By Capital Law Chambers & Corporate Consultants
Background: Sri Lanka is yet to developed a Public Procurement Law and there is an absence of a proper legal framework where procedure, accountability, transparency and remedies are articulated. The Ministry of Finance has developed clear guidelines and documentation for procurement by government agencies available to the public at http://www.treasury.gov.lk/web/guest/procurement, and the Government of Sri Lanka’s public procurement process is governed by two guidebooks issued by the Treasury to supplement Financial Regulations. In addition, the National Procurement Commission of Sri Lanka, although weak, is a resource for policies and guidelines in ensuring ‘excellence in public sector procurement’ http://nprocom.gov.lk. However, neither provides procurement rules and procedures to be followed during emergencies such as the response to COVID-19 faced by Sri Lanka. In this lacuna, this brief note discusses the practices from other parts of the world and international recommendations on how procurement can be responsive to the urgent needs of an emergency such as the COVID-19, yet follow open, accountable and responsible procedures; and, draw recommendations that can be implemented in the current regulatory environment of Sri Lanka.
The procurement guidelines of the government of Sri Lanka closely reflect the guidelines of the World Bank and the Asian Development Bank. The World Bank’s Guidance on ‘Procurement in Situations of Urgent need of Assistance or Capacity Constraints’[1] while applicable only to Bank funded projects, nevertheless offer ideas that can be adapted to procurement by government agencies. Where a country is in urgent need of assistance because of a “natural or man-made disaster or conflict”, teams may be authorized to use “condensed procedure under which the normal stages of identification, preparation, and appraisal may be consolidated; the decision to authorize negotiations may be taken after a single review of a complete negotiations package; and, the turnaround times for certain steps are reduced”. As Sri Lanka already practices well defined procurement rules, the Sri Lanka Administrative Service well trained in their use, and has a National Procurement Commission that can provide oversight, Sri Lanka can very quickly summon a national team of Procurement Experts to study the established rules and devise an open and transparent plan where Sri Lanka can develop a simplified process for procurement of urgent goods and equipment during the COVID-19 crisis. The national team can make clear recommendations when the government can be permitted to purchase directly from a supplier, contractor or consultant if the delay involved in conducting a routine procurement (e.g. which involves advertising and open competitive approaches) will prevent the government from obtaining the goods or services in time to bring effective relief.
Relevant international experiences on emergency procurement that Sri Lanka can look at includes the procurement framework adopted after the 2015 earthquake in Nepal[2] and the Ebola response in West Africa. While the Nepal case was not a disease, it was a disaster of epic proportions, and the government of Nepal was under immense pressure to respond quickly to the needs of the population. Public procurement units across the country were under pressure to urgently decide on purchase of goods and services with taxpayer money. On the one hand, the purchases were urgently needed and on the other, there was a risk that taxpayer money can be wasted if decisions are taken too hastily. For large procurement funded by the World Bank, it helped Nepal develop a framework agreement as part of its Disaster Risk Management plan.
The dangers of not following procurement procedures during an emergency, in particular a health emergency, is a lesson well learnt after the Ebola crisis in West Africa. Between March 2014 and January 2016, the Ebola virus killed more than 11,000 people in the three West African nations, according to the World Health Organization. The disease crippled their economies and forced the governments to institute quarantines and other harsh restrictions. The international experience here is one of caution as the International Federation of Red Cross and Red Crescent Societies (IFRC) admitted that its officials, government counterparts, local bankers, volunteers and others had embezzled more than $6 million in aid funds in Sierra Leone, Guinea and Liberia[3]. In an internal audit, the IFRC discovered inflated purchase orders, payments to non-existent workers and padded expense accounts. A government audit found that at least $14 million had been misappropriated or was unaccounted for by government agencies and their partners. Therefore, it is incumbent upon the government of Sri Lanka to put in place a framework for procurement by the government, and other agencies as well.
The World Bank recommends Framework Agreements for emergency procurement encompassing basic goods and services that are likely to be used in response to a serious emergency[4] as a simple and straightforward tool that should be part of any Disaster Risk Management plan. For example, the Framework agreement can include simplified procurement of goods such as drugs and medical supplies, emergency housing, fuel, mattresses, blankets, food and water. The agreement will define prices, distribution/delivery conditions and other complementary criteria to enable procurement units to issue purchasing orders against the agreement within minutes during an emergency. There are a few considerations in the design of the framework agreement that are important. These include Delivery capacity: In case of emergency firms could themselves be affected by the emergency; Price speculation: During emergencies it is common to see some vendors trying to maximize prices. Diversification is also advantageous and national procurement is recommended over international procurement. Sometimes, commodities such as seeds, grain, cereals, cooking oil and fertilizers may be also procured through UN Agencies such as FAO, WFP, UNOPS and UNDP. In countries where customs duties for emergency commodities are abnormally high, the government could waive or to reduce customs duties to bring them to a reasonable level. Priority commodities must be determined in response to the basic needs resulting from the emergency situation, in particular the needs of the poorest people.
The development of an anti-corruption plan during the emergency is also recommended since there is an inherent high risk that procurement in an emergency situation will be affected by conflict of interest or by fraudulent or corrupt activities of some of the stakeholders in the procurement process. In general, in rapid response situations as was the case in West Africa during the Ebola crisis, there is an increased risk of fraud and corruption, in particular with regard to the abuse of simplified procurement procedures, false delivery certification, inflated invoices, theft of goods, commodities, and materials procured or delivered. Taking a sequenced approach in emergency programs that allows low-risk components and activities to move ahead, while necessary assessments are done for activities that represent higher risks; applying lower prior-review thresholds; use of Information Communication Technology such as smart phones for verification during curfews and shutdowns; providing for pre-shipment inspection and local independent verification at delivery to ensure the qualitative and quantitative compliance of contract execution, and identification of any under- or over-invoicing, or qualitative and quantitative deficiencies can reduce corruption[5].
Asian Development Bank (ADB) in its Disaster and Emergency Assistance Policy[6] describes emergency procurement procedures for its loans that provide good lessons for the government of Sri Lanka during its current situation although procurement is not done with ADB funding. The bank stipulates that in the case of rehabilitation loans, guidelines may be flexibly interpreted, including relaxing international competitive bidding requirements, in the interest of expediency. Existing policies on advanced procurement, retroactive financing, and local currency cost financing should be followed. To the extent possible, ADB will encourage the procurement of domestic goods and services as a way to stimulate local economic recovery. Local competitive bidding with a short bidding period should be used to procure civil works for immediate emergency assistance. For goods and services, prudent international shopping is recommended, with the bidding period reduced from the recommended 30 days to 7–15 days. In the case of local contractors, a registration system that lists approved contractors based on criteria such as experience and financial and technical capacity may be used. Consultants recruited and contractors prequalified or selected under ongoing loans could be used without resorting to new bidding and prequalification.
UNFPA in its Policies and Procedures Manual has detailed Emergency Procurement Procedures[7] and defines an emergency as an urgent situation where clear evidence of an event indicates an imminent threat to human lives or livelihoods, with the resulting dislocation in the life of a community on an exceptional scale as is the case at present due to the COVID-19 crisis. An important point in the UNFPA guidelines is the need to clarify between an urgent procurement and an emergency procurement. Lessons applicable to the Sri Lankan situation include several practices as follows. Prior to initiating any procurement process, the emergency response team should complete a needs assessment and produce a procurement plan, including required goods or services. In addition to goods such as emergency reproductive health kits, tents, vehicles, medicine, etc., the plan should outline distribution efforts and logistics required to deliver the goods to final destinations such as warehouses. UNFPA also makes a distinction between procurement of low value items and higher value items, where there is more flexibility and lower approval levels for items below $ 5,999, and also details the documentation that must go into a procurement file for audit and follow up.
The Government of New Zealand has issued A Quick Guide to emergency procurement[8] and has included “critical health or environmental emergencies: such as a pandemic or food safety Incident” in its list of emergency situations. Similar to the World Bank recommendations, the guide states that in a genuine emergency, agencies will need to be flexible in how they procure the goods and services that are required for their response and are permitted to forgo routine procurement procedures considering what is reasonable and justifiable given all of the facts and circumstances. Agencies are permitted to purchase direct from a supplier if the delay involved in conducting a routine procurement that involves advertising and competitive tendering will prevent them delivering the goods or services in time to bring effective relief. The guidance specifies three levels of procurement; Level 1 – Immediate response: reactive procurement; Level 2 – Disaster relief: emergency procurement; Level 3 – Post-disaster reconstruction: accelerated procurement. Sri Lanka is currently in Level 1 or arguably, Level 2.
Republic of the Philippines, Government Procurement Policy Board, has issued a circular[9] to Heads of Departments, Bureaus, Offices and Agencies of the National Government including State Universities and Colleges, Government Owned and/or Controlled Corporations, Government Financial Institutions, and Local Government Units clarifying in detail the conduct of procurement during an emergency. The circular covers rules to be followed by ‘procuring entities in case of imminent danger to life or property during a state of calamity, or when time is of the essence arising from natural or man-made calamities or other causes where immediate action is necessary to prevent damage to or loss of life or property, or to restore vital public services, infrastructure facilities and other public utilities’. When the basis is imminent danger to life during a state of calamity, there must be a declaration by a competent authority of a state of calamity pursuant to existing laws, rules and regulations before any procurement activity under these regulations may be undertaken. The memorandum details procedures for conduct of ‘Negotiated Procurement under Emergency Cases Modality’ including procedures, delegation of authority, documentary requirements, advertisement requirements, and, Performance and Warranty Securities; and, conditions for when and how these may be waived.
The United States of America, although quite late in responding to the current pandemic, an emergency determination was made by the President on March 13, 2020, under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the “Stafford Act”) in response to the Coronavirus Disease 2019 (COVID-19) pandemic. The Stafford Disaster Relief and Emergency Assistance Act[10] is a 1988 United States federal law designed to bring an orderly and systematic means of federal natural disaster assistance for state and local governments in carrying out their responsibilities to aid citizens. Under this act, governments can make emergency purchases subject to special conditions including the comptroller setting a monetary limit on the amount of an emergency purchase; to limit documentation required in justifying contract award decisions; competition limited among pre-qualified sources in the procurement of emergency items such as fuel requirements; by directly negotiating with a technically, legally and financially capable supplier, contractor or consultant; while following the prescribed rules and procedures in the Stafford Act.
Special emergency procurement authority (41 U.S. Code § 1903), describes when these rules and procedures may be applied[11] with respect to a procurement of property or services by or for an executive agency in support of a contingency operation; to facilitate the defense against or recovery from cyber, nuclear, biological, chemical, or radiological attack against the United States; in support of an emergency or major disaster (as those terms are defined in section 102 of the Stafford Act (42 U.S.C. 5122)).
Summary Recommendations:
There are several lessons learnt and good practices that Sri Lanka can use from international experiences suited to the Sri Lankan situation and current context as detailed in this paper.
In summary:
- Evaluate steps in the government of Sri Lanka procurement guidelines to shorten certain steps to expedite the procurement. Development of a law for emergency procurement as in the case of the United States of America is not possible in the current context of Sri Lanka especially since parliament is dissolved and it is not possible to debate and pass a law in this regard. However, Sri Lanka has sound procurement guidelines that are practiced by all government departments that can be studied and streamlined to shorten the procurement steps as recommended by the World Bank, Asian Development Bank and practiced in countries such as New Zealand, and Philippines. The memorandum issued by the government of Philippines is clear and explicit.
- If a procurement of certain goods has already commenced, and several of the steps followed, expedite the conclusion of that procurement. With regard to essential goods such as fuel, medicine and food items, departments and ministries have already started the procurement process such as identifying long term suppliers, negotiation of agreements, and, even delivery mechanisms. In such cases, these processes should be identified and followed up on without starting a new procurement process.
- Develop a mechanism such as a Framework Agreement as discussed in page 2 to streamline procurement and avoid corruption. While the COVID-19 pandemic knows no predecessors in its spread and intensity, the lessons from the Ebola crisis in particular make it clear that a Framework Agreement for emergency procurement can help in reducing corruption in this area by establishing clear guidelines. In the longer term, Sri Lanka can study the feasibility of including the Framework Agreement as part of the Disaster Management Plan of Sri Lanka under the Sri Lanka Disaster Management Act No.13 of 2005[12] where all elements of facing a disaster discussed other than procurement.
- Identify a team to be in charge of procurement, according to the value of the procurement, in the Ministry of Finance procurement guidelines. The appointment of a dedicated team will increase the level of accountability in procurement and make it more convenient to follow up on implementation, performance, and audits. When procurement activities are conducted by several panels during the emergency, the point of responsibility and accountability can be blurred leading to confusion and even fraud. The team can be appointed in tandem with the National Council for Disaster Management as described in Section 2 of the aforementioned Act 13 of 2005.
- The Treasury to revisit customs and duty tariffs. The government can examine customs duties for emergency commodities with a view to waiving or reducing customs duties to lower prices to a reasonable level. Priority commodities must be determined in response to the basic needs resulting from the current health situation, in particular the needs of the poorest people.
[1] Bank Access to Information Policy Designation Public Catalogue Number OPS5.05-GUID.177, Issued
March 7, 2019, Guidance on the use of streamlined Procurement Arrangements for Projects in Situations of Urgent Need of Assistance or Capacity Constraints under paragraph 12 of Section III of the IPF Policy Applicable to
IBRD,IDA
[2] https://blogs.worldbank.org/endpovertyinsouthasia/shaping-procurement-plan-emergencies
[3] http://gnnliberia.com/2017/12/21/new-ebola-epidemic-liberia-corruption-epidemic-takes-center-stage/
[4] https://www.weforum.org/agenda/2015/05/how-to-manage-procurement-after-a-disaster
[5] World Bank Guidance, “Procurement in Situations of Urgent Need of Assistance or Capacity Constraints”
[6] https://www.adb.org/documents/disaster-and-emergency-assistance-policy
[7]Emergency Procurement Procedures, unfpa.org/sites/default/files/admin-resource/PROC…
[8] www.procurement.govt.nz/assets/procurement…
[9] www.gppb.gov.ph/issuances/Circulars/Circular 04…
[10] en.wikipedia.org/wiki/Stafford_Disaster_Relief…
[11] https://www.law.cornell.edu/uscode/text/41/1903
[12] https://www.srilankalaw.lk/Volume-VII/sri-lanka-disaster-management-act.html
