3.6 Public Procurement Management

Public Procurement in Nepal: Principles, Processes, and Challenges

Understanding Public Procurement

Public procurement refers to the process by which public entities acquire goods, consulting services, other services, or undertake construction works, as defined by the Public Procurement Act, 2063 BS (2007). It encompasses a comprehensive set of managerial activities, including procurement planning, method selection, implementation, monitoring, evaluation, review, and future strategies.

Example: A municipality procures construction materials for a road project. The process involves identifying needs, preparing a procurement plan, selecting a supplier through competitive bidding, and ensuring timely delivery and quality checks.

Principles of Public Procurement Management

Effective public procurement in Nepal is guided by the following principles to ensure fairness, efficiency, and accountability:

Regularity: Compliance with existing laws and procedures.
Open and Fair Competition: Equal opportunities for suppliers and contractors.
Comparative Advantage: Acquiring high-quality goods/services at the lowest cost.
Economy: Cost-effective procurement processes.
Transparency: Full visibility in procurement activities.
Public Accountability: Responsibility for decisions, outcomes, and processes.
E-Governance: Extensive use of information and communication technology.
Need and Justification: Procurement must be necessary and justified.
Decentralization and National Priority: Preference for local products, suppliers, and contractors.
Public Interest: Ensuring procurement serves the public good.

Prerequisites for Effective Public Procurement

The following qualities or preconditions ensure robust public procurement management:

Strategic planning and preparation.
Adherence to legal frameworks.
Clear identification of needs and justification.
Well-defined procedures.
Transparency and accountability.
Open and fair competition.
Use of electronic platforms for efficiency.
Financial discipline and integrity.
Effective monitoring and evaluation systems.
Reward and penalty mechanisms.
Clear assignment of responsibilities.
Public access to information and citizen oversight.

Stages of Public Procurement

Public procurement follows a structured process to ensure efficiency and compliance:

Need Identification: Determine the goods, services, or works required.
Resource Assurance: Confirm funding availability.
Preparation and Market Analysis: Assess material availability, bidder capacity, technology, and rates.
Cost Estimation: Prepare accurate cost estimates.
Procurement Planning: Develop master and annual procurement plans.
Selection of Procurement Method: Choose the appropriate method (e.g., open bidding, direct purchase).
Bid Document Preparation: Create sealed quotations, pre-qualification documents, or proposals.
Procurement Process and Evaluation: Evaluate bids/proposals and select suppliers.
Contract Award and Implementation: Finalize contracts and execute projects.
Payment, Audit, Review, and Feedback: Process payments, conduct audits, and gather feedback.

Objectives and Importance of Public Procurement

Public procurement aims to achieve the following objectives:

Uniformity in procurement processes.
Cost-effectiveness and justification of expenses.
Economy and operational efficiency.
Fair competition and equal opportunities.
Transparency, accountability, and financial discipline.
Simplicity and structured planning.
Decentralization and private sector capacity building.
Integrity and fairness.
Control of irregularities and corruption.
Effective grievance redressal mechanisms.

Legal and Institutional Framework in Nepal

Legal Provisions

Nepal’s public procurement is governed by a robust legal framework:

Public Procurement Act, 2063 BS (2007) and Regulations, 2064 BS (2008).
Financial Procedures and Fiscal Accountability Act, 2076 BS (2019) and Regulations, 2077 BS (2020).
Catalogue Shopping Procedure, 2074 BS (2017).
Electronic Procurement Directive, 2080 BS (2023).
Local Government Operation Act, 2074 BS (2017).
Provincial and local-level procurement regulations.
Donor agency procurement guidelines.

Institutional Framework

The institutional structure for public procurement includes:

Public Procurement Monitoring Office (PPMO): Oversees and regulates procurement activities.
Public Entities: Responsible for executing procurement.
Procurement Divisions/Units/Committees: Handle planning and implementation.
Direct Purchase Recommendation Committee: Approves direct procurement.
Procurement Review Committee: Addresses grievances and reviews processes.
Evaluation Committees: Assess pre-qualifications, bids, and proposals.
Technical Proposal Evaluation Subcommittee: Evaluates consulting services.
Committees for Remote Areas: Prepare supplier lists for remote districts.
Rental Rate Determination Committee: Sets rates for property rentals (chaired by CDO).
Ration Cost Approval Committee: Approves ration cost estimates (chaired by CDO).
District Rate Determination Committee: Sets district-level rates (chaired by CDO).

Features of the Public Procurement Act, 2063 BS

The Act provides a comprehensive and independent framework, incorporating:

Unified and broad procurement legislation.
Alignment with international principles and practices.
Promotion of competitive democratic principles.
Applicability to all three tiers of government.
Establishment of PPMO as an independent regulatory body.
Independent review committee to address procedural errors.
Clear delineation of responsibilities.
Code of conduct for procurement officials.
Special powers for procurement-related activities.

Key Provisions of the Public Procurement Act, 2063 BS

The Act outlines the following key provisions:

Defines "public entity" and "procurement" to clarify scope.
Provides guidelines for procuring goods, works, consulting, or other services.
Establishes procedures for all public entities.
Specifies procurement methods, prioritizing open bidding and fair competition.
Outlines stages of procurement processes.
Allows execution through user committees or NGOs.
Provides legal/institutional mechanisms for reviewing procurement actions.
Details contract terms and conditions.
Establishes codes of conduct and penalties for officials and bidders.
Includes provisions for blacklisting and de-blacklisting.
Defines PPMO’s roles, duties, and powers.
Addresses procurement in special circumstances.
Permits use of electronic communication for procurement.

Additional Provisions in the Public Procurement Regulations, 2064 BS

The Regulations further elaborate on:

Procedures for procurement preparation, planning, and cost estimation.
Mandatory purchase of Nepali goods (up to 15% higher cost than foreign goods).
Requirement for Permanent Account Number (PAN) and VAT registration.
Qualification criteria for bidders, contractors, and consultants.
Mandatory open bidding for procurements exceeding NPR 20 million.
Domestic bidding for construction works up to NPR 5 billion.
Detailed requirements for bid documents and technical specifications.
Evaluation committee procedures for bid assessment and approval.
Consulting service procurement procedures.
Direct procurement limits (e.g., NPR 10 million for works, NPR 5 million for consulting services, NPR 25 million for medicines or locally produced goods).
Requirement for at least three written quotations for direct purchases above NPR 1 million.
Procedures for ration procurement, property rentals, user committees, and NGOs.
Detailed contract management and breach remedies.
PPMO’s roles and committee formations.
Mandatory record-keeping for all procurement actions.

Procurement Methods

Public procurement methods vary based on the nature of goods, works, or services:

Procurement Type	Method	Conditions
Goods, Works, Services	International Open Bidding	For complex projects, donor agreements, or when local suppliers are limited.
Goods, Works, Services	National Open Bidding	Preferred method for procurements above NPR 20 million, ensuring equal opportunity.
Goods, Works, Services	Sealed Quotation	For goods/works up to NPR 20 million, medicines up to NPR 50 million.
Goods, Works, Services	Direct Purchase	For small-scale purchases, sole suppliers, or emergencies (limits: NPR 10 million for works, NPR 5 million for consulting).
Works	User Committees/NGOs	For cost-effective, community-driven projects up to NPR 10 million (NGOs) or NPR 100 million (user committees).
Works	Lump Sum Method	For construction works up to NPR 20 million without specific qualifications.
Goods	Buy-Back Method	For replacing outdated equipment with new items from the same supplier.
Goods	Catalogue Shopping	For heavy equipment, vehicles, or medical devices based on official specifications.
Consulting Services	Competitive Proposals	Shortlist-based proposals for services above NPR 2 million; international for above NPR 150 million.
Consulting Services	Direct Negotiation	For services up to NPR 5 million or NPR 20 million with approval and multiple proposals.

Types of Procurement Contracts

Contracts vary based on the procurement type:

Goods and Other Services

Specific Goods/Service Supply Contract
Unit Rate Contract
Multi-Year Contract
Design, Supply, and Installation Contract
Turnkey Contract (Design, Supply, Construction, Installation, Handover)
Design, Supply, Installation, and Maintenance Contract

Construction Works

Unit Rate Contract
Lump Sum Contract
Cost Reimbursement Contract
Time and Material Rate Contract
Design and Build Contract
Management Contract
Performance-Based Maintenance Contract
Piecework Contract
Construction and Maintenance Contract
Turnkey Contract (Construction, Testing, Operation, Handover)
EPC Contract (Engineering, Procurement, Construction, Maintenance)

Consulting Services

Lump Sum Contract
Time-Based Contract
Performance-Based Fee Contract
Percentage-Based Contract
Indefinite Delivery Contract

Contract Terms and Conditions

Procurement contracts must include:

Details of contracting parties (name, address, contact).
Designated contact person for implementation.
Scope of work.
Document details and priority order.
Performance schedule and provisions for extensions.
Contract amount or method of determination.
Acceptance criteria for goods, works, or services.
Payment terms and methods.
Force majeure provisions.
Price adjustment mechanisms (if applicable).
Provisions for contract amendments or variation orders.
Insurance requirements.
Guarantees (e.g., performance, advance payment).
Liquidated damages for delays.
Bonuses for early completion (if applicable).
Contract termination provisions.
Sub-contracting permissions.
Dispute resolution mechanisms.
Applicable laws.

Code of Conduct for Procurement Officials

Officials involved in procurement must:

Ensure fair and impartial competition.
Prioritize public interest.
Avoid conflicts of interest.
Maintain confidentiality of bidder information.
Not work with involved entities for two years post-retirement.
Disclose and recuse from processes involving relatives.
Comply with legal provisions.
Avoid corrupt or fraudulent practices.
Not engage in collusion or cartels.

Note: Non-compliance may result in departmental action.

Direct Procurement Provisions

Direct procurement is allowed under specific conditions:

Small-scale purchases up to specified limits (e.g., NPR 10 million for works, NPR 5 million for consulting, NPR 25 million for medicines or local goods).
Sole supplier scenarios (with Council of Ministers’ approval).
Proprietary replacements or expansions.
Inter-public entity purchases.
International intergovernmental organization purchases at fixed rates.
Emergencies or unique expertise requirements.
Written quotations from at least three suppliers for purchases above NPR 1 million.

Special Circumstances Procurement

In emergencies, procurement can proceed with:

Immediate action to prevent harm to public entities.
Notification to higher authorities with detailed justification.
Competitive or negotiated procurement for fair pricing.
Documentation of emergency details and rationale.
Public notice and PPMO reporting for purchases above NPR 10 million.

Roles and Responsibilities of PPMO

The Public Procurement Monitoring Office (PPMO), under the Prime Minister’s Office, is responsible for:

Recommending policy and legal reforms.
Issuing directives, procedures, and technical guidelines.
Preparing standard bid and contract documents.
Monitoring and inspecting procurement activities.
Developing coordination procedures.
Setting criteria for blacklisting and de-blacklisting.
Conducting post-procurement reviews.
Maintaining records of bidder qualifications and experience.
Issuing e-procurement directives.
Arranging training for procurement staff.
Maintaining a public procurement website.
Certifying procurement experts.
Submitting annual reports to the government.

Strengths of Nepal’s Public Procurement System

Nepal’s procurement system has several strengths:

Comprehensive and specialized legislation.
Clear procedures and methods.
Unified legal framework.
Independent PPMO for oversight.
Code of conduct for officials and bidders.
E-procurement system for efficiency.
Procurement Review Committee for grievance redressal.
Standardized documents for uniformity.

Challenges in Public Procurement Management

Legal Challenges

Loopholes (e.g., misuse of direct procurement for locally produced goods up to NPR 25 million).
Lack of clear penalties for non-compliance.
Single law covering diverse procurement types (goods, services, works).
Inconsistencies in legal provisions (e.g., excessive authority to entity heads).
Exclusion of revenue contracts from the Act.

Practical and Behavioral Challenges

Lack of transparency and participation.
Frequent amendments to regulations for vested interests.
Incomplete integration with IT systems.
Lengthy and cumbersome processes.
Collusion and unethical transactions.
Weak oversight by civil society and media.
Poor governance in user committee projects.
Delays in project completion.
Excessive extensions without justification.
Fragmentation to enable direct procurement.
User committees subcontracting work.
Weak preparation leading to poor contracts.
Ineffective pre-qualification processes.
Undue influence allowing non-performing contractors to secure projects.

Institutional Challenges

Weak PPMO and ineffective monitoring.
Committees limited to formal decisions.
Lack of proactive institutional oversight.
Weak capacity of contractors and suppliers.
Insufficient attention from regulatory bodies.

Procurement Review Committee

The Procurement Review Committee, formed by the Government of Nepal, includes:

Chairperson: Sitting/retired High Court judge or retired Special Class officer.
Members: Retired First-Class Nepal Engineering Service officer and an expert in public procurement.
Term: 3 years, renewable for one term.

Bidders can file grievances if:

Procurements exceed NPR 20 million and the entity head does not respond within 5 days or the decision is unsatisfactory.
Issues arise regarding existing contracts.

Review Process:

File within 7 days (non-response/unsatisfactory decision) or 30 days (contract issues).
Committee requests entity response within 3 days.
Decision within 30 days, including dismissal, cancellation, re-evaluation, or compensation recommendations.

Recommendations for Improvement

Recommendations:

Close legal loopholes and enforce stricter penalties.
Integrate all procurement activities with IT systems for transparency.
Simplify and streamline procurement processes.
Strengthen civil society and media oversight.
Enhance training for procurement officials and contractors.
Enforce robust monitoring and evaluation mechanisms.
Promote competitive bidding and limit direct procurement misuse.
Develop a centralized e-procurement platform.
Strengthen PPMO’s capacity for effective oversight.
Encourage public participation in monitoring procurement.

Conclusion

Nepal’s public procurement system, governed by the Public Procurement Act and Regulations, provides a robust framework for transparency and efficiency. However, addressing legal, practical, and institutional challenges through reforms, digitalization, and enhanced oversight will further align it with international standards and public interest.

References

Public Procurement Act, 2063 BS (2007).
Public Procurement Regulations, 2064 BS (2008).
Financial Procedures and Fiscal Accountability Act, 2076 BS (2019).
Local Government Operation Act, 2074 BS (2017).
Electronic Procurement Directive, 2080 BS (2023).