CHALLENGES AND LESSONS LEARNED FROM THE PARTICIPATION OF THE PRIVATE SECTOR IN PROCUREMENT REFORM IN UGANDA Presented at the high-level forum on public procurement reforms in Africa: Sustaining Economic development and poverty reduction through the current Economic Crisis. 16th -17th , November 2009 Tunisia
OVERVIEW OF THE PRESENTATION. • Brief on UNCCI? ( Uganda National Chamber of Commerce and Industry) • Objectives of the Procurement Reforms in Uganda • Challenges Of PPR( Public Procurement Reform) In Uganda • Lessons Learned And Way Forward
Uganda Population 30 million Area 241,000 square kilometres 3
WHO IS UNCCI? (Uganda National Chamber of Commerce and Industry) • UNCCI exists to enhance business opportunity for Uganda's business community • It is the Oldest (Since 1933), largest (over 10,000 members) and only nation-wide (with district branches) umbrella private sector organization in Uganda. • UNCCI has participated in public procurement reform forums assisted by United States Agency for International Development /Anti-Corruption Country Threshold Program (USAID/ACT)
Objectives of the Procurement Reforms in Uganda Reforms started in 19997 with a Task Force aimed at: • Transparency and Accountability - to fight waste and corruption • Fairness/ Equal opportunity for all in the bidding process • Integration of the public procurement system with public financial management framework • Providing a more attractive investment climate by lowering risk • Maximising competition to satisfy customer needs and ensure value for money • A streamlined procurement process through the gradual adoption of electronic commerce
CHALLENGES OF PPR IN UGANDA They include; • High cost of doing business • Financial Framework • Low capacity of the private sector to profitably participate in PPR. • Corruption • Other related challenges.
High cost of doing business • Samples of documents cost a lot of money, over $500 and yet some companies which have provided these samples may not be considered for pre-qualification. In addition there is loss of investment capital by the private companies and mechanisms to refund this money are not yet in place. 2. Bank guarantees tie down the service providers’ investment capital during the procurement process and yet these companies might not even be considered at pre-qualification.
High cost of doing business • The cost of buying the pre-qualification document is very high. • A few PDEs place bid advertisements in the media with out the intension of doing business. Consequently private companies have fallen prey of such institutions because they do not have the expertise to differentiate from authentic and non-authentic PDEs; this has also contributed to loss of their inadequate investment capital. • Once a company is awarded the contract, the price quoted is always fixed (no allowance is provided for price variations) for the whole contract period of e.g. 120 days. However the dominance price fluctuations in the economy due to the uncertain dollar rate is hindering effective delivery of products and services in Public Procurement. • The requirement for a tax clearance certificate for every contract makes the procurement process very expensive and prohibitive.
Financial Framework • Most banks in the country have international connections. They are able to issue letters of credit, bid bonds and other guarantees for compliance with tenders. The credit worthiness of the banks is guaranteed in that the Bank of Uganda supervises and ensures that only credit worthy and professionally managed banks are licensed to operate in the country. • High interest rates (e.g. 18% – 30%) appear to be a hindrance for national suppliers to access credit.
Financial Framework • Similarly, some national bidders find the 10% requirement for bid bond too high, and they end up not participating in tenders advertised locally. • Local suppliers and contractors often do not have the capacity to raise credit, bid bonds and securities from local banks and insurance companies, in part due to the high rates of interest charged.
Financial Framework • PDEs request for expensive and prohibitive bid securities for example; certified cheques. Certified cheques are not readily available in most banking institutions therefore a private company is likely to be restricted in applying for a bid with this requirement.
Low capacity of the private sector to profitably participate in PPR. • Most Service Providers can hardly understand bid documents and consequently they have no idea of what questions to raise during pre- bid meetings. • Suppliers who would like to participate in public procurement find the procurement procedures irrational and cumbersome. • They are sometimes excluded when the procurement is too big and they are apprehensive of unfamiliar procedures. They are not well informed of how the procurement process functions, which renders the process open to abuse.
Corruption • Corruption is part and parcel of the community we live in, it is therefore estimated that corruption accounts for 25% of Africa’s GDP. Because of its pervasiveness the following issues are hindering credible companies from being able transact business with the government. • Procuring officials in government have brief case businesses and or companies which are pre-qualified and awarded the contracts.
Corruption • There is evidence of malpractice that affects private sector procurement; e.g. vehicle repair documents are often not used. Sometimes invoices, receipts and other documents are faked. In other instances of government procurement, documents are “chased” by suppliers pushing them through the process in person. The assumption is that “chasing” will not be successful without bribes, commonly known as the “kitu kidogo” or “speed money”.
Corruption • There are indications that over and under-invoicing in imports and local procurement are common practices. This is attributed to mainly inside dealings. • However, long time lags and delays on the part of government to pay suppliers are some of the causes for over-invoicing. Under invoicing is due to uncertainties relating to a supplier’s chances of winning a tender bid.
Corruption • Information about pre-qualifications is not open to the public; because of corruption only a selected group of individuals is availed with this kind of information. • After prequalification; competent private enterprises are disqualified under false allegations of say; missing documents, foreign companies are then pre-qualified because the procuring officials have a stake in these companies, or the foreign companies are ready and willing to part with a commission of e.g. ten percent (10%) or more of the contract.
Corruption • The stringent prequalificationcriteria de franchises local business enterprises and in most cases are tailored to suit specific companies. • A number of private firms have under no circumstances won a contract for a bid and or tender from the government, i.e. they have failed to break through the procurement process. This is due to the fact that corruption does not require merit but the availability of acquaintances in PDEs (Procuring and Disposing Entities) and/ or government institutions.
Other related challenges. • Open bidding is not favourable to the private sector. • There is lack of transparency and trust issues in the procurement process; for instance the pass/fail requirements are not recorded at bid/tender openings in addition no verification of documents and other information is provided. • PDEs do not take the responsibility to communicate after the evaluation process; service providers are in most cases left in anticipation of winning the contract even when it has already been awarded to another company.
Other related challenges. • The absence of a law that provides protection for intellectual property in Public Procurement has hindered business development. This is true in instances where procuring officials leak samples to competitors who replicate and use them when they secure the bids. • The presence of counterfeit products on the market demoralises the abilities of companies that can supply authentic products, since companies with counterfeit products quote very low prices and hence become competitive.
LESSONS LEARNED AND WAY FORWARD • The need to build capacity for the private sector coupled with enforcement of rules and concerns is still great. • There is need for a policy on refund on investment capital after a contract has been cancelled. • Despite the fact that Uganda has initiated a number of regulating bodies with the aim of addressing corruption; it is clear that corruption is societal and done through collusion. Since private sector and government are key partners in procurement, UNCCI is committed to continuing with their fight against corruption.
LESSONS LEARNED AND WAY FORWARD • There is need for laws and policies governing intellectual property to be addressed. • There is need to scrap internal opening of bids because in most cases the public do not get the opportunity to know what transpired at such occasions. • There is need to empower Service Providers to be pro-active and provide any information citing irregularities and corruption in the procurement process. • The private sector needs a dialog and networking platform that will allow for sharing of experiences and constraints, as well as addressing advocacy issues in the procurement process.