Page 1 The World Bank 1 818 H Street N.W. (202) 477-1234 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS CONFORMED COPY August 5, 2003 Mr. V. Khachatryan Minister of Finance and Economy Ministry of Finance and Economy 1, Government House Yerevan 375010 Republic of Armenia Re: Grant for Technical Assistant to Strengthen Procurement Reform IDF Grant No. TF052434 Dear Mr. Minister: I am writing on behalf of the International Development Association (IDA) to indicate the IDA’s agreement to make to the Republic of Armenia (the Recipient) a grant in an amount not exceeding two hundred forty seven thousand United States dollars (US$247,000) (the Grant). The Grant is made in response to the Recipient’s request for financial assistance and for the purposes and on the terms and conditions set forth in the Annex to this Letter-Agreement. The Recipient represents, by confirming its agreement below, that it is authorized to contract and withdraw the Grant for the said purposes and on the said terms and conditions. Please note that it is the IDA’s policy to make publicly available this Letter Agreement and any information related thereto, after this Letter Agreement has become effective and the Recipient has given its consent to such disclosure. The Recipient, by countersigning this Letter Agreement, confirms its consent to such disclosure. Please confirm your agreement with the foregoing, on behalf of the Recipient, by signing, dating, and returning to us the enclosed copy of this Letter-Agreement. Upon receipt by IDA of the copy of this Letter Agreement countersigned by you, this Letter Agreement will become effective as of the date on which IDA receives notice of completion of internal approval procedures under the Laws of the Recipient. Very truly yours, INTERNATIONAL DEVELOPMENT ASSOCIATION By: /s/ Donna M. Dowsett-Coirolo Country Director for Armenia South Caucasus Country Unit Europe and Central Asia Region AGREED: REPUBLIC OF ARMENIA By: /s/ Vardan Khachatryan Title: Minister of Finance and Economy Date: October 1, 2003 Page 2 - 2 - ANNEX Purposes, Terms, and Conditions of the Grant 1. Purposes and Activities 1.1. The purpose of the Grant is assist the Recipient through its Procurement Process Regulating and Budgeting Process Methodology Department (PPRBPMD) of the Ministry of Finance and Economy (MOFE) to promote an improved public procurement system. The activities (the Activities) for which the Grant is given are as follows: (a) Introduction of an information technology (IT) based management system and assistance in the field of preparation of catalogues containing technical specifications for common goods, works and services, that are subject to periodic procurement; (b) Conducting a full needs and cost analysis to asses the risks and assumptions with regard to the introduction of e-procurement and establish a twinning arrangement with the government of Brazil’s procurement authority to assist in development of initial e-procurement systems of the Recipient; (c) Developing a training strategy and building capacity of procuring entities and bidders through training seminars and design/implementation of a system of accreditation for procurement specialists in the procuring entities of the Recipient; and (d) Review of the draft Arbitration law to gauge its compatibility with the United Nations Center for International Trade Law (UNCITRAL) and train the putative arbitrators and those responsible for administering the arbitration system. 2. Implementation Generally 2.1. The Recipient, through its PPRBPMD of the MOFE shall: (a) carry out the Activities with due diligence and efficiency; (b) promptly provide the funds, facilities, services and other resources required for that purpose; (c) furnish all information covering the Activities and the use of the proceeds of the Grant as IDA shall reasonably request; (d) from time to time exchange views with IDA’s representatives on the progress and results of the Activities; and (e) take all necessary measures required to enable the IDA’s representatives to visit the territory of the Recipient for purposes related to the Grant. Without limitation on the foregoing, the Recipient shall, if IDA shall so request, prepare and furnish to IDA promptly upon completion of the Activities a report, in form and substance satisfactory to IDA, on the results and impact of the Activities. 3. Procurement 3.1. Except as IDA shall otherwise agree, procurement of the consultants’ services and goods required for the carrying out of the Activities and to be financed out of the proceeds of the Grant shall be governed by the provisions of Attachment I to this Annex. 3.2. The Recipient shall ensure that all imported goods to be financed out of the proceeds of the Grant shall be insured against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and that any indemnity for such insurance is payable in a freely Page 3 - 3 - usable currency to replace or repair such goods. The Recipient shall ensure that any facilities relevant to the Activities are at all times operated and maintained in accordance with appropriate practices and that any repairs or renewals of such facilities are promptly made as needed. 4. Withdrawal of Grant Proceeds 4.1. The amount of the Grant shall be credited to an account opened by IDA on its books in the name of the Recipient (the Grant Account), and may be withdrawn therefrom by the Recipient in accordance with the provisions of this Section 4, for expenditures in respect of the reasonable cost of goods and services required for the Activities and to be financed out of the proceeds of the Grant. 4.2. The expenditures for the following Categories of items may be financed out of the proceeds of the Grant and shall be used exclusively in the carrying out of the Activities: % of Amount of the Grant Expenditures Category Allocated (in US$) to be Financed (1) Consultants’ services 110,789 92% for local firms and individuals, 100% for foreign firms and individuals (2) Training 117,736 100% (3) Goods 18,475 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 80% of local expenditures for other items procured _______ locally TOTAL 247,000 For the purposes of this paragraph, the term: (a) “foreign expenditures” means expenditures in the currency of any country other than that of the Recipient for goods or services supplied from the territory of any country other than that of the Recipient; (b) “local expenditures” means expenditures that are not foreign expenditures, provided, however, that if the currency of the Recipient is also that of another country from the territory of which goods or services are supplied, expenditures in such currency for such goods or services shall be deemed to be foreign expenditures; and (c) “training and workshops” means expenditures incurred for in-country training and training through twinning arrangement, including registration fee, translation, travel, per diem and accommodation of participants, trainers and facilitators. Page 4 - 4 - 4.3. Notwithstanding the provisions of paragraph 4.2 above: (a) No withdrawals from the Grant Account shall be made: (i) for payments made for expenditures prior to the date of signature of this Letter Agreement by IDA; (ii) on account of payments for any taxes levied by or in the territory of the Recipient; (iii) on account of expenditures in the territories of any country which is not a member of IDA or for goods produced in or services supplied from such territories; or (iv) for the purpose of any payment to persons or entities, or for any impo rt of goods, if such payment or import, to IDA’s knowledge, is prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations; (b) No withdrawals from the Grant Account shall be made after a date three years from the date of countersignature of this Letter Agreement by the Recipient (the Closing Date). However, withdrawals may be made after the Closing Date for expenditures incurred prior to the Closing Date if the corresponding withdrawal application is received by IDA within four months after the Closing Date, after which time any amount of the Grant remaining unwithdrawn from the Grant Account shall be canceled; and (c) If, in IDA’s opinion, an amount of the Grant allocated to any of the categories in the table in paragraph 4.2 above will be insufficient to finance the expenditures for such category, IDA may, by written notice to the Recipient, reallocate to such category an amount of the Grant then allocated to another category which, in IDA’s opinion, will not be necessary to meet other expenditures. 4.4. When the Recipient shall desire to withdraw any amount from the Grant Account, it shall deliver to IDA a written application for withdrawal of such amount in the form specified by IDA. Withdrawal applications shall be: (a) signed on behalf of the Recipient by the Minister of Finance of the Recipient, or such other person as he or she shall have authorized in writing; and (b) accompanied by such evidence in support of the application as IDA shall reasonably request. Authenticated specimen signatures of the person authorized to sign withdrawal applications shall be provided with the first application bearing his or her signature. Each withdrawal application for an amount of the Grant and its supporting evidence must be sufficient in form and substance to satisfy IDA that the Recipient is entitled to withdraw such amount from the Grant Account and that such amount is to be used in the carrying out of the Activities. IDA shall pay the amounts withdrawn by the Recipient from the Grant Account only to or on the order of the Recipient. 4.5. To facilitate the carrying out of the Activities, the Recipient may open and maintain a special deposit account (the Special Account) in U.S. dollars in a bank on terms and conditions satisfactory to IDA, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Attachment II to this Annex. 4.6. IDA may require that withdrawals from the Grant Account be made on the basis of statements of expenditure for expenditures for: (a) services of consulting firms costing less than the equivalent of US$50,000 each; (b) services of individual consultants costing less than the equivalent of US$20,000 each; (c) goods; and (d) training/workshops, all under such terms and conditions as IDA shall specify by notice to the Recipient. 4.7. Withdrawals of the proceeds of the grant shall be made in U.S. dollars. However, IDA, at the Recipient’s request and acting as an agent of the Recipient, shall purchase with U.S. dollars withdrawn from the Grant Account such currencies as shall be required to pay for expenditures to be financed out of the proceeds of the Grant. Whenever it shall be necessary, for the purposes of Page 5 - 5 - this Letter Agreement, to determine the value of one currency in terms of another, such value shall be as reasonably determined by IDA. 5. Accounts and Audits 5.1. The Recipient shall: (a) maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound accounting practices the resources and expenditures related to the Activities, including records and accounts for all expenditures with respect to which withdrawals from the Grant Account were made on the basis of statements of expenditure; (b) retain, until at least one year after the date on which the last withdrawal from the Grant Account was made, all records and accounts referred to in subparagraph (a) above, including records (contracts, orders, invoices, bills, receipts and other documents) evidencing expenditures with respect to which withdrawals from the Grant Account were made on the basis of statements of expenditure; and (c) enable IDA’s representatives to examine such records and accounts and furnish to IDA such other information concerning said records and accounts as IDA shall from time to time reasonably request. 6. Suspension and Cancellation 6.1. IDA may at any time, by notice to the Recipient, suspend the right of the Recipient to make further withdrawals from the Grant Account if any of the following events has occurred and is continuing: (a) funds withdrawn shall not have been used for the purpose agreed between the Recipient and IDA; (b) the Activities shall not have been carried out in accordance with the standards or methods agreed between the Recipient and IDA; (c) the Recipient has failed to comply with any of the obligations herein specified; or (d) the right of the Recipient, or any other entity to which IDA has made a loan with the guarantee of the Recipient, to make withdrawals under any loan agreement with IDA or any development credit agreement with the International Development Association shall have been suspended. 6.2. IDA may, by notice to the Recipient, terminate the right of the Recipient to make further withdrawals from the Grant Account and shall cancel any amount of the Grant remaining unwithdrawn: (a) at any time after withdrawals from the Grant Account shall have been suspended pursuant to the provisions of paragraph 6.1 above; or (b) if the Recipient shall have failed to take action, satisfactory to IDA, regarding the implementation of the Activities within seven months after the notification by Bank to the Recipient of the approval of the Grant. Page 6 - 6 - Attachment I Procurement Section I . Consultants’ Services Part A : General Consultants’ services shall be procured in accordance with the provisions of Sections I and IV of the “Guidelines: Selection and Employment of Consultants by World Bank Borrowers”, published by the Bank in January 1997 and revised in September 1997, January 1999 and May 2002 (the Consultant Guidelines), paragraph 1 of Appendix 1 thereto, Appendix 2 thereto, and the following provisions of this Section. Part B : Procedures for the Selection of Consultants 1. Selection Based on Consultants’ Qualifications Services for activities under paragraphs 1.1 (a), (b), (c) and (d) of the Annex estimated to cost less than US$100,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3.1 and 3.7 of the Consultant Guidelines. 2. Individual Consultants Services of individual consultants for activities under paragraph 1 (a), (b), (c) and (d) of the Annex shall be procured under contracts awarded in accordance with the provisions of paragraphs 5.1 through 5.3 of the Consultant Guidelines. 3. Single Source Selection Services for individual consultants for conducting the study of full needs and cost analysis of e-procurement system and guide the e-procurement twinning arrangement under paragraph 1.1 (a) and (c) of the Annex estimated to cost less than US$50,000 equivalent per contract, may, with IDA’s prior agreement, be procured in accordance with the provisions of paragraphs 3.8 through 3.11 of the Consultant Guidelines. Part D : Review by IDA of the Selection of Consultants 1. Selection Planning A plan for the selection of consultants, which shall include contract cost estimates, contract packaging, and applicable selection criteria and procedures, shall be furnished to IDA, for its review and approval, prior to the issuance to consultants of any requests for proposals. Selection of all consultants’ services shall be undertaken in accordance with such selection plan as shall have been approved by IDA. Page 7 - 7 - 2. Prior Review (a) With respect to each contract for the employment of consulting firms estimated to cost the equivalent of US$50,000 or more, the procedures set forth in paragraphs 2, 3 and 5 of Appendix 1 to the Consultant Guidelines shall apply. (b) With respect to each contract for the employment of individual consultants estimated to cost the equivalent of US$20,000 or more, the report on the comparison of the qualifications and experience of candidates, and the terms of reference and terms of employment of the consultants shall be furnished to IDA for its prior review and approval. The contract shall be awarded only after said approval shall have been given. The provisions of paragraph 3 of Appendix 1 to the Consultant Guidelines shall also apply to such contracts. 3. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Consultant Guidelines shall apply. Section II . Procurement of Goods Goods shall be procured: (a) in accordance with the provisions of Section I of the “Guidelines for Procurement under IBRD Loans and IDA Credits” published by the Bank in January 1995 and revised in January and August 1996, September 1997 and January 1999 (the Guidelines); and (b) under contracts awarded on the basis of shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. The review procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply to such contracts, provided that the word “bids”, in such paragraph 4, shall be read as “quotations”. Page 8 - 8 - Attachment II Special Account 1. For the purposes of this Attachment: (a) the term “eligible categories” means the categories set forth in paragraph 4.2 of the Annex to this Letter-Agreement; (b) the term “eligible expenditures” means expenditures in respect of the reasonable cost of goods and services required for the Activities and to be financed out of the proceeds of the Grant; and (c) the term “Authorized Allocation” means the amount of US$50,000 to be withdrawn from the Grant Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Attachment II. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Attachment. 3. After IDA has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) The Recipient shall furnish to IDA a request or requests for a deposit into the Special Account of an amount or amounts which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, IDA shall, on behalf of the Recipient, withdraw from the Grant Account and deposit into the Special Account such amount or amounts as the Recipient shall have requested. (b) (i) For replenishment of the Special Account, the Recipient shall furnish to IDA requests for deposits into the Special Account at such intervals as IDA shall specify. (ii) Prior to or at the time of each such request, the Recipient shall furnish to IDA the documents and other evidence required pursuant to paragraph 4 of this Attachment for the payment or payments in respect of which replenishment is requested. On the basis of each such request, IDA shall, on behalf of the Recipient, withdraw from the Grant Account and deposit into the Special Account such amount as the Recipient shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by IDA from the Grant Account under the eligible category(ies), and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Recipient out of the Special Account, the Recipient shall, at such time as IDA shall reasonably request, furnish to IDA such documents and other evidence showing that such payment was made exclusively for eligible expenditures. Page 9 - 9 - 5. Notwithstanding the provisions of paragraph 3 of this Attachment, IDA shall not be required to make further deposits into the Special Account: (a) if, at any time, IDA shall have determined that all further withdrawals should be made by the Recipient directly from the Grant Account; (b) if, at any time, IDA shall have notified the Recipient of its intention to suspend in whole or in part the right of the Recipient to make withdrawals from the Grant Account pursuant to the provisions of paragraph 6.1 of the Annex to this Letter-Agreement; or (c) once the total unwithdrawn amount of the Grant shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Grant Account of the remaining unwithdrawn amount of the Grant shall follow such procedures as IDA shall specify by notice to the Recipient. Such further withdrawals shall be made only after and to the extent that IDA shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If IDA shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Attachment; or (ii) was not justified by the evidence furnished to IDA, the Recipient shall, promptly upon notice from IDA: (A) provide such additional evidence as IDA may request; or (B) deposit into the Special Account (or, if IDA shall so request, refund to IDA) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless IDA shall otherwise agree, no further deposit by IDA into the Special Account shall be made until the Recipient has provided such evidence or made such deposit or refund, as the case may be. (b) If IDA shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Recipient shall, promptly upon notice from IDA, refund to IDA such outstanding amount.