Report No. 38028-AL Albania Country Fiduciary Assessment August 2006 Operations Policy and Services Unit Europe and Central Asia Region Document of the World Bank Albania . Fiduciary Assessment Update Country Tableof Contents ALBANIA COUNTRY FIDUCIARYASSESSMENT Table of Contents IntroductionandExecutiveSummary...................................................................................................... Overview ofthe CFA......................................................................................................................... 1 ExecutiveSummary........................................................................................................................... 1 3 Chapter 1: PublicProcurement................................................................................................................ 9 Progress since CPAR of2001............................................................................................................ Assessment of Procurement SystemsBasedon OECDDAC-World Bank Indicators.................... 9 15 Chapter 2: FiduciaryRiskAssessment................................................................................................... 31 ForeignExchangeandFundsFlow Arrangements........................................................................... FiduciaryRiskAssociated with the Current World Bank Investment Portfolio............................... 31 Assessment of FiduciaryRisk........................................................................................................... 33 33 Use of Country Systems-Public FinancialManagement................................................................ 35 Use of Country Systems-Public Procurement ................................................................................ 36 Chapter 3: Key RecommendationsandAction Plansfor Risk Mitigation............................................. 38 ListofAnnexes Annex 1. ImplementationStatus of 2002 CFAA Recommendations..................................................... 44 Annex 3. Albania PublicProcurement System at a Glance.................................................................... Annex 2. Case Examplesfrom Sectors andLessonsLearned................................................................ 47 Annex 4. National CompetitiveBidding-Good Practice versus Actual PracticeinAlbania............... 53 49 Annex 5. Commentsfrom Bank's ProcurementLegalDepartment on the DraftPublicProcurement Annex 6. List of PersonsMet................................................................................................................. 56 Law, dated April 26, 2006....................................................................................................... 55 Annex 7. BibliographyandWebsites..................................................................................................... 57 .. 11 Albania -Country Fiduciary Assessment Update Tableof Contents ListofTables Table 1. Scale of Public Expenditure, 2004-06 ...................................................................................... .........,.........................16 9 Table 3. Summary of BLIs in Institutional Framework and Management Capacity (Pillar 11)..............20 Table 2. Summary of BLIs inLegislative and Regulatory Framework (Pillar I) Table 4. Present Setup of Public Procurement Functions inAlbania..................................................... Table 5, Summary of BLIs inProcurement Operation and Market Practices(Pillar 111)....................... 23 24 Table 6. Summary of BLIs in Integrity and Transparency (Pillar IV) ................................................... 27 Table 8. PFM Performance and Fiduciary Risk Indicators .................................................................... Table 7. World Bank Portfolio in Albania, end of 2005 ........................................................................ 32 34 Table 9. Key Recommendations for Mitigating Risks ........................................................................... 39 List of Figures Figure 1. The Public Procurement Systemat a Glance: Four OECD/DAC Pillars................................. Figure 2. BribeTax................................................................................................................................. 4 14 Figure3. BribeFrequency ...................................................................................................................... Figure4. Unofficial Paymentsin Sectorsover Time ............................................................................. 14 14 Figure5. UnofficialPaymentsin Sectorsacross Countries ............................................,.................,..,.14 Figure6. Corruption as a Problem inDoingBusiness ........................................................................... 15 Regional Vice President: Shigeo Katsu, ECAVP Country Director: Orsalia Kalantzopoulos, ECCU4 Acting Sector Director: SunilK.Bhattacharya, ECSPS Sector Manager John Hegarty, ECSPS Task Team Leader: DeveshC. Mishra. ECSPS The CFA team comprised BelitaManka, ElonaGjika, Olav Rex Christensen, Johannes Stenbaek Madsen, DeveshChandra Mishra (ECSPS) and Junghun Cho (ECSPE). The CFA team received valuable inputs from PER, DPL, and SWAP Education teams as well as guidance from Orsalia Kalantzopoulos, Nancy J. Cooke (ECCU4); SunilBhattacharya, Kevin Casey, John Hegarty, Sanjay Vani, Pascale N.KervynDe Lettenhove (ECSPS); Nadir Mohammed(ECCAL); Alia Moubayed, Sanjay Kathuria(ECSPE); Jean-JacquesVerdeaux (LEGPR); and PamelaBigart (OPCPR). Ilyas Butt(ECSPS) providedvaluable assistance informattingthe report. ... 111 Albania - Country Fiduciary Assessment Update Introduction and Executive Summary INTRODUCTIONAND EXECUTIVE SUMMARY Overview of the CFA Objectives 1.1 The objectives o f the Country Fiduciary Assessment (CFA) are twofold. First, the CFA aims to assess the strengths and weaknesses o f the Public Financial Management system on issues related to procurement. Second, the CFA aims to assess fiduciary risk related to Albania's budget environment with a view toward helping the government to prioritize its actions and measure progress on PFM reforms, with the emphasis on procurement. Sources and concurrent analytical work 1.2 The present CFA builds directly upon previous analytical work in this area, including the Country Financial Accountability Assessment (CFAA) in April 2002, the Country Procurement Assessment Report (CPAR) inJanuary 2001, and a Public Expenditure and Institutional Review (PER) in 2001, This present CFA report draws upon and is in fact one component o f three simultaneous, integrated Bank-prepared reports. The other two reports are under: 0 The Public Expenditure and Institutional Review, June 2006 (PEIR). The PEIR addresses three key issues-first, fiscal sustainability and fiscal risks; second, strategic resource allocation; and third, accountability o f public sector financial management. The PEIR emphasizes the P F M reform process and the P F M policy reform directions. It covers issues related to the policy and planning framework; budget formulation, including strategic resource allocation and policy-related budget execution issues. The P E R includes a set o f high-level recommendations on public financial management. One P E R recommendation i s that "in the short to medium term the government should focus to deepen the reform in public expenditure management with particular focus on annual budget preparation and execution (including curtailing use o f nontransparent virement, and implementing multiyear procurement for capital projects), and strengthening capacities in line ministries". A draft PEIR (June 2006) was sent to the Government o f Albania (GOA) on July 6,2006. 0 The Public Expenditure and Financial Accountability (PEFA) Public Financial Management Assessment, July 2006. The PEFA assessment incorporates a set o f 31 high- level indicators used to develop an integrated assessment o f the PFM system against the critical dimensions o f PFM performance. It evaluates the likely impact o f PFM weaknesses on the three levels o f budgetary outcomes-aggregate fiscal discipline, strategic allocation o f resources, and efficiency o f service delivery. The PEFA assessment does not contain recommendations. 1.3 Both the P E R and CFA are envisaged in the Country Assistance Strategy (CAS) as core diagnostics supporting the CAS governance filter. The fiscal 2006/09 CAS recognizes that governance considerations should be mainstreamed into all World Bank interventions. This mainstreaming is achieved through introduction o f a "governance filter." One o f four key principles o f the governance filter is greater transparency in the use o f public resources. This requires strengthened lines o f accountability, improved transparency, broader participation in resource allocation decisions, and better access to information among all stakeholders. Specific attention needs to be given to oversight bodies, procurement, internal and external audit, transparent financial reporting, public-private partnerships, and integrated planning and budgetingprocesses as well as their execution by government. 1 Albania - Country Fiduciary Assessment Update Introduction and ExecutiveSummary 1.4 The findings of the CFA, the PER, and the PEFA assessment will inform World Bank- supported DevelopmentPolicy Lending(DPL). It will assist the program in sectors such as education, health, and infrastructure. The CFA team participated in initial missions of DPL and worked closely with the EducationSWAPteamto provide analytic support on the overallfiduciary environment. 1.5 The proposed DPL focus is expected to include measures to increase efficiency and accountability in public spending by improving the planning, budgeting, and execution of public investment projects; strengthening lines of accountability, including enabling better access to informationby all stakeholders; building stronger monitoringand evaluation systems; and establishing competitive and transparent frameworks for government purchases. The key challenges, action points, and recommendations in these reports would support the content and sequence of PFM reforms and serve as a basis of policy dialogwith the government, as well as throughthe proposedDPL. Basis of the report and sequence of presentation 1.6 In preparing this report, the World Bank team worked closely with the Public Procurement Agency (PPA). It also sought views from the private sector, such as the Chamber of Commerce; and from other stakeholders, such as the Training Institute of Public Administration (TIPA), the EU delegation, the procurement section inthe Ministry of Education, the Ministry of Healthand Ministry of Transport, the Supreme State Audit, andthe AlbanianCenter of MediationandArbitration (MEDART). Meetings were also held with advisors in the prime minister's office, with participation by the EU delegation and USAID. 1.7 The World Bank team conducted an in-depth review of the draft public procurement law prepared by EC-fundedCARDS 2002 consultant with support from Legal Procurement Department of the Bank. The World Bank team providedits analysis on the draft public procurement basedon rounds of discussions held with EC and their consultants and with the director of the Public Procurement Agency. Because this law is still in draft, the current Law on Public Procurement (No. 7971) forms the basis of analysis for the legislativeand regulatory framework. The World Bank had several meetings with EC representatives in Tirana. This includedthe consultants from CONFIRMEC, who are working on an EC-fundedCARDS assignment, Support to the PublicProcurement System. 1.8 Key themes and findings from this exercise are highlighted in the executive summary. The framework of assessment is briefly described below. The bulk of this report discus how the public procurement system needs to be improved (Chapter 1) and fiduciary risk assessment (Chapter 2). Chapter 3 summarizes key recommendations and action plans for risk mitigation. The annexes present considerable supplemental information on the context, methodology, and context of this report. In particular,Annex 2 provides short examplesthat illustratehow procurementworks inpractice in several sectors. Frameworkfor the assessment 1.9 The CFA team carried out this assessment using an updated tool-"Guide for Assessment of Procurement Systems Based on OECDDAC-World Bank Indicators: A Proposed Methodology." The high-levelindicators under PEFA were also usedto determine the current status of public procurement system in Albania, with a view to suggesting improvements. Figure 1, inthe ExecutiveSummary (The Public Procurement System at a Glance: Four OECDDAC Pillars-graphically sums up the results from the scoring methodology used to assess particular indicators and sub-indicators in the national system. 1-10 The Baseline Indicator(BLI)tool focuses on the nationalsystemcoveringthe four OECDDAC 2 Albania -Country Fiduciary Assessment Update Introduction and Executive Summary pillars. In addition, the PEFA assessment contains one high-level indicator on procurement (Indicator 19. The BLIs on procurement are available separately, with scores on 56 sub-indicators that cover the four pillars. This report incorporates the summary o f the BLIanalysis and its recommendations. Executive Summary Improvingpublicprocurement 1.11 The overriding objectives o f a national public procurement system are to deliver economy and efficiency in the use o f public funds while adhering to fundamental principles o f nondiscrimination, equal treatment, due process, access to information, and transparency.' These objectives were the focus o f the Country Procurement Assessment Report (CPAR) o f 2001; and the same objectives guided the present assessment. 1.12 The 2001 CPAR made recommendations in six key areas: (i)further legislative reforms, (ii) improving transparency and access to information, (iii)increasing competition, (iv) improving procurement practices and procedures, (v) combating corruption and strengthening enforcement, and (vi) building capacity o f institutions and procurement staff. The present Country Fiduciary Assessment (CFA) report i s an update o f CPAR 2001. The six areas for improvement are discussed here in the context o f four OECDDAC "pillars": The legislative and regulatory framework (Pillar I), the institutional framework and management capacity (Pillar 11), procurement operations and market practices (Pillar 111), and the integrity o f the public procurement system (Pillar IV). 1.13 An assessment was made in each of these areas usinga recently developed OECDDAC/World Bank baseline indicator (BLI) tool. Indicators and sub-indicators were scored for each o f these areas using a 0 to 3 range. A score o f 3 means full compliance with the stated standard. A score o f 2.0 indicates a system with less than full compliance and needing improvement in the area being assessed. A score o f 1.0 indicates an area where substantive work is needed for compliance. A rating o f 0 is the residual. It indicates failure to comply with the proposed standard. 1.14 Figure 1, below, conveys the Albanian public procurement system in terms o f the four OECDDAC Pillars. It compares the Albanian system against the OECDDAC norms as possible maximum scores. The finding clearly points out that Pillar I,the legislative and regulatory framework, is well within the norm with an average score o f 2.2 (although improvements are still needed). However, there are serious deficiencies on the other three pillars-institutional and management capacity (Pillar 11, average 0.8), procurement operations and market practices (Pillar 111, average 1.2), and on the integrity o f the public procurement system (Pillar IV,average 0.9). ' See goodpractices paper, DAC guidelines, and reference series on strenghteningprocurementcapacities in developingcountries, Volume 3, www.oecd.orrzidac/liarmonisinrrpractices. 3 Albania -Country Fiduciary Assessment Update Introduction and Executive Summary Figure1. PublicProcurementSystem at a Glance- Four OECDDAC Pillars LegislativeFramework +[Country Score] \ I +Maximum Proc Operations & Markets 1.15 The CFA team found that the government has made serious efforts to improve the public procurement law by preparing implementing regulations and tender documents. Nevertheless, applicationis still seriously lackingbecause of attempts at high levels of government to abuse the law and lack of capacity in boththe public procurementagencies and the implementingministries.Overuse of direct procurement is continuing for several reasons-weakness in the law, the unavailability of funds until late inthe year, and attempts by procuringentities to break procurement into a small values. The publicprocurement agency (PPA) has no reliabledata on the use of noncompetitive methods or the use of open tendering. A public procurement information system does not yet exist. The complaints review mechanism is inadequate; and as a result, private sector confidence in the Albanian public procurementsystem is low. 1.16 The key findings are summarized below for each of the four pillars. Recommended improvementsare shownfor each. 1.17 Pillar 1-Public procurement law and implementing regulations. Sound legislative and regulatory framework is the starting point for an efficient and fair governance system. The previous 4 Albania - Country Fiduciary Assessment Update Introduction and Executive Summary CPAR concluded that the Law on PublicProcurement (LPP) provideda reasonably good framework for public procurement, but with notable deficiencies. Since the last CPAR, the government has amended the law, enacted implementingregulations, and issuedstandardtender documents. The BLIassessment, which is basedon the laws and regulations currently in force, shows a score of 2.2 (maximum score 3), confirmingthat the present laws and regulations meet an acceptable standard. Suggested improvements are as follows. 0 Strengthen provisionson the use of direct procurementby definingtheforce majeure, as well as the "emergency" and"urgent" situations (Article 17 and 19) that could leadto its misuse. 0 Implement regulations to establish a mechanism for preparingcost estimates based on market trends. 0 Restore and comply with the earlier provision inthe implementingregulationthat "there should not be upper andlower limits, below or over whichthe bidswill be rejected." 0 Regulate the public utilities separately from other procurement, either as a separate chapter under existinglaw or separate law. Improve and strengthen consulting services provisions to select consultants based on their qualificationsand quality of services, not necessarilyonthe lowestprice (Article 21). Makepublicationof contract awards mandatory, usingthe website (Article 35). The PPL should be revisedto include, at a minimum, the following informationfor contract award notice:(i)the names of bidders, (ii)bid prices as read out at the bid opening, (iii)names and evaluated prices of each bid that was evaluated, (iv) names of bidders whose bid were rejected, as well as the reasons for their rejection, (v) names of the wining bidder with the price offered, (vi) the durationand summary scope ofthe contract awarded. 0 Create an independent complaint review body (other than PPA) in order to increase the confidence of the private sector on the fairness of biddingprocess. (This is explained further in Pillar 11, below.) This report considers laws and regulations as of March31, 2006, as the basis for its analysis. The LPP is currently under review by a EU-CARDSconsultant. The World Bank has commented on several drafts. At this stage, it is not clear when the revised lawwill come into force. The current draft versionincludes several unacceptable features-for example, an open procedure is not the preferred method of procurement. The conditionfor usingnegotiatedprocedure may lead to abusivepractices. Similarly, the award criteria are not basedon the lowest evaluated responsive bid. It is not clear whether unsuccessful bidders will be notified on the results of contract awards. Annex 5 provides comments on the draft version dated April 26,2006 from the Bank's Procurement Legal Department. These comments needto be considered inthe new LPPto ensure a modem, transparent, and fair regulatoryframework. It would be necessary to revisit the BLIs ratings on OECD-DAC when new laws and implementing regulations(or any amendments) come into force. Further, the World Bank's concerns on the draft law would need to be addressed. Ifnot, the current BLIs rating on Pillar Imay be negatively affected. The Bank, the PPA, the EU delegation, and the EC consultants would need to discuss the mechanism to implement the recommendations listedin Annex 5. This would ensurethat the government incorporates good procurementpracticeswithout conflict with EUpractices. 1.18 Pillar 11-Institutional framework and management capacity. Pillar I1 looks at how the procurement system (as defined by the country's legal and the regulatory framework) operates in practice through the existing institutions and management systems. The indicators under this pillar address several questions. I s the public procurement system mainstreamed and well integrated into the 5 Albania -Country Fiduciary Assessment Update Introduction and ExecutiveSummary public sector governance system through the budget process? Does a functional normative and regulatory body provide guidance and training? D o procuring entities have well-developed capacity? In this area, the CFA team found no improvements since the CPAR of 2001. For this reason, Albania has a very low average score-0.8 out o fthe maximum o f 3.0. The following improvements are recommended. e Require the Medium-Term Budget Program (MTBP) and the annual budget to be linked. This will help to make the expenditure cycle realistic, thereby ensuring competitive procurement methods and efficient use o f resources. Line ministries need to prepare and submit procurement registers earlier than the current practice. To do so requires that budget allocation at project levels be decided at a much earlier stage.2 The procurement planning process should start at least three months before the next fiscal cycle. At the same time, multiyear contracts should be allowed to all ministries for ongoing projects whose implementation period i s longer than one year.3 e The PPA director and all professional staff should be civil servants; and in order to avoid political interference, PPA organization, funding, staffing should be reviewed by the government to increase its level o f independence and authority (Article 8). e The administrative and complaints review function should be given to an independent complaint review body. The present setup creates a conflict for PPA, which acts in the capacities o f both reviewer o f contracts and handler o f complaints. The PPA should be tasked with developing a national strategy for public procurement training. The government should allocate adequate resources to implement this strategy over the coming 3 to 5 years. 1.19 Pillar 111-Procurement operations and market practices. Pillar I11looks at the operational effectiveness and efficiency o f the procurement system at the level o f individual procurement actions. It considers the market as a means o fjudging the quality and effectiveness o f the system after procurement procedures are put into practice. This pillar is distinguished from Pillars Iand I1inthat it look not at the legal and regulatory or institutional systems, but rather, how they operate. CPAR 2001 found that the law on public procurement provided a reasonably sound framework for conducting public tenders, but several poor practices had crept into the public sector nonetheless. The recent CFA team found no improvements inthis area. Therefore, the score is still low-1.2 out o f 3. Suggested improvements are as follows. 0 Make the required level o f competence among procurement staff consistent with their responsibilities. The PPA needs to initiate a dialog within government. In particular, the Department o f Public Administration (DOPA) should establish a separate career stream for procurement inthe civil service, both at central and local government levels. This action should be supported with separate job descriptions, qualification requirements, career structures, and salary scales for procurement officers. Strength capacity in internal audit units in the ministries to take more active roles in ensuring compliance with public procurement procedures. Shift gradually from implementation through autonomous Project ImplementationUnits (PIUS) * According to the government plan, the appropriation for 2008 will includeprojects in line ministries' budgets. This implies aprocurementplan to be ready before the start ofbudgetcalendar year. Currently, only roadprojectsare allowed to sign multiyear procurementcontracts. 6 Albania -Country Fiduciary Assessment Update Introduction and Executive Summary to implementationby regular administrative structures, thus building internal capacity. 0 Organize outreach programs to improve the capacity o f the private sector in bidding for public procurement tenders. 1.20 Pillar IV-Integrity and transparency of the public procurement system. Indicators for Pillar IV address four questions. Does the country have effective control and audit systems? How efficient is the appeals mechanism? What is the degree o f access to information? Are ethics and anticorruption measures in place? CPAR 2001 pointed to obstacles for information and argued that the lack o f transparency concealed corruption and undermined the confidence o f bidders in the fairness o f public tenders. No improvements were seen in this area. The score was therefore 0.9 out o f 3. BEEPS survey 2005 confirms that bribery to obtain government contracts is frequent, increasing from about 32 percent in 2002 to 41 percent in 2005. The following improvements are recommended. 0 Improve access to information by introducing e-procurement, publishing all procurement notices and award results on the PPA website. The PPA website should contain full information on the complaints and status thereof. 0 Provide public access to procurement information in the interest o f transparency. This creates a basis for "social audit" by interested stakeholders. Information needs to be consolidated into a single place that is easily accessible by the public. The PPA website (www.app.gov.al) is poor in content. The EU-CARDS consultant (and later, MCC) should assist in improving it. 0 Provide specializedjudges for procurement dispute cases who can provide for timely redress o f complaints. At present, there are no specialized courts and judges for disputes in procurement contracts. 0 Amend the PPL to define fraudulent and corrupt practices. Closely monitor attempts o f misuse the public procurement law (illustrated in Annex 2), including cases o f collusion. 0 Post a list o f debarred companies on the PPA website. Illustrations of currentprocurementpractices 1.21 Annex 2 o f this report provides several examples o f current procurement practices. These illustrate attempts o f misuse o f the provisions o f the public procurement law as well as the inefficient use o f public resources through bad procurement practices, possibly reflecting lack o f capacity. Fiduciary risk 1.22 Fiduciary Risk Assessment is presented in Chapter 2. Providing direct budget support to the government raises two significant fiduciary concerns-that funds will reach the budget and that they will be "appropriately managed" as part o f county's budget resources. Overall, the use o f the government's current budget system is considered to pose significant fiduciary risk. This assessment is based on three considerations-first, the relatively low scores o f 28 Public Expenditure and Financial Accountability (PEFA) indicators with impact on fiduciary risk, notably in the areas where limited progress was made on recommendations from the 2001 CFAA4; second, risk associated with the public procurement system; and third, indicators suggesting significant official corruption. The fiduciary risks 4 See Annex 1 for an updateonthe 2001 CFAA reocmmendations-in particular,the limitedprogress in internal and externalcontrols/audits. 7 Albania - Country Fiduciary Assessment Update Introduction and Executive Summary capturethe mainelements ofpublic financialmanagement(PFM)' andprocurementperformance. Actionplan andpriorities 1.23 Recommendations summarized in this executive summary are presented in greater detail in Chapter 3. See the table showing key recommendationsand the risk mitigationaction plan. Priorities and agencies responsible for implementation are also shown. Action to mitigatethese risks will require sustainedpolicy dialogwith the government. This diagnosis was borrowedfrom the PEIRandthe PEFA assessment 8 Albania -Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement 1. PUBLICPROCUREMENT 1.1 The overriding objectives o f a national public procurement system are to deliver economy and efficiency in the use o f public funds while adhering to the fundamental principles of nondiscrimination and equal treatment, due process, access to information and transparency.6 These objectives were the focus o f the last CPAR o f 2001 and they are unchanged in this update. This chapter begins by highlighting progress since the last CPAR o f 2001 on key recommendations, and it then presents an analysis for further actions under the framework o f the OECDDAC. 1.2 There is a strong link between the performance o f the PFM system and the achievement o f social and economic objectives. Budgets are translated into procurement o f goods, works and services; and assets are built for use by the public. Public procurement spending i s estimated to account for about 15 percent o f global GDP (Good Practices Paper-DAC guidelines). This varies greatly by country. In the case o f Albania, there are no reliable data on annual volume o f public procurement. In 2005, capital expenditure under public expenditure budget (including operation and maintenance) was about 60 billion LEKS,which constitutes about 7.1 percent o f GDP (approximately LEK 836 billion). Without doubt, a sound public procurement system would translate into substantial savings and higher economic growth. Scale of public expenditure,2004-06 1.3 No data are available from PPA on the annual volume o f public procurement in terms o f goods, works and services. Table 1 provides an indication o f the.scale o f public expenditure. Table 1. Scale of PublicExpenditure,2004-06 Category of expenditure(in LEK million) 2004 2005 2006 (budget) 1. Operation & Maintenance 23,974 24,499 21,319 2. Capital expenditure, o f which: 38,266 34,848 46,255 Domestic financed 27,590 24,292 23,733 Foreign financed 10,676 10,556 22,522 Total O&M + Capital expenditure 62,240 59,347 67,574 GDP 766,379 836,833 899,683 O&M as % o f GDP 3.1 2.9 2.4 Capital expenditure as % o f GDP 5.0 4.2 5.1 Source: Ministryo f Finance Progress since CPAR of2001 1.4 The key recommendations o f the CPAR 2001 included: (i)the need for further legislative reform; (ii)the need to improve transparency and access to information; (iii)the need to increase competition; (iv) the need to improve procurement practices and procedures; (v) the need to combat corruption and strengthen enforcement; and (vi) the need to build capacity o f institutions and 6Goodpracticespaper (DAC Guidelines andreference series on strenghteningprocurementcapacitiesin developingcountries,volume 3, ~~ww.oecd.ora!daclI.l,lrmonisin~~r~ctice~. 9 Albania- Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement procurement staff. The following paragraphs bring out the progress since 2001, includingreasons why some recommendations may haveworkedwhile the others did not. Further legislativereform 1.5 CPAR 2001 concluded that the Law on Public Procurement (LPP) provideda reasonably good framework for public procurement, but certain provisions could be strengthened further with the objective of increasing competitiveness, transparency, and enforceability. The World Bank had informedthe government inthe past that there is an overuse of direct procurement and legislationneeds to be strengthened to prevent this misuse. A few of these recommendations could be implemented through amendments to the PPL and others through implementing regulations. The PPL is currently under review by an EU-CARDS consultant, and the World Bank has providedits comments on several drafts. At this stage, it is not very clear when the revised law would come into force. This report considers laws andregulationsinforce as of March31,2006, as the basisof analysis. 1.6 Regardingrecommendation on strengtheningthe positionof Open Tendering (OT) as the basic method of public procurement, the legislation improved; but practices continued to be weak, possibly due to weak capacity. It was recommended that provisions be bolstered in the PPL against breaking down procurement into smaller values. It was recommendedthat fewer exceptions be provided to the OT method, makingall applicationsof procurement methods other than OT (above specified financial thresholds) subject to PPA prior waiver. The CFA team found that incidences of OT increased from 31 percent in terms of number of contracts in 2003 to 38 percent in 2005-not a substantial increase and well below 50 percent for a B score on PEFA.The remainingprocurement is mostly conductedthrough restricted tendering and requests for quotations. PPA had no reliable data on the extent of direct procurement, as the procuring entities do not provide such information to PPA. Current PPL Article 17/4, however stipulates that requirements for a given quantity of goods, constructionand services shall not be split up in order to avoid competitiveprocurement. 1.7 On bringing clarity in the PPL on the conditions for use of restrictive procurement methods- including RestrictedTendering and Request for Quotations, and strengthening of the requirements for the minimum number of bids-the CFA team found that the law envisages the conditions for use of these two methods beingalso associatedwith financial thresholds. Law Article 18 defines the conditions inwhich restrictedtender should be used-first, when the goods, construction,or services are available only from a limited number of subjects; second, when the estimated value of the contract does not meet the threshold set forth inthe procurement regulations. In addition, PPLArticle 22 states that request for quotation be used for purchase of readily available goods and for procurement of construction or services for which there is an established market so long as the estimatedvalue of the contract does not exceedthe amount stated inthe procurement regulations. 1.8 On the increased use of the Request for Proposals (RFP) method for the procurement of consultant servicesby removingthe current threshold, the CFA team foundthat PPLArticle 21 does not envisage any threshold. 1.9 On more effective control the Direct Procurement method by tightening the conditions for its use inthe PPL and makingthis method subject to prior waiver by the PPA, the CFA team foundthat the law specifies conditionsfor use ofthis method. Inpractice, however, there are distortionsin interpreting the "force majeure" or "emergency" clauses. Furthermore, PPA lacks data of its use. The agency does not know ifcontracts are split into smallvalues inorder to use DirectProcurement. 10 Albania - CountryFiduciary Assessment Update Chapter 1.Improving Public Procurement Improving transparency and access to information 1.10 CPAR 2001 pointedto obstacles to the acquisition of information by interested parties. This lack of transparency concealedcorruptionand undermined bidders' confidence in the fairness of public tenders. Therefore, CPAR recommendedapplicationof internet technology to improve disseminationof information on bidding opportunities. This included launching a PPA website, advertising bidding opportunities, providingrecords of bid openings and announcementsof contract awards. The CFA team found that a PPA website was established two years ago; however, it is not maintained or regularly updatedbecauseof lack of resources.It is expectedthat the EC-fundedCARDS 2002 consultant would assist the PPA inbringingneededimprovements. 1.11 On the earlier recommendation for resuming regular publication of the Public Procurement Bulletin, the CFA team found that the PP bulletin is publishedevery five days. All procurement-related information, suchas tender noticesand contract awards, are published inthe bulletin. 1.12 Regardingthe recommendationthat all procuringentities publishan indicative statement at the beginning of each year on their major procurement requirements, the CFA team found the Annual Forecasts Register, which is prepared by PPA and includes all procurement to be carried out by the procuringentity during the year. However, this requirement list is not updated periodicallythroughout the year. 1.13 Regardingthe needfor PPA to collect, disseminate, and publishcomprehensive informationon annual expenditures of public funds on public procurement, the CFA team found that the recommendation had not been implemented. PPA prepares an annual report for the Council of Ministers,though the report is not comprehensive, accurate, or public. 1.14 On recommendation for a series of regular outreach programs to the local business community (badlyneededto restorebidders confidence), the CFA team found no suchprograms.The privatesector (for example, the chamberofcommerce) is apparently not readyto take the leaditself; so it hasno voice in reformingthe procurement legislation. In addition, recent reports reveal scant bidder confidence in the system. A 2005 perception survey for Corruption in Albania (Casals and Associates, and Institute for Development Research and Alternatives, June 2006) reported "almost 65 percent of those who answered (almost one third of the sample) say that in order to receive a procurement contract, it is necessaryto offer a bribe.Fortypercentsay that this payment rangesfrom 1percentto 10percentof the value ofthe contract, while another 25 percent say that the payment is more than 10 percent of contract value." Increasing competition 1.15 CPAR 2001 concluded that participation in public tender was low because bidders did not perceive the procurement system as fair. The CFA team found no evidence of improvementin this area. This situationis supportedby the perceptionsurvey describedabove. 1.16 It was recommended that the arbitrary distinction between domestic and international open tendering be abolished. This would allow foreign biddersto competemore freely with domestic bidders. It was also recommendedthat internationalOT be applied through appropriate financialthresholds. This would be controlled.Considerationwould be given to levels of domestic price preferenceto encourage Albanian bidders to participate in competitive tendering. The CFA team found improvements in this area. Current legislation includes the financial thresholds, which distinguish domestic open tendering from international open tendering. International competitive bidding is applicable for contracts estimatedat morethan 200 millionLEKS(equivalent to more than US$2 million). Interviewswith the business community revealed that domestic bidders perceived the qualification criteria as too high 11 Albania -Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement relative to the value of contracts. However, examples presented to the team reflected evaluation and qualificationcriteriathat were realistic and conduciveto internationalparticipation. 1.17 Regardingthe recommendationthat the biddingperiods for domestic tenders be lengthened, the CFA team found that a minimum of 20 days is allowed for domestic tenders. More time-at least to 28 days-should be allowedfor preparation oftenders. Improving procurementprocedures andpractices 1.18 As pointed out earlier, despite a reasonably sound framework for conductingpublic tenders in terms of law, several bad practices had crept into the Albanian public sector. CFA team found no improvement in this situation. Case examples at Annex 2 of the report illustrate: (i) attempts of misuse of the provisionsofthe public procurement law; and (ii)inefficientuse of public resourcesthroughbad procurementpractices, possiblydue to lack of capacity. 1.19 CPAR recommendedthat all procuring entities governed by the PPL make mandatory use the standard procurement documents that had been developed with previous World Bank financial assistance.These standard documents should include standard prequalificationdocuments and standard bidding documents for goods, works, and services. The CFA team found evidence of progress in this area. Bidding documents were developed for prequalification, goods, works, and technical services, includinga requestfor proposal. 1.20 CPAR recommended a stop to the practice of evaluatingbidders' qualifications at the time of initial bid evaluation. This leads to the arbitrary rejectionof bids that may subsequently be found to be responsive. It was also recommended to apply prequalificationfor large, complex contracts and post- qualification for all others.) The CFA team found that although in the legislation bid opening and evaluationprocess are defined as separate stages of procurement, in practice the procuringentities still reject bids at the time of bid opening. Prequalificationi s done very rarely, while the post-qualificationis carried out not only for the lowest evaluated bid but for others as well. Doing so wastes effort and results indelays. 1.21 On the recommendation for the introduction of objective methodologies for the evaluation of bids and that contract for goods and works should be awarded to the lowest evaluated, responsive bidder, the CFA team found improvement as far as the PPL is concerned. Article 32 of PPL envisages that "the contract is awarded based on either lowest tender price or best financial bid, evaluated based on the elements specified in the bid documents, which shall be objectiveand explicit in quantitativeand qualitative terms for the purpose of the bid evaluation, expressed in monetary terms." However, in practice the contract is awarded to the lowest price, not to the lowest evaluated price. This is mainly becausethe Supreme State Audit considers that contract awards to the secondor third offeredbidsto be violationsofthe PPL.This view evidentlyreflectslack oftrainingof SSA officials. 1.22 Regarding the recommendation to discontinue the practice of revealing the estimated price to bidders in the bidding documents (which produces uneconomic contract awards and facilitates bid- rigging), the CFA team found continuingpractice. This hampers competitionandtransparency. 1.23 On the recommendation for public bid opening and bids to be opened immediately after the deadline for submission in all competitiveprocurement, the CFA team found evidence of compliance. 12 Albania - Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement Combatingcorruption and strengtheningenforcement 1.24 CPAR 2001 concluded that a good procurement law is being undermined by poor application and no enforcement. Weakness of the PPA mad the law easy to ignore, resulting in uncompetitive procurement methods, poor value for money, and corruption. The CFA 2006 team found no improvementinthis situation.The government appearsto havemadeno effortto enforce the application of the public procurementlaw. 1.25 As an interim measure (until the capacity and control environment could improve within procuringentities), it was recommendedthat the number of high-valuecontract awards (subject to PPA review and clearance) be increased. According to the implementingregulations, PPA only needed to review contracts greater than LEK 200 million. The CFA team found that PPA is now required to review evaluation reports and award recommendationfor contracts above 100 million LEK. This is not necessarilyan improvementbecausethe inadequatelytrained PPA staff is unableto handle suchreviews in a timely manner. 1.26 Regardingthe recommendation that all bidding documents issued by public procuringentities should contain specific provisions against fraud and corruption, the CFA team found that the General Section of bidding documents includes clauses against corrupt practices ("ineligible actions") and submission of false documents (fraudulentpractices). But it is not clear whether these provisions were enforced. 1.27 On the recommendation for an administrative procedure to debar companies and individuals who have engaged in procurement-relatedfraud and corruptionfrom participationin publictenders, the CFA team found that a provision in the PPL (Article 12) that envisages the debarment of bidders engaged in corrupt and fraudulent practices. There is, however, no corresponding administrative procedure.Again, this is a case of lack ofenforcement. 1.28 Onthe needfor (i) auditingmeasuresto be strengthenedat all levels ofthe system (bothinternal auditing in procuring entities and external auditing by the appropriate bodies at central and local government levels), (ii)auditors to be trained specificallyin procurement auditing, and (iii)publication of procurement audit reports, the CFA team found that the internal audit units are not effectively controllingprocurement procedures within the government entities.Their activitiesare limitedto some financial audits and cash payments. In regard to SSA, they are the only entity carrying out some procurementaudit, though not in full compliance with the PPL. This mainly reflectsthe lack of training andknowledgeneededto interpretthe PPL. 1.29 The CPAR 2001 observed that public procurement is a particular target of corruption, with more than half of all firms stating that they did not participate in government procurement because competitionis unfair. Expertsurveys found that Albania is perceivedto have one of the highest rates of corruption among transition economies and exceptionallyweak rule of law. The 2005 BEEPS survey reports that the percentage of firms saying that bribery is frequent to obtain government contracts has rose from about 32 percent in 2002 to about 41 percent in 2005. The seriousness of this situation is illustratedin Figures 2 through 6, which compare perception of unofficial payments and corruption in Albaniawith other countries inthe southeastandcentralEurope. 13 Albania -Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement Unofficial payments and corruption-Albania compared with other countries in the region (2005 BEEPS Survey) Figure 2. Bribe Tax Figure 3. Bribe Frequency Bribes as a share of annual sales Percent of firms saying unofficial paymentsare frequent 3.5 3.0 50% 2.5 40% 2.0 30% 2002 2002 I.5 82005 20% 82005 1.o 10% 0.5 0% 0.0 AIb SEE ECA AIb SEE ECA Figure 4. Unofficial Payments in Sectors over Time Figure 5. UnofficialPayments in Sectors across Countries Percent of firms saying bribery is frequent Percentof firms saying bribery is frequent To obtain governmentcontracts To obtain government contracts To obtain businesslicenses and permits To obtain business licensesand permits To influencethe contentof new To influence the contentof new legislationrules decreesetc. legislationrulesdecrees etc TO get connectedto and maintainpublic To get connected to and maintainpublic services (electricityand telephone) services (electricityandtelephone) To dealwith taxes and tax collection To dealwith taxes and tax collection To dealwith occupationalhealthand To dealwith occupationalhealthand safety inspections safety inspections To dealwith fire and building inspections To dealwith fire and building inspections To dealwith environmentalinspections To dealwith environmentalinspections To dealwith customshnports To deal with customshmports To dealwith courts ##Alb 2005 TO dealwith COUdS .Alb -I OSEE-2005 BAlb 2005 -- 2002 0% 10% 20% 30% 40% 50% ECA-2005 0% 10% 20% 30% 40% 50% 14 Albania -CountryFiduciary Assessment Update Chapter 1.Improving Public Procurement Figure 6. Corruption as a ProblemDoingBusiness Percent of firms indicating corruption as a problem doing business 60% 50% 40% 30% 02002 20% W 2005 10% 0% Alb SEE ECA Building capacity of institutionsandprocurement staff 1.30 CPAR 2001 pointed out that the Public Procurement Agency suffered from a lack o f qualified staff, lack o f equipment, and resources. There was no strategy on training or recruitment. The CFA team found no evidence o f progress inthese areas. 1.31 On the earlier recommendation that (i)PPA should be tasked with developing a national strategy for public procurement training and (ii)the government should devote adequate resources to such a strategy over the next 3 to 5 years, the CFA team found that PPA has only recently taken the initiative o f creating a training unit.However, there is as yet no strategy on public procurement training. The EC-CARDS consultant or M C C are expected to prepare such a strategy. 1.32 Regarding recognition o f procurement as a profession in its own right within the civil service (thus providing procurement officers with their own career path), the CFA team found that procurement staffs are hiredas engineers, lawyers, or economists who then carry out procurement work. Procurement is considered as part o f their other tasks, not a specialized function. 1.33 On PPA developing an accreditation system for accrediting procurement officers working in government service, the CFA team found that PPA has not developed an accreditation system for procurement professionals. 1.34 On the recommendation that (i) existing educational resources, including technical universities and business schools be encouraged to develop vocational courses in procurement, leading to the award o f professional qualifications; and (ii) the government to accredit selected institutions to conduct these courses, the CFA team found no such initiative on the part o f the government. Assessment ofProcurementSystems Basedon OECDDAC-World BankIndicators 1.35 The previous section provides a progress report on what has happened since the last CPAR. There is no quantification or benchmarks to track progress over time. To improve its analytic capacity, the CFA team carried out an in-depth assessment on the status o f public procurement system using an updated tool, "Guide for Assessment o f Procurement Systems Based on OECD/DAC-World Bank Indicators: A Proposed Rating Methodology." This tool was obtained from Procurement Policy and Services Group (OPCPR) o f the World Bank on March 23, 2006. This Base-Line Indicators (BLIs) methodology was developed by OECD-DAC-World Bank in a Joint Workshop in Manila in February 2006 on Strengthening Procurement Capacities in Developing Countries. A final version o f this guide 15 Albania - Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement will be available soon. A detailed report based on this methodology is available separately; however, a brief summary o f the methodology is incorporated into this section o f the report. The scoring system ranges from 3 to 0 for each baseline sub indicator, with 3 representing full compliance with the stated standard. A score o f 2.0 i s for cases where a system exhibits less than full compliance and needs some improvements in the area being assessed. A score o f 1.0 indicates an area where substantive work is needed for compliance. A rating o f 0 is the residual, indicating a failure to comply with the proposed standard. The scores for all indicators and sub-indicators are included in Annex 3. Figure 1 (see Introduction and Executive Summary) provides a composite overview of the main findings in a graphic format. Legislativeand regulatoryframework (Pillar I) 1.36 A legislative and regulatory framework is the starting point for a sound governance system. This is covered in Pillar Io f the OECD-DACIWorld Bank Baseline Indicators (BLI) assessment. Pillar Iencompassestwo indicators-a legislative and regulatory framework for public procurement that meets agreed-upon standards and complies with applicable obligations (Indicator 1), and the existence o f implementingregulations and documentation (Indicator 2). 1.37 The BLI (Baseline Indicator) summary assessment and scores in the area o f legislative and regulatory framework are shown in Table 2. Scores in the third column pertain to the zero to 3 scale, as explained above. Table2. Summaryof BLIs in Legislativeand RegulatoryFramework(Pillar I) Indicator/ Sub-indicator SummaryAssessment Score Indicator 1. Public procurement legislative and regulatory framework achieves the agreed .................................................................................................................................................... standards and complies with applicable obligations .. ....................................................................................... - ..................................................................................................................................................... .............................. 1(a). Scope of application and The legislative and regulatory framework is adequately i 3 coverage ofthe legislative and recordedand organizedhierarchically with precedence regulatory framework. ~ of different legal instruments establishedclearly inthe I law. Law covers all goods, works, and services I ~ (including consultancy services) except for reasonsof national security, national defense, or for public funds 1II usedfor scientific activity or technological development (Article 3) and for the Central Bank of Albania, which 1 ................................................................................................................................................................................................................................................. .!.............................................................. has its own rules andprocedures. I ~ l(b). Procurementmethod. The law prescribesthe criteria for the use of 1 2 procurementmethods(Article 17-22). The procurement II i law defines opentender as the preferredmethodof procurement(Article 17). The other methods are used j basedon the criteria specified inthe law and basedon the financial thresholdsspecified inthe implementing 11I regulations. Inthe case of direct procurement,Article 19 "urgent need" needs to be defmedmore clearly to i preventpotential misuse. ~ 16 Albania - Country Fiduciary Assessment Update r Chapter 1.Improving Public Procurement Indicator1Sub-indicato Summary Assessment IIj l(c). Advertising rules andtim Contracts, other thandirect procurementandrequest 3 limits. for quotation, are publiclyadvertisedinthe public j ~ procurementbulletinand inat leasttwo national newspaperswith a wide distribution(Article25). Dependingon methodofprocurement,the time limits vary between15 daysto 45 days. 11 I l(d). Rulesonparticipationan No exclusiononthe basis ofnationality(Article 9). No 3 1jp.-............................................................................................................................... qualitative selection. pricepreferencefor domestic bidders ininternational opentender. Exclusionof firmswho haveengaged in corrupt or fraudulent practices(Article 12and 16). 1 ............................................................................................................................................................................................................................................... 1(e). Tender documentationan1 Implementingregulations(DirectiveNo.1ofJanuary 1, 2 j I technicalspecifications. 1996) specify content o f the tender document.Article ~ 14 laysthe requirementof clear and, where possible, performance-basedtechnical specificationsto create ~ j j jj conditionsof fair and opencompetition.Butnational technical standards are missing. i........................................................................................................................................ l(0. Tender evaluationandau Article 32 of PPL requiresawardto be madeonthe 3 ~ ~ j criteria. basis ofeither the lowestprice or best financial bids I evaluatedon the basis ofelements specifiedinthe bid j ~ document.These are to be objective, expressedin monetaryterms, andpre-disclosed.The process of evaluationis to be kept confidential from bidopening till award(Article33). ' l(g). Submission, receipt and Tender documents specify date, time, andmanner of 3 ! openingoftenders. submission.Tenders are to be opened immediately after I the final deadline for submission.Tenders received after the deadlinemustbereturnedunopened. Bidders I 11 II or their authorizedrepresentativesare allowedto attend the openingoftender.Name ofbidder andtotal amount I for eachtender are to be readaloud andrecordedin .............................................................................................................................................................................................................................................. minutes(Article 30, 31). l(h). Complaints. ChapterVI11(Article43-45) ofPPLprovidesfor 1 ~ II administrative review ofcomplaintsby appealingto headsofprocuringentities andPPA within a timeframe (ImplementingregulationDecisionNo. 335, ofJune 2000) andestablishesmatterthat is subject to review. Butthe complaint reviewbody is not separate from PPA, which is involvedinpolicyandalso reviews ......................................................................................................................................................................................................................................... large-valuecontracts. 1 Indicator 2. Existenceof ImplementingRegulationsand Documentation 2(a). Implementingregulationthat Higher levellegislationis supportedby implementing 2 providesdefinedprocessesand regulationsinthe natureof instructions, decisions, proceduresnot includedinhigher biddingdocumentanduser's manual.There are certain levellegislation. anomalieswhen implementingregulationmandates disclosure of limit find (estimatedcost) thoughnot I requiredby the law.(pleasesee details below the table) ~ 17 Albania - Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement Indicator/ Sub-indicator Summary Assessment 2(b). Model tender document for There are standardbidding document for goods, work 2 goods, works, and services. and services. Quality of documents needsto be improved basedon feedback from users. 2(c). Proceduresfor Article 13 of PPL requiresprequalification in case of 3 prequalification. complex contract with criteria set forth inthe prequalification document. The standard prequalification documentstipulatespadfail criteria. Time limit for submissioni s from 10to 20 days ................................ ......................................... (Directive # 1, January 1, 1996). .................................................................................. .................................................................................................................................................................................................................................. 2(d). Procedures suitable for Article 39 of PPL requiresthat request for proposal 1 contracting for services or other document must containcriteria for evaluatingproposi requirementsinwhich technical and relative weight given to price and other criteria. capacityis akey criterion. Article 39 is not very clear that technical capacity/quality is the maincriteria. Implementing regulation (Chapter 111of Directive # 1, January 1, 1996) is also not clear on this aspect. 2(e). User's guide or manual for User's manual (inAlbanian) i s availableon PPA 2 contracting entities. website, and it is understoodthat the quality is good. This requiresregularupdate basedon feedback from users. 2(f). GeneralConditions of GCC i s mandatory, but there are weaknesses inthe 2 Contract(GCC) for public sector document on disputeresolution system, insurance, contractscovering goods, works quantity and price variation provisions. and services with national requirementsand, when applicable, internationalrequirements. Note on 2(a). There is a practice o f disclosing "limit funds" (estimated cost) in bid notices. This clearly prevents efficient competitive bidding. All the bidders tend to quote close to the disclosed limit amount. At the same time, these estimates themselves are not realistic, as they are not based on market-prevalent conditions. This practice adversely affects import o f electricity (which, incidentally, is defined as "goods" inthe Public Procurement Law, under Article 2, "Definitions"). It led to bidders not submitting bids in the round o f biddingheld inNovember 2005 as they found that the limit funds were unrealistic. The government later amended the law by a normative act (dated December 18, 2005) by making an exception for electricity purchase. In addition, one o f the implementing regulations (Directive No. 1, dated January 1, 1996, Chapter 11, Point 2) explicitly stated "there should not be upper and lower limits, below or over which the bids will be rejected." The current Public Procurement Law contains no provision on disclosure o f estimated cost. The practice o f disclosing limit fund was obviously and consistently in violation o f the Directive No. 1 until January 2006, when it was amended and this provision was removed. Further, unrealistic cost estimates for major programs leads to an excessive number o f budget transfers/reallocations (virements) during implementation. 1.38 To improve the legislative and regulatory framework (Pillar I), following actions in regard the to public procurement law needto be taken. Strengthen provisions on use o f direct procurement by defining the "force majeure" and "emergency" "urgent" situations (Article 17 and 19). 0 PPL should be revised to regulate the public utilities separately from other procurement, either 18 Albania - Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement as a separate chapter under existinglaw or separate law. e Improve and strengthen consulting services provisions to select consultants not based on the lowest price, but basedon qualificationsand quality of services (Article 21). e Revise PPL to include, at a minimum, the following informationfor contract award notice: (i) names of personswho submitted bids; (ii)bid prices as read out at bid opening; (iii)names and evaluated prices of each bid that was evaluated; (iv) names of bidders whose bids were rejected and reasons for rejections; (v) names of wining bidder, and price it offered, as well as the duration and summary scope of the contract awarded. Publication of this information on the website should be made mandatory (Article 35). e Amend PPL to fully define nondiscrimination,-including any grounds, notjust on the basis of nationality (Article 9). e Amend PPL to indicatethe method of delivery of bids, whether by mail, hand, courier, or any other modality(Article 30-31). e Create a separatecomplaintreviewbody other than PPA. 1.39 The following improvementsneedto be madeto the implementingregulations. e The time for preparation of bids in local open tenders is relatively short "minimum 20 days." This should be increasedto 28 days (Decision No. 335). e Biddersshould be giventhe opportunityto appeal debarment decisions (Decision No. 335). e Limit fund (estimated price) should be calculated realistically based on market prices. Also, national standards on cost analysis for constructionworks should be updated regularly and then used(InstructionNo. 1). e There is a needto prepare highquality technical specificationsto promote the broadest possible competitionfollowing internationallyaccepted standards. CPAR 2001 had pointed out that the Law on Standardization (Law No. 3864, dated November 3, 1999) establishes General Directorate of Standardization (GDOS) as the body responsible for managing the country's activities in the areas of standardization, certification, and quality assurance, including the drafting and approval of national standards. In reality GDOS is under-resourced and has made little progress in developinga set of national standards or with adopting other standards (CEN or ISO) into Albanianlegislation. e SBDs should be amendedto mandate signingof the minutes of bid openingby bidders, in order to avoid subsequent changes by procuringentities. e SBDs should be amended to specify that the bids for all tenders, if submitted before the deadline for bid submission, shouldbe kept safely. e SBDs for goods shouldbe improvedto decrease changes inquantities after the contract signing. Maximum allowance could be up to 15 percent increase/decrease of offered quantity. The current limit of 30 percent is very high. Institutionalframework and management capacity (Pillar II) 1.40 Pillar 11 looks at how the procurement system, as defined by the legal and regulatory framework, is actually operating in practice. Three indicators assess the institutions and management systems that are part of the overall public sector governance of the country. First, is the public procurement system mainstreamed and well integrated into public sector governance?In other words, does a well-functioning procurement system linked to the budget process bring efficiency in use of 19 Albania - Country Fiduciary Assessment Update Chapter I.Improving Public Procurement funds (Indicator 3)? Second, does the country have a functional normative/regulatory body (Indicator 4)? Such organization provides guidance on interpretation o f rules, support training, and capacity development. Third, performance is dependant on capacity o f various stakeholders. I s there evidence o f institutionaldevelopment capacity (Indicator 5)? 1.41 Table 3, below, summarizes the respective indicators and sub-indicators for Pillar 11. The third column shows the corresponding 0 to 3 score. Table 3. Summary of BLIs in Institutional Frameworkand Management Capacity (Pillar II) Indicator/Sub-indicator Summary Assessment Score Indicator 3. The public procurement system is mainstreamed and well integrated into public sector governance system. 3(a). Procurementplanning and Procurementplanning reflects budgetavailability rather I data on costing are part ofthe than prioritizationof institutional needs.The budget formulation process and procurementplanning starts too late to ensurethat the contribute to multiyear planning. actualprocurement processcan start as soon as budget i s available.Annual forecast andrealization register do exist, but links betweenmultiyear estimates and subsequent settingof annualceilings and aprocurement plan are not clear. There is apatternof low spendingat the beginning of fiscal year and a last-minutesurge for all types of public expenditure at the end of fiscal year. (See below for further details.) ............................................................................................................................................................................................................................................ 3(b). Budgetlaw and financial There are inadequacies inthe linkage inbudget and 1 proceduressupporttimely financial procedures.These linkages are neededto procurement,contract execution, supporttimely procurement,contract execution, and and payment. payment. 3(c). No initiations of No procurementcan start until budgetappropriations 2 procurementactionswithout are made (Directive No. 1, dated January 1, 1996), but enforcementis weak ............................................................................................................................................... existing budget appropriations. ............................................................................................................................................................................................................................ 3(d). Contract executionis Budget institutions do insome cases maintain recordsof subjectto budgetarycontrolsto commitments, but there is no central reporting or ensure sufficient finding for monitoring of commitmentsto ensure that funds are contract. availableto pay contracts (covered in3 (b)). 3(e). Budgeting system provides Two-month cashceilings are set, but cash forecastingi s for timely release of funds to generally weak (covered in3 (b)). make paymentagainst contractual obligations. 3(f). Systematic completion Reliable information about cash availability for budget 1 reportsare preparedfor institutions is not availablebeyondthe two-month certification ofbudgetexecution ceilings set by the MOF. Procurementsystem is not set and for reconciliation of delivery up to provide information on completion of contract, with budgetprogramming. except on annualbasis. 20 Albania- Country Fiduciary Assessment Update Chapter I.Improving Public Procurement Indicator/Sub-indicator Summary Assessment Score Indicator 4: The country has a functional normativehegulatory body. 4(a). The status andbasis for the The normativebody is the Public ProcurementAgency; 2 normative /regulatory body is but inaddition to policy, PPA also reviews contracts coveredinthe legislative and above athresholdandhandlescomplaints. (See below.) regulatory framework. 4(b). The body has a defined set Article 8 of PPL lists all the tasks, but there are I of responsibilitiesthat include but conflicts-in particular, PPA handling both the review are not limited to a set of 8 of contractsabove LEK 100million (US$ 1 million) and complaint reviews. ............................................................................................................................................................ identified functions. ........................................................................................................................................................................................................................................... 4(c). The body's organization, The body is under-resourced.As the headof PPA is not 1 funding, staffing, level of competitively selected and does not have the status of a independence, and authority civil servant, its level of independence i s low. (formal power) to exercise its duties shouldbe sufficient and consistent with its responsibilities. 4(d). The responsibilities should The body does not meet this requirementas explained 0 also provide for separationand above in4(b). The Bank has supportedthe clarity so as to avoid conflict of establishmentof generalconflict of interest law. This interest and direct involvement in indicator would needto be reviewed once the law the executionofprocurement comes into force transaction. Indicator 5: Existence o f institutionaldevelopment capacity 5(a). The country has a system No procurementinformation system is in place. 0 for collecting and disseminating procurementinformation, including tender invitations, requests for proposals,and contract award information. 5(b). A sustainable strategy and PPA has no national strategy for procurementtraining. 1 training capacity exists to provide The training offered is inadequate. training, advice, and assistanceto developthe capacity ofthe governmentand private sector participantsto understandthe rules and regulationsand how they shouldbe implemented. 5(c). The country has systems and No system exists. 0 procedures for collecting and ........................................................................................................................................................ monitoring procurement statistics. ............................................................................................................................................... ....................................................................................... ~ 5(d). Quality control standards Procurementis not recognizedas aprofession,andthen 0 are disseminatedand usedto i s no systematicannual performanceevaluation despite evaluate staff performanceand understandingthat a system exists address capacity development ........................................................................................................................................................... issues. 21 Albania - Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement Comments on 3(a). The budget formulation process is not efficiently aligned with the procurement planning process. The CPAR 2001 reported that "the effective operation o f the public procurement system i s being severely hampered by the Government's budget planning and management system, particularly by the release to procuring entities o f budgetary allocations late in the fiscal year, sometimes as late as November. The effects o f these practices on procurement include procuring entities avoiding the use o f Open Tendering, as the timing o f their receipt o f budget allocation comes too late in the year to allow them to complete this procedure by the end o f the financial year." The urge to spend the budgeted allocation, by whatever means, effectively hampered consideration o f economy and efficiency in the procurement process. Decision No. 675 (December 12, 2002) o f the Council o f Ministers was issued to avoid tenders being called by the end o f fiscal year. However, this decision required procuring entities to complete procurement as well as signing o f contracts by July 31 o f each year. Given the fact that January and February are spent discussing and negotiating the list o f projects to be funded between the Ministryo f Finance and line ministries, there was an inadequate window o f four months for the procurement process, which encourages overuse o f direct procurement. This in practice leaves only 6 months to execute the budget. Links between multiyear estimates and subsequent setting o f annual budget ceilings are not clear. MOF and line ministries do not strictly adhere to the ceilings from MTBP in annual budget preparation. Little explanation is provided to account for the differences. Accordingly most o f the expenditures against procurement contracts tend to occur during second half o f the year7". This impacts adversely on the efficiency o f public spending. Comments on 4(a). The lack o f independence o f PPA arises because the director o f public procurement i s not a civil servant. The current provisions o f the PPL, Article 8 states; "the Director o f the Public Procurement Agency is appointed, released and dismissed by the Prime Minister." The CPAR o f 2001 observed that PPA is chronically understaffed and under-resourced and therefore not able to perform its function effectively. The 2004 annual report o f PPA highlighted these "status" and "resource" constraints as challenges during 2004. This report also states that numerous requests were made to the Public Administration Department in order to comply with Article 8 o f the PPL, requiring that "for the employees, management, and experts o fthe Public Procurement Agency, the provisions foreseen by the law `on the status o f civil servant' shall apply." Further, there i s a need to instill confidence in the business community on the transparency o f the public procurement system and existence o f a fair complaint review mechanism. 1.42 Significant actions are required in the area o f institutional framework and management Capacity (Pillar 11), as follows: 0 The procurement planning process should start at least three months prior to the upcoming fiscal year. The MTBP and annual budget should be linked, and expenditure cycle made realistic so that competitive procurement methods and efficient use o f resources are ensured. 0 Implementation should be followed through better reporting and a commitment should be made to establish a control system. 0 The PPA director and all other professional staff should be civil servants in order to avoid political interference (Article 8). 0 An independent Procurement Review Body should be established to handle complaints (Article 8). Web-based procurement information should be published with a provision for system for systematic update o f tender invitations, RFPs, and contract awards, and so forth. 7 Paragraph 3.34 of PEIR (PFM chapter) 22 Albania - Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement 0 The website should also contain annual statistics on procurement, which should be updated regularly. 0 The PPA should be tasked with developinga national strategy for public procurement training, and the government should allocate adequate resources to implement such a strategy over the next 3 to 5 years. 0 PPA organization, funding, and staffing should be reviewed by the government to increase its levelof independenceand authority. 1.43 Table 4 showsthe presentinstitutionalsetup of public procurementfunctions inAlbania. Table 4. Present Setup ofPublicProcurementFunctionsinAlbania Carrying out Administrative and Procurement policy and Functions procurement functions complaint review legislation development (executive function) I '1 Reviewof contracts above I Final stage of I ! Procuring ii US$1 million(LEK 100 I administrativereview of Ij I 4 I1....,............ Agency (PPA)I ! million) I complaints ..................................................... ......................... .............. ~ I ...................................................... .............. ....................i..............................,.................................................................................Ii................................................................................................................. I I Procuringentity I First stage of complaint I..................... (PE) 4 1I!, review I 1.44 Incontrast to the present setup, the recommended setup is as follows. First,the administrative andcomplaints reviewfunction should be delegatedto an independentbody. Second, as procuring entities demonstrably increase their capacity, the threshold requiringPPA reviewof high-value contracts shouldbe correspondingly increased.This step would graduallyincreasethe capacity of procuringentities, make procuringentitiesmore accountable. By reducingone levelof review, the time to award a contract wouldbe reduced. Procurementoperationand marketpractice (Pillar III) 1.45 This pillar looks at the operational effectivenessand efficiencyof the procurement system at the levelof implementationresponsiblefor issuingindividualprocurement actions. It looks at the market as one meansofjudging the quality andeffectiveness ofthe system. This pillar is distinguishedfrom PillarsIand I1inthat it does not look at the legalhegulatoryand institutional systems, but rather, at how they operate. As shown inTable 5, this pillar I11consists ofthree indicators-first, whether the country's procurement operations andpractices are efficient(Indicator 6); second, the functionalityof the public procurement market (Indicator7); andthird, the existenceof contract administrationand disputeresolutionprovisions(Indicator 8). 23 Albania -Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement Table 5. Summary ofBLIs inProcurement Operationand Market Practices (Pillar III) IndicatorISub-Indicator Summary Assessment Score I Indicator 6. The country's procurement operations and practices are efficient. + .......................................................................................................................................................... I 6(a). The level of procurement The governmenthas made no effort to recruit 1 competence amonggovernment procurementprofessionalswho can handle complex I ~ I1j officials within the entity is procurementtasks. There are certain agencies where consistent with their procurement capacity exists. responsibilities. I .................................................................................................................................................... .............................................................................................................................................................................................................................................. 6(b). The procurementtraining and There are training programs,but these are deficient in 1 !i information programs for terms of content and supply (see note at foot of the 1 governmentofficials and for table.) i j private sector participants are ii consistent with demand. iI i! 6(c)....................................................................................................................................... ............................................................................................................................................................................................................................................. 1/1 There are appropriate (This indicator was substantially coveredby Indicator administrative systems for public 5, above.) procurementoperations, and information databases to support performancemonitoring and i reporting and to respondto the II information needs of other related governmentsystems. L I, .............................................................................................................................................................. .............................................................................................................................................................................................................................................. 6(d). The entity has internal (This indicator will be scoredunder Indicator 9). control mechanisms governing 'I procurementoperationsat the contracting level, including a code of conduct, separationof responsibilities as a checkhalance I mechanism, and oversightkontrol of signature/approvalauthority. ~ /............................................................................................................................................................. ............................................................................................................................................................................................................................................ 1 6(e). There are establishednorms The administrative system is weak. Under the PPL 1 for the safekeepingof records and (Article 10) and the Directive No. 1(January 1, 1996), 1 documents relatedto transactions ij procurementrecordsare to bekept for aperiod and contract management. specifiedfor each procuring entity under the Law of Archives and Law on Public Information. j ~ ,........................................................................................................................................................... IiIi1 ........................................................................................................................................................................................................................................... 6(f). There are provisions for The PPL (Article 7) and decisionNo.335 (June 23, 2 delegatingauthority to others who 2000) stipulatethat review of procurement decisions is have the capacity to exercise made accordingto amount of contracts.But PPA is i j responsibilities. consultedmore than required, and there are delays. I ii ; Indicator 7. Functionality o fthe public procurement market. I t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7(a). There are effective I There is no private sector consultation, and private I 0 sector confidence inpublic procurement is low. i ~ 11.............................................................................................................................................................. II mechanisms for partnerships between the public andprivate II sectors. ./i......................................................................................................................................................................................................................................................'j.......................................................... 1i 1 7(b). Private sector institutions are I I 1I................................................................................................................................................................ Ii Private sector institutions are not well established, 0 well organizedand able to facilitate access to the market. except for the constructionindustry. ii ..............................................................................................................................................................................................................................................!i.......................................................... 24 Albania -Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement IndicatorJSub-Indicator Summary Assessment 7(c). There are no major systemic The private sector has not yet matured; and although constraints (e.g., inadequate access credit to the private sector is increasingdramatically, to credit, contracting practices, and access to credit is still limited. so forth) inhibiting private sector capacity to access the procurement market. ........................................................................................................................................................... 7(d). There are no major systemic Not scored separately, as it is coveredunder 7(c). constraintsthat inhibitcompetition (e.g., technical, labor, and other standards). 7(e). There are clear and There are no legal constraintsfor participationby transparent rules for determining foreign f m s . However, these firms approach whether to engage international or Governmentmore on concessionsrather than inpublil national markets, basedon a sound procurementtenders. developmentand business logic. ......................................................................................................................................................... Indicator 8. Existence o f contract....................................................................................................................................................................................................................................... administration and dispute resolutionprovisions 8(a). Procedures are clearly Contract administration responsibilities, including defined for undertaking contract inspectionand tests, are defined clearly; but administration responsibilities that substandardgoods, works, and services are acceptedin include inspectionand acceptance practice.There are payment delays procedures, quality control procedures, and methodsto review and issue contract amendments ina timely manner. ....................................................................................................................................................... 8(b). Contracts include dispute Conflicts and disputes arising from the procurement resolution proceduresthat provide contractsare resolvedbasedon Civil Code ofAlbania. for an efficient and fair processto The country acceptsUNCITRAL or Paris Chamber of resolve disputes arising during the Commerce for contractsdisputeswhen the government performance ofthe contract. i s aparty. SBDs contain no information on ADR mechanism, but refer only to court. ......................................................................................................................................................... ............................................................................................................................................................................................................................................. 8(c). Procedures exist to enforce Albania is amember of the New York Convention on the outcome ofthe dispute Enforcementof International Arbitration Awards. But resolution process. court enforcementin i s weak. Comments on 6(b). There is a need for a sustainable strategy and training capacity in all areas o f PFM, including procurement. The targeted recruitment and professional development o f accountants, financial controllers, inspectors, procurement specialists, and auditors should be enhanced in accordance with the objectives o f the Government's Policy Paper for PIFC (March 2005). There is a need to train auditors on procurement law and regulations to ensure that these rules are applied correctly. Until last year, the Training Institute o f Public Administration (TIPA) offered basic procurement training for central government procurement staff. The course three-day course was offered three times a year. According to the TIPA training plan o f 2006-08, they will be offering a one-day awareness-raising training on public finance to newcomers in the civil service, and a two-day program on budgeting procedures. These trainings are inadequate. In the area o f procurement, the CONFIRMEC-CARDS consultant offered 14 modules o f training o f trainers as part o f its capacity building. The training curricula consists o f introduction to public procurement policy objectives, a review o f conflict management; public procurement methods and strategies; the public procurement tendering process; notices o f invitation, tender documents and evaluation; and public procurement ethics. This i s not sustainable as the contract 25 Albania - Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement with CONFIRMEC is expected to end by October 2006, and a recently established training unit in PPA has only limited staff available Actions needed to improve procurement operations andmarket Practices (Pillar 111) include: The level o f competence expected o f procurement staff should be made consistent with their responsibilities. PPA should initiate a dialog within government, particularly with the Department o f Public Administration (DOPA) to establish procurement as a separate career stream within both the central and local government civil service. This action should be supported with separate job descriptions, qualifications requirements, career structures, and salary scales for procurement officers. Capacity in internal audit units in the ministries should be strengthened to take a more active role in assuring compliance with public procurement procedures. Standard bidding documents should include an alternative dispute resolution mechanism, such as arbitration. The private sector should be seen as a development partner. More outreach programs should be organized to improve private sector capacity in bidding for public procurement tender. Adequate accessto credit should be ensured through suitable policy changes by government. Contract administration should be strengthened through suitable training o f staff. Integrity and transparencyof thepublicprocurement system (Pillar Iv 1.47 Pillar IV covers four indicators that are considered necessary to provide for a system that operates with integrity, has appropriate controls to support implementation in accordance with the legal and regulatory framework, and has appropriate mechanisms to address the potential for corruption. It also includes stakeholders as part o f the control system. This pillar takes aspects o f the procurement system and governance environment and seeks to ensure that they are defined and structured to contribute to integrity and transparency. As shown in Table 6, this pillar consists o f the following four indicators-the country has effective control and audit systems (Indicator 10); efficiency o f an appeals mechanism (Indicator 10); degree o f access to information (Indicator 11); and ethics and anticorruption measures in place (Indicator 12). 26 Albania- Country Fiduciary Assessment Update Chapter I.Improving Public Procurement Table 6. Summary of BLIs inIntegrityand Transparency(Pillar W) Indicator/Sub-Indicator Summary Assessment Score Indicator 9. The country has an effective control and audit system. ............................................................................................................................................................. .................................................................................................................................................................................................................................... ................................................... 9(a). A legalframework, Basic regulationsfor processingtransactions and 1 organization, policy, and approvingcontractsexist; but comprehensive proceduresfor internaland external writtenprocedures,includingdetailedjob controland audit of public descriptions, are generally lackinginthe budget procurementoperationsare inplace institutions.At the level of the treasury, procedures to providea functioningcontrol for controls andreleaseof all types o f non-salary framework. expenditure exist and are followed. Internalaudit is at an early stage of development, andtheir work on procurementaudit is limited. Supreme State Audit (SSA) has a broadmandate to audit revenuesand expenditure of all bodies financedwholly or partiallyby state budget. Procurementis a core part o f SSA audit work. ......................................................................................................................................................... ............................................................................................................................................................................................................................... .................................................. 9(b). Enforcementand follow-up Within the past 1to 2 years, the Supreme State 1 on findingsandrecommendations Audit has noteda generalimprovement in o f the control framework provide responsiveness.50-70 percentof recommendations an environmentthat fosters are acteduponby the government. compliance. ............................................................................................................................................................. ................................................................................................................................................................................................................................. .................................................... 9(c). The internalcontrol systems Proceduresfor following up on recommendationsof 1 provide timely informationon other IAUs are not harmonizedacrossthe complianceto enable management governmentadministration. A fair degree of action action. is takenby many managers on major issues, though oftenwith delays. 9(d). The internalcontrol systems Performanceaudits are hamperedby the lack of 1 are sufficiently definedto allow comprehensivewrittenprocedures. performanceaudits to be conducted. ......................................................................................................................................................................................................................... Auditors are generally familiar with procurement 1 informedabout procurement rules and proceduresdespite some cases o f requirementsand control systems misunderstandingofrules. Moretraining is needed. to conduct quality audits that .................................................................................................................................................... contribute to compliance. Indicator IO. Efficiency o fthe appeals mechanism. ............................................................................................................................................................ .................................................................................................................................................................................................................................. lO(a). An independent complaint Scoredunder l(h). ~ ~ review systemgives participants in j the public procurementprocessa ~ rightto file a complaint within the j framework of an administrative and j judicial reviewprocedure. I ............................................................................................................................................................... 27 Albania - Countw Fiduciaw Assessment UDdate ChaDter 1.ImDrovinPPublic Procurement IndicatorlSub-Indicator SummaryAssessment 1O(b). Decisions are deliberated PPA is the appeals body. Its decision is final. If 1 basedon available information,and parties are not satisfied, they can bringthe case to the fiial decision can be reviewed court. There are no specializedcourts andjudges for and ruleduponby a body (or procurementdisputes. authority)with enforcement ..................................................................................................................................................... capacity underthe law. .......................................................................................................................................................................................................................... 1O(c). The complaint review The system is very weak andthe complaintsare 1 system has the capacity to handle handledby the LegalandProcurementUnit inthe complaints efficiently and can PPA.There are no defrnedterms for resolution, and enforcethe remedy. the meansto enforce the decision is through whichever court hasjurisdiction inthat that dispute. j1 I1 ................................................................................................................................................................ 10(d). The system operates ina PPA couldnotprovidedata onthis. 0 fair manner, with outcomes of 1 decisionsbalancedandjustified I i with available information. i ,.............................................................................................................................................................. I 10(e). Decisionsare publishedand No decisions are published. ~ 0 made available to all interested parties and to the public. ~ ................................................................................................................................................................ .................................................................................................................................................................................................................................... lO(f). The administrative review There is no independentprocurementreviewbody 0 body or authority is independent independent from the legislativehnction. from the regulatory body, executing ............................................................................................................................................................... agency, and auditkontrol agency. '' ,............................................................................................................................................................. Indicator 11. Degree of access to.................................................................................................................................................................................................................................. information 1l(a). Informationis publishedand Informationis publishedinPublic Procurement 1 II distributedthrough available media Bulletin. Only open tender notices are publishedon with support from information the website, standardbiddingdocuments, the Public technology when feasible. ProcurementLaw, and user's manual (see details j ,.......................................................................................................................................... below). 11(b). Systems are inplaceto Coveredunder 1 4 and 5. ) ~ ii collect key data relatedto jI performance ofthe procurement system andto report regularly. ~ / .............................................................................................................................................................. ...................................... ..................... 1l(c). Recordsare maintainedto ~ Ii validate data. ............................................. !ij ~ 1l(d). There is clear legalbasis Coveredunder 1and 2 1 ; providingaccess to informationfor the public. 28 Albania - Country Fiduciary Assessment Update Chapter I.Improving Public Procurement Indicator/Sub-Indicator Summary Assessment Score ~ j ............................................................................................................................................................... Indicator 12. The country has ethics and anticorruption measures in place. .................................................................................................................................................................................................................................... 12(a). The legal and regulatory The PPL includesprovisions on fraud and corruption 2 framework for procurement, (Article 16 for corrupt practicesand Article 12 for includingtender and contract fraudulentpractices). Furthermore,there is a code of documents, includesprovisions ethics for civil servants. But "fraud" and "corruption" addressing corruption, fraud, i s not defined inPPL. conflict of interest, andunethical behavior; it sets out (directly or by reference to other laws) the actions that canbe takenwith regardto suchbehavior. ........................................................................................................................................................... 12(b). The legal system defines PPL (Articles 12, 16) envisages actions for 2 responsibilities, accountabilities, fraudulent practices,which provide for debarment of and penaltiesfor individuals and companies from governmenttenders for 1to 3 years. firms found to have engaged in fraudulent or corrupt practices. ............................................................................................................................................................ 12(c). Evidenceof enforcementof Laws exist, but evidence of enforcement is weak. 1 rulings and penaltiesexists. ................................................................................................................................................................ ...................................................................................................................................................................................................................................... 12(d). Specialmeasures exist to Anticorruption programthat gives responsibility to 1 prevent and detect fraud and an organizationexist within government, but the corruption inpublic procurement. program is not coordinated.More information is !......................................................................................................................................................... ............................................................................................................................................................................................................................ requiredfrom the governmenton this sub-indicator. I There is no evidence of public involvement inthe I 12(e). Stakeholders (private sector, 0 civil society, and ultimate system. Few NGOs are active, and some are helping beneficiariesofprocuremendend- BEEPS survey. InBEEPS2005, the perceived ~ ' II ~ users) support the creationof a frequency of unofficial paymentto obtain procurementmarket known for its government contractshas gone up from about 32 integrity and ethical behavior. percent in2002 to about 41 percentin2005. ,............................................................................................................................................................ I 12(f). The country shouldhave in Untilrecently,there was nohotline for reporting Ij 1 place a secure mechanismfor fraud and corruption cases. This was recently settled I reporting fraudulent, corrupt, or within the Council of Ministers. The public can now ~ unethicalbehavior. report cases of fraud or unethicalpracticesby ~ government officials. Whether or not the mechanism ............................................................................................................................................................... .................................................................................................................................................................................................................................. i s secure i s not yet known. 12(g). Existenceof codes of The relevant legislation is included inLaw No. 9131 1 conduct and codes of ethics for (September 2003) on Rules of Ethics for Public participants inthe public financial Administration, andthe Law No.8549 (November managementsystems. Disclosure is 11, 1999) on Status of Civil Servants. provided or those in decision- Financial disclosure of personalassets for those who makingpositions. deal with public financial managementi s required by law. Comments on ll(a). Public access to procurement information is essential for transparency and creates a basis for "social audits" by interested stakeholders. Information needs to be consolidated into a single place easily accessible by the public. The PPA website (www.app.gov.al) i s very weak in content. Most procurement information is only available in hard copy through the weekly Public Procurement Bulletin, including information on tenders, contract awards, debarred companies, and changes in 29 Albania - Country Fiduciary Assessment Update Chapter 1.Improving Public Procurement procurement legislation. The PPA website contains only open tender notices, standard bidding documents, public procurement legislation, and a user's manual. This is grossly inadequate. There is no update o f the information on procurement legislation. No information is available on the website related to the number and value o f contract awards under various methods of procurement, or incidences and rationale o f direct procurement. No information is available on timeliness on the resolution of complaints. w. 1.48 The following actions are needed to improve the integrity o f public procurement system (Pillar 0 A number o fjudges should be specialized for procurement dispute cases. 0 The PPA website should contain complete information on the complaints and status o f the complaints. 0 A beginning ine-procurement should be made by publishingall procurement notices and award results on the PPA website. 0 The PPL should be revised to establish an Independent Procurement Review Body (also covered in Pillar I)to increase the confidence o f the private sector and other stakeholders in the system. 0 The PPL should be amended to define fraudulent and corrupt practices. 0 A list of debarred companies should be postedon the PPA website. 0 PPL (Articles 12, 16) envisages actions for fraudulent practices. These provide for debarment. Butprocedures needto be defined for debarment o fcompanies. 30 Albania - Country Fiduciary Assessment Update Chapter 2. Fiduciary Risk Assessment 2, FIDUCIARY RISKASSESSMENT 2.1 This chapter contains a definition of fiduciary risk, a brief presentation of the World Bank portfolio and activitiesinAlbania, and a summary of the fiduciary risk assessmentbasedonthe findings of this report and the PFM performance indicators. Risk-mitigatingremedies for the Bank's portfolio are also presented. Definition offduciary risk 2.2 Definitions of fiduciary risk vary inthe literatureand in donor statements; but generally, they all include some of the following elements: (i)Risk that donor funds may not reachthe budget; they may be diverted beforehand for unknown or unauthorized purposes and not flow through the partner country's central bank to the MOF; (ii) Funds may reach the budget but without reliable and timely reportingon overall budget execution; thus donors do not know how (or even whether) their funds (as part of the budget) have been spent; and (iii)Funds may reach the budget but are misspent, becausethe budget is not adequately implemented, or budget finds (including donor assistance) are used for inappropriate, unauthorized, unknown, or "corrupt" purposes. 2.3 As reflected in various guidelines, the World Bank has two prime fiduciary concerns in providing direct budget support to partner governments-first, that funds reach the budget, and second, that they are "appropriately managed" as part of the country's budget resources. Key factors contributing to the fiduciary risk are PFM systems issues-for example, that the budget is not implemented as passed, that significant activities are off budget, that information on budget implementationis late and unreliable,andthat financial control rules are not enforced. These factors are capturedthroughthe assessmentand scoring ofthe PEFA indicators. 2.4 PFM is but one component of the overallfiduciary risk. The others are risk relatedto the public procurement system (traditionally reflected in the CPAR) and risk of misuse of Bank funds through corruption (drawn from anticorruption diagnostics by the World Bank and others). In this report, the assessment of the fiduciary risk associated with procurement will be an integralpart of the assessment of the fiduciary risk associatedwith the PFM system throughthe use ofthe PEFA indicators. 2.5 In assessingthe overall fiduciary risk associated with the government budget system, the report considers all aspects and all three components of fiduciary risk. In doing so, the fiduciary risk will be deemedto be Low, Moderate, Significant, or High. Fiduciary RisksAssociated with the Current World Bank InvestmentPortfolio 2.6 The World Bank active portfolio in Albania amounts to some USD 225 million. Currently the World Bank project portfolio in Albania includes 15 active projects for a total amount of USD 225.3 million. The data intable 3 belowprovidesan overview ofthe active projectportfolio inAlbania. 31 Albania -Country Fiduciary Assessment Update Chapter 2. Fiduciary RiskAssessment Table 7. World BankPortfolio inAlbania, end of 2005 Project Principal Disbursed I j i I,I................................................................................................................................................................................................................................................................} 15.0 ............................................ Iin $USmillion ................................................................................................................................................................................................................................................................ equivalents) i Municipal water \i! I Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 9.9 7.5 I,................................................................................................................................................................................................................................................................| 10.0 Social services 1.5 I,I................................................................................................................................................................................................................................................................| 30.0 ~ Road maintenance 26.0 f .! ~ Fishery 5.6 4.1 Ii ` 1 1...................................... Pub1 ................................................................................................................................................................... 8.5 4.4 jI ................................................................................................................................................................................................................................................................ Pow ..................................................................... 8.6 11 Ii................................................................................................................................................................................................................................................................ Power sector generation 25:..........................................................................0:............................... 0 5 1 i i....................................... Community................................................................................................................................................................................................................................................................= works 15.0 6.3 Ii Water resources 15..................................................................................................... 0 1 5 II 1)................................................................................................................................................................................................................................................................$ '!1................................................................................................................................................................................................................................................................| Natural resources 7.0 0.0 i Natural resources (GEF) 5.0 0.0 Coastal zone 17.5 0 j Total 225.3 65.6 I!I 2.7 Project-specific financial management and procurement arrangements have mitigated the overall fiduciary risk attached to the World Bank portfolio. The overall relative fiduciary risk attached to the portfolio is considered "significant" under the financial management and procurement arrangements established specifically for the projects. Additional control measures, over and above those in the public administration, are typically designed for individual Project Implementation Units (PIUS). World Bank projects have typically been implemented through standalone PIUs. Disbursement, procurement, financial reporting, and auditing arrangements are agreed with the Bank. Also, the PIU staff has typically been paid with project funds and more generously remunerated than civil servants. The CAS encourages "a gradual shift from implementation o f projects through autonomous Project Implementation Units toward implementation through regular administrative structures o f government to ensure strengthening o f the public administration, capacity building, and the sustainability o f interventions." However, the mitigating measures have mostly remained the same. Projects approved in 2006 will utilize the treasury system. The education SWAP pools funds with other donors and government. Additional mitigating measures have been designed, as discussed below. 2.8 All projects in Albania received unqualified audit opinions in respect to their 2004 project financial statements. However, all audit reports were delivered after the due date of June 30 2005 on a portfolio-wide agreement with a private external audit company financed by the government. All audit reports were received by the end o f October 2005. 2.9 The existing manual treasury system has not normally includedthe detailed accounting data that is needed to monitor investment projects. The Ministry o f Finance i s implementing a computerized treasury system. Projects starting in late 2006 will fully utilize the new system's funds flow and payment facilities. They will be able to obtain financial reports oriented toward project management from the system. 32 Albania - Country Fiduciary Assessment Update Chapter 2. Fiduciary Risk Assessment Foreign Exchangeand FundsFlow Arrangements 2.10 With respect to determining the adequacy of arrangements for the management of foreign exchange reserves, internal World Bank rules state that Bank staff will primarily rely upon assessments undertaken by the IMF. If IMF indicates that low risk is attached to the operations of the central bank, Bank staff need take no further action; and no additional fiduciary safeguards are required to protect Bank funds. Similarly, World Bank staff need take no further action ifthe IMF indicates that the risk is higher but a remedial action plan has been establishedwith periodic reports indicating that the plane is being satisfactorily implemented. 2.11 The IMF assessment of the Bank of Albania is favorable. Under the Fund safeguards assessment policy, the Bank of Albania is subject to a full safeguards assessment with respect to the Poverty Reduction Growth Facility (PRGF) arrangement (June 2002) that takes into account prior safeguards work, including an assessmentreport issuedinMay 2001 and a monitoringmission in March 2002. The assessment noted that the Bank of Albania has made significant progress in implementing the recommendations of the first safeguards assessment, and that in general, the bank has adequate safeguards to reduce the risk of misuse and misreporting of Fund resources. Nevertheless, the assessment noted minor weaknesses in the World Bank (Bank of Albania) internal auditing, financial reporting, and internal control systems-all of which the Bank of Albania management has agreed to address. 2.12 The imposition of additional fiduciary safeguards appears unwarranted. Basedon the above, the imposition of additional fiduciary safeguards on the National Bank (Bank of Albania) also appears unwarranted, particularly the use of a ring-fenced account in another bank to hold foreign currency received from the World Bank. Assessmentof Fiduciary Risk 2.13 Table 8 provides an overview of the PFM performance scores of the PEFA indicators (see PEFA assessment). The fiduciary risk associatedwith Public Financial Management, including public procurement, is considered significant. Areas of transparency, comprehensiveness of budget and accounts, as well as control and oversight, are considered to have most impact on fiduciary risk. Given the relatively low scores inthese areas, the fiduciary riskfor PFM is deemed significant. 2.14 Albania's poor ranking in international country surveys on perceptions and control of corruption suggests that the fiduciary risk associated with corruption is high. Albania's score in Transparency International's Corruption Perception Index (CPI) of 2.4 (on a scale from 1-10) gives it a rank as 126 among 158 countries. Compared with other countries in the region, Albania is ranked after Serbia and Montenegro, Macedonia, Belarus, Moldova, and Ukraine. It is ahead of only 32 other countries in the survey.' Inthe World Bank Institute global survey of Corruption Control in 2004, Albania scored -0.72 on a scale from -2.5 to 2.5, placing it among the bottom 30 percent gl~bally.~For procurement, the percentage of firms saying that bribery to obtain government contracts is frequent rose from about 32 percent in 2002 to 41 percent in 2005. These indicators suggest that the fiduciary risk associated with official corruption is high. 8Transparency International Corruption PerceptionIndex 2005 (www.transparency.org), 9Governance Matters IV: Governance Indicators for 1996-04, World Bank Institute, May 2005. Dataavailable from www.worldbank.orglwbilJzovernancelgovdata. 33 Albania - Country Fiduciary Assessment Update Chapter 2. Fiduciary RiskAssessment Table 8. PFMPerformanceand FiduciaryRiskIndicators I A. PFM-OUT-TURNS: Credibilityof the budget I 2.15 The overall fiduciary risk associated with the government budget system is considered significant. Given the relatively poor scores on PFM performance indicators with impact of the fiduciary risk, including the risk associated with the public procurement system and indicators loIndicatornumbers starting with the letters "PI" and "DI" refer to the indicators listedinthe PEFA report, "Public FinancialManagement:PerformanceMeasurement Framework," June 2005, page 9. 34 Albania - CountryFiduciary Assessment Update Chapter 2. Fiduciary RiskAssessment suggestion a significant level of official corruption, the fiduciary risk is considered significant. Regardingprocurement, the above conclusion of significant risk is supported by the scores on the four pillarsofOECD-DAC. Use of Country Systems-Public FinancialManagement 2.16 The recent changes in the framework for determining the eligibility of Bank-funded expenditures introduces the possibility of borrowers relyingupon their own systems for future project implementation and monitoring.The recent changes in the framework for determiningthe eligibility of expenditures and the introductionof Country FinancingParameters for Albania (permitting up to 100 percent financing of project costs) enable the World Bank to streamline disbursement procedures-for instance, a projectmight have a single disbursement category. This could in turn simplify the reporting and accounting requirements, negating the need for the borrower to track expenditures by component and expenditure type, specificallyfor World Bank-fundedactivities. This introducesthe possibilitythat the World Bank, subject to a full assessment of the financial management environment within the Ministry of Finance and Treasury, might begin to use the borrower's financial systems to control and monitor project implementation. However, the ministry is still reluctantto accept one category for the Bank-financedprojects. The argument has been that the categories give the ministry a handle on any reallocationof funds, especially increases on the allocationused for technicalassistance (consultants). To fully utilize the normal reporting systems of the government for Bank-financed projects, a mechanism should be established for Ministry of Finance control over reallocation in donor-funded projects, 2.17 The CAS from January 2006 agreed to support the use of the normal government structures in implementingWorld Bank-funded projects.The CAS states, "The implementationof projects through PIUs/PMUshas reducedthe potentialimpact of projectson institutionaldevelopment and sustainability. Agreements have been reached with the Government in FY05 for implementationby the existing government structures. The most notable change is the appointment of an authorized government official (Director, DirectorGeneral, or Deputy Minister) to oversee the implementationof each project. Additional skills (e.g., financial management and procurement specialists) will be contracted when necessary but these specialists will report to the Project Authorizing official and the concerned government agency or ministry." The two lending operations approved in Albania in 2005 (Coastal Zone and Natural Resource Development) have integrated project implementation into the normal government structures. Because financial management, disbursement, and procurement largely follow the World Bank rules, consultants were hiredto performthese specialized functions. Projects prepared in 2006 have started utilizing the treasury system. Most notably, Bank support to the education sector has been designed as a Sector Wide Approach (SWAP), with poolingof funds for the reform program between the government, the Bank, and other donors. Additional mitigatingmeasures in procurement, use of the work o f internal audit departments, targeted capacity-buildingof fiduciary staff, use of SSA with the assistance from a European SSA twinning partner, and operational reviews have been agreed with the government to ensure that funds are usedfor the agreed purposes.(The CAS governancefilter i s a safeguardmechanismon anticorruption.) 2.18 Treasury management, disbursement, internal control systems, and internal and external audit are being improved; butthey cannot yet be reliedon for managingall Bank-fundedinvestment projects. The new treasury system is an important step in utilizing the government's payment and accounting system. The flow of funds can pass directly from treasury to the suppliers.The change in flow of funds would also enablethat government's internalcontrolproceduresto be applied as far as possible. These procedures are continuously beingimprovedthrough the work of the internaland external auditors and through the introductionof a Public InternalFinancialControl(PLFC) framework supported by the EU. The internalaudit units are now functioningand they are starting to prepare useful audits, includingof 35 Albania -Country Fiduciary Assessment Update Chapter 2. Fiduciary RiskAssessment Bank-fundedprojects. The use of the internal audit units in new projects needs to be institutionalized during projectpreparation. Although the external audit has improvedthe State Supreme Audit (SSA) is not expected to be able to do financial certification audits in the short term without additional external support. An amendment to the current law for the SA1will enable them to carry out audits of donor- funded projects. These audits, includingthe audit of the education sector support, should be monitored to assess when closer cooperationcould be startedusingthe SAYSaudits more broadly. 2.19 Considerable efforts have been invested into harmonizing donors' financial management practices and budget support, using the Bank of Albania and the budget execution system. Regarding the donor simplificationagenda, the CountryFinancingParametershave been approvedwith possibility of financing up to 100 percent. Report-based disbursement has been introduced for some newly approved lendingoperations. As mentioned, the Ministry of Financehas insistedon the "old" categories in lieu of a simplified solutionusingone category. The use of treasury, simplificationof categories, and pooling of donor funds operations will need to be continuously monitored and discussed with the government. An IntegratedPlanning System is being implemented to integrate the many strategies the government needs to work with. This will also improve the management of donor-funded projects and enable an advance in the harmonization between donors and the government. Project assistance provided through lending, including the World Bank, has been reflected in government budget and accounts, while this has not beenthe case for all grant assistance.Accordingto the CAS upstreampaper, "the World Bank will also be lookingfor opportunitiesto coordinate with all donors to move to SWAp- like approaches in the social sectors through the formulation of clear sectoral strategies and investment plans." This work has so far benefitedthe education sector support. Three recent PRSCs and a recently completed two-tranche FSAC have been using the country system based on a satisfactory IMF safeguardassessmentofthe Bank ofAlbaniaas well as clean auditreports for the deposit accountsused. Because of the new policy on development policy lending, the PRSC 3 (disbursed in 2004) did not requirean audit ofthe deposit account. Use of CountrySystems-Public Procurement 2.20 The World Bank policy in this respect is still evolving. However, the thresholds for national competitivebiddingand for prior revieware beingincreasedgradually in Bank-fundedprojects. 2.21 The unacceptable NCB conditions for Bank-funded projects are based on current public procurement law. These are discussed on a project-by-projectbasis. For the EducationSWAp, project development partners have outlined specific procurement procedures compatible with Bank procurement guidelines. Annex 5 provides "Good Practices Provisions for National Competitive Bidding vs. Status in Albania." Based on this analysis, the NCB exception for the education SWAP project is as given below. These exceptions will requiremodificationsbased on the Public Procurement Law in force at the time of loannegotiationfor future projects. 2.22 The NationalCompetitive Bidding procedures shall be based on the open tendering procedures as defined inthe PublicProcurement Law of Albania andthe following additionalprovisions: "Open Tendering" proceduresas defined inPublicProcurement Law shall apply to all contracts. Foreign bidders shall not be precluded from bidding, and no preference of any kind shall be given to national bidders in the bidding process. Government-owned enterprises in Albania shall be permittedto bid only ifthey are legally and financially autonomous and operate under commerciallaw of the borrower. Procuringentities shall use sample biddingdocuments approved by the Association. In case of higher bid prices compared with the official estimate, all bids shall not be rejected 36 Albania - Country Fiduciary Assessment Update Chapter 2. Fiduciary RiskAssessment withoutthe prior concurrence ofthe Association. A single-envelopeprocedure shall be usedfor the submissionof bids. Post-qualificationshall be conducted only on the lowest evaluated bidder, and no bid shall be rejected at the time ofbid opening on qualificationgrounds. Bidderswho contract as ajoint venture shall be heldjointly and severally liable. Contracts shall be awarded to the lowest evaluated, substantially responsive bidder who is determined to be qualified to perform in accordance with predefined and pre-disclosed evaluationcriteria. Post-biddingnegotiations shall not be allowedwith the lowest evaluated or any other bidders. Contracts of long duration (more than 18 months) shall contain appropriate price adjustment provisions. 37 Chapter 3. Summary of Key Recommendationsand Risk Mitigation Action Plan 3, KEY RECOMMENDATIONS AND ACTION PLANFOR RISKMITIGATION 3.1 Several actions are recommended to mitigate fiduciary risk by: 0 Giving priority to the areas associated with the most significant fiduciary risk. 0 Concrete actions to address weaknesses inbudget realism. 0 Coverage of government reporting, arrears, and internal and external audit 0 Addressing weakness in procurement related to the legislative framework and, in particular, integrity and transparency, institutional and management capacity, and procurement operations and market practices. 3.2 Based on the fiduciary risk assessment above, the team has proposed the risk mitigation actions show in Table 9. These are to be taken by the government and other stakeholders. These recommendations drawn upon P E R and PEFA, as well as the present analysis. 38 Chapter 3. Summary of Key Recommendations and Risk Mitigation Action Plan Table 9. Key Recommendationsfor MitigatingRisk Recommendation and key actions .-m -2 (Relevant indicator/paragraphofthe CFA report) BE -E A. Cross-cutting issues Improve the coordination between procurement planning process and budget formulation process. To achievethis, the procurementplanningprocess to start at least X MOF three months prior to the next fiscal year, MTBP and annualbudget is requiredto be linkedand expenditure cycle made realistic so that competitive procurementmethods and efficientuse ofresourcesare ensured. Improve institutional framework and administrative capacity in public financial management, including in procurement, at all levels of government. MOFI PPALWIPS To improvethe institutionalframework, strengthenthe linkage betweenpolicy X X developmentand budgetplanningprocesses, requiring: (i) close collaborationbetween the DSDC and GeneralDirectorateof Budget inthe implementation ofthe IPS initiative; (ii) establishmentinline ministriesof a StandingCommittee on Strategy, Budgetingand Integration; and (iii)bringingresponsibilityinline ministriesfor sector levelpolicy, programand budgetplanningwithin a single central department. Establishmentof a PFMreform and developmentcommittee or working group chairedby the MoF to actively engage all stakeholders incoordinatingthe implementation ofthe X X PFMreformagenda underthe IPS. To develop and implement a strategy for addressingcapacity constraints across the PFM system, develop a comprehensiveframework for humanresource management inthe field X of public finance, includingall financial services hnctions: (a) Specific standardized recruitment criteria; (b) Qualificationcriteria andtrainingprogramsbasedon relevant, contemporaryprofessionalcurricula; (c) Specific standardizedjob-descriptions;(d) Legal and other safeguards to appropriately protect staffagainst undue pressures from management or providers of goods and services. Inthe area ofprocurement,there is a needto have more trainers available inPPA, with additionalprofessionalinputprovided by a training Instituteor through a faculty ina university,suchas law or economics, to make it sustainable. -- 4 gradual shift be made from implementationofprojectsthrough autonomousProject Implementation Units(PIUs) toward implementationthrough regular administrative X GOA structures of government.This will strengthenpublic administration, capacity building, and the sustainabilityof interventions. 39 Chapter 3. Summary of Key Recommendarions and Risk Mirigation Action Plan Recommendationand key actions (Relevant indicator/paragraphofthe CFA report) IStrengtheninternal and external accountability for use of funds to ensure greater impact of audits. This implies,first, modernizingand strengtheningof internalaudit and MOFI controlbasedonthe measures set out inthe recentpolicy paper on Public Internal Parliament/ FinancialControl-in particular,to develop and implement comprehensive written procedures for key financial controls inall budget institutionsin line with the Lineministries recommendationmade inthe PublicInternalFinancialControl(PIFC) PolicyPaper of March2005; and second, developingrules and proceduresto formalizeand ensure appropriate follow-up onrecommendationsmade by IAUs and SSA, applicableto all budget institutions. To achieve a stronger and more informedengagement ofParliamentand civil society on PFM, (i) the Organic Budget Law (OBL) to allow additionaltime for discussion revise of the Budget inParliament; (ii) strengthenthe Budget Analysis Unit that has been establishedinthe ParliamentarySecretariat;(iii) ensure moretimely follow-up on external audit reportqueries andrecommendations;and (iv) improvethe presentationof informationon fiscal management andpublic spendingplans and outcomesso that it is morereadilyaccessibleto civil society. Improvecredibility and predictability of budget, and efficiency of budget execution MOF process. To improvebudget preparation, strengthen(a) macroeconomicand fiscal forecasting; (b) budget medium-termfocus and strategic links.l1 To strengthencash management, (i)providemechanismsfor short-term lendingto cover revenueflow fluctuations, (ii) consider extendingthe spendingceilingsfor Budget In'stitutionsbeyondtwo months,(iii) ensure that cashmanagement andbudgetreleases are better matchedto requirementsfor timely implementationof the annual budget plan; (iiv) ensure stricter enforcementof spendingceilingsby issuing clear andtransparent procedures for virement and revisionof annual budgets consistentwith the integrityofthe annualbudget and providingbudgetusers with flexibility inmanagingtheir budgets. To strengthenintegrity of budget execution, (i)focus on completionofthe ongoing modernization ofthe Treasury system, includinglinkage with payroll module; (ii) record contract-relatedcommitments to enable monitoringof and keepingexpenditure arrears undertighter control; (iii) prepareand adopt an action planfor computerization ofthe accountingfunctions ofBudget Institutionsinclose coordinationwith ongoingreforms of the Treasury system. l1Specificallythe PEIRrecommendsgovernmentapproval ofthe initialmacroeconomicframework, strategic medium-term spendingprioritiesand MTBPresource ceilingsat the outset ofthe MTBPpreparation; further development ofthe macro-fiscalforecastingmodel, focusing on the MoF's mainrequirementfor more detailed and betterjustified fiscal forecasts; a greater focus on the outer year MTBPresourceceilingsfor them to providea realistic and credible basisfor medium-termbudgetplanningat sector and agency level; further development of the program-basedbudget classificationinorder to providefor more explicit linkage betweenthe sector strategies and the budget; and improvementof classificationand groupingof capitalprojects given the government'splan change the levelof appropriationfrom programto project. 40 Chapter 3. Summary of Key Recommendationsand Risk Mitigation Action Plan Priority Recommendation and key actions - 0 CJ Implementing (Relevant indicator/ paragraphofthe CFA report) :- E .-J a 5 agency E S .J 3 IB. Procurement Enhance the independenceof the Public Procurement Agency and create an independent complaint review mechanism, the Procurement Review Body (Pillar I X MOF and 11). It is recommendedthat PPA Director and its entire professionalstaff should"inpractice" have the status of a civil servant to avoid political interference. An independent administrative organization, namelythe Public ProcurementReview Body (PPRB), shouldbe establishedwith its members as independentjudges. These members shouldbe professionals,competitively selected and appointedby the Parliament. - Establish a mechanism for preparation of estimatedcost and discontinue the practice of disclosing this estimated cost (Pillar I). This requiresthat Implementing X PPA regulationsshouldestablishamechanismfor preparingthe cost estimate basedon market trend and the earlier provision in implementing regulation ("There shouldhot be upper and lower limits, below or over which the bids will be rejected") shouldbe restoredand cost estimates shouldnot be disclosed inbidnotices. - Improve access to Public Procurement Information (Pillar Iand IV). This requires that PPL and implementingregulationsbe amendedto publish all procurement-related X MOF/ PPA information, including bidnotices, contract awards, and timelinessof complaint review processon apublicly available website. PPA website should containfull information on the complaintsand statusthereof. Website shouldalso containannual statistics on procurement,which shouldbe updated regularly. This can bethe startingpoint for e-procurementin future Improve the quality of technical specificationsas part of bidding Document for goods, works and services (Pillar Iand 111). This requires a comprehensive set of X PPA national standards. - Other improvements neededon Pillar I- Legislative and Regulatory Framework. (i) MOFPPA Strengthenprovisions on use of direct procurementby defming the "force majeure" and "emergency" "urgent" situations; (Article 17 and 19) to prevent its misuse; (ii) Regulate the public utilities separately from other procurement,either as a separate chapter under existing law or separate law; (iii) Improve and strengthenconsulting services provisions to select consultantsnot basedon the lowest price, but basedon qualifications and quality of services. (Article 21). - Other improvements needed on Pillar 111. Level of competence among procurement X MOFPPA staffs to be made consistent with their responsibilities. PPA needs to initiate a dialog within government, particularly with the Departmentof Public Administration (DOPA) to have procurement establishedas a separate career stream inthe civil service, both at central and local government levels. This action shouldbe supportedwith separate job descriptions, qualifications requirements,career structures and salary scales for procurementofficers; (ii)capacity inInternal audit units inthe ministries be strengthened to take over amore active role inassuringthe compliance with Public Procurementprocedures; (iii)SBDs should include an Alternative Dispute Resolution 41 Chapter 3. Summary of Key Recommendations and Risk MitigationAction Plan Priority Recommendationand key actions .- e, d Implementing (Relevantindicator/paragraphofthe CFA report) -5 E2o E c -E agency O 1; C -2 mechanismsuch as arbitration; (iv) moreoutreachprogramsfor the private sector should be organizedto improvetheir capacity inbiddingfor public procurementtender Other improvementsare neededon Pillar IV: (i) Appoint number ofjudges specialized for procurementdispute cases; (ii)Begin e-procurementby publishingall procurement X MOF/ PPA noticesand awardresultsonthe PPA website, which shouldcontainfull information on the complaints andstatus thereof; (iii)Amend PPLshouldto define fraudulent and corruptpractices;(iv) List debarredcompanieson websiteofPPA; and(v) Monitor attempts of misuse ofthe provisions ofthe public procurementlaw (examplesinAnnex 2) and cases of collusion. 42 List of Annexes Listof Annexes Annex 1. ImplementationStatus of2002 CFAA Recommendations Annex 2. Case Examplesfrom SectorsandLessonsLearned Annex 3. AlbaniaPublicProcurementSystemat a Glance Annex 4. NationalCompetitiveBidding-Good PracticeversusActual PracticeinAlbania Annex 5. Commentsfrom Bank's ProcurementLegalDepartmentonthe DraftPublic ProcurementLaw, datedApril 26,2006 Annex 6. List of PersonsMet Annex 7. BibliographyandWebsites 43 E - o .= 0 El'; 75 9x 0 hl .5 1 B0 L* 0 u s sYa a B 0 s 9 Q 3 A............................................. Albania - Country Fiduciary Assessment Update Annex 2: Case Examplesflorn Sectors and Lessons Learnt Annex 2: Case Examplesfrom Sectors and Lessons Learned CaseExample1: Single SourceProcurement inConstructionof RailwayProject(Not Bank- ~ funded) ~ I I !i1 I There is a provisioninthe law where bythe council of Ministers can decide to waive the application of law on a case-by-casebasis.An attempt was madeto award a high-valuecontract ($280 million) for constructionof a railway line linkingDurres, Tiranaandthe airport by Direct Contracting.This j was objectedto by the Bank as beingnot in accordance with the Public Procurement Law and finally 1II not awarded Lessonlearned:the conditionfor use of direct procurement needsto be defined more clearly to ~ prevent its misuse and attempts of "State Capture" to be watched. ~ I Case Example2: PublishingLimit FundsinPurchaseof Electricity During2005, a procuringentity calleda number oftenders to purchase a public utility. This failed due to insufficientnumber of bids(at least 2 bidsas requiredunder PPL for open tenders). Inorder to accommodatethe needsofthis procuringentity, the PPL was amendedthrougha normativeact, (given the emergency situation).The normativeact envisagedremovalof limit fund from the Invitationfor Bids as one ofthe mainreasonsfor failure of repeatedtenders. Though PPL was amendedfor this purposethe new tender failed. Giventhe highneedfor that utility, the Governmentalloweduse of a number of direct procurements.Duringlast tender, seven foreignfirms andone domestic submitted bid but only six ofthe candidates were qualified." The tender commission has decidedto consider valid the offers submitted by six companies only. Since none ofthe bidders offeredprice for total quantity under each lot, the bid evaluationcommission rankedthe offers by pricefor each of the three quarters. The procuringentity will sign contracts with the suppliers basedon the demand, startingwith the bidderthat offeredthe lowestpriceandthen go to the second andthird ranked bidders. The PPL of Albaniatreats public utilities as other goods. Under such conditions, it is advisable that public utilities are not procured as "common" goods but separately, through a directive or a separate chapter inthe PPL. Lessonlearned:Amend Implementingregulationto that requires disclosure of Limit Funds (Estimated Cost) intender notices. To watch incidences of DirectProcurement. I CaseExample 3: ProcurementinLots for Textbooks i Last year the Ministry of Educationand Science organizedthe tender for the purchaseof the textbooks for grades 5,6, 7 and 8 of primary education.The textbooks were procured in lotsdividedby grade for example: one supplier was awardedthe contract for alltextbooks of grade 6. Supplier for grade 6 failed to deliver textbooks on due time, affectingthe program of childrenofthat grade for a considerable partofthe academic year. Lesson is that thoughthey did slicingby lots, the slicingand packagingwas not done properly.Slicingshould have beendone by subject, say mathematics for all ................................................................................................................................................................................................................................................................- grades andthis would notjeopardizethe viability of academic year for that grade. 47 Albania - Country Fiduciary Assessment Update Annex 2: Case Examplesfrom Sectors and Lessons Learnt ............................................................................... .................................................................................................................................................................................................................................. i I........... ...........j j Lessonlearned:To do packagingand slicingof contracts in apracticalway that meetsthe needsof I ~ Ij the users. I j CaseExample4: Splittingof Contracts for Water Enterpriseand DrainageProject Inone ofthe Bank-financedprojectsinAlbania, a reviewwas conductedfor expenditures incurredby the Water enterprise andDrainageBoardsusingGovernment money by following PPL. Itwas found that poor procurement andweak supervisionledto overcharging andwaste of scarce financial resources inthe Ministry ofAgriculture, Foodand Consumer's Protection;Incivilworks the procurementwas split into small contracts andpossiblythere was collusionamongbidders, leadingto contracts over-pricedby about 20 percent comparedto internationallyfunded projects; some ofthe itempurchasedwere procuredwith a priceof more than 9 times of market prices; tenders typically attractedonly 3 bidders; winningbidswere within 98 percent ofthe budgetedamount available and rarely did any bidder win morethan one contract per year; lowestbidswas about 99 percent of the budgetedamount, pointingout possiblecollusionamongbidders. Lessonlearned:Bank shouldbuild capacity inthe administrativeministriesto carry out procurement ~ effectivelyandtransparentlythrough suitabletraining. Cases of collusionto be watched. ~ I CaseExample5: Technical Specificationsfor a JudicialReformProject ~ I ,1 Itwas found in one ofthe World Bank-fundedprojects that for refurbishmentof office premises as part ~ of procurement of furniture several items such as flower vases, paintingswere includedinthe Bill of Quantities.Proper procedure of InternationalCompetitivebiddingwas followedbut technical j standardsand specifications for certain items were not indicatedinthe biddingdocument. I I ; Lessonlearned:Departmentcouldhave madebetter use of credit funds and technical specification i1 should havebeenwritten clearly for all items. There is also a needfor developing technicalstandards for all categories of goods andworks. 48 ........ i! j !ij ijj i ji j 'III! iii P4 0 59a u .................... t Annex 4: Goods Practice Provisionsfor National Competitive Bidding Vs. Status in Albania Annex 4: National Competitive Bidding-Good Practice versus Actual Practice in Albania Good Practice Provision Status in Albania ................................................................................................................................................................................................................................................................ Eligibility Any firm, national or foreign can participate inthe tendering There are no primary or secondary process except ifthe firms are excludedby legal provisions: boycottsknownby law. On corruption chargesprosecutedand found guilty incourt, Companies chargedwith corruption including any appeals process. charges are excludedfrom Prohibition of commercialrelations with the country of the participating in governmenttenders; participant. Companies which are debarredfor a Adherence to the UNSecurity Council Sanctions certainperiod can not participate in tenders; .................................................................................................................................................................................. ment acceptable if all those who wish to Registrationis not arequirementto register (nationals or foreign) can do so at any time before participate inthe bidding accordingto contract award. The registration system shouldnot constitute Albanian legislation abarrier to participation and shouldnot discriminate. Registration shouldnot substitutepublicity inwide circulation media. Registrationmust remain open and accessible during .................................................................................... the bidding proce ................................................................................................................................... ..................................................................................................................................................................................... Publicity ................................................................................... ................................................. Mustadvertiseinanational circulation newspaper or ina For domesticopen tendering, the uniquegovernment web site freely accessible. invitation for bids should be published in at least two newspapersof national circulation. Invitations for bids are also published inPPA website and Public ProcurementBulletin which is published ........................................................................................................................................................................... every 5 days. Prequalflcation ................................................................................................................................................................................................................................................................ All those pre qualified shouldbe invited (except inthe case There are no prequalification official of short lists of consultantswhere pre selection is acceptable lists. All pre qualified firms are or inrestrictedprocurement.) invited to submit tenders at the Criteria shouldbe of the padfail type precisely defined bidding process. Criteria are of padfail type, precisely defined inthe pre- ......................................................................................................................................................................... qualification documents. Associations betweenFrms Firms who wish............................................................................................................................................................................................................... ....................................... ................................................................................................................................................................................. to bidon their own shouldnot be obliged to No mandatorytojoin with national firms. associate with any other firms. ................................................................................................................................................................................................................................................................ BiddinP Minimum 20 days betweenadvertisementand submission. Short Open tendering(domestic)- min 20 time is abarrier to competition. days allowed; Open tendering (international) min 45 days ................................................................................................................................................................................................................................................................ ......................................................................................................................................................................... Restrictedtendering-min 15 days Bids submittedby mail must be acceptedprovided that they meet The law is silent on the mode of bid all the other requirements. submission; in open domestic tenders the bids shouldbe submitted at the time specifiedin BDs, which can be interpretedas that can not be sent through mail (YOU can never be sure when it will 53 Annex 4: GoodsPractice Provisionsfor National CompetitiveBidding Vs. Status in Albania Good Practice Provision Status in Albania arrive); j Ininternationalopentendering, it canbe submittedearlier than the specifiedtime inthe BDs,which means that can be sent ,................................................................................................................................................................................................................................................................ through mail. ..................................................................................................................................................................... , Bids must be openedpublicly. Public openingof bids is stated inthe !...................................................................................................... III PPL (article 31) .................................................................................................. With the exceptionof late bids that shouldbe returnedunopened, Inpracticewhenthere are few bids in all the others must be examinedbefore disqualifying them in small procurement, bids are evaluatedin accordancewith the requirements. presenceof bidders at the time of bid ................................................................................................................................................................................................................................................................ opening and if not qualified are rejected. ............................................................................................................................................................ Preferences shouldbe stated inquantitativepredictable terms. There is no pricepreference envisagedb) Preferencesmust have an adequateeconomicjustification and the law. shouldnot be so large as to become discriminatory or an effective ................................................................................................................................................................................................................................................................ deterrentto competition. Evaluation criteria shouldbe quantifiable inmonetary The PPL stipulatestwo criteria for terms andmust be knownbefore bid submission. contract award: Award criteria must be to the lowest evaluatedresponsive lowest offer; bid. Besteconomically value. Criteria such as to "the most convenient bidto the interest Post qualification as process is not clearlj ofthe government" shouldnot be acceptable. Quantifiable statedinthe law. Inpractice criteria are preferredexcept when technical proposalsare qualifications and technical acceptability to be evaluatedalongwith price and inthe case of of all bids are checked and verified. After consulting services when the use of scored criteria is this, the lowest is selected. ................................................................................................................................................................................................................................................................ acceptable. Bracketing or lottery systems detractfrom economy and rarely Not applicable result in awardto lowest evaluatedbid. They also introduce ................................................................................................................................................................................................................................................................ opacity and stifle the complaintsprocess. ................................................................................................................................................................ Information can be disclosedto those legitimately interestedafter By law the confidentiality of evaluation the evaluationis completed. Dueprotection for proprietary or process is regulatedthrough a separate confidential financial or other sensitive information must be clause (article 33). Inpractice, one ofthe granted. main problemsis the disclosure of information to biddersduring the ,.................................................................................................................................................................................................................................................................. eva!uati,on.,.~roce.ss ............................................................................................ 1 II Negotiations should only be acceptable inexceptional There are not legislative provisions to circumstancessuch as modifications of scope or risk allocation to allow negotiationswith winning bidder. meet availablefunds. Since in Albania the limit fund i s i disclosed, there are no surprises at the bidding time as all the bids are quoted / ..................................................................................................... closely below the limit fund. / ..................................................................................... .................................................................................................................................................................. Provisions for price adjustmentshouldbe available for contracts There is no legislative provisionfor the Ii of more than one year of duration. price adjustment.Inalmost 90 percentof the cases, the contractsare less than one year, this linkedwith the budgeting and limitations inlegislation for multi-year ................................................................................................................................................................................................................................................................ contracts. ................................................................................................................................................................... Use oftwo envelopes should only be acceptable when price Two-envelope system is not envisaged in envelopes are submittedafter the technical evaluationhas been the PPL or other regulationsand is not concludedand notifiedto participantsor when priced envelopes used. .............................................................................................................................................................................................................................................................. are kept secure in a separate place. 54 Annex 5: Commentsfrom Bank's Procurement Legal Department on the ProposedDraft Public Procurement Law Annex 5. Comments from Bank's ProcurementLegalDepartmenton the Draft Public ProcurementLaw, DatedApril 26,2006 [Bank's recommendation on the improvements required in the currentpublic procurement laws and implementingregulation is covered in detail under "Actions requiredfor improvement on Legislative and regulatory Framework -Pillar I'in the text of this report.] It appears that Albanian Authorities have implemented some o f our comments without addressing critical issues such as award criteria, types o f procedure, consultant services and requirement o f subcontracting. On the other hand, other modificationshave been introduced that were not necessarily justified such as the removal o f "competitive dialogue". Ina nutshell the issues that have been addressed inthis new version: i. Frameworkagreementsdonotappearanymoreinthisnewversion ii. Secretcontractsarenowlimitedinscope iii.ThefunctionsofthePublicProcurementAuthorityhavebeenrevisedtoavoidaconflictof interest situation iv. Non-discrimination is no more based only on nationality v. Shorter time-limit for bid submission has been reviewed vi. "debarment commitment" in lieu o f a tender security has been removed This new version did not modify the following aspectsthat should have been revised to ensure a modern, transparent and fair procurement regulatory framework: i. Openprocedureisnotthestandardpreferredmethodofprocurement ii. Theuseofrestrictedprocedureisnotlimitedbyspecificconditions;art.24.2 apparentlymix the notion o f restricted procedure and pre-qualification iii. Conditionsattachedtotheuseofnegotiatedproceduremayleadtoabusivepractices iv. Designcontest is not limited to esthetical projects v. Official lists o f pre-qualifiedfirms have beenmaintained vi. Award criteria is still either the "lowest price'' or the "most economically advantageous tender" and not the "lowest responsive evaluated bid" vii. Award criteria include criteria such as esthetic and environmental considerations without consideration for criteria expressed in monetary terms or padfail requirements viii. It is still unclear ifaward is notified to unsuccessfulbidders ix. Subcontracting o fthird parties may still be imposed by contracting authorities. Albania - Country Fiduciary Assessment Update Annex 6: List of PeopleMet Annex 6: List of PersonsMet I .......................................................................................................................... KlodianaCankja ' PublicProcurementAgency i ).. Ii............................................................................................................................. I................................................................................................................................................................................................................................................................) ................................................................................................................................................................................................................................................................ LoretaKrriqi ~ PublicProcurementAgency I................................................................................................................................................................................................................................................................¼ I PublicprocurementAgency ~ GretaPagria II.................................................................................................................................. III Advisor to PrimeMinister FatbardhKadilli I Ii / ................................................................................................................................................................................................................................................................? NeritanSejamini j ! ................................................................................................................................................................................................................................................................· Advisor to PrimeMinister .......................................................................................................... EUDelegation,Albani ~ ................................................................................ .......................................................................................................... I! ....................................................................... -.I EUDelegation?.................................. ........................ Albani ...................................................................... 1 I DavidThommon I USAID.Albania ii I! SuzanaCullufi II USAID,Albania USAID Albania / .......................................................................................................................... .................................................................................................................................................................................................................................... .ij Ii.................................. SokolAliko ................................................................................................................................ 2................................................................................................................................................................................................................................................................ i ! i ............................................................................................................................... !!................................................................................................................................................................................................................................................................> ErmiraMitrushi TrainingInstitutefor PublicAdministration III FatmirDemneri ! i ............................................................................................................................. ............................................................................................................................ ................................................................................................................................................................................................................................................................A LiamHeaven CONFIRMEC-CARDS Company 1! CONFIRMEC ! William O'Brian II,II ~ :................................................................................................................................................................................................................................................................3 TrainingInstitutefor PublicAdministration / ! CONFIRMEC !i ! ~................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................ Iii/ .............................. i Zamira Caushaj..................................................... I................................................................................................................................................................................................................................................................= MinistryofEducationand Science I ~ : II EdiVesho !j / ................................................................................................................. .j............................................................ ! Ministry of Health ! !1.............................................................................................................................. 1 AgronTavo ./ AlbanianCenter for MediationandArbitration ..........i Ii..................................................................................................................... Agron Tyli [Ministry................................................................................................................................................................................................................................................................ of publicWorks, TransportandTelecommunications i! ~ ~ ......................................... ........................................................................................ ....................................................................... j............................................................................................................................ I!................................................................................................................................................................................................................................................................< JulianaParangoni KESH / I PjeterBeleshi 1 ............................................................................................................... ................................................................................................................................................................................................................................................................) II Supreme StateAudit !! ,1............................................................................................................................. I................................................................................................................................................................................................................................................................; ElvanaTivari Supreme StateAudit I AuronPasha I IDRAWGO) ~ !! I Nikoleta Lilo ................................................................................................................................ ................................................................................................................................................................................................................................................................- ~ /.... ......................... .................. !j 56 Albania -Country Fiduciary Assessment Update Annex 7: Bibliography and Websites Annex 7: Bibliographyand Websites 1) Public Expenditure and Financial Accountability http://www.pefa.org/about test.htm 2) Good practices paper (DAC Guidelines and reference series on strenghtening procurement capacities indeveloping countries, volume 3) www.oecd.org/dac/harmonisinguractices) 3) OECD-DAC-World Bank Joint Workshop at Manila, February 2006 http://www.oecd.orddocumentll0/0,2340,en 2649 19101395 36228106 1 1 1 1.00.html 4) PPA website www.apu.gov.al 5) Transparency International Corruption Perception Index 2005: httu://www.transparencv.ord 6) Governance Matters IV: Governance Indicatorsfor 1996-2004, World Bank Institute, May 2005 http://www.worldbank.ordwbi/governance/govdata/ 7) Corruption in Albania-Perception and Experience (Survey 2005)--a report by Casals and Associates and Institutefor Development Research and Alternatives 57