malawi

Issue areas Basic requirements for e-procurement

Situation in Malawi

Remarks

Governance • Adapted legal framework • Procurement oversight organisation in place

–√

The new Procurement Act allows information exchange to

be electronic, and allows the DoPP to “devise a strategy for, and to promote, the application

of modern information and technology communications

technology to public procurement”.49 More advanced

e-procurement systems will require changes to the country’s basic legal framework in such

areas as contract law and general commercial law.50 For

e-procurement to advance beyond the initial stages, these additional legal issues must be

assessed and solved.

Human resources

• Capacity to utilize system in place and well trained staff

–

The central ministries, besides being well equipped with office technology, also have adequately skilled personnel to operate the equipment. Almost all assistants in the ministries, who are using PCs, have

49 The Procurement Act section 16 and section 17 50 Guidance for the legal reforms required before a country can adapt electronic commerce can be found in the

UNCITRAL Model Law for Electronic Commerce.


received some form of relevant training.51 On the local level, the knowledge of the use of technology is as scarce as the technology itself. Many local district assemblies are totally without office technology and knowledge thereof.

Institutions

• Work flows adapted to system • Coordinating institution in place • Uniform information (data) schemes applied • Functioning private market with access to technology and able to perform under e-procurement system

–√–

–

The government of Malawi has proposed the establishment of a representative Civil Service ICT Committee52 to ensure a coordinated government approach to managing, using and investing in office technology. Presently the coordinating office for use of technology in the civil service is the Department of Information Systems and Managing Services (DISTMS) office under the OPC. So far, all thoughts on e-government in Malawi have remained at the concept stage, but e-procurement could very well prove to be the first step for the country into e-government and at the same time prove the case on how e-government can provide value without heavy technology investment. In the private sector, only the largest companies have access to the Internet, and access is not perceived as a decisive factor in the competition within the private sector.

Technology

• Infrastructure in place • Access to infrastructure established through office technology • Necessary e-procurement software in place

(√)√

(√)

In Lilongwe almost all central ministries are now connected through a data network.53 For these entities the infrastructure is in place. Other public offices and some districts are connected

51 According to the DISTMS office, who conducts and coordinates the training. Relevant statistics on this issue are not available, but approximately 100 persons receive a diploma from the DISTMS training yearly.

52 According to the draft version 3 “ICT Framework”. Representatives are from Ministries of Finance, Information, Health, Education, Defence, Home Affairs, Agriculture, Commerce, and State Corporation Department. Will replace the Government Computer Committee.

53 The network is known as the Government Wide Area Network and connects the ministries on Capital Hill and elsewhere in Lilongwe


to the Internet through dial-up connections, often only providing email capability.

135. The overall assessment (as summarized above and detailed in Volume II) is that Malawi is ready to introduce the first steps of e-procurement by initiating exchange of procurement information through the Internet. As the procurement environment matures with the introduction of the Procurement Act, the DoPP should maintain focus on applying e-procurement as a means of supporting its other goals of transparency, efficiency and value for money in public procurement. Recommendations for E-Procurement Short term:• Access to procurement information through the Internet would reduce advertisement costs and

make all tender notices, notices of extension and notices of award available for bidders and the public.

• Remedy lack of credible statistics, by launching project to assess current status of the requirements for e-procurement, nature and size of any benefits expected, and the maturity of the private market.

• Place responsibility for further development of e-procurement at the DoPP, with the DISTMS office as supporting resource.

Medium term:• Online access to a centralized database of prices on commonly procured items would greatly

improve the quality of procurement. • Support ongoing efforts to introduce technology (PCs and internet access) to the entire public

sector. • Availability of tender documents for download in electronic form would reduce time spent on

post service and increase access for potential bidders, especially in international tenders, while at the same time reducing costs.

• Access to administrative decisions from the DoPP and relevant court decisions will help in shaping a common understanding of the main principles in sound procurement and will strengthen the effort to harmonize practices throughout the public sector.

• Uniform data formats in public procurement documents would increase transparency and help combat issue of poor quality filing systems.

• Establish isolated pilot projects in sectors most likely to benefit and where the listed requirements are most easily met.

• Ensure public access to the procurement protocols as prescribed in the Regulations, thereby enlisting the public in the ongoing effort to enforce the rules to the advantage of society as a whole.

• Launch assessment of potential legal barriers in contract law to the introduction of more advanced electronic tendering systems.


VIII. Performance on World Bank-Financed Projects This section reviews the experience to date on the performance of Bank financed projects based on the Country Portfolio Review Report, Post procurement review report and a project wise survey conducted for the purpose of this CPAR.

VIII.1 World Bank Portfolio 136. The size of Malawi’s portfolio has declined rapidly over the last three years. When the last Country Portfolio Performance Review (CPPR) was conducted in April 1999, the portfolio comprised 17 projects with a total commitment of about US$746 million. Since that time, 10 projects have closed, and 6 more are expected to be closed within the current fiscal year. At the same time that the portfolio is aging, the rate of approval for new projects has slowed as compared to the period before 1999. Of the current portfolio, only 6 were approved since the last CPPR.

137. The active portfolio for Malawi includes 13 projects with total commitments of US$454 million (as of September 30, 2003). The majority of support is concentrated in the social sectors, representing more than 50% of total commitments. At the time of preparing this report, 10 projects were in the pipeline (including the Multi- Aids program awaiting Effectiveness, basic Education improvement, Health Sector Support Project etc.). On the other hand, out of the 13 active projects, four projects will be closing before the end of 2003. Portfolio status is summarized in the Annexes to this report. VIII.2 Major findings of the Country Portfolio Review (February 2003) 138. Most of the projects were assessed to be on track with regard to achieving the key performance targets, with many of the output indicators having been met. As of 30th September 2002, 70% of the projects were in satisfactory ratings both in terms of implementation progress (IP) and Development Objectives (DO). 139. The latest government/ World Bank performance progress report (end of September 2003) indicates that the number of problem projects have been reduced to zero (the assessment is summarized in - Annexes). 140. The improving trend in the portfolio may be attributed to a number of factors: (a) increased level of technical support by the Bank through: (i) mid-Term reviews which have addressed critical issues to implementation, and (ii) training in World Bank procedures through workshops, seminars, and video-conferences, (b) strengthening of management units with regard to skills and structure, (c) improved Bank-Government dialogue in resolving project and policy issues, (d) improving trend in project staff qualifications, and (e) the increased level of technical support from the World Bank Country Office. 141. Despite the successes mentioned above, inadequate budget allocations and delayed release of counterpart funds are still a challenge for effective implementation.


VIII.3 Procurement Issues in the Portfolio Procurement Post Reviews and Main Issues 142. In addition to the above-mentioned reviews intended to generally assess procurement performance as part of the overall portfolio review, more specific procurement-related reviews have been conducted. An Independent Procurement Review (IPR) was conducted in 1998 by Bank. Ex-post Procurement Reviews were conducted in 2001 and 2002 for five projects: (a) National Water Development Project, (b) EMP, (c) Secondary Education Project, (d) Population and Health Project, and (e) Privatisation and Utility Reform Project. For this CPAR, a project-wise survey was also conducted to elicit the updated situation on issues concerning effective procurement in Bank-assisted projects. 143. The reports and surveys draw attention to the following issues:

i) Delays in procurement processes- mainly due to inadequacies in the capacity of the procurement professional staff in the implementing agencies;

ii) Inadequate procurement capability and capacity; inadequate training and experience in

public procurement - The survey of the ongoing projects revealed that most of the projects in Malawi start implementation without the core Procurement Specialists in place. This delays implementation progress and disbursement of funds. Recently, with some efforts, many of the ongoing projects have procurement officers with some knowledge of Bank procurement procedures and Standard Bidding Documents.

iii) Insufficient procurement planning and inadequate counterpart funds: The project-wise

survey, Ex-post Procurement Reviews and the latest portfolio progress report all indicate that only some of the projects have procurement plans agreed with Bank. shortage and timeliness of counterpart fundsremains to be a major problem

iv) Incomplete filing systems- VIII.4 Unacceptable Practices on Bank-financed Projects 144. The defunct interim guidelines of 2001 consisted of a number of deficiencies that could be categorised as unacceptable on Bank-financed projects including: (i) use of the Merit point system for evaluation of all goods and works procurement with only 30% weight for price in the case of Goods and 20% for price in Works; (ii) use of qualification criteria (e.g. financial capability and previous performance) as evaluation criteria; (iii) application of excessive and inappropriate margin of preference - 25% for locally manufactured goods, 20% for local retailers and 15% for works, even under NCB and shopping procedures; (iv) use of margin of preference (15%) for local consulting firms; (v) use of registration and classification as a condition to purchase bidding documents, and as a condition for eligibility to bid rather than as a condition for award; (v) inadequate treatment on handling complaints; (vi) lack of emphasis on procurement strategy & planning, procurement monitoring, and contract expenditure and progress monitoring; and (vii) no provision for evaluation panels made up 3-5 of sector specialists who would be responsible for actually carrying out bid/proposal evaluation based on the nature of the works, goods or services to be procured.


145. The newly approved procurement law that has been drafted based on the UNICTRAL MODEL LAW was reviewed and commented upon by the Bank. What remains is to ensure that the Procurement Regulations and standard bidding documents (both yet to be yet drafted) properly reflect the new law and do not introduce any unacceptable provision. VIII.5 Indicative Thresholds for Procurement Methods and Prior Review by the Bank

146. The prior review thresholds in most of the current Bank financed projects are: Goods: US$ 100,000; Works (US$100 or US$ 250,000); consulting firms: US$100,000 and individual consultants: US$50,000. This is generally below than the current Bank’s recommended thresholds (even for the high risk category). VIII.6 Risk Assessment 147. In the public sector procurement part of this report, the environment for conducting public procurement in Malawi has been rated as being one of Average risk. Malawi has made major progress so far in reforming its procurement system and hence if this pace is continued, it would not be unrealistic to forecast that this risk level will be significantly reduced during the coming years. 148. Based on the above level of risk, the following recommended thresholds by procurement method and prior review are generally proposed. This is indicative and all new projects should carefully assess project specific risks. For existing projects, any review of thresholds should only follow systematic assessment of the Project in question as discussed in the recommendations section below. Moreover, the prior review thresholds here are absolute maximum, which may not necessarily be specified at this level at the start of the project.

Table: Indicative Thresholds by Procurement Method (based on an assessment of the capacity of national suppliers, civil contractors and consultants- Private Sector Part of the report)

Procurement method Threshold (US$)

ICB: Works >300,000 NCB: Works <300,000 Minor Works <50,000 ICB: Goods >200,000 NCB: Goods <200,000 International Shopping: Goods

<100,000

National Shopping: Goods <50,000

Based on the assessed level of risk, an indication of the maximum prior review thresholds follows:

• Contracts for Goods higher than US$200,0000 • Contracts for works higher than US$500,000 • Contracts with consulting firms higher than US$ 100,000 • Contracts with individuals higher than US$ 50,000


149. At least one in ten contracts that are subject to post review shall be post reviewed by the Bank. This again is an indication and depends on the level of risk assessed during the agency procurement capacity assessment, which in turn may be adjusted during project on the basis of periodic formal reviews of the performance of the respective agencies 150. Given the status of Malawi’s consulting industry (as indicated in the private sector part of this report), assignments on Bank financed projects may comprise entirely of national consulting firms only if the assignment is estimated to cost less than US$100,000. This is the recommended maximum and Bank Task Teams should make a determination at appraisal, on a project-by-project basis, that there is sufficient number of qualified consulting firms in the country to provide adequate competition at competitive cost. VIII.7 Recommendations to strengthen Fiduciary Safeguard on Bank-Financed Projects

Staffing and Organization

• Composition of PIUs should be sufficient to cope with the volume and complexity of the respective projects, based on the project implementation plans and procurement plans

• Recruitment and retaining of qualified staff: For new projects, due attention should be

given to the recruitment through a competitive process of well qualified procurement staff that meets minimum professional standards, prior to the start of any procurement activity.

• The Borrower should ensure that individuals appointed to serve on evaluation committees

are qualified to undertake bid/proposal evaluation, that they dedicate enough time for the task and that they have the appropriate technical expertise.

• Training

• The Bank in close consultation with the Borrower should periodically carry out

training need assessment of project implementation units and any government bodies involved in Bank’s procurement and design the procurement training modules according to the specific needs. To support this, short procurement clinics (focused on discussing actual implementation issues) that have started to be carried out by country office procurement staff should continue to be provided periodically as they enable speedy resolution of issues and assist in creating positive working relationships with project counterparts in the government.

• The Bank should ensure that new projects include for training and technical

assistance, as necessary, for PIU staff in procurement and financial management at the very early stages of the project. A Project Launch Workshop should be carried out for all new projects.

• Great emphasis must be placed on training of procurement and other relevant

project implementation staff in proper contract management to assure that the government gets full value for its money. Training in this area would greatly reduce the losses arising from: (a) incomplete delivery of goods or incomplete works contracts, (b) works not being completed within agreed schedules due to untimely payments by PIUs, (c) incomplete follow-up on completion of civil


works, and (d) inaction against delinquent contractors, and (e) not obtaining performance security and advance payment security at start of contract.

• Procurement plans: For new projects, realistic procurement plans (global and detailed

plans for the first year) should be prepared by the Borrower during the appraisal stage and agreed upon with the Bank during negotiations (as per the newly developed procurement planning tools). Projects should submit to the Bank for its agreement the updated global and annual procurement plans by Mid March of each year for Bank’s review and agreement. Task teams should closely monitor the actual implementation versus the plans and, where slippages occur, the Borrower and the Bank should promptly take remedial actions.

• Post procurement reviews: Yearly post procurement reviews should cover 100% of Bank

financed projects and the recommendations should be translated into achievable and realistic action plan and closely followed up by the Borrower and the Bank. The number of contracts to be reviewed should be as per the risk level identified in the PAD/ or any subsequent formal assessment.

• Record keeping: It is recommended that a good filing system should be introduced and

maintained in order to ensure that documents are readily retrieved instantly. A detailed plan for maintenance of procurement files should be conditions of negotiations, and this system must be ready for use as a condition for Effectiveness.

• Assessment of Borrower’s capacity and review of review thresholds specified in the

legal agreements: GOM and the World Bank should periodically assess the existing institutional arrangements and capacity for effectively implementing procurement on a project–by-project basis. Such assessments should be applied to the development of action plans to strengthen procurement and contract administration and review prior review thresholds specified in legal agreements on a case by case basis based on the results of capacity assessment.

• Standard procurement documents: Agree during appraisal/negotiations on all standard

procurement documents, including for National Competitive Bidding (NCB), forms for inviting quotations (for the shopping mode of procurement) and for simplified modes of procuring consultants. No further changes should be made in agreed standard documents without the Bank’s prior approval.

• Inadequate provision of counterpart funding: The government should address the issue

of inadequate budget allocations and delayed release of counterpart funds.

• Increased Transparency: Consider having the project implementing agencies conduct an annual mini-survey of contractors, suppliers, consultants, NGOs, community groups associated with the project to seek their views on their experience in dealing with the project implementing agencies and share the results with all concerned stakeholders and the Bank.


IX. Private Sector This section addresses the extent to which the private sector in Malawi is able to supply public sector demand, describes briefly commercial purchasing practices in the private sector and provides the perspectives of the private sector on public sector procurement.

151. Since 1988 and continuing through the 1990’s, the government took a series of measures to liberalize the trade regime, including eliminating non tariff barriers, consolidating the tariff structure, including combining of custom duty and import levy and import regime comprising of three categories of rates, broadly speaking, for raw materials and inputs (5-10% of c.i.f) intermediate products (10% of c.i.f) and for final products (30% of c.i.f)54 with a positive impact on competition in public sector procurement 152. In addition to its membership in the World Trade Organization (WTO), Malawi has entered into a number of Regional Trade Agreements. This includes bilateral agreements with South Africa, Zimbabwe, Botswana, Regional Common Market for Eastern and Southern Africa (COMESA) and Southern Africa Development Community (SADC), Multilateral-WTO since 1995.

153. Malawi’s tax regime comparable to other countries in the region. Tax collection in Malawi is considered to be relatively low due to the narrow tax base and limited tax administration capacity. Malawi had a tax to GDP ratio of 15 percent during the 1990s. Malawi’s tax collections (as a percentage of GDP) increased during the 1999-2000 coinciding with the establishment of the Malawi Revenue Authority (MRA). Malawi’s tax regime is comparable to other countries in the Region with corporate tax rate equivalent to the regional average of 30 percent. 55. The income tax is payable as a percentage of the net income of companies. A minimum fixed tax based on gross income is also payable by firms with very low profitability or in loss making situations; rationale for this policy was to capture lost revenue from perceived widespread under reporting of profits. 154. The Malawi Revenue Authority (MRA) has undertaken a number of modernization and restructuring measures- MRA was formed by an Act of Parliament No. 14 of 1998 with the mandate to collect, assess and account for the tax revenue of Malawi. In addition, MRA is expected to maximize revenue collection, expand its tax base, enhance fiscal policy formulation for the development of tax administration, and promote voluntary tax compliance and to combat tax fraud and evasion. In order to fulfill its vast mandate, MRA has embarked on several modernization and restructuring measures. These include:

• Automation of customs through ASYCUDA;

• Extension of surtax to wholesale and retail levels and a number of policy changes targeted at increasing efficiency, competitiveness and productivity.

• Attempt to computerize its financial system;

54 IMF: Country Report No. 02/182- “Malawi: Selected Issues and Statistical Appendix”. 55 Personal and Corporate Income Tax rates were reduced from 38 percent in 1998/2000 to 30 percent in 2001/2002


• Computerization of part if the income tax systems – registration;

• Public awareness in the form of taxpayer education campaign, consultative meetings and open tax forums.

155. However, challenges remain in MRA to improve on its efficiency and effectiveness in tax collection. Although no empirical studies have been undertaken to measure efficiency levels of MRA, indications of the same have been made using in house data. These calculations revealed that collection is estimated at 3.5 Tambala per one Kwacha collected giving a 3.5%. This is considered high by MRA and efforts are being made to reduce it to 2.5% by year 2005/6. The causes of such a high cost of collection were stated to be high operational costs and cost of equipment purchase by the Authority.

156. The private sector view of Malawi Revenue Authority (MRA) is mixed. Some are of the opinion that the MRA is doing its best in fulfilling its mandate of collecting taxes taking into account the limited and low tax base of Malawi. The second opinion is that MRA officers at the borders exercise their discretion on treatment of traders and that there is delay in clearance of goods. Corruption practices are claimed to be common in such instances. The recently introduced surtax of 20% is also causing grounds for complaints. Businesses complain that MRA is unable to guide them as to which items are to be taxed, and that public entities are refusing to acknowledge taxing of invoices, even though MRA requires it. Branches of MRA are reported to give contradictory advice on the application of surtax. This opens an avenue for misuse and certainly does not provide the predictability of costs that is so important for businesses. Moreover, MRA is blamed for taking time to process tax returns, surtax refunds and other rebates resulting in additional costs to businesses due to very high interest rates and other costs of funds. 157 The macroeconomic environment has not been conducive as characterized by high inflation rate (approx. 32% per annum over the last 10 years), volatile exchange rate and sharp devaluation of the Kwacha (1 US$ = 24.13 MK in 1995 to 1US$ = 87.28 MK in 2002) and high interest rates (as high as 56% in June 2003), increasing financial risk on the private sector and affecting its competitiveness in public sector procurement. 158. Many suppliers and contractors find it very difficult to borrow not only due to the lack of attractiveness to the banks but also due to high interest rates. The Malawian financial system is relatively small, consisting of 8 banking institutions, 1 building society, 4 development financing institutions, 3 leasing/finance companies, the Malawi Rural Finance Company and several other micro and rural finance institutions and 9 insurance firms. The concentration of bank’s investment in Treasury bills has resulted in significant crowding out with the share of private sector loans in total banking assets falling. 159. Bank’s requirement for 100% cash cover (for non established customers) may be understandable but still could be limitation to small and medium size importers 160. Since the liberalization measures of 1994, importers have the option to have a letter of credit from any one of the commercial Banks. According to the National Bank of Malawi, the following are the conditions for opening an L/C:

• Performa invoice from supplier and terms; • 100% cash upfront in Malawi Kwacha; and


• Established customers may apply for credit facility for 30,60,90,180 days in which case they will not be required for cash cover.

The opening charges for Letters of Credit, according to the National Bank, are:

• Without Cash upfront: 0.5% for establishment fee per month or part thereof with a minimum of 2500 Kwacha; and

• With cash upfront: 0.5% for every three month or part thereof with minimum of 2000 Kwacha.

161. A number of low priced local bidders fail in the preliminary examination of their bids for either: a) lack of bid security; or b) lack of submission of appropriate security forms:Contractors produce bank guarantees for bid securities and performance securities. Small and medium sized contractors who have not established relationships with the Bank (in which case they may have credit facilities) are required to use their own assets and deposits as collateral to secure bid securities and performance guarantees i.e. 100% cash cover and 125% property cover. The bank charges for such securities are 1.5% per annum. A number of bid evaluation reports (in, for example, World Bank Projects) show that a number of low priced local bidders fail in the preliminary examination of their bids for either: a) lack of bid security; or b) lack of submission of appropriate security56. Reasonable percentages for the maximum of bid and performance securities therefore need to be specified in the regulations to ease the strain on working capital of small and medium enterprises; for procurement below a certain amount, the risk is minimal and hence the requirement for bid security should be waived. They should also state that bidding documents may give the option to bidders to provide Bank guarantees or bid bonds from insurance companies. The forms to be attached to the standard bidding documents should follow international practice and prepared in close consultation with banking and insurance sectors. 162. Malawi makes use of pre-shipment inspection, which appears justified given the former PSI firm’s claims on recurring under valuation of imports that it has identified and the fact that pre-shipment services could compensate for the lack of capacity in the customs authorities. In the medium to long term, consideration needs to be given to strengthen the customs authorities to enable it to effectively carry out Destination Inspection and valuation to gradually replace pre-shipment inspection. 163. The private sector is composed mainly of manufacturing and distribution (in terms of turn over 30 and 47% respectively with the remaining sectors adding up to about 13-14%. 164. Malawi’s manufacturing industry is small (13% of GDP). The manufacturing sector relies heavily on domestic markets and the domestic market is small. 165. The construction industry is also not yet capable to participate in relatively large contracts (even the largest domestic contractors have annual turn over of not more than US$ 5 million).

56 During the main CPAR field work, the Mission incidentally met two local contractors outside of one of the banks complaining that they were caught in between - the bidding documents require a certain form and the issuing bank would like to modify the wording of the Guarantee form attached to the bidding documents.


166. The consulting industry is also not yet adequately developed and local consulting firms are for the most one-man firms. The local consulting is mostly limited to general consultancy, architects and quantity surveyors, economics, auditing and finance. 167. There are adequate number of suppliers participating in the supply of various imported goods and commodities. 168. Although there are merits in the relationship based procurement (compared to transaction based) as prevalently used by the Malawi private sector, this needs to be augmented by periodically re-examining the relationship, carrying out market surveys and developing competitive strategy, among other things based on systematic evaluation of and improved efficiency and performance at every stage in the value chain. 169. There are widespread reports from both the private and public sector that there is a tendency in suppliers to collude and engage in price-fixing prices and forming cartels with the purpose of fixing prices. As a result, competition suffers as prices are kept artificially high thereby depriving procuring entities of the benefits of free and open competition. The new Public Procurement Law has specific provisions in “Corrupt, Fraudulent and Collusive Practices” which should be strictly enforced. Recommendations • Improve entrepreneurship, technical and managerial capability through increased and

focused training: Public and private institutions intended to support the private sector need to work closely by sourcing funds, identifying and executing training of the private sector on a sustainable basis. This should include, among other things, good business practices and ethics, procurement, financial management, marketing, product development, quality control etc. As a matter of priority, the private sector needs to get training to familiarize itself with the new procurement law (and associated regulations) and to better understand qualitative and delivery requirements for public procurement contracts.

• For further enhancement of the Malawi private sector in the domestic and increasingly

regional markets, public and private institutions in support of businesses need to support the private sector to enhance its capacity for developing competitive strategy, among other things, based on systematic evaluation of and improved efficiency and performance at every stage in the value chain (procurement, transportation, storing, distribution, support activities etc.)

• Simplified bidding and contract documents for minor labor-intensive works (such as

minor road maintenance): The importance of standardized procurement documents has been touched upon in the public sector part of the CPAR. In addition to the standard documents for new construction works, simplified bidding and contract documents dealing with a host of issues relating to contracting out labor-intensive works (such as road maintenance) need to be developed.

• Avoid undue delays in bid evaluation and contract award and delayed payments: It is

highly recommended that i) bid evaluation/ contract award processes should, as a rule, be completed within a period that should be specified in the procurement regulations and ii) contractual payment provisions and periods be strictly adhered and monitored.


• Domestic preference provisions (already mentioned in the new procurement law) should be quantified in the yet to be drafted regulations.

• Private sector needs to actively market itself (using means such as the Internet) and actively

source its foreign sub-suppliers and creating associations (such as joint ventures) in participating in public sector procurement.

• DoPP should (i) educate procuring entities on how to minimize collusive practices and (ii)

make the private sector aware of the implications of the “Corrupt, Fraudulent and collusive” provisions in the new Procurement Law provisions in the law and that such malpractices are eventually against the development of a competitive market, thereby negatively affecting the competitiveness and development of the private sector. It is also recommended that the Ministry of Trade and Industry strengthen the enforcement of the Fair Competition Act.

• Access to credit and securities: The maximum levels of bid securities and performance

securities should be specified in the regulations to ease the strain on working capital of small and medium enterprises; for procurement below a certain amount, the risk is minimal and hence the requirement for bid security should be waived. They should also state that bidding documents may give the option to bidders to provide Bank guarantees or bid bonds from insurance companies. The forms to be attached to the standard bidding documents should follow international practice and prepared in close consultation with banking and insurance sectors. In the medium term, it is also worth looking into the possibility of establishing a guarantee scheme or another similar support mechanism (excluding subsidy) that may lower the cost of capital, letters of credit, performance and bid securities.

Private Sector Perspectives on Public Sector Procurement 170. The deficiencies in the existing legal and regulatory framework was generally acknowledged and the private sector has generally indicated its expectations for improved public sector procurement through implementation the provisions of the new procurement law and subsequent regulations. They however caution that implementation of the provisions of the new legal framework will not be easy mostly due to capacity constraints in Internal Procurement Committees (IPC). They advise that attention be given to developing capacity in IPCs, the regulatory body to be formed as per the provisions of the new law and even in the private sector themselves. 171. The private sector has indicated its preference in participating in donor financed bids as compared to government financed mostly due to delayed payments.

Malawi CPAR, Volume I 52 May 24, 2004Main Findings and Recommendations

X. Public Sector Procurement – General Risk Assessment

Risk to BeManaged What Can Happen How Can It Happen Measures

New DoPP not acting inits policy capacity

Procurement policy andstrengthening of theprocurement system do notmaterialize

DoPP focuses on monitoring as with the old

GCU.• Allocate adequate resources and training to the DoPP• Separate functionswithin the DoPP and put differentpersons in charge of monitoring and policy

DoPP not able and/orequipped to monitorpublic procurementadequately

Sub-standard procurementperformance and general lack ofoversight

Information Management System (IMS) is notput in place

DoPP fails to develop goodcollaboration with decentralizedprocurement units

Develop IMS and ensure implementation through properroll-out and training of decentralized IPCs and SPUs

Poor dissemination ofProcurement Act andsupporting legal instruments

Even though theProcurementAct is enacted, its impact islimited

Regulations are not prepared or disseminated.Procuring entities continue “business asusual”

• Develop Procurement Regulations for central and localauthorities and promote use• Develop and disseminate standard procurementdocuments and promote use

Weak compliance with newprocurement rules

Procurement Act and newregulations are implementedslowly

Lack of enforcement allows old practices tocontinue.Lack of proper procurement audits prohibitsadequate enforcement measures

• Strengthen enforcement and procurement auditfunctions of the DoPP• DoPP to function as a credible avenue of complaint onprocurement issues

Inefficient bidders’registration system

Bidders continue to be burdenedwith cumbersome registrationprocedure.

Prevailing registration system is notmodernized.

• Launch general assessment of the need for registrationsystems• Streamline registration system and procedures

Local governmentprocurement continues to beflawed with irregularities

Local communities continue tomistrust public authorities andcast doubt on public spending

Lack of attention to local governmentprocurement

• DoPP to monitor local government procurement• Local communities and NGOs should be involved inmonitoring public procurement at local level• Training and capacity building measures should betaken for local government procuring units

Reluctance/ failure torestructure/ commercialise/privatise CGS / PVHO

GOM will not benefit from morecompetitive market prices

Lack of political will to seriously consider thefuture of these organizations

• GOM to seriously consider the future of theseorganizations as a priority measure


Risk to BeManaged What Can Happen How Can It Happen MeasuresLack of procurement capacityin decentralized units lead todelays and/or irregularities inpublic procurement

Institutional set-up not in place(i.e. IPCs and SPUs)Individuals responsible forprocurement not conversant withnew procurement regime

Decentralization is not properly planned andexecutedInsufficient resources allocated to fund thereform processInsufficient capacity building of procuremententities

• Detailed operational plan for decentralization should bedeveloped and executed• Government to allocate funds for capacity building andtraining and seek donor funding• Comprehensive procurement training strategydeveloped and implemented

High level of corruption inpublic procurement

Cost increases in publiccontractsWaste of scarcepublic fundsContracts are not or onlypartially completed and are ofunsatisfactory quality

Low salaries of Government staff do notprovide incentives to apply new procurementregulationsLack of investment creates severecompetitionfor public contractsWeak public sector managerial accountabilityand transparency contributes to corruptivepractices

• Increase support to oversight, audit and investigativebodies such as the DoPP, NAO and ACB• Establish monitoring mechanisms• Implement transparency measures in public procurement• Enforce ethical standards for public employees• Conduct information and sensitization activities


Summary of Risk Assessment

172. Any assessment of risk in a country’s national public procurement system should be based on the stage of development of its legislative framework, the effectiveness of its regulatory institutions, the strength of its enforcement regime, the capacity of its institutional and human resources and the threat of corruption.

• Malawi’s legal framework has been thoroughly revised with the introduction of the new Public Procurement Act (2003). However, some important steps still needs to be taken, and among these most urgently the development and dissemination of Procurement Regulations and Standard Bidding Documents. Also, as part of the overall legal and institutional framework, a credible complaints system through the formation of an administrative review function within the Office of the Director of Public Procurement should be introduced.

• However, the on-going legal reforms have accentuated the problems that exist in the actual

procurement procedures and practices. There is a huge gap between previous and existing rules and the practices performed. This gap is caused in part by lack of capacity and knowledge and in part by corrupt behaviour that is allowed to flourish because of weak enforcement. The large gains that the country have made in reforming the legal framework will all be in vain if compliance with the new rules are not rigorously enforced.

• The enforcement regime, which underpins the procurement legislation, is particularly weak

in Malawi. Audits are very rarely carried out and never in adequate scale. External auditing is still in its infancy and current mechanisms for reviewing bidders’ complaints are non-functioning. As a result, the accountability of public officials for the procurement decisions they make is undermined.

• With a few exceptions, the public sector institutions, which conduct procurement, are ill-

equipped for the task. Most ministries do not have dedicated organisational units to undertake procurement, and staff that handle the task invariably do so without training. The problems are only exacerbated at regional and local government level. The entire country lacks a planned training system for procurement.

• Corruption in Malawi is recognized as being a real problem and appends itself particularly to

public procurement, given the substantial expenditure, which all levels of administration make in this area.

173. A major concern is that the gains in procurement reform are not validated if the reforms are not rigorously promoted and enforced. Malawi is not alone in facing this risk as many African nations, which are reforming their procurement fiduciary management systems, are in various degrees confronted with the same problem. The progress Malawi has made since publication of the Diagnostic Study in 1996 is commendable, even though much needs to be done to achieve the goals of the reforms. However, compared to other African nations carrying out similar reforms, the overall risk that the reforms might fail is considered “average”. Proactive and sustained involvement of the Government, private sector, civil society, and the donor community is needed to mitigate the risks and to overcome possible setbacks.


RECOMMENDED ACTION PLAN 174. This section summarizes the action plan essential to enhance the current procurement reforms in Malawi. To facilitate monitoring and follow up of progress, the actions covering the public sector procurement are organized under three Tables: ( i) Measures to be taken to improve public procurement under the five basic pillars of procurement fiduciary management by building on the on-going procurement reform; (ii) Action Plan to improve the performance of the Malawi private sector in public sector procurement; (iii) recommended actions to introduce E- Procurement in Malawi.

A. Measures to be taken by the Government 175. The primary responsibility for implementing the recommendations lies with the Government of Malawi and public/private partnership. Clearly, the procurement reform process involves managing a substantial transformation that the CPAR’s recommendations entail. The importance of instituting proper measures for change management cannot be overstressed. Further, there should be a “champion” for this change. This role would fall upon the DoPP. In addition to the political commitment needed for driving the changes needed, strong efforts will be needed by the “champion” to move the procurement reforms forward to effective implementation. 176. The government has already acquired some skills and experience in the implementation of procurement reforms, which will greatly assist it in completing the procurement reforms. 177. Success factors for the implementation of the recommendations of this report (procurement reforms) include: • Commitment at the highest level and oversight of the reforms through a high level steering

committee, comprising of senior government officials and other stakeholders; • Proper costing of the action plan and preparation of detailed implementation plan; • Support from donors, including the World Bank to finance the reforms; • Building consensus on the strategy and participate all key stakeholders in the reform process; • Assign clear responsibility and accountability for the success of the strategy; • Identify a list of milestones or major immediate progress points; and • Identify key performance measures to be monitored throughout the life of implementation of

the strategy and creating an information system to record progress 178. The CPAR key findings and the attached Action Plan were discussed in detail in a CPAR Workshop (May 12-13) that clearly demonstrated full ownership of the government and concerned key stakeholders. Stakeholders discussed and accepted the Action Plan with few constructive comments. Subsequent to the workshop, out of the short-term actions, actions of absolute priority have been identified and DoPP is working on them. The framework for preparing a detailed costed work plan based on the CPAR Action Plan has also been discussed with DoPP


and it has already started to prepare its work plan and fund requirements for implementing the procurement reforms to enable timely sourcing of funds from the government, the World Bank and other development partners. B. Measures to be taken by the Bank and Other Financiers 179. Once agreement is reached on the Action Plan, the detailed work plan and realistic costs will be developed jointly with the government, development partners and other concerned stakeholders. The modalities of financing to be adopted would need to be discussed and agreed between the government and development partners. The following may compliment each other as possible sources of funds:

- Bank’s FIMTAP project; - IDF Grant - Support from major donors like DFID and EU

Throughout the process of implementation, the Bank will maintain an active dialogue with the Malawi government and other stakeholders. C. Monitoring and follow-up 180. The DoPP will be the primary organ for implementing the recommendations of the CPAR. The importance of assigning key staff and facilities to DoPP cannot be over- emphasized. Commitment at the highest level and oversight of the reforms through a high level steering committee, comprising of senior government officials and other stakeholders, is of paramount significance for effective implementation of procurement reforms.


D. CPAR Action Plan

Table: Measures to beTaken to Improve Public Procurement Under the Five Basic Pillars of Procurement Fiduciary Management

Recommended Action Plan57

FivePillars of Sound ProcurementRecommended Actions Shor t term

(0-2 years)Medium term

(2-4 years)Responsible

Regulatory: Procurement Regulations to be finalized assoon as possible and widely disseminated to procurementstaff

♦ GoM/DoPP

Regulatory: Ensure full adherence to Regulations.Develop Information Management Systems (IMS) andensure implementation through set- up and training ofdecentralized IPCsand SPUs.

♦ ♦ DoPP

Institutional: Establish the DoPP by appointing theDirector and the Deputy Director, and ensure that theDoPP become operational though allocation of adequatefacilities, setting up DoPP infrastructure and training ofidentified staff.

♦ GoM

Five Pillars ofSound PublicProcurement

Pillar 1:Legal,Regulatory andInstitutional

Institutional: Establish IPCs and SPUs throughinstitutional and organisational development support,training of SPU staff, provision of equipment, etc.- a selection of pilot-SPUs may be identified and initiallysupported. Lessons learnt to be drawn and subsequentnational roll-out.

♦ DoPP

57The implementation details, theneed for technical assistance and the identification of potential source of financing will bediscussed with theGovernment during theCPAR

stakeholders’ workshop.






Institutional: Immediately initiate studies to clearlyrecommend the future of CGS and PVHO followed bytaking concrete measures to implement recommendationson CGS and PVHO

♦ ♦ GOM

Continue the process of rationalising and restructuringthe CMS.

♦GOM/MoH

Prepare and disseminate standard bidding documentswith guide for application; make the documents availableon government web site

♦ DoPP

Ministries/Gov. Agencies should ensure that procurementplanning is carried out on annual basis and performanceagainst plan monitored. DoPP should verify properapplication of procurement planning as part of postreviews.

♦ ♦ DoPP/ responsibleMinistries andagencies

Support procuring entities to set up and use properprocurement recording systems and enforce publicdisclosure of records; verify record systems as an integralpart of periodic monitoring. (Continuous process)

♦ ♦ DoPP/IPCs/SPUs

Launch a separate assessment of the use of registrationlists throughout the procurement environment in Malawi,with an aim to consolidate and streamline the lists, andminimise the burden on bidders.

♦ DoPP

Pillar 2:Procedures andPractices

Carry out a nationwide information/ sensitizationcampaign aimed at informing of the new institutional set-up. The campaign shall in particular provide informationabout the review system and the remedies provided.

♦ DoPP

Short term training measures should focus on how bestand fast SPUs will be filled with procurement proficientstaff.

♦ HRMD-OPC/ DoPPPillar 3:ProcurementProficiency(Capacity)

Establish cadre of procurement specialists within thepublic servicesystem combined with sound salary andincentive system, and introduce accreditation.

♦ HRMD-OPC/ DoPP






Initiate comprehensivecapacity building programmefocusing on training and up-grading procurementprofessionals-Would require institutional support to traininginstitutions(s) and resources for curricula development,procuring training equipment and setting up Training forTrainers programme + subsequent roll-out.

♦ DoPP

Establish procurement professional Association to assistin the promotion of the profession capacity buildingmeasures.

♦ DoPP

Introduce capacity building scheme for involving NGOsin public procurement monitoring, including a grantfacility supporting procurement related projects withincivil society; Introduce specialised procurement training(procurement reporting) for journalists.

♦ DoPP/GOM/ WorldBank/other donors

Strengthen audit capacity of the NAO by establishingtechnical unit for public procurement audit and increasingfrequency of audits.

♦ GoM/ NAO

Strengthen internal controls and audit functions ofministries, departments and other government agencies.

♦ ♦ GOM

The DoPP should ensure that IPCs and ControllingOfficers are made fully aware of their increasedresponsibilities and accountabilities in the decentralizedprocurement regime.

♦ ♦ DoPP

DoPP should build up a capacity to carry out “ postprocurement review”

♦ ♦

Pillar 4:IndependentAuditsand Recourse

A program of systematic procurement audits with clearperformance indicators, at both central and local levels,should be developed.

♦ DoPP






Establish a unit/ department for administrative reviewwith adequate resources to handle complaints within theDoPP and ensure that it functions effectively

♦ DoPP.

Assist the ACB to develop a National Anti-CorruptionStrategy. Prepare Action Plan to combat corruption inprocurement with broad government and civil societyinvolvement.

♦ ACB/GOM

Establish operational links between the procurement andcontracts investigation unit of the ACB and themonitoring unit of the DoPP.

♦ ACB/DoPP

Ensure that the DoPP is given full monitoring powersregarding the procurement carried out by localgovernment authorities and facilitate civil society/ localcommunity monitoring of procurement processes.

♦ GOM

Establish hotline for disclosure of misconduct withinpublic procurement either linked to the DoPP or to thealready existing corruption hotline operated by the ACB.

♦ DoPP/ACB

Develop and enforcecode of conduct for civil servants inprocurementDoPP to verify compliance with code of conduct ofprocurement staff

♦ GOM/HRMD/DoPP

Pillar 5:Anti-corruptionmeasures

DoPP to publish procurement information,advertisements, awards, guidelines, etc. on thegovernment web-site to enhance transparency and accessto information on procurement procedures.

♦ DoPP






Introduce Performance Indicators to Monitor Corruptionin Procurement as a mechanism allowing the DoPP tomonitor critical trends in public procurement acrossgovernment.

♦ DoPP

Conduct country-wide information campaign about theresponsibility and avenues of disclosing information onviolations of theprocurement procedures.

♦ DoPP


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

Actions Short term (< 12

months)

Medium term(12-24

months)

Responsible

As a matter of priority i.e. short term- focus on familiarizing with the new procurement law (and associated regulations), and subsequent standard procurement documents and project management;

♦ Chamber of Commerce/ NCIC/Other professional organizations and public institutions in support of

businesses

Support the private sector to enhance its capacity for developing competitive strategy, based on systematic evaluation of and improved efficiency and performance at every stage of the value chain- procurement, transportation, storing, distribution, support activities et.)- Medium to long term

♦ Chamber of Commerce/ NCIC/Other professional organizations and public institutions in support of

businesses

DoPP to hold regular sessions, if possible twice a year, with the private sector and members of civil society to establish and maintain a dialogue on pubic procurement

♦ DoPP

Improve tax and incentive structure (such as further automation of tax-processing operations to avoid delays in tax refunds; provide guidelines for application of company taxes; simplify and more transparent incentive system)

♦ GOM

Carry out studies to assess the effectiveness of the current institutions in support of and regulating businesses (both public institutions and private sector associations) with the objective of improving the efficiency and effectiveness of such institutions

♦ DoPP

Avoid delays in making contractual payments- contractual payment provisions and periods should be adhered to.

♦ ♦ DoPP


F. Summary of Recommended Action Plan for E-Procurement

Actions Short term (< 12

months)

Medium term(12-24

months)

Responsible

Remedy lack of credible statistics, by launching project to assess current status of the requirements for e-procurement, nature and size of any benefits expected, and the maturity of the private market.

♦ DoPP/DISTMS

Place responsibility for further development of e-procurement at the DoPP, with the DISTMS office as supporting resource.

♦ DoPP/DISTMS

Consider Online access to a centralized database of prices on commonly procured items

♦ DoPP/DISTMS

Support ongoing efforts to introduce technology (PCs and internet access) to the entire public sector.

♦ DISTMS

Establish isolated pilot projects in sectors most likely to benefit and where the listed requirements are most easily met.

♦ DoPP/DISTMS

Launch assessment of potential legal barriers in contract law to the introduction of more advanced electronic tendering systems.

♦ Ministry of Justice

Country Procurement Assessment Report (CPAR) VOLUME I …

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