Role of Public Procurement Oversight Authority in Promoting Good Procurement Practices Presentation to World Bank conference on Beating Corruption and Promoting Governance and Accountability in the Health Sector Nigel Shipman Chief of Party ARD, Inc

Four Pillars of a Good Public Procurement System Developed in 2005 by OECD and World Bank ◦ Pillar I: Legislative and regulatory framework ◦ Pillar II: Institutional framework and management capacity ◦ Pillar III: Procurement operations and market practices ◦ Pillar IV: The integrity of the public procurement system 2

Pillar I: Legislative and regulatory framework Kenya ◦ Public Procurement and Disposal Act, 2005 ◦ Based on UNCITRAL Model Law on Procurement ◦ Provides for decentralization of procurement operations but subject to central regulation and oversight 3

Objectives of PPD Act Maximize economy and efficiency ◦ Aggregation ◦ Value for money ◦ Contracts to be made with qualified suppliers Promote competition and ensure competitors are treated fairly ◦ Open tendering 4

Objectives of PPD Act Promote integrity and fairness of procurement procedures – Corrupt and fraudulent practices and collusion among bidders made offences – Technical requirements based on required performance and on national or international standards – Evaluation based on criteria in tender documents Increase transparency and accountability – Advertisement of bid opportunities – Public opening of bids – Disclosure of grounds for contract award 5

Objectives of PPD Act Increase public confidence in procurement procedures Promote local industry and economic development ◦ Preference and reservation schemes 6

Pillar I: Legislative and regulatory framework Implementing regulations, documentation and supporting tools – Public Procurement and Disposal Regulations, 2006 – Act and Regulations came into effect on 1 st January 2007 – Public Procurement and Disposal General Manual issued March 2009 – Various sector manuals (including Public Procurement Manual for Health Sector), User Guide and Bidders’ Guidelines issued – Standard Tender Documents and Forms – Guidelines on particular requirements, e.g. use of framework contracting 7

Pillar II: Institutional framework and management capacity Public Procurement Oversight Authority (PPOA) –Ensures compliance –Monitors procurement system and reports to Minister of Finance –Supports operations by Preparing manuals and standard documents Providing advice and assistance Supporting training and professional development Issuing directions to procuring entities (PE) Ensuring PE staffed by procurement professionals –Initiates policy and propose amendments to Act and Regulations Mainstreaming and integration into Public Financial Management System 8

Pillar II: Institutional framework and management capacity Accounting Officer (Head of PE) primarily responsible for ensuring PE fulfils its obligations Procurement Unit staffed by qualified professionals Institutional development capacity ◦ Capacity building strategy ◦ Training and capacity development for PE staff and potential bidders ◦ Supplies Management Practitioners Act, 2007 ◦ High value contracts to reported to PPOA ◦ PPOA’s monitoring function being stepped up 9

Pillar III: Procurement operations and market practices Functionality of the public procurement market ◦ List of registered suppliers updated annually ◦ Fair and equal rotation ◦ Debarment of unsatisfactory bidders and contractors ◦ Regulations on Public Private Partnerships issued in

Pillar III: Procurement operations and market practices Contract administration and dispute resolution ◦ Contract management procedures set out in General Manual ◦ Late payments ◦ Control of contract variations 11

Pillar IV: The integrity of the public procurement system Existence of effective control and audit systems ◦ Monitoring of performance through procurement reviews and assessments ◦ Internal audits ◦ Audits by Controller and Auditor-General ◦ Enforcement/sanctions against breach 12

Pillar IV: The integrity of the public procurement system Efficient appeals mechanism ◦ Notification of contract award sent simultaneously to successful and unsuccessful bidders ◦ Dissatisfied bidders may appeal to Public Procurement Administrative Review Board before written contract made ◦ Appeal from Review Board to High Court 13

Pillar IV: The integrity of the public procurement system Access to information ◦ Procurement review reports published on PPOA website ◦ Community monitoring Ethics and anti-corruption measures ◦ Public Officer Ethics Act, 2003 ◦ Anti-Corruption and Economic Crimes Act, 2003  Kenya Anti-Corruption Commission ◦ Code of Ethics for procurement ◦ Integrity declaration for bidders 14

Kenya’s compliance with good procurement practices PPD Act and Regulations provide effective legal framework ◦ Amendments to bring closer to international best practice Institutional framework in place ◦ Need for strengthened capacity and better resources Improved monitoring and stronger enforcement Break culture of impunity 15

Public procurement system is under attack 16

What differentiates health from other areas of public procurement? Value and range of procurements Specialised products with limited sources of supply Patented products may necessitate high use of direct procurement Doctors’ professional preferences Emergencies give rise to unplanned requirements that change budgeted priorities: ◦ Natural disasters ◦ Epidemics 17

Hospital and clinic requirements Pharmaceuticals Medical devices Specialised equipment General non-medical supplies 18

Pharmaceuticals One of largest items in health budget ◦ Accounts for about one-fifth of health spending, on average, in OECD countries ◦ Kenya  Total pharmaceutical expenditure KES15.85bn (US$229mn) in 2008  Estimated to rise to KES31.13bn (US$522mn) by 2013 Source: Business Monitor International Kenya Pharmaceuticals and Healthcare Report Q

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Counterfeit medicines 2005 random survey by the National Quality Control Laboratories (NQCL) and the Pharmacy and Poisons Board found that almost 30% of drugs in Kenya were counterfeit ◦ Some of the drugs were no more than chalk or water marketed as legitimate pharmaceutical products. ◦ According to Kenyan Association of Pharmaceutical Industry, counterfeit pharmaceutical products account for sales of approximately $130 million annually 21

Access to medicines Access to medicines depends on ◦ Regulation: ◦ Transparent Licensing ◦ Affordable prices ◦ Control of Spurious/Sub Standard drugs ◦ Good procurement practices ◦ Sustainable financing ◦ Reliable supply chain systems, including efficient transportation networks ◦ Rational selection and use of medicines (Branded/Generic) 22

Medical devices Broad range of products including: ◦ Examination gloves ◦ Bandages ◦ Oxygen ◦ Intravenous products ◦ Infusion devices ◦ Peritoneal dialysis solutions Often bought in specialized pre-packed standard kits 23

Medical devices Medical devices also susceptible to counterfeiting ◦ 6%-8% of the total medical device market comprised of counterfeit goods (WHO) ◦ Fake medical devices may have incorrect components or materials or be made from cheaper, inferior quality or even toxic materials 24

Medical devices Procured through competition but certain problem areas: ◦ Oxygen  Modes of delivery  Compressed oxygen gas cylinders  Liquid oxygen cylinders  Bulk oxygen delivered to Vacuum Insulated Evaporator (VIE) high pressure cryogenic liquid storage tank  On-site oxygen generation 25

Specialised medical equipment Broad range of products including: ◦ Laboratory equipment ◦ Diagnostic equipment ◦ Defibrillators ◦ Electrocardiography ◦ Operating theatre equipment ◦ Hospital furniture ◦ Radiology equipment 26

Specialised medical equipment Issues of concern: ◦ Limited number of manufacturers ◦ Doctor preferences for familiar product may preclude proper product evaluation 27

Procurement of specialised medical equipment Treat high-value exceptional purchases differently from low-value and routine purchases Maximise competition subject to supplier capabilities Build installation, servicing and annual maintenance for high value/complex equipment If sourcing from overseas sources, ensure local service and maintenance capabilities 28

General non-medical supplies Vary in cost and sophistication: ◦ IT hardware and software ◦ Vehicles ◦ Office supplies Normal procurement principles should apply 29

Effective procurement for the health sector Same principles apply as for general procurement ◦ Plan requirements and ensure availability of budget ◦ Use open competition wherever practicable ◦ Seek value for money with particular focus on high value items ◦ Fairness, transparency and right to redress Rationalize drug procurement based on WHO list and generics Develop contingency plans for emergency procurements ◦ Framework contracts can cover unexpected needs and ensure quality and price for decentralized procurement 30