Document ofThe World Bank

Report No: 23928-BD

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED CREDIT

IN THE AMOUNT OF SDR 3.6 MILLION(US$4.5 MILLION EQUIVALENT)

TO

THE PEOPLE'S REPUBLIC OF BANGLADESH

FOR THE

PUBLIC PROCUREMENT REFORM PROJECT

April 4, 2002

Procurement Services UnitSouth Asia Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective February 28, 2002)

Currency Unit = Bangladesh Taka (RT.)Tk. 57.25 = US$1.00

US$0.01747 = Tk. 1.00

FISCAL YEARJuly I -- June 30

ABBREVIATIONS AND ACRONYMS

AAA Analytical and Advisory ActivityADP Annual Development ProgramAPD Academy for Planning and DevelopmentBD BangladeshBIAM Bangladesh Institute of Administradon and ManagementBOO Build, Own, OperateBOT Build, Operate, TransferBRAC Bangladesh Rural Advancement CommitteeC&AG Comptroller and Auditor GeneralCAO Chief Accounts OfficerCAS Country Assistance StrategyCPAR Country Procurement Assessment ReportCPTU Central Procurement Technical UnitDC Direct ContractingDG Director GeneralECNEC Executive Committee of National Economic CouncilESW Economic and Sector WorkFBS Fixed Budget SelectionFMR Financial Management ReportGDP Gross Domestic ProductGOB / GoB I GovL Government of BangdeshIC Individual ConsultantICB International Competitive BiddingIDA Interational Development AssociationIFB Invitation for BidsILO International Labor OrganizationIMED Implementation Monitoring and Evaluation DivisionITC-ILO International Training Center of the ILOMIS Management Inormation SystemMOI Ministry of InformationMOP Ministry of PlanningNCB National Competitive BiddingNGO Non-governmental OrganizationNS National Shopping

OECD Organization for Economic Co-operation and DevelopmentOED Operations Evaluation DepartmentPATC Public Administration Training CenterPIP Project Implementation PlanQBS Quality-Based SelectionQCBS Quality- and Cost-Based SelectionRFP Request for ProposalSA Special AccountSOE Statement of ExpendituresSSS Single-Source SelectionTA Technical AssistanceTAPP Technical Assistance Project ProformaUNCITRAL United Nations Commission for International Trade Law

Vice President: Mieko NishimizuCountry Manager/Director: Frederick Thomas Temple

Sector Manager/Director: Kevin W. CaseyTask Team Leader/Task Manager: Zafrul Islam

BANGLADESHPUBLIC PROCUREMENT REFORM PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key performance indicators 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 22. Main sector issues and Govemment strategy 23. Sector issues to be addressed by the project and strategic choices 3

C. Project Description Summary

1. Project components 32. Key policy and institutional reforms supported by the project 53. Benefits and target population 54. Institutional and implementation arrangements 6

D. Project Rationale

1. Project altematives considered and reasons for rejection 72. Major related projects financed by the Bank and other development agencies 73. Lessons leamed and reflected in the project design 84. Indications of borrower commitment and ownership 85. Value added of Bank support in this project 8

E. Summary Project Analysis

1. Economic 92. Financial 93. Technical 94. Institutional 95. Environental 106. Social 117. Safeguard Policies 11

F. Sustainability and Risks

1. Sustainability 122. Critical risks 123. Possible controversial aspects 13

G. Main Conditions

1. Effectiveness Condition 132. Other 13

H. Readiness for Implementation 14

I. Compliance with Bank Policies 14

Annexes

Annex 1: Project Design Summary 15Annex 2: Detailed Project Description 20Annex 3: Estimated Project Costs 28Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 29Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 30Annex 6: (A) Procurement Arrangements 31

(B) Financial Management and Disbursement Arrangements 40Annex 7: Project Processing Schedule 44Annex 8: Documents in the Project File 45Annex 9: Statement of Loans and Credits 46Annex 10: Country at a Glance 48

MAP(S)

BANGLADESHPublic Procurement Reform Project

Project Appraisal DocumentSouth Asia Regional Office

SARPS

Date: April 4, 2002 Team Leader: Zafrul IslamCountry Manager/Director: Frederick Thomas Temple Sector Manager/Director: Kevin William CaseyProject ID: P075016 Sector(s): BB - Public Sector Management Adjustment, BI

- Institutional DevelopmentLending Instrument: Technical Assistance Loan (TAL) Theme(s): Public Sector

Poverty Targeted Intervention: N

Project Financing Data1 Loan [X] Credit 1 Grant [ Guarantee [ Other:

For Loans/Credits/Others:Amount (US$m): 4.45

Proposed Terms (IDA): Standard CreditGrace period (years): 10 Years to maturity: 40Commitment fee: 0.5% (less any waiver) Service charge: 0.75%Financing Plan (USSm): Source Local Foreign TotalBORROWER 0.46 0.00 0.46IDA 1.77 2.68 4.45Total: 2.23 2.68 4.91Borrower: PEOPLES REPUBLIC OF BANGLADESHResponsible agency: IMPLEMENTATION MONITORING AND EVALUATION DIVISIONAddress: Room 25, Block 11, Sher-e-Bangla Nagar, DhakaContact Person: Mr. AKM Fazlul Karim, Director GeneralTel: + 880 2 911 8354 Fax: + 880 2 812 2210 Email: pprpl@bdonline.com

Estimated Disbursements ( Bank FY/US$m):FY 2002 2003 2004 2005 2006

Annual 0.20 1.90 1.81 0.90 0.10Cumulative 0.20 2.10 3.91 4.81 4.91

Project implementation period: May 2002 - April 2005Expected effectiveness date: 05/31/2002 Expected closing date: 11/30/2005. FA F-M PR l_l,. MO

A. Project Development Objective

1. Project development objective: (see Annex 1)

The development objective of the project is to increase efficiency, transparency, and accountabilityin the procurement of goods, works and services by government ministries, departments, statutorycorporations and other public bodies. The project would support public procurement reform throughintroducing appropriate procurement rules and procedures; building up procurement management capacity;and establishing a series of mechanisms to improve transparency and reduce corruption. This reform iscrucial to strengthen the country's aid utilization capacity and aid effectiveness, and to gain donor group'sconfidence to justify continued development assistance to Bangladesh.

2. Key performance indicators: (see Annex 1)

Process and outcome indicators to gauge the attainment of the project's objective have beendeveloped and are shown in Annex 1.

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: 21326-BD Date of latest CAS discussion: December 12, 2000

The 2000 CAS identified govemance and institutional constraints as the most serious impedimentspreventing Bangladesh from achieving its full economic potential and accelerating the pace of povertyreduction. Opaque public procurement practices, poor financial management, high level of corruption, anddecline in the quality of civil services have led to very low expectations of public services, and contributedto the high cost of doing business that, in turn, has deterred private sector development. According to theCountry Procurement Assessment Report (CPAR), the deficiencies of the current public sectorprocurement practices are the single most serious issue affecting the whole public sector's activities.Outdated procurement rules and procedures, inadequate capacity to manage public procurement, lack ofaccountability, and corruption has seriously affected the country's aid utilization capacity and aideffectiveness. According to some estimate, the economic losses due to corruption overall are estimated tocost the country about 2.5% GDP growth per annum. There is growing recognition within the country thatimproved govemance is a prerequisite for improving the investment climate and accelerating privatesector-led economic growth. In this context, the Govermment's commitment to undertake a broad-basedreform agenda on governance is a trigger to Bank's moving toward a high case lending support.Procurement reform is one of the priority areas for govemance improvement. The proposed PublicProcurement Reform Technical Assistance (TA) project is thus closely aligned with the Bank assistancestrategy to Bangladesh.

2. Main sector issues and Government strategy:

The Bangladesh CPAR has identified a whole series of deficiencies contributing to the poor publicsector procurement performance. These include: absence of a sound legal framework governing publicsector procurement leading to proliferation of diverse rules and procedures among various agencies;protracted bureaucratic procedures allowing multi-point rent seeking; lack of critical mass of professionalsto manage public procurement as reflected in poor quality bidding documents and bid evaluation, inordinatedelays in completing the procurement process and ineffective contract administration; and absence ofmechanisms for ensuring transparency and accountability in public procurement.

To address the above underlying causes of poor public procurement performance, the Bank, with

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support of the government, conducted a country procurement assessment in 2000. The government hasbroadly endorsed the findings and recommendations of the CPAR report, which, among others,recommends the following:

* create a Central Procurement Policy Unit in an appropriate ministry having the mandate to managethe public sector procurement reform program;

* prepare and issue Public Procurement Rules and Procedures;* introduce a set of Standard Bidding Documents for goods, works, and professional services,

applicable to all public procurement;* revise delegation of powers and delayer the procurement approval process;* publish contract awards, introduce appeal procedures, and a code of ethics for procurement staff;

and* establish regular training programs to develop the needed human resources.

These recommendations underpin the design of the proposed project.

3. Sector issues to be addressed by the project and strategic choices:

The project design is based on the CPAR's recommendations. The strategic choice is to support thecreation of basic policy and institutional frameworks in the medium term, which will sustain furtherreforms and institutional capacity building effort in the longer term. The proposed project design alsoreflects the strategic approach of harvesting the low-lyingjfruits first by (a) reforming the procurementrules and mandatory use of standard bid documents so as to cut procurement delays-the single mostimportant problem in public sector procurement in Bangladesh; and (b) introducing mechanisms to ensuretransparency in the procurement process and restore public confidence. The quality of procurement is thesecond priority but results may materialize slowly as attraction and retaining of suitable staff and theirtraining require time. Preparation and enactment of a public procurement law will be a follow-up actionafter the urgently needed reforms as outlined above are successfully completed.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

Indicative Bank- % ofComponent Sector Costs % of financing Bank-

(US$M) Total (USSM) financingI: Establishing Central Procurement Institutional 1.25 25.5 0.84 18.9Technical Unit DevelopmentII. Implementing Procurement Reforms Public Sector 1.59 32.4 1.59 35.7and Rules/Procedures Management

AdjustmentIII. Improving Procurement System Reform & 2.07 42.2 2.02 45.4Management Capacity Capacity Building

Total Project Costs 4.91 100.0 4.45 100.0

Total Financing Required 4.91 100.0 4.45 100.0The project will have the following three components:

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(i) Establishing a Central Procurement Technical Unit (CPTU): A Central Procurement Technical Unitwill be established in the Implementation Monitoring and Evaluation Division (IMED) of the Ministry ofPlanning with adequate staffing and logistics, responsible for carrying out procurement reformns in line withthe recommendations of the CPAR. The CPTU will have no procurement / contracting functions at anylevel except for its own needs. The unit may provide technical/professional advice on generic procurementissues referred to it, but shall not get involved or provide opinion in any specific procurement evaluation orcontract award, thus preserving its pristine role as a policy, technical assistance, training and oversightunit. One of the function of the CPTU is to create procurement awareness at all levels. GOB shallestablish the CPTU as a permanent institution of the Govermment funded under the revenue budget that willbe sustained after the project period. The CPTU will be located in the IMED. Office for the consultantswill be provided at the same location. (Detailed functions of the CPTU are in Annex-2).

The Government in its memo dated April 4, 2002 confirmed that the CPTU has been created inIMED as a permanent institution funded under revenue budget.

(ii) Implementing Public Procurement Reforms and Rules/Procedures: Public procurementrules/procedures and standard bidding documents will be developed in line with the CPARrecommendations. The CPTU will follow a participatory consultation process involving government andprivate sector stakeholders to develop ownership and support for reforms. GOB will furnish the draft newrules/procedures to IDA for review and will incorporate recommendations for changes, if any, into the finaldocuments prior to their implementation. Activities under this component will include:

improving economy and efficiency by:* developing and introducing public procurement rules and procedures;* developing and publishing a set of: (a) standard bidding documents for goods and works,

including sample models for BOT / BOO / turn-key contracts and community contracting; and(b) standard request for proposals for consultants services, including NGO services; and

* drafting a procurement law.

improvinz transparency by:* publishing in the press and web site awards of all contracts valued at US$200,000 and above;* simplifying procedures for advertisement by making the implementing agency directly

responsible for publishing invitation for bids without routing through the Ministry ofInformation;

* introducing public procurement website and electronic bidding;* including an expert of known probity in the evaluation committee for selection of consultants;

and* sequestering of evaluation conunittee for contracts over certain thresholds.

improvin- accountabilitv by..* revising procurement approval process with significantly reduced number of layers;* revising delegation of powers;* introducing appeal procedure in the rules;* introducing mandatory procurement audit by independent auditors for each public sector entity,

regardless of the source of funding; and* introducing code of conduct for procurement professionals.

(iii) Improving Procurement Management Capacity: Procurement management capacity will be

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developed via a two-pronged effort: (a) institutionalization of comprehensive and regular trainingprograms through selected institutions; and (b) establishing a monitoring and evaluation capacity at CPTUto track procurement performance of public sector entities. The contents and delivery modalities of thetraining programs will be tailored to meet the needs of various target groups, including private sectorconstruction /consulting industries and the NGO sector. The activities under this component would include:

Procurement Trainini* A critical mass of 25 trainers will be built up through intensive training, on-the-job evaluations

and a rigorous accreditation process. This will help and sustain the in-country trainingcapacity.

* Approximately 1600 participants will be provided with in-country procurement training duringthe project period.

* Course curriculum, teaching materials and training programs for various target groups,including government officials / auditors / selected private sector staff, will be developed.

* The International Training Center of the ILO, Turin (ITC-ILO) has been selected on asingle-source basis to provide services for the above activities. And initially, BangladeshInstitute of Administration and Management (BIAM) will provide in-country training logistics.

Procurement and Compliance Monitoring* A fully computerized and real-time procurement management information system (MIS) will

be established at the CPTU to monitor and enforce compliance with new procurement rulesand procedures, and evaluate the impact of the public sector procurement reform.

* A public procurement website will be established to provide access to procurement relatedinformation.

Project Manaeement Training* A separate project management training program will be supported under the project to provide

training to about 600 government project staff. This training will be conducted by IMED incollaboration with Academy for Planning and Development (APD) or similar institutions.

2. Key policy and institutional reforms supported by the project:

As described in section B.3, the project seeks key policy reform in public procurement by introducing a setof comprehensive procurement rules and procedures. The key institutional reforms will includeestablishing a permanent Central Procurement Technical Unit to manage the procurement reform programand developing regular procurement training programs at selected institutions in Bangladesh.

3. Benefits and target population:

This project is designed to support priority procurement reforms to reduce procurement delays,improve procurement quality and ensure transparency in public sector procurement. The direct benefitsenvisaged under the project would include faster and better use of public resources, significant reduction ofcorruption and increased aid utilization capacity. The project would restore the public confidence, therebycontributing to the creation of good investment climate in Bangladesh. The project would also enhance thecapacity of the domestic construction and consulting industries to participate more effectively in nationaland international procurement. In the longer term, all the above would create a powerful force toward moretransparent and accountable institutions, resulting in accelerated economic growth and faster povertyreduction.

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4. Institutional and implementation arrangements:

IMED within the Ministry of Planning will be the implementing agency for the project. The CPTUheaded by a Director General will oversee all project activities. The Director General will be supported bytwo Directors, one for procurement rules, procedures and training, and the other for monitoring andevaluation. The CPTU will be assisted by a team of high caliber experts under a technical assistance majorconsultancy.

A Steering Committee headed by the Secretary, IMED, comprising representative of the keyministries will provide policy and implementation guidance.

Implementation of Technical Assistance: The single most critical procurement under the projectrelates to the procurement of technical assistance (TA) for procurement reform activities and procurementtraining activities. Given the need to assemble a team of experts of high caliber to assist the GOB inimplementing procurement reform and ITC-ILO's track record as a premier procurement traininginstitution under UN umbrella and its successful experiences in assisting procurement reforms in EastEuropean and Central Asia countries in collaboration with OECD, at the request of the Borrower, itsselection on a sole source and single responsibility basis was considered justified to provide expert inputsfor the procurement policy reform (under Component 2) and procurement training (under Component 3).Initially, ITC-ILO will deliver the procurement training at BIAM. Annex 6 provides more details.

Procurement: Procurement under the project will be handled by CPTU. Procurement under theproject will largely involve consultants' services including training, with small quantities of goods.ITC-ILO, through a team of international and national experts, will provide services on a single sourcebasis for the major TA contract for procurement reform and training. The team of experts include anumber of Procurement Specialists. For goods, since the contracts' sizes are very small, shopping is thepreferred procedure, however, depending on the implementation experience, the borrower may follow NCBfor contracts valued less than US$200,000. For procurement of goods, the Bank's Procurement Guidelinesshall apply. For consultants' services, the Consultants Guidelines shall apply.

For goods, since the contracts' sizes are very small and shopping is the preferred method, IDA willcarry out prior review of the first two contracts for shopping. However, depending on the implementationexperience, if the borrower follow NCB, one contract will be subject to prior review. For consultants'services, IDA's prior review will be required for consultants' services contracts estimated to costUS$100,000 equivalent or more for firms and US$50,000 equivalent or more for individuals.

Financial Management: The current government accounting system, the main focus of which ison book-keeping and transactional control over expenditure will be followed in CPTU, which is adequatefor the project. The recently introduced Project Accounting Manual of the government will provideguidelines on policy and procedures to be followed for transactions relating to Govt. funds. Consideringthat most of the project transactions relate to a small number of local and international consultants, thecurrent financial management system in CPTU is capable of processing all financial transactions followingthe Project Accounting Manual. The Accountant currently working in IMED will handle financialmanagement activities of the CPTU, once the CPTU has been established. IMED will ensure that theAccountant is onboard with the establishment of the CPTU. In addition, IMED will appoint thefinancial management consultant (finance manager) no later than June 30, 2002.

The CPTU is responsible for preparing Financial Management Reports (FMRs) on a semi-annualbasis. The Financial Statements will be prepared within fifteen days of the following month. A set of

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customized formats of FMRs are included in the PIP and would be submitted to the Bank for monitoringproject physical and financial progress.

The annual financial statement of the project would be audited by the Comptroller and AuditorGeneral (C&AG) and would be submitted to the Bank within six months of the end of each fiscal year. Theaudit report will include separate opinions on Project Financial Statements, Special Account and SOE.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

The alternative of pursuing procurement reform through an umbrella " Governance ImprovementProject " was considered but rejected for the following reasons. While there is increasingrecognition of the need to tackle the underlying governance issues in the country, to secureGovernment commitment and ownership of a broad range of reforms in public administration,banking, public sector financial accountability and etc., will take time. Furthermore, internaldiscussions within the Bank also suggested that adjustment credits based on the Government'staking bolder reform steps upfront may be a more effective instrument to assist in moving thegovernance agenda forward. On the other hand, there is already agreement with the Governmenton the priorities and approaches to basic procurement reform, thus there is a critical need to moveforward in a decisive manner so as to maintain the momentum created through the CPAR process.Based on the above, it is proposed to proceed with a self-standing procurement reforn TA credit.

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).

I [ | Latest SupervisionSector Issue Project - (PSR) Ratings

.___________ __________j (Bank-financed projects only)Implementation Development

Bank-financed Progress (IP) Objective (DO)

Lack of management capacity within Bangladesh Export Sthe customs wing of NBR, complex Diversification Projectexport procedures, transaction-based (BDXDP)processes leading to corruption andprotracted clearance process. Exportservice institutions not deliveringquality services (EPB)

Excessive Discretion exercised by Judicial and Legal Reformjudiciary, large case backlog causing Projectprotracted delays in reaching verdicts,and no separation of executive andjudicial branches, leading to politicalinterference in due process.

Other development agencies

Absence of appropriate budgeting and UK-DFID-Reform in Budget

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expenditure control. Inconsistent and Expenditure Controlaccounting system that compromises (RIBEC 2000)revenue and budget data used forAnnual Development Plan.

Weak capacity to conduct Government ADB-Reforms in Governmentaudits Audit (RIGA), Institutional

support to the MOF

UNDP-StrengtheningTransparency in the AuditorGeneral's Office (STAG)

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

Three key lessons identified by the OED's evaluation of the Bangladesh portfolio have been reflectedin the project design.

The first lesson relates to the ownership issue. Many projects in Bangladesh show signs ofincomplete ownership and commitment to project objectives. To address this, basic reform steps would besought in the early stage of project implementation, which are difficult to reverse and which will producetangible results quickly, thereby building up public support for procurement reform.

The second lesson is to limit project goals to a small number of crucial policy reforms anddevelopment impact objectives. Specifically, the project is aimed at cutting procurement delays, improvingprocurement quality and enhancing transparency in the procurement process.

It is recognized that the determinants of success of public procurement reform will include not onlychanges of rules and procedures but also changes in incentives and behaviors. To bring about sustainableimprovement in procurement will be a long-term undertaking. The Government has agreed to establish theCPTU as a permanent unit to lead the long-term reform process.

4. Indications of borrower commitment and ownership:

Procurement reform is one of the top of GOB's broad governance improvement agenda. The GOBhas demonstrated its commitment and ownership of the project by (i) completing prior actions enablingfast-track project processing in a record short period of time (pre-appraisal in mid. November 2001,followed by appraisal in early February 2002, with negotiations and Board presentation schedule in Marchand April 2002 respectively); and (ii) its commitment to take upfront key reform steps within three monthsof credit effectiveness.

5. Value added of Bank support in this project:

In Bangladesh, the Bank has carried out substantial amount of AAA work. Besides the CPAR,three major reports have been prepared: the Country Financial Accountability Assessment; Corruptionin Bangladesh; and Taming Leviathan : An Institutional and Governance Review. During the course ofthe above ESW work, the Bank has deepened its understanding of the country specific issues and has beenleading the donor group's dialogue with the Government on governance. The Bank's expertise and advicehave been well received by the Government, the donor group and the civil society. Given the Bank's

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institutional knowledge on procurement reforms and its ability to bring global best practices to bear on theformulation of reform program in Bangladesh, the Bank's support has contributed immensely to help ensurethe quality and substance of the reform program.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):O Cost benefit NPV=US$ million; ERR = % (see Annex 4)* Cost effectivenessO Other (specify)

As explained in section C.3, the proposed project is expected to generate enormous direct benefitsas measured in terns of reduction in procurement delays and development costs resulting from improvedeconomy and efficiency in public procurement. To gauge the impact of the proposed reforms, a set ofprocurement performance benchmarks will be developed. A procurement management information systemwill be established to monitor the performance of public sector entities against the said benchmarks duringproject implementation. In view of the nature of the project, no calculation of economic rate of return willbe attempted.

2. Financial (see Annex 4 and Annex 5):NPV=US$ million; FRR = % (see Annex 4)

To ensure sustainability of the reform initiatives, the Government has agreed to provide counterpartfunding for the reform program, including budgetary support to maintain the CPTU. In addition, costrecovery mechanisms for providing training to private participants will be reviewed during implementation.

Fiscal Impact:

The Government will fund the CPTU staff s salaries, local taxes and part of operating expenses.The project's direct fiscal impact is minimal in consideration of its small contribution of about US$0.5million, constituting 9% of the project cost. The project, however, would have significant fiscal impact onGOB's overall budget in terms of reduction of corruption, more effective competition, decrease ofcontracting costs, and timeliness of contract execution.

3. Technical:The key technical issues requiring special attention relate to (i) how to develop the in-country

capability to deliver quality procurement training programs in an efficient and demand-driven manner, and(ii) how to sensitize the target groups for acquiring and applying procurement knowledge in their work.ITC-ILO will provide: in-country training to a large number of participants and extensive rigorousin-country/abroad training to a limited number of participants who will act as critical mass. The in-countrytraining will initially be at BIAM. The engagement of ITC-ILO to provide quality support in procurementtraining and certification / accreditation program for training recipients (critical mass) would help ensuresustainability and provide incentives.

4. Institutional:

4.1 Executing agencies:

See Section C.4.

4.2 Project management:

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The technical and managerial capacity of IMED has been reflected in the project design throughadequate staffmg of the CPTU and contracting of the ITC-ILO for providing technical assistance majorconsultancy. The contract for ITC-ILO will be signed before Credit effectiveness.

4.3 Procurement issues:

The project procurement include a technical assistance major consultancy contract and purchase ofvery small quantity of goods. IMED has prepared a draft Procurement Plan that is included in the PIP.

As part of the advance procurement actions, ITC-ILO has been selected on a single-source basis toprovide services of the technical assistance for procurement reform and training, which is the most criticalactivity under the project. IMED will sign contract with ITC-ILO before Credit effectiveness; the contractwould be effective upon credit effectiveness. Being very small size with limited number of contracts,goods may be procured following shopping procedures. The CPTU in its team of expert has number ofProcurement Specialists, who will assist in procurement of goods. Given the size and nature ofprocurement, the risk is average.

Annex 6 describes further details on procurement aspects.

4.4 Financial management issues:

The CPTU has financial management system which is adequate to cater to minimum FMrequirements by credit effectiveness. The recently introduced Project Accounting Manual of theGovernment would also provide a framework for ensuring basic financial management system inthe project.

Transaction-based disbursement procedures will be applicable for withdrawal of funds from theCredit. IDA funds will be channeled through a special account in a commercial Bank with termsand conditions acceptable to IDA. The DG/CPTU will be the authorized person for issuingpayments through checks, payment request to Chief Accounts Officer (CAO) of the miniistry forcounterpart funds and withdrawal of funds from IDA credit. IDA will make direct payment toITC-ILO through "Blanket Withdrawal Application" procedures with intimation to CPTU.

The current manual system in IMED will be followed in CPTU, which is adequate to keeptrack with project financial transactions. Though the computerized accounting system is notimperative for effective financial management system, the implementing agency has plan to go forcomputerized system, provided CPTU appoints staff with required IT skills.

From the financial management perspective, there is low risk affecting the credit. This isbecause the credit would have several consultancy contracts, where the financial flows are simplyfrom Special Account to the Consultants and direct payment in case of ITC-ILO contract and willbe paid as per the terms and conditions of contractual agreements.

5. Environmental: Environmental Category: C (Not Required)5.1 Sunmmarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

No environmental impacts are expected to arise as a result of project implementation. And, theproject will not involve any acquisition of land.

5.2 What are the main features of the EMP and are they adequate?

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n/a

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: n/a

5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describe mechanismsof consultation that were used and which groups were consulted?

n/a

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

n/a

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

One social issue which would be addressed relates to "child labor". The standard biddingdocuments will contain a specific clause for compliance with the applicable minimnum age labor laws andrequirements of the Government of Bangladesh and applicable World Bank policies regarding hazardousforms of child labor. Another issue is on how to develop an environment for compliance of standard ofethics by staff of implementing agencies, bidders/suppliers/contractors in the broad country context. Aprogram through printed and electronic media to raise public awareness on good procurement practices hasbeen incorporated into the project.

6.2 Participatory Approach: How are key stakeholders participating in the project?

As indicated in Section C. 1 .(i), the project will develop a mechanism to disseminate information onthe progress and impact of the procurement reforms. Procurement awareness campaign will be undetakenby the CPTU. At the same time, feedback from public and private sector stakeholders and the public atlarge will be gathered with the objective to adapting the implementation processes.

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

As in E.6.2 above.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

The social development objectives include: capacity building, behavioral change, and publicawareness. Capacity building will be attained through extensive training program. A core team of trainerswill be provide with accreditation that would act as incentive to changed behavior. Awareness campaignthrough procurement website and mass media will create public support for reform.

6.5 How will the project monitor performance in terms of social development outcomes?

The Management Information System included in the project will, among others, monitor andmeasure performance in terms of social development outcomes.

7. Safeguard Policies:7.1 Do any of the following safeguard policies apply to the project?

Policy Applicability

Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) * Yes 0 NoNatural Habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes * NoForestry (OP 4.36, GP 4.36) 0 Yes * NoPest Management (OP 4.09) 0 Yes 0 NoCultural Property (OPN 11.03) 0 Yes * NoIndigenous Peoples (OD 4.20) 0 Yes * NoInvoluntary Resettlement (OP/BP 4.12) 0 Yes * NoSafety of Dams (OP 4.37, BP 4.37) 0 Yes * NoProjects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 NoProjects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* 0 Yes 0 No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

OP4.01 was applied for screening and categorizing the project. And no safeguard issues andimpacts are expected to arise as a result of project implementation.

F. Sustainability and Risks

1. Sustainability:

The project design has made the strategic choice to support the creation of basic policy andinstitutional frameworks in the medium term, which will provide the foundations to sustain further reformsand institutional capacity building effort in the longer term.

The reforms to be implemented during the project period-- establishing a Central Procurement TechnicalUnit, introducing sound public procurement rules and procedures, and improving procurement managementcapacity-- are perrnanent improvements to the present regime. The CPTU will be maintained and willcontinue its functions after the project period. The enforcement of proper procurement rules andprocedures together with measures to improve transparency--particularly the appeal procedure andpublication of bidding results--, would help contain corruption, restore private sector confidence andcontribute to improving investment climate. All these would help ensure sustainability of project outcome.

2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk Risk Rating Risk Mitigation MeasureFrom Outputs to ObjectiveGovernment approval of agreed specific S The TAPP will spell out all critical reforms withreforms time-bound actions. GOB's approval of the

TAPP will be a condition for negotiations.

Establishment of the CPTU with adequatestaffing will be a condition for Boardpresentation.

Compliance with new procurement rules M The project will develop dissemination,and procedures by public sector entities consultation and monitoring mechanisms toand private contracting industries. foster stakeholders' willingness to support

reforms.

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Parliamentary approval of a public H This project activity will be implemented in theprocurement law later part of the project period. During the

course of the project, tangible benefits of newprocurement rules and procedures would bevisible and this would lead to positive publicopinion to support the enactment of a publicprocurement law.

From Components to OutputsTimely selection of consultants S Advance procurement actions will be taken to

ensure that key consultants are appointedbefore Board presentation.

IMED's capacity to manage the project. S The project design has incorporated thefollowing aspects to ensure managementcapacity: adequate staffing of the CPTU; linkprogram with reputed training institutions tolighten the management load of CPTU; andappointment of experienced intemationalspecialists.

Overall Risk Rating S The project design takes into full account theownership issue and limits project goals to asmall number of crucial reforms which havebeen agreed by the Government.

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

3. Possible Controversial Aspects:

None

G. Main Loan Conditions

1. Effectiveness Condition

None

2. Other [classify according to covenant types used in the Legal Agreements.]

The project will be carried out in accordance with the Implementation Program in Schedule 4 to theDCA.

GOB will appoint a financial management consultant (finance manager) no later than June 30,2002.

GOB/IMED will: (a) maintain and operate the CPTU, in a manner satisfactory to the Borrowerand IDA; (b) no later than one month after the credit effectiveness, issue Government Order mandating the

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publication of all contract awards valued at US$200,000 and above in the media; and by no later than threemonths after the credit effectiveness, commence publishing the award of such contracts; (c) introduce astreamlined internal procurement approval procedure with significantly reduced number of layers within sixmonths of credit effecdveness; (d) introduce procurement rules/procedures and appeal procedures withinsix months from the date of effectiveness of the credit; (e) introduce standard bidding documents andrequest for proposals within nine months of credit effectiveness; (f) establish management informationsystem for procurement perfonnance monitoring within 13 months of credit effectiveness; (g) introducemandatory procurement audit by independent auditors for public sector entities within 13 months of crediteffectiveness; and (h) prepare a draft procurement law within 18 months of credit effeciveness.

H. Readiness for Implementation

El 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.

0 1. b) Not applicable.

0 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

0 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

El 4. The following items are lacldng and are discussed under loan conditions (Section G):

1. Compliance with Bank Policies

0 1. This project complies with all applicable Bank policies.O 2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

Zafiul Islam Frederick Thomas TempleTeam Leader Sector ManagerIDi ctor Country Manager/Director

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Annex 1: Project Design Summary

BANGLADESH: Public Procurement Reform ProjectKey Performance Data Collection Strategy

Hierarchy of Objectives Indicators Critical AssumptionsSector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)Improved governance in * Better procurement * Quarterly report of * Government'spublic procurement environment. implementing agency commitment to reform

* Improvement in aid * Business environmentutilization capacity. survey

* Improvement of publicconfidence.

Project Development Outcome / Impact Project reports: (from Objective to Goal)Objective: Indicators:Increased efficiency, * Timeliness of award of * Quarterly management * Government commitmenttransparency and contract information system report * General popular supportaccountability of public * Reduction of unit rates of * Annual report of for governance reformprocurement. cost for major civil work implementing agency

contracts * Mid-term evaluation* Decrease in corruption report.

perception andmisprocurement cases

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| Key Performance Data Collection Strategy |Hierarchy of Objectives Indicators Critical Assumptions

Output from each Output Indicators: Project reports: (from Outputs to Objective)Component:1. Establishing a CentralProcurement Technical Unit(CPTU)(i) CPTU established. * Submission of the * GoB's notification & * Clearance of the Ministry

approved technical confirmation letter of Establishment, Financeassistance project * Approved TAPP and Planning.proforma (TAPP) and * PIP.final ProjectImplementation Plan(PIP) by February 14,2002 (This was acondition for negotiationsand was met by GOB)

* Signing of contract withITC-ILO by April 30,2002 for providingservices relating toprocurement reform andtraining. (This is acondition for Crediteffectiveness)

* Issuance of GovemmentOrder establishing theCPTU by April 4, 2002.(This was a conditionforBoard presentation andwas met by GOB)

(ii) Consultants onboard. * Selection and * GoB's letter. * Advance procurementappointment of key actions takenintemational and nationalconsultants by April2002.

(iii) Vehicles & computers * Procured by May 2002 * Delivery report. * Advance procurementactions taken

2. Implementing PublicProcurement Reforms andRules/Procedures(i) Public Procurement Rulesand Procedures developed and * Issuance of Govemment * Draft reports on rules and * Timely appointment ofintroduced (including Order promulgating the procedures consultantsstandard bidding documents, rules, approval process, * Supervision reports * Timely clearance of theappeal procedures, revised and appeal procedure by relevant ministry.procurement approval November 2002process, and simplified * Introduce biddingadvertisement procedures) documents by February

2003

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(ii) Procurementannouncement and contract * Quarterly report * Clearance of GOB.awards for US$200,000 and * Confirmation of GoB by * Procurement Bulletinabove published January 2002 that

contract awards will bepublished within onemonth of the crediteffectiveness (This wasmet).

* Issuance of GovernmentOrder mandatingpublication of awards byJune 2002

(iii) Public procurementwebsite developed andelectronic bid processing * Completing review of * Review report * Timely appointment ofconsidered various websites and * Website manual consultants

developing a new website * Supervision reportby December 1, 2002.

(iv) Delegation of powers * Drafting revised * Review report * Clearance of the Ministryrevised delegation of powers by * Supervision report of Finance

December 2002* Issuance of Government

Order mandating revisedpower by February 2003

(v) Code of conduct for * Developing code of * Quarterly review report * Clearance of the Ministryprocurement professionals conduct by March 2003 * Supervision report of Establishmentintroduced * Issuance of Government

Order mandating code ofconduct by June 2003.

(vi) Independent Expert for * Preparing a list of * Quarterly report * Clearance of the Ministryconsultants' proposal national expert of probity * Supervision report of Establishment.evaluation considered by March 2003

* Making provision ofindependent evaluator byJune 2003

(vii) Procurement audit * Issuance of Government * Quarterly report * Clearance of Ministry ofintroduced Order mandating Finance

procurement audit byJune 30, 2003.

(viii) Procurement law * Completing review of * Quarterly report * Parliamentary action.drafted various procurement acts * Supervision report

and laws by June 2003* Preparing a draft

procurement law byDecember 31, 2003

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3. Improving ProcurementManagement Capacity(i) Procurement training * Development of course * Quarterly report * Timely selection ofprovided curriculum and training * Supervision report consultants

materials by September * Timely identification of2002. training institutions

* Commencing training byOctober 2002.

* Providing training toapproximately 400 staffannually.

(ii) Public procurement * Completing survey of * Quarterly report * Timely selection ofdatabase developed public procurement * Supervision report consultants

entities by March 31, * Appropriate cooperation2003 of the concerned public

* Establishing procurement entities in releasing datadatabase by June 30,2003

(iii) National contractors list * Completing survey of * Quarterly report * Timely selection ofdeveloped contractors by March * Supervision report consultants

2003 * Appropriate cooperation* Establishing qualified of the concerned public

contractors database by entities in releasing dataJune 2003

(iv) Management information * Commissioning and * Quarterly report * Timely selection ofsystem developed testing of procurement * Supervision report consultants

monitoring system byMarch 2002

* Commencingimplementation of MISby June 2003

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Key Performance Data Collection Strategy |Hierarchy of Objectives Indicators [ Critical Assumptions

Project Components / Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)L. Central Procurement US$1.25 million (US$0.7 * Progress reports * Insufficient GoB fundingTechnical Unit (CPTU) million for vehicles and * Disbursement data levels

equipment; US$0.55 million * Low IMED capacityfor operational support to &capacity building of theCPTU, and research &studies)

II: Procurement Rules and US$1.59 million (US$1.09 for * Progress report * Low IMED capacityProcedures developing rules /procedures * Website manual * Appropriate cooperation

and advising on * Study reports of relevant agenciesimplementation; US$0.5million for office support &logistics

III: Procurement US$2.07 million (US$0.87 * Training materials * Low IMED capacityManagement Capacity million for developing * Training reports * Low participation

teaching materials and * Database/MIS reportsproviding training; US$Imillion for participantsexpenses; US$0.2 million forprocurement database andMIS).

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Annex 2: Detailed Project DescriptionBANGLADESH: Public Procurement Reform Project

The 2000 Country Assistance Strategy (CAS) for Bangladesh identified governance and institutionalconstraints as the most serious impediments preventing Bangladesh from achieving its full economicpotential and accelerating the pace of poverty reduction. Opaque public procurement practices, poorfinancial management, high level of corruption, and decline in the quality of civil services have led to verylow expectations of public services, and contributed to the high cost of doing business that, in turn, hasdeterred private sector development. According to some estimates, the economic losses due to corruptionoverall are estimated to cost the country about 2.5% GDP growth per annum. There is growing recognitionwithin the country that improved govemance is a prerequisite for improving the investment climate andaccelerating private sector-led economic growth. In this context, the Government's commitment toundertake a broad-based reform agenda on governance is a trigger to Bank's moving toward a high caselending support. Procurement reform is one of the priority areas for governance improvement.

To address the underlying causes of poor public procurement performance, the Bank, with supportof the government, conducted a country procurement assessment in 1999-2000. According to the CountryProcurement Assessment Report (CPAR), the deficiencies of the current public sector procurementpractices are the single most serious issue affecting the whole public sector's activities. The CPARidentified a series of deficiencies contributing to the poor procurement performance. These include: absenceof a sound legal framework governing public sector procurement, outdated procurement rules andprocedures leading to proliferation of diverse rules and procedures among various agencies, inadequatecapacity and lack of critical mass of professionals to manage public procurement as reflected in poorquality bidding documents and bid evaluation, inordinate delays in completing the procurement process,ineffective contract administration, protracted bureaucratic procedures allowing multi-point rent seeking,and absence of mechanisms for ensuring transparency and accountability in public procurement. All thesehave seriously affected the country's aid utilization capacity and aid effectiveness.

The government in February 2001 has broadly endorsed the findings and recommendations of theCPAR, and assigned Implementation Monitoring and Evaluation Division (IMED) of the Ministry ofPlanning to initiate follow-up actions. Procurement reform has become one of the priority areas forgovernance improvement and the proposed Public Procurement Reform Technical Assistance is thusaligned with the Bank assistance strategy to Bangladesh.

The development objective of the project is to increase efficiency, transparency, and accountabilityin the procurement of goods, works and services by government ministries, departments, statutorycorporations and other public bodies. The project would support public procurement reform throughintroducing appropriate procurement rules and procedures; building up procurement management capacity;and establishing a series of mechanisms to improve transparency and reduce corruption. This reform iscrucial to strengthen the country's aid utilization capacity and aid effectiveness, and to gain donor group'sconfidence to justify continued development assistance to Bangladesh.

By Component:

Project Component 1 - US$1.25 million

Establishing a Central Procurement Technical Unit (CPTU)

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A Central Procurement Technical Unit will be established in IMED, Ministry of Planning withadequate staffing and logistics, responsible for carrying out procurement reforms following therecommendations of the CPAR. CPTU will have no procurement / contracting functions at any levelexcept for its own needs. The unit may provide technical/professional advice on generic procurementissues referred to it, but shall not get involved or provide opinion in any specific procurement evaluation orcontract award, thus preserving its pristine role as a policy, technical assistance, training and oversightunit. GOB shall establish the CPTU as a permanent institution of the Government funded under therevenue budget that will be sustained after the project period. The CPTU will be located in the office of theIMED, including office of the consultants.

Key functions of the CPTU are to:

* implement the recommendations of the Country Procurement Assessment Report (CPAR-Attachment-i);

* prepare and issue the "Public Procurement Rules and Procedures" applicable to all governmentand public sector bodies;

* monitor compliance of the public procurement rules, issue clarifications, obtain feedback andcontinuously improve and update them;

* develop and publish a set of Standard Bidding Documents, using the World Bank SBDs asmodels and inputs and integrating the numerous documents now in use by other developmentpartners and the government;

* publish contract awards as determined by the Government from time to time (initially allcontracts valued at US$200,000 and above) in public procurement website;

* develop and maintain a public procurement website;* revise procurement approval procedures and delegation of powers, introduce mandatory

procurement audit, appeal mechanism and code of conduct, simplify advertisement procedures,consider inclusion of independent expert in the evaluation of consultants' proposals;

* plan, prepare and schedule training programs to cover the target group during the project andcontinue the training on a sustainable basis;

* collect data from various public sector and project implementing entities, analyze, and submitreport;

* prepare and issue procurement technical notes on selected procurement topics;* carry out studies (through out-sourcing the tasks) on areas/issues identified as problems and

bottlenecks in public procurement and conduct procurement awareness campaign;* maintain close link with the training and research institutions for continuation of the production

of the procurement manpower and further strengthening of the existing knowledge andexpertise; and

* draft a Public Procurement Law for consideration of the Government.

The Government in its memo dated April 4, 2002 confirmed that the CPTU has been created inIMED as a permanent institution funded under revenue budget. Before effectiveness of the credit, (a) theDirector General and the two Directors of the CPTU, with appropriate qualifications as per the PIP, will beonboard who will work for the entire project period, with the proviso of satisfactory performance; and (b)IMED will sign contract with the Intemational Training Center of the ILO, Turin for procurement reformand training.

Project Component 2 - US$1.59 million

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Implementing Public Procurement Reforms and Rules/Procedures

Public procurement rules/procedures and standard bidding documents will be developed in linewith the CPAR recommendations. The CPTU will follow a participatory consultation process involvinggovernment and private sector stakeholders to develop ownership and support for reforms. GOB willfurnish the draft new rules/procedures to IDA for review and will incorporate recommendations forchanges, if any, into the final documents prior to their implementation. Activities under this componentwill include:

improving economy and efficiency bv:* developing and introducing public procurement rules and procedures- after review of various

rules, procedures and models including the World Bank Guidelines and UNCITRAL modellaw, a set of nationally applicable procurement rules and procedures will be developed andmandated;

* developing and publishing a set of: (a) standard bidding documents for internationalcompetitive bidding and national competitive bidding for procurement of goods and works,including possible models for BOT / BOO / turn-key contracts and sample bidding documentsfor community contracting; (b) standard request for proposals for professional services,including NGO services; and (c) sample form for bid/proposal evaluation reports; and

* drafting a procurement law.

improving transparency by:* publishing contract awards- CPTU will collect contract award information in prescribed

formats from all public sector entities and will publish in the media and/or web site awards,initially, of all contracts valued at US$200,000 and above, starting within three months of theeffectiveness of the credit;

* simplifying procedures for advertisement- existing procedures for publishing invitation forbids (IFBs) that currently involves routing through the Ministry of Information (MOI) will bereviewed and discontinued, by making the implementing agency directly responsible forpublishing IFBs without routing through MOI, within ninety days of effectiveness of the credit;

* introducing public procurement website and electronic bidding- a public procurement websitewill be developed and introduced after review of relevant websites that have been introducedelsewhere. Public sector procurement related information will be available in the website, forinstance, standard bidding documents, standard request for proposals, technical notes,invitation for bids, contract awards. With a gradual approach, the possibility of introducingelectronic bid processing will be undertaken;

* including an independent expert in the proposal evaluation committee- for selection ofconsultants, a list of national experts with well-known probity and integrity will be preparedand provision will be made in the rules to include one such expert in evaluating consultants'proposals; and

* sequestering the evaluation committee- sequestering the evaluation committee, until the finalreport is completed, will be considered that will be applicable for large contracts at thebeginning (valued at US$5 million or above for goods and works, and US$1 million forconsultants' services).

improving accountability by:* revising procurement approval process- existing procurement approval process involving large

number of steps and causing excessive delays will be reviewed, and a revised, streamlined andtransparent approval procedures with significantly reduced number of layers (say, a maximum

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of five for the ministry level and three for the agency level) will be introduced and mandated inthe rules, starting within six months of credit effectiveness;

* revising delegation of powers- existing delegation of powers to the project directors for revenueand development programs of all sectors and entities (for instance, Rural Electrification Board,Bangladesh Power / Water Development Board, City Corporations, Port Authorities, andDirectorates/Departments of various ministries), including their complexity, will be reviewedand a revised delegation of powers will be developed and mandated;

* introducing appeal procedure- a provision of appeal or a review procedure of written protestsby the interested supplier or contractor or consultants will be introduced and mandated in therules. The review panel will consist of three experts selected from a list of distinguishedpersonnel (alternate location of this review panel to be explored);

* introducing procurement audit- for carrying out post review of contracts, mandatoryprocurement audit by independent auditors for each public sector entity, regardless of thesource of funding, will be introduced and mandated in the rules; and

* introducing code of conduct- code of conduct for public procurement staff and code of ethicsfor business communities (suppliers, contractors, and consultants) will be developed andintroduced.

Project Component 3 - US$ 2.07 million

Improving Procurement Management Capacity

Procurement management capacity will be developed via a two-pronged effort: (a)institutionalization of comprehensive and regular training programs through selected public and privatetraining institutions; and (b) establishing a monitoring and evaluation capacity to track procurementperformance of public sector entities. The contents and delivery modalities of the training programs will betailored to meet the needs of the various target groups, including private sector construction /consultingindustries and the NGO sector.

Following activities are included in this component:

Procurement Training* A critical mass of 25 trainers will be built up through intensive training, on-the-job evaluations

and a rigorous accreditation process. This will help and sustain the in-country trainingcapacity. Trainers will be selected based on a set of criteria (indicative criteria are included inthe PIP and will be furiher developed and agreed upon during implementation).

* Procurement management capacity and training needs of the public sector including auditors,private contracting & consulting industry will be assessed. Approximately 1600 participantswill be provided with in-country procurement training during the project period. Trainees willbe selected based on a set of criteria (indicative criteria are included in the PIP and will befurther developed and agreed upon during implementation).

* Course curriculum, teaching materials and training programs for various target groupsincluding training of trainers, procurement professionals, govemrnment officials, public &private sector auditors and selected private sector staff will be developed.

* Bangladeshi institutions establish link programs with mature and well-perforning intemationaltraining institutions in order to sustain the training program. To materialize this approach,initially a link program would be established between the International Training Center of theILO, Turin (ITC-ILO) and Bangladesh Institute of Administration and Management (BIAM);

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the project may identify other local public/private institutions subsequently, for instance,Academy for Planning and Development (APD), BRAC, etc.

Procurement and Compliance Monitoring* The project includes a provision of technical assistance to establish and operationalize a fully

computerized and real-time procurement management information system (MIS) at CPTU tomonitor and enforce compliance with new procurement rules and procedures and evaluate theimpact of procurement reform.

* CPTU will establish a public procurement website to provide access to procurement relatedinformation. This website will be integrated with the MIS.

Project Management Training* The project will provide separately project management training to about 600 participants of

the government in order to develop management skills. This training will be conducted byIMED in collaboration with APD or similar institutions.

Project Implementation Arrangements

IMED will be the implementing agency for the project. The CPTU will be headed by a DirectorGeneral who will oversee/ manage all project activities. The Director General will function as the ProjectDirector for the proposed technical assistance and will be supported by two Directors, one for theprocurement rules, procedures and training, and the other for monitoring and evaluation. The DirectorGeneral and the Directors shall be professionally qualified for their functions and their selections shall bemade accordingly. (CPTU Organogram: Attachment-2).

A Steering Committee headed by the Secretary, IMED will provide guidance to implement the TAproject and will meet once in three months. The other members of the committee would be Secretary /Additional Secretary / Joint Secretary or similar level officials from the Finance, Cabinet Division,Communication, Power and Energy, Economic Relations, Planning, Establishment, Local Government,Education, ECNEC, C&AG, Health, and public Works. The Project Director will be the MemberSecretary.

Procurement of Technical Assistance: The single most critical procurement under the projectrelates to the procurement of technical assistance for procurement reform activities and procurementtraining activities. A competitive selection process would take 9-12 months at minimum in the currentBangladeshi context. Given the need to assemble a team of experts of high caliber to assist the GOB inlaunching and implementing the procurement reform and ITC-ILO's track record as a premier procurementtraining institution under UN umbrella and its successful experiences in assisting procurement reforms inEast European and Central Asia countries in collaboration with OECD, at the request of the Borrower,selection of ITC-ILO on a sole source and single responsibility basis was considered justified, to provideexpert inputs for the procurement policy reform (under Component 2) and procurement training (underComponent 3). Having reviewed the proposal submitted by ITC-ILO, IDA shared with IMED's viewsexpressing satisfaction at the quality of the proposal, which clearly demonstrated their deep understandingof the objectives of the assignment; the fact that proposed team comprises intemationally reputed expertsprovides confidence to meet the objectives of the assignment. As indicated in the proposal, initiallyITC-ILO will deliver the procurement training through a link program with BLAM. BIAM is expected to:(a) provide all logistics and associated services including boarding, lodging, etc. for smooth carrying out ofin-country training by the ITC-ILO and (b) acquire, develop and institutionalize capacity for carrying out

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future training program beyond the project period.

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Attachment 1

CPAR Recommendations

Recommendations for the Government of Bangladesh

SI. Recommendations Years._ 1 2 3

1 Set up a public procurement policy unit X2 Issue public procurement rules X X3 Issue SBDs X X X4 Revise delegation of powers X5 Revise approval process X6 Plan and initiate training courses X X X7 Simplify procedure for advertisements X8 Publish contract awards X9 Revise works procurement procedures X X10 Prepare list of approved national contractors X X11 Consider inclusion of an outsider in consultant X X

evaluation committee12 Introduce appeal procedure in the rules X13 Introduce code of conduct X X X

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Attachment-2

Organizational Structure of CPTU

Secretary, IMED

l ~~~~~~~~~~SteerngCommitte

| CENTRAL PROCUREM ENT TECHNICAL lUNIT [CPTUJ (19 PERSONS)

DIRECTOR GENERAL (CPTU) andPROJECT DIRECTOR (5)

1 DG/PDI System Analyst2 Computer OperatorI Photocopier Operator

DIRECTOR (Rules, Procedures and Training) (7) DIRECTOR (Monitoring and Evaluation) (7)1 Director I DirectorI Dy. Director 1 Dy. Director1 Training Co-ordinator I Programmer/Web MasterI Assistant Director 1 Asst. Programmer/Maint. Engg.3 Computer Operators 3 Computer Operators

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Annex 3: Estimated Project Costs

BANGLADESH: Public Procurement Reform Project

Local Foreign TotalProject Cost By Component US $million US $million US $million

Central Procurement Technical Unit 0.96 0.23 1.19Procurement Rules and Procedures 0.03 1.48 1.51Procurement Management Capacity 1.14 0.83 1.97Total Baseline Cost 2.13 2.54 4.67Physical Contingencies 0.05 0.07 0.12Price Contingencies 0.05 0.07 0.12

Total Project Costs' 2.23 2.68 4.91

Total Financing Required 2.23 2.68 4.91

Local Foreign TotalProject Cost By Category US $million US $million US $million

Goods 0.70 0.00 0.70Works 0.00 0.00 0.00Services 0.39 2.29 2.68Training 0.80 0.39 1.19Incremental Operating Cost 0.34 0.00 0.34

Total Project Costs' 2.23 2.68 4.91

Total Financing Required 2.23 2.68 4.91

Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, is 4.91 (US$m). Therefore, the project cost sharing ratio is 90.54% of totalproject cost net of taxes.

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Annex 4: Cost Effectiveness Analysis SummaryBANGLADESH: Public Procurement Reform Project

Present Value of Flows Fiscal ImpactEconomic Analysis Financial Analysis'

' - -. . - . ~~~~~~~~~Taxes _SubsidiesProject Costs NA NA

If the difference between the present value of financial and economic flows is large and cannot be explained bytaxes and subsidies, a brief explanation of the difference is warranted, e.g. "The difference between financial andeconomic costs arises from price controls on the inputs."

Summary of benefits and costs:

The single most critical element under the project relates to the techmcal assistance forprocurement reform activities and procurement training. It was extremely important for the project toassemble a team of experts of high caliber to assist the GOB in launching and implementing theprocurement reform. The Intemational Training Center of the ILO, Turin (ITC-ILO), with its track recordas a premier procurement training institution under UN umbrella and its successful experiences in assistingprocurement reforms in many East European and Central Asia countries in collaboration with OECD, hasbeen considered to be engaged on a sole source basis to provide expert inputs for this component. Theproposal submitted by ITC-ILO clearly demonstrated their deep understanding of the objectives of theassignment; the fact that proposed team comprises internationally reputed experts provides confidence tomeet the objectives of the assignment. The benefits expected out of this activity has tremendous potentialin providing sustainability to the procurement management capacity.

The Government will fund the CPTU staff's salaries, local taxes and part of operating expenses.The project's direct fiscal impact is minimal in consideration of its small contribution of about US$0.5million, constituting 9% of the project cost. The project, however, would have significant fiscal impact onGOB's overall budget in terms of reduction of corruption, more effective competition, decrease ofcontracting costs, and timeliness of contract execution.

Main Assumptions:None

Cost-effectiveness indicators:None

These indicators should compare the project with a suitable comparator, e.g. unit project costs of alternativeproject designs or international standards.

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Annex 5: Financial Summary

BANGLADESH: Public Procurement Reform Project

Years Ending

IMPLEMENTATION PERIOD

Year1 I Year 2 Year 3 | Year 4 | Year 5 Year 6 Year 7Total FinancingRequiredProject CostsInvestment Costs 0.6 1.7 1.6 0.7 0.0 0.0 0.0Recurrent Costs 0.0 0.1 0.1 0.1 0.0 0.0 0.0

Total Project Costs 0.6 1.8 1.7 0.8 0.0 0.0 0.0,Total Financing 0.6 1.8 1.7 0.8 0.0 0.0 0.0

FinancingIBRD/IDA 0.5 1.6 1.5 0.7 0.0 0.0 0.0Government 0.1 0.2 0.2 0.1 0.0 0.0 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0User Fees/Beneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Project Financing 0.6 1.8 1.7 0.8 0.0 0.0 0.0

Main assumptions:

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Annex 6(A): Procurement ArrangementsBANGLADESH: Public Procurement Reform Project

Procurement

1. The total value of the project is US$4.91 million, of which the IDA Credit will finance US$4.45million. Procurement under the project will largely involve consultants' services including training, withsmall quantities of goods.

2. All IDA financed procurement of goods will follow procedures outlined in the Bank's "Guidelinesfor Procurement under IBRD Loans and IDA Credits ': published in January 1995, and revised in Januaryand August 1996, September 1997, and January 1999. Consulting services and training will be procuredin accordance with the Bank's "Guidelines: Selection and Employment of Consultants by World BankBorrowers ': published in January 1997, and revised in September 1997 and January 1999. Procurementof goods and services will follow the Bank's approved/standard documents.

Goods (US$0.69 million)

3. Goods to be financed under the Credit include: computers, office fittings and fixtures,audio-visual equipment, office equipment, photocopiers, air conditioners, two vehicles, andfurniture. All procurement under the project is expected to involve small contracts, with estimated costless than US$100,000 per contract (most contracts value less than US$30,000). The nature of these smallcontracts is unlikely to attract the interest of foreign bidders, and as such procurement will not involveintemational competitive bidding. Also, in consideration of the urgency of establishing the CentralProcurement Technical Unit (CPTU) in the Implementation Monitoring and Evaluation Division (IMED) ofthe Ministry of Planning, procurement through national competitive bidding may not be efficient.Depending on the implementation experience, the borrower may, however, follow NCB for contracts valuedless than US$200,000, with the proviso of paragraph 13.

(i) National Shopping (NS): Given the nature of procurement, goods under the project with anestimated value less than US$100,000 equivalent per contract, up to an aggregate limit of US$650,000,may be procured through prudent shopping procedures by solociting price quotations from at least threesuppliers.

(ii) Direct Contracting (DC): Computer software, books, journals, and magazines, with individualcontract costs less than US$2,000 equivalent, up to an aggregate limit of US$50,000, may be procuredfollowing DC.

Consultants' Services and Training (US$3.87 million)

4. The single most critical procurement under the project relates to the procurement of technicalassistance for procurement reform activities and procurement training. The single most critical procurementunder the project relates to the procurement of technical assistance for procurement reform activities andprocurement training. A competitive selection process would take 9-12 months at minimum in the currentBangladeshi context. In the context of the requirements for improving govemance in Bangladesh asoutlined in the CAS, this is of paramount importance for the success of the project the excellency andtimeliness of selecting a team of experts of high caliber to assist the Government in launching andimplementing the procurement reform. Consequently the Borrower has recommended, and the Bank project

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team agrees, the selection on a sole-source basis of the Intemational Training Center of the ILO, Turin(ITC-ILO). ILO's excellent track record as a premier procurement training institution under UN umbrellaand its successful experiences in assisting procurement reforms in East European and Central Asiacountries in collaboration with OECD justifies the Borrower's request for its selection on a sole source andsingle responsibility basis to provide expert inputs for the procurement policy reform (under Component 2)and procurement training (under Component 3). The contract value is estimated to be about US$2.6million. To institutionalize the in-country training, initially, ITC-ILO will have a link program with thelocal training institution Bangladesh Institute of Administration and Management (BIAM). Subsequently,depending on the training requirements, other public and/or private institutions could be invited to join the

training programn.

ITC-ILO's proposal to the Government includes input of a former Bank staff (Mr. RaghavanSrinivasan) for about six staff-months, who worked for the Bank, as Consultant, for the preparation of theCPAR for Bangladesh and was involved for about one week in the preparation of the project. TheGovernment has requested a waiver for him in perception of the possible conflict of interest. Mr.Srinivasan's involvement would be primarily in the area of training. Considering the contribution that hemade in the CPAR, his expertise in the field, and the respect he commands in Bangladesh, the Bank, as an

exceptional case, agrees to provide such a waiver'.

(i) Quality-Based Selection (QBS): Services through firms estimated to cost US$100,000 or more percontract may be procured following QBS. Contracts include: establishment of procurement monitoringsystem (MIS) including procurement website.

(ii) Fixed Budget Selection (FBS): Services through firms estimated to cost less than US$100,000 percontract may be procured following FBS. Major contracts include: procurement awareness campaign andprocurement audit.

(iii) Single Source Selection (SSS): Services for assignments that meet the requirement of paragraph 3.9of the Consultants Guideline may be procured following SSS, subject to IDA's prior agreement. Contractsinclude: ITC-ILO contract for procurement reform and procurement training, BIAM contract for providingprocurement training logistics, other training institutes / universities' contracts for research / studies /project management / seminars / workshops / translation services (for instance, Academy for Planning andDevelopment (APD), Public Administration Training Center (PATC), Bangladesh University ofEngineering and Technology, Bangla Academy, and BRAC).

(iv) Individual Consultants (IC): Services for assignments for which teams of personnel are not requiredand the experience and qualifications of the individual are the paramount requirement will be procuredthrough individuals in accordance with Section V of the Consultants Guidelines. Individuals will beselected on the basis of their qualifications for the assignment. Contracts for specialists include: financemanager, mid-term review experts, and other short term assignment contracts.

Footnote 1: This was cleared with LEGPR and OPCPR.

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5. Training: The project includes extensive training provisions for developing in-country procurementmanagement capacity. Approximately 1600 staff of the government and private sector will participate inthe in-country procurement training, to be provided by ITC-ILO, initially under the link program withBLAM. A core team of about 25 national professionals will be developed as procurement trainer, who willhave training opportunities (training of trainers) inside and abroad. For capacity building of theimplementing agencies' in carrying out efficient procurement and understanding the benefits of procurementreform acitivities undetaken in various countries, about 55 government officials will have opportunities foroverseas training and study tours. ITC-ILO will organize these training events. To develop managementskills in project implementation, about 600 government and public sector staff will be trained in projectmanagement. APD or similar institution will provide this training.

Incremental Operating Costs (US$0.35 million)

6. IDA will not bear CPTU personnel/staff salaries costs. Only the incremental operating costs ofCPTU, such as, office utilities, supplies, fuel, maintenance of equipment and vehicles, etc. will be coveredunder the project on a declining basis.

Procurement and Selection Planning

7. The draft Procurement Plan for goods and Selection Plan for services have been prepared byIMED and included in the PIP. Prior to issuance of any invitation for bids for procurement of goods andselection of services, the proposed Plan shall be furnished to IDA for its review and concurrence, inaccordance with the provisions of paragraph I of Appendix 1 to the respective Guidelines. Procurement ofgoods and selection of all consultants will be undertaken in accordance with Plans concurred by IDA andwith the provisions of said paragraph 1 of Appendix 1 of the respective Guidelines.

Use of Standard Documents

8. For ICB procurement of goods, the use of IDA's Standard Bidding Documents (SBD) ismandatory. For NCB procurement, IMED/CPTU will use the SBDs for Goods approved by IDA.However, at this stage, the project does not envisage any ICB or NCB procurement. For selection ofconsulting firms, the Bank's Standard Request for Proposals (RFP) including standard contract form willbe used. The Bank's Standard Bid Evaluation Form for goods and Sample Form of Evaluation forconsultants' services will be followed for submission of evaluation reports to IDA.

Prior Review Thresholds

9. Goods: Since the contracts' sizes are small and shopping is the preferrred method, IDA will carryout prior review of the first two contracts for shopping. Review will include: request for quotations,evaluation of quotations, and the purchase order. Depending on the implementation experience, if NCB isused, one contract will be subject to prior review.

10. Consultants Services: IDA's prior review will be required for consultants' services contractsestimated to cost US$100,000 equivalent or more for finms and US$50,000 equivalent or more forindividuals.

Post Review

11. For compliance with the Bank's procurement procedures, IDA will carry out sample post review of

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contracts that are below its prior review threshold. Such post review of contracts below the thresholds willbe carried out as the Bank deemed appropriate.

Review of Procurement Performance

12. IDA will monitor the compliance with the requirements of Bank's different procurement methodsand performance standards on a continuous basis. As part of the project's planned mid-term review, acomprehensive assessment of procurement performance will also be carried out. Based on the review, inconsultation with the government, IDA may revise the prior review threshold including the procurement andselection methods.

Acceptability of NCB

13. In order to ensure economy, efficiency, transparency and broad consistency with the provisions ofSection I of the Procurement Guidelines:

(i) standard bidding documents approved by the Association shall be used;

(ii) invitations to bids shall be advertised in at least one widely circulated national dailynewspaper and bidding documents shall be made available to prospective bidders, at least 28days prior to the deadline for the submission of bids;

(iii) bids shall not be invited on the basis of percentage premium or discount over the estimatedcost;

(iv) bidding documents shall be made available, by mail or in person, to all who are willing to paythe required fee;

(v) foreign bidders shall not be precluded from bidding and no preference of any kind shall begiven to national bidders;

(vi) qualification criteria (in case pre-qualifications were not carried out) shall be stated in thebidding documents, and if a registration process is required, a foreign firm determined to bethe lowest evaluated bidder shall be given reasonable opportunity of registering, without anylet or hindrance;

(vii) bidders may deliver bids, at their option, either in person or by courier service or by mail;

(viii) all bidders shall provide bid security as indicated in the bidding documents. A bidder's bidsecurity shall apply only to a specific bid;

(ix) bids shall be opened in public in one place immediately, but no later than one hour, after thedeadline for submission of bids;

(x) evaluation of bids shall be made in strict adherence to the criteria disclosed in the biddingdocuments, in a format and specified period agreed with the Association;

(xi) bid shall not be rejected merely on the basis of a comparison with an official estimate withoutthe prior concurrence of the Association;

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(xii) split award or lottery in award of contracts shall not be carried out. When two or morebidders quote the same lowest price, an investigation shall be made to deternine any evidenceof collusion, following which (A) if collusion is deternined, the parties involved shall bedisqualified and the award shall then be made to the next lowest evaluated and qualifiedbidder and (B) if no evidence of collusion can be confirmed, then fresh bids shall be invitedafter receiving the concurrence of the Association;

(xiii) contracts shall be awarded to the lowest evaluated bidders within the initial period of bidvalidity so that extensions are not necessary. Extension of bid validity may be sought onlyunder exceptional circumstances;

(xiv) extension of bid validity shall not be allowed without the prior concurrence of the Association(A) for the first request for extension if it is longer than eight weeks and (B) for all subsequentrequests for extensions irrespective of the period;

(xv) negotiations shall not be allowed with the lowest evaluated or any other bidders;

(xvi) re-bidding shall not be carried out without the Association's prior concurrence; and

(xvii) all contractors or suppliers shall provide performance security as indicated in the contractdocuments. A contractor's or a supplier's performance security shall apply to a specificcontract under which it was furnished.

Reporting

14. The project will prepare quarterly Procurement Monitoring Report (PROCMOR) as per specificformats agreed with GOB.

Procurement Management Capacity

15. Procurement Issues: The Country Procurement Assessment Report (CPAR), broadly accepted bythe Government in February 2001, stated procurement as a generic problem in Bangladesh. The CPARidentified a series of factors accounting for procurement problems in the country that, among others,include absence of procurement law, poor advertisement, poor bidding documents, multiple evaluationcommittees, award of contract through lottery, negotiations, lack of professional competence, corruptpractices, political influence and pressure from special interest groups and collective bargaining agencies.

16. Risk Assessment and Strengthening of Procurement Capacity: In order to implement theCPAR recommendations, this project, under the Bank financing, has been undertaken by the Government.The CPTU, established as a component of the project funded by GOB, will play pivotal role in improvingthe procurement management capacity of the public sector institutions.

17. The project procurement include a technical assistance major consultancy contract and purchase ofvery small quantity of goods. IMED has prepared a draft Procurement Plan, stating all procurementpackages, that is included in the PIP. As a part of comprehensive and tightened project preparation, allprocurement arrangements has been well defined and sufficient progress has been made in the selection ofconsultants. As part of the advance procurement actions, ITC-ILO, being the premier internationalinstitution in procurement reform and training, has been selected on a single-source basis to provide

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services of the technical assistance. IMED will sign contract with ITC-ILO before the effectiveness of thecredit. Also, for the first year's procurement program of goods, arrangements have been finalized. Beingsmall size with limited number of contracts, goods may be procured following shopping procedures. TheCPTU in its team of expert has number of Procurement Specialists, who will assist in procurement ofgoods. Given the size and nature of procurement, the risk is average.

18. Action Plan: The following time-bound action plan for strengthening management capacity and forcompleting tasks as readiness for implemenation of the project has been agreed with IDA:

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Actions Time Bound

ITC-ILO Technical Assistance Contract:a. Sign contract April 30, 2002

Goods: (Initial requirements- first two contracts: shopping- vehicles, computers, air conditioners, etc.)a. Draft requests for quotations April 10, 2002b. IDA's review of draft requests for quotations April 15, 2002c. Soliciting quotations April 17, 2002d. Evaluation of quotations April 25, 2002e. IDA's review of evaluation of quotations April 28, 2002f. Issue purchase order April 30, 2002g. Send copy of purchase order to IDA May 2, 2002

Procurement methods (Table A)

Table A: Project Costs by Procurement Arrangements(US$ million equivalent)

Procurement MethodExpenditure Category ICB NCB Other N.B.F. Total Cost

1. Works 0.00 0.00 0.00 0.00

0 (0.00) (0.00) (0.00) (0.00)2. Goods 0.00 0.00 0.69 0.00 0.69

(0.00) (0.00) (0.55) (0.00) (0.55)3. Services 0.00 0.00 3.87 0.00 3.87

(0.00) (0.00) (3.87) (0.00) (3.87)4. Miscellaneous 0.00 0.00 0.35 0.00 0.35

(0.00) (0.00) (0.03) (0.00) (0.03)Total 0.00 0.00 4.91 0.00 4.91

(0.00) (0.00) (4.45) (0.00) (4.45)

" Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies.2'Includes goods to be procured through national shopping, consulting services, office, training, technical assistance

services, and incremental operating costs related to office management. Salaries of CPTU staff will be borne bythe Government.

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Table Al: Consultant Selection Arrangements (optional)(US$ million equivalent)

Selection MethodConsultant Services

Expenditure Category QCBS QBS SFB LCS CQ Other N.B.F. Total Cost'A. Firms 0.00 0.20 0.10 0.00 0.00 3.51 0.00 3.81

(0.00) (0.20) (0.10) (0.00) (0.00) (3.51) (0.00) (3.81)B. Individuals 0.00 0.00 0.00 0.00 0.00 0.06 0.00 0.06

(0.00) (0.00) (0.00) (0.00) (0.00) (0.06) (0.00) (0.06)Total 0.00 0.20 0.10 0.00 0.00 3.57 0.00 3.87

1 (0.00) (0.20) (0.10) (0.00) (0.00) (3.57) (0.00) (3.87)

1\ Including contingencies

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants Guidelines), andSingle-Source SelectionN.B.F. = Not Bank-financedFigures in parenthesis are the amounts to be financed by the Bank Credit.

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Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review'

Contract Value Contracts Subject toThreshold Procurement Prior Review

Expenditure Category (US$ thousands) Method (US$ millions)1. Works

2. GoodsLess than 200 NCB Prior review: one contract

(a) Vehicles Less than 100 NS Prior Review: one contract

(b) Equipment and Prior Review: one contract,furniture Less than 50 NS rest post review

(c) Joumals andmagazines Less than 2 DC Post review3. Services

Consultants' Services & Single-Source Selection Prior ReviewTraining (ILO, BIAM,APD, University,Training Institutes)

Consultants' Services 100 or above Quality-Based Selection Prior Review(MIS)

Consultants' Services Less than 100 Fixed Budget Selection Post Review(Awareness, Audit)

Individual Consultants Less than 50 Qualifications Post Review

Total value of contracts subject to prior review:

Overall Procurement Risk Assessment

Average

Frequency of procurement supervision missions proposed: One every six months (includes specialprocurement supervision for post-review/audits)

Thresholds generally differ by country and project. Consult OD 11.04 "Review of ProcurementDocumentation" and contact the Regional Procurement Adviser for guidance.

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Annex 6(B) Financial Management and Disbursement ArrangementsBANGLADESH: Public Procurement Reform Project

Financial Management

1. Summary of the Financial Management Assessment

2. Audit Arrangements

Adequacy of financial management system

The CPTU has financial management system which is adequate to cater minimum FMrequirements by credit effectiveness. The key tasks that remained to be carried out to enhance the financialmanagement system throughout the project life is the appointment of financial management consultant(finance manager). Agreement has been reached that the appointment of the financial managementconsultant will be a dated covenant- June 30, 2002. The government has already approved the engagementof the financial management consultant for this project.

Current Financial Management System:The executing agency for the project is the Implementation Monitoring and Evaluation

Department (IMED) of the Ministry of Planning. The CPTU will follow the current governmentaccounting system, the main focus of which is on book-keeping and transactional control overexpenditure, which is adequate for the project. The recently introduced Project AccountingManual of the government will provide guidelines on policy and procedures to be followed fortransactions relating to Govt. funds. Considering that most of the project transactions relate to asmall number of local and international consultants , the current financial management system inCPTU is capable of processing all financial transactions following the Project Accounting Manual.The Accountant currently working in IMED will handle financial management activities of the CPTU, oncethe CPTU has been established.IMED will ensure that the Accountant is onboard with the establishment of the CPTU.

Summary of Project Description:

The US$4.91 million Technical Assistance Loan to reform Public Procurement System isto increase efficiency, transparency and accountability in the procurement of goods, works andservices by government ministries, departments, statutory corporations and other public bodies.The single most critical procurement under the project relates to ITC-ILO for USD 2.6 millionand the payment will be made following "Blanket Withdrawal Applications" procedures as per thecontractual agreement between ITC/ILO and IMED. Other procurement of services consistingof small number of local and international contracts will follow the standard procurementguidelines and the payment will be made through traditional disbursement procedures.

Risk Analysis:From the financial management perspective, there is low risk affecting the credit. This is

because the credit would have only several consultancy contracts, where the financial flows aresimply from Special Account to the Consultants and direct payments by the World Bank in case ofITC-ILO contract and will be paid as per the terms and conditions of contractual agreements.

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Implementation Arrangements:

The Central Procurement Technical Unit (CPTU) in IMED under the Ministry of Planning(MOP) will have the overall responsibility for implementation of the project. The CPTU is apermanent set up established under the project headed by a Director General and will be assistedby a core team consisting of accountant and administrative staff. There will be two units in CPTUheaded by two Directors for: Procurement Rules, Procedures and Training, and Monitoring &Evaluation.

There will be local and international consultants including a full time financial managementconsultant to assist the CPTU during the tenure of the project.

Funds Flow:

IDA funds will be channeled through a special account in a commercial Bank with termsand conditions acceptable to IDA. The DG, CPTU will be the authorized person for issuingpayments through checks, payment request to Chief Accounts Officer (CAO) of the ministry forcounterpart funds and withdrawal of funds from IDA credit. IDA will make direct payment toITC-ILO with intimation to CPTU.

The GOB will allocate counterpart funds for the project on the basis of annualdevelopment plan (ADP) and Ministry of Finance would release funds to MOP in four trancesagainst approved Technical Assistance Project Proforma (TAPP). The CAO of MOP wouldmake payment of Govt's share of actual project expenditure upon receiving statement ofexpenditure or payment request from CPTU.

Accounting and Internal Controls:

The financial management system would cover all project related transactions, i.e., allsources and usages of funds would be accounted for and reflected in the financial statements.

Books of accounts would be maintained on a cash basis using double-entry bookkeepingprinciples. The accounting system would capture financial data using Govt's standard Chart ofAccount and would be capable of providing financial information by project DisbursementCategories and funding sources.

A current manual system in IMED will be followed in CPTU which is adequate to keeptrack with financial transactions. Though the computerized accounting system is not imperativefor effective financial management system, the implementing agency has a plan to go forcomputerized system, provided CPTU appoints staff with required IT skills.

Approval authority and the procedures to process financial transaction are laid down in theProject Accounting Manual of the Govermnent and will be followed in case of transactionsrelating to eligible project expenditure, including contracts not requiring Bank's clearance.

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Financial Reporting and Monitoring:

The CPTU will be responsible for accounting, reporting and consolidation of financialinformation from various sources including actual expenditure on ITC-ILO contract. TheFinancial Statements will be prepared within fifteen days of the following month.

CPTU is also responsible for preparing Financial Monitoring Reports (FMRs) on asenm-annual basis. A set of customized formats of FMRs are included in the PIP and would besubmitted to the Bank for monitoring project physical and financial progress.

Staffing:

The Accountant currently working in IMED will handle financial management activities of theCPTU, once the CPTU has been established. In addition, a financial management consultant will beappointed to help CPTU in maintaining a sound project financial management during the tenure ofthe project.

Job descriptions of the financial management consultant is included in the PIP. Theaccountant would start functioning from the beginning of the project. The financial managementconsultant (FMC) is expected to be in place by June 30, 2002.

External Audit:

The annual financial statement of the project would be audited by the Comptroller andAuditor General (C&AG) and would be submitted to the Bank within six months of the end ofeach fiscal year. The audit report will include a separate opinion on Project Financial Statements,Special Account, and SOE.

The following audit reports would be monitored in the Audit Report Compliancesystem (ARCS):Implementing Agency Audit AuditorsIMED Project Account/SOE C & AGIMED Special Account C & AG

Retroactive Financing

Vehicles / office equipment and part of the operating expenses will be required at thestart-up of the project, and IDA will provide retroactive financing for such expenditures.Retroactive financing will be provided for an amount not exceeding US$300,000 for expendituresincurred after January 1, 2002.

3. Disbursement Arrangements

Table C shows the allocation of IDA proceeds and the financing for various categories ofexpenditures. Preparation and submission of withdrawal applications would be the responsibility of the

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IMED. The proposed project is expected to be disbursed over a period of five years. The closing date ofthe proposed project will be November 30, 2005. Disbursement estimates of IDA proceeds over a five-yearperiod are presented on page 2 of the PAD.

Allocation of credit proceeds (Table C)

Table C: Allocation of Credit Proceeds

Expenditure Category Amount in US$million Financing Percentage1. Goods 0.60 100% of foreign expenditure, 100% of

local expenditures (ex-factory costs ) and80% of local expenditures for other items

procured locally2. Services and Training 100% net of taxes

(a) ITC-ILO contract 2.50(b) Other services and training 1.123. Incremental operating costs 0.03 100% for FY2002 and FY2003, and

60% thereafterUnallocated 0.20

Total Project Costs 4.45

Total 4.45

Use of statements of expenditures (SOEs):

Transaction-based disbursement procedures will be applicable for withdrawal of funds from theCredit. With each withdrawal application, IDA will require full documentation where contracts for (i)goods exceed US$100,000 equivalent, (ii) consulting firms exceeds US$100,000 equivalent, and (iii)individual consultants exceeds US$50,000. Expenditures below the above thresholds and expenditures for:individual training, and (b) operating costs will be claimed through SOEs.

Special account:To facilitate project implementation and to make timely payments of IDA's shares of eligible

expenditures to consultants (except ITC-ILO contract) and suppliers, the Borrower may open and maintaina Special Account (SA) in Convertible Taka in a commercial bank, on terms and conditions acceptable toIDA. Payments under ITC-ILO contract will follow "Blanket Withdrawal Applications" procedures as laiddown in the contract between ITC-ILO and IMED. Director General, CPTU will have access and managethe Special Account. The authorized allocation of the Special Account will be equivalent to four-months ofestimated expenditures, excluding ITC/ILO contract, equivalent to BDT 13,600,000.00. At start of theproject the initial deposit to the SA will be limited to BDT 9,000,000. The remaining amount of theauthorized allocation may be requested only after the cumulative disbursements reach the equivalent ofSDR 800,000.

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Annex 7: Project Processing Schedule

BANGLADESH: Public Procurement Reform Project

Project Schedule Planned ActualTime taken to prepare the project (months) 7 7

First Bank mission (identification) 07/10/2001 07/10/2001Appraisal mission departure 02/04/2002 02/04/2002

Negotiations 03/18/2002 03/18/2002Planned Date of Effectiveness 05/31/2002

Prepared by:

Implementation Monitoring and Evaluation Division (IMED). The GOB Project Preparation Team (PPT)included: M. Shahidul Alam, Secretary, IMED (up to August 2001), Md. Anwar Hossain, Secretary,IMED (up to November 2001); Manik Lal Somaddar, Secretary, IMED; Subhash Chandra Ghosh,Director General, IMED; AKM Fazlul Karim, Director General, IMED; Abul Kalam Azad, DeputyDirector, IMED; Khairul Hasan, Assistant Director, IMED; and Mostafizur Rahman, ComputerProgrammer, IMED.

Preparation assistance:

Bank Budget

Bank staff who worked on the project included:

Name SpecialityKevin W. Casey Acting Regional Procurement Advisor

Agustin Litvak Acting Manager, Procurement Hub, South Asia Region

Nancy Zhao Operations AdvisorZafrul Islam Sr. Procurement Specialist/ Task Team Leader

Kishor Uprety Lawyer

Said Al Habsy Lead Counsel

Suraiya Zannath Sr. Financial Management Specialist

Mohammad Sayeed Disbursement Officer

Ivonna Kratnyski Sr. Financial Management Specialist (LOA)

Md. Khaled Jahangir Procurement Assistant

Kamrul Islam Team Assistant

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Annex 8: Documents in the Project File*BANGLADESH: Public Procurement Reform Project

A. Project Implementation Plan

Government of the People's Republic of Bangladesh, Implementation Monitoring and Evaluation Division,Ministry of Planning, Project Implementation Plan February 2002

B. Bank Staff Assessments

Leviathan, T., 2000. Reforming Governance in Bangladesh. The World Bank.

The World Bank, 2000. Pakistan Country Procurement Assessment Report

The World Bank. 1999 (updated). Guidelines - Procurement under IBRD Loans and IDA Credits by theWorld Bank Borrowers.

The World Bank. 1999 (updated). Guidelines - Selection and Employment of Consultants by the WorldBank Borrowers.

The World Bank. 2000. Bangladesh Country Procurement Assessment Report

The World Bank. 2001. Background technical papers at Preparation Mission.

The World Bank. 2000. Bangladesh Country Assistance Strategy.

The World Bank. 2001. Country Financial Accountability Assessment Report (In press)

The World Bank. 2002. Background technical papers at Appraisal Mission

C. Other

Asian Development Bank. Hand Book on Problems in Procurement for Project Financed by ADB.

Bangladesh Water Development Board. Procedures for tender and enlistment of contractors (modified).

Economic Relations Division. 1992. (a) General instructions and guidelines on planning, programming,processing and inplementation of technical Assistance, (b) Guidelines on employment of consultants by theGovernment of Bangladesh, (c) Guidelines for procurement of goods and works financed under project aid.

Government of Bangladesh. Public Works Department code for Purchase of Goods and Works.

Implementation Monitoring and Evaluation Division. 2002. Technical Assistance Project Proforma forPublic Procurement Reform Project.

Public Works Department. Delegation of Financial Powers for Development Projects.

Supply and Inspection Directorate. Manual of Office procedure.*Including electronic files

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Annex 9: Statement of Loans and Credits

BANGLADESH: Public Procurement Reform Project06-Feb-2002

Difference between expectedand actual

Original Amount in US$ Millions disbursements

Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'dP044810 2001 Legal & Judicial Capacity Building 0.00 30.60 0.00 0.04 27.56 3.11 0.00

P059143 2001 Microflnance 11 0.00 151.00 0.00 0.00 101.31 -0.08 0.00

P050752 2001 Post-Literacy & Continuing Education 0.00 53.30 0.00 0.00 49.87 -2.89 0.00

P057833 2001 Air Quality Management Project 0.00 4.71 0.00 0.00 3.91 0.88 0.00

P069933 2001 HIV/AIDS Prevention 0.00 40.00 0.00 0.00 36.39 4.62 0.00

P050751 2000 National Nutriton Program 0.00 92.00 0.00 0.00 80.93 12.12 0.00

P009468 2000 Fourth Fisheries 0.00 28.00 5.00 0.00 22.58 16.01 0.00

P044811 2000 Financial Institutions Development 0.00 46.90 0.00 0.00 21.27 12.94 0.00

P058468 2000 Agricultural Serv. tnnovabon & Reform 0.00 5.00 0.00 0.00 1.85 1.07 0.00

P049587 2000 Aquatic Blodiversity Consarvation 0.00 0.00 5.00 0.00 4.45 2.75 0.00

P009524 1999 Dhaka Urban Transport 0.00 177.00 0.00 0.00 135.65 89.37 0.00P049790 1999 Export Diversi8cation 0.00 32.00 0.00 0.00 13.97 9.94 0.00

P037294 1999 Third Road Rehabilitation & Maintenance 0.00 273.00 0.00 0.00 173.35 176.95 0.00

P041887 1999 Munidpal Services 0.00 138.60 0.00 0.00 99.37 111.18 0.00

P050745 1999 Arsenic Mitigation Water Supply 0.00 32.40 0.00 0.00 25.09 27.00 0.00

P044789 1998 Private Sector Infrastrudure Dev (J.00 235.00 0.00 0.00 167.53 170.87 0.00

P037857 1998 Health and Population Program 0.00 250.00 0.00 0.00 80.88 17.46 0.00

P040713 1998 Silk Development Pilot Project 0.00 11.40 0.00 1.50 6.22 7.40 0.15

P009550 1998 Primary Education Davelopment 0.00 150.00 0.00 25.07 62.27 48.36 2.78P009482 1997 Dhaka WaterS Sanitation IV 0.00 80.30 0.00 15.26 13.02 40.36 0.00

P009518 1997 Second Rural Roads & Markets Improvement 0.00 133.00 0.00 0.00 6.93 -4.86 16.47

P009549 1996 Coastal Embankment Rehabilitation 0.00 53.00 0.00 0.00 3.21 -6.17 12.03P009496 1995 Bangladesh Integrated Nutrition 0.00 59.80 0.00 0.58 7.37 15.21 0.00

Total: 0.00 2077.01 10.00 42.45 1144.97 753.58 31.42

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BANGLADESHSTATEMENT OF IFC's

Held and Disbursed PortfolioOCT-2001

In Millions US Dollars

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1997 DBH 0.00 0.65 0.00 0.00 0.00 0.65 0.00 0.001991 Dynamic Textile 1.86 0.00 0.00 1.48 1.86 0.00 0.00 1.481998 Grameen Phone 15.00 1.58 0.00 0.00 15.00 1.58 0.00 0.001985/95 IDLC 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001980/98 IPDC 9.38 0.00 0.00 0.00 9.38 0.00 0.00 0.001998 Khulna 19.07 0.00 0.00 0.00 19.07 0.00 0.00 0.001998 Lafarge/Surma 35.00 10.00 0.00 0.00 0.00 0.00 0.00 0.002000 Scancem 10.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00

Total Portfolio: 90.31 12.23 0.00 1.48 50.31 2.23 0.00 1.48

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

2001 BRAC Bank 0.00 0.00 3.00 0.002001 Dhaka Westin 8.75 0.00 0.00 0.002000 Jalalabad II 30.00 10.00 0.00 30.001998 Khulna 0.00 0.00 3.30 0.002000 ULC - Bangladesh 5.00 0.00 0.00 0.002000 USPCL 0.00 4.00 3.00 0.00

Total Pending Commitment: 43.75 14.00 9.30 30.00

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Annex 10: Country at a GlanceBANGLADESH: Public Procurement Reform Project

POVERTY and SOCIAL South Low-Bangladesh Asia Income Development diamond'

2000Population. mid-year (millions) 129.8 1,355 2.459 Life expectancyGNI per capita (Atlas method, US$) 370 460 420GNI (Atlas method, US$ billions) 47.9 617 1,030

Average annual growth, 1994-00

Population (%) 1.6 1.9 1.9 GNILabor force (%) 2.9 2.4 2.4 GNI Gross

per primaryMost recent estimate (latest year available, 1994-00) capita enrollment

Poverty (% of population below national poverty line) 36 .. .. olmnUrban population (% of tota/ populationJ 25 28 32Life expectancv at birth (years) 61 63 59Infant mortality (per 1,000 live births) 61 74 77Child malnutrition (% of children under 5) 56 47 .. Access to improved water sourceAccess to an improved water source (% of population) 97 87 76Illiteracy (% of population age 15+) 59 45 38Gross primary enrollment (% of school-age population) 96 100 96 -Bangladosh

Male 96 110 102 Low-income groupFemale 96 90 86

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1900 1990 1999 2000Economic ratios'

GDP (US$ billions) 17.6 30.1 46.0 47.1Gross domestic investment/GDP 19.8 17.1 22.2 23.0 TradeExports of goods and services/GDP 4.2 6.2 13.2 14.0Gross domestic savings/GDP 8.2 9.7 16.7 17.8Gross national savinas/GDP 12.8 11.9 21.3 23.0

Current account balance/GDP -4.8 -5.2 -0.9 0.0 Domestic InvestmentInterest payments/GDP 0.3 0.6 0.4 0.4 savings IesTotal debt/GDP 24.0 42.4 37.9 35.2 savngTotal debt service/exports 23.7 28.9 9.5 8.8Present value of debt/GDP .. .. 23.9Present value of debt/exports .. .. 140.4

Indebtedness1980-90 1990-00 1999 2000 2000-04

(average annual growth)GDP 4.3 4.8 4.9 5.9 4.7 -BangladeshGDP per capita 1.8 3.1 3.2 4.2 2.8 L Low-income groupExports of goods and services 7.7 12.8 2.3 8.6 6.4

STRUCTURE of the ECONOMY1980 1990 1999 2000 Growth of Investment and GDP (%)

(% of GDP)Agriculture .. 30.3 26.2 25.5Industry .. 21.5 25.2 25.3 15

Manufacturing 13.1 15.5 15.2 s _Services .. 48.3 48.7 49.2 .

Private consumption 89.9 86.1 78.7 77.7 95 96 07 go 99 00General government consumption 1.9 4.2 4.6 4.6 -001 0GDPImports of goods and services 15.8 13.6 18.7 19.2

1980-90 1990-00 1999 2000 Growth of exports and Imports (%)(average annual growth)Agriculture 2.7 2.9 4.8 7.4 60 .Industrv 4.9 7.3 4.9 6.2 40 0.

Manufacturing 3.0 7.2 3.2 4.8 1Services 4.4 4.5 5.2 5.5 20

Private consumption 4.5 3.4 1.3 4.1 5 99 9r 99General oovernment consumption 5.0 4.7 0.6 0.9 -20Gross domestic investment 1.4 9.2 9.9 7.3 -E xports - ImportsImports of goods and services 5.6 9.5 2.3 5.7

Note: 2000 data are preliminary estimates.

The diamonds show four kev indicators In the countrv (in bold) compared with its income-group average. If data are missing. the diamond willbe incomplete.

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Bangladesh

PRICES and GOVERNMENT FINANCE1980 1990 1999 2000 Inflation (%)

DomestGc prices(% change) 1O.-Consumer prices .. 3.9 8.9 3.6Implicit GOP deflator 13.4 4.9 4.7 1.9 s

Govemmont finance 2

(% of GDP, Includes cunrent grants) o.Current revenue .. 6.9 9.0 8.5 95 96 97 98 99Current budget balance .. 0.4 1.4 0.7 -G DP deflator _ CPIOverall surplus/deficit .. -5.8 -4.8 -6.2

TRADE

(USS mIllions) 1980 1990 1999 2000 Export and Import levels (US$ mill.)Total exports (fob) .. 1,524 5,324 5,762 10.00o

Raw lute .. 163 72 71Leather and leather products .. 178 168 194 8,000Manufactures .. 1,008 4,770 5,137 8,00.

Total imports (cil .. 3,791 8,017 8,403 4.Food ., 343 997 250Fuel and energy .. 174 388 489 2.000Capital goods .. 1,296 1,684 2,515

Export price index (1995=100) .. 67 103 103 94 ss 96 97 ge 99 ooImport price index (1995=100) .. 96 97 99 0 Exports * ImportsTermsoftrade(1995=100) , 70 106 103

BALANCE of PAYMENTS

(US$Smillions) 1980 1990 1999 2000 Current account balance to GDP (%)Exports of goods and services 885 1,903 6,031 6,611 1Imports of goods and services 2,545 4,156 8,527 9,060Resource balance -1,660 -2,253 -2,496 -2,449 oLi go] .._Net income 14 -122 -135 -221Net current transfers 802 802 2,237 2,672 .. JCurrent account balance -844 -1,573 -394 2

Financing items (net) 640 1,196 189 77Changes in net reserves 204 377 205 -79 .4

Memo:Reserves including gold (US$ millions) ,. 520 1,513 1,596Conversion rate (DEC, locaffUS$) 15.5 33.3 47.8 50.3

EXTERNAL DEBT and RESOURCE FLOWS1980 1990 1999 2000

(US$ millions) Composition of 2000 debt (US$ mill.)Total debt outstanding and disbursed 4,230 12,768 17,422 16,589

IBRD 55 64 31 24 G:295 A: 24IDA 926 4,095 6.428 6,431

Total debt service 278 791 746 762IBRD 3 5 7 7 E: 4,705 . ' 6,431

IDA 6 41 119 129

Composition of net resource flows ,,

Official grants 0 766 345 283Offlcial creditors 667 878 377 355Private creditors 11 67 -12 16Foreign direct Investment 0 3 198 194 .216Portfolio equity 0 -194 -6 0 D:4.737

World Bank programCommitments 331 572 595 198 A- IBRD E -BilateralDisbursements 156 484 413 357 B- IDA D- Other mulilateral F- PrivatePrincipal repayments 0 14 78 87 C-IMF G -Short-termNet flows 156 470 335 270Interest payments 9 32 48 49Net transfers 147 438 286 221

Development Economics 9/5/01

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