Engineering Economics &

Construction Management
Lecture - 01

Aqsa Shabbir
Department of Civil Engineering
What is procurement ?
 It is a critical element of project implementation and is
defined as the act of obtaining equipment, materials, or
supplies.
 Susan Rose-Ackerman, (1999) divides procurement into
four categories:
 Purchases that require specialised research and development,
such as newly designed military aircraft.
 Purchases of complex, special purpose projects, such as
dams or port facilities, that do not involve advances in
technology, but require managerial and organisational skills.
 Purchases of standard products sold in open markets, such as
motor vehicles or medical supplies (off-the shelf purchase).
 Customised versions of products otherwise available in open
markets, such as special purpose computer systems or fleets of
police cars.
What is procurement ?
 With regard to civil engineering works, it is
defined as acquisitions of all type of public
goods and services that essentially include
purchase in three areas:
1. Contracts for Construction Work
2. Contracts for Purchase of Goods and
Equipment
3. Hiring of Consultants for Design and
Construction Supervision
Traditional Procurement

In traditional procurement:
 usually the government specifies the
quantity and quality of the services
required, while the asset is constructed
by the private companies to whom the
construction is typically awarded through
tender. Once the construction is finished,
the asset is transferred to and operated
by the government.
Public-Private-Partnership (PPP)
for Procurement

 This is “an agreement between the government

and one or more private partners (which may
include the operators and the financers)
according to which the private partners deliver
the service in such a manner that the service
delivery objectives of the government are
aligned with the profit objectives of the private
partners and where the effectiveness of the
alignment depends on a sufficient transfer of
risk to the private partners”(OECD, 2008:21).
Regulatory Framework for Public
Procurements in Pakistan
 It consists of:
 Regulatory Bodies (e.g. Pakistan Engineering Council
- PEC, Public Procurement Regulatory Authority -
PPRA, National Electric Power Regulatory Authority –
NEPRA etc.)
 Codes of Practice

 Regulatory Guidance

 A clear and comprehensive regulatory framework is

important for establishing and implementing transparent
and fair procurement practices. In the absence of a
comprehensive regulatory regime, all types of
manipulations for corrupt ends may occur and prevention
strategies may be difficult to enforce.
Pakistan’s Legal & Regulatory
Framework - 01
 Pakistan is a federation which consists of one federal and
four provincial governments. Public procurement rules
and regulations are different at federal and provincial
levels.

 Before adopting present ‘modern’ practices, the whole

public procurement system was governed by the General
Financial Rules of the Central Government along with two
Manuals each dating back to the colonial era namely,
 The Purchase Manual

 The West Pakistan Building and Roads

Department Code
Pakistan’s Legal & Regulatory
Framework - 02

 In 1999/2000, the World Bank completed the country’s

first procurement system’s assessment which
recommended a number of actions including the
establishment of a Regulatory Authority.
 The procurement system at a national level was
revamped in 2002 when Public Procurement Regulatory
Authority Ordinance was passed via presidential order.
This is now considered as the principal legislation in force
for the regulation of public procurement in Pakistan.
 The Public Procurement Rules which support this
ordinance were finalized in 2004 along with the
establishment of the Public Procurement Regulatory
Authority.
Pakistan’s Legal & Regulatory
Framework - 03
 The Public Procurement Regulatory Authority (PPRA) is
an independent body and is responsible for monitoring
procurement activities by public sector organizations.
 PPRA is responsible for developing procedures and
regulatory guidelines for all kinds of public procurement
at federal level made with public funds.
 The Public Procurement Rules (PPR) 2004 are largely
applicable to procurement of goods and works and do not
explicitly mention about services in particular consulting
services.
 For funded projects, procurement rules and regulations of
donors prevail local procurement rules and regulations.
Pakistan’s Legal & Regulatory
Framework - 04
 PPRA also has the authority to exempt procurement of
an object or class of objects from the application of its
rules and regulations.
 There are many public procurement organisations which
do not follow PPRA and have developed department
specific rules and regulations. This information
asymmetry empowers government officials in applying or
ignoring the rules at their discretion thus reducing
process objectivity and transparency.
Procurement Planning and Project
Appraisal Process in Pakistan - 01
 PPR (2004) do not cover procurement planning rules, instead
the country’s Budget Rules provide for them.

 Project Funds Availability

 On the announcement of Pakistan’s annual
development budget, the Planning Commission of
Pakistan seeks the details and priorities of the projects
(whether ongoing or new) to be funded by the
allocated amount of development budget from the
federal and provincial procurement organisations.

 Therefore, the priorities of the projects are determined

according to the available size of the development
budget instead of procurement plans being reflected in
the budget.
Procurement Planning and Project
Appraisal Process in Pakistan - 02
 Project Funds Availability

 The availability and continuity of project finance is

necessary for it’s on time and within budget completion.

 The allocations for on-going projects are also adjusted

to create space for new initiatives and fund releases are
further slowed down to respond to the political
pressures for new initiatives.

 The system of annual budgeting encourages the use of

bribery to speed up the process in order to avoid
potential delays in project funds availability especially
for ongoing projects.
Procurement Planning and Project
Appraisal Process in Pakistan - 03
 Economic and Financial Appraisal/Assessment
of Projects

 It is the responsibility of the Planning Commission (PC)

of Pakistan to plan, appraise, approve and monitor all
development schemes in the country.

 Financial appraisal of a project provides an estimation

of cash inflows and outflows, whereas economic
appraisal looks into the social benefits of the project.

 The initiation and preparation of a project is the

responsibility of procurement/sponsoring agencies at
both, federal and provincial levels.
Procurement Planning and Project
Appraisal Process in Pakistan - 04

 Economic and Financial Appraisal of Projects

 Appraisal methods have various shortcomings which

include; over-estimation of the benefits and under-
estimation of project costs to get it approved initially as
a project with the least cost and then subsequent
allocations are made.

 The non-statutory frameworks for public procurement

currently in force do not have a built-in “PPP Option
Analysis” i.e. it is not mandatory to demonstrate that a
PPP Option has been considered and found not
feasible before approval of a project .
Procurement Planning and Project
Appraisal Process in Pakistan - 05

 Economic and Financial Appraisal of Projects

 The Planning Commission screens, reviews and

proposes potential PPP projects from the Public Sector
Development Programme (PSDP) which should actually
be done by the procurement agencies. Thus, the public
procurement organisations have no thirst to apply their
mind to the possibility of infrastructure service delivery
through PPP arrangements.
 The institutional framework for pre-approval appraisal of
all proposed schemes and respective approval ceilings

Sanctioning Authorities by Size of Project

Ceiling
Statutory Body Limitation
(PKR Mln)
Provincial Departmental
Projects Foreign Funded or requiring Foreign 40 (In Punjab Rs. 200
Development Working
Exchange to be referred onwards million)
Party (P-DDWP)
Provincial Development Projects Foreign Funded or requiring Foreign
50
Working Party (PDWP) Exchange to be referred onwards

Federal Departmental Development Projects Foreign Funded or requiring Foreign

60
Working Party (F-DDWP) Exchange to be referred onwards

Central Development Working Party (CDWP) Federal and Special Area Projects 1,000

Concept Clearance Committee (CCC) Provincial Projects 5,000

Economic Committee of the National
Provincial and Special Area Projects >1,000
Economic
Council (ECNEC) Provincial Projects >5000
Source: Planning and Development Division, Government of Pakistan
Choice of Procurement Method - 01

 The choice of an appropriate procurement method determines

whether the procurement process has been carried out to
ensure economy, efficiency, transparency and accountability.

 The standard procurement method for contracts value more

than PKR 100,000 is competitive bidding; whereas direct
purchase is permitted for contract value not exceeding PKR
25,000, and negotiated procedures are available for contract
value not exceeding PKR 40,000.

 There are no rules to specify the applicability of these methods

to the specific level of procurement as the value limits can be
exceeded by the government on the request of relevant
procurement department.
Choice of Procurement Method - 02

 Direct or sole contracting and negotiated procurement is

permitted in the case of emergency or extreme urgency,
however, the circumstances which constitute an emergency
are not prescribed.
Bidding Documents
 In the absence of mandatory use of standard bidding
documents developed by the PEC, procurement agencies have
modified them according to their requirements, creating their
own guidelines and manuals. This has reduced transparency
and created non-uniformity of bidding documents at different
levels.

 The PEC bidding documents are limited to works and

engineering services only and need to be updated according to
the International Federation of Consulting Engineers (FIDIC)
conditions.

 Where a project is financed though international funding or a

donor agency, PPRA requires use of bidding documents of a
donor agency, but the use is not mandatory and depends on the
procurement personnel’s discretion.
Procurement Advertisement
 The timely advertisement of procurement opportunities helps in
reducing corruption by attracting a higher number of bidders
thereby increasing the chances of receiving responsive bids
while reducing the risk of bidders’ collusion and opportunities for
favouritism.

 According to PPR (2004), it is required, and in some cases

mandatory, to advertise tender opportunities on the PPRA
website or on the procurement agency’s website, or in print
media, or in all beyond certain contract value limits unless
otherwise advertising risks the national security on sensitive
purchases in, for example, the case of defence purchases.

 Where it is required to publish tender opportunities in the media,

the adverts are required to be printed in two national
newspapers, one in Urdu and one in English .
Bidding Period

 For national competitive bidding, a minimum period of 15

working days whereas for international competitive bidding, a
minimum period of 30 working days is mandatory by PPR
(2004).

 However, procuring authorities have the authority to determine

the bidding period on the basis of the complex nature of the
project. This authority with procuring organisations may be
abused in giving unrealistic bidding period deadlines to
discourage more participation while the favourite bidder had
prior notice to prepare a responsive bid.
Bid Opening

 Good procurement practices require bids opening at a

designated time and place in the presence of all bidders or their
proxies.

 PPR (2004) require bids opening ideally in public or at least in

the presence of bidders or their representatives on the day the
tender period ends in order to avoid the disclosure of
confidential inside information on the lowest bid, or any
alterations, manipulations, destruction or misplacement of
tender documents at an early stage.

 There are no rules and provisions by PPR (2004) on bid

opening immediately after the end of the tendering period,
which is potentially vulnerable to corruption
Prequalification, Qualification and
Disqualification - 01

 Good practice requires pre-qualification based on transparent,

well-defined and well-publicized guidelines.

 PPR (2004) provide detailed procedures of pre-qualification but

no guidelines are established for clarity.

 Federal public procurement organizations are also autonomous

in the development of the conditions for pre-qualification.

 Procurement agencies do not maintain an eligible contractors

list but companies which are not registered with the PEC are
barred from overall participation.
Prequalification, Qualification and
Disqualification - 02
 Traditionally pre-qualification is based on bidder’s technical and
financial capacity and past performance in doing similar
projects.

 However, this criteria is criticised on considering past-

performance in similar projects which leads to favouritism and
contractor’s monopoly.

 Bid evaluation is considered to be the most difficult step to carry

out in the procurement process and one of the easiest steps to
manipulate for corrupt ends.

 According to PPR (2004) the contract will be awarded to the

‘lowest evaluated bid’, unless the bid is in conflict with federal
Government policies, laws, and regulations.
Prequalification, Qualification and
Disqualification - 03

 The lowest-bid wins criteria is criticised for inviting high

competition and delivering low performance as it pushes the
contractors to concentrate on cutting bid prices from all corners.

 The low-bidder as contractor mostly exhibits poor performance,

particularly in terms of extraordinary claims and disputes,
employing third-grade human resources and showing technical,
managerial and financial incompetence on the project.

 Also, the bidders initially submit low bids but later-on, during the
process compensate their cost through inflating variation
orders.
Prequalification, Qualification and
Disqualification - 04

 It is mandatory for procurement authorities to include evaluation

criteria in bidding documents.

 The procurement agencies are at full liberty to develop

evaluation criteria according to specific project needs and
requirements.

 Technically, companies from all around the world are allowed to

compete without prejudice as long as they fulfil the evaluation
criteria. However, public sector organizations or domestic
bidders are given preference.

 These public organizations charge higher values and often sub-

let the work to other contractors.
Prequalification, Qualification and
Disqualification - 05

 A tender may be recalled in case none of the bids are

appropriate, or too few appropriate bids are received however,
the decision relies on the discretion of the procurement agency.

 PPR (2004) allow procurement agencies to decide the time

period for bid evaluation, however, this level of control can be
manipulated for corrupt ends. The most likely outcome of this is
a delayed bid evaluation period to discourage bidders or the
extra time being given to a favoured bidder.

 Moreover, PPR (2004) allows bidders to be disqualified for

violations of procurement rules which may result in unfair
elimination and abuse of power.
Bid Negotiations

 According to PPR (2004) post-award financial negotiations are

explicitly prohibited however, technical negotiations are allowed for
adjustment in prices, particularly for large and complex projects.

 It is common to accept the technical design of the project based on

line-drawings, cost estimates are based on the Schedule of Rates
and Bills of Quantities according to rule of thumb with a view to
revising and submitting bids subsequently.

 During bid negotiations, collusion and coercion may occur and

bribes or kickbacks may be used to manipulate negotiations. The
contract which was earlier won on the basis of having the lowest
price may be renegotiated at this stage to readjust contract prices.

 Additional or modified clauses in the contract may be included, or

other terms may be disregarded completely by invoking new
requirements during this period.
Project Monitoring

 It is required to monitor contract administration and implementation

in order to assist its effective implementation.

 The present project monitoring system requires monthly reporting

on project progress during the execution, project evaluation on its
completion, and reporting on project performance (operation and
maintenance) for five years after the completion of the project.
However, implementation to these requirements are not carried out
necessarily and frequently.

 Project evaluation and performance reports are rarely seen on and

after completion of a project.

 Collusion between project manager, contractors and consultants is

also likely during the project construction phase as they are not
given any incentives for early completion of the project.
Legal & Regulatory Framework - 01

 Redress of Grievance/Complaint
Mechanism

 Availability of complaint mechanisms to report

fraudulent, corrupt and unethical behaviour is essential
in detecting and deterring corruption and to increase
public trust in the fairness of procedures and
institutions.

 Such mechanisms should allow other bidders and the

general public to verify the actions of procurement
personnel as if they are in accordance with the
prescribed rules and regulations.
Legal & Regulatory Framework - 02

 Redress of Grievance/Complaint
Mechanism

 In Pakistan, the mechanism for handling complaints by

aggrieved bidders exists at both the administrative and
judicial levels.

 Both mechanisms have complementary functions and

handle complaints related to pre-contract issues only.
For complaints or disputes post-contract award,
arbitration under the Arbitration Act of 1940 is
prescribed.
Redress of Grievance/Complaint
Mechanism - 01
 Administrative Review Mechanism

 The PPR (2004) do not provide any rules to guide the

administrative review mechanism and formation of an
administrative review committee. Instead, procurement
authorities establish their own procedures. This requires
initial complaints to be directed to procuring authority itself.

 According to PPR (2004), only aggrieved bidders (not just

any citizen) may file a written complaint within 15 days of
publishing a bidding report supported by sufficient
evidence.

 Usually, it is difficult for an aggrieved party to collect and

verify the facts while considering the risks of lodging a
complaint in given time.
Redress of Grievance/Complaint
Mechanism - 02
 Administrative Review Mechanism

 In case an aggrieved bidder is not satisfied with the

decision, he may go to court of law within 15 days of
receiving the administrative review.

 The administrative review covers only decisions made

during the tendering process and therefore are supposed
to correct errors only. It does not cover corruption during
either the procurement planning or delivery phase where
no potential complainants are available.

 Moreover, the review decisions do not cause any delays or

halting of procurement procedures and no second level
review is available other than the court of law.
Redress of Grievance/Complaint
Mechanism - 03

 Judicial Review Mechanism

 If the aggrieved bidder is not satisfied with the decision

of the review panel, he may file an appeal in the civil
court or in the Office of Ombudsman.

 An administrative review is essential before going to the

judicial review.

 Judicial reviews cover such decisions which result from

wilful misconduct and an administrative committee
refuses to rectify. However, there is no specified time
limit for judicial complaints under PPR (2004).
Redress of Grievance/Complaint
Mechanism - 04

 Judicial Review Mechanism

 Pakistan has three anti-corruption laws, namely;

Pakistan Penal Code (PPC) 1860 (sections 160-165),
Prevention of Corruption Act (PCA) 1947 and the NAB
Ordinance 1999.

 Sections 160-165 A of the PPC 1860 defines corruption

as “illegal gratification” (GoP/NAB, 2002). The NAB
Ordinance 1999 which considers “assets beyond known
means as corruption” and certain categories of private
sector corruption (wilful defaulters, etc.) in its purview.
Redress of Grievance/Complaint
Mechanism - 05

 Judicial Review Mechanism

 Corruption in public procurement is penalized under

general criminal laws which include; provisions
regarding corruption, fraud, conflict of interest, and
other unethical behaviour. The related provisions are
included in tender documents.

 These laws look for individual responsibilities to abstain

from corruption and provide consequences for those
who are found guilty, however, various other corrupt
practices like bribery through intermediaries and
collusion, are not penalized in Pakistan.
Redress of Grievance/Complaint
Mechanism - 06

 Judicial Review Mechanism

 No laws exist to terminate the contract won through corrupt

practices or to hold contractors liable for damages or
depriving them from economic benefits.

 Disclosures of conflicts of interest and provisions for codes

of conduct exist to mitigate against exerting undue
influences on the procurement process by corporate
suppliers beyond certain contract values.

 It is mandatory for bidders to sign “Integrity Pacts” as part

of public procurement contracts for goods and services
where the contract worth more than PKR 5 million for
consultancy and PKR 50 million for construction works.
Redress of Grievance/Complaint
Mechanism - 07

 Audit System

 The auditors and supervisory bodies assist in establishing

an effective and efficient review mechanism to detect and
deter corruption. However, PPR (2004) do not provide
explicit guidelines on procurement audits by specialized
independent auditors.

 Audits of procurement agencies are required by the Auditor

General of Pakistan (AGP) and Chartered Accountants
yearly or sometimes after six months.

 Both, the external and internal audits of procurement

organisations are largely limited to financial transactions
only.
Redress of Grievance/Complaint
Mechanism - 08

 Audit System

 The technical expertise of auditors is perceived to be

low, particularly in skills required to uncover corruption.

 In order to cover up irregularities and deficiencies

between reported and actual revenue and expenditure,
there are strong perceptions that collusion between
auditors and bureaucrats do exist.

 Although, the mechanisms for independent

performance audits is available, it rarely takes place
due to capacity issues.
Redress of Grievance/Complaint
Mechanism - 09

 Audit System

 Audit reports are presented to the President annually

instead of presenting at the time when it is actually ready.
This lowers the relevance and functional credibility of these
reports.

 The record of audit findings and observations have limited

access and are not even available to the PPRA.

 Although the Audit Rules and the NAB Ordinance and the
Evidence Act require the preparation, maintenance and
production of a full list of bidding documents, no explicit
provisions are available to enforce the routine safe keeping
of these documents.
Redress of Grievance/Complaint
Mechanism - 10

 Public Access to Information

 Access to information or Right to Information (RTI)

means that everyone should have right to access
information and records held by or under the control of
any public bodies or organisations that benefit from
taxpayers’ money.

 Although there are some legislative arrangements for

access to information in Pakistan, but the country still
has a legacy of the British colonial regime in the form of
the Official Secrets Act, 1923, which puts an extreme
restriction on citizens’ Right to Information.
Redress of Grievance/Complaint
Mechanism - 11

 Public Access to Information

 In addition, Punjab Maintenance of Public Order, 1960,

can be used to withhold information in the name of
national security, national interest and privacy.

 In 2002, Freedom of Information Ordinance was

promulgated for transparency in governance. The main
criticism on this act was that an unreasonable amount
of information was exempt from accessibility, in
particular it’s applicability is only to the Federal
Government ministries, attached departments and
agencies, boards, councils, courts, tribunals and the
commission or authorities.
Redress of Grievance/Complaint
Mechanism - 12

 Public Access to Information

 With regard to public procurement, PPR (2004) allow

public access to procurement information on very basic
things, which includes information on initial procurement
opportunities for submission of expression of interest,
bids and proposals for all public procurements.
However, there is no system to provide information on
the processes, outcomes, results, and performance of
the procurement processes for the general public.

 There is no explicit information available for getting

access to bidding documents/procurement record when
needed for public inspection.
Redress of Grievance/Complaint
Mechanism - 13

 Public Access to Information

 PPR (2004) allow public access to information on

awarded contracts but not regarding pre-qualification
procedures or debarment.

 Project Audit reports have limited access and are not

available to the general public.

 PPRA website publishes procurement opportunities of

businesses at federal level, but does not publishes
information on procurement plans or the results of
contract awards.
The End