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Legal Issues in Procurement Fiduciary Forum 2008 Presented by Alison Micheli (LEGIA)

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Presentation on theme: "Legal Issues in Procurement Fiduciary Forum 2008 Presented by Alison Micheli (LEGIA)"— Presentation transcript:

1 Legal Issues in Procurement Fiduciary Forum 2008 Presented by Alison Micheli (LEGIA)

2 Legal Framework for Procurement Articles of Agreement Legal Agreement Legal Agreement Procurement and Consultant Guidelines Procurement and Consultant Guidelines SBDs SBDs

3 Today’s focus will be on several more problematic aspects within this framework Securities Securities Conflict of interest Conflict of interest Misprocurement Misprocurement

4 Securities Different uses for securities (guarantees) in the procurement process: Bid (tender) security Bid (tender) security Performance guarantee Performance guarantee Advance payment guarantee Advance payment guarantee Others (e.g., retention money guarantee, guarantee for missing bill of lading, maintenance guarantee, etc.) Others (e.g., retention money guarantee, guarantee for missing bill of lading, maintenance guarantee, etc.)

5 Securities Acceptable forms of security (depending on use): Unconditional bank guarantee Unconditional guarantee (bond) issued by insurance company/financial institution Unconditional guarantee (bond) issued by insurance company/financial institution Irrevocable letter of credit Irrevocable letter of credit Performance bond issued by surety Performance bond issued by surety Cashier’s or certified check Cashier’s or certified check [Cash deposit] [Cash deposit]

6 Securities All requirements for securities must be disclosed in the bidding documents. All requirements for securities must be disclosed in the bidding documents. The security must be in the format included in the bidding documents or in another substantially similar format approved by the Client. The security must be in the format included in the bidding documents or in another substantially similar format approved by the Client.

7 Securities Unconditional guarantee (demand guarantee) What is it? What is it? It is the undertaking of a bank (or insurance or other company) as GUARANTOR to pay a sum of money to another party (i.e., the Client) as BENEFICIARY in the event of nonperformance of a contractual obligation by a third party (i.e., the bidder/contractor) as PRINCIPAL.It is the undertaking of a bank (or insurance or other company) as GUARANTOR to pay a sum of money to another party (i.e., the Client) as BENEFICIARY in the event of nonperformance of a contractual obligation by a third party (i.e., the bidder/contractor) as PRINCIPAL. It is irrevocable, unconditional and payable on first demand. It is irrevocable, unconditional and payable on first demand. It is independent. It is independent. It is subject to the laws of the issuing bank’s country. It is subject to the laws of the issuing bank’s country.

8 Securities Unconditional guarantees (cont.) The World Bank has adopted the ICC’s Uniform Rules on Demand Guarantees (“URDG”) as the basis for bank guarantees in SBDs. The World Bank has adopted the ICC’s Uniform Rules on Demand Guarantees (“URDG”) as the basis for bank guarantees in SBDs. What are the URDG? What are the URDG? Why did the Bank adopt them? Why did the Bank adopt them? Where do we use them? Where do we use them? How do we use them? How do we use them?

9 Securities Performance (surety) bond Issued by surety (insurance or bonding company). Issued by surety (insurance or bonding company). Undertaking to pay contractor’s debt (as opposed to bank’s primary obligation to Employer under demand guarantee) Undertaking to pay contractor’s debt (as opposed to bank’s primary obligation to Employer under demand guarantee) Surety undertakes to pay only upon adjudication or other proof of default in the underlying transaction and only such amount as Employer establishes as being owed Surety undertakes to pay only upon adjudication or other proof of default in the underlying transaction and only such amount as Employer establishes as being owed As alternative to payment, Surety may undertake to: As alternative to payment, Surety may undertake to: Remedy the defectRemedy the defect Step into the defaulting contractor’s shoes and complete performanceStep into the defaulting contractor’s shoes and complete performance Engage a substitute contractor to complete performance.Engage a substitute contractor to complete performance.

10 Securities Irrevocable (stand-by) letter of credit Comes from US banking laws (which forbid US credit institutions from assuming guarantee obligations vis-à-vis third parties). Comes from US banking laws (which forbid US credit institutions from assuming guarantee obligations vis-à-vis third parties). Like a demand guarantee, it is unconditional, irrevocable and payable on first demand, and is independent (i.e., legally separate) from the underlying transaction. Like a demand guarantee, it is unconditional, irrevocable and payable on first demand, and is independent (i.e., legally separate) from the underlying transaction. Basically fulfills the same purpose as a guarantee. Basically fulfills the same purpose as a guarantee.

11 Securities Issuer of security: Bidder/contractor is given choice between : Bidder/contractor is given choice between : a bank/financial institution in the Client’s country.a bank/financial institution in the Client’s country. a financial institution through a “correspondent” bank/ institution in the Client’s country.a financial institution through a “correspondent” bank/ institution in the Client’s country. a foreign bank directly if acceptable to the Client.a foreign bank directly if acceptable to the Client. Issuer must be “reputable.” Issuer must be “reputable.”

12 Securities National Competitive Bidding (NCB) Use of forms available domestically, no mandatory requirements Use of forms available domestically, no mandatory requirements Clients call securities following their domestic procedures. Clients call securities following their domestic procedures. The World Bank has to review acceptability of call in the context of domestic law. The World Bank has to review acceptability of call in the context of domestic law.

13 Securities Bid Security Purpose? Purpose? To secure bidder’s obligation to stand by its bid during bid validity period.To secure bidder’s obligation to stand by its bid during bid validity period. Form? Form? Unconditional bank guarantee or, if Client agrees, unconditional bond issued by financial institutionUnconditional bank guarantee or, if Client agrees, unconditional bond issued by financial institution Bid-securing declarationBid-securing declaration Amount? Amount? As a rule, not to exceed 2%.As a rule, not to exceed 2%. Validity period? Validity period? Twenty-eight days beyond bid validity periodTwenty-eight days beyond bid validity period Evaluation issues Evaluation issues

14 Securities Bid securities (cont.) Evaluation Issues Evaluation Issues “Minor” shortfalls/deficiencies“Minor” shortfalls/deficiencies Joint VenturesJoint Ventures

15 Securities Performance security Purpose? Purpose? To protect Client against breach of contractTo protect Client against breach of contract Form? Form? Unconditional bank guarantee or, for Goods and Works, with Client’s agreement, a surety bondUnconditional bank guarantee or, for Goods and Works, with Client’s agreement, a surety bond Amount? Amount? “Reasonable” – normally 10%“Reasonable” – normally 10% For conditional undertakings, should be 100%For conditional undertakings, should be 100% Subject to substantial reduction as implementation progressesSubject to substantial reduction as implementation progresses

16 Securities Advance payment security Purpose? Purpose? Secures Client against breach of obligation to use advance payment for required contractual purpose.Secures Client against breach of obligation to use advance payment for required contractual purpose. Form? Form? Unconditional bank guarantee, or, for Works, with the Client’s agreement, a bond.Unconditional bank guarantee, or, for Works, with the Client’s agreement, a bond. Amount? Amount? In the amount and currency(ies) of advance payment.In the amount and currency(ies) of advance payment. For consulting services, “normally” required to secure advances in excess of 10%.For consulting services, “normally” required to secure advances in excess of 10%.

17 Conflict of Interest Background 1997 Consultant Guidelines 1997 Consultant Guidelines Far-reaching definition [A] firm hired to provide consulting services for the preparation or implementation of a project, and any of its affiliates, shall be disqualified from subsequently providing goods or works or services related to the initial assignment (other than a continuation of the firm’s earlier consulting services) Difficult implementationDifficult implementation

18 Conflict of Interest 2004 Guidelines revision was intended to differentiate between unfair competitive advantage and conflict of interest. 2004 Guidelines revision was intended to differentiate between unfair competitive advantage and conflict of interest. 2004 Consultant Guidelines (CG), paras. 1.9, 1.10, 4.122004 Consultant Guidelines (CG), paras. 1.9, 1.10, 4.12 2004 Procurement Guidelines (PG), para. 1.08(d)2004 Procurement Guidelines (PG), para. 1.08(d)

19 Conflict of Interest Conflict between consulting services and procurement of goods, works or nonconsulting services (CG 1.9(a), PG 1.8(b)) Examples:Examples: Consultant prepares project design, affiliate bids on project Consultant prepares project design, affiliate bids on project Consultant supervises project being implemented by affiliate Consultant supervises project being implemented by affiliate Solution?Solution? No waiver, no mitigation No waiver, no mitigation

20 Conflict of Interest Conflict among consulting assignments (CG para. 1.9(b)) How to identify? How to identify? Where there is a possibility that the objectivity of advice under one assignment may be influenced by another assignmentWhere there is a possibility that the objectivity of advice under one assignment may be influenced by another assignment Examples: Examples: Consultant drafts TORs, then competes for assignmentConsultant drafts TORs, then competes for assignment Consultant audits its own activitiesConsultant audits its own activities Consultant advises Client on privatization of assets where also representing potential purchaserConsultant advises Client on privatization of assets where also representing potential purchaser Solution? Solution? No waiverNo waiver If conflict of interest situation already exists, one assignment should be dropped or scope redesigned to remove source of conflictIf conflict of interest situation already exists, one assignment should be dropped or scope redesigned to remove source of conflict

21 Conflict of Interest Conflict arising out of relationship with Borrower staff (CG 1.9(c)) Background Background New definition: New definition: Consultants (including their personnel and sub-consultants) that have a business or personal relationship with a member of the Borrower’s staff (or of the project implementing agency’s staff, or of a beneficiary of the loan) who are directly or indirectly involved in any part of: (i) the preparation of the TOR of the contract; (ii) the selection process for such contract; or (iii) supervision of such contractConsultants (including their personnel and sub-consultants) that have a business or personal relationship with a member of the Borrower’s staff (or of the project implementing agency’s staff, or of a beneficiary of the loan) who are directly or indirectly involved in any part of: (i) the preparation of the TOR of the contract; (ii) the selection process for such contract; or (iii) supervision of such contract Solution? Solution? Resolution of conflict in manner acceptable to the World BankResolution of conflict in manner acceptable to the World Bank

22 Conflict of Interest Unfair competitive advantage (CG 1.10) When?When? Often occurs when one consulting assignment follows another, even though there is no substantive conflict (e.g., sector study followed by pilot implementation study) Often occurs when one consulting assignment follows another, even though there is no substantive conflict (e.g., sector study followed by pilot implementation study) Solution?Solution? Borrower must make available to all shortlisted consultants all information that would give the “incumbent” a competitive advantage Borrower must make available to all shortlisted consultants all information that would give the “incumbent” a competitive advantage

23 Conflict of Interest A few other issues A few other issues Government-owned enterprises or institutions in the Borrower’s country (CG 1.11(b) and (c))Government-owned enterprises or institutions in the Borrower’s country (CG 1.11(b) and (c)) Government officials and servants (CG 1.11(d))Government officials and servants (CG 1.11(d)) AffiliatesAffiliates “Chinese walls”“Chinese walls”

24 Misprocurement Policy: The Bank does not finance expenditures for goods, works or services which have not been procured in accordance with the agreed provisions of the legal agreement and as further elaborated in the Procurement Plan. Remedy: In that case, the Bank will declare misprocurement, and it is the policy of the Bank to cancel that portion of the loan allocated to the goods, works or services that have been misprocured.

25 Misprocurement Notice by TTL and declaration by Country Director Misprocurement with cancellation is the policy Misprocurement without cancellation is an exception (RVP decision) provided for in OP/BP 11.00, with reallocation of the funds to other components of the project Misprocurement following World Bank no-objection Misprocurement for not seeking World Bank’s no-objection Distinction between misprocurement, fraud & corruption and non compliance with requirements regarding performance of the contract.

26 THANK YOU!


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