WORLD BANK Contract Negotiations & Contract Management OECS Regional Engineering Workshop St. George’s, Grenada December 2-3, 20013

World Bank Projects and Procurement Environment

World Bank Projects and Procurement Environment OECS The regulatory framework is outdated and requires substantial revision and OECS countries have not adopted PPL’s defining the legislative frameworks for the public procurement; MOF’s regulate the public procurement in accordance with the Finance Audit Acts and they issue Financial Regulations and Procurement and Store Regulations which rule the procurement ; Current procedures and practices do not support and are not conducive to efficient and transparent procurement Significant gaps in the framework contribute to distorting practices and the widespread perception that the system lacks transparency.

World Bank Projects and Procurement Environment Institutions: Central /Public Tender Boards - inviting, considering, rejecting offers for supply of goods, works and services for the governments, ministries, state institutions etc. (they are not policy making and regulatory bodies); Departmental Tender Boards (Grenada, St Lucia ad hoc); CTB’s, MoF’s, or Cabinets approve most of the contracts (low thresholds); delays and reduction of the procurement entities’ ownership and accountability ; There are no independent complaints bodies; bidders may bring law suits - costly and lengthy civil procedures and not used Capacity of the PI/CU’s Procurement Staff: Varies; room for improvement;

World Bank Projects and Procurement Environment Challenges, Actions: Adopt harmonized regulatory framework, national laws and implementing regulations (where applicable); Establish regional and national policy bodies: Establish complaint procedures and independent bodies; Strengthening procurement planning processes; Building up the capacity of procuring entities in carrying out procurement in accordance with the provisions of the PPL; regular procurement trainings, regional procurement workshops, advisory, on the job-training; Improving private sector’s awareness of their obligations and their rights when participating in public tenders

Investment Project Cycle & Contracts Negotiations and Contract Management Country Partnership/Assistance Strategy (CP/AS) Implementation Completion Report (ICR) Project Identification Project Preparation Implementation and Project Supervision The Project Cycle is the framework used by the World Bank to design, prepare, implement and supervise projects.  In practice, the World Bank and the borrowing country work closely throughout the project cycle although they have different roles and responsibilities.  Generally, the duration of the project cycle is long by commercial standards.  It is not uncommon for a project to last over four years, from the time it is identified until the time it is completed. As is illustrated, the project cycle includes six stages: Identification, Preparation, Appraisal, Negotiation/Approval, Implementation, and Evaluation.  A project in one of the first three stages is referred to as in the “Pipeline”.  The Implementation stage may also be referred to as “supervision” since this is when World Bank staff will monitor the implementation of a project. Understanding the project cycle is central to identifying business opportunities.  Pre-Pipeline Prior to initiating projects, the World Bank will undertake a number of studies of development issues at the thematic, country and sector level.  These studies are commonly referred to as Economic and Sector Work (ESW).  ESW is used to improve the Bank’s understanding of development challenges and to promote best practice among staff and on individual projects.  Key documents in the Pre-Pipeline stage are Poverty Reduction Strategy Papers (PRSPs), Country Assistance Strategies (CAS), and Sector Strategies. Identification Based on sector work and country strategies, the World Bank and borrowing countries jointly identify projects that support their development goals.  A project will typically be managed through the relevant government ministry – for example, a project in the health sector will be prepared and implemented by the Ministry of Health. The identification stage can take up to a year and a half.  After a project implementing agency has been identified and appropriate staff have been designated to manage the project, they will conduct pre-feasibility and feasibility studies.  Bank staff will monitor these studies and provide assistance as required.  They will advise the borrowing country on their initial efforts and conduct an “identification mission” to begin detailing key principles and conditions of the project.  Key project documents in the Identification stage include the Monthly Operational Summary (MOS) and the Project Identification Document (PID). Preparation The borrowing country is responsible for project preparation.  During this stage, which can last up to two years, the borrowing country continues to conduct further studies and impact assessments that refine the objectives, components, schedule, institutional responsibility and implementation plan of the project.  The Bank, on the other hand, starts to determine the conditions required for the project to succeed and for the Bank to be satisfied the project will have positive economic, financial, social and environmental impacts.  MOS and PIDs continue to be available during this stage. Appraisal Appraisal is the sole responsibility of Bank staff.  They will review all the studies conducted in previous stages, including the procurement plant that identifies the types and amounts of equipment, goods, civil works and services that will be purchased.  After an “appraisal mission”, the result of the review is described in the Project Appraisal Document (PAD) which provides a detail description of the project and its implementation.  The Appraisal stage often lasts between 3-6 months.  MOS and PIDS continue to be available during this stage. Negotiation and Approval During negotiations, the World Bank and borrowing country will agree on the terms of the loan supporting the project.  Typically, negotiations last about 1-2 months.  Following negotiations, the PAD and other loan/credit documents are sent to the Board of Executive Directors for approval.  A General Procurement Notice (GPN) is sometimes issued by the borrowing country during this stage. Implementation and Supervision After the loan or credit is approved, the borrowing country can use the funds to purchase the goods and services necessary to meet the project’s objectives.  The borrowing country, not the World Bank, is responsible for implementing the project.  At this stage, which can last a number of years, the World Bank’s role is to monitor project implementation to ensure that the terms of the loan/credit agreement are followed and that procurement is conducted according to the World Bank’s guidelines.  GPNs and Specific Procurement Notices (SPNs), and Requests for Expressions of Interest (REIs) are issued by borrowing countries during implementation. Evaluation Following completion of the project, the Bank’s Operations Evaluation Department, conducts an audit of the project, where the project's outcome is measured against its original objectives. The audit entails a review of the project completion report and preparation of a separate report. Both reports are then submitted to the executive directors and the borrower. These reports are not available to the public; however, OED periodically prepares impact evaluations on sets of projects based on these reports. Project Appraisal Loan Approval, Signing And Effectiveness Loan Negotiations

Contractual Relationships LOAN/CREDIT AGREEMENT WORLD BANK IMPLEMENTING AGENCY (Borrowing Country Government) SUPPLIER/ CONTRACTOR BIDDING DOCUMENTS/ CONTRACTS Working for a world free of poverty

Contracts Negotiations Consulting Services: When? - QBS, CQS, SSS, IC (under selection methods where the price is not a factor for selection; - additional services under existing contracts; - No negotiations on rates under QCBS, LCS, FBS; How to prepare and successfully negotiate? Preparation: - Preparation of TOR’s – specifying: the required services and deliverables; realistic times for their implementation and submission; required key-professional staff and time;

Contracts Negotiations Preparation of realistic cost estimate – requires establishment and maintenance of database with consultants’ rates (Percentage of Works? Is it realistic and does it work?) ; Request for Technical and Financial Proposals: Detailed technical proposal should include: approach and detailed work plan and methodology; CV's of the proposed key staff, and staffing schedule;

Contracts Negotiations Financial proposal should include: detailed cost breakdown per activity (deliverable); breakdown of the remuneration (including names, positions, time, unit rate, amount per consultant) and breakdown of the reimbursable expenses; the consultant should also fill in and submit the forms of Appendix 1 of the SRFP. The consultant should also submit a statement that: "the basic salaries indicated in the attached table are taken from the firm’s payroll records and reflect the current salaries of the staff members listed, which have not been raised other than within the normal annual salary increase policy as applied to all the firm’s staff “.

Contracts Negotiations - Contracts with firms: lump sum; time-based - Contracts with individuals: lump sum; time-based Works: When? - Only under Direct Contract, incl. rehabilitation works in response to natural disasters; - Additional works under existing contracts (VO’s); - No negotiations on rates and prices under competitive bidding;

Contracts Negotiations How to prepare and successfully negotiate? Preparation: - Preparation of accurate BoQ and TS; - Realistic prices: maintenance of database with rates of works, including: materials, labor, equipment etc.; Invitation for Bid including priced BoQ, TS, etc. Negotiations: - Contracts: lump sum; time-based Goods: similar to works; under DC

Contract Management Contract Management is the process that goes on through the entire duration of the contract and ensures that the objectives of the contract (supply of goods, delivery of services or execution of works) are met in a timely fashion and value for money is achieved.

Contract Management A successful procurement does not mean only a timely and “clean” bidding or selection process because most of the challenges and risks occur during the contract implementation stage: Risks related to costs (cost overruns); Risks related to time (delays of the implementation of the contract); Risks related to the objective of the contract (jeopardize the delivery or compromise the quality of the output).

Contract Management

Contract Management Reactive vs. Proactive - attitudes towards risks   There are two possible ways to deal with the potential problems or events that may occur during the implementation of a contract: The reactive approach – responding to problems after they occur. The best we can hope is to limit the extent of the damage that has already been produced (damage control). The proactive approach – anticipating the problems (by going through the steps described below – identify, analyze and address risks) and taking precautionary actions to prevent them from happening.

Contract Management Three approaches:   “In-house” contract management means that the contract may entirely be managed by the implementing agency alone; “Full Outsourcing” means that the contract management should entirely be entrusted to specialized firms, contracted by the implementing agency. “In-house + Outsourcing” means that the contract may be managed by the staff of the implementing agency, supported (in various degrees) by outside experts.

Contract Management

Contract Management – Red Flags front-loading – the contractor performs more expensive activities at the beginning of the contract, thus putting the contract at risk of incompletion as a significant part of the contract amount has already been disbursed; frequent change orders / variation requests especially with regard to items with high rates and prices; requests for subcontracting, especially to firms that took part in the bidding process and were rejected or offered higher prices; deliberate use of unqualified supervisors by the Engineer or Project Manager; failure to report any deviations from the contract; substitution of consultants by less qualified of inexperienced replacements; failure to use proper project management tools in order to hide cost overruns and make actual progress of works impossible to determine; poor filing and records (missing invoices, timesheets, logs, deliverables, supporting documents etc.).

Contract Management Step by Step Internal arrangements: Kick-off meeting with the supplier/contractor/consultant but also with other important stakeholders (if applicable – designers of specifications, Engineer, Project Manager, end users and beneficiaries of the goods, services or civil works, local community etc.) Processing advance payments/verification of advance payment guarantee and performance security: Verification of insurance policies Checking proper mobilization of the supplier/contractor/consultant (financial resources, manpower, plant, equipment, deployment on site, site facilities etc.);

Contract Management Step by Step Inspections and tests (where applicable) Quality control and rejection of non-compliant inputs Health & safety and environmental protection issues Use of adequate project management tools for time and cost control (especially useful for civil works contracts)

Contract Management Step by Step

Contract Management Step by Step Changes in quantities (change orders, variation orders) Price adjustment Use of Provisional Sums or contingencies Review and approval of payment applications Time control Remedies against non-performing contractors: Acceptance / Taking Over Certificate Warranty / Defects Liability Period Final Acceptance / Performance Certificate Termination of Contract Claims and settlement of disputes

Thank You!