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Long read: An insight on public procurement laws in Pakistan

Public sector procurement is increasingly seen as an important instrument for inducing innovation in the private sector. However, according to Barrister Pansota, public procurement management in Pakistan needs a lot of improvement. Laws, rules, and regulations are either non-existent or poorly implemented and enforced. Therefore, it is important that the public procurement regime of the country must have specific institutions to oversee procurements.

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Every government across the globe needs some material, equipment, and services (including consultancy services) to perform its activities. The acquisition of these materials, equipment, and services warrants that the whole activity should be undertaken in the most transparent, economical, and efficient manner that results in the best value to the government and the people.

Transparency and accountability in a public procurement system essentially cover important aspects of the procurement system that includes stakeholders as part of the system. It requires an enabling environment, an institutional framework, management capacity, and a legislative framework.

Though initially considered a clerical activity, public procurement has become one of the most important functions of the government for the following reasons. First, as the size and activities of the governments have increased in the last fifty years, the procurement outlays have also burgeoned, making them a substantial part of the annual budgets.

According to ADB research, the procurement expenditure of a government accounts for 20%-25% of GDP in developing countries and about 10%-25% of GDP in the developed world. Government procurement in the EU alone totaled more than the US $1 trillion in 2001 or roughly 14% of its GDP. The Australian government procurement was almost 20% of GDP in 2000.

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Secondly, due to the large expenditure, public procurement has become an important tool for achieving economic, social, and other objectives. World Bank identifies four major objectives of public procurement with a view to achieving transparency and accountability in the process; ensuring that the money is spent properly to buy only those goods and services needed for the project; ensuring fair competition for all qualified bidders; promoting transparency or integrity; and encouraging the development of indigenous contractors and manufacturers by allowing local buyers to build in a margin of preference for local contractors and manufacturers.

Thirdly, increased expenditure has created an opportunity for corruption and waste in public procurement and scrutiny has revealed many cases in which millions of dollars of public funds have been pilfered. Therefore, policies and activities to stop pilferage in government expenditure have focused on procurements.

Fourthly, as the world becomes a global village, international concerns and national goals, relating to procurements, sometimes come into conflict. Public procurement practitioners cannot ignore both of them so they have to find ways to comply with their own government’s procurement regulations and social and economic procurement goals as well as international trade agreements.

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Finally, the increased pace of change overall and particularly in the fields of information and communication technologies has forced the procurement practitioners to plan years ahead if they want to succeed. Without strategic procurement planning, procurement will never achieve its objectives.

Principles of public procurement

The principles of efficient public procurement, therefore, are of paramount importance. These principles include economy, efficiency, fairness/competition, transparency, and accountability. According to international financial institutions, the economy is the outcome of a purchasing activity that achieves the ultimate purpose of the maximum value for money whereas value may imply more than just price in the case of complex procurements.

Efficiency ensures that the procurement process is simple, swift, and producing desired results without protracted delays. Competition is ensured when the procurement process is impartial, consistent, and reliable. It must offer a level playing field to all players to compete with reliability. Transparency is ensured when good procurement practice establishes and then maintains rules and procedures that are accessible and unambiguous.

It is not only fair but should be seen to be fair. Under the accountability principle, good procurement holds its practitioners responsible for enforcing and obeying the rules. It makes them subject to audits and sanctions for neglecting or bending those rules.

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Accountability is at once a key inducement to individual and institutional probity, a key deterrent to collusion and corruption, and a key prerequisite for procurement credibility. There are generally three categories of inputs that governments acquire for their smooth functioning.

The inputs include civil works e.g. bridges, buildings, highways etc., goods-typically equipment, material and supplies, commodities, textbooks, medical supplies, and services which cover expert advice and training, technical assistance as well as such things as building maintenance, janitorial services, security services and computer programming, etc.

An environment for public procurement 

Public procurement is a cross-functional activity that works in a multi-faceted challenging field and public procurement practitioners face numerous challenges caused by external and internal factors. The ultimate objective in front of these practitioners is to ensure that the procurement activity has been done properly (i.e. for purposes which the procuring agency has authorized), scrupulously (i.e. in a manner beyond reproach) and wisely (i.e. whether it obtains value for money).

One way of achieving this objective is through promoting transparency and accountability in the public procurement regime. The practitioners face the following external challenges imposed upon by a variety of environmental factors including market complexity, legal environment, political environment, organizational environment, and socio-economic environment.

The internal challenges faced by practitioners stem from three factors that constitute an internal environment of a public procurement regime. These are people working as procurement practitioners, processes broadly providing guidance/procedures to conduct the procurement activity and controls which ensure a high level of probity, transparency, and accountability.

It is very important that practitioners have complete knowledge of the universe of procurement tools and techniques on one hand and thorough information about the market, forces to achieve strategic clarity. Subsequently, the choice of an appropriate tool/technique by practitioners would determine that the procurement process is completed ensuring economy, efficiency, transparency, and accountability. The processes governing the actions of practitioners must entail guidelines on salient features of an efficient public procurement system.

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According to some globally accepted norms, the indicators of such a system include the following; a regulatory body mandated to monitor the public procurement activities; legal framework elaborating a mechanism as well as procedures on the public acquisition of goods, works, and services by the public sector enterprises; establishment of a grievance redressal/appeal mechanism exclusively for settlement of complaints on the contract management issues; a mechanism for the wide dissemination of government policy decisions, procurement opportunities, and results of evaluation exercises for an award of contracts.

Furthermore, it includes regulatory arrangements for ensuring access to information on the public procurement system. Controls require that they have been developed also to prevent spending for improper purposes. The controls covering procurement to prevent fraud and corruption include defined payment processes, separation of powers (in particular the expenditure delegate is usually not empowered to sign cheques or approve payments), risk assessment and management process, and a well-defined procedure to ordering.

It is of paramount importance that the basic principles of oversight and control exist in the legal and regulator framework of the country and that they have universal application. A public procurement regime must provide for; adequate independent control and audit mechanisms and institutions to oversee the procurement function; implementation of internal control mechanisms in procuring agencies with clearly defined procedures; proper balance between the financial audit and the performance audit in an efficient manner.

Public procurement in Pakistan

Pakistan’s legal system is based on the 1973 constitution of Pakistan. The constitution doesn’t deal with public procurement, nor was there any federal or provincial law regulating public procurement until the establishment of public procurement regulatory authority (PPRA) in 2003 and subsequent notification of public procurement rules by PPRA in 2004. The public procurement regime in Pakistan has gone through the following stages.

General Financial Rules (GFRs) on the federal level, ministry of finance first issued GFRs in 1951 and then in a second edition in 1979. Essentially executive orders of the president, they describe the financial powers of different authorities subordinated to the federal government and prescribe the procedures for those authorities to follow in securing and dispersing the funds required to discharge their functions.

Under GFRs, there was a legal or regulatory requirement for public disclosure of procurement contracts. The records of procurement were usually maintained since the audit department invariably carried out the audit of this function. There are no known mandatory requirements to that effect though for the afore-said reason the record was properly maintained.

The general public didn’t have any access to these records. The advertisement of a procurement opportunity was usually published in the print media. While such requirements were generally observed, it was not unusual to find that these requirements were not observed especially when it came to favoring a particular bidder/supplier.

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Practitioners would follow GFRs regarding public bid opening. They would prepare bid opening statement. However, the bid evaluation reports were not accessible to the bidders participating in the competition. Financial negotiations after bid opening or before the final award of contract were not forbidden under any law or regulation.

Such negotiations would take place during the procurement process usually affording an opportunity to a favorite bidder to win the contract. There was no requirement as such of public notice of contract award. There was absolutely no regulatory requirement for publishing the summary data of information about public procurement e.g. number of bids received, bids disqualified, bids qualified for evaluation, names of successful bidders etc.

There was no well-defined regulatory framework/code of ethics checking of malpractices by public procurement practitioners despite several enactments, at federal and provincial levels, on efficiency and discipline of government servants while conducting the official business. Finally, there was no system in place to provide a proper forum for resolution of any grievances regarding any procurement transaction. In case of a dispute between the procuring agency and the contractor the options were arbitration under the Arbitration Act 1940 and the courts of law.

At the provincial level, the public procurement activity of goods and services was governed by the purchase manuals. These manuals provided for the rules for petty and large procurements, the regulations and the procedures, and a blanket guideline to meet the necessary standards of transparency, accountability, effectiveness, and efficiency.

For procurement of works the Pak PWD code and PEC forms dealt with procurement and the execution of public works. The guidelines for public procurement at the provincial level were hardly available to the public. These purchase manuals suffered from the same defects as GFRs.

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Following latest regulatory developments have taken place in the field of public procurement in Pakistan since 2002. At the Federal level in Pakistan, we have the Public Procurement Regulatory Authority Ordinance 2002, Public Procurement Rules 2004, Public Procurement Regulations 2008, and Consultancy Services Regulations 2010 whereas; at the Provincial level in Sindh, we have The Sindh Public Procurement Act 2009, Sindh Public Procurement Rules 2010, in KPK we have the NWFP Procurement of Goods, Works and Services Rules 2003 and the NWFP Procurement Ordinance 2002; in Punjab we have the Punjab Public Procurement Authority Act 2009, and in Balochistan, we have the Balochistan Public Procurement Act 2009.

Legal and regulatory framework

The Federal Government created Public Procurement Regulatory Authority (PPRA) in 2002 through a Presidential Ordinance. It is mandated to take such measures and exercise such powers as may be necessary for improving governance, management, transparency, accountability, and quality of public procurement of goods, works and services.

The government notified Public Procurement Rules (PPR) in 2004 followed by the enunciation of the first set of public procurement regulations in 2008, and then consultancy services regulations in 2010. A Manual has also been finalized for use by the National Health and Population Welfare Facility which could well be used by both the Health and Population Welfare Ministries/Divisions and attached departments.

According to some previous research studies conducted by a group of international donors, it has been established that throughout the government there is an acute dearth of skill in procurement and contract administration ranging from the development of policy to the management of the function. Dismal capacity in procuring agencies, regulatory authorities, and accountability institutions hamper the efficiency, economy, transparency and accountability of the procurement system.

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The PPR outline broad guidelines for procuring agencies on various steps involved in a procurement cycle. The underlying objective of PPR is to help procuring agencies achieve value for money through ensuring transparency and accountability. The achievement of this objective is further strengthened by a clear-cut guideline on mis-procurement.

PPRA Ordinance 2002 defines mis-procurement as, “public procurement in contravention of any provision of this Ordinance, any rules, regulations, orders or instructions made thereunder or any other law in respect of, or relating to, public procurement.” Rule 50 of PPR 2004 states that any unauthorized breach of these rules shall amount to mis-procurement.

Procurement planning

The PPR and the Government Budget Rules require planning at the start of the fiscal year which starts on 1 July and ends on 30 June next year. This planning exercise is reflected in the annual budget. Procurement planning usually is done on the basis of an accurate need assessment and is all about how to acquire/meet that need; allocation of funds to meet that need is considered as budget allocation.

Procuring agencies seldom prepare procurement plans in this context by identifying the size, nature, and complexity of the object of procurement or works. Even if prepared these plans are not widely disseminated on PPRA website or the respective departmental websites.

However, the annual procurement plans reflect the budget plans ex-post-facto subject to modifications to be in line with the budget when the budget is presented and approved by the parliament.

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Procurement advertisement

As an international best practice timely notification of bidding opportunities is essential in competitive bidding. The notice should be published in local and national newspapers, official gazettes, or electronic bulletins, to suit the nature and size of the project.

Information on the invitation to bid should be available in offices of the agency, and the district or county administration for local projects. Procurement opportunities should be publicized in the local language where small contractors and community organizations may be likely to bid. International bids should be published in widely circulated trade journals and newspapers and through the Internet.

In the case of large, complex works, turnkey contracts, or large consultancies for longer period of time is allowed as response time. PPR on advertising and wide dissemination of procurement opportunities to the potential bidders and public are quite comprehensive. PPRA website is a commonly used portal for posting all such opportunities.

Regardless of the value of procurement it is mandatory on all procuring agencies to post advertisements on the PPRA website. Publishing of the same advertisement in the print media is mandatory when the value of the procurement exceeds Rs.2 (million). The advertisement is published in two national dailies one in English and the other in Urdu.

PPRA has been conducting desk monitoring of advertisements published in the newspaper for identification of violations. The latter are conveyed to the concerned procuring agencies for the removal of anomalies.

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Prequalification, qualification, and disqualification

Prequalification of bidders is usually necessary for large or complex works or in cases where the high cost of preparing bids may discourage competition, such as for custom-designed equipment, industrial plants, specialized services, turnkey contracts, or management contracts.

The process ensures that invitations to bid are extended only to those with adequate capability and resources. Prequalification is also used to determine eligibility for preference for domestic contractors in donor-assisted projects. Prequalification should be restricted to the capacity, experience, and resources of the contractors to perform the particular contract satisfactorily, taking into account their past performance in similar contracts.

As always, prequalification must be based on transparent and well-publicized guidelines. PPRs 15 to 18 provide detailed guidelines on how to conduct and complete the subject process.

The salient features ensuring transparency and accountability include that the procuring agency shall; announce all information required for prequalification including evaluation criteria etc; promptly notify each supplier and/or contractor submitting an application to pre-qualify whether or not it has been prequalified; shall make available to a person involved in the prequalification process, upon request, the names of all suppliers or contractors who have been prequalified; communicate to those suppliers or contractors who have not been prequalified.

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In practice, a letter informing and calling for invitation to bid is sent to the successfully prequalified bidders. The unsuccessful bidders are communicated only when they approach the concerned office in this regard. The evaluation committee evaluates the prequalification applications in line with technical capability, financial capacity and general experience of the applicants. The Works and Services Department, National Highway Authority, Irrigation Department, WAPDA, etc prefer to do prequalification for procurement of all types of Works.

Open competitive bidding

According to Transparency International the complexity of the process depends on the value and nature of the goods, works or services being procured, but the requirements for competitive bidding are similar in all cases and largely applicable to other forms of procurement as well. PPR prescribe open competitive bidding as a default method.

Bidding documents under competitive bidding plays a critical role for ensuring transparency and accountability in the process. The bidding documents furnish all information necessary for a prospective bidder to prepare a bid for submission to the procuring agency.

Bidding documents generally include invitation to bid, instructions to bidders, form of bid, form of contract, conditions of contract, both general and special, specifications and drawings where necessary, relevant technical data, list of goods and bill of quantities etc.

The instructions to bidders section of bidding documents contain all critical information on how to prepare a bid, submission of bid, opening and evaluation of bid, and finally award of contract.

In this regard, Pakistan Engineering Council (PEC) has prepared standard bidding documents and standard General Conditions of Contract (GCC) for all engineering contracts. In 2008 the Executive Committee of the National Economic Council (ECNEC) notified that public sector entities should use these Standard Bidding Documents (SBDs) and GCC for all public procurement of works and engineering services.

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Key to transparency and fairness is to open the bids at a designated time and place in the presence of all Transparency and Accountability in Public Procurement Regime Transparency and Accountability in Public Procurement Regime 11 12 bidders or their representatives who wish to attend. Such public bid openings reduce the risk that bids will be leaked to competitors, lost, or manipulated.

After the bids are opened, no information on the bid evaluation and award recommendations should be disclosed until after the successful bidder is notified of the award. Bid evaluation is one of the most difficult steps to carry out correctly and fairly in the procurement process, and one of the easiest steps to manipulate.

Procuring agencies under PPR 35 are required to announce the results of bid evaluation in the form of a report giving justifications for acceptance or rejection of bids at least 10 days prior to the award of the procurement contract. It is important for the results of the bidding process as a whole to be evaluated periodically to identify suspicious trends.

Unusual or lengthy delays in bid evaluation are often a sign of trouble, an indication that someone in the system is attempting to discourage the best bidders or give extra time to favored bidders on the basis of leaked information. Such delays should be strongly discouraged to maintain transparency and accountability.

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Award of contract

The agency should award the contract within the period of validity of the bids to the bidder whose bid has been determined (i) to be substantially responsive to the bidding documents and (ii) to offer the lowest evaluated cost. The bidder should not be required to undertake responsibilities not stipulated in the bidding documents or to otherwise modify the bid. This process should be transparent and according to objective criteria. There, too, delays are often a symptom of unfair or corrupt practices.

Degree of Access to Information PPR 47 lays down guidelines on public access and transparency in this manner, “As soon as a contract has been awarded the procuring agency shall make all documents related to the evaluation of the bid and award of contract public: Provided that where the disclosure of any information related to the award of a contract is of proprietary nature or where the procuring agency is convinced that such disclosure shall be against the public interest, it can withhold only such information from public disclosure subject to the prior approval of the Authority.”

There are established norms for the safekeeping of records and documents related to transactions and contract management. The PP regulation establishes a list of the procurement records that must be kept at the operational level. However, the conditions for getting access to the record, availability of records are not communicated when it comes to producing the records for public inspection.

Since all systems are manual with few exceptions and no secure storage is provided, the authenticity and completeness of records cannot be guaranteed. Ironically, in the case of PPRA itself when a case record requisitioned from a procuring agency is not supplied there are no penal provisions available PPRA Ordinance for enforcement of its request.

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There is a rudimentary public information system that provides information only for initial opportunities for submission of expression of interest, bids, and proposals for all public procurements. However, no information is provided regarding processes, outcomes, results, and performance. PPRA is preparing and issuing a monthly newsletter on performance in the form of a proportion of uploads compliant with PPR which is circulated within the government and also available on the website.

Redress of grievances and complaints

According to a joint study conducted by World Bank and Asian Development Bank certainly some avenues should be available for entertaining legitimate grievances and complaints from bidders about the fairness and confidentiality of the process, and for furnishing clarifications. In Japan, a special unit in the cabinet office considers complaints relating to international competitive bidding.

In some countries, complaints can be addressed to the ombudsman if the procuring agency is unresponsive. Some countries provide for a review of the decision on the award of the bid if representations are received from the other bidders in time, but all procurement decisions are open to judicial challenge in most countries.

Attitude is also important. The unresponsive behavior of procurement staff to complaints and suggestions can make it less attractive to do business with the government, and thus reduce effective competition in the future. This, of course, may sometimes be precisely the goal of the unresponsive behavior of procurement staff. PPR 48 stipulates that a procuring agency shall constitute a committee comprising of odd number of persons with proper powers and authorization.

The committee should decide the complaint within fifteen days. Appeal mechanism likely to make inconsistent decisions on similar issues. Though existing complaint review system has the capacity to handle complaints efficiently; it takes years by the complaint handling system to enforce a remedy.

The aggrieved bidder may lodge an appeal in a court of law if not satisfied with the decision of the committee. These complaints are relating to the pre-contract issues. For settlement of disputes arising after the award of contract arbitration under Arbitration Act 1940 is prescribed. There is no clear cut guideline on what if the committee does not decide in line with the given instructions; there is no penal provision to this effect.

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Control and audit system

As such the PPR do not provide for any guideline on procurement audit by a group of specialized auditors. Audit, both internal external, is largely limited to financial transactions only. The mechanism for performance audit is in place, however, rarely undertaken largely due to capacity constraints.

Implementation of internal control mechanisms in individual procuring agencies with clearly defined procedures for procurement audit is done but the corresponding findings are not available. A usual annual audit of financial transactions is conducted; the audit observations are discussed and settled generally within 6 months wherever feasible.

The record of observations showing the details is not available to PPRA what to speak of outside public. PPR 11 stipulates an approval mechanism setting out a clear authorization and delegation of powers for different categories of procurement and shall only initiate procurement activity once approval of the competent authorities concerned has been accorded.

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Public procurement in the words of Transparency International Pakistan

Transparency International Pakistan (TIP) is a non-governmental organization, dedicated to government accountability and curbing the national corruption. It is mandated to strengthen the global value system by making transparency and accountability more relevant public norms.

TIP noted that presently public procurement in all departments of Pakistan is treated as a downstream, clerical, buying function and therefore does not attract professionalism and competent staff to deal with the meager resources with integrity and transparency. One of the main reforms TIP has been working on since 2002 is to professionalize the organizations and individuals responsible for procurement through targeted capacity building activities.

This is the core element of the initiative, addressing not only capacity building efforts at the level of agencies and individuals responsible for procurement through targeted capacity building activities but also to strengthen systems, transparency and to tackle corruption.

Since the establishment of PPRA followed by notification of PPR in 2004; TIP has been supporting the procurement rules for promoting transparency and accountability in the public procurement regime in Pakistan.

In this connection TIP has signed various MoUs with various public sector organizations such as Pakistan International Airlines (PIA), Pakistan Steel Mills, Port Qasim Authority (PQA), City District Government Karachi (CDGK), Department of Agriculture, Sindh, Karachi Water and Supply Board (KW&SB), Pakistan State Oil (PSO), Trade Development Authority of Pakistan (TDAP) and State Life Corporation of Pakistan to provide support to these entities in better understanding of PPR 2004. TIP has also written Procurement Manuals, in line with PPR 2004 for organizations such as PIA, CDGK, PQA, Pakistan Steel, KW & SB.

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The main objective of writing these manuals was to ensure that procurement decisions made in these organizations are in line with PPR 2004 to ensure transparency and accountability of the procurement process. An increasing number of whistleblowers within government organizations and venturing of a part of media into investigative journalism has also helped TIP in unearthing the irregularities in procurements, appointments, and other government dealings.

Recently TIP has pointed out various irregularities in the procurement process initiated by energy sector organizations (DISCOS) for procurement of goods, National Insurance Corporation (NICL) and construction contracts, etc. TIP reviewed the processes employed by the defaulting organizations in the light of PPR 2004 with a view to promoting transparency and accountability. TIP also sits on the Sindh Public Procurement Regulatory Authority (SPPRA) Board and has contributed towards drafting and promulgation of SPPRA Rules in 2010.

In the year 2016 i.e. on the 30th of March 2016 the Transparency International Pakistan had written a letter to the Managing Director Karachi Water & Sewerage Board, Karachi copies of which were also sent to the then Chief Justice of the Sindh High Court and to the DG NAB Karachi by highlighting its concerns regarding the awarding of an Illegal Award of Unsolicited Contract of Rs/- 25.5 Billion Karachi Supply Project, known as K-1V, to the Frontier Works Organization (FWO).

In this letter, Transparency International Pakistan had referred to the judgments of the Supreme Court of Pakistan and the Islamabad High Court whereby the Superior Courts had set-aside the procurement process being against the PPRA laws.

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Public procurement and recent developments

Recently, the Cabinet has decided to exempt “State-Owned Entities” from Transparency Rules. In a major recent development, the federal cabinet has amended the procurement rules to allow the government to award contracts to the state-owned enterprises without floating public tenders, which may compromise transparency in public sector deals.

According to the amended rule 42 (f), “A procuring agency may engage in direct contracting with state-owned entities such as professional, autonomous or semi-autonomous organizations or bodies of the federal or provincial governments for the procurement of such works and services, including consultancy services, which are time-sensitive and in the public interest”.

In addition, according to the amendments, the procuring agency may use force account if the value of procurement does not exceed Rs200 million, subject to the conditions that the required works are small, scattered or remotely located for which qualified construction firms are unlikely to bid at reasonable prices; work is required to be carried out without disrupting ongoing operations; and urgent repairs, rehabilitation and re-modeling works of national heritage requiring prompt attention to prevent further damages.

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In case a bidder feels aggrieved by any act of the procuring agency after the submission of his bid he may lodge a written complaint concerning his grievances within fifteen days of the bid evaluation report in terms of Rule 48 of the Public Procurement Rules 2004.

Public procurement laws through a judicial perspective

In Pakistan, the Public Procurement Laws have been subject to judicial scrutiny time and again before the Superior Courts of Pakistan. Whenever any contract has been awarded in violation of the procurement laws and rules the Superior Courts have always struck down such kinds of contracts.

The first of such instances is the Rental Power Plants Case bearing Human Rights Cases No 7734-G/2010, 1003-G/2010, and 56712/2010 decided on 30th of March 2012 reported as 2012 SCMR 773 wherein a Two Member Bench of the Supreme Court of Pakistan while dilating upon the Public Procurement Regulatory Authority Ordinance 2002 was pleased to hold that Art. 184—Judicial review—Scope—Transparency in award of contract—Executive authorities are bound to enter into contracts for supplies at the least expense to the  public exchequer—Most significant consideration for every department of the Government must be the best economic mode of meeting the public needs—Agreements for pecuniary considerations are against public policy and, are void—Every action taken by the Government must be in public interest and its action would be liable to be invalidated on the touchstone of reasonableness and public interest and if it fails to satisfy either test, it would be unconstitutional and invalid—Principles.”

The Honorable Supreme Court of Pakistan was further pleased to hold that “S. 5—Functions and powers of the Authority—Procurement of electricity through Rental Power Projects—Procurement Authority may take such measures and exercise such powers as may be necessary for improving governance, management, transparency, accountability and quality of public procurement of goods, services and works in the public sector.

“Words ‘transparency’ and ‘accountability’ are of high importance and cast a duty upon the Authority who had invited the bids to ensure openness of the transaction without withholding any information—Competition to establish transparency between the interested parties is in fact the theme of the Public Procurement Regulatory Authority Ordinance, 2002 as well as the Rules framed thereunder (Public Procurement Rules, 2004).

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“Bidders have to compete with each other by filing their respective bids, therefore, while making procurement of an item like electricity through Rental Power Projects, the Authority is required to fix a reserved price while quoting lump sum Rental Charges, Rental Rate and Reference Fuel Cost Components.

“In absence of such reserved prices, there would not be transparent competition and accountability of the bidders and procurers. In a sale by auction, subject to a reserve price, every offer/bid and its acceptance is conditional; the public is informed by the fact, that the sale is subject to a reserve price; the auctioneer has agreed to sell for the amount which the bidder is prepared to give only in case that amount is equal to or higher than the reserve price; the reserve price puts a limit on the authority of the auctioneer and he cannot accept a price below the upset/reserve price.

“In the present case, neither the reserved price had been mentioned in the publication, in pursuance whereof, the bids were invited, nor such reserve price had been disclosed in RFP—In advertisement made by PPIB, except mentioning Rental Power Project of 200 MW cumulative capacity near Karachi, neither the sites were indicated nor the type of fuel or technology of plant was mentioned for this purpose and there was no bidding process for unsolicited RPPs.

“Public Procurement Regulatory Authority Ordinance (XXII of 2005), S. 5—Corruption and corrupt practices—Procurement of electricity through Rental Power Projects—Violation of the principle of transparency and decision of ECC—All the Government functionaries, including the Ministers for Water and Power holding charge from 2006 and onward up to 2008 during whose tenure the Rental Power Projects were approved/set up, prima facie, violated the principle of transparency, therefore, their involvement in getting financial benefits out of the same by indulging in corruption and corrupt practices could not be overruled.

“Consequently, they were liable to be dealt with under the National Accountability Ordinance, 1999. Similarly, all the functionaries of Pakistan Electric Power Company, Generation Companies, and National Electric Power Regulatory Authority along with sponsors who had derived financial benefits from the said project’s contracts were, prima facie, involved in corruption and corrupt practices therefore, they were liable both for the civil and criminal action. Supreme Court, while identifying the violations in the procurement of electricity through Rental Power Projects, issued detailed directions for dealing with the matter and persons involved in corruption and corrupt practices.”

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The second of such instances was the Safe City Project case titled as Raja Mujahid Muzaffar and Others Versus Federation of Pakistan and others reported as 2012 SCMR 1651 wherein a Full Bench of the Supreme Court of Pakistan while dilating upon the concept of Public Procurement Laws was pleased to hold that “Rr. 2(1)(g), 5, 14(a), 42(c)(ii) & (v)—Public Procurement Regulatory Authority Ordinance (XXII of 2002), Preamble—Constitution of Pakistan, Art.184(3)—Constitutional petitions under Art.184(3) of the Constitution calling into question award of a contract to a foreign company for procurement of goods, equipment and services for the purpose of establishing a surveillance and monitoring system, direct contracting, issuance of public advertisement and procedure of an open bidding not employed by the Procuring agency/Ministry of Interior (respondent) on grounds of emergency and national security—Validity—Relevant summary by Ministry of Interior (procuring agency) as well as the communications, minutes of different meetings, preceding the same and the approval that followed made no reference whatsoever to any natural calamity, disaster, accident, war or operational emergency whatsoever as defined in Rule 2(1)(g) of Public Procurement Rules, 2004.

“Procuring agency i.e. Ministry of Interior did not specify the appropriate fora vested with the necessary authority to declare emergency nor it was the case of the Government that any such declaration had been made—Project had been conceived about three and half years before the contract in question, thereby excluding the possibility of an emergent situation, therefore, provisions of Rule 42(c)(v) of Public Procurement Rules, 2004 were not attracted to the facts and circumstances of the case.

“Contract in question had already been executed before the date on which the relevant summary seeking its approval was prepared, therefore, the entire exercise appeared to be farcical—Regarding applicability of Rule 42(c)(ii) of Public Procurement Rules, 2004, nothing on record indicated that the foreign company in question had a worldwide monopoly of the surveillance equipment and software, the subject-matter of the contract in dispute—Various other foreign companies were in a position to offer similar goods and services but the entire market, both national and international, was never tapped.

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“Regarding contention of Ministry of Interior (procuring agency) that public advertisement was not possible or permissible as a contract in question pertaining to internal security in terms of Rule 14(a) of Public Procurement Rules, 2004, no mention of any exemption was found in the relevant summary seeking approval of contract in question or any other allied document or during its eventual approval.

“No approval was ever obtained from the relevant authority for seeking deviation from the requirement of advertisement—Inviting proposals publically for surveillance systems was a common practice followed internationally—Procuring agency (Ministry of Interior) could have tailored its public advertisement for the project so as to not compromise security considerations.

“Rule 5 of Public Procurement Rules, 2004, was not relevant in the present case. Framework Agreement between Government of Pakistan and Government of China, pertaining to a concessional loan provided by the latter for implementation of the project in question, was not inconsistent with Rule 5 of Public Procurement Rules, 2004, so as to prohibit the issuance of a public advertisement inviting bids for the project.

“Report of a technical committee revealed that contract in question was executed without any feasibility study, and that quoted cost of equipment and software was almost three times the cost of comparables in the market. The cost of the project appeared to be suspicious especially in the absence of any due diligence conducted so as to ascertain the competitiveness of the offer qua the cost of the equipment and software in the open market.

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The contract in question was illegal and invalid having been executed in violation of the mandatory provisions of the Public Procurement Rules, 2004, as the exemption therefrom purportedly granted under Rule 42(c)(v) of the said rules was based on extraneous and irrelevant reasons and therefore of no legal effect or consequence.

“Entire transaction was carried out in a non-transparent manner and for a cost which appeared to be inflated. Government was directed by Supreme Court to reinitiate the process for the procurement of the required equipment, software and services in a fair, just, rational and transparent manner, strictly in accordance with the provisions of the Public Procurement Regulatory Authority  Ordinance, 2002 and the Public Procurement  Rules, 2004 and the law— Constitutional petitions were allowed accordingly.”

Another example of such blatant violation of the Public Procurement Rules was noted in the National Insurance Company Limited case bearing No Suo Moto Case No 18 of 2010 (Suo moto action regarding violation of Public Procurement Rules, 2004 in the procurement of billions of rupees of exchequer case by National Insurance Co. Ltd) reported as 2014 SCMR 585 wherein a Full Bench of the Supreme Court of Pakistan while dilating upon the Public Procurement Rules was pleased to hold that “S. 12—National Accountability Ordinance (XVIII of 1999), S.9(a)(vi)—Public Procurement Rules, 2004, Rr. 4 & 20—Constitution of Pakistan, Art. 184(3)—Exercise of suo moto jurisdiction by the Supreme Court under Art.184(3) of the Constitution regarding violation of Public Procurement Rules, 2004 by National Insurance Co. Ltd in the procurement of properties and award of contracts causing losses worth billions of rupees to the public exchequer Chairman, National Insurance Company Ltd. (NICL), the appointment of— Legality—Misappropriation of public money—Corruption and corrupt practices— Lack of open competitive bidding during procurement—Non-acceptance of lowest bid—Accused/Chairman of NICL allegedly engaged in corruption and corrupt practices during procurement of properties and award of contracts which caused losses worth billions of rupees to the public exchequer—Prima facie contractual appointment of accused/Chairman, NICL was made contrary to the Civil Servants (Appointment, Promotions, and Transfers) Rules, 1973 because for appointment on contract said Rules were applicable.

“Summary for appointment of accused was submitted before concerned authorities, wherein three candidates were finalized and name of accused was placed last in the list in terms of priority—Ministry for Commerce approved said summary, whereafter, summary for approval of Prime Minister was prepared wherein the name of accused was placed at number one (1) on the list in terms of priority. Principal Secretary to Prime Minister approved said summary and accused was appointed as Chairman, NICL on contractual basis.

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“When the file for appointment of Chairman, NICL was placed before Additional Secretary, Ministry of Commerce for his approval of a name out of a panel of three persons, instead of ensuring transparency in appointment through advertisement in a newspaper, he forwarded the same for approval of the Minister of Commerce, as a result whereof the process of appointment was tainted with arbitrariness—After approval of the Commerce Minister, the summary was endorsed by concerned authorities and finally by the Prime Minister, despite the fact that name of accused was at serial No.3 of the list in terms of priority and the remaining two persons on the list were already enjoying the status of BS-21 officers.

“Appointment of accused as Chairman NICL was made without forwarding the criteria provided under S. 12 of National Insurance Company (Reorganization) Ordinance, 2000 to the Securities and Exchange Commission of Pakistan (SECP). Ministry of Commerce got the appointment of the accused approved without any involvement whatsoever of the Securities and Exchange Commission of Pakistan.

“Corruption and corrupt practices were committed from day one i.e. when the summary was sent for the appointment of accused as Chairman, NICL, which resulted in all the criminal deeds, actions, omissions, and commissions. Documents placed on a record made it patently clear that open competitive bidding did not take place nor was the lowest bid accepted by NICL in the procurement transactions.

“Violation of relevant procurement rules was a clear indication of corruption. Corruption, corrupt practices, and misappropriation of billions belonging to the public exchequer could have been possibly avoided if the Ministry of Commerce adhered to Civil Servants (Appointment, Promotion, and Transfers) Rules, 1973 and appointment was made through publication and Securities and Exchange Commission of Pakistan had conducted fit and proper test under  S.12 of the National Insurance Company (Reorganization) Ordinance, 2000.

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“Appointment of accused as Chairman, NICL was contrary to S. 12 of the National Insurance Company (Reorganization) Ordinance, 2000 and Rules framed thereunder, as non-transparent, illegal and unwarranted, and the then Secretary Interior, Secretary Commerce, Minister for Commerce, Secretary Establishment and Acting Principal Secretary to Prime Minister were involved in such appointment. Supreme Court directed that said persons were prima facie, liable to be dealt with under S.9(a)(vi) of the National Accountability Ordinance, 1999—Suo moto case was disposed of accordingly.”

More recently, a Single Bench of the Lahore High Court in the case titled as M/s Sparco Construction Company Versus Province of Punjab reported as CLC 2021 (Lahore High Court) 515 while dilating upon the Punjab Procurement Rules 2014 was pleased to hold that, “The transparency and fairness behind every such project are and shall be the hallmark of every civilized nation and further the public being the virtual owners of national exchequer must be kept satisfied that all such transactions and works are being carried out in a transparent manner, therefore, by seeking guidance from the judgment in “Suo Moto Case No.5 of 2010” (PLD 2010 Supreme Court 731), considering that as the instant matter is a provincial subject, the Chief Minister, Government of Punjab, is directed to immediately form a committee, consisting of men of sound caliber and integrity from all the concerned agencies, to minutely probe into the entire process and bring it to the notice of the Asian Development Bank as well.

“The Committee, so constituted, shall see whether there was any misuse of authority in the entire process at any level, whether the transparency and fair play was properly taken care of and that the proper process was adopted in the project. It is made clear that simple formation of such committee shall not mean stay of further process on the project.”

Recently, a Division Bench of the Sindh High Court while being seized of with a matter pertaining to Public Procurement and while dilating upon the concept of mis-procurement in the case titled as Assetlink Asia (Pvt) Ltd and others Versus Federation of Pakistan and others reported as CLC 2020 (Sindh High Court) 410 was pleased to hold that “Rr. 17 & 36(c)(iv)— Post contract, alterations in terms and conditions—Mis-procurement— Petitioner was a constituent entity successful bidder who was aggrieved of post bidding modifications in the procurement process in order to award the contract to the unsuccessful bidder.

“Criteria for pricing of bids contained in bidding documents did not place un-successful bidder in the category of the successful bidder and on the contrary deemed un-successful bidder to be the least qualified to be awarded the contract. Subsequent modifications in pricing criteria inspired a stranger to the proceedings and upon the request of the unsuccessful bidder itself could not be considered to be transparent or tenable.

“Procurement agency remained competent to ask for additional information pursuant to R.17 of Public Procurement Rules, 2004 and had the competence to revise any aspect of evaluation criteria pursuant to R. 36(c)(iv) of Public Procurement Rules, 2004. Such power could only be exercised if such revisions were communicated to all bidders equally at time of invitation to submit bid and sufficient time was allowed to bidders to revise their bids.

“Such prescription was not followed and modification in evaluation criteria was undertaken subsequent to the opening of technical bids and also post opening of financial bids. No subsequent variation is possible in terms of a tender, especially when such a change was to manifest the advantage of an otherwise unsuccessful bidder. Belated unjustified parachuting of the lowest bidder into tender process, manner adopted for modification of evaluation criteria post opening of bids and implementation of such modifications could not be considered to be transparent and/or in the public interest. High Court set aside tender process culminating into a contract as it was a manifest violation of the law. The constitutional petition was allowed in circumstances.”

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Likewise, a Single Bench of the Lahore High Court in the case titled as Kitchen Cuisine (Pvt) Limited Versus Pakistan International Airlines Corporation & Others reported as PLD 2016 (Lahore High Court) 412 was pleased to set at naught the procurement process in view of the acceptance of a bid not having taken place within the bid validity period.

It was held that “The contexture and setting of rule 26 may be stated thus. A reading of rule 26 above makes it clear that a procuring agency shall evaluate the bid to a bid validity period. It is admitted on all hands that the validity period in the instant case was ninety days. By virtue of sub-rule (3) of rule 26, the procuring agency shall ordinarily be under an obligation to process and evaluate the bid within the stipulated bid validity period that is ninety days in the instant case.

“However, under exceptional circumstances and for reasons to be recorded in writing, if an extension is considered necessary, all those who have submitted their bids shall be asked to extend their respective bid validity period. Such extension shall not be for more than the period equal to the period of the original bid validity. From the tenor and the context of sub-rule (3) of rule 26, the terms of the said rule seems to be obligatory and mandatory in nature and must be complied with. This is the very essence of the procurement procedure and the good faith which must permeate the entire procedure.

“In this regard, it may be stated that the bids were submitted on 26.3.2015 and the evaluation report was made on August 20, 2015 i.e after more than five months. The contract was admittedly awarded on 01.03.2016 i.e. after almost one year of the tender for the bids. Clearly, the mandate of rule 26 has not been complied with and has been contravened. The learned counsel for PIA does not deny the fact that bid validity period was not extended by a speaking order and the bidders were thus not asked to extend their respective bid validity period. The non-compliance of rule 26(3), in my opinion, renders the subsequent acts of submission of the evaluation report as also the award of contract as ultra vires and void.”

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Likewise, a Single Bench of the Lahore High Court while dilating upon the Public Procurement Rules in the case titled as Tipu Sultan Makhdoom Versus Federation of Pakistan reported as PLD 2014 (Lahore High Court) 486 was pleased to hold that “The PPRA Ordinance and PPRA Rules are there to ensure transparency in spending public money. Under the circumstances, there is no justification not to adhere to the PPRA Ordinance and the PPRA Rules simply because a single bidder is appearing in the bidding process.”

In the case titled as Iqtedar Ali Khan Versus Department of Mines and Minerals reported as PLD 2004 SC 773 the Supreme Court of Pakistan was pleased to hold uphold the cancellation of the lease as the manner in which the lease was awarded lacked transparency and fairness.

In the case titled as Kay-Bee International (Pvt) Ltd Versus Secretary to the Government of Punjab reported as PLD 2002 SC 1074 it was held that “the approach of the Government in awarding contracts and licences shall be rational, reasonable and transparent and it should not be based upon arbitrariness and discrimination. In this case, the Hon’ble Supreme Court canceled the award of contract on account of aberrations in the bidding process.”

In the case titled Omer Razzaq Enterprises & Others Versus Government of Pakistan & Others vide Order dated 25th April 2018 a Division Bench of the Sindh High Court was pleased to dismiss a Writ Petition during the pendency of a grievance petition before the Grievance Redressal Committee. While dismissing the Writ Petition the Sindh High Court was pleased to hold that an alternate remedy was available to the Petitioner for redressal of grievance and in the presence of which the Writ Petition was not maintainable.

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In the case titled as M/s Sis Corporation (Pvt) Limited Versus Federation of Pakistan & Others reported as CLD 2016 (Islamabad High Court) 48 a Single Bench of the Islamabad High Court while interpreting Rule 48 of the Public Procurement Rules 2004 was pleased to hold that “For a G.R.C. constituted pursuant to Rule 48 of PPR, 2004, to be treated as an adequate alternative forum where a bidder can raise his grievance with respect to any matter regarding the tender bidding process, after the submission of the bid, it is essential that a G.R.C. be constituted by the procuring agency by the date when the bids are submitted.

“It is also imperative that the members of such a G.R.C. should have the requisite independence and seniority to review and set aside the procuring agency’s senior management’s decisions which are questioned by a bidder before such a G.R.C. A G.R.C. could hardly be termed as an adequate alternative forum when its members do not have the requisite independence and seniority so as to enable them to set aside the decisions of the senior management of the procuring agency.

“This requirement, in my view, is implicit by the adoption of the words ‘with proper powers and authorizations’ in Rule 48 (1) of PPR, 2004. Rule 48 (1) ibid does not obligate the procuring agency to constitute a G.R.C. comprising of its own employees/officials. A procuring agency will be well within its rights to constitute such a G.R.C. comprising of persons who may not be in its employment, and who are experts in the relevant field or have experience in adjudication and are independent enough to strike down a decision of a procuring agency, including the decision to award a procurement contract to a particular bidder, without any fear of W.P.No.4650/2016 & W.P.No.295/2017 8 reprisals by the senior management of the procuring agency whose decisions are subjected to challenge before it.

“I am of the view that the members of the G.R.C. constituted by respondent No.2 are not senior and independent enough to review or set aside decisions taken by the senior management of respondent No.2 with respect to the bidding process. A G.R.C. comprising of officials subordinate to the ones whose decision is subjected to a challenge by a bidder can hardly be termed as independent enough to unhesitatingly take a decision to set aside a decision taken by their superordinates.”

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The way forward for Pakistan

Historically considered a clerical activity, public procurement has become one of the most important functions of the government due to increasing size and activities of the governments, growing expenditure of the government ranging from 20%-25% of GDP in the developing countries and about 10%-25% of GDP in the developed world.

In recent years attention has been paid to the importance of public procurement in stimulating national, regional, and local development. A direct result of this interest has been a realization that if public procurement is to fulfill its potential as a driver of social and economic improvements, there is a need to focus its role in achieving transparency and accountability through a multipronged approach.

In many developing countries, efforts to close loopholes for corruption or to achieve social goals have created increasingly detailed regulations and centralized control and Pakistan should not be an exception. The main direction of improvement is to achieve a better balance between controls and managerial flexibility. The uneven documentation and bidding procedures of different government entities compound the problem of excessive controls. Standard bid documents for goods and services, as well as work contracts, are in fact a guaranteed way of ascertaining transparency and accountability in the procurement process.

Major improvements in integrity would result from extending such standard bidding documents to all government procurement because their use i) reduces opportunities for undue discretion, collusion, and extortion ii) build up the capacity of the contractors in understanding and preparation of bids; and iii) facilitates and promotes communication between buyer and the seller. Other improvements in procurement in the country’s regulatory framework could be realized by addressing the slowness of the dispute resolution mechanisms.

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The process is slow partly because of weaknesses in the judicial system and partly because of the complex appeal procedures. The process of recovering money from suppliers in case of bad performance or default is cumbersome; the insurance bonds are rarely cashed. Bank guarantees fall prey to collusion between bank and the contractor.

Contractors also face protracted legal battles in recovering disputed sums from government. A contractor also has to take on the blame of a problematic contractor, when he goes to litigation, is penalized at the time of prequalification. With the government and the contractors thus forced to take steps to protect themselves from these eventualities, transaction costs increase for sides, making the purchase of goods and services, and contracting, much more costly in the government than in the private sector.

Overall weaknesses in the judicial system are a broader problem, which could be dealt with by establishing a streamlined and fast-track procedure for appealing administrative court decisions on procurement disputes. Finally, although the process of procuring goods, services, and works is critical for the economical and effective use of public funds, procurement issues have not received much attention from senior public managers and political leaders.

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In part, senior managers are not interested in the mechanics of procurement; they are also concerned with keeping their distance (and deniability) from potential waste or corruption scandals. Yet, they must realize the great importance of procurement in an efficient, effective, and honest government, and place it at the center of their responsibility rather than shunting it off to lower-level staff. In turn, political leaders must give them their support in the exercise of this delicate responsibility.

May Allah help and guide us all!

The writer is an advocate high court practicing in Lahore and is a founding partner of Ahmed & Pansota (Advocates & Legal Consultants). He started his career with Cornelius, Lane & Mufti after doing Bar-at-Law from Inns of Court School Law, London, and was called to the bar at Lincolns Inn, London, in the year 2005. Barrister Pansota also figures as a legal analyst in a weekly talk show called Zanjeer-e-Adal on Capital TV and appears on other national TV channels. He also writes for various newspapers on current legal issues. He tweets @pansota1.The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space. 

 

 

 

 

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