REVIEW OF PROJECT IMPLEMENTATION STRUCTURES (PIU)

Transcription

1 Lao People Democratic Republic Peace Independence Democracy Unity Prosperity Ministry of Agriculture and Forestry Programme of Capitalisation in Support of Rural Development Policy (PCADR) Central Unit (UC) REVIEW OF PROJECT IMPLEMENTATION STRUCTURES (PIU) Sector Working Group on Agriculture, Rural Development and Natural Resources Management (SWG ANR) Final Report Kenneth Nicholson January 2010

2 Table of Contents Executive Summary The role of Project Implementation Units...11 A. Introduction...11 B. Project Implementation Units...12 C. Key issues that determine if a PIU is parallel...14 D. Steps to reducing parallel functions of PIU and encourage integration...16 The organization of ODA in Lao PDR Results of the review of PIU functions in Projects interviewed...20 A. Description of the current situation...20 Projects included in the survey...20 Documents reviewed...20 B. Results of assessment of PIU from 15 Projects...21 Description of Projects at MAF...21 Characteristics of Line Departments in MAF...21 Initiatives to harmonize...22 C. Staffing requirements of PIU...22 D. Conclusions from the results of the questionnaire How to make ODA more effective?...24 A. CAP Issue 1 Staffing: TA Recruitment and Roles...24 B. CAP Issue 1 Staffing: GoL staff salary structure...25 C. CAP Issue 1 Staffing: Work plans of GoL staff...26 D. CAP Issue 2 Operational Responsibility: Consultation processes...27 E. CAP Issue 2: Operational Responsibility...27 F. CAP Issue 2 Operational Responsibility, Support Function: Financial systems..29 3

3 G. CAP Issue 2 Operational Responsibility, Support Function: Procurement systems...30 H. CAP Issue 3 Reporting Relationship: accountability, M&E, information management Discussion...31 A. Cost effectiveness of central level PIU...32 B. National level integrated PIU: Decentralization or recentralization?...33 C. Case studies: Examples of successful PIU integration...34 Country examples...36 D. Recommendations...38 Development Partner s interest and commitment to alignment with MAF...38 General Recommendations...40 Best Practices...41 Planning for reducing parallel functions of PIU: the road map...44 Annex VD CAP Matrix describing PIU functions Documents reviewed Minutes of the Inauguration Workshop Definitions Linkages between recommendations for reducing parallel PIU functions and activities in the CAP Description of Projects at MAF implemented through Line Departments at Central Level Examples of successful PIU integration...58 A. LAO Extension Approach (LEAP/NAFES)...59 B. Centralization of functions: Model of MPWT...60 C. Example of institutional set up of MRC

4 D. Example of PBA Model in SNRMPEP...66 E. Example of MOE Educational Sector Development Framework...68 F. Recommended institutional set up in MAF for a centralized project management unit...69 Recommended mandate for a centralized project management unit Method used for analysis of PIU...71 Questionnaire format Terms of Reference Work Plan for the PIU Review at MAF Standard Financial Management Manual (SFMM) The Standard Operational Plan (SOP) Ministry of Foreign Affairs main role and responsibility Roles of MPI Official Development Assistance (ODA) Poverty Reduction and Agricultural Management regional bachelor degree program Study of EC Technical Cooperation and PIUs UNDP Rethinking Technical Cooperation Main challenges to technical cooperation Eight Guiding Principles to technical cooperation Action Plan for the implementation of measures reducing the need for parallel PIU People interviewed by Ken Nicholson Participants at the inauguration and the debriefing workshops

5 Figures Figure 1: The 5 key Principles of the VD for aid effectiveness...17 Figure 2: Factors that result in the creation of parallel PIUs...18 Figure 3: Relationship between capacity building and ownership...19 Figure 4: Fund Flow Diagram for Designated Project Accounts...93 Tables Table 1: Goals and Objectives described in the CAP...20 Table 2: Road Map...47 Table 3. Summary of the questionnaire result...79 Table 4. Projects included in the survey

6 Abbreviations AAA BESDP BoL CAP CTA DIDM DLF DoA DoF DoI DoP DoR DP DSA EA ECDPM FORCOM GoL IA IPM LEAP MAF MoE MoF MPWT MRC NAFES NCMI NPD NRSLLP NSEDP NURDP NURIFAR NUSDP ODA PBA PCADR PIP PIU PRAM RISEP SFMM SNRMPEP Accra Agenda for Action Basic Education Sector Development Programme Bank of Lao PDR Country Action Plan Chief Technical Adviser Decentralized Irrigation Department of Livestock and Fisheries Department of Agriculture Department of Forestry Department of Irrigation Department of Planning Department of Roads Development Partner Daily Subsistence Allowance Executing Agency European Centre for Development Policy Management Forestry Government of Lao PDR Implementing Agency Integrated Pest Management Lao Extension Approach Programme Ministry of Agriculture and Forestry Minister of Education Ministry of Finance Ministry of Public Works and Transport Mekong River Commission National Agriculture and Forestry Extension Service Northern Community Managed Irrigation National Project Director Northern Region Sustainable Livelihoods through Livestock Development National Social Economic Development Plan Northern Uplands Rural Development Programme Northern Upland Rice Based Farming Systems Research project of Lao PDR Northern Uplands Sustainable Development Programme Official Development Assistance Program Based Approach Projet de Capitalisation en Appui à la politique de Développement Rural Public Investment Programmes (See VD, NSEDP) Project Implementation Unit Poverty Reduction and Agricultural Management professional degree program Rice Seed Multiplication and Distribution System Improvement Project Standard Financial Management Manual Sustainable Natural Resource Management Productivity Enhancement Project 7

7 SOP SUFORD SURAFCO SWG TA TABI VD WA Standard Operating Procedure Sustainable Forestry and Rural Development Project Support to Reform of Agriculture and Forestry of the Luang Prabang College Sector Working Group Technical Adviser The Agricultural Biodiversity Initiative Vientiane Declaration Withdrawal Application 8

8 Executive Summary At the Ninth Round Table Meeting (RTM) in Vientiane in November 2006, the Government of Lao PDR (GoL) and 22 partner countries and organizations signed the Vientiane Declaration (VD) on Aid Effectiveness. GoL and its Development Partners (DPs) prepared the Country Action Plan (CAP) in 2007 to accompany the Vientiane Declaration. Within the area of reform of Alignment, the Vientiane Declaration proposes that DPs base their overall support on Lao PDR s National development strategies, institutions and procedures. In this respect one of the goals formulated by the CAP is that DPs do not create Project Implementation Units (PIUs) for implementing ODA-funded projects that are parallel to GoL structures. In this context, the MAF/DOP (Department of Planning) and AFD (Agence Française de Development), the ANR-SWG (Agricultural and Natural Resources Sector Working Group) cochairs, organized this joint review of ODA-funded implementation structures within MAF. Approaches and methodologies for the study within the SWG ANR were developed jointly with the ESWG (Education SWG) in order for the experience to contribute to developing the method for other sectors. The study reviewed studies and policy papers on Aid Effectiveness worldwide and the questionnaire method for interviews was developed based on experiences both worldwide and in Lao PDR in the ESWG. Information was collected on a total of 15 Project of which 11 were interviewed. Representatives of line Departments of MAF were interviewed as well as key informants representing DPs. Information was also collected about project management mechanisms in the Ministries of Public Works and Transport, the Ministry of Education and the Mekong River Commission. This review found that rather than characterizing PIU as parallel or integrated, one needs to identify the functions of PIU and analyze each function separately. The CAP identifies both Project core activities on the one hand and one the other hand support functions which include financial management, procurement and M&E. 8 principal groups of functions were identified and organized using the CAP framework. They all fall under either Issue 1 of CAP which is Staffing composition, work plans and salary structure for GoL staff and external consultants, Issue 2 which is Operational Responsibility, Consultation processes and financial systems and procurement or Issue 3 which is Reporting relationships (accountability, M&E and information management). Using the questionnaire, the consultants together with the respondents agreed on whether a function was parallel, semi integrated, almost fully integrated or integrated. The review of all ODA in MAF showed that if several line departments with similar ODA budgets are compared, there are some departments with much higher number of projects than others even though the total funding volume is similar. The trend now is to reduce the number of individual Projects or Programmes and to commit more funding to Programmes with common arrangements such as PBA. The goal is to minimize administrative burdens by grouping several donors into one Project. 9

9 There is a significant number of staff in MAF at Central Level that is supporting ODA Projects. Given this, there is an urgent need to ensure the human resource management for these staff is systematic and integrated into the MAF institutional system. The challenges to be overcome in order to reduce parallel functions of PIU are in several cases already addressed with respective recommendations in other sections of the CAP addressing various aspects of Alignment, Ownership, Harmonization and Simplification and Managing for Results. This study therefore establishes linkages between its recommendations and the relevant sections of the CAP. Two broad principles have emerged from this survey in order to reduce parallel functions of PIU. These principles should be applied at every stage of the project cycle. On the one hand the diversity and heterogeneity of PIU at MAF needs to be reduced using all the existing initiatives. Secondly core support functions need to be centralized and provide services to projects without seeking to control them. 10

10 1. The role of Project Implementation Units A. Introduction GoL leads in developing and implementing the National Social Economic Development Plan (NSEDP) through a broad consultative process that integrates Official Development Assistance (ODA) into mainstream planning and translates the NSEDP into priority areas and annual budgets. GoL uses Sector Working Groups (SWGs) where appropriate to decide on a timetable for introducing costed sector plans and build consensus around sectoral priorities (see Vientiane Declaration Country Action Plan Section 1, Ownership) The Ministry of Agriculture and Forestry (MAF) has formulated 4 Goals and 13 Measures to execute the resolution of the 8 th Party Congress and achieve NSEDP targets under its responsibility. At the Ninth Round Table Meeting (RTM) in Vientiane in November 2006, the Government of Lao PDR (GoL) and 22 partner countries and organizations signed the Vientiane Declaration (VD) on Aid Effectiveness. The Vientiane Declaration effectively customizes the Paris Declaration for Lao PDR s country specific circumstances and aims to improve the effectiveness of aid by focusing reforms in five areas: host country ownership, alignment of Development Partner's (i.e. donors) support to national policies and plans, harmonization and simplification of Development Partner's (DP s) procedures and activities, managing for results and lastly mutual accountability for reporting. GoL and its DPs prepared the CAP in 2007 to accompany the Vientiane Declaration. Activities in the CAP are implemented by the 8 Sector Working Groups and progress on achieving the goals in the CAP is reviewed at annual Round Table Meetings (RTM) (For more details on the RTM and VD also see Background Section in the TOR in the Annex). Within the area of reform of Alignment, the Vientiane Declaration proposes that DPs base their overall support on Lao PDR s National development strategies, institutions and procedures. In this respect one of the goals formulated by the CAP is that DPs do not create Project Implementation Units (PIUs) for implementing ODA-funded projects that are parallel to GoL structures. The objective set out in the CAP is that all SWGs will agree on guidance for integrating project implementation functions within their sector. The specific target, set for 2010/2011 is that no new parallel PIUs will be created after 2010, unless endorsed by relevant GoL agencies. In order to facilitate arriving at this goal, the Education Sector Working Group (ESWG) has taken the lead in reviewing PIU across all sectors. MAF/DOP (Department of Planning) and AFD (Agence Française de Development) proposed to carry out this joint review of PIU and their functions within MAF as part of their contribution to the output of the SWG ANR (Agriculture and Natural Resources). Approaches and methodologies for the study within the SWG ANR were developed jointly with the ESWG in order for the experience to contribute to developing the method for other sectors. The main objectives of the joint review are (see TOR in Annex): 11

11 (i) (ii) (iii) (iv) Identify and classify existing PIUs within MAF and define whether the PIUs and their functions fall under the categories or parallel (i.e. non integrated), semi integrated or integrated. Better understand the functions covered by the PIUs including planning and budgeting, financial management, procurement, monitoring and evaluation, the motivations for establishing functions that are non integrated, and the challenges presented by eliminating these functions. Analyze lessons learned in PIU integration from other sectors in Lao PDR (in particular lessons learned in the transport and education sectors) and elsewhere worldwide. Make recommendations to MAF and DPs (through SWG - ANR) on a specific road map or code of conduct which will result in a reduced incidence of parallel PIUs or PIU functions at MAF. To achieve these objectives, the following activities were included in the study: 1. conduct a document review of experiences both in Lao PDR and worldwide, 2. develop an analytical framework and a questionnaire in collaboration with the ESWG representatives 3. interview PIUs leaders, DPs and Technical Advisers both within the ANR sector and in other sectors with experiences in PIU integration 4. Findings will be shared in a workshop at the end of the mission and through the SWG network of the RTP (Round Table Process) B. Project Implementation Units Project Implementation Units (also referred to as ODA implementation structures in the CAP) refer to all project implementation arrangements, which rely on a group of staff members designated officially to work together full-time or almost full-time, with separate accountability, to coordinate and manage project implementation. PIU are also commonly referred to as project management units (PMU), project management consultants, project management offices, project coordination offices, central units or even the Office of the National Project Director and so on. These are dedicated management units designed to support the implementation and administration of projects or programmes (in this report, the terms project and programmes will be used interchangeably. Similarly the terms PIU and PMU are both used in this report without implying a difference in mandate). The tasks of the PIU include all the activities needed to lead and coordinate project implementation including administration, monitoring and reporting on project progress, finance, and accounting, procurement tasks, and recruitment and supervision of consultants. Implementation structures can be categorized as parallel, semi-integrated or integrated. Parallel or integrated PIU: Based on the Paris Declaration and the CAP of the Vientiane Declaration, a PIU s function can be characterized as integrated, semi integrated or parallel depending on the degree to which a PIU s functions are carried out outside of the Government system. In the past, PIU were designed as special vehicles to bypass local bureaucracies and ensure timely delivery of project outputs. They were perpetuated as an implementation 12

12 mechanism simply because they were a known and tested arrangement for implementation. The trend now is to move beyond PIU and address country institutional capacity development. Donors/DPs have by and large subscribed to these principles which have been reinforced by the Accra Agenda for Action (AAA). As can be seen from the box below, the issue of PIU ranks highly as a challenge to improved aid effectiveness. EC 2009, Reforming Technical Cooperation In this report by the EC, parallel PIU are listed as one of the five main challenges in Technical Cooperation (see Annex). Also mentioned in this report is compliance with the AAA (Accra Agenda for Action). The Accra Agenda for Action (AAA) 2008 Capacity development is the responsibility of developing countries, with donors playing a supportive role. Donors support for capacity development will be demand-driven and designed to support country ownership. Technical cooperation is one means among others to develop capacity. Developing countries and donors will jointly select and manage technical cooperation. Donors agree to use country systems as the first option for aid programmes in support of activities managed by the public sector. Should donors choose to use another option and rely on aid delivery mechanisms outside country systems (including parallel project implementation units), they will transparently state the rationale for this and will review their positions at regular intervals. Promote the provision of technical cooperation by local and regional resources, including through South-South Cooperation. However it remains a challenge for donors to change their well worn practices of implementing directly in order to attain higher efficiency (see box below, Study of EC Technical Cooperation and PIUs. European Centre for Development Policy Management (ECDPM) 2008). Study of EC Technical Cooperation and PIUs: Review of the Regulations and Guidelines applicable to Technical Cooperation and Project Implementation Units European Centre for Development Policy Management (ECDPM). The EC is signatory party to the Paris Declaration (PD) and has, together with the EU member states, agreed to achieve the EU aid effectiveness targets. Key underlying notions to these agreements are that Partner Governments (PGs) should be supported by their external collaborators to take full ownership of the development process. The donors should assist PGs to develop their capacities, align with PG procedures and make use of their systems once these are robust enough to shoulder the responsibilities. Moreover, donors should better coordinate their activities to support this process. Many of these notions run up against the very character of the regulations, procedures and 13

13 guidelines driving the day-to-day work flow of any donor organisation, which exist to mitigate risks and to control the proper use of resources, to ensure accountability and efficient operations. The Ministry of Planning and Investment (MPI) has developed a Standard Operating Procedure for Projects in which the following principle is listed: Standard Operation Procedures (SOP) WB/MPI DPs will rationalize their own regulations and procedures as far as possible so as to achieve common and harmonized activities for the different stages of the aid cycle planning, design, funding, procurement, disbursement, monitoring and evaluation and reporting to the Government on their activities and aid flows (refer to the VD). PIU typically perform several types of functions needed for the implementation of a Programme. In order to determine if PIU are parallel or integrated one needs to break down the broad functions of the PIU into detailed activities and assess whether those activities are integrated with GoL processes as well as the extent of GoL decision making and accountability for each activity. MPI/UNDP Definition of Parallel implementation structures Parallel structures typically share the following features: They are accountable to the external funding agencies rather than to the country implementing agencies (ministries, departments, agencies etc). Terms of reference for externally appointed staff are determined by the development partner rather than by the country implementing agencies. Most of the professional staff of parallel implementation structures is appointed by the development partner rather than the country implementing agencies. The salary structure of staff of parallel implementation structures often exceeds those of civil service personnel. C. Key issues that determine if a PIU is parallel According to the VD and CAP (2007) the roles of PIU have been grouped into the following 3 broad categories (see Matrix of the CAP definition of PIU in the Annex) 1. Staffing composition and salary structure 2. Operational Responsibility 3. Reporting relationships Using the frame work of the CAP, one can break down these broad functions into the following specific activities which take place at Central Level PIU: 14

14 CAP Category 1 Staffing composition and salary structure 1. Development of ToRs, recruitment and supervision of contracts for externally appointed consultants of the Project 2. Work plans of GoL staff assigned to support the Project 3. Salaries and incentives for GoL staff CAP Category 2 Operational Responsibility 4. Project core activity: Consultation processes for Project identification and appraisal 5. Project core activities: Design and execution of activities, information management, Steering Committee, coordinating stakeholders, strategy formulation, planning and organizing the Steering Committee, 6. Support functions: Procurement 7. Support functions: Financial management CAP Category 3 Reporting Relationship 8. Reporting on Project activities (accountability, M&E, information management) The following Table give some general examples of integrated functions of PIU based on the situation in Lao PDR as described in the CAP (a detailed table from the CAP illustrating all PIU functions is in the Annex). EXAMPLES OF INTEGRATED FUNCTIONS (BASED ON CAP) Staffing composition and salary structure: Mainly civil servants with regular salaries assisted by few consultants, if any (e.g. DOI DIDM) Operational Responsibility line departments/unit of concerned government ministry/agency are involved in the design and execution of core project activities - most support functions executed by existing relevant departments/units - or support functions are executed by a special unit dedicated to supporting most projects (e.g. MPWT) financed by various development partners (e.g. MRC) Reporting relationship Functional Manager in line department responsible for reporting to relevant manager and development partners (e.g. NAFRI URDP) 15

15 In MAF, as regards operational responsibility there are no instances of integration as described in the CAP, i.e. most support functions executed by existing relevant departments/units or support functions are executed by a special unit dedicated to supporting most projects or financed by various development partners. Rather than ruling the integration experiences that do exist in MAF, the criteria were adjusted for the purposes of this study. Therefore the first three categories from the CAP were used but the final category was divided into two (Almost fully integrated and Integrated) and the criteria below were used: PIU categories Non-Integrated Parallel Semi-Integrated Almost fully integrated Integrated Characteristics Functions outside of GoL systems Functions partially within the GoL system Donors harmonize their systems between them and these are in turn aligned with GoL Accountability and decision making with GoL D. Steps to reducing parallel functions of PIU and encourage integration The organization of ODA in Lao PDR The organization of ODA in Lao PDR (from SFMM) The Prime Minister Decree No.75, dated 20/03/2009 has provided a policy guideline for dealing the ODA. Ministry of Foreign Affairs (MoFA) is to be the focal point for interacting with other countries and take leading role in collaboration with Ministry of Planning and Investment (MPI), Ministry of Finance (MoF), and Line Ministries and agencies as well as relevant local administration on the interpretation of government s policies and directions regarding the mobilization of ODA. The MPI is overall responsible for creating investment environment, attracting foreign investment and making strategy for medium to long term planning. These development plans have to merge with the Annual Budget prepared by Ministry of Finance. MPI has to coordinate with MoF and Line Ministries to ensure that proper project management function is placed before starting the project, The MoF plays an important role in the overall financial affairs of the country through Budget, Accounting, National Treasury, Fiscal Policy and External Finance Departments. External Finance Department (EFD) has been established to manage and monitor the external funding and has four divisions responsible for looking after Loan and Grant Management and receiving all data regarding external finances including Financial Management Reports (FMR). They will ensure implementation of SFMM at all line ministries and projects/programs in Lao PDR. Harmonization and simplification: (between donors and donors) common arrangements, simplify procedures and share information. This is the first step in order to effectively ensure capacity building of GoL 16

16 Alignment (between donors and GoL) through sector based planning and identifying centralized functions, GoL improves planning and increases effectiveness of human resources and budgets Ownership (GoL sets the agenda): As capacity increases, quality and transparency also increase which results in trust and increased accountability (stakeholders assume responsibility and do not blame each other when problems arise) Figure 1 below illustrates the relationship between the 5 key Principles of the VD for promoting aid effectiveness which should result in the integration of PIU (see : Aid effectiveness in extension, Schmidt P (NAFES, LEAP) Figure 1: The 5 key Principles of the VD for aid effectiveness The ADB 2005 Report on PIU mentions that the characteristics of a PIU depend on the following four factors: the donor, the parent agency (MAF and the concerned Line Department), the project and the country context. Figure 2 below illustrates how these and other factors contribute to the creation of parallel functions in PIU in Lao PDR and the relationship with the 5 key Principles of the VD. 17

17 Figure 2: Factors that result in the creation of parallel PIUs DPS USE COUNTRY BASED PROCEDURES AND REQUIRE COMPLEX SYSTEMS LIMITED ALIGNMENT WITH GOL SYSTEMS PARALLEL PIU LACK OF CAPACITY OF GOL LACK OF CONFIDENCE OF DPs DP SYSTEMS NOT HARMONIZED LACK OF AWARENESS AND LACK OF UNDERSTANDING OF GOL SYSTEMS HIGH DIVERSITY OF PROGRAMME MANAGEMENT OPTIONS OWNERSHIP HARMONIZATION AND SIMPLIFICATION ALIGNMENT MUTUAL ACCOUNTABILITY MANAGING FOR RESULTS 18

18 Capacity building, financial management, procurement and systems for reporting are all also addressed under respective Goals of Section 2 on Alignment. Figure 3 below illustrates how the degree of ownership is directly related to capacity building. A discussion on integrating the functions of PIU is therefore also relevant to other sections of the CAP. (see Table 1 below with the goals of the CAP and in particular Section 2 on Alignment). Figure 3: Relationship between capacity building and ownership Other challenges that were identified as part of the review of parallel PIU have also already been described under other Sections of the CAP particularly under Section 3, Harmonization and Simplification. The table of Linkages between parallel issues and CAP activities in the Annex identifies the issues raised in the course of this PIU study and the corresponding section in the CAP where these issues are addressed with an Action Plan. Any new recommendations arising from this study should therefore be integrated into the existing Action Plan corresponding to this issue. 19

19 Table 1: Goals and Objectives described in the CAP CAP Section 2. Alignment: Donors base their overall support on partner countries' national development strategies, institutions and procedures DPs Align with the GoL's Strategies GoL Strengthens Regulations and Procedures with support from DPs, which DPs Increasingly Use GoL strengthens development capacity with support from DPs Strengthening Financial Management Strengthening National Procurement Regulations and Procedures Strengthening Environmental and Social Standards for ODA-Funded Projects CAP Section 3. Harmonization and simplification CAP Section 4. Managing for Results 2. Results of the review of PIU functions in Projects interviewed A. Description of the current situation The following GoL agencies were visited: DoI, DLF, DoF, DoP, NAFES, NAFRI, MPI, MPWT and MOE. In addition information was collected on the following DPs and development organizations: ADB, WB, UNICEF, UNDP, AFD, FAO, SDC, JICA, MRC, GTZ and WCS Projects included in the survey (See annex for database of each Project) In total information was collected about the following 15 Projects including 11 Projects that were interviewed using the questionnaire DoI: DIDM (ADB), NCMI (ADB) DLF: NRSLLP (ADB) DoF: SUFORD (WB/Finland) DoP: PCADR (AFD), NUCCP (Northern Uplands Core Coherent Programme - AFD, EC, SDC, GTZ), SNRMPEP (Sustainable Natural Resource Management and Productivity Enhancement Project - ADB/IFAD), TABI (SDC) NAFES: LEAP (SDC), FORCOM (JICA), RISEP (JICA) NAFRI: URDP (Ramboll), NURIFAR (SDC), SURAFCO (SDC) DoA: IPM (FAO) Documents reviewed The Annex gives a listing of the documents reviewed in this survey. They include PIU reviews by ADB of 152 projects worldwide and EC, UNDP and WB papers on strategies of technical cooperation and analysis of PIU management roles. Within Lao PDR, documents relevant to parallel PIU include drafts of the MPI and MoF standardized management systems as well as a document reviewing existing systems for incentives in NAFRI and a report for LEAP on aid 20

20 effectiveness and extension. B. Results of assessment of PIU from 15 Projects Description of Projects at MAF (See Database summarizing Project profiles in the Annex) Total committed budget of ODA for a 10 year period in 72 multilateral and bilateral funded Projects: 295,060,729 US$ (based on Project Agreement and includes GoL contribution) Total for 34 NGO projects during the same period: 15,683,738 US$ Total budget joint ODA and GoL: 310,744,467 US$ 48 multilateral and bilateral projects are implemented through Central Level Technical Departments mostly with some kind of PIU. These projects represent a total of US$ 235,653,720 or 75.9% of the total ODA 9 NGO projects are implemented through Central Level Technical Departments mostly with some kind of PIU (US$ 4,060,042 or 1.4% of total ODA) The total ODA of 48 multilateral and bilateral projects and 9 NGO projects all with some kind of central PIU (i.e. a total of 57 PIU at central level) represents US$ or 77.1% of the total ODA Some interesting observations can be made regarding the distribution of funding across all MAF Departments (see Annex 6): The total ODA budget in DoI (37,100,000 US$) is almost the same as for DLF (36,023,667 US$) but DoI only has 2 projects, one of which (DIDMP) is using a PBA modality. On the other hand, DLF is managing 14 smaller Projects implemented in the traditional way each with its own PIU The SNRMPEP implemented by DoP represents a total of 36,800,000 US$ but using basket funding. This reflects the trend to improving Programme management and aid effectiveness by consolidating funding. These figures are indicative of a trend to commit more funding to Programmes with common arrangements such as PBA. The goal is to minimize administrative burdens by grouping several donors into one Project. One can argue that this is more feasible for Line Departments such as DoI which principally use loan funding for infrastructure for irrigation support and can achieve a bigger scale and replication across the country than projects with greater emphasis on social components. Characteristics of Line Departments in MAF One of the main issues that emerged during this review is that MAF is different from other Ministries because of the diversity of activities it is expected to implement. Unlike other Ministries such as Health or Education, MAF has to take into account the regional, geographical and ethnic differences as well as the market trends that are becoming more and more of a priority for planning. This diversity and the need for innovation may seem like a justification for using parallel PIU in order to keep a Project agile and innovative, ensure results and effective reporting 21

21 of lessons learned. However experiences such as with LEAP and NAFES are showing that even if the first Phase of such types of Project has a parallel PIU, subsequent phases can gradually integrate PIU functions into the Department implementing the Project as long as there is systematic capacity building and retention of GoL staff familiar with the Project objectives. The highly diverse and independent spirited Departments in MAF are necessary in order to address the diverse challenges facing agricultural and forestry development however there is also rivalry between these departments that needs to be overcome in order to promote good coordination. Experiences such as with SUFORD showed that Projects which include several Departments into their Project Document (DoF, NAFES) and assign separate budgets to each Department can be successfully implemented. The database of ODA investments in MAF shows that the sheer number of projects and the volume of funding is a significant challenge for GoL to manage. This multitude of Projects and donors all with different approaches is reducing the availability of qualified staff for the management of any one project (this was also a finding of the worldwide ADB 2005 Special Evaluation Study on the role of PIU). Initiatives to harmonize There are at present several initiatives to standardize and harmonize procedures, rules and regulations for a variety of PIU functions. These include the Finance and Administration Manual and Manual of Operations (Poverty Reduction Fund. 2003), Guidelines for Technical Reporting (MPI) and the Standard Operation Procedures Manual (SOP) and Standard Financial Management Manual (SFMM) developed together with MoF and MPI respectively. In addition several Projects in different line departments aim to develop an M&E system. These initiatives in themselves are expensive and time consuming and rather than duplicating each other s effort, there needs to be coordination so that the results of the effort can be adopted as National Standardized Systems. C. Staffing requirements of PIU Generally most PIU are comprised of the following staff positions which are often drawn from a mixture of GoL staff and external consultants: NPD, NPM, Programme Officer, Procurement Officer, M&E Officer, Administration Manager, accountant and secretarial support staff which is a total of 8 or 9 staff. As the table below shows and given that at the present moment there are 57 Central level PIU, one can infer that 50% of staff in MAF at Central Level are supporting ODA Projects. This is a significant volume and there is therefore an urgent need to ensure the human resource management for these staff is systematic and integrated into the MAF institutional system such as through capacity development, performance reviews and merit based pay scales. Estimated staff requirements of Central Level PIU 57 PIU, 9 staff ea. 513 Total staff at MAF Central Level (approximately) 1000 Percentage requirements of existing PIU 50% 22

22 D. Conclusions from the results of the questionnaire Using two criteria to distinguish between almost fully integrated and integrated was useful during the interviews in order to identify with more precision the existing capacity of GoL in managing Projects. Quantitatively it was not so useful because projects were divided about equally between the two criteria A relatively small number of PIU functions are either parallel or semi integrated. The majority are between almost fully integrated and integrated Under the issue of Operational Responsibility, the CAP matrix includes the following criteria to define support functions that are integrated: support functions executed by a special unit dedicated to supporting most projects financed by various development partners. At present there is no project which falls under this category but on the other hand several projects fall under the alternative criteria proposed in the CAP matrix which is that most support functions are executed by existing relevant departments/units. However even in this case many Projects also recruit additional external staff to oversee these support functions such as for financial reporting and for procurement. This still falls under the criteria of integrated as described under the issue of Staffing composition, i.e. Mainly civil servants with regular salaries assisted by few consultants, if any. In order to achieve further integration, support is needed especially in developing standardized systems, harmonizing processes between donors and capacity building of GoL staff. The possibility of setting up a centralized unit in each Line Department which takes over some support function should also be explored by MAF In other PIU functions such as developing work plans of GoL staff and operational responsibility, there is a higher degree of integration in certain line departments that are experienced in project management and full integration will be dependent mainly on capacity building and increasing alignment with GoL time frames and planning Interviews with each organization indicated that there is no systematic capacity building of GoL staff working on a PIU. Senior staff are expected to learn by doing and junior staff rarely have opportunities for administration training beyond workshops on specific topics relevant to the Project such as formulation of M&E system or development of Annual Work Plans (the lack of capacity building for staff of PIU is a worldwide phenomenon identified in the ADB 2005 report of PIU) There are indications that in certain Departments, institutional capacity for managing projects has increased during the last 10 years, however the number of experienced senior staff who can adequately manage projects is limited and their workload is increasing due to the establishment of Central level coordination mechanisms such as the SWG. The trends in ODA in the NRM sector as well as the institutional landscape in Lao PDR are frequently changing and this is reflected in Project design which implies that GoL staff has to continuously be upgrading their management and administration skills. In many respects the work undertaken for the management of a Project often overlaps with the mandate of the GoL line department yet if there is a lack of integration, staff end up having to duplicate work or end up doing it only for the PIU and neglecting the same tasks for their department Most PIU interviewed do not have an exit strategy which plans for the integration of PIU functions into the GoL line department or for recurring costs to maintain activities beyond the Project. The exception is when Projects implement several phases over a long 23

23 period and gradually decrease donor inputs over time with the aim of building capacity and planning budgets for GoL to take over those functions 3. How to make ODA more effective? Recommendations based on the framework of VD CAP A. CAP Issue 1 Staffing: TA Recruitment and Roles In a parallel PIU, the selection/recruitment process and management of external staff does not require GoL involvement. In an almost fully integrated PIU, the selection/recruitment and management processes are jointly determined and final decision is by both Government and donors together. In a fully integrated PIU, GoL takes full responsibility for recruitment and management of any external PIU staff. Parallel situation: GoL staff are not improving their management skills since they leave Administration up to the TA TA are not integrated within a MAF strategic framework for capacity building of GoL staff (lack of alignment) GoL is not consulted by some donors on selection of TA because of donor consultant recruitment regulations based on their country offices (lack of ownership) TA are supporting administration (capacity substitution) but their priority should be to increase technical and management capacity of GoL staff and reduce the need for external consultants in administrative functions Unclear line of accountability of TA. Short term TA work quality not always competent but GoL has limited roles in enforcing improvements of outputs (especially if the TA is international and not based in country) There are too many long term TA positions Counterparts for TA are not selected based on a systematic policy of integrating Project inputs into long term capacity building for GoL Integration Experiences: TA work under the direction of the NPD (URDP NAFRI) Recommendations: The formulation of TOR for TA should include objectives not only for deliverables but also for successful transfer of know how (EC 2008) TA for administration support should be assigned to a unit within MAF departments and provide capacity building in the form of on the job training to GoL staff based on a human resources development plan and coordinated with the Department of Personnel There should be one standardized system for recruiting international consultants instead of each donor having their own guidelines CTA should only support technical components and not administration unless this is integrated into a capacity strengthening strategy or clearly accepted because of language barriers with the donor (this can gradually be reduced through PBA, basket funding and harmonized reporting) TA should be split visits of short or medium term with specific inputs so that their contribution can match the absorption capacity of the beneficiaries 24

24 Instead of long term TA encourage a gradual reduction of a TA s inputs over the Project duration to be replaced by increasing responsibility for the counterpart B. CAP Issue 1 Staffing: GoL staff salary structure In a parallel PIU, the salary structures of externally appointed technical staff of the PIU exceeds those of GoL staff although salaries or at least salaries of externally appointed administration staff might be similar to Government rates. In a semi integrated PIU, all technical and administrative staff salaries are the same as those of GoL staff but technical staff can receive incentives or can be recruited as short term consultants. In an integrated PIU, the salary structure of GoL staff of the PIU is equal to those of other GoL staff. Parallel situation: DSA are often not in-line with government rates and salary premiums are provided which are not transparent. This is creating rivalries and competition among staff to work with certain projects which are known to provide premiums EU Review of Donor Agencies Policies and Guidelines on TC and PIUs. The absence of country and sector capacity development plans/strategies limits opportunities for coherent and coordinated responses Integration Experiences: NAFRI Draft report on system of staff salary incentives (Ramboll 2008) No premium allowed but consulting is permitted with a contribution to the parent agency (NAFRI) DSA supplement to compensate for inflation (NAFRI) GoL from one Ministry can be recruited to work as consultants in a different Ministry MPI is working on developing a system of incentives and develop a transparent system to acknowledge good performance As part of public financial management reform in Cambodia, EU and WB are exploring avenues for supporting salary increases of Government staff working on Projects. WB proposes to provide half the starter funding (the other half from government) on a merit-based pay initiative, which is effectively introducing new civil service salary scales for good performers, starting with those involved on WB - financed projects. The half funding from WB decreases linearly to zero over the life of the project, with the government thereafter taking on 100%. On the other hand in Vietnam, there is a surplus of local consultants which implies more selection is possible by Projects. There is an intermediate capacity level between GoL staff and international consultants. Government is mainly concerned with administration of Projects and National consultants provide technical backstopping and prepare technical reports. All donors have agreed to apply the same salary scale to national consultants who in turn pay a percentage to Government. 25

25 Recommendations: If Projects are integrated into sector planning and the GoL annual planning there is a better chance of using GoL DSA pay scales for field work as long as there is a clear directive from leaders in positions of authority (i.e., the Minister s Office) at the Central level to the field (see link to CAP 1 Ownership and implementation of NSEDP with costed sector plans) There should be agreement between donors on harmonizing DSA rates and other interim solutions that minimize distortions such as non salary incentives (see CAP 3. Harmonization and Simplification) Formulate an exit strategy which includes paying DSA from the National budget in order to maintain activities initiating during the Project Formulate a project based on experience in the region to gradually increase GoL pay scales (e.g. Cambodia and Vietnam) or elsewhere (e.g. Tanzania mentioned in WB 2005) C. CAP Issue 1 Staffing: Work plans of GoL staff In a parallel PIU there are no government staff assigned to the PIU or there may be some GoL staff but they work exclusively on project activities which are not integrated into their ordinary Government activities. In a semi integrated PIU, GoL staff deputed to the PIU work principally on Govt. responsibilities as part of the project. In a fully integrated PIU, GoL staff integrate all project activities into their Govt. activities. Parallel situation: It takes a minimum of three years to merge work plans of the GoL and a Project unless a PBA is used Lack of systematic method for selecting GoL staff to support Projects based on job description or capacity building plan GoL staff are on too many Steering Committees GoL staff are transferred to different Departments and the capacity building is lost to the original department Drainage of human resources from GoL to Projects and overload of GoL staff who work part time for the PIU but still have their other work to take care of and are not compensated GoL staff are not evaluated systematically within their organization for their performance in Projects Ad hoc capacity building that is not systematic or cost effective MAF staff have capacity but it is not systematically identified and used by Projects Counterparts for TA are not selected based on a systematic policy of integrating Project inputs into long term capacity building for GoL Duplicative missions create administrative burdens Integration Experiences: MPWT (Project Monitoring Division in the Dpt. of Roads) Integrated planning (URDP) and location of CTA in GoL unit (LEAP, NAFES and GTZ RDMA CTA within DIC of MPI) 26

26 Recommendations: Work with donors to anticipate and plan human resources based on multi year Sector Planning and PBA (see link to CAP 1 Ownership and implementation of NSEDP with costed sector plans) Organize joint training and missions where applicable by using PBA (see CAP 3 Harmonization and Simplification) D. CAP Issue 2 Operational Responsibility: Consultation processes Parallel situation: MAF Departments have only limited opportunities for consultation and they are not sufficiently well informed about the project in advance (MAF and MPI make agreements with Donors and Technical Departments are then asked to implement components) Consultation processes during Project formulation are not linked to staffing during implementation. i.e. GoL might be involved during the project identification Phase but during the Project inception Phase different staff are involved Lack of transfer of knowledge between the field and the National Level which is needed for budget planning and policy formulation Lack of capacity in the diagnosis of situations (inadequacy or absence of surveys, feasibility studies or impact assessment in the decision making process) Integration Experiences: Consultation: In loan components GoL has major role in decision making (e.g. SUFORD/DOF, DIDM and NCMI/DOI) Information management e.g. NAFRI Information Management System and DoP databases of Projects Recommendations: Reduce the number of Projects by using PBA and anticipate staffing priorities so that the same staff that involved in the Project design phase are involved in the implementation of the Project (see link to CAP 1 Ownership and implementation of NSEDP with costed sector plans) Develop information management and dissemination systems so that when new Programmes are formulated they build on the lessons learned from the previous ones E. CAP Issue 2: Operational Responsibility (Review of Progress and formulation of Annual Work plan, execution of activities, coordinating stakeholders, strategy formulation, roles of the Steering Committee, M&E) In a parallel PIU, donors manage all aspects in the execution of project activities and GoL involvement is limited to sharing of information. In an almost fully integrated PIU, the GoL Director and line Departments are executing the Project activities and the donor external staff such as the CTA are backstopping. Once a PIU is fully integrated, the donor funded staff have decreasing roles in supporting implementation of the Project. Projects that are being implemented in a Phase wise manner (e.g. LEAP is now in its fourth Phase) gradually hand over more and more responsibility to GoL as systems are improved and capacity of GoL is improved. In most cases, GoL is leading the Steering Committee however the donor may still have a lead influence on key strategic decisions and policies although that influence may only be exerted 27

27 outside of SC meetings. The SC only meets at most once or twice a year and it is therefore not a significant factor in determining whether a PIU is parallel or integrated. (Personal quote) Lao PDR management culture places a lot of emphasis on the individual rather than relying on a system to achieve results. Therefore a successful Project is 90% dependent on the qualities and skills of the National Project Manager and only 10% are related to the system itself. The management style and the role of the NPM are crucial in guaranteeing aid effectiveness. Good NPMs are individuals who have had extensive field experience as part of their career and understand the realities of implementing the Project at all levels thereby are able to ensure close supervision of the field level and devise appropriate incentives to motivate staff (quote based on an interview conducted as part of this survey) Parallel situation: The project is not aligned with the GoL annual planning time frame. If there is direct implementation at the Province level the National level is not receiving information about progress. The implementation plans for a Project are not based on the Project Document There is a lack of mechanisms for inter- departmental and inter-ministerial collaboration and cooperation (membership on the SC is insufficient to ensure this takes place) Integration Experiences: PBA implemented with DIDM (DOI) An executive board under the SC meets more frequently and addresses operational issues in Project implementation (MRC) Components of a Project and the respective budget are allocated to different Departments (e.g. SUFORD is implemented by DoF but the Village Development Component is under NAFES) Development of SOP by MPI and of other Project Management manuals (e.g. URDP) Recommendations: Reduce the number of Projects with separate PIU and use PBA which are synchronized with GoL planning cycles (see link to CAP 1 Ownership and implementation of NSEDP with costed sector plans) Instead of relying on the PIU, establish a centralized function at Ministry Level which has authority to coordinate planning with several Ministries and build capacity based on long term planning needs for such types of coordination including linkages with Poverty Reduction and Agricultural Management or PRAM professional degree programme (see Annex) Even if the Project is implemented directly at the Province level there needs to M&E by a unit of MAF at National level M&E needs to be done using a GoL standardized system instead of being done by donors which are external agencies The database which is the foundation of an information management system for M&E needs to be developed with Lao GoL participation in order to be fully accepted and integrated 28

28 Establish a task force under the Project SC composed of Line Department Directors or their representatives with a mandate from Minister s Office to ensure working linkages with other Departments Allocate Project components and budgets to each department from which cooperation is expected F. CAP Issue 2 Operational Responsibility, Support Function: Financial systems In a parallel PIU, financial systems are selected based on donor preferences and the PIU is headed by a CTA who approves releasing funds. Audit reports are either not shared with the Government or shared with the GoL but GoL has no decision making authority. In a partially parallel PIU, financial systems are selected based on donor preferences and only Donor staff signature is needed for releasing funds but GoL can veto financial decisions. A more fully integrated PIU implies that financial systems selected for the Project are compatible with those used by Government (i.e. GoL has some prior experience in using the systems) and both Donor and GoL have to sign authorizations for release of funds (specify which stage of funds transfer). Ultimately GoL makes all decisions on choice of financial systems and has full authority in releasing funds and conducts its own audit of accounts. Unless reforms take place, when funds flows take place through the GoL system the process for obtaining funds may be considerably slower than if funds flow directly through a parallel PIU imprest account with the CTA and NPD managing the fund. Parallel situation: A consultant is usually recruited by each project to act as financial officer (lack of ownership by GoL) Lack of harmonization between donors on guidelines for financial management. Although some Guidelines are now available there has been little progress on implementing the use of standardized operational and financial management systems Integration Experiences: Standard Operations Manual and Standard Financial Management Manual developed (WB and MoF) MRC Programmatic planning and 11% contribution to administration unit Standardized systems are used with which GoL is familiar and a centralized system for funding request and funding flows exists (DIDM/DOI/MAF and MPWT/DoR). Recommendations: Simplify reporting requirements by using a Programme Based Approach with basket funding (see link to CAP 1 Ownership and implementation of NSEDP with costed sector plans) Encourage Projects/Programmes to adopt the standardized system for financial management (see link to CAP 2 Alignment, Sub Goal: Strengthening Financial Management: GoL and DPs jointly review and decide on acceptable criteria for PFM regulations and procedures) Establish a permanent administration unit in the Division of Planning of each Department which receives capacity building from Projects on standardized system for financial management and on specific requirements of each donor Each Project/Programme makes a contribution towards the running costs of the administration unit 29

29 G. CAP Issue 2 Operational Responsibility, Support Function: Procurement systems On multilateral funded Projects, Procurement guidelines dictate the procedures and the assets are negotiated with GoL during the formulation of the Project Document. If procurement is parallel, this implies that the PIU Director makes all decisions on purchasing. If it is integrated, GoL and the donors make joint decisions on procurement or that procurement is entirely organized through a central dedicated unit in the Ministry. Project preparation work includes preparing tender documents, inviting bids, evaluating bids, awarding the contract, and procuring equipment. Upon Project completion, assets are accounted and reported to the State Assets Management Department (SAMD)/MoF for reallocation to the concerned ministry/entity. SOP: DPs are expected to integrate their procurement procedures with those of the GoL over a reasonable period of time, recognizing that this integration may not be easily achievable in the short term. Parallel situation: A project which is funded both by grant and by loan each from a different donor will have two sets of procurement guidelines Projects often recruit their own procurement officer who is familiar with the guidelines of each donor (lack of harmonization) GoL only has limited decision making Integration Experiences: ADB guidelines are harmonized since they are used by IFAD and WB Recommendations: Harmonize procurement regulations where possible. (See CAP 2. Alignment: Sub Goal: Strengthening National Procurement Regulations and Procedures) Establish a function in MAF responsible for assets and works directly with MoF and receives capacity building from procurement consultants recruited under a Project. This division could eventually supply the required expertise for each Project Raise the upper limit of Competitive Local Bidding so that GoL has more decision making authority H. CAP Issue 3 Reporting Relationship: accountability, M&E, information management Based on the matrix in the CAP an integrated PIU is where: The functional Manager in line department (or Project Manager/Director fitting into the existing organizational structure of the Government) and responsible for reporting to relevant manager and development partners. This was the case for the majority of the PIU interviewed. In other words the Director does not exist in isolation from its Department and is still assessed on his or her performance within the GoL system. As regards the criteria used in the questionnaire, the majority of the respondents felt GoL used their own reporting system as well as providing periodic reporting for the donor and that GoL was in the driving seat and accountable to both their Department and to the donor using TA only as backstopping and not as capacity substitution. Only 2 projects felt reporting was dependent on 30

30 TA and reports were submitted directly to donors without passing through the line department. No PIU were in the extreme of being parallel in which the TA is leading the process or there is no sharing at all with GoL. Parallel situation: Some donors do not regularly or systematically inform the host Line Agency of progress of the Project since there is a lack of a GoL reporting system or their reporting might be in a different language from English or Lao There were few instances where TA report directly back to their donors without notifying the line Department. It sometimes happens when reports are prepared in a language other than English. If that is the case, then the reports disseminated back to the line department by the donor are not usually sufficiently informative The Division of Planning in each Department is not well informed of the progress of each Project/Programme Integration Experiences GoL leads information collection and reporting and approves final draft using standardized systems and only uses TA as necessary for improving standards and building capacity of reporting (URDP (NAFRI), LEAP (NAFES)) Initiatives to try and develop M&E systems in NAFRI (URDP) and NAFES (LEAP) Recommendations: TA support preparation of reports but do it jointly with GoL staff and build their capacity to report systematically based on Project objectives (see CAP 4. Managing For Results: Managing Resources and Improving Decision-Making For Results) GoL Director always signs final approval of report before handing it over to the donor Establish guidelines for M&E data collection and build the capacity of a centralized information management unit in each Department and in MAF DoP 4. Discussion The ADB 2005 SES Report on the role of PIU mentions several studies worldwide that highlight disadvantages of parallel PIU including the following: Some donors actually require isolation of projects from Government systems thereby limiting the positive impact of ODA to the individual agency Programme Officers and Managers of the donor organization resort to parallel PIU as a means to ensure efficient project management and faster disbursement and instead they should be should be encouraged to opt for integration of PIU and work to overcome problems with implementation (WB 2005) Delays in implementation can take place because of the donor insistence on being included in the hierarchy of decision making Some projects have a PIU both at National Level and at Province level and this leads to disagreements on Project planning and contributes to lack of reporting The many separate requirements of PIU impose high transaction costs on recipient countries and strain their administrative resources Parallel PIU are donor driven and undermine established structures and chains of command and divert scarce skilled human resources from mainstream administration An exit strategy is missing in many PIU 31

31 PIU contribute more to capacity substitution than capacity building The UNDP prepared a Practice Note on PIUs in 2003 and will soon prepare new corporate guidance on reducing the use of PIU. In 2005 the World Bank produced its own guidance note on the use of PIUs arguing that working through existing country institutions should be the default mode, and PIUs especially parallel stand-alone PIUs should be phased out. The majority of Bilateral Organizations surveyed appear to have a specific policy or to have taken a position on the use of PIUs at that time. The WB noted back in the early 1980s that parallel PIU as inconsistent with capacity building and institutional strengthening (WB 2005). In addition in 2003 the WB noted that capacity building within the PIU was not being transmitted to the Ministries hosting PIUs and that the selection and composition of TA through PIU reflected donor rather than Government preferences. However WB financed Projects continue to use PIU since they safeguard project fiduciary and performance objectives. The WB informant interviewed for this report did not necessarily condemn PIU but rather emphasized the importance of focusing attention on institution building and systematic capacity building. Signatories of the VD have committed to try and reduce and avoid to the extent possible the incidence of parallel PIU. The aim is to maintain or improve project implementation efficiency while at the same time ensuring ownership of GoL. The findings of this survey indicate that the issues mentioned above are indeed true in certain cases in Lao PDR but there are also numerous examples where progress has been made in overcoming these problems. These will be summarized in the section below. A. Cost effectiveness of central level PIU Implementation efficiency is described in the ADB 2005 Report of PIU as: the degree to which project tasks can be completed in accordance with time limits, available resources and quality standards. It incorporates the level of economy with which inputs are transformed into outputs With respect to complying with time limits, this survey was not able to specify whether parallel or integrated PIU are more time bound. However the ADB Report does point out that in general, integrated PIU have lower expectations as to being on time and within budgets possibly because of the work load implied and the need for increased capacity. In this respect, cost effectiveness was addressed in this study as a measure of efficiency. The following are indicators that give an insight into the impact of PIU: Vehicles: If PIU are parallel, there is always at least one vehicle requested in order to accomplish monitoring visits and coordination at National Level. This is clearly inefficient use of ODA funds and even more so if they are loan funds but it benefits the GoL in the short term since a provision for PIU to obtain a motor vehicle is always included in Project budgets Office equipment: Every PIU purchases office equipment which becomes GoL property after the Project. However it is questionable if it makes sense for GoL to pay maintenance after the Project on a wide variety of equipment all from different manufacturers. (for instance only photocopiers that use local rechargeable ink should be used instead of 32

32 having to buy expensive replacement cartridges, and only computers made in the region should be used, preferably those assembled in Laos) Office running costs: Includes rent, furniture, remodeling, utilities, paper. If the PIU is within a GoL building this is preferable since it can contribute to running costs of MAF. Maintenance should be organized by the MAF maintenance Department even if sub contracted to the private sector Personnel for office support: Includes secretary, driver, guard. Should be systematically selected and monitored through the MAF personnel office B. National level integrated PIU: Decentralization or recentralization? Decentralization implies delegating project management functions to agencies such as PAFO which have less capacity than the National level for support functions such as financial management and procurement as well as technical reporting. PIU may be created at Province level that are parallel offices but the trend seems to be to supply national consultants to support the local project management which is embedded within PAFO. However there may be ineffective communication between the National consultants and their counterparts at the Province level and tensions due to the wide difference in salary levels. Decentralization needs to be accompanied by capacity building in order to be effective. This needs to result in increased voice of civil society, a broad public policy dialogue, increased access to information and accountability to the clients of service provision. In some cases DPs avoid setting up a National level PIU and work directly with the Provincial level in the name of decentralization. Reporting takes places directly back to the donor and the National Level has a limited management function. This is easier when there are few Provinces and few donors. There is concern that if management functions are centralized, this will reverse the decentralization process and create super PIU which take over all the Project Management functions The National Level technical Departments need to retain their relevance and value added in supporting field Projects (as in the case of MPWT) with a focus on roles such as building capacity of the Provinces in administration, efficient procurement and financial management, M&E, coordination between Projects, Ministries and between DPs, facilitating access to National and international Level networks and information GoL stakeholders are concerned that their benefits will be reduced if they integrate parallel functions of PIU. Generally it is believed that maintaining parallel PIU functions provides both GoL and DPs with a means to circumvent bureaucracy in order to guarantee achieving Project results within specified time frames. Maintaining independence from GoL in Project management allows some degree of flexibility in the provision of salary premiums and perhaps additional supplementary benefits during the Project lifetime to the core costs of the host line department in terms of office and logistics support. Therefore the long term benefits in term of more systematic human resource development and work planning and increased ownership by GoL need to be clearly perceived in order for there to be support in reducing parallel functions. 33

33 A significant challenge to integrating parallel functions of PIU is to develop mechanisms that promote coordination between Departments and between Ministries, without having to depend on the PIU external staff to do this. There are no designated Divisions within each Department with the role of coordinating with other Departments and because of the nature of the hierarchy it requires staff of a higher position such as DG level or Minister level. Central structures such as the SWG have been established for this purpose, however these mechanisms require significant human resources and time in order to function effectively. They tend to have a high level membership of Ministry leaders and therefore typically only meet once or twice a year. The main challenge is to ensure there is follow up to the issues that are brought forward in these venues. Otherwise there is concern that these mechanisms lose their relevance. Some projects think it is more effective to bypass the Central Level and work directly at Province Levels. Therefore the information flow between local level and National Level is very important in order for the National Level decision makers to be able to allocate resources effectively. In addition, sister partnerships between Provinces in Laos and cities overseas cause aid flows that are not even reported at the Central Level to MOF or to MPI. If smaller NGO projects all work only at Province Level there is duplication and lack of planning and coordination by the Province. ODA becomes donor driven instead of needs based. Decentralization has resulted in a loss of budget at the Central Level. Given the shortage of capable human resources at National Level. MPI plays a significant role in the management of ODA. This agency is responsible for establishing standards that all Ministries are supposed to follow for procedures and rules and regulations in managing ODA investments. On the other hand, Line Ministries are in charge of coordinating research, training and education, technical assistance, planning between Provinces and providing information to MPI and MOF for budget allocations and National Social Economic Plans. This report recommends that administration support functions could be accomplished in specialized centralized units within MAF and these units should receive systematic support from MPI in order to apply the standardized guidelines which they have developed together with MoF. C. Case studies: Examples of successful PIU integration (A full description of each case study is in the Annex) The LAO Extension Approach Project (LEAP) is executed by NAFES line Department by Helvetas with SDC funding and is currently in its Fourth Phase. It has gradually been handing over responsibility for execution of Project core activities to NAFES and is now in the Phase of developing standardized systems which will allow it to also handover support functions such as financial management, procurement and M&E. Similarly, RDMA (GTZ/MPI) has eliminated the PIU structure in its second Phase. The CTA will be based physically in MPI and activities will be implemented directly through PAFO at the field level. 34

34 The Education Ministry is moving towards integration with the ESDF using a sector wide approach and pooled funding as a transition phase. There are several donors involved such as WB, Aus Aid, UNICEF and WFP that will be coordinated through one central GoL office that will include planning, financial reporting, M&E, procurement and disbursements. Other donors that are not participating in the pooled funding are aligning their TA with the Project. Unlike MAF and MPWT, the MOE does not manage fund flows itself. Instead the funds are disbursement to imprest accounts directly from the MOF. The management experience of top level officials is strong as well as good reporting systems and strong leadership of the ESWG. The Ministry of Public Works and Transport (MPWT) has eliminated parallel PIU since 2001 by institutionalizing all their functions through the establishment of a centralized Project Management Unit (Programme Management Division or PMD) within each Department of the Ministry. Details of the mandate of that Unit can be seen in the Annex. The characteristics that were key to effectiveness of such a unit included committed leadership from the Ministry, a well defined mandate, adequate budget support and staffing. The PMD for each Department report to the DPIC which in turn maintains a relationship with the Infrastructure SWG. These key principles are essential in order to overcome initial resistance to change from GoL and DP stakeholders by making it clear that the benefits outweigh the perceived costs. There are always concerns with centralization of functions yet these concerns can be mitigated if the best practices outlined above are followed. The case study of the Mekong River Commission demonstrates the potential to establish mechanisms where individual Projects or Programmes contribute to the operating expense budget of a centralized unit which provides administrative services including financial management, procurement and M&E. The examples of PBA in this report illustrate the expected objectives that hope to be realized through such implementation structures. In general it is expected that by formulating Programmes as opposed to Projects development initiatives are more coordinated and integrated into the host institution. In addition basket funding mechanisms can also be designed as part of the PBA. Nam Teun 2 is the first example of a Project in Lao PDR where the donors have agreed to give GoL full responsibility for financial management. The Watershed Management Protection Authority (WMPA) does the selection of consultants. SNRMPEP includes a SC composed of MAF, NAFRI, NAFES, MPI, NLMA and WREA. This project expects to strengthen such type of coordination both within MAF and with other Ministries and in addition uses basket funding mechanisms in order to simplify planning and reporting. The SDC funded project Support to Agricultural Colleges (SURAFCO) implemented through Helvetas is an example of MAF leadership where Project identification and design took place entirely under the leadership of the DoP supported by SDC consultants. SURAFCO was 35

35 integrated into the National strategy for Agricultural colleges. It is expected that once the capacity of colleges increases, integration will take place without the need of Helvetas support. Another SDC supported project implemented by NAFRI is NURIFAR which aims to be a pilot in establishing GoL ownership of a Project. GoL takes the lead in evaluating performance of TA and SDC backstopping and financial management is entirely under the responsibility of the NPD and the NAFRI financial officer. However the drawback is that the NPD is absent, then funds cannot be released for execution of activities. The main challenge NURIFAR is facing are lack of capacity and limited time of GoL staff since they are on 50% assignment to the Project. The SUFORD Project implemented in DoF and NAFES is both a WB loan programme and grant aid from the Government of Finland. In its second Phase, the grant aid is 4 years but the loan programme is only 3 years with the understanding that in the last year of the Project GoL will take over the budget for those same activities including provision of DSA to extension staff. Coordination between the Departments implementing the Project is entirely dependent on the leadership of the NPD. There are no mechanisms built into the PIU to facilitate coordination. TABI will be a pioneer in promoting coordinating mechanisms within Government ministries. The Central Unit (as the PIU is called) is located in DoP. TABI aims to mainstream biodiversity planning into agencies concerned with management of natural resources. It will be a pioneer in promoting coordinating mechanisms within Government ministries and MAF departments including MAF, WREA and NLMA and NAFRI and the Central Unit (as the PIU is called) is located in DoP. It plans to establish an Advanced Group which will be a database of National consultants that can be called upon when needed. This will provide a transparent and equitable way of identifying and recruiting national experts. Country examples Cambodia manages ODA through a Council Development of Cambodia (CDC) which is an independent unit under the MoF (instead of the MPI as in Lao PDR) ( Donors aim to increase Government salaries over time using aid funds during the transition until the Government can take on the budget themselves. In the meantime they have agreed on a system of premiums. Vietnam has implemented a decentralization process and built up capacity of civil service, including project management capacity. The Government favors salary top ups of its staff working on Projects. However as a result of decentralization, problems were experienced with management of Projects at the field level. In addition implementation delays took place because of the complex hierarchy and the Party s dominance. in decision making. Vietnam has PIU integrated into their Government system. Government staff are assigned to a PIU and are rotated through the PIU in order to promote equal opportunities. Vietnam has a surplus of local consultants which fulfill the intermediate capacity level roles between the international level of TA and the Government staff and produce reports. All donors have agreed to apply the same salary to National consultants and the local consulting company pays a percentage fee to the Government. 36

36 Malaysia was documented in the ADB 2005 study of PIU and it was noted that most projects were government funded and managed through integrated PIU primarily staffed by regular Government officers and with little reliance on contractual staff with respect to project management functions. The Tanzania health sector has introduced basket financing to provide mechanisms for continuous policy dialogue, communication and coordination for more than 15 donors. This is mainstreamed into a Sector Wide Approach (SWAp) overseen by a Committee financed through parallel or pooled funds. The SWAp Committee oversees the pooled funds including approval of work plans, budgets and quarterly release of funds, quarterly reporting and monitoring of achievements against performance indicators (WB 2005). 37

37 D. Recommendations Development Partner s interest and commitment to alignment with MAF Overall, there is consensus amongst DPs that ODA should be managed more effectively within MAF and there is a shared awareness of the reasons which lead to the creation of parallel functions of PIU. There is a perception that parallel PIU ensure a mechanism for defining accountability to the donors and a chain of command and decision making which would not exist if they were fully integrated. PIU provide an alternative to managing funds through the GoL system and can thereby provide greater flexibility and facilitate agile decision making where GoL staff leading a Project can afford to take risks and be innovation that would not otherwise be possible within a GoL structure. Similarly, international TA can be more objective than National consultants. EU Review of Donor Agencies Policies and Guidelines on TC and PIUs: Developing a EUROPEAID strategy to meet the EU aid effectiveness targets on Technical Cooperation and Project Implementation Units. AIDCO 2008 The Paris Declaration action plans vary in content and level of detail. While they all emphasize a commitment to the overriding principles of ownership, harmonization, alignment, managementfor-results and mutual accountability, they differ in terms of specifying how the indicators will be tackled. The action plans suggest a commitment to harmonize and align support around country driven agendas and to work through national systems and structures. In so doing, there is an undertaking to channel resources through national budgets, to utilize country public financial management systems and to work with national procurement systems. While making these commitments, all the agencies signal that the extent and pace of reform will depend on the local context especially as regards issues of governance, capacity and fiduciary risk. Where conditions are considered inadequate, then agencies reserve the right to continue to manage aid resources themselves while at the same time providing support to strengthen core capabilities, especially in the area of public financial management. Adoption of programme based approaches and alignment behind country strategies is likely to encourage greater coordination of technical cooperation inputs among agencies and will make the continued use of parallel PIUs, typically associated with stand-alone projects, less relevant. Specific TA reforms should not therefore be looked at in isolation as much of what needs to be done depends on the implementation of other elements of the Paris agenda. On the other hand, some DPs are trying to avoid the creation of Central Level PIU and are implementing directly at Province Level. They also see this as a way of contributing to the decentralization policy of GoL. The Province level PIU tend to be smaller in scale and are often located within the offices of the Line Department acting as the IA for the Project. However there tends to be duplication and a lack of strategic planning and investments are opportunistic and not 38

38 need based. Reporting from the Province level also needs strengthening and needs to be integrated within Province level reporting systems while at the same time annual core budgets are not dependable from one year to the next so planning is difficult. The GoL in its 7 th NSEDP which started in 2009 has shown interest in defining a division in each Line Department of MAF which can act as a focal point for the overall management of Projects. The general trend is to move towards a more programmatic approach and strategic sector planning which implies multipartner efforts and a coherent program of loans, grants and TA products and services. In addition, there are several efforts underway to standardize and harmonize project management systems and to experiment with pooled funding in order to reduce administrative burdens on GoL. DPs also understand the importance of delegating authority from their home headquarters or from the regional office to the Country Mission. They are restricted however by rules and procedures which originate from their home countries and are applied universally in all the beneficiary countries of that DP. This can be an obstacle to adapting to a particular country s systems and harmonizing with other DPs within the country. The models of MPWT and MRC and the implications for reducing parallel PIU functions in MAF are not understood in depth by the majority of DP. This survey and the PIU review of the Education Sector which will take place under the coordination of the ESWG, will help to raise awareness about the lessons learned from such types of case studies. The next step will be to explore options within each Department and with the leadership of MAF for applying these management models within the context of this Ministry. The challenge for MAF is to devise a way to reduce duplication by centralizing certain functions while at the same time ensuring decision making authority is still firmly assigned to Department leaders. The SWG is the mechanism for encouraging discussion amongst DP. However MAF needs to initiate the process by formulating a clear strategy for reducing parallel functions of PIU. One Department of MAF should be selected as a pilot and all the DPs funding initiatives in that Department need to be committed to the new management style. The benefits need to be clear of adopting a new approach and support must be in place to ensure Project results will still be obtained within time frames that are set forth in Project Documents. DPs will naturally be concerned that the efficiency of support functions such as financial disbursements and procurement should not be adversely affected by establishing management reforms The CAP mentions that pilots would be undertaken beginning in PBA sectors: Transport, Education, and Health however MAF could also decide to spearhead taking action on some of these issues. In order for financial management to become more integrated in the GoL, Projects will need to design a long term time frame that gradually hands over responsibility while at the same time building capacity in reporting, oversight and auditing. As regards procurement, some donors do not plan on transferring authority to GoL but GoL could still fulfill an important role in the consultation and negotiation process as well as ensuring the mechanisms for procurement take 39

39 place smoothly. There is also concern that there could be favoritism and political interests could interfere with a fair process. The delegation of authority for grant aid depends entirely on the donor. In some cases the donor is encouraging a process of capacity building that systematically increases transparency and accountability before handing over full control of grant aid funds. This report gives recommendations of specific steps which can be taken to address the reasons that lead to parallel functions of PIU based on experiences with DP in Lao PDR. The road map below illustrates a step wise manner in which these recommended actions can be implemented. General Recommendations Use the experience from questionnaires for PIU reviews in order to revise the matrix in the VD CAP describing parallel and integrated PIU and improve the criteria differentiating parallel from integrated functions. In particular, add criteria with reference to the role of TA. Organize a task force to formulate the methods for implementing the recommendations from this joint review taking into account the linkages between this issue and other proposed actions of the CAP MPI is in a strong position to provide coordination and capacity building since it is the entry point for all DPs investing ODA in Lao PDR. Therefore MPI should be strengthened so that it becomes the main agency responsible for documenting via the SWG the lessons learned in the process of integrating PIU. MPI should be formulating best practices for DPs, producing standardized guidelines and providing capacity building of centralized units in each Line Ministry which aim to integrate the support functions of parallel PIU (financial management, procurement and M&E as well as basic skills in the Project Cycle such as analysis and diagnosis, TOR formulation and reporting formats ) Identify the key competencies that need to be improved in order to integrate PIU functions. Capacity building efforts of MAF need to be systematic and include strengthening analytical processes and reflective understanding Harmonization: Formulate multi-year Sector based Planning Frameworks (SPF) so that DPs can shape their strategies around it and mainstream their activities Support the adaptation and mainstreaming of the SOP and SFMM in MAF Reach agreements to standardize DSA and salary incentives Alignment: Formulate capacity strengthening plans which include the Personnel Dpt. of MAF and the needs of each technical Department based on a multi-year vision to bring about integration of PIU functions. Then link up with ongoing training activities and curricula in the region for strengthening Programme Management and Administration New Programmes are mainstreamed into the SPF When DPs do not use English as their official language, technical reports should be written in Lao language first for review by the GoL partners before being translated into the DP s language for review by TA and Donors. Eventually, an English language 40

40 version of reports should also be available based on a format developed in a centralized M&E system. Ownership: Assess existing planning and management functions within divisions of DoP and explore options for centralizing certain existing parallel functions of PIU within MAF and within each Dpt. (e.g. identification and formulation of new Programmes, financial reporting, procurement and M&E) Best Practices DPs DPs should manage projects directly from their country mission and discourage regional management When designing projects with integrated PIU, the donor needs to be aware that there should be lower expectations with regards to complying with time limits and budgets and plan accordingly When designing Project implementation arrangements the need for a PIU should be addressed at the outset and should take into consideration funding modality, outputs expected of the Project, government policies, the mandate of the implementing line department, its capacity and its plans for capacity development Consultation The Department and staff ultimately responsible for the implementation of a Project should always participate actively in its planning phase. External TA Job descriptions and selection of counterparts should be in line with the capacity development plan for the Line Department and should not duplicate or substitute the roles of that Department The need for long term TA should always be critically assessed taking into account the exit strategy and capacity building of the Government staff TA should be supervised directly by the NPD Example of Good Practices The story of CaPAS in India a good model on recruitment of Technical services The presence of a well functioning Contract and Procurement Advice Section (CaPAS) in DFID India with delegated authority up to 500,000 has gone a long way towards improving the office s use of the national TC market since 2000, as well as national procurement systems. There has been a significant turnaround from using mostly expatriate TC providers to using nationals. CaPAS has saved some 13m since its establishment in 1999, of which 8m was for TC. This is a result of encouraging greater use of the national TC market and negotiating on fee rates. CaPAS functions include provision of advice to government on procurement as well as to DFID offices in the region with weaker in-house procurement capacity. It also advises on multilaterals procurement capacity when DFID is considering cofinancing. 41

41 Source: DFID How to Guide in EU Review of Donor Agencies Policies and Guidelines on TC and PIUs GoL staff work plans Project preparation should include an adequate assessment of institutional capacity Projects should be mainstreamed into existing Sector Plans and frameworks A dedicated unit in each line department should be able to access qualified staff who can assume the post of Project Director. If a staff member from one department is assigned to lead a Project which is under a different Department, it should be clear under whose direction that staff is working and the procedure for the performance assessment for that staff should be clear GoL salaries and incentives Harmonize DSA and pay scales amongst donors Salary incentives should be embedded in a performance based system for the Department as a whole. This is preferable to encouraging staff to take a leave of absence or resigning from Government work in order to work as consultants The WB 2005 Guidance for Project Management suggests that at a minimum, varying levels of PIU salaries across projects in a sector can be rationalized on standard scales in order to help minimize distortions in the system and discrepancies across projects (e.g. given of the Philippines). In the long term systems of merit based pay should be introduced (see CAP 3. Harmonization and Simplification). The WB suggests that rather than financing PIU salaries, a project could incorporate necessary operational costs for the project related incremental expenses of Government staff with the levels determined on the basis of project needs and the country s parameters. Procurement A centralized assets management system should be established within MAF which can provide services to Project in order to avoid having to recruit a procurement officer for every Project Financial management Centralize functions and capacity within financial management divisions of each Dpt. Monitoring & Evaluation A good information management system is needed in order to be able to monitor performance M&E is usually only external for midterm review and final evaluation. There needs to be a GoL system within the DOP to oversee Project activities and maintain databases on Projects which should be available to all Departments The goal is to establish a uniform Monitoring and Evaluation System which is applied by the government and donor supported projects. 42

42 Use National consultants who understand the needs of GoL Learning from Projects: A post evaluation mission is undertaken by the DPs agencies at an appropriate interval after project completion. The mission reviews the preparation, design, appraisal, and implementation aspects of the project/program, the costs and benefits, and the outcome of the project/program in relation to its initial objectives. The mission also identifies lessons learned from the project. The mission s findings, together with the project completion report, form the basis of the project performance audit report. 43

43 Planning for reducing parallel functions of PIU: the road map The immediate goal for MAF should not be the elimination of all existing PIU, but rather to develop means of reducing the incidence of parallel functions. New Projects should avoid creating parallel PIU unless there are clear justifications for doing so. Even if it is deemed necessary, the parallel functions of the PIU should only be a temporary measure and clear strategies should be devised that will allow those functions to eventually be integrated. Two broad principles have emerged from this survey in order to reduce parallel functions of PIU. These principles should be applied at every stage of the project cycle. The two principles can be summarized as the following: 1. The first principle is to reduce the diversity and heterogeneity of PIU at MAF using all the existing initiatives including the SOP, SFMM standard procurement manual, programme planning approaches and a budget framework Additional initiatives could include standardized TOR for NPD, standard model for PIU including norms fore budget allocations of the different functions within a PIU and standard costs and norms for evaluations and audits 2. The second principle is to centralize core support functions such as procurement, M&E, human resource development, inter ministry coordination, coordination with donors, integration of the Department of inspection of MAF in evaluations of projects. The idea is that MAF provides service units to Projects but does not seek to control their operations (also see Annex 7F, Suggested mandate for a centralized project management unit). The road map below proposes short term and medium term activities which will enable the implementation of the two principles mentioned above (the activities listed in italics are those that are already planned in the CAP therefore have been repeated here to indicate the linkages with all goals of the CAP): Short term MAF DoP organizes Task force composed of representatives of Line Departments and SWG - ANR to review consultant s report and agree on the follow up activities and time frame Representatives of each Line Department receive a briefing on existing models of centralized management functions such as MPWT and MRC and MAF formulates a strategy for adopting these models Assess existing and potential priority planning and management functions within divisions of DoP (ODA database, M&E, project design) Explore options for centralizing certain existing parallel functions of PIU within MAF and within each line Department (e.g. identification and formulation of new Programmes, financial reporting, procurement and M&E) Task force develops guidelines with MPI and other SWG for preventing the establishment of new parallel PIU 44

44 Capacity building programme is developed with Dpt of Personnel taking into account the strategy for centralizing certain functions and the needs of each technical Department based on a multi-year vision to bring about integration of PIU functions. Then link up with ongoing training activities and curricula in the region for strengthening Programme Management and Administration CAP Section 3. Harmonization and Simplification, Goal 2. (VD 19,22) Action ii) MAF and DPs decide on, and document core principles / good practices regarding missions and training scheduling, including consideration of mission free periods CAP Section 3. Harmonization and Simplification, Goal 1. (VD 18), Action iii) GoL and DPs (through the SWGs, where appropriate) share their training and mission plans and organize harmonized and/or joint training and missions where applicable; Specific plans are formulated for MAF to adopt existing SOP and SFMM and a capacity building programme is formulated Existing ODA databases in DoP and NAFRI are consolidated and are used as a basis for a MAF information management system and M&E system (VD CAP viii) MAF DoP task force gathers experiences on methods to use salary and DSA as incentives CAP Section 3. Harmonization and Simplification, Goal 2. (VD 19,22) Action ii) MAF and DPs decide on, and document core principles / good practices regarding missions and training scheduling, including consideration of mission free periods CAP Section 3. Harmonization and Simplification, Goal 2. (VD 19,22) Action iii) GoL and DPs (through the SWGs, where appropriate) share their training and mission plans and organize harmonized and/or joint training and missions where applicable; CAP Section 4. Managing For Results, Goal 1. (26, 28) iv) DPs work with GoL to prepare joint formats for periodic reporting and align to above results oriented frameworks; CAP Section 2. Alignment, Strengthening Financial Management, Goal 4. (VD 6, 8, 12, 14), Strengthening national PFM systems, Action (iv) MAF with MoF strengthens internal control framework by establishing internal audit functions and associated enforcement mechanisms CAP Section 1. Ownership Goal 1. (VD 1,2, 30), Action v) Develop / implement plan to strengthen coordination between ministries, central and local governments in the preparation of sector plans and move towards programme based approaches; Medium term Agreements are reached with respective donors on using Lao Language as the primary basis for reporting A Sector wide Planning Framework for MAF is formulated (costed sector plans and build consensus around sectoral priorities) Job descriptions and selection of counterparts should be in line with the capacity development plan for the Line Department and should not duplicate or substitute the roles of that Department The need for long term TA should always be critically assessed taking into account the exit strategy and capacity building of the Government staff CAP Section 2. Alignment, Goal: Strengthening National Procurement Regulations and Procedures, 6. (VD 6, 8, 15, 16) Action i) DPs clarify and share with GoL and other DPs 45

45 their respective legal and policy regulations for the use of national procurement systems and standards to deliver ODA; CAP Section 2. Alignment, Goal: Strengthening National Procurement Regulations and Procedures, 6. (VD 6, 8, 15, 16) Action ii) GoL and DPs jointly review and decide on acceptable criteria on procurement regulations and procedures; CAP Section 2. Alignment, Goal: Strengthening National Procurement Regulations and Procedures, 6. (VD 6, 8, 15, 16) Action iii) GoL Procurement Manual and Standard Bidding Documents are distributed to DPs; CAP Section 2. Alignment, Goal: Strengthening National Procurement Regulations and Procedures, 6. (VD 6, 8, 15, 16) Action xi) GoL fully implements new procurement decree; CAP Section 2. Alignment, Goal: Strengthening National Procurement Regulations and Procedures, 6. (VD 6, 8, 15, 16) Action xii) GoL recruits and trains sufficient number of staff at the PrMO; CAP Section 2. Alignment, Goal: Strengthening National Procurement Regulations and Procedures, 6. (VD 6, 8, 15, 16) Action xiii) Systematic collection of procurement information and monitoring of performance and outcomes (through PrMO); CAP Section 2. Alignment, Goal: Strengthening National Procurement Regulations and Procedures, 6. (VD 6, 8, 15, 16) Action xiv) DPs increasingly adopt GoL procedures, rules and regulations to manage ODA-related procurement. Introduction of Merit based pay initiaves DSA is brought in line with inflation rates and strategies are formulated to increase salary scales for GOL staff CAP Section 1. Ownership, 1. (VD 1,2, 30), Action x) Develop / implement a consultation plan that facilitates consultation between central policy ministries (CPI, MoF, MoFA), Line Ministries, local government, private sector, DPs and NGOs; The road map below for reducing parallel functions of PIU uses the fundamental principles of the CAP which are harmonization and simplification, alignment and finally ownership (also see Figure 1). A brief summary of the implication of each of these three principles and the relevance to the road map is given below (based on the VD CAP). Harmonization (between Donors) and simplification implies that GoL & DPs rationalize regulations, procedures & incentives and increase aid effectiveness through coordinated approaches such as pooled funding Alignment implies that DP policies, activities and aid flows are aligned with GoL strategies and plans, regulations and procedures and that DPs do not create structures for implementing ODAfunded projects that are parallel to GoL structures; Ownership implies that GoL takes an effective leadership role in coordinating aid at macro and sectoral levels through RTM and SWG and that GoL identifies specific capacity constraints to its leadership of the aid effectiveness agenda at the macro levels and decides with DPs on a program of support 46

46 The section below uses the VD CAP as the framework for planning and integrates the recommendations of this report into each of the relevant activities in the VD CAP (in italics). Table 2: Road Map (This matrix is based on the framework in the VD CAP) Harmonization and simplification (donor to donor) Alignment (between donors and GoL) Ownership (GoL sets the agenda) Function of PIUs Issue 1 Staffing External TA Issue 1 Staffing GoL incentives, salaries Issue 1 Staffing GoL annual work plans Issue 2 Operational responsibility/ Consultation processes Issue 2 Operational Step 1 (short term) Reach agreement with DPs that TA should be supervised directly by the NPD Capacity building plan used as a framework for identifying needs for TA Counterparts for TA are strategically selected DPs agree on using DSA rates based on PACSA and to include a supplement to compensate for inflation Establish best practices to ensure an exit strategy for recurrent cost of DSA after the project ends Assess the experiences in Vietnam and Cambodia and relevance for Lao PDR Formulate sector planning frameworks (SPF) for MAF and for each Line Department Assess on-going experiences with pooled Step 2 (short to medium term) Develop guidelines for reducing the number of long term TA positions in new projects Administration TA are assigned to strengthen a centralized project management unit Formulate standardized guidelines for recruiting GoL staff as consultants Develop a system of standardized incentives system for staff of an centralized integrated management unit based on model of MPWT New Projects are integrated into long range strategic frameworks of MAF Use SPF to assimilate Project calendars with the time frame of GoL A centralized project management unit in each Department is responsible for identifying needs and proposing new Projects based on an analysis of previous initiatives Project work plans are integrated into the host Line Step 3 (medium to long term) DPs reach consensus that TA roles should be separated based on whether they are defined as support functions (administration) or technical functions Merit based pay initiatives with GoL performance reviews New Projects are integrated into long range sector planning frameworks of MAF Line departments/unit of concerned government 47

47 Harmonization and simplification (donor to donor) Alignment (between donors and GoL) Ownership (GoL sets the agenda) responsibility/ Management of Project implementation Issue 2 Operational responsibility/ Financial management Issue 2 Operational responsibility/ Procurement Issue 3 Reporting relationship/ M&E, accountability funding mechanisms and PBA with harmonized work plans Reduce administrative burden of GoL related to the number of duplicative missions Pilot the SOP and share experiences using the SWG Present experiences of integrated PIU to MAF and formulate an agreement on the road map Pilot the SFMM and share experiences using the SWG Develop a set of guidelines with donors and raise the threshold for local competitive bidding Information management systems are developed for sharing information Reporting systems are standardized using MPI formats and harmonized for multiple donors through pooled funding mechanisms Department A capacity building plan is formulated for MAF in order to reduce parallel PIU functions and training programmes on project management are integrated within this plan (including linkages with PRAM described in annex) Delegate responsibility for organizing SC to a centralized project management unit Formulate a Project which aims to establish a centralized project management unit in one of the line Departments as a pilot and build capacity of staff using external TA where necessary GoL timetable for reporting is taken into account Training on M&E is coordinated within MAF Transparency is increased through databases at DOP with information on budgets and personnel in ODA projects ministry/agency are involved in the design and execution of core project activities GoL is given increased responsibility for integrating financial management instead of parallel management by the PIU GoL has established standardized rules and procedures for procurement TA support preparation of reports but do it jointly with GoL staff and build their capacity to report systematically based on Project objectives 48

48 Annex 1. VD CAP Matrix describing PIU functions (From the Country Action Plan of the Vientiane Declaration on Aid Effectiveness) Key features Non-Integrated / Semi-Integrated Integrated* Staffing composition and salary structure Parallel - Mainly consultants - Maybe a civil servant with premium salary as Director (or as counterpart) - Mix of civil servants with premium salaries and consultants. (almost fully integrated and integrated) -Mainly civil servants with regular salaries assisted by few consultants, if any. Operational Responsibility -Project core activities under the control of the parallel implementation structure -line departments/units of concerned ministry/agency are involved in the design and execution of core project activities. -line departments/unit of concerned government ministry/agency are involved in the design and execution of core project activities. -Support functions: Planning, procurement. Financial Mgt, M&E and reporting also executed by implementation structure. - Support functions mainly executed by the implementation structure. - most support functions executed by existing relevant departments/units (i.e. support functions are solely under the responsibility of GoL) or - support functions executed by a special unit dedicated to supporting most projects financed by various development partners. Reporting relationship Head reports to development partner or Minister or Vice- Minister Head reports to Director General of relevant department/unit Functional Manager in line department (or Project Manager/Director fitting into the existing organizational structure of the Government) and responsible for reporting to relevant manager and development partners. * In this situation the term parallel implementation structure loses its sense as the work is done by the relevant Government departments. 49

49 2. Documents reviewed ADB Special Evaluation Study on the Role of Project Implementation Units ADB Technical Assistance Report, LAO PDR Capacity Strengthening for Enhancing Aid Effectiveness EC Preparation of the Strategy on Technical Cooperation and PIU: Delegation s voice: current practices and exploratory ideas EC Reforming Technical Cooperation: The Backbone Strategy on TC. ECDPM Study of EC Technical Cooperation and PIUs: Review of the Regulations and Guidelines applicable to Technical Cooperation and Project Implementation Units. European Centre for Development Policy Management (ECDPM). EU Review of Donor Agencies Policies and Guidelines on TC and PIUs: Developing a EUROPEAID strategy to meet the EU aid effectiveness targets on Technical Cooperation and Project Implementation Units. AIDCO 2008 MoF Standard Financial Management Manual (SFMM) Mossberg and Sisongkham Incentives provided by projects at NAFRI Summary of situation and an outline of a NAFRI Incentive system. MPI, WB Standard Operating Procedures (SOP) Poverty Reduction Fund Finance and Administration Manual. Lao PDR. Schmidt P., 2009 Aid effectiveness in extension, (NAFES, LEAP) UNDP. Rethinking Technical Cooperation URDP NAFRI Accounting Procedures Manual. WB Guidance for Project Management: Strengthening Institutional Capacity during Project Implementation. WB Lao PDR: Road Sector New Implementation Paradigm in: Guidance Note for Project Management: Strengthening Institutional Capacity during Project Implementation WB. MPWT Paving the Road for Better Capacity. WB. Report of mission to assist MAF in developing strategies for (i) capacity development, and (ii) phasing out of project implementation units (Verbal communication) 50

50 3. Minutes of the Inauguration Workshop (Held 11 August 2009 at Central Hall, MAF) The workshop was successful in describing the functions of PIU and explaining the difference between parallel and integrated functions. The TOR and work plan of the joint review were presented and stakeholders indicated their interest in contributing and sharing experiences during the course of the mission. During the discussion following the presentation the following issues were raised: 1. The role of TA within the PIU should be included in the matrix classifying the integrated and parallel functions 2. The Irrigation Sub Sector has experience with implementing Projects without establishing a PIU. 3. It s important to describe the relationships or coordination mechanisms which already exist between PIUs at MAF 4. When analyzing parallel and integrated functions, it is important to differentiate between processes for harmonizing systems and for ensuring ownership in decision making. Harmonization of systems might be the first step of integration before arriving at fully integrated decision making 5. Simplifying and standardizing systems as well as capacity building is a key priority for all the PIU within MAF in order to increase ownership by GoL and reduce the number of parallel functions 6. DPs need to explore options for harmonizing their policies in order to reduce the number of PIU 7. The SWG are already facing challenges since Donors themselves are not harmonized with the needs and goals of the GoL. In order to comply with the Vientiane Declaration we need to be more GoL driven and less donor driven 8. PIU is needed in order to facilitate coordination with the host agency but the TOR of the PIU are very important. It is important to recognize that the PIU in different agencies can have different mandates but regardless they should be harmonized on the mandate of their host organization 9. We need to assess the priority function of PIU, i.e. whether it is capacity building or operation responsibility only 10. There have been other commitments between Donors and GoL and we need to coordinate the activities carried out under the umbrella of the Vientiane Declaration with those other commitments 11. PIU are important for multi donor projects but in order to avoid parallel functions we need to assess why each Donor expresses a need for a PIU 51

51 4. Definitions Definitions from Ulf G. Hägglund, Program Approaches and a Suggestion for the Way Ahead for a PBA for Upland Development. Project: Usually donor driven, donor controlled financing and management Programs: A way of bringing together a set of incoherent scattered projects in one or more sectors, with financial contributions from multiple donors who either selected specific interventions or pooled their money or used a basket fund. Sector Based Programme Planning: Move toward country ownership and less donor driven and implies more coordination between donors. The development of the sector or sub-sector needs to follow an approved policy document or overall strategic framework (i.e. framework planning). This then allows donors to pick and choose which aspect they want to support and ensures the Project is mainstreamed within the framework. Program Based Approach (PBA) PBA is Sector Based Programme Planning with the addition of the following three components: A performance monitoring system A systematic mechanism of consultation with clients and beneficiaries An agreed process for moving towards harmonized systems for reporting, budgeting, financial management, and procurement. PBA also include the following four elements: Leadership by the host country or organization A single program and budget framework Donor coordination and harmonization of procedures Efforts to increase the use of local procedures over time with regards to program design and implementation, financial management, and monitoring and evaluation. EU Review of Donor Agencies Policies and Guidelines on TC and PIUs. Programme-based approaches open up the opportunity to think beyond the requirement of discrete projects, to broaden analysis in terms of capacity assessment and to explore options for programme management that work within national structures. The absence of country and sector capacity development plans/strategies however limits opportunities for coherent and coordinated responses, and there are no proposals for how donors can meet indicators 4 and 6 in the absence of capacity development plans. 52

52 Implementation efficiency: The degree to which project tasks are completed in accordance with time limits, available resources, and quality standards. Executing Agency: The Government Department which is holding the Project. This is different from the Implementing Agency which is the organization which is actually responsible for carrying out the activities of the Project. It might be sub contracted by the Executing Agency or it might be a line agency Imprest Account: This is a dedicated account replenished with new funds as it goes to zero. The procedures for reimbursing the imprest require that a Withdrawal Application be prepared by the PIU accompanied by an expenditures statement that reconciles to the value of the imprest. 53

53 5. Linkages between recommendations for reducing parallel PIU functions and activities in the CAP CAP Issue Recommendation Link to CAP Projects are integrated into sector planning and the GoL annual planning Staffing: GoL staff salary structure Staffing: GoL staff salary structure Staffing: Work plans of GoL staff Operational Responsibility: Consultation processes Operational Responsibility: Consultation processes Agreement between donors on harmonizing DSA rates and if possible systems of merit based pay Work with donors to anticipate and plan human resources based on multiyear Sector Planning and PBA Reduce the number of Projects by using PBA and anticipate staffing priorities so that the same staff that involved in the Project design phase are involved in the implementation of the Project Reduce the number of Projects by using PBA and anticipate staffing priorities so that the same staff that involved in the Project design phase are involved in the implementation of the Project Operational Responsibility Reduce the number of Projects with separate PIU and use PBA which are synchronized with GoL planning cycle Reporting Relationship Reporting Relationship Reporting Relationship Procurement systems TA support preparation of reports but do it jointly with GoL staff and build their capacity to report systematically based on Project objectives Simplify reporting requirements by using a Programme Based Approach with basket funding Encourage Projects/ Programmes to adopt the standardized system for financial management Harmonize procurement regulations where possible CAP 1 Ownership and implementation of NSEDP with costed sector plans CAP 3. Harmonization and Simplification) CAP 1 Ownership and implementation of NSEDP with costed sector plans) CAP 1 Ownership and implementation of NSEDP with costed sector plans) CAP 1 Ownership and implementation of NSEDP with costed sector plans CAP 1 Ownership and implementation of NSEDP with costed sector plans) CAP 4. Managing For Results: Managing Resources and Improving Decision-Making For Results) CAP 1 Ownership and implementation of NSEDP with costed sector plans CAP 2 Alignment, Sub Goal: Strengthening Financial Management: GoL and DPs jointly review and decide on acceptable criteria for PFM regulations and procedures CAP 2. Alignment: Sub Goal: Strengthening National Procurement Regulations and Procedures 54

54 6. Description of Projects at MAF implemented through Line Departments at Central Level One can also analyze differences between the mandate and past history of each Line Department. For instance, NAFRI s strength is that research skills are commonly found as part of the training of agricultural officers (unlike extension see section below). Agricultural technical services were initially under the Ministry of Economy and extension was only carried out within aid projects particularly with US AID. The MoA was created in Technical services were delivered through the medium of state farm collectives. In 1986 new economic mechanisms were introduced including family production units. In 1990 ADB attempted to integrate research and extension in the DoA. Within agriculture, irrigation, forestry and livestock, only agriculture had a research component. NAFRI and NAFES were then created in the late 90s with the objective of decentralizing technical services. However it was not effective at that time because of unclear management roles of Province Governors with respect to MAF central management. Extension is therefore a new field of expertise in Lao PDR with almost no facilities available for training in extension management and skills. NAFES staff are transferred from other Departments. Staff for Projects are negotiated with donors during Programme Design and is part of the GoL contribution. Part time staff can be drawn from Nabon University. There is therefore a need for administration education adapted to the needs of poverty reduction and agricultural management. HRD is the backbone of poverty reduction. DoF is implementing the Forestry Development Fund which is a GoL mechanism for long term funding of research and field activities executed by DoF beyond the lifetime of a Project. DoF will need a capable centralized unit to manage and monitor this fund and ensure coordination and planning with NAFES and NAFRI. DoP is a relatively recently formed Department of MAF. It consists of 6 Divisions including the Division of Rural Development Cooperation (DRDC) which is implementing PCADR, the Division of International Cooperation (DIC) which is responsible for strategy development, information management and preparation of MOU. The Division of Planning is responsible for M&E, procurement and project accounts and the Division of Finance is responsible for financial reporting and audits. In addition there is a statistical Unit. It seems that there is a perception that there is currently a lack of coordination and communication between divisions of DoP and it is not clear why a Project is assigned to a particular division. It would seem logical for certain support functions to be centralized at DoP such as M&E. There is some debate as to whether procurement should be under the direction of DoP and there is concern of delays in processing requests as well potential favoritism and nepotism. However it would seem that by centralizing procurement, selection of valuable assets such as vehicles could be systematized. 55

55 Department Funding multilateral and bilateral projects (US$) Number of multilateral and bilateral projects Funding NGO projects (US$) Number of NGO projects DOP 84,669,610 8 DOF 20,007, ,977,042 3 DOA 8,394, ,197,371 3 DOI 37,100, DLF 36,023, ,075 2 NAFES 27,072, NAFRI 22,385, ,554 1 Total 235,653, ,060,042 9 Based on database of multilateral and bilateral ODA, Draft in preparation, DIC/DoP 56

56 NAFRI NAFES DOP DLF DOI DOA DOF 57

57 7. Examples of successful PIU integration Integrating PIU functions: Experiences in Lao PDR The study identified several successful initiatives that have already been initiated for integrating PIU functions in Lao PDR Harmonization: Standard Operations Manual and Standard Financial Management Manual (WB, MoF and MPI) Harmonization: Initiatives to try and develop M&E systems in NAFRI (URDP) and NAFES (LEAP) Harmonization: NAFRI Draft report on system of staff salary incentives (Ramboll 2008) Harmonization: ADB, IFAD and WB all use the UN formats and procedures for reporting Simplification: ADB is managing the IFAD loan funds in the SNRMPEP PBA Harmonization and alignment: PBA implemented with DIDM (DOI) and the SNRMPEP PBA Harmonization and alignment: MoE PBA approach (BESDP) Harmonization: MoF Procurement Manual 2009 Centralizing administration: MPWT (Project Monitoring Division in the Dpt. of Roads) Centralizing administration: MRC Programmatic planning and 11% contribution to administration unit Ownership: Information management e.g. NAFRI and DoP databases of Projects Ownership: NAFRI develops a strategy which is in line with GoL long term planning priorities and which provides a framework for donor alignment and takes responsibility for its own successes and weaknesses Ownership: URDP is seen by MPI as a good model Ownership: SUFORD is using mainly National consultants in all its Province level implementation offices and only uses TA for specific technical backstopping where innovation and capacity building are needed Consultation: In loan components GoL has major role in decision making (e.g. SUFORD implemented by DoF) Reporting: GoL leads information collection and reporting and approves final draft using standardized systems and only uses TA as necessary for improving standards and building capacity of reporting (URDP (NAFRI), LEAP (NAFES) TA selection and management: TA work under the direction of the NPD (URDP NAFRI) GoL work plans: integrated planning (URDP) and location of CTA in GoL unit (LEAP, NAFES and GTZ RDMA CTA within DIC of DOP) Alignment, GoL salaries and incentives: no tops up but consulting is permitted with a contribution to the parent agency (NAFRI) Alignment, GoL salaries and incentives: MPI is developing an incentives system that includes training that acknowledges good performance Operational responsibility: GoL is fully in charge of implementing the AWP Procurement: MoFa has its own procurement guidelines and they are similar to those used by WB. MoFA guidelines are used for National Competitive Bidding while WB guidelines are used for International Competitive Bidding. Financial management: Standardized systems are used with which GoL is familiar and a centralized system for funding request and funding flows exists (DIDM/DoI/MAF and MPWT/DoR). 58

58 A. LAO Extension Approach (LEAP/NAFES) LEAP began to implement its first Phase at the same time as NAFES was created. The two entities are therefore intricately linked. This has enabled LEAP has taken a range of measures to make use of partner s systems. LEAP has taken a range of measures to make use of partner s systems location of LEAP in the compound of NAFES, National Project Director, Joint Steering Committee, transparent reporting LEAP transfers funds to the implementing partners A transfer of financial responsibility to the partners using partner s system for the disbursement of funds needs a careful assessment of the fiduciary risk. Key factors are a) partners capacity, b) reliability of partner s system, c) trust LEAP demonstrates that a gradual approach can be used in order to transfer PIU functions from parallel to integrated. Initially LEAP was implemented through a parallel PIU and later it was transferred to a new Division which was established (CETDU). Although LEAP does use international consultants, GoL remains as the driving force of the Project. The CTA retains important roles even if the PIU is integrated because the CTA are familiar with the donor environment while on the other hand the NPD is well informed about the GoL institutional landscape and organizational culture in MAF. The NPD can also use the PIU structure as a mechanisms for implementing unpopular measures and provides a face saving solution for avoiding yielding to pressure to give in to favoritism. 59

59 B. Centralization of functions: Model of MPWT MOF MPI ISWG Dpt of Roads Programme Monitoring Division Dpt. Housing and Urban Planning Unit within the Division of Finance DOPC (Dpt of Planning and Cooperation) Dpt.of Personnel (capacity building plan) Project PIUs (mainly field based) Project PIUs (mainly field based) 60

60 Financial management system of MPWT Direct Payments Payments to imprest accounts BoL MOF Dpt of Roads Programme Monitoring Division Dpt. Housing and Urban Planning Unit within the Division of Finance DOPC (Dpt of Planning and Cooperation) Division of Finance Project PIUs (mainly field based) Project PIUs (mainly field based) 61

61 Project Monitoring Division within the Department of Roads (14 PIU in DOR, 25 total in MPWT) 30 permanent staff Functions of PMD Directors of each Project and PIU drawn from PMD staff Consultation on programme formulation Planning and budgeting, preparation of requests for replenishments Operational management of Project Preparation of procurement documents and manage the bidding and approval process Organize separate committees for each Project There are no top ups to salaries. Only leave of absence to work for Projects is permitted but staff lose opportunities for promotion Standardized MoF financial reporting system where donor agrees Disbursement Division of DOR: Management of imprest accounts Training of Province level PIU staff Personnel Department Budget of each Project from capacity building goes to Personnel Department Permanent staff drawn from existing quota: Director of Division Deputy Director Staff The PMD is separate from the Division of Planning because there are too many projects (although in the DHUP the PMD is a unit within the Technology and Environment Division). Once a project is completed, staff of each PIU return to their positions in PMD, usually not DG or DDG level staff The Projects are integrated into a 5 year plan and staffing requirements are planned in advance. Needs for coordination between Departments or between MPWT and other ministries is not very extensive and is done by the ISWG 62

62 Lessons learnt In order for a centralized unit to be effective it needs: Adequate operating budget Adequate staffing Clear vision of its roles and capacity development 63

63 C. Example of institutional set up of MRC (Centralized administration, 11% contribution to OEB and programmatic planning) 64