Note No 17 tanResourc Stu oProcuemen and MieLement Issues. - 1 1ommitt, Ie or L - n - amred by Gita Gopal and Alexandre Marc APRIL 1994 STUDY OF PROCUREMENT AND DISBURSEMENT ISSUES IN PROJECTS WITH COMMUNITY PARTICIPATION ADVISORY COMMITTEE ON PROCUREMENT AND DISBURSEMENT ISSUES IN BANK-FINANCED PROJECTS WITH COMMUNITY PARTICIPATION This report was prepared by Ms. Gita Gopal, Consultant, under the supervision of Mr. Alexandre Marc (AFTHR), Task Manager, and with the support and guidance of the Study Advisory Committee chaired by Mr. Peter Pease, (OPRPR), and including Mmes. & Messrs. R. Barahona (LOAAF); F. Bentchikou (LEGOP); B. Bhatnagar (ENVSP); M.Bromhead (ECIAE); M. Fowler (LOAEL); S. Jorgensen (AF6PH); D.Howarth (MNAVP); X. Legrain (SAlEI); C. Perera (LOAAS); J.J.Raoul (AFRSA); J. Roman (EA1AN); E. Schaengold (ASTEN); A. Silverman (LA2AG); A. Williams (OPRPG). The study draws on information and comments from various other Bank staff, in particular those listed in Annex VI. Comments were also received from "Action Aid". Editing and processing of the documents were done by Donna McGreevy and Frangoise Genouille. Technical Note No. 17 Human Resources and Poverty Division Technical Department, Africa Region The World Bank Washington, D.C. 4 Table of Contents Forew ord . . . . .. . .. .. . . . . . . . . . . . . . . . . . . .. . . .. . . . . . vi A bbreviations .................. ... .................vii Executive Summary ..................................-1- Objective and Scope ofStudy ....................... 1- Overview of ExistingPolicy ........................ 2- Issues in Community Related Procurement And Disbursement . . -3- Issues In Procurement ....................... 3- Issues in Contracting ........................ 4- Issues In Disbursement .b.ursem.ent.. ....... .-4- Mechanisms Increasing Accountability . . . . . . . . . . . . . -4- Institutional Aspects . . . . . . . . . . . . . . . . . . . . . . . . . -4- Borrower Related Issues ...................... 5- Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . -5- Chapter I: Bank Policies And Community Related Procurement And Disbursement ................................. 7- Introduction ............... ................... 7- Bank Policies ................................. 9- Community Related Procurement & Community Related Disbursement ............................ -10- Applicability of Bank Policies to Community Related Procurement and Disbursement ....................... . .12- Chapter II: Identification and Examination of Issues . . . . . . . . . . . . . -14- Issues in Procurement ........................... 14- Issues in Competitive Bidding . . . . . . . . . . . . . . . . . . -14- Packaging of Contracts . . . . . . . . . . . . . . . . . -14- Complexity of Procedure . . . . . . . . . . . . . . . . -16- Issues in Non Competitive Practices . . . . . . . . . -16- Force Account..................... . .16- Unspecified Procurement . . . . . . . . . . . . . . . . -17- W orks vs. Goods ................... . .18- Issues in Contracting ............................ -18- Legal Status .......................... . .18- Nature of Contracts ........................ 18- NGO as Contractor or Consultant . . . . . . . . . . . . . . . -20- Administrative Costs and Advance Payments ........ . 20- Thresholds for Prior Review . . . . . . . . . . . . . . . . . -21- Issues in Disbursement .......................... -23- Special Accounts and Second Generation Special Accounts .......................... -23- Mechanisms Supporting Accountability . . . . . . . . . . . . . . . . . -24- -iii- Lack of Guidance in Designing Projects ......... . -24- Standards of Accountability ................... 24- Transparent Processes ...................... -25- Management of Information . . . . . . . . . . . . . . . . . . . -26- Monitoring of Community Related Procurement & Disbursement ....................... 26- Institutional Aspects .. . . . . .. .................. . . 27- Training and Staff Skills ..................... 27- Lack of Adequate Information ................. 29- Borrower Related Issues.......................... -29- Regulatory Aspects ........................ -30- Lack of Counterpart Funds . . . . . . . . . . . . . . . . . . . -31- Chapter III: Adaptations of Bank Policies . . . . . . . . . . . . . . . . . . . -33- Practices in Community Related Procurement ............ . -33- Adaptation ofLCB ........................ 33- Simplification of Procedure .............. . -33- Simplification of Bidding Documents ........ . -34- Splitting of Contracts ................. . 35- Assistance of Intermediaries ............. . -35- Adaptations of Local Shopping ................. 35- Adaptation of Direct Contracting ................ 37- Direct Contracting with Communities . . . . . . . . . . . . . -37- Adaptation of Force Account . . . . . . . . . . . . . . . . . . -39- Financing Communities Through Intermediaries . . . . . . . -40- Issues in Contracting ............................ -41- Works andGoods ......... ................ -41- Contractual Status ......................... 41- Prior Review of Contracts .................... 42- Undetermined Procurement ................... 43- Advance Payment ......................... -43- Issues in Disbursement .......................... -44- M ultiple SAs ........................... 44- Revolving Fund .......................... -44- SG SAs . ... . . . .. . .. ....... ............ -44- Mechanisms Ensuring Accountability ................. . -45- Unit Costs .... .. . .... ................... 46- Focus on Outputs ......................... 46- Standard Contracts . . . .. ... ............... . -47- Standard Designs ......................... 48- Implementation Manual ...................... 48- Beneficiary Contribution ..................... . 49- Limits Per Community Contractor .............. . -50- Blacklisting of Contractors/NGOs .............. . -50- Beneficiary Assessment ....................... 50- Management of Information ................... 51- -iv- Monitoring Indicators . . . . . . . . . . . . . . . . . . . . . . . -51- Audits/Reviews .......................... -52- Institutional Aspects ............................ 52- Training and Requisite Staff Skills . . . . . . . . . . . . . . . -52- Lack of Counterpart Funds . . . . . . . . . . . . . . . . . . . -53- Chapter IV: Conclusion .n.l.s................... ..... -54- Clarification of Bank Policies . . . . . . . . . . . . . . . . . . . . . . -55- M anual of Practices ............................ 56- ImplementationManual .......................... -56- Training of Bank and Project Staff . . . . . . . . . . . . . . . . . . . -56- Database of Information on Community Related Procurement and Disbursement ............................ -57- Additional Flexibility in Disbursement ................ . -57- Borrower Related Issues.......................... -58- Detailed Recommendations ........................ -59- Annex I: Checklist for Task Managers . . . . . . . . . . . . . . . . . . . . . -68- Annex II: World Bank Procurement & Disbursement Policies ...... . -69- Annex III: Justifications for Departure from ICB/LCB .......... . -73- Annex IV: Index of Projects ........................... 75- Annex V: List of Stafflnterviewed ....................... -77- Bibliography ..................................... -79- -V- 4 FOREWORD A Bank-wide Learning Group on Participatory Development was launched in December 1990. The Group was charged with examining issues of participation and identifying means of increasing participation in Bank operations. As part of the Group's activities, it was decided in 1992 to conduct a study on procurement and disbursement issues in Bank-financed projects. AFTHR agreed to manage this study as a response to the increased focus on community participation as a means of promoting sustainability of projects in the Africa Region. This Study discusses and seeks to clarify procurement and disbursement issues in the design, plan and implementation of Bank-financed projects. It is hoped that Task Managers will find the information in this study useful in the preparation of such projects. The study is also intended to generate further discussion on a topic that is increasingly becoming very important as the Bank finances more and more social sector projects. This Study is the result of a collaborative and participatory process within the Bank that has in itself been most rewarding and enlightening. A number of Bank staff have spent considerable time sharing their experience in the field with the team preparing this report. They are too many to mention individually here, but we would like to thank them for their invaluable input. -vi- ABBREVIATIONS AGETIP Agence d'Ex6cution de Travaux d'Int&6t Publique CIDP Community Irrigation Development Project CP Commumty Participation CTB: Central Tender Board DEMATT Development of Malawi Traders Trust ECRF Ethiopia Community Rehabilitation Fund ESF Emergency Social Fund GIE Groupment d'Int6r6t Economique GOU Government of Uganda IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association IM Implementation Manual LCB Local Competitive Bidding MOF Ministry of Finance MP Manual of Practices MU Monitoring Unit NGO Non-Governmental Organizations OD Operational Directive PAPSCA Project for Alleviation of Poverty and Social Costs of Adjustment PCMU Project Coordinating Monitoring Unit PCR Project Completion Report PCU Project Coordinating Unit PO Partner Organizations RA Requesting Agency RPA Regional Procurement Advisor SAR Staff Appraisal Report SA Special Account SGSA Second Generation Special Account SIF Social Investment Fund SIMAP Social Impact Amelioration Program and Agency SOE Statement of Expenditure TKV Development Fund of Turkey TM Task Manager TOR Terms of Reference UNDP United Nations Development Program WEMTOP Women's Enterprise Management Training Outreach Program WB World Bank -vii- s EXECUTIVE SUMMARY OBJECTIVE AND SCOPE OF STUDY 1.1 Community participation in planning, designing, and implementation of development projects is increasingly being used by development project designers. Bank experience suggests that "projects tend to be more sustainable and yield higher returns when they involve those they are intended to help".' Community participation may, thus, increase the access of disadvantaged communities to project benefits, enhance motivation of communities, increase ownership of projects, encourage self reliance by transfer of skills, build local institutional capacities, and ensure that greater proportions of project benefits flow directly to targeted deserving beneficiaries.' Past reviews of Bank experience, however, show that procurement and disbursement have been a concern during project preparation and implementation of Bank-financed projects with community participation. Issues have been raised in which current World Bank directives and procedures, as well as existing rules and regulations in the country themselves restrict the scope for community participation.3 1.2 In view of the growing number of projects in the social sector, this Study examines procurement and disbursement issues in Bank-financed projects with community participation to collate and analyze Bank-wide experience, to identify issues, present cases of best practices, and if necessary, suggest possible enhancements to existing policies and procedures. Chapter I of this Study reviews existing Bank policies on such procurement and disbursement. Chapter II examines a number of Bank-financed projects to identify issues relating to such procurement and disbursement. Chapter III catalogues a number of new and innovative procurement and disbursement practices formulated in some Bank-financed projects as a first step to information sharing in this important area. Chapter IV concludes the study making suitable recommendations. The annexes provide relevant background information for the study. 1. Participation Development and the World Bank: Potential Directions for Change, edited by Bluvan Bhatnagar & Aubrey Williams, World Bank Discussion Papers, No. 183 at iii in the Foreword by Sven Sandstrom, Managing Director, World Bank, (1992) (Document hereinafter referred to as "DP # 183"). 2. See DP # 183. 3. See DP # 183 at 122: Marc, A. Fundine Mechanisms and Participation: A Brief Review of World Bank Expeience and Related Issues. -1- OVERVIEW OF EXISTING POLICY 1.3 Under existing Bank policies, International Competitive Bidding (ICB) and Local Competitive Bidding (LCB) (when international contractors are not interested) are the preferred methods of procurement in Bank-financed projects, keeping in mind the interests of the Member and Borrower countries (Procurement Guidelines, Para 1). Where competitive bidding is not feasible either due to the size of the contracts, or the remote or scattered locations of the sub-projects, the Procurement Guidelines permit the use of alternate economic and efficient practices like shopping, direct contracting, or force account (See Annex II). Additionally, when projects involve financial intermediaries like agricultural credit institutions or development finance companies, Procurement Guidelines permit the use of commercially established practices acceptable to the Bank, except in the case of large contracts. 1.4 Given the above policy framework, communities may be involved in procurement in Bank-financed projects in three situations, together referred to as "community related procurement". One, communities (small-scale artisans, entrepreneurs and small non-governmental organizations, together referred to as 'community groups' ) may be brought into the process of competitive bidding. Clearly, communities have no role to play when ICB is determined to be the appropriate method due to the size and nature of the contracts. When LCB is used, existing experience suggests that communities could be involved, particularly when the goods are of a type commonly provided by community groups (furniture, roofing sheets, wooden sleepers, and so on), or the works are that which can be performed by them (unskilled labor, construction of small infrastructure). Two, communities may be involved where Procurement Guidelines specifically state that competitive bidding may not be feasible. These situations arise, as stated earlier, when contract sums are small or works are remote or scattered. Involvement of the community (formal and informal community groups or individuals) is possible in such situations in the procurement of goods, works or services, provided alternate procurement practices are cost effective. Three, a number of projects are increasingly setting set up non-governmental or semi-governmental organizations as financial intermediaries or separate social funds in an attempt to channel funds to grassroots communities. While social funds are not "financial intermediaries", their design ensures more accountability and transparency, thereby permitting innovative procurement practices. 1.5 Except in the case of competitive bidding, community related procurement is normally permitted when sub-projects are remote, scattered or small (See Annex III). Under such circumstances, existing administrative arrangements are usually weak or unsuited for commercial activities. The designing of community related procurement and disbursement then becomes difficult, and greater flexibility is required to design appropriate and effective funding mechanisms. ODs 4.15 and 14.70 recognize this fact and state that -2- flexibility should be permitted in procurement practices in poverty alleviation projects, and when procurement is executed through NGOs. Both ODs, however, do not discuss the extent or scope of flexibility to be permitted, while they do reiterate that any procurement must take place within the framework of the Procurement Guidelines. 1.6 Without clear guidance, Bank staff are themselves unsure of the permissible levels of flexibility in designing community related procurement. Consequently, there are no Bank-wide minimum standards. Bank practices and attitudes vary from region to region and sometime within the region. Some projects have new and innovative community related procurement practices. Other projects of a similar nature are standard and conservative. This results in some arbitrariness, uncertainty in planning and generates tension between staff who insist on flexible interpretations and those who believe such interpretations would violate Bank policy. 1.7 Policies regarding disbursement show no difference in treatment of community related disbursement. The policies while fairly simple, provide few options to meet the new demands of disbursing small amounts to dispersed communities in rural and remote areas. ISSUES IN COMMUNITY RELATED PROCUREMENT AND DISBURSEMENT 1.8 Given this policy framework for community related procurement and disbursement, the design and implementation of community related procurement and disbursement generates a number of concerns or issues. These are briefly discussed below. Issues In Procurement [Page 14] (a) Competitive bidding is a formal method of procurement requiring the participant to have some degree of institutional and financial support, and knowledge of commercial bidding. As practiced currently, it virtually excludes smaller local level organizations, unfamiliar with commercial practices. (b) While there is no mandatory rule, the normal practice is to package small contracts into larger packages for reasons of economy and efficiency. This poses a barrier to the participation of smaller organizations with weaker administrative and financial capabilities. (c) The need to specify all matters relating to procurement and disbursement fairly early on in the project cycle (OD 11.02) is a problem in many projects where the nature and quantities of goods, materials works or services to be procured can be determined only after assessments of needs and demands. -3- Reportedly, task managers sometimes use arbitrary figures in preparing staff appraisal reports. Issues In Contracting (Page 18] (d) Prior review of contracts for goods, works or services is noted to delay implementation of community related procurement. (e) Simple model contracts or checklists for community related procurement and disbursement are necessary for the guidance of project designers. Poorly drafted contracts can not anticipate potential issues, impeding implementation. In some cases, NGOs are unwilling to enter into contracts with the Government since this affects their credibility with their target communities. (f) The inability to pay recurrent capital costs unless they are incremental to the project and the reluctance to advance funds to communities without performance securities also affect the participation of smaller community organizations. Issues In Disbursement [Page 22] (g) Bank policies and borrower country regulations do not always permit quick and timely disbursement of small amounts of funds to individuals or groups at local levels. The opening of a second Special Account or the withdrawal of funds from the such an account to a second account, even for a short period of time for purposes of community related disbursement is restricted. Mechanisms Increasing Accountability [Page 24] (h) There is inadequate guidance on incorporating measures for accountability and transparency in the use of funds. Since community related procurement is fairly recent, task managers are not always familiar with effective mechanisms and cannot find adequate support or guidance in such matters. (i) The Bank is yet to develop standards and formats for supervision, monitoring and evaluation of projects sensitive to community related procurement and disbursement. Institutional Aspects [Page 27] (j) Inadequate skills on the part of project designers in community related procurement and disbursement is cited as an issue. This includes the lack of sensitivity to the special requirements of projects with community participation as well as the lack of -4- familiarity of project staff with even existing Bank policies and procedures. (k) Inadequate institutional capacity of project executing or implementing units, absence of specialized project staff, and lack of focus on community related procurement and disbursement have been identified as contributory factors. (1) There is need to record and maintain information in a more systematic and accessible fashion on aspects related to community related procurement and disbursement in project documents. Borrower Related Issues [Page 29] (m) The impact of national regulations on procurement and disbursement in general, and therefore on community related procurement and disbursement is another issue. Some national regulatory provisions conflict with Bank policies. When procurement and disbursement are subject to both Bank policies and borrowing country regulations and institutional arrangements, the resulting bureaucratic processes can impede implementation of projects. The borrower's reluctance to decentralize fiscal control also affects community related procurement and disbursement. Lack of familiarity of borrower country officials with Bank policies is another dimension. (n) Lack of counterpart funds is a persistent problem which has impeded both procurement and disbursement in a large number of projects examined for this study. 1.9 The issues discussed above need to be addressed appropriately if community related procurement is to become an effective tool for development. Recommendations on how the Bank might be more supportive of community related procurement and disbursement are suggested below. Recommendations [Page 54] 1.10 One, Procurement Guidelines and OD 11.00 together need to clarify in broad terms when and under what circumstances community related procurement may be undertaken. This can be achieved by adding a paragraph in the existing Guidelines (Pg 55) and by revising OD 11.00 to provide broad guidance on specific issues identified in this study. Two, adequate guidance should be provided to project designers in designing, implementing and supervising projects with community related procurement and disbursement. Increased guidance could result from the provision of a "Manual of Practices" detailing best practices, suggesting possible models, and providing sample contractual and other documents for community related procurement and disbursement. Three, in all -5- projects with significant community participation, the preparation of an "Implementation Manual" specifying all community related procurement and disbursement should be made a condition of loan effectiveness; and incorporated by reference into the loan agreement. This is currently done in projects which set up social funds in the Latin American and African regions, and helps in ensuring greater accountability as well as establishing a clear understanding between the Bank and the Borrower. Such an Implementation Manual could be prepared as part of the Implementation Plan currently required for all investment loan operations.! Four, existing training for Bank staff does not cover community related procurement or disbursement. The Bank should develop training courses for project designers both in the dynamics of community participation and in procurement and disbursement matters. Five, the Bank should develop a data base or improve the existing data base to provide adequate information on matters related to community related procurement and disbursement so that Bank staff may easily access and share information available both within the Bank and outside, at the project level. For this, more detailed reporting of relevant aspects of community related procurement and disbursement may be required. Six, increased flexibility in Procurement Guidelines would require corresponding flexibility in disbursement practices. It is suggested that existing practice with regard to the advance of funds from the Special Accounts, currently restricted to thirty days, be extended to sixty days on a case by case basis for projects with community participation, provided adequate accounting and auditing provisions are incorporated in the project design. 1.11 In the case of Borrower related issues, the ability to redress the situation is more limited. However, identification of issues specifically concerning community related procurement should be incorporated into the ongoing process of preparing Country Procurement Assessment Reports (OD 11.01) so as to advise project designers of issues in the country. Key areas of concern which cannot be addressed through project design should be incorporated into the Bank's policy dialogue with the respective countries. 4. Letter dated September 17, 1993 from James W. Adams to Staff on the "Preparation of Implementation Plans". -6- CHAPTER I BANK POLICIES AND COMMUNITY REL4 TED PROCUREMENT AND DISBURSEMENT INTRODUCTION 2.1 Community participation in planning, designing, and implementation of development projects is now increasingly being used by development project designers. Bank experience suggests that "projects tend to be more sustainable and yield higher returns when they involve those they are intended to help".' Community participation may, thus, increase the access of disadvantaged communities to project benefits, enhance motivation of communities, increase ownership of projects, encourage self reliance by transfer of skills, build local institutional capacities, and ensure that greater proportions of project benefits flow directly to targeted deserving beneficiaries.6 2.2 Bank experience has, however, shown that procurement and disbursement, have been key issues during preparation and implementation of projects involving community participation.' Bank policies for procurement and disbursement were developed at a time when community participation was not recognized as a means of enhancing project benefits. Bank procurement and disbursement arrangements were designed to facilitate supply of goods, works and services by larger contractors and suppliers, based on the concept of competitive and free trade, rather than by individuals (unless as consultants) or community and non- governmental organizations. Consequently, a strong preference for the use of International Competitive Bidding (ICB) in procurement has emerged and it is normal practice to disburse for such procurement through commercial banking systems. 2.3 While this approach was aptly suitable for large investment projects, as the Bank increasingly financed projects in the social sectors, such as health, nutrition, education, and focused on the social dimensions of development as a means of enhancing project ownership and sustainability, the Procurement Guidelines were perceived as being inadequate in providing the necessary guidance in funding 5. Participation Development and the World Bank: Potential Directions for Change, edited by Bhuvan Bhatnagar & Aubrey Williams, World Bank Discussion Papers, No. 183 at iii, (1992) (hereinafter referred to as "DP # 183"). 6. See DP # 183. 7. See DP # 183. -7- community participation. Box 1:OD 4.15 & Procurement Thus, OD 14.70 (August 1989) and OD 4.15 (December "Procurement. When projects include 1991), discuss procurement in social objectives, the procurement the context of non- procedures and contract packaging governmental organizations should be adapted, as appropriate, (NGOs) and poverty within the framework of the alleviation respectively. While Procurement Guidelines. For example, they both reiterate that any projects can be designed for procurement must take place labor-intensive construction, where it is within the framework of the consistent with economic cost Procurement Guidelines, they minimumization, and contracts can be also stress the need to "adapt packaged to encourage small firms and as appropriate" procurement NGOs to participate. Use of simple practices in projects with contract documents and expeditious social objectives. Neither OD, payment procedures can also facilitate the which were reportedly involvement of small firms and NGOs. In developed without the the procurement of simple goods--such as involvement of the Bank's school/hospital furniture, agricultural central procurement unit, nor tools, school uniforms, textbooks, and other Bank regulations, street cleaning equipment--appropriate explain, however, what such specifications may be used to promote appropriate practices might be small-scale, labor-intensive production or how to adapt procurement methods, where such methods are policies when applied to these consistent with minimizing economic projects. Consequently, despite cost. the increase in projects with community participation on the one hand, on the other hand, there is inadequate guidance on designing funding arrangements for community participation. 2.4 This study examines procurement and disbursement issues in Bank- financed projects involving community participation ("participatory projects"). Specifically, Chapter I provides an overview of Bank policies regarding such procurement and disbursement, and highlights broad policy level concerns. Chapter II examines a number of participatory projects to identify issues relating to procurement and disbursement that arise during design and implementation of such projects. Chapter III describes innovative and different procurement and disbursement practices currently used in such projects. Chapter IV provides a brief conclusion to the study, as well as summarizing in a matrix, the issues identified in Chapter II providing suitable recommendations for future action. The Annexes provides background information for the study. -8- BANK POLICIES Box 2: OD 14.70 & Procurement 2.5 The Bank's Articles Procurement and Disbursement. NGO of Agreement require that participation in project execution as proceeds of any loan are contractors or suppliers should meet the used with due attention to criteria set out in the Bank's "Guidelines for economy and efficiency, Procurement under IBRD Loans and IDA only for purposes for Credits" and in OD 11.00, "Procurement." which the loan is granted, However as NGO contracts are usually small and without regard to and involve community participation, political or other non- international competitive bidding and limited economic influences or international bidding are normally not feasible, considerations. This is not and even open competitive procurement is not only to maintain the always feasible. Shopping or direct Bank's access to sources of contracting is often the most appropriate capital, but also to promote method of procurement. Direct contracting the efficient use by may be justified where an NGO is the only borrowers of all financial entity capable of carrying out an activity (e.g., resources allocated for the maintenance of feeder roads in remote areas, design, implementationand or the transfer of a particular technology). operation of projects. Contracts with NGOs may need to reflect the fact that NGOs differ from 2.6 While the specific commercial contractors: the contract might circumstances of a project therefore stipulate, for example, that NGOs determine the exact nature should involve the community in planning and of procurement and implementation. Similarly, special measures disbursement methods, may be required to ensure that NGOs have three considerations guide sufficient liquidity to carry out the contract. the Bank's policies in matters relating to procurement. These are: (i) economy and efficiency in the execution of the project, including the procurement of goods and works involved; (ii) the Bank's interest in giving all eligible bidders whether from developed or developing countries a fair opportunity to compete in providing goods and works; and (iii) the Bank's interest, as a development institution in encouraging the development of local contractors and manufacturers in borrowing countries. (OD 11, Para 5) 2.7 The existing policies governing procurement and disbursement under Bank loans (references to Bank loans also include IDA loans) reflect the above stated principles. They consist of the following (See Annex II): o Guidelines for Procurement under IBRD Loans and IDA Credits (the "Procurement Guidelines"); o Guidelines on Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency (the "Consultant Guidelines"); -9- o Operational Directive (OD) 11.00 on "Procurement"; o OD 11.10 on "Use of Consultants"; o Sample and Standard Bidding Documents; o Disbursement Handbook; o OD 12 on "Disbursement"; and o Guidelines: Financial Reporting And Auditing of Projects Financed by the World Bank (the "Accounting Guidelines"). 2.8 The Procurement Guidelines (Para 1.6) take the view that in most cases the needs and interests of the Bank as an international institution can best be realized through properly administered International Competitive Bidding (ICB). Where ICB is not economic or efficient, for example, in procurement of works that may be of no interest to foreign bidders, alternative suitable methods may be used. The policies, however, require that economy and efficiency should be the guiding principles in the choice of alternate procurement methods. 2.9 The Procurement Guidelines include a variety of other options, of which Local Competitive Bidding (LCB) is the most commonly used. In such cases, the LCB procedures of the borrower are reviewed in detail and waiver of specific provisions agreed with the Bank when considered necessary. Other options include the use of local shopping, direct contracting, and force account. Local shopping is permitted when quantities of works or goods are small and simple (OD 11, Para 35 ). Direct contracting is permitted when competitive bidding will not produce any response (OD 11 Para 38(f)). Force account (execution of works by the borrower's or government agency's own personnel) is permitted where works are small and scattered, or in remote locations with no local contractors, and where mobilization costs for outside contractors would be high (OD 11, Para 40 (b) [See Annex II]) COMMUNITY RELATED PROCUREMENT & COMMUNITY RELATED DISBURSEMENT 2.10 For the purposes of this study, any reference to "community" is to individuals or groups, particularly from economically disadvantaged sections, who are responsible for procuring goods, works, or services in Bank-financed projects, or the supply of goods and carrying out work. It refers not only to the absolute poor but also to a broad range of people or groups including grassroots organizations of beneficiaries themselves, informal groups of artisans, small and localized NGOs', businesses or entrepreneurs, disadvantaged either because of lack of adequate financial assets or institutional capacity.' Thus the term "community" would cover: 8. Specific issues relating to larger national or international NGOs are not examined in this study. The focus is on smaller and grassroots organizations. 9. See DP # 183 at 2. -10- a. individual or groups of beneficiaries; b. community groups with no legal status; c. associations or groups with legal status, with or without separate legal personality as a group; d. small scale artisans and other local or small commercial organizations and guilds; and e. small and local level organizations, particularly NGOs which support and facilitate the flow of Bank funds to individuals. 2.11 All procurement through such individuals or groups is referred to as "community related procurement" for the purposes of this Study. When such individuals or groups are eligible to receive payment out of Bank funds either for works, goods or services provided by it, or to buy works, goods or services, such disbursement is referred to as "community related disbursement" for the purposes of this study. 2.12 There are various examples of community related procurement and disbursement in Bank-financed projects. In the Honduras Social Investment Fund Project, for example, individual mothers are provided with grants to buy food. In the Mexico Municipal Funds Program', communities are encouraged to form informal groups to supervise and manage the construction of community structures. In the Philippines Communal Irrigation Development Program (CIDP), local farmers form irrigator associations, and are paid to execute specific irrigation work on communal or privately owned land. In the Burundi Social Action Project, an NGO or sponsoring agency enters into a contract for the rehabilitation and construction of local social infrastructures, on behalf of a community group. In the Malawi Second Education Credit, groups of small scale artisans provide wooden desks necessary for the project. In the Ethiopian Social Rehabilitation Fund, a component of the Ethiopian Emergency Recovery and Reconstruction Project, the community forms a Project Committee which then enters into contracts with contractors and suppliers. 2.13 NGOs have acted as contractors in Bank-financed projects. As early as 1976, in the Liberia Second Education Project, an NGO was entrusted with the implementation of a major civil works component of the project (community schools) with three expectations: (i) the schools would be constructed at a lower cost than would be the case under commercial contractors; (ii) the NGO would train local communities in basic construction and construction management skills; and (iii) the NGO would assist in mobilizing and motivating community participation. The Project Completion Report (PCR) concludes that the Bank and the Government were in agreement that the project met these objectives. NGOs may also provide services as consultant (India Second Integrated Child Development Services Project) where they take up delivery of services in whole 10. This is one of the Mexico Solidarity Programs supported by the Mexico Decentralization and Regional Development Project for Disadvantaged States (Mexico Decentralization Project). -11- blocks or assist communities in the development of pilot schemes for women's programs. NGOs may also act as financial intermediaries to encourage the flow of funds to communities as in the Sri Lanka Poverty Alleviation Project. Recently, the formation of separate private sector contract management agencies has been encouraged in many African projects to ensure the flow of Bank funds to local level contractors and artisans. One illustration is the use of Agence d'Excution de Travaux d'Intert Publique (AGETIP) in Senegal." APPLICABILITY OF BANK POLICIES TO COMMUNITY RELATED PROCUREMENT AND DISBURSEMENT 2.14 Given the Bank policy framework on procurement and disbursement, community groups can be involved in the process of procurement in three ways. One, communities can be brought into the process of competitive bidding. Clearly, communities have no role to play when ICB is determined to be the most suitable method of procurement due to the size, nature and complexity of the contracts. When LCB is used, recent experience suggests that community groups could participate, depending on the nature of goods or services to be obtained. Two, where competitive bidding is unsuitable given the context of the project, communities can be involved through the use alternate methods which mainly include local shopping or direct contracting, the latter used in limited instances. Three, the other instance when community related procurement takes place is in projects that use or set up financial intermediaries. While the Procurement Guidelines intended "financial intermediaries" such as agriculture development banks, it has been flexibly interpreted (OD 14.70) to include NGOs financing smaller community groups. In such cases, Procurement Guidelines state that commercially established practices acceptable to the Bank will prevail, except for large contracts that will attract foreign contractors or suppliers. 2.15 Procurement through or by community groups leads to the need to disburse to these communities. Mechanisms used to disburse funds to commercial enterprises familiar with banking procedures are currently used to disburse funds to sometimes illiterate communities living in remote areas who have never used banks. Further, since Bank funds are held in the capital city, the process of disbursement to beneficiaries at grassroots level is difficult and cumbersome. Additionally, government regulations of the borrowing country often delay quick and timely disbursements at the field level. Some argue, and not without merit, that the concept of Special Accounts and Statements of Expenditures has in itself been a major adaptation, introduced to facilitate quicker disbursements (See Annex 11). The fact that it has been virtually made a regular feature, they add, should not undermine the fact that it permits quicker disbursement. 11. Senegal Second Public Works and Employment Project sets up a special agency AGETIP as an independent private institution to deal with procurement. contracts. Such institutions have now been established in many other African countries including Niger, Mali, Mauritania, and Chad. -12- 2.16 Given the nature of the existing framework for community related procurement and disbursement, a number of specific issues are generated during the design and implementation of Bank-financed projects with community participation. Chapter II of this Study identifies and examines such issues to determine the nature or form of any action that the Bank must take if community related procurement and disbursement are to become effective tools for development in Bank-financed projects. -13- 4 CHAPTER II IDENTIFICATION AND EXAMINATION OF ISSUES 3.1 An examination of Bank-financed projects indicates a number of specific issues in the design and implementation of community related procurement and disbursement.'" These issues are discussed below under the following heads: 0 Issues in Procurement; o Issues in Contracting; o Issues in Disbursement; o Mechanisms Increasing Accountability; o Institutional Aspects; and a Borrower Related Issues. ISSUES IN PROCUREMENT Issues in Competitive Bidding 3.2 Where ICB is determined to be the preferred method of procurement, communities have little or no role to play in the process due to the size and complexity of such contracts. When LCB is the method of procurement, recent experience suggests that community groups can be, and are increasingly being, involved. Involving communities in the process of LCB is, however, difficult. The reasons are discussed below. Packaging of Contracts 3.3 Procurement policies require that wherever possible contracts must be packaged together to encourage competitive procurement through ICB or LCB (OD 11, Para 16). Thus, it is common to find as in the Pakistan Rural Water Project, that small contracts are packaged together (US$ 250,000) to attract larger and experienced contractors. 3.4 Packaging may exclude small firms and NGOs, not to speak of local level artisans or cottage industries. They are unable to participate in contracts of such size, given their weak administrative and financial structures. For example, in the Malawi Second Education Sector Credit, LCB was used for procuring roofing tiles. The Staff Appraisal Report, however, comments that a variety of community production centers would be unable to participate in the procurement 12. The majority of projects discussed in this chapter involve communities. However, a few other projects have also been mentioned particularly in the section on institutional aspects. -14- process unless project arrangements ensured that they would be assisted by an intermediary. 3.5 Packaging can have consequences other than that of excluding smaller contractors and community groups. In Uganda Alleviation of Poverty and Social Cost of Adjustment (Uganda PAPSCA), the requirement for packaging resulted in even nails being procured through competitive bidding. This impeded community related procurement of voluntary labor significantly because such procurement of materials took approximately eighteen to twenty-four months. Once the nails were procured, project coordinators discovered that community enthusiasm for the project had waned considerably, thereby impeding implementation of sub-projects. Similarly, in the Ethiopian Social Rehabilitation Fund, (a component of the Ethiopia Emergency Recovery and Reconstruction Project) procurement requirements for rural development sub-projects would be determined by participating community groups. The concern has been expressed that this process would further increase the time required for procurement. 3.6 While packaging does negatively impact community related procurement, at the same time, it has definite advantages when institutional capacity is lacking or minimal. For example, project documents show that in the Malawi First Education Sector Credit, the construction of 1,500 primary class rooms and 750 teacher's houses in 540 sites is significantly behind schedule. Utilizing small contractors has been identified as increasing the number of contracts and burdening the project implementing agency's management capacity. Payment of small sums of money to numerous contractors is tedious and delays the flow of funds. It is suggested *that the participation of larger contractors and the repackaging of construction contracts into larger attractive packages may have to be considered if project objectives are to be achieved on schedule though this may lead to increased unit prices (implying less classrooms) and reduced scales of community participation. Similarly, in the East Java Water Supply Project, the PCR states that "[t]he Government's policy of strongly supporting small scale local contractors, together with the budgeting system providing for one year expenditure only, resulted in a very large number of small contracts (three times than estimated at appraisal)." This, in turn reduced the qualifying standards and put excessive burden on contract administration and supervision. Actual completion was delayed by three years. " 3.7 Since regrouping of identical purchases in a single package has been demonstrated to be more economic and efficient in many situations, there is a reluctance to depart from this established norm, unless there is adequate evidence to show that packaging results in increased costs or that smaller contracts will result in lower costs. Such evidence is difficult to provide because community participation is still relatively new and meaningful data is not always available. Moreover, economic benefits like the development of smaller organizations, the 13. PCR No. 10226, dated 12/20/91. -15- transference of skills to local levels and consequent benefits to the community, etc., are not factored into the calculation of costs. Thus, the majority of the projects continue to package smaller contracts into bigger packages. Complexity of Procedure 3.8 Procurement policies Box 3: Complexity of Competitive prescribe detailed procedural Bidding instructions regarding notification While not a typical example, the and advertisement of bidding sample formula (below) for adjustment opportunities, pre-qualification of of prices provided by the "Sample bidders in certain cases, Bidding Documents for Procurement of information to be provided in Goods" highlights this point: bidding documents, sample clauses P1 = PO x (a + b(Ll/Q) + c(M 1/MO) for references to the Bank, and so on. In all respects other than advertisement, preferences, the language to be used in bidding documents, and provisions regarding foreign currency, these prescriptions, which are prescribed for ICB, apply to LCB. (OD 11, Para 31) LCB then becomes a very formal and sophisticated method of procurement in which communities, particularly smaller organizations or groups, are unable to participate. 3.9 A new set of simplified documents has been issued by the Bank, but these are for work contracts below US $ 10 million. These are not useful in community related procurement. Issues in Non Competitive Practices Force Account 3.10 Force account 1 is used for procurement of community labor mainly in Asia. Use of community labor would not technically qualify as force account, since force account requires the use of the "Government's personnel", and not communities. But due to the lack of an alternative, force account continues to be used in countries including China, India and the Philippines, where the Government has relatively greater institutional capacity. 3.11 The use of force account for community related procurement raises concerns. One, force account is possible only where the Government or its agencies have the institutional capacity to undertake the supervision of the work. In regions with weaker institutional capacities, force account is not a potential option for involvement of communities. Two, the work has to be executed or managed by the Government or Government Department. In many countries 14. Force account is constmuction through the use of the borrower's own personnel and machinery. -16- there is a lack of trust between local communities and Government personnel. Unmotivated Government personnel are not the best supervising agencies when communities are involved. Three, it is reportedly not the most efficient way of procuring works. Many Task Managers (TMs) in Latin America suggest that it is less transparent than other forms of procurement. For example, they argue that it is difficult to ensure that wages have been paid to the community. 3.12 The lack of other appropriate means for involving communities results in force account being used extensively, particularly in the Asia region. In the Philippines CIDP II, 80% of the works, estimated at US $ 39.7 million is undertaken through force account under the supervision of the National Irrigation Administration. Unspecified Procurement 3.13 Bank's policy states that the preparation phase must be completed prior to Board presentation: At the time of Board presentation, as a general rule, project preparation should be sufficiently advanced that procurement and other important phases of project implementation can start shortly after loan approval, and with cost estimates that are reasonably reliable and contain only modest physical contingencies... [MOS 2.28, October 19781 3.14 In recent years, however, this above stated policy has increasingly been disregarded and in many projects design components have been left to be decided during project implementation. This then increases the need for project supervision of these features during project implementation. 3.15 In many projects with community related procurement, the nature of procurement is also determined during implementation based on rapid appraisal surveys of the needs and priorities of beneficiary communities. At the time of Board presentation these projects, therefore, involve incompletely designed sub- projects with the caveat that project implementing agencies would establish processes and provide the required guidance for implementation. To fulfill policy requirements, TMs reportedly continue to put in arbitrary procurement estimates during SAR preparation. This then leads to delay in implementation when allocated funds for a particular category are found inadequate. Raising the ceiling requires amendment of the loan agreement. In the Zambia Social Recovery Project, the Bank has permitted unspecified procurement as to the manner of procurement. In other projects, even this has not always been permitted and continues to be a problem. -17- Works vs. Goods 3.16 Normally, "works" and "goods" are procured separately in Bank-financed projects particularly when non-competitive procurement practices are employed, because goods are delivered by suppliers and works constructed by contractors. However, such separation is sometimes not conducive to the implementation of project components with community participation. In projects where labor is provided by the community, project implementation is more effective if the community is also permitted to procure the necessary materials. This may be possible only when such materials are locally and easily available such as cement, sand, or gravel. When the required material is not locally available, the choice of procurement method is crucial. For example, in the Uganda PAPSCA, labor was procured from the community through force account. Construction materials were obtained through centralized competitive bidding and distributed to communities. Participating communities did not receive the material for about eighteen to twenty-four months, by which time community enthusiasm for the project was considerably diminished. ISSUES IN CONTRACTING Legal Status 3.17 Since the Bank has to "ensure that any proceeds of any loan are used only for the purposes for which the loan was granted" it is a usual requirement that procurement of all goods, works, materials, or services should be made only in accordance with provisions - agreed to between the parties. In practice, therefore, a contract is required. 3.18 National regulations of some countries do not provide for community groups to enter into legal contracts unless they are formally registered under some valid regulation. This process can often be difficult. For example, in Burundi, there is no legal framework for registration of a community group as a formal organization with the capacity to enter into contracts. Consequently in the Burundi Social Action Project, an intermediary organization was brought into the sub- project to sign the contract on behalf of the community group, in some cases increasing costs and complexity. Participation of such groups then raises some issues. Admittedly there must be a clear and well-defined agreement between community groups and project units but it must be recognized that a legally valid contract may not always be necessary. Nature of Contracts 3.19 A number of projects including Chile Primary Education Project, Nepal Basic and Primary Education, Uttar Pradesh Basic Education Project, Mali Health Development Project and Jammu and Kashmir and Haryana Social Forestry Project have developed project specific standard contracts. In some cases -18- contracts with NGOs have been poorly drafted and have created problems. For example, contracts with NGOs do not take into consideration the unique non- commercial nature of NGOs. In the Mali Health Development Project, the PCR states: The largest component supporting US $ 6.4 million of civil works construction by an NGO, experienced up to 24 months delay and frequent interruptions, shoddy workmanship requiring reconstruction, cost overruns significant enough to severely cut back on total construction achieved, and unaccounted for advance monies totaling US $ 2.6 million. 3.20 The PCR notes that no detailed manuals of procedures were prepared for guidance. Such a manual could have lowered the risk of poor performance. Salmen identifying another reason for the problem, states: Whereas private contractors typically work on an expense reimbursement cycle, a not-for-profit NGO is unlikely to have the capital reserves necessary to fund construction while awaiting reimbursement. This became clear to project staff working on the Mali Health Development project, in which ADAU, an NGO from Burkina Faso was contracted to build health centers.15 3.21 Or again, Jammu and Kashmir and Haryana Social Forestry PCR states: The contract model provided a good conceptual framework for people's participation in the protection, management and distribution of benefits but did not specify the beneficiaries and how the benefits would be distributed, resulting in insufficient attention being given to documentation of the beneficiaries and different views on the distribution of benefits. 3.22 Sometimes NGOs are reluctant to enter into contracts because they do not wish to take on a contractual obligation and consequent liability. In others there is "a deep seated reluctance on the part of NGOs - based on mistrust - to entering into a relationship with the Government".' Such activities are perceived as damaging their credibility as voluntary organizations with their target groups. Sometimes, NGOs have found themselves inhibited by contractual terms from incorporating methods of operation used in their own projects that may have contributed to project sustainability. 15. World Bank Work and Non-Governmental Organizations, Lawrence F. Salmen and A. Paige Eaves, WB Working Papers, WPS 305 (1989). 16. Easing the Poor Through Economic Crisis and Adjustment: The Story of Bolivia's Emergency Social Fund, Jorgensen. S., Grosh, M., Schacter, M., Human Resources Division, Latin America and the Caribbean Technical Department, Report No 3 at 75 (May 1991). -19- NGO as Contractor or Consultant 3.23 NGOs may be hired in projects both as contractors and as consultants. When NGOs are hired as contractors or suppliers, they are expected to meet the criteria set out in the Procurement Guidelines (OD 14.70, Para 14). When the tasks performed by NGOs are purely consultative, they may be hired under the Consultant Guidelines (OD 14.70, Para 15) which do not, like the Procurement Guidelines, require competitive bidding with the award being made to the lowest evaluated bid. 3.24 It is easier to justify sole source contracts when NGOs are hired as consultants. It is also possible to enter into a lump-sum contract with them and include as part of the contractual terms the purchase of small equipment like motorcycles, computer, etc., or even a vehicle as in the and thereby avoid delays related to bulk procurement problems. If on the other hand they are contractors providing works, then it becomes necessary to justify departure from competitive bidding on grounds that other contractors would not be interested, either due to value of contracts, nature of sub-projects, or scattered locations. 3.25 The distinction is less clear when NGOs are hired as implementing or executing agencies, i.e., agencies who undertake the execution of some works by the community (as in the proposed Nepal Rural Water Supply Project). In Nepal, NGOs are expected to mobilize voluntary community labor to build small-sized water supply schemes. In this situation the distinction is blurred. Are they acting as consultants who will assist and motivate communities, or are they acting as contractors who will ensure the completion of water supply schemes work according to predetermined standards and specifications? Some suggest that the method of payment will determine which guidelines apply. If the payment is dependent on the completion of the work, the contract would be one of procurement. If it is a lump sum payment to be paid irrespective of the completion of the work, it would be a consulting contract. 3.26 NGOs cannot be hired as contractors without competitive bidding, unless commercial contractors are unavailable or not interested in the works because of the nature or size of the work. Consequently, it is difficult to contract NGOs to construct small or simple infrastructure using paid labor from communities. Administrative Costs and Advance Payments 3.27 Often NGOs or communities do not have adequate financial liquidity, and need in addition to project funds, finances to meet their core recurrent expenses. They may also require advance payments to commence project work. When such administrative or advance costs are not financed, it is difficult for NGOs and small community organizations to participate in project activities. -20- 3.28 The Bank is unable to finance recurrent capital costs. It encourages that such costs be financed from local sources in order to ensure the sustainability of the organization, once Bank financing is terminated. Similarly, the Disbursement Handbook states that the Bank will not disburse against excessive advances (Para 8.13). In order to be eligible, any advance payment must be related to the cost of the goods, works or services covered by the contract. It suggests that an advance payment of ten to fifteen per cent of the contract amount would be considered reasonable and adds that the contract should include and specify a security for the advance. 3.29 In practice, the Bank permits reimbursement of incremental recurrent costs on a declining basis to meet administrative costs. This principle has been applied to organizations participating in community related procurement also. One TM noted that there was always a perceptible pressure within the Bank to decrease the financing of incremental costs due to difficulty in documenting such expenditures. 3.30 Similarly, to ensure quality of physical works, contractors are required to provide performance guarantees for 10% of the contract amount. Also usually, 10% of the payment due to the contractor for works completed is retained from each invoice, until after project completion. An illustrative project is the Haiti Economic and Social Fund Project where a performance guarantee of 20% of the project amount was required and if this was not possible, then the contract required the withholding of half of the contractors fees until two months after project completion. This is again a difficult requirement for NGOs who are often constrained by lack of extra funds and excluded from participating in such Bank- financed projects. 3.31 While there is no disagreement on the fact that any funds advanced must clearly be accounted for, there is at the same time, a need to recognize the fact which is reiterated by OD 14.70: "special measures may be required to ensure that NGOs have sufficient liquidity to carry out the contract" (see Box 2). There is adequate flexibility in the existing Guidelines to permit the advance of reasonable and small sums, provided as stated earlier, such advances are small, reasonable, and related to the cost of goods, works or services covered by the contract. Thresholds for Prior Review 3.32 Prior review of procurement has been documented to create tedious delays. The Bank is not equipped to undertake a large number of prior reviews. Bureaucratic bottlenecks in the country equally inhibit the process. A low threshold for prior review of contract documents for sub-projects involving communities also delays effective implementation of projects. As the OED Interim Report on Procurement (1981) points out: -21- The prior review and approval procedure is, however, time consuming. It is onerous for Bank staff when it may involve them in checking hundreds of documents for just one contract. In one project, five years of procurement produced miscellaneous correspondence filling 14 folder; in another, a consultant complained of the work load involved in correspondence which called for such meticulous care in expression that anything from one to seven days were needed to collect or express ideas in a single letter. 3.33 Prior review of eighty per cent of the total value of Bank-financed contracts is normally required (OD 11.04, Para 9). In the case of social sector projects (education health and rural development) which typically involve a large number of small-value contracts, a coverage lower than 80% may be justified (OD 11.04, Para 11). 3.34 While there is no consistent pattern, it seems that as a general rule, 80% continues to be the accepted threshold, even in social sector projects. Thus, the Madagascar Food Security and Nutrition Project requires prior review of all procurement contracts above US $ 40,000.1' Community related procurement contracts are expected to range from US $ 25,000 to 65,000. In the Cameroon Food Security Project and Uganda PAPSCA, contracts for goods or services above US $ 50,000 require prior review. In the former, contracts for sub- projects involving communities are all below US $25,000. In the latter case, they are not, and prior review has been a contribution to delayed implementation.' In the Haiti Economic and Social Fund, all ICB contracts, the first two LCB contracts, and all subprojects above US $ 100,000 are subject to prior review. Additionally, the first thirty contracts, irrespective of size, including a representative sample from all sectors are to be reviewed. In the Togo Grassroots Development Initiatives, disbursement for NGO projects under grant financing would be subject to prior IDA approval of these projects. 3.35 The inability to set appropriate thresholds for prior review can create unintended delays.19 For example, in the Madagascar Food Security and Nutrition Project, contracts valued at less than US $ 20,000, would be made against Statements of Expenditures (SOEs). In the same project, prior review is required for projects over $40,000. This leaves contracts between US $ 20,000 and 40,000 where the Loan Department cannot disburse without examining the documentation provided in support of the replenishment or reimbursement request for the SA. So while prior review is avoided, disbursement is delayed through the need for full documentation. 17. The Borrower also insisted on a high threshold for prior review in this case. 18. Working with Government Using World Bank Funds, Sam Voorhies, World Vision Evaluation Department (October 1992). 19. LOA is normally reluctant to set higher SOE threshold levels. -22- ISSUES IN DISBURSEMENT 3.36 The inability to disburse small funds in a timely fashion at the grassroots level is a recurrent and pervasive problem. Community organizations with financial flexibility find themselves covering expenses, and where they cannot, community related procurement comes to a grinding halt. Special Accounts (SAs) and Second Generation Special Accounts (SGSAs) 3.37 Given the existing guidelines there is very little flexibility to develop new mechanisms for community related disbursement. Flexibility to open separate SAs or SGSAs (advance payment from the SA to separate accounts in local banks) for community related procurement has been suggested as a method of facilitating disbursement. 3.38 The ability to open a second SA specifically for community related disbursement is advantageous. In Ethiopia, the Social Rehabilitation Fund was set up as an independent body within the Ethiopia Emergency Recovery and Reconstruction Project and was permitted to have a separate SA for its operations. This was not permitted in Eritrea Community Rehabilitation Fund (ECRF) on the basis that it was too small leaving the ECRF dependent on the Ministry of Finance. 3.39 Opening of SGSAs at the grassroots level would reduce bureaucratic control and procedures and support efforts to disburse funds at the local levels. SGSAs, however, are permitted by OD 12.00 only under "exceptional circumstances" including where there are logistical problems involving the transfer of funds from the Central SA to distant rural areas where project entities are located (Para 23). These accounts are set up for specific implementation units that cannot readily access the SA to meet eligible expenditures as they occur. Each such case requires prior approval by LOA Director. This approval should be sought as early as possible and no later than the completion of appraisal. There must also be clear and well defined control features. The Handbook also states that funds may be advanced from the SA to meet future eligible expenditures to be incurred within a period of thirty days, provided such transfer is authorized by the Loan Department. 3.40 As of June 30, 1993, only 33 authorized SGSAs were known to exist, 11 of them in the Africa region and the other 22 in South Asia.20 SGSAs have been permitted in projects like the Cameroon Food Security Project and in the Benin Natural Resources Project where there are inadequate banking facilities for transfer of funds directly to rural areas. In Cameroon, funds are transferred from the SA at the Central Bank to separate accounts at nine provincial levels. The Caisse Autonome d'Amortissement is authorized to transfer funds from the SA 20. Report of the Working Group for Review of Special Accounts, Loan Department, September 8, 1993 -23- to the provincial accounts upon receipt of approved Statement of Expenditures from the provincial delegates. The funds are then disbursed to the local sub- contractors. In Benin, the Credit Agreement permits the opening of up to seven separate accounts, but only one has been opened so far. 3.41 SAs and SGSAs are, however, not encouraged due to a variety of reasons. One, controlling undisbursed funds in different small accounts all over the country is a difficult task. Two, when funds are converted to local currencies, the country increases its foreign exchange risk due to any devaluation of the local currency. The "Report of the Working Group for Review of Special Account" (1993) does not encourage the use of either SAs or SGSAs because "dysfunctional SAs pose potential risks and problems to both borrowers and the Bank". The report adds: "Because of the inherent risks in monitoring and controlling the movement of funds deposited in SGSAs, the Working Group recommends that the Bank not relax its policy restricting their use."2" MECHANISMS SUPPORTING ACCOUNTABILITY 3.42 Clearly, any additional flexibility in the application of procurement and disbursement policies must be accompanied by a clear framework for simultaneously ensuring accountability and transparency in use of funds. It is essential to do this, not only to ensure that the proceeds of the loan are used for the purposes for which they are lent, but also to establish trust among the partners in a program involving community related procurement. Lack of Guidance in Designing Projects 3.43 When community related procurement takes place in scattered or remote locations, administrative arrangements are usually weak and inadequate. Community related procurement is then conducted by groups or individuals with little or no administrative structure and capabilities. Some of the communities do not operate in the normal cash economy. Their ability to deploy the available funds is highly restricted. Ensuring accountability and transparency in the absence of effective administrative arrangements becomes a very difficult task. At the same time, there is no guidance available to the TM in devising appropriate and effective institutional arrangements and processes in such complex situations. Neither are project designers alerted to the types of potential issues that may arise or to the precautionary project designs that could be incorporated. Standards of Accountability 3.44 There are established methods and practices, through reporting and audit requirements, to ensure that the Borrower is accountable to the Bank for use of 21. Id at 9. -24- funds. In projects with community related procurement, similar procedures have not as yet been established." 3.45 Application of commercial standards of accountability to community related procurement can sometimes make it difficult to implement projects with community related procurement. For example, the proposed Bolivia Child Nutrition Project aims to finance 9,000 community mothers in remote provincial areas to procure food and make small repairs to their homes. While it is important to ensure accountability and transparency in the use of funds, traditionally accepted commercial forms of accountability are not necessarily suitable to community related procurement. For example, a requirement for receipts and vouchers in the above proposed project, even assuming an efficient system of collection, would not be enough to understand the impact of the project unless accompanied by beneficiary assessments, random checking of day care centers, height and weight of participating children, monetary and other contribution of the community, and other similar data. Or again procedures applicable in well-defined commercial transactions may be inapplicable when applied in the context of community related procurement. For example, in the Guyana SIMAP/Health, Nutrition, Water and Sanitation Project, community groups were allowed to procure their own goods, but only through local shopping with offers from at least three qualified suppliers. This was found to be a burdensome requirement, since it was difficult to find even one qualified supplier in some rural areas. Transparent Processes 3.46 Lack of transparent processes ensuring that all members of communities have a fair and reasonable chance of participating in procurement activities is important for successful community participation. For example, it would be necessary in designing such methods to understand gender roles and the constraints on women in the context of the project, to be able to devise strategies to give men and women an equitable share. In the Burkina-Fasso Third Rural Development Project, it was found that work done by communities was mostly done on land belonging to community leaders, not on family or community plots since the method of selecting land was not transparent. This considerably reduced the incentive of communities to invest time and effort in operations and maintenance activities since there was no guarantee that they would obtain a fair share of the output. 3.47 When communities are involved in procurement, the process through which the type of goods or supplies to be procured is very important. For example, in projects related to water supply and conservation, the absence of women in decision making roles has led to inefficient procurement. Similarly when disbursements are always made through the banking channels, women who 22. Id at 132. -25- normally have little or no access to banks or banking accounts are dependent on the male family members to access such assets. Management of Information 3.48 The Bank has rich and varied project experience in community related procurement and disbursement. There is no consistent standard for documentation of information generated by such project experience. In the relatively few projects that have documented information, there is no formal means of accessing such information for persons unconnected with the project. The lack of adequate information leaves project designers unable to share Bank experience and to identify or evaluate the efficacy of existing mechanisms. (See below under "Institutional Aspects") Monitoring of Community Related Procurement & Disbursement 3.49 An examination of projects with community participation only emphasizes the need for good monitoring of procurement and disbursement. In the Columbia Integrated Rural Development Project, Guatemala Basic Education Project, and many others, ineffective monitoring and evaluation has been identified as the main limitations of implementation. It is important to evaluate whether the funds expended through community related procurement have been used for the purposes they were intended for. This is important not merely for evaluation, but also for guidance in designing new projects with community participation. 3.50 Admittedly, a good monitoring system of community related procurement is difficult to incorporate. The scattering of heterogeneous sub-projects over very disparate areas makes monitoring and supervision very difficult. As was discovered in the Senegal Small Rural Operations Project, "there is conflict between the desirability of good supervision and spatial concentration, and demand driven participation that may be spatially quite diverse. A difficult choice has to be made..." (PCR). Further, TMs give priority to projects in the pipeline and supervision of ongoing projects does not get adequate attention. Despite this, 30 - 40% of project specific supervision time is taken up with matters relating to procurement.' The utility of allocating more resources to supervision of community related procurement needs to be examined. 3.51 The capacity of the project monitoring unit is also a crucial factor to effective monitoring of community related procurement and disbursement. In Uganda PAPSCA, a project with innumerable components and a number of executing agencies, the Project Coordinating Unit consisted of two people. This significantly impeded the timely monitoring of procurement. Similarly in Kenya Education Project, project implementation was impeded by the fact that project staff changed during project implementation and did not include anyone with 23. Supra note 6. -26- procurement experience. Sometimes, monitoring processes are duplicated by Bank projects because of lack of coordination with the Government Departments. In India, for example, there are seven to eight projects in the health sector under three different TMs in the state of Andhra Pradesh. Lack of coordination between the TMs and the state government results in each project generating large amounts of data, sometimes similar, on an ad hoc and arbitrary basis and still collectively failing to provide an adequate data base for future activities. 3.52 TORs for procurement audits do not contain any reference to community related procurement. The focus is entirely on ICB and LCB. Furthermore, existing procedures emphasize quantitative achievements and do not focus on qualitative aspects of community related procurement. Often in projects with community participation, the rationale for monitoring and supervision of procurement is not distinguished from that of non-participatory projects. Monitoring is not related to the desired outcome of community related procurement but to the input along traditional lines. Indicators for monitoring and supervision of community related procurement are also are not identified and developed well in advance. INSTITUTIONAL ASPECTS 3.53 Two main issues were identified which have a significant bearing on the design and implementation of Bank-financed projects with community participation. One concerns the skills of both project designers within the Bank, and project implementing staff at the project level. The second issue that impedes effective project design relates to the paucity of information within the Bank on community related procurement and disbursement. These issues are discussed below. Training and Staff Skills 3.54 Bank staff are not Box 4: Staff Expertise trained to deal with Lack of knowledge of procurement and specific issues in projects disbursement policies on the part of Bank staff is with community also identified as an issue. A regional survey participation or sensitized conducted in Africa indicates that only a few TMs to the fact that supporting have attended even 10% of the procurement grassroots community seminars. Many TM's have not even attended one related procurement has a basic course on procurement (see footnote 24). number of implications for project design.2' Failure 24. "The PTF conducted an informal survey, included as Annex II, to determine what percentage of the Region's TMs have taken seminars and/or workshops regularly offered by OPRPR and the RPA. The results are quite alarming, particularly taking into consideration that only "project-oriented" divisions were included (Country Operations Divisions were excluded). If we assume that the very minimum desirable training is the "4-day basic Procurement" seminar, plus one or two additional seminars -27- to understand Procurement Guidelines has resulted in TM's unnecessarily adopting rigid positions, not warranted by the Bank Procurement Guidelines. Thus in situations where local shopping or direct contracting would have been acceptable, TMs have chosen to adopt more stringent methods. Two TMs, on the other hand, pointed out that procurement specialists were not trained to appreciate the needs of community related procurement and disbursement. They respectively had greater success with their procurement specialists, once the latter visited the project sites and understood the needs and limitations of participating communities. Thus project designers and procurement specialists, themselves must be trained to be sensitive to such implications. 3.55 Training of project staff is another key issue. In the Brazil Skills Formation Project, the lack of awareness of the executing agency staff of contractual agreements between the Borrower and the Bank, particularly in regard to financial matters was identified as an issue in project implementation. Often NGOs or community level groups are uninformed as to the manner of conducting local shopping or of keeping subsequent accounts or receipts. This holds up procurement and disbursement. In Brazil Second Bahia Rural Development Project, major changes in methodology were not "thoroughly discussed, understood and agreed with the project executing agencies before the start of implementation". The implementing agency, therefore, never accepted the concept of engaging communities in financing and maintaining rural water supply systems and did not implement such plans. In the Philippines CIDP Project I, it was discovered that changes in project personnel, policies, procedures, norms, attitudes and expectations were needed before community related procurement could be implemented successfully.5 In the Cyprus Energy Planning and Conservation Project, the executing agency's lack of familiarity with Bank's procurement procedures was one of the reasons cited for erratic procurement. 3.56 Contents of existing Bank procurement training do not include practical guidelines and case studies of projects with community participation. While TMs come away with an understanding of the competitive methods of procurement, the training does not equip them to deal with community related procurement and disbursement. 3.57 The absence of procurement specialists in many resident missions also prevents TMs from obtaining advice on country specific information regarding procurement during missions for preparation of projects. Thus, at an early enough stage, TMs are not alerted to potential problems relating to procurement and disbursement pertaining to the country's regulatory system. Such procurement on more specific topics, including the "3 day Selection of Consultants" seminar -- thus defining the meaning of literacy --th at least 50% of the Task Managers do not possess procurement literacy, and it could be said that these staff are not really qualified to make procurement decisions. Draft Paper: Procurement in Africa, Issues and Solutions", dated May 16, 1991. 25. DP # 183 at 23. -28- specialists could also assist in the implementation, monitoring and supervision of community related procurement which is most often scattered and remote and easier to monitor from the resident mission. 3.58 Bank staff have also stressed the fact that Bank processes sharply limit the time which project staff can devote to designing Bank-financed projects.2' This imposes considerable limitation on planning and designing projects with community participation. Lack of Adequate Information 3.59 Lack of adequate information and access to the limited but existing project specific information, is without doubt a key restraint. At all levels, whether it is in documents or in operation lending databases, there is paucity of meaningful information concerning community related procurement. 3.60 An brief survey of project documents validates this opinion that neither supervision reports nor other related documents provide adequate information about community related procurement or disbursement. The PCR of the Paraguay Agricultural Credit Project stresses that 9,000 individual farms benefited from the project, nearly half of who received loans on an individual basis. It provides, however, no information on use of loans or on disbursement processes. Only few PCRs (like the one in the Bolivia Emergency Social Fund (Bolivia ESF)) provide explanations of procurement methods or assess the efficiency of the procurement method. 3.61 Lack of information and consequent failure in sharing of experience prevents the identification of successful practices. Project designers are unable to benefit from experiences in other regions and sometimes in other countries within the same region. Moreover, even if a TM is aware of a successful project in another region, there is, first as stated above, very little documented information, and second, there is no formal method for accessing such information. The rich experience available within the Bank then remains restricted. BORROWER RELATED ISSUES 3.62 In a large number of projects, issues are generated due to the regulatory environment of the borrowing country. While applicable in general, they also affect community related procurement and disbursement. The failure to identify them early on in the project cycle and address them in the best manner possible has led to severe delays and failures in implementation of subprojects with community participation. 26. Community Participation in World Bank Supported Projects, Nagle and Ghose, SPR Discussion Paper No. 8 (June 1990). -29- Box 5: Project Completion Reports Regulatory Aspects Completion Reports are very sparse in 3.63 In many cases, national their description of procurement matters. procurement regulations as well as For example, the PCR dated December Bank policies apply to Bank- 24, 1992, of the Comoros Rural Services financed projects. The borrowing Project states: "The Project was the second agency then ends up having to IDA-financed agricultural project in the follow both sets of rules, thereby Comoros. The experience gained under the Coconut Rehabilitation and Rodent ineasing th emplexty od Control project which started in 1980, was mningbroement nand very useful to project staff in dealing with d overall procurement procedures." Such the procedures and regulations are information is of very little use to other outdated and can delay project project designers who turn to the PCR for implementation significantly. In guidance. the Paraguay Second Rural Water Supply and Sanitation Project, experience reiterated the fact that failure to deal with procurement issues early on in project preparation and to ensure a mechanism to promptly resolve any problems that arose consequently during project execution could result in delayed project implementation. The Cote D'Ivoire procurement code while acceptable to the Bank, prescribes low thresholds for competitive bidding resulting in local shopping thresholds in Bank projects being subject to competitive process under the Code. In the Cote D'Ivoire Fourth Rubber Project, standard documents imposed by the Government regulations were very rigid, and poorly suited to agricultural works which required great flexibility in field operations. In Venezuela, the procurement law has waived projects partially or entirely financed by international financing agencies and guarantees, and permitted the application of their respective procurement regulations or guidelines in such cases. In the Equador Second National Low-income Housing Project, significant conflicts were identified between national and Bank regulations. However, the law provides that the procurement procedures of international financial institutions would be binding, so long as such procedures are expressly stated in the credit agreement. 3.64 Institutional processes and procedures within the country also affect community related procurement. Experience has shown that delays in procurement and disbursement can significantly dampen community enthusiasm. Thus, in Uganda PAPSCA, any item over US$ 1000 needed to be approved by the CTB for disbursement. A report by a participating NGO, World Vision, stated: Evidence reveals that the counterpart GOU funding procedures involves 16 steps over a time period of 3-4 months to obtain one final payment. This process involves some ten GOU offices located in two GOU Ministries. World Bank (IDA) funding involves 11 steps with ten offices in two GOU ministries.... In both cases WV Uganda and other NGO staff -30- indicate that most steps require personal intervention by PCMU staff to ensure action is taken at each office and documentation forwarded to next official. [Voorhies, 19921 3.65 This is not unique to Uganda. In the Columbia Integrated Rural Development Project, Government procedures typically took 103 days to process disbursement requests. In Madagascar, the execution of projects have been hampered by bureaucratic delays and procurement problems because of weak managerial capacity in the public sector. Due to the lack of adequate institutional safeguards, the Ministry of Finance insists on prior review of all documents by the Bank before it will approve of SOEs. 3.66 Ignorance about Bank disbursement procedures has held up project implementation. When executing agencies are not trained in methods of accounting and maintaining records, it creates considerable delay before the Bank can obtain adequate and proper documentation for disbursement. Ignorance about the use of SAs can hold up project disbursement. For example, in Zimbabwe National Agricultural Extension and Research Project, the Reserve Bank of Zimbabwe, due to lack of understanding on the operation of the Special Account, converted the amount deposited by the Bank into local currency, thereby rendering it of no use in the purchase of foreign items. 3.67 Lack of support from Governments for community related procurement can also raise issues for project designers. Governments are unwilling to lose control, and hesitate in transferring funds and control of project components to communities and other grassroots level institutions. Sometimes, Governments wish to select the organizations they wish to involve in the Project. While a good rapport between the Government and the community organization/NGO is essential for successful execution of projects and is essential (OD 14.70 Para 10), in some instances, effective NGOs are excluded by the Government from participating in Bank-financed projects. For example, in Turkey, the Government has sometimes resisted the involvement of Development Foundation of Turkey (TKV), an NGO which has gained substantial experience in Bank-financed projects. Lack of Counterpart Funds 3.68 The willingness to contribute counterpart funds is generally seen as an indicator of the Government's commitment to the project. (GB 6.30, Para 5) But, in most projects, Borrowers do not provide counterpart project funds in a timely fashion. Innumerable projects contend with this problem. In the Dominican Republic Cocoa and Coffee Development project, loan disbursements were very slow due mainly to the absence of timely and sufficient budgetary counterpart funds. In Uganda PAPSCA, the Government of Uganda had committed $143,000 cash funding for the first year of operation. The Government, however, did not provide the funds for the first one and half years -31- of the program's three year life span. In the Guinea-Bissau Population, Health and Nutrition Project, the lack of such funds persisted through out the project. At credit closing its contribution was $61,900 compared to the US $ 210,000 required and agreed. In the Columbia Integrated Rural Development Project, the "untimely availability of counterpart funds" proved to be an untractable problem through much of project implementation. As a result, in various new projects, (for example the Madagascar Food Security and Nutrition Project), provision of funds to such project accounts is a condition for effectiveness of the loan, thereby ensuring that the funds would be available at least for the first year of project implementation. 3.69 In projects with community related procurement, often communities do not have adequate funds to initiate or continue work without an advance, or at least, timely payments. If adequate and timely counterpart funding is provided, this problem can be significantly reduced, by ensuring quicker disbursements with eligible funds being reimbursed from the SA according to the terms of the Loan Agreement. -32- Chapter III ADAPTATIONS OF BANK POLICIES 4.1 OD 4.15 states: "When projects include social objectives, the procurement procedures and contract packaging should be adapted as appropriate, within the framework of the Procurement Guidelines." (Para 43) As stated before, there have been many attempts to adapt procurement and disbursement guidelines to suit the needs of community related procurement and disbursement in Bank- financed projects. 4.2 Such attempts have, however, been ad hoc and project specific, and usually when community related procurement can be justified on the grounds that the sub-projects are remote or scattered, or amounts are too small to attract commercial contractors (See Annex II). Adaptations have largely taken place in projects which set up social funds. The design of social funds provide greater opportunities to incorporate measures for increasing accountability and transparency in the use of funds. 4.3 The lack of a mechanism to access existing information on such practices has, however, resulted in limiting experience, both good and bad, to the few Bank staff concerned with projects in the country. This part identifies some of the more innovative practices within Bank-financed projects. Many of the innovations are in recent -projects and it is not possible to determine their effectiveness. This chapter lists such practices merely as an information sharing exercise. PRACTICES IN COMMUNITY RELATED PROCUREMENT Adaptation of LCB 4.4 As stated earlier, the process of competitive bidding virtually excludes the participation of small contractors or community groups. Various adaptations have been tried to permit such smaller groups to participate. Simplification of Procedure 4.5 Many TMs suggest that if the process of bidding were simplified without affecting its competitive nature, smaller local organizations may have greater opportunities to participate. o In Ghana Transport Rehabilitation Project, wooden railway sleepers were to be financed through LCB. Customarily, such sleepers were procured from small scale contractors who would have been excluded by -33- the use of LCB. The Bank took the unusual step of canceling procurement by LCB and using the traditional but simple procedure which had been used by the railways. This is briefly described below. Once the demand for sleepers is established and funds availability assured, all Railway Area Officers are required to advertise in their localities. All interested suppliers are advised to meet the Chief Civil Engineer along with their past performance record and their present capability to supply their sleepers. Those with adequate capacity are given supply order by the Railways (Chief Civil Engineer) specifying the quantity of sleepers to be supplied within a specified period. Specifications for the sleepers and conditions of supply form part of the order. Standard contract form and conditions are prescribed. This would not only permit the involvement of small scale suppliers, but at the same time, is turning out to be a more efficient and economic way of procurement. Simplification of Bidding Documents 4.6 Simplification of bidding documents have recently been attempted in some projects to facilitate the involvement of small-scale or community level contractors. o AGETIP's operational manual provides simple bidding documents for LCB. These procedures are designed to address the problem of employment generation as well as to ensure adequate competition among eligible contractors without requiring them to prepare a complex proposal, including detailed calculations of prices. The core of the procurement procedure is local advertisement among registered contractors of a proposed contract for a given subproject. All contractors registered in the roster for the category of works and the area concerned by the subproject are be invited to bid. The contract is written in simple language and describes the scope and nature of the works, proposes reference price with some straightforward explanations about its calculation (unit prices and quantities). Contractors are invited to bid by way of discounts either on the total price or on the unit prices. The winner is selected among the eligible bidders, on the basis of the proposed discount and other criteria (such as timeliness of performance) - if any is specified in the bidding documents. Reportedly this has been working well. Not only have small local contractors been participating in the procurement process, but some have graduated to contracts in other projects. Of the 681 enterprises pre-qualified by AGETIP, 103 are community groups called Groupment d'IntMret Economique (GIEs), 99 of which were created after AGETIP was set up. Out of the 119 sub-projects, 15 are being implemented by youth groups. -34- Splitting of Contracts 3.7. In a number of projects the Bank has prescribed local competitive bidding without requiring bulk packaging of contracts. These include: o AGETIP is experimenting with the breaking up of contracts to allow small local firms to bid, creating more employment opportunities. (see above). o Philippines Second Elementary Education Project uses LCB as the primary method of procurement of furniture. However, to encourage local artisans, contracts, up to US $ 3.8 million in the aggregate, may be packaged into amounts less than US $ 5,000.00, and may be procured through negotiation or local shopping. o Malawi Education Sector Credits: Contracts are not packaged but are denominated in smaller amounts to permit local artisans to participate. Reportedly, in the process desks have been procured at a unit cost half of that of the desks currently obtained through competitive bidding in other projects. Assistance of Intermediaries 4.7 Sometimes, community organizations are not be able to participate in even simplified bidding processes without assistance. There have been a few attempts to provide such institutional support. o The Malawi Education Sector Credits sets up the Development of Malawi Traders Trust (DEMATT) to assist small and local artisans to participate in the procurement of school furniture from local traders. o In many social funds, (for example the Ethiopian Social Rehabilitation Fund, a component of the Ethiopian Emergency Recovery and Reconstruction Project), the Fund provides community organizations with the necessary assistance. Adaptations of Local Shopping 4.8 Variations of local shopping have been permitted in some projects for a significant portion of the project procurement. o The Bolivia Social Investment Fund (Bolivia SIF) (1990) permits the use of a method adapted from local shopping - different from that followed by its predecessor, the Bolivia Emergency Social Fund (ESF). The Requesting Agencies (RA) that propose sub-projects (selected on the basis of pre-determined criteria) on behalf of their communities are placed -35- in charge of procurement. The Bolivia SfF ensures that procurement procedures acceptable to IDA are included as part of the contract signed with the RA. For civil works contracts less than US $ 100,000.00 (up to an aggregate of US $ 6 million), the RA carries out local shopping and provides Bolivia SIF with all relevant documentation for review, indicating its choice among the offers presented. Bolivia SIF compares prices against its prepared Schedule and makes the final decision. If all offers are above the reference prices, the RA is asked to renegotiate with the firm offering the lowest quote. If negotiations fail to lower the price, Bolivia SIF assesses the need to revise its reference unit prices. Where communities have no advocate organization to serve as RA, the Bolivia SIF assists them by identifying organizations already working within those provinces and assessing their capacity to act as RAs. Where indicated, support may be provided to assist qualified agencies in extending their operations to targeted areas. Bolivia SIF's supervision department also provides technical assistance to all RAs in basic budgeting and accounting to improve efficiency of the utilization of resources generated by the project. The Project justifies this unusual threshold level for local shopping on the following grounds: (i) existing methods of procurement for public projects in Bolivia would add US $ 700,000 - US $ 800,000 to the project costs, resulting in 10-25 fewer average sized sub-projects. (ii) sub-projects are relatively small requiring little or no heavy machinery and many of the sub-projects are dispersed and remote; (iii) prior experience of the ESF shows that smaller firms have the capacity and are perhaps more reliable than larger firms; and iv) ESF's practice of unit price costing has been found to be economically efficient; unit "prices under its sub-projects were below the average for the industry during the period." 0 The Guyana SIMAP/Health, Nutrition, Water and Sanitation Project is modeled along the lines of the Bolivia SIF. Sub-project proposals are submitted by requesting agencies on behalf of SIMAP's target beneficiaries. The sub-projects are approved based on pre- determined criteria. Where poorer communities with weaker sponsoring agencies find it difficult to translate needs into concrete project proposals, SIMAP finances technical assistance, including short term contracts with private engineers and architects to draw up the final designs needed for sub-project appraisal. The financial appraisal of a sub-project proposal first verifies that the proposal contains only expenditure categories allowable for financing under SIMAP Guidelines. SIMAP then reviews unit costs and compares them with standard costs in its price data base which is updated periodically. Upon approval of a sub-project, a multi- party contract is signed between SIMAP, the sponsoring agency and the selected contractor (where appropriate). In case of infrastructure sub- projects performance guarantees are sought, including performance bonds, from private contractors. In cases where guarantees cannot be obtained because of the size of the contractor, tranching of payments is be carried -36- out and advances are made against a well defined program. As a further assurance of quality execution, SIMAP withholds five percent of each infrastructure contract during a specified period against defects and liabilities. Contracts less than US $ 50,000 are awarded on the basis of price quotations obtained from at least two qualified contractors. In remote locations, where no more than one qualified contractor is available, the sponsoring agency is permitted to engage in direct contracting up to an aggregate amount of US $ 0.7 million. Adaptation of Direct Contracting 4.9 Some projects have attempted to use direct contracting as the key procurement practice when communities are to be encouraged to participate. However, normally such adaptations have been permitted in social funds because sub-projects are scattered or remote, making it less attractive for contractors, and eliminating need for extensive supervision and reviews. o The Bolivia ESF introduced a new system of procurement - a variance from the normally accepted form of 'direct contracting' for civil work contracts up to US $ 250,000.00. A schedule of standard prices was established for contracts covering various types of sub-projects (e.g., price per house to be built). When a local organizer or a sponsoring agency brought a proposal, say for a housing project, such agency was also expected to nominate a preferred contractor. On the basis of the above Schedule, the ESF offered the contractor a specific price for the contract on a 'take - it or leave it basis'. The contract permitted the contractor to procure the materials in any manner, once the contract was signed. Upon signing of the contract, the contractor was provided 20% of the cost as an advance, the remaining disbursements made in tranches upon completion of work measured against certain predetermined standards. The contractor executed a performance bond up to 20% of the project costs. The Bank would perform quarterly reviews. The Schedule would be regularly audited and updated as necessary. Direct Contracting with Communities 4.10 Some projects have attempted to establish direct contracting between the project implementing agency and the community group. o The Albania Rural Poverty Alleviation Pilot Project provides an interesting example where under the rural works program of the project, the credit finances infrastructure sub-projects at a total estimated cost of about US $ 1.6 million with an average cost per sub-project of about US $ 11,000. These projects finance small civil works in remote and scattered locations. In most cases the work is carried out directly by the communes, which hire local technicians to supervise the works. The -37- communes also hire local workers to construct the works under contracts spelt out in their respective operational manuals. In such cases for projects below US $ 25,000 and up to an aggregate of US $ 1.25 million, the project executing agency enters into direct contract with the communes and other local institutions. As the communes develop, local shopping procedures are introduced. Under the Credit's Fund Scheme where small amounts (US $ 20 to 300) are to be lent out for the purchase of minor farm inputs and supplies, procurement up to an aggregate amount of $300,000 is organized by the farmers in accordance with traditional purchasing practices. o The Burundi Social Action Project involves the community in planning, designing and the implementation of the project. Criteria for selection of sub-projects relate to two aspects: those pertaining to sub- projects themselves, and those to executing agencies. In addition, the sub- projects must meet the specific criteria of each activity they fall into: income generating activities, social and economic infrastructure, and social activities. In the rural areas, rehabilitation and construction of local social infrastructures (school, health centers, water supplies) is to be carried out by communities using their own labor. Such work is supported by skilled masons. Communities are used depending upon the technical complexity of the work to be undertaken; local practice of using community work; willingness of communities to participate, and the availability of small contractors in the area. Communities provide free labor, while the executing agency or NGO provides the wages for the skilled mason. The skilled mason supervises the work and the purchase of materials at the local level (using prudent shopping procedures). The project monitoring unit (PMU) provides any materials not locally available. Costs of the masons are reimbursed. Reimbursement for locally purchased equipment is based on receipts checked against standard units costs available at the PMU, once the construction is satisfactorily completed. The repayment is subject to a ceiling defined in each sub-project agreement. The unit costs are established for a small range of materials and for the cost of local masons based on surveys carried out locally by the PMU staff and updated every three months. The unit costs have to be acceptable to the IDA at all times. o The Mexico Municipal Funds Program involves an average of 1,600 sub-projects per state per year which are to be carried out by community groups (Solidarity Committees). Once an investment has been selected, a committee is formed with an elected President, Vice-President, Secretary, Treasurer and Supervisor. The Committee is registered with the Municipality (a very simple process), giving them the right to receive government money. (The committee may be dissolved as soon as the specific objective is fulfilled.) These committees enter into agreement with the municipality, usually to construct a specified structure. The -38- committee is free to procure the necessary materials and goods in any manner. The committee receives a partial advance of funds (from local counterpart funds and must provide receipts to the Municipal government for all its expenditures. o The Uttar Pradesh Basic Education Project, has adopted the on going Government program of community managed construction for building new two-classroom schools. School headmasters are appointed at the beginning of the construction period. Standard designs are followed. Funds are released to Village Chiefs on the following basis: 1/3 to begin work, 1/3 on completion of foundation and 1/3 on completion of walls. Funds are kept in separate accounts with the village chief and the school headmaster as co-signatories. A site record book is maintained, showing receipt of funds, purchases of materials and labor, and the comments of visiting engineers from the Rural Engineering Service. The Bank disburses against certification of the completion of each stage of the work, as signed by both the block and district engineer. Adaptation of Force Account 4.11 Force account is extensively used as a method of procuring works from communities in Asia. o In the Philippines CIDP II, small farmers are grouped to form Irrigators Associations and financed to build small channels on communal or privately owned land. In view of the scattered nature of the work, about 80% of the total project costs is undertaken through Force Account under the National Irrigators Association (NIA), a semi-autonomous institution. The institutional capacity of the NIA to administer the works was demonstrated in an earlier project. o In the India National Sericulture Project, small civil works (for work on seed farm improvements, renovations of grainage markets etc.,) not exceeding Rs. 20,000 for each job with an aggregate limit of 3 % of total civil works allocation for each implementing agency may be implemented through Force Account. o In China Irrigated Agriculture Intensification Project, works totaling up to US $ 161 million are small and scattered over 73 locations in three provinces in such a manner that it would not be cost efficient for them to be carried out by contracts. Force Account is permitted for these categories of works. o Force account is rarely permitted as a method of community participation in the Africa region. However, in Uganda PAPSCA, Force Account procedures would be used to hire local skilled labor (US $ 1.1 -39- million) for assistance to the self help activities in some of the components. This has also been justified due to the works being small and in scattered locations. Qualification: In designing community related procurement through force account, it would be more economic and efficient to ensure that accounting is focused not just on the inputs (i.e., labor and materials), but also on the output (verifiable works). Force account may be more efficient if accompanied by: detailed description of the works; a set of technical specifications, a bill of quantities and a set of unit prices to control costs; and a supervision team, independent from the management of the force account to carry out control of quality and quantities." Financing Communities Through Intermediaries 4.12 The use of financial intermediaries or other similar entities to enhance the flow of funds to grassroots organizations is increasingly common. In such cases, procurement may be conducted according to established commercial practices acceptable to the Bank. o The newly created Janasavuya Trust Fund (the Trust) in the Sri Lanka Poverty Alleviation Project finances credit operations, human resources, infrastructure development, and nutrition intervention activities of NGOs or Partner Organizations (PO). Individual sub-loans are below US $ 1,000 and procurement practices are specified in the participation agreements between the Trust and the POs. Section 1 of Schedule 4 of the Loan Agreement specifies this: "Goods and services to be financed under any sub-loan shall be purchased at a reasonable price, account being taken also of the other relevant factors such as time of delivery and efficiency and, in case of services, of their quality and the competence of the parties rendering them." Small works are carried out by force account. Specific criteria for selection of POs include: (i) two years lending to the target population; (ii) loan recovery rate of PO for preceding two years should be at least 70%; (iii) all sub-borrowers must be enrolled in a savings program at the time they receive credit and through the period for which they are enrolled; and (iv) PO must establish an accounting and financial reporting system acceptable to the Trust, and agree to have accounts audited annually by an independent auditor. Qualification: Political control of such institutions either directly or indirectly have sometimes affected their effectiveness, 27. Contracts for Road Maintenance Works Agreements for Works By Direct Labor, (Contracting out road maintenance Activities: Vol.11), by Jean Marie Lantran, Africa Region, Technical and Sahelian Departments, Infrastructure Division at 17.(May 1991). -40- ISSUES IN CONTRACTING 4.13 Contracting with communities is difficult and raises some concerns. Discussed below are some of the mechanisms or adaptations that have been used in Bank-financed projects to address these problems. Works and Goods 4.14 Normal procurement practice differentiates between contracts for works and goods, because goods are delivered by suppliers and works by contractors. In the case of community participation, however, when the works are provided by the community, and the goods are procured by an entity other than the community, e.g., the project executing entity, it has been found that the delay in procurement of goods adversely affects the procurement of labor from the community (See Uganda PAPSCA). o In many projects, including Mexico Municipal Funds Program and the Bolivia Social funds, project design leaves the procurement of both works and goods to the community or to the sponsoring groups. o Zambia Social Recovery Project finances a series of small and locally generated sub-projects in health, nutrition, education and economic structure. Communities are provided with vouchers which they can exchange for goods and materials required for implementing sub-projects at specified retail outlets, thereby eliminating the need for storage and distribution. Qualification: This can be effective only if the necessary materials, of the quality required, are locally and easily available. Where such materials are to be procured by the participating groups, their institutional capacity must also be examined. Contractual Status 3.16. In some countries, community groups lack legal status to enter into contracts. In others, community groups or smaller NGOs may not wish to accept the liability of a contractual obligation. o In Burundi Social Action Project, an intermediary organization was brought into the sub-project as a sponsoring agency to sign the contract on behalf of community group. Specific criteria are provided for selection of sponsoring agencies, including one year demonstrated experience, credibility among targeted beneficiaries, and institutional capacity. o In India National Cataract Blindness Control Project, a memorandum of understanding is expected to be signed between the -41- participating NGO and the executing agency, defining the obligations of both parties as equal partners. If the NGO fulfills its part, according to the specified terms and conditions, it is paid for its services, upon verification of performance. Prior Review of Contracts 3.17. As a general guideline, eighty percent of all contracts awarded under a project are subject to prior review by Bank staff. To suit the needs of community related procurement, this requirement has been adapted in some projects. o Mexico Municipal Funds Program - no prior review of contracts with communities; instead a sample number of projects are reviewed during or after implementation. In such cases, the Bank dispenses with prior approval for the evaluation of bids and award of contracts, and relies on its rights under the general provisions of the loan agreement not to disburse on contracts that violate principles set forth in its guidelines. o Haiti Economic and Social Fund: the first thirty projects, irrespective of size, would be reviewed. Subsequently, only sub projects over US $ 100,000 would need to be reviewed before contract. o Cameroon Food Security Project: contracts for goods or services above US $ 50,000 require prior review. Since the majority of community related procurement sub-projects are below US $ 25,000, such a threshold level avoids the need for prior review in these cases. o Burundi Social Action Project: prior review for LCB and local shopping contracts above US $ 50,000. Contracts with local craftsmen are expected to be below US $ 30,000. o Zambia Education Rehabilitation Project: prior review is required only of bidding packages for civil works and goods valued at over US $ 100,000. This results in a coverage of only 70%. The lower percentage is justified in view of the standard nature of the many scattered contracts and takes into consideration the increased work-load involved in reviewing more contracts. o India Second Integrated Child Development Services Project: contracts valued about US $ 50 million, representing about 52% of the total value of procurement would be subject to prior review over the procurement period. Qualification: While absence of prior review will cause least amount of delay, it may be important to review a few documents in the beginning to ensure that procurement is being conducted in a manner acceptable to the Bank, unless as in -42- the Mexico project, sample contracts have been drafted and payment is on the basis of completed construction. Undetermined Procurement 4.15 It is normal practice to determine the amount of procurement and the manner of procurement in the SAR. This is not possible, when procurement is based on detailed assessment of local needs and demands. To satisfy the requirement, most TMs have resorted to putting in arbitrary figures, given the new needs of community related procurement. o In Zambia Social Recovery Project, the credit agreement states that the goods, civil works and services to be financed for the sub-projects with community groups shall be purchased at reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts thereof, an in case of services, of their quality and the competence of the parties rendering them; and such goods and services shall be used exclusively in the carrying out of such subprojects. Advance Payment 4.16 Often community groups or NGOs do not have adequate financial liquidity to operate without advances. Advance payments are not normally permitted without some form of security. However, there have been exceptions where small and reasonable advances are permitted. In such cases, the advance payment must be part of a contractual agreement, based on actual calculation of funds needed to initiate project activities and must include clear accounting measures. o In India Women's Enterprise Management Training Outreach Program Pilot Project, advance payments may be made by the implementing NGO (Udyogini) to its intermediary partners provided such advance is part of a written agreement, and a portion of the amount committed to the partner (usually 15%) would be withheld by Udyogini, and paid only upon satisfactory performance of outputs and deliverables as per the signed agreements. o In Zambia Social Recovery Project, community groups are provided with 20% of the contract amount up front. o In Albania Rural Poverty Alleviation Pilot Project, the Rural Development Fund is permitted in some contracts to advance as much as 60% of the total costs. A medium term payment is also permitted, on the condition that both the advance and the medium term payment will not exceed 85 % of the total costs. Final payments are made only upon completion of work and receipt of certified invoices. -43- ISSUES IN DISBURSEMENT Multiple SAs 4.17 A separate SA for community related procurement has been opened in some projects. In projects with significant community related procurement and disbursement, multiple SAs may be permitted if the project is structured accordingly. o In the Ethiopia Emergency Recovery and Reconstruction Project, a separate SA was permitted for the Social Fund component. Qualification: Disbursement officers are of the opinion that a second SA is for all purposes like a second loan. Further, when Bank funds are scattered in multiple SAs, the Bank needs increased allocation of time and resources to monitor the loan proceeds. Revolving Fund 4.18 Another disbursement practice to assist in quick payment, is to open an account in a commercial bank. This is set up as a revolving fund. At the outset, the account is supplied with funds from an advance payment that the Government makes. Any eligible disbursements from the revolving fund are then replenished on a regular basis from the SA. o Zambia Education Rehabilitation Project: one of the conditions for project effectiveness requires the setting up of a project account with a Government contribution of K 50 million in the account as an initial deposit to be replenished on a quarterly basis. o Mexico Decentralization and Regional Development Project: Once the state plans are approved, the Treasury is asked to open a revolving account for each state at a correspondent bank through Banco de Mexico. After agencies execute their projects, they prepare SOEs and submit them for payment at the designated bank. The funds are reimbursed from the SA at the Central Bank. Qualification: The success of this measure is related to the timely provision of counterpart funds. SGSAs 4.19 SGSAs have been formally permitted as exceptional cases where there are inadequate banking facilities for transfer of funds to rural areas. -44- o In Cameroon Food Security Project, funds are transferred from the Special Account at the Central Bank to sub-accounts at nine provincial levels. The Caisse Autonome d'Amortissement is authorized to transfer funds from the SA to the provincial accounts upon receipt of approved Statement of Expenditures (SOEs) from the provincial delegates. The funds are then disbursed to the local sub-contractors. o In Benin Natural Resources Project, the Credit Agreement permits the opening of up to seven sub-accounts, but only one has been opened so far. This has been permitted "in order to take into account the remoteness of project sites and to facilitate project implementation". Such accounts are permitted in the two cities which have commercial banking systems. SGSAs are permitted on the basis that: (i) close supervision would be maintained by project management; (b) the personnel responsible for the SGSAs would have the administrative capacity to manage the financial aspects of the project; and (iii) detailed accounting records would be maintained for each SGSA. Replenishment will be made from the SA to the SGSA only upon receipt of all supporting documentation and all accounts will be subject to annual auditing. The Credit Agreement specifies that: "at no time shall the borrower cause the amounts held in any Sub-account to exceed FCFA 10,000,000." 0 In the Malawi First Education Sector Credit, project documents show that the Treasury has permitted the Project Implementing Unit (PIU) to withdraw funds from the SA as needed and deposit in a local currency account controlled by the PIU, out of which 100% payment for claims by the small contractors can be disbursed. Replenishment of the SA would proceed normally. Qualification: SGSAs are not encouraged, and may be set up only with the prior approval of the LOA Director, which must be sought no later than completion of appraisal. Further if such funds are to be converted into local currencies, borrowers bear the risk of foreign exchange fluctuation. MECHANISMS ENSURING ACCOUNTABILITY 4.20 Increased flexibility clearly requires increased accountability and transparency in the use of funds. A number of measures have been adapted in Bank-financed projects in an attempt to ensure such accountability and transparency, and these are listed below. Projects setting up social funds seem to provide relatively more accountability and most of the innovations have taken place in such projects. -45- Unit Costs 4.21 The establishment of unit costs for contracts with communities, a practice initiated by the ESF, has been adapted by a large number of other contracts. o "The ESF developed a schedule of standard prices for the completion of various types of projects. In the case of an urban street- paving project, the ESF would offer the contractor a set amount per square meter of street; for a housing project, so much per house, and for a sewerage project. so much per meter of pipe laid. On top of the basic amount determined by the unit prices, the ESF would allow the contractor an additional 10 per cent for overhead, and 5% for profit, margins considerably lower than contractors in Bolivia normally built into tenders submitted for competitive bids" A technical auditor was hired to ascertain that the standard unit prices continued to be set a reasonable price. Comparison of ESF unit prices were made with prices paid by municipalities on a regular basis. "" Qualification: Such schedule or roster of unit prices must be updated on a regular basis and be supplemented by rigorous accountability mechanisms. Focus on Outputs 4.22 One new practice, now widely accepted in the construction of small infrastructure is disbursing against a physical verification that the structure has been built. There are several advantages: (i) it avoids resources spent on supervision in these remote areas (costs of mobilizing civil servants, time costs, staff costs, transport, how the community procures the materials or labor. etc.,); (ii) it requires only confirmation that the output actually exists and meets specified standards; (iii) there is an incentive to keep costs down, since the financial terms are predetermined; (iv) such disbursement works well where the system does not function on the basis of bills and receipts and also eliminates the need to guard against faked justifications. o In the ESF the Bank operated on "the principle of paying not for the contractor or community input (labor and material), but rather for the results of his work".29 Disbursements, beyond the initial advance, were made according to the progress of physical works, as certified independently by both the subproject supervisors and a Bolivia SIF field supervisor. 28. Easing the Poor Through Economic Crisis and Adjustment: The Story of Bolivia's Emergency Social Fund, Jorgansen, S., Grosh, M., Schacter. M., Human Resources Division, Latin America and the Caribbean Technical Department, Report No 3 at 68 (May 1991). 29. Id at 69. -46- o In the Mexico Municipal Funds Program, disbursements were made on proof of the following: (i) documents to prove that the community was eligible to receive the money according to contract; and (ii) a "commission of reception", i.e., certification that the work was checked and confirmation that the output complies with specification in the contract. o In Tanzania Health and Nutrition Project, disbursement is made on the basis of completed units based upon agreed production standards and independent verification. o In the Uttar Pradesh Basic Education Project the Bank disburses against certification of the completion of each stage of the work, as signed by both the block and district engineer. Qualification: Focusing on outputs is possible only when the physical output (i) can be predetermined and described in physical terms; (ii) the cost of construction is fairly uniform; and (iii) the existence of the output can actually be checked. In many projects that have followed this practice, the quality of the structure has been a point of issue. Both in Mexico and India, technical assistance was provided to the communities to ensure consistent quality of construction. Some community groups cannot commence work without an advance payment. Standard Contracts 4.23 A number of projects, mostly social funds, were identified which provide project specific standardized contracts or guidance in establishing such contracts. A few are identified below. o Mexico Decentralization and Regional Development Project: A pilot component of this project involves the preparation of the contract between the committee and the concerned Line Agency which would not only provide money, but also assist and supervise work. The contract defines the roles of all parties to the contract and also contains detailed to help prepare and design papers. Annex I to the contract provides detailed, description of work (foundations, walls, roof, windows). It also specifies the parties responsible for payment (labor by community, materials partly by community and partly by grant etc.). Annex II lists the exact amount and nature of work that is to be financed by the grant and when payment will be made. (for example, classroom room of 500 sq. ft: $100 per square ft; Paved street: $x per meter). o Albania Rural Poverty Alleviation Pilot Project: This does not provide model contracts, but specifies in the contract between the Rural Development Fund and the communes, the terms under which communes may hire local labor to construct works. The communes are also -47- permitted by their contracts to hire local technicians to supervise the works, and purchase the required goods and materials within the financial limits set out in the contract. o Madagascar Food Security and Nutrition Project: A "Manual of Procedures" is provided for the project which provides model contracts for transactions between the Social Fund (FID) and beneficiaries. It also provides a separate model contract between the FID and NGOs involved in income generating activities and other community projects to build small infrastructure. These contracts specify the objectives of the contract, the responsibilities of each party to the agreement, other relevant matters, and include a dispute settlement clause. Qualification: Contracts must be well defined and drafted with a full understanding of the legal framework of the country. They should be cleared by the Bank, and define responsibilities and risks both organizational and financial, establish mutually acceptable processes, and incorporate a simple and speedy dispute settlement method. Standard Designs 4.24 In projects with small or simple infrastructure, it is easier if standard designs are provided to community groups, thereby eliminating the need for communities to develop their own designs and at the same time maintaining minimum standards. o In Uttar Pradesh Education Project, standard designs have been developed for classrooms to be built with assistance from communities. Monitoring, ensuring quality of works, disbursement in tranches based on proportionate completion of works, determining quantities of material, etc., are all much easier in this case. o In Malawi Second Education Sector Credit, standard designs have been developed for furniture to be procured from local craftsman. Qualification: Such designs must be developed in consultation with communities and particularly with women. For example, standard designs in some projects place bathrooms in front of houses to decrease prices in laying pipes. In many countries, however, women find this inconvenient and families are forced to rebuild bathrooms in more appropriate locations. Implementation Manual 4.25 Executing agencies in all projects set up as Social Funds are provided with a Manual of Instructions. Normally, any change in these manuals would require prior consultation with, and the approval of the IDA. Such projects include: -48- o Madagascar Food Security and Nutrition Project has a detailed manual of instructions with project execution guidelines; sample executing agency agreements; sample bidding documents; and internal administrative procedure for the funds. o Albania Rural Poverty Alleviation Pilot Project: The Rural Development Fund would draw up a manual of guidelines acceptable to the IDA for its operation. o Burundi Social Action Project provides an operational manual which clearly defines procedures, responsibilities, and detailed project selection criteria. The manual also provides precise and well-defined rules for selection of sub-projects which will not be selected ex-ante. o Ethiopian Social Rehabilitation Fund, a component of the Ethiopian Emergency Recovery and Reconstruction Project, has a detailed operational manual, a financial and administrative manual and a set of working documents for procurement contracts. o AGETIP is also provided with a detailed manual of instructions. This Manual provides model contracts, simplified bidding documents for contracts less than US $ 300,000. It even provides the accounting system that must be followed for contracts and disbursements. The contract is written in simple language and describes the scope and nature of works, proposes a reference price with some straightforward explanations about its calculations (unit prices and quantities). Contracts will be invited to bid by way of discounts either on the total price or on the unit price. Bidding and procurement procedure takes two months to complete the whole process, while it takes the government administration six months to do the same. Beneficiary Contribution 4.26 Beneficiary contribution can increase community commitment to the project (and therefore ensure greater accountability through peer pressure). It has been commented that when dealing with very poor communities, care must be exercised to ensure that beneficiary contribution is not another of forced labor. In existing projects, beneficiary or community contribution may be in a number of ways. o In Uganda PAPSCA, communities provide voluntary labor. o In Guyana SIMAP, user fees are collected from beneficiaries in of water and sanitation sub-projects for the operation and maintenance of the systems. -49- o In Mexico Municipal Funds Program, beneficiaries are required to contribute local material and construction work, representing about 20% of the project costs. o In Ethiopian Social Rehabilitation Fund communities pay according to their capacity. Provision of communal facilities for offices or storage of supplies can also be part of community contribution. The Project Officer determines during appraisal in consultation with the concerned community the amount and nature of the community contribution. Qualification: (i) Ensure that the community has adequate resources to participate both in terms of time as well as finances. Determine percentage of contribution of a community based on an evaluation of their opportunity costs and the average income of a typical household in the community; (ii) Note that in some cases, such contribution may also be quantified and considered as the counterpart local funding, so as to avoid problems of lack of timely receipt of local funding. Limits Per Community Contractor 4.27 In the Bolivia ESF, to minimize corruption, and to increase accountability and transparency, no contractor with US $ 500,000 worth of project contracts of project activities could be proposed by a sponsoring agency. Qualification: This may not necessarily be effective, because the more ingenious contractors incorporate companies under names of different family members. Blacklisting of Contractors/NGOs 4.28 Another interesting safeguard that the Bolivia ESF developed was an informal "blacklist of contractors". The list contained names of contractors who were disqualified from receiving project work because of extremely unsatisfactory performance on previous contracts. Beneficiary Assessment 4.29 Beneficiary Assessment uses participant-observation and related techniques to evaluate beneficiary values, preferences and reactions at different points in a project cycle. If executed in a proper manner, it can not only help monitoring of, but also increase community involvement in, project activities. It generates peer pressure within the community to ensure accountability and transparency. o In Burundi Social Action Project, beneficiary assessment will be carried out to monitor the quality and the effectiveness of project implementation. -50- o Guyana SIMAP: Beneficiary assessment is expected to be carried out of SIMAP sub-projects to analyze adequacy of coverage, project selection criteria, supervision procedures, and other aspects relating to the efficiency and effectiveness of SIMAP operations. o India National Sericulture Project: Monitoring and evaluation under this project will consist of an extensive program of beneficiary assessment. The beneficiary assessment will be supplemented in this project by a series of three socio-economic surveys to be undertaken, one at an early stage of project implementation and repeated twice during the project period. Qualification: Ensure that the beneficiary assessment includes all segments of the community, particularly vulnerable sections like women, indigenous people, minorities and so on. Management of Information 4.30 All social funds have set up a system for management of information. o The Bolivia SIF has established a Directorate of Information. The scope of its information management extends to full monitoring of the processing of subproject proposals, supervision of subproject execution, and maintenance of internal monitoring indicators such as average tim., spent at each stage of processing, and data such as commitments, disbursements and average cost per beneficiary organized by subproject type. It has also inherited the computer based management information system used mainly to track physical and financial progress of subprojects in the ESF. The system is also being used for the establishment of maintenance of "community profiles" sets of social indicators on communities here ESF- or Bolivia SIF-financed projects have been or will be, carried out. The system would be used to (i) establish, maintain and monitor sets of social indicators on communities where ESF or Bolivia SIF implements its sub projects; (ii) to identify persistent problems, to recommend solutions and to evaluate to what degree the objectives of Bolivia SIF are being achieved; (iii) establish longer term monitoring to measure the impact of sub projects on the health and education profile of beneficiary communities based on a comparison with pre-project data. Monitoring Indicators 4.31 A few projects have developed monitoring indicators for community related procurement and disbursement. These include: -51- o The Burundi Social Action Project has developed a variety of indicators to determine not only the performance of the sub-projects, but also impact indicators to determine the impact of the sub-projects on beneficiaries. o The Madagascar Food Security and Nutrition Project has also developed a set of indicators to assess the number of person days of employment created, number of contracts with small enterprises, number of contracts for income generating activities with NGOs and so on. Audits/Reviews 4.32 Properly conducted audits and reviews can provide insights into the functioning of community related procurement. However, most audits do not cover these aspects. o In the Nepal Hill Community Forest Project, a review was conducted of the "government accounting of expenses incurred for community forest user groups". Under the project, watchmen were to be provided salaries for three years from the year of plantation. The review revealed that in some cases watchmen of forests, considerably older than three years, were being paid. The fact that the user groups did not have any control over expenditures to be incurred was identified by the review as a weakness of the accounting system in general. o In Zambia Education Rehabilitation Project, regular technical audits by independent agencies would evaluate procurement procedures. Further, all procurement procedures are subject to review under the mid-project review. INSTITUTIONAL ASPECTS Training and Requisite Staff Skills 4.33 Training of project staff and ensuring that the project implementing agency and communities have requisite skills necessary for community related procurement and disbursement is an important factor. o In the Madagascar Food Security and Nutrition Project: supervisors called 'animators' are hired by participating NGOs to carry out an information campaign in the target communities with the help of the regional project team to inform the communities on (a) what can the project provide and (b) what is expected of the communities. This campaign is carried out at three levels. First, local leaders are provided -52- with community nutrition booklets informing then about the project. Second, the local leaders are expected to discuss the project with communities that express interest, and set up a community group. Third, if the community group has the required criteria, the NGO discuss its activities and required training, explain its role, and then sign a contract with the Community Animator. o In Albania Rural Poverty Alleviation Pilot Project, training in procurement practices is being provided to representatives of communities, in this case, commune staff. Lack of Counterpart Funds 4.34 In a large number of projects the absence of timely counterpart funds has been identified as a major impediment to community participation. o In many projects, project financing is arranged in a manner that ensures overall project financing between 50 to 90%, but permits full financing of community related procurement. See: India National Sericulture Project 90% of expenditures for all civil works and 100% of staff and incremental operating costs provided as assistance to NGOs; Zambia Education Rehabilitation Project: 100% of the school extension and rehabilitation component. -53- CHAPTER IV CONCLUSION 5.1 The examination of community related procurement and disbursement practices in Bank-financed projects generates one important conclusion. The absence of broad procedures for community participation leaves Bank staff without adequate guidance in designing projects with community related procurement and disbursement. 5.2 In the case of competitive bidding, OD 11.00, through OD 11.04 and 11.10 and their annexes, expand on the Procurement Guidelines and provide extensive guidance on all related aspects. In the case of community related procurement, there is no such guidance. Consequently, there are no Bank-wide minimum standards applicable to community related procurement and disbursement. Interpretations of what is permissible vary from region to region, sometimes project to project within the same country. Some projects have new methods of procurement and disbursement. Other projects incorporate existing methods of procurement having dismissed new methods as ineffective or uneconomic. Some projects insist on prior review of all contracts. In other projects, there is there is prior review of a selective number of contracts followed by post review based on random sampling. In some cases, advance payments are permitted if reasonable. In most cases, bank guarantees are sought for advance payments. Some projects permit the use of Force Account to involve communities, while other projects discourage such use as being uneconomic and inefficient. There is, also, a perception that some task managers are able to introduce innovative and creative procurement practices for community related procurement, while others often are not able to obtain the same flexibility in developing non-traditional methods, due to varying interpretations. Further, lack of guidance not only results in uncertainty in planning, but also generates tension between staff who insist on innovative and untried procurement methods and others who feel such methods are not explicitly permitted under Bank policy and procedures, which must be closely followed and applied. 5.3 This problem is further compounded, because under existing Guidelines, community related procurement takes place in most cases, in scattered or remote locations where local contractors would not be interested. In such cases, administrative arrangements are usually weak and inadequate. Community related procurement is, therefore, conducted by groups or individuals with little or no administrative structure and management capabilities. They lack expertise in commercial practices. Some of the communities do not operate in the normal cash economy. Sometimes, participating NGOs do not wish to be seen as being involved in commercial activities because such a perception reduces their credibility within their communities or because they are not willing to take on the -54- legal liability of a contractual relationship. Their ability to deploy the available funds is highly restricted. In this context, developing procurement and disbursement practices requires additional flexibility. However, Bank staff are divided on whether such flexibility is permitted by the existing Procurement Guidelines. 5.4 Some, of course, argue that any practice which is "economic and efficient" is adequate. However, this raises further problems. First, quantifying the potential benefits of community related procurement (such as sustainability, increased community ownership of project, local institution building) in monetary terms is a difficult task, given the lack of adequate data. If such benefits are not considered in determining procurement methods, community related procurement may not in many cases seem to be an economic option. It would, therefore, be necessary to clarify whether in the evaluation of the economy and efficiency of community related procurement, benefits such as sustainability, increased ownership, local institution building etc., should be considered, and if so, how and what weight should be given to them. Second, as stated earlier, supporting community related procurement and disbursement has a number of implications for project design. These include developing simple but efficient mechanisms given the weak administrative arrangements, increased flexibility in use of funds, sustainable processes emphasizing accountability and transparency, and mechanisms to permit small disbursements of funds. Currently, there is no operational guidance for designers of projects with community related procurement and disbursement and on translating concepts of "economy and efficiency" into project design is a difficult task. 5.5 The provision of adequate procedures and guidance is, therefore critical in community related procurement and disbursement in Bank-financed projects. Such guidance would have to cover a number of areas, discussed below. Clarification of Bank Policies 5.6 While the existing Procurement Guidelines are flexible and have been interpreted to permit procurement practices that are economic and efficient, the examination of community related procurement and disbursement reveals a need to explicitly clarify Bank policy on the matter. This could be achieved by adding a specific provision in the Procurement Guidelines as to when and how community related procurement may be specifically used, and providing broad guidance in OD II as to the design of such Bank-financed projects. Matters that must be addressed in the revised version of OD II are addressed in the accompanying matrix. A sample paragraph which may be inserted into the existing Procurement Guidelines, is suggested below for consideration: Where in the interest of project sustainability, it is desirable to call for the participation of local communities, or where the loan is designed to promote participation by local communities, it is acceptable to package -55- procurement in such a way to marimize use of community labor and materials. In such cases the method of procurement used and the contract requirement imposed may be simplified and should be detailed in the loan agreement. Manual of Practices 5.7 There are a large number of specific issues that arise in the designing of community related procurement and disbursement. As stated earlier there is currently no guidance for project designers. It is recommended that such guidance should take the form of a "Manual of Practices" ("MP"). The MP should be in loose leaf form with initial sections dealing with high priority items. The MP could collate existing experience with community related procurement and disbursement both from within the Bank. It could identify best practices within the Bank in community related procurement and disbursement, provide tools to address issues identified in Chapter II of this study. Checklists for TMs of projects with community related procurement and disbursement could be developed and included. Mechanisms to ensure accountability must be developed and provided. Simple model documents, both contractual and other, should be developed. The accompanying matrix to this chapter, summarizes once again the project level issues in the design and implementation of Bank-financed projects with community participation and provides detailed recommendations including aspects that should be covered in the MP. huplementation Manual 5.8 All projects in Latin America and Africa which set up social funds provide implementation manuals (IM) for the executing agencies. The IM provides details of all procurement and disbursement procedures, including the channels for flow of funds, criteria for and process of selection of sub-projects and non- governmental agencies, processes of implementation, and sample documents. The preparation of an IM is usually a condition for loan effectiveness and is incorporated as an integral part of the project implementation schedule, and by reference into the Loan Agreement with the Borrower. All projects with significant community related procurement and disbursement must be encouraged to have similar IMs, reflecting the agreement between the Borrower and the Bank on all matters related to community related procurement and disbursement. This may be prepared as part of the preparation of the 'Implementation Plan' now required in all investment projects.o Training of Bank and Project Staff 5.9 Training of all Bank staff associated with designing community related procurement and disbursement, is an important concern. Currently. procurement 30. See letter dated September 17, 1993 from James Adams to Staff regarding preparation of Implementation Manuals. -56- training does not touch on community related procurement. Procurement training should develop and incorporate training modules on community related procurement to impart necessary skills to Task Managers, and to sensitize procurement specialists to the special needs of community participation. Similarly in disbursement training, there is no focus on designing projects with disbursements of small amounts to local communities or means of addressing any issues. Database of Information on Community Related Procurement and Disbursement 5.10 While there is a large wealth of relevant information within the Bank, project designers have little or no access to institutional information on such matters. It would be useful to develop a data base on, or expand the existing data base to include, information pertaining to community related procurement or disbursement. This would then require more systematic reporting of such information in SARs, PCRs and other relevant documents including Form 590 to maintain and update such data base. Necessary changes may have to be sought in Bank regulations requiring the reporting of project information. Additional Flexibility in Disbursement 5.11 Additional flexibility in procurement would be inadequate without similar flexibility in disbursement practice. The ability to advance payments from the SA to local level accounts would increase ready availability of funds for community related procurement. It is, therefore recommended that the opening of small local currency special accounts at the grassroots levels be permitted to meet the requirements of community related procurement. Alternatively, Para 6.7 in the Disbursement Handbook could be amended as follows (amendment in italics): 6.7. ... In exceptional circumstances, borrowers may draw an amount sufficient to meet selected eligible expenditures, for a limited period (less than thirty days) if so authorized by the Loan Department. To facilitate the payment of small sums to community groups, local NGOs, or individuals operating in remote areas, borrowers may draw an amount to cover selected and eligible expenditure,. the amount and nature of which have been agreed to in writing between the Bank and the Borrower, prior to such withdrawal, for a period less than ninety days. Advances from the Special Account into other accounts established by the borrower without Bank authorization are not permitted and constitute grounds for refusal to replenish the account. -57- Borrower Related Issues 5.12 Problems also arise in community related procurement due to differences between the regulatory systems of the Bank and the borrowing country. When the Bank chooses to adopt its procurement and disbursement procedures within the context of a Bank-financed project over those of the borrower, the process is cumbersome and results in delays. However, in a large number of projects, lack of proper understanding of the differences early on in the project cycle has resulted in the failure to incorporate appropriate project design features that could have effectively dealt with a number of related issues. It is, therefore, strongly recommended that one, these aspects be covered in project launch workshops, and two, identification of issues concerning community related procurement be made part of the ongoing process of preparing "Country Procurement Assessment Reports"(OD 11.01). Issues that cannot be addressed through the workshops or by project design must be included as part of the Bank dialogue with the country. -58- Detailed Recommendations A. ISSUES INVOLVING PROCUREMENT 1. Competitive Biddinf ISSUES BANK POLICY IMPACT ON CP CONCERNS IN CURRENT RECOMMENDATIONS ALTERING POLICY ADAPTATIONS Bulk packaging of Encourages competitive Bulk packaging leads to: In falawi First 0 AGETIP is The Manual of Practices procurement bidding and discourages * larger contracts Education Sector Credit experimenting with (MP) should provide contracts into larger uneconomic splitting of virtually excluding the & East Java Water breaking up contracts to guidance on: packages contracts (OD 11, Para participation of smaller Supply Project splitting allow small firms to bid. 0 when bulk packaging 16) organizations of contracts was found to may be avoided; * small amounts of burden implementing 0 See below. * measures to ensure goods needed for CP agency's management successful participation of becomes part of large capacity leading to delay small organizations in ICB packages delaying in project such procurement. CP (Eg. Uganda implementation. PAPSCA & Eritrea Community Could lead to Rehabilitation Fund) uneconomic procurement. Complexity of LCB Section II of OD 11 Results in sophisticated Participation of smaller 0 In Ghana Transport MP should provide procedures provides detailed rules and formal procedures in organizations without Rehabilitation Project, a guidance on: for ICB and states that which smaller adequate institutional simpler form of such requirements would organizations are unable capacity could lead to competitive bidding was * simplifying bidding be applicable to LCB to participate without uneconomic and used. procedures and also. support. inefficient procurement. developing standard AGETIP provides in its contractual documents manual alternate for such procurement; simplified mechanisms for conducting LCB. It * measures to be is reported that not only undertaken where have small contractors communities are to be been encouraged to involved but they have participate, but some inadequate institntional have even graduated to capacity. larger contracts in other projects. -59- 2. Prior Review of Procurement Contracts ISSUES BANK POLICY IMPACT CONCERNS IN CURRENT RECOMMENDATIONS ADAPTING POLICY ADAPTATIONS FOR CP Prior review of Prior review tOD 0 Prior review delays Less accountability in the 0 Projects handle the MP should provide: contracts for goods. 11 04): community related absence of prior review. requirement for prior materials. works and 0 As a general rule, procurement because However. currently prior review differently * Different options for services 80% of total Bank- contracts have to be sent review is not conducted prior review clauses in financed contracts must to the Bank for prior thoroughly due to lack of In Mexico Municipal projects with CP; be reviewed. review. staff time. Funds Program there is no prior review of * A checklist for * Itt social sector contracts; contracts with community projects (education, groups or organizations to health, rural In Madagascar Food develop standard development), which Security, all contracts contracts which will typically involve a large above US S 40,(0 are eliminate need, or reduce number of small-value subject to prior review number of contracts for contracts a coverage prior review; lower than 80% may be In Haiti Economic and justified. Social Fund, first thirty 0 Other guidance such procurement contracts as alerting TMs to the * In the case of large are subject to prior need to ensure that the number of repetitive or review), gap between prior review similar projects, a thresholds and SOE limits coverage down to 50% In Zambia Education is kept to the minimun to may be acceptable (Para Rehabilitation Proiect avoid delay. I1 prior review is required only of bidding packages for civil works and goods valued at over US $ 100,000. -60- 3. Other Issues in Contracting ISSUES BANK POICY IMPACT ON CP CONCERNS IN ALTERING CURRENT ADAPTATTONS RECOMMENDATIONS POUCY All payment4 for goods or Bank policy requires that loan 0 Some community groups do Difficult to disburse funds in In India National Blindness MP should provide: services should be made in pred must only be used for not have legal capacity to enter the absence of a ctar and well Cataract Control Proict , the 0 Model contracts or accordance with purposes for which loan is into contracts (see Burundi defined agreement; a key project executing agency enters agreement with canmmunity contractual provisions. granted; practice therefore Social Action Project, : mechanism to ensure into a memorandun agreement groups and NGOs. requires all lan proceeds to be 0 Scne NGOs do not wish to accountability. However, at the where the NGO is treated as a 0 Advice as to types of legal used or disbursed in accordance enter into cosrmrrcial contracts same time, it is true that a partner . NGOs arc treated instruments that may be used with contractual provisions. because it affects their contract with a commiunity is similarly in the Women's instead of the nornal contract. credibility with target groups. rarely enforceable, because the Enterprise Manaleenmt Guidance as to the use a (See India National Blindness amounts are small and it is Training Outreach Pronrn sponsoring agency as an Cataract Control Probect difficult to hold a community (WEMTOP) Pilot Project for intermeliary. accountable. India. Advance Payments to 0 Excessive advances will not Smaller organizations do not Ensuring accountability for In the WEMTOP project, the MP should provide guidance: community groups are not be reimbursed (parA 18.13 of have the financial liquidity to advanced funds. Bank signs a manoradum of 0 n "special muasues [that] encouraged but permitted Disbursement Handbook) initiate work without advance agreenent with 'Udyogini. may be rcquired to ensure that if they are small and payment; and can rarely the implemerting NGO, which NG;Os have sufficient liquidity covered by an advance 0 Normal practice to require arrange for bank guarantees. operate s through other to carry out the contract'. payment guarantee. Bark guarantees for advance partners. Udyogini is (OD 14.70 on NGOs) unless small. pennitted to advance money as Such measures could include: required to the intermediary 0 developing altemate forms partners, subject to certain of guarantees. acceptable to conditions the Bank. 0 permitting small and reasonable advances without guarantees, provided advance is related to the contract amount and covered in the ______________________ _________________________contract. Inability to support Financing permitted only Smaller organizations Increased dependency on core administrative of incremental costs, and cannot meet such costs, Bank financing can budget of small on a declining basis. unless financed. decrease chances of post- community project sustainability. organizations. -61- 4. Other Issues ISSUES BANK POTICY IMPACT ON CP CONCERNS IN ADAFITNG CURRENT ADAPTATTONS BANK POUCY RECOMMENDATIONS Unspecified procKurnen At Board presentation, project When procurrenmt is demand Difficulty in minitoring In Zambia Educatimon MP should provide guidance preparmnat should be drive, it is difficult to dfinc procurement practices which Rehabilitation Proiwt, the exact Un. adequately advanced so that quantity or ttanner of are not well defined in mix of sub-prjects to be 0 Dealing with procurenmmt procuranent can start shortly procurancit at SAR stage. advance. financed is not specified in the where needs cannot be defined after loan approval (OD 11.02, This put in arbitrary figures to SAR, and would be deterriined in advance. Paras 11 & 12) satisfy SAR (See GuyAn on the basis of appraisals by 0 Use of intennedianes to SIMAP where SAR sates the implenating agercy of redress this problem. and prourernenit will be based an proposads fran NGOs and guidance in assessing the two bids from qualified PTAs institutonal capability of such suppliers.. In practice, in intendiaris. renote areas difficult to get ' OD 11.02 ibsold be rmvizwed even one qualified supplier.) to evaluate whether Pars 11 and 12 are too onerous for TIs of projects with comntity participaton, S Prcparatim of a detailed P1roect Inplmaentation Manual establishing procedures and criteria for detennination of procurament. Use of Force Construction by use of Due to lack of alternate When works is executed Extensively used in Asia. * If Force Account is Account the Borrower's or a mechanisms. Force through Force Account, See Philippines CIDP 11 , used as a method to Government agency's Account is used to it is difficult to ensure in India Sericulture involve communities own personnel and procure community that the works has Project. procurement should be equipment when work is labor. But it is not actually been executed designed in a more scattered, or in remote permitted in some since disbursement is to transparent manner, areas (OD II, Para ) regions, leaving project the Government for with accounting not just designers in such salaries. for inputs like labor countries without this and materials. but also option. Further, the of outputs, where Government can be the possible.; establishment only executing agency of unit costs, set of and this is not always technical specifications appropriate for CP. and independent monitoring, and supervision. -62- B. MECHANISMS ENSURING ACCOUNTABILITY ISSUES BANK POLICY IMPACT ON CP CURRENT ADAPTATIONS RECOMMENDATIONS Lack of guidance on * Loan agreements Community related A number of adaptations and sample projects are MP should collate designing project have provisions procurement is a fairly given below: existing Bank experience features to ensure prescribing eligible uses recent phenomenon and (i) Using unit costs: and provide guidance to accountability in for proceeds of the loan. occurs (under existing - Bolivia Emergency Social Fund project designers in projects with policy) mostly when - Guyana SIMAP/Health, Nutrition, Water & developing: community & Loan agreements projects are scattered or Sanitation Project participation. provide for accounting in remote locations, (ii Focus on outputs: 0 Mechanisms to ensure and auditing of loans. administrative - Bolivia Emergency Social Fund accountability and arrangements are very - Mexico Decentralization Project transparency; weak; consequently - Uttar Pradesh Education project * Set of conditions monitoring and ensuring - Tanzania Health and Nutrition under which such accountability for project (iii) Standard contracts : mechanisms may be funds is a difficult task. - Mexico Decentralization Project effective; When TMs are provided - Albania Poverty Alleviation Project * Precautions to be with no guidance in such - Madagascar Food Security Project observed; and matters, designing such (v) Standard designs for small infrastructure: * Describe mechanisms projects is a difficult - Malawi Second Education Credit that have been tried and task. - India UP Education Project proved to be ineffective (vi) Manual of Instructions: with reasons for such - All Social Funds ineffectiveness. (vii) Beneficiary contribution - Guyana SIMAP - Mexico Decentralization Project (viii) Blacklisting of, and limits per contractors: - Bolivia Emergency Social Fund (ix) Beneficiary assessment : - India National Sericulture Project - Guyana SIMAP (x) Management of information - All Social Funds (xi) Monitoring indicators - Burundi Social Action Project - Madagascar Food Security and Nutrition Project (xii) Procurement audits: Nepal Hill Community Forestry Project -63- C. ISSUES IN DISBURSEMENT ISSUES BANK POLICY IMPACT ON CP CONCERNS IN CURRENT ADAPTING BANK ADAPTATIONS RECOMMENDATIONS POLICY * Disbursement of Bank policy does not When Executing agency 0 A second SA or a The rule is being relaxed MP should provide small amounts of provide any special does not have adequate SOSA, requires and where project guidance on: funds at local levels provisions for funds , it has to wait for significant allocation of structure justifies a * structuring projects is a main impediment disbursement to receipt of funds before it resources and staff time . second SA, it is being with significant given existing communities. Similar can make payments. It permitted. It has been community related policies. principles apply whether then takes considerable 0 Borrowers are often permitted in many disbursement to facilitate the disbursement is to the time before funds are not in favor of multiple projects like the: opening of second SA. * Inability to open a borrower or to a small released from the SA to SAs since it reduces 0 measures like the second SA for community group in a the community or the fiscal control. use of a revolving community remote province. local organization level. * Monitoring of account for CP; funds to participation. undisbursed funds in be reimbursed for eligible different accounts. is expenses through SOEs difficult; * If such funds from the SA. [Initiating are converted into local counterpart funds remains currencies, borrower a problem.] bears the foreign exchange risk. Inability to open OD 12.00 permits * Delay in making It has been justified in S Examine need to SGSAs (or in other SGSAs in "exceptional payments at the projects like Cameroon extend 'thirty day" time words make advance circumstances* including grassroots levels. Food Security Proiect requirement in payments from the where transferring funds and the Benin Natural Disbursement Handbook SA to separate from the Central SA to Resource. (mentioned in Column 2) project accounts) rural areas. is a problem. to a period adequate to SGSAs may be set up in redress the existing such cases, with well problem., not exceeding defined control features the three months.. with prior approval [by LOA Director]. Disbursement Handbook permits advances from SA for future eligible expenditures to be incurred within thirty days, if authorized by Loan Department. -64- D. INSTITUTIONAL ASPECTS 1. Lack of Adequate Information ISSUES BANK POLICY IMPACT ON CP CONCERNS IN CURRENT RECOMMENDATIONS ADAPTING BANK ADAPTATIONS POLICY Lack of adequate * Guidelines for * Inability to design Addition resources and * Social Funds have set MP should provide project information within Preparing PCRs (6/7/89) projects with community staff time. up Monitoring of designers: the Bank on suggests a generic model related procurement in an Information Systems. * With access to community related for the PCR including a informed manner. within their projects to information on community procurement & section on roles of collect and analyze related procurement & disbursement consultants, contractors 9 Information restricted relevant information disbursement and suppliers play in to project staff, and with * Sample formats for project; their staff change, information 0 Social Funds also TMs to provide performance; and not documented is lost. provide Implementation information on CP in implications of their Manuals (IM) detailing the SARs, Supervision and involvement. * Even in projects with manner of operation. Monitoring Reports, Audit information project Reports and PCRs. Seignran rot Sample terms of 0 SARs lump designers have no formal reference for audits, community related access to information, supervision and monitoring procurement under the in projects with significant head "other" (as required 0 Due to lack of community related by OD 11.02, Annex A information, procurement procurement. specialists are reluctant * Procurement unit to accept a different should improve existing procurement practice as centralized data base. economic and efficient. 0 Segregate procurement data relating to CP. -65- 2. Issues Related To Project Unit & Training of Staff ISSUES OD/GUIDELINES/ IMPACT ON CP CONCERNS IN ADAPTING CURRENT RECOMMENDATIONS PRACTICES BANK POLICY ADAPTATIONS Capacity of Project Project implementing units Additional resources In Albania Rural MP should guide project designers in implementing Unit do not have adequate Poverty Alleviation establishing adequate and appropriate, institutional capacity. In Pilot Project, training institutional capacity, for project Upanda PAPSCA, a in procurement implementation. project with 30 to 40 practices is being components and eleven provided to implementing agencies, representatives of implementing unit initially communities had two staff members, (commune staff). neither trained in procurement or in financial matters. Training of Bank Staff 0 Project designers are Staff time needed to revise Two procurement Training should be made available to not familiar with Bank procurement course material. specialists actually all concerned project staff in procurement and visited communities community related procurement and disbursement polices and who were to be disbursement. Procurement Specialists are involved in the not necessarily sensitive to process of the needs of CP leading to: procurement and inadequately designed resulted in innovative projects. procurement practices.. Training of Project Staff OD 13.05 Para 10 Lack of adequate training Additional resources An in-country * Project launch workshops should suggest a "Project Launch leads to: disbursement include training and guidance for Workshop" workshop was held at project staff on community related * delays in execution of the beginning of each procurement & disbursement; and community related subproject so as to periodical training should be provided procurement. train project staff in for project staff of projects with different disbursement significant community related * inability to anticipate methods. (Turkey) procurement. problems and take necessary steps. -66- E. BORROWER RELATED ISSUES 1. National Regulatory Systems ISSUES OD/GUIDELINES/ IMPACT ON CP CONCERNS IN RECOMMENDATIONS PRACTICES ADAPTING POLICY FOR CP Regulatory Framework NA 0 Lack of understanding of Borrower's regulations can lead NA Project designers need specific of Borrower related to to inadequate project design. guidance on: Procurement & * Executing Agencies are required to adhere to Borrower's 0 Identification of issues relating to Disbursement regulations on procurement and disbursement which can community related procurement in the sometimes be outdated or cumbersome. "Country Procurement Assessment * Conflict or inconsistency between Borrower regulations Reports" (OD 11.01) and Bank policies can create problems. * Possible counter-measures that For eg., in Uganda PAPSCA: may be taken during project * Counterpart GOU funding procedures involves 16 steps preparation and design. over a time period of 3-4 months to obtain one final payment, * A "Summary Checklist of involving some ten GOU offices located in two GOU Acceptability of the Borrower's Ministries. Procurement Procedures for * World Bank (IDA) funding involves 11 steps with ten Community Related Procurement"; offices in two GOU ministries (like for competitive bidding. (OD * Most steps require personal intervention by PCMU staff 11.01-Annex B) to ensure action is taken at each office and documentation 0 Issues should also be incorporated forwarded to next official. into Bank's policy dialogue with each country. Lack of Counterpart Counterpart funding Borrowers often do not provide adequate counterpart funds in 0 Lack of commitment to MP should advise project designers Funds is persistent required due to reasons a timely fashion. A persistent problem in almost every project. on possible measures including: problem. including: project. * Counterpart funding for CP is * Bank will not finance * Decreased project satisfied with amount attributed to custom duties and other ownership. community contribution (labor, taxes imposed by the materials, community facilities, etc..) borrowing or member and 100% of remaining costs is country. Disbursement financed, with contract providing percentages are set for community with necessary advance eligible items, so that the funds. overall Bank financing * Provision of counterpart funds a excludes taxes. (Para 3.20 condition of loan effectiveness. of the Disbursement Handbook.) * Borrower's commitment to the project (GB 6.30, Para 5) -67- ANNEX I CHECKLIST FOR TASK MANAGERS Manner of Procurement * LCB 33* * Local Shopping 35 * Force Account 39 * Direct Contracting 37 * directly with communities 39 * Financial Intermediary 31 Issues in Contracting * Prior Review of Contracts 42 * Unspecified procurement 43 * Contracting with NGOs 41 * Advance Payments 43 Issues in Disbursement * Separate SA 44 * Revolving Funds 44 * Ability to advance funds from SA 44 Mechanisms Ensuring Accountability * Unit Costs 45 * Small Rural Infrastructure Projects 46,48 * Standard Contracts 47 * Implementation Manual 48 * Beneficiary Contribution 49 * Management of Information 51 * Monitoring Indicators 51 * Blacklisting of Contractors 50 * Limits per Contractor 50 * Audits & Reviews 52 * Beneficiary Assessment 50 Borrower Related Issues * Local Counterpart Funding 53 * Status of Communities and Ability to Participate 41 Training and Training Methods * Project staff 53 * Strengthening Participating Communities 52 * Page munbers in Study -68- ANNEX II: World Bank Procurement & Disbursement Policies 1. Bank policies relating to procurement and disbursement include: o Guidelines for Procurement under IBRD Loans and IDA Credits (the Procurement Guidelines "); o Guidelines on Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency (the Consultant Guidelines); o Operational Directive (OD) 11 on "Procurement"; o Disbursement Handbook; o Sample Bidding Documents; and o OD 12 on "Disbursement" o Guidelines: Financial Reporting And Auditing of Projects Financed by the World Bank ("Accounting Guidelines"). Procurement Policies Bank Guidelines for Procurement in Participatory Projects 2. Subject to the provisions set out in the Procurement Schedules of the Loan Agreement, Development Credits, or Project Agreements, the "Guidelines for Procurement under IBRD Loans and IDA Credits" (the "Procurement Guidelines) describe the arrangements to be made for procuring goods and works (including related services, but not Consultant's services) required for IBRD and IDA financed projects. The Procurement Guidelines are complemented by ODs 11.00, 11.01, 11.02, 11.03, 11.04 and 11.10 on procurement. 3. The major considerations underlying the Bank's procurement policy is the need for economy and efficiency in the execution of projects, including the procurement of goods and works involved; the Bank's interest, as a cooperative institution, in giving all its member countries, developed and developing, an opportunity to compete in providing goods and works financed by the Bank ; and the Bank's interest as a development institution in encouraging the development of local contractors and manufacturers in the borrowing countries. "The Bank has found in most cases that these needs and interests can best be realized through International Competitive Bidding (ICB), properly administered, and with suitable allowance for preference for local or regional manufacturers and, where appropriate, for local contractors under prescribed conditions." (Para 1.3) 4. International Competitive Bidding (ICB) is a formal process requiring considerable knowledge of commercial practices. The Procurement Guidelines, provide detailed guidance for the execution of ICB. Sample bidding documents are also provided. These documents must be used in all loans negotiated after . May 1, 1993. 5. Departure from ICB is permitted when "ICB would not be the most economic and efficient method of procurement" (OD 11, Para 16). In these cases other methods of procurement must be prescribed in the loan documents. While the Procurement Guidelines seem to suggest that alternate methods stated are only "the more common procurement methods" (Para 3. 1), the OD seems to imply that the stated methods -69- represent an exhaustive list. The alternate methods suggested are briefly discussed below. 6. Limited International Bidding (LIB) is another variant permitted when amounts are small and when there are only a limited number of suppliers of the particular goods or services. It may also be used when there are exceptional reasons that justify departure from ICB. 7. Local Competitive Bidding (LCB) is the most commonly used method of procurement when foreign bidders are unlikely to be interested; contract values are small; where works are geographically or spread over time; works are labor intensive; or where goods or works are available locally at prices below the international market. Procedures similar to ICB must be used for LCB, except in regard to preferences, language and payment. If local procedures are used, they should be acceptable to the Bank. They should provide adequate competition, and processes should be fair and transparent. 8. Local or international shopping (LS or IS) (based on comparing price quotations, usually at least three, to ensure competitive prices) is allowed by the Procurement Guidelines when goods are readily available off the shelf, or are "small in value, and in some cases small simple works." It requires no formal bidding documents. Where delays in procurement may result in greater damage and loss of life or property, procedure similar to shopping may be used, but only for emergency work. 9. Direct contracting is permitted once Bank staff have ensured "that it would not be feasible to apply a competitive bidding procedure." (OD 11, Para 38) Procurement Guidelines permit direct contracting without competition only under specific conditions. These include (for the purposes of community participation): (i) in exceptional cases the need for early delivery of particular goods... ; and (ii) a negotiated civil works contract in exceptional circumstances where competitive bidding circumstances have failed to provide a contractor able and willing to carry out the required works at a reasonable price. 10. Force Account is defined in the guidelines as "construction by the use of the borrowers own personnel and equipment". A footnote provides that a construction unit that is not managerially and financially autonomous in relation to the Government should be considered a Force Account unit. Procurement Guidelines permit Force Account only under certain circumstances, including where quantities of work involved cannot be defined in advance; works are small and scattered or in remote locations; and where no contractor would be interested in carrying out the works. "Force Account should be used only as a last resort." (OD 11, Para 42) Bidding Documents 11. The Bank has provided sample bidding documents for large contracts for goods and works, and simplified bidding documents for contracts for works below US $ 10 million among others. A Bank memo, dated March 9, 1993 has made it mandatory to use these and other standard bidding documents (with minimum changes to suit project requirements) in ICB. All loan and credit negotiations after May 1, 1993 will prescribe -70- such use. Where no sample bidding documents exist, other recognized international conditions of contract must be followed. Miscellaneous ODs 13. In addition to the above Guidelines on Procurement there are some other Operational Directives (OD) that specifically refer to procurement. OD 4.15 on Poverty states that "when projects include social objectives, the procurement procedures and contract packaging should be adapted as appropriate within the framework of the Procurement Guidelines (the 'Guidelines')." 14. OD 14.70 on Non-governmental Organizations states that NGO participation in project execution as contractors or suppliers should meet the criteria set out in the Guidelines. The OD shies away from defining NGOs, but states: "Although organizations such as universities or research institutes may be non-governmental, this directive refers principally to private organizations that pursue activities to relieve suffering, promote the interests of the poor, protect the environment, provide basic social services, or undertake community development." It adds, however, that in such cases contracts are usually small and involve community participation, and international competitive bidding (ICB) and local competitive bidding (LCB) may not be feasible. It adds that "even open competitive procurement is not always feasible" in such cases and permits the use of shopping or direct contracting. Consultant's Services 12. Procuring consultants' services is governed by the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as an executing Agency." The Consultant's Guidelines are complemented by OD 11.10. Unlike procurement, there is no requirement for competitive bidding with the award being made to the lowest evaluated bid, although selection by competitive short list is preferred. The competence and experience of the firm and personnel, the quality of the proposal and the client/consultant relationship are the principal factors in determining the choice of a firm. The Borrower or the Bank may decide to approach a single consulting firm of its own choice (sole sourcing), provided this course of action is properly justified. The usual selection procedure is for the borrower to invite proposals form a short list of three to six qualified and experienced consulting firms, representing a wide geographical spread, from whom the final choice is made. (See Audit on Use of Consultants, 1991) Disbursement Policies 15. The Disbursement Handbook (1992) covers disbursement operations for World Bank loans and credits. It is supplemented for World Bank staff with OD 12 on Disbursement and OD 12.20 on SAs. The Borrower is only entitled to withdraw amounts spent on the project subject to compliance with the provisions of the loan agreement and the General Conditions. Withdrawals can be made for expenditures in the territories of member countries of the Bank; for goods produced in, or services supplied from these territories. When the Borrower wishes to withdraw any amount, it must apply in writing to the Bank in such form, and containing such details as the Bank requires. Each application with its accompanying documentation must be properly -71- completed so as to satisfy the Bank that the Borrower is entitled to withdraw the amount applied for, and that the amount is used for purposes specified in the Agreement. 16. The Bank does not finance certain items, like local taxes and customs duties. Par 3.21 of the Handbook provides a list of items that the Bank will not finance. These include land acquisitions (in rare cases, exceptions may be approved by the Bank Management), excessive advance payments, and items not procured in accordance with Guidelines. 17. It is now fairly commonplace for the Bank to permit the opening of a Special Account (SA) which is a revolving account, normally opened with a Commercial Bank in the Borrowing country. It is an advance form the Bank to exclusively cover the Bank's share of eligible expenses both in foreign and local currencies. (Para 6.1) 18. Supporting documentation is essential when filing a withdrawal request. In many cases, however, full supporting documentation need not be submitted to the Bank. Instead the Borrower provides the Bank with a SOE, and the Borrower or the project entity keeps the supporting documents, including contracts and procurement documentation, and evidence of payment, in a centralized location for examination by independent auditors and Bank staff during supervision missions. When the amount claimed is above the SOE limit, the Borrower must provide the bank with full documentation for disbursement. 19. In addition, the Accounting Guidelines require that the Project accounts must be audited each financial year by a competent independent auditor acceptable to the Bank. The auditor is required to furnish a written opinion and report indicating the extent to which the financial statements and supporting information provide a true and fair view of the financial condition and performance of the project. In addition, a separate opinion on the use of SOEs and the SA should be included. -72- ANNEX III Justifications for Departure from ICB & LCB Name of Project Justification for Departure from LCB/ICB for Community Participation Bangladesh Forest Resources Management Works very small and dispersed or where no contractors can be found. Bangladesh Small scale Flood And Irrigation II Small, labor intensive and geographically scattered. Bolivia Social Investment Fund More economic; quite small, demanding little if any heavy equipment. Prior experience with such methods; dispersed and remote (so no foreign interest expected) China Shandong Agriculture Development Small and scattered Honduras Social Investment Fund Project Sub-projects will be quite small demanding little, if any, heavy construction equipment. Scattered places in 290 municipalities over a period of two years. India Shrimp and Fish Culture Small and scattered Jabotek Second Urban Development Not suitable for ICB and LCB due to difficulty in specifying work to be performed. La Paz Municipal Development Small and scattered large number of low value works Mexico Primary Education Small and scattered North China Earthquake Reconstruction Emergency nature and small and scattered Pakistan On Farm Water Maintenance III Small and widely scattered Philippines Second Communal Irrigation Development Project Small, size and wide geographical dispersion of works. -73- NAME OF PROJECT Justification For NON-LCB/ICB Procurement of Work by Communities Mexico Decentralization and Regional Development Project for the Large number of small and scattered subprojects; mostly small Disadvantaged States and labor intensive. Nepal Hill community Forestry Project Labor is scattered and require special technical supervision, not suitable for contracting. Uganda Alleviation of Poverty and the Social Costs of Adjustment Small quantities scattered in remote locations. Project Guatemala Social Investment Fund Project Scale of most sub-projects is small and demand little if any heavy equipment. Scattered in 329 municipalities over a period of approximately two years. Albania Rural poverty Alleviation Pilot Project Small value and dispersed locations Burundi Social Action Project Ongoing process which has been effective; Decision whether it will be LCB or through communities will depend on: technical complexity of work; local practice of using community work and willingness of community to participate; availability of small scale contractors. Madagascar Food Security and Nutrition Project Will involve different operators, different beneficiaries in different locations. Haiti Economic and Social Fund Small in terms of contract and spread across various parts of the country in rural community centers averaging 1000 inhabitants. -74- ANNEX IV Index of Projects Cited 1. Albania Rural Poverty Alleviation Pilot Project 37, 43, 47, 49, 53 2. Benin Natural Resources Project 23,45 3. Bolivia Emergency Social Fund 29,37,46,50 4. Bolivia Social Investment Fund 35,51 5. Brazil Second Bahia Rural Development Project 28 6. Brazil Skills Formation Project 28 7. Burkina Fasso Third Rural Development Project 25 8. Burundi Social Action Project 11, 18, 38, 41, 42, 49, 50, 51 9. Cameroon Food Security Project 22, 23, 42, 45 10. Columbia Integrated Rural Development Project 26, 32 11. Comoros Rural Services Project 30 12. Cote D'Ivoire Fourth Rubber Project 30 13. Cyprus Energy Planning and Conservation Project 28 14. Dominican Republic Cocoa and Coffee Development Project 31 15. East Java Water Supply Project 15 16. Equador Second National Low-Income Housing 30 17. Eritrea Community Rehabilitation Fund 16 18. Ethiopia Emergency Recovery and Reconstruction Project 11,15,35 19. Ethiopia Social Rehabilitation Fund 11, 15, 23, 35, 49, 50 20. Ghana Transport Rehabilitation Project 33 21. Guatemala Basic Education Project 26 22. Guinea-Bissau Population, Health and Nutrition Project 32 23. Guyana SIMAP/Health, Nutrition, Water and Sanitation Project 25,36,49,50 24. Haiti Economic and Social Fund Project 21, 42 25. Honduras Social Investment Fund Project 11 26. India National Cataract Blindness Control Project 41 27. India Second Integrated Child Development Services Project 11,42 28. Jammu and Kashmir and Haryana Social Forestry Project 18,19 29. Kenya Education Project 26 -75- 30. Liberia Second Education Project 11 31. Madagascar Food Security and Nutrition Project 22, 32,48,51,52 32. Malawi First Education Sector Credit 15,35, 45 33. Malawi Second Education Sector Credit 11, 14, 35, 48 34. Mali Health Development Project 18, 19 35. Mexico Decentralization and Regional Development Project for Disadvantaged States (of which the Municipal Funds Program is a component) 11, 38, 41, 42, 44, 46,47, 49 36. Nepal Rural Water Supply Project 20 37. Nepal Hill Community Forest Project 52 38. Pakistan Rural Water Project 14 39. Paraguay Agricultural Credit 29 40. Paraguay Second Rural Water Supply and Sanitation 30 41. Philippines CIDP Project I 11, 28, 39 42. Senegal Small Rural Operations Project 26 43. Senegal Second Public Works and Employment Project 12,34,35, 49 44. Sri Lanka Poverty Alleviation Project 11, 40 45. Tanzania Health and Nutrition Project 47 46. Togo Grassroots Development Initiatives 22 47. Uganda Alleviation of Poverty and Social Costs of Adjustment (Uganda PAPSCA) 15, 22, 26, 30, 31, 39, 41, 49 48. Uttar Pradesh Basic Education Project 18, 39, 47, 48 49. Zambia Education Rehabilitation Project 42, 44, 52, 53 50. Zambia Social Recovery Project 17, 41, 43 -76- ANNEX V List of Staff Interviewed (MAC: Member of Advisory Committee for Study) 1. Abeille, Bernard AFTOS 2. Aguillar, Mario LACVP 3. Banerjee, Ajith ASTAG 4. Barrahona, Roberto LOAAF MAC 5. Bentchikou, Franqoise LEGOP MAC 6. Bhatanagar, Bhuvan ENVSP MAC 7. Binswangar, Hans LATDR 8. Bromhead, Marjory-Anne EC1AE MAC 9. Cambridge, Richard SA2PH 10. Clark, Maria SA2PH 11. Coll, Xavier LA4HR 12. Dailly, Jean Paul AFICO 13. Davis, Shelton ENVAP 14. De St. Antoine, Jean -Jacques LATHR 15. Delion, Jean AFTES 16. Drabo, Abdou Salaam AFTSP 17. Edgerton, Jim EDIDM 18. Eid Dib SA2PH 19. Fowler, Michael LOAEL MAC 20. Gopalakrishnan, R.I. AFTOS 21. Griffin, Charles AF2PH 22. Guillou, Yves LOAAF 23. Gunasekhara, Charles EA1AG 24. Hanan, Ralph SA2AG 25. Hill, Dale SA3PH 26. Howarth, David MNAVP MAC 27. Jorgensteen, Steen AF6PH MAC 28. Casey, Kevin SA2PH 29. Khan, Kaiser AF3PH -77- 30. Legrain, Xavier SAlEl MAC 31. Nijhavan, Om Prakash SA3PH 32. Niklas, Bill AS2AG 33. Partridge, William LATEN 34. Peans Leslie AF5IN 35. Pease, Peter OPRPR Chairman, AC 36. Perera, Cecil LOAAS MAC 37. Raoul, Jean-Jacques AFRSA MAC 38. Riverson, John AFTAN 39. Roman, Jaime EA1AN MAC 40. Sadat, Yasmin IFC 41. Sallier, Jean-Claude LA2AG 42. Salmen, Lawrence ENVAP 43. Schaengold, Ellen EC3HR MAC 44. 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