March 2011
Helping or hindering?
Procurement, tied aid and
the use of country systems
in Bangladesh
By Bodo Ellmers
Eurodad
The European Network on Debt and Development is a
specialist network analysing and advocating on official
development finance policies. It has 58 member groups in
19 countries. Its roles are to:
• research complex development finance policy issues
• synthesise and exchange NGO and official information
and intelligence
• facilitate meetings and processes which improve
concerted advocacy action by NGOs across Europe and
in the South.
Eurodad pushes for policies that support pro-poor
and democratically-defined sustainable development
strategies. We support the empowerment of Southern
people to chart their own path towards development
and ending poverty. We seek appropriate development
financing, a lasting and sustainable solution to the debt
crisis and a stable international financial system conducive
to development.
www.eurodad.org
VOICE
VOICE is a rights-based, activist organisation working
mainly on the issues of food sovereignty, aid effectiveness,
economic justice, and the right to information and
communication, both in Bangladesh and on a global scale.
By building a broader constituency of alternative voices to
the ‘mainstream development discourse’ through research
and public education, VOICE is taking a stand against unjust
and undemocratic practices.
www.voicebd.org
Acknowledgments
Special thanks to Ahmed Swapan Mahmud, Farjana
Akter and Farhana Akter from VOICE for hosting this
research project in Bangladesh, for their hospitality and
all the logistical and intellectual support. Ahmed Swapan
Mahmud, Penny Davies and Nuria Molina reviewed the
draft and gave useful feedback. Clare Birkett and Kirsten
Ehrich edited the report.
This research project was made possible through a grant
from the Bill and Melinda Gates Foundation. The approach
and conclusions are Eurodad’s own.
Helping or hindering?
Procurement, tied aid and the use of
country systems in Bangladesh
Contents
page
Executive summary
2
Introduction
5
1. Development and poverty reduction in
Bangladesh
8
2. Financing for development
10
3. Public procurement reform in Bangladesh –
who drives it, and in which direction? 16
4. Donors’ parallel procurement
24
Conclusions and recommendations
32
Acronyms
35
Annexes
36
Bibliography
38
Endnotes
39
1
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
Executive summary
Procurement is a key economic and political
activity of governments and aid agencies.
Besides being a simple act of purchase, it is
a development tool, translating development
finance into developmental outcomes.
Research by Eurodad has identified
shortcomings in procurement practices of
both developing countries and aid agencies as
key constraints to making aid more effective.
Indeed, international aid effectiveness
agreements, such as the Paris Declaration (PD)
and the Accra Agenda for Action (AAA), contain
a large number of commitments in this area. In
particular, donors committed to using country
procurement systems as the first option, and
developing countries committed to strengthen
them. Donors also committed to making further
progress in untying their aid, and moving
towards local and regional procurement.
This country case study on procurement, tied
aid and the use of country systems assesses
whether donors and the government of
Bangladesh have made progress towards their
commitments on this crucial area under the PD
and the AAA.
2
on designing that framework.
Civil society organisations (CSOs) and experts
consulted for this research expressed concerns
about the absence of a meaningful and
participatory debate throughout the reform
process where CSOs and other stakeholders
could have put forward their views on how
public procurement could be used to support
pro-poor and equitable development.
The World Bank’s procurement reform
blueprints are heavily biased, favouring
international competitive bidding (ICB) for
public procurement. This is because the World
Bank is mainly concerned with opening new
markets for their member states (some of which
are far more competitive than others), cost
efficiency from a narrow project perspective
rather than from a broader development
effectiveness perspective, and an accountable
use of World Bank loans- accountable to the
owners and shareholders of the World Bank.
This report finds that the Government of
Bangladesh has indeed implemented a large
number of reforms since 2005, including a
procurement law (Public Procurement Act of
2006), the establishment of devoted institutions
to deal with public procurement (the Central
Procurement Technical Unit), and capacity
building of relevant staff (training of more than
2500 procurement officers).
Donors (and in particular the World Bank)
set the priorities for reforms, which include
developing technical skills, increasing the
transparency and accountability of the
procurement process, and liberalisation of
procurement policies. Although Bangladesh
chose to apply the price preferences of the
UN Commission on International Trade Law’s
(UNCITRAL) model law to promote domestic
industries, in Bangladesh, procurement laws
largely fail to align to the social, environmental
and poverty reduction objectives pursued by
the national development plans.
However, although reforms have been largely
welcomed by local stakeholders, this research
found that the process lacked leadership and
ownership by national actors. In fact, the
recommendations made in the World Bank’s
2002 Country Procurement Assessment Report
acted as a very close blueprint for the reforms.
Bangladesh has consequently aligned its
procurement policies and practices to those of
the World Bank, which is a perversion of the
alignment principle. The new procurement
system now sets the criteria that determine
how public monies in Bangladesh are spent,
which goes well beyond what the country
receives in aid. Bangladeshi citizens and
taxpayers, however, have had little influence
Strikingly, while donors were keen to push
for procurement reforms in Bangladesh, they
have not delivered what they committed to do.
Strengthened country systems were supposed
to pave the way for them ending their use
of their own procurement systems- parallel
implementation units (PIUs) when spending
aid. But no single donor has moved towards
providing budget support or substantially
increasing their use of Bangladesh’s
procurement systems. Most donors still use
PIUs that apply procurement regulations set
at headquarter level. The World Bank (WB)
and the Asian Development Bank (ADB)
still attach procurement conditions to their
loans that contradict the country’s rules and
In Bangladesh,
procurement laws
largely fail to align to the
social, environmental
and poverty reduction
objectives pursued
by the national
development plans.
regulations. Just one bilateral donor, the Danish
International Development Agency, has made a
systematic effort to use the country systems as
the first option, including through addressing
their internal constraints.
With regards to untying aid, progress has been
more promising. Most donors have phased out
formal aid tying in line with the Organisation
for Economic Co-operation and Development
(OECD) agreements. However, this does not
hold for technical assistance, which is still
perceived to be largely tied. Expensive and often
inadequate foreign consultancies still increase
the costs of development projects, distort the
local labour market, and create incentives for
corruption because highly-paid consultants in
ministries and projects create demands from
less well endowed public service officers they
work with.
Recommendations to the
Government of Bangladesh:
The Government of Bangladesh should:
the
• implement
Act, strengthen
Right to Information
the Anti-Corruption
Commission and ensure its independence
the lead in public procurement
• take
the full range of policy options
• Consider
reforms, align its procurement policies and
in its procurement policy, and award
systems with the objectives stated in its
national development strategy, in broad
consultation with citizens.
contracts to those firms which are bestsuited for the nation’s sustainable and
equitable development.
transparency and accountability of
• improve
public procurement to promote
• Use
procurement policy reforms. It is primarily
innovation and socioeconomic aims,
Bangladeshi citizens and taxpayers’ money
that is concerned, so citizens, citizen groups
and their representatives (parliamentarians)
must be better consulted and included in
the reform processes.
in and increase the capacities and
• invest
skills of the procurement committees and
officers based on identified shortcomings
and improve procurement officers’
awareness and skills for sustainable public
procurement and pro-poor procurement,
including through tailored training
modules.
public its procurement plans so that
• make
they are known and accessible and can be
including by considering social and
environmental criteria in tendering and
contracting awards
Recommendations to donors:
Donors and IFIs should:
on their commitments made in the
• deliver
Paris Declaration and the Accra Agenda for
Action by using the Bangladeshi country
procurement systems as a first option for
all Official Development Assistance (ODA)
provided to the government sector in
Bangladesh.
monitored by stakeholders.
3
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
in building the capacities of the
• assist
Bangladeshi procurement system without
imposing conditions or biased technical
advice. All assistance should be tailored
to Bangladesh’s needs as identified in selfassessments, using self-defined assessment
methodologies and criteria.
Where donors are still using their own parallel
procurement systems, they should:
•
4
end all practices of formal and informal aid
tying, including for food aid and technical
assistance, and reduce entry barriers for
Bangladeshi firms and consultants, e.g.
through tendering in smaller lots, sized to
be manageable by domestic firms, through
advertising all tenders locally and in
Bangla, and removing restrictive eligibility
criteria that disadvantage domestic firms.
Donors should provide an explanation
when they award contracts back to their
own countries’ firms and consultants.
preferential treatment, in particular to
• give
small and medium enterprises, and firms
based in structurally weak areas. They
should also consider social, environmental
and gender criteria in tender evaluations.
Donors and recipients should ensure compliance
with international law and standards through
debarring all firms that violate human rights
and social or environmental standards from
ODA-financed activities. They should also
prevent unfair competition and create an
enabling environment for domestic resource
mobilisation by debarring firms that evade
taxes or are registered in tax havens.
Introduction
Procurement, tied aid and the use of country
systems has been a crucial issue throughout
negotiations
surrounding
international
declarations to improve aid effectiveness
during the last decade. In 2001, the OECD’s
Development Assistance Committee approved
a set of Recommendations on Untying ODA
to the Least Developed Countries in order to
address a major scandal of the contemporary
aid regime: the fact that many donors require
recipient countries to use aid monies to buy
goods and services from donor countries’
companies and businesses.
Two years later, governments gathered
in Rome to address some of the main
challenges undermining the aid effectiveness.
They acknowledged that by using different
procedures for development aid, donors
were imposing a heavy bureaucratic burden
on recipient countries. The Rome Declaration
thus contains a set of actions to harmonise
such procedures, including in the area of aid
agency procurement, the purchase of supplies
or contracting of works for their development
projects.1
In 2005 over one hundred countries and
international organisations signed the Paris
Declaration (PD) in an effort to further improve
aid effectiveness. The Declaration acknowledges
that for effective aid, it is crucial that developing
countries take the driver’s seat in their own
development processes and policies, and the
donors’ role is simply to support their efforts.
The Declaration thus puts ownership as the
first of all aid effectiveness principles. It also
requires donors to phase out PIUs, and phase
in the use of recipient countries’ own systems,
including the procurement systems. Recipients
and donors jointly committed to reforming
and strengthening these systems, under the
leadership of the former. The AAA further
strengthened these commitments by requiring
donors to use country systems as the first
option for all aid disbursements. Moreover, the
AAA brought untying aid back to the official
agenda, as the 2001 DAC Recommendations
were severely lacking: they excluded technical
assistance and food aid.2 Tied aid, a practice
widely used by many donors for many years,
entirely flows back to the donor country thus
making no significant contribution to the
recipient countries economic development, job
creation and capital accumulation.
Public procurement is more than a simple
act of purchase by governments. It is a major
economic activity and it accounts for the
largest share of government spending besides
wages. It can also be used as a public policy
tool to foster particular economic and social
outcomes. Procurement practices determine
the ultimate destination and beneficiary of a
large share of public spending.
Eurodad and CSOs in the South with whom
Eurodad works closely, have therefore identified
public and aid agency procurement as key areas
of development effectiveness. Together with
CSOs from aid recipient countries, Eurodad has
conducted a research project comprising seven
case studies in Africa, Latin America and Asia
which will feed into a synthesis report to inform
advocacy by CSOs and other stakeholders
towards the Fourth High-Level Forum on Aid
Effectiveness in Busan in 2011, and beyond.
In Bangladesh, public procurement accounts
for 70 percent of the national development
budget.3 Citizens should therefore take a
particular interest in how their money is spent,
and whether it is effectively contributing to
equitable and sustainable development. The
underlying procurement policies and practices
are crucial to determining these outcomes.
Public procurement as share of the
development budget
30%
70%
Through public procurement
Other
5
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
Most
developing
countries,
including
Bangladesh, have recently reformed these
policies and practices, strongly influenced by
the aid effectiveness reform agenda and also
foreign actors, in particular the World Bank.
Donors and development banks greatly finance
the development budget in Bangladesh, hence
their concerns about the functionality and
accountability of the country’s procurement
systems. Economic interests also play a role
because different governments strive to obtain
lucrative contracts for their companies.
Given the importance of procurement for
development purposes in Bangladesh, Eurodad
and VOICE decided to conduct this case study
on public and aid agency procurement to
analyse whether donors and the Government
of Bangladesh are complying with the
commitments made in the international
aid effectiveness
agreements. However,
our analysis goes beyond the official aid
effectiveness agenda: it looks at whether
procurement reforms over the past decade
were truly owned and led by relevant local
stakeholders, and assesses to what extent
these reforms have reflected local needs and
priorities, or those of the donors. Key questions
in this debate are: what are the developmental
and distributional impacts of public and aid
agency procurement, and has policy reform in
Bangladesh contributed to improving pro-poor
and positive distributional impacts?
How can procurement work for
development?
Public procurement is the largest share of
government spending besides wages, it is
therefore a key area for good governance.
Governments bear the responsibility for
spending their citizens’ money transparently
and accountably in the national interest. A
smooth and functional procurement process is
key for ensuring smooth and timely delivery of
public services, regardless if it is for providing
medicines for public hospitals or textbooks for
public schools. The provision or maintenance
of physical infrastructure such as public roads,
railways and electricity grids is one of the most
“procurement-heavy” public activities because
most of the construction works are contracted
out to private firms.
Because of the large amounts of money
involved, procurement practices have enormous
developmental and distributional impacts. The
potential of well-designed procurement policies
to contribute to Bangladesh’s development
aims are huge. It is therefore crucial that they
are fully aligned to support development aims.
Procurement practices
determine the ultimate
destination and beneficiary
of foreign aid.
Through targeted procurement, the government
can channel funds into critical areas for pro-poor
growth, and procurement policies and tender
specifications can for instance contribute to
the development of local small and medium
enterprise (SME) by boosting demand for their
products and services. Procurement outcomes
also have an impact on macroeconomic
stability. In particular the distribution on
local purchases and imports has significant
implications on the balance of payments and
ultimately financial stability and foreign debt
levels, as foreign exchange is a scarce resource
for least developed countries (LDCs).
Public procurement can even promote
social protection through conditions set
in procurement regulations and tender
6
Donors are often
pressured from business
lobby groups in their
countries to award them
contracts which are paid
with aid resources. This is
concerning as commercial
interests from donor
countries can divert
the poverty eradication
rationale of aid.
specifications, such as obligations for contracted
firms to pay at least the minimal wages and
comply with core labour standards, in order to
create jobs that are decent. Last but not least,
governments can also promote environmental
protection through setting the right criteria in
procurement policies and tender specifications
that create incentives for private firms to
comply with environmental laws.
Foreign aid agencies and development banks
can improve the effectiveness of aid by using
recipient countries’ procurement systems for
disbursements. Using these systems helps
strengthening them and thus contributes to
better spending of all public resources, including
those beyond aid. It also reduces transaction
costs because the numerous donor parallel
structures can be phased out. Moreover, it
improves ownership and alignment of aid and
recipients’ control over aid spending.4
Most importantly, using country procurement
systems has the potential to dramatically
increase the share of aid that is actually spent
and retained in developing countries. Research
conducted for the Paris Monitoring Survey
found that when donors procure themselves,
the majority of contracts go to their home
country firms.5 Donors are often pressured from
business lobby groups in their to award them
contracts which are paid with aid resources.
This is concerning as commercial interests
from donor countries can divert the poverty
eradication rationale of aid that European
donors have committed to comply with. Using
country systems of recipient countries has the
potential to boost the share of contract awards
for local firms because the decision-making is
handed over to the recipient side. It is thus a
driver for job creation, for capital accumulation,
and for the recipient countries’ sustainable
economic development.
3%
70%
7
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
1: Development and poverty reduction in
Bangladesh
In the last decade, Bangladesh achieved
economic growth rates of at least 5 per cent,
which increased the average per capita income
to US$ 690 by 2009. The global financial crisis
which started in 2007 had little impact on the
country, due to a low integration of the financial
sector in the global financial markets. Migrant
remittances and export revenue temporarily
decreased, but high growth rates were largely
maintained.
The share of the population that lives below the
national poverty line declined from 57 percent
in the early nineties to 40 percent in 2005, yet
Bangladesh is still classified as a low-income
country by the World Bank. 56 million people
are estimated to live in poverty, 35 million
of which are extremely poor. In Bangladesh,
inequality increased over the past decade as
income growth was not evenly distributed, with
women in particular most affected by extreme
poverty.6
Bangladesh still falls under the UN’s category
of Least Developed Countries (LDCs), which
indicates a low level of human development.
Indicators of human poverty such as life
expectancy at birth, infant mortality rate,
population having access to drinking water, and
adult literacy rate have however shown some
improvements in recent years and Bangladesh
is expected to reach most of the MDGs on
time. The UNDP concedes that Bangladesh is
among the developing countries that made
most progress recently against the Human
Development Index, from a very low level.7
Contrary to most other LDCs, Bangladesh is not
commodity dependent. It is currently the world’s
second largest producer of textile products
after China. The garment industry is currently
the cornerstone of industrial development and
accounts for three quarters of export revenue.
The government aims to increased economic
diversification and progress had been made
towards establishing new industries and driving
innovation.
Foreign investment is, however, often attracted
by extremely low wages. Even after a recent
doubling in 2010, the minimal wage in the
garment industry is only 3000 Taka (€ 31) per
month, much below the realistic living wage for
a family in Bangladesh of just over 10,000 Taka
8
(€ 104) per month, which some employers still
refuse to pay.8 While the official unemployment
rate is low, the majority of the workforce is in
informal employment and lives on subsistence
wages. Working conditions are poor in many
areas, and far from complying with minimum
standards of decent work.9
The EU is still the most important destination
for Bangladesh’s exports and thus the most
important source of foreign exchange.
However, with the emergence of new economic
powers within the region, this picture is slowly
changing. Bangladesh’s economic relations
with China and India are gaining importance,
so is South-South Cooperation in the field of
development. Bangladesh is a strategic partner
for China and India, and an important transit
country for their goods. Chinese and Indian
companies also increasingly win market shares
in Bangladesh, including in the government
procurement market.
In spite of partial successes in industrialisation,
the majority of the population is still primarily
dependent on agriculture for a living, making
the poor in Bangladesh even more vulnerable
to the consequences of climate change. This
aggravates the unfavourable geographic
situation: much of the land is not far above
sea
In Bangladesh,
inequality increased
over the past decade
as income growth
was not evenly
distributed.
level and Bangladesh may receive substantial
amounts of cross-border climate finance in
future. Challenges in making climate finance
effective are similar to those faced with ODA.10
Bangladesh’s development
framework
Bangladesh is a multiparty democracy, and
the most relevant political parties pursue
a development agenda to drive the nation
forward. In fact, Bangladesh has seen a
proliferation of development plans recently,
partly due to pressure from donors – and in
particular the World Bank – in the wake of the
aid effectiveness declarations. The current longterm Bangladeshi development strategy is the
“Outline Perspective Plan”, valid for the period
from 2010-2021, published in a draft version
in June 2010. It aims to elevate Bangladesh
to a middle-income country with a per capita
income of US$ 2000 by 2021 through boosting
the growth rate to 8 percent GDP by 2015 and
10 percent by 2021. 11
The provision of electricity plays a major role
in the plan, as well as driving innovation in the
fields of technology. On the social and human
development side, the plan aims, among other
goals, to raise the admission rate for primary
level education to 100 percent by 2021, and to
free Bangladesh from illiteracy by 2014.12
The long-term plan is supposed to be
implemented via two five year plans and via
the currently ongoing Second National Strategy
The national
development strategy
does not contain much
guidance for the role of
procurement policies
and practices, which
should be considered
a cross-cutting issue
of high relevance for
most if not all economic
areas.
for Accelerated Poverty Reduction (NSAPR
II). Our interviewees indicated that NSAPR II
has been developed in wide consultations,
including with CSOs, and has been supported
by foreign consultants. Its development was
“due to the pressure of the World Bank” said
one respondent, but the owner is still the
government.
The NSAPR II pursues a pro-poor growth
development strategy in order to fight
poverty. It is structured in five strategic blocks
and five supporting strategies. The national
development strategy does not contain much
guidance for the role of procurement policies
and practices, which should be considered a
cross-cutting issue of high relevance for most if
not all economic areas.
Strategic blocks:
Supporting strategies:
1. macroeconomic environment for pro-poor
growth
2. critical areas for pro-poor growth; including
SME development and promoting decent
employment
3. essential infrastructure for pro-poor
growth
4. social protection for the vulnerable
5. human development.
1. ensuring participation, social inclusion,
and empowerment
2. promoting good governance
3. ensuring efficient delivery of public
services
4. caring for environment and tackling climate
change
5. enhancing productivity and efficiency
through science and technology.
Source: Government of the People’s Republic of Bangladesh (2009): National Strategy for Accelerated
Poverty Reduction II, FY 2009-2011; Executive Summary
9
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
2: Financing for development
Bangladesh is not an aid dependent country.
ODA accounts for roughly 2 percent of GDPwell below the LDC average. As a source of
foreign exchange, ODA comes only third,
dwarfed by export revenues and remittances
of Bangladeshis living and working abroad.
Nevertheless, for the development budget,
ODA still fills a funding gap. The Government
of Bangladesh (GoB) estimates the costs of
implementing the NSAPR II at Taka 2,814.81bn
for the three years of the duration of the
plan. While domestic resources are supposed
to contribute the largest share of this, using
domestic resources alone would leave a
funding gap estimated at Taka 874.84 bn
(US$ 12.50bn). Therefore, Bangladesh needs
external funding of US$ 4.5bn per year13 to
implement the development plan. It currently
only receives about US$ 2bn to US$ 2.5bn in
ODA annually, which would fill roughly only half
of the funding gap.
Regarding the government’s strategy on
external resource mobilisation, the Awami
League government which came into office in
2009 has recently changed its funding strategy.
While the original strategy highlighted the need
to attract more foreign investment and work
in public-private partnerships, a presentation
by the Planning Commission at the 2010
Bangladesh Development Forum pointed out
the potential for mobilising more domestic
revenue for development financing. Tax revenue
2061
is currently low, at only 11 percent of GDP,
below the global average and other countries in
the region. An increase to 13.6 percent of GDP
could fill the funding gap and thus reduce the
dependency on foreign capital, according to Dr.
Shamsul Alam from the Planning Commission
in his address to the Development Forum.14
However, this implies widening the tax base
and the productive capacities it builds on, and
reducing tax evasion and avoidance.
Aid effectiveness in Bangladesh –
a brief history
The desire to mobilise more domestic resources
in Bangladesh might be triggered by challenges
in relying on foreign financing for development.
Private capital flows are unpredictable and
difficult to focus on developmental purposes
because they are largely outside the public
control. Aid can have a very positive impact on
development, but only if handled effectively.
Despite improvements in the aid regime in
recent years; it does however still suffer from
numerous flaws: ODA remains an unpredictable
source of development funding: officers from
the Ministry of Finance’s Economic Relations
Department (ERD) interviewed for this study
pointed out that while the government itself
is shifting to 5-year-financing planning, it has
difficulties predicting donor contributions.
Furthermore, ODA is still not transparent, and
Sources of foreign financing for
development in Bangladesh in 2009
(in US$ million)
Export revenue
17017
Remittances
10523
Official Development Assistance net
2061
Foreign Direct Investment
716
Net transfers on external debt
207
External Debt Outstanding (long-term)
19980
International Reserves
10225
10
Official Development Assistance to Bangladesh 2006-2008
Receipts
2006
2007
2008
Net ODA (US$ million) 1220
1515
2061
Bilateral share (gross
ODA)
39%
46%
41%
Net ODA/GNI
1.80%
2.10%
2.40%
99
636
Net private flows (US$ 42
million)
Source OECD DAC Country Fact Sheet Bangladesh
is thus difficult to budget for, in particular for
grants and technical assistance. The latter is
often provided “in kind” or as tied aid.
Aid financing also boosts the costs of
development projects, said Prof. Anu
Muhammad, a political activist and university
professor at Dhaka’s Jahangirnagar University
who critically monitored aid relations in
Bangladesh for decades: “When aid is involved,
the prices go up. A key reason is the high wages of
consultants – and donors’ conditions to employ
them whether they are needed or not.” He also
highlighted the challenges faced when operating
with foreign funds whose providers cannot be
held to account for commitments made: “There
are enormous gaps between commitments
and disbursements. Consequently, many aidfunded projects remain uncompleted.” The
more donors and development banks involved,
the more cumbersome and time-consuming
becomes the planning process: “Decisionmaking could be faster and easier if foreign aid
weren’t there”, concludes Muhammad.
Budget support is one of the ways to ensure
alignment of donor support to the priorities
outlined in the national development strategy.
Budget support to Bangladesh is, however,
close to zero. According to the Economic
Relations Department, Bangladesh does
receive some budget support from the World
Bank (International Development AssociationIDA) and the Asian Development Bank, but it
generally comes in the form of loans not grants.
The two largest EU donors, the European
Commission and the United Kingdom, for
which budget support is the prevalent way
of providing ODA to other countries, do not
provide any to Bangladesh.
Officials from the GoB interviewed for this
study indicated that under the current aid
regime there are few incentives to use budget
support because donors attach too many
conditions which somewhat outdo the benefits
that this modality provides in terms of lower
transaction costs – and supposedly more policy
space, ownership and easier alignment to
Bangladesh’s own spending priorities.
Moreover, Bangladesh is receiving increasingly
more of its ODA as loans rather than grants: in
2000, it received twice as much ODA in loans
than in grants. The World Bank (IDA) and the
Asian Development Bank (ADB) are traditionally
the two largest multilateral donors, and Japan
and the UK are the most important bilateral
development partners (DPs).
Budget support is one
of the ways to ensure
alignment of donor
support to the priorities
outlined in the national
development strategy.
Budget support to
Bangladesh is, however,
close to zero.
11
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
The financial support of the World Bank
(WB) and the ADB is mostly channelled to
infrastructure sectors, where procurement
processes are particularly relevant. ODA is
mostly channelled to “power” and “transport”,
followed by “public administration.”15 The
latter includes the larger programmes for
strengthening procurement systems.
Recent aid affectiveness reforms in
Bangladesh – a success story?
The aid effectiveness agenda has had positive
effects on how the GoB and donors handle aid.
Since the approval of the Paris Declaration,
“Development Partners are very smooth and
cooperative”, said a government source. The
first step to implement Paris commitments was
the Harmonisation Action Plan of 2006; however
implementation did not really start until 2008,
when the GoB and 18 multilateral and bilateral
donors started drafting the Joint Cooperation
Strategy (JCS). The JCS acknowledges that the
traditional aid regime did not work well and
needed to be reformed: “We the GoB and its
DPs, recognise the need to change the way we
do business to better address the development
challenges in Bangladesh. Making aid more
effective is necessary to ensure that our efforts
jointly contribute to accelerate the pace at
which poverty is reduced, vulnerabilities
lessened and opportunities increased for all.”16
Aid practitioners interviewed, however,
criticised that this JCS is not easy to translate
into practice. In other countries, a JCS is a tool
for the government to manage the donors.
In Bangladesh, there is a lack of ownership.
Also from the donors’ side, there is limited
commitment to the JCS approach: One
interviewee stressed that: “The drivers of Joint
Cooperation Strategies are not here.” It was
mostly the Nordic+ donors that pushed this
approach in other aid-receiving countries.
However, the Paris Declaration has changed
the mindset of donors. While coordination
previously took place through somewhat
random meetings, there is now a more
organised mechanism of high level collective
dialogue. The heads of offices meet regularly,
and the implementation of the JCS is overseen
by an Executive Committee of seven donors,
12
chaired by the World Bank’s Country Director.
Collective dialogue under the Local Consultative
Group (LCS) mechanism is expected to lead to
improved mutual accountability.17 Non-state
actors such as parliamentarians and CSOs are
however not systematically included in these
dialogues, their access is limited and often
simply window dressing. According to aid
practitioners interviewed, the government
of Bangladesh is not keen on enhancing civil
society participation.
The UNDP’s aid effectiveness expert K.A.M.
Morshed from the UNDP argues that when it
comes to the implementation of international
agreements “Bangladesh has ticked all the
boxes,” and that the JCS was a positive
change in the way that the GoB and donor
countries cooperate. But he also warns that
harmonisation among donors is not what is
needed most in Bangladesh: it is alignment
to Bangladesh’s own national development
strategies and country systems that is really
needed. He also opines that aid effectiveness is
a donor-driven agenda. The recipients’ agenda
is clearly development effectiveness, the strive
for real developmental outcomes, to which aid
can only make a contribution.
Overall in Bangladesh
the use of donor
systems remains the
default option for
most donors, and the
number of parallel
implementation
units has actually
increased.
While many interviewees raised that there
is currently a good momentum for reform
in Bangladesh, expectations were low as it
may take time for all stakeholders to absorb
aid effectiveness principles. However, some
positive steps are already taking place. In 2010
at the Bangladesh Development Cooperation
Forum, GoB and donors agreed on a set of
action points to promote alignment.18 To start
with, aid to health and education – currently
fragmented and channelled through PIUs by
a large number of donors – may soon change
to a programme-based approach or even
sector budget support. Such a move would
be particularly helpful in enhancing the use
of country systems, as budget support, by
definition, uses country systems.
Use of country public financial management and procurement systems
Aid
disbursed to
government
sector
(US$mn)
Use of Public Financial
Management System in %
Use of Procurement System
in %
2007
2005
2007
2005
2007
Asian
427
Development Bank
100
100
62
76
Canada
11
0
0
0
0
Denmark
26
0
0
9
99
European
Commission
4
100
23
87
0
Germany
30
16
41
0
62
Global Fund
15
67
67
0
70
IFAD
13
100
44
100
100
Japan
53
59
49
29
49
Korea
7
--
31
--
31
Netherlands
15
100
19
100
19
Norway
2
67
42
100
42
United Kingdom
66
100
15
100
17
United Nations
102
74
80
5
0
United States
32
--
0
--
0
World Bank
714
33
82
56
78
Total
1518
53
77
48
66
World Bank
714
33
82
56
78
Total
1518
53
77
48
66
Source: OECD (2008): 2008 Survey on Monitoring the Paris Declaration, p. 3-9
13
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
Are Bangladesh’s procurement
systems being used?
In the Accra Agenda for Action, donors agreed
“to use country (Public Financial Management
– PFM – and procurement) systems as the
first option for aid programmes in support
of activities managed by the public sector.”
They also committed to transparently state
the rationale in cases where they choose
aid delivery mechanisms outside of country
systems.19
The JCS showed improvements in the use
of country systems; however, overall in
Bangladesh the use of donor systems remains
the default option for most donors, and the
number of parallel implementation units has
actually increased. The authors also note with
concern that budget support has decreased and
thus the share of programme-based approaches
in total ODA. The JCS contains a commitment
to working together on strengthening country
systems. On using them, however, donors
simply committed to “align with GoB’s policies
and strategies and increase the use of GoB
systems and procedures according to the
individual mandate and country strategy, if
any, of each DP.”20 This indicates that the way
that aid is provided to Bangladesh is still largely
determined by donors.
Recent data on using country systems is
unfortunately not available. The most recent
comprehensive dataset, the 2008 Paris
Monitoring Survey, indicates that there has
been some progress: the share of aid that uses
country systems rose from 2005 to 2007, from
53 percent to 77 percent in the case of public
financial management, and from 48 percent
to 66 percent as concerns procurement. This
data should be handled with care, however,
since reporting to the Paris Monitoring Survey
is voluntary, the worst performers usually
abstain from doing so. The data that was finally
published in the 2008 Paris Monitoring Survey
also deviates quite substantially with drafts that
were shared with us by donors in countries.
These calculated the share of ODA disbursed
through the country procurement system at
well below 50%.
14
DANIDA (Danish International Development
Assistance) is one of the rare European bilateral
donors that has taken the commitment to use
country systems as the first option seriously.
Together with the UNDP’s Procurement Capacity
Development Centre, DANIDA conducted an
assessment of the constraints in aligning to
country systems on both sides, those of the
GoB and DANIDA’s programme itself.21 After
taking some risk-mitigating measures, the use
of country systems has been massively scaled
up. DANIDA sources indicate that 95 percent of
their Bangladesh programme uses the country
procurement system; only consultants are
frequently contracted by the donor. Mogens
Strunge Larsen, a procurement expert and longstanding member of the OECD Task Force on
Procurement, stresses that local auditors feel
quite uncomfortable when donor procurement
rules are used because they don’t understand
them.
He highlights why Denmark might be an
exception in its use of country systems in
Bangladesh; he notes that Bangladesh is a
special case in that there EU bilateral donors
work primarily with and through local and
international NGOs, which naturally constrains
the use of the recipient country’s public systems,
so it is mainly just the multilateral development
banks (MDBs) and the UN organisations that
work directly with the GoB and use the country’s
systems. Moreover, the reform agenda towards
using country systems was primarily driven
by the Nordic+ country group, which has a
relatively weak presence in Bangladesh – and is
further decreasing as a result of cross-country
division of labour agreements. “The drivers
of the country systems agenda are not here,”
Larsen said. While Denmark has placed DANIDA
staff in government implementation units as
safeguard, he admits that even for DANIDA
“procurement is a rare case of alignment.”
The United Kingdom’s Department for
International Development (DFID), a driver of
the country systems agenda, is very present
in Bangladesh. However, despite official
commitments, a representative of a smaller
European non-governmental organisation
(NGO) that operates in Bangladesh with a DFID
grant stated that DFID insisted on procuring
cars for their programme rather than leaving
it to the NGO’s country office. Even support to
NGOs could use the (NGO) country system but
there seems to be some reluctance by foreign
donors to let this happen.
The European Commission, for some developing
countries an important provider of budget
support, does not use Bangladesh’s systems
at all- as illustrated by the table. Staff of the
Delegation of the European Union interviewed
for this study confirmed this, saying that the
percentage of their portfolio that uses country
system is “almost nothing when you apply the
full OECD criteria.” They are however keen to
improve and scale-up alignment, including
through moving to sector budget support in
the education sector.
They also declare that “waving our procurement
rules is not an option yet.” Local recipients can
apply stricter, but not less strict rules than
those of the European Commission.
The UN Development Programme’s (UNDP)
portfolio is usually divided into projects under
direct execution (by the UNDP) and national
execution (by the Member State); where the
latter would imply using country systems. For
the UNDP, the share under direct execution is
currently higher than they want it to be, as the
GoB has repeatedly asked the UNDP to procure
because the national executers are simply
overburdened.
K.A.M Morshed from the UNDP argues
that it is easiest if the government does its
construction work in-house. In more technical
terms: single sources from the Public Works
Department. The Public Works Department of
Bangladesh22 was the key executer for public
infrastructure projects and the construction of
government buildings in Bangladesh since the
colonial era. However, its role has decreased
somewhat due to pressure from International
Financial Institutions to privatise state-owned
enterprises. Now, most public works must be
procured from – that is contracted out to –
private firms, which is often a more burdensome
process.
The World Bank recognises that using
country systems as well as harmonisation of
procurement practices are a major challenge
for donors in Bangladesh. Harmonisation is
badly needed to reduce the complexity of
the system, reduce transaction costs and the
workload for all players involved. But there is
some reluctance to do so: The general notion
of donors is, as one interviewee from the donor
group put it: “We come with our money and say
here is our rule – follow it.” On the other hand,
there needs to be more trust in the system,
and there is still a need to improve the system
in order to build that trust. The World Bank is
obviously keen to assist.
15
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
3. Public procurement reform in Bangladesh:
Who drives it, and in which direction?
Public procurement reforms –
A complete overhaul
Under the Paris Declaration and the Accra
Agenda for Action, developing countries
agreed to take leadership and undertake
procurement reforms where necessary. They
committed to allocating sufficient resources
for such reforms and to promoting capacity
development. Donors, in turn, committed to
providing development assistance for capacitybuilding.23
ODA to the PFM sector
Other donors
United Kingdom
European Commission
World Bank
65.6
Following the signature of the Paris Declaration
in 2005, DAC donors have provided a great
deal of financial assistance to public financial
management (PFM) programmes. Between
2006 and 2009, almost US$ 300mn of ODA
was spent on the PFM sector in Bangladesh,
which includes the public procurement reform
programmes. The largest donors here were the
World Bank, United Kingdom, and the European
Commission.
2006
The World Bank is the lead agency for
procurement reforms. Back in 2002, the World
Bank conducted the Country Procurement
Assessment Report (CPAR), which scrutinised
the procurement system from the Bank’s
perspective. The CPAR recommended that the
GoB, among others, should:
2007
51.9
45.7
136.4
a Central Procurement Policy Unit
• create
responsible for procurement policy, rules
54.9
and procedures,
the transparency of the
• increase
procurement process by introducing a
2008
review mechanism, and
•
16
21.6
make contract awards above a certain
threshold public.
As regards governing procurement by
legislation, the CPAR states: “the Government
of Bangladesh was of the view that the
introduction of a law may only contribute to
further delay in the procurement process due
to intervention of courts … The Bank agreed
that considering the urgency for implementing
the other reforms, this issue may be deferred,
until action on the rest of the recommendations
is completed.”24
58.8
2009
49.1
Stages of public
procurement reforms
➔
2002: World Bank Country
Procurement Assessment Report
(CPAR)
➔
2003-2007: First Public Procurement
Reform Project (PPRP I)
Central Procurement Technical
Unit (CPTU)
capacity building
Procurement regulations
Public Procurement Law
➔
2007-2013: Second Public
Procurement Reform Project (PPRP II)
communication and behavioural
change campaign
installation of an e-procurement
system
enhancement of the Procurement
Management Capacity
Donor dominance of the new legal
framework
Following the CPAR, Bangladesh solicited
a Technical Assistance Credit from IDA and
launched Bangladesh’s first large Public
Procurement Reform Project (PPRP I), which
the World Bank describes as “a programme
of the Government of Bangladesh with
World Bank assistance.” The first phase, the
implementation of which was completed in
2007, mainly focused on legislation and the
regulatory framework. In 2003, Procurement
Regulations were passed, and in 2006 the
Public Procurement Law followed. The two-
step-process was strategically pushed by the
World Bank, which was aware of the political
sensitivities in this field. The idea was, one
interviewee explained, “let them start with the
regulation and when they are sensitised we can
have a law.”
It is unclear, though, to what extent the process
of drafting the procurement law was fully
owned and led by the GoB and relevant local
stakeholders, thus responding to the countries’
aspirations and needs. The ERD confirmed
that the procurement regulations came “with
consent from Development Partners“, the
UNDP states that the Act was “reviewed” by the
World Bank and the ADB; and Iftekhar Zaman,
the director of Transparency International
Bangladesh concludes that: “there is an issue
of ownership, it was driven by the World Bank
… The government and the people wanted it,
however.”
The development of the procurement policy
follows a common trend of lack of ownership
45.7
in national law-making.
Prof. Anu Muhammad
highlighted that “There are very few policies
in country that have been drafted without the
guidance of consultants, and without satisfying
donors’ needs“. He adds that politicians in
Bangladesh always try to please the donor
community: the ministers themselves have
little technical knowledge, which foreign
groups use as an opportunity to further their
interests. Members of parliaments are rarely
consulted. However, if they were, they would
face difficulties in engaging in highly technical
debates.
The strong influence of the World Bank to a
large extent determined the outcome of the
procurement process. Procurement experts
interviewed for this study confirmed that the
procurement practices of Bangladesh are now
quite harmonised with those of the World Bank
and the ADB. This, however, is not the intention
of alignment, which should put the nation’s
priorities first.
Despite the questionable ownership of the law,
interviewees from all stakeholders groups –
MDBs, bilateral donors, GoB, and CSOs – saw
this law as one of the main strengths of the
procurement reform process. Some, however,
also pointed out that it may be too complicated
17
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
and complex given the weak capacities and
skills of the procurement entities and officers
involved. One interviewee noted that “the
government finds it now difficult to procure”,
and the United Nations’ Common Assessment
believes that “the introduction of the new
public procurement policies designed to limit
the scope for corruption in the implementation
of foreign funded projects has created
disincentives to spend.”25
This may be the main reason for a recent
conflict between the GoB and the donor
community, in particular with the World Bank
and the ADB. After the new government
entered office, it tried to make some changes
in the law that the WB and the ADB did not
favour. Specifically, the GoB introduced the rule
that below a certain threshold, the contractors
would not require experience, a measure that
potentially increases competition and makes it
easier for newly established SMEs to access the
government procurement market.
But most importantly, the Awami League
government has waived the procurement
rules for the power sector, claiming that this
would speed up implementation of projects.
The energy crisis is a major problem for the
people of Bangladesh and a key development
constraint for the fast-growing economy.
Solving the energy crisis has been a central
element of the Awami League’s election
campaign and is now a key goal of the national
development strategy. It is consequently a
question of political credibility for the current
government.
However, the larger infrastructure projects are
dependent on World Bank and ADB loans, and
the banks insist that their criteria as reflected
in the 2007 procurement law are met. The
ADB has formally filed six objections against
the procurement reforms as implemented by
the GoB (see Annex). Even the EU delegation
complained about recent reforms aiming at
speeding up contracting; for instance, by raising
the threshold allowed for direct contracting.
Diplomats of the EU delegation argued that
this creates huge incentives for rent-seeking
in the course of recent reforms. Generally, “all
checks and balances have been thrown out of
the window.” While some of the government’s
18
If there are conflicts
between donor
regulations and the
Bangladeshi law, donor
rules will apply.
reforms may indeed be controversial – some
of our CSO interviewees criticised some details
too – it is clear that ownership of procurement
legislation reform is not very well received
by the donor community. In borderline cases
where domestic ownership is in conflict
with accountability to foreign actors, donors
prioritise the latter.
Lack of alignment to country systems and
priorities is also shown in cases of conflict
between donor and Bangladeshi law. The ERD
pointed out that in-built in the procurement
law is the controversial clause that if there are
conflicts between donor regulations and the
Bangladeshi law, donor rules will apply. This
shows the power imbalances in the aid regime
which is still donor-dominated to a large
extent.
Institution and capacity building
On the institutional side, the main outcome of
the PPRP was to set up the Central Procurement
Technical Unit (CPTU) to regulate procurement,
within the Ministry of Planning as suggested
by the World Bank’ s 2002 CPAR.26 The CPTU is
responsible for monitoring compliance with the
procurement Act; proposing amendments to
the Act; and issuing guidance and instructions
regarding its implementation, among other
aims.
Lastly, the first phase of the PPRP included a
larger capacity building component: 25 trainers
were trained in a three week training session
at the International Labour Organisation (ILO)hosted International Training Centre in Turin.
However, training was primarily in line with
the World Bank’s procurement guidelines, as
one of the participants we interviewed pointed
out, not the sustainable public procurement
approach as developed by the UN Environment
Programme (UNEP) and the ILO itself. All in all,
2,200 staff were trained under PPRP I. They
mainly received a standard training. Acquiring
the skills for socially and environmentally
responsible procurement is for the future,
indicates the World Bank.
Assessment and diagnostic
To assess the quality of the procurement
system, the CPTU developed its own tool:
the Procurement Performance Monitoring
System. With 45 performance indicators, it
goes beyond the methodology usually used
by the World Bank and the OECD. But, as the
CPTU rushed to confirm, it is “on the basis of
the OECD methodology, of course.” In any case,
Bangladesh now finally has the tools to conduct
self-assessments of the procurement system.
The World Bank is no longer conducting the
Country Procurement Assessment Reports
(CPAR) in Bangladesh, but it has kept a
significant gatekeeper position. The European
Commission’s Indicative Programme for
Bangladesh notes for instance to undertake
“actions in partnership with other donors
in support of public finance management
reforms that may include … procurement
systems ... The scope for EC involvement will
be determined following, notably, the WB’s
Review of Institutional Arrangements for
Public Expenditure, Financial Management
and Procurement.”27 This shows that the World
Bank tools and mechanisms, rather than the
tools of the recipient countries themselves,
highly influence other donors’ decisions.
From 2007 and until 2013, Bangladesh will
implement the second phase of the Public
Procurement Reform Project (PPRP II). The
new programme is also funded through an IDA
loan, and is mainly implemented by the CPTU.
It is supposed to enhance the Procurement
Management Capacity, install an e-procurement
system and run a nation-wide communication
and behavioural change campaign in order to
improve compliance with the procurement
law and the regulations. The fact that the
PPRPs were and are funded by loans indicates
ownership, according to the World Bank: “The
international community should see that
this country is borrowing money to do these
reforms.”
Progress made so far. Lack of capacity
to make the most of strengthened
procurement systems.
According to World Bank experts interviewed
for this study, “the government is making good
progress in the procurement area.” DANIDA’s
Mogens Strunge Larsen also acknowledges
that the procurement reform has progressed
tremendously: “The system is up and running.”
However, capacity development remains a
challenge due to staff turnover. Indeed, Alex Fox,
the ADB’s procurement expert in Bangladesh,
highlights the findings from a study on public
services in Bangladesh that found that proper
staffing (and appropriate pay) is still an issue,
as there is still a lack of incentives for good
performance and not always merit-based staff
selection and promotion.28 Eurodad suggests
that donors could mitigate this situation by,
for example, providing more General budget
support (GBS) to the government so it is able
to scale up its wage bill, rather than fund
expensive consultants.29
The World Bank identified the challenge posed
by political interference in awarding contracts
and corruption. In this regard, they pointed
out that the Anti Corruption Commission30
remains under-resourced and is consequently
a “toothless tiger.” Moreover, the procurement
process remains bureaucracy-ridden; there are
too many committees involved, and too many
levels of approval. This leads to serious delays
and increases the risk of corruption.
According to Alex Fox from the ADB, the move
towards e-procurement would help a great
deal to increase transparency and reduce the
delays.
Foreign donors’ verdicts are partly confirmed
by the GoB itself- more precisely by the Central
19
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
Procurement Technical Unit. They identified
the new procurement regulations and law as
the main strengths of the current procurement
system- they are easily understandable and
address the different steps of the procurement
cycle. There are, however, weaknesses, in
particular with regards to implementation.
Throughout the procurement system, there
is a lack of capacities and skills. Some of the
capacity shortages are now being addressed
through the capacity-building components of
the PPRP II.
The CPTU in the meantime has launched a
country-wide awareness raising campaign
aiming to promote compliance with the
procurement law and regulations. This
campaign is also supposed to enable citizens
including the poorest to monitor public
procurement. This campaign, however, focuses
on the GoB’s own procurement. It will not
qualify and empower Bangladeshi citizens
to monitor aid agency procurement which
largely takes place outside of country systems
and does not follow the rules established in
the local Act and Regulations. Ahmed Swapan
from VOICE stresses that no programme or
campaign exists to monitor aid agencies.
Both government and donors are reluctant
to engage citizens and transparency remains
limited. Neither donors nor the government
have convened a public meeting in regard to aid
agreements. Citizens sometimes get to know
basic information from media outlets, but the
only aid data transparency mechanism is the
yearly review published by ERD, and even that
does not contain information on procurement
and contract awards.
Giving preferential treatment in
procurement
Governments can use procurement policies
both to incentivise positive socio-economic
outcomes (positive approach) and to discourage
negative outcomes (negative approach). The
“positive” approach to procurement policies
entails channelling public monies to desired
sectors or economic actors through preferential
treatment or set asides. This method is
often used to develop national industries, in
particular small and medium enterprises. Such
methods are used in many countries, developed
and developing countries alike. The USA for
example reserves (sets aside) some contracts
for SMEs, Namibia gives preferential treatment
to firms run by disadvantaged social groups.31
The “negative” approach entails debarring
economically and socially irresponsible actors
from the procurement process (“blacklisting”),
thereby excluding them from the large
government procurement market.
In Bangladesh, the CPTU highlights that the
award criteria in public procurement are
Capacity
development
remains a challenge
due to staff
turnover.
20
disclosed, transparent and clear, since they
are clearly spelled out in the procurement law,
regulations or tender specifications- the lowest
price is the key criteria. In ICB, Bangladeshi
procurement laws allow for a price preference,
which is given to domestic bidders in order to
increase the share of Bangladeshi monies that
go to local firms. This preference amounts to 15
percent for supplies and 7.5 percent for works.
These types of provisions are encouraged, for
instance, by the UNCITRAL model law, which
states that the rationale for such a margin of
preference is that “the Model Law provides the
enacting State with a mechanism for balancing
the objectives of international participation
in procurement proceedings and fostering
national industrial capacity, without resorting
to purely domestic procurement”32 (Article
26).
The CPTU keeps no record of how often exactly
national competitive bidding (NCB) or ICB is
used. Their estimation is that the breakdown
should be approximately 70 percent NCB versus
30 percent ICB. If donor monies are involved,
national laws do not have priority over those
agreed in the financial agreement negotiated
between the GoB and the donors. The CPTU
states that there are financing constraints for
contracting foreign firms since: “this often
depends on foreign currency availability.”
The law contains additional methods to regulate
procurement. §64 of the Act is a safeguard
mechanism, which allows the debarring of firms
that have been involved in corrupt, fraudulent
or collusive practices.
The law requires generally that firms have
a tax registration to be eligible for bidding.
This measure somehow ensures that the
government will be able to tax the economic
activity of the companies benefiting from public
awards, thus enhancing domestic resource
mobilisation. However, the law does not
contain thorough provisions that could allow
the government to use procurement policies
to encourage pro-poor social and economic
outcomes. Neither are social or environmental
criteria considered in the law. Only tender
specifications for larger projects allow such
criteria. Quality aspects or life-cycle costs of
supplies do not play a major consideration
either. An IFI procurement expert interviewed
summarised the situation: “meet the immediate
need first and don’t care about the future.”
Furthermore, procurement regulations do not
contain provisions that ensure the greatest
effort towards poverty eradication. Other
countries in the North and South apply price
preferences or set asides to benefit neglected
regions or people. In Bangladesh this is not
the case. Moreover, the outcomes of public
procurement, the distribution in contract
awards to local or foreign economic actors, to
small and medium enterprises or transnational
corporations, are largely unknown. No
institution systematically monitors and analyses
the results of public procurement. However,
procurement results are to a large extent
influenced by foreign donors: not only because
they influenced the regulatory framework for
procurement, the law and regulations, but also
because when donor grants or MDB loans are
involved, foreign interventions can directly
influence individual evaluations and contract
awards.
Prof. Anu Muhammad highlighted the case of
power plant projects and the new seaport in
Chittagong that are partly funded with loans
from the ADB and the World Bank. Tender
documents were reviewed by the World Bank
which applies conditions and eligibility criteria
that de facto favour foreign firms, such as the
requirement that bidders have experience
in more than two countries. Such criteria de
facto exclude most local enterprises from the
large share of the government procurement
market in Bangladesh that is funded with
World Bank loans. These are in particular
the larger infrastructure projects. This places
constraints on the development of indigenous
(construction) industries, limits job creation and
leads to substantial outflows of scarce foreign
currency because foreign firms use more foreign
supplies and labour and repatriate their profits.
He concludes that World Bank procurement is
biased: “In general, the World Bank is against
local companies. Unless a foreign firm gets the
contract, they create problems.” To change
that, he recommends that measures should
be taken which make it easier for local firms to
21
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
compete. For example, all tender documents
should be in Bangla, and widely circulated in
nationally accessible channels in order to reach
out, as much as possible, to national socioeconomic actors.
Transparency and accountability
Transparency throughout the procurement
cycle has improved tremendously over recent
years. All larger tenders and contract awards are
now being published on the CPTU’s website.33
Increased transparency should help curbing
corruption. Still, Bangladesh scores badly
in Transparency International’s Corruption
Perception Index, 134th out of 178 countries.34
“A major avenue for corruption is collusion,”
says Iftekhar Zaman, the executive director
of Transparency International’s Bangladesh
chapter (TIB): “Those who should ensure
accountability are directly involved in the
procurement process,” which can create
conflicts of interest. To ensure greater
transparency, the parliament should play an
important supervisory role. However, according
“We have excellent
Acts but a different
thing is to enforce
them.”
Iftekhar Zaman
22
to TIB, 55 percent of the parliamentarians also
have “business” as their key profession, and a
substantial share of them might be dependent
on public sector contracts.
Corruption has been identified as a major
development constraint. The new government
which came into office two years ago was
consequently elected with a clear mandate
to fight corruption. It can build on a complex
legal and institutional framework that includes,
among others the Right to Information Act,
the Whistleblower Act, the Public-Private
Committee for Procurement Watch, the
Anti Corruption Commission and last but
not least the largely free, critical and active
media. Iftekhar Zaman states: “the media in
Bangladesh has played a prominent role; it has
placed corruption in the political discourse.”
However, compliance and implementation of
anti-corruption laws remains a key challenge.
Zaman says that “we have excellent Acts but a
different thing is to enforce them.” Moreover,
there is still no ombudsman for complaints and
appeals, although such an institution is provided
for in the constitution. TIB also advocated for
the introduction of an Integrity Pact, a voluntary
but binding method of social accountability to
be undersigned by all key stakeholders of the
public procurement process, government and
private bidders.35 The lack of transparency and
the inherent risks of corruption remain also a
key challenge for donor agencies themselves.
Very few donors proactively disclose relevant
information on their own aid agencies’
procurement. This makes it difficult to access
tender information and thus to access business
opportunities. It is also difficult to hold them
to account, for citizens in donor and recipient
countries alike. Tendering and contract
awards of the government of Bangladesh
are nowadays more transparent than, for
instance, those of EuropeAid. The World Bank
does not live up to the highest standards of
transparency either. One interviewee said:
“They (the WB) work like a fortress”; even
though we fear that “they are still imposing
policies,” it is hard for external stakeholders
to assess to what extent they are influencing
national decision-making because most
negotiations and policy dialogues still takes
place behind closed doors. Moreover, due
to their immunity, it is nearly impossible
for the local jurisdiction to hold the World
Bank to account for any harmful outcomes.
Consequently, CSOs strongly suspect that the
World Bank is “still imposing the policies.”
Lastly, the aid regime itself is a driver of
corruption itself, says Prof. Anu Muhammad.
The implications of overpaid consultants
sitting in ministries and local agencies
are manifold and potentially devastating.
Former government officials interviewed
for this study confirmed that the presence
of highly-paid consultants next to low-paid
public service officers incentivises the latter
to increase their income through less legal
and legitimate means – including using
their power to influence tender evaluations,
among other means. Public service officers
query why they should be financially worse
“When you spend US$
2000 on a consultant that
is not needed, is that not
corruption?”
Prof. Anu Muhammad
off than the consultants who advise them.
Corruption can therefore take many different
forms. Prof. Muhammad, echoing popular
sentiment in Bangladesh, expressed: “when
you spend US$ 2000 on a consultant that
is not needed, is that not corruption?” This
issue is not limited to foreign consultants, as
when local consultants are hired by donors,
they effectively shift their accountability
channels from the local government to the
donor. Consultancy reports are mostly not
published; they are not made for public
scrutiny or knowledge transfer.
23
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
4. Donors’ parallel procurement
Using country systems as the first option is an
obligation under the current aid effectiveness
commitments in the PD and AAA. However,
as the previous chapters have shown, many
donors still use their own systems- parallel
implementation units (PIUs) for development
projects and programmes. Procurement is in
such cases conducted by donors themselves,
either by dedicated staff in PIUs and country
offices or even far away from the actual point
of implementation, by the headquarters.
The Paris Declaration and the Accra Agenda for
Action also contain commitments for donors
regarding their parallel procurement systems.
These include:
their procurement policies in
• harmonising
order to reduce the administrative burden
for all players involved,
away from headquarter
• moving
procurement towards local and regional
procurement, and
continued progress towards
• making
untying aid.
These commitments are supposed to make sure
that more aid actually flows to and is retained
by recipient countries, and to increase the cost
efficiency of aid.
The OECD calculated that tying ODA to the
condition that supplies are purchased from
donor country firms can increase the costs by
15 to 30 percent. It can even be up to 40 percent
in the case of food aid.36 HQ level procurement
structurally favours large donor country firms
and consultancy companies which count on
specialised staff and often even liaison offices at
the aid agency headquarters, to do tenders. The
lack of harmonisation of donor procurement
policies to recipient country systems makes it
very difficult for local firms, in particular for
SMEs, to win contracts. Procurement guidelines
are complex and technically challenging; the
sheer volume of technical information they
have to digest is simply beyond their skills and
capacities.
Bangladesh maintains aid relations with a large
number of multilateral and bilateral donors so
it is impossible to analyse all their procurement
24
policies and practices in this country case
study.37 Therefore, this study focuses on three
of the most important donors to Bangladesh:
the European Commission, the World Bank and
the ADB.38
Harmonisation is still a challenge
The EU delegation in Bangladesh pointed at
the challenges that donors are facing regarding
harmonisation: “Procurement policies are
defined by constituencies in the donor country,
which makes harmonisation very difficult.” The
lack of harmonisation put severe constraints on
the operations in the field. The latest EC country
Strategy Paper states that even a successful HIV
project was not replicated due to the inability
to reconcile EC and UN Population Fund UNFPA
procurement rules.39 This experience points
again to the fact that using country systems
makes harmonisation unnecessary. The ERD
stated that roughly 30 percent of donors
align their systems to those of the country
when it comes to national bidding; however,
international bidding is still conducted through
parallel systems. In any case, MDBs do not align
to country systems.
Developing domestic industries?
It is widely acknowledged that procurement
decisions can have an enormous impact for
developing industries. For many enterprises,
government contracts account for the bulk
of demand for their products and services.
Developing domestic industries is therefore a
guiding principle of procurement policy. In the
case of the World Bank it is the fourth principle
to guide its procurement , besides economy,
efficiency and transparency. In order to promote
this development policy goal, both the World
Bank and the ADB procurement guidelines
allow for price preferences for domestic firms
from the borrower country, applied under ICB.
A margin of 7.5 percent is added for works, and
15 percent for supplies. This is also supposed
to create a level field between domestic and
foreign firms since the latter often profit from
economies of scale, better and cheaper access
to finance, and other structural competitive
advantages.
However, the MDBs still evaluate the costs of
imported supplies on a net of taxes and duties
basis. This implies that, when developing
countries take ADB loans to fund their projects,
they must undermine their own trade policies.
For some products, the import duties/tariffs
may be higher than 15 percent so in such
cases the foreign suppliers are still better off
when ADB rules including their preferences are
applied than when the GoB procures through
its own system and applies its own national
rules.
For the ADB, national rules are only allowed
in NCB; that is, usually only for tenders
below a threshold of US$ 1mn (works) or
US$ 500,000 (supplies). Under ICB only ADB
rules and guidelines are permitted. Alex Fox,
the Procurement Specialist at the ADB in
Bangladesh states that the local executing
agencies are often wary of ADB’s rules and
guidelines. Bangladesh’s executing agencies
often want to cut the project into smaller lots
so that they can tender under NCB. However
the ADB prefers tender packages to be as large
as possible to achieve greater efficiency and
to make them more attractive to international
suppliers, which in turn promotes more
competition. Therefore, the ADB prefers the
ICB procurement method.
Asian Development Bank contract awards Nov 2009 until Oct 2010
All contracts
contracts awarded to
Bangladeshi firms
Month
No. amount in US$
No.
Amount in
US$
November
2009
13
10
32,272,444.28 68.99
13,152,234.25
49,050,057
46,779,334.43
contracts awarded to other
countries in the South
Share
Amount in US$
of total
amount of
contracts
%
contracts awarded to
other DAC countries
Share
of total
contracts
%
Amount in US$
Share
of total
contracts
%
28.12
1,354,655.90
2.90
Dec 20090
4
58,808,208.94
2
9,758,151.94
16.59
83.41
-
-
January
2010
0
0.00
0
0.00
-
-
-
-
-
February
2010
2
2,489,753.72
2
2,489,753.72
100
-
-
-
-
March
2010
1
1,009,555.01
1
1,009,555.01
100
-
-
-
-
April 2010
2
14,441,050.15
1
1,253,385.51
8.68
13,187,664.64
91.32
-
-
May 2010
1
1,442,387.77
1
1,442,387.77
100.00
-
-
-
-
Jun 2010
7
57,023,085.90
3
5,695,124.94
9.99
4,029,649.65
7.07
47,298,311.31
82.95
Jul 2010
0
0.00
0
$0.00
-
-
-
-
-
August
2010
1
1,060,552.25
0
$0.00
-
1,060,552.25
100
-
100
5,712,488.63
3
5,712,488.63
100
-
-
-
200
55.73
7,473,803.
44.27
-
300
87.953,960,79
42.77
48,652,967.21
23.66
September
2010
October
2010
4
16,881,279.33
2
9,407,476.33
Total:
38
205,647,696.13
25
69,040,768.13 33.57
Source: ADB Contract Awards Database
25
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
Generally, the perception of interviewees on
donor procurement was that large projects
still go to foreign firms, in particular when they
are financed by the World Bank and the ADB.
This is not the case for development projects
funded by the GoB’s own domestic resources,
where contracts are mostly awarded to local
firms. In this regard, the added-value of
concessional funding provided by the MDBs,
with lower interest rates and generous grace
periods and maturities, is undermined by the
many conditions attached, in particular those
related to procurement which imply that a large
amount of the loan is spent on imports from
foreign countries or is repatriated by foreign
corporations and consultants.
An analysis of ADB contract awards shows that,
while the majority of contracts for ADB-funded
projects in Bangladesh went to domestic firms,
larger contracts overwhelmingly go to foreign
firms. Over the past year the ADB has awarded
38 contracts, of which 25 or two thirds were
won by domestic firms. However, these
contracts represented only one third of the
total contract volume.
Suppliers from emerging economic powers in
Asia increasingly dominate the government
procurement market – as far as it was
funded by the ADB, and ADB conditions and
procedures apply. In particular Indian and
Chinese companies have become so dominant
that an ADB procurement expert noted: “ICB in
practice really means bidding from India and
China.”
The EU delegation also confirmed that their
service contracts of above EUR 1mn almost
always go to the large international firms. This
is due to the high technical requirements:
“you must have staff in the company devoted
to doing tenders, and only the largest ones
can afford this.” Still, according to the staff of
the delegation, they see no reason to simplify
the rules: “It is a matter of getting them (the
smaller local companies) trained.”
The World Bank awarded 366 larger contracts
worth in total more than US$ 1.2bn over the
past decade in Bangladesh, of which 60 percent
went to domestic firms and 40 percent to
foreign firms. The share of contracts awarded
26
Over the past year the
ADB has awarded 38
contracts, of which
25 or two thirds were
won by domestic firms.
However, these contracts
represented only one
third of the total contract
volume.
to domestic firms is higher than in other cases,
for instance in Africa, but lower than in Latin
America.
The World Bank and the ADB provide
development financing in form of loans
denominated in foreign exchange. These loans
have concessional terms but have to be paid
back in foreign currency. For this reason, it
is all the more important that their funding
contributes to developing productive capacities
and is to the greatest extent retained by the
borrower country. Only increased productive
capacities can later generate the additional tax
revenue that is needed to pay back the loan.
And the more foreign currency flows out to pay
foreign contractors and imported supplies, the
more difficult it is for the GoB to mobilise the
foreign currency needed to service external
debt.
The fact that the MDBs often provide loans
instead of grants could even further emphasise
the need for greater country ownership, as this
is not a donation but rather money that the
country will have to repay. One interviewee
argued “theoretically, the World Bank should
give one hundred percent preference [to
Bangladesh] because it is money which will
have to be repaid”. The MDBs expect their
Country distribution of World Bank contracts valued above US$ 1million from 2000 to 2010
Country
Total value of
contracts in US$
million
Amount of contracts
above US$ 1million
Percentage of all
contracts
Bangladesh
755,730
250
60,08%
India
129,724
32
10,31%
China
66,175
17
5,26%
Australia
63,787
8
5,07%
Turkey
41,240
1
3,28%
Germany
28,488
11
2,26%
Luxembourg
22,853
1
1,82%
United States
19,061
6
1,52%
Finland
13,958
3
1,11%
United Kingdom
13,448
6
1,07%
Canada
12,969
4
1,03%
Belgium
12,480
2
0,99%
Netherlands
12,366
3
0,98%
Italy
11,389
3
0,91%
Singapore
10,066
1
0,80%
Spain
9,808
2
0,78%
Sweden
7,791
3
0,62%
Japan
5,922
4
0,47%
Ireland
4,948
1
0,39%
Sri Lanka
3,971
1
0,32%
Thailand
3,286
2
0,26%
Korea, Republic of
3,212
2
0,26%
Malaysia
2,276
1
0,18%
Switzerland
1,550
1
0,12%
France
1,310
1
0,10%
Total
1.257,808
366
100,00%
Source: World Bank contract awards database; accessed October 2010
27
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
The MDBs expect their
borrowers to take over
full responsibility for
repaying loans, but they
do not grant them the
full right to decide on
how it is spent.
borrowers to take over full responsibility for
repaying loans, but they do not grant them the
full right to decide on how it is spent.
Procurement conditionality still
applied
The World Bank still attaches conditions to its
loans and grants that are related to procurement
policy reform. This is still the case even though
Bangladesh reformed its procurement system
largely according to World Bank expectations.
For instance, the World Bank’s Country
Assistance Strategy for 2006-2009 reads:
“Investments in peak power capacity expansion
and complementary transmission facilities are
planned, jointly with the ADB, subject to the
Government’s committing to a fully open and
competitive procurement process. Support for
the government’s small-scale power program is
also envisaged, subject to the same condition.”
40
This is obviously a policy condition – aiming
to liberalise the government procurement
market – this is unwarranted for the purpose
of improving fiduciary accountability related to
the cooperation process.
Moreover, IDA project loans also contain
procurement conditions. For instance, for
the Chittagong Water Supply Improvement
and Sanitation Project, a US$ 186mn project
of which US$ 170mn is funded through an
IDA loan, the World Bank asked for seven
exceptions to the Public Procurement Act and
28
the Regulations. Furthermore, it required the
employment of a procurement consultant
“with the selection prior-reviewed by IDA,”
who would provide guidance in preparing
procurement plans, bidding documents,
advertising for bids, bid evaluation, and
contracting international and local suppliers”,
among other things. The procurement officers
will “undergo advanced international training
particularly in procurement of goods and
selection of consultants following the Bank’s
Guidelines.” The Bank also reserved the right
to prior review the contracts of the project’s
procurement plan.41
The strong involvement of World Bank-selected
foreign consultants as described above is
worrying. Firstly, they are costly. Secondly,
their loyalty is primarily to the Bank, which
may undermine their allegiance to country
authorities. Last but not least, the World Bank’s
reviews may lead to biased decisions towards
foreign firms.
Promoting equitable and sustainable
development?
Public procurement can be used to promote
social and environmental development aims.
Governments can make it mandatory for private
firms trying to win government contracts
to comply with social and environmental
regulations, or debar (“blacklist”) those who do
not and thus exclude them from the lucrative
government procurement market. Thus,
governments can create incentives for socially
and environmentally responsible behaviour.
The European Union is well aware of the vast
potential of public procurement for pursuing
social and environmental aims. For that reason,
the European Commission has developed clear
guidelines on green public procurement and
socially-responsible public procurement in
order to make sure that EU public spending
contributes to achieving the UN’s and the EU’s
own social and environmental aims and is
done under policy coherence considerations.42
However, such guidelines are fully ignored
by the external actions of the European
Commission, including in Bangladesh. Applied
criteria for contract awards are simply quality
and price that weigh 80 percent and 20 percent
respectively. Social and environmental criteria
do not play a role. Neither is there a mechanism
to debar firms that have violated human
rights or core labour standards from receiving
EuropeAid contracts. There are also no attempts
made to maximise the developmental impact
or make procurement pro-poor. Preferences
for local firms are not applied. Neither does the
Delegation track procurement results, nor to
what extent they benefit foreign or local firms,
because “there is no reason to do it because
this is not the rationale for awarding contracts”
says Milko van Gool, the Head of Cooperation
at the EU delegation.
The Asian Development Bank and World Bank
do use a cross-debarment list, which means that
a firm that is blacklisted by one MDB is at the
same time excluded from all others contracts.
Debarment criteria only include fraud and
corruption, and not social criteria such as the
violation of core labour standards. The MDBs
do require social and environmental impact
assessments for projects that have considerable
risks in that regard, but to what extent suppliers
and contractors behave responsibly plays no
role in tender evaluation processes.
The ADB has in the recent past acknowledged
that tax avoidance and evasion pose serious
development challenges for their members
and borrowers. However, it has not yet found
a solution to avoid contracting awards to firms
based in tax havens. Also, according to Alex
Fox, the use of tax havens is not evident in
ADB-funded procurement, given that contracts
may only be awarded to suppliers incorporated
in member countries of the ADB. Under NCB,
local bidders are being asked to provide current
tax certificates.
Pro-poor procurement practices – practices
that try to purchase supplies from the poor
or contract works from poor people – are
also nearly inexistent. The UNDP is the only
organisation which recognises the power and
social impacts of procurement and considers
them at least in a share of their portfolio: In
Community Driven Development Projects
such as the Social Investment Programme
Project (SIPP) implemented by the Social
Development Foundation, the procurement is
handled by the poor communities themselves,
which is supposed to help retain funds in that
community and to use local capacities.
Neither does the ADB apply any pro-poor
procurement policies or practices beyond the
domestic preferences permitted under ICB. In
general, ADB rules are based on the assumption
that price mechanisms are sufficient to ensure
that the local population benefits economically:
“it makes commercial sense to use local people
anyway.” They pointed at the Primary Education
Development Programme II, which procured
nearly 80 percent from local markets.
The European
Commission has developed
clear guidelines on green
public procurement and
socially-responsible public
procurement. However,
such guidelines are fully
ignored by the external
actions of the European
Commission, including in
Bangladesh.
29
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
Tied aid – Phasing out or disguising?
As a Least Developed Country, ODA to
Bangladesh is subject to the 2001 DAC
Recommendations on Untying Aid to LDCs. Most
donors have complied and have consequently
formally untied their aid.43 Untying was further
pushed by the Paris Declaration in 2005, which
obliges the signatories to make continued
progress over time on untying aid. The ERD
states that “after 2005 we managed to get rid
of tied aid”, an indication that international
agreements on aid effectiveness can indeed
have an impact.
According to OECD data, the share of aid that
is untied increased to 93 percent in 2008
from just 82 percent two years earlier. The
Bangladesh chapter of the Paris Monitoring
Survey argues that untying has been pushed
by a re-examination of internal rules related
to the bidding process, a move towards local
bidding, and the pursuit of programme-based
approaches.44
The data provided by the OECD, however, needs
to be handled with care:
monitoring on untied aid does
• Independent
not exist. Data is based on self-reporting by
donors, which may or may not reflect the
real picture;
commitments to untie aid exclude
• OECD
food aid and free-standing technical
assistance. Some donors may have chosen
not to report the tying status of these aid
modalities;
data covers only donors that
• The
member states of the OECD-DAC;
are
it covers only financial flows
• Moreover,
classified as ODA;
but not least, formal untying does not
• Last
necessarily lead to the intended result of
untying, which is that more aid actually
flows to and is retained by the recipient
country.
Technical assistance and food aid, the two aid
modalities which are not covered by the 2001
30
DAC Recommendations (but not explicitly
excluded from the PD and AAA) remain a
problem in Bangladesh. When a certain
donor funds a certain project, it often sets the
condition that consultants from that country
are employed, something that concerned the
World Bank staff interviewed for this study.
Sources from the GoB explained that an
international expert in water sector projects
often receives up to US$ 25,000 a month as
team leader, and local experts only US$ 4,000
as vice leader. Donors often set the condition to
employ international expat staff as team leader
even if there is no apparent technical reason to
do so. “The general notion is that consultants
are usually not liked in executing agencies, even
the locals earn much more than the employed
staff,” says the source at the GoB.
European Commission grants and ADB loans
are still partially tied aid. The EU still restricts
to firms based in the European Union, the
recipient country and some other countries
that have reciprocal agreements with the EU. In
ADB-funded projects, bidders and all supplies
they use have to come from ADB Member
States. South-South Cooperation, or aid
provided by “new donors” is becoming more
and more important for Bangladesh, a country
of geostrategic importance for Asia’s emerging
powers China and India.45 It is unclear how
much financial assistance they provide since
they do not report systematically, but at least
in the case of China a large amount of aid is
tied to purchases from Chinese companies, or
to funding infrastructure projects implemented
by Chinese construction companies. Supplier
credits offered by Chinese firms and banks at
much higher interest rates than the concessional
IDA and ADB loans have been mentioned as a
threat to debt sustainability.
Tied financial assistance is offered by European
DAC donors and Japan. Denmark, for instance,
funds the Saidabad Water Treatment Project
(Phase II) with DKK 518mn under its mixedcredit programme.46 This programme includes
credit lines that are conditional on contracts
to the Danish Business Community. According
to sources familiar with this process that
Eurodad had access to, only two Danish firms
competed, which resulted in a very high price.
An international expert
in water sector projects
often receives up to US$
25,000 a month as team
leader, and local experts
only US$ 4,000 as viceleader.
Consequently, Dhaka is producing water at
twice the affordable price for the largely
impoverished population of the capital. The
engagement of foreign firms is as costly as it is
unnecessary: all civil works and electronic works
can be contracted locally; only the treatment
requires high-tech components that need to
be imported or require foreign expertise to be
installed. The GoB stated that they are trying
to minimise the negative impacts of tied aid
by requiring foreign contractors to at least use
local materials and manpower where available.
DANIDA often accepts such requirements.
However, interviewees from the Water &
Sewage authority stated that tied aid to the
water sector has been provided by France and
the World Bank – which once set the condition
on a water project that steel for reinforcement
should be imported, even though a local
company could deliver 30 percent cheaper and
to good quality.
31
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
5. Conclusion and recommendations
Since the approval of aid effectiveness
commitments by the international community
in the last decade, Bangladesh has undertaken a
large number of procurement systems reforms.
This included new legislation, in particular the
2006 Procurement Act, new institutions such
as the Central Procurement Technical Unit
and the Anti-Corruption Commission and the
training of a large number of procurement
officers. This reform process, however, suffered
from a lack of democratic ownership and a
meaningful participation of relevant national
socio-economic actors, including civil society
groups.
The blueprint of the reforms was developed
by the World Bank, in the 2002 Country
Procurement Assessment Report, which states
that it was agreed upon by the Government of
Bangladesh. Other democratic institutions, such
as the parliament and CSOs, were not involved.
But they also lacked the technical knowledge
to contribute meaningfully to the process
that shaped the reforms. The only exception
is the transparency and accountability of the
procurement process where Transparency
International’s Bangladesh chapter played an
influential advocacy and awareness raising
role. But this was not the case regarding any
other aspects which could have featured in the
procurement law, such pro-poor procurement
policies or the use of procurement to incentivise
positive social and environmental outcomes.
The dominant role of the World Bank in
shaping procurement policies and practices in
Bangladesh determined the outcome of the
reform process: Bangladesh’s procurement
policies are now aligned to the World Bank
model, not the other way around. This actually
turns the notion of alignment upside down. It is
striking that this happened in a country which
is, with an ODA/GNI quota of just 2 percent, not
dependent on aid resources. This proves that
foreign donors and IFIs can influence the public
spending in developing countries far beyond
their own financial contribution. The reforms
implemented follow the interests of IFIs (that is
their strive for upwards accountability, narrowly
defined value for money, and liberalising the
procurement market to facilitate market entry
for all IFI member states) not so much those of
Bangladesh, domestic accountability and the
32
promotion of local (private sector) development
and productive capacities.
The current Government of Bangladesh
recently tried to recuperate ownership and
implement a number of reforms in procurement
policies, officially to simplify and speed up
the procurement process and solve severe
development bottlenecks such as the energy
crisis. The World Bank and ADB contested the
reforms and imposed sanctions, partially based
on the fact that the government’s reforms
proposal suspended some of the safeguards
destined to reduce corruption risks. But while
corruption reduction is crucial, this rejection
of the GoB’s reform proposals shows that
real country ownership is not well received
by the IFIs. Accountability throughout the
procurement system, which includes many
more funds than just those lent by development
banks, can only be ensured by critical citizens
and CSOs, and an enabling environment for
their operations.
The Paris Declaration and the Accra Agenda for
Action require that recipients strengthen their
procurement systems and donors use them as
the first option. While Bangladesh has delivered,
has ticked the boxes, donors have not. Progress
towards an increased used of country systems
has fallen short of targets. Budget support,
which naturally uses country systems, is almost
inexistent even by donors such as the European
Commission or DFID, which broadly use this aid
modality in other countries. The Danish aid
agency, DANIDA, is the only bilateral donor
that has made a credible and systematic effort
to deliver on the country system commitments.
The World Bank and ADB use Bangladesh’s
procurement systems only for NCB, and they
include conditions such as the requirement to
train procurement officers in applying World
Bank procurement guidelines rather than in
local regulation.
With regards to aid untying, the Paris
Declaration actually had an impact on DAC
donors’ behaviour. Formally tied aid has
decreased tremendously, with the exception
of food aid and technical assistance. Many
donors do not report on the tying status of
these modalities since they are omitted in
the DAC Recommendations on Untying. On
the other hand, stakeholders in Bangladesh
perceive that tied technical assistance is still
a common practice. Donor-imposed technical
assistance is perceived negatively by local
stakeholders both from government and civil
society. It is unclear to what extent untying aid
has led to the intended outcome that more
aid is retained by the recipient country, and
more contracts are awarded to local firms to
boost aid’s development impact. Very few
donors systematically make their procurement
outcomes public. It is obvious, however, that
many still have restrictive eligibility criteria in
place.
Distributional as well as poverty impact are
not assessed, and are not even considered by
donors when they evaluate bids. Social and
environmental impacts are not systematically
considered either by the GoB or by donors. The
potential of public and aid agency procurement
to create incentives and demand for social and
environmentally responsible private sector
actors remains consequently unused. There are
also very few cases where procurement policies
are actively used to fight poverty, to create jobs
and income opportunities for the poor, with
the only exception of smaller community-based
projects, which have the donors permission to
source labour and supplies locally.
Recommendations to the
Government of Bangladesh:
The Government of Bangladesh should:
the lead in public procurement
• take
reforms, align its procurement policies and
for sustainable public procurement and
pro-poor procurement, including through
tailored training modules.
public its procurement plans so that
• make
they are known and accessible and can be
monitored by stakeholders.
the
• implement
Act, strengthen
Right to Information
the Anti-Corruption
Commission and ensure its independence
the full range of policy options
• Consider
in its procurement policy, and award
contracts to those firms which are bestsuited for the nation’s sustainable and
equitable development.
public procurement to promote
• Use
innovation and socioeconomic aims,
including by considering social and
environmental criteria in tendering and
contracting awards.
Recommendations to donors
Donors and IFIs should:
on their commitments made in the
• deliver
Paris Declaration and the Accra Agenda for
Action by using the Bangladeshi country
procurement systems as a first option for
all Official Development Assistance (ODA)
provided to Bangladesh.
in building the capacities of the
• assist
Bangladeshi procurement system without
systems with the objectives stated in its
national development strategy, in broad
consultation with citizens.
imposing conditions or biased technical
advice. All assistance should be tailored
to Bangladesh’s needs as identified in selfassessments, using self-defined assessment
methodologies and criteria.
transparency and accountability of
• improve
procurement policy reforms. It is primarily
Where donors are still using their own parallel
procurement systems, they should:
Bangladeshi citizens and taxpayers money
that is concerned, so citizens, citizen groups
and their representatives (parliamentarians)
must be better consulted and included in
the reform processes.
all practices of formal and informal aid
• end
tying, including for food aid and technical
•
invest in and increase the capacities and
skills of the procurement officers based
on identified shortcomings, and improve
procurement officers’ awareness and skills
assistance, and reduce entry barriers for
Bangladeshi firms and consultants, e.g.
through tendering in smaller lots, sized to
be manageable by domestic firms, through
advertising all tenders locally and in
Bangla, and removing restrictive eligibility
criteria that disadvantage domestic firms.
33
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
Donors should provide an explanation
when they award contracts back to their
own countries firms and consultants.
preferential treatment, in particular to
• give
small and medium enterprises, and firms
based in structurally weak areas. They
should also consider social, environmental
and gender criteria in tender evaluations.
34
In terms of their mutual agreements, donors
and recipients should ensure compliance
with international law and standards through
debarring all firms that violate human rights
and social or environmental standards from
ODA-financed activities. They should also
prevent unfair competition and create an
enabling environment for domestic resource
mobilisation by debarring firms that evade
taxes or are registered in tax havens.
Acronyms
AAA Accra Agenda for Action
NGO Non-governmental organisation
ADB Asian Development Bank
NSAPR II
CPAR Country Procurement Assessment
Report
Second National Strategy for
Accelerated Poverty Reduction
OECD CPTU Central Procurement Technical Unit
Organisation for Economic
Cooperation and Development
CSO Civil society organisation
PD Paris Declaration
DANIDA
Danish International Development
Association
PIU Parallel implementation units
PPRP I DfID United Kingdom’s Department for
International Development
First Public Procurement Reform
Project
DP Development Partner
PPRP II Second Public Procurement Reform
Project
ERD Bangladesh’s Ministry of Finance’s
Economic Relations Department
SIPP Social Investment Programme Project
SME Small and medium enterprises
GBS
General budget support
TIB GoB Government of Bangladesh
Transparency International
Bangladesh
ICB International competitive bidding
ILO International Labour Organisation
IMF International Monetary Fund
JCS Joint Cooperation Strategy
LCS Local Consultative Group
LDC UNCITRAL UN Commission on International
Trade Law
UNDP United Nations Development
Programme
UNEP United Nations Environment
Programme
Least developed country
UNFPA United Nations Population Fund
MDB Multilateral development bank
WB World Bank
NCB National competitive bidding
35
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
Annex 1: Additional ADB procurement
conditions under NCB
General
The procedures to be followed for national
competitive bidding shall be those set forth
for the National Open Tendering Method in
the Government’s Public Procurement Rules,
2008 (as updated and issued pursuant to the
Bangladesh Public Procurement Act, 2006)
with the clarifications and modifications
described in the following paragraphs required
for compliance with the provisions of the
Procurement Guidelines.
Advertising
Bidding of NCB contracts estimated at
$ 500,000 or more for goods and related
services or $ 1,000,000 or more for civil works
shall be advertised on ADB’s website via the
posting of the Procurement Plan.
Anti-Corruption
Definitions of corrupt, fraudulent, collusive
and coercive practices shall reflect the
latest ADB Board-approved Anti-Corruption
Policy definitions of these terms and related
additional provisions (such as conflict of
interest, etc.).
Location of Bid Submission:
Submission of bids to 36 primary and 36
secondary locations, or 36 multiple droppings
of bids, shall not be required or allowed.
Advertisements and bidding documents shall
specify only one location for delivery of bids.
36
Rejection of All Bids and Rebidding:
Bids shall not be rejected and new bids
solicited without ADB’s prior concurrence.
Member Country Restrictions:
Bidders must be nationals of member
countries of ADB, and offered goods must be
produced in member countries of ADB.
Lottery
A lottery system shall not be used to
determine a successful bidder, including for
the purpose of resolving deadlocks.
Qualification Requirements
A successful bidder must be determined by
an assessment process that shall include the
application of qualification requirements to all
bids.
Rejection of Bids
A bid shall not be rejected on the grounds that
its bid price is not within a percentage range
above or below the contract estimate.
Annex 2: List of institutions met
Government of Bangladesh
Ministry of Finance – Economic Relations
Department
Ministry of Planning – Central Procurement
Technical Unit
Development Partners
Asian Development Bank
DANIDA
Delegation of the European Union
UNDP
World Bank
World Food Programme
Civil Society and Academia
Action Aid International Bangladesh
Transparency International Bangladesh
Professor Anu Muhammad; Jahangirnagar
University
Several additional individuals contributed to this
research but preferred to remain anonymous.
37
Helping or hindering?
Procurement, tied aid and the use of country systems in Bangladesh
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lcgbangladesh.org/BDF-2010/BG_%20Paper/BDF2010_Session%20I.pdf)
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(Bangladesh)
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Outline Perspective Plan of Bangladesh 2010-2021. Making Vision
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38
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the Accra Agenda for Action
Endnotes
1 Cf. OECD (2001): DAC Recommendations on Untying ODA to
the Least Developed Countries, DCD/DAC (2001)12/final; and:
Rome Declaration on Harmonization, Rome, Italy, February 25,
2003 (http://siteresources.worldbank.org/NEWS/Resources/
Harm-RomeDeclaration2_25.pdf)
2 Cf. OECD (2005/2008): The Paris Declaration on Aid Effectiveness and the Accra Agenda for Action (http://www.oecd.org/
dataoecd/30/63/43911948.pdf)
3 World Bank (2002): Bangladesh Country Procurement Assessment Report, May 11, 2002
4 OECD (2010): What are the benefits of using country systems?
5 Clay, Clay, Edward J., Matthew Geddes and Luisa Natali (2009):
Untying Aid: Is it working? An Evaluation of the Implementation of the Paris Declaration and of the 2001 DAC Recommendation of Untying ODA to the LDCs.
6 Government of the People’s Republic of Bangladesh (2009):
National Strategy for Accelerated Poverty Reduction II; FY
2009-2011; p. XIV
7 UNDP (2010): Human Development Report 2010. The real
wealth of nations. Pathways to human development; Annex
Table 2, Page 148-151
8 Cf: Labour activisits reject minimum wage proposal Press
Release by Labour behind the label; http://www.labourbehindthelabel.org/news/item/838-bangladesh-wage-proposal
(And BBC: http://www.bbc.co.uk/news/world-south-asia10779270)
9 UNDP (2010): Human Development Report 2010. The real
wealth of nations. Pathways to human development; Annex
Table 12, Page 188-191
10 Thornton, Nigel (2010): Realising Development Effectiveness.
Making the most of climate change finance in Asia and the
Pacific (http://www.oecd.org/dataoecd/23/51/46518692.pdf)
11 Government of the People’s Republic of Bangladesh (2010):
Outline Perspective Plan of Bangladesh 2010-2021. Making
Vision 2021 a reality. (http://www.plancomm.gov.bd/Final_
Draft_OPP_June_2010.pdf)
12 Ibid.
14 Presentation by Dr. Shamsul Alam, Planning Commission, at
the Bangladesh Development Forum, February 2010; (http://
www.lcgbangladesh.org/BDF-2010/BG_%20Paper/BDF2010_
Session%20I.pdf)
15 Source: OECD/DAC Creditor Reporting System (http://stats.
oecd.org/Index.aspx?DatasetCode=CRSNEW)
16 Economic Relations Division (2010b): Bangladesh Joint Cooperation Strategy 2010-2015. How to work more effectively
together to deliver real development outcomes, p. 1
17 See http://www.lcgbangladesh.org/
18 See http://www.erd.gov.bd/BDF-2010/index.php
20 Economic Relations Division (2010b): Bangladesh Joint Cooperation Strategy 2010-2015. How to work more effectively
together to deliver real development outcomes, p. 5
21 DANIDA/UNDP (2009): Moving towards use of country systems
for procurement in Bangladesh. A case study; http://www.
unpcdc.org/media/22472/moving%20towards%20use%20
of%20country%20systems%20for%20procurement%20in%20
bangladesh.pdf
22 http://www.pwd.gov.bd/
23 Paris Declaration §17-30; Accra Agenda for Action § 15
24 World Bank (2002): Bangladesh Country Procurement Assessment Report, p. 12
25 United Nations (2005) Common Country Assessment of Bangladesh; p. 16
27 European Commission: National Indicative-Programme 20072010 (Bangladesh); p. 7
28 Ferdous Jahan (2006): Public Administration in Bangladesh;
Centre for Governance Studies Working Paper.
29 The World Bank has recently again awarded a US$43mn contract to Australian consultancy PDP for a public financial management project (see PDP News from 22 October 2010; http://
www.pdp.com.au/news.aspx). Stakeholders in Bangladesh
questioned the sustainable impact of previous capacity building, mainly in light of the non-competitive wages compared to
skilled private sector jobs in and outside Bangladesh.
31 Cf. UNOPS (2008): Sustainable Public Procurement Supplement; in: 2008 Annual Statistical Report on United Nations
Procurement. http://www.unops.org/SiteCollectionDocuments/ASR/Sustainable-Procurement-Supplement-ASR-2008.
pdf
32 UNCITRAL Model Law on Procurement of Goods, Construction
and Services with Guide to Enactment; Article 26 states that
the rationale for margin of preference is that the Model Law
provides the enacting State with a mechanism for balancing
the objectives of international participation in procurement
proceedings and fostering national industrial capacity, without
resorting to purely domestic procurement . (http://www.
uncitral.org/pdf/english/texts/procurem/ml-procurement/mlprocure.pdf)
33 See for tenders http://www.cptu.gov.bd/Notices.aspx, and for
contract awards: http://www.cptu.gov.bd/AwardNotices.aspx
34 See Transparency International Bangladesh (http://www.tibangladesh.org/CPI/CPI2010/5_CPI2010_table_sources_201010-20%5B1%5D-latest.pdf) the wider Global Integrity
Index rates intergrity weak and places Bangladesh 68 of
100 assessed countries: (http://report.globalintegrity.org/
Bangladesh/2008)
35 http://www.transparency.org/global_priorities/public_contracting/integrity_pacts
36 http://www.pwd.gov.bd/pwd/
37 The ERD ’s website provides an (incomplete list) of development partners
38 Other donors are covered in other country case studies of this
series
39 Bangladesh European Community Country Strategy Paper for
the period 2007-2013; p. 31
40 World Bank (2006): Bangladesh Country Assistance Strategy
2006-2009, p. 33
41 World Bank (2010): Chittagong Water Supply and Improvement Project. Project Appraisal Document; Report No. 54967BD; p. 65 and compare p. 62-77
42 Commission of the European Communities (2008). Public
procurement for a better environment; COM (2008) 400 final;
Brussels 16.7.2008
43 Delivering AAA commitments to untie aid to the maximum
extent; DCD/DAC(2010)11, unpublished
44 OECD (2008): 2008 Survey on Monitoring the Paris Declaration,
p. 3-12
45 Bangladesh’s harbours offer an exit for China to the Indian
Ocean. Bangladesh is almost entirely surrounded by Indian
territory and nearly cuts off its Eastern provinces from the bulk
of the land. India desires to use Bangladesh’s road and railway
network for transit purposes.
46 http://www.um.dk/en/menu/DevelopmentPolicy/BusinessCooperation/MixedCredits/
26 See the CPTU s website for further details: http://www.cptu.
gov.bd/
39
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