Feature Stories



Procurement for Regional Development–Public Policy Initiative in Sri Lanka




{This article is an abridged version of the submission on “Regional Development through Public Policy” made by Mr. Priyanga Algama, Director General, Department of Public Finance, Sri Lanka, for the South Asia Procurement Innovation Awards.}


The Government of Sri Lanka has brought in a Regional Development Policy to ensure growth and check regional disparities in the country. As part of it, it has taken a policy decision to limit the invitation of bids for small scale construction contracts, with a value up to Rs. 50 million {USD 331,917 (1 USD = 150.64 LKR)}, to contractors of the respective regions. The objective is to help increase employment opportunities in regions, reduce income inequalities, and minimize delays in construction. Local resourses within the region are utilized at competitive cost, while maximizing the value for money in constructions in the respective region. Further, it enhances economic well-being and living standards in all regions, from cities to rural areas, develops resilient societies, and improves their contribution to national development.


Regional development is a broad term widely used in countries to reduce disparities by supporting economic activities, such as employment and wealth generation in the regions. In the past, in Sri Lanka, the Regional Development Policy tended to achieve these objectives by means of largescale infrastructure developments and attracting inward investments, where investors and contractors were from other regions or countries. Although there were a sufficient number of regional contractors capable of undertaking various construction and renovation projects, there were reports that such contracts were being awarded to large-scale, national-level contractors coming from outside the respective regions. This was felt to be leading to regional disparities.

Use of procurement as a policy tool in acheiveing developmental objectives of the Governments is gaining momentum across the world, as seen from reservation for small and medium scale industries and other preferential procurement means. This innovative effort from Sri Lanka addresses issues of regional imbalances in development using procurement.

Challenges Addressed

The absence of adequate comprehensive development policies and programs for sub-national regions in the periphery of the country has led to the following major issues Sri Lanka (i) Growing polarization between the Colombo Metropolitan Region; (ii) Lagging and slow growth of some regions, and (iii) Spatially imbalanced growth patterns. These challenges were addressed through this initiative.

Past policies have failed to reduce regional disparities significantly. They have not helped individually lagging regions to catch up with development objectives, despite allocation of significant public funding. These have resulted in underused economic potential, poor quality infrastructure, and weak social cohesion. Moreover, the territorial strength and opportunities remained unused.

Innovations in the Solution

The new mechanism to limit invitation of bids for construction contracts of small scale, with a value up to Rs. 50 million (USD 331,917) to regional contractors, immensely helps promote the development of regions. The policy encourages regional contractors to ensure regional development, with focus on the following objectives: Sustain competitive advantage in the regions, Create livable regional economies, Promote efficient and innovative / transparent governance, Increase employment opportunities at the provincial / regional levels, Minimize delays in constructions and utilize local resources at competitive cost within the regions, Professionalize the regional procurement process, Provide fair, equal, and maximum opportunity to eligible interested parties in the region to participate in procurement through competition, and Maximize economy and quality in procurement, resulting in value for money.

Impact Generated


The Government of Sri Lanka has since established Registration Grades to ensure that regional contractors are able to participate in constructions implemented under domestic funds. This, in turn, has helped development of regions and benefitted the people therein. The following are the Registration Grades:

Total Cost Estimate of the Procurement CIDA Grade Value below or equal to Rs. 2 million (USD 13,276) C9. Value below or equal to Rs. 5 million (USD 33,191) and above Rs. 2 million (USD 13,276) C8. Value below or equal to Rs. 10 million (USD 66,383) and above Rs. 5 million (USD 33,191) C7. Value below or equal to Rs. 25 million (USD 165,958) and above Rs. 10 million (USD 66,383) C6 and C5. Value below or equal Rs. 50 million (USD 331,917) and above Rs. 25 million (USD 165,958) C5 and C4. In procurements coming under the value up to Rs. 50 million (USD 331,917), bidding process will be conducted through National Competitive Bidding and limited to bidders who have registered within the administrative boundary of the relevant province of Sri Lanka. The administrative boundary of the word “Regional” is defined as the respective provincial territory, represented by nine provinces of Sri Lanka.


Scalability and Sustainability

Financial disciplines and Government Procurement procedures have a significant impact on economic and social development in any country. The use of public procurement to achieve social outcomes is widespread. Public procurement in Sri Lanka is a mapping exercise describing the current use of government contracting as a tool of social regulation. Efficient, effective, and competitive public procurement is a touchstone for a well-functioning market as well as an important opportunity for gaining reputation for the public sector, as public procurement could be used for achieving social well-being and sustainable development.

Regional development strategies are inherently complex because of the need to involve and coordinate provinces and their various agencies, and a multitude of stakeholders. However, they constitute a cost-effective approach to help regions achieve development. Public authorities in all countries design and administer various forms of financial support to incentivize organizations to reach development targets, such as growth and employment. Rather than giving incentives, the strategy of the Government of Sri Lanka enhances promotion of regional contractors by facilitating their access to markets. This case is easily replicable to public agencies in any country, which has regional disparity among contractors participating in contracts. Therefore, the policy directive of Sri Lankan Government on “Procurement of Works up to Rs. 50 Million (USD 331,917) from Regional Contractors under Domestic Funds” is an effective means to address regional constraints.

Lessons Learned

Though the focus of the Government of Sri Lanka is to ensure participation of regional contractors in regional procurements up to Rs. 50 million (USD 331,917), it was not able to achieve the same successfully in the first instance, as it had not clearly defined the eligible Grade with the total cost estimate. Therefore, action had to be taken to rectify this situation and, accordingly, instructions were issued to all Ministries, Departments, Provincial Councils, District Secretariats, Local Government Authorities, Government Corporations, Statutory Boards, and Government-Owned Companies to execute the policy directive. At present, regional contractors, who had been rejected when competing with large-scale contractors previously, have received the opportunity to participate in regional contracts up to Rs. 50 million (USD 331,917).

The strategy developed and the results achieved through this change demonstrate the possibility of progressing toward the fulfillment of regional development. The expansion of opportunity for regional contractors to participate in regional procurement activities, coupled with public investment on regions, can help reduce the serious economic inequalities amongst regions.