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Public Procurement System

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Public Procurement System ༄༅།།རྒྱལ་ག筴ང་རꝲས་ཞꝲབ་དབང་འཛིན། Review of Public Procurement System November 2017 DISCLAIMER NOTE The review was confined to the public procurement system and practices in the country. The review was based on the objectives of audit and the programme prepared by the Royal Audit Authority. The findings were based on the information and documents made available by the audited agencies. This is also to certify that the auditors during the audit had neither yielded to pressure, nor dispensed any favor or resorted to any unethical means that would be considered as violation of the Royal Audit Authority’s Oath of Good Conduct, Ethics and Secrecy. REVIEW OF PUBLIC PROCUREMENT SYSTEM NOVEMBER 2017 རྒྱལ་ག筴ང་རꝲས་ཞꝲབ་དབང་འཛིན། ROYAL AUDIT AUTHORITY Bhutan Integrity House Reporting on Economy, Efficiency & Effectiveness in the use of Public Resources RAA/AG-SP/10/2017-18/ 13th November 2017 Hon’ble Secretary Ministry of Finance Thimphu Subject: Report on the review of Public Procurement System Sir, On Command of His Majesty the Druk Gyalpo, the Royal Audit Authority (RAA) has conducted a review of public procurement system in the country. As per the Royal Command, we are issuing a copy of the report on the ‘Review of Public Procurement System’. The review entailed ascertaining the adequacy and relevancy of existing legal and institutional framework, enforcement mechanisms and practices in ensuring the intended objectives of public procurement. The review aimed to ascertain whether the existing procurement rules and regulations allow for innovative practices conforming to highest standards and norms to support the government’s intent of achieving value for money in public procurement. The review was carried out for the period 2012-13 to 2016-17 and included, mainly of procurement of goods and works. The review does not cover procurement of consultancy services as the RAA had carried out a separate review and issued ‘AG’s Advisory Series on Procurement of Consultancy Services 2013’ containing hosts of recommendations for appropriate course of actions. For this review, ten ministries and thirty-two autonomous agencies as shown in Exhibit I were selected based on the size of expenditure incurred on procurement. For the purpose of identifying persistent issues and obtaining better perspective on the practices of public procurement, the RAA also referred past audit reports and many instances and case studies from those reports are included in this report. The RGoB’s Procurement Rules and Regulations (PRR) have undergone significant progressive changes over the years. Corresponding progressive reforms have also been witnessed in institutional framework governing the public procurement, such as establishment of Government Procurement and Property Management Division, Independent Review Board and arbitration award system. The public procurement system in Bhutan embraces some of the international good practices and principles of public procurement. The assessment of public procurement regulatory system in 180 economies by the World Bank Group showed that Bhutan scored 397 performance score out of 600 on certain specified parameters. Correspondingly, the assessment carried out under PEFA 2016 framework also indicated aggregate score of ‘B’, measured based on pre-identified dimensions of public financial management. The reviews by these independent bodies suggest that procurement system in Bhutan are of comparable standards to other high-ranking countries in the world. The e-GP System developed by Ministry of Finance holds huge promise and offers substantial reasons for government to move its purchasing online. It has potential to revolutionize the public procurement system and expected to boost transparency, bolster efficiency and enforcement mechanisms in public procurement. “Every individual must strive to be principled. And individuals in positions of responsibility must even strive harder.” - His Majesty the King JigmeKhesarNamgyelWangchuck P.O. Box: 191 | Kawangjangsa | Thimphu | Bhutan |Tel: +975-2-322111/328729/328730/324961 | Fax: +975-2-323491 Website:www.bhutanaudit.gov.bt | Email: [email protected] and [email protected] Despite significant initiatives and progressive developments, there are still major problems surrounding public procurement. The public procurement is still being perceived as a major area of fraud and corruption, inefficiencies and wastages involving huge public resources. The nature and instances of irregularities and inadequacies observed by the RAA as detailed in the main report provide strong indication of possible risk of public procurements not achieving value for money. The RAA’s study showed that while there is scope for further improving the PRR, there are other factors which influence the effectiveness of public procurement which must also be improved. These include overall soundness of public financial management system, competitiveness of economy, communication system and access to information, integrity, ethics including business ethics and behavior, enforcements and sanctions, corruption control and prevention mechanism, judiciary dispensations on reported cases amongst other factors. Accordingly, the RAA has provided set of recommendations with an aim to enhance greater accountability, transparency and effective implementation of public procurement system. The RAA would appreciate receiving an Action Plan with definite timeframe for implementation of each recommendation on or before 1st February 2018. We would request the MOF to identify officials responsible for implementation of each recommendation and submit the duly filled and signed Accountability Statement (attached) to the RAA along with the Action Plan. In the event of non-submission of the Accountability Statement or responsible officials not identified, the RAA shall fix the responsibility for implementation of the recommendations on the Head of the Agency. The RAA will follow-up implementation of the recommendations based on the timeline identified in the Action Plan submitted by the MoF. Failing to adhere to the timeframe for implementation of each recommendation may result in taking appropriate actions, which may include suspending audit clearances to the accountable officials. The RAA hopes that the Ministry of Finance and the Government would find the report and recommendations useful in further addressing the issues in public procurement. We would once again like to acknowledge the officials and agencies rendering necessary co-operation and support that had facilitated smooth completion of the audit assignment. Yours Sincerely, (Tshering Kezang) Auditor General of Bhutan Copy to: 1. Hon'ble Gyalpoi Zimpon, Office of Gyalpoi Zimpon, Tashichho Dzong, Thimphu for kind information; 2. Hon’ble Chairperson, Anti-Corruption Commission, Thimphu; 3. Secretary, Ministry of Works and Human Settlements, Thimphu; 4. Director General, Bhutan Standards Bureau, Thimphu; 5. Director General, Department of National Properties, MoF, Thimphu; 6. Director, Construction Development Board, Thimphu; 7. Director, Department of Engineering Services, MoWHS, Thimphu; 8. Director, Department of National Budgets, MoF, Thimphu; 9. Director, Department of Public Accounts, MoF, Thimphu; 10. Director, Department of Revenue and Customs, MoF, Thimphu; 11. Chief Program Officer, GPPMD, DNP, MOF, Thimphu; 12. Chief Engineer, Engineering Service Division, MoWHS, Thimphu; 13. Office copy. “Every individual must strive to be principled. And individuals in positions of responsibility must even strive harder.” - His Majesty the King Jigme KhesarNamgyel Wangchuck P.O. Box: 191 | Kawangjangsa | Thimphu | Bhutan |Tel: +975-2-322111/328729/328730/324961 | Fax: +975-2-323491 Website:www.bhutanaudit.gov.bt | Email: [email protected] and [email protected] TITLE SHEET 1. Title of the Report : Review of Public Procurement System 2. AIN : 001-01-14886 3. Audited Entities : Listed in Exhibit I 4. Schedule of Audit : 1stMay 2017–28thJuly 2017 : 1. Tashi Tobgay, Assistant Auditor General 2. Dorji Wangchuk, Assistant Auditor General 5. Audit Team : 3. Minjur Dorji, Assistant Auditor General : 4. Gaza Wangchuk, Dy. Chief Auditor : 5. Kinley Zam, Sr. ICT Officer : 6. Namgay Wangchuk, Audit Officer : 7. Tashi Phuntsho, Sr. Auditor III Chimi Dorji, Deputy Auditor General 6. Supervisor : Bhanu B. Chhetri, Senior Audit Specialist 1 2 ACRONYMS AND ABBREVIATIONS ADB Asian Development Bank ACC Anti-Corruption Commission AFD Administration and Finance Division AIN Audit Identification Number BoQ Bill of Quantities BSB Bhutan Standards Board BSR Bhutan Schedule of Rates BUP Budget Utilization Plan CDB Construction Development Board CiNET Construction Industry Information System CPWD Central Public Works Department of India CRPS Contractor Registration and Performance System DGM Department of Geology and Mines DNB Department of National Budget DNP Department of National Properties DPA Department of Public Accounts DPR Detailed Project Report e-GP Electronic Government Procurement FAM Finance and Accounting Manual FRR Financial Rules and Regulations FY Financial Year GCC General Conditions of Contract GPMD Government Performance Management Division GPPMD Government Procurement and Property Management Division IRB Independent Review Body LMC Labour and Material Coefficient 3 MoF Ministry of Finance NIT Notice Inviting Tender NLCS National Land Commission Secretariat OECD Organization for Economic Cooperation and Development PEFA Public Expenditure and Financial Accountability
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