INTERNATIONAL BEST PRACTICE IN PUBLIC PROCUREMENT REGULATION

Best practice often refers to widely accepted, informally standardized techniques, methods or processes that are regarded as effective to achieve certain goals in a sector or sphere of business. Best practice may also be a substitute for formal standards in sectors where formal standards do not exist. It represents the techniques that have shown through experience to lead consistently to the desired result. The next question is therefore what is best practice in public procurement regulation?

Unlike some spheres of endeavour, such as manufacturing or agriculture, it is more difficult to identify best practice in public procurement. This is partly because countries at different stages of development have different needs and, as a result, different ideas that may be considered “best practice” within what they seek to achieve from public procurement regulation. However, in spite of these difficulties, institutions such as the International Organization for Standardization (ISO)Footnote ¹ and academics have attempted to distil the best practices in public procurement regulation. To identify a best practice, it is first necessary to consider what is being sought to be achieved; in other words, what is the desired result? Both the ISO and procurement scholars have identified similar goals that can be achieved through the adoption of best practice in public procurement regulation.

This section will discuss the goals of public procurement regulation and the procurement methods and techniques that are commonly used to achieve these goals and, as such, may be regarded as best practice in public procurement.

The goals of public procurement regulation, which may be achieved from the adoption of specific best practices, may be listed as competition, transparency, integrity, best value and efficiency.Footnote ² It should be noted that this list is not exhaustive and further that these goals are interrelated and interdependent, so it is often not possible to achieve any of these goals without achieving the others. Further, in addition to these objectives of procurement regulation, often referred to as “primary” objectives, one could also have “secondary” or “horizontal” objectives of procurement regulation which would include environmental, social or industrial objectives. This article focuses on the primary goals of procurement regulation.

THE NIGERIAN PUBLIC PROCUREMENT ACT AND INTERNATIONAL BEST PRACTICE

As discussed in the preceding section, the goals of public procurement regulation, which may be achieved through the adoption of specific best practices, are competition, transparency, integrity, best value and efficiency. This section will examine the PPA to see if it incorporates the international best practices that may fulfil these goals in the Nigerian context.

In relation to the first listed goal of public procurement regulation, which is competition, the PPA requires the use of advertising methods to ensure the competitive selection of suppliers. Thus, section 19(a) of the PPA provides that procuring entities shall “advertise and solicit for bids in adherence to this Act”. Section 19(c) further requires procuring entities to “receive, evaluate and make a selection of the bids received in adherence to this Act”. Section 25 gives the details on bid advertisement by requiring publication in two national newspapers and in the “procurement journal” not less than six weeks before the deadline for the submission of bids. In Nigeria, federal tenders are also advertised on the website of the Bureau of Public Procurement (BPP).Footnote ²¹

As discussed above, removing the barriers to entry to the public procurement market, especially for new players, is one way to enhance competition. Before the passage of the PPA in Nigeria, the World Bank Country Procurement Assessment Report criticized the elaborate registration procedures that contractors were required to undergo before being considered eligible for government contracts.Footnote ²² Although these registration criteria have disappeared from the public procurement law, there remains a requirement for contractors to pre-qualify for public contracts. The purpose of pre-qualification is to streamline the procurement process by eliminating the need for contractors to provide separate qualification information for each contractFootnote ²³ and by ensuring that procuring authorities are not required to assess the same information for each contract. However, pre-qualification may also limit competition as contractors who have not been pre-qualified are excluded from particular procurements. The PPA states that a procuring authority shall pre-qualify bidders based on the criteria and information set out in the pre-qualification documents.Footnote ²⁴ Under the PPA, the requirements for pre-qualification now appear to have lost the secrecy they used to have and it is hoped that pre-qualification will be conducted with transparency. On the face of it, therefore, the PPA adopts international best practice in relation to ensuring competition in public procurement; however, as discussed in the next section, the improper application of the procurement rules by procuring entities means that, in reality, competitive practices are not always adopted in the procurement process.

In relation to the issue of transparency, one of the main criticisms of the Nigerian public procurement system before the passage of the PPA was a lack of transparency. Public procurement was regulated by the financial regulations, which were issued by the minister of finance and were not accessible to the public or to contractors and could be changed by the minister as and when he desired. Most of these criticisms have been met by the PPA. As discussed above, transparency requires publicity of contract opportunities; this is now required by section 25 of the PPA. This section provides that goods shall be procured using either national or international competitive bidding methods and that invitations for bids be advertised in national or international newspapers as appropriate at least six weeks before the deadline for the submission of bids.

Transparency also requires publicity of the rules governing each procedure. In this respect the PPA unfortunately does not entirely meet the requirements of international best practice discussed above. While the PPA provides that all procurements of goods and works shall be conducted through open competitive bidding, in which the lowest price shall be the main criterion, the PPA is silent as to the thresholds that will require a bid security as required by section 26. The PPA merely provides that, subject to the monetary thresholds that may be set by the BPP, all procurements valued in excess of a particular sum shall require a bid security from a reputable bank in an amount that does not exceed 2 per cent of the bid price. It would have been preferable if the monetary thresholds were specified in the PPA, as suppliers will not currently know whether a bid security will be required in a particular instance.

The third requirement of transparency is rules based decision-making. The PPA however grants procuring authorities much discretion in making procurement decisions. For instance, under section 28, a procuring authority is permitted to reject all bids at any time, prior to the acceptance of a bid, without incurring any liability to the bidders. The issue here is that a procuring authority may do this without it being in the public interest and without giving a reason. In a country like Nigeria, where public officials often act in their own interest and not in the public interest, this provision essentially gives them carte blanche to cancel the procurement process if the process is not going in a way that favours a personal interest.

The fourth requirement of transparency is for there to be opportunities for verification and enforcement. In relation to verification, this includes the opportunity for contractors to be given reasons why they were or were not selected for a contract award and the need for verifiable information on procurement activity and spending.

The PPA does not provide clear rules on the need to give contractors reasons why they were not selected. It merely requires procuring entities to give the successful bidder immediate notice of the acceptance of its bid.Footnote ²⁵ In relation to unsuccessful bidders, the PPA provides that information relating to the examination, clarification and evaluation of bids and recommendations concerning the award shall only be given to them after the successful bidder has been notified of its award.Footnote ²⁶ Further, section 19(e) requires the procuring entity to debrief bid losers on request. This approach does not fully meet the requirements of international best practice in two ways. First, there are no clear rules requiring the procuring entity to furnish the unsuccessful bidders with reasons why their bid was not successful. The giving of reasons is of crucial importance in the maintenance of a robust procurement dispute resolution system. Where bidders are not aware of the reasons why they were unsuccessful, they will also be unaware of any irregularities in the procurement process that may constitute grounds for review. Secondly, where unsuccessful bidders are only notified of the outcome of the procurement process after the successful bidder has been notified and possibly after the conclusion of the contract, this denies them the possibility of instituting a challenge that could lead to a review of the contract award decision.

In terms of keeping the records necessary for the verification of procurement activity, the PPA states in section 16(12) that every procuring entity shall maintain paper and electronic copies of the records of procurement proceedings for a period of ten years from the date a contract is awarded, and that such records will be open to inspection by members of the public. In addition, section 16(14) provides that all unclassified procurement records shall be open for inspection by the public. These provisions of the PPA therefore meet the minimum standards of transparency.

In relation to the enforcement of procurement decisions, the provisions of the PPA provide different fora and strict time lines for the resolution of procurement disputes. The PPA provides different fora for dispute resolution depending on whether the dispute arises out of a concluded contract or out of the procurement process. Thus, in relation to concluded procurement contracts, section 16(26) provides that all procurement contracts shall contain provisions for arbitral proceedings as the primary form of dispute resolution. This reference to arbitration is intended to ameliorate some of the inadequacies of the Nigerian judicial system, which have been described as: the expensive and time consuming nature of the judicial process; the fact that some judges are corrupt and will manipulate the judicial process when they have been bribed; and the fact that contractors will often avoid litigation to avoid future retaliation by a procuring entity.Footnote ²⁷

In relation to disputes arising out of the procurement process, the PPA designates the procuring entity as the first line of review of disputed procurement decisions. The PPA provides that a bidder may seek administrative review of any omission or breach of the provisions of the PPA, the regulations made under the PPA or the provisions of the bidding documents.Footnote ²⁸ Under these provisions, a complaint should first be submitted to the accounting officer of the procuring authority.Footnote ²⁹ In federal ministries, the accounting officer is the permanent secretary, who is next in hierarchy to the minister. Under the PPA, the bidder must submit his or her complaint “within 15 days of when the bidder first became aware of the circumstances giving rise to the complaint, or when he or she should have been aware, whichever is earlier”.Footnote ³⁰ The accounting officer “on reviewing a complaint … shall make a decision within 15 working days”Footnote ³¹ regarding the corrective measures to be taken, if any.

By virtue of section 54(3), where the accounting officer does not make a decision within the required timeframe, or the bidder is not satisfied with the accounting officer's decision, the bidder may further complain to the BPP within ten days of receipt of the accounting officer's decision. The BPP must render a decision within 21 working days of receiving the complaint.Footnote ³² If the bidder is not satisfied with the BPP's decision, the bidder may, within 30 days of receiving the BPP's decision, or after the expiry of the time for the BPP to render a decision, file a complaint at the Federal High Court.Footnote ³³

In spite of these extensive rules on dispute resolution, the dispute resolution system is not being used for a variety of reasons. These include the fear of retaliation in the form of the loss of future business, and the fact that Nigeria does not generally possess a strong culture of litigation but that contractors instead prefer to accept their losses in the hope that on the next occasion the procurement process will turn out in their favour. It must be stated however that, while only a few procurement disputes come before the courts, the administrative review mechanism (where bidders complain to the BPP) is widely used as a forum for adjudicating procurement disputes in Nigeria; the BPP received 323 complaints between 2011 and 2012, of which it resolved about 50 per cent.Footnote ³⁴

As discussed above, integrity in public procurement refers to the existence of rules that govern the conduct of public officials and suppliers in the procurement process. These include prohibitions against conflicts of interest in relation to officials and suppliers, as well as prohibitions against the giving or receipt of bribes or other forms of inducement and against other kinds of discriminatory practices. The PPA contains extensive provisions on this. Thus, in relation to conflicts of interest, section 16(6)(f) of the PPA provides that all bidders are required to provide an affidavit disclosing whether any relevant officer in the procuring entity has any interest in the bidder. The PPA further provides for the exclusion of a bidder who has promised or offered any bribe to a former or current employee of the procuring authority, including offers of employment, in order to influence the decision-making of the procuring authority. Section 57 of the PPA further provides that the BPP shall specify a code of conduct for persons involved in public procurement, including suppliers, and further that the conduct of all persons involved in public procurement shall be governed by the principles of honesty, accountability, transparency, fairness and equity. This section further defines and prohibits conflicts of interest among procurement personnel.

Thus the PPA contains extensive rules designed to maintain integrity in the procurement system, which appear on their face to accord with the requirements of international best practice. Nevertheless, it appears from face to face interviews conducted with Nigerian procurement officials in some federal ministries that enforcement of these integrity related provisions is sadly lacking and that conflicts of interest pervade the procurement process under which contracts are awarded to persons and firms in which the decision-makers have an interest.

In relation to meeting international best practice in achieving the goal of best value, the PPA provides in section 16(1)(e) and (f), which relates to fundamental principles applicable to procurement, that all procurement shall be conducted “with the aim of achieving value for money and fitness of purpose” and “in a manner that promotes competition, economy and efficiency”. In addition, section 24, which provides that all procurement for goods and works shall be by open competitive bidding in which every interested bidder shall be given the opportunity to bid and the lowest evaluated tender shall be selected, may promote best value in public procurement. However as discussed above, best value may not always be achieved through the use of the lowest tender, as other considerations like maintenance concessions or life-cycle costs may mean that the lowest cost tender does not provide the best value in the long term. Section 33 of the PPA thus provides that the lowest tender need not be selected where there are good grounds for doing so, without specifying what these good grounds may be. This provision therefore leaves itself open to abuse. The PPA also provides for other procurement methods where lowest cost is not appropriate. These are modelled on the UNCITRAL model lawFootnote ³⁵ and include two-stage tendering,Footnote ³⁶ restricted tenderingFootnote ³⁷ and requests for quotations.Footnote ³⁸

The last goal of public procurement, as discussed above, is efficiency. As outlined, efficiency means that the procurement function should not consume an inordinate amount of resources and that procurement procedures should be designed to ensure a timely outcome. Efficiency in relation to the use of resources is addressed in section 16(1)(f) of the PPA and by the provisions for alternative procurement methods. Thus, by section 40, a procuring authority may rely on restricted tendering where the time and cost of evaluating a large number of bids is disproportionate to the value of goods to be procured. However, efficiency in relation to the timeliness of procurement procedures is not addressed by any of the provisions of the PPA. The most significant time limits provided for by the act relate to advertising requirements for both national and international competitive bidding, which should be done at least six weeks before the deadline for the submission of tenders. Apart from this, there are time limits for responding to queries for information on pre-qualification and in relation to the procurement of consultancy services. However, the PPA does not generally legislate time limits for the submission and consideration of tenders. Furthermore, although the PPA states that the time limits should be stated in the bidding documents, it would have been preferable for time limits to be included in the PPA as the current approach may lead to the inconsistent application of time limits by procuring entities and further, without clear guidelines, entities may set limits that may be inappropriate and designed to implement discriminatory practices.

THE CHALLENGES TO THE NIGERIAN PUBLIC PROCUREMENT SYSTEM

The Nigerian public procurement system is still relatively new, given that the legislation regulating government contracts is only seven years old. However, in spite of the passage of the PPA and the establishment of a procurement cadre in government ministries, departments and agencies, the procurement system is not functioning as it should and public procurement in Nigeria is still riddled with corruption, fraud and irregularities.Footnote ³⁹

The PPA has helped to create a system in which international best practice in procurement may thrive, by: providing for the use of competitive procurement methods except in limited situations; creating new institutions to monitor and direct public procurement; increasing transparency in procurement; and providing for a system of supplier remedies through the administrative review of procurement decisions. Nevertheless, in practice, several challenges remain.

In interviews conducted with procurement officials in December 2012, it was clear that the issue of the capacity of procurement officials remains a challenge. There was a clear difference in levels of understanding of the procurement function between procurement officials in high profile and low profile ministries, with high profile ministries possessing staff with higher degrees of understanding. In addition, there are vast differences in the resources made available to staff to carry out the procurement function depending on the ministry concerned. In many cases, this lack of capacity affects the ability of the procuring authority to follow the procurement rules properly and thus obtain the required outcome from a procurement procedure.

Further, the involvement of politicians in the procurement process is a serious problem that needs urgent attention to prevent forestalling the growth of Nigeria's nascent procurement system.Footnote ⁴⁰ In interviews conducted with procurement officials, it was revealed that high-ranking politicians, such as ministers, are currently able to influence the outcome of the procurement process by putting undue pressure on civil servants who feel constrained to bow to this pressure. This means that, in practice, the procurement process is manipulated at the instance of the interested politician and contracts are awarded to the person or firm in which the politician has an interest. In addition, the Federal Executive Council (ministers in council) currently approves large contracts over a certain threshold, in contravention of the PPA; there is also controversy over a proposed amendment to the act that would legitimize this practice as well as making the president or his nominee (instead of the minister of finance) the chairman of the National Council on Public Procurement. If this amendment is passed, then it is feared that political interference in public procurement will increase.Footnote ⁴¹

This has led to several uncompleted high profile projects, in which contractors were paid up-front mobilization fees, as provided by section 35(1) of the PPA, and absconded with federal funds, or which were completed at prices well in excess of the original contract price. These irregular and fraudulent contracts have been documented in the reports of the Auditor General.Footnote ⁴²

Another issue that came to light during interviews is the difficulty caused by the mismatch between budgetary appropriations and the actual release of funds, which often prevents procuring authorities from meeting financial obligations to contractors.Footnote ⁴³ This mismatch means that, in some cases, procuring authorities have had to cancel awarded contracts or have diverted funds allocated to other projects when it became clear that the government was not going to release appropriated funds.

Although, at the highest level of government, there is a commitment to sound procurement principles and to the development of a procurement system that meets the requirements of international best practice, the lack of commitment on the part of other politicians is severely constraining the procurement system.