ANNUAL PROCUREMENT REVIEW

Transcription

1 ANNUAL PROCUREMENT REVIEW Prepared by Procurement and Purchasing Department April 2007 European Bank for Reconstruction and Development

2 TABLE OF CONTENTS 1. Introduction 2. Analysis of Public Sector Procurement Data 3. Procurement and Technical Services Activities 4. Follow-up from Audit Committee minutes on the 2005 Annual Procurement Review 5. Complaints and Concerns 6. Fraud and Corruption 7. Efficiency and Procurement 8. MDB Collaboration 9. Public Sector Procurement under Non-Sovereign Loans 10. Planned Activities for 2007 Annexes 1) Listing of s by Country of Operations (Value in ) 2) Awards by Country of Origin of the s (Value in ) 3) Awards by Country of Origin of the s (Number) 4) Awards by Country of Origin of the s (Value in by ) 5) Awards by Country of Origin of the s (Value in by Procurement ) 6) s Awarded by Country of Origin of the s 7) Distribution of Tenders Submitted by Country of Operations and by Business Sector 8) Distribution of Tenders Submitted by Country of Origin of the s and by Country of Operations 9) Distribution of Tenders Submitted by Country of Origin of the s and by Business Sector

3 ANNUAL PROCUREMENT REVIEW 1. Introduction This report, prepared by the Procurement and Purchasing Department (PPD), reviews the public sector procurement contracts financed in whole or in part by the Bank during. Included in the report is a summary of the activities of the Procurement and Technical Support Unit (PTSU) for the same period and, as in 2005, a section is included on the procurement activities of the Nuclear Safety Department. This report includes only the consultancy contracts financed under public sector Bank loans. It does not cover consultancy contracts for the Bank s own needs, those financed through TC funding, nor those awarded by the Office of the General Counsel. Information on these other consultancy services contracts is provided in the report on Engagement of Consultants issued by the Consultancy Services Unit (CSU), and information on contracts for goods and services for the Bank s own needs is provided in the Annual Purchasing Review. Annexes 1 to 9 of this Annual Procurement Review report contain the statistical data for public sector procurement contracts financed by the Bank during. The analysis of the data, as well as the main procurement issues considered in through the activities of PTSU, can be found in the main body of this report. The data on which this report is based has been published on the Bank s web site ( under the Procurement Section. The full report as well as the tables will also be published on the website once the report has been reviewed by the Audit Committee. 2. Analysis of Public Sector Procurement Data 2.1 Volume and Nature of s In, the total signed contract value more than doubled in comparison to The total value of these contracts represented 1,361.8 million for which s financing totalled million (see Annex 1 for the listing of contracts by country of operations). A total of 98 contracts were signed in. The number of transactions was 19.7% lower than that of 2005 while the total signed contract value increased by 121.2% and the Bank s financing of these contracts increased by 59.4%. The figures for represent the highest public sector contract value and the highest portion in the history of financing. The reduction in the number of contracts for was anticipated since the number of Invitations for Tender published in had decreased significantly from previous years. Table 1 illustrates the overall contract value, the portion of financing and the number of public sector contracts signed between 2002 and. Over the past five years, the financed a total of 739 contracts worth 3,874.8 million. Between 2002 and the total signed contract value increased by 174.6% although the number of transactions decreased by 45.9%. 1

4 Table 1 Annual Value of Public Sector Awards ( ) 1a -Public Sector s 1,362 1,400 1,200 1, Year Portion Prior to 2004, only financial participation w as captured Value ( million) Number of s b- Public Sector s Year Of the total contract value of 1,361.8 million in, financed million and the balance of million was provided by other sources, either other financial institutions (IFI, EU Agencies, bilateral donors) or the borrowers themselves. The value provided by other sources increased by 355.4% in comparison with 2005 with co-financing in 44 of the 98 contracts (44.9%), which was a significant increase from 2005 where only 22.1% of all contracts were co-financed. The value of the 44 contracts in which there was co-financing was 1,090.9 million and the financing for these represented million. Table 1.1 presents the distribution of the 44 co-financed contracts in by EU Accession, Candidate and Potential Candidate countries (EU Accession countries) and non-eu Accession or Candidate Countries 1. The majority of co-financed contracts (17 out of 44) were signed in EU Accession countries in the and Environmental Infrastructure (MEI) sector. Overall, co-financed contracts in EU Accession countries represent 63.6% of the total number of co-financed contracts. 34.8% of the total value of co-financed contracts was invested in EU Accession countries in the Transport Sector. s worth million or 68.0% of the total co-financed contract value were signed in EU Accession countries across all three sectors. 1 The countries of operations with public sector contracting activities in are classified as follows: EU Accession countries are Bulgaria, Lithuania, Poland and Romania; Croatia is a Candidate country and Montenegro and Serbia are Potential Candidate countries. Non-EU Accession or Candidate countries are Georgia, Kazakhstan, the Russian Federation, Tajikistan, Ukraine and Uzbekistan. 2

5 Table 1.1 Distribution of Co-financed public sector contracts during 1c- Co-financed s in 1d - Co-financed s in Number of s & Env Inf 2 1 Power and Energy Business Sector 9 7 T ransport EU Accession, Candidate and Potential Candidate Countries Non-EU Accession or Candidate Countries Value of s ( millions) & Env Inf Power and Transport Energy Business Sector EU Accession, Candidate and Potential Candidate Countries Non-EU Accession or Candidate Countries For, the average overall contract value was 13.9 million and the average financial participation was 7.9 million per contract 2. This represents an increase of nearly 100.0% compared to the average financial participation reported for 2005 where the loan averaged 4.0 million per contract. It should be noted that in, there were thirty contracts in which the total signed contract value was greater than 10 million, nineteen of which had a total signed contract value of more than 20 million. In, there were fifteen contracts in which financing was greater than 10 million, nine of which had an loan of more than 20 million. The largest contract was the Tunnel under the navigation opening of the St. Petersburg Flood Protection Barrier in the Russian Federation. This works contract had a value of million (21.1% of the total contract value) for which provided financing of million. Full details of all contracts are given in Annex 1. Analysis by Sector Table 2 illustrates the overall contract value and the number of public sector contracts signed between 2002 and by Business Sector. With a total number of 352 contracts worth 1,683.6 million, the (MEI) sector had the highest contractual activity both in terms of number and value over the past five years. The MEI sector is followed by the Transport Sector in which the financed a total of 176 contracts with a total contract value of 1,615.8 million. 2 data included an exceptionally large contract for the St. Petersburg Flood Barrier worth million. If this contract is removed, the average contract value falls to 11.1 million and the average financial participation falls to 6.2million per contract, which are still significantly higher than the 2005 average contract value. If the contracts falling in the lower and higher decile are also eliminated, the average contract size falls to 7.3 million with an average financial participation of 5.8 million. 3

6 Table 2 Annual Value of Public Sector Awards by Business Sector 3 ( ) 2a- Public Sector s 2b- Public Sector s Value of s ( million) Power and Energy & Environmental Infrastructure Telecoms Informatics & Media Transport Number of s Power and Energy & Environmental Infrastructure Telecoms Informatics & Media Transport Business Sector Year During, the sector with the highest public sector contractual activity both in terms of number and contract value was MEI in which 63.3% of all contracts by number, 50.5% of the overall contract value and 48.3% of s overall financing was invested. In the MEI sector, financing represented 54.6% of the total contract value for the sector while in the Transport Sector and Power and Energy Sector, financing represented 55.7% and 71.1% of the total contract value for each sector respectively. Therefore, out of all three sectors, the and Environmental Infrastructure Sector had the highest leveraging factor (1.83), followed by the Transport Sector (1.79) and the Power and Energy Sector (1.41). The average leveraging factor across all three sectors during was Analysis by Country of Operations Table 3 illustrates the distribution of contracts signed between 2002 and by country of operations and by contract value. Over the past five years the countries with the highest total amount of contract value were, in descending order: The Russian Federation ( million), Croatia ( million), Romania ( million), Kazakhstan ( million) and Poland ( million). The contracts in these five countries together represent 68.8% of the overall total contract value of 3,874.8 million, which was financed by the over the past five years. From 2002 to, no public sector contracts were financed in Armenia, Belarus, Czech Republic, Estonia, Hungary, Kyrgyz Republic, Slovac Republic and Slovenia. 3 To aid clarity, the sectors Country Team, Energy Efficiency, Natural Resources and Energy have all been grouped under the sector classification Power and Energy. 4

7 Table 3 Public Sector Awards by Country of Operations by value ( )* ALBANIA 3- Distribution of public sector contracts AZERBAIJAN BOSNIA AND HERZEGOVINA BULGARIA CROATIA FYR MACEDONIA GEORGIA KAZAKHSTAN Country of Operations LATVIA LITHUANIA MOLDOVA MONTENEGRO ** POLAND ROMANIA SERBIA ** TAJIKISTAN TURKMENISTAN UKRAINE UZBEKISTAN Value of contracts ( millions) *To aid clarity, the total contract values have been rounded to millions of Euros. Therefore, the following total contract values are not shown: Georgia ( 261,667 in 2003), Moldova ( 278,961 in 2002), Tajikistan ( 71,139 in 2002, 161,825 in 2004, 183,429 in 2005) and Uzbekistan ( 37,579 in 2004). ** Montenegro declared independence on 3 June. For statistical purposes, all contracts signed before 1 January, which were previously reported under Serbia & Montenegro, are now reported solely under Serbia. All contracts signed after 1 January have been assigned to Montenegro or Serbia respectively even if they were signed before the declaration of independence. There was public sector contracting activity in seventeen countries of operations during. The five countries with the highest contractual activity in terms of number are Romania (19), Serbia (15), Russian Federation (10), Poland (9) and Croatia (7). These 60 contracts represent 61.2% of all contracts signed by number. The five countries with the highest contractual activity in terms of value, in millions of Euros, are the Russian Federation ( 318.5), Croatia ( 256.4), Kazakhstan ( 237.2), Romania ( 190.3) and Serbia ( 148.9). With a total signed value of 1,151.3 million, these contracts represent 84.5% of the total signed contract value in. 5

8 Out of the seventeen countries of operations with public sector contracting activity during, there was co-financing in thirteen countries of operations. All twelve contracts that were signed in Albania, Azerbaijan, FYR Macedonia and Latvia were 100% financed by the. The total value of these contracts was 19.5 million or 1.4% of the total signed contract value and 2.5% of overall financing. The other thirteen countries of operations with contracting activity attracted a total amount of million from other sources which represents 43.0% of the total signed contract value in. Analysis by type of contract Table 4 gives the distribution of contracts by size and by type. The 47 works contracts represent the largest value by contract type (77.5% of the overall contract value) as well as the largest proportion financed by. Twenty works contracts with a value greater than 10 million were signed, including the largest contract signed in, the Tunnel under navigation opening of the St. Petersburg Flood Protection Barrier in the Russian Federation. As consultancy services are usually relatively small value contracts, ten of the thirteen contracts financed in had a value below 1 million. Table 4 Distribution of s by Size and Size/Number by ( M) Consultant Services Goods Services Supply and Installation Works Total 0~ ~ ~ > Total Total Value 14,842, ,319, ,891,821 1,055,706,641 1,361,760,715 Average Value Portion 1,141,747 6,666, ,192,788 22,461,843 13,895,518 14,127, ,410, ,196, ,668, ,403,020 Analysis of contract award by country of origin of the tenderers Annex 2 provides a distribution by country of origin of the successful tenderers 4 and the value of contracts signed for the period It should be noted that values from 2002 to 2003 represent financing only while the 2004 to values represent the total contract value. This reflects the change in the base of reporting introduced in Prior to 2004, only financial participation was captured. s from the Russian Federation have been the most successful over the last five years as they have won a total million or 19.6% of the overall contract value. Entities from the Russian Federation are followed by entities from Germany (14.3%), Croatia (12.6%), Turkey (7.9%) and Austria (6.8%). In, entities from the Russian Federation won the highest value of contracts (22.8% of the total contract 4 The successful tenderer is recorded as being only the lead entity in the case of joint ventures. 6

9 value) 5, followed by entities from Croatia (18.8%), Germany (13.8%), Turkey (12.6%) and Greece (8.2%). Entities from Croatia were particularly successful in winning five works contracts each valued at more than 30 million, including one contract worth 68.9 million, for the construction of roads in Croatia. Annex 3 provides the same breakdown but on the basis of the total number of public sector contracts signed in the period by country of origin of the tenderers. Out of the 739 contracts financed by from 2002 to, the highest number of contracts was awarded to entities from the Russian Federation (84), Germany (77), Croatia (77), Austria (54) and FYR Macedonia (44). For, the highest number of contracts was awarded to entities from Germany (11), Poland (9), Turkey (8), the Russian Federation (7) and Croatia (6). Annex 4 provides the total value of contracts signed in distributed by type and by country of origin of the tenderers. It shows that in, entities from the United States have been most successful for loan funded consultancy services contracts, winning 43.7% of all consultancy services contracts by value. Entities from Germany have been most successful for goods contracts (winning 65.7% of all goods contracts by value) and entities from the Russian Federation have been the most successful for works contracts. With one contract worth 49.0 million in, entities from India have won the highest value of supply and installation contracts. 2.2 Award Process Table 5 summarises data concerning those public procurement opportunities posted on the Bank s internet site. It should be noted that the procurement notices were also sent to UNDB for posting in the MDB business opportunity section as well as to the Official Journal of the European Communities. Table 5 Public Procurement Postings on web site Year General Procurement Notices Invitations for Expressions of Interest Invitations to Prequalify Invitations for Tenders Total (*) (*) Of the 138 Invitations for Expressions of Interest (EOI), 117 were posted by CSU, while the others for loan financed consultancy contracts and for nuclear safety funds requirements were posted by PTSU. In, the Bank published a total of 281 procurement notices on its internet site. There was a decrease of 28.2% in the number of General Procurement Notices in compared to 2005 and a decrease of 16.0% in the number of Invitation for Tenders. The decrease in the number of General Procurement Notices published 5 If the million contract for the St. Petersburg Flood Barrier were to be removed, entities from the Russian Federation would fall in third for the five year period behind entities from Germany and Croatia. 7

10 indicates that there was a reduction in the number of public sector projects at the planning stage. The number of Invitation for Tenders in, which is the lowest number of Invitation for Tenders over the past five years, could possibly explain why the number of public sector contracts in was the lowest in recent financing history. Table 6 6 Size/Number by Award ( M) Competitive Selection Distribution of s by Award Local Tender Open Tender Selective Tender Shopping Single Total 0~ ~ ~ > Total Total Value 14,812,706 11,900,191 1,271,383, ,664,224 1,361,760,715 Average 1,234,392 1,700,027 18,162, ,073,803 13,895,518 Total Portion 14,097,712 11,084, ,987, ,233, ,403,020 Table 6 illustrates that the majority (70) of the public sector contracts were awarded through open tender. This represents 71.4% of all contracts awarded and 93.4% of the total contract value. As open tendering only applies to goods, works and supply & installation contracts (85 contracts in ), the public sector contracts awarded through open tendering actually represent 82.4% of the number of eligible contracts or 94.4% of the total eligible contract value when consultancy services contracts are excluded 7. Two single tender contracts valued at 63.4 million, approved by the Board, reduced significantly the 98.4% open tendering by value achieved in Despite these decreases in percentages, the numbers for indicate that the strong emphasis of the Procurement Policies and Rules (PP&R) on open tendering has been respected. Furthermore, the open tender principle was applied and accepted for 6 Open Tender: Following public invitation to tender, all interested suppliers or contractors are given adequate notification of contract requirements and all such tenderers are given an equal opportunity to submit a tender. Selective Tender: The tendering process can be limited to pre-selected qualified entities when (a) the required product or service is highly specialised and complex; or (b) there are only a limited number of suppliers of the particular goods or services needed; or (c) other conditions limit the number of firms that are able to meet contract requirements; or (d) critical goods, works or services are urgently required. Local Tender: Local Competitive Tendering in accordance with national procedures may be used for procuring goods, works or services when (a) contract values are small; (b) works are scattered geographically or spread over time; (c) the goods, works or services are available locally at prices less than the international market; or (d) by their nature or scope contracts are unlikely to attract foreign competition. Shopping: Shopping is a simplified form of competitive purchasing that only requires written price quotations from at least three suppliers, including foreign suppliers wherever possible. Shopping procedures may be agreed to by the Bank for contracts of a small value for (a) readily available off-the-shelf items; and (b) standard specification goods. Single: Single Tendering may be used in exceptional cases where (a) the extension of an existing contract awarded in accordance with procedures acceptable to the Bank for additional goods, works or services of a similar nature would clearly be economic and efficient and no advantage would be obtained by further competition; (b) there has been an unsatisfactory response to open or selective tenders carried out in accordance with the Bank s procurement rules; (c) a product can only be provided by a single supplier because of exclusive capabilities or rights; (d) standardisation with existing equipment is determined to be important and justified, the number of new items are generally less than the existing number and compatible goods cannot be provided by other suppliers; or (e) it is a case of extreme urgency. Competitive: Competitive selection applies only to the selection of consultants. Competitive selection consists of soliciting from short-listed proposals that are evaluated on technical and financial parameters. 7 Out of the thirteen consultancy services contracts financed in, twelve were procured under competitive selection tendering and one was procured under single tendering. The single tender contract financed in Ukraine was worth 30,000. 8

11 contracts financed jointly by other sources thus illustrating the Bank s influence on competition in the procurement process. The other methods of selection represent mostly low value contracts. All seven local contracts were for works and were below the 5.0 million threshold stipulated in the PP&R for works contracts. Seven of the nine contracts awarded under single tendering were under the 200K threshold specified in the PP&R. The two remaining are large contracts for which exceptions to open tendering was approved from the Board: 52.2 million Fast Tram Infrastructure works contract, Krakow Urban Transport, Poland (Board Authorisation BDS98-98, Addendum 5); 11.1 million Almaty to Uzynagash Road Resurfacing works contract, Kazakhstan Road Sector Development, Kazakhstan (Board Authorisation BDS00-126, Addendum 1). The twelve contracts that were awarded using competitive selection were all loan funded consultancy services contracts and represent only 1.1% of the overall contract value. Annex 5 provides the total value of contracts signed in distributed by method of procurement and by country of origin of the tenderers to whom the contracts were awarded. It shows that in, entities from the United States were the most successful under competitive selection (associated with consultancy services contracts), followed by entities from Turkey and Germany. Local entities from the Russian Federation, Poland and Latvia won the seven contracts which were awarded using local tendering. s from the Russian Federation have been most successful in open tendering and won contracts valued at million (24.0% of the contract value for open tenders). Six out of the nine contracts procured under single tendering were awarded in Poland to Polish firms. One entity from Turkey won a works contract worth 11.1 million in Kazakhstan and two entities from Italy won contracts under single tendering, one in the FYR Macedonia and one in Ukraine. Annex 6 provides the details of the public sector contracts awarded in by the country of origin of the tenderers. 2.3 Level of Participation Table 7 provides data on the rate of participation in public sector tenders by country of origin of the tenderers. A total of 364 tenders were received, a reduction of 21.4% from the number of tenders received in 2005, reflecting the 19.7% reduction in the number of contracts and the 16% reduction in the number of Invitations to Tender in. There was an average of 3.7 tenders per contract. s from the first five most successful countries won a total of 35 contracts worth 1,036.0 million (76.1% of the total contracts by value) while submitting only 30.1% of the overall number of tenders received. The five most successful tendering countries in terms of value were: Russian Federation, Croatia, Germany, Turkey and Greece. The five most successful tendering countries in terms of number were: Germany (11), Poland (9), Turkey (8), Russian Federation (7) and Croatia 6). Four of the five most successful countries (excluding Croatia) ranked amongst the eight countries having submitted the greatest number of tenders for the year. These eight countries submitted 189 tenders representing 51.8% of all tenders submitted. More than fifty percent (50.4%) of the overall number of tenders received in were submitted by entities from the eleven most successful tendering countries (all of which won a total contract value worth 9

12 more than 20 million). These resulted in a total of 60 contracts worth 1,286.2 million (94.4% of the total contracts by value). The column Rate of Success in Table 5 provides an indication of the proportion between the award of contract and the number of tenders submitted by entities from each country. It can be seen that, in general, the countries being awarded the highest number of contracts and the highest cumulative value of contracts are also those whose entities submit the highest number of tenders. Consequently, the number of tenders submitted is generally the governing factor that can best explain their high success rate. There are a few exceptions to this general principle: entities from Greece who won 8.2% of the total contract value submitted only 1.1% of all tenders, whereas entities from Austria won only 1.8% of the total contract value while submitting 4.9% of all tenders. Given that 93.4% of the total contracts by value were awarded through open tendering, this demonstrates that open tendering is conducive to providing equal opportunity to those who participate. The participation of entities from Montenegro and Iran 8 in the tendering process is worth noting. Entities from Montenegro submitted a total of five tenders for the Transport Sector in their own country and won two contracts worth 0.6 million. 8 One entity from Iran tendered in the scope of the Tashkent Water Supply Improvement in Uzbekistan. While Iran was eligible at the time of tender, as of 23 December, the UN Security Council imposed sanctions on Iran under chapter VII of the UN charter and the country has hence become ineligible to participate in tendering processes. 10

13 Table 7 Distribution of s by Country of Origin of the s Country Total ed EUR % of total Value Number of % of Total Number of s Number of Unsuccessful Tenders Total Number of Rate of Success % of Total Number Submitted Won s won Tenders AFGHANISTAN 0.0% 0 0.0% % 0.3% ALBANIA 3,694, % 3 3.1% % 3.3% AUSTRIA 24,150, % 3 3.1% % 4.9% BELGIUM 476, % 1 1.0% % 0.5% BOSNIA AND 0.0% 0 0.0% % 1.4% HERZEGOVINA BULGARIA 1,834, % 1 1.0% % 0.5% CANADA 0.0% 0 0.0% % 0.3% CHINA 0.0% 0 0.0% % 0.8% CROATIA 255,668, % 6 6.1% % 3.3% CZECH REPUBLIC 20,143, % 2 2.0% % 1.4% DENMARK 1,281, % 3 3.1% % 1.9% FINLAND 2,236, % 1 1.0% % 0.5% FRANCE 3,591, % 2 2.0% % 2.5% FYR MACEDONIA 2,058, % 2 2.0% % 2.2% GEORGIA 5,736, % 1 1.0% % 0.5% GERMANY 187,326, % % % 12.6% GREECE 111,792, % 3 3.1% % 1.1% HUNGARY 0.0% 0 0.0% % 1.1% INDIA 49,042, % 1 1.0% % 0.3% IRAN 0.0% 0 0.0% % 0.3% IRELAND 0.0% 0 0.0% % 0.3% ISRAEL 0.0% 0 0.0% % 0.8% ITALY 36,230, % 5 5.1% % 3.3% JAPAN 0.0% 0 0.0% % 0.3% LATVIA 3,959, % 5 5.1% % 4.9% LITHUANIA 13,122, % 2 2.0% % 1.6% MONTENEGRO 578, % 2 2.0% % 1.4% NETHERLANDS 9,884, % 1 1.0% % 1.4% POLAND 78,164, % 9 9.2% % 7.4% PORTUGAL 0.0% 0 0.0% % 0.8% ROMANIA 15,024, % 3 3.1% % 3.6% 310,182, % 7 7.1% % 6.9% SERBIA 1,352, % 4 4.1% % 5.2% SLOVAK REPUBLIC 0.0% 0 0.0% % 0.3% SLOVENIA 0.0% 0 0.0% % 2.5% SPAIN 42,453, % 5 5.1% % 3.0% SWAZILAND 0.0% 0 0.0% % 0.3% SWEDEN 0.0% 0 0.0% % 0.8% SWITZERLAND 1,224, % 2 2.0% % 1.4% TAJIKISTAN 1,424, % 2 2.0% % 2.5% TURKEY 170,996, % 8 8.2% % 6.3% UKRAINE 0.0% 0 0.0% % 0.5% UNITED KINGDOM 123, % 1 1.0% % 2.7% UNITED STATES 8,003, % 2 2.0% % 1.9% Total 1,361,760, % % % 11

14 Analysis by Business Sector Annex 7 presents the level of interest generated by the Invitations for Tender by Business Sector. It can be seen that contracts in the MEI sector were spread across thirteen countries of operations and generated in the highest participation with 209 tenders for 62 contracts or 3.4 tenders per contract. However, the Transport and the Power and Energy business sectors generated on average 4.3 tenders per contract. MEI contracts, which are often for municipal infrastructure projects in new member states or in accession countries, are often co-financed with EU structural and cohesion funds. In Romania, eighteen out of nineteen contracts were in the MEI sector (12.7% of the total contract value) and in Poland, all nine contracts (7.7% of the total contract value) were signed in the MEI sector. Participation of Entities from Countries of Operations Table 8 shows that out of the overall 364 tenders that were submitted during, 51% were submitted by tenderers from countries of operations. Out of the 98 contracts awarded, 43% were won by entities from countries of operations tendering in their own country and 7% were won by entities from countries of operations tendering in other countries of operations. In, tenderers not from countries of operations won 50% of all contracts compared to 48% in In, entities from countries of operations were 2% less successful than in 2005 in winning contracts in countries of operations other than their own. Table 8 Distribution of Tenders by Country of Origin of s and by Country of Operations OVERALL Distribution of Tenders by Country of Origin of the s and by Country of Operations () UNSUCCESSFUL 49% 49% SUCCESSFUL 43% 33% 50% 43% 36% s from countries of operations tendering in their own country s from countries of operations tendering in other countries of operations 7% 18% 15% s not from countries of operations 12

15 Entities from s countries of operations won 49 contracts (50.0% of all contracts) whose total value was million (52.4% of the total contract value). This represents a decrease of 2.5% in terms of contracts won and a decrease of 3.5% in terms of contract value won in comparison with In most cases, entities were most successful in their own countries (42 contracts for a total contract value of million). All contracts in Latvia and Georgia were won by local entities only. There were seven contracts worth 38.2 million awarded to entities from s countries of operations in countries different from the country of origin of the tenderer, the largest being a contract of 15.0 million awarded to an entity from Poland for a project in Lithuania. This is a continuation of the trend from the previous years and is an indication of the transition impact that the Bank has had since the local entities are successful at competing openly for contracts both within as well as outside their own countries. Entities from nine countries of operations won contracts in their own countries only. These countries were Albania, Bulgaria, Croatia, Georgia, Lithuania, Montenegro, Romania, Serbia and Tajikistan. They won contracts worth a total amount of million or 21.9% of the overall contract value. Country and Sectoral Tendering Analysis Annex 8 presents the distribution of tenders submitted by Country of Origin of the s and by country of operations and Annex 9 presents the distribution of submitted tenders by Country of Origin of the s and by Business Sector. Out of all tendering countries, entities from Germany diversified their tenders to the greatest extent as they tendered across eleven countries of operations (winning in four) and across all three business sectors. German entities were most successful in the Power and Energy Sector, winning five out of twelve tenders submitted. Entities from Italy also tendered across multiple countries of operations and across the three main sectors. They tendered in six countries and won contracts in five. Entities from Turkey tendered in six countries of operations but were most successful for contracts in Kazakhstan where they won 10 out of 14 tenders they submitted in that country. From a sectoral perspective, they were most successful in the Transport Sector, winning five contracts for the 16 tenders submitted. Out of all countries of operations, entities from the Russian Federation diversified the most, tendering in five countries of operations other than their own. They submitted the majority of tenders in their own country (18 tenders out of a total of 23 tenders received). The MEI Sector is the one which generated the highest participation of entities from the Russian Federation (18), ten of which were for MEI contracts in the Russian Federation itself. Out of 19 tenders submitted by entities from Serbia, three tenders were for contracts in Montenegro and the rest were for contracts in their own country, mainly for contracts in the Power and Energy Sector. s in Serbia and Romania did not only generate the highest level of interest in terms of the number of tenders submitted, but the two countries also attracted tenders from entities across 24 and 19 tendering countries respectively. On the contrary, the two contracts procured under open tendering in Poland only attracted one tender from German and one tender from Swedish entities in addition to tenders from Polish entities. 13

16 The average rates of interest generated by Business Sector were as follows: 4.3 tenders were submitted for every contract opportunity in the Power and Energy and the Transport Sector and 3.4 tenders were submitted for every contract in the MEI Sector. Entities from 34 countries submitted tenders for the 62 contract opportunities in the MEI sector. Out of these tendering countries, entities from Germany, Poland and the Russian Federation submitted most tenders for this sector, representing 30.6% of the 209 tenders received for MEI contracts. 2.4 Nuclear Safety Department The manages six nuclear safety and decommissioning funds which have received almost 2 billion in committed contributions. Each Nuclear Safety fund is governed by specific rules as agreed by the respective Assembly of Contributors to each fund and approved by the Board of Directors. The funds are managed by the Nuclear Safety Department at the on behalf of the contributing countries. Procurement under the funds must follow the s Procurement Policies and Rules for public sector projects with the limitation that eligibility is restricted to entities from member countries of the funds and the s countries of operations. During a total of 32 contracts amounting to a total value of 41.3 million were placed under the projects financed by the funds. Table 9 provides the distribution of the Nuclear Safety Department funded contracts by size and type. Table 9 Nuclear Safety Department - Distribution of s by Size and Size/Number by ( M) Consultant Services Goods Services Supply and Installation Works Total 0~ ~ ~ > Total Total Value 8,152,081 12,084, ,653, ,825 41,320,916 Average Value 627,083 1,007, ,163, ,608 1,291,279 Table 10 provides the distribution of the Nuclear Safety Department funded contracts by size and by method of award. s subject to open or competitive selection procedures amounted to 37.9 million which is 91.7% of the value of total contracts placed. This represents a marginal decrease of 2.5% when compared with the percentage of contracts subject to open and competitive tendering during The value of consultancy contracts subject to direct selection has significantly reduced when compared with Direct selection of consultants during 2005 amounted to a total contract value of 7.4 million whereas for the total contract value was 0.6 million. 14

17 Table 10 Nuclear Safety Department - Distribution of s by Award Size/Number by Award ( M) Competitive Selection Consultant Direct Selection Consultant Local Tender Open Tender Selective Tender Shopping Single Total 0~ ~ ~ > Total Total Value Average 6,179, , ,669, , ,421 2,010,815 41,320, , , ,958, ,429 79, ,259 1,291,279 PPD continues to work closely with the NSD in providing advice and guidance on procurement related matters and work has begun on integrating NSD contract reporting within the Bank s existing Review and Award system. This will lead to a more automated approach to monitoring contract administration and reporting. During the year the NSD have also introduced revised internal departmental guidelines on how to handle operational procurement. 3. Procurement and Technical Services Activities 3.1 General Throughout the year, PTSU continued to provide advice and guidance to the Bank s staff on procurement related issues affecting the Bank s operations. The unit was at the forefront of discussions about the development of new policies, the interpretation of existing policies, the development and interpretation of standard procurement documents, and the development of new tools. All major concerns or complaints were referred to PTSU procurement specialists for investigation. PTSU provided support to procurement specialists in Banking and advice to those teams without a procurement specialist. As part of PTSU's task to support the Banking teams in their efforts to ensure that procurement and implementation arrangements are adequately addressed and are in compliance with the Bank's Procurement Policies and Rules (PP&R), PTSU reviewed 829 project documents (OpsCom submissions, legal documents and OPER) with the aim of ensuring that procurement issues are appropriately addressed. This represents an overall increase of 14.2% from 2005 in the number of project documents reviewed. Continuous efforts were made in to provide comprehensive comments to OpsCom on procurement issues to be considered while reviewing projects. The need for the involvement of Banking procurement specialists early in the project design and throughout the project cycle was repeatedly stressed as this is an important factor in mitigating any implementation risks. 15

18 3.2 Selective Reviews In order to apply quality assurance in the Bank's review of tender evaluation reports and to ensure a consistent approach within the Bank, PTSU carries out a "Selective Review" of all evaluation reports over defined values 9. The evaluation report and the basis of the client's award recommendation are examined in detail by PTSU during the Selective Review. The process is not a sign-off procedure but rather an integrity exercise aimed at protecting the Bank prior to the issuance of the no objection 10 by banking. During, PTSU conducted in total 65 Selective Reviews 11 with an estimated combined contract value of more than 1.83 billion (based on the estimated value at review). This represents six more Selective Reviews carried out in than in 2005 and an increase in value of 200 million (12 Selective Reviews covered contracts with a combined value of 1.43 billion indicating that 20% of the Selective Reviews covered 80% of the total estimated contract value). Out of the 65 evaluation reports for which a Selective Review was required, PTSU considered that 17 evaluation reports (or 26%) needed further clarifications or improvements before a no objection could be provided by the Bank. It should be noted that this does not mean that the award recommendation would necessarily change but that justifications for contract award may lack clarity. This compares to 31% in 2005, and continues to indicate an improvement in quality over the past years. Eleven of the 65 Selective Reviews carried out were on evaluation reports submitted to PTSU by the Nuclear Safety Department. The combined estimated value of these eleven reviews is 485 million (including the review of the first draft evaluation report for the Chernobyl Shelter Implementation in Ukraine representing 434 million). In, a total of contracts with a combined value of 1.27 billion (out of a possible total value of 1.36 billion for the 98 public sector contracts signed for the year) registered in the Bank s Review and Award database were subject to a Selective Review. This indicates that 57% of all contracts placed in public sector projects in were subject to a Selective Review by PTSU covering 93% of the total value of all contracts. These figures exclude the eleven contracts referred to above under the Nuclear Safety Department s responsibility. All contracts registered in the Review and Award database and in the contract summary data sheets provided by the Nuclear Safety Department that should have been subject to a Selective Review have been reviewed. This shows that 100% compliance was reached in terms of adherence to the Selective Review procedures and illustrates that the corrective measures implemented by the Bank in 2005 to address the anomalies of previous years to ensure that the procedures for Selective Reviews are followed have been successful. 9 Selective Reviews are carried out on works contracts exceeding 5 million. Goods and associated services including Supply & Install contracts exceeding 1 million and consultant contracts exceeding 0.2 million. 10 PP&R, Annex 2, paragraph 3 11 One tender evaluation report can include multiple contracts. 12 It should be noted that the difference between the 65 selective reviews that were carried out and the 67 contracts in total that were subject to a Selective Review (56 contracts in the CRA and 11 contracts under the Nuclear Safety Department accounts), arises from the fact that some Selective Reviews were carried out in 2005, some Selective Reviews cover several contracts and some contracts will appear only in the 2007 contract award statistics because of the straddling of the two years between tendering and contract signing. 16

19 3.3 Independent Procurement Reviews In accordance with the paper Strengthening Fiduciary Oversight of Financed Public Sector Procurement approved by ExCom on 27 April 2005, PTSU managed the process for carrying out two Independent Procurement Reviews on selected public sector projects during. The objective of these reviews was to assess whether the procurement procedures conducted by the clients and the monitoring carried out by the Bank followed agreed policies and procedures and respected the principles of economy, efficiency, transparency and accountability as outlined in the Bank s Procurement Policies and Rules (PP&R). One review was carried out as a Regional Review that included eight contracts in three projects in three different countries in the Balkans Region and in three different business sectors. The other review covered sixteen contracts in two roads projects in Russia. The results of the Independent Procurement Reviews and PTSU s recommendations will be presented to the Executive Committee and to the Audit Committee by mid Support to Banking Teams and Clients Ad hoc support to Banking teams is significant in terms of the use of PTSU s resources. PTSU continued to be actively involved in the procurement aspect of many projects on a daily basis, assisting the project teams in their due diligence and monitoring of procurement arrangements for Bank financed projects while ensuring that the integrity of the Bank s Procurement Policies and Rules is respected. PTSU also delivers seminars and conducts procurement related meetings directly with clients when requested by banking teams. During this was done for two projects in Russia and one for a project in Kazakhstan. 3.5 Procurement related meetings and seminars PTSU was actively involved in other procurement-related initiatives aimed at the business community or other organisations. PTSU hosted the MDB Heads of Procurement (HOP) meeting in London in November, participated in the HOP meeting in Manila in February, participated in both the MDB e-government procurement workshop hosted by the University of Rome Tor Vergata and the second International Public Procurement Conference in Rome, delivered a procurement seminar in Moldova in collaboration with Le Secrétariat pour la Francophonie for representatives from Albania, Bulgaria, Macedonia, Moldova and Romania, delivered business seminars in Korea, Egypt and Sweden as well as a seminar at the FIDIC conference in London dealing with MDB-FIDIC Harmonised Conditions of for Construction. 3.6 Website Development Following the request from the Audit Committee in 2005, a pdf version of the 2005 Annual Procurement Review was posted on the Bank s website. The data for public sector contracts from 2001 to 2005 was also posted on the website for easy consultation by the public. In the case of 2005, all the tables and annexes contained in the Annual Procurement Review were also posted as stand-alone documents. Furthermore, tables and charts providing the rate of participation by country of tenderers, by country of operations and by business sectors were published. 17

20 3.7 Staff Training PTSU monitored, with the assistance of the Learning and Development Unit, the list of new Bank staff in order to identify the need for the delivery of a procurement sensitisation seminar. It was not however possible to bring together enough new staff to conduct a seminar during. PTSU has nonetheless contributed to the Banking Essentials courses by delivering the procurement module included in the course. 4. Follow-up from the Audit Committee minutes on the 2005 Annual Procurement Review The Audit Committee identified a number of issues arising from their review of the 2005 Annual Procurement Review that required follow-up by PTSU. These are set out below together with an update of the progress to date: 1. The discussion in FOPC on the Public Information Policy should address the posting on the Bank s web site of findings in the Annual Procurement Review. FOPC agreed with a suggestion made by the Audit Committee that, subject to necessary editing, the Annual Procurement Review should be included in the list of Bank documents made available to the public. A revision to this effect would be incorporated in a revised version of the Public Information Policy. 2. The findings in the Annual Procurement Review should be made more widely available through posting on the Bank s web site. A revised version of the Annual Procurement Review was agreed with the Chairman of the Audit Committee and subsequently posted on the website 3. The Audit Committee expressed interest in the Independent Procurement Reviews carried out by the external consultants managed by PTSU and wished to have these reviews, including the addition of management responses, made available for discussion by the committee. PTSU has acted on this recommendation as reported under Section 3.3 (Independent Procurement Reviews) of this report. The reports will be presented to the Executive Committee and then the Audit Committee in early Information was requested on the progress in harmonising the definitions of fraud and corruption. This was carried out under the responsibility of the Office of the Chief Compliance Officer. Revised fraud and corruption clauses will be published on the Bank s website once approved by the Board and the Bank s standard tender documents will be modified accordingly. 18

21 5. The Audit Committee concluded that there should be adequate resources made available in the budget for procurement specialists in Banking should additional specialists be considered necessary. During one additional procurement specialist was recruited by the MEI team. Currently there are three procurement specialists in the MEI team, two in the Transport Team and two in the Nuclear Safety Department. The Power & Energy Utilities team does not have a procurement specialist although it finances on regular basis public sector projects involving procurement, drawing on other teams in Banking and also on PTSU for support as necessary 6. The Chairman of the Audit Committee requested that certain procurement information be made available to Director s Offices on a quarterly basis. The quarterly reports to management analysing the data for public sector contracts financed by the Bank were posted retrospectively on the intranet in March 2007 (for internal use only). 7. It was noted that the Bank should continue to focus on fraud and corruption risk during implementation. PTSU continues to work in close collaboration with the Office of the Chief Compliance Officer whenever there are allegations of fraud or corruption involving procurement. A detailed analysis of PTSU s activities on this subject can be found in Section 6, (Fraud and Corruption). 8. It was noted that the Bank should be more proactive in encouraging more companies to participate in tenders. As indicated in Section 3.5, PTSU delivered four seminars in directed to the business community with the aim of encouraging participation in Bank financed tenders. 9. The Chairman of the Audit Committee requested that information be provided on all tenders in order to better assess the real level of competition. Starting in, the annexes providing the names of the successful tenderers were modified to include also the names of the unsuccessful tenderers. Further emphasis has been put on accurately gathering data on unsuccessful tenderers through the Bank s Award and Review database. PTSU published the following information for 2005 regarding all tenders (successful and unsuccessful) on the Procurement website: - Rate of Participation and Award by Country of - A table and a chart representing the Distribution of Tenders (Successful and Unsuccessful) by Business Sector and by Country of. - A table and a chart representing the Distribution of s 19