National Directorate of Water - UNICEF · Lessons ... (2008-2011)* ... Decree 258/2010 on 30 December 2010. PRONASAR is the framework for implementing the Rural Water Supply and Sanitation

0 Final draft Learning from Innovation: One Million Initiative Mozambique – Contract Management Case Study

Learning from Innovation: One Million Initiative in Mozambique

Contract Management Case Study

FINAL DRAFT

Government of Mozambique

Ministry of Public Works and Housing

National Directorate of Water

http://washurl.net/f4telc


Acknowledgments

The series of four “Learning from Innovation in the One Million Initiative” cases is produced under

the auspices of the National Directorate of Water’s (DNA) National Programme for Rural Water

Supply and Sanitation (PRONASAR), through a Memorandum of Understanding between UNICEF

Mozambique and the IRC International Water and Sanitation Centre (2012).

IRC wishes to acknowledge valuable and collaborative inputs from the UNICEF Mozambique

team: Samuel Godfrey; Americo Muianga; Carlota Isac Muianga; Matteus van der Velden; Alberto

Cumbane and Angelina Xavier.

IRC also wishes to acknowledge the lead authorship of Charles Pendly and Ana Lucia Obiols, and

the contract management of ProWater Consultores lda.

Disclaimer

Pending comment from the National Directorate of Water (DNA), the series of cases are draft for

internal use only. Professional editing and publication will be effected following finalisation with

DNA PRONASAR.


Table of Contents

Executive Summary .................................................................................................................................. 5

1. Introduction ................................................................................................................................... 5

2. Background ..................................................................................................................................... 6

3. Purpose ........................................................................................................................................... 6

4. Conceptual Framework ................................................................................................................ 6

5. The One Million Initiative (OMI) ............................................................................................... 8

6. Contracting in OMI ........................................................................................................................ 9

6.1 Procurement ...........................................................................................................................9

6.1.1. Procurement Procedures ........................................................................................................ 9

6.1.2 Tendering for works and services ................................................................................................. 10

6.1.3 Composition of tender evaluation committee ............................................................................. 12

6.1.4 Role of UNICEF, DNA, DPOPH and district government in contracting ....................................... 12

6.1.5 Payment mechanisms ............................................................................................................ 13

6.2 Cost effectiveness ................................................................................................................. 13

6.3 Performance of consultants .................................................................................................. 15

6.4 Performance of contractors ................................................................................................... 16

7. Assessment of contracting with reference to OMI ............................................................... 17

8. Lessons .......................................................................................................................................... 18

8.1 Procurement ......................................................................................................................... 18

8.2 Turnkey Contracts ................................................................................................................. 19

8.2.1 Limitations...................................................................................................................................... 19

8.2.2 Effectiveness of turnkey contracts ................................................................................................ 19

8.2.3 Risks ................................................................................................................................................ 19

8.3 Post-Project Activities/Monitoring and Evaluation ................................................................. 20

9. Recommendations ............................................................................................................................ 20

9.1 Recommendations for OMI ................................................................................................... 20

9.2 Recommendations for the sector (DNA/PRONASAR) .............................................................. 21

9.3 Concluding Remarks .............................................................................................................. 21

Annex 1: Principles of Cost-Effective Boreholes


LIST OF TABLES

Table 1: Expected Outputs and Achievements of OMI ...................................................................................... 8

Table 2: Assessment of Contracting Practices with Special Reference to OMI .......................................... 17

LIST OF FIGURES

Figure 1: Location of OMI ...................................................................................................................8

Figure 2: Trends in cost of boreholes (2008-2011)* ........................................................................... 14

Figure 3: Average depth of borehole by district ................................................................................. 15

Figure 4: Success rate of drilling by year (2008-11) ............................................................................ 16


ABBREVIATIONS AND ACRONYMS

CLTS Community-Led Total Sanitation DNA National Directorate of Water / Direcção Nacional de Águas DPOPH Provincial Directorate of Public Works / Direcção Provincial de Obras Públicas e Habitação DAS Water and Sanitation Department EAS Social Company / Empresa da Área Social GOM Government of Mozambique /Governo de Moçambique GON Government of Netherlands /Governo de Holanda IRC International Water and Sanitation Centre JICA Japanese International Cooperation Agency / Agencia de Cooperacao Internacional Japonessa MCA Millennium Challenge Account MDG Millennium Development Goal MIPAR Implementation Manual for Rural Water Supply / Manual de Implementação de Projectos de

Água Rural MOPH Ministry of Public Works and Housing / Ministério de Obras Públicas e Habitação MZN Mozambican Currency Metical / Moeda Mocambicana Metical NGOs Non-Governmental Organizations ODF Open Defecation Free (area) ODF + ODF Plus: Open Defecation Free and Safe Sanitation OMI One Million Initiative PEC Community Participation and Education / Participação e Educação Comunitária PESA-ASR Water Sector Strategic Plan – Rural Water and Sanitation / Plano Estratégico do Sector de Águas –

Água e Saneamento Rural PIA Annual Implementation Plan / Plano de Implementacao Anual PRONASAR National Program of Sanitation and Rural Water / Programa Nacional de Água e Saneamento

Rural RWSN Rural Water Supply Network RWSS Rural water supply and sanitation RWSSI Rural Water Supply and Sanitation Strategic Initiative SISTAFE Sistema de Administração Financeira do Estado (State Financial Management System) SDPIs District Services for Planning and Infrastructure / Serviços Distritais de Planificação e

Infraestrutura TA Administrative Court / Tribunal Administrativo UGEA Unidade Gestora Executora de Aquisições (Procurement Management Unit) UNICEF United Nations Children´s Fund WASH Water, Sanitation and Hygiene WSP World Bank Water and Sanitation Programme


Executive Summary

This case has shown that OMI’s procurement and contract management practices have contributed to more cost-effective delivery of works and services in the RWSS sub-sector in Mozambique. OMI has embodied adaptive management and continuous learning to improve procurement and contracting procedures, as exemplified by this case study.

OMI broadly complies with and thereby strengthens national policies, guidelines and procedures regarding procurement and contract management. Technical assistance provided by UNICEF has improved the capacity of decentralised entities in the three provinces in procurement and contract management.

A qualitative assessment revealed that there was generally good compliance with the principles of cost-effective works and services. Gaps in present practice were also identified- aspects of good contracting practices that need to be addressed by service authorities at all levels to improve service delivery and strengthen institutional, private sector and civil society capacity to provide works and services that last.

The identified gaps concern data, database and information management and the need for effective safeguards and sanctions to ensure better compliance at all levels with procedures to select the most competent contractors and consultants.

DNA and DPOPH-DAS as sector leaders should use the lessons from OMI’s contracting experience and the recommendations in this case study in revising MIPAR and in preparing the next Annual Implementation Plan for PRONASAR. The revised MIPAR should include guidelines on good contracting practices to facilitate the adoption and use of good contracting practices in Mozambique. The greatest challenge facing DNA and PRONASAR today is to effectively implement good procurement and contracting practices that lead to higher quality and more cost-effective works and services that in turn contribute to improved sustainability and impact.

1. Introduction

The National Directorate of Water (Direcção Nacional de Águas, DNA) is responsible for implementing the National Rural Water Supply and Sanitation Programme (Programa Nacional de Abastecimento de Água e Saneamento Rural, PRONASAR), which was officially launched in March 2010 and legally established by Decree 258/2010 on 30 December 2010.

PRONASAR is the framework for implementing the Rural Water Supply and Sanitation (RWSS) Strategic Plan (PESA-ASR) 2006-2015 to reach the MDG target of 70% coverage for rural water supply and 50% coverage in rural sanitation. PRONASAR also promotes aid harmonization and institutional reforms in the RWSS sub-sector, with particular focus on capacity development at district and local levels.

The four key components of PRONASAR are:

Increase rural water supply and sanitation coverage

Develop appropriate technologies and management models for RWSS

Capacity building and human resource development

Support decentralised planning, management, monitoring and financing of RWSS activities


2. Background

Two case study initiatives have been undertaken by DNA (PRONASAR PIA 2012)1 to identify approaches that enhance sustainability of water and sanitation services within the framework of the Community-Based Management Model.

The first study, supported by World Bank Water and Sanitation Programme (WSP), is to study water supply systems that have been effectively working for more than five years2.

In partnership with UNICEF Mozambique, the International Water and Sanitation Centre (IRC) aims to complement this work by producing four case studies3 from the One Million Initiative (OMI) supported by the Water Services That Last, or Triple-S4 programme.

These case studies distil lessons and experiences from rural water and sanitation activities in Sofala, Tete and Manica provinces in central Mozambique which have been commissioned and handed over to communities since 2008, but where post-construction support activities are still in progress.

The four case studies are:

1) Community participation and training at district level - PEC Zonal

2) Community Led Total Sanitation (CLTS)

3) Contract management of service providers

4) The Sustainability Check

3. Purpose

The purpose of this case study is to distil lessons from experience with procurement and contract management in OMI and make recommendations to the National Directorate of Water (DNA) and the National Rural Water Supply and Sanitation Programme (PRONASAR) to inform a revision of the Rural Water Implementation Manual (MIPAR) and in the preparation of the next Annual Implementation Plan.

This case study addresses the following questions:

1 What can we learn from contract management practices in OMI that can be used to design effective contracts and contract management practices that support more sustainable WASH services?

2. What can be done to move from contract management experience and practices in OMI to a more widely useful set of principles and procedures that will help improve the sustainability of RWSS services which is consistent with the present sector legal, policy and strategy framework in Mozambique?

4. Conceptual Framework

1 Direccao Nacional de Aguas (2012), Programa Nacional De Abastecimento De Água E Saneamento Rural, Plano De Implementação Anual. 2 “Lições de sustentabilidade emergentes”Reforçando a sustentabilidade da água e saneamento rural em Moçambique: Aprendizagem,

documentação e aplicação prática 3 Projects in which improved infrastructures were recently handed over to communities and running for 2 to 5 years. 4 More information on Triple-S is available at: www.waterservicesthatlast.org


The conceptual framework for this case study is derived from the principles of cost-effective contracting presented in a recent publication by RWSN5. The principles are:

1. Professionalisation of drilling contractors and consultants

2. Siting of boreholes based on sound hydrogeological knowledge

3. Use of most economical construction methods

4. Procurement of qualified and experienced consultants and drilling contractors

5. Cost-effective design and construction

6. Effective contract management, competent supervision and timely payments

7. Data and information systematically collected and reported.

8. Updated database and records used in preparing technical specifications

9. Post-construction monitoring of completed boreholes

10. Benchmarking of performance and service standards (author’s addition)

The above principles are described in more detail in Annex 1 and are used as criteria against which to assess contracting practices with reference to OMI later in this report.

5 Adekile, D. (2012), Procurement and Contract Management of Drilled Well Construction. A Guide for Supervisors and Project

Managers, RWSN, St. Gallen, Switzerland.


5. The One Million Initiative (OMI)

The seven-year program (September 2006–December 2013) known as the One Million Initiative

(OMI) is the result of a partnership between the Government of

Netherlands (GON), UNICEF and the Government of Mozambique

(GOM). It supports GOM in achieving sustainable progress towards the

MDG7, target 10 (50% coverage of safe drinking water and 50%

coverage of sanitation facilities). OMI will also contribute to the

achievement of other MDGs (i.e., poverty alleviation reduction in infant

mortality, improved access to basic education, gender equality,

HIV/AIDS and partnerships).

OMI is implemented in 18 districts in Manica, Sofala and Tete provinces

in central Mozambique. (See map at left.) The total budget for the

programme is EUR 32.64 Million, of which 65% is provided by the

Government of the Netherlands, 19% by UNICEF, 13% by the Government of Mozambique and 3%

by beneficiaries. Table 1 shows the expected outputs at the end of OMI in December 2013 and what

has been achieved during its first six years of implementation.

Table 1: Expected Outputs and Achievements of OMI

Expected Outputs at the end of the Programme In 2013 Achieved 2006-2011

One million people in the rural areas use safe drinking water, through the construction of new sources of water supply;

770,000 new users through 1,470 new water points, and 10 small pipe systems

200,000 people use safe drinking water, through the rehabilitation of their sources of water supply;

200,000 new users through 324 rehabilitated water points

One million people use adequate sanitation facilities; 1,210,759 people using hygienic sanitation facilities, through 250,020 self-constructed household latrines in 679 ODF villages, including 58 ODF+ villages.

1.2 million people adopt appropriate hygiene practices; 1,210,759 people with appropriate hygiene practices such as hand-washing with soap or ash.

400 primary schools (with a total of 140,000 pupils) use appropriate drinking water, sanitation and hygiene facilities;

214 primary schools with hand pumps, benefiting

74,900 learners and 101 schools6 with adequate sanitation complexes benefitting 35,350 students and teachers.

18 districts and three provinces have strengthened technical and management capacities for the planning, coordination and implementation of programmes for water supply, sanitation and hygiene education.

Sustainability of water infrastructure improved from 54% to 82% between 2008 and 2011.

Source 1: UNICEF (a) 20127

OMI also contributes to the reduction of morbidity and mortality due to water borne diseases, as well as indirectly improving rural livelihoods and helping to alleviate rural poverty by reducing the burden of water collection, which is typically a task for women and girls.

OMI consists of two main components: 1) Access to water and sanitation; and 2) Capacity building.

6 School sanitary complexes were not yet accounted for in previous reports. 7 UNICEF (2012a), One Million Initiative, Annual Progress Report 2011.

Figure 1: Location of OMI

OMI

T

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DI

C

OC

EA

Z

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B

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BFigure 1: Location of OMI


1) Access to water and sanitation

Rural Water Supply - Boreholes fitted with hand pumps are the main technology used. Alternative technologies (e.g. small piped systems) have been implemented in areas with difficult hydrogeological conditions. The management models include variations of the community management model for boreholes with hand pumps and private operators for small piped systems.

Community hygiene and sanitation promotion focuses on community self-analysis and joint decision for behavioural change, enhancing open defecation free-ODF communities. The community approach to total sanitation (CATS) merges the community-led total sanitation (CLTS) approach with an awards scheme for recognition of ODF status.

School sanitation and hygiene promotion - School-based interventions are gender sensitive and address water and sanitation needs of girls in schools through the construction of water supplies and separate latrines for girls and boys using a CLTS approach adapted to schools; School-Led Total Sanitation.

2) Capacity building: Aims to create an enabling environment and conditions for sector development through (i) building and strengthening capacities at user, district, provincial and national levels (ii) supporting spare parts networks and private and public sector capacities for adequate service delivery.

As part of OMI’s Sustainability Strategy (UNICEF (b), 2012)8, draft, it uses a holistic approach to sustainability starting at the community with the demand for water and sanitation services based on their awareness of hygiene. Managing services is a joint effort between the local management capacity and support from service providers and an enabling policy environment. OMI involves provincial authorities to create capacity, and at district level, strengthens the supply of spare parts, introduces bottom-up monitoring systems, and promotes contractual agreements between water committee and local artisans and mechanics.

6. Contracting in OMI

6.1 Procurement

6.1.1. Procurement Procedures

For implementing OMI activities, the Program follows the government procurement system for the works and service provision. The public procurement system is part of the ongoing process of public sector reform in Mozambique. Under this process, GOM is committed to implement the public financial management system at all levels, called SISTAFE. This system requires the decentralization of functions and powers to local levels and includes several subsystems, including procurement.

In December 2005 GOM approved Decree 54/20059 establishing rules for procurement for public works, goods and services in order to achieve greater transparency and encourage greater competition.

In order to accelerate and make flexible procurement procedures for public works, goods and services to the State, Decree 54/2005 was repealed, and in its place Decree 15/201010 was approved in May 2010.

8 UNICEF (2012 b), Sustainability Strategy Version 8. 9 Conselho de Ministros (2005), Regulamento de Contratacao de Empreitada de Obras Pubilcas, Decreto 54/2005, Fornecimento

de Bens e Prestacao de servicos ao Estado, Maputo. 10 Conselho de Ministros (2010), Regulamento de Contratacao de Empreitada de Obras Pubilcas, Fornecimento de Bens e

Prestacao de servicos ao Estado, Decreto 15/2010; revoga o Decreto 54/2005, Maputo.


The Functional Unit for Procurement Supervision (UFSA) was created by Ministerial Diploma No. 141/200611, for handling disputes and complaints from citizens concerning irregularities in the implementation of the Regulation of Public Contracts12.

The public procurement regulation (Decreto 15/2010) states that all procurement should be widely advertised and final decisions made in writing, signed and duly authorised by the competent authorities. For activities for which there is an approved allocation in the State Budget, the law does not establish a financial limit for approval at decentralised levels.

Procurement of works and services by OMI was done under Decree 54/2005 and later Decree 15/2010. The “Code of Practice for Cost Effective Boreholes” 13 states that procurement should be undertaken through national government systems rather than those of a donor or other external organisation.

There are three classes of procurement: general, special and exceptional. OMI uses general procedures for public tenders, and only when it is not possible to select a contractor or supervisor, the exceptional category is used.

OMI’s procurement of works and services is decentralised to DPOPH at provincial level and is carried out with technical assistance from UNICEF. This approach allows Government staff to receive on-the-job training. All tenders are published in the daily government newspaper, Notícias in Maputo and in some cases in Diário de Moçambique, based in Beira.

Selection of contractors is based on the lowest price, while for consultants it was initially based on two criteria, quality and price, and subsequently revised to the sealing amount criteria.

According to the procurement rules and the law 26/2009 of September 2914, after evaluation and approval by the competent entity, it is mandatory that the evaluation process be submitted for approval to the Administrative Court (TA) (without which the works-works, supervision or services – cannot start). However, in the last year (2011) the implementation of the OMI programme, some contracts were initiated without prior approval of the TA, which became the subject of the contract invalid and consequently have created problems for companies and NGOs that were already in business.

In all tenders for works, it is mandatory that bidders present a bank guarantee and performance bond as required by law.

UNICEF’s procurement procedures are in line with GOM’s procedures and other bilateral partners, although the ability to implement these procedures continues to be of concern. This is why technical assistance from UNICEF has been crucial.

The procurement rules established for the hiring of services of PEC admit the participation of both private companies (for-profit) and NGOs. The fact that NGOs are non-profit entities, they are exempt from paying taxes on income earned in addition to the fact that part of them has other funding to support operational costs; through this, in public procurement, generally NGOs have lower financial proposals in relation to private companies. This can involve unfair competition; so this issues need to be properly addressed under Government Procurement Procedures.

6.1.2 Tendering for works and services

11 Ministério das Finanças (2006), Diploma Ministerial nº 141/2006, Maputo. 12 Decreto 15/2010 - de 24 de Maio de 2010; Boletin da República Nr. 20, I Série. 13 Rural Water Supply Network (2010), Code of Practice for Cost Effective Boreholes, St. Gallen, Switzerland. 14 Tribunal Administrativo (2009), Lei n.º 26/2009, de 29 de Setembro, que aprova o “Regime Relativo à Organização,

Funcionamento e Processo da 3ª Sessão do Tribunal Administrativo”, Maputo.


a) Tendering for Works

Packages of 20-60 boreholes per district are tendered to achieve economy of scale as well as minimising time spent with tendering process and costs associated with mobilisation and maximising the efficiency of drilling equipment.

Requirements for drilling equipment depend on hydrogeological conditions and the number of drilling rigs for a given number of boreholes in the tender.

The selection of contractors consists of two steps:

A. Qualitative evaluation – consisting of examining supporting documents and verifying the qualifications of the bidder as stated in the tender documents:

Legal qualification: Certificate of Commercial Registration, Corporate Statutes

Fiscal qualification: Certificate of Finance and social security statement

Economic and Financial qualification: Income statements, annual accounts, turnover and net value of the company

Technical qualification: available Equipment staff and experience with similar works.

B. Quantitative Evaluation: Verifying calculation of scores and any omissions and additions in the bill of quantities to determine the lowest qualifying bid within the available budget allocation.

The tendering process typically takes about 3 months. In 2008, tenders for drilling were for a maximum period of one year. From 2009 onward contracts have been bi-annual to create more attractive lots of works (packages of boreholes) and realize more competitive costs through economies of scale and minimizing time spent on procurement.

As a way of contributing to the sense of ownership of the water point, communities are required to make an upfront contribution to the capital cost. However, in OMI this value is not clearly defined, leaving the amount to the discretion of the community; on the other hand, contrary to what happens in other projects, the amount contributed by the communities is not delivered to the contractor15, but kept in the community for the purchase of the first spare parts kit.

b) Tendering for Services

i. Supervision

Tenders for supervision include packages of 40-120 boreholes, corresponding to 2 lots of drilling (one contract for supervision of at least two rigs; i.e. at least two resident supervisors).

In the first drilling campaign in 2008, selection of consultants for supervision was based on quality and price, with contracts awarded to the company with highest combined score (final score=70%*technical+30%*financial). In addition, for supervision, contracts include hydrogeological/ geophysical studies. Payments for works are based on time and not directly linked to results.

To control drilling costs, in 2009 OMI introduced bi-annual contracts for supervision, but excluded hydrogeological/geophysical studies, based on the sealing amount criteria. In this approach the bidder with the best technical proposal is selected if it is within the maximum price stated in the tender documents. Payments are based on results: average cost of supervision for a completed positive borehole, even though siting is the responsibility of contractors/drillers.

15 The contractor is paid the full amount of the contract.


ii. Social Mobilization (Community Participation and Education – PEC)

In (2007) tenders were launched by DPOPH on behalf of District Government (DG)16, where each district was tendered as a separate lot/package. This arrangement involved contract management by DGs and allowed for reasonable execution of tenders taking into account the limitation that some districts would have to manage tenders. General conditions of tender were used, and selection was made based on quality and price, with the contract awarded to the bidder with highest combined score (final score=70%*technical+30%*financial). Due to the poor quality and low number of tenders submitted, in some districts (e.g. Zumbo, Marávia, Chemba and Maríngue), it was difficult to make an award. Payments were made quarterly based on submission and approval of reports satisfying agreed indicators.

In subsequent years, OMI launched bi-annual tenders. To control costs, exceptional conditions of tendering based on the sealing amount criteria was used. In this tender, the bidder with best technical proposal is selected, if the price is within the maximum price stated in the tender documents. To make payments flexible, a quarterly payment schedule using defined indicators is used.

In accordance with article 139 of the Decree 15/2010, the consulting services conform to 2 contract schemes: a) Global Price – applicable when the scope of the services is bound to delivery of one defined product, being the payment fixed based on the completion of the steps or product delivery; b) based on the Time-applicable when the scope of these services is not bound to product delivery set, and pay fixed on the basis of the price per unit of time.

By the provisions currently laid down, it can be understood that contracts of PEC conform accordingly Global Price modality (results) nevertheless require the full-time residence of the consultant team to carry out the different stages of the work, but the consultant is paid based on performance indicators evaluated quarterly by the client.

6.1.3 Composition of tender evaluation committee

Decree 15/2010 defines the structure and functions of the Implementing Procurement Management Units (UGEAs) in each state institution. This unit is responsible for managing all aspects of procurement, including planning, preparation and execution of the contract. This unit is under supervision of a Competent Authority. UGEAs were established in DPOPHs in all OMI provinces (Tete, Manica and Sofala).

Technical staff from DPOPH-DAS are responsible for the technical content of the tender documents with technical support from the UNICEF team. After preparation, tender documents were submitted to UGEA in DPOPH, and followed administrative process (public launching), including confirmation of budget availability, publication in newspapers and elaboration of the proposal of evaluation committee.

To evaluate proposals, an evaluation committee is nominated by the Competent Authority (Provincial Director) according to UGEAs recommendation. The committee usually consists of at least three members, and includes DNA/DPOPH and SDPI staff, and at least one member from UGEA.

During tender evaluation, UNICEF is an observer with no voting rights, but provides technical assistance according to procurement rules.

6.1.4 Role of UNICEF, DNA, DPOPH and district government in contracting

The roles of the key parties in contacting and contract management in OMI are as follows.

16 The DG as an executive body is responsible for contracting.


UNICEF – Confirmation of budget availability for contracting and technical assistance: assist in preparation of tender documents, evaluation of proposals, preparation and contract management.

DNA – Confirmation of budget availability for government obligations and as member of the evaluation committee when invited by DPOPH.

DPOPH – Preparation of tender documents, responsible for launching the tender and the contracting process, and member of evaluation committee, planning and contract management.

District Government (SDPI)17 – planning (definition of target communities), member of the evaluation committee, managing implementation of PEC contracts. The district is also responsible for certify the completion services for payment and receiving the final product.

6.1.5 Payment mechanisms

To reduce risk associated with financial management due to weak technical capacity at lower levels of decentralization, programme funds were managed by UNICEF and were transferred to implementing partners or directly to service providers through a written request and according to the plan and progress of activities.

To facilitate payments and reduce the risk of delays in approval and disbursement of funds, UNICEF has developed financial management procedures which are harmonised but not fully integrated with the Financial Management System of the State adapted to OMI procedures. Funds are transferred using two modalities:

1. Direct transfer18: funds for operational expenses and advance payments on contracts against bank guarantee; and

2. Direct payment: payment directly to the service provider based on claims from contractors. This modality is only used for services or work performed.

General, the payments of the services providers (contractors, supervisor engineers or EAS) are done accordingly:

1. Advance payment – done through DPOPH; e

2. The remaining amount is paid directly by UNICEF upon presentation and approval of the results.

6.2 Cost effectiveness19

Beside the availability of information at the program level, in this case study, the cost analysis is done only for works and supervision of construction of boreholes, and was not done for PEC contracts. Figure 2 presents a summary of drilling and supervision cost evolution for period in analysis.

17 The DG is an executive body whereas the SDPI performs administrative and technical services. 18 Direct transfer and direct payment are terms used by OMI. 19 All USD equivalents are at the current (January 2013) exchange rates.


Figure 2: Trends in cost of boreholes (2008-2011)*

Source: Generated from data obtained from UNICEF, Maputo (2012)

*1 MZN=0.033 USD (December 2012)

The price per borehole analyzed in Mozambican currency (Metical), as a result of the change of the contracting modality during implementation, reduced from about 341,500 MZN in 2008 (17% VAT included) for 260,466 MZN in 2009. Costs remained almost the same during the 2009 and 2010 campaign, whereas contracts were bi annual 2009 and 2010; and came back to rise to 365.810 MZN in 2011.

Analyzing the same price in dollars20, can see the same reduction trend, aggravated by the effect of the depreciation of the metical against the US dollar from 2008 to 2010. Therefore, the average price of the borehole in US dollars, reduced from about 13,084 USD in 2008 (17% VAT included) to 9,420 USD in 2009. Unlike the prices in meticais which remained in 2009 to 2011 they show even a sharp reduction to about 7,520 USD in 2010 as a result of the effect of the depreciation of the metical against the dollar above mentioned; and came back to rise to 12,706 in 2011 as prices in meticais.

Nevertheless the average depth for water hole have reduced by approximately 3.5 m from 2008 to 2010, the average cost per borehole was not directly linked to the depth of the holes – since the average cost of drilling per meter also shows a tendency of reduction of 5.990 MZN in 2008 (not including the geophysical survey) to 5,820 MZN in 2010 (including Geophysics Survey).

In most districts (11), the boreholes have an average depth of more than 40 metres; However, the districts of Machaze, Mossurize district, Zumbo, Dondo, Gorongosa and Maringue, Chemba are more critics, with an average of more than 45 meters depth (see Figure 3 below).

20 Average exchange rates according to UNICEF Financial Management System (2008 = 26.1, 2009= 27.65, 2010=34.21, 2011= 28.79)

221.87 229.36 225.82

325.46

33.89

85.75

31.11 31.46

40.35

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2008 2009 2010 2011

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positive negative supervision

Change in contract modality

Positive+

Negative

Siting+

Supervision

Siting+

Positiveonly

Supervisiononly

Supervisiononly

Supervisiononly

Siting+

Positiveonly

Siting+

Positiveonly

Total cost: 341,500.19 MZNAverage depht: 42.7 mSuccess rate: 73.6 %# Posit. Boreholes: 309





Figure 3: Average depth of borehole by district


Considering the factor of economy of scale in packages of boreholes (amount of works) launched and the fact that the number of boreholes built have increased significantly, also may have contributed on average cost per borehole; that is, the most attractive packages (greater number of boreholes) offer some financial stability to the contractors, opening space for lower significantly their financial proposals.

Supervisor engineer costs represents about 12% of the total cost of the borehole in 2009 and 2010; in 2011 was noted a slight reduction to 11%. For 2008, the cost of technical consultant (geophysical survey and supervision) represents about 20% of the borehole cost; however, it is difficult to make a comparison of the costs of supervision this year, since contracts included geophysical survey and supervisor21.

6.3 Performance of consultants

In the context of OMI, the identification of priority communities for the drilling Campaign is driven by the needs of the communities, with the support of the organizations involved in the social mobilization. After the communities have been identified, the borehole siting is performed by specialist personnel, taking into account the preference/convenience of the community.

In the first year of the drilling Campaign of OMI (2008), the consultants were hired to conduct hydrogeological including geophysical studies and later to supervise the construction of the boreholes. The tender documents specify that geophysical survey should be used for the borehole siting; also established that the probability of a positive borehole (success rate) should not be less than 85%. In this campaign, total of 439 boreholes were drilled, from which 323 were positive and 116 negative, resulting

21 It is difficult to directly compare supervision and construction costs, since contract modalities have changed over time. Information on what was contracted and what was paid in each kind of contract as well as the payment modalities in each kind of contract or in each contract modality need to be subjected to a detailed analysis? Some reduction in costs can be due to “non recommended” payment procedures in different types of contracts.

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50.00

60.00

70.00G

ondo

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Suss

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Man

ica

Mac

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Mos

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ze

Gur

o

Ang

onia

Tsan

gano

Chifu

nde

Mar

avia

Zum

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Chan

gara

Don

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Mua

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Nha

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Gor

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Mar

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Chem

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Average Depht per DistrictMeters District


in a success rate of less than 75%, less than the rate required to consultants contract after use the geophysical survey.

In the years 2009 to 2011, the geophysical survey responsibility passed to contractors, limiting the services of technical consultants to supervise construction, so it becomes difficult to evaluate its performance during this period. In these campaigns, the technical specifications of the boreholes indicate that negative or dry boreholes are those whose flow rate is less than 900 liters/hour, or with unacceptable water quality for human consumption.

6.4 Performance of contractors

During the 2009-2010 and 2011 campaign, and unlike the 2008 campaign, the siting of borehole (in the identified communities) was included in the drilling contract, as well as the inclusion of a clause of non-payment of negative boreholes. On the other hand, and despite the fact that the previous campaign have revealed a success rate of 73% (considered reasonable in accordance with the code of good practice), the technical specifications warned contractors about the risk of occurrence of negative boreholes and suggested the use of Geophysics to mitigate the risk. Figure 4 below shows the results about the success rate of drilling during the period (2008-2011).

Figure 4: Success rate of drilling by year (2008-11)


These results show that the success rate has increased in succession to 73% in 2008, to 76%, 77% and 82% in 2009, 2010 and 2011, respectively. From this increase can be concluded that the success rate has increased with change in contracting modality, when the drilling contractor is responsible for the siting

73% 76% 77%

82%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2008 2009 2010 2011

Success Rate (%)


and not being paid for negative boreholes. This may be due to the fact that there is more pressure on the contractor to achieve success; however, further investigation is needed22 on this issue.

With the change of the contracting modality for turnkey type contracts, it was found: (i) reduction in the average cost per borehole of about 341,500 MZN (11,383 USD) in 2008 to 257,275 MZN (USD 8,575) in 2010; (ii) increase in the success rate in drilling of about 73% in 2008 to 82% in 2011.

7. Assessment of contracting with reference to OMI

Contracting practices based on the experience of OMI were assessed using a set of ten criteria of cost-effective contracting23 rated on a numerical scale ranging from 0 to 5. An assigned score of 0 indicates none or absence, 1-poor/low compliance, 2-fair compliance, 3-good compliance, 4-very good compliance and 5-excellent or total compliance. Scores represent a composite assessment obtained from field visits, review of relevant documentation, discussions with key informants at provincial and district levels.

Table 2: Assessment of Contracting Practices with Special Reference to OMI

Nr Principle Narrative Score

1 Professional Drilling Enterprises and Consultants

Construction of drilled water wells and supervision undertaken by professional and competent organisations which comply with national standards and are regulated by the public sector.

4

2 Siting Appropriate siting practices are utilised and competently and scientifically carried out.

4

3 Construction Method The construction method chosen for the borehole is the most economical, considering the design and techniques in-country. Drilling technology needs to match borehole design.

4

4 Procurement Procurement procedures ensure that contracts are awarded to experienced and qualified consultants and drilling contractors.

4

5 Design and Construction Borehole design is cost-effective, designed to last for 20 to 50 years, and meets the minimum specifications to provide a borehole which is fit for its intended purpose.

5

6 Contract Management, Supervision and Payment

Adequate arrangements are in place to ensure proper contract management, supervision and timely payment of the drilling contractor

3

7 Data and Information High-quality hydrogeological and borehole construction data for each well are collected in a standard format and submitted to the relevant Government authority.

3

8 Database and Record-keeping Storage of hydrogeological data is undertaken by a central Government institution with records

1

22 It is unlikely that a contractor will start work unless there is a reasonable certainty of success. This may

influence the final choice of communities previously selected by district or sub-district authorities.

23 The criteria are drawn from Adekile, D. (2012), Procurement and Contract Management of Drilled Well Construction. A Guide for Supervisors and Project Managers, RWSN, St. Gallen, Switzerland.


Nr Principle Narrative Score

updated and information made freely available and used in preparing subsequent drilling specifications.

9 Post-construction Monitoring Regular visits to completed boreholes to monitor functionality in the medium and long term with the results published.

2

10 Benchmarking Data and information are used to establish performance and service standards

2

TOTAL 32

OVERALL AVERAGE 3.1

The above assessment reveals a wide variation of scores (ranging from 1 to 5), with the average score of 3.1 indicating that there is overall “good” compliance with the principles of cost-effective design, procurement and contracting. The assessment also reveals that there is very good or excellent agreement in design and construction24, siting, construction methods and professionalisation of drilling enterprises and consultants. On the other hand, there is a lower level of compliance with database management and record keeping, post-construction monitoring and benchmarking, all of which are related to data management and developing performance and service standards in the sector. These areas represent gaps for the water sector that need to be addressed in order to improve the delivery cost-efficient services that function as intended and deliver more sustainable benefits.

The above assessment reveals a need to improve monitoring, database and information management, including information on costs and expenditure tracking over time and consolidating data collected and reporting25, as well as the use of information to establish sub-sector wide benchmarks. Although the use of the district water point database introduced by OMI has improved significantly, in some districts regular updating of databases and using the data as input to more effective planning and monitoring of works and services remain a challenge.

8. Lessons

8.1 Procurement

From the point of view of general principles, procurement systems of external funding agencies can be aligned with the Government's Procurement system, as provided for in the rules of the code of good practices. However, despite the progress made by the Government in the reforms of procurement system, its implementation remains a challenge, due to the limiting of local human resources duly trained.

The adoption of the most appropriate contracting modality is a crucial factor for the success of a construction program. In the case of the OMI, the turnkey modality, associated with the bi annual contracts, proved to be more suitable for the construction of cost effective borehole (relatively minor cost

24 A detailed treatment of technical designs and construction methods is outside the scope of the present case

study, which focuses on procurement and contract management. However, they are included in the assessment since they are important to the delivery of higher quality and more sustainable works and services.

25 UNICEF (2012), Country Progress Report 2011, Mozambique.


and higher success rate), when compared with the classical approach of Engineering (geophysical survey and supervision to the consultant's responsibility).

For hydrogeological complex areas, with low success rate, may not be recommended the adoption of contracting turnkey modality, under penalty of these communities be neglected because of the high risk that drilling process represent to the contractors. In these situations, a comprehensive study – separated from the contractor's contract must be carried out under the responsibility of the Client, where the drilling contract can accommodate a risk factor for the contractor, in order to cover any negative borehole.

8.2 Turnkey Contracts

8.2.1 Limitations

There is a potential conflict of interest in the adoption of turnkey contracts for the construction of boreholes, in an environment where, for geophysical survey, most contractors are dependent on the subcontracting of the same consultants involved in supervision;

Complex areas of hydro-geological point of view (e.g. Machaze, Mossurize district, Guro, Chemba and Maríngue), can be neglected in case of turnkey contracts due to the associated high risk (low success rate) for drilling companies.

8.2.2 Effectiveness of turnkey contracts

The turnkey contract proved to be quite effective for the control of prices of boreholes and improvement of success rate, when the expected risk is properly known.

8.2.3 Risks

While the preceding discussion has focused on contracting seen from the contracting agency’s perspective, there are a number of risks associated with the above contractual arrangements from the perspective of the contractor as described below.

1. Prescribing a ceiling price may reduce the nominal bid price; however there are also unintended consequences, as follows.

a. Some potential bidders with higher fixed costs, including salaries, may not bid due to higher fiduciary risks.

b. The ceiling price for drilling works is combined with a turnkey contract for supervision. The Client only pays for positive boreholes, for which the contractor is responsible. This means that the supervisor is only paid for positive boreholes, even though they are required to supervise drilling works for all boreholes.

c. In districts with difficult hydrogeological conditions, bidders for supervision work will only be likely to break even, and if there are unforeseen problems, the bidder is likely to incur a loss. In such cases the fiduciary risk is often viewed as being too high and the potential bidders for supervision will decline to submit a proposal.

d. A number of firms have agreed not to compete for tenders for drilling supervision under these conditions.


e. This de facto market restriction/distortion creates a situation where only small firms or individual candidates compete, while other firms withdraw from the market altogether. This has the unintended consequence of reducing competition.

f. Some qualified firms have withdrawn from bidding for drilling supervision due to low profit margins and high fiduciary risks.

2. The price ceiling rule can create the conditions for possible collusion between the drillers and supervisors.

a. The supervisor has an incentive to declare a borehole positive, otherwise they will not be paid.

b. This can result in situations where not all “positive” boreholes meet all technical specifications and may not function optimally.

3. Ceiling prices have a tendency to be uniform for all districts, regardless of hydrogeological conditions. Drillers are reluctant to bid for work in districts with a high probability of negative boreholes, such as Machaze District in Manica Province.

8.3 Post-Project Activities/Monitoring and Evaluation

Actualmente a monitoria da implementação das actividades do programa é feita pelas DPOPHs/DAS e

Currently the monitoring of the implementation of the programme activities is made by DPOPH-DAS and SDPI, in coordination with UNICEF's technical team. However, for a more effective monitoring on the part of the DPOPHs/DAS and SDPI, the existing capacity (human, technical and financial means) must be increased.

Although there is a collection of data about the boreholes, at the level of DPOPH-DAS and SDPIs the same information has not be stored in a systematic way (in a database), which can enable better decision-making on the sites with the potential for exploitation.

9. Recommendations

Recommendations are presented in two groups, viz (1) for OMI; and (2) for the sector (DNA and PRONASAR).

9.1 Recommendations for OMI

Although the success rate of drilling has increased as result of changing of contracting approach, it is recommended that the mandatory use of geophysics for siting of boreholes be reconsidered according to hydrogeological conditions of each area.

OMI should pay special attention to areas with a higher risk of negative boreholes, to avoid that communities in such areas are neglected.

It is recommended that OMI closely monitor a potential conflict of interest during geophysical surveys between drillers and consultants who supervise works.

Bi-annual Contracts for works, supervision and PEC (social mobilization) should be encouraged because they allow to create more attractive lots of works (borehole packages) and realize more competitive costs through economies of scale and minimizing time spent on procurement.


9.2 Recommendations for the sector (DNA/PRONASAR)

To improve the performance of planning and contract management of DPOPH/DAS and SDPI it is important to develop a national and provincial database of technical data with the relevant information of drilled borehole from all programs.

The risk of drilling a negative (dry) borehole should be assessed and categorized (e.g. high, medium and low risk) by area.

DNA is encouraged to use the information collected during the last four years of drilling in OMI to improve knowledge of the hydrogeology in the three provinces where OMI is implemented.

DNA is encouraged to identify successful experience from other RWSS projects in the country.

Bi-annual contracts for works, supervision and PEC should be encouraged, in order to create more attractive lots of works and realize more competitive costs through economies of scale and minimizing time spent on procurement.

DNA to encourage development of database for technical data in order to develop benchmarks and improve performance in planning and contract management of DPOPH-DAS and SDPI.

It is important that there are more decentralization of the contract management and establishment of procurement process up to the district level, accompanied by a transfer of technical and financial capacity (where is feasible).

There are also issues identified during the preparation of this case study for which no recommendations have been made. These issues deserve further attention by both OMI and DNA. They are:

Unequal competition between NGOs and private sector consulting companies due mainly to differences in cost basis

Low advance payments to NGOs and companies at decentralized levels

Lack of uniform practices regarding the community contribution to works

Time taken for Administrative Tribunal approval and dealing with the delays this may cause

There is a tendency to focus on formal institutional roles, rules and procedures, whereas the

integrity of contracting can be adversely affected when individuals at various levels exercise discretionary authority in circumvention of agreed rules and procedures.

9.3 Concluding Remarks

Effective contracting is an important element in the professionalisation of drilling and consultancy

services that are necessary to provide improved water supply and related services to rural populations. This case study has shown that OMI’s procurement and contract management practices have contributed to more cost-effective delivery of works and services in the RWSS sub-sector in Mozambique. OMI has institutionalised adaptive management and continuous learning to improve procurement and contracting procedures, as the commissioning of this case study exemplifies.

OMI broadly complies with and thereby strengthens national policies and guidelines regarding procurement and contract management. Technical assistance provided by UNICEF has improved the capacity of decentralised entities in the three provinces in procurement and contract management.

The assessment also showed that there are gaps - aspects of good contracting practices that need to be addressed by relevant service authorities to improve service delivery and strengthen institutional, private


sector and civil society capacity to provide works and services that last. Gaps relate specifically to data, database and information management and the need for effective safeguards and sanctions to ensure compliance at all levels with procedures to select the most competent contractors and consultants.

DNA as sector and PRONASAR as sub-sector leaders should use the lessons from OMI’s contracting experience and the recommendations in this case study in revising MIPAR and in preparing the next Annual Implementation Plan for PRONASAR. The revised MIPAR should include guidelines on good contracting practices to facilitate the adoption and use of good contracting practices in Mozambique. The greatest challenge facing DNA and PRONASAR today is to effectively implement good procurement and contracting practices that lead to higher quality and more cost-effective works and services that in turn contribute to improved sustainability and impact.


References

Adekile, D. (2012), Procurement and Contract Management of Drilled Well Construction. A Guide for Supervisors and Project Managers, RWSN, Switzerland.

Conselho de Ministros (2005), Regulamento de Contratacao de Empreitada de Obras Pubilcas, Decreto 54/2005, Fornecimento de Bens e Prestacao de servicos ao Estado, Maputo.

Conselho de Ministros (2010), Regulamento de Contratacao de Empreitada de Obras Pubilcas, Fornecimento de Bens e Prestacao de servicos ao Estado, Decreto 15/2010; revoga o Decreto 54/2005, Maputo.

Conselho de Ministros, Decreto 15/2010 de 24 de Maio de 2010; Boletin da República Nr. 20, I Série.

Tribunal Administrativo (2009), Lei n.º 26/2009, de 29 de Setembro, que aprova o “Regime Relativo à Organização, Funcionamento e Processo da 3ª Sessão do Tribunal Administrativo”, Maputo.

Direccao Nacional de Aguas. (2012) Programa Nacional De Abastecimento De Água E Saneamento Rural, Plano De Implementação Anual.

Ministério das Finanças (2006), Diploma Ministerial nº 141/2006, Maputo.

UNICEF (2012), One Million Initiative – Annual Progress Report 2011, Mozambique.

UNICEF (2012), Sustainability Strategy, Version 8 (draft).

Zita, Júlia and Naafs, Arjen (2011), Costs of rural water point sources in Mozambique. Unit Costs Analysis of Contracts from January up to June 2011. WASHCost.

Zita, Júlia and Naafs, Arjen (2011), Costs of rural point sources in Mozambique. Analysis of Unit -Costs of 2010 Contracts. WASHCost.

Zita, Júlia and Naafs, Arjen (2012), Evolução dos Custos das Fontes Dispersas em Moçambique de 2009 a 2011 - Análise dos Custos Unitários dos Contratos de 2009-2011. WASHCost.


Annex 1: Principles of Cost-Effective Boreholes26

Principle 1: Professional Drilling Enterprises and Consultants - Construction of drilled water wells and supervision is undertaken by professional and competent organisations which adhere to national standards and are regulated by the public sector. Principle 2: Siting - Appropriate siting practices are utilised and competently and scientifically carried out. Principle 3: Construction Method - The construction method chosen for the borehole is the most economical, considering the design and available techniques in-country. Drilling technology needs to match the borehole design. Principle 4: Procurement - Procurement procedures ensure that contracts are awarded to experienced and qualified consultants and drilling contractors. Principle 5: Design and Construction - The borehole design is cost-effective, designed to last for a lifespan of 20 to 50 years, and based on the minimum specification to provide a borehole which is fit for its intended purpose.

Principle 6: Contract Management, Supervision and Payment - Adequate arrangements are in place to ensure proper contract management, supervision and timely payment of the drilling contractor. Principle 7: Data and Information – High-quality hydrogeological and borehole construction data for each well are collected in a standard format and submitted to the relevant Government authority. Principle 8: Database and Record Keeping - Storage of hydrogeological data is undertaken by a central Government institution with records updated and information made freely available and used in preparing subsequent drilling specifications.

Principle 9: Monitoring - Regular visits to water users with completed boreholes are made to monitor

functionality in the medium as well as long term with the findings published.

26 From Adekile, D. (2012), Procurement and Contract Management of Drilled Well Construction. A Guide for Supervisors and

Project Managers, RWSN, St. Gallen, Switzerland.

Documents

National Directorate of Water - UNICEF · Lessons ... (2008-2011)* ... Decree 258/2010 on 30 December 2010. PRONASAR is the framework for implementing the Rural Water Supply and Sanitation