Public Procurement Reform and Modernization in Sri LANKA

07/22/15
Beijing, China 15 – 16 October, 2010
1
Public Procurement Reform and
Modernization in Sri Lanka
By.By.
Veluppillai MohanVeluppillai Mohan
15-16 October 201015-16 October 2010
Beijing , ChinaBeijing , China

ABSTRACT
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Beijing, China 15 – 16 October,

1. This objective of this paper is to contribute to improved capacity in
the conceptualization of public procurement reform and
modernization in Sri Lanka after Tsunami disaster in 2004 with
the implementation of environmental and social considerations in
procurement, in line with internationally accepted principles and
practices to recover the economy
2.A well functioning procurement system ensures; better value for
money, increased efficiency and effectiveness of delivery, reduces
the potential for corruption, positive impact on a country’s
investment climate, non-discriminatory practices, transparency
and accountability. Sustainable procurement is a key indicator of
governments’ commitment to sustainable development.
3.Achieving sustainable development in practice requires that
economic growth supports social progress as well as respect for
the environment, that economic performance reinforces social
equity, and that environmental policy is cost- effective without
compromising the livelihood of future generations
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2010

Introduction
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Sri Lanka

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Tsunami Disaster In Sri Lanka
on 26th
December 2004

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• TSUNAMI DISASTER IN SRI LANKA

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• Tsunami Affected Areas in Sri Lanka

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• Affect of Tsunami Disaster in Sri Lanka

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Types Affect (Number/Cost)
•Fatalities •35,322 people
•Injured •21,441 people
•Widowed, orphaned, affected elderly and
disabled
•40,000 people
•Internally displaced people (IDPS) •516,150 people
•People who lost their source of livelihood •150,000 people (75% of the total fishing
fleet)
•Value of lost assets •$ 900 million
•Houses destroyed •88,544 No
•Schools destroyed or damaged •168 public schools, 4 universities, 18
vocational centers
•Schools used as camps for IDPs •446 No
•Schoolchildren affected •200,000 No
•Health facilities destroyed or damaged •97 No
•Tourism Infrastructure damaged •53 large hotels, 248 small hotels, 210 small
enterprises
•Cultivated arable land affected by salinity •23,449 acres
S
2010

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DAMAGES CAUSED BY TIDAL WAVE (TSUNAMI) TO ROAD
SECTOR Road Status ID No.
Sourthern Province
Colombo-Galle-Hambantota-Wellawaya
Road (A2)
Akurala Bridge Damaged 01
Seenigama And Hikkaduwa Section (96-99km) Breached (30-40 m long) 02
Magalle Bridge Damaged 03
Goiyapana Bridge Damaged 04
Weligama Bridges 2 Nos. 145/3 & 145/5 Damaged 05
Dondra Bridge (No.166/1) Approaches Damaged 06
Talalla Bend Damaged 07
North-East Province
Ambepussa-Kurunegala-Trincomalee Road (A6)
197th km
Retaining wall (20m) damaged. The road is
passable
08
Trincomalee - Pulmoddai Road
22nd km -Salappawaru Bridge
Approach (200m) washed off. The road is
impassable
09
Beach Road
1st km
Culvert damaged. Half the carriageway
(75m) washed off. The road is passable
10

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Road Status ID No
Batticaloa-Trincomalee Road (A15)
116-121 km Washed off 11
126th km
Half the carriageway (100m) washed off.
The road is passable.
11
Thampalakamam-Kinniya Road
Causeway damaged 12
Colombo-Ratnapura-Wellawaya-Batticaloa Road
334/1 Bridge (Komari Bridge) Collapsed 15
375 km Washed off 14
394 km Damaged 13
394/1 culvert Washed off 13
394/2 Washed off 13
395/1 Washed off 13
396/3- Periyakallar bridge cum causeway Washed off 13
398/1- Koddaikkallar bridge cum causeway Washed off 13
409/5 & 410/1 Culverts Washed off 13
412 & 415 km Part of the carriageway is damaged 13

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Road Status ID No
Batticaloa-Trincomalle Road (A15)
42/1 Bridge Bailey Bridge damaged 16
46-59 km Damaged 17
59/1 Bridge (Pannichchankeni) Washed off 18
Bar Road
4/2 Bridge Washed off 20
5/2 Bridge Damaged 21
3-5 km Damaged 21
Pottuvil-Panama Road
Bridge No:3/4 (Arugambay) Damaged 23
Peradeniya-Badulla-Chenkaladi Road
282/2 Bridge Damaged 33
North -East (North) Province
Paranthan - Mullaitivu Road
48-52 13 km & 50/1 Causeway Damaged 24
Beach Road
0.9 km Washed off & still submerged 25

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Road Status ID No
Mankulam-Mullaitivu Road
42-49 25 km Damaged 26
Soranpattu-Thalayadi Road
6.5-7.2 km Damaged 27
Point Pedro Maruthankerny Road
19-30 km 28
East Coast Road
0-8 - 4.74 km 29
Jaffna-Ponnalai-Point Pedro Road
42.6-55.4 km Damaged 30
Point Pedro Maruthankerny Road
0-8-4 km Damaged 31
Mullaitivu-Kokkilai Road
0-16 km Damaged 32
18/1 Bridge (Nayaru)

Remedial Action by GOSL for the “Plan to Rebuild Sri Lanka”
• Rapid Income Recovery Programme for SL
1.Involving Protection for who cannot work
2.Comprising Jobs or training for who can work.
3. Comprising support for the revival of small
enterprises.
All Inter ministerial focus group formed for enhanced
employment initiatives in the infrastructure sector has
been established to take forward the 2 and 3 component.
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Remedial Action by GOSL for the “Plan to
Rebuild Sri Lanka” (Contd.)
• Income generation within the components for people
who can work is justified by: a) the need to provide
immediate and longer term employment and
enterprise opportunities for the tsunami affected
population now out of work; and b) the broader need
to contribute to poverty reduction.
• Focus Group is to ensure that all GOSL bodies in
infrastructure reconstruction use an optimal mix of
local resources during the process so as to maximize
opportunities for employment of low income and other
affected groups.

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Remedial Action by GOSL for the “Plan to
Rebuild Sri Lanka” (Contd.)
The income generation strategy for the RIRP envisions two phases ;
1. immediate social protection needs through Short term employment by
means of Labour-Intensive (LI) techniques (labour and hand-tools
only) which are essential but restricted to a narrow range of works.
2. comprising work which will be recurrent under regular budgets of the
infrastructure Ministries where by shifting wisely and carefully from
the current conventional equipment-based work methods to more
Labour-Based (LB) techniques (where there is a shift in balance
between labour and equipment in the way the work is specified and
executed) for selected works components, it will be possible to realize
significant numbers of new jobs without compromising on the quality
on the works or without affecting the timelines and costs of the works

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LITERATURE REVIEW

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Public Procurement
The acquisition of works, goods and services on
the best possible terms - has historically been
based on two criteria, price and quality, with a
view to maximising benefits for the procuring
organisation (Procurement Entity) along with
value for Money considerations.

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Public Procurement Objectives
(a) Maximizing economy, timeless and quality resulting in least cost together
with the high quality,
(b) Adhering to prescribed standards, specification, rules, regulations and good
governance,
(c) Providing fair, equal, and maximum opportunity for
eligible interested parties to participate in procurement,
(d) Expeditious execution of works and delivery of goods
and services,
(e) Compliance with local laws and regulations and
international obligations,
(f) Ensuring transparency and consistency in the
evaluation and selection procedures; and
(g) Retaining confidentiality of information provided by
bidders.

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What is sustainable development?
Sustainable development
is about “… meeting the needs of the present
without compromising
the ability of future generations
to meet their own needs.”
• Source: World Commission on the Environment and Development, Brundtland Report 1983

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Primary Objectives of Sustainable
Procurement
• Procurement in the public sector should take
place with the minimum of environmental
impact and with respect for fundamental
workers’ rights and human rights and
Environmental and ethical/social considerations
in public procurement shall contribute towards
an efficient public sector and a competitive
business sector

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Sustainable Procurement is procurement that integrates
requirements, specifications and criteria that are
compatible and in favour of the protection of the
environment, of social progress and in support of economic
development, namely by seeking resource efficiency,
improving the quality of products and services and
ultimately optimizing costs. (immediate and life cycle
based).
Definition of SP
2010

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SD wants to bring together:
... respecting the rules of good governance
Social progress:
Human development,
rights, education,
reduction of poverty
and inequality, security
and social inclusion
Social progress:
Human development,
rights, education,
reduction of poverty
and inequality, security
and social inclusion
Economic
sustainability:
Economic growth, full
employment,
effectiveness, integration
of social and
environmental costs
Economic
sustainability:
Economic growth, full
employment,
effectiveness, integration
of social and
environmental costs
Environmental
balance:
Preservation of natural
resources, ecosystems,
biodiversity; reduction
of the ecological
footprint
Environmental
balance:
Preservation of natural
resources, ecosystems,
biodiversity; reduction
of the ecological
footprint
The three pillars of SDThe three pillars of SD

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Criminal Law
Environmental
Legislation
Social Legislation
International
Legislation
(Env/Social/Proc)
Procurement
Legislation
Fiscal LegislationNational
Legal
Framework
for SP
National Legal Framework for SP
National SD
Priorities
National SD
Priorities
National SD
Priorities
National SD
Priorities

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Integrating SustainabilityIntegrating Sustainability
Concerns in the various steps of theConcerns in the various steps of the
Procurement CycleProcurement Cycle

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Strategy/Action Plan for SRPP
Presentation issues
Main actions purchasers can undertake to introduce social/
environmental issues at the key stages of the procurement cycle:
Identifying the need
and planning the
proc action
Monitoring &
Evaluating
Defining Contract
Requirements
Selecting
Suppliers Awarding the
contract
Administering
contract execution

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Identification of Need
Key stage to
consider social/
environmental
impacts
Be aware of social/
environmental
agendas/obligations
and possible fit with
your procurement
Be aware of
legislative
requirements e.g.
the Race Relations,
Discrimination Acts,
Landfill Tax
Can you:
• Rethink?
• Eliminate?
• Reduce?
• Re-use?
• Re-cycle?
• Dispose?
Apply the test
of affordability
and cost
effectiveness
What are the
benefits/costs
using
procurement
in this way?
Ensure Procurement practices are open to bodies like SMEs and voluntary
organisations

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 It is about what the organisation wants to procure
 Key stage at which sustainability considerations should take
place
 … However, need, affordability and efficient and effective use of
financial resources must be considered
 Normally performed by technical staff and internal customers
(budget holders)
Identify the Needs

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Bringing Environmental and
Social Factors into Need (cont’d)
• Users  knowledge of the market
 knowledge of potential
environmental/social impacts and
relevant regulations and legislation
 knowledge of products/services;
influence on the development of
new products/markets
 information on alternative
products/services, alternative
means of delivering functionality
Those who might be involved in identifying needs include:
• Procurement managers
• First and second tier
suppliers
• Environmental/Supply
Chain/HR managers

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Role of the Procurement Function
• Procurers need to:
– Be aware of social/environmental policy priorities and
legislation
– Appreciate the social/environmental implications of the
products they buy
• Sources of information:
1. Environmental/social expertise in the Organisation
2. Suppliers
3. External sources of environmental/social information
(Trade Unions, Government Bodies, etc.)

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…….Wider Thinking
 Think in terms of solutions to problems not to products
 This will allow you to find environmentally/socially preferable solutions
to problems rather than using products implying predetermined
solutions
Identify the Needs (cont’d)
Some Examples:
1. Purchasing new fax machines or providing users with IT facilities to fax
from their computers
2. Negotiating waste management contracts for packaging waste or
working with suppliers to introduce returnable packaging for delivery of
the products supplied

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Engaging with Suppliers
 SMEs, Woman and Disadvantaged-owned business should be
helped to increase their participation in public contracts
– They operate in key public services
– They are well placed to provide public services in hard to reach areas
 How to achieve this?
1. Training programs, workshop and seminars on
how to complete TDs
2. Dissemination of information on procurement
opportunities at local level
3. Include the SME sector when testing the market

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Specification
Ensure that
specifications…
Are relevant e.g. contribute
to characteristics of the
product or service, and
reflect all applicable
social/environmental
requirements
• Respect rules
on use of
standards
• Are transparent
and non-
discriminatory
Could
you….
Use
performance-
based
specifications?
• Use criteria from eco-
labels?
• Use Production
Process with less social
risk?
Use variants
to encourage
innovation?
Is it appropriate to
reserve for
supported
employment?

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Specifications
 Environmental/social issues can be part of the specifications
provided they:
– Are relevant to the requirement
– Respect the rules on use of standards
– Do not restrict competition and participation of SMEs in the process
– Meet the test of need, affordability and cost-effectiveness
 Articulate the user requirements so that
suppliers know what is needed
 Provide measurable requirements against
which offers can be evaluated

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 PEs are free to specify in terms of
performance
Performance Based Specifications
Ex: Using performance based specs for procuring heating/ventilation
systems for office spaces
 A performance based approach:
– focuses on the outcome/functionality desired
– gives the opportunity to be more innovative and to
find the most cost-effective environmental/social
preferable solution

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 What a product is made of and how it is made can form
part of the specs
Specific Materials and
Production Processes
Ex: Specifying renewable energy, sustainable timber
 However, specific materials and production processes
should link to the subject matter of the product
1. Specific materials: right to specify preferred materials (recycled
materials)
2. Production process: right to include requirements on production
method

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Variants to encourage
innovation
 It is possible to define one/more options with higher
environmental/social performance in addition to basic option
 At the award stage the purchasing entity can decide which option
best meets its needs
 This should be based on criteria made clear in the STDs
 Acceptance of variants should be disclosed in contract notices

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Tender Evaluation
Social/Environm
ental award
criteria can be
used provided
they …
Are relevant to the
subject of the
contract
Are consistent with the
fundamental principles
of transparency, equal
treatment and non
discrimination
Are consistent with
criteria allowed by
international
regulatory framework,
where they apply
Help identify the
bid that represents
BVM from the point
of view of the PE

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 At this stage of the process PEs evaluate the quality of the
tenders and compare prices on the basis of:
– Lowest price alone
– Best value for money (BVM)
 BVM is the “optimum combination of whole-life-costs and
quality to meet the user’s requirements”
 BVM allows the use of environmental criteria
 The extent of use of social criteria depends on the procurement
regime and memberships in international/regional agreements
Tender Evaluation

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Award criteria must be:
Award Criteria
2. Do not confer unrestricted freedom of choice on the PE
 should be clear, product-related and measurable
1. Relevant to the subject of the contract
 should relate to the intrinsic qualities of each bid and not to
secondary issues (i.e. local development)
 should relate to the technical specifications

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Award criteria must:
Award Criteria (cont’d)
3. Be advertised previously
 in contract notices/STDs
 should be listed in descending order and relative weighting
should be given
4. Respect Community Law
 principles of non-discrimination/transparency/equal-
treatment should be respected
5. Be distinct from selection criteria
 The criteria used for selection and award should be distinct

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The Life Cycle Costing Approach-three stages
1. Purchase and all associated costs
• Purchase
• Delivery
• Installation
• Commissioning, etc.
2. Operating costs
• Energy
• Spare Parts
• Maintenance
3. End-of-life costs
• Decommissioning
• Removal
Examples of Award Criteria
Purchase &
associated cost
Operating costs
End-of-life costs
cost
time

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Use of Life-Cycle Costing to promote Environmental
Objectives
 Savings on use of water, energy and fossil fuels
– Their costs are easy to calculate and have clear economical
aspects
 Savings on disposal costs
– Can range from the cost of physical removal to paying for
secure disposal
– If not taken into consideration, a bargain can turn into an
expensive purchase
Ex: Planning the Disposal Phase -
the building sector

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Contract Management and Review
Ensure that
contract
conditions
are…..
1. Relevant to the
performance of the
contracts and the
achievement of BVM
2. Not disguised
technical
specifications,
selection or award
criteria
4. Included in
contract
notices or
tender
documentation
3. Compatible with
international
regulatory
framework, where
applicable
Where possible work with supplier for
continuous improvement
Where
appropriate
pass on public
sector
obligation to
supplier

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Contract Management and Review
 Contract conditions relate to the performance of the contract
 They specify how the contract should be carried out
 They provide wide scope for addressing the environmental and
social impacts
 Working with the supplier during
contract performance is crucial to the
achievement of sustainability objectives

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Contract Conditions and
procurement policy
1. Contract conditions should:
 Be relevant to the subject of the contract
 Not add requirements that do not bring a proportionate
benefit
 Be disclosed in advance (tender notices, STDs)
 Not be disguised Technical Specs, award criteria,
selection criteria
2. Suppliers must accept the Contract T&C in order to be awarded the
contract
3. Contract T&C must be compatible with international/regional legal/
regulatory frameworks for PP

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Contract Conditions: use of
disadvantaged people
 Contract clauses can stipulate that a successful
tenderer must employ:
– A certain percentage of long-term unemployed, apprentices,
handicapped people and other disadvantaged groups
 … however benefits must be weighed up against
additional costs, including restriction of the supplier
base

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Ex of Environmental Contract Clauses
Transport of
products and tools to
the site
• Delivery of products to the site in concentrated form and then dilution
on site
• Use of reusable containers to transport products to the site
• Delivery of products in bulk and outside peak traffic times
How the service is
performed
• Use of dosage indicators to ensure that appropriated quantities of
cleaning products are used
Disposal of used
products or
packaging from
products
• Products or packaging taken away for reuse, recycling or appropriate
disposal by the contractor
Training of
contractor staff
• Staff trained in the environmental impact of their work and the
environmental policy of the authority in whose buildings they will be
working

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Ex of Social Contract Clauses
Engagement of staff
and labour
• Arrangements for the engagement of all staff and labour, their
payment, feeding, transport, housing
• Employment of local staff with appropriate skills and experience
Rates of wages and
conditions of labour
• Payment of rates of wages and observance of conditions of labour
not lower than those prevailing in the trade sector or industry where
the work is carried out (ILO Conv. 94)
• Information of Contractor’s personnel about their liability to pay
personal income taxes under the laws of the Country, and the
performance of Contractor’s duties in relation to deductions thereof
imposed by Country Law
Persons in the
service of employer
• No recruitment, or attempt to recruit, Employer’s staff
Labour Laws • Abeyance to all labour Laws applicable to the Contractor’s personnel
(H&S, immigration, legal rights, welfare, etc.)
WB “Master Document for Procurement of Works” 2006

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Working Hours • Prohibition to carry-out work outside the working hours stated in the
contract
• Statement of exceptions in the contract, and consent of the Engineer
Facilities for
Staff and Labour
• Provision of accommodation and welfare facilities for the Contractor’s
Personnel
Health and
Safety
• Precautions for maintenance of Contractor’s personnel H&S
• Appointment of an accident prevention officer at the site and reporting on
H&S conditions
• HIV-AIDS prevention
Contractor’s
Superintendence
• Provision of superintendence to plan, arrange, direct, manage, inspect and
test the work.
Contractor’s
Personnel
• Skills, experience and qualification requirements for Contractor’s
personnel

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Disorderly
Conduct
• Precautions to prevent any unlawful, riotous or disorderly conduct by among
Contractor's personnel and to preserve peace and security of persons and
property on and near the site
Foreign
Personnel
• Provision of residence visas and work permits to foreign personnel and
respect of applicable laws
• Arrangement of return to their domicile or place where recruited
Supply of
foodstuffs and
water
•Arrangement of a sufficient supply of suitable food at reasonable prices
•Provision of adequate supply of drinking and other water
Measures
against insect
and pest
nuisance
• Provision of superintendence to plan, arrange, direct, manage, inspect and
test the work.
Alcoholic liquor
or drugs
• No provision, disposal, barter, import of alcohol and drugs, except than if
otherwise provided by the Country Law

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Arms and
Ammunition
• Prohibition to give, barter, dispose of any arms and ammunition of any
kind
Festival, Religious
Customs
Funerals
• Respect of the Country’s festivals, days of rest and religious or other
customs
• Responsibility for arrangements of funerals for local employees who may
die while engaged upon the Works
Prohibition of
Forced, Compulsory
Labour
• Prohibition to employ any forced or compulsory labour
Prohibition of Child
Labour
• Prohibition to employ child labour
Employment
Records
• Skills, experience and qualification requirements for Contractor’s
personnel
• Reporting on Contractor’s personnel and equipment employed

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Monitor and Control
 Monitor supplier performance and compliance with contract
conditions related to social and environmental objectives
 Assess the impact of the procurement action upon the target
area over a pre-determined time period
 Undertake review of targets/objectives and feed lessons
learned back into your SP strategy
 Share information on achievements and future targets inside
the organization and with the business community and other
stakeholders

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EMERGING NEEDS OF TSUNAMI AFFECTED SRI LANKA
The role of Sustainable procurement in implementing the
Rapid Income Recovery Programme RIRP .
1) The first priority is the re-construction of houses and
related services in the tsunami affected areas and the
construction of new houses and related services and the
envisaged site clearing operations should the planned
100m “house free” zone from the sea be declared,
2) There a number of employment intensive low volume
gravel road projects and
3) There is an increasing demand for surfaced roads

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RESULTS/OUTCOMES THROUGH
FOLLOWING AGENCIES FUNDED PROJECTS
OF THE TSUNAMI AFFECTED AREAS
THROUGH SUSTAINABLE PROCUREMENT
1. World Bank(WB)
2. Rebuilding Community Infrastructure
& Shelter Project – Japanese.
3. Spain funded
4. USAID
5. Asian Development Bank (ADB)
Project
6. Trincomalee Integrated Infrastructure
Projects (TIIP).

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RESULTS/OUTCOMES OF THE TSUNAMI AFFECTED AREA PROJECT
• WATER
SUPPLY
SCHEMES
New BRIDGES
HOUSING SCHEMES
FISHING
HARBOUR
SCHOOLS

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RESULTS/OUTCOMES OF THE TSUNAMI AFFECTED AREA PROJECT
ROADS PROJECTS

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RECOMMENDED ACTIONS
When buying products, to reduce the social and
environmental impact of purchasing decision.
• Fit for the purpose and value for money
• Biodegradability-
• Design for disassembly-
• Minimum use of virgin and non-renewable materials
• Resource Efficiency-Running
• Fault controls to prevent unnecessary
• Health and safety standards-
• Local production-
• Maximum durability, reparability, reusability, recyclability and upgradeability-
• Minimum packaging
• Maximum use of post-consumer materials -
• Non (or reduced) polluting with minimum use of toxic chemicals, CFCs, ozone
and other pollutants-
• Ethically sourced

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CONCLUSIONS
• Met Sri Lanka’s Needs Fulfilling the duty requires an
integrated approach to pursuing economic, social
and environmental well-being and all three
components are central to success.
• Progress has been made and there are initiatives
which have reduced environmental impact and
saved money.
• To achieve value for money, procurement decisions
need to be based on a thorough understanding of
costs and benefits along with social and
environmental impacts.

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Benefits
1. Reduces adverse environmental impacts arising from
Government procurement action, waste to landfill, saves
water, reduces greenhouse gas emissions, decreases air
and water pollution, saves money through re-using
materials and products, and reduces consumption of both
natural and processed resources. Ensures the health and
safety of the community.
2. Makes more efficient use of public resources. Reduces
costs through greater energy efficiency, reduced waste
disposal, and reduced risk management. Lowers the cost
for products over their life cycle
3. Stimulates the local and global markets to innovate and
produce more sustainable products and services
4. Demonstrates governments are committed to achieving
sustainable development objectives.

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Barriers
1.habit and the difficulty in changing procurement
behaviour,
2.lack of suppliers of sustainable assets, suppliers or
services,
3.complexity of comparing costing/value for money
assessments,
4. the difficulty of including factors broader than
environmental considerations, and
5. a perception that the process and outcomes are
more costly or time consuming.

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Drivers
• 1. effective organization wide policies to ensure that everyone
is aware of the strategy,
• 2.training and guidance to help all of those involved in
procurement to understand sustainable procurement and
whole life costing;
• 3.regular audits and monitoring to assess where your
organization is in the context of sustainable procurement and
where you could make further progress in this area
commitment to sustainable development as an organizational
policy
• 4.supporting and educating suppliers/creating markets linking
up with other organizations to learn from their experience and
• 5.pooling procurement by forming procurement consortium
where relevant.

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65

THANK YOU

THANK YOU

Public Procurement Reform and Modernization in Sri LANKA

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