Ensuring Good Governance in Procurement in Sri Lanka

Interview with Mr. P. Algama, Director-General,
Public Finance, Ministry of Finance, Govt. of Sri Lanka

By Haider Raza, Sr. Procurement Specialist, Governance Global Practice, World Bank



Where does Sri Lanka stand, in terms of ensuring good governance in the field of public procurement?

Public procurement reform is a priority to the Government of Sri Lanka (GOSL). The need to improve Sri Lanka’s public sector governance system in order to achieve long-term economic and social development goals is a more pressing issue now than ever before. Especially with the end of the civil war, which crippled the economic progress of the country for three decades, demand for good governance has become a priority. Civil society, donors, and the international community have put pressure on the new government that came to power in January 2015 with the mandate of providing “Good Governance,” in order to improve the governance system and to accomplish much-needed economic and social development. There is consensus among all groups to help Sri Lanka improve its public sector governance, especially in the area of Public Financial Management.

Given the magnitude of procurement-related government spending in the national budget of Sri Lanka, the government has realized the significance of reforms in public procurement as it plays a greater role in overall good governance reform initiatives. The government is very much committed to introducing procurement-related reforms, since this could help increase efficiency, effectiveness, and productivity in public spending.

A large sum of scarce resources have been wasted due to lack of procurement planning, contract management, and more significantly, disregarding the key principles of accountability, transparency, and value for money (VFM). Moreover, in the recent past a number of construction projects have commenced without envisioning budgetary allocations in the annual budget. Some of the contracts appear to have been awarded without observing the fundamental principles of governance in procurement, such as transparency, accountability, and VFM, as articulated in the Government Procurement Guidelines of 2006. Many contracts have been selected without following an open and competitive selection procedure, depriving the public organizations of obtaining VFM, and also denying the public from reaping the benefits from large mega-infrastructure projects, small and medium-scale constructions, and common procurement. Lack of knowledge, lack of capacity among public officials, and political interference have contributed to irregularities in public procurement. This has caused a number of irregular contracts to have been awarded for massive infrastructure development projects in the country.

As a percentage point increase in efficiency in the public procurement system achieved through proper reforms would eventually save millions of tax rupees, paving the way to allocate those savings to more productive public service delivery.

The World Bank-led reform strategy called a Development Policy Loan (DPL) has recognized the need for public financial management reforms, of which procurement reform is regarded as a key element proposed by the Ministry of Finance. In recent discussions with the donor community, including the World Bank, USAID, and the French Aid Group, the government has indicated procurement reform as a prominent item in the GOSL Reform Agenda towards Good Governance in the medium term. Among other procurement reforms, introduction of an e-Government Procurement (e-GP) system and Public Private Partnership (PPP) mechanism, along with the development of capacity of the officials involved in procurement decision making, have been identified as vital.

Considering the current public procurement system, what are the challenges that might obstruct the country in meeting its development objectives, and how would you like to address them?

We have several challenges. I will summarize some of the important ones.

Challenge 1 is the development and adaptation of a comprehensive and harmonized Public Procurement Regulation based on the basic governance principles of accountability, transparency, and VFM. Such a system, applicable to all government agencies at different levels of government, is a great challenge the government is currently facing.

In my opinion, the solution is to have a Public Procurement Regulation applicable to different levels of government. The Public Finance Department (PFD) under the Ministry of Finance (MOF) is in the process of revising financial regulation, in which procurement regulation forms a part of the overall regulation. A draft bill has been prepared, to be tabled in Parliament. The detailed practice manual currently being prepared will address all aspects of Public Financial Management.

Challenge 2 is that officials involved in procurement decision making lack experience and knowledge in public procurement. This has become one of the major challenges when considering the increased number of procurement-related issues, and petitions referred to the PFD over the years seeking clarifications, interpretations, and decisions. The solution we have planned is to conduct a series of awareness sessions at the “MILODA” Academy of Financial Studies of the MOF. A cross-section of public sector officials from government departments, ministries, state-owned enterprises (SOEs), and universities are invited for these training sessions, scheduled for May 2016.

Challenge 3 is delays in procurement decision making, since members of technical evaluation and procurement committees are involved in procurement actions in addition to the regular responsibilities of their substantial positions. We think the solution is to appoint retired senior public officers for procurement committees, with a view to expediting procurement decision making.

Challenge 4 is the cost of goods, works, and services, which has considerably increased in recent years. Especially in construction, the procurement of infrastructure facilities bills of quantities (BOQs) and estimated costs have been inflated beyond international rates, standards, and benchmarks. We feel that the solution is to scrutinize and revise the rates used for BOQs and Total Cost Estimates (TCEs) to reflect current market rates for labor and materials, taking into account the Colombo Consumer Price Index (CCI). Rates committees set up at the district level and at the Ministry of Housing Construction will be reconstituted. Provisions allocated under contingencies will be especially carefully reviewed and adjusted.

Challenge 5 is the lack of national procurement performance standards and a performance assessment system for officials involved in procurement decision making, implementing, and the administration of contracts. This has become a hindrance to better public procurement management and the timely delivery of goods, works, and services. The solution is to propose that National Procurement Performance Standards and a performance assessment system for officials involved in procurement decision making be included in the new procurement regulations.

Challenge 6 is that the use of information and communication technology (ICT) in public procurement in the country is minimal. Therefore, human intervention in the procurement process is at a very high level. This has led to a number of irregularities and delays in the procurement decision-making process. Other than publishing the Tender Notices by a few agencies, ICT is in limited use for facilitating procurement transactions. In my opinion, the solution is to introduce an e-GP system that would help address time delays, quality issues, and VFM concerns in the procurement process.

Challenge 7 is the absence of a comprehensive mechanism for projects to be launched based on Public Private Partnership (PPP) as a tool for development that provides benefits to both the private and public sectors. This has become an obstacle, as a number of budget proposals for 2016 were planned to be launched on a PPP basis. The solution is to establish a comprehensive PPP mechanism, and both USAID and the World Bank have indicated their desire to help establish a new PPP mechanism. USAID has already nominated a consultant to help with this initiative. Several rounds of talks have been conducted under the guidance of Mr. Paskaralingam, an Adviser to the Honorable Prime Minister.

What specific measures do you think will strengthen the public procurement system, and how will these reforms contribute to its role in ensuring good governance?

In addition to the challenges and possible solutions outlined above, development of new procurement regulations and guidelines to harmonize public procurement practices, including the establishment of National Procurement Performance Standards and a performance assessment scheme for officials involved in public procurement would help address time delays, quality issues, and VFM concerns in public procurement.

The new procurement regulations will be the law of the country when it is passed by Parliament. This would be a remarkable reform in Public Financial Management for many years to come.

The use of ICT in public procurement needs to be encouraged by introducing an e-GP system. The Government has recognized the importance of introducing an e-GP system in public procurement covering all stages in the procurement cycle, from procurement planning to final payment. Introduction of e-GP itself regularizes and reforms a series of procurement functions within the procurement cycle. The PFD has already designed a capacity-building program on procurement for public sector officials involved in procurement, with plans for it to be expanded across different levels of government.

How do you see the role of the private sector in strengthening the public procurement system?

The private sector’s role in public procurement is a collaborative and complementary one, to strengthen the practices of good governance through the principles of transparency and accountability.

The public sector being a leading buyer in most of the world’s economies, public procurement spending stimulates private sector firms, providing them with an opportunity to market their goods, works, and services in the public market domain. The public sector therefore needs to provide all relevant information, explanations, and specifications for what they need from private sector firms, and allow a level playing field for all firms and suppliers if they are to achieve value for the money they spend on goods, works, and services.

The private sector has a key role to play in the public sector procurement market. Private sector firms have a corporate social responsibility to supply quality goods, works, and services at a reasonable price for the use of public sector agencies in providing public service delivery to the citizenry. On the other hand, these firms are paid for the goods, works, and services they supply, with taxpayers’ money. If they wish to succeed in public procurement, private sector firms should be aware of public sector procurement rules and regulations, in addition to the information on goods, works, and services they are expected to supply.

The public sector should conduct awareness sessions for private sector firms on procurement rules, regulations, practices, and systems in order to better prepare them for public procurement. The private sector should also be proactive in its procurement processes, engaging in constant dialogue and cooperation with public sector agencies in order to minimize procurement issues, and to achieve the maximum possible value for both private firms and the government. This will eventually help create confidence and trust of the private sector in public sector organizations in general, and public procurement in particular.

What is your view of regional cooperation of public procurement entities within the SAR Public Procurement Network?

The Procurement Network promotes regional cooperation among public procurement entities in SAR countries by providing a common platform for further knowledge, experience, and skills in public procurement.

From the Kathmandu Conference in 2011 through the Islamabad Conference in 2014 to the Dhaka Conference in 2015, South Asian countries have benefitted from South Asian Regional cooperation in many ways.

Among the salient achievements of the SAR network are the establishment of the South Asia Region Public Procurement Coordinating Group (SARPPCG); elaboration of a Regional Cooperation Plan; holding a Public Procurement Conference on an annual basis; hosting a web portal at the regional level for sharing knowledge and experiences; developing a mechanism for sharing lessons learned through videoconferencing; identifying existing training institutes for public procurement in the region and developing a mechanism for working together for mutual cooperation; approaching the South Asian Association for regional Cooperation (SAARC) Secretariat for regional procurement cooperation; promoting e-GP and new procurement mechanisms like PPP; and conducting workshops and seminars at the regional level.

Similar to the videoconferencing that is done on a regular basis to discuss topics of special interest, the SAR Public Procurement Network could organize frequent workshops in regional countries on topics of common interest, such as the Workshop on Framework Agreement organized in 2014 in Colombo. This would enable selected officials in procurement at key public organizations to update their knowledge on the latest developments and innovations in procurement, and would support the idea of having a qualified, skilled, and experienced workforce to improve the performance of the public procurement system.

In what areas would you expect to see more support from the World Bank and other international financial institutions (IFIs), and in particular from the World Bank SAR Governance Global Practice?

The World Bank, the Asian Development Bank, the Japan International Cooperation Agency, and other development partners should come to a common agreement to introduce a generally accepted set of procurement rules and regulations for all donor-funded projects.

The introduction by the World Bank of a principle-based and simplified New Procurement Framework is a commendable move.

All development partners need to organize exchange programs in which SAR countries could share resource personnel with areas of special expertise, giving more opportunities for countries to interact with trainers to find solutions for local procurement issues.

Source: Governance in Action, Governance Global Practice- South Asia Region, World Bank